by Calculated Risk on 5/03/2009 08:26:00 PM

From the WSJ: Banks Get Tougher on Credit Line Conditions

Banks are shortening the terms on lines of credit ... They are charging significantly higher fees for the lines of credit, known as revolvers. And instead of promising an interest rate determined mainly by the company's credit rating, banks will now charge more if the cost of insuring the company's debt against default is higher.
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About 72% of the revolving credit facilities obtained by investment-grade companies in the first quarter of 2009 had 364-day maturities, or tenors, and no companies received five-year lines ... In the same period a year ago, 30% of the facilities were for 364 days and 41% had five-year maturities.

There are two key changes: the duration has been shortened, and the interest rate is based on the price of default insurance (as opposed to credit rating). Another snub of the ratings agencies!

Also on lending standards, the Fed's April Senior Loan Officer Survey on bank lending practices will probably be released this week.

by Calculated Risk on 5/03/2009 03:53:00 PM

It has been some time, so here is a look at few credit indicators:

First, the British Bankers' Association reported Friday that the three-month dollar Libor rates were fixed at 1.007%. The LIBOR was at 1.30% a few weeks ago, and peaked at 4.81875% on Oct 10, 2008. The dollar LIBOR might break below 1.0% this week.

Click on graph for larger image in new window.

There has been improvement in the A2P2 spread. This has declined to 0.56. This is far below the record (for this cycle) of 5.86 after Thanksgiving, but still above the normal spread.

This is the spread between high and low quality 30 day nonfinancial commercial paper.

Meanwhile the TED spread has decreased further over the last week, and is now at 86.39. This is the difference between the interbank rate for three month loans and the three month Treasury. The peak was 463 on Oct 10th and a normal spread is around 50 bps.

The third graph shows the spread between 30 year Moody's Aaa and Baa rated bonds and the 30 year treasury.

The spread has decreased sharply over the last couple of weeks. The spreads are still very high, especially for lower rated paper.

The Moody's data is from the St. Louis Fed:

Moody's tries to include bonds with remaining maturities as close as possible to 30 years. Moody's drops bonds if the remaining life falls below 20 years, if the bond is susceptible to redemption, or if the rating changes.

This graph shows the at the Merrill Lynch Corporate Master Index OAS (Option adjusted spread) for the last 2 years.

This is a broad index of investment grade corporate debt:

The Merrill Lynch US Corporate Index tracks the performance of US dollar denominated investment grade corporate debt publicly issued in the US domestic market.

Back in early March, Warren Buffett mentioned that credit conditions were tightening again - and this was probably one of the indexes he was looking at. Since March, the index has declined.

All of these indicators are still too high, but there has been progress.

by Calculated Risk on 5/03/2009 11:49:00 AM

Here are a few stories on cities fighting foreclosure related blight ...

From the San Francisco Chronicle: Vacant foreclosed homes spawn blight, crime

Next door to Jeffrey Cash's tidy East Oakland bungalow sits a boarded-up foreclosed house that has been vacant for months, attracting locals who shoot dice in the driveway, smoke crack on the porch and dump debris in the yard, he said.
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His situation is emblematic of a larger problem. The droves of vacant foreclosures nationwide and locally, many of them clustered in low-income areas, act as magnets for crime and create neighborhood blight, according to residents and civic leaders.
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Many [cities] turn to anti-blight ordinances to try to force the banks that own the foreclosures to take care of them - mow the lawns, board up windows and doors - or face stiff fines if they don't. A California bill enacted in September (SB1137) allows municipalities to charge lenders $1,000 a day for failing to maintain foreclosed properties; some cities already have similar anti-blight provisions in place.

From the Boston Herald: City liens on lenders

City inspectors have slapped thousands of dollars in liens on 43 vacant or foreclosed properties blighting Hub neighborhoods to halt the national housing crisis from spreading more urban decay.

Among those being targeted are big banks, including Deutsche Bank and Wells Fargo, who have ignored their responsibility to maintain the seized homes. ...

From the WSJ: Banker: 'What'd I Do Wrong, Officer?' Cop: 'You've Got Algae in the Pool, Sir'

Officials at a Citigroup Inc. office in St. Louis placed a call to this desert town recently. The bank had caught word that Indio was coming after the lending giant with fines and threats of criminal charges. The offense: an algae-infested swimming pool at 79760 Eagle Bend Court.
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[L]ast year, Indio passed a law that allowed it to charge banks with a criminal misdemeanor if they allowed a home to fall into disrepair.

"If I need to do it, I'll say, 'Mr. Bank President, if you don't come and take care of your property, we're going to come arrest you and take you to court in California,'" says Brad Ramos, Indio's long-serving police chief.
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After the letters from Indio, Citigroup paid a $3,450 fine to Indio and sent a cleaning crew to fix the pool at Eagle Bend Court where Citigroup had managed the foreclosure process.

These fines will push the lenders to sell the properties quicker - or demolish them - or possibly not even foreclose on some properties.

by Calculated Risk on 5/03/2009 09:02:00 AM

This video might surprise some people ...

Jim takes us on a tour of a new home site in Carmel Valley, San Diego (Video on May 2nd). Jim said these homes are "selling like hotcakes".

Just a reminder, new home sales are counted by the Census Bureau when the contract is signed (even before the homes are built).

Note: Carmel Valley is in a newer area of San Diego (east of Del Mar).

by Calculated Risk on 5/02/2009 11:37:00 PM

A little Daily Show comedy ...