by Calculated Risk on 6/30/2009 04:42:00 PM

Earlier I posted some graphs on the surge in prime delinquecies from the OCC and OTS Release Mortgage Metrics Report for First Quarter 2009

See: OCC and OTS: Prime Delinquencies Surge in Q1

Here is some info on types of modifications:

While 185,156 mortgages were modified in the first quarter of 2009, 122,398 were “combination modifications” that changed more than one term of the loan. Of the modifications made in the first quarter of 2009, 70.2 percent included a capitalization of missed payments and fees, 63.2 percent included a reduction in interest rate, and 25.1 included an extended term. By comparison, 12.6 percent of the mortgages received modifications that froze the interest rate, 1.8 percent included a reduction of principal, and 1.1 percent included a deferral of principal. All modification actions during the quarter are indicated in the table below. Since nearly two-thirds of the modifications changed more than one loan term, the sum of the percentages in the table exceeds 100 percent.

The types of actions taken have different effects on the borrower’s principal and interest payments and may, over time, have different effects on the long-term sustainability of the loan.

Of the nearly two-thirds of modifications that were combination modifications that involved two or more changes to the terms of the loan, 83.4 percent of them included capitalization of missed payments and fees, 86.1 percent included reduced interest rates, 36.3 percent included extended maturities, 12.4 percent included interest rate freezes, 2.8 percent included principal reductions, and 1.6 percent included principal deferrals.

Click on graph for larger image.

In normal times, a capitalization of missed payments and fees is effective - because usually the homeowner fell behind for a short period because of a lost job or an emergency expense.

However, in these times with many homeowners underwater (with negative equity), capitalization isn't very effective. A reduced interest rate or longer term might be helpful.

And here are the re-default rates.

This graph shows that about 30% of modified loans re-default in the first quarter after modification and about half within the first year. This suggests modifications have not been very effective.

The percentage of loans that were 60 or more days delinquent or in the process of foreclosure rose steadily in the months subsequent to modification for all vintages where data were available. It is noteworthy that modifications implemented in the first two quarters of 2008 re-defaulted at a lower rate than those in the third quarter, measured at the same number of months after modification. Those modifications implemented in the fourth quarter of 2008 have re-defaulted at a slightly lower rate than the preceding quarter. However, it is too early to determine whether the data for the fourth quarter portend a sustained improvement in performance resulting from recent changes to modification practices.

by Calculated Risk on 6/30/2009 02:14:00 PM

First a couple of quotes:

From Bloomberg: Shiller Sees ‘Improvement’ in Rate of Home-Price Drop

Home prices saw a “striking improvement in the rate of decline” in April and trading in funds launched today indicates investors believe the U.S. housing slump is nearing a bottom, said Yale University economist Robert Shiller.

“At this point, people are thinking the fall is over,” Shiller, co-founder of the home price index that bears his name, said in a Bloomberg Radio interview today. “The market is predicting the declines are over.”
...
“My guess would be that home prices are going to level off -- they’re not going to keep falling,” Shiller said in a separate interview with Bloomberg Television. Still, it’s “hard to predict” a speculative market, and “I am not optimistic that we’re going to see any sharp rebound.”

From the WSJ: Home Prices Drop at Slower Pace

Home prices in 20 major cities fell an average 0.6% in April, an improvement over the 2.2% decline the prior month, according to the Case-Shiller index produced by Standard & Poor's and released Tuesday.
...
David Blitzer, chairman of S&P's index committee, said in a statement that while "some stabilization may be appearing in some markets," the spring buying season usually helps buoy housing-market activity. "It will take some time to determine if a recovery is really here," he said.

First, the 0.6% decline in the Composite 20 index (mentioned in the WSJ) is the Not Seasonally Adjusted (NSA) index. The NSA index was at 139.97 in March, and 139.18 in April.

The Composite 20 Seasonally Adjusted (SA) index was at 141.36 in March and 140.1 in April - a decline of 0.9% or 10.2% annualized.

So house prices were falling at about a 10% annualized rate in April - and that apparently feels like "stabilization"!

By most measure like price-to-income, price-to-rent and real prices, a large portion of the probable price declines are behind us. See: House Prices: Real Prices, Price-to-Rent, and Price-to-Income Note: that post is based on the quarterly Case-Shiller National price index.

But in many previous housing busts, there was a long tail of smaller price declines (especially in real terms).

Click on graph for larger image in new window.

This graph shows the annualized rate of change, monthly, for the Case-Shiller Composite 10 SA index.

Note: The Composite 20 index mentioned in the WSJ only goes back to January 2000.

Notice that during the early '90s housing bust, prices fell on and off for a few years after the worst of the price declines were over.

The second graph shows this long tail of price declines in real terms (the composite 20 index adjusted with CPI less Shelter).

I'm not sure we've reached the "long tail" portion of this housing bust yet, but I think that prices will follow a similar pattern as previous busts, with prices falling in real terms for a few years after the worst of the price declines are over.

With record delinquencies, record foreclosures, few move-up buyers (impacting the mid-to-high end), a huge overhang of inventory, I believe prices will continue to fall in many areas.

by Calculated Risk on 6/30/2009 12:34:00 PM

Form the SF Gate: No sign of budget with deadline approaching (ht shill)

Despite a deadline looming tonight, Gov. Arnold Schwarzenegger and the Legislature were at a loss Monday over how to close the state's massive deficit, and there were no signs a compromise would be reached soon.

If no plan is adopted by 12:01 a.m. Wednesday, the state plans to issue IOUs to contractors, vendors, local governments and taxpayers expecting refunds beginning Thursday. The governor plans to force 220,000 state workers to take a third unpaid day off beginning in July ...

Will retailers accept IOUs?

by Calculated Risk on 6/30/2009 11:21:00 AM

From the Office of the Comptroller of the Currency and the Office of Thrift Supervision: OCC and OTS Release Mortgage Metrics Report for First Quarter 2009

This OCC and OTS Mortgage Metrics Report for the first quarter of 2009 provides performance data on first lien residential mortgages serviced by national banks and federally regulated thrifts. The report provides a comprehensive picture of mortgage servicing activities of most of the industry’s largest mortgage servicers, covering approximately 64 percent of all mortgages outstanding in the United States and incorporating information on all types of mortgages serviced, including subprime mortgages. The report covers more than 34 million loans totaling more than $6 trillion in principal balances and provides information on their performance from the beginning of 2008 through the end of the first quarter of 2009.

Negative trends continued for mortgage data for the first quarter of 2009, but with some hopeful signs on the modification front. Continued economic pressures, including rising levels of unemployment and a continuing decline in property values, resulted in an increased number of seriously delinquent mortgages and newly initiated foreclosure actions. The first quarter data also showed a relatively greater increase in seriously delinquent prime mortgages compared with other risk categories and a higher number of foreclosures in process across all risk categories as a variety of moratoria on foreclosures expired during the first quarter of 2009.

Much of the report focuses on modifications and recidivism, but this report also shows far more seriously delinquent prime loans than subprime loans (by number, not percentage).

Click on graph for larger image.

We're all subprime now!

Note: "Approximately 14 percent of loans in the data were not accompanied by credit scores and are classified as “other.” This group includes a mix of prime, Alt-A, and subprime. In large part, the loans were result of acquisitions of loan portfolios from third parties where borrower credit scores at the origination of the loans were not available."

This report covers about two-thirds of all mortgages. There are far more prime loans than subprime loans - and the percentage of delinquent prime loans is much lower than for subprime loans. However, there are now significantly more prime loans than subprime loans seriously delinquent. And prime loans tend to be larger than subprime loans, so the losses from each prime loan will probably be higher.


The second graph shows foreclosure activity.

Newly initiated foreclosures picked up in Q1.

Completed foreclosures declined (because of the foreclosure moratorium), and foreclosures in process surged to 844 thousand.

Note that short sales are essentially irrelevant.

by Calculated Risk on 6/30/2009 11:00:00 AM

Note: Any reading below 100 shows contraction.

From the National Restaurant Association (NRA): Restaurant Industry Outlook Softened in May as Restaurant Performance Index Posted First Decline in Five Months

The outlook for the restaurant industry was dampened somewhat in May, as the National Restaurant Association’s comprehensive index of restaurant activity registered its first decline in five months. The Association’s Restaurant Performance Index (RPI) – a monthly composite index that tracks the health of and outlook for the U.S. restaurant industry – stood at 98.3 in May, down 0.3 percent from April and its 19th consecutive month below 100.

“With the performance of the current situation indicators holding relatively steady in May, the RPI’s decline was the result of restaurant operators’ dampened outlook for each of the four forward-looking indicators,” said Hudson Riehle, senior vice president of Research and Information Services for the Association. “Although restaurant operators remain relatively optimistic that economic conditions will improve in six months, their outlook for sales growth and capital spending activity softened somewhat.”
...
Restaurant operators also reported negative customer traffic levels in May, marking the 21st consecutive month of traffic declines.
...
Capital spending activity remained relatively steady, despite the continued soft sales and traffic levels. Forty-one percent of operators said they made a capital expenditure for equipment, expansion or remodeling during the last three months, down from 43 percent who reported similarly last month.
emphasis added

Click on graph for larger image in new window.

Unfortunately the data for this index only goes back to 2002.

This is another example of still contracting, but contracting at a slower pace than earlier this year.

by Calculated Risk on 6/30/2009 09:30:00 AM

Please see: Case-Shiller: Prices Fall in April for the seasonally adjusted composite indices.

NOTE: I'm now using the Seasonally Adjusted (SA) composite 10 series.

This graph compares the Case-Shiller Composite 10 SA index with the Stress Test scenarios from the Treasury (stress test data is estimated from quarterly forecasts).

Click on graph for larger image in new window.

The Stress Test scenarios use the Composite 10 index and start in December. Here are the numbers:

Case-Shiller Composite 10 Index, April: 151.27

Stress Test Baseline Scenario, April: 152.90

Stress Test More Adverse Scenario, April: 146.95

So far prices are tracking between the two stress test scenarios.

by Calculated Risk on 6/30/2009 09:00:00 AM

S&P/Case-Shiller released their monthly Home Price Indices for April this morning.

This monthly data includes prices for 20 individual cities, and two composite indices (10 cities and 20 cities). Note: This is not the quarterly national index.

Click on graph for larger image in new window.

The first graph shows the nominal seasonally adjusted Composite 10 and Composite 20 indices (the Composite 20 was started in January 2000).

The Composite 10 index is off 33.1% from the peak, and off 1.0% in April.

The Composite 20 index is off 32.0% from the peak, and off 0.9% in April.

NOTE: Some websites are reporting the NSA results (month over month). I'm using the SA data (a better month-to-month comparison)

Prices are still falling and will probably decline for some time.

The second graph shows the Year over year change in both indices.

The Composite 10 is off 18.0% over the last year.

The Composite 20 is off 18.1% over the last year.

This is near the worst year-over-year price declines for the Composite indices since the housing bubble burst started.

The third graph shows the price declines from the peak for each city included in S&P/Case-Shiller indices.

Prices fell in 16 of the 20 Case-Shiller cities in April. In Phoenix, house prices have declined 53.7% from the peak. At the other end of the spectrum, prices in Charlotte and Dallas are off about 11% and 8% respectively from the peak. Prices have declined by double digits almost everywhere.

Denver, Dallas, Washington and Cleveland showed small price gains in April.

I'll compare house prices to the stress test scenarios soon.

by Calculated Risk on 6/30/2009 12:11:00 AM

From the WSJ: Ten States Race to Finish Budgets

Ten states were scrambling Monday to pass budgets before a Tuesday deadline, with a handful -- including Arizona, Indiana and Mississippi -- facing the possibility of partial shutdowns if their legislatures don't act in time.
...
Personal income-tax collections, which account for about 36% of state revenues, dropped 26% in this year's January-April period, according to data collected by the Rockefeller Institute of Government in Albany, N.Y.

Sales-tax revenues also have swooned, leaving 48 states with a combined revenue shortfall of $166 billion in the coming fiscal year, according to a report released Monday by the left-leaning Center on Budget and Policy Priorities.

...States without budgets in hand include California, Pennsylvania, North Carolina, Delaware, Illinois, Ohio and Connecticut ...

Here is a new Center on Budget and Policy Priorities report (released today) with state by state tables.

by Calculated Risk on 6/29/2009 09:24:00 PM

There will be a flood of data released over the next three days, including the June employment numbers on Thursday. Other highlights include Case-Shiller house prices tomorrow and auto sales on Wednesday.

Several analysts expect an increase in auto sales in June, compared to May, on a seasonally adjusted annual rate (SAAR) basis. From the WSJ: Car-Sales Rebound Seen for June

[A]nnualized U.S. sales could hit 10 million this month for the first time in 2009, Ford Motor Co. analyst George Pipas said on Monday. The deep discounts that General Motors Corp. and Chrysler Group LLC have offered to boost sales are also likely to bolster June sales.
...
A GM spokesman also said an annualized 10 million sales rate is possible for June.

J.D. Power and Associates predicts annualized June sales of 10.3 million new cars and trucks, up from 9.9 million in May, while Edmunds.com expects the sales rate to top 10 million, though overall sales will still be 25% lower than a year ago.

But before everyone gets all Green Shootie ...

This graph shows light vehicle sales since the BEA started keeping data in 1967.

Breaking 10 million (SAAR) in June might put sales 10% off the bottom in February, but is is still more than 25% off from June 2008 (13.7 million light vehicle SAAR) and still near the bottom of the cliff.

by Calculated Risk on 6/29/2009 06:39:00 PM

In a 8-K regulatory filing today, Guaranty Financial stated the only "only remaining means by which the Company might possibly raise sufficient capital" is with the help of the FDIC. The Company expects current shareholders to be wiped out.

According to the Houston Business Journal (ht Tim), Guaranty has $14.4 billion in assets, and would be the largest bank to fail this year.

From the SEC filing:

Based on the current status of discussions involving its principal stockholders, other sources of financing, and certain regulatory authorities, the Board of Directors and management of the Company believe that the only remaining means by which the Company might possibly raise sufficient capital for it and its wholly-owned subsidiary, Guaranty Bank (the “Bank”), to comply with the Orders to Cease and Desist issued by the Office of Thrift Supervision (“OTS”) described in the Company’s Current Report on Form 8-K filed on April 8, 2009, is through a plan for open bank assistance (“Open Assistance”). The Open Assistance plan, which the Company is discussing with the Federal Deposit Insurance Corporation (“FDIC”) and the OTS, would involve a significant equity capital infusion from private investors, including the Company’s current principal stockholders, and an agreement under which the FDIC would absorb a portion of any losses associated with a pool of certain of the Company’s assets.

An Open Assistance plan must be approved by the FDIC. Before the FDIC can provide Open Assistance to the Bank, it must establish that the assistance is the least costly to the deposit insurance fund of all possible methods for resolving the financial condition of the Bank. The FDIC may deviate from the least cost requirement only in limited circumstances to avoid “serious adverse effects on economic conditions or financial stability” or “systemic risk” to the banking system. An additional condition to Open Assistance is that the OTS and FDIC must also determine that the Bank’s management is competent, has complied with all applicable laws, rules, and supervisory directives and orders, and has not engaged in any insider dealings, speculative practices, or other abusive activity. The FDIC may not approve an Open Assistance plan if it would benefit any stockholder or affiliate of the Company. As a result, the Company expects that the implementation of any Open Assistance plan would essentially eliminate the value of any of the Company’s currently outstanding equity interests, including shares of the Company’s common stock.

Open Assistance has historically been used extremely rarely by the FDIC, and there is no assurance that it would be available to the Company or the Bank in this case. In addition, while the Company has received expressions of interest from private investors with respect to the necessary capital infusion from private investors, it has not received capital commitments from any of these investors. Accordingly, the Company has not yet formally submitted to the FDIC its plan for Open Assistance, and it may ultimately not be able to do so. If a plan is formally submitted, the FDIC may choose not to approve it.

If the FDIC does not approve a plan for Open Assistance, the Company will no longer have the intent and ability to hold its mortgage-backed securities portfolio to recovery of unrealized losses, and, consequently, there would be substantial doubt that the Company would be able to continue as a going concern. In such case, the Company would be required to take material charges relating to the impairment of assets, in which case the preliminary financial information provided by the Company in previous Forms 12b-25 for the periods ended December 31, 2008 and March 31, 2009 should not be relied upon.