by Calculated Risk on 3/25/2010 03:27:00 PM

One week and $2 billion to go ... (UPDATE: Mortgage News Daily says $6.1 billion left).

So the program is essentially over. We should be watching to see if 10 Year Treasury yields rise - and if mortgages take "a beating".

From the Atlanta Fed weekly Financial Highlights released today (as of last week):

Click on graph for larger image in new window.

Graph Source: Altanta Fed.

This graph shows the cumulative MBS purchases by week. From the Atlanta Fed:

The Fed purchased a net total of $10 billion of agency-backed MBS through the week of March 17. This purchase brings its total purchases up to $1.24 trillion, and by the end of the first quarter of 2010 the Fed will have purchased $1.25 trillion (thus, it is 99% complete).

The NY Fed purchased an additional net $8 billion in MBS for the week ending March 24th. This puts the total purchases at $1.248 trillion or 99.84% complete. Just $2 billion and one more week to go ...

Note: The Fed's balance sheet shows significant less MBS. As mentioned before, the difference is the NY Fed announces the purchases when they contract to buy; the Federal Reserve places the MBS on the balance sheet when the contract settles. The Fed's balance sheet will probably expand by close to $200 billion over the next two months as the remaining contract settle.

by Calculated Risk on 3/25/2010 01:28:00 PM

IMPORTANT note from CR: The following is from long time reader Shnaps (the views are his). Shnaps has been working in the mortgage industry in various capacities "since people were extending the antennas on their mobile phones". Shnaps currently serves in a key role related to HAMP at one of the largest non-prime mortgage servicers in the Nation.

Shnaps offered to write a couple of posts from the viewpoint of a servicer.

Several readers reacted negatively to Shnaps previous post. Shnaps writes: "Most HAMP applicants ARE hurting, no doubt. But that shouldn't justfy a free pass for the minority of applicants who are just trying to take advantage. That was the point of the post."

You HAFA to be kidding

One might suppose that after the abject failure that HAMP has proven to be at modifying mortgages for ’millions’ of struggling homeowners, the US Treasury might have learned something before rolling out ‘HAFA’. This scheme was briefly known, in its conceptual stage, as FAP(!) - short for ‘Foreclosure Avoidance Program’. It eventually was redubbed HAFA - which is short for ‘Home Affordable Foreclosure Alternatives’. Whatever they call it, the program’s purported goal is to help (millions?) of Americans avoid the horror of foreclosure via the slightly-less -awful ‘deed-in-lieu’ alternative.

For those just tuning in and asking “What is a ‘deed-in-lieu’?” - allow me to explain. This term is used to describe a situation in which a mortgagor voluntarily turns over the deed to the mortgaged property to the mortgagee ‘in lieu’ of a foreclosure. It’s different than the mortgagee taking ownership via foreclosure in two key ways: first, in the sense that it is ‘voluntary’, and also in that a deed transferred in this manner would come subject to any other liens. So for this to happen, realistically – there better not be any other liens. The other option HAFA incentivizes is similar – the so-called ‘short-sale’, which basically amounts to the borrower doing the bank’s customary post-foreclosure task of liquidating the collateral for them. In exchange, the borrower may receive $1500 “walkin’ around money”, forgiveness of any deficiency balance remaining, and a less-severe hit to their credit record as the cherry on top.

Sound like a good deal for the borrower? Eh, maybe. In most cases, the biggest incentive for them is that by going the HAFA route they might get back in the credit game a couple years earlier than they would by doing nothing (and being foreclosed upon).

Now if you think the borrowers have a rather minimal incentive to participate in HAFA, get a load of the, uh, not so tasty treat that HAFA wishes to serve up to second-lien holders. In a foreclosure, people seem to be fond of pointing out that such subordinate liens ‘get nothing’ insofar as their lien interest in the property is extinguished. However, that party’s claim to the money that they are owed is not otherwise diminished. For some reason, the HAFA scheme thinks that second lien holders should not only release their lien, but also waive their right to collect on the money they are owed. In exchange, they may receive as much as $3000, which might cover their administrative cost of participating in the program - provided they do enough of these deals. Hello!? This is the reason the entire program is a non-starter – virtually all of the borrowers who might be interested in this program have huge second liens.

Not that it matters, but for those wondering ‘How about the party servicing the first mortgage? What’s in it for them?’ In short: A thousand bucks, a potentially shortened timeline to liquidation, and perhaps diminished risk that the property will end up trashed. That’s not bad – except that with short-sales come tremendous opportunities for fraud in the form of collusion, and non-arms-length transactions, leading to such unwanted outcomes such as ‘flopping’.

I really don’t ‘get’ HAFA at all. I have to assume it is just being rolled out to make HAMP look like a relative success.

CR Note: This was from Shnaps who works for one of the largest non-prime mortgage servicers in the U.S. My view is HAFA will help with the process, but as I noted before, the 2nd liens are a huge stumbling block.

by Calculated Risk on 3/25/2010 12:13:00 PM

From HotelNewsNow.com: STR: NYC leads weekly occupancy rate gains

Overall, the U.S. industry’s occupancy ended the week with a 5.2-percent increase to 61.4 percent. Average daily rate dropped 1.9 percent to finish the week at US$98.30. Revenue per available room for the week was up 3.2 percent to US$60.39—the third consecutive week that RevPAR experience a year-over-year increase.

The following graph shows the occupancy rate by week since 2000, and the rolling 52 week average occupancy rate.

Click on graph for larger image in new window.

Note: the scale doesn't start at zero to better show the change.

The graph shows the distinct seasonal pattern for the occupancy rate; higher in the summer because of leisure/vacation travel, and lower on certain holidays.

Although the occupancy rate is up 5.2% over the same week last year, the level is still well below normal - the average occupancy rate for this week is close to 65%, significantly above the current 61.4%.

The low than normal occupancy rate is still pushing down room rates (on a YoY basis) although revenue per available room (RevPAR) increased for the third straight week.

Data Source: Smith Travel Research, Courtesy of HotelNewsNow.com

by Calculated Risk on 3/25/2010 10:04:00 AM

Fed Chairman Ben Bernanke is testifying before the House Committee on Financial Services: Federal Reserve's exit strategy

This is mostly a technical discussion, but the Q&A might be interesting.

Here is the CNBC feed.

Here is the C-Span Link (updated link)

by Calculated Risk on 3/25/2010 08:30:00 AM

The DOL reports on weekly unemployment insurance claims:

In the week ending March 20, the advance figure for seasonally adjusted initial claims was 442,000, a decrease of 14,000 from the previous week's revised figure of 456,000. The 4-week moving average was 453,750, a decrease of 11,000 from the previous week's revised average of 464,750.
...
The advance number for seasonally adjusted insured unemployment during the week ending March 13 was 4,648,000, a decrease of 54,000 from the preceding week's revised level of 4,702,000.

Click on graph for larger image in new window.

This graph shows the 4-week moving average of weekly claims since 1971.

The four-week average of weekly unemployment claims decreased this week by 11,000 to 453,750.

The dashed line on the graph is the current 4-week average. The current level of 442,000 (and 4-week average of 453,750) is still high, and suggests continuing weakness in the jobs market. Note: There is no way to compare directly between weekly claims, and net payrolls jobs.

Note: by request, next week I'll post a graph as a percent of covered employment.

by Calculated Risk on 3/24/2010 11:58:00 PM

From Sewell Chan at the NY Times: China Says It Will Not Adjust Policy on the Exchange Rate

After meeting with officials at the Treasury and Commerce Departments on Wednesday, China’s deputy commerce minister, Zhong Shan, told reporters, “The Chinese government will not succumb to foreign pressures to adjust our exchange rate."
...
“It is wrong for the United States to jump to the conclusion that China is manipulating currency from the sheer fact that China is enjoying a trade surplus,” Mr. Zhong told reporters in a meeting at the Chinese Embassy. “Besides, it’s wrong for the United States to press for the appreciation of the renminbi and threaten to impose punitive tariffs on Chinese experts. This is unacceptable to China.”

This is more posturing before the Treasury releases the worldwide currencies report on April 15th that might name China a "currency manipulator".

by Calculated Risk on 3/24/2010 08:01:00 PM

From Fed Vice Chairman Donald Kohn: Homework Assignments for Monetary Policymakers

Kohn's assignments:
1) "One assignment is to evaluate the implications of the changing character of financial markets for the design of the liquidity tools the Federal Reserve has at its disposal when panic-driven runs on banks and other key financial intermediaries and markets threaten financial stability and the economy."

2) "In addition to providing liquidity on an unprecedented scale, we reduced our policy interest rate (the target for the rate on overnight loans between banks) effectively to zero, and then we continued to ease financial conditions and cushion the effect of the financial shock on the economy by making large-scale purchases of several types of securities. My second assignment involves improving our understanding of the effects of those purchases and the associated massive increase in bank reserves."

3) "Number three involves considering whether central banks should use their conventional monetary policy tool--adjusting the level of a short-term interest rate--to try to rein in asset prices that seem to be moving well away from sustainable values, in addition to seeking to achieve the macroeconomic objectives of full employment and price stability."

4) "The fourth and final assignment concerns whether central banks should adjust their inflation targets to reduce the odds of getting into a situation again where the policy interest rate reaches zero."

All four topics are interesting ... Kohn believes that the inflation target should be around 2%, and that the impact on rates from the MBS purchase program "comes mainly from the total amount we purchase relative to the total stock of debt outstanding", not the flow of purchases - suggesting little increase in mortgage rates when the Fed stops buying MBS in a week.

by Calculated Risk on 3/24/2010 04:11:00 PM

1) New Home sales. New Home sales were at a record low in February. The weather might be partially to blame for the February record, but the reality is there are just too many existing home units available - so new home sales and single family housing starts will be under pressure for some time - and also housing related employment.

New home sales will probably get a boost in March and April from the homebuyer tax credit. To qualify, homebuyers must sign a contract by the end of April and close by the end of June. Since new home sales are counted when the contract is signed, any boost will happen in March or April. For existing home sales, the boost will come when the deal closes, so the boost to sales will come in May or June.

2) Modification Programs

BofA announced a principal reduction plan for certain Countrywide borrowers.

CNBC's Diana Olick reports that Treasury might announce a principal reduction program in the next few days: Bank Of America's Mortgage Write Down—Just the Start?

The reason this program is so important though is because we know something is in the works over at Treasury to do something like it. We may even get news of that later this week, according to some of my sources.

The Special Inspector General for TARP criticized HAMP today. The report was critical of the changing goals (no way 3 to 4 million will avoid foreclosure), the performance metrics, the marketing of the program, the low conversion rate to permanent status, and the high risk of re-default. The report notes that Treasury expects between 50% and 66% of temporary modifications will become permanent, and 40% of borrowers in the program will re-default (either while temporary or permanent). Those are horrible numbers.

3) And in other news today:

John Keefe at MarketWatch writes: Durable Goods For February Show A Weak Pulse

Fitch downgraded Portugal (one of the PIIGS): Fitch Downgrades Portugal's Debt

Also from the WSJ: Debt Fears Drop Euro to 10-Month Low

4) And on the Consumer financial protection agency from Jodi Kantor at the NY Times: Behind Consumer Agency Idea, a Fiery Advocate

Ask Elizabeth Warren, scourge of Wall Street bankers, how they treat consumers, and her no-nonsense bob will shake with indignation. She will talk about morality, about fairness, about what she calls their “let them eat cake” attitude towards taxpayers. If she is riled enough, she might even spit out the Warren version of an expletive.

“Dang gummit, somebody has got to stand up on behalf of middle-class families!” she exclaimed in a recent interview in her office here.

by Calculated Risk on 3/24/2010 01:15:00 PM

Here is the BofA plan mentioned last night ... this is for specific loans only (Countrywide subprime, Option ARMs and a few others), and BofA estimates this will apply to about 45,000 borrowers for a total of about $3 billion in principal reduction.

From BofA: Bank of America Introduces Earned Principal Forgiveness Among Enhancements to Its National Homeownership Retention Program

Bank of America announced it will look first at principal forgiveness – ahead of an interest rate reduction – when modifying certain subprime, Pay-Option and prime two-year hybrid mortgages qualifying for its National Homeownership Retention Program (NHRP). Several enhancements are being made to the program, including the introduction of an earned principal forgiveness approach to modifying mortgages that are severely underwater.
...
Bank of America developed and launched the NHRP in 2008, in cooperation with state attorneys general, to provide assistance to Countrywide borrowers who financed their home with certain subprime and Pay-Option adjustable rate mortgages (ARMs). Bank of America removed these from the Countrywide product line upon acquiring Countrywide in July 2008.

These new components of the agreement apply to certain NHRP-eligible loans that also meet the basic qualifications for the government's Home Affordable Modification Program. They include:

• A first look at principal reductions in calculating an affordable payment through an earned principal forgiveness approach to severely underwater loans.
• Principal forgiveness through a reduction of negative-amortization on certain Pay-Option ARMs.
• Conversion of certain Pay-Option ARMs to fully amortizing loans prior to a recast.
• Addition of certain prime two-year hybrid ARMs as eligible for the NHRP mortgage modification programs.
• Inclusion of Countrywide mortgages originated on or before January 1, 2009, as eligible for modifications under the terms of the NHRP.
• A six-month extension of the term of the NHRP program to December 31, 2012.

"The centerpiece of these enhancements is a program of earned principal forgiveness that addresses severely underwater mortgages with some of the highest rates of delinquency – specifically subprime loans, Pay-Option ARMs and prime two-year hybrid ARMs that are 60 days or more delinquent with a principal balance of 120 percent or more," said Barbara Desoer, president of Bank of America Home Loans.

Read more »

by Calculated Risk on 3/24/2010 12:38:00 PM

The following graph shows existing home sales (left axis) and new home sales (right axis) through February. I jokingly refer to this as the "distressing gap".

Click on graph for larger image in new window.

The initial gap was caused by the flood of distressed sales. This kept existing home sales elevated, and depressed new home sales since builders couldn't compete with the low prices of all the foreclosed properties.

The spike in existing home sales last year was due primarily to the first time homebuyer tax credit.

Notice that there was also a bump last year in new home sales from the tax credit.

NOTE: New home sales and existing home sales are reported at different times: new home sales are reported when the contract is signed, and existing home sales are reported when the deal closes. So the bump in new home sales last year happened earlier than the spike in existing home sales.

The same thing will happen over the next few months. Any bump in new home sales from the tax credit will happen in March and April - when the contract is signed. Any bump in existing home sales will probably happen in May and June when escrow closes.

The second graph shows the same information as a ratio - new home sales divided by existing home sales - through February 2010. (In previous posts about this ratio, I graphed existing home sales divided by new home sales - this is the same ratio inverted).

This ratio is near the all time low set last November. In November existing home sales were artificially boosted by the first time home buyer tax credit - but as mentioned above - the bump in new home sales had happened earlier.

Eventually this ratio will return to the historical range of new home sales being around 15% to 20% of existing home sales. However it will probably take a number of years to return to a more normal market.