by Calculated Risk on 7/10/2009 02:52:00 PM

From Robert Reich: When Will The Recovery Begin? Never. (ht Bob Dobbs)

The so-called "green shoots" of recovery are turning brown in the scorching summer sun. In fact, the whole debate about when and how a recovery will begin is wrongly framed. On one side are the V-shapers who look back at prior recessions and conclude that the faster an economy drops ...

Unfortunately, V-shapers are looking back at the wrong recessions. ...

That's where the more sober U-shapers come in. They predict a more gradual recovery ...

Personally, I don't buy into either camp. In a recession this deep, recovery ... depends on consumers who, after all, are 70 percent of the U.S. economy. And this time consumers got really whacked. Until consumers start spending again, you can forget any recovery ...

Eventually consumers will replace cars and appliances and other stuff that wears out, but a recovery can't be built on replacements. Don't expect businesses to invest much more without lots of consumers hankering after lots of new stuff. And don't rely on exports. The global economy is contracting.

Eventually the economy will start growing again ... but I think the "recovery" will be very sluggish.

Reich suggests the only market for cars will be replacements - but the replacement level (based on scrappage rates) is in the 12 to 13 million range. And that would be a significant increase from the current 9.7 million annual sales rate. That is still well below the peak, but recovery is from the bottom of the cliff - and is not measured from the previous peak.

by Calculated Risk on 7/10/2009 01:07:00 PM

Yesterday I posted this information with an incorrect email address for Cathy. She can be reached at: stickelc@live.com

CR note: This is from Tanta's sister Cathy. For new readers, to find out about Tanta, please see Tanta: In Memoriam. Also see The Compleat UberNerd for some of her incredible articles. I really enjoy my Mortgage Pig sweatshirt! Thanks to everyone for your support, CR

The Last of the Mortgage Pig Wear

Thank you all for your orders – we raised $3,700 and hopefully you have something unique to help you remember Tanta.

We ended up with some extra completed items and we still have a few “Slap It” and “Holidays” transfers left for T-shirts (“Convexity” is sold out). I’m offering these outside of EBay – no additional charge for shipping in the continental US. Simply send an EMAIL to stickelc@live.com with your request and I’ll send back a confirmation. Then mail a check or money order along with shipping instructions and we’ll get the item out to you. The proceeds will be donated to the Ovarian Cancer Research Fund.

Again – thanks for your support and all of the kind words.

Cathy Stickelmaier

Completed Items:
Black Full-Zip, Hooded Sweatshirt w/Tanta Vive in Pink & White – Size XL - $40
Men’s White Polo Shirt – Size L - $32
White Long Sleeved T-Shirt with Slap-It Transfer – size L - $18
White Hooded Sweatshirt with Holidays Transfer – Size 2X - $30
White Hooded Sweatshirt with Holidays Transfer – Size XL - $30
(2) Short Sleeved T-Shirt with Holidays Transfer – size S - $15 each
(2) White Hooded Sweatshirt with Slap It Transfer – size L - $30 each

Transfer Items – made to order while transfers last:
White Long Sleeved T-Shirt with Slap It Transfer – Sizes S to 2XL - $18
White Short Sleeved T-Shirt with Slap It Transfer – Sizes S to 2XL - $15
White Long Sleeved T-Shirt with Holidays Transfer – Sizes S to 2XL - $18
White Short Sleeved T-Shirt with Holidays Transfer – Sizes S to 2XL - $15

by Calculated Risk on 7/10/2009 10:54:00 AM

SEC data guy brings us some interesting data on SEC filings with companies expressing: "Substantial Doubt"

Below is a graph that shows the total number of distinct entities filing a 10-K or 10-Q over time. It also shows the number of distinct entities expressing "substantial doubt" for the first time in one of those filings

Click on graph for larger image in new window.

Note: Left scale doesn't start at zero, and the right scale is a 4 quarter average.

These are just initial expressions of "substantial doubt".

On a cumulative basis, a stunning number of filers are expressing concerns (more to come on this). For details, see SEC data guy's post.

by Calculated Risk on 7/10/2009 10:06:00 AM

From MarketWatch: July UMichigan consumer sentiment falls to 64.6

U.S. consumer sentiment fell sharply in early July, according to a survey released Friday by the University of Michigan and Reuters. Sentiment fell to 64.6 from 70.8 in June.

Click on graph for larger image in new window.

Consumer sentiment is a coincident indicator - it tells you what you pretty much already know.

And it tells us right now that consumer sentiment is still very weak.

by Calculated Risk on 7/10/2009 08:53:00 AM

Here is the press conference at 9 AM ET:

From the NY Times: With Sale of Its Good Assets, G.M. Tries for a Fresh Start

General Motors completed a major step in its turnaround on Friday and closed the sale of its good assets to a new, government-backed carmaker....

G.M.’s sale of its desirable assets, including brands like Chevrolet, Cadillac and GMC, to the new company — now named Vehicle Acquisition Company but soon to be renamed the General Motors Company — is meant to shed decades of buckling liabilities. The federal government will hold nearly 61 percent of the new company ...

The new company will be much smaller, with brands like Saturn, Hummer, Opel and Pontiac in the process of being sold or closed.

That was fast!

by Calculated Risk on 7/10/2009 08:30:00 AM

The Census Bureau reports:

The ... total May exports of $123.3 billion and imports of $149.3 billion resulted in a goods and services deficit of $26.0 billion, down from $28.8 billion in April, revised. May exports were $1.9 billion more than April exports of $121.4 billion. May imports were $0.9 billion less than April imports of $150.2 billion.

Click on graph for larger image.

The first graph shows the monthly U.S. exports and imports in dollars through May 2009.

Imports declined again in May, but U.S. exports were up slightly. On a year-over-year basis, exports are off 21% and imports are off 31%.

The second graph shows the U.S. trade deficit, with and without petroleum, through May.

The blue line is the total deficit, and the black line is the petroleum deficit, and the red line is the trade deficit ex-petroleum products.

Import oil prices increased slightly to $51.21 in May - the third monthly increase in a row. Spot prices have increased since May, so oil prices will rise further for June and July.

It appears the cliff diving for U.S. trade might be over - especially for U.S. exports.

by Calculated Risk on 7/10/2009 12:21:00 AM

From the WaPo: White House Prods Banks

In a two-page letter [to the country's largest banks], Treasury Secretary Timothy F. Geithner and Shaun Donovan, secretary of the Department of Housing and Urban Development, acknowledge that the government program, known as Making Home Affordable, has yet to gain traction since being launched in March.

"We believe there is a general need for servicers to devote substantially more resources to this program for it to fully succeed and achieve the objectives we all share," the letter said.
...
The banks were also told to designate a senior liaison for the program and to prepare for a July 28 meeting with senior Treasury and HUD officials ...

"We are asking that all servicers expand servicing capacity and improve the execution quality of loan modifications in order to help the sizable number of homeowners at risk of foreclosure and eligible for the program," the letter said.

The administration will begin issuing monthly reports by Aug. 4 detailing lenders' performance ...

The results have been disappointing so far, with few modifications and a high re-default rate. Also most of the modifications so far have been the "extend and pretend" type, with a capitalization of missed payments and fees, lower interest rates, and longer terms - leaving many borrowers with significant negative equity and high likelihood of a future default.

by Calculated Risk on 7/09/2009 09:43:00 PM

This article quotes a couple of mortgage brokers who somehow think the loss of stated income loans is a bad thing - and one who thinks they will "re-emerge over the next six months" ...

From James Temple at the San Francisco Chronicle: Undocumented income makes it hard to get a loan

With more than $300,000 in combined annual income, tens of thousands of dollars in the bank and credit scores that top 800, Jennifer France and her partner would seem like ideal candidates for a mortgage refinance.

But when they applied to swap an interest-only loan on their nearly $1 million San Carlos home for a 30-year fixed that locked in today's low rates, they were summarily denied. The reason: effectively, because both operate their own businesses.
...
A few years ago, theirs would have been the ideal scenario for a stated-income or no-documentation loan, which allowed individuals with ample but unconventional sources of income to secure home loans. But after untold numbers of borrowers lied about their financial wherewithal to buy homes they couldn't afford, often with a wink and nod from mortgage brokers, nearly all lenders stopped offering what became known derisively as "liar loans." Now even the well-qualified borrowers for whom the products were first intended can't get them.

This misses the point. It wasn't that stated income loans were "liar loans", although that is a fun name. The problem is: Stated income loans were borrower underwritten loans, not lender unwritten loans.

The borrowers above weren't denied because they "operate their own business". They were denied because they didn't meet the underwriting standards of the lender.

And a couple of posts from Tanta on the subject in 2007:

Just Say No To Stated Income. Excerpt:

Every lender can make an exception to the two-year average rule-of-thumb for determining "qualifying income." If you just stopped being Nurse Sue and became Assistant Professor of Nursing Sue, and you spent the last two years renting while you were building up your credentials for that career move, waiting to buy until it made more financial sense for you, and you can give me the W-2s, rental history, and employment agreement with Nursing U to prove it, I won't just make you a loan, I'll cut your cake and give you a big warm hug because you're my kind of borrower.

If you've been behind the counter at Taco Bell for the last two years, but just recently got put on the payroll at your brother-in-law's new vitamin supplement marketing startup company, and now you'd like to do a cash-out refi to make a little investment with? You will be "qualified" on your average Taco Bell income for the last two years. I'm the underwriter. I make the rules. You do not get to "underwrite yourself" by deciding that my rule on qualifying income is "unfair" to you and therefore you can get around them by "going stated."

And What's Really Wrong With Stated Income .

And from the article:

Chris George, president of CMG Mortgage in San Ramon, predicts that no-doc loans and other nontraditional mortgages will begin to re-emerge over the next six months, as creditors gain confidence.

Geesh - I hope not. Paging all regulators: Read Tanta's posts. Borrower underwritten loans should be permanently banned. Enough said.

by Calculated Risk on 7/09/2009 07:42:00 PM

From Bloomberg: FDIC Said to be Unwilling to Back CIT Debt on Risk (ht Bob_in_MA)

The [FDIC] is unwilling to give CIT Group Inc. access to its Temporary Liquidity Guarantee Program because the commercial lender’s credit quality is deteriorating [unidentified sources say] ... The FDIC, which has backed $274 billion in bond sales under the TLGP since Nov. 25, is concerned that guaranteeing CIT debt would put taxpayer money at risk ...

CIT ... became a bank in December to qualify for a government bailout and received $2.33 billion in funds from the U.S. Treasury. ... Without access to TLGP, CIT may default as soon as April, when a $2.1 billion credit line matures, according to Fitch Ratings.

The federal agency is in discussions with CIT about how the lender can strengthen its financial position to get approval, such as by raising capital, said one of the people. ...

CIT has about $75 billion in assets.

by Calculated Risk on 7/09/2009 04:25:00 PM

This might be the start of a number of condo / homeowner associations filing bankruptcy because of the housing bust ...

From the Daily Business Review: Bankruptcy: $1 million debt sends condo association into Chapter 11 (ht Soylent Green is People)

Facing almost $1 million in claims by unsecured creditors, a troublesome recreational lease, and at least 100 unit owners delinquent on payments of their fees, the association filed a Chapter 11 petition last month in U.S. Bankruptcy Court in Miami.

As one of the first condo association bankruptcies of the current economic crisis ... With residential foreclosures and personal bankruptcies soaring in South Florida, Maison Grande’s decision is expected to become more commonplace, said attorney Aleida Martinez Molina of Becker & Poliakoff in Coral Gables.
...
The significant drop in property values is a key factor pushing associations toward bankruptcy filings, said attorney Robert Kaye of Kaye & Bender in Fort Lauderdale. ... “In prior times, there was enough equity in all the properties [in an association] so that assets would likely exceed liabilities,” he said. “Now, since a large percentage of associations are upside down, that’s changing their view about bankruptcy. Their debts have overtaken their assets.”