by Calculated Risk on 2/07/2007 10:57:00 AM

The Mortgage Bankers Association (MBA) reports: Market and Purchase Applications Decrease in This Week’s Survey

Click on graph for larger image.

The Market Composite Index, a measure of mortgage loan application volume, was 630.1, a decrease of 0.2 percent on a seasonally adjusted basis from 631.1 one week earlier. On an unadjusted basis, the Index increased 3 percent compared with the previous week and was up 1.4 percent compared with the same week one year earlier.

The Refinance Index increased 0.2 percent to 1943.4 from 1940.2 the previous week and the seasonally adjusted Purchase Index decreased 0.8 percent to 404.7 from 408 one week earlier.

Mortgage rates decreased slightly:

The average contract interest rate for 30-year fixed-rate mortgages decreased to 6.23 percent from 6.29 percent ...

The average contract interest rate for one-year ARMs decreased to 5.84 from 5.86 percent ...

The second graph shows the Purchase Index and the 4 and 12 week moving averages since January 2002. The four week moving average is down 4 percent to 413.78 from 430.8 for the Purchase Index.

The refinance share of mortgage activity decreased to 46.1 percent of total applications from 47.4 percent the previous week. The adjustable-rate mortgage (ARM) share of activity increased to 22.3 from 21.37 percent of total applications from the previous week.

by Calculated Risk on 2/07/2007 12:53:00 AM

From the AP: California short $1 billion in tax revenue, controller says

"Tax payments are down about $1 billion, and we don't yet have the source of that decrease," said Controller John Chiang, holding a news conference at the state's tax-collection center, where 2006 tax returns have begun to trickle in.

Chiang speculated that the state's slumping housing market might be a cause of the revenue decline.

by Calculated Risk on 2/06/2007 03:56:00 PM

Rex Nutting at MarketWatch writes: Many layoffs coming in housing, economists say

The home-building industry collapsed in 2006, but surprisingly few workers lost their jobs, revised government data show. That could change this year, economists said.

Between December 2005 and December 2006, the number of building permits for new homes plunged 23.5%, while spending on residential construction projects fell by 12.4%. But over that time, employment in residential construction fell by just 1.4% from 3.38 million to 3.34 million. ...

Click on graph for larger image.

This graph shows residential construction employment vs. completions and starts (Starts are shifted 6 months into the future). Part of my Housing 2007 forecast concerned the loss of 400K to 600K residential construction jobs over the first 6 months of 2007.

"What it means is that we have a steeper cliff to fall off from," wrote David Rosenberg, chief North American economist for Merrill Lynch ...

"We are doubtful, however, the gross job losses tied to the housing cycle are any more than one-third complete," [Steven Wieting, an economist for Citigroup] wrote. He's looking for losses to "easily exceed a half million."

Rosenberg estimates that employment in residential construction will fall about 20% in 2007, or about 600,000 jobs. In essence, the number of jobs in home-building will return to 2002 levels as the pace of home building does.

In addition, of some 3 million manufacturing jobs tied directly to housing, about 10% will disappear, Rosenberg estimated.

All told, that's about 900,000 jobs likely to be lost this year, and it doesn't include a large number of threatened jobs in real estate, mortgage banking and other housing-related fields.

by Calculated Risk on 2/06/2007 12:47:00 AM

Our net sales orders for the month ended January 31, 2007 decreased as compared to the same period in 2006 at a greater rate than the 23% decrease we experienced in our most recent quarter. Our cancellation rate for the month ended January 31, 2007 was similar to our cancellation rate during our most recent quarter.
D.R. Horton, 10-Q filing with SEC, Feb 5, 2007

by Calculated Risk on 2/05/2007 03:06:00 PM

The Hartford Courant reports: Mortgage Lenders Network Files For Bankruptcy

Middletown-based Mortgage Lenders Network, which once promoted itself as a model for building financial services employment in Connecticut, filed for bankruptcy protection today.

by Calculated Risk on 2/05/2007 12:53:00 PM

From the MBA: The Residential Mortgage Market and Its Economic Context in 2007

Some interesting data and comments. The MBA is fairly optimistic:

Click on graph for larger image.

The housing market is nearly back to normal. The housing market will regain its footing by mid-to-late 2007, depending on what measure is used. Home sales and starts will likely begin to increase in mid-2007, but, given the large inventory overhang, prices are unlikely to show any significant increase until late 2007 or early 2008.

On the trade deficit:

The primary reason for the relatively low level of long-term interest rates is the massive inflows of global capital into U.S. fixed income markets. These capital inflows are the flip side of the historically large U.S. trade deficit.

On mortgages:

Interest only (IO) loans, with both adjustable- and fixed-rates, and payment option loans that allow negative amortization, have become a very important part of the market. In the second half of 2005 and the first half of 2006, IOs accounted for about 25 percent of the dollar volume of originations. In addition to their use as affordability products, these products offer homeowners an innovative and flexible means to more actively manage their home equity.
...
Much of the stock of outstanding loans has been originated in the past three years. This has implications for mortgage delinquencies and foreclosures, as loans tend to hit their peak delinquency rates three to five years after origination. We estimate that more than 80 percent of outstanding loans have been originated since 2002.

by Calculated Risk on 2/05/2007 11:13:00 AM

"We are concerned that there could be downward pressure on [housing] prices for awhile."
J.P. Morgan economist Haseeb Ahmed, Feb 5, 2007

From the WSJ: Vacant Homes For Sale Cloud Economic Hopes

... the overhang of vacant housing stock could erode existing home values as sellers slash prices to move their vacant properties. Economists fear that many vacant homes are owned by speculators who are stuck with investment properties that they can't sell and may be under increasing pressure to drop their prices. "We are concerned that there could be downward pressure on prices for awhile," Mr. Ahmed says.

Such worries could cloud hopes for a swift housing rebound. ...

The homeowner vacancy-rate increase "does temper your outlook" for new construction, says David Seiders, chief economist at the National Association of Home Builders in Washington. Mr. Seiders is forecasting largely flat housing sales this year followed by a strong rebound in housing starts in 2008. "There clearly are uncertainties about how this is going to work its way out," says Mr. Seiders. "I keep preaching to builders it's not time to ramp up production."
...
The recent vacancy data may be a useful measure of speculative activity and its fallout.

"I think a persuasive case can be made that the reason we are seeing such extraordinarily excessive vacancy is because of the heavy investor demand over the past few years," said Richard DeKaser, chief economist at National City Corp.

What's troubling is that speculators may not act like typical home sellers. When they sell their vacant home in a down market, they don't necessarily purchase another home. By contrast, people selling the homes they live in will most often buy another house -- thus fueling a healthy market of buying and selling.
...
"This whole thing has been new," says Mr. Seiders, the National Association of Home Builders' economist. "We've never seen this kind of investor activity and we've never seen this kind of [vacancy] resale. It's an extra complication moving forward."

by Calculated Risk on 2/03/2007 11:43:00 PM

"I think clearly that '07 will be a challenge for us, and likely – unless there's a dramatic pickup – '08 will be a sub-par year from a return perspective as well. I think it's way too early to say when that will happen."
Stephen Scarborough, CEO of Standard Pacific, Feb 3, 2007

From the OC Register: No housing rebound in '07, CEO says

Standard Pacific Homes CEO Stephen Scarborough said Friday that he doesn't foresee a huge recovery in the national new-home market at least for a year or more.

Scarborough, speaking during the Irvine homebuilder's fourth-quarter earnings conference call, said earnings won't improve significantly through 2008.

It is pretty clear that by every material measure for housing, 2007 will be worse than 2006: prices, sales, residential construction employment, starts, MEW, percentage of homeowner equity, and the number of foreclosures. As Scarorough noted, it is way too early to be looking for a rebound.

by Calculated Risk on 2/02/2007 06:33:00 PM

From the FDIC: Failed Bank Information

The Board of Directors of the Federal Deposit Insurance Corporation (FDIC) today approved the assumption of the insured deposits of Metropolitan Savings Bank, Pittsburgh, Pennsylvania, by Allegheny Valley Bank of Pittsburgh, Pittsburgh, Pennsylvania.

Metropolitan Savings, with total assets of approximately $15.8 million at the end of the third quarter 2006, was closed today by the Pennsylvania Department of Banking, and the FDIC was named receiver.

This is a very small bank, but it is the first bank failure since 2004.

Metropolitan Savings is the first FDIC-insured institution failure in the country since June 25, 2004, and the first in Pennsylvania since Pulaski Savings Bank, Philadelphia, was closed on November 14, 2003.

by Calculated Risk on 2/02/2007 03:56:00 PM

From the Boston Globe: Subprime borrowers facing tougher qualifications for mortgages

"It's tightening up a lot," said Eddie Carmona, branch manager at Homewood Mortgage in Carrollton, Texas, a mortgage broker that handles subprime borrowers.

Carmona said down payment requirements are the biggest change he's seen.

"Before, you didn't have to bring a down payment," Carmona said.

Other changes:

Higher credit scores. Previously, borrowers with a FICO credit score as low as 570 (out of 850) could qualify for a single loan financing 100 percent of their home purchase, Carmona said.

"Now, across the board, it's jumped up to a 600 FICO score for an 80/20 loan," Carmona said, in which a second loan has to be taken out to finance the remaining 20 percent of the home value.

Rising interest rates. Rates on subprime mortgages have risen about a full percentage point since September, Carmona said, while regular mortgage rates have been relatively steady.

More stringent savings requirements. "They want to see borrowers have at least three months of reserves in their account in case of an emergency," Carmona said.

And from the AP: California lawmakers question risky mortgage lending practices

California lawmakers on Wednesday began considering restrictions on unorthodox mortgage-lending practices that have allowed hundreds of thousands of Californians to buy homes they otherwise could not afford.

About half of all new home loans in California are something other than the traditional 30-year fixed loan. They use features such as no money down and variable interest rates, while giving borrowers creative monthly payment options - such as paying only the interest or even less than that.

Such low introductory payments - or teaser rates - are offered in exchange for higher bills that will kick in years later, sometimes tripling or quadrupling monthly payments. Regulators said many of those riskier loans were taken out in 2004 and 2005 and will start resetting to higher rates this year.

"The exposure to these sorts of products, the growth, is unprecedented," Raphael Bostic, an associate professor at the University of Southern California School of Policy, Planning and Development, told a Senate committee. "The regulatory oversight of these types of practices is relatively lax."

I've been watching for California on the CSBS site, and it sounds like California will adopt the Guidance soon.

For some lively discussion of the tighter standards, try the BrokerOutpost. First a complaint from a broker:

Had my a.e. prequal a file...80/20 719 stated at FIELDSTONE...underwriter approved file, was called conditions on its way...2 days pass, where are conditions...only to find out, file went to 2nd underwriter for 2nd signature who declined it for PAYMENT shock...

call my A.E. in shock, we went overguidlines together...guidelines state if payment shock is over 200 then MUST have 3 mnths sourced and seasoned reserves (my client had 6 months)

And the response from an apparent company representative:

Our guidelines do read that payment shock in excess of 200% require 3 months PITI sourced and seasoned. My guess is that there were other issues with the file and an extreme payment shock created multiple layers of risk. Remember, guidelines are exactly that-a guide. If an underwriter doesn't feel comfortable with something in the file, they go to another U/W or Branch manager for a second opinion. With defaults and fraud on the rise, who can blame a person for wanting a second opinion when they don't feel comfortable. I would talk to your AE and ask what the real problem with the file was....chances are there was something else. As far as your AE's files being declined, yes our programs have changed, so have everyone elses. If AE's don't study up on new products, their files will be declined because of changing guidelines....maybe your file was one of them.

The "programs have changed, so have everyone[s]".