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  • Tue, Oct 13 2009
  • 5:24 PM » JPMorgan Proposes More 'Extend and Pretend' for Mortgage Modifications
    Published Tue, Oct 13 2009 5:24 PM by Calculated Risk Blog
    From an article by Jody Shenn and Dawn Kopecki on Bloomberg: Banks will push the Obama administration to expand its mortgage-modification program to allow interest-only periods on reworked loans ... while recognizing concern that it may only postpone defaults, according to JPMorgan Chase & Co. “We’re working with our peers to develop a proposal to present,” Douglas Potolsky, a senior vice president at JPMorgan’s Chase home-loan unit, said yesterday at a Mortgage Bankers Association conference in San Diego. This is simply more extend and pretend, and only postpones defaults. The article also has some comments from Laurie Anne Maggiano, director of the Treasury’s policy office for homeownership preservation. Maggiano acknowleges that only "a couple thousand" modification are now permanent, and she notes that the trial period has been extended an extra two months (I guess a disappointing number of trial modifications are becoming permanent). The key numbers to track going forward will be the number of permanent modificatons, and the redefault rate for permanent modifications. So far it is "a couple thousand" and too early to say. The article also quotes Maggiano on the short sale initiative that should be announced next week. Housing Wire has more: The Chief of the Homeowner Preservation Office at the Treasury, Laurie Maggiano, released information on the Home Affordable Foreclosure Alternatives (HAFA) while speaking at the MBA’s 96th Annual Convention going on in San Diego. The official launch is expected in the next week or so. ... Maggiano adds that HAFA will offer financial incentives to both servicers and borrowers, and associated secondary investors, in order to facilitate a short sale or deed in lieu of the property.
    Click Here to Read the Full Article

    Source: Calculated Risk Blog
  • 5:23 PM » DataQuick: SoCal home sales "inch up"
    Published Tue, Oct 13 2009 5:23 PM by Calculated Risk Blog
    From DataQuick: Last month 21,539 new and resale houses and condos sold in Los Angeles, Riverside, San Diego, Ventura, San Bernardino and Orange counties. That was up 0.2 percent from 21,502 in August and up 5.1 percent from 20,497 a year earlier, according to MDA DataQuick of San Diego. September marked the 15th month in a row with a year-over-year sales gain, although last month’s was the smallest of those increases. ... The small uptick in September sales from August was atypical. On average, sales have fallen 9.5 percent between those two months. ... “There were more than just normal, seasonal forces at work in these September sales numbers. More attempts at short sales, which typically take longer, and new appraisal rules no doubt delayed some deals this summer, causing them to close in September rather than August. September probably also got a boost from people opting to buy sooner rather than later to take advantage of the federal tax credit for first-time buyers , which is set to expire next month,” said John Walsh, MDA DataQuick president. ... Foreclosure resales – houses and condos sold in September that had been foreclosed on at some point in the prior 12 months – made up 40.4 percent of all Southland homes resold last month. That was down slightly from a revised 41.7 percent foreclosure resales in August and down from a high of 56.7 percent in February this year. ... A common form of financing used by first-time buyers in more affordable neighborhoods remained near record levels. Government-insured FHA mortgages made up 36.4 percent of all home purchase loans last month ... Foreclosure activity remains high by historical standards. emphasis added Although DataQuick doesn't track short sales, we can estimate from the that another 15% or so of sales in SoCal were short sales - so probably over half the sales are distressed. This report suggests sales were strong in September - similar to other regional reports. We will probably see a decrease in year-over...
    Click Here to Read the Full Article

    Source: Calculated Risk Blog
  • 3:24 PM » FDIC’s Bair: Bank Failures to Continue at a Pretty Good Clip Through 2011
    Published Tue, Oct 13 2009 3:24 PM by wallstreetpit.com
    Bank failures are going to continue at a fairly strong rate, FDIC Chair Sheila Bair told CNBC. Amid speculation that the FDIC might need to ask the Treasury Dept. for help covering insured deposits, Bair said “I never say never” about borrowing from Treasury but hope to avoid it....
    Click Here to Read the Full Article

    Source: wallstreetpit.com
  • 3:23 PM » The Fed: Recovery won't be V-shaped, Kohn forecasts
    Published Tue, Oct 13 2009 3:23 PM by Market Watch
    The economy recovery will be moderate and not a quick snap-back commonly referred to as a V-shaped growth path, says Donald Kohn, the vice-chairman of the Federal Reserve Board.
  • 3:22 PM » Earnings Preview: J.P. Morgan
    Published Tue, Oct 13 2009 3:22 PM by Seeking Alpha
    J.P. Morgan () is expected to report Q3 earnings on Wednesday, October 14 before the market opens, with a conference call scheduled for 9 am ET. Guidance Analysts are looking for EPS of 49c on revenue of $24.81B. The consensus range is 32c-65c for EPS and $22.90B-$26.34B for revenue, according to First Call.
    Click Here to Read the Full Article

    Source: Seeking Alpha
  • 3:21 PM » Whitney’s Goldman Downgrade: Why She Did It
    Published Tue, Oct 13 2009 3:21 PM by Seeking Alpha
    submits: Meredith Whitney downgraded Goldman Sachs () from ‘buy’ to ‘neutral’ today. Previously, Goldman had been her only buy recommended stock, all of the others rated neutral or ‘sell.’ Why did she do it? :
    Click Here to Read the Full Article

    Source: Seeking Alpha
  • 3:20 PM » BoA Struggles With Loan Modifications
    Published Tue, Oct 13 2009 3:20 PM by Realtor.Org
    Only 11 percent of Bank of America's delinquent borrowers eligible for the Making Home Affordable were able to refinance, despite the lender's efforts to approve more cases.
  • 3:20 PM » Global Housing Prices Increase
    Published Tue, Oct 13 2009 3:20 PM by Realtor.Org
    The Knight Frank Global House Price Index reported that housing prices rose in 50 percent of countries tracked by the quarterly paper.
  • 3:20 PM » Homeownership Still A Good Investment
    Published Tue, Oct 13 2009 3:20 PM by Realtor.Org
    Financial advisors say owning a home is still a wise financial decision.
  • 1:46 PM » CRE in San Diego, Orange County and Las Vegas: Higher Vacancy Rates, Lower Rents
    Published Tue, Oct 13 2009 1:46 PM by Calculated Risk Blog
    Voit released today for CRE in Las Vegas, San Diego and Orange County. The reports show the vacancy rates are up and lease rates falling. It also shows new construction has slowed sharply. Here are a couple of graphs for Orange County and San Diego. We are seeing a similar pattern nationwide ... Click on graph for larger image in new window. This graph shows the annual Orange County office vacancy rate and new construction since 1988. See for more. Note that in the previous slumps, office construction didn't pick up until the vacancy rate dropped below 10%. From the Voit report: Net absorption for the county posted a negative 438,803 square feet for the third quarter of 2009 , giving the office market a total of 1.92 million square feet of negative absorption for the year. ... The average asking Full Service Gross (FSG) lease rate per month per foot in Orange County is currently $2.24, which is a 16.73% decrease over last year’s rate of $2.69 and five cents lower than last quarter’s rate. ... Total space under construction checked in at 166,455 square feet at the end of the third quarter, which is less than half the amount that was under construction this same time last year. emphasis added The second graph is for San Diego. The dynamics are similar, but absorption is slighly positive in San Diego. : Net absorption for the county posted a positive 346,030 square feet for the third quarter of 2009, giving the office market a total of 653,537 square feet of positive absorption for the year. ... The average asking Full Service Gross (FSG) lease rate per month per foot in San Diego County is currently $2.39, which is a 12.8% decrease over last year’s rate of $2.74 and eight cents lower than last quarter’s rate. The record high rate of $2.76 was established in the first and second quarter of 2008. Once again, investment in new office space will probably not increase until the vacancy rate is below 10%. Although Voit didn't provide a similar graph for Las Vegas, the...
    Click Here to Read the Full Article

    Source: Calculated Risk Blog
  • 1:46 PM » Banks and Delinquent Borrowers: The Chickens Are Coming Home to Roost
    Published Tue, Oct 13 2009 1:46 PM by Seeking Alpha
    submits: A progress report released last week by the Treasury Department showed that only 11 percent (about 95,000) of Bank of America's () delinquent borrowers who were potentially eligible for the program had been given a loan modification. That compares with 27 percent, or 117,000, for J.P. Morgan Chase, and 33 percent, or 68,000, at Citigroup, the Treasury reported. The figure for Saxon Mortgage Services, which is owned by Morgan Stanley, is 41 percent, or 32,000.
    Click Here to Read the Full Article

    Source: Seeking Alpha
  • 12:44 PM » Mortgage Bankers: What Happens When Fed Stops Buying?
    Published Tue, Oct 13 2009 12:44 PM by CNBC
    Posted By: It's my favorite time of year again. The air is crispy, the leaves are crackly, and the mortgage bankers are crunching numbers once more at their annual convention here in San Diego. Topics: | | Sectors: | Companies: | MEDIA:
  • 12:44 PM » A Dismal Commercial Market Recovery
    Published Tue, Oct 13 2009 12:44 PM by Realtor.Org
    The commercial market is still plagued by job losses and property vacancies, according to a report released by the Mortgage Bankers Association.
  • 10:11 AM » CIT debt swap struggles, bankruptcy looms
    Published Tue, Oct 13 2009 10:11 AM by Reuters
    NEW YORK (Reuters) - CIT Group Inc is seeing little interest from bondholders in a debt exchange offer aimed at repairing its fragile balance sheet, making bankruptcy increasingly likely, sources familiar with the matter said.
  • 10:10 AM » Healthcare overhaul poised for big step forward
    Published Tue, Oct 13 2009 10:10 AM by Reuters
    WASHINGTON (Reuters) - U.S. President Barack Obama's push for sweeping healthcare reform was poised to clear a key Senate hurdle on Tuesday, opening a new phase in the raging debate over his top domestic priority.
  • 10:09 AM » Economists Discuss the Impact of the Stimulus on our Recession
    Published Tue, Oct 13 2009 10:09 AM by Google News
    Summary: The US economy continues to slow, albeit the rate of decay has slowed. But the net damage is severe and a recovery soon is imperative — or more “black swans” will appear. This is the third in a series of posts about the effects of basic automatic stabilizers on the economy during this recession. , 14 July 2009 , 5 October 2009 The stimulus programs were mis-sold to the public, since our ruling elites (”both” parties) are compulsive liars. Government aid cannot end recessions. It serves only to mitigate the downturn and reduce the inevitable suffering. The heavy lifting among these tools results from unemployment aid, Medicaid, and food stamps — focused on those that have suffered loss of income. This post gives some reviews of the performance of these programs during the past few months, in the context of the overall stimulus package. Contents This is a broad sample of analysis about this important question, not a complete listing. Views of economic advisors to Bush and John McCain Other economists’ views Analysis by the Council of Economic Advisors Posts about solutions to this crisis Afterword (1) Views of economic advisors to Bush and John McCain (a) Excerpt from , 7 August 2009: Republicans are pushing back hard against today’s unemployment report, which showed a lowerr-than-expected 247,000 new jobless and the overall unemployment rate falling 0.1 points to 9.4% . Former McCain campaign economic adviser Douglas Holtz-Eakin spoke to reporters on a Republican National Committee-sponsored call to make the wonk’s case against reading too much into the report. “No real earnings growth in this report that would suggest sustained upward growth in this economy,” Holtz-Eakin said. “It cannot be considered good news that people left the labor force. If not for that, the unemployment rate might have creeped up to 9.6%, is my guess.” Holtz-Eakin challenged Democratic rhetoric about the effect their policies have had in mitigating economic problems, though he allowed...
  • 10:08 AM » Currency Depreciation and Global Imbalances
    Published Tue, Oct 13 2009 10:08 AM by Google News
    The US trade deficit unexpectedly narrowed in August, according to the Commerce Department in a released yesterday. Exports were up slightly and imports down, mostly because of a reduction in oil imports, I think, but the trade deficit was still a hefty 3.6% of GDP. So does this mean that the rebalancing is grinding forward? Today’s New York Times is appropriately : “Officials cannot just sit there and do nothing, and expect the rebalancing to continue,” said C. Fred Bergsten, director of the Peterson Institute for International Economics. Indeed, American consumers are already showing hints of their old fondness for shopping rather than saving. The household saving rate shot up from less than 1 percent before the crisis to more than 5 percent this spring, but it has since slipped back to less than 4 percent. In the early 1990s, American families were saving about 7 percent of their income — and even that was less than in much of Asia and Europe. Simon Johnson, a professor of economics at the Massachusetts Institute of Technology, said it was normal for a country’s trade balance to improve during an economic downturn. “The adjustment we’re seeing right now could be the harbinger of a real adjustment in saving and spending, but we don’t know yet,” Mr. Johnson said. “People in emerging markets want to run big surpluses, because they want to build up reserves.” There clearly still is a long way to go if the US is really going to raise its savings rate to some sustainable level, and I am afraid that part of the necessary policies that will lead there will cause a lot of disruption and conflict. Basically in order to raise the savings rate the US needs to enact policies that are similar in spirit to the policies that China has enacted especially during the past decade – and of course which China now needs to reverse. These involve putting into place conditions that spur output growth and constrain consumption growth. The difference between the two, of course, is the savings...
  • 10:08 AM » Report: CIT Nears Bankruptcy, CEO to Resign
    Published Tue, Oct 13 2009 10:08 AM by Calculated Risk Blog
    From Reuters: . Reuters is reporting that "sources familiar with the matter" say bondholders are showing little interest in the debt exchange offer and a bankruptcy is now more likely. Also this morning CIT that CEO Jeffrey Peek is resigning effective Dec 31st. The possible bankruptcy of CIT is a major concern because CIT provides financing for about one million small businesses. And small businesses are already having trouble obtaining credit. From Peter Goodman in the NY Times: Many small and midsize American businesses are still struggling to secure bank loans, impeding their expansion plans and constraining overall economic growth ... Most banks expect their lending standards to remain tighter than the levels of the last decade until at least the middle of 2010, according to a survey of senior loan officers conducted by the Federal Reserve Board. ... Bankers worry about the extent of losses on credit card businesses ...[and] are also reckoning with anticipated failures in commercial real estate. Until the scope of these losses is known, many lenders are inclined to hang on to their dollars rather than risk them on loans to businesses in a weak economy ... Also see: A CIT bankruptcy will probably lead to even tighter credit for many small businesses exacerbating the current credit situation.
    Click Here to Read the Full Article

    Source: Calculated Risk Blog
  • 7:51 AM » Fed's Bullard: Falling Unemployment Rate "Prerequisite" for Rate Increase
    Published Tue, Oct 13 2009 7:51 AM by Calculated Risk Blog
    Usually this would be a "duh", but with some of the Fed talk recently, this is worth noting ... From Bloomberg: ...“You want some jobs growth and unemployment coming down. That is a prerequisite” for an increase in interest rates, Bullard said. “It doesn’t mean you need unemployment all the way down to more normal levels.” ... Bullard, referring to a prior jobless rate of 10.8 percent, said “I don’t think we will quite hit the peak we hit in 1982, but things have surprised us before.” ... “I’m the north pole of inflation hawks,” Bullard said. “But we are trying to describe optimal policy, some optimal outcomes in an environment where inflation is below target -- we have an implicit target of 1.5 to 2 percent -- and you have the specter of a Japanese-style outcome, which I have worried about and some other members of the FOMC have worried about.” ... “It is a little disappointing that private-sector economists are thinking so much about when we are going to move our fed funds rate up,” he said. “We are at zero. We are going to be there awhile. The focus should be more on” the Fed’s asset purchase program. As Paul Krugman this weekend, we are a long way from when the Fed will raise rates.
    Click Here to Read the Full Article

    Source: Calculated Risk Blog
  • 7:50 AM » CBRE: Retail Cap Rates Increase Sharply in Q3
    Published Tue, Oct 13 2009 7:50 AM by Calculated Risk Blog
    From CB Richard Ellis: Ending at 8.71%, cap rates were up again. The 59 basis point gain is the largest quarterly increase we have ever measured , even trumping last quarter's previous record. emphasis added Click on graph for larger image in new window. This graph from CBRE shows the retail cap rate since 2003. Note that 2009 is an average of Q1 through Q3, and the cap rate in Q3 was at 8.71% - above the 2003 annual level . Sharply higher vacancy rates, lower rents, reduced leverage and much higher cap rates - this is what Brian calls the "neutron bomb for RE equity"; destroys CRE investors (and lenders), but leaves the buildings still standing. Cap Rate: the net operating income divided by the current value (or purchase price). Net operating income excludes depreciation and interest expenses. Say an investor paid $100 thousand in cash for a retail property, the investor would expect to clear $8,710 in cash per year after expenses with an 8.71% cap rate (the $8,710 is before paying income taxes that depend on financing and depreciation).
    Click Here to Read the Full Article

    Source: Calculated Risk Blog
  • 7:49 AM » Mortgage Modifications and BofA
    Published Tue, Oct 13 2009 7:49 AM by Calculated Risk Blog
    Renae Merle at the WaPo writes about Bank of America's struggles to ramp-up their mortgage modification department: The following section probably requires more explanation: The company was also slow out of the box because it initially took a more conservative approach than some other banks, requiring that borrowers document their income and complete other paperwork before granting preliminary approval for a modification. In August, Bank of America softened the requirement and began authorizing some modifications without getting all the documents first. Read mort_fin notes: "What the article doesn't make clear is that what was changed was the timing of the income documentation, not the level. It used to be the case that bofa required full documentation of income before they would even run the numbers to tell a borrower that they qualified. Now they will give an answer over the phone and start a trial mod, giving the borrower a month or 2 to provide the docs. No docs, no permanent mod. A borrower who can't document their claims gets a month or two of reduced payments before getting kicked out." This is why it will be important to watch the number of permanent modifications over the next few months. The Treasury last week that 500,000 modifications have been started, but the Obama plan had only 1,711 permanent loan modifications as of Sept. 1. That number should increase sharply soon.
    Click Here to Read the Full Article

    Source: Calculated Risk Blog
  • 7:49 AM » On the Cusp of a Fascinating Earnings Season
    Published Tue, Oct 13 2009 7:49 AM by The Big Picture
    Good Evening: The major U.S. stock market averages rose for a sixth straight day today, and the S&P 500 set a new closing high for 2009 in the process. I will first breeze through today’s events before examining what I think could be a fascinating earnings season. Since there are important similarities and differences between this quarter and last, I’ll try to look at the U.S. markets from different angles in search of predictive clues. Fundamentals, technicals, sentiment, and Fed policy all go into the mix, but it will just as important to watch how various stocks REACT to their earnings reports. Whether investors feel forced to “chase performance” into year end, or “lock in performance” by taking profits will likely be the swing variable. Taken as a whole, these reactions will set the tone for how the averages perform during the balance of 2009. During the past two weeks, stocks corrected a bit when the economic data turned squishy and because the Fed threatened to some day cap the gusher of liquidity still flooding the markets. Reaching their nadir on the very day of the nonfarm payrolls release, stocks have since come roaring back. Today’s Columbus Day rally was simply a light volume extension of last week’s upturn. There was no news of significance, including a report by our Department of Homeland Security that Al Queda is still alive and has sympathizers living in our midst. This non news flash coincided with some gentle profit taking this afternoon, but most of the indexes clung to gains by day’s end. The final tally saw the Russell 2000 trail with a fractional loss, while the Dow Transports were today’s best performer after tacking on 0.8% . The bond market was closed, the dollar continued to weaken, and commodities continued to levitate. Led by a 2% gain in crude oil and very firm grain prices, the CRB index rose 1.7% today. Back in early July I noted that the averages went into Q2 earnings season fresh off a correction of nearly 10%. Expectations weren...
    Click Here to Read the Full Article

    Source: The Big Picture
  • 7:49 AM » Quarterly Review and Outlook – Q3 2009
    Published Tue, Oct 13 2009 7:49 AM by The Big Picture
    I look forward at the beginning of every quarter to receiving the Quarterly Outlook from Hoisington Investment Management. They have been prominent proponents of the view that deflation is the problem, stemming from a variety of factors, and write about their views in a very clear and concise manner. This quarter’s letter is no exception, where they once again delve into the history books to bring up fresh and relevant lessons for today. This is a must read piece. Hoisington Investment Management Company () is a registered investment advisor specializing in fixed income portfolios for large institutional clients. Located in Austin, Texas, the firm has over $4-billion under management, composed of corporate and public funds, foundations, endowments, Taft-Hartley funds, and insurance companies. And now let’s jump right in to the essay. John Mauldin, Editor Outside the Box Ponzi Finance The Federal Reserve reported that as of June 30, 2009 total U.S. debt was $52.8 trillion. Total U.S. debt includes government, corporate and consumer debt. Importantly, however, it does not include a few trillion in “off balance sheet” financing, contingent unfunded pension plans for corporate and state and local governments, or unfunded liabilities of the U.S. government for such items as Medicare, Social Security and other programs. Currently GDP stands at $14.2 trillion, so there is approximately $3.73 in debt for every dollar of output in the , a level unprecedented in our history (Chart 1). Normally, debt levels as a percent of GDP would be uninteresting and immaterial; however, the current level of debt is unique in two ways. First, the asset side of the balance sheet purchased by the debt is falling in price. Second, the money that was borrowed to purchase those assets was often fraudulently expended. Neither the borrower nor the lender really expected the debt to be serviced. Rather, each party expected the asset price to rise extinguishing the debt. This type of financial arrangement...
    Click Here to Read the Full Article

    Source: The Big Picture
  • Mon, Oct 12 2009
  • 1:38 PM » NABE Outlook: Recession Is Over, but a Muted Recovery to Follow October 2009
    Published Mon, Oct 12 2009 1:38 PM by www.nabe.com
    “The Great Recession is over,” according to NABE’s latest survey. “The survey found that the vast majority of business economists believe that the recession has ended but that the economic recovery is likely to be more moderate than those typically experienced following steep declines. The NABE panel upgraded the economic outlook for the next several quarters, compared with the previous survey,”said NABE President-elect Lynn Reaser, chief economist at Point Loma Nazarene University. “Following a sharp 6.4 percent (annual rate) contraction in the first quarter of this year and another 0.7 percent drop in the second quarter, NABE forecasters expect real GDP to rise at an above trend 2.9 percent rate in the second half. The more-than-three-year downturn in the housing market is very close to coming to an end, with substantial growth (from a low base) expected for next year. According to the survey, the key areas of concern involve the large increases in federal debt and unemployment rates that are expected to remain very high through next year. The unemployment rate is forecast to rise to 10 percent in the first quarter of next year and edge down to 9.5 percent by the end of 2010. Inflation is expected to remain contained throughout 2010. The good news is that this deep and long recession appears to be over, and with improving credit markets, the U.S. economy can return to solid growth next year without worry about rising inflation.”
  • 1:34 PM » What Does the Psychology of Home Buyers Mean For Prices?
    Published Mon, Oct 12 2009 1:34 PM by The Big Picture
    Future Nobel Laurelate Robert Shiller has an interesting in today’s NYT about a recent shift in the psychology of home buyers. He and Wellesley prof Karl Case conduct an annual survey of what home buyers are thinking: “On average over the next 10 years, how much do you expect the value of your property to change each year?” The average answer among 311 respondents in 2009 was an increase of 11.2%. The median response — with half above, half below — was 5 percent, also high. That sounds rather like bubble thinking.” Its worth noting a few things about surveys in general, and this survey in particular: • Forecasting Failures : Humans are especially bad at forecasting the future. Not only do they lack the skill set to rationally think about the factors impacting prices, they tend to engage in all manner of ; • Zero Objectivity : Asking new homeowners about home prices is a kin to asking a new car buyer about the future reliability of their vehicles as they drive from the dealer. They sure hope its reliable, just as buyers hope prices don’t go down. • Past Failures : Trying to discern future price movements based on surveys of recent buyers is a fatally flawed endeavor. The 2008 Case-Shiller survey had an average expected yearly increase in home values of 9.5% a year — at a time when prices were falling 20% per year. (Median was also 5%) The bottom line is that surveys often reveal more about the questioners and questionees than they do about the subject matter at hand. > Source : ROBERT J. SHILLER NYT, October 10, 2009 http://www.nytimes.com/2009/10/11/business/economy/11view.html
    Click Here to Read the Full Article

    Source: The Big Picture
  • 1:34 PM » Commercial Real Estate Lending Problems Hitting the Smaller Banks
    Published Mon, Oct 12 2009 1:34 PM by Seeking Alpha
    submits: This is my monthly report on bank lending. Last month I reported on the continued absence of the commercial banking industry in loan markets. (See of September 10, 2009, “Bank Lending Stays on the Sidelines”.) Bank lending was still absent during the most recent month, but there now seems to be a significant shift in the commercial banking industry: greater changes seem to be taking place in the smaller banks than we have seen during the current economic crisis. This deterioration in the industry figures coincides with the increasing number of failures that are registering with the Federal Deposit Insurance Corp. (FDIC). This problem made the front page of the on Sunday. And, with more than 400 banks, almost all of them small ones, on the FDIC's list of problem banks, we can expect the number of failures to grow and the bank lending figures to continue to shrink.
    Click Here to Read the Full Article

    Source: Seeking Alpha
  • 10:27 AM » Distressed Sales: Sacramento as Example
    Published Mon, Oct 12 2009 10:27 AM by Calculated Risk Blog
    Note: The Sacramento Association of REALTORS® is now breaking out monthly resales by equity sales (conventional resales), and distressed sales (Short sales and REO sales). I'm following this series (as an example) to see changes in the mix. Click on graph for larger image in new window. Here is the . They started breaking out REO sales last year, but this is only the fourth monthly report with short sales. About 63 percent of all resales (single family homes and condos) were distressed sales in September. The second graph shows the mix for the last four months. Conventional and short sales have held steady, but foreclosure resales were lower in August and September. There are many reports of more foreclosures coming, and the number of foreclosure resales should pick up later this year. Total sales in September were off 18% compared to September 2008; the fourth month in a row with declining YoY sales. On financing, over half the sales were either all cash (25.2%) or FHA loans (27.6%), suggesting most of the activity in distressed bubble areas like Sacramento is first-time home buyers using government-insured FHA loans (and taking advantage of the tax credits), and investors paying cash.
    Click Here to Read the Full Article

    Source: Calculated Risk Blog
  • 8:54 AM » Foreclosures Rise in Housing Top Tiers
    Published Mon, Oct 12 2009 8:54 AM by WSJ
    Foreclosures are rising in the more expensive housing markets, new data suggest.
  • 8:47 AM » Foreclosures Movin' on Up or Euphoria Express?
    Published Mon, Oct 12 2009 8:47 AM by Calculated Risk Blog
    Kind of a weird juxtaposition ... From the WSJ: About 30% of foreclosures in June involved homes in the top third of local housing values, up from 16% when the foreclosure crisis began three years ago, according to new data from real-estate Web site Zillow.com. Meanwhile Jim the Realtor rides the Euphoria Express (mostly at the high end):
    Click Here to Read the Full Article

    Source: Calculated Risk Blog
  • 8:46 AM » More on When the Fed might Raise Rates
    Published Mon, Oct 12 2009 8:46 AM by Calculated Risk Blog
    From Paul Krugman: Let me start with a rounded version of the : Fed funds target = 2 + 1.5 x inflation - 2 x excess unemployment where inflation is measured by the change in the core PCE deflator over the past four quarters (currently 1.6), and excess unemployment is the different between the CBO estimate of the NAIRU (currently 4.8) and the actual unemployment rate (currently 9.8). Right now, this rule says that the Fed funds rate should be -5.6%. So we’re hard up against the zero bound. Suppose that core inflation stays at 1.6% (although in fact it’s almost sure to go lower.) Then we can back out the unemployment rate at which the target would cross zero, suggesting that tightening should begin: it’s an excess unemployment rate of 2.2, implying an actual rate of 7 percent. That’s a long way from here. ... This is all back-of-the-envelope stuff - and maybe NAIRU or core inflation will be a little higher (although I think core inflation might be lower next year because of declining ). If we use Krugman's analysis, and the recent for the average annual unemployment rate (10.2% in 2010, 9.1% in 2011, and 7.2% in 2012), the Fed would not raise rates until some time in 2012. Last month I : Click on graph for larger image in new window. This graph shows the effective Fed Funds rate (Source: ) and the unemployment rate (source: ) In the early '90s, the Fed waited more than a 1 1/2 years after the unemployment rate peaked before raising rates. The unemployment rate had fallen from 7.8% to 6.6% before the Fed raised rates. Following the peak unemployment rate in 2003 of 6.3%, the Fed waited a year to raise rates. The unemployment rate had fallen to 5.6% in June 2004 before the Fed raised rates. Although there are other considerations, since the unemployment rate will probably continue to increase into 2010, I don't expect the Fed to raise rates until late in 2010 at the earliest - and more likely sometime in 2011. Maybe 2011. Or maybe 2012. But talk of a rate hike...
    Click Here to Read the Full Article

    Source: Calculated Risk Blog
  • 8:45 AM » Ivy Zelman on Housing
    Published Mon, Oct 12 2009 8:45 AM by Calculated Risk Blog
    Edward Robinson wrote a recent article for Bloomberg on the rise of independent research: (ht Eyal) One of the analysts featured in the article is Ivy Zelman, formerly at Credit Suisse, and now at Zelman & Associates. Ms. Zelman became an internet favorite when she asked Toll Brothers CEO Bob Toll "Which Kool-aid are you drinking?" on the Q4 2006 Toll Brothers conference call. On Zelman's current view: Many of her clients are clamoring to know whether the market has hit bottom. In terms of prices, she says probably not: One out of three owners has a mortgage worth more than the value of the home, and mounting foreclosures and distressed properties are slated to account for 53 percent of home sales in 2010 compared with 40 percent in 2008, according to Moody’s. “When that inventory hits the market, it’s going to undermine prices,” she says. Although I think prices might have bottomed in some low end bubble areas at the end of 2008, or early 2009 - because of the flood of foreclosures at that time - some of these areas have seen prices increase 10% to 15% since then (according to local reports). This is because of a combination of a buying frenzy associated with the first time home buyer tax credit, and the lack of inventory because of foreclosure delays associated with the trial modifications. It is not unusual for homes in these areas to receive 20, 30 or 50 bids. Even if the first time home buyer tax credit is extended, I think the interest will wane. Meanwhile the banks are preparing to start foreclosing again. The a Bank of America Corp. spokeswoman: "We are going to see a spike from now to the end of the year in foreclosures as we take people out of the running" [for a loan modification]. So I expect prices in the low end areas to decline again (even if the bottom is in). I also expect further price declines in the mid-to-high end bubble areas. Note: this isn't like in 2005 when I thought large price declines were inevitable. House...
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    Source: Calculated Risk Blog
  • 8:44 AM » A Policy: Supporting House Prices
    Published Mon, Oct 12 2009 8:44 AM by Calculated Risk Blog
    “I don’t think it’s a bad thing that the bad loans occurred. It was an effort to keep prices from falling too fast. That’s a policy.” Barney Frank, chairman of the House Financial Services Committee on recent FHA lending, quoted Oct 9th, 2009 in the . "I believe the intent of the FTHB [first time home buyer] credit (and any extensions) is to raise the floor on home prices to delay (and sometimes prevent) defaults, reducing the shock to the financial system." reader picosec in email, Oct 2nd, 2009 And a couple more quotes from an article by Alan Heavens in Philadelphia Inquirer: : "Government intervention to date has been extremely helpful in preventing an even more dramatic decline in home prices." John Burns, real estate industry consultant The housing market "is showing improvement only because it is on government life support." Mark Zandi, Economy.com As Representative Frank notes, the policy of the U.S. appears to be to support asset prices at almost any cost. This includes: The FHA insuring "bad loans" for buyers with a high probability of default. The first-time home buyer tax credit (the FTHB makes no sense from any other economic perspective). Delaying foreclosures, first with moratoriums and then with "trial modifications". We could probably include the Fed buying GSE MBS to lower mortgage rates, and other policies like increasing the "conforming loan" limit to $729,750 in high cost states. Intentionally encouraging loans with high default rates (insured at taxpayer expense), and the FTHB tax credit (especially allowing buyers to use the credit as a down payment) have stimulated demand. And delaying foreclosures has restricted supply. This has had the desired effect of pushing up asset prices, especially at the low end. It is "a policy", but is it a good policy?
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    Source: Calculated Risk Blog
  • 8:43 AM » The coming CRE losses for Local and Regional Banks
    Published Mon, Oct 12 2009 8:43 AM by Calculated Risk Blog
    From Eric Dash at the NY Times: A few numbers from the article: ... About $870 billion, or roughly half of the industry’s $1.8 trillion of commercial real estate loans, now sit on the balance sheets of small and medium-size banks like these, according to an analysis by Foresight Analytics, a research firm. ... And as a group, small banks have written off only a tiny percentage of the losses that analysts expect them to incur. In fact, applying only the commercial real estate loss assumptions that federal regulators used during the stress tests for the big banks last spring, Foresight analysts estimated that as many as 581 small banks were at risk of collapse by 2011. By contrast, commercial real estate losses put none of the nation’s 19 biggest banks, and only about 5 of the next 100 largest lenders, in jeopardy. .... [Gerard Cassidy, a veteran banking analyst] projects that as many as 1,000 small banks will close over the next few years and that their losses will be more severe. “It’s a repeat [of savings and loan crisis] on steroids,” he said. This gives us a ballpark feel for the coming CRE losses. Local and regional banks are exposed to about $870 billion in CRE loans. Not all of the loans will go bad, and the loss severity will be far less than 100%. So the losses may be in the $100 to $200 billion range; small compared to the residential mortgage losses, but still very significant.
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    Source: Calculated Risk Blog
  • 8:42 AM » Banks Reducing Lending to Small Businesses
    Published Mon, Oct 12 2009 8:42 AM by Calculated Risk Blog
    From Rex Nutting at MarketWatch: U.S. banks are reducing their lending at the fastest rate on record ... According to weekly figures provided by the Federal Reserve, total loans at commercial banks have fallen at a 19% annual rate over the past three months, while loans to businesses have dropped at a 28% annualized pace. ... The question is whether the decline in lending will be reversed soon. ... if the decline is mainly due to weak banks unable or unwilling to lend, then a turnaround in credit creation may have to wait until banks' balance sheets are repaired, a process that could be delayed by further expected defaults in consumer loans, mortgages and commercial real-estate loans. There is more on small businesses including excerpts from NY Fed President William Dudley's speech: , and from Atlanta Fed research economist Melinda Pitts: Click on graph for larger image in new window. Graph Credit : Melinda Pitts, Atlanta Fed research economist and associate policy adviser This graph breaks down net job gains and losses by firm size since 1992. During the current employment recession, small firms have accounted for about 45% of the job losses - much higher than during the 2001 recession. Dr. Pitts cautions: Looking ahead, it's not clear whether small businesses will continue to play their traditional role in hiring staff and helping to fuel an employment recovery. However, if the above-mentioned financial constraints are a major contributor to the disproportionately large employment contractions for very small firms, then the post-recession employment boost these firms typically provide may be less robust than in previous recoveries.
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    Source: Calculated Risk Blog
  • 8:41 AM » A CRE News Summary
    Published Mon, Oct 12 2009 8:41 AM by Calculated Risk Blog
    Since this was a busy week for commercial real estate data. Here is a summary: From Bloomberg: Click on graph for larger image in new window. This graph shows the office vacancy rate starting in 1991. Reis is reporting the vacancy rate rose to 16.5% in Q3 from 15.9% in Q2. The peak following the previous recession was 17%. From Reuters: Note: the Reis numbers are for cities. The from the Census Bureau was at a record 10.6% in Q2 2009. From Reuters: Reis reports the strip mall vacancy rate hit 10.3% in Q3 2009; the highest vacancy rate since 1992. And rents are cliff diving ... "[W]e do not foresee a recovery in the retail sector until late 2012 at the earliest." Victor Calanog, Reis director of research And a couple of articles: From the LA Times: From the WSJ:
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    Source: Calculated Risk Blog
  • 8:40 AM » California Controller: "Prepare for more difficult decisions ahead"
    Published Mon, Oct 12 2009 8:40 AM by Calculated Risk Blog
    From California State Controller John Chiang: State Controller John Chiang today released his monthly report covering California’s cash balance, receipts and disbursements in September. For the first three months of the fiscal year, total General Fund revenue was nearly $1.1 billion below the recently amended 2009-10 Budget Act estimates. “ Revenues more than $1 billion under estimates and recent adverse court rulings are dealing a major blow to a budget that is barely 10-weeks old ,” said Controller Chiang. “While there are encouraging signs that California’s economy is preparing for a comeback, the recession continues to drag State revenues down. I urge lawmakers and the Governor to prepare for more difficult decisions ahead .” emphasis added Here are the September 2009 and . Just add this to the pile of state budgets falling short ... From Bloomberg: From Reuters:
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    Source: Calculated Risk Blog
  • 8:39 AM » Stabilization of U.S. Housing Prices
    Published Mon, Oct 12 2009 8:39 AM by Seeking Alpha
    The direction of US home prices continues to be a hotly debated subject. The e-mail on our on the topic keeps coming. Many Armageddon forecasters are too young to have remembered the numerous stresses the US economy and housing have undergone in previous cycles - so this crisis truly feels like the end of the world. And why would you buy a home if the world is ending? There is no question that the housing market continues to be vulnerable in the short term, particularly given the . And if the US government hasn't been involved, one could argue the price declines have more to go. But the politicians and the Fed will go out of their way to stabilize the US housing prices.
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    Source: Seeking Alpha
  • 8:39 AM » Pinto's Testimony on FHA
    Published Mon, Oct 12 2009 8:39 AM by Seeking Alpha
    is a recent House testimony from Ed Pinto (Fannie Mae's chief credit officer back in the 80s) pointing to a potential funding gap at the Federal Housing Administration (FHA). FHA is the government agency that (among other things) provides mortgage insurance to the lenders for home buyers who do not have sufficient downpayment. In some ways the agency also helped contribute to the housing bubble by helping homeowners leverage their home beyond what would be considered prudent.
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    Source: Seeking Alpha
  • 8:39 AM » Rising U.S. Vacancies: Real Estate Is Headed Down
    Published Mon, Oct 12 2009 8:39 AM by Seeking Alpha
    submits: Two pieces of data on U.S. vacancy rates (one commercial, one residential) show in unequivocal terms that house prices are going to continue lower, while the more-recent collapse in commercial real estate will continue to accelerate. The U.S. has just hit its highest rate in 23 years – and is set to continue moving higher with new construction vastly outpacing sales. This guarantees that rent prices will drop (especially in an environment of rising unemployment and falling wages ). It is equally certain that falling rent prices will translate into falling prices for U.S. residential real estate.
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    Source: Seeking Alpha
  • Fri, Oct 9 2009
  • 5:11 PM » HUD Mortgagee Letter 2009-37- Flood Zone Requirements and Responsibilities of FHA Mortgagees and Appraisers
    Published Fri, Oct 09 2009 5:11 PM by www.mortgageprocessor.org
    Written By: Stacey Sprain, Certified Ambassador Loan Processor (CALP) HUD seems to be on a roll lately with issuing Mortgagee Letters as they’ve issued yet another recent communication, dated October 1st, covering the topic of flood zones and flood insurance responsibilities. Flood Certifications Early in the Loan Process- a Must for all Brokers and Bankers HUD’s letter actually brings forth a topic I wish to point out to be taken into consideration by all mortgage brokers and bankers. It’s important that you utilize a flood zone determination vendor within your organization and that you require the pulling of flood certifications early in the processing of each loan application file. It’s not smart to wait for the appraiser or end lender to make the flood determination for the subject property and ultimately the loan requirements for your borrowers. You are doing a major disservice to your customers by not working proactively to determine the flood plain status of the property as soon as possible in the loan process. You may think you’re an expert on knowing whether or not a property is actually zoned to require flood insurance when in fact, unless you have an “in” with the municipality’s building or zoning board or with the Federal Emergency Management Agency (FEMA), you can’t possibly know everything for certain. There’s nothing more frustrating to a borrower than learning at the very last minute that the property they are wanting so badly to purchase is in a flood zone because of some small body of water that overflowed 80 years ago and that they need to shell out hundreds of dollars for a flood insurance premium and additional escrow reserves in order to close on their dream property. I’ve seen these things happen to many times and each situation ends with a very unhappy borrower. However, if you pull the flood certification early on and it comes back showing the property in a flood zone, you at least have the time to do further investigating if needed and have...
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    Source: www.mortgageprocessor.org
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