by Calculated Risk on 8/28/2008 09:00:00 PM

All: While I'm gone, Tanta and Paul Jackson (of Housing Wire) will be posting. Plus a guest post or two ... I've also scheduled some cartoon of the day posts. Enjoy.

To start, here is the first in a series on housing from Eric G. Lewis, a freelance cartoonist living in Orange County, CA. This is from 2003:


Click on cartoon for larger image in new window.

by Calculated Risk on 8/28/2008 07:40:00 PM

From the Financial Times: Bank of China flees Fannie-Freddie

Bank of China has cut its portfolio of securities issued or guaranteed by troubled US mortgage financiers Fannie Mae and Freddie Mac by a quarter since the end of June.

The sale by China’s fourth largest commercial bank, which reduced its holdings of so-called agency debt by $4.6bn is a sign of nervousness among foreign buyers of Fannie and Freddie’s bonds and guaranteed securities.

This selling is probably why the spread between Fannie and Freddie debt yields and Treasury debt is so high. From the WSJ last week: Deflating Mortgage Rates

The differences, or spreads, between Fannie's and Freddie's debt yields and Treasury yields have widened considerably since the start of the housing crisis because of jitters about the highly leveraged companies' stability. Last September, Fannie issued three-year debt at 0.55% over Treasury yields. Last week, it paid 1.23% over Treasury yields.

So there was probably more foreign selling in July and August.

by Calculated Risk on 8/28/2008 04:28:00 PM

From Bloomberg: FDIC Adds Office Space in Dallas, Ready for More Bank Failures

The Federal Deposit Insurance Corp. is preparing to sign a five-year lease to add five floors of space at its Dallas regional office as the agency prepares to increase scrutiny of failing and troubled U.S. banks.

The federal agency ... will add 125,000 square feet to the 185,000 square feet it rented last year ... That agency will add about 300 staff at the building, including some of the 69 retirees it is bringing back to help handle the increased workload, said spokesman Andrew Gray.
...
Dallas is the headquarters of the agency's Division of Resolution and Receivership, the unit that handles failed banks.

Someone is hiring.

by Calculated Risk on 8/28/2008 02:03:00 PM

From Bloomberg: Lehman Said to Be Poised to Eliminate as Many as 1,000 Jobs

Lehman ... is preparing to eliminate as many as 1,000 jobs in what would be the firm's fourth round of cuts this year ... The cuts may be announced when Lehman ... releases third-quarter financial results next month ...

And more cost cutting from Citigroup, from Craine's Internal memo reveals Citi penny-pinching

[A]ccording to published reports, management at one of the biggest U.S. banks has not only banned off-site meetings among employees—it’s also asked workers to cut back on the amount of photocopying they do.

According to an internal memo confirmed by a Citigroup spokesman, the bank wants presentations to be printed double-sided to reduce unnecessary paper usage. In addition, the use of certain copiers will be confined to client presentations. “Over time, we will be removing color copiers and printers from the locations where they are not essential,” the memo stated.

... And in perhaps the biggest blow of all to investment bankers, the memo says Citi will be conducting a review of BlackBerry usage.

You know it's tough when they limit color copies.

by Calculated Risk on 8/28/2008 11:31:00 AM

From Housing Wire: Mortgage Rates Drift Lower as Economic Concerns Linger

Economic concerns continued to help mortgage rates in the past week, according to data released Thursday by Freddie Mac. The GSE said that its weekly mortgage market survey found 30-year fixed-rate mortgages averaged 6.40 percent with an average 0.6 point for the week ending Aug. 21, down 7 basis points from last week. Last year at this time, the 30-year FRM averaged 6.67 percent.

Personal Note: I'll be hiking the John Muir Trail from Yosemite Valley to Mt Whitney (and to Whitney Portal) starting on Sunday morning. While I'm gone, Paul Jackson from Housing Wire will be helping Tanta.

When I return I'll have more time for analysis (all the hours working out has really cut into my analysis time over the last couple of months)! In a couple of weeks I'll post my forecasts for housing and the economy. Also - I apologize for not responding to all emails recently. Best to all.

by Calculated Risk on 8/28/2008 09:10:00 AM

The DOL reports on weekly unemployment insurance claims:

In the week ending Aug. 23, the advance figure for seasonally adjusted initial claims was 425,000, a decrease of 10,000 from the previous week's revised figure of 435,000. The 4-week moving average was 440,250, a decrease of 6,000 from the previous week's revised average of 446,250.

And continued claims are now above 3.4 million for the first time since 2003.

Click on graph for larger image in new window.

The advance number for seasonally adjusted insured unemployment during the week ending Aug. 16 was 3,423,000, an increase of 64,000 from the preceding week's revised level of 3,359,000.

By this measure, the economy is clearly in recession.

by Calculated Risk on 8/28/2008 12:49:00 AM

From Bloomberg: Pakistan Sets Floor on Stock Prices to Stop Plunge

Pakistan set a floor for stock prices on the benchmark exchange, moving to halt a plunge that has wiped out $36.9 billion of market value since April.

Securities can trade within their daily limit of 5 percent ``but not below the floor-price level'' of yesterday's close ...

Ahhh ... stock prices that can only go up. That is a real PPT (Plunge Protection Team).

This is funny, but doomed.

by Calculated Risk on 8/27/2008 05:13:00 PM

From Freddie Mac: National Home-Value Drop Moderates in Second Quarter

Freddie Mac (NYSE: FRE) announced today that its Conventional Mortgage Home Price Index (CMHPI) Purchase-Only Series registered a modest 0.4 percent annualized decline in U.S. home values during the second quarter of 2008, following a downward revised 10.8 percent annualized drop in the first quarter. Over the four quarters ending with the second quarter of 2008, home sales prices fell an average of 6.0 percent in the CMHPI Purchase-Only Series – the largest annual fall in values over the 39-year history of the series.

"While U.S. home value indexes continued to decline, an encouraging sign has been the significant moderation in the rate of decline of the Purchase-Only series," said Frank Nothaft, Freddie Mac vice president and chief economist. "After falling sharply over the prior two quarters – more than a 10 percent annualized drop – home value depreciation slowed substantially to only a 0.4 percent annualized rate. While we expect to see further declines in average U.S. home values throughout this year and into 2009, we will be watching for signs of stabilization in indicators of real housing activity, such as a leveling off in home sales and for-sale inventories.

Click on graph for larger image in new window.

This graph shows the year-over-year change in the Conventional Mortgage Home Price Index (CMHPI) Purchase-Only Series vs. the quarterly change (annualized).

Guess what? There is a strong seasonal component to the series, and I see nothing encouraging about this "moderation" when seasonal factors are considered.

The headline could have read:

"Worst Second Quarter Ever for Freddie Mac CMHPI Purchase-Only House Price Series"

by Calculated Risk on 8/27/2008 03:56:00 PM

From the WSJ: Delinquencies, Losses Continue to Rise On Loans Backing Residential MBS

Delinquencies and losses on pools of loans backing U.S. residential mortgage-backed securities issued in 2006 and 2007 continued to weaken through the first half of the year, according to Moody's Investors Service. ... Deals backed by subprime, Alt-A and jumbo loans have all weakened compared with prior years. ... The agency is now reviewing for potential downgrade all jumbo transactions originated in 2006 and 2007.

Alt-A and Jumbo; the new subprime. Also the article describes the outlook for HELOC pools as "daunting".

by Calculated Risk on 8/27/2008 01:52:00 PM

Terry Pristin at the NY Times has an interesting article on apartment buildings in New York: Fear of Defaults After a Flurry of Apartment House Sales (hat tip Brian)

As we've discussed before, the CRE version of stated income loans involved lending on overly optimistic pro forma income projections (aka wishful thinking):

Most investors, like most lenders, thought that values would keep escalating, said the broker, who did not want his name published in order to protect his business relationships. But, he added, underwriting standards were very casual. “Back then, you could write down anything, and people would believe you,” he said.

And just like for residential, some CRE lenders made some bad choices:

“As the financiers got farther and farther away from New York, everything looked like Manhattan below 96th Street to them,” [Harold M. Shultz, a senior fellow at the Citizens Housing and Planning Council] said. “They all got caught up in the bubble mentality.”

Sounds like more defaults to me.