by Calculated Risk on 10/23/2007 12:54:00 PM

From the WSJ: UPS Posts 3.7% Rise in Profit Amid International Growth

The world's largest package delivery company expects domestic package volume in the fourth quarter will grow at its slowest rate for the period in four years, amid weakened consumer spending in the U.S. ...

"Retail sales growth is expected to remain weak and is a wild card going into the holiday shipping season," Chief Financial Officer Scott Davis said during a conference call with analysts. "It remains to be seen how quickly the U.S. economy will return to long-term growth trends," he added, noting that UPS sees economic growth of about 2% this year.

Also from the WSJ: Burlington Northern Earnings Rise 8.4% Despite High Fuel Costs

"Although we have concerns near-term about the economy, housing markets, high fuel prices and general consumer softness, we continue to be optimistic about the long-term future of BNSF," [Chairman and Chief Executive Matthew K. Rose] said.
...
In July, the railroad said it expected about a 3% decline in volume in the third quarter, mainly due to weak intermodal volume, which involves transferring freight from one method of transport to another. Tuesday, the company said volume fell 4.7%. A recession in freight volumes has been affecting the rail industry for nearly a year, partly because of weakness in the housing and automotive markets.

The UPS numbers are weak, but not too bad - the Burlington Northern volumes look recessionary.

by Calculated Risk on 10/23/2007 12:42:00 PM

From the Chicago Tribune: Chicago builder, Neumann Homes, closes branches, prepares bankruptcy filing (hat tip Lyle)

Neumann Homes, one of Chicago's largest homebuilders, announced on Monday that it intends to file for bankruptcy.
...
The company, ranked among the top 10 in Chicago, also builds in Wisconsin and Colorado. Company CEO Kenneth P. Neumann said in the statement that "significant downturn in the Detroit, Chicago and Denver housing markets resulted in this situation. ... Even after the significant help we have received from our lenders this year, the company can no longer weather this storm."

Homebuilders bankruptcies will probably become common (someone will have to start a home builder implode-o-meter), but also note the comment "... significant help we have received from our lenders". Eventually lenders will start giving up on homebuilders, and this means more builder bankruptcies, and more write downs for the lenders.

by Anonymous on 10/23/2007 10:01:00 AM

I guess we can only hope that the credit crunch cramps the style of identity thieves. From the Wall Street Journal:

Last month, Waldell Thomas, a maintenance worker at Montego Apartments in Atlanta, made a discovery inside the complex's Dumpster: a cache of 40 boxes of loan files containing Social Security numbers, credit reports and other data on customers of Ameriquest Mortgage Co.

Next time you talk to a mortgage broker, you might want to ask about their file retention/destruction policies. As a general rule, "I keep them in cardboard boxes in my basement until I take them to the dumpster of some condo project" is not the right answer.

The worst part of this is that there do not seem to be criminal penalties for file dumping in Georgia. I guess it's not a crime until the dumpster-divers find your credit report.

by Anonymous on 10/23/2007 09:19:00 AM

Thanks to Anonymous, our attention is directed to BankUnited's visit to the confessional. Somehow loan loss reserves went from $8-10MM in pre-release to $19.1MM in the official release. It's the sort of thing that can happen to anyone, you know.

Because we were talking about Option ARMs yesterday, I thought I'd share this bit:

As of Sept. 30, 2007, BankUnited’s option-ARM balances totaled $7.6 billion, which represented 70% of the residential loan portfolio and 60% of the total loan portfolio. For the quarter ended Sept. 30, 2007, the growth in negative amortization was $48 million, compared to $46.4 million for the quarter ended June 30, 2007. Of the $7.6 billion in option-ARM balances, $6.5 billion had negative amortization of $270 million, or 3.55%, of the option-ARM portfolio.

If I'm reading that correctly, it means that 87% of the OA portfolio, by balance, is negatively amortizing, and the total amount of negative amortization is 4.1%. Without the weighted average age of the loans, there is no way to calculate an annual rate of negative amortization. I would be surprised if the average age is more than 24 months, which would produce a rate of around 2.00% annual average balance growth.

by Calculated Risk on 10/22/2007 09:20:00 PM

From the WSJ: To Keep Homes, More People Bet On Bankruptcy

As the nation's housing slump continued, consumer bankruptcy filings last month were up nearly 23% from a year earlier -- representing nearly 69,000 people, according to the American Bankruptcy Institute ... Overall, consumer bankruptcy filings were up 44.76% during the first nine months of this year.

In some areas where the real-estate boom was especially heated, the increase in filings has been even sharper -- especially for a type of bankruptcy that allows homeowners to halt foreclosures on their homes.
...
In recent months ... more homeowners are filing for bankruptcy under Chapter 13, which staves off foreclosure proceedings while the homeowner works out a plan to pay ...

In California, one of the nation's hottest markets during the recent real-estate boom, the number of nonbusiness Chapter 13 petitions in the second quarter more than doubled from a year earlier ... Over the same period, such filings increased nearly 40% in the northern district of Illinois, which includes Chicago, and 70% in Massachusetts.

"It's a mess," says William McLeod, a Boston bankruptcy attorney who says he is receiving twice as many calls from debtors as he did a year ago. "This is fed right now by real estate, and what's been this mortgage frenzy in the last several years."

by Calculated Risk on 10/22/2007 03:38:00 PM

I just spoke with a friend in San Diego - they were evacuated at 2AM this morning. Apparently at least four homes on their block have burned, including the house right next door to them (they saw it on the news).

MarketWatch has an audio from Herb Greenberg describing his evacuation. Here is his blog:

This is remarkable. They’ve just evacuated a major part of San Diego: Everywhere East of the I-5, North of the 56 and South of Lake Hodges. If you know San Diego, this is, well, half the area. My area, Carmel Valley, is included. This is JUST east of Del Mar. Total track home city, but also includes Rancho Santa Fe.

It is really smoky at my house in Orange County, but it is safe.

by Calculated Risk on 10/22/2007 11:05:00 AM

From the IMF: Assessing Risks to Global Financial Stability

Click on graph for larger image. This chart from Credit Suisse via the IMF shows the heavy subprime resets in 2008, plus it shows the reset problems with Alt-A and Option ARM loans in later years. Although many of the homeowners in the 2009 to 2011 reset periods will refinance (if they can), this shows that the problems in housing will linger for several years. What is especially concerning is all these Option ARM resets in 2010 and 2011. Most of these homeowners are selecting the minimum payments (negatively amortizing) and many homeowners will be upside down when the ARM resets.

by Calculated Risk on 10/22/2007 10:44:00 AM

From MarketWatch: KKR, Goldman cancel Harman deal, to invest $400 mln

[KKR] and Goldman Sachs will cancel their $8 billion takeover for Harman International but invest $400 million in convertible notes ... KKR and Goldman won't be sued and won't have to pay a termination fee under the agreement struck.

A pretty clean exit for KKR and Goldman. No pier loans here.

by Calculated Risk on 10/22/2007 10:15:00 AM

From Bloomberg: U.S. Housing Decline Threatens to Last Into 2009: John F. Wasik. A few excerpts:

[Ivy] Zelman ... says it's unlikely the U.S. housing market will recover before 2009, adding there's a ``50 to 60 percent chance of a recession,'' as the housing slump curbs consumer spending.
...
When you consider the huge home inventories and tight-as-a- drum mortgage restrictions, it's easy to conclude that the housing slump could extend well past 2008. ...

``I've never seen the market as bad as this,'' Zelman said. ``And it could get worse. The home-price decline could range from 16 percent to 22 percent.''
...
``These are the worst inventories we've seen as a nation,'' she says.
...
``Some 74 percent of consumer expenditures are correlated to housing. I don't think the consumer will hold up. They will cut back on things like buying cars and vacations.''

While Zelman forecasts that sales will drop for the next two years, she isn't as optimistic on home prices, which she says may continue falling until 2010 or 2011.

``We'd be better off if prices corrected all at once. It will get worse before it gets better.''
...
Keep in mind that job growth and consumer spending bear close scrutiny. If Zelman is right about a recession coming, then prices may fall more, plunging the housing market into an even sorrier state.

It's nice to have Zelman back in the news. Her views are close to mine.

by Anonymous on 10/22/2007 09:45:00 AM

Via the New York Times:

“The market’s really low right now, so you can get a good price,” said Lori Crook, a food server at Keys Cafe who said she was looking for a place she could fix up and sell. “Even if you can’t sell it right away, if you just sit on it and sit on it, it will go up.”

The auction involved a tiny fraction of foreclosures in the state. Julie Gugin, executive director of the nonprofit Minnesota Homeownership Center, projected statewide foreclosures at 20,000 this year, up from 11,000 last year, based on data from sheriffs’ sales. . . .

“This is such a stark and dramatic illustration of how serious the problem is,” said Ron Elwood, a lawyer at the Legal Services Advocacy Project, which lobbies in the interest of low-income residents. “The reality is, half the reason 300 homes are being auctioned off is that speculators tried to make a killing and failed to do so.” In Minneapolis, 55 percent of foreclosures this year involved houses not occupied by their owners, according to county records.

But instead of alarming buyers about the risks, the auction of so many foreclosures at once was an invitation to speculators, small and large. Some, including Bryan Kihle and Jim Casha, who bought a four-bedroom house for $145,000, bid without seeing the properties. “I just looked at the picture and thought if we got it cheap enough, we could rent it for a year, then sell it when the market goes back up,” said Mr. Kihle, a building contractor.

Some day this war's going to start.