by Calculated Risk on 9/08/2009 10:22:00 PM

HUD has a great tool to track FHA lender performance: Neighborhood Watch Early Warning System (ht TL)

Although the overall FHA default rate is 4.63%, the following lenders had 2 year default rates of 15% or more (only lenders with 100+ originations included). (Added: these are the two year default rates).

There are ten lenders with "perfect" records (100% default), but they only have one or two originations each.

And the winner is Mortgage Depot Inc. with a 48.65% default rate!

Note that Countrywide Home Loans Inc. is not Countrywide Bank FSB.

For a full screen version of the table click here.

The table is wide - use scroll bars to see all information!

NOTE: Columns are sortable - click on column header to sore

by Calculated Risk on 9/08/2009 05:58:00 PM

From Fitch: $134B of U.S. Option ARM RMBS To Recast by 2011

Of the $189 billion securitized Option ARM loans outstanding, 88% have yet to experience a recast event ... Of these loans that have not yet recast, 94% have utilized the minimum monthly payment to allow their loans to negatively amortize.
...
Further evidence of option ARM underperformance in the last year lies in the number of outstanding securitized Option ARMs either 90 days or more delinquent, in foreclosure or real estate-owned proceedings, which has increased from 16% to 37%. Total 30+ day delinquencies are now 46%, despite the fact that only 12% have recast and experienced an associated payment shock. Instead, negative and declining equity has presented a larger problem: due to high concentrations in California, Florida, and other states with rapidly declining home prices, average loan-to-value ratios have increased from 79% at origination to 126% today. 'Negative equity and payment shocks will continue as Option ARM loans recast in large numbers in the coming years,' said Somerville.

Fitch is just looking at securitized Option ARMs, not loans in bank portfolios like Wells Fargo with all the 10 year Pick-a-Pay recast periods.

The second paragraph is key - many of these borrowers are defaulting before the loans recast! From Bloomberg on a Barclays report in July: Option ARM Defaults Shrink Recast Wave, Barclays Says

The wave of “option” adjustable- rate mortgages recasting to higher payments, projected by some economists to represent a looming source of foreclosures that will hurt housing markets over the next few years, will be smaller “than feared” because many borrowers will default before their bills change, Barclays Capital analysts said.
...
About 40 percent of borrowers with option ARMs are already delinquent, and “many” of the others will start missing payments before their obligations change, the Barclays mortgage- bond analysts wrote in a July 24 report. ...

“The additional risk really will only be for borrowers who manage to stay current over the next couple of years and might default due to a payment shock,” the New York-based analysts including Sandeep Bordian and Jasraj Vaidya wrote.
...
More than $750 billion of option ARMs were originated between 2004 and 2008 ...

The real problem for Option ARMs is negative equity, and the surge in defaults is happening before the loans recast. As Fitch notes, modifications haven't been helpful for Option ARM borrowers because many are too far underwater:

To date, 3.5% of the approximately one million 2004-2007 vintage securitized Option ARM loans have been modified, in an attempt to mitigate effects from the payment shock. Modification types have included term extension, conversion to interest only loans, interest rate cuts, and others. These modifications have been somewhat successful, with 24% of modified Option ARM loans being 90+ days delinquent, compared with 37% of the overall Option ARM universe. However ... Fitch expects a high default percentage for modified Option ARM loans.

This is a somewhat confusing press release. The recasts will probably lead to higher defaults, but negative equity is the real problem.

by Calculated Risk on 9/08/2009 03:10:00 PM

From MarketWatch: U.S. consumer credit down record amount in July

UU.S. consumers reduced their credit burden by a record amount in July, the Federal Reserve reported Tuesday. Total seasonally adjusted consumer debt fell $21.55 billion, or at a 10.4% annual rate, in July to $2.47 trillion. This is the sixth straight monthly drop in consumer credit. ... This is the record 11th straight monthly drop in credit card debt.

Click on graph for larger image in new window.

This graph shows the year-over-year (YoY) change in consumer credit. Consumer credit is off 4.2% over the last 12 months. The previous record YoY decline was 1.9% in 1991.

Here is the Fed report: Consumer Credit

Consumer credit declined from $2,493.6 billion in June to $2,472.1 in July. Note: The Fed reports a simple annual rate (multiplies change in month by 12) as opposed to a compounded annual rate.

Note: Consumer credit does not include real estate debt.

by Calculated Risk on 9/08/2009 02:33:00 PM

Typically retail companies start hiring for the holiday season in October, and really increase hiring in November. Here is a graph that shows the historical net retail jobs added for October, November and December by year.

Click on graph for larger image in new window.

This really shows the collapse in retail hiring in 2008. This also shows how the season has changed over time - back in the '80s, retailers hired mostly in December. Now the peak month is November, and many retailers start hiring seasonal workers in October.

Here is a story from Bloomberg: Retail Hiring Shift May Show Growing Confidence in Recovery (ht Brian, Mike)

U.S. discount, grocery and restaurant chains are hiring a larger percentage of job applicants than seven months ago, signaling confidence the economy may be improving, software maker Kronos Inc. said.

Kronos analyzed the 8.9 million job applications received by 68 retailers in the first seven months of the year. In July, 2.99 of every 100 applications resulted in a hire, compared with 2.75 in January, a three-year low, the Chelmsford, Massachusetts-based company said today in a statement.

“We are seeing a turnaround that reflects an increase in confidence by individual managers,” Robert Yerex, Kronos’s chief economist ... “It may take quite a bit longer to come back than it did to drop off.” This is the first time Kronos has publicly issued a monthly retail labor index.

Unfortunately this data is new and the season hasn't started yet. This hiring will be watched closely, and I suspect seasonal hiring will be stronger than in 2008, but not as strong as the 700+ thousand jobs in 2004 through 2007.

by Calculated Risk on 9/08/2009 12:46:00 PM

Here is an interesting resource from Google: Domestic Trends. (ht Brian) Google is tracking search trends for several specific sectors of the economy.

As an example, below is a screen capture of the Auto Buyers Index.

Click on graph for larger image in new window.

This shows the seasonality of car buying, plus the Cash-for-clunkers surge in searches. Click on link for interactive graph - you can also plot the data YoY.

I also recommend real estate, rental (still weak) and unemployment.

by Calculated Risk on 9/08/2009 11:09:00 AM

From The Times: Recession is over but stagnation may follow

Britain’s economy grew for the first time over a three-month period since May last year, the National Institute of Economic and Social Research (NIESR) said today but warned that the end of recession could turn to a period of stagnation. ...

"This is the first time our GDP indicator has been higher over a three-month average since May of 2008 and reinforces our view that the recession ended in May of this year." ... However, NIESR added: "There may well be a period of stagnation now, with output rising in some months and falling in others; the end of the recession should not be confused with a return to normal economic conditions."
emphasis added

And from Bloomberg: German Industrial Output Fell in July After June Gain

German industrial output fell in July after rising in June, suggesting the recovery from recession may be gradual.

Production declined 0.9 percent from June, when it rose a revised 0.8 percent, the Economy Ministry in Berlin said today.

by Calculated Risk on 9/08/2009 08:53:00 AM

From Manpower: Manpower Employment Outlook Survey Projects a Weak Hiring Pace for Q4 2009

"The hiring intentions of U.S. companies continue to be sluggish," said Manpower Inc. Chairman and CEO Jeff Joerres. "While there are areas within the U.S. which are showing an uptick, we have yet to see the robust hiring intentions that would indicate a full labor market recovery."

Of the more than 28,000 employers surveyed, a significant 69% expect no change in their October – December hiring plans. Twelve percent anticipate an increase in staff levels, while 14% expect a decrease in payrolls, resulting in a Net Employment Outlook of -2%. After seasonal adjustment, the Net Employment Outlook becomes -3%, the weakest in the history of the survey, which began in 1962. The final 5% of employers indicated they were undecided about their hiring intentions.

“Despite some moderating signs, such as the considerable number of employers that plan to maintain or increase staff levels, there will continue to be challenges for both job seekers and employers in the coming months,” said Jonas Prising, Manpower president of the Americas. “Hiring in the Wholesale & Retail Trade sector, for instance, is expected to be down in the fourth quarter, suggesting that employers will not be adding the quantity of holiday hires they have in the past.”
emphasis added

by Calculated Risk on 9/08/2009 12:19:00 AM

Reuters is reporting comments by State Councillor Ma Kai indicating China will continue with their stimulative policies.

"The trend of economic stabilisation is still not firm, not solidified, not balanced, and we still face many difficulties and problems," Ma [said] ... "We will maintain the consistency and stability of macroeconomic policies and fully implement and constantly improve a package of plans."

Futures are up ...

Futures from barchart.com

Bloomberg Futures.

CBOT mini-sized Dow

And the Asian markets are mostly up.

Best to all.

by Calculated Risk on 9/07/2009 09:31:00 PM

Another laugh from Jim ... "and if you get busted, you can always say you lost your mind because ..."

by Calculated Risk on 9/07/2009 05:50:00 PM

This story has it all: negative equity, Option ARM, health problems, a modification horror story and more - all with one family in Orange County.

From the O.C. Register: Family faces loss of home amid health crisis

... the Kempffs' option adjustable-rate mortgage payment skyrocketed to $4,300 a month from $2,500 last December. Seeing no way to afford the new payments, the Kempffs opted for a loan modification from their bank, IndyMac which was later purchased by OneWest from the FDIC in March.
...
The Kempffs said they were told by an IndyMac representative on the phone that they had to miss three payments before a deal could be worked out. ... For a family that had never missed payments in 14 years of being homeowners, purposely skipping payments was hard for the Kempffs, but they consented.

I'm curious about the timing in the article. IndyMac was seized by the FDIC on July 11, 2008, and was then run by the FDIC until March of 2009. Did this happen when IndyMac was being used by the FDIC to demonstrate how to modify loans? Tanta correctly predicted that the FDIC would discover that modifying loans was not easy, see: IndyMac-FDIC Mortgage Modification Plan: Still in the Real World

I wrote a snotty post at the end of August after Sheila Bair's plan for "affordability modifications" of the former IndyMac loans was announced, the burden of snot wisdom of which was my prediction that Bair was going to discover that it's a lot harder than she thinks to get successful mortgage modifications done on a wide scale in a very short period of time. However, I did express the hope that the Bair plan would prove remarkably successful and indicated my willingness to eat my words should it prove necessary.

Looks like I'll have to stick to my usual dry toast and bananas after all.

Back to the article:

A OneWest Bank spokesperson said the Kempffs didn't qualify for a loan modification because the amount they owed on their first mortgage was more than $729,750.

The unpaid amount on the Kempffs' loan is $786,802.59, short of qualifying for a modification by about $60,000.

Since the Kempffs purchased their home in 2002, they took out loans and refinanced their mortgage. The equity from those transactions enabled the Kempff family to fix their cracked pool, remedy a slipping backyard slope by putting in three retaining walls, help three children pay for college and pay for the medical bills of their youngest son who had malignant melanoma.
...
Juergen Kempff, 65, has battled leukemia and lymphoma for a decade, on and off. His bone marrow has been debilitated from his treatments, and his oncologist has given him about six months to live.
...
Desperate to stall the foreclosure process, the Kempffs declared bankruptcy.

A sympathetic borrower - a professor at the University of California, Irvine with a serious health issue - negative equity, using the home as an ATM, an Option ARM, a personal bankruptcy, miscommunication with the lender on a modification (apparently while the FDIC was running IndyMac) - and a home in the upper middle price range. This story has it all.