by Calculated Risk on 5/20/2008 06:29:00 PM

Here are a couple of recent videos from Realtor Jim in San Diego. The first video is in a run down area of Oceanside with REO after REO (2 min 19 sec).



The second video is in Valley Center (near Escondido). (2 min 21 sec) Jim mentions the Cash for Keys program (he is offering the previous owners $2500 for their keys). This house sold for $927,500 in 2005.

by Anonymous on 5/20/2008 04:00:00 PM

Caroline Baum is exercised over Fannie Mae's recent announcement that it was dropping its "declining markets" policy. Yeah, so, a lot of us didn't like that.

But the rest of us did not write a column that is titled "Mary Had a Little Lamb and a Jumbo Mortgage" and then have this thing about kings and taxes and then Fannie turns out to be the fairy godmother, which is Cinderella, not Mary and the lambs, and then admits to perfect ignorance of what "DU" is and then makes claims about what DU is and then ends up predicting that Fannie will self-insure mortgages which would be like totally surprising since it would require the king to change Fannie Mae's charter which forbids such things, and dammit if you don't get all the way to the end and there aren't any jumbos in it. Boy howdy.

by Calculated Risk on 5/20/2008 03:27:00 PM

From Bloomberg: CIFG Guaranty's Bond Insurer Ratings Cut to Junk (hat tip DD49)

CIFG Guaranty, the bond insurer that lost its AAA ratings in March, was downgraded to below investment grade by Moody's Investors Service, which said the company may become insolvent.

The ratings were cut seven levels to Ba2, two steps below investment grade, from A1 to reflect ``the high likelihood that, absent material developments, the firm will fail minimum regulatory capital requirements,'' Moody's said in a statement.
...
``CIFG demonstrates the cliff-like nature of these events,'' said Thomas Priore, chief executive officer of hedge fund Institutional Credit Partners LLC in New York. ``Depending on the language in the credit-default swap, it can set off a chain of events that creates a complete unwind of the company.''

From AAA to Junk in two months! Yeah, I'd call that Cliff Diving.

by Calculated Risk on 5/20/2008 02:11:00 PM

From DataQuick: Bay Area home sales edge up in April

Bay Area home sales edged up from a seven-month run of record lows last month, indicating that mortgage availability is improving and that an increasing number of fence sitters have decided they like today's lower prices, a real estate information service reported.

A total of 6,310 new and resale houses and condos sold in the nine- county Bay Area in April. That was up 28.8 percent from 4,898 in March, and down 15.3 percent from 7,447 for April 2007, DataQuick Information Systems reported.

The month-to-month jump was the strongest for any March/April in DataQuick's statistics, which go back to 1988. Starting last September and through March, each calendar month was the slowest on record. Last month was the slowest April since 1995 when 5,636 homes were sold.

"The big issue here is that mortgages are becoming obtainable, which will reduce the pile of stacked up pending escrows. It's unclear if the financing is because of policy changes or because mortgage investors are getting more interested in securities. Probably both," said Marshall Prentice, DataQuick president.

The median price paid for a Bay Area home was $518,000 last month, down 3.4 percent from $536,000 in March, and down 21.4 percent from $659,000 in April last year. Last month's median was 22.1 percent lower than the peak median of $665,000 reached in June and July last year.
...
Foreclosure property resales accounted for 25.7 percent of last month's Bay Area market. The percentage is higher in outlying areas that absorbed spillover activity during the frenzy. While foreclosure properties were 5.9 percent of San Francisco's resale market and 8.9 percent of Marin's resale market last month, they were 44.7 percent in Contra Costa and 54.2 percent in Solano.
...
Foreclosure activity is at record levels ...

by Calculated Risk on 5/20/2008 12:00:00 PM

From the Philadelphia Fed:

The Federal Reserve Bank of Philadelphia produces a monthly coincident index for each of the 50 states. The indexes are released a few days after the Bureau of Labor Statistics (BLS) releases the employment data for the states.

Here is the release for April:

The indexes increased in 26 states for the month, decreased in 16, and were unchanged in the remaining eight (a one month diffusion index of 20). For the past three months, the indexes increased in 25 states, decreased in 21, and were unchanged in the other four (a three month diffusion index of eight).

Click on graph for larger image.

This is a graph of the monthly Philly Fed data of the number of states with increasing activity.

I've added the current probable recession. About half of the U.S. was in recession in April based on this indicator.

Note: the Philly Fed calls some states unchanged with minor changes. The press release says there were 26 states with increasing activity, but including small changes, there were 28 (as graphed).


This map is from the Philly Fed report for April, and shows the Three Month change for all 50 states. If the economy is in recession, this map should turn very red over the next few months.

California is definitely in recession by most measures, but the Philly Fed Three Month change shows the state economy is still growing slightly. This is probably true for other states too, and I expect the map to turn more and more red in the coming months.


For comparison to April, here is the December 2007 map (bottom).

Clearly there is more red in the April (top) map as the recession spreads.

by Calculated Risk on 5/20/2008 10:08:00 AM

From Bloomberg: Credit Crisis Will Extend Into 2009, Oppenheimer Says

The U.S. credit crisis will extend into and even beyond 2009 as banks will write off more than $170 billion of additional reserves by the end of next year, according to Oppenheimer & Co. estimates.

``The real harrowing days of the credit crisis are still in front of us and will prove more widespread in effect than anything yet seen,'' analysts led by Meredith Whitney wrote in a research note today. ``Just as strained liquidity pushed so many small and mid-sized specialty finance companies to beyond the brink, we believe it will do the same with the U.S. consumer.''

From the report titled: Far From Over: We Believe The Credit Crisis Will Extend Well Into 2009

"... in our opinion the "next shoe to drop," is what became an over-reliance on the securitization market for consumer liquidity. Herein, we draw a direct correlation between a shutdown in securitization volumes and accelerating losses on bank balance sheets. As we see no near or medium term come back in securitization volumes, we believe losses will only accelerate further and far worse than even the most draconian estimates."

And the opposite view: TED Spread at Nine-Month Low, Signals Credit Easing

Lending confidence at banks rose to the highest level in more than nine months, according to a key indicator, signaling the global credit crunch may be easing.

The so-called TED spread, the difference between what the U.S. government and banks pay to borrow in dollars for three months, dropped below 78 basis points for the first time since August.
...
``The worst of the fears about the liquidity crisis appear to be alleviating,'' said Peter Jolly, head of markets research in Sydney at NabCapital, the investment-banking arm of National Australia Bank Ltd. ``Liquidity is becoming more available ever since the bold moves by the Fed.''

by Calculated Risk on 5/20/2008 09:04:00 AM

From the WSJ: Home Depot's Net Falls 66% As Homeowners Cut Projects

Home Depot Inc. reported a 66% drop in fiscal first-quarter net income, thanks in part to restructuring charges, as it continues to suffer amid economic conditions that have been discouraging homeowners from spending on home-improvement projects.
...
"The housing and home-improvement markets remained difficult in the first quarter. In fact, conditions worsened in many areas of the country," Chairman and Chief Executive Frank Blake said.

This is not a surprise. And it could get much worse.

by Anonymous on 5/20/2008 08:53:00 AM

Last week--I think it was last week--CR asked me at one point if I were going to write anything about Freddie's financials and the FAS 157 Uproar and I remember saying that our blog colleague Accrued Interest had just that day remarked that he might well write about the subject. I therefore fervently hoped he would do so, and I could just link to it, which would save me the trouble of having to have my own opinion.

So he finally got around to it. Go read it. It's well worth your time.

by Anonymous on 5/20/2008 08:19:00 AM

Here's a wee bit of cognitive dissonance with your coffee, courtesy of TheStreet.com:

Neighborhoods across the U.S. are being ransacked.

In fact, about 50% of homes have substantial damage following foreclosure, according to a survey of 1,500 real estate agents by Campbell Communications in Washington, D.C. (This is not just due to homeowners looting their foreclosing properties; some do not have the financial capabilities for the home's upkeep, and other times vandals are responsible.)

To keep real estate agents from being left to sell homes with floor and carpet damages, holes in the wall, and removed appliances, a preventive measure is being offered to homeowners facing foreclosure known as "cash for keys."

I have been wanting some real numbers--not just a few splashy anecdotes--about the "trash out" thing. This is because it's exactly the sort of car-crash story the press loves, so it's the sort of thing always in danger of getting overstated (like the "burn outs").

The thing is, "trash outs" have as far as I know existed ever since the invention of foreclosure; they were simply rather rare. Not that most foreclosed homes were ever in pristine condition. But that's the thing: for most of my experience in this business the vast majority of REO damage was in fact due to the mortgagor's inability to afford repairs (indeed, the exploding water heater that damaged several hundred square feet of carpet might well have been the financial catastrophe that sent a struggling household into foreclosure in the first place). The rest was a function of vacancy: either vandalism or simply weather damage like frozen pipes, green pools, brown lawns, etc.

So I'm a touch skeptical about the claim that 50% of REO has "substantial damage" and most of that is willful trashing of the property. It would have been nice for the reporter to supply the details here. I became even more skeptical when I read this:

Lenders see cash for keys as a small price to pay when compared with the cost of repairs. Indeed, the price impact when people damage their houses can be up to 25% of what the home is worth, according to Campbell Communications. (That means a $400,000 home's repairs might cost around $100,000.)

I freely admit it has been a while since my wrinkled reptilian snout has had to read a lot of detailed repair estimates. However, I think I need someone to explain to me how anyone can do $100,000 worth of damage to a three-bedroom two-and-a-half bathroom home with doors that are not wide enough to admit a backhoe. I suppose it's possible, but can the average repair bill be even close to that?

Then there's this:

How many people are biting?

It depends. Cash for keys is not always considered a bargain by homeowners. Losing their home and credit is a heavy burden.

"Most people don't want cash for keys," says the researcher Popik. "They want their credit ratings to stay intact."

Having been assured by all kinds of people that homeowners are just ruthlessly walking away, I'm struggling with the idea that they're too pissed to collect an extra couple grand for the keys. They'd rather "mail them in" and get nothing? Because this might have something to do with their credit ratings? They really think they can make more than $3,000 net ripping out the furnace and selling it on eBay? That's easier than taking a check from the servicer?

My theory is that whenever the emerging popular narratives are this contradictory--homeowners are cold and calculating enough to just walk away from an upside-down investment, but they are also emotional and irrational enough to prefer the revenge of knocking holes in the drywall to getting a check to cover moving expenses; they can afford their mortgages but choose not to pay them, but they also can't afford basic maintenance before the foreclosure; they care about their credit ratings except they don't care about their credit ratings; they are the victims of servicers who won't answer the phone, but they are also bitter people who thumb their noses at a generous check the servicer is offering--we have an excellent opportunity to recognize that:

1. The category "homeowner" is extremely diverse.

2. All kinds of people do all kinds of things for all kinds of reasons, not all of which are obvious to anyone including the people who do these things.

3. Any discussion of "psychology" that assumes a universal, perfectly consistent and easily-predictable human response to falling home values or foreclosures is not a very sophisticated understanding of human psychology (Hi, Dr. Shiller!).

4. Any argument about "bailouts" that seems to depend on characterizing all homeowners in the same way, and imputing to them all the same experiences and motives and the same responses to incentives or disincentives, is not worth listening to.

5. I wouldn't hang a dog on the basis of a survey of real estate agents at this point.

by Calculated Risk on 5/19/2008 11:19:00 PM

“I used to take the weak ones. Now I’m taking the whole herd.”
Boat Repo Man Jeff Henderson

From David Streitfeld at the NY Times: Economic Tide Is Rising for Repo Man

Some people lose their house or their boat to abrupt setbacks: illness, job loss, divorce. [49-year-old Robert] Dahmen, who works as a technology manager for a car manufacturer, belongs to a second, probably larger group: he simply spent beyond his means. He is one of the millions of reasons the consumer-powered American economy did so well for most of this decade, and one of the reasons its prospects look so bleak now.
...
He originally bought a smaller, more affordable boat, but a salesman talked him into an upgrade. “Oh yeah, I said, that would be cool.”
...
The merriment came at a price, though. Toy Box cost $175,000.

... Meanwhile, he lost his condominium when his mortgage readjusted and those payments went up. His 401(k) is down to $9,000.

“I oversaturated myself with long-term debt,” he said. “It was a risk, a calculated risk. I obviously lost.” He is declaring bankruptcy.
...
From now on, Mr. Dahmen said, the consumer economy would have to get by without him. “I have no intention of ever buying anything, ever,” he said. “I don’t think I could if I wanted to.”

There is much more in the article about the boat repo business.