by Calculated Risk on 12/19/2008 01:25:00 PM

There is a lot of great data in this report, but be careful how you use it.

From T2 Partners: An Overview of the Housing/Credit Crisis And Why There Is More Pain to Come (hat tip Chad)

Click on graph for larger image in new window.

This is an example of great data, but it could be very misleading. The total for household mortgages (including 2nds and HELOCs) is $10.57 trillion according the the Fed's Q3 Flow of Funds report.

If you start adding up the household mortgages on this chart ($0.7 trillion for subprime, $1.0 trillion for Alt-A, $2.1 trillion for HELOCs, $2.4 trillion for Jumbos, $4.6 trillion for Agency MBS, and $4.7 trillion for Prime) you discover that there is some significant double counting (most Agency MBS is Prime - so that is a huge source of the double counting).

There are similar problems elsewhere in the report, but overall the information is great.

by Calculated Risk on 12/19/2008 10:55:00 AM

Here are the Kennedy-Greenspan estimates (NSA - not seasonally adjusted) of home equity extraction for Q3 2008, provided by Jim Kennedy based on the mortgage system presented in "Estimates of Home Mortgage Originations, Repayments, and Debt On One-to-Four-Family Residences," Alan Greenspan and James Kennedy, Federal Reserve Board FEDS working paper no. 2005-41.

Click on graph for larger image in new window.

For Q3 2008, Dr. Kennedy has calculated Net Equity Extraction as minus $64.1 billion, or negative 2.4% of Disposable Personal Income (DPI).

This graph shows the net equity extraction, or mortgage equity withdrawal (MEW), results, both in billions of dollars quarterly (not annual rate), and as a percent of personal disposable income.

Dr. Kennedy provides several other measures of equity extraction. The second graph shows what Dr. Kennedy calls "active MEW" (Mortgage Equity Withdrawal). This is defined as "Gross cash out" plus the change in the balance of "Home equity loans".

This measure is also slightly negative.

The Fed's Flow of Funds report shows the amount of mortgages outstanding is declining, and this is partially because of debt cancellation per foreclosure sales, and partially due to homeowners paying down their mortgages (as opposed to borrowing more). Note: most homeowners pay down their principal a little each month (unless they have an IO or Neg AM loan), so with no new borrowing, equity extraction would always be negative.

But this suggests that the Home ATM is closed, and MEW is no longer supporting consumption.

by Calculated Risk on 12/19/2008 10:43:00 AM

From the WSJ: Auto Makers to Get $17.4 Billion

The White House announced a $17.4 billion rescue package for the troubled Detroit auto makers that allows them to avoid bankruptcy and leaves many of the big decisions for the incoming Obama administration.
...
The deal would extend $13.4 billion in loans to General Motors Corp. and Chrysler LLC in December and January, with another $4 billion likely available in February.
...
The agreement designates a person to oversee the government's effort, although officials stopped short of referring to that as a "car czar." For the outgoing Bush administration, that person will be Treasury Secretary Henry Paulson.

by Calculated Risk on 12/18/2008 09:08:00 PM

From Bloomberg: GM, Chrysler Said to Be Poised for U.S. Loans to Get Into March

General Motors Corp. and Chrysler LLC would get U.S. loans to stay afloat until March under a Bush administration rescue plan that may be unveiled as soon as today ...

The Treasury Department may lend to the automakers through their credit arms, GMAC LLC and Chrysler Financial, to avoid having other industrial companies line up for access to the $700 billion Troubled Asset Relief Program ...

We are all banks now!

by Calculated Risk on 12/18/2008 08:07:00 PM

Here is another look at the Fed's balance sheet (released today). As a reminder, Dallas Fed President Richard Fisher commented in early November that he expected the Fed assets to grow to $3 trillion by the end of this year.

"I would not be surprised to see them aggregate to $3 trillion—roughly 20 percent of GDP—by the time we ring in the New Year."

Click on graph for larger image in new window.

The Federal Reserve assets increased to $2.312 trillion this week.

Note: the graph shows Total Factors Supplying Federal Reserve Funds and is an available series that is close to assets.

Although the assets are still increasing, it looks like Fisher was overly pessimistic - $3 trillion by year end seems less likely now.

by Calculated Risk on 12/18/2008 06:23:00 PM

From our very own bacon_dreamz:

I've established The Doris Dungey Endowed Scholarship Fund at Illinois State University . Donations to the fund will be used for two things: first, to purchase a bench on the ISU campus (we're hoping to have it placed in or near Milner Library, since Tanta liked to read so much) and second, to endow a journalism scholarship in Tanta 's name.

Once endowed, the scholarship will be awarded annually to a student with financial need that has demonstrated academic achievement and a passion for journalism. Tanta ’s work was obviously hugely influential, and I think a lot of people benefited both personally and professionally from her generosity, so for those who would like to give something back in her memory, I think this is a nice way to do it. I know I certainly gained a great deal from her work, but more than that she was also my friend, so I really hope she would be proud to have her name attached to this.

Donations can be made at the link below by entering "Doris Dungey Endowed Scholarship" in the Gift Designation box. Checks made out to the ISU Foundation with “Doris Dungey” in the memo can also be mailed to:

ISU Foundation
attention: Mary Rundus
Illinois State University, Campus Box 8000
Normal, IL 61790.
http://www.development.ilstu.edu/credit/credit.phtml?id=8000

I've copied the paragraph I had to write about Tanta below, along with the scholarship selection criteria. ... I'm going to be involved in the annual selection process, as will [Tanta's niece] Kate, who will soon graduate from ISU with a double major in journalism and Spanish.

The Doris Dungey Endowed Scholarship Fund
Illinois State University Foundation
Normal, Illinois
Administrative Agreement
The scholarship is given in loving memory of Doris Dungey—known as “Tanta” to her family, friends, and readers—who received her Bacherlor’s degree in English and Philosophy from Illinois State University in 1982 and her Master’s degree in English Literature from the University of Wisconsin-Madison . Tanta spent most of her career working as a mortgage banker, until 2006, when she was diagnosed with late-stage ovarian cancer and began devoting much of her time and energy to writing for Calculated Risk, a finance and economics blog, which she continued doing until she passed away late in 2008. In this short time, she elevated the public discourse surrounding the collapse of the mortgage and housing markets by writing what became a widely read and referenced series of prescient articles explaining the “grim details” of how the mortgage industry functions, and by frequently challenging the rest of the media—often by skewering what she viewed as inept reporting--to dig deeper, ask the right questions, avoid prejudices and cheap moralizing, and above all get the story right. She always did so with humor, a passion for delving into the details, an understanding of people, a strong sense of human decency, and an instantly recognizable style filled with spirit, insight, and literary allusions, which continues to attract, inform, and entertain readers from a wide variety of backgrounds. She enjoyed interacting with her readers and was a generous teacher, touching many lives through her work.

I. Scholarship Candidate Qualifications Each candidate for a Doris Dungey Scholarship must be or have:

A. Accepted for enrollment or enrolled in good standing at Illinois State University .

B. Demonstrated academic achievement, as evidenced by accumulative GPA of at least 3.0 on a 4.0 scale.

C. Have a declared major in Journalism

D. Demonstrated financial need

E. Work experience, extracurricular or volunteer activities (special emphasis for work on high school newspaper, year-book, or related experience)

F. Used for educational expenses.

G. Sample of published writing or graded essay along with a brief description of why it was chosen.

H. Essay explaining why the applicant is interested in pursuing a career in journalism

by Calculated Risk on 12/18/2008 04:27:00 PM

From the WSJ: Obama Team Aims to Keep Stimulus Under $1 Trillion

President-elect Barack Obama's economic team is crafting a stimulus package to send to Congress worth between $675 billion and $775 billion over two years ... The transition team has conveyed the figures to Capitol Hill, where the package is likely to grow as it works its way through the House and Senate. An Obama adviser familiar with the planning said the package could top out around $850 billion.
...
Both sides in the talks want a package ready when Congress returns Jan. 6, so legislation can reach the House and Senate floors before Mr. Obama's Jan. 20 inauguration.
...
[The plan] will include a tax cut designed to pump $50 billion to $100 billion into the economy almost immediately; around $100 billion in aid to state governments, primarily to temporarily assume more of the cost of Medicaid, in hopes of staving off benefit cuts or tax increases; and funding in five main areas: traditional infrastructure, school construction, energy efficiency, broadband access and health-information technology.

It sounds like this bill will be around $850 billion over two years, and will be signed before the end of January. Add this to the stimulus from lower gasoline and energy bills, lower adjustable rate mortgages, and lower rates for those that refinance. That is a lot of stimulus ...

by Calculated Risk on 12/18/2008 02:09:00 PM

NOTE from CR: be careful with median prices. This doesn't mean prices have fallen to an eight year low - this means that a combination of price declines and a significant change in mix (to lower priced homes) has happened. The Case-Shiller repeat sales index is a better measure of actual price declines.

From DataQuick: Bay Area median home price sinks to 8-year low; sales up over '07 again

Bay Area home sales decelerated in November but beat the year-ago mark for the third consecutive month. The allure of discounted foreclosures continued to drive sales in affordable inland markets, which helped push the median sale price down to its lowest point since former President Bill Clinton was in the White House.

The median price paid for all new and resale houses and condos combined in the nine-county Bay Area fell to $350,000 last month. That was down 6.7 percent from $375,000 in October and down a record 44.4 percent from $629,000 in November 2007, according to MDA DataQuick, a San Diego-based real estate information service.

The November median sale price - the point where half of the homes sold for more and half for less - stood at its lowest since it was $350,000 in September 2000. It was 47.4 percent below the peak median of $665,000 reached last year in June, July and August.
...
A total of 5,756 new and resale houses and condos closed escrow in the region last month. That was down 24.4 percent from 7,613 sales in October but up 12.3 percent from 5,127 sales in November 2007.

Last month's tally was still the second-lowest for a November since at least 1988, when DataQuick's statistics begin.
...
Last month 47.6 percent of all homes that resold in the Bay Area had been foreclosed on at some point in the prior 12 months, up from 44.0 percent in October and 10.1 percent a year ago.
...
In November, use of FHA, government-insured mortgages allowing a down payment of as little as 3 percent rose to 20.6 percent of Bay Area home purchase loans. That's a record in DataQuick's statistics and up from less than 1.0 percent a year ago. At the same time, use of larger mortgages known as "jumbo loans," common in higher-cost coastal neighborhoods, continued to fall. Before the credit crunch hit in August 2007, 62 percent of Bay Area sales were financed with jumbos, then defined as over $417,000. Last month just 23.0 percent of purchase loans were over $417,000.

This fits with the earlier post today about interest rates. On loans up to $417K, 30 year fixed rates are below 5%, but on loans above $417K rates are still above 7%.

by Calculated Risk on 12/18/2008 12:10:00 PM

Excerpts from S&P Press release (no link):

It's become clear during the past few months--and especially in the past few weeks--that the problems facing the global financial markets and the U.S. economy have left the commercial mortgage-backed securities (CMBS) sector in a fundamentally weaker credit position. As a result, Standard & Poor's Ratings Services is expecting an increase in the number and severity of CMBS downgrades in 2009 ...

"Now that the U.S. is officially in a recession, and since commercial real estate performance typically tends to lag U.S. economic developments, we're expecting property values to continue to drop and loans with marginal cash flow to default with increasing frequency," said credit analyst James Manzi. "We believe that borrowers with negative equity have little incentive to come 'out of pocket' to bring their payments current," he said.

Evidence of this malaise appears to be mounting: The delinquency rate has been increasing significantly, and Standard & Poor's internal reporting measures show an acceleration in the volume of troubled loans, especially large loans. "Any current change in property prices is hard to measure accurately because of the marked reduction in transaction volume during 2008, but estimates we've seen indicate a decline of roughly 10%-15% from the peaks of early 2007. And the gap between offered prices and asking prices, in our view, signals that valuations must decline further to restart any meaningful trading activity," said credit analyst Barbara Duka.
emphasis added

Unlike with residential real estate, commercial owners are much more willing to "walk away" from their properties. As we've discussed before, many commercial properties were purchased with interest reserves - and those reserves are currently covering the negative cash flow. When the interest reserves run out, the owners will probably default.

by Calculated Risk on 12/18/2008 11:47:00 AM

From MarketWatch: 30-year fixed-rate mortgage at 37-year low

The benchmark 30-year fixed-rate mortgage tumbled to a national average 5.17% this week, the lowest level since Freddie Mac began its weekly rate survey in 1971.
...
"Interest rates for 30-year fixed-rate mortgage rates fell for the seventh consecutive week, moving these rates to the lowest since the survey began in April 1971," said Frank Nothaft, Freddie Mac chief economist. "The decline was supported by the Federal Reserve announcement on Dec. 16, when it cut the federal funds target to a record low and stated it stood ready to expand its purchases of mortgage-related assets as conditions warrant."

Yeah, but what about jumbo rates?

As an example Wells Fargo is offering a 30 year fixed at 4.75% (up to $417K), but their rates are 7.375% for loans above that limit.