by Calculated Risk on 5/23/2010 08:58:00 AM

From Carolyn Said at the San Francisco Chronicle: Loan modifications often damage credit scores

Struggling homeowners who get a loan modification to reduce their mortgage payments are often unaware that it can seriously ding their credit score.
...
"A lot of people don't understand that by making the payments due on their temporary loan mod they're reported as delinquent immediately," said Margot Saunders of the National Consumer Law Center in Washington. "It's a huge misunderstanding."
...
"A lot of lenders are reporting these modifications as paying under a partial payment plan. FICO regards that status as a serious delinquency," said Craig Watts, a spokesman for FICO ...

And on short sales:

Watts said it is a "widespread myth" that short sales and deeds in lieu of foreclosure have less impact on credit scores than do foreclosures.

"Generally speaking, when you can't pay your mortgage, in the eyes of the FICO score what matters is that you were not able to fill your obligation as you originally agreed and that failure is highly predictive of future risk," he said.

There is much more in the article ...

by Calculated Risk on 5/22/2010 08:39:00 PM

Some news from Europe ...

From Bloomberg: Regulator Seizes CajaSur, Lender Hurt by Bad Loans

The Bank of Spain removed the managers of CajaSur ... a savings bank with assets of about 19 billion euros and 486 branches ... and put the bank under a provisional administrator.

This is a fairly large bank. The 45 or so 'cajas' are local government owned banks that are focused domestically with about 70% of their portfolios exposed to the Spanish real estate market.

And in the U.K. it looks like the proposed austerity measures will lead to 100s of thousands of public job cuts, from the police to active duty front line soldiers. The ministers are promising a “bonfire of the quangos” (quasi-autonomous non-governmental organisation), but it sounds like this will go far beyond the NGOs ...

From the Times: 300,000 jobs in public sector face the axe

Detailed research by The Sunday Times shows that at least 300,000 workers, including civil servants and frontline staff, will lose their jobs over the next few years.

Some estimates suggest that the number of job losses could reach 700,000.

These will include tens of thousands of health service managers as well as many thousands of doctors and nurses ... Thousands of police officers and their civilian support staff ... 20,000 jobs will be lost at the Ministry of Defence ... including some frontline soldiers ...

by Calculated Risk on 5/22/2010 04:48:00 PM

In November 2007 Lennar mothballed a major condo project in Irvine called "Central Park West". I posted a short video of the project (poor quality) in 2008.

Jeff Collins at the O.C. Register has an update: Prices cut 25% on new ‘urban’ condos

What a difference three years makes.

When homebuilder Lennar Corp. first launched home sales in its urban-styled Central Park West community in Irvine, prices started at $500,000 and ranged up to $2.9 million.

Fast forward to today’s “grand opening” for Central Park West’s four-story condo buildings — the project’s low-rises. Prices now start in the upper $300,000’s and range to over $1 million – at least 25 percent below the original pricing.

Sales at the sleek, industrial-chic Central Park West began in early 2007, but were halted abruptly by the fall of that year amid cascading home prices.

This is real shadow inventory coming back on the market ...

by Calculated Risk on 5/22/2010 12:44:00 PM

During the crisis these indicators showed the stress in the credit markets and it is probably worth revisiting them now.

Click on graph for larger image in new window.

This graph from Bloomberg, based on data from the British Bankers' Association, shows the three-month U.S. dollar London interbank offered rate, or Libor rose to 0.50% on Friday.

This is an important rates since trillions of financial products worldwide are tied to the Libor - including many adjustable mortgages in the U.S.

The rate has increased recently, but it is still very low.

The TED spread has also risen recently and is now at 34.47. This is a 5 year graph to show the recent increase is very small compared to the huge increases during the worst of the crisis.

Note: This is the difference between the interbank rate for three month loans and the three month Treasury. The peak was 463 on Oct 10th and a normal spread is below 50 bps.

Here is the A2P2 spread from the Federal Reserve. This is the spread between high and low quality 30 day nonfinancial commercial paper.

This has increased recently to 0.19, but the spread is still very low.

The last graph shows the Merrill Lynch Corporate Master Index OAS (Option adjusted spread) for the last few years.

This is a broad index of investment grade corporate debt:

The Merrill Lynch US Corporate Index tracks the performance of US dollar denominated investment grade corporate debt publicly issued in the US domestic market.

This index has increased lately - but it still very low compared to the worst of the crisis.

So far we've only seen slightly wider credit spreads and just a hint of stress.

by Calculated Risk on 5/22/2010 09:01:00 AM

From NY Fed President William Dudley's commencement speech at New College of Florida:

[T]he recovery is not likely to be as robust as we would like for several reasons.

First, households are still in the process of deleveraging. The housing boom created paper wealth that households borrowed against. This pushed the consumption share of nominal gross domestic product to a record high of about 70 percent. When the boom turned into a bust, those paper gains evaporated. In fact, many households now find that the value of their homes is less than the amount of their mortgage debt. This has created a difficult time for many families and has caused the hangover to last longer.

Second, the banking system is still under significant stress. This is particularly the case for small- and medium-sized banks that have significant exposure to commercial real estate loans. This stress means that banks have been slow to ease credit standards as the economy has moved from recession to recovery.

Third, some of the sources that have supported the nascent recovery are temporary. The big swing from inventory liquidation during the recession back to accumulation will soon end as inventory levels come back into better balance with sales. And fiscal stimulus from the federal government is subsiding and will soon reverse.
...
In this environment, finding a job will be tough, but when you hit the pavement remember that the job market is improving. Don't get discouraged.

A few comments:

First, the household "deleveraging" seemed to start last year, but consumers were back to spending more than they earned in Q1. Personal consumption expenditures (PCE) increased to over 71% of GDP in Q1 - higher than the 70% during the boom that Dudley mentioned. Some of this increase in PCE was due to government transfer payments (all of the increase in income in Q1 came from government transfer payments). I still think the personal saving rate will rise over the next year or two - and that will keep growth in PCE below the growth in income.

Second, I think the transitory inventory boost is about over. There were hints of this in the manufacturing surveys last week from the Federal Reserve Banks of Philadelphia and New York - and also in the Census Bureau's Manufacturing and Trade inventories report for March. Also, as Dudley notes, the boost from the stimulus "is subsiding and will soon reverse" (the peak stimulus spending is right now - in Q2 2010).

These are significant headwinds, and I think growth will slow in the 2nd half of 2010.

by Calculated Risk on 5/21/2010 11:49:00 PM

This is an unofficial list of Problem Banks compiled only from public sources.

Here is the unofficial problem bank list for May 21, 2010.

Changes and comments from surferdude808:

As anticipated, the OCC released its actions for April 2010, which contributed to an increase in the number of institutions on the Unofficial Problem Bank List. The list includes 737 institutions with aggregate assets of $363.5 billion, up from 725 institutions with assets of $363.1 billion last week.

The FDIC released its industry profile this week and they reported 775 institutions with assets of $431 billion on the official problem bank list. With the industry release, we were able to update assets for the first quarter of 2010. For institutions on the unofficial list last week, their combined assets fell by $8.3 billion during the quarter.

Notable additions this week include City National Bank of Florida, Miami, FL ($4.6 billion); The National Republic Bank of Chicago, Chicago, IL ($1.3 billion); Butte Community Bank, Chico, CA ($523 million Ticker: CVLL). Other additions include the add back of Mountain West Bank, National Association, Helena, MT ($795 million Ticker: MTWF); and Pikes Peak National Bank, Colorado Springs, CO ($84 million), which were removed from the May 7th list when the OCC terminated their respective Supervisory Agreements. These agreements were replaced by stronger Consent Orders.

The only removal is the failed Pinehurst Bank. Other changes are for name changes with the Bank of Lenox, Lenox, GA now known as The Trust Bank; Goshen Community Bank, Goshen, IN now known as Indiana Community Bank; and Lehman Brothers Bank, FSB, Wilmington, DE now known as Aurora Bank FSB.

by Calculated Risk on 5/21/2010 10:01:00 PM

Since Sheila is done for the day ... a new song by Tim Miller on the mortgage crisis: "Love, Your Broken Home" (language)

Link to YouTube version if this doesn't load.

by Calculated Risk on 5/21/2010 06:08:00 PM

Financial Reform
The bill could not help Pinehurst.
Ineffectual
by Soylent Green is People
From the FDIC Coulee Bank, La Crosse, Wisconsin, Assumes All of the Deposits of Pinehurst Bank, St. Paul, Minnesota

As of March 31, 2010, Pinehurst Bank had approximately $61.2 million in total assets and $58.3 million in total deposits.
...
The FDIC estimates that the cost to the Deposit Insurance Fund (DIF) will be $6.0 million.... Pinehurst Bank is the 73rd FDIC-insured institution to fail in the nation this year, and the sixth in Minnesota. The last FDIC-insured institution closed in the state was Access Bank, Champlin, on May 7, 2010.

Busy week ... but Friday is here!

by Calculated Risk on 5/21/2010 04:13:00 PM

From Buck Wargo at the Las Vegas Sun: Foreclosures on land pushing prices back to 2003 levels

Since the peak of the market in 2007’s fourth quarter of $939,400 per acre for land not on the Strip, prices have fallen 80.6 percent, [Applied Analysis Principal Brian] Gordon said.

“I think we will continue to see downward pressure on prices for a while,” Gordon said. “The demand for raw land is somewhat weak. There is excess inventory of office, industrial and residential; and development activity has come to a near standstill in many of those sectors, so that they don’t need raw land.”

And how about this ...

During the past year, many landowners have simply turned properties back to banks. ... “The reality is the landowners are finding themselves underwater and servicing their debt, and it has become a challenge,” Gordon said. “Many have opted to let the properties go back to the bank, not unlike what we have seen in the housing market.”

More strategic defaults.

by Calculated Risk on 5/21/2010 01:07:00 PM

Here is a scatter graph comparing the Q1 2010 delinquency rate for mortgage loans (including all loans in foreclosure) vs. the April unemployment rate for all states.

Click on graph for larger image in new window.

There definitely is a relationship between delinquency rates and the unemployment rate, although a couple of states really stand out; Florida and Nevada. Florida has a high number of delinquencies because of state specific foreclosure laws - it takes forever to foreclose.

The delinquency rate in Nevada is also very high, probably because of the large percentage of homeowners with negative equity. Both states might also have higher than expected delinquency rates because of significant investor activity during the housing bubble.

This does suggest that a large part of the delinquency problem is related to unemployment.

Note: Sorry I couldn't label all the states. Here are graphs by state for unemployment rates and mortgage delinquency rates.