by Calculated Risk on 6/10/2009 01:08:00 PM

Here is a new tool from Political Calculations: Predicting Mortgage Rates and Treasury Yields

This is based off the chart I posted last Friday and is very timely with the Ten Year Yield pushing 4%.

Using their tool, with the Ten Year yield at 3.99%, this suggests that 30 year mortgage rates will rise to 5.8% based on the historical relationship between the Ten Year yield and mortgage rates.

According to the MBA the "average contract interest rate for 30-year fixed-rate mortgages increased to 5.57 percent" last week. So rates will probably be higher this week.

BTW, I first used the term "Bernanke's conundrum" in 2005 to describe what I thought would happen when the Fed rate was low following the housing bust - and the long rate started to rise.

by Calculated Risk on 6/10/2009 11:27:00 AM

From Lingling Wei and Kris Hudson: Relief for Commercial Real-Estate Debt? It Seems Possible

... developers and investors complain that only those who are delinquent can talk to servicers of ... CMBS. But now the Treasury is considering issuing guidance that would allow servicers to start talking about ways to avoid defaults and foreclosures sooner, possibly at least two years ahead of the maturity date of a loan ... The Treasury guidance, which could be released within weeks, would essentially enable loan-modification talks to take place without triggering tax consequences ... when CMBS offerings are created, the underlying mortgages are legally held by tax-free trusts. The trusts can be forced to pay taxes if the underlying loans are modified before they become delinquent, according to current CMBS rules.
...
Of particular concern is $154.5 billion of CMBS loans coming due between now and 2012. About two-thirds of that likely won't qualify for refinancing, according to a recent report by Deutsche Bank. The bank projected that the default rates on the $700 billion of outstanding CMBS eventually could hit at least 30%, and loss rates, which take into account the amounts recovered by lenders, could reach as much as 13%, more than the peak seen during the commercial-real-estate collapse of the early 1990s.

This is a follow up to:

S&P on CMBS: Potential Downgrades from AAA to A

CRE Mortgage Servicers Seek up to 5 Year Extensions (with Fitch comments)

From Bloomberg: U.S. Commercial Mortgage Defaults May Rise to 17-Year High

by Calculated Risk on 6/10/2009 08:43:00 AM

The Census Bureau reports:

The ... total April exports of $121.1 billion and imports of $150.3 billion resulted in a goods and services deficit of $29.2 billion, up from $28.5 billion in March, revised. April exports were $2.8 billon less than March exports of $123.9 billion. April imports were $2.2 billion less than March imports of $152.5 billion.

Click on graph for larger image.

The first graph shows the monthly U.S. exports and imports in dollars through April 2009.

Both imports and exports declined again in April. On a year-over-year basis, exports are off 21% and imports are off 31%!

The second graph shows the U.S. trade deficit, with and without petroleum, through April.

The blue line is the total deficit, and the black line is the petroleum deficit, and the red line is the trade deficit ex-petroleum products.

Import oil prices increased slightly to $46.60 in April - the second monthly increase in a row - and following eight consecutive monthly declines. Spot prices have increased sharply since April, so the decline in the trade deficit due to lower oil prices is over for now.

by Calculated Risk on 6/10/2009 08:37:00 AM

The MBA reports:

The Market Composite Index, a measure of mortgage loan application volume, was 611.0, a decrease of 7.2 percent on a seasonally adjusted basis from 658.7 one week earlier.
...
The Refinance Index decreased 11.8 percent to 2605.7 from 2953.6 the previous week and the seasonally adjusted Purchase Index increased 1.1 percent to 270.7 from 267.7 one week earlier.
...
The average contract interest rate for 30-year fixed-rate mortgages increased to 5.57 percent from 5.25 percent ...
emphasis added

The Purchase Index is now at the level of the late '90s.

30-year fixed mortgage rates were at 4.81% two weeks ago, and are now at 5.57%. With the 10 year yielding 3.9%, mortgage rates will probably rise again this week.

Click on graph for larger image in new window.

This graph shows the MBA Purchase Index and four week moving average since 2002.

Although we can't compare directly to earlier periods because of the changes in the index, this shows no pick up in overall sales activity.

by Calculated Risk on 6/10/2009 01:47:00 AM

When I saw the title of the following article, I was wary that the median price was being distorted by the mix of homes being sold (a mix of more low end homes lowers the median). But Peter Hong at the LA Times gives some specific examples of prices going back 20 years or more.

From the LA Times: Median home prices drop below 1989 levels in some parts of Southland

To return to the past, take a stroll down Mulberry Avenue in Lancaster. John A. Beatrice, 55, bought his spacious two-story Spanish-style house there brand-new for $120,000 in 1989. It was a price he could comfortably afford, and he planned on staying through retirement, so he wasn't worried about price swings.
...
But he never imagined his neighborhood would drop off the charts. In April, a slightly larger home two doors away sold for $66,500. That's just over half the $130,000 it went for new in 1992. In 2005, that house sold for $330,000.

And another example ...

[Patricia] Hynes bought her three-bedroom home in Lancaster brand-new for $119,000 in 1989 ... Her home is an island in a sea of repos. Houses on both sides have fallen into foreclosure; one is priced $10,000 less than the amount she paid 20 years ago.

Nearby, a four-bedroom, 2,100-square-foot home sold in May for $89,000.

Most of these areas are suffering negative absorption (families are moving out) and are the least desirable areas in SoCal. And there are more foreclosures coming ...

Another tsunami of foreclosures is threatening to swamp an already saturated market. In Palmdale and Lancaster, 903 homes were sold in April, but according to ForeclosureRadar, more than 7,500 are in some stage of foreclosure.

Some buyers who thought they were getting bargains didn't. In Lancaster, Beatrice's eldest son, Daniel, bought a house near his father's for $175,000 in April 2008; comparable properties are now selling for about $95,000.

Get ready for 1979 prices!

by Calculated Risk on 6/10/2009 12:29:00 AM

By request, here is an open thread for discussion.

Futures are up slightly ...

Futures from barchart.com

Bloomberg Futures.

CBOT mini-sized Dow

CME Globex Flash Quotes

And the Asian markets are mostly up.

Best to all.

by Calculated Risk on 6/09/2009 10:36:00 PM

From Reuters: US commercial loan servicers seek longer extensions

U.S. commercial real estate mortgage servicers are seeking to extend maturing loans for up to five years in a bid to prevent borrowers from defaulting and giving up office, retail and apartment buildings at distressed levels, an industry executive said on Tuesday.
...
Modifying loans has consumed the $700 billion market for commercial mortgage securities this year.
...
The urgency has also risen since the fourth quarter of 2008 as special servicers have taken on hundreds of new loans due to default or a reduction in cash flow that may presage a default.

Also on CMBS from Fitch: U.S. Super Senior CMBS Expected To Hold Onto 'AAA' Ratings

While rating actions across the capital structure of many recent vintage U.S. CMBS transactions will be substantial, mezzanine and super-senior 'AAA'-rated classes are expected to stay 'AAA' for the foreseeable future, according to Fitch Ratings as it continues its review of 2006-2008 fixed-rate conduit and fusion transactions.

While rating actions on the most senior tranches are not anticipated, Fitch expects to downgrade approximately 75%-85% of subordinate 'AAA' (A-J) classes from these recent vintages as a result of its revised loss forecasts. Downgrades across all classes are expected to average two rating categories.

Fitch assumes the following factors in forecasting losses:

--Peak-to-trough value declines of 35%;

--Immediate and sustained income declines of 15%;

Unlike S&P, Fitch believes the "AAA" rated classes will not be downgraded - but a large percentage of the other classes will be cut. Note that S&P assumed current or market rents, and then decreased rents a further 6 to 30% depending upon property type. Fitch is only assuming an "Immediate and sustained income declines of 15%". We know from recent reports that incomes for hotels are already off more than 15%.

by Calculated Risk on 6/09/2009 07:36:00 PM

From SCOTUS Blog: Court clears Chrysler sale

Ending four days of intense, round-the-clock and high-stakes legal maneuvering in the Supreme Court, the Justices on Tuesday evening removed a legal obstacle to sale of the troubled auto industry giant, Chrysler.

Insisting that it was denying a postponement “in this case alone,” the two-page order said the challengers had not met their burden of showing that a delay was justified. The order allows a closing of the deal as of next Monday, because it lifts a temporary stay that Justice Ruth Bader Ginsburg had issued on Monday, apparently to give the Court time to ponder the issue.

The Court said nothing about the biggest issue lurking in the case: the legality of using federal “bailout” money to pay for the rescue of an auto manufacturer. In fact, the order stressed that “a denial of a stay is not a ddecision on the merits of the underlying legal issues.”

More at link ...

by Calculated Risk on 6/09/2009 05:15:00 PM

From the AP: Judge OKs Chrysler plan to terminate franchises. The AP is reporting that U.S. Judge Arthur Gonzalez said Chrysler can terminate 789 dealers effective immediately.

From the SCOTUS Blog: Chrysler and the meaning of June 15

[I]t seemed clear that Ginsburg — and perhaps the full Court — were awaiting the new round of briefing on what a widely disputed June 15 “deadline” means.

It is not clear how central this dispute is to the Justices’ ultimate view of the legal and financial situation, but there was no doubt of the vigor with which all sides were debating that question.

The Indiana funds, in a somewhat triumphant though brief filing, contended Tuesday that they had undermined the claims that Fiat would back out and the deal would collapse if it is not closed by next Monday. Its evidence was a brief wire story on Bloomberg News quoting a Fiat executive as saying it “would never walk away” from the pact.

By early afternoon, the three main defenders of the rescue plan joined the new battle, with Fiat saying that the benefit funds’ new thrust was “unwarranted.” The deal, by its own express terms, “will terminate automatically” if not closed “on or before June 15.” (emphasis in the original).

And from Steve Jakubowski at the Bankruptcy Litigation Blog: What's Bothering Ruthie? Chrysler Bankruptcy Sale Opinion Analysis - Part II

I'm guessing, though, that what bothers her most -- and frankly what's really been bothering me most (hence Part II) -- is the sale's treatment of tort claimants, both present and future, and Judge Gonzalez's cursory justification for such treatment.

And other auto news from CNBC: US House Passes 'Cash for Clunkers' Plan

[T]he House approved a plan Tuesday to provide vouchers of up to $4,500 for consumers who turn in their gas-guzzling cars and trucks for more fuel-efficient vehicles.

by Calculated Risk on 6/09/2009 04:02:00 PM

Click on graph for larger image in new window. The first graph is from Doug Short of dshort.com (financial planner): "Four Bad Bears". Note that the Great Depression crash is based on the DOW; the three others are for the S&P 500.

Here are aggregate hours index for the last six recessions, with the index normalized to 100 for the last month of the recession. (ht Bob_in_MA)

Notes: Recessions are labeled based on the starting year. The 1980 line (green) ended early because of the 1981 recession. The 2007 recession is not included since we don't when it will end!

This shows the weak labor market following the 1990 recession - the red line hovers around 100 for about a year following the official end of the recession.

This also shows the aggregate hours index was flat for a few months following the 2001 recession (blue line) and then declined until mid-2003.