by Anonymous on 4/14/2007 07:05:00 AM

Welcome to Saturday Calculated Risk Rock Blogging. You want intellectually serious content? I suggest skipping down to the next post. It's Saturday, and we all need a break. I owe you all an UberNerd post, but to be honest I've been a little tired in the last few days, and what attention span I possess has been divided between the unwind of the great mortgage bubble and flashbacks to the summer of 1972 on this whole "the dog ate my server" business of the White House emails.

Every time I read some new former cheerleader for the Great Housing Economy (with free debit card!) get all shocked--shocked, I tell you!--that those lenders have been offloading that wretched credit risk into those sexy bonds that approximately three market participants appear to understand, and--OMG!--said bonds seem to be having a bit of a "lower class" problem (the revenge of the UnterTranche?), I have a hard time not replying with the only thing that makes sense to a cheerleader:

Nah nah nah-nah nah nah. Nah-nah-nah nah-nah-nah nah nah.

So this week, you'll just have to write your own lyrics. Go nuts, folks.

by Anonymous on 4/13/2007 08:26:00 PM

You don't get any Rock Blogging until tomorrow.

But since you've been so good today . . .

by Anonymous on 4/13/2007 12:59:00 PM

CR is away from the blog today, so I guess it's all mortgage, all the time, unless I break down and start the Rock Blogging a day early.

But there's plenty of mortgage things to talk about. The Washington Post brings us this delightful one, "Fraud Seen Possible In Bush Loan Plan":

A Bush administration plan to offer low- and middle-income home buyers an alternative to subprime loans may be susceptible to fraud, the inspector general for the Department of Housing and Urban Development said. The proposal, incorporated in legislation introduced last month, would make it easier for borrowers to get mortgage insurance from the Federal Housing Administration but would do little to assure adequate oversight of lenders, appraisers and lawyers, the inspector general, Kenneth Donohue, said in a telephone interview.

"The FHA has to go back and make sure the same thing that has happened with subprime loans doesn't happen with its program," said Donohue, who conducts internal audits and criminal investigations of HUD programs. "The FHA has to
make sure it doesn't get taken by the lenders, and it has to make better reviews of loan portfolios."

Legislators and federal regulators are grappling with how to help subprime mortgage borrowers facing foreclosure. State authorities have opened fraud investigations against brokers and lenders for allegedly misleading some consumers about the terms of their loans.

The FHA reviews only 6 to 7 percent of its loan portfolios a year to ensure that they have been properly administered, Donohue said. The agency needs more resources to review loans and claims, and to try to recover losses, he added. Donohue has been inspector general since 2001. Jerry Brown, a spokesman for FHA Commissioner Brian Montgomery, declined to offer a substantive response to Donohue's warning. "We respect the IG's right to have an opinion," he said. He pointed to recent congressional testimony in which Montgomery pledged to manage any expansion of the FHA's programs in a "financially prudent way."

The FHA, which is part of HUD, is trying to recover market share lost in recent years to subprime loans, which are often offered by mortgage brokers to borrowers with poor or limited credit histories. The popularity of subprime loans has led to a sharp increase in delinquent payments and foreclosures as consumers struggle to pay their mortgages and their homes lose value in the housing downturn.

The FHA's share of all home financing dropped from 14.1 percent to 3.8 percent from 1999 to 2006, according to FHA data.

by Calculated Risk on 4/13/2007 11:55:00 AM

The Census Bureau reported today for February 2007:

"a goods and services deficit of $58.4 billion, compared with $58.9 billion in January"

Click on graph for larger image.
The red line is the trade deficit excluding petroleum products. (Blue is the total deficit, and black is the petroleum deficit).

Looking at the trade balance, excluding petroleum products, the deficit has been declining slightly since peaking in the second half of 2005.

The trade deficit, ex-petroleum, appears to have peaked at about the same time as Mortgage Equity Withdrawal in the U.S.

"Interestingly, the change in U.S. home mortgage debt over the past half-century correlates significantly with our current account deficit. To be sure, correlation is not causation, and there have been many influences on both mortgage debt and the current account."
Alan Greenspan, Feb, 2005

Also notice the prior time period when the trade deficit declined slightly - right after the deficit peaked towards the end of 2000, and right before the recession of 2001.

For much more, see Brad Setser's: The February trade data

On the surface, the February trade data doesn't seem to tell us much. The $58.4b February trade deficit is a tad smaller than the $58.9b January deficit, but the overall story is the same: the trade deficit seems to have stabilized at around $60b a month, $720b for the year. A $720b trade deficit still implies - if I am right about the income balance -- a $850b plus current account deficit.

Scratch the surface, though, and I think three stories emerge from the data:

1. US export growth looks to be slowing

2. The improvement on the import from oil isn't going to last, and non-oil imports are still growing -- albeit a rather modest pace.

3. Europe is doing its part to support global rebalancing, Asia isn't.

by Anonymous on 4/13/2007 07:10:00 AM

From the Philadelphia Business Journal, we get "N.J. legislator wants freeze on subprime-related foreclosures":

A New Jersey lawmaker called upon the state's attorney general on Wednesday to impose a moratorium on subprime mortgage loan foreclosures, to give the state time to investigate and address problems.

The moratorium, requested by Assembly Deputy Speaker Neil M. Cohen in a letter to Attorney General Stuart Rabner, would bar subprime lending firms from initiating new foreclosures, pursuing pending foreclosures and evicting homeowners for up to six months.

I realize that a subject involving local politics and homeowners does, in the wonderful world of journalism, demand that no useful questions be asked prior to publication, but on the off chance that some reporter out there cares to follow up on this scoop . . . could you ask next time whether this is also a moratorium on charging interest on delinquent loans? Does it require the lender to keep the asset in accrual status--even though normal accounting rules would suggest otherwise--because the collectability of the loan is now a matter of politics? If the moratorium expires without new magical escape routes being invented, and the delinquent borrower now owes six months worth of additional interest on the debt, effectively wiping out whatever tiny slice of equity that borrower might have had, will the taxpayers of New Jersey happily pay that? Will the lender eat it? The mortgage insurer? The HELOC holder? Or will the borrower just be screwed later rather than sooner? At least one inquiring mind would like to know.

I'd also kind of like to know what the state of New Jersey (or anyone else, frankly) thinks it can figure out in six months that hasn't become painfully obvious by now, but let's consider that an extra-credit question.

by Calculated Risk on 4/12/2007 05:53:00 PM

From DataQuick: Bay Area home prices up, sales still slow

The median price paid for a Bay Area home moved up in March, regaining much of the decline since last summer even as sales remained at the lowest level in 11 years, a real estate information service reported.

The median price paid for a home in the nine-county Bay Area was $639,000 last month ... up 2.1 percent from $626,000 for March last year, according to DataQuick Information Systems.
...
A total of 8,317 new and resale houses and condos were sold in the Bay Area last month. That was ... down 19.6 percent from 10,343 for March last year.

Different month, same story. Falling demand and rising supply will probably start impacting the median price soon.

by Calculated Risk on 4/12/2007 04:43:00 PM

From DataQuick: Slow sales, record median for Southland homes

Southern California's housing market continued to send contradicting messages in March. Sales remained at a ten-year low while the median sales price increased to a new peak. The rise in median is in part due to a drop-off in sales of entry-level homes, a real estate information service reported.

A total of 21,856 new and resale homes sold in Los Angeles, Riverside, San Diego, Ventura, San Bernardino and Orange counties last month. That was up 23.6 percent from 17,680 for the month before, and down 32.4 percent from 32,320 for March last year, according to DataQuick Information Systems.

Last month's sales were the lowest for any March since 1997 when 20,024 homes were sold. ...

The median price paid for a Southland home was $505,000 in March, a new record and the first time it was above $500,000.

by Calculated Risk on 4/12/2007 04:25:00 PM

From Bloomberg: Heebner Says Home Prices May Fall 20% Amid Bad Loans (hat tip Brian)

Kenneth Heebner, manager of the top-performing real-estate fund over the past decade, said U.S. home prices may plunge as much as 20 percent because of rising defaults on riskier mortgages.
...
``It will be the biggest housing-price decline since the Great Depression,'' Heebner, 66, said today in an interview in Boston. Prices may fall by a fifth in some markets, he said.

That would leave home prices at levels last seen in 2003 and 2004 ... The damage from high-risk mortgages will slow the U.S. economy, though not enough to send it into a recession ...

by Calculated Risk on 4/12/2007 01:00:00 PM

From the Department of Labor:

In the week ending April 7, the advance figure for seasonally adjusted initial claims was 342,000, an increase of 19,000 from the previous week's revised figure of 323,000. The 4-week moving average was 323,250, an increase of 7,000 from the previous week's revised average of 316,250.

Click on graph for larger image.

Here is a different way of looking at the weekly claims data. This graph lines up the last two recessions (1990 and 2001) at week zero, and looks at the 4-week moving average for 2 years before the recession and 3 quarters after the recession starts (gray area is recession).

For the current period, I assumed a recession starts in July 2007 - just to compare to the previous periods. The rise in weekly claims due to hurricane Katrina is very evident.

Although there are historical periods when weekly claims didn't provide any advance warning of a recession, in general claims do start creeping up before the onset of an economic recession. So far weekly claims are not suggesting an imminent (with the next month or two) recession.

by Anonymous on 4/12/2007 12:39:00 PM

Fannie Mae's newest Economic and Mortgage Market Developments report (thanks, Lurker!) has some interesting charts on projected ARM resets for 2007.

First, which ARMs are we talking about? Subprime and Alt-A appear to be the clear winners on volume.






Second, how have borrowers in recent vintages responded to imminent rate resets? By refinancing, of course.

Finally, how eligible for refinance are those subprime loans that will reset this year? I suggest that we carefully ponder this third chart.

If you are like me, you might be wondering how that big chunk of loans with a FICO over 700 and a CLTV of 80% or less found its way into a subprime security.