by Calculated Risk on 11/12/2009 08:30:00 AM

The DOL reports weekly unemployment insurance claims decreased to 502,000:

In the week ending Nov. 7, the advance figure for seasonally adjusted initial claims was 502,000, a decrease of 12,000 from the previous week's revised figure of 514,000. [revised from 512,000] The 4-week moving average was 519,750, a decrease of 4,500 from the previous week's revised average of 524,250.
...
The advance number for seasonally adjusted insured unemployment during the week ending Oct. 31 was 5,631,000, a decrease of 139,000 from the preceding week's revised level of 5,770,000.

Click on graph for larger image in new window.

This graph shows the 4-week moving average of weekly claims since 1971.

The four-week average of weekly unemployment claims decreased this week by 4,500 to 519,750, and is now 139,000 below the peak in April. The significant decline from the peak strongly suggests that initial weekly claims have peaked for this cycle.

The level is still very high suggesting continuing job losses.

by Calculated Risk on 11/11/2009 10:08:00 PM

Yesterday I posted some excerpt from Freddie Mac's 10-Q:

We believe that several of our mortgage insurance counterparties are at risk of falling out of compliance with regulatory capital requirements, which may result in regulatory actions that could threaten our ability to receive future claims payments, and negatively impact our access to mortgage insurance for high LTV loans.

The WSJ has more tonight, including the risks to Fannie Mae: Fannie, Freddie Warn on More Losses

Fannie Mae has about $109.5 billion of mortgage-insurance coverage in force ... Freddie Mac had $63.4 billion in mortgage insurance and $12.2 billion in bond insurance.

And this a key sentence:

The reduction in private insurance coverage has contributed to the rise in the volume of loans backed by the Federal Housing Administration ...

Instead of using private mortgage insurance for loans greater than 80% LTV, low down payment borrowers are now using FHA insurance.

That will probably end well ...

Also - the WSJ has more on the new FDIC "Prudent Commercial Real Estate Loan Workouts" guidance issued Oct 30th: Banks Hasten to Adopt New Loan Rules. Here is the new FDIC guidance that states performing loans "made to creditworthy borrowers" will not require write downs "solely because the value of the underlying collateral declined".

by Calculated Risk on 11/11/2009 07:25:00 PM

From The Times: The worst is over, says Bank of England Governor

Better-than-expected unemployment figures and a rosier growth forecast from the Bank of England raised hopes yesterday that Britain was beginning to claw its way towards economic recovery.
...
Mervyn King, Governor of the Bank, said Britain had “only just started along the road to recovery” and that it would be “a long hard haul” back to regain the level of activity of two years ago before the financial crisis hit.

The following graphs are from the BofE November 2009 Inflation Report. The first graph shows the projections for GDP.

Click on graph for larger image in new window.

Note that GDP isn't expect to return to pre-recession levels until sometime in 2011 (mean estimate).

Note from BofE: To the left of the first vertical dashed line, the distribution reflects the likelihood of revisions to the data over the past; to the right, it reflects uncertainty over the evolution of GDP growth in the future. The second dashed line is drawn at the two-year point of the projection.

The second graph shows the projections for inflation.

The BofE expects a short-term increase in inflation because of higher oil prices, but then below trend inflation through most of 2011.

Note that the line is drawn at the 2% target inflation rate (not zero).

From the BofE: Price stability is defined by the Government’s inflation target of 2%.

by Calculated Risk on 11/11/2009 04:30:00 PM

Ruth Simon at the WSJ has some details on permanent modifications: Mortgage Program Gathers Steam After Slow Start

The administration won't release figures on completed modifications until December, but so far it appears that very few trial modifications are becoming permanent, often because of a lack of documentation.
...
J.P. Morgan Chase & Co. said last week that more than 92,000 of its customers have made at least three trial payments under the program, but just 26% of them had submitted all the required documents for a permanent fix.
...
At Morgan Stanley's Saxon Mortgage Services, about 26,000 of the 39,000 borrowers in the program have made more than three trial payments. Roughly 500 have received completed modifications.
emphasis added

Diani Olick at CNBC wrote yesterday:

Insiders however tell me that a lot of that paperwork has to do with those so-called "stated-income" loans ...

In my list of possible upside surprises / downside risks for the economy, the percent of permanent modifications is related to the #1 downside risk. If few of these modifications are successful, there could be a flood of foreclosures on the market next year.

by Calculated Risk on 11/11/2009 03:01:00 PM

Here is an unsolicited Principal Reduction Loan Modification (pdf) offer from BofA. (ht Dwight)

A few background details:

The homeowner bought the house in May 2005 for $420,000.

The homeowner refinanced in March 2006. This included a negatively amortizing adjustable rate mortgage (NegAM ARM) first with BofA for $392,000, and a 2nd with IndyMac for $49,000. (Total = $441,000)

For personal reasons, the homeowner was no longer able to make the payment, and is now delinquent. They were offered a HAMP modification, but apparently did not respond. This unsolicited offer is from a BofA internal program.

The balance due on the NegAM ARM with BofA is currently $429,000 and the homeowner owes another $17,000 in delinquent payments. (Total due is $446,000 for 1st, not including 2nd)

The house would probably sell for about $325,000.

The offer from BofA:

BofA is offering to reduce the principal (including delinquent payments) to $334,400.

The new loan would be a fixed rate at 5.5%, with the same term (about 25 years left), but amortized over 40 years. In 25 years the homeowner would owe a balloon payment of $198,000.

The current minimum payment on the NegAM ARM is $1,966 (not including taxes and insurance), and the payments on the new loan would be $1,725 per month (principal and interest).

There is no mention of the 2nd in the offer.

If the homeowner accepts the offer, he would still owe more on the 1st than the house is worth (the 2nd mortgage would have to be resolved). The personal issue still exists, and reducing the monthly payments by a couple of hundred dollars probably will not help. My understanding is the homeowner is considering trying for a short sale, but it is interesting that BofA is sending out unsolicited principal reduction offers - probably to NegAm borrowers.

UPDATE: The number is answered by a recording that announces they are a "debt collector", and then says they are now closed (probably for Veterans Day)