by Calculated Risk on 8/11/2009 07:23:00 PM

From ForeclosureRadar: Record Number of Foreclosures Scheduled For Sale

[F]oreclosure stats were mixed, with Notice of Default filings flat, Notice of Trustee Sale filings rising by 31.6 percent and foreclosure sales dropping 22.7 percent. The number of properties scheduled for foreclosure sale – new Notices of Trustee Sale minus those sales that have cancelled or sold – rose to a record level ...

Foreclosures scheduled for sale rose to 124,874, a 10.4 percent increase from the prior month, and a 93.3 percent increase year-over-year from July 2008. The year-over-year increase is significant given that foreclosure sales in July 2008 set a record that has not again been reached. The increase appears to be primarily due to the fact that lenders are willingly postponing foreclosure sales.
...
Political pressure, financial incentives and the postponement of sales awaiting the completion of loan modification trial periods are likely reasons for the delays. The vast majority of foreclosures, 72 percent, are postponing either due to lenders request, or mutual agreement between the lender and borrower.

The average California foreclosure has a total loan balance of $425,134 on a home that is now worth $236,739.

Whether or not there is a flood of foreclosures soon appears to depend on the loan mods. Notice that foreclosures remain pending during the loan mod trial period - so it is possible that the lenders will start cancelling many of these 'Notices of Trustee Sale' soon if the mods are successful.

by Calculated Risk on 8/11/2009 05:23:00 PM

From the WSJ: Bankruptcy Filing Near for Taylor Bean

A bankruptcy filing is "imminent" for Taylor, Bean & Whitaker Mortgage Corp., lawyers representing the mortgage lender said in a federal court filing last week.
...
Meanwhile, an internal email at Taylor Bean dated Monday, Aug. 10, referred to a new computer folder "to assemble all of our bankruptcy detailed spreadsheets and support."

No surprise.

Nothing new on Colonial Bank (or Corus Bank, or Guaranty Bank in Texas).

CIT created a little stir this morning with an NT 10-Q SEC filing. This was just a notice of CIT being unable to file on time - because the executives are busy - and that CIT expects to file by August 17th (just happens to be the date of the cash tender offer).

CIT reiterated in the NT 10-Q that:

If the tender offer is successfully completed, the Company intends to use the proceeds of the Credit Facility to complete the tender offer and make payment for the August 17 notes. Further, the Company and a Steering Committee of the bond holder lending group do not intend for the Company to seek relief under the U.S. Bankruptcy Code, but rather will pursue restructuring efforts as part of the comprehensive restructuring plan to enhance the Company’s liquidity and capital position. If the pending tender offer is not successfully completed, and the Company is unable to obtain alternative financing, an event of default under the provisions of the Credit Facility would result and the Company could seek relief under the U.S. Bankruptcy Code.
emphasis added

That isn't new.

CIT also reiterated that there are substantial doubts that the company will continue as a going concern.

In addition, as disclosed in the same Current Report on Form 8-K, the Company’s funding strategy and liquidity position have been materially adversely affected by on-going stress in the credit markets, operating losses, credit ratings downgrades, and regulatory and cash restrictions such that there is substantial doubt about the Company’s ability to continue as a going concern.

Also nothing new.

by Calculated Risk on 8/11/2009 03:23:00 PM

From the Treasury:

... One of the most significant changes in the world of finance in recent decades has been the explosive growth and rapid innovation in the markets for credit default swaps (CDS) and other OTC derivatives. These markets have largely gone unregulated since their inception. Enormous risks built up in these markets – substantially out of the view or control of regulators – and these risks contributed to the collapse of major financial firms in the past year and severe stress throughout the financial system.

Under the Administration's legislation, the OTC derivative markets will be comprehensively regulated for the first time. The legislation will provide for regulation and transparency for all OTC derivative transactions; strong prudential and business conduct regulation of all OTC derivative dealers and other major participants in the OTC derivative markets; and improved regulatory and enforcement tools to prevent manipulation, fraud, and other abuses in these markets.

It appears the proposed bill would require standard derivative products to be traded on exchanges, and that all companies involved in derivative trading would be subject to federal regulation.

I haven't found any mention of banning 'naked' CDS (something that was discussed a couple weeks ago), but I haven't read the entire proposal.

by Calculated Risk on 8/11/2009 12:41:00 PM

From CB Richard Ellis: U.S. Retail Cap Rates

Average US retail capitalization rates increased 55 basis points in the 2nd quarter of 2009 to 8.12% ...

As some owners were unable to hold on, cap rates continued the upward march in the 2nd quarter. The 55 basis point gain is the largest quarterly increase we have ever measured, even trumping 2008 Q4. ... Our preliminary review of closed sales and escrows in the 3rd quarter indicate cap rates are continuing to rise.

Click on graph for larger image in new window.

This graph from CBRE shows the retail cap rate since 2003. Note that 2009 was based on just Q1 and Q2, and Q2 is already at 8.12% - and CBRE sees an additional cap rate increase in the early Q3 data.

From Reuters in July, see: Strip Mall Vacancy Rate Hits 10%, Highest Since 1992

During the second quarter, the vacancy rate at U.S. strip malls reached 10 percent, the highest level since 1992, [Reis] said. ... asking rent fell 1.7 percent from a year ago to $19.28 per square foot. Asking rent fell 0.7 percent from the prior quarter. It was the largest single-quarter decline since Reis began tracking quarterly figures in 1999.

Sharply lower rents, higher vacancy rates, reduced leverage and much higher cap rates - Brian calls this the "neutron bomb for RE equity"; destroys CRE investors, but leaves the buildings still standing.

by Calculated Risk on 8/11/2009 10:30:00 AM

Saturday I posted a description of the differences between the Current Population Survey (CPS: commonly called the household survey), and the Current Employment Statistics (CES: payroll survey).

The CPS gives the total number of people employed (and unemployed), and the CES gives the total number of positions (excluding some categories like the self-employed, and a person working two jobs counts as two positions).

So if you wanted to compare the number of men vs. the number of women in the labor force, which survey would you use? Not the CES because that is a measure of positions, and a person working two jobs would be counted twice. Instead you'd want to use the CPS (a count of people, not positions).

However, Professor Casey Mulligan writes in the NY Times Economix: When Will Women Become a Work-Force Majority?

It is possible that, for the first time in American history, women will make up a majority of the labor force late this summer.
emphasis added

Uh, no.

First Mulligan means "work force" or "employed", not percent of labor force (the labor force includes unemployed workers too).

But more importantly, Mulligan means women will hold a majority of the positions as measured by the CES. Remember the CES excludes self-employed and farm jobs, and those are probably largely male. And perhaps women are more likely to work two jobs (the CES counts that as two positions).

Click on graph for larger image in new window.

This graph shows the percent of men and women in the U.S. labor force. The percentage have been pretty stready for the last 15 years, although the current recession is impacting men more than women.

According to the BLS, there are 10.1 million more men in the labor force than women, but only 7.4 million more men are working.

The unemployment rate for men (20 & over) is 9.8% compared to 7.5% for women. Including teens (16 & over), the unemployment rate for men is 10.5% compared to 8.1% for women.

Catherine Rampell at the NY Times Economix picks up Mulligan's error: The Mancession

Casey B. Mulligan noted, for example, that for the first time in American history women are coming close to representing the majority of the national work force.

At least Rampell used "work force" instead of "labor force" but she repeats Mulligan's error. Women are coming close to holding a majority of payroll jobs, but not a majority of the work force or labor force. Back in February, Rampell phrased it better:

With the recession on the brink of becoming the longest in the postwar era, a milestone may be at hand: Women are poised to surpass men on the nation’s payrolls, taking the majority for the first time in American history.

To belabor this point: Say there were 50 women and 100 men in the work force, and each women worked two jobs (men only one). The CES would report 200 payroll positions; half for men, and half for women. The CPS would report 150 people had jobs, 50 women and 100 men. Would it be correct to say there were as many women in the work force as men? No.

Both surveys have value, and I'm using this to make a point: The CES is about positions. The CPS is about people.

by Calculated Risk on 8/11/2009 08:38:00 AM

From MarketWatch: Oversight panel: Losses could pose threat to small banks

According to a report from the Congressional Oversight Panel, which is charged with overseeing the $700 billion Troubled Asset Relief program, or TARP, the 18 largest financial institutions with over $600 million in assets would "be able to deal with" whole-loan portfolio losses.

However, the report's analysis of troubled whole loans -- based on a model developed by SNL Financial -- suggests they pose a threat to smaller public banks, those with $600 million to $100 billion in assets.

Here is the report: August Oversight Report: The Continued Risk of Troubled Assets

The problem of troubled assets is especially serious for the balance sheets of small banks. Small banks‘ troubled assets are generally whole loans, but Treasury‘s main program for removing troubled assets from banks‘ balance sheets, the PPIP will at present address only troubled mortgage securities and not whole loans. The problem is compounded by the fact that banks smaller than those subjected to stress tests also hold greater concentrations of commercial real estate loans, which pose a potential threat of high defaults. Moreover, small banks have more difficulty accessing the capital markets than larger banks. Despite these difficulties, the adequacy of small banks‘ capital buffers has not been evaluated under the stress tests.
emphasis added

The FDIC will stay very busy.

by Calculated Risk on 8/10/2009 11:58:00 PM

From HotelNewsNow.com: HIP increases by 1.6 in July; first sign of turning point

This morning, economic research firm e-forecasting.com, in conjunction with Smith Travel Research, announced that after 19 months of consecutive decline, HIP climbed 1.6 percent in July. HIP, the Hotel Industry’s Pulse index, is a composite indicator that gauges business activity in the US hotel industry in real-time. The latest increase brought the index to a reading of 82.2. The index was set to equal 100 in 2000.
...
“With HIP finally showing a slight improvement after 19 months of decline, it appears we may be seeing the light at the end of the tunnel” said Chad Church, Industry Research Manager at STR. “It will be important to monitor the pace of growth in the HIP over the second half of the year to see if July was an anomaly or a true turning point in this recession.”
...
The composite indicator is made with the following components: revenues from consumers staying at hotels and motels adjusted for inflation, room occupancy rate and hotel employment, along with other key economic factors that influence hotel business activity.

Click on graph for larger image in new window.

This index suggests that the cliff diving for the hotel industry might be over, although this is just one data point.

Over the last couple of years the hotel industry has been crushed. RevPAR (Revenue per available room) is off over 15% compared to the same period in 2008. And at the current occupancy and room rate levels, many hotels are losing money.

The end to cliff diving is not the same as new growth, but it is better than more cliff diving!

HIP historical data provided by HotelNewsNow.com and e-forecasting.com.

by Calculated Risk on 8/10/2009 09:35:00 PM

From the WaPo: Stimulus Funds Bring Relief to States, but What About 2010?

As states across the country grapple with the worst economy in decades, most have cut services, forced workers to take unpaid days off, shut offices several days a month and scrambled to find new sources of revenue.

The good news is that much of the pain this year has been cushioned by billions of dollars of federal stimulus money, which has allowed states and localities to avoid laying off teachers, prison guards, police officers and firefighters.

The bad news is that for the next fiscal year, beginning in July, the picture looks even bleaker. Revenue is expected to remain depressed, even if the national economy improves. There will be only half as much federal stimulus aid available, and many states have already used up their emergency reserves.

The article discusses the budget situations for a number of states. But here is a little positive news from California State Controller John Chiang today:

... When adjusting for Registered Warrants issued on personal income and corporate tax refunds, General Fund Revenue was 8% below July 2008. However, the pace of deterioration has slowed considerably relative to the 39.4%, 39%, and 17.7% deterioration in March, April, and May, respectively.

This slowing decline can be attributed to several factors ... First, the Governor signed a bill in October that imposes a 20% understatement penalty on corporate tax. Companies were given the option to avoid the penalty by filing an amended return and paying their actual tax liability by May 31, 2009. As a result, corporate taxes saw sharp increases as firms took action to avoid the penalty.

Second, the sales tax rate was increased on April 1 from 7.25% to 8.25%. This has helped to bolster the sales tax revenues collected by the State, which were up 20.8% from last July. Another policy change that has had a positive impact on California’s sales tax collections is the Federal Government’s “Cash for Clunkers” program. ... This program has been successful in boosting demand for new automobiles, and thus, generating additional tax revenues for California. Although this positive indicator is driven by economic incentives created by policy changes in Washington D.C. more than a genuine rebound in consumer activity, any encouraging signs in the economy were virtually nonexistent six months ago.

by Calculated Risk on 8/10/2009 06:11:00 PM

On Saturday I posted a graph and some analysis of Housing Starts and the Unemployment Rate

Today I received a request for a similar graph of auto sales and the unemployment rate.

Click on graph for larger image in new window.

This graph shows light vehicles sales including SUVs and small trucks, and the unemployment rate (inverted - see right scale).

Light vehicle sales usually bottom sometime before the unemployment rate peaks - just like for housing starts. This makes sense since the usual two engines of recovery are housing and personal consumption. See Business Cycle: Temporal Order

by Calculated Risk on 8/10/2009 04:20:00 PM

Click on graph for larger image in new window.

Instead of comparing the markets from the peak (See: the Four Bad Bears), Doug Short sent me this new graph matching up the market bottoms (with an interim bottom for the Great Depression).

Note that the Great Depression crash is based on the DOW; the three others are for the S&P 500.

Doug has probably jinxed the market!