by Calculated Risk on 1/30/2012 03:42:00 PM

From Reuters: States to decide this week on mortgage deal

State and federal officials are close to a settlement with the largest U.S. banks over mortgage abuses, with states facing an end-of-the-week deadline to decide whether they will sign on, people close to the talks said.

... negotiators have overcome a sticking point and agreed on Joseph Smith, North Carolina's banking commissioner, as a monitor to ensure the banks comply with the terms of the settlement ...

In exchange for up to $25 billion, much in the form of cutting mortgage debt for distressed homeowners, the banks will resolve civil state and federal lawsuits about servicing misconduct and faulty foreclosures, and state lawsuits about how they made some of the loans.

If this settlement goes forward (and I expect it will), then there will be more modification and foreclosure activity in coming months.

This is just one of several policy changes in the works including the automated HARP refinance program (starts in March) and a possible GSE REO to rental program. Plus the Federal Reserve is "contemplating issuing guidance to banking organizations and examiners" to allow banks to also rent more residential REO.

Currently, according to LPS, there are 1.79 million loans 90+ days delinquent and an additional 2.07 million loans in the foreclosure process.

As I noted earlier this year, it appears the overall goal of these policy changes is to reduce the large backlog of seriously delinquent loans while, at the same time, not flood the housing market with distressed homes.

by Calculated Risk on 1/30/2012 02:00:00 PM

The Federal Reserve released the quarterly January 2011 Senior Loan Officer Opinion Survey on Bank Lending Practices today. The survey had "three sets of special questions: the first set asked banks about lending to firms with European exposures; the second set asked banks about changes in their lending policies on commercial real estate (CRE) loans over the past year; and the third set asked banks about their outlook for credit quality in 2012."

Overall, in the January survey, domestic banks reported that their lending standards had changed little and that they had experienced somewhat stronger loan demand, on net, over the past three months.
...
On the household side, lending standards and demand for loans to purchase residential real estate were reportedly little changed over the fourth quarter on net. Standards on home equity lines of credit (HELOCs) were about unchanged, while demand for such loans weakened on balance. Moderate net fractions of banks reported that they had eased standards on all types of consumer loans over the past three months, and some banks also eased terms on auto loans. Demand for credit card and auto loans reportedly had increased somewhat, while demand for other types of consumer loans was about unchanged.

On Europe:

Large fractions of domestic and foreign respondents again reported having tightened standards on loans to European banks or their affiliates and subsidiaries. There was more widespread tightening of standards than in the previous survey on loans to nonfinancial firms that have operations in the United States and significant exposures to European economies. Demand for credit was reportedly little changed, on net, from European banks (or their affiliates and subsidiaries) and from nonfinancial firms with significant European exposures.

A new special question asked if domestic respondents had experienced an increase in business over the past six months as a result of decreased competition from European banks (or their affiliates and subsidiaries). About half of the respondents who reported competing with European banks noted such an increase in business.

On CRE:

The January survey also included a question regarding changes in terms on CRE loans over the past year (repeated annually since 2001). During the past 12 months, on net, some domestic banks reportedly eased maximum CRE loan sizes and many domestic banks trimmed loan rate spreads. A few large domestic banks, on balance, reported that they had lengthened maximum loan maturities. Other terms for CRE loans were reportedly little changed. The January results were the first in five years to find a net easing in some of the CRE loan terms covered in the survey.

On credit quality in 2012:

The January survey contained a set of special questions that asked banks about their outlook for delinquencies and charge-offs across major loan categories in the current year, assuming that economic activity progresses in line with consensus forecasts. These questions have been asked once each year for the past six years. Overall, between 15 and 60 percent of domestic banks, on net, expected improvements in delinquency and charge-off rates during 2012 in the major loan categories included in the survey.

There are several charts here.

So far the European financial crisis hasn't led to tighter lending standards in the U.S., but standards remain pretty tight.

by Calculated Risk on 1/30/2012 10:39:00 AM

This is the last of the regional Fed surveys for January. The regional surveys provide a hint about the ISM manufacturing index - and all of the regional surveys were stronger in January.

From the Dallas Fed: Texas Manufacturing Activity Picks Up

Texas factory activity increased in January, according to business executives responding to the Texas Manufacturing Outlook Survey. The production index, a key measure of state manufacturing conditions, rose from 0.2 to 5.8, suggesting growth resumed this month.

Other measures of current manufacturing conditions also indicated growth in January. The new orders index jumped to 9.5, its highest reading in six months, after two months in negative territory. ... Perceptions of broader economic conditions were notably more positive in January. The general business activity index shot up to 15.3 after dipping into negative territory in December.
...
Labor market indicators reflected continued labor demand growth. The employment index came in at 12.2, up from 9.9 in December. ... The hours worked index continued to suggest average workweeks lengthened.
...
Expectations regarding future business conditions were markedly more optimistic in January.

Here is a graph comparing the regional Fed surveys and the ISM manufacturing index:

Click on graph for larger image.

The New York and Philly Fed surveys are averaged together (dashed green, through January), and five Fed surveys are averaged (blue, through January) including New York, Philly, Richmond, Dallas and Kansas City. The Institute for Supply Management (ISM) PMI (red) is through December (right axis).

The ISM index for January will be released Wednesday, Feb 1st and the regional surveys suggest another small increase in January. The consensus is for a slight increase to 54.5 from 53.9 in December.

by Calculated Risk on 1/30/2012 08:32:00 AM

The BEA released the Personal Income and Outlays report for December:

Personal income increased $61.3 billion, or 0.5 percent ... in December, according to the Bureau of Economic Analysis. Personal consumption expenditures (PCE) decreased $2.0 billion, or less than 0.1 percent.
...
Real PCE -- PCE adjusted to remove price changes -- decreased 0.1 percent in December ... PCE price index -- The price index for PCE increased 0.1 percent in December, in contrast to a decrease of less than 0.1 percent in
November. The PCE price index, excluding food and energy, increased 0.2 percent, compared with an increase of 0.1 percent.

The following graph shows real Personal Consumption Expenditures (PCE) through December (2005 dollars). Note that the y-axis doesn't start at zero to better show the change.

Click on graph for larger image.

PCE decreased less than 0.1% in December, and real PCE decreased 0.1%.

Note: The PCE price index, excluding food and energy, increased 0.2 percent.

The personal saving rate was at 4.0% in December.

Not much of an increase in PCE since October.

by Calculated Risk on 1/29/2012 07:28:00 PM

The European Union leaders meet in Brussels tomorrow and there is a growing recognition that austerity alone will not work. From the NY Times: E.U. Leaders Set to Admit Austerity Is Not Enough

European leaders are expected to conclude this week that what the debt-laden, sclerotic countries of the Continent need are a dose of economic growth.
...
A draft of the European Union summit meeting communiqué calls for ‘‘growth-friendly consolidation and job-friendly growth,’’ an indication that European leaders have come to realize that austerity measures, like those being put in countries like Greece and Italy, risk stoking a recession and plunging fragile economies into a downward spiral.

And on Greece from the NY Times: Greek Coalition Partners to Back New Reforms

As Greece tries to reach a debt-swap agreement with its private creditors, the country’s prime minister suggested on Sunday that the three leaders in his fractious coalition were prepared to back additional austerity measures and reforms needed to receive a second bailout.

Prime Minister Lucas Papademos is in the middle of a three ring circus negotiating with private creditors, negotiating with the "troika" (European Union, ECB, IMF), and negotiating with the various political parties in Greece.

Yesterday:
• Summary for Week Ending January 27th
• Schedule for Week of Jan 29th

by Calculated Risk on 1/29/2012 02:11:00 PM

Another update: I've been using inventory numbers from HousingTracker / DeptofNumbers to track changes in inventory. Tom Lawler mentioned this last year.

According to the deptofnumbers.com for monthly inventory (54 metro areas), listed inventory is probably back to early 2005 levels. Unfortunately the deptofnumbers only started tracking inventory in April 2006.

This graph shows the NAR estimate of existing home inventory through December (left axis) and the HousingTracker data for the 54 metro areas through January.

Click on graph for larger image.

Since the NAR released their revisions for sales and inventory, the NAR and HousingTracker inventory numbers are tracking pretty well.

Seasonally, housing inventory usually bottoms in December and January and then starts to increase again in February. So inventory should increase over the next 6+ months.

The second graph shows the year-over-year change in inventory for both the NAR and HousingTracker.

HousingTracker reported that the January listings - for the 54 metro areas - declined 17% from the same month last year. The year-over-year decline will probably start to slow since listed inventory is getting close to normal levels. Also if there is an increase in foreclosures (as expected), this will give some boost to listed inventory.

This is just inventory listed for sale, sometimes referred to as "visible inventory". There is also a large "shadow inventory" that is currently not on the market, but is expected to be listed in the next few years. Shadow inventory could include bank owned properties (REO: Real Estate Owned), properties in the foreclosure process, other properties with delinquent mortgages (both serious delinquencies of over 90+ days, and less serious), condos that were converted to apartments (and will be converted back), investor owned rental properties, and homeowners "waiting for a better market", and a few other categories - as long as the properties are not currently listed for sale. Some of this "shadow inventory" will be forced on the market, such as completed foreclosures, but most of these sellers will probably wait for a "better market".

However listed inventory has clearly declined in many areas. And it is the listed months-of-supply (currently 6.2 months) combined with the number of distressed sales that mostly impacts prices.

All current existing home sales graphs
Yesterday:
• Summary for Week Ending January 27th
• Schedule for Week of Jan 29th

by Calculated Risk on 1/29/2012 11:15:00 AM

Last week President Obama announced a new task force to investigate abuses related to the origination and securitization of mortgages during the housing bubble: "I am asking my Attorney General to create a special unit of federal prosecutors and leading state attorneys general to expand our investigations into the abusive lending and packaging of risky mortgages that led to the housing crisis."

Some people have argued that his will derail the proposed mortgage settlement.

Even though Eric Schneiderman, the New York attorney general will be a co-chair, it sounds like this will be a federal investigation and will be focused on origination and securtization abuses.

Loren Berlin at the HuffPo noted:

Senior officials at the Department of Justice were quick to emphasize that the fate of the settlement talks is unrelated to the new unit. "We have certainly heard criticisms that the settlement would give immunity for all [the mortgage-related misconduct], but that's simply not true ...This [unit] is addressing a very different problem than the servicing settlement," said one official.

I've seen several commentaries that lump servicing and origination abuses together. Obviously the banks wanted broad immunity in any mortgage settlement, and the state attorneys general wanted narrower releases.

According to reports about the mortgage settlement, the banks would be released from claims brought by the states and the federal government for servicing and foreclosure abuses, but injured homeowners could still bring legal action.

And the states (but not the federal government) would release the banks from origination claims. Note: I could have the details wrong, but that is what has been reported.

Since the new task force is a federal investigation, my guess is this is intended to address complaints from some attorneys general about origination and securitization, since the states were being asked to release the banks on origination claims. So this new investigation doesn't sound like it will derail the mortgage servicer settlement - it might even lead to more states joining the settlement (although the banks may not like it).

by Calculated Risk on 1/28/2012 08:43:00 PM

The European Union leaders meet in Brussels on Monday, and two key topics will be a "re-focus on growth and job creation"¹ and Greece. Even if a deal is reached on the debt - and enough bondholders can be persuaded to participate - Greece still needs to come to terms on the next round of financing.

¹Quote from European Council President Herman Van Rompuy.

From the WSJ: Greek Debt Deal, New Loan Agreement to Finish Next Week

Greece and its private sector creditors said Saturday they were on the verge of a deal to write off €100 billion ($132 billion) worth of the country's debt, pending the outcome of separate talks on a new, multi-billion euro bailout for Athens.
...
Effectively, the focus now shifts to a European summit in Brussels Monday where the continent's leaders will sanctify -- or not -- the terms of the debt restructuring and the new loan. But complicating those discussions are concerns that Greece's funding needs might be bigger than originally thought ...

From the NY Times: Greek Debt Talks Again Seem to Be on the Verge of a Deal

[C]reditors now seem willing to accept a rate below 4 percent for the 30-year bonds — perhaps as low as 3.6 percent. ... Officials from the three institutions that are keeping the near-bankrupt nation financially afloat — the European Commission, the monetary fund and the European Central Bank — are demanding another round of spending cuts and reforms to justify a release of as much as 30 billion euros ($39 billion) in the months ahead.

Here are a few key dates in Europe:
Jan 30th: European Union leaders meet in Brussels on debt crisis.

Feb 9th: ECB holds rate meeting.
Feb 20th: Euro-area finance ministers meet in Brussels.
Feb 29th to March 1st: Italy redeems 46.5 billion euros of bonds.

March 1st and 2nd: EU leaders meet in Brussels.
March 8th: ECB holds rate meeting
March 12th: Euro-area finance ministers meet in Brussels
March 20th: Greece redeems 14.4 billion euros of bonds.
March 30th: Euro-area finance ministers meet in Copenhagen.

Late April: Proposed date for Greek general election.
April 22nd: France election.

Earlier:
• Summary for Week Ending January 27th
• Schedule for Week of Jan 29th

by Calculated Risk on 1/28/2012 04:29:00 PM

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

Here is the unofficial problem bank list for Jan 27, 2012. (table is sortable by assets, state, etc.)

Changes and comments from surferdude808:

Busy week with many changes to the Unofficial Problem Bank List as the FDIC released its enforcement action activity for December 2011 and they closed several banks. In total, there were 11 removals and six additions, which leave the list with 958 institutions with assets of $389.0 billion. A year ago, there were 949 institutions with assets of $410.9 billion on the list. For the month of January 2012, changes to the list were nine cures, six failures, four unassisted mergers, one voluntary liquidation, and eight additions. The list fell by 12 institutions during the current month and it is the seventh consecutive monthly decline after the list peaked on a month-end basis at 1,001 institutions in June 2011.

The FDIC terminated actions against Open Bank, Los Angeles, CA ($136 million Ticker: OPBK); Citizens Bank & Trust Company, Covington, LA ($110 million); First Security Bank & Trust Company, Norton, KS ($63 million); and West One Bank, Kalispell, MT ($44 million). Three banks were removed as they were acquired through unassisted deals including Ravalli County Bank, Hamilton, MT ($187 million); First State Bank of Red Bud, Red Bud, IL ($94 million); and Griffith Savings Bank, Griffith, IN ($89 million), which was acquired by United Federal Credit Union in the reportedly first successful acquisition of a commercial bank by a federally chartered credit union.

The FDIC stepped up its closing activities this week with four closures. The last time the FDIC closed this many banks in a week was on October 21, 2011. Failures include Tennessee Commerce Bank, Franklin, TN ($1.2 billion Ticker: TNCC); First Guaranty Bank and Trust Company of Jacksonville, Jacksonville, FL ($378 million); BankEast, Knoxville, TN ($273 million); and Patriot Bank Minnesota, Forest Lake, MN ($111 million). The failures in Tennessee are the first in that state since the on-set of the financial crisis. Conspicuously, the state stood out for not having yet experienced a failure. Ironically, the banking trade publication American Banker had an article today that questioned how much longer the state could remain failure free and said several lawyers thought the state banking commissioner wanted to avoid failures. While avoiding failures is laudable; however, some may say the delay in closing leads to higher resolution costs. As a share of their assets, the FDIC estimates the resolution of Tennessee Commerce Bank will cost 35.2% and BankEast 27.7%. Perhaps the reluctance for closings as mentioned in the article contributed to the high resolution costs of these banks.

The additions this week include Colorado East Bank & Trust, Lamar, CO ($829 million); Chambers Bank, Danville, AR ($722 million); American Gateway Bank, Port Allen, LA ($434 million); Pacific International Bank, Seattle, WA ($250 million Ticker: PIBW); Prairie Community Bank, Marengo, IL ($128 million); and Woodland Bank, Deer River, MN ($108 million).

The FDIC issued Prompt Corrective Action Orders against Mile High Banks, Longmont, CO ($1.0 billion) and Waukegan Savings Bank, Waukegan, IL ($88 million). Also, the FDIC issued an order terminating the deposit insurance of Fireside Bank, Pleasanton, CA ($278 million). Usually a chartering authority does not allow an institution to operate very long after receiving a deposit insurance termination order. Under a deposit insurance termination order, existing deposits eligible for insurance are covered for two years but any new deposits are not covered.

Earlier:
• Summary for Week Ending January 27th
• Schedule for Week of Jan 29th

by Calculated Risk on 1/28/2012 01:07:00 PM

Earlier:
• Summary for Week Ending January 27th

This will be a very busy week for economic releases. The key report is the January employment report to be released on Friday, Feb 3rd. Other key reports include the Case-Shiller house price index on Tuesday, the ISM manufacturing index on Wednesday, vehicle sales on Wednesday, and the ISM non-manufacturing (service) index on Friday.

On Thursday, Fed Chairman Ben Bernanke provides testimony to Congress on the economic outlook.

----- Monday, Jan 30th -----
8:30 AM ET: Personal Income and Outlays for December. The consensus is for a 0.4% increase in personal income in December, and a 0.1% increase in personal spending, and for the Core PCE price index to increase 0.1%.

10:30 AM: Dallas Fed Manufacturing Survey for January. The consensus is for expansion of 1.0 from contraction of -1.3 in December. This is the last of the regional Fed manufacturing surveys for January, and the other surveys have shown stronger expansion in January.

2:00 PM: The January 2011 Senior Loan Officer Opinion Survey on Bank Lending Practices from the Federal Reserve.

----- Tuesday, Jan 31st -----
9:00 AM: S&P/Case-Shiller House Price Index for November. Although this is the November report, it is really a 3 month average of September, October and November.

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

The consensus is for a 0.4% decrease in prices in November. I expect a larger decline NSA, and a decline of 0.1% to 0.2% seasonally adjusted. The CoreLogic index declined 1.4% decrease in November (NSA).

9:45 AM: Chicago Purchasing Managers Index for January. The consensus is for an increase to 63.0, up from 62.5 in December.

10:00 AM: Conference Board's consumer confidence index for January. The consensus is for an increase to 68.0 from 64.5 last month.

10:00 AM: Q4 Housing Vacancies and Homeownership report from the Census Bureau. As a reminder: Be careful with the Housing Vacancies and Homeownership report. This report is frequently mentioned by analysts and the media to track the homeownership rate, and the homeowner and rental vacancy rates. Unfortunately the report is based on a fairly small sample, and does not track the decennial Census data.

----- Wednesday, Feb 1st -----
7:00 AM: The Mortgage Bankers Association (MBA) will release the mortgage purchase applications index. This index was especially weak last year, although this does not include all the cash buyers.

8:15 AM: The ADP Employment Report for January. This report is for private payrolls only (no government). The consensus is for 172,000 payroll jobs added in January, down from the 325,000 reported last month.

10:00 AM: Construction Spending for December. The consensus is for a 0.5% increase in construction spending.

10:00 AM ET: ISM Manufacturing Index for January.

Here is a long term graph of the ISM manufacturing index. The consensus is for a slight increase to 54.5 from 53.9 in December.

All day: Light vehicle sales for January. Light vehicle sales are expected to increase to 13.6 million from 13.5 million in December (Seasonally Adjusted Annual Rate).

This graph shows light vehicle sales since the BEA started keeping data in 1967. The dashed line is the December sales rate.

Edmunds is forecasting:

[A] projected Seasonally Adjusted Annual Rate (SAAR) of 13.4 million units, forecasts Edmunds.com ... This sales pace is relatively flat from the 13.5 million SAAR recorded last month, but up from the 12.6 million SAAR from January 2011.

And TrueCar is forecasting:

The January 2012 forecast translates into a Seasonally Adjusted Annualized Rate (SAAR) of 13.6 million new car sales, up from 12.7 million in January 2011

Expected: National Multi Housing Council (NMHC) Quarterly Apartment Survey. This is a key survey for apartment vacancy rates and rents.

----- Thursday, Feb 2nd -----
8:30 AM: The initial weekly unemployment claims report will be released. The consensus is for a dencrease to 370,000 from 377,000 last week.

10:00 AM: Testimony from Fed Chairman Ben Bernanke, "The Economic Outlook and the Federal Budget Situation", Before the Committee on the Budget, U.S. House of Representatives

----- Friday, Feb 3rd -----
8:30 AM: Employment Report for December. The consensus is for an increase of 135,000 non-farm payroll jobs in January, down from the 200,000 jobs added in December. Note: it appears the seasonal adjustment for "Transportation and warehousing" over-counted employment in December by about 42,000 and this should be unwound in January. So December payroll growth was probably overstated, and January will be understated.

The consensus is for the unemployment rate to remain unchanged at 8.5%.

This second employment graph shows the percentage of payroll jobs lost during post WWII recessions through December.

The economy has added 2.65 million jobs since employment bottomed in February 2010 (3.16 million private sector jobs added, and 500 thousand public sector jobs lost).

There are still 5.7 million fewer private sector jobs now than when the recession started. (6.1 million fewer total nonfarm jobs).

10:00 AM: ISM non-Manufacturing Index for January. The consensus is for an increase to 53.3 in January from 52.6 in December. Note: Above 50 indicates expansion, below 50 contraction.

10:00 AM: Manufacturers' Shipments, Inventories and Orders (Factory Orders) for December. The consensus is for a 1.5% increase in orders.