by Calculated Risk on 10/11/2007 09:19:00 AM

From USAToday: Foreclosures drop, but they're nearly double 2006

Home foreclosure filings fell 8% in September from a 32-month peak in August, but they were still nearly double year-ago levels, real estate information company said Thursday.

A total of 223,538 foreclosure filings were reported in September, down from August's 243,947 but up from 112,210 in the same month a year ago, according to RealtyTrac of Irvine, Calif.

Despite the monthly decline, the September figure represents the second-highest total for filings in a month since the company began tracking filings two years ago.

by Calculated Risk on 10/10/2007 11:30:00 PM

TXU closed today. From Bloomberg: TXU Closes $32 Billion Sale to Group Led by KKR, TPG

TXU Corp. completed its $32 billion sale to a group led by Kohlberg Kravis Roberts & Co. and TPG Inc. in a record buyout ...

Including assumed debt, the transaction was valued at about $45 billion, the most ever in a leveraged buyout of a U.S. company.

According to TheStreet.com, the TXU Debt Sale is Set for Monday

Citi and JPMorgan are expected to sell some $5 billion of loans to help finance the private equity group's $32 billion acquisition.

It will be interesting to see how much debt is sold on Monday, and on what terms. And also how large any pier loans will be at Citi and JPMorgan.

by Calculated Risk on 10/10/2007 09:57:00 PM

From the WSJ: The United States of Subprime (hat tip jim)

... an analysis of more than 130 million home loans made over the past decade reveals that risky mortgages were made in nearly every corner of the nation, from small towns in the middle of nowhere to inner cities to affluent suburbs.

The analysis of loan data by The Wall Street Journal indicates that from 2004 to 2006, when home prices peaked in many parts of the country, more than 2,500 banks, thrifts, credit unions and mortgage companies made a combined $1.5 trillion in high-interest-rate loans.

... the data contradict the conventional wisdom that subprime borrowers are overwhelmingly low-income residents of inner cities. Although the concentration of high-rate loans is higher in poorer communities, the numbers show that high-rate lending also rose sharply in middle-class and wealthier communities.

The Journal's findings reveal that the subprime aftermath is hurting a far broader array of Americans than many realize, cutting across differences in income, race and geography. ...

The data also show that some of the worst excesses of the subprime binge continued well into 2006, suggesting that the pain could last through next year and beyond, especially if housing prices remain sluggish. Some borrowers may not run into trouble for years.

I'm a little confused by this analysis. The WSJ used the federal Home Mortgage Disclosure Act data to scan for "high interest loans". My understanding is that not all "high interest" loans are "subprime", some are Alt-A. And I'm not sure if this analysis included IO ARMs and Neg Am ARMs; two loan types frequently used by homebuyers in more affluent areas. Hopefully Tanta will help me understand.

But the analysis does make it clear that the bubble was widespread, and that the bust will also be widespread.

by Calculated Risk on 10/10/2007 04:37:00 PM

Ramsey Su reported on an auction in San Diego (see REO Auction in San Diego).

Here is a report on an auction in Virginia from the Washington Times: Foreclosed homes flood auction (hat tip X)

Auctioneer Hudson & Marshall sold nearly 240 foreclosed homes in the Washington area last weekend, making a small dent in a large backlog of homes abandoned by buyers who couldn't keep up with escalating payments.
...
Many sold for 20 percent below market value. About 75 of the properties offered at auction failed to sell.

Here are a couple of recent amateur videos on auctions:

Northern Virginia Auction

San Diego Foreclosure Sale Oct 3, 2007

And check out the Vandalized REO too. WARNING: Foul language on walls.

by Calculated Risk on 10/10/2007 02:40:00 PM

From Fortune Magazine: Trucking giant sees blue Christmas (hat tip Andrew)

Here are some excerpt from an interview with YRC Worldwide CEO Bill Zollars. (emphasis added)

Fortune: How is the holiday season shaping up?

Zollars: We've got a window now of about ten weeks or so where we should really see a big increase in shipment volumes as we get ready for Christmas. We have not seen that, and that's a concern. Last year's inventory buildup for Christmas was lower than historical standards, and the season ended up okay - not terrible. This year you have some easy comparisons, so you would expect to see more of a preholiday inventory buildup, but we have not seen that. Maybe it's coming later. Maybe it's not coming.
...
Fortune: Getting back to the economy, could things get worse before they get better?

Zollars: We have not felt the bottom yet. I'm still a bit nervous. Right now, if things continue to deteriorate, I'm worried we may head into a recession. [I feel that] there is a one-in-three chance of a recession. We are prepared for the worst and hoping for the best.

by Calculated Risk on 10/10/2007 10:20:00 AM

The comedians at the National Association of Realtors (NAR) revised down their forecast today for existing home sales in 2007 again. Their current forecast is for sales to be 5.78 million in 2007, down for 5.92 million last month.

Compare this to their original forecast from Dec '06 of 6.4 million units in 2007. (My forecast was for existing home sales to be between 5.6 and 5.8 million units).

The NAR forecast is still too high, even after eight straight months of negative revisions. Luckily for the NAR, they still have two more downward revisions to go.

From the NAR: Improvement in Mortgage Market Bodes Well for Housing in 2008

Existing-home sales are expected to total 5.78 million in 2007 and then rise to 6.12 million next year, in contrast with 6.48 million in 2006. New-home sales are forecast at 804,000 this year and 752,000 in 2008, down from 1.05 million in 2006; a recovery for new homes will be delayed until next spring.
...
Existing-home prices will probably slip 1.3 percent to a median of $219,000 in 2007 before rising 1.3 percent next year to $221,800. The median new-home price should drop 2.1 percent to $241,400 this year, and then increase 1.0 percent in 2008 to $243,900.

Very funny. Thanks for the laughs!

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

Of course I expect Father Market to grant absolution . . .

NEWPORT BEACH, Calif., Oct 10, 2007 /PRNewswire-FirstCall via COMTEX/ -- Downey Financial Corp. (DSL:Downey Financial Corp. announced today that it will report third quarter 2007 financial results on October 17, 2007, and, subject to finalization of results, that it expects to incur an operating loss for the quarter of approximately $23 million or $0.84 per share on a fully diluted basis. This will reduce net income for the first nine months of 2007 to approximately $52 million or $1.87 per share on a fully diluted basis.

The third quarter results are adversely affected by the continued weakening in the housing market. More specifically, the quarter will include the following pre-tax amounts:

-- An approximate $82 million provision for credit losses, which will increase the allowance for loan losses to approximately $144 million or 1.22% of loans held for investment.
-- An approximate $9 million valuation reduction to real estate held for development to reflect declines in the value of single family home lots in which the company is a joint venture partner.

Daniel D. Rosenthal, President and Chief Executive Officer, commented, "We are clearly disappointed with our third quarter results. The continued weakening and uncertainty relative to the housing market, coupled with the third-quarter disruption in the secondary mortgage markets, unfavorably impacted our borrowers and the value of their loan collateral. This has been particularly true in certain geographic areas such as the greater Sacramento and Stockton areas of Northern California and San Diego County. As a result, single family loan delinquencies, as well as losses from foreclosures, rose significantly during the third quarter and led to this quarter's large increase to the allowance for losses."

Mr. Rosenthal further stated that, "In response to recent trends and events, we have further tightened our lending guidelines, activated a loan modification group to work with borrowers on a proactive basis, and provided the necessary resources to dispose of homes acquired through foreclosure on a timely basis. Finally, despite this quarter's unfavorable results, Downey remains well positioned to continue funding quality loans because of our strong capital position and stable source of funds from our retail branch franchise."

by Anonymous on 10/10/2007 09:40:00 AM

More unattractive little snips from my unattractive spreadsheet collection (earlier posts here and here). What can I say? UberNerds don't need no steenkin' fancy formatting.

Item one gives you some sense of the size of the residential first lien securitization market since 1988.

I have been avoiding the terms "agency" and "nonagency" on this blog, but I'm breaking down and using them here. These are an established and pretty old-fashioned way of describing things inside the biz, but they are traps for the unwary. In this particular context, "agency" means Ginnie Mae (which securitizes FHA, VA, and a few other government-insured loans), Fannie Mae, and Freddie Mac, even though only Ginnie Mae is actually an agency of the government (Fannie and Freddie are GSEs, Government-Sponsored Enterprises, not actual agencies). But we used to call them all agencies, and the term survived reality by about a generation and a half, so there. "Nonagency" just means any private issuer.

The column "Issues / Originations" is simply that: one annual number divided by another annual number. That is a very, very approximate way to describe the rate of securitization of originated loans. You would get a number much closer to reality if you used quarterly numbers with a one quarter lag, but I don't have quarterly origination numbers handy. So do throw this number around with a high degree of caution.

What we learn from this spreadsheet is something like the approximate size of the segment of mortgage outstandings that have been in the news lately. The nonagency category (in these charts) includes Jumbo A, Alt-A, and Subprime, primarily first liens. (It includes some MBS that have a small percentage of second liens in them, but excludes MBS that are exclusively second liens. I complain regularly about the "lumpy" or Bridge Mix nature of recent nonagency MBS issues, and this is one reason why.) Basically, all the reporting you are seeing that is based on securitized nonagency loans is discussing around a third of securitized loans outstanding, or 19% of all loans outstanding (as of Q4 2006). Because there is so little data available on unsecuritized loans, it is extremely difficult to answer the question of the extent to which "nonagency" unsecurtized (these are mostly but not exclusively bank and thrift portfolio loans) will perform like their securitized brethren. Most of us believe that the securitized loans were written to much riskier standards than the unsecuritized loans, although as I noted yesterday in reference to the C of the C's last exasperated speech, I do believe that portfolio lending standards have loosened significantly in the last several years. You may in any case draw your own conclusions.

Item two is all the information I have on the break-out of the nonagency category. I got nuthin' on outstandings prior to 2000, but you can guess from what's here that they were rather modest in relation to total mortgage outstandings in those years.

I do not have a refi mix breakout by product for Jumbo A and Alt-A, so I didn't include it. But you can get a sense for how much of new origination is refinance (turnover in the outstandings rather than net additions to it) by comparing issues to the change in outstandings in a given year.

You can also get an idea for why people like me have been snorting derisively for years over this claim that "Alt-A" has a stellar performance history. It barely has a "history" at all. Furthermore, the definition of "Alt-A" in 1995 bears little resemblance to the definition of "Alt-A" in 2006. Remember that "Alt-A" means "alternative" to "A," and so whatever it is, its composition will change as the definition of "A" or "prime," to which it is an "alternative," changes. Back in the mid-90s, SIVA (stated income/verified asset) or--gasp!--CLTVs of 95% were the big "alternatives" and "interest only" was the sort of thing you ran into in commercial lending. Not only do you have, nowadays, IO SIVA with 100% CLTV in "A" (conforming or Jumbo), you have stuff in Alt-A that was simply unimaginable in 1995. So as "A" gets more "alty" over time, "alt" gets waaay more "alty" over time. What people are trying to get at by asking how "Alt-A" can "revert to normal" is, as far as I'm concerned, not very clear. I have no idea what other people think "normal" Alt-A is.

by Calculated Risk on 10/09/2007 10:10:00 PM

My friend Ramsey Su sent me an update tonight:

This is the 3rd San Diego REO auction of its kind in 5 months, 4th, if you count the DHI auction by the same auctioneer. Fortunately, of the 83 properties, only 7 were not previously listed in the MLS so this is an easy batch of properties to research.

I noted yesterday that unlisted REOs are one of the reasons the reported inventory level is currently too low. In this case, over 90% of the REOs were listed.

REOs are now an integral part of the real estate market. Appraisals have come down to earth and REO brokers are selling properties in record volume, though not matching the pace of acquisitions.
...
Similar to the homebuilders, as the REOs force the price down, it "impairs" the neighborhood and homeowners in default are even more likely to be foreclosed upon now.
...
"Previously Valued To"
REDC abandoned previous practice of using the last sold price as their "Previously Valued To" price. I use available tax record and recreated that value. It appears the last average list price of these properties is 81.4% of the last sold price.

Lenders are now aggressively cutting prices on REOs. The average LIST price is almost 20% off the previous selling price! Ouch. Ramsey also notes that many of these homes were previously purchased with 100% LTV, so the homeowners were substantially underwater and workouts were near impossible.

If someone is thinking the lenders are working down the REO inventory in San Diego, Ramsey Su offers the following graph:

Click on graph for larger image.

This graph shows:
NODs: Notice of Default,
NOTs: Notice of Trustee’s sale,
and
REOs: Real Estate Owned by the Lender.

After a NOD is filed, the lender must wait 3 months before filing a NOT. Then the foreclosure sale happens 3 weeks later. Ramsey has shifted the graph to account for these lags.

The graph of NODs shows where NOTs and REOs will go over the next 3 months.

Ramsey adds this comment:

719 REOs in San Diego during the last 4 weeks, comparing to just 1,239 sales reported so far by the MLS for September, are we going to see over 50% REO prevalence next quarter?

It's about to get ugly.

by Calculated Risk on 10/09/2007 09:37:00 PM

From the WSJ: Strip-Mall Vacancies Hit 7.4%

U.S. strip-mall vacancies only inched up in the third quarter, but still hit a 5½-year high ... Rentals of retail space in weak housing markets are getting hit disproportionately hard, as consumers rein in their purchases.

The retail sector has been a pillar of the commercial real-estate industry -- and the overall economy -- for the last seven years ...

The strip-mall vacancy rate rose to 7.4% in the third quarter, from 7.3% in the second quarter and 7% in the year-earlier period. Along with the first quarter of 2002, when the vacancy rate was also 7.4%, that level was the highest in 11 years, according to a survey of 76 U.S. retail markets by Reis.
...
Shopping-mall vacancies have shown no impact from the housing problems yet. Because of malls' long lease terms, economic problems typically take 18 months to 24 months to show up in vacancies and rents.

The CRE slowdown is here.

UPDATE (from an earlier post): As a reminder, in a typical business cycle, investment in non-residential structures follows investment in residential structures with a lag of about 5 quarters.

Click on graph for larger image.

This graph shows the YoY change in Residential Investment (shifted 5 quarters into the future) and investment in Non-residential Structures. In a typical cycle, non-residential investment follows residential investment, with a lag of about 5 quarters. Residential investment has fallen significantly for five straight quarters. So, if this cycle follows the typical pattern, non-residential investment will start declining later this year.