RSS Feed by Calculated Risk on 3/02/2010 02:49:00 PM
Tuesday, March 02, 2010
New Credit Suisse ARM Recast Chart
From Zach Fox at SNL Financial: Credit Suisse: $1 trillion worth of ARMs still face resets
Most of the resets are expected to occur through 2012. Between 2010 and 2012, the chart indicates that $253.25 billion of option ARMs will adjust, while Alt-A loans totaling $163.71 billion will reset over that time. Altogether, $1.010 trillion worth of ARMs will reset or recast during the three-year period.
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"Option ARM resets are still pending. … Nothing much has happened yet because rates were so low that resets were pushed back," Chandrajit Bhattacharya, head of non-agency RMBS and ABS strategy at Credit Suisse, told SNL.
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[Greg McBride, senior financial analyst at Bankrate.com] was cool to the idea that option ARMs could flood the foreclosure rolls. Option ARMs are less concerning, he said, because so many have defaulted already. Indeed, the September 2009 Fitch Ratings report showed that 30-day delinquencies on option ARMs sat at 46% even though just 12% had recast. Further, option ARM foreclosure rates already match the sky-high subprime foreclosure rates.
Instead, McBride is worried about the prime ARMs posted in the Credit Suisse chart [if interest rates rise - see article for discussion].
excerpts with permission
Click on graph for larger image in new window.Source: SNL Financial.
This graph shows the amount of ARMs resetting and recasting over the next few year. Resets are not a huge worry right now - because interest rates are so low - but if interest rates rise, this could lead to more defaults in the future.
Recasts - when the loans reamortize - are a concern, although it is unclear how large the payment shock will be. For borrowers with negative equity, any payment shock might be lead to default. As I wrote last year in A comment on Option ARMs
It is a little confusing. You can't just look at a chart of coming recasts and know when borrowers will default. The real problem for Option ARMs is negative equity, and the surge in defaults is happening before the loans recast.
But the recasts will matter too, since many of these borrowers used these mortgages as "affordability products", and bought the most expensive homes they could "afford" (based on monthly payments only). When the recasts arrive, these borrowers will have few options.
Real Personal Income less Transfer Payments
by Calculated Risk on 3/02/2010 12:58:00 PM
The National Bureau of Economic Research (NBER) uses several measures to determine if the economy is in recession. From the most recent NBER memo:
Because a recession is a broad contraction of the economy, not confined to one sector, the committee emphasizes economy-wide measures of economic activity. The committee believes that domestic production and employment are the primary conceptual measures of economic activity.
The committee views the payroll employment measure, which is based on a large survey of employers, as the most reliable comprehensive estimate of employment. ...
The committee believes that the two most reliable comprehensive estimates of aggregate domestic production are normally the quarterly estimate of real Gross Domestic Product and the quarterly estimate of real Gross Domestic Income, both produced by the Bureau of Economic Analysis. ...
General Motors: February Sales increase 12% compared to Feb 2009
by Calculated Risk on 3/02/2010 10:36:00 AM
From CNBC: GM's US Auto Sales Rise 11.5 Percent in February
General Motors says its February sales rose 11.5 percent compared with the same month last year ...This is based on a very easy comparison; in February 2009 U.S. light vehicle sales fell sharply to 9.143 million (SAAR) following the financial crisis and reports of the then impending bankruptcy of GM and Chrysler. February 2009 was the bottom for auto sales.
I'll add reports from the other major auto companies as updates to this post. Toyota will be especially interesting because of the quality issues.
FHFA Extends Refinance Program
by Calculated Risk on 3/02/2010 08:41:00 AM
Just something I forgot to mention yesterday ...
Press Release: FHFA Extends Refinance Program By One Year
Federal Housing Finance Agency Acting Director Ed DeMarco today announced the extension of the Home Affordable Refinance Program, (HARP), a refinancing program administered by Fannie Mae and Freddie Mac, to June 30, 2011. ... The HARP program expands access to refinancing for qualified individuals and families whose homes have lost value. The program was set to expire on June 10 of this year.
Monday, March 01, 2010
Summers: Blame it on the Snow
by Calculated Risk on 3/01/2010 09:40:00 PM
Larry Summers on CNBC: "Very important to look past the next [employment] figures." (27 second long after ad)
Reports: Senate nears agreement on consumer financial protection
by Calculated Risk on 3/01/2010 07:32:00 PM
Binyamin Appelbaum, at the WaPo, reports that Senators Dodd and Corker (Tenn) are nearing a deal to give authority for financial consumer protection to the Federal Reserve.
Uh, wasn't the Fed already responsible for consumer financial protection?
Fannie, Freddie and FHA REO Inventory
by Calculated Risk on 3/01/2010 04:02:00 PM
REO: Real Estate Owned.
Click on graph for larger image in new window.
This graph (ht Tom Lawler) shows the REO inventory for Fannie, Freddie and FHA through Q4 2009.
Even with all the delays in foreclosure, the REO inventory has increased sharply over the last two quarters, from 135,868 at the end of Q2 2009, to 153,007 in Q3 2009, and 172,357 at the end of Q4 2009.
ISM and Manufacturing Employment
by Calculated Risk on 3/01/2010 01:53:00 PM
The ISM report provides some hints for the BLS report later this week, but it is important to remember that manufacturing employment is a small percentage of the overall work force.
From the ISM Manufacturing report on employment:
ISM's Employment Index registered 56.1 percent in February, which is 2.8 percentage points higher than the seasonally adjusted 53.3 percent reported in January. This is the third month of growth in manufacturing employment, and the highest reading since January 2005 (58.7 percent). An Employment Index above 49.8 percent, over time, is generally consistent with an increase in the Bureau of Labor Statistics (BLS) data on manufacturing employment.The following graph shows the ISM Manufacturing Employment Index vs. the BLS reported monthly change in manufacturing employment (as a percent of manufacturing employment).
The graph includes data from 1948 through 2009. The earlier period (1948 - 1988) is in red, and the last 20 years is in blue.
Construction Spending Declines in January
by Calculated Risk on 3/01/2010 10:30:00 AM
Private residential construction spending was up slightly in January, but is mostly moving sideways. I expect some growth in residential spending in 2010, but the increases will probably be sluggish until the large overhang of existing inventory is reduced.
Non-residential spending decreased in January, and is now at the lowest level since November 2006. The collapse in non-residential construction spending continues ... 
Click on graph for larger image in new window.
The first graph shows private residential and nonresidential construction spending since 1993. Note: nominal dollars, not inflation adjusted.
Residential construction spending increased slighltly in January, and nonresidential spending declined.
ISM Manufacturing Index Shows Expansion in February
by Calculated Risk on 3/01/2010 10:00:00 AM
PMI at 56.5% in February. Down from 58.4% in January, and up from 54.9% in December.
From the Institute for Supply Management: February 2010 Manufacturing ISM Report On Business®
Economic activity in the manufacturing sector expanded in February for the seventh consecutive month, and the overall economy grew for the 10th consecutive month, say the nation's supply executives in the latest Manufacturing ISM Report On Business®.
The report was issued today by Norbert J. Ore, CPSM, C.P.M., chair of the Institute for Supply Management™ Manufacturing Business Survey Committee. "The manufacturing sector grew for the seventh consecutive month during February. While new orders and production were not as strong as they were in January, they still show significant month-over-month growth. Additionally, the Employment Index is very encouraging, as it is up 2.8 percentage points for the month to 56.1 percent. This is the third consecutive month of growth in the Employment Index. With these levels of activity, manufacturers are seemingly willing to hire where they have orders to support higher employment."
January Personal Income Flat, Spending Increases
by Calculated Risk on 3/01/2010 08:30:00 AM
From the BEA: Personal Income and Outlays, January 2010
Personal income increased $11.4 billion, or 0.1 percent, and disposable personal income (DPI) decreased $47.6 billion, or 0.4 percent, in January, according to the Bureau of Economic Analysis. ... Personal consumption expenditures (PCE) increased $52.4 billion, or 0.5 percent.
...
Real PCE -- PCE adjusted to remove price changes -- increased 0.3 percent in January, compared with an increase of 0.1 percent in December.
...
Personal saving -- DPI less personal outlays -- was $367.2 billion in January, compared with $467.9 billion in December. Personal saving as a percentage of disposable personal income was 3.3 percent in January, compared with 4.2 percent in December.
Sunday, February 28, 2010
What about Financial Reform?
by Calculated Risk on 2/28/2010 11:59:00 PM
First from Paul Krugman: Financial Reform Endgame
A weak financial reform ... wouldn’t be tested until the next big crisis. All it would do is create a false sense of security and a fig leaf for politicians opposed to any serious action — then fail in the clinch.
Auto Sales: Blame it on the Snow and Toyota
by Calculated Risk on 2/28/2010 07:25:00 PM
In the Weekly Summary and a Look Ahead post, I included a consensus forecast of a decline in light vehicle sales to 10.4 million units in February, on a seasonally adjusted annual rate (SAAR) basis. That may be a little high ...
From The Detroit News: Snowstorms, Toyota problems cut into February auto sales
When results are released Tuesday, automotive research firm Edmunds.com predicts retail sales will increase 14.2 percent from a year earlier, while research firm TrueCar.com expects a nearly 9 percent bump. ... [On a SAAR basis] Edmunds predicting 10.6 million U.S. sales ... while TrueCar.com anticipates 10.04 million
Greece Bailout Plan and Further Austerity Measures moving forward
by Calculated Risk on 2/28/2010 03:29:00 PM
From Stephen Castle and Landon Thomas Jr. at the NY Times: Europe Union Moves Toward a Bailout of Greece
[T]he European Union is moving toward the first bailout in the history of its common currency, which is expected to involve loan guarantees from the German and French governments to encourage their banks to buy Greek debt.
Even as the negotiations continue, the bloc is insisting that Athens impose further, painful austerity measures ...
Weekly Summary and a Look Ahead
by Calculated Risk on 2/28/2010 11:55:00 AM
This will be a busy week for economic data, and the focus will be on the BLS February employment report to be released on Friday. The consensus is for a net loss of 50 to 80 thousand payroll jobs, and the unemployment rate to increase slightly to 9.8% (from 9.7%).
There is considerable debate on the impact of the snow storms on the employment report. The BLS will disclose and adjust for any snow related data collection issues, but some hiring might have been delayed because of the storms. However, if so, there will be a bounce back in March - however it is important to remember that the weekly unemployment claims were moving higher before the storms arrived. Also the temporary hiring for the 2010 Census will have increased slightly - I'm sure all of these issues will be widely discussed ...
On Monday, the BEA will release the Personal Income and Outlays report for January. This release is very useful for looking at both Personal Income and Personal Consumption Expenditures (PCE). Also on Monday, the ISM Manufacturing index (consensus is for expansion, but a slight decrease to 57.5% from 58.4%), and the January Construction Spending report from the Census Bureau (consensus is for a decline of 0.5%).
On Tuesday, the various manufacturers will release light vehicle sales for February. The consensus is for a decline to about 10.4 million on a Seasonally Adjusted Annual Rate (SAAR) basis from 10.8 million in January. Sales for Toyota will be closely watched. Also on Tuesday, the Personal Bankruptcy Filings estimate for February will be released.
1.2 Million to Lose Unemployment Benefits Today
by Calculated Risk on 2/28/2010 08:59:00 AM
Just a reminder ...
From John Schmid at the Journal Sentinel: Unemployment benefits for 1.2 million Americans could expire Sunday
Nearly 1.2 million unemployed Americans ... face an imminent cutoff of government unemployment checks if Congress cannot pass emergency legislation to extend federal benefits before funding expires Sunday.
Saturday, February 27, 2010
Fed Balance Sheet and MBS Purchases
by Calculated Risk on 2/27/2010 11:49:00 PM
Here is the Federal Reserve balance sheet break down from the Atlanta Fed weekly Financial Highlights:
Graph Source: Altanta Fed.
From the Atlanta Fed:
The balance sheet expanded $20 billion, to $2.3 trillion, for the week ended February 17.Holdings of agency debt and mortgage backed securities increased $49 billion while short-term lending to financials, specifically the Term Auction Credit Facility, declined by $23 billion.
Daily Show on BofA's Hidden Credit Card Fees
by Calculated Risk on 2/27/2010 06:59:00 PM
Some fun from the Daily Show. Link here if embed doesn't load.
Living Rent Free: Homeowners become Squatters
by Calculated Risk on 2/27/2010 02:48:00 PM
From Alana Semuels at the LA Times : Many borrowers in default stay put as lenders delay evictions
Throughout the country, people continue to default on their home loans -- but lenders have backed off on forced evictions, allowing many to remain in their homes, essentially rent-free.
Several factors are driving the trend, industry experts say, including government pressure on banks to modify loans and keep people in their homes.
And with a glut of inventory in places like Southern California's Inland Empire, Nevada and Arizona, lenders are loath to depress housing prices further by dumping more properties into a weak market.
Growth of Problem Banks (Unofficial)
by Calculated Risk on 2/27/2010 11:49:00 AM
By request here is a graph of the number of banks on the unofficial problem bank list.
We started posting the Unofficial Problem Bank list in early August 2009 (credit: surferdude808). The FDIC's official problem bank list is comprised of banks with a CAMELS rating of 4 or 5, and the list is not made public (just the number of banks and assets every quarter). Note: Bank CAMELS ratings are not made public.
CAMELS is the FDIC rating system, and stands for Capital adequacy, Asset quality, Management, Earnings, Liquidity and Sensitivity to market risk. The scale is from 1 to 5, with 1 being the strongest.
As a substitute for the CAMELS ratings, surferdude808 is using publicly announced formal enforcement actions, and also media reports and company announcements that suggest to us an enforcement action is likely, to compile a list of possible problem banks in the public interest. Some of this data is released with a lag, for example the FDIC announced the January enforcement actions yesterday.
