by Calculated Risk on 10/24/2011 09:07:00 AM

From NY Fed President William Dudley: The National and Regional Economic Outlook

Stabilizing the housing sector is particularly important because housing equity is an important part of household wealth. This calls for a comprehensive approach to housing policy, starting with an urgent effort to remove the obstacles that make it difficult for all borrowers to refinance at today's low mortgage rates, but extending beyond this to tackle other problems weighing on housing. Taken together, such efforts could help shift people's expectations about future house prices. If prospective homeowners no longer fear that prices could decline further, they will be more willing to enter the market to take advantage of reduced prices and low financing costs, and existing homeowners will feel more confident about spending. A vicious cycle could be replaced by a virtuous circle, in which stabilization in house prices supports spending, growth and jobs.

This suggests a "comprehensive" plan is in the works.

The new refinance plan will be announced today, see from Nick Timiraos at the WSJ: Home Lending Revamp Planned

The plan will streamline the refinance process by eliminating appraisals and extensive underwriting requirements for most borrowers, as long as homeowners are current on their mortgage payments ... Fannie and Freddie have also agreed to waive some fees that made refinancing less attractive for some.

And two more possibilities ...

1) Last week Fed Vice Chairman Janet Yellen, and Fed Governor Daniel Tarullo discussed a possible new MBS buying program at the Fed. See Fed Is Poised for More Easing and Fed Official Hints at Possible Effort to Boost Economy.

2) As I noted yesterday, I'm hearing rumors that a new REO disposition program for the FHA, Fannie and Freddie might be announced soon (probably selling REO to investors in bulk with a rental program for current occupants).

Weekend:
• Schedule for Week of Oct 23rd
• Summary for Week ending Oct 21st

by Calculated Risk on 10/24/2011 08:30:00 AM

This is a composite index from the Chicago Fed: Index shows economic activity improved in September

Led by improvements in employment-related indicators, the Chicago Fed National Activity Index increased to –0.22 in September from –0.59 in August.
...
The index’s three-month moving average, CFNAI-MA3, edged up to –0.21 in September from –0.28 in August, but remained negative for the sixth consecutive month. September’s CFNAI-MA3 suggests that growth in national economic activity was below its historical trend. Likewise, the economic slack reflected in this level of the CFNAI-MA3 suggests subdued inflationary pressure from economic activity over the coming year.

This graph shows the Chicago Fed National Activity Index (three month moving average) since 1967.

Click on graph for larger image.

According to the Chicago Fed:

A zero value for the index indicates that the national economy is expanding at its historical trend rate of growth; negative values indicate below-average growth; and positive values indicate above-average growth.

This index suggests the economy was still growing in September, but below trend.

Weekend:
• Schedule for Week of Oct 23rd
• Summary for Week ending Oct 21st

by Calculated Risk on 10/23/2011 11:51:00 PM

From Nick Timiraos at the WSJ: Home Lending Revamp Planned

Federal regulators on Monday plan to unveil a major overhaul of an under-used mortgage-refinance program ... The overhaul will, among other things, let borrowers refinance regardless of how far their homes have fallen in value ...

The plan will streamline the refinance process by eliminating appraisals and extensive underwriting requirements for most borrowers, as long as homeowners are current on their mortgage payments ... Fannie and Freddie have also agreed to waive some fees that made refinancing less attractive for some.
...
Pricing details won't be published until mid-November, and lenders could begin refinancing loans under the retooled program as soon as Dec. 1 ... Loans that exceed the current limit of 125% of the property's value won't be able to participate until early next year. The program's expiration date ... will be extended through 2013. HARP is only open to loans that Fannie and Freddie guaranteed as of June 2009.

This is more aggressive than I expected and there will probably be a significant pickup in refinancing. This only applies to loans that are current and guaranteed by Fannie and Freddie.

Yesterday:
• Schedule for Week of Oct 23rd
• Summary for Week ending Oct 21st

by Calculated Risk on 10/23/2011 05:30:00 PM

• On Tuesday, the S&P/Case-Shiller House Price Index for August will be released (really a 3 month average of June, July and August). The consensus is for prices to increase 0.2% in August. Here is Zillow's forecast of Case-Shiller:

• Case-Shiller 20-City Composite index
... Not-seasonally adjusted: -3.7% year-over-year, -0.1% month-over-month
... Seasonally adjusted: -3.8% year-over-year, -0.3% month-over-month

• Case-Shiller 10-City Composite index
... Not-seasonally adjusted: -3.4% year-over-year, +0.2% month-over-month
... Seasonally adjusted: -3.5% year-over-year, -0.2% month-over-month

Because of seasonally distortions related to foreclosures, S&P reports the NSA numbers. But even with those distortions, I track the SA numbers - and those will probably show a month-over-month decline in August.

• The FHFA is expected to release changes to the HARP refinance plan this week. From Reuters: U.S. readies stronger lifeline for homeowners

Homeowners who owe more than their houses are worth will get new help to refinance in a government plan to be unveiled as early as Monday to support the battered housing sector ... the Federal Housing Finance Agency, intends to loosen the terms of the two-year-old Home Affordable Refinance Program, which helps borrowers who have been making mortgage payments on time but who have not been able to refinance as their home values have dropped.

HARP is currently open to borrowers whose mortgages are owned or guaranteed by Fannie Mae or Freddie Mac as long as their loans do not exceed 125 percent of their homes' values.

The sources said FHFA will lift that threshold ... Another change may include the possibility of easing the fees tied to mortgages refinanced under HARP, according to the sources.

• And a rumor: Back in August, the FHFA, Treasury and HUD put out a request for input on the disposition of Fannie, Freddie and FHA REOs. The three entities own about 250,000 properties and approximately 800,000 homes backed by Fannie, Freddie and the FHA are in some stage of foreclosure. I've heard a rumor that an RTC like disposition program for Fannie/Freddie/FHA properties is in the works and might be announced in the next couple of weeks (this is a rumor only!). This would probably involve selling REOs in bulk to investors and include some sort of plan to rent them to the current occupants.

Yesterday:
• Schedule for Week of Oct 23rd
• Summary for Week ending Oct 21st

by Calculated Risk on 10/23/2011 02:10:00 PM

From MarketWatch: Final agreement on package of measures expected Wednesday

“Today, we will not undertake any decisions, but will undertake preparatory work,” German Chancellor Angela Merkel told reporters Sunday in a joint news conference with French President Nicolas Sarkozy after a meeting of heads of state from all 27 European Union nations.

“A broad agreement is taking shape,” Sarkozy said, emphasizing that leaders aim to reach final agreement on a deal on Wednesday.

The fight over the EFSF is seen by economists as the most difficult issue. ... Merkel said European finance ministers on Saturday weighed two options for leveraging the EFSF, but that neither involved the ECB.

Yesterday:
• Schedule for Week of Oct 23rd
• Summary for Week ending Oct 21st

by Calculated Risk on 10/23/2011 08:44:00 AM

The final details will be released on Wednesday. This is just one part of the agreement (details on Greece and the EFSF also need to be worked out).

From the Financial Times: Banks must find €108bn in new capital

According to two people involved with the negotiations, the European Banking Authority’s final emergency stress test identified a total of €108bn to be raised by Europe’s banks ...
excerpt with permission

From the WSJ: Bank Recapitalizations May Reach €108 Billion

European governments likely will seal an agreement to set aside between €107 billion-€108 billion ($150.01 billion) to boost the cash reserves of banks weakened by their exposure to sovereign debt ... there would be no final agreement on the capital ratio and the size of the recapitalization until the full crisis package is worked out. The deadline for that is a European summit Wednesday.

Yesterday:
• Schedule for Week of Oct 23rd
• Summary for Week ending Oct 21st

by Calculated Risk on 10/22/2011 09:59:00 PM

Although there will probably be an announcement on Sunday, the deadline has been moved to Wednesday ... it is pretty clear that Greece bondholders will take a much larger haircut than the original 21%.

From the NY Times: European Finance Ministers Shaping Greek Rescue and Effort to Aid Banks

European finance ministers said on Saturday that they were near a deal to strengthen capital reserves for their troubled banks — the first part of a package of measures meant to stem the worsening European debt crisis.

... the ministers also said that holders of Greek bonds would have to take much bigger losses than the 21 percent originally agreed to in July, though ... no agreement was near on write-offs that could reach as high as 60 percent.

The ministers also reported that France and Germany had made progress on a third issue, how to increase the firepower of a rescue fund for the euro zone.

Alphaville at the Financial Times has excerpts from the grim report on Greece: Greek haircuts and Greek myths — the details

To get the debt down further would require a larger private sector contribution (for instance, to reduce debt below 110 percent of GDP by 2020 would require a face value reduction of at least 60 percent and/or more concessional official sector financing terms).

From the Telegraph: Europe's leaders threaten Greek default if banks won't take haircut and accept losses of £120bn

Europe's leaders are threatening to trigger a formal default on Greek debt and risk a “credit event” if banks refuse to accept losses of up to €140bn (£120bn) on their holdings.

Hardline eurozone members, backed by the International Monetary Fund (IMF), delivered the ultimatum this weekend ... Vittorio Grilli, a senior EU official, travelled to Rome yesterday to present the “take it or leave it” deal to the Institute of International Finance, which is leading the negotiations for the banks. “The only voluntary element for the banks now is to take a 50pc haircut or face a credit event, a default,” said an EU diplomat.

by Calculated Risk on 10/22/2011 06:42:00 PM

Note: this is an unofficial list of Problem Banks compiled only from public sources.

Here is the unofficial problem bank list for Oct 21, 2011. (table is sortable by assets, state, etc.)

Changes and comments from surferdude808:

With four removals and one addition, the Unofficial Problem Bank List finished the week at 976 institutions with assets of $401.9 billion. For comparative purposes, the list had 871 institutions with assets of $402.2 billion last year.

Failure was the cause for the four removals that include Community Banks of Colorado, Greenwood Village, CO ($1.4 billion); Old Harbor Bank, Clearwater, FL ($216 million Ticker: OHBK); Decatur First Bank, Decatur, GA ($192 million); and Community Capital Bank, Jonesboro, GA ($181 million).

The two failures in Georgia push that state's total to 73 at a cost of $9.3 billion since the on-set of the crisis in 2008. In all, the FDIC's Atlanta Region has seen 154 failures at a cost of $27.7 billion. Perhaps these figures would be lower if the supervision team in that region had taken seriously the many warnings it received long before the on-set of the crisis on the riskiness of the C&D lending exposures. As an aside, it is interesting how many of the involved principals still hold high level positions at the FDIC or have gone on to lucrative consulting jobs. As the OWS movement wants Wall Street executives held accountable for the economic dislocations they caused, how about a movement to hold the regulatory agency executives accountable for their failings that contributed to those dislocations.

The addition this week is Town Center Bank, Frankfort, IL ($130 million). Again, we applaud the disclosure of this action by the Illinois State Banking Department, which is the most transparent department among all of the states.

The OCC used to release its monthly enforcement action activity on the Friday subsequent to the 15th day of the month. However, the OCC has not released on that schedule the past two months. We guess the OCC will release some information next week.

Earlier:
• Schedule for Week of Oct 23rd
• Summary for Week ending Oct 21st

by Calculated Risk on 10/22/2011 02:15:00 PM

Earlier:
• Summary for Week ending Oct 21st

This is a key week for Europe, starting with the European leaders summit meeting on Sunday.

The key U.S. economic report for the coming week is the Q3 advance GDP report to be released on Thursday. There are also two important housing reports to be released early in the week: Case-Shiller house prices on Tuesday and New Home sales on Wednesday.

Several high frequency releases will be closely watched: weekly initial unemployment claims, consumer sentiment (final) and two more regional Fed manufacturing surveys.

----- Sunday, Oct 23rd -----
European Union leaders will hold a summit meeting.

----- Monday, Oct 24th -----
8:30 AM ET: Chicago Fed National Activity Index (September). This is a composite index of other data.

8:45 AM: New York Fed President William Dudley speaks on "Regional and National Economic Outlook" at Fordham University Gabelli School of Business. Following the recent speeches by Fed Vice Chairman Janet Yellen and Fed Governor Daniel Tarullo, discussing the possibility of more Fed MBS purchases, this speech by Dudley will be closely watched.

Expected: The Moody's/REAL Commercial Property Price Index (commercial real estate price index) for August.

----- Tuesday, Oct 25th -----
9:00 AM: S&P/Case-Shiller House Price Index for August. Although this is the August report, it is really a 3 month average of June, July and August.

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

The consensus is for prices to increase 0.2% in August. The CoreLogic index showed a 0.8% decrease in August (NSA). Based on the other price indexes, the Case-Shiller index could show a decrease in August.

10:00 AM: Conference Board's consumer confidence index for October. The consensus is for an increase to 46.0 from 45.4 last month.

10:00 AM: Richmond Fed Survey of Manufacturing Activity for October. The consensus is for the index to be at -1, up from -6 in September (below zero is contraction).

10:00 AM: FHFA House Price Index for August 2011. This is based on GSE repeat sales and is no longer as closely followed as Case-Shiller (or CoreLogic).

----- Wednesday, Oct 26th -----
7:00 AM: The Mortgage Bankers Association (MBA) will release the mortgage purchase applications index. This index has been especially weak since early August, although this doesn't include cash buyers.

8:30 AM: Durable Goods Orders for September from the Census Bureau. The consensus is for a 0.9% decrease in durable goods orders after decreasing 0.1% in August.

10:00 AM: New Home Sales for September from the Census Bureau.

This graph shows New Home Sales since 1963. The dashed line is the current sales rate.

The consensus is for a slight increase in sales to 300 thousand Seasonally Adjusted Annual Rate (SAAR) in September from 295 thousand in August.

----- Thursday, Oct 27th -----
8:30 AM: The initial weekly unemployment claims report will be released. The consensus is for a slight increase to 405,000 from 403,000 last week. The 4-week average is still above 400,000, however the average has declined recently to the lowest level since early April.

8:30 AM: Q2 GDP (advance release). This is the advance release from the BEA. The consensus is that real GDP increased 2.5% annualized in Q3.

This graph shows the quarterly GDP growth (at an annual rate) for the last 30 years.

The blue column is the forecast for Q3 GDP.

10:00 AM: Pending Home Sales Index for September. The consensus is for a 0.1% increase in the index.

11:00 AM: Kansas City Fed regional Manufacturing Survey for October. The consensus is for an increase to 8 in October from 6 in September (slight expansion).

----- Friday, Oct 28th -----
8:30 AM: Personal Income and Outlays for September. The following graph shows real Personal Consumption Expenditures (PCE) through June (2005 dollars).

PCE increased 0.2 in August, and real PCE decreased slightly as the price index for PCE increased 0.2 percent in August.

The consensus is for a 0.3% increase in personal income in August, and a 0.6% increase in personal spending, and for the Core PCE price index to increase 0.2%.

9:55 AM: Reuter's/University of Michigan's Consumer sentiment index (final for October). The consensus is for a slight increase to 58.0 from the preliminary reading of 57.5.

by Calculated Risk on 10/22/2011 08:11:00 AM

The European financial crisis is front page news every day now. The next installment of Greek aid has been approved by the EU finance ministers, and there is a summit meeting on Sunday of EU leaders. Although there will be announcements on Sunday, there will also be a 2nd summit meeting later in the week to approve the details. More to come tomorrow!

In the U.S. there has been more discussion of further Fed action. As an example, see Fed Is Poised for More Easing and Fed Official Hints at Possible Effort to Boost Economy. There will be another key speech on Monday by NY Fed president William Dudley.

The U.S. economic data was generally better than the very low expectations. The NY Fed manufacturing survey was weak, but the Philly Fed survey was better than expected and showed expansion in October. The 4-week average of initial weekly unemployment claims fell to the lowest level since early April.

Housing starts increased in September, mostly due to an increase in multi-family starts. And the remodeling index showed a strong increase.

It now appears Q3 GDP will be around 2.5%, still weak – but better than expected just a few weeks ago.

Here is a summary in graphs:

• Housing Starts increased in September

Total housing starts were at 658 thousand (SAAR) in September, up 15.0% from the revised August rate of 572 thousand. Most of the increase was for multi-family starts.

Single-family starts increased 1.7% to 425 thousand in September.

Multi-family starts are increasing in 2011 - although from a very low level. This was well above expectations of 590 thousand starts in September.

Single family starts are still "moving sideways".

• Existing Home Sales in September: 4.91 million SAAR, 8.5 months of supply

This graph shows existing home sales, on a Seasonally Adjusted Annual Rate (SAAR) basis since 1993.

Sales in September 2011 (4.91 million SAAR) were 3.0% lower than last month, and were 11.3% above the September 2010 rate.

According to the NAR, inventory decreased to 3.48 million in September from 3.55 million in August.

The next graph shows the year-over-year (YoY) change in reported existing home inventory and months-of-supply. Since inventory is not seasonally adjusted, so it really helps to look at the YoY change. Note: Months-of-supply is based on the seasonally adjusted sales and not seasonally adjusted inventory.

Inventory decreased 13.0% year-over-year in September from September 2010. This is the eight consecutive month with a YoY decrease in inventory. Months of supply increased to 8.5 months in September, up from 8.4 months in August.

The following graph shows existing home sales Not Seasonally Adjusted (NSA). The red columns are for 2011.

Sales NSA are above last September - of course sales declined sharply last year following the expiration of the tax credit in June 2010. The level of sales is still elevated due to investor buying. The NAR noted: "All-cash sales accounted for 30 percent of purchase activity in September, up from 29 percent in August and 29 percent also in September 2010; investors make up the bulk of cash purchases."

• Industrial Production increased 0.2% in September, Capacity Utilization increased slightly

From the Fed: Industrial production and Capacity Utilization "Industrial production increased 0.2 percent in September after having been unchanged in August. ... Capacity utilization for total industry edged up to 77.4 percent ..."

This graph shows Capacity Utilization. This series is up 10.1 percentage points from the record low set in June 2009 (the series starts in 1967).

Capacity utilization at 77.4% is still 3.0 percentage points below its average from 1972 to 2010 and below the pre-recession levels of 81.3% in December 2007.

This graph shows industrial production since 1967.

Industrial production increased in September to 94.2. July was revised up, so there was no increase in August.

After the fairly rapid increase last year, increases in industrial production and capacity utilization have slowed recently.

The consensus was for a 0.2% increase in Industrial Production in September, and an increase to 77.5% for Capacity Utilization.

• AIA: Architecture Billings Index declined in September

Note: This index is a leading indicator for new Commercial Real Estate (CRE) investment.

From AIA: Another Drop for Architecture Billings Index
"The American Institute of Architects (AIA) reported the September ABI score was 46.9, following a score of 51.4 in August."

This graph shows the Architecture Billings Index since 1996. Anything below 50 indicates contraction in demand for architects' services.

Note: This includes commercial and industrial facilities like hotels and office buildings, multi-family residential, as well as schools, hospitals and other institutions.

According to the AIA, there is an "approximate nine to twelve month lag time between architecture billings and construction spending" on non-residential construction. So the recent contraction suggests further declines in CRE investment in 2012.

• Rate of increase slows for Key Measures of Inflation in September

The Cleveland Fed released the median CPI and the trimmed-mean CPI: "According to the Federal Reserve Bank of Cleveland, the median Consumer Price Index rose 0.2% (2.3% annualized rate) in September. The 16% trimmed-mean Consumer Price Index increased 0.2% (2.5% annualized rate) during the month.

Over the last 12 months, the median CPI rose 2.1%, the trimmed-mean CPI rose 2.5%, the CPI rose 3.9%, and the CPI less food and energy rose 2.0%"

On a year-over-year basis, these measures of inflation are increasing, and are around the Fed's target.

On a monthly basis, the median Consumer Price Index increased 2.3% at an annualized rate, the 16% trimmed-mean Consumer Price Index increased 2.5% annualized in July, and core CPI increased 0.7% annualized.

These key price measures increased at a lower rate than in August.

• Empire State and Philly Fed Manufacturing Surveys

The Fed surveys were mixed.

From the NY Fed: Empire State Manufacturing Survey "The Empire State Manufacturing Survey indicates that conditions for New York manufacturers continued to deteriorate in October. The general business conditions index remained negative and, at -8.5, was little changed."

From the Philly Fed: October 2011 Business Outlook Survey "The survey’s broadest measure of manufacturing conditions, the diffusion index of current activity, increased from ‐17.5 in September to 8.7, the first positive reading in three months."

The graph above compares the regional Fed surveys and the ISM manufacturing index. The dashed green line is an average of the NY Fed (Empire State) and Philly Fed surveys through October. The ISM and total Fed surveys are through September.

The average of the Empire State and Philly Fed surveys rebounded in October, and is now slightly positive.

• Weekly Initial Unemployment Claims: 4-Week average lowest since April

The following graph shows the 4-week moving average of weekly claims since January 2000 (there is a longer term graph in graph gallery).

The dashed line on the graph is the current 4-week average. The four-week average of weekly unemployment claims declined this week to 403,000.

This is the lowest level for the 4-week average of weekly claims since April, and this was slightly above the consensus forecast. This is still elevated, and still above the post-recession lows of earlier this year.

• Other Economic Stories ...
• Residential Remodeling Index at new high in August
• NAHB Builder Confidence index increases in October
• From Fed Chairman Ben Bernanke: Effects of the Great Recession on Central Bank Doctrine and Practice
• 2012 Social Security Cost-Of-Living Adjustment approximately 3.6% increase
• LA Port Traffic in September: Exports increase year-over-year, Imports Down
• State Unemployment Rates "little changed" in September