by Calculated Risk on 10/03/2007 01:23:00 PM

From the San Jose Mercury News: Home appraisers pushed to inflate values

Pushed to exaggerate home values during Silicon Valley's real estate run-up, appraisers say agents and homeowners are now pressuring them to prop up those values as prices decline.

People "are trying to refinance to get their butts out of trouble, and the values aren't there," said Mike Terry of MK Terry Appraisals, who appraises homes in San Mateo County.

... Many appraisers say they routinely feel some pressure to inflate home values. A national industry survey shows that the number reporting such pressure has grown by more than half over the past four years.
...
"Exaggerated appraisals are not the entire reason these agencies and financial institutions are in financial distress, but they are a piece of the puzzle," said John Brenan, director of research and technical issues for the Appraisal Foundation.

..."What a lot of them do is what I call dialing for dollars," said Jim Manning, a semiretired appraiser with 32 years in the business who lives in Half Moon Bay. "They get on the phone and start dialing appraisers, asking, 'Who can come up with this value,' and 'We don't want it if you can't.'

by Calculated Risk on 10/03/2007 10:56:00 AM

Professor Hamilton looks at auto sales and more.

We've been dwelling here quite a bit on the bleak incoming housing data. But I have to admit that I'm not seeing that spilling over so far into some of the other key economic indicators.

Auto sales usually fall a bit between August and September, and perhaps declined slightly more than normal this fall, with total light vehicles sold in the U.S. in September down 3% from September 2006.

...taking August and September together, I think we can safely say that the bottom did not fall out of the market in some kind of psychological reaction to events in mortgage and financial markets over the last two months.

See Hamilton's post for graphs of auto sales.

by Anonymous on 10/03/2007 10:20:00 AM

I'm up late again this morning, and what do I have to show for it?

From the Wall Street Journal:

For Countrywide Financial Corp., this time it's personal. At least that's what a top executive says.

Having suffered a barrage of negative headlines while battling to shore up its finances and shrink its work force of 60,000 by as much as 20%, the nation's largest home-mortgage lender is launching a PR blitz aimed at repairing its reputation. And it starts inside the company.

For the demoralized employees who remain, the new campaign means wristbands with the phrase "Protect Our House" and pep talks promising to keep "amply" rewarding the most successful among them amid a struggle with the sharp drop in mortgage lending as defaults soar and house prices decline.

Leading the counterattack is Andrew "Drew" Gissinger III, a former offensive lineman for the San Diego Chargers football team who serves as executive managing director, residential lending, at Countrywide. . . .

"Let's call it like it is, as I mentioned earlier, it's gotten to the point where our integrity is being attacked. NOW IT'S PERSONAL!" says the transcript of a talk made last week by Mr. Gissinger. "... And, WE'RE NOT GOING TO TAKE IT!"

The transcript, prepared from a phone call with 250 "opinion leaders" at Countrywide on Sept. 26, offers a peek inside one of the biggest crisis-management efforts under way in an American corporation. Along with Mr. Gissinger on the call was Jason Schechter from WPP Group's Burson-Marsteller, a public-relations firm with a long history of crisis management.

"We wanted to assure you that my firm and I have brought companies through the worst type of publicity," Mr. Schechter said, according to the transcript. He added that a six-person Burson team was ensconced at Countrywide's Calabasas, Calif., headquarters, and about 25 people overall were working on the campaign.

Rick Simon, a Countrywide spokesman, said the transcript was sent to employees Friday. It says that employees are expected to sign a pledge to "demonstrate their commitment to our efforts," and Mr. Simon says about 11,000 have signed. Each employee who signs up receives the Protect Our House wristband made of green rubber. "We believe there's a great story about the strength of the business," says Mr. Simon.

To counter criticism that its lending practices are to blame for a surge in foreclosures, Countrywide plans to emphasize its "mission" of helping Americans become homeowners, the transcript says. "I want employees to look down at their wristbands and remember our fundamental mission to help customers achieve the American Dream, and to help them withstand those malicious outward attacks and to motivate them to continue on our journey with unwavering conviction," the transcript quotes Mr. Gissinger as saying.

The company also is reaffirming its pugnacious side. "We're competitive to a fault," he says in the transcript, adding: "Our divisions will have clear goals, built on our ruthless attack strategies to continue to grow profitably. Growing, winning and being the best is also hard wired into our DNA." . . .

"We're demonized something fierce," Mr. Mozilo said in an interview two weeks ago.

Mr. Mozilo, 68 years old, the self-made son of a butcher from New York's Bronx borough, knows how to fight back. He often has skewered his competitors as incompetent or irresponsible during conference calls with analysts. In a call last year, he said big Wall Street firms competing with Countrywide "don't know anything about the mortgage business."

According to trade publication Inside Mortgage Finance, Countrywide had a market share of more than 17% in this year's first half. And Mr. Mozilo's compensation last year, including the exercise of stock options, totaled $120 million. Even so, he said last month that he still sometimes feels like "a poor kid from the Bronx."

In the transcript, Mr. Gissinger takes up that viewpoint: "As always, we embrace the role of being the underdog. Our commitment and ability to win is demonstrated where it counts -- the scoreboard."He also warns employees to expect more "bad press." Some of that is likely on Oct. 26, when the company is due to report third-quarter results.

Kenneth Posner, an analyst at Morgan Stanley, has forecast that Countrywide will have a loss of $2.4 billion, or $3.47 a share, in the third quarter, compared with earnings of $647.6 million, or $1.03 a share, a year earlier. Countrywide hasn't provided a third-quarter forecast.

Mr. Gissinger sought to reassure employees about sticking with the company in the transcript: "I've made a lot of people rich or richer who have joined me on my past crusades. Please trust the same holds true here."

The WSJ links to the call transcript here.

by Calculated Risk on 10/02/2007 03:18:00 PM

More on auto sales from Bloomberg: Ford, Toyota Say U.S. Sales Decline; GM, Honda Gain

... Toyota Motor Corp. fell 4.4 percent ... Honda, Japan's second-biggest automaker, reported a 9.4 percent increase. GM rose less than a percentage point.
...
The industrywide annualized sales rate probably fell to 15.9 million last month, according to eight analysts and nine economists surveyed by Bloomberg. The September 2006 rate was 16.6 million.

The two month estimate for PCE (personal consumption expenditures) suggests real PCE growth in Q3 will be about 3.0%. However I think PCE slowed sharply in September - as suggested by auto sales, Redbook and other sources.

by Calculated Risk on 10/02/2007 02:04:00 PM

Kelly Evans at the WSJ presents a chart comparing pending home sales to existing home sales. The chart uses a 1.5 month lag between pending and actual sales. See WSJ: Where Is the Bottom?


The WSJ credits: "Source: Lehman Brothers; Note: latest existing home sales reading is a forecast"

The 1.5 month lag suggests that the sharp drop in contracts signed during July (the July pending home sales index was revised to a 10.7% decline), only partially impacted August existing home sales - and will also impact existing home sales in September. The same is true for contracts signed in August; we will see a portion of the impact of fewer contracts in the September existing home sales report, and the remainder in the October report.

Evans at the WSJ adds:

On the bright side, economists are hopeful that the number can only go up from here, as mortgage lenders relax a bit from August’s panic.

Maybe not. We have to remember that existing home sale activity is still above the normal level.

Click on graph for larger image.

This graph shows annual existing home sales since 1969 (and inventory levels since 1982). (Note: 2007 is the August seasonally adjusted annual rate of sales).

The current sales rate is still above normal historical levels - even if sales fall 6% to 10% in September (as suggested by the pending home sales index).


The final graph shows sales and inventory as a percent of owner occupied units. This normalizes sales for increases in population and changes in household size.

Sales would have to fall to about 4.6 million units (SAAR) to reach the median level of sales as a percent of owner occupied units for the last 35 years. So even if sales fall to 5 million or 5.2 million units in September, sales could fall further. So the hopeful view that "the number can only go up from here" is probably overly optimistic.

by Calculated Risk on 10/02/2007 12:23:00 PM

The Auto companies report September sales today.

From MarketWatch: Ford September U.S. sales fall 20.5% (hat tip REBear)

Ford Motor Co. on Tuesday posted a 20.5% drop in September U.S. sales to 189,863 cars and trucks. ... The flagship Ford F-Series truck, long the nation's best-selling vehicle, saw its sales drop 20.8% amid stiffer competition in the segment and a steep downturn in the U.S. housing market.

by Anonymous on 10/02/2007 12:17:00 PM

Because everything has gotten so boring and predictable.

Here's the quote. Your job is to identify the speaker (without Google):

``The Wall Street firms were under real pressure to supply asset-backed securities, and the Wall Street firms were pressing the lenders to give them more raw material,'' [mystery speaker] said today. ``Credit standards just went straight down, and applications for subprime mortgages soared. The consequences of that are evident.''

I'll give you a hint: it wasn't me, and it wasn't CR.

by Calculated Risk on 10/02/2007 11:08:00 AM

From the NAR: Mortgage Problems Continue to Hamper Pending Home Sales

The Pending Home Sales Index*, a forward-looking indicator, fell 6.5 percent to a reading of 85.5 from an upwardly revised 91.4 in July, based on contracts signed in August. It was 21.5 percent below the August 2006 index of 108.9.

This follows the 12% decline in the index for July.

by Anonymous on 10/02/2007 11:06:00 AM

No longer stunned and surpised, we are now overwhelmed with ennui:

The September remittance reports revealed that conditions in the mortgage market are worsening, although the rate of credit performance dislocation is mostly slowing, according to a UBS report.

Delinquency rates in the buckets - 30, 60+, FC+REO - have increased, according to UBS's data. However, while the delinquency increases for FC+REO continued unabated, the rate of delinquency increases for all 30DQ and three out of four 60+DQ indices have eased. UBS reported a "somewhat surprising" 1.83% increase in FC+REO rates among ABX07-1 deals.

Meanwhile, ABX06-1 deals saw an increase of 1.43%, which UBS analysts credited to the impact of resets and reduction in pool factors. Cumulative losses jumped to 13 basis points from 10 basis points on all indices except ABX07-02.

The September data, with their increased delinquencies and foreclosures, do not come as a surprise, as the subprime market remains unstable.

"Our whole stance on this entire debacle right now is that it's so perfectly predictable that it's boring," said Michael Bykhovsky, CEO of Applied Financial Technology. "If we feed current [Home Price Indices] and projected HPIs into the model, the resulting delinquency output is very much consistent with what we are observing."

So, um, the models really work after all? Now that is boring.

by Anonymous on 10/02/2007 10:53:00 AM

Forgive me. I slept until nearly 8:00 am today, and then my PC got abducted by aliens. I am a drive-by victim of this "anti-virus software" scam foisted on me by software developers who will not allow me to take enough risk. You know.

Anyway, USA Today is always good for a laugh:

David Brannan, 44, of Monroe, N.C., is co-founder of a software company that's been in business since 1989. He and his wife have owned their home for 18 years and are in the process of buying a new, custom-built home. Brannan has an excellent credit score.
So he was stunned last week when CitiMortgage (C), which just a week earlier had said everything was in good shape, sent a letter saying his mortgage application had been rejected. It suggested he consider credit counseling.

Brannan called Citi, which told him his income for the past two years wasn't enough for the size of the loan. He says Citi refused to include profit distributions from his company that account for more than half his income. (CitiMortgage declined to discuss Brannan's application. But spokesman Mark Rodgers says the company will restructure or decline a preapproved loan if it can't sufficiently verify information from a borrower.)

Brannan belongs to a group that's become a kind of drive-by victim of the mortgage industry crisis: the millions of Americans who are self-employed.

Yes, those people who custom-build homes and don't have permanent financing lined up yet. We see a lot of that.

This part is nice, though:

McNamee says lenders that are still catering to the self-employed have been flooded with business, which means it might take longer to process a loan. That can be difficult for some successful self-employed borrowers to accept. "When you're talking about CEOs of companies, they want an answer, and they want it now," McNamee says.

But hurrying the process, he says, could increase the cost of the loan. Even for well-off business owners, qualifying for a mortgage is "not that smooth, easy no-brainer like it used to be. If you want it to be quick, you're paying a higher price."

Anyway, feel free to discuss pending home sales until we hear what happened to CR this morning.