by Anonymous on 4/25/2008 07:26:00 AM

Coming to Jesus:

LOS ANGELES, Apr 25, 2008 (BUSINESS WIRE) -- FirstFed Financial Corp., parent company of First Federal Bank of California, today announced that they expect to substantially increase their allowance for single family loan losses at March 31, 2008. The Bank's total provision for loan losses for the current quarter is expected to be between $140 million and $160 million, resulting in an after-tax operating loss for the quarter of between $65 million and $75 million, or $4.75 to $5.50 per share.

This is the same outfit--a California thrift stuffed with Option ARMs--that reserved $20-23 million for the first quarter and $4.5 million for the quarter before that.

This report finally includes some data on general credit quality and defaults. At the beginning of 2008, FED had 74 owned properties in inventory. During the quarter it acquired another 143 and sold 53. Yuk.

by Anonymous on 4/25/2008 06:55:00 AM

Well, no, they're "affluent." And they're not like us.

From "Pain of Foreclosure Spreads to the Affluent," in the ever-dependable NYT:

“We never had a case that had gone through three separate sales attempts,” he said, still dazed that the auction failed to take place. “Greenwich being Greenwich, foreclosures are a rare occurrence.”

Rare, perhaps, but not unheard-of, as the housing industry collapse starts to claim victims among the affluent. Personal traumas like business reversal, illness and divorce play a role. There’s no real pattern, with people as diverse as builders, restaurateurs and poker players at risk of losing their homes.

And us plebes outside of Greenwich, on the other hand, fit into nice neat categories? I see.

Well, I for once have seen this "real pattern" before:

As for the four-bedroom colonial that just avoided going on the block, Zbigniew Skwarek, the 41-year-old owner, came up with his own money to postpone the auction. Court records show he stopped paying on his mortgage on Feb. 1, 2007. But three days before the scheduled auction, he said, he gave his lender a check for $50,000.

Mr. Skwarek may not live in one of Greenwich’s most coveted neighborhoods. But like many residents here, he owns other properties, including an apartment in Greenwich and a home in Florida, and he can tap into that equity.

“I don’t want to lose this house,” Mr. Skwarek said in a telephone interview.

Mr. Skwarek rented out the house after he divorced his wife, Renata, in 2004, because, he said, it felt too big to live in alone. But last year, he said, his renters, John and Arline Josephberg, stopped paying their monthly rent of $10,000.

While living there, Mr. Josephberg — who previously ran the financial firm Josephberg Grosz & Company — was put on trial, accused of not paying his taxes for 29 years. He was sentenced to 50 months in prison. By the time the couple moved out in January, they owed Mr. Skwarek $90,000. Calls made to Mrs. Josephberg and to the couple’s daughter were not returned.

But public records show that Mr. Skwarek had trouble paying his bills even before he rented out his home. Court documents show that he also owes construction and supply companies more than $200,000 for unpaid bills on his home.

In the past four years, he has been in court several times over unpaid bills. He has a felony conviction for not paying wages to his workers and a misdemeanor for issuing a bad check. He was sued in small claims court for not paying his divorce lawyer. His former wife said that his money troubles contributed to the end of their marriage.

“I was sick about how he took care of the bills,” Ms. Skwarek said. “He didn’t change.”

I am not sure we have established that Mr. Skwarek is "affluent," but he is clearly "subprime." He just has a rather larger subprime loan than us average Joes and Joettas--you know, the kind Mr. Skwarek failed to pay wages to, the kind who may have needed those wages to make their own mortgage nut. This does, though, create one difference--unlike your run of the mill subprime borrower, Mr. Skwarek fervently believes in the kindness and decency of lenders:

Mr. Skwarek has still not figured out how he will hold on to his home. He will try to rent it again, he said. If that doesn’t work, he plans to move in and rent out his apartment. He remains optimistic that foreclosure will never happen and that his lender will help him find a way to escape his financial trap.

“They want to work with people like me,” he said.

I'll bet they do.

by Calculated Risk on 4/24/2008 10:20:00 PM

From the WSJ: Economy, Credit Woes Take Toll On Builders' Grand Plans. This story is mostly about some major commercial real estate projects being put on hold, but there is also this tidbit:

Office construction plunged 28% in March across the U.S., compared with February ... according to an April report published by McGraw-Hill Construction, a trade publication.

by Calculated Risk on 4/24/2008 06:09:00 PM

Last year we had "subprime" and "contained", two words frequently used together as by Bernanke in March 2007:

"the problems in the subprime market seems likely to be contained".

Contained became a joke at the end of many posts, and Tanta's brilliant - "We're all subprime now!" - must have been the phrase of the year (at least for UberNerds).

Of course Merriam-Webster chose w00t. Yes, the housing bears owned the housing bulls - again.

Reader Matt suggests "perfect storm" for 2008. He has seen the words perfect storm used to describe the results of 'airlines, food, oil, foreclosures, condo sales, and credit problems'.

I'm leaning towards "negative equity" or perhaps "Hoocoodanode?" (makes a great post tag line). Of course it's still early ...

by Calculated Risk on 4/24/2008 03:02:00 PM

From S&P (via MarketWatch): S&P sees oil at $91 at year-end, U.S. in a recession

The American economy is in a recession, which is projected to be short and mild, while oil will likely trade at $91 a barrel by the end of the year, though the range of that forecast is plus or minus $50, Standard & Poor's said Thursday.

"I don't think it [the U.S. recession] will have as much downward impact on commodity prices because [a lot of] commodities demand comes from outside the U.S.," said David Wyss, chief economist at Standard & Poor's, at an oil and gas roundtable in downtown Manhattan on Thursday.

Not a very precise prediction; from $41 to $141 per barrel by year end. Much depends on decoupling vs. recoupling of the world economy. If the global economy slides into recession, then oil prices will probably fall sharply - assuming production stays steady.

Without the strong world economy, oil prices would probably already be falling. From BusinessWeek: Not Guzzling Quite So Much Gas

Traffic levels are trending downward nationwide. Preliminary figures from the Federal Highway Administration show it falling 1.4% last year. Now, with nationwide gasoline prices having recently passed the inflation-adjusted record of $3.40 a gallon set back in 1981, the U.S. Energy Information Administration (EIA) is predicting gas consumption will actually fall 0.3% this year. That would be the first annual decline since 1991. Others believe the falloff in consumption is actually steeper than the government's numbers show.

The supply and demand curves are both very steep for oil, so a small decline in consumption would usually result in a significant decline in price. However, right now global demand is more than making up for any decline in domestic consumption.

by Calculated Risk on 4/24/2008 01:12:00 PM

Here is a glimpse of the future, especially for commercial real estate.

From the American Institute of Architects: Architecture Billings Index Drops to its Lowest Level Ever

Click on graph for larger image.

Emblematic of the various struggling sectors in the overall economy, the Architecture Billings Index (ABI) dropped two points in March and fell to its lowest level since the survey’s inception in 1995. As a leading economic indicator of construction activity, the ABI shows an approximate nine to twelve month lag time between architecture billings and construction spending. The American Institute of Architects (AIA) reported the March ABI rating dropped to 39.7, following its steep 9-point decline in February (any score above 50 indicates an increase in billings). The inquiries for new projects score was 48.0, also the lowest mark for the survey.

“We’ve seen an 11-point fall-off in the first quarter of the year and the prognosis for commercial construction later this year is not favorable at this point,” said AIA Chief Economist Kermit Baker, PhD, Hon. AIA. “Aside from historically low project demand, all regions are showing very poor business conditions. This is not likely to reverse itself anytime soon."
emphasis added

The prognosis is "not favorable". There is an understatement!

by Calculated Risk on 4/24/2008 10:24:00 AM

For more graphs, see March New Home Sales, Lowest since 1991.

Click on graph for larger image.

This graph shows New Home Sales vs. recessions for the last 45 years. New Home sales were falling prior to every recession, with the exception of the business investment led recession of 2001.

It appears the U.S. economy is now in recession - possibly starting in December - as shown on graph.

New home sales in March were the lowest since 1991. This is what we call Cliff Diving!


The second graph shows monthly new home sales (NSA - Not Seasonally Adjusted).

Notice the Red columns for 2008. This is the lowest sales for March since the recession of '91.

As the graph indicates, the spring selling season has never really started.

And one more long term graph - this one for New Home Months of Supply.


"Months of supply" is at 11 months; the highest level since 1981. Note that this doesn't include cancellations, but that was true for the earlier periods too.

The all time high for Months of Supply was 11.6 months in April 1980.

Once again, the current recession is "probable" and hasn't been declared by NBER.

by Calculated Risk on 4/24/2008 10:01:00 AM

According to the Census Bureau report, New Home Sales in March were at a seasonally adjusted annual rate of 526 thousand. Sales for February were revised down to 575 thousand.

Click on Graph for larger image.

Sales of new one-family houses in March 2008 were at a seasonally adjusted annual rate of 526,000 ... This is 8.5 percent below the revised February rate of 575,000 and is 36.6 percent below the March 2007 estimate of 830,000.



The seasonally adjusted estimate of new houses for sale at the end of March was 468,000.

Inventory numbers from the Census Bureau do not include cancellations - and cancellations are near record levels. Actual New Home inventories are probably much higher than reported - my estimate is about 100K higher.

Still, the 468,000 units of inventory is below the levels of the last year, and it appears that even including cancellations, inventory is now falling.


This represents a supply of 11.0 months at the current sales rate.

This is reverse cliff diving!

This is another very weak report for New Home sales, and I'll have some analysis later today.

by Calculated Risk on 4/24/2008 09:20:00 AM

From the WSJ: Credit Suisse Swings to Large Loss, Taking $5.2 Billion in Write-Downs

Credit Suisse Group Thursday said it swung to a worst-than-expected first-quarter net loss after taking 5.3 billion Swiss francs ($5.2 billion) in write-downs for big buyout loans and mortgage securities.
...
Credit Suisse took the bulk -- 2.66 billion francs -- of write-downs for collateralized debt obligations, but also marked down 1.68 billion francs for buyout loans granted but failed to sell to investors, as well as 944 million francs for mortgage securities.

A few billion more.

by Anonymous on 4/24/2008 08:46:00 AM

Reuters has the news:

LIVONIA, Michigan (Reuters) - Realtors in many U.S. states say lenders are demanding excessively high prices before allowing distressed borrowers to offload their homes in "short sales," making the housing crisis worse.

In a short sale, a borrower dumps the home at below-market value and the bank forgives the rest of the debt. The borrower's credit rating is hurt but for less time than in a foreclosure. Such sales have been touted by banks as a way out for homeowners unable to pay their mortgages.

Below market, huh? And I thought the idea was they were trying to sell these homes at market, which unfortunately happens to be less than the loan amount. Whatever. My head is still spinning over the banks having "touted" such sales. Was I having a nap when that happened? How come nobody woke me up?

We get one "example":

Borrowers like Judie Quinn echo that, saying their lenders have been uncooperative and have passed up solid offers.

Quinn, 67, is a steel industry sales representative whose home in the Detroit suburb of Belleville had been on sale since August 2005. After back surgery in 2007 left her with large medical bills and out of work for two months, she decided she could not afford the $2,200 monthly mortgage payment.

"I wanted to save my credit rating, so I tried to arrange a short sale," Quinn said at the Livonia, Michigan, office of Linda McGonagle, a Realtor at Quality GMAC Real Estate.

The loan was from Wells Fargo & Co (WFC.N: Quote, Profile, Research) and serviced through an affiliate, America's Servicing Co.

Between April and October 2007, Quinn received four offers, McGonagle said. The first offer of $289,900 -- the asking price was $299,000 -- was rejected by the lender because Quinn was not yet in loan default. "No one at the bank mentioned she had to be in default until after that offer was rejected," she said.

She said the lender ignored the third and best offer of $299,000 long after the bidder had given up. The home went into foreclosure in October.

"The lender was unresponsive and unhelpful, so Judie wasted time and money trying to do the right thing," McGonagle said. "I tell other agents to avoid short sales because you just can't win. This is a commission-based business and if you can't get deals done, you don't get paid," she added.

How much does Judie owe on this house? We didn't get that part. Could the fact that the home had been "on sale" for two years before Judie decided she needed to sell short imply something problematic about Judie's expectations? When did she acquire this property, anyway? And at what exact time yesterday was her Real Estate Professional born? Nobody at the bank mentioned that short sales are widely held to be "work out options" for delinquent loans? That without any indication that the lender would have to foreclose, the lender is not highly motivated to accept a short sale that is "less loss" than the foreclosure that doesn't appear to be on the table? The bank has to mention this?

But I really liked this part:

Some Realtors said banks have an inflated view of what they can expect when home values in many areas have fallen sharply.

"Some lenders harbor unrealistic expectations of what they can get in a down market," said Van Johnson, president of the Georgia Association of Realtors.

He said widespread use by lenders of "broker price opinions" -- quick, inexpensive online property assessment -- resulted in only a "simple best guess."

Andrea Gellar, a Realtor at Sudler Sotheby's in Chicago, said property appraisals there are fair because "appraisers are being called on the carpet to be accurate" after years of inflated evaluations during the property boom.

Banks have inflated ideas of what these houses could sell for. How come? Because they rely on "price opinions" that are prepared by real estate brokers. Like the real estate brokers quoted in the article. Who are now claiming that it's really only the appraisers who have any clue. Because they've been "called on the carpet" and now are afraid to make stuff up.

The solution seems obvious to me: welcome to the carpet, brokers. We expect your next price opinion to be somewhat more sober.