by Calculated Risk on 3/24/2009 01:40:00 PM

From TPM: We Don't Need No Stinkin' Contingencies

Rep. Gresham Barrett: What is the backup plan?

Secretary Geithner: This plan will work.

by Calculated Risk on 3/24/2009 11:37:00 AM

Here are the Kennedy-Greenspan estimates (NSA - not seasonally adjusted) of home equity extraction for Q4 2008, provided by Jim Kennedy based on the mortgage system presented in "Estimates of Home Mortgage Originations, Repayments, and Debt On One-to-Four-Family Residences," Alan Greenspan and James Kennedy, Federal Reserve Board FEDS working paper no. 2005-41.

Click on graph for larger image in new window.

For Q4 2008, Dr. Kennedy has calculated Net Equity Extraction as minus $77 billion, or negative 2.9% of Disposable Personal Income (DPI).

This graph shows the net equity extraction, or mortgage equity withdrawal (MEW), results, both in billions of dollars quarterly (not annual rate), and as a percent of personal disposable income.

Dr. Kennedy provides several other measures of equity extraction. The second graph shows what Dr. Kennedy calls "active MEW" (Mortgage Equity Withdrawal). This is defined as "Gross cash out" plus the change in the balance of "Home equity loans".

This measure is near zero ($7.2 billion for the quarter) and is probably a better estimate of the impact of MEW on consumption. When people refinance with cash out or draw down HELOCs, they usually spend the money.

The Fed's Flow of Funds report shows the amount of mortgages outstanding is declining, and this is partially because of debt cancellation per foreclosure sales, and partially due to homeowners paying down their mortgages (as opposed to borrowing more). Note: most homeowners pay down their principal a little each month (unless they have an IO or Neg AM loan), so with no new borrowing, equity extraction would always be negative.

Clearly the Home ATM has now been closed for a few quarters.

Note: This will be the last update of MEW from Dr. Kennedy. My thanks to Jim Kennedy and the other contributors to the MEW updates.

by Calculated Risk on 3/24/2009 10:20:00 AM

From Paul Jackson at Housing Wire: MBA: Originations Could Top $2.7 Trillion in 2009

[T]he Mortgage Bankers Association, which said that it had increased its forecast of mortgage originations in 2009 by over $800 billion, due to a refinancing boom ... The MBA said it now expects originations to total $2.78 trillion, which would make 2009 the fourth highest originations year on record, behind only 2002, 2003, 2005.
...
“This boost is due entirely to the expected increase in mortgage refinancing activity motivated by the drop in interest rates following last week’s Federal Reserve’s announcement on the Treasury bond and mortgage-backed securities purchases programs and the Fannie Mae and Freddie Mac refinance programs,” the mortgage lobbying and trade group said in a press statement.
...
This origination boom, however, will differ from recent years past — while previous record origination years of 2002, 2003 and 2005 had large amounts of subprime loans and jumbo loans, the MBA said it expects 2009 originations to consist almost entirely of conforming and/or FHA-eligible mortgages.
...
The MBA projected that total existing home sales for 2009 will drop 2.5 percent from 2008 to 4.8 million units, while new home sales will decline a far sharper 39 percent in 2009 to 293,000 units.

It sounds like the mortgage brokers will be busy this year!

This refinance boom will lower the payments for homeowners with conforming loans, but that doesn't help much in the higher priced areas.

by Calculated Risk on 3/24/2009 09:07:00 AM

Geithner and Bernanke are scheduled to testify at 10AM ET.

From Bloomberg: Geithner to Call for New Powers to Avoid AIG Repeat

U.S. Treasury Secretary Timothy Geithner will call for expanded government powers to deal with failing non-bank financial institutions such as American International Group Inc., an administration official said.

Geithner, who testifies today before the House Financial Services Committee on AIG’s rescue, is expected to focus on the need for new tools for financial institutions other than banks, similar to those that the Federal Deposit Insurance Corp. has for winding down failed lenders and insuring consumer bank deposits, the official said.

The authority would allow the Treasury, in collaboration with the Federal Reserve, regulators and the president, to step in and more easily combat problems at systemically important institutions on the verge of failure ...

by Calculated Risk on 3/23/2009 11:57:00 PM

On existing home sales, here are a few posts:

Existing Home Sales Increase Slightly in February

More on Existing Home Sales

Existing Home Sales: Turnover Rate

News Hour - Paul Krugman & Donald Marron discuss Geithner's plan Part I

Part II: