by Calculated Risk on 2/14/2008 05:38:00 PM

From Jim Wasserman and Phillip Reese at the SacBee: Sacramento region foreclosures nearly equal home sales in January (hat tip Jesse)

In the most ominous indicator yet of the Sacramento region's struggling housing market, January saw nearly as many people lose their homes as buy them.

January's 1,815 closed escrows in Amador, El Dorado, Nevada, Placer, Sacramento, Yolo and Yuba counties was only 33 more than the 1,782 foreclosures recorded in the same counties that month, according to statistics from La Jolla-based DataQuick Information Systems of La Jolla and Foreclosures.com. of Fair Oaks.
...
The foreclosures -- more than 10,000 last year in the eight-county capital region -- are fast pushing down home sales prices.
...
Sacramento County's median sales prices for all new and existing homes are down a record 26.8 percent from January 2007, the firm reported. The county's $253,000 median sales price is down now 34.6 percent from an August 2005 high of $387,000.

We have to be a little careful using median home prices, since the mix of homes matters. But clearly foreclosures are impacting prices in the Sacramento region.

by Calculated Risk on 2/14/2008 03:15:00 PM

From Bloomberg: FGIC Insurance Credit Ratings Cut to A3 From Aaa By Moody's (hat tip John)

FGIC Corp.'s bond insurance units had their credit ratings cut six levels to A3 from Aaa by Moody's Investors Service.

``These rating actions reflect Moody's assessment of FGIC's meaningfully weakened capitalization and business profile resulting, in part, from its exposures to the U.S. residential mortgage market,'' Moody's said in a statement today.

by Calculated Risk on 2/14/2008 03:02:00 PM

From MarketWatch: Bond insurers have days to re-capitalize, Spitzer says

Bond insurers have four to five business days to re-capitalize themselves enough to keep their crucial AAA credit ratings, New York Governor Eliot Spitzer said during a Congressional hearing ... If that doesn't happen, regulators will have to step in and separate bond insurers' municipal businesses from their more troubled structured finance units.

The next few days should be interesting.

by Calculated Risk on 2/14/2008 01:59:00 PM

From DataQuick: Bay Area home sales lowest for any month in two decades

Bay Area home sales plunged below 4,000 transactions for the first time in over 20 years last month as the market remained hamstrung by the credit crunch and uncertainty among buyers, sellers and lenders. Price declines steepened, especially in inland markets hit hard by foreclosures, a real estate information service reported.

A total of 3,586 new and resale houses and condos sold in the Bay Area in January. That was down 29.2 percent from 5,065 in December, and down 41.9 percent from 6,168 in January 2007, DataQuick Information Systems reported.

Last month's sales were the lowest for any month in DataQuick's statistics, which go back to 1988. Sales have decreased on a year-over-year basis for 36 consecutive months. Prior to last month the slowest January was in 1995, when 4,326 homes sold. The strongest January, in 2005, posted 8,298 sales. The average for the month is 6,319 sales.

The median price paid for a Bay Area home was $550,000 last month, down 6.4 percent from $587,500 in December, and down 8.5 percent from $601,000 in January last year. Last month's median was 17.3 percent lower than the peak $665,000 median, last reached in July, and was the lowest since February 2005, when the median was $549,000.

... Foreclosure activity is at record levels, financing with adjustable-rate mortgages or with multiple mortgages has dropped sharply.
emphasis added

by Calculated Risk on 2/14/2008 01:07:00 PM

The National Association of Realtors reports that year-over-year sales declined in Q4 in 46 states (including D.C.). Sales increased in 1 state (South Dakota from 36K to 39K) and sales in North Dakota were unchanged.

Note: Data isn't available for Indiana, New Hampshire, and Idaho.

Seven states saw sales declines greater than 30%: Nevada (44.2%), Wyoming, New Mexico, Oregon, Arizona, Utah and Maryland.

Another seven saw sales declines greater than 20%: California, Florida, Georgia, Lousiana, Connecticut, Illinois, and Virginia.

This shows the breadth of the housing sales bust. The bust isn't confined to the "bubble" states, the bust is everywhere.

by Anonymous on 2/14/2008 11:38:00 AM

While we're on the subject of mortgage insurance:

WINSTON-SALEM, N.C., Feb 13, 2008 /PRNewswire-FirstCall via COMTEX/ -- Triad Guaranty Inc. today reported a net loss for the quarter ended December 31, 2007 of $75.0 million compared with net income of $8.1 million for the same quarter in 2006. . . .

Mark K. Tonnesen, President and Chief Executive Officer, said, "The trends we encountered in the third quarter accelerated in the fourth, especially the rise in defaults in locations where home prices are under pressure. While the total portfolio default counts increased 38% during the quarter, in California and Florida, default counts rose a combined 85%. The rapid and significant deterioration in the housing markets and its effect on our portfolio performance has prompted us to implement various measures reflected in our underwriting standards, capital management, loss mitigation and expense management."

Mr. Tonnesen continued, "During the fourth quarter, we took a leadership role in our industry by tightening underwriting guidelines. Our new guidelines, which address loan to value limitations, credit scores and loan documentation, and incorporate volume limitations in distressed markets, led to our reduced fourth quarter production and are expected to further limit production in 2008. The Company has developed and is actively pursuing a plan to manage and enhance its capital resources. Although, at this time, we can give no assurance that we will be able to successfully implement our plan, we realize these efforts are critically important to the future of Triad Guaranty. Thus, enhancing capital resources is a top priority. Capital management dictated our decision during the quarter to withdraw from Canada and contribute this capital to our U.S. insurance subsidiary." . . .

Net losses and loss adjustment expenses of $191.7 million for the fourth quarter of 2007, compared to $106.8 million for the third quarter of 2007 and $41.3 million for the fourth quarter of 2006, reflect the substantial changes that have occurred in the mortgage and housing markets during the second half of 2007 and especially during the fourth quarter. Net losses and loss adjustment expenses for the fourth quarter of 2007 include a reserve increase of $150.7 million compared to $76.6 million and $23.3 million for the third quarter of 2007 and the fourth quarter of 2006, respectively. Paid claims totaled $36.3 million in the fourth quarter of 2007, compared to $28.5 million for the third quarter of 2007 and $16.6 million for the fourth quarter of 2006.

Average severity on Primary paid claims was $41,600 in the fourth quarter of 2007, up from $36,900 in the third quarter of 2007 and $28,100 in the fourth quarter of 2006. The average severity on Modified Pool paid claims in the fourth quarter was $57,900, which also was up significantly compared to $41,300 in the third quarter of 2007 and $26,200 in the fourth quarter of 2006. The Primary delinquency rate was 3.81% at December 31, 2007 compared with 2.80% at September 30, 2007 and 2.47% at December 31, 2006. The Modified Pool delinquency rate rose to 6.09% at December 31, 2007 compared with 4.42% and 2.67% at September 30, 2007 and December 31, 2006, respectively.

by Calculated Risk on 2/14/2008 10:36:00 AM

From the WSJ: Bernanke Signals More Rate Cuts Amid Continued Downside Risks

"At present, my baseline outlook involves a period of sluggish growth, followed by a somewhat stronger pace of growth starting later this year as the effects of monetary and fiscal stimulus begin to be felt," Mr. Bernanke said in prepared testimony to the Senate Banking Committee.

Mr. Bernanke was testifying along with Treasury Secretary Henry Paulson and Securities and Exchange Commission Chairman Christopher Cox. Mr. Paulson Paulson told Senators that he expects the economy to stay in positive territory, while Mr. Cox talked about enforcement efforts underway.

But while he envisions "an improving picture" on the economy, Mr. Bernanke cautioned that "downside risks to growth remain, including the possibilities that the housing market or the labor market may deteriorate to an extent beyond that currently anticipated, or that credit conditions may tighten substantially further."

The Federal Open Market Committee, he said, "will act in a timely manner as needed to support growth and to provide adequate insurance against downside risks." He also signaled that future policy moves will depend on the Fed's medium-term forecast for growth and inflation "as well as the risks to that forecast," since policy works with a lag.

Here is Bernanke's testimony.

by Anonymous on 2/14/2008 09:47:00 AM

From Mortgage Pig™.

by Anonymous on 2/14/2008 08:29:00 AM

I had a feeling this sort of thing might get underway:

McLean, VA – Freddie Mac (NYSE: FRE) today announced it is temporarily changing its Private Mortgage Insurer Eligibility Requirements [PDF 160K] in order to increase the claims-paying and capital retention capacities of its mortgage insurance counterparties during the current market correction.

Effective on or after June 1, 2008, Freddie Mac-approved private mortgage insurers may not cede new risk if the gross risk or gross premium ceded to captive reinsurers is greater than 25 percent. Beyond limiting the allowable cede to 25 percent, the temporary policy does not limit the mortgage industry's use of captive reinsurance.

Triggered by the ongoing decline in home prices and poor performance of subprime, Alt A and other higher-risk mortgages, Freddie Mac says the temporary change is intended to allow mortgage insurers to retain more insurance premiums to pay current claims and re-build their capital base.

Today's announcement applies to all Freddie Mac-approved private mortgage insurers. In addition, Freddie Mac is now requiring all eligible private mortgage insurers to provide additional information about their business activities to better monitor the state of the industry.

Private mortgage insurance enables Freddie Mac to buy loans when a borrower makes a downpayment of less than 20 percent of the purchase price. In a captive reinsurance structure, the mortgage insurer cedes a portion of its premium income to a special trust set up to cover an agreed upon share of losses from a pool of mortgages.

Freddie Mac also announced it is suspending its Type II Insurer requirements otherwise automatically applicable to mortgage insurers that are downgraded below AA- or Aa3 by the rating agencies provided the mortgage insurer commits to submitting a complete remediation plan for our review and approval within 90 days of the downgrade. Freddie Mac also reserves the right to impose additional restrictions in its sole discretion.

The GSEs have enormous exposure to the MIs. Their own risk management depends on how they maintain eligibility standards for MI carriers; if they accept policies written by lower-grade insurers with less certain claims-paying ability, their own reserves for loss have to increase. On the other hand, if they cut off an insurer that gets notched under AA-, they're not just losing new insured mortgage business, they're increasing the pressure on the MI by cutting off its main source of new policies written. The problem with a downgraded MI for the GSEs: you can't live with them, and you can't shoot them.

So the "workout" proposals begin. Whether this is a wise response that will avert major catastrophe in the MI business, or the first step in following a failing MI down, is anyone's guess. I personally can't see how they can not "work things out" with the MIs right now, even as I see it as just one more reason that Congress needs to give it a rest with these plans for the GSEs to take on more and more of the risk of failing private sector mortgage portfolios.

by Calculated Risk on 2/13/2008 10:39:00 PM

From the WSJ: Worried Bankers Seek to Shift Risk to Uncle Sam

The banking industry ... is urgently shopping proposals to Congress and the Bush administration that could shift some of the risk for troubled loans to the federal government.

One proposal, advanced by officials at Credit Suisse Group, would expand the scope of loans guaranteed by the Federal Housing Administration. The proposal would let the FHA guarantee mortgage refinancings by some delinquent borrowers.
...
The risk: If delinquent borrowers default on their refinanced loans, the federal government would have to absorb the loss.

This plan makes no sense. Why should the taxpayers bailout the lenders and investors?