by Calculated Risk on 4/03/2012 08:20:00 PM

From economist Tom Lawler:

Last week HUD released the FHA Single-Family Mutual Mortgage Insurance Fund Quarterly Report to Congress for the first quarter of FY 2012 (ending 12/31/2011), which gave some insights into the disturbing rise is the number of seriously delinquent FHA-insured SF loans, as well on the surprising slow pace of foreclosure resolutions.

At the bottom of this post is a table summarizing SDQ rates by FY endorsement.

And here is a chart from the report showing SDQ rates by calendar year origination and months of seasoning.

Click on graph for larger image.

Needless to say, this is not a pretty picture.

In the discussion on the sizable jump in the FHA’s SF SDQ rate, the report said that

“(t)wo factors appear to be driving this result. The first is the persistency of loans in 90-day delinquency as lenders attempt to craft workout plans, and persistency of loans in foreclosure processing. The second is that the historically large FY 2009 and FY 2010 books-of-business are at the age where their serious delinquency rates are increasing toward their life-cycle peaks. Because those books are much larger than is the new FY 2011 book, their loan-age seasoning patterns are not offset by the low default rates on recent endorsements.”

The report did not mention the sharp falloff in FHA modifications in the second half of 2011.

Relative to the projection in the FY 2011 annual independent actuarial study, actual FHA claims were 52% lower by loan count and 57% lower by dollars, but NOT because the loans are performing better than projected. Here is an excerpt from the report:

“The number of claims paid this quarter (27,356) is down slightly from that of the previous quarter (30,108). The gap between predicted and actual claims paid shows little variation from the previous quarters, with year-to-date counts 52% below forecast, and year-to-date dollars 57% below forecast. The principal contributing factor to this gap continues to be delays in foreclosure processing in many areas of the country. We anticipate the recent settlement will accelerate foreclosure activity, perhaps within the next two quarters.”

The report also included some historical data on the FHA’s loss rate on REO and on pre-foreclosure sales, which showed rising trends in both.

In the quarter ended 12/31/2011, FHA’s loss severity on REO averaged 71.7%, while the loss severity on short sales was 47.4%. Delays in foreclosure processing appear to be a significant factor in rising loss severity rates. The combination of rising SDQs and rising loss severities bodes very poorly for the MMIF outlook, which may help explain the sizable recently-announced hikes in FHA’s premiums.

Here is the table summarizing SDQ rates by FY endorsement.

Serious Delinquency Rate by Endorsement Fiscal Year, FHA SF Mortgages
Endorsement FY	Pre-2007	2007	2008	2009	2010	2011	All Years
Q1/12	12.58%	25.59%	23.83%	10.92%	4.07%	0.93%	9.59%
Q4/11	11.57%	23.36%	21.38%	9.13%	2.96%	0.45%	8.70%
Q3/11	10.77%	21.83%	19.97%	8.05%	2.13%	0.22%	8.18%
Q2/11	10.98%	21.71%	19.49%	7.58%	1.61%	0.08%	8.31%
Q1/11	11.59%	22.44%	19.65%	7.23%	1.20%	0.01%	8.78%
Q4/10	11.41%	21.49%	18.37%	6.08%	0.65%		8.66%
Q3/10	11.15%	21.11%	17.35%	4.94%	0.33%		8.59%
Q2/10	11.56%	21.40%	17.13%	4.07%	0.16%		9.05%
Q1/10	11.89%	21.55%	16.22%	3.05%	0.02%		9.44%
Q4/09	10.72%	18.60%	12.19%	1.59%			8.52%
Q3/09	8.71%	14.23%	8.45%	0.84%			7.14%

by Calculated Risk on 4/03/2012 03:59:00 PM

Based on an estimate from Autodata Corp, light vehicle sales were at a 14.37 million SAAR in March. That is up 10.4% from March 2011, but down 4.4% from the sales rate last month (15.03 million SAAR in Feb 2012).

This was below the consensus forecast of 14.7 million SAAR.

This graph shows the historical light vehicle sales (seasonally adjusted annual rate) from the BEA (blue) and an estimate for March (red, light vehicle sales of 14.37 million SAAR from Autodata Corp).

Click on graph for larger image.

The annualized sales rate is up in Q1 from Q4.

March was above the August 2009 rate with the spike in sales from "cash-for-clunkers". Only February had a higher sales rates since early 2008.

The second graph shows light vehicle sales since the BEA started keeping data in 1967.

This shows the huge collapse in sales in the 2007 recession. This also shows the impact of the tsunami and supply chain issues on sales, especially in May and June of last year.

Note: dashed line is current estimated sales rate.

Even though this was below expectations, growth in auto sales will make another strong positive contribution to GDP in Q1 2012.

All current Retail Graphs

by Calculated Risk on 4/03/2012 02:00:00 PM

"Several members" were concerned that the unemployment rate would be elevated, and inflation subdued in late 2014. That would suggest further action now, but, later in the discussion, "a couple of members" indicated further action might be necessary if the "economy lost momentum". So it doesn't seem like there is any push for QE3 in the short term.

From the Fed: Minutes of the Federal Open Market Committee, March 13, 2012. Excerpts:

With the economic outlook over the medium term not greatly changed, almost all members again agreed to indicate that the Committee expects to maintain a highly accommodative stance for monetary policy and currently anticipates that economic conditions--including low rates of resource utilization and a subdued outlook for inflation over the medium run--are likely to warrant exceptionally low levels for the federal funds rate at least through late 2014. Several members continued to anticipate, as in January, that the unemployment rate would still be well above their estimates of its longer-term normal level, and inflation would be at or below the Committee's longer-run objective, in late 2014. It was noted that the Committee's forward guidance is conditional on economic developments, and members concurred that the date given in the statement would be subject to revision in response to significant changes in the economic outlook. While recent employment data had been encouraging, a number of members perceived a nonnegligible risk that improvements in employment could diminish as the year progressed, as had occurred in 2010 and 2011, and saw this risk as reinforcing the case for leaving the forward guidance unchanged at this meeting.

The Committee also stated that it is prepared to adjust the size and composition of its securities holdings as appropriate to promote a stronger economic recovery in a context of price stability. A couple of members indicated that the initiation of additional stimulus could become necessary if the economy lost momentum or if inflation seemed likely to remain below its mandate-consistent rate of 2 percent over the medium run.

by Calculated Risk on 4/03/2012 11:48:00 AM

Following a ProPublica story last week, Fannie and Freddie: Slashing Mortgages Is Good Business, there was some commentary suggesting that principal reductions would result in a windfall for banks holding 2nd liens.

Michael Stegman, Counselor to the Secretary of the Treasury for Housing Finance Policy responded: GSEs & Principal Reduction: How HAMP Helps More Underwater Homeowners (ht Dan)

Recently, various sources have alleged that large banks will get a windfall if Fannie Mae and Freddie Mac (the GSEs) reduce the principal balance on first lien mortgage loans that are owned or guaranteed by the GSEs. The claims arise from a concern that if the GSEs reduce the principal balance on a GSE first lien mortgage loan, any investor holding a second (and subordinated) lien on the property stands to benefit unfairly.

In fact, the principal reduction program that we have asked the FHFA to allow the GSEs to participate in, the principal reduction alternative of the Home Affordable Modification Program (HAMP), is designed to protect against exactly this result.

Of course, not all under water GSE loans have second liens. But if they do, under HAMP, where a first lien mortgage is modified, then the holder of an eligible second lien must modify that lien proportionately if they are a participant in the Second Lien Modification Program (2MP). ...

So quite contrary to providing a windfall to the banks, GSE participation in this program would force them to help homeowners even further by writing down these second lien loans.

The bank "windfall" argument was incorrect.

However a valid point was raised by Tom Lawler: The program might make sense to Fannie and Freddie only if the Treasury incentive is included. If that is the case, then the program might not make sense for taxpayers.

Principal reduction can be a very effective and cost saving program if done correctly, but I have to see the details of the proposal before deciding if this makes sense.

by Calculated Risk on 4/03/2012 09:24:00 AM

LPS released their Mortgage Monitor report for February today.

According to LPS, 7.57% of mortgages were delinquent in February, down sharply from 7.97% in January, and down from 8.80% in February 2011.

LPS reports that 4.13% of mortgages were in the foreclosure process, down slightly from 4.15% in January, and down slightly from 4.15% in February 2011.

This gives a total of 11.7% delinquent or in foreclosure. It breaks down as:

• 2,059,000 loans less than 90 days delinquent.
• 1,722,000 loans 90+ days delinquent.
• 2,065,000 loans in foreclosure process.

For a total of 5,846,000 loans delinquent or in foreclosure in February.

Click on graph for larger image.

This graph shows the total delinquent and in-foreclosure rates since 1995.

The total delinquent rate has fallen to 7.57% from the peak in January 2010 of 10.97%, but the decline has halted. A normal rate is probably in the 4% to 5% range, so there is a long ways to go.

The in-foreclosure rate was at 4.11%, down from the record high in October 2011 of 4.29%. There are still a large number of loans in this category (about 2.07 million).

This graph provided by LPS Applied Analytics shows foreclosure starts and sales.

Foreclosure starts and sales were up in January, but then declined in February. This was before the mortgage servicer settlement was announced in mid-February and filed with the court in March, so it is still too early to see the impact of the settlement.

by Calculated Risk on 4/03/2012 08:44:00 AM

Several people have sent me this Bloomberg article by Kathleen Howley: Home Prices Seen Dropping 10% in U.S. on Foreclosures: Mortgages

From the second paragraph:

Sales of repossessed properties probably will rise 25 percent this year from 1 million in 2011, according to Moody’s Analytics Inc. Prices for the homes could drop as much as 10 percent because they deteriorated as they were held in reserve during investigations by state officials resolved in February, according to RealtyTrac Inc.

So RealtyTrac is saying prices for some repossessed properties could fall 10 percent "because they deteriorated" while in the foreclosure process. That sounds correct, but that isn't overall prices.

Later in the article, Howley does quote an economist predicting a further 5% to 10% price decline this year:

The [Case-Shiller Composite 20] index probably will fall 5 percent to 10 percent this year, a range that depends on the condition of the mothballed homes, [Patrick Newport, an economist at IHS Global Insight] said.

That compares with a forecast for a 2.9 percent decline by Celia Chen, a housing economist at Moody’s Analytics in West Chester, Pennsylvania, and a prediction of a 3.9 percent decline by Diane Swonk, chief economist of Mesirow Financial Inc. in Chicago.

An added thought: The most recent Case-Shiller report was for January. If the Composite 20 index fell as much from January through March as in 2011, prices are already down 3% this year as of the end of March (Compare that to Celia Chen and Diane Swonk's predictions for the year).

by Calculated Risk on 4/03/2012 12:18:00 AM

Jim makes some interesting comments on multiple offers in the following video.

It probably seems strange to hear Jim talking about the "lower end" while showing a $655,000 house, but this is in an expensive area of coastal north county in San Diego.

Jim discusses some other recent listings that have had multiple offers - one with eight offers, another with 14 offers that for 10% over list price.

by Calculated Risk on 4/02/2012 07:18:00 PM

From the WaPo: Senior citizens continue to bear burden of student loans

New research from the Federal Reserve Bank of New York shows that Americans 60 and older still owe about $36 billion in student loans ... More than 10 percent of those loans are delinquent. As a result, consumer advocates say, it is not uncommon for Social Security checks to be garnished or for debt collectors to harass borrowers in their 80s over student loans that are decades old.

The NY Fed research has some data and graph on student debt: Grading Student Loans

The outstanding student loan balance now stands at about $870 billion,1 surpassing the total credit card balance ($693 billion) and the total auto loan balance ($730 billion). With college enrollments increasing and the costs of attendance rising, this balance is expected to continue its upward trend.

This chart from the NY Fed shows the student debt outstanding by age. From the NY Fed:

Among people under thirty years old, 40.1 percent have outstanding student loan debt. Among people between the ages of thirty and thirty-nine, 25.1 percent have outstanding student loan debt. In contrast, only 7.4 percent of people who are at least forty years old have outstanding student loan debt. As a result, $580 billion of the total $870 billion in student loan debt is owed by people younger than forty.

There is much more in the research paper.

by Calculated Risk on 4/02/2012 02:59:00 PM

Earlier this year I argued that there was a good chance house prices would bottom this year (I predicted a bottom in Not Seasonally Adjusted prices in March - of course that data will not be released for several months). There are several other analysts and economists who now see prices bottoming this year or early next year.

Wells Fargo economists put out a special commentary on housing this morning: Spring Came Early for the Housing Market

The latest data on home prices also came in a little better than expected, and the survey data from the NAHB/Wells Fargo Homebuilders Survey as well as anecdotal reports from builders and realtors all suggest better days are ahead for the industry.

Drawing definitive conclusions from the winter housing data is perilous. The winter months account for the smallest proportion of the year’s housing activity, and unseasonably mild weather during the winter months can cause the data to bounce around quite a bit from month to month. The March and April data are much more important, and all indications suggest that the key spring selling season has gotten off to a solid start.
...
We have nudged our forecast for home sales and new home construction slightly higher, as the spring selling season appears to have gotten off to a strong start. ... the anecdotal evidence is hard to dismiss. Most builders and realtors report significant gains in buyer interest and sales. Moreover, the gains are organic rather than incentive induced. Unfortunately, conservative appraisals and tight mortgage underwriting continue to undermine a large number of deals. We suspect that the undertow from these two hindrances will subside over the course of this year, as the fog surrounding shadow inventories lightens up a bit and more lenders come back to the market.
...
We expect home prices to definitively bottom by the middle of this year, as the backlog of foreclosures finally begins clear. For properties not in foreclosure, prices have probably already bottomed, but should remain relatively low nonetheless given the competition and perceived competition from foreclosures.

Wells Fargo believes the housing recovery will unfold slowly, and they only expect new home sales to increase 12% in 2012 to 340 thousand, and housing starts to increase to 710 thousand (includes multifamily, owner built and more).

It is important to note that Wells Fargo is forecasting a very weak year for housing - just an increase from the weakest years on record. Their forecast would be the 3rd worst year for new home sales since 1963, only behind the 2011 and 2010 - and about half the median annual sales since 1963.

Their forecast would be the 4th worst year for housing starts since 1959. Note: starts bottomed in 2009, and most of the increase since then has been from multifamily starts). The Wells Fargo forecast is for about half the median for annual housing starts since 1959.

Sometimes I see commentary saying there is no recovery in housing, and the commentator then points to the current low level of sales and starts. However, when most people use the word "recovery" they mean an increase from the previous period - not the absolute level of sales and starts. Sales and starts will be weak in 2012, but better than 2011.

by Calculated Risk on 4/02/2012 12:09:00 PM

Catching up ... This morning the Census Bureau reported that overall construction spending declined in February:

The U.S. Census Bureau of the Department of Commerce announced today that construction spending during February 2012 was estimated at a seasonally adjusted annual rate of $808.9 billion, 1.1 percent (±1.3%)* below the revised January estimate of $818.1 billion. The February figure is 5.8 percent (±1.8%) above the February 2011 estimate of $764.2 billion.

Private construction spending was also declined in February:

Spending on private construction was at a seasonally adjusted annual rate of $527.3 billion, 0.8 percent (±1.1%)* below the revised January estimate of $531.7 billion. Residential construction was at a seasonally adjusted annual rate of $246.5 billion in February, nearly the same as (±1.3%)* the revised January estimate of $246.4 billion. Nonresidential construction was at a seasonally adjusted annual rate of $280.8 billion in February, 1.6 percent (±1.1%) below the revised January estimate of $285.3 billion.

Click on graph for larger image.

This graph shows private residential and nonresidential construction spending, and public spending, since 1993. Note: nominal dollars, not inflation adjusted.

Private residential spending is 63.5% below the peak in early 2006, and up 10% from the recent low. Non-residential spending is 32% below the peak in January 2008, and up about 15% from the recent low.

Public construction spending is now 13% below the peak in March 2009.

The second graph shows the year-over-year change in construction spending.

On a year-over-year basis, both private residential and non-residential construction spending are positive, but public spending is down slightly on a year-over-year basis. The year-over-year improvements in private non-residential are mostly due to energy spending (power and electric).

The year-over-year improvement in private residential investment is an important change (the positive in 2010 was related to the tax credit), and this suggest the bottom is in for residential investment.
All Housing Investment and Construction Graphs