by Anonymous on 3/12/2008 11:45:00 AM

Well, this is interesting. The GSEs have decided to compete with each other.

I summarized Fannie Mae's conforming jumbo guidelines here. The Freddie guidelines just published have some substantial differences:

1. Freddie is accepting 40-year fixed as well as 30-year fixed with a 10-year IO (Interest Only) term. Fannie is 30-year only and no fixed-rate IO.

2. Freddie is allowing cash-out refis on principal residences only, with a maximum LTV of 75%, a minimum FICO of 720, and a maximum disbursed cash limit of $100,000. All cash-outs get a 1.00% fee hit.

3. Freddie is allowing a maximum LTV/CLTV for purchases of 90% on an ARM; Fannie allows 90% only on FRMs. Freddie's FICO requirements are slightly tighter.

4. Freddie will allow loans to be approved through Loan Prospector (its automated underwriting system), and will therefore allow "Accept Plus" documentation. (If the loan is underwritten without LP, it requires standard full doc.) "Accept Plus" allows partially-verified income for salaried borrowers and stated income for self-employed borrowers. Loans receive "Accept Plus" eligibility based on LP's internal evaluation of the entire loan file; it cannot be used with non-LP loans. Fannie is not allowing AUS and requiring full doc on all loans (so far).

5. Freddie's base fee adjustments are like Fannie's, .25 for a fixed and .75 for an ARM. Besides the cash-out adjustments, Freddie is also charging an additional .50 for no-cash-out refinances.

6. Otherwise the guidelines are essentially similar.

I know I promised to make some estimates of origination volume of the LFKAJ, but every damned time I think I've got all the data, it just gets more interesting.

by Calculated Risk on 3/12/2008 10:34:00 AM

From MarketWatch: Freddie Mac CEO sees U.S. home prices falling further

Speaking to analysts on a conference call, CEO Richard Syron estimated that housing prices, from peak to trough, have dropped only a third as far as he thinks they're going to. The McLean, Va.-based company's expecting a peak-to-trough decline of 15% in all.

This implies Syron believes house prices have fallen 5% so far. This is one of the problems: it's hard to tell exactly how far prices have fallen.

The Case-Shiller National House Price index suggests prices are off 8.9% over the last year, and 10.1% from the peak (as of the end of Q4). The OFHEO Purchase Only index shows prices are essentially flat year-over-year, and off 2.5% from the peak.

Syron is using the OFHEO index. I lean toward the Case-Shiller index, especially for individual cities.

by Calculated Risk on 3/11/2008 08:56:00 PM

This is a followup to the Housing Wire story yesterday on HELOCs.

From Robin Sidel at the WSJ: Latest Trouble Spot for Banks: Souring Home-Equity Loans

Here comes another headache for banks suffering from the mortgage downturn: Losses on home-equity loans are soaring ...

"These losses are well beyond what we would have modeled...and continue to get worse," said Charles Scharf, head of J.P. Morgan's retail business.

by Anonymous on 3/11/2008 06:02:00 PM

UPDATED BELOW

Or whatever it is you guys are. The sort who become fascinated by weird housing-related data. The sort with good researching abilities. The sort with a surprising amount of time to kill given your apparent educational background and skill levels. You know, UberNerds.

I was spending some time today with the official list of counties that are subject to the new higher jumbo-conforming loan limits. All the usual suspects are on there, plus a few surprises. Like, Athens County, Ohio.

What is Athens County, Ohio doing on this list? It's the only county in Ohio to make the list, which given Ohio's hideous RE market conditions, isn't that surprising. But why did this county--which is not even a metropolitan area (it's a "micro area")--become the highest-cost county in Ohio, loan-limit-wise? The new conforming loan limit for Athens County is $432,500. I'm having a hard time finding data on median home prices in Athens County--since it isn't even an MSA--but I do see that, according to the Ohio Association of Realtors, the average price of homes sold in December of 2007 was $111,891. The highest average current listing price I found on a real estate site was $158,000. I could only find a handful of listings over $400,000. Because the new jumbo-conforming limits are supposed to be 125% of area median prices, that implies a median price for Athens County, Ohio of $346,000.

I hasten to add I have nothing against Athens County, Ohio. I'm sure it's a very nice place. But can anyone tell me what they're smoking at HUD? Does somebody with some important political connections live in Athens County? Was the median price calculated on more than two home sales? Help me out here, Nerds.

UPDATE: Ponder this (source):

(Thanks, JKB!)

by Calculated Risk on 3/11/2008 05:38:00 PM

Professor Krugman writes Sterilized intervention, big time

[B]asically the Fed is going to be swapping Treasuries for dubious securities, in an attempt to give the market a REALLY BIG slap in the face. I understand what they’re doing, and might have done the same in their place. Still, all I can say is Wheeeee!

Also Krugman suggests Bernanke is following the paper he co-authored in 2004: see Non-standard Ben:

[A]nyone trying to understand what the Fed’s up to should look at the 2004 paper Ben Bernanke co-authored on “Monetary Policy Alternatives at the Zero Bound”. One alternative was “quantitative easing” — basically forcing extra reserves on banks, whether they want them or not, which is what the Fed did in the first wave of panic. Another is “changing the composition of the central bank’s balance sheet”, that is, buying assets other than the usual T-bills.

Steve Waldman at interfluidity writes: The Fed's Balance Sheet Constraint

After the FAF expansion, repo program, and TSLF, the Fed will have between $300B and $400B in remaining sterilization capacity, unless it issues bonds directly.

In the simplest terms, there are two related problems: a liquidity crisis (now in the 3rd wave), and a solvency crisis. With the TSLF, the Fed is trying to keep credit available for the most credit worthy borrowers in the short term, while they wait for fiscal and monetary policy to hopefully stimulate the economy later this year.

As Waldman notes, the Fed has used up a significant portion of their available resources already. So, this "slap in the face" better work. If we start talking about a 4th wave of the liquidity crisis, watch out!

The solvency crisis will persist until housing prices near their nadir. Since the solvency crisis will remain a threat to spillover into another liquidity crisis, it might be difficult for the Fed to unwind these "temporary" actions any time soon.

by Calculated Risk on 3/11/2008 05:05:00 PM

The WSJ reports: Glut of Homes on the Market Grows, New Data Shows

The supply of homes available for sale in major metropolitan areas grew modestly in February, new data show.

Total listings of homes in 29 metro areas at the end of last month were up 1.2% from a month earlier, according to figures compiled by ZipRealty Inc., a real-estate brokerage firm based in Emeryville, Calif.

In January, the inventory of existing homes increased 5.5% according to the National Association of Realtors (NAR). If the number of listed homes a further increased 1.2% in February (per ZipRealty's sample) that would still put the early season inventory increases above normal.

It is very likely that we will see record nominal inventory levels soon, possibly in April. Note: the current inventory record is 4.65 million units set last July. Last month the NAR reported a record January inventory of 4.19 million.

by Anonymous on 3/11/2008 02:22:00 PM

This is ugly:

Struggling to save their homes from foreclosure, more Americans are raiding their 401(k) retirement accounts to pay their bills — and getting slammed with taxes and penalties in the process, according to retirement plan administrators. . . .

Such hardship withdrawals began rising last year and, by January this year, had exceeded January 2007 levels. During the first month of the year, as the economic slowdown tightened pressure on mortgage holders, hardship withdrawals rose 23% at plans that Merrill Lynch (MER) administers, compared with the same period in 2007, says Kevin Crain, managing director of the Merrill Lynch Retirement Group.

The 401(k) withdrawals are rising mainly because people such as Campbell and her husband want to save their homes. Merrill Lynch found that the primary reason for the rise in hardship withdrawals was to prevent foreclosure or eviction, based on its sampling of applications filed in January.

Likewise, in the first month of the year, compared with January 2007, Great-West Retirement Services saw a 20% increase in hardship withdrawals to save a home. And Principal Financial (PFG) reports that in January it received 245 calls from participants who inquired about 401(k) withdrawals to prevent a foreclosure or eviction, up dramatically from 45 similar calls it received in January 2007.

by Calculated Risk on 3/11/2008 12:48:00 PM

From Fed Governor Randall S. Kroszner: The Importance of Fundamentals in Risk Management

Kroszner blasted banks for ignoring excessive risk concentration:

[I]n particular cases, senior management was not fully aware of the firm's latent concentrations to U.S. subprime mortgages, because they did not realize that in addition to the subprime mortgages on their books, they had exposure through off-balance sheet vehicles holding mortgages, through claims on counterparties exposed to subprime, and through certain complex securities.

And then he cautions on commercial real estate (CRE) loan concentrations:

Banks should also remember that past experience is not always predictive of future events, meaning that they should be somewhat creative in designing potential shocks. In CRE, for example, banks should move beyond considering single-name risk and include scenarios involving broader risks to the CRE sector and how such risk may be correlated in times of stress with other parts of the portfolio.

It's interesting that the Fed issued a guidance cautioning about CRE loan concentrations at the end of 2006, and yet the evidence suggests CRE loan concentrations at small and medium-sized institutions still continued to increase.

by Calculated Risk on 3/11/2008 10:52:00 AM

Professor Ed Leamer, Director of the UCLA Anderson Forecast, has a very good forecasting track record. He is arguing that the economy will not be weak enough to be called an official recession, but he is still pretty pessimistic and sees an extended period of sluggish growth.

From Peter Y. Hong at the LA Times: UCLA experts don't buy recession

"We are holding firm: no recession this time," UCLA Anderson Forecast Director Edward Leamer said in a report being released today.
...
UCLA predicts that GDP will dip by 0.4% in the second quarter of this year, but then rebound.
...
Unlike past recessions, the economy will not show dramatic improvements after this period of sluggishness, Leamer predicted.

"In the past 10 years, the U.S. economy has had two locomotives," Leamer said. One was the high-tech stock bubble of the late 1990s, the next was the run-up in housing.

"Looking to the future, there isn't another locomotive. There is still not a reason for great optimism," he said.

Home prices will also be slow to bounce back, and the UCLA forecasters do not predict when the housing market will recover.

Interesting. UCLA sees declining real GDP in Q2, but apparently positive GDP growth in Q1. Their primary reason for optimism (such as it is) is that not enough jobs will be lost in manufacturing for an official recession. This is similar to my argument that the the U.S. recession will not be severe (unemployment will not rise far enough), but I'm definitely more pessimistic than Leamer (I think a recession has already started).

by Calculated Risk on 3/11/2008 09:49:00 AM

The Census Bureau reported today for January 2008:

"a goods and services deficit of $58.2 billion, up from $57.9 billion in December, revised. January exports were $2.4 billion more than December exports of $145.9 billion. January imports were $2.7 billion more than December imports of $203.7 billion."

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).

The ex-petroleum deficit is falling fairly rapidly, almost entirely because of weak imports (export growth is still strong).

Unlike the previous decline in the trade deficit (during the '01 recession), the value of petroleum imports - in dollar terms - are still strong. In barrels, imports appear to be flat year over year.

The trade deficit is mostly from oil imports and China. This now reminds me somewhat of the early '80s when the deficit was mostly oil and Japan.