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  • Wed, Sep 2 2009
  • 8:05 AM » First Time Home Buyer NAR Numbers
    Published Wed, Sep 02 2009 8:05 AM by Calculated Risk Blog
    Just a few numbers ... and somewhat random thoughts. The first time home buyer tax credit applies to purchases that close in 2009 before Dec. 1, 2009. The NAR has reported 2.81 million existing home sales through July. There will probably be around 4.4 to 4.5 million sales that close by before Dec 1st. The NAR that 1.8 to 2.0 million buyers will claim the first time home buyer tax credit. So about 40% to 45% of all purchases will qualify for the tax credit. Yet ... the NAR that "An NAR practitioner survey showed first-time buyers purchased 30 percent of homes in July ..." And for and May: "An NAR practitioner survey in June showed first-time buyers accounted for 29 percent of transactions, unchanged from May ..." And back in April: "An NAR practitioner survey in March showed first-time buyers accounted for 53 percent of transactions, based largely on contracts offered before the $8,000 first-time home buyer tax credit became available." Now there are different definitions of "first-time": for the tax credit "First-time" homebuyers are defined as anyone who hasn't owned a primary residence for the last 3 years (not really "first-time"). But the NAR is now saying that about 40% to 45% of all homebuyers this year (before Dec 1st) will be first time buyers. And another large percentage of buyers are investors. With regards to the tax credit, what really matters is the cost per additional home sold. And as I pointed out today, even using the NAR numbers, the cost per additional home sold is $43.4 thousand. Here is the math: 1.9 million buyers qualify for the credit (the NAR estimates between 1.8 and 2.0 million) = $15.2 billion. The NAR estimates the tax credit resulted in 350 thousand additional purchases. So divide $15.2 billion by 350 thousand = $43,000 per additional home. And the numbers will get worse if the program is extended.
    Click Here to Read the Full Article

    Source: Calculated Risk Blog
  • 8:04 AM » Feds Finally React to Mortgage Lending Fiasco
    Published Wed, Sep 02 2009 8:04 AM by Seeking Alpha
    submits: In a move that can only be described as better late than never, various new Federal laws that restrict certain lending practices become effective on or after October 1, 2009. Other regulations that mandate improved disclosures and early disclosures of loan costs and terms became effective on July 30, 2009. Additional HUD regulations requiring the use of a standardized good faith estimate form and HUD-1 settlement statement will become law effective January 1, 2010. The intention of the new regulations is to protect the consumer from unfair and abusive lending practices and to ensure that the mortgage borrower is provided the necessary information to fully understand the costs and terms of a loan. In general, the rules are a positive for both borrowers and lenders but are likely to add considerably to
    Click Here to Read the Full Article

    Source: Seeking Alpha
  • 8:04 AM » MBA Seeking to Transform Fannie, Freddie: Report
    Published Wed, Sep 02 2009 8:04 AM by CNBC
  • 7:45 AM » Suprime ABS Traders Take Another Swing At It
    Published Wed, Sep 02 2009 7:45 AM by Washington Post
    Back during the heyday of the credit bubble, they were the financiers who earned huge bonuses for creating, trading and investing other people's money in those complex securities that resulted in trillions of dollars in losses and brought global financial markets to their knees. And now they're out there again hustling for investors and hoping to make another score buying and trading the same securities.
    Click Here to Read the Full Article

    Source: Washington Post
  • Tue, Sep 1 2009
  • 6:34 PM » Unemployment Still Rising in U.S. Metros; El Centro, Calif. Jobless Rate Hits 30%
    Published Tue, Sep 01 2009 6:34 PM by WSJ
    Unemployment rates in 372 U.S. metropolitan areas in July, new Labor Department figures show. Some 19 metros now have unemployment rates above 15%; eight of them are in California, hard-hit by the real estate collapse, and five of them are in Michigan, suffering from the auto industry’s downturn. El Centro, Calif., continues to have the nation’s highest unemployment rate, rising to 30.2% in July. Yuma, Ariz., is next with 26.2%. The national average in July was 9.7%, not seasonally adjusted. The Labor Department will update the latter figure on Friday, when it releases its monthly employment report. There were a few bright spots in July, mostly in the nation’s interior states less affected by the real estate boom-and-bust and aided by relative strength in their natural resources industries. Bismarck, N.D., registered the lowest jobless rate in July, 3.1%, followed by two other Dakota cities: Fargo, N.D., and Rapid City, S.D., at 4.3% each. Among the nation’s biggest cities with population of a million people or more, Detroit’s unemployment rate was highest, at 17.7%, followed by Riverside-San Bernadino-Ontario, Calif., at 14.3% and Las Vegas at 13.1%. Charlotte joined the hardest-hit metros with a jobless rate of 12.4% in July. Oklahoma City, at 5.9%, and the Washington, D.C. metro area, at 6.2%, had the lowest unemployment rates among the nation’s biggest cities in July.
  • 3:43 PM » Barclays Tops Ranking for Fixed-Income Analysts
    Published Tue, Sep 01 2009 3:43 PM by dealbook.blogs.nytimes.com
    The revamped research team at Barclays Capital emerged at the top of Institutional Investor magazine's ranking of the best fixed-income analysts for 2009.
    Click Here to Read the Full Article

    Source: dealbook.blogs.nytimes.com
  • 3:42 PM » Houses and Autos: The Cost of a Tax Credit per Additional Units Sold
    Published Tue, Sep 01 2009 3:42 PM by Calculated Risk Blog
    To calculate the cost of a tax credit per additional unit sold, we need to sum up the total cost of the credit - as an example $2.877 billion for Cash-for-Clunkers to the Dept. of Transportation - and then divide by the estimated increase in sales because of the credit. Remember some cars or houses would have been sold anyway (even though they still receive the tax credit), but it is the additional sales that matter. That was the purpose of the tax credit! (update: Shnaps notes that the auto credit had an additional benefit of better mileage ) We have two examples today. First, for autos , if sales in August had been about the same as June (pre-tax credit), there would have been 850 thousand light vehicles sold (NSA). This is about a 9.7 million SAAR. Next we add in the tax credit: Although the DOT reported close to 700 thousand car sales associated with the Cash-for-Clunkers program, probably about 550 thousand were in August. If these were all additional sales, then the total sales (NSA) for August would be about 1.4 million, or almost 16 million SAAR. If , and total sales were 1.17 million (NSA) in August, then the tax credit only generated about 320 thousand extra sales. Of course some regular car buyers might have put off a purchase to avoid the rush in August, so this isn't perfect, but instead of costing taxpayers $4,170 per car (as announced by DOT), the cost to taxpayers per additional car sold was close to $7,200. The numbers are much worse for the first-time home buyer tax credit . The NAR this morning: NAR estimates that about 1.8 to 2.0 million first-time buyers will take advantage of the $8,000 tax credit this year, with approximately 350,000 additional sales that would not have taken place without the credit. I believe the NAR underestimates first-time home buyers, especially considering the definition for the tax credit is anyone who hasn't owned a home in three years - not really a "first-time" buyer. I also think the NAR is overestimating...
    Click Here to Read the Full Article

    Source: Calculated Risk Blog
  • 3:42 PM » CIT defers interest payment, shares fall
    Published Tue, Sep 01 2009 3:42 PM by Reuters
    NEW YORK (Reuters) - Troubled U.S. lender CIT Group on Tuesday said it deferred an interest payment on some notes, sending its shares down as much as 17 percent.
  • 3:42 PM » New York Fed purchases $5.6 billion in Treasury coupons
    Published Tue, Sep 01 2009 3:42 PM by tinyurl.com
    New York Fed purchases $5.6 billion in Treasury coupons
  • 1:52 PM » U.S. Aug auto sales boom but clunker hangover looms
    Published Tue, Sep 01 2009 1:52 PM by Reuters
    DETROIT/PARIS (Reuters) - U.S. auto sales boomed in August as consumers burned through $3 billion in government incentives, leaving automakers to contend with both inventory shortages and uncertain demand in the months ahead.
  • 11:48 AM » What's Really Going on With Foreclosures?
    Published Tue, Sep 01 2009 11:48 AM by Seeking Alpha
    submits: Apparently I was wrong about the impact of foreclosures when I said that banks were holding onto the properties and not placing them on the market. It came to light via Diana Olick, who I respect at CNBC, in a report yesterday. It is not that banks are simply holding onto the properties, they are just so backlogged that they cannot get them into the market fast enough. According to the report, banks are waiting as long as possible to try keeping people in their homes by using the Obama 'Making Home Affordable' plan. Unfortunately, people cannot simply refinance when they are unemployed or underemployed which is the primary problem now. Bank of America () told Diana that since most of the properties are owned by third party investors, the bank has an obligation to place properties on the market as soon as possible.
    Click Here to Read the Full Article

    Source: Seeking Alpha
  • 11:47 AM » Six Million Home Foreclosures: Are FDIC Insured Banks the Next Time Bomb? (Part 1)
    Published Tue, Sep 01 2009 11:47 AM by Seeking Alpha
    Over a year ago Hank Paulson declared "The US Banking System Is A Safe and Sound One", the market's reaction to that piece of news was to short Fannie () and Freddie () into oblivion. A key issue there was holdings of mortgaged backed securities, specifically RMBS; valuations of those things depended on (a) their credit rating, (and once the LTV started to slip the rules said they had to be downgraded, so the price tanked), and (b) there was a rule of thumb that the value of those things was what an equivalent Treasury cost, less the cost of a CDS to insure them; when fear took over, the cost of a CDS went through the roof, the "market" (it never was a real market), froze. Then there was Lehman.
    Click Here to Read the Full Article

    Source: Seeking Alpha
  • 11:47 AM » Private Label RMBS: Opportunity of a Lifetime?
    Published Tue, Sep 01 2009 11:47 AM by Seeking Alpha
    Mark Alexander submits: With recent prices for typical senior private label residential mortgage backed securities (subprime, Alt-A, and prime jumbo) now 25%-40% higher than two months ago, it would be a stretch to call them an opportunity of a lifetime. They are not even the opportunity of the past two months. Nevertheless, even with the increases, the prices of many of these securities remain at levels that should generate annualized returns in the 20%-25%+ range so long as we do not see another much more severe leg to the recent recession. Class A-2D of GSAMP 2006-HE5 (one of the securities referenced in Markit's ABX 07-1 AAA index), for which Reuters has provided recent price quotes in the ballpark of 20 cents on the dollar, provides an example. There are differences between GSAMP 2006-HE5 and other subprime pools, but the risk-reward trade-offs on these securities are more similar than different. Therefore, examining a single security from this pool provides useful insights into the return potential for other subprime securities, and to a lesser extent, Alt-A and prime jumbo securities.
    Click Here to Read the Full Article

    Source: Seeking Alpha
  • 11:47 AM » Open Letter to FHFA's New Director: How About an Agency Preferred Stock Swap for REO?
    Published Tue, Sep 01 2009 11:47 AM by Seeking Alpha
    Dear Edward DeMarco: Let me welcome you to your new responsibilities. You have a very important job. There are a significant number of people in the financial world who lie awake at night worrying about the mortgage lenders you are now responsible for. Fannie Mae (), Freddie Mac () and the FHLBs hold or guaranty $6.3 Trillion in residential mortgages. It is simply not possible for the US to get out of the mess we are in unless these Agencies are stabilized.
    Click Here to Read the Full Article

    Source: Seeking Alpha
  • 9:42 AM » After 'Clunkers' Boost, What's Next For Auto Sales?
    Published Tue, Sep 01 2009 9:42 AM by CNBC
  • 9:42 AM » Record decline in UK lending threatens recovery
    Published Tue, Sep 01 2009 9:42 AM by traxfer.ft.com
    Outstanding loans to companies and individuals both declined at a record pace in July, in a worrying sign for the prospects of economic recovery
    Click Here to Read the Full Article

    Source: traxfer.ft.com
  • 9:41 AM » Cities Brace for a Prolonged Bout of Declining Tax Revenues
    Published Tue, Sep 01 2009 9:41 AM by WSJ
    The recession is finally hitting city budgets, with overall city revenues inching down in fiscal 2009 for the first time since 2002, according to a report to be released Tuesday by the National League of Cities. Weak growth in property taxes, reflecting soft housing prices, did not counterbalance sharp declines in other sources of income, including sales taxes, income taxes and state aid, according to a survey of 379 league member cities.
  • 9:32 AM » IRS to Mine Payment Data on Mortgages
    Published Tue, Sep 01 2009 9:32 AM by WSJ
    The Internal Revenue Service will expand a program designed to catch tax cheats that searches for inconsistencies between mortgage payments and income. After prompting from an IRS auditor, the agency will study whether it should make greater use of data on mortgage-interest payments provided to it by banks. The IRS currently uses such data to send notices to non-filers who it believes should have filed a return.
  • 9:26 AM » LTNV: Loan-to-no-Value
    Published Tue, Sep 01 2009 9:26 AM by llenrock.com
    We all bore witness to the financial meltdown. We all know it was caused by sub-prime mortgages and greedy financial engineering and that it was exacerbated by a flailing auto industry, a deregulated, price-gauging credit card industry, and a general population who had to learn not to live beyond their means the hard way. We [...]
  • 9:26 AM » Main Street Banks May Crush the Recovery
    Published Tue, Sep 01 2009 9:26 AM by www.realclearmarkets.com
    Like a boxer staggering to its feet, the U.S. economy is recovering. Since May, real consumer spending has been gradually rising. Technology spending is looking up, as computers age and Asian growth pulls demand for sophisticated components. New home construction is showing new life. These will permit 2 percent GDP growth in the second half of 2009, but a second credit squeeze could knock down the economy again. Regional banks are in a sorry state, laboring under failing commercial loans. Through August 2008, the FDIC closed or merged 83 banks into stronger institutions and 400 more banks are on the critical list. Many forgot how to be bankers. With one eye on quarterly profits and the other on the Country Club BBQ, many loaned to retailers and commercial real estate ventures with dubious business prospects. Even a casual trip through suburbia from 2005 to 2007 revealed too many stores selling the same stuff, and bankers were best positioned to know consumers were overextended. Main Street scions of finance tried to diversify risk by selling loans to Wall Street, which packaged those loans into Commercial Mortgage Backed Securities (CMBS) and then sold the securities back to the banks. This round tripped debt is collapsing, destroying bank balance sheets. The Obama Administration's financial sector rehabilitation plan originally proposed public-private partnerships to purchase and work out residential and commercial debt. Instead, the FDIC, with limited resources, is merging insolvent banks into somewhat stronger banks by agreeing to absorb huge losses. Retailers, commercial property leases and CMBS failed later in the recession than the housing market, and the full impact on regional bank lending and credit markets is just coming into focus. Moderate-sized businesses-those supposed to build President Obama's green economy-can't get credit. Wall Street bankers are not much interested in collateralizing business debt through regional banks-New York has had...
    Click Here to Read the Full Article

    Source: www.realclearmarkets.com
  • 9:25 AM » BofA Seeks to Repay a Portion of Bailout
    Published Tue, Sep 01 2009 9:25 AM by WSJ
    Bank of America Corp. is offering to repay part of its bailout money, and the U.S. is pushing for the bank to pay at least $500 million to shelve a tentative pact that would have had the government share its losses on certain assets. The moves, described by people familiar with the matter, both relate to an extra measure of federal aid given to help BofA complete its acquisition of Merrill Lynch & Co. Both sets of discussions, if completed, would enable BofA to reduce a layer of federal involvement in its affairs.
  • Mon, Aug 31 2009
  • 6:37 PM » What Banks Are Really Doing With Foreclosures
    Published Mon, Aug 31 2009 6:37 PM by CNBC
    Posted By: There have been a lot of accusations on the blogs and on the air that banks are holding on to REO (bank-owned) foreclosed properties because they don't want to put them on the market and push home prices ever lower. In digging into this, I got a few interesting answers. Topics: | | Sectors: | MEDIA:
  • 6:36 PM » Loans Resetting Lower? Not So Fast
    Published Mon, Aug 31 2009 6:36 PM by CNBC
    Posted By: Yesterday, at one of the morning staff meetings, a CNBC producer told of how his son had an adjustable rate mortgage that actually, thanks to today's low interest rates, adjusted down, saving him hundreds of dollars on his monthly payment. Well all of a sudden everyone wanted to know if this would mean a shot in the arm to the economy, with all these supposedly troubled adjustable rate mortgages adjusting down instead of up. Topics: | | Sectors: | MEDIA:
  • 6:35 PM » A first step for Fannie and Freddie
    Published Mon, Aug 31 2009 6:35 PM by CNN
    Read full story for latest details.
  • 6:34 PM » A New CRE Trend: The Pop-up Shop
    Published Mon, Aug 31 2009 6:34 PM by llenrock.com
    The idea of “pop-up” stores is nothing new. These pop-up stores allow retailers to increase revenue during critical sales periods including the back-to-school, Halloween, and holiday shopping seasons, but without taking on the risk of a permanent location. Recently, however, pop-ups no longer cater exclusively to these specialty shops. Thanks to this weak economy, there [...]
  • 6:34 PM » August Economic Summary in Graphs
    Published Mon, Aug 31 2009 6:34 PM by Calculated Risk Blog
    Here is a collection of real estate and economic graphs for data released in August ... Note: Click on graphs for larger image in new window. For more info, click on link below graph to original post. New Home Sales in July (NSA) The first graph shows monthly new home sales (NSA - Not Seasonally Adjusted). Note the Red columns for 2009. This is the 3rd lowest sales for July since the Census Bureau started tracking sales in 1963. In July 2009, 39 thousand new homes were sold (NSA); the record low was 31 thousand in July 1982; the record high for July was 117 thousand in 2005. From: New Home Sales in July This graph shows shows New Home Sales vs. recessions for the last 45 years. "Sales of new one-family houses in July 2009 were at a seasonally adjusted annual rate of 433,000 ... This is 9.6 percent (±13.4%) above the revised June rate of 395,000, but is 13.4 percent (±12.9%) below the July 2008 estimate of 500,000." From: New Home Months of Supply in July There were 7.5 months of supply in July - significantly below the all time record of 12.4 months of supply set in January. "The seasonally adjusted estimate of new houses for sale at the end of July was 271,000. This represents a supply of 7.5 months at the current sales rate." From: Existing Home Sales in July This graph shows existing home sales, on a Seasonally Adjusted Annual Rate (SAAR) basis since 1993. Sales in July 2009 (5.24 million SAAR) were 7.2% higher than last month, and were 5.0% lower than July 2008 (4.99 million SAAR). From: Existing Home Inventory July This graph shows nationwide inventory for existing homes. According to the NAR, inventory increased to 4.09 million in July. The all time record was 4.57 million homes for sale in July 2008. This is not seasonally adjusted. Also, many REOs (bank owned properties) are included in the inventory because they are listed - but not all. Recently there have been stories about a substantial number of unlisted REOs and other shadow inventory...
    Click Here to Read the Full Article

    Source: Calculated Risk Blog
  • 6:34 PM » Fitch: Credit Card Default Chargeoffs decline Slightly in July
    Published Mon, Aug 31 2009 6:34 PM by Calculated Risk Blog
    From Fitch: U.S. consumer credit quality showed signs of life as credit card ABS chargeoffs declined last month, snapping a string of five consecutive record highs, according to the latest Credit Card Index results from Fitch Ratings. ... 'We still need to see some measurable improvement in the delinquency and personal bankruptcy figures and the employment situation overall before chargeoffs revert to more historical norms,' said Managing Director Michael Dean. 'For now, we expect chargeoffs to moderate at these elevated levels in the coming months.' Chargeoffs had risen 45% from February through July and they still remain 63% above year earlier levels. Late stage delinquencies, or receivables more than 60 days past due, have held relatively stable albeit near record highs during the same period following a rapid increase over the prior six months that forewarned the chargeoff run-up. Fitch's Prime Credit Card Chargeoff Index declined 24 basis points (bps) to 10.55% for the July collection period. ... As a reminder, the bank stress tests assumed a cumulative two year credit card loss rate of 18% to 20% for the more adverse scenario (only 12% to 17% for the baseline scenario). Right now losses are worse than the more adverse scenario. Also credit card loss rates tend to the track unemployment - so, as the unemployment rate rises into 2010, the credit card chargeoffs might increase some more.
    Click Here to Read the Full Article

    Source: Calculated Risk Blog
  • 6:03 PM » Federal Reserve made $14 billion on turmoil loans: report
    Published Mon, Aug 31 2009 6:03 PM by Reuters
    LONDON (Reuters) - The Federal Reserve has made $14 billion in profits on loans made in the last two years, The Financial Times reported on Monday, citing officials close to the matter.
  • 3:43 PM » NY Fed’s Dudley: Too Soon to Pull Back Fed’s Debt Purchases
    Published Mon, Aug 31 2009 3:43 PM by WSJ
    It is too early to contemplate an end to the Federal Reserve ’s unconventional easing strategy, said William Dudley , president of the New York Federal Reserve Bank , in a television interview Monday. “My own personal view is, I think it’s a little premature to be so confident that you want to pull all these things back right now,” Dudley said in a CNBC interview. The Fed has a plan to buy $1.25 billion in mortgage-backed securities and $200 billion of debt issued by mortgage giants Fannie Mae and Freddie Mac . The central bank is about half-way through the purchases. The plans are designed to boost the economy because buying the mortgage debt has made it less expensive for consumers to buy homes. Last week, two regional Fed presidents — Jeffrey Lacker , president of the Richmond Federal Reserve Bank, and James Bullard , president of the St. Louis Fed — said in separate speeches that the Fed may not have to buy all these securities because the economy is leveling out. Julia Coronado , an analyst with BNP Paribas , said Dudley appeared to be trying to throw cold water on this idea. Dudley is one of the key architects of the Fed’s zero-interest rate program. He is likely speaking for the majority of members on the 12-member FOMC. But the minority on the Fed leery of the new purchases has had an impact. They’ve kept the Fed from expanding its purchase plans further. Earlier in August, the Fed said it would conclude its purchases of $300 billion in U.S. government debt by the end of October. Some economists think this may turn out to be a mistake.
  • 1:24 PM » Apartment Market Stalls, While Condos Show Movement
    Published Mon, Aug 31 2009 1:24 PM by NAHB
    Press Release
  • 1:23 PM » Wake me up when September ends, many investors say
    Published Mon, Aug 31 2009 1:23 PM by Market Watch
    After a powerful rally in stocks from their March lows, nervous investors are positioning for a September sell-off -- something that many say is overdue.
  • 1:23 PM » The Connection Between Subprime and Wildfires
    Published Mon, Aug 31 2009 1:23 PM by Seeking Alpha
    submits: The current southern California wildfires are all too predictable. A combination of arid landscapes, hot weather and some source of ignition – usually people – and once again we have massive fires looming on the outskirts of Los Angeles.
    Click Here to Read the Full Article

    Source: Seeking Alpha
  • 1:23 PM » The Fannie and Freddie Anomaly
    Published Mon, Aug 31 2009 1:23 PM by wallstreetpit.com
    Can anyone explain the stock prices of Fannie Mae (NYSE:FNM) and Freddie Mac (NYSE:FRE), the two government-sponsored enterprises that are supporting our mortgage market? On Friday, Fannie’s common stock closed at $2.04 per share, up 250% since the start of August. That values the company–to be...
    Click Here to Read the Full Article

    Source: wallstreetpit.com
  • 1:08 PM » Bank Leverage: Forever Blowing Bubbles Part Two
    Published Mon, Aug 31 2009 1:08 PM by Google News
    You have heard me use the phrase “” to describe the increase in the price of riskier assets due to monetary stimulus. The Bloomberg News video clip below points to an increase in lending for buyers of riskier loans like high yield and mortgage bonds. Click for The blurb below from at Bloomberg’s website makes a more complete picture. Afterward, I have a few comments. Banks are increasing lending to buyers of high-yield company loans and mortgage bonds at what may be the fastest pace since the credit-market debacle began in 2007. Credit Suisse Group AG and Scotia Capital, a unit of Canada’s third-largest bank, said they’re offering credit to investors who want to purchase loans. SunTrust Banks Inc., which left the business last year, is “reaching out to clients” to provide financing, said Michael McCoy, a spokesman for the Atlanta-based bank. JPMorgan Chase & Co. and Citigroup Inc. are doing the same for loans and mortgage-backed securities, said people familiar with the situation. “I am surprised by how quickly the market has become receptive to leverage again,” said Bob Franz, the co-head of syndicated loans in New York at Credit Suisse. The Swiss bank has seen increasing investor demand for financing to buy loans in the past two months, he said. Federal Reserve data show the 18 primary dealers required to bid at Treasury auctions held $27.6 billion of securities as collateral for financings lasting more than one day as of Aug. 12, up 75 percent from May 6. The increase suggests money is being used for riskier home- loan, corporate and asset-backed securities because it excludes Treasuries, agency debt and mortgage bonds guaranteed by Washington-based Fannie Mae and Freddie Mac of McLean, Virginia or Ginnie Mae in Washington. Broader data on loans for investments isn’t available. How could investors return to shades of irrational exuberance so quickly? Liquidity. James Montier, now at Jeremy Grantham’s GMO, wrote a research paper at the beginning of June when he...
  • 1:08 PM » Experimenting with Negative Interest Rates
    Published Mon, Aug 31 2009 1:08 PM by Google News
    As the world's original central bank, it's fitting that Sweden's has become the first to breach the zero-bound line by lowering one of its key interest rates to negative 0.25% since July 8. The drop in the price of money below zero is the first of its kind. The dip refutes the idea that the zero bound was a barrier for monetary policy beyond which no central bank could tread. Back in 2004, Fed Chairman Ben Bernanke (a Fed governor at the time) co-authored a that advised that "the nominal policy interest rate may become constrained by the zero lower bound." Well, so much for a constraint at zero. The Riksbank dropped rates below zero in early July with no more effort than falling out of a chair. Granted, Sweden's -0.25% deposit rate (the rate that banks receive on accounts held at the central bank) isn't the main tool of monetary policy in the country. That's reserved for the repo rate (the Riksbank's Fed funds equivalent) and it remains at a positive 0.25%, or roughly in line with the current Fed funds rate. Nonetheless, the precedent has been set. Dropping rates below zero has come and gone in the modern age of central banking and the financial world is still standing. In practical terms, the Riksbank's -0.25% deposit rate means that banks with accounts at the central bank are paying Riksbank 0.25% in interest to keep deposits at the institution. In effect, the arrangement turns the concept of a bank account on its head. Instead of earning interest, depositors are paying the bank to maintain the accounts. The rationale for the policy is that the negative interest rate will create a disincentive to hoard money, which creates an additional layer of headwind for an economic recovery. In these precarious economic times, that's considered a risk worth avoiding. To be sure, there are hazards in going negative. For instance, as Wolfgang Münchau in today's Financial Times, central bankers worry that 1) negative interest rates...
  • 10:32 AM » Chicago: A Renters' Market
    Published Mon, Aug 31 2009 10:32 AM by Calculated Risk Blog
    From the Chicago Tribune: More apartments are available in Chicago, and at prices that have slipped since the beginning of the year, creating a renter's market and allowing some consumers to trade up to better housing. ... according to a study scheduled to be released Monday by DePaul University's Institute for Housing Studies. ... "If anything, I think [DePaul] is reporting less than what I see," said Jack Markowski, president of Community Investment Corp., a non-profit mortgage lender to multifamily buildings that started seeing increases in multifamily mortgage delinquencies 18 months ago. Multifamily buildings, he said, "are vulnerable right now." ... Landlords, seeking to cover their costs, are lowering rents to attract tenants, and the study found that rents declined in all sizes of buildings and in all city neighborhoods except for the North Side. ... The level of multifamily mortgages foreclosed on in Chicago during the year's second quarter, at 0.8 percent of the total supply, was twice as high as it was in the comparable year-ago period, said James Shilling, a DePaul professor and director of the institute. "It only gets worse," Shilling said of the predicament the rental market finds itself in. "There's downward pressure on rents and upward pressure on vacancy rates. I think for the rest of 2009 and 2010 we'll see more defaults."
    Click Here to Read the Full Article

    Source: Calculated Risk Blog
  • 10:32 AM » Head Of China Sovereign Wealth Fund Openly Admits Asset Bubble Addressed By Creation Of More Bubbles
    Published Mon, Aug 31 2009 10:32 AM by www.zerohedge.com
    In a phenomenal demonstration of frankness and true economic assessment, the head of the China Investment Council, Lou Jiwei, who controls China's $298 billion sovereign wealth fund, : Both China and America are addressing bubbles by creating more bubbles and we're just taking advantage of that. So we can't lose. Indeed, they can't lose thanks to the criminal silence on behalf of Mr. Jiwei's US financial counterparties. It doesn't get any simpler than that folks. Keep in mind Madoff was thrown in jail for a few hundred years for much less: what's $55 billion when you are dealing with a $20 trillion+ global equity market Ponzi scheme. And yet both China and the US continue their struggle to perpetuate a Ponzi, with the full implicit backing of all financial, regulatory and legal authorities. The system is now officially broken, even ignoring the conspiratorial ramblings of fringe bloggers. And as for who, aside from TradeBot and HAL9000 are speculating in equity markets, look no further than China, which is dead set on exporting its tulip mania to US stock markets: Asked whether CIC would be a keen buyer in the United States, Lou said CIC can buy anywhere in the world, but it cannot avoid buying U.S. assets because the American economy and capital markets are so large. Lou said CIC was building a broad investment portfolio that includes products designed to generate both alpha and beta; to hedge against both inflation and deflation; and to provide guaranteed returns in the event of a new crisis . He said the risk of a decline in the dollar risks was more of a national issue for China than for CIC because its capital is in dollars. So, dear investors, now you know that you are officially playing in the world greatest Ponzi scheme. One wonders at what point the US authorities will have the guts to at least admit what China is now openly saying is one big pyramid scheme. And as for the Fed's prudent approach to fighting bubbles - well, that...
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    Source: www.zerohedge.com
  • 9:46 AM » Disney to Buy Marvel Entertainment for $4 Billion
    Published Mon, Aug 31 2009 9:46 AM by CNBC
    The Walt Disney says it is acquiring Marvel Entertainment for $4 billion in cash and stock, bringing characters like Iron Man and Spider-Man into the Disney family.
  • 9:46 AM » New York Fed announces $2.1 billion in Legacy CMBS TALF loans settled for August 20 facility
    Published Mon, Aug 31 2009 9:46 AM by NY Fed
    New York Fed announces $2.1 billion in Legacy CMBS TALF loans settled for August 20 facility
  • 8:38 AM » FDIC risks $80 Billion in Loss Share Agreements
    Published Mon, Aug 31 2009 8:38 AM by Calculated Risk Blog
    Every Friday, in just about every bank failure press release, the FDIC mentions a loss share agreement with the acquiring bank. As an example, in the regarding Mutual Bank of Harvey, Illinois on July 31st: As of July 16, 2009, Mutual Bank had total assets of $1.6 billion and total deposits of approximately $1.6 billion. In addition to assuming all of the deposits of the failed bank, United Central Bank agreed to purchase essentially all of the assets. The FDIC and United Central Bank entered into a loss-share transaction on approximately $1.3 billion of Mutual Bank's assets. emphasis added For those interested in every detail, the Single Family Loss Share Agreement (page 54) and Commercial Loss Share Agreement {page 89) between the FDIC and United Central Bank (the acquirer). From the WSJ: [T]he Federal Deposit Insurance Corp. has agreed to assume most of the risk on $80 billion in loans and other assets. The agency expects it will eventually have to cover $14 billion in future losses on deals cut so far. ... So far, the FDIC has paid out $300 million to a handful of banks under the loss-share agreements. ... The agency estimates the loss-share deals cut will cost it $11 billion less than if the agency seized the assets and sold them at fair-market value. ... In most cases, the FDIC agrees to cover 80% of future losses on a big portion of the assets, and 95% on the rest. The FDIC says it doesn't anticipate facing the 95% loss-coverage scenario on any deal. ... Many of the loss-share deals will be in place for up to 10 years. These agreements definitely make the deals more attractive to potential buyers because the limit the downside. The article notes that the FDIC "had just $10.4 billion in its deposit-insurance fund at the end of June", but that includes reserves for future losses. And since the FDIC expects losses of $14 billion from these loss share agreements, they should have already reserved for those losses. Still many of these agreements will...
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    Source: Calculated Risk Blog
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