by Calculated Risk on 11/22/2009 04:10:00 PM

Kenneth Harney at the SF Chronicle lists a few possible changes: FHA looking for ways to pump up its reserves. Harney lists four possible changes:

Higher down payments. The current downpayment requirement is 3.5%, and Harney mentions proposals for an increase to 5% or more. This will probably not be changed.

Higher mortgage insurance premiums.

Currently, FHA charges an "up-front" mortgage insurance premium of 1.75 percent of the loan amount. Most borrowers roll that into their loan and finance it. FHA also charges an annual premium, paid in monthly installments, of either 0.5 percent or 0.55 percent, depending on the down payment. To rebuild reserves, FHA could ... raise the up-front premium to 2 percent or as high as the current statutory maximum of 2.25 percent. It could also raise the annual fee...

Cutting home-seller "concessions" to borrowers' loan costs. Currently the FHA will allow the seller to pay many of the buyers closing costs (up to 6% of the purchase price). Many people think this is excessive - especially with a 3.5% downpayment.

Toughening credit standards. Harney writes:

FHA is by far the most lenient and flexible player when it comes to evaluating applicants' creditworthiness.

I think the most likely changes are higher insurance premiums, lower seller concessions, and tougher standards.

by Calculated Risk on 11/22/2009 12:15:00 PM

This will be a busy week for housing news starting with October existing home sales on Monday, Case-Shiller house prices on Tuesday, and New Home sales on Wednesday.

Existing home sales will probably be very high - close to a 5.8 million SAAR - because of the rush of first-time home buyers to receive the tax credit (before it was extended). This high level of activity is not good economic news - although some people might be fooled. The more important housing number will be New Home sales on Wednesday.

In other economic news, the Q3 GDP revision will be released on Tuesday, and the October Personal Income and Spending report will be released Wednesday.

Also the Q3 FDIC Quarterly Banking Report will probably be released this week. This report will likely show close to 500 problem banks at the end of Q3 (the Unofficial Problem Bank list is up to 513 banks), and the report will also show that the Deposit Insurance Fund (DIF) was at zero or negative. Note: this doesn't mean the FDIC is "bankrupt" or even out of cash - the DIF balance includes reserves against future losses.

And a summary ...

Retail sales increased 1.4% from September to October (seasonally adjusted), and sales are off 1.7% from October 2008. Excluding auto sales and parts, retail sales rose 0.2% in October.

The increase in October was mostly a rebound from the decline in September.

Click on graph for larger image in new window.

This graph shows retail sales since 1992. This is monthly retail sales, seasonally adjusted (total and ex-gasoline).

This shows that retail sales fell off a cliff in late 2008, and appear to have bottomed, but at a much lower level.

The red line shows retail sales ex-gasoline and shows there has been little increase in final demand.

Industrial Production and Capacity Utilization increased slightly in October.

This graph shows Capacity Utilization. This series has increased for four straight months, and is up from the record low set in June (the series starts in 1967).

From the Fed: Industrial production and Capacity Utilization

Note: y-axis doesn't start at zero to better show the change.

This is just one month, but the recovery in industrial production slowed in October.

Builder Confidence was still very low in November.

This graph shows the builder confidence index from the National Association of Home Builders (NAHB).

The housing market index (HMI) was at 17 in November. October was revised down from 18 to 17. The record low was 8 set in January. This is very low - and this is what I've expected - a long period of builder depression.

Note: any number under 50 indicates that more builders view sales conditions as poor than good.

Housing Starts declined sharply in October.

Total housing starts were at 529 thousand (SAAR) in October, down 10.6% from the revised September rate, and up from the all time record low in April of 479 thousand (the lowest level since the Census Bureau began tracking housing starts in 1959). Starts had rebounded to 590 thousand in June, and have move sideways (or down) for five months.

Single-family starts were at 476 thousand (SAAR) in October, down 6.8% from the revised September rate, and 33 percent above the record low in January and February (357 thousand). Just like for total starts, single-family starts have been at this level for five months.

And some other economic stories

AIA: Architecture Billings Index Shows Contraction

Moody's: CRE Prices Off 43% from Peak

From the NY Times: One million Workers to Exhaust Unemployment Benefits in January

From the MBA: Record 14.4 Percent of Mortgage Loans in Foreclosure or Delinquent in Q3

This graph shows the delinquency and 'in foreclosure' rates for all prime mortgage loans. Prime loan delinquencies are clearly a growing problem.

MBA Chief Economist Jay Brinkmann said he expects the unemployment rate to peak in Q1 or Q2 2010, and delinquencies to peak sometime after the unemployment rate peaks. He now expects foreclosures to peak in early 2011 because a longer trailing effect than usual as the unemployment rate stays fairly high, and prime borrowers hang on before defaulting.

Bank Failures
The FDIC closed one bank on Friday, bringing the total for 2009 to 124.

Best wishes to all.

by Calculated Risk on 11/22/2009 09:34:00 AM

From Carolyn Said at the San Francisco Chronicle: S.F. commercial properties seek tax relief

Landmark skyscrapers, signature hotels and upscale retailers glitter in the San Francisco skyline and enhance its cachet. But with commercial real estate slumping, they soon may subtract badly needed cash from the city's coffers.
...
Collectively, those office towers, hotels, shopping centers and apartment buildings have an assessed value of $21.25 billion - but their owners say they're worth about half that amount. If those claims stand, that could wipe $115.78 million off the property taxes the city collects.
...
The potential property tax reductions come at the worst possible time for a city already grappling with budget cuts and deficits. San Francisco's controller warned last week that the city faces a potential half-billion-dollar deficit in its next fiscal year.

This is another impact of the CRE bust. I would think the city would have had a large budget surplus when property values - and property taxes - were soaring.

by Calculated Risk on 11/21/2009 09:22:00 PM

From Lew Sichelman at the LA Times: Owners' willingness to 'strategically default' on loans depends largely on how far underwater they are (ht Ann)

Most of the LA Times article is based on the paper by Guiso, Sapienza and Zingales that I covered in June: Moral and Social Constraints to Strategic Default on Mortgages (pdf)

Sichelman adds some comments from real estate agents on the ethics of strategic defaults:

Nellie Arrington of Long & Foster Real Estate in Columbia, Md., says it is "morally wrong, legally wrong and just plain wrong" for an owner to walk away from a mortgage he can afford simply because the balance exceeds the value of the underlying property.

And on the other side:

Bob Hunt of Keller Williams O.C. Coastal Realty in San Clemente says the moral duty to protect your family outweighs the moral duty to repay the loan.

"Promise keeping is not the highest moral value," said Hunt, who before his real estate career taught ethics and logic at the University of Redlands. "If I promised to lend you my gun and you are now in a clearly dangerous psychotic stage, breaking my promise would be the right thing to do, not the wrong thing."

by Calculated Risk on 11/21/2009 07:40:00 PM

Here is a link if the embed doesn't work.