by Calculated Risk on 12/14/2009 12:03:00 PM

On Saturday I wrote that I'd take the "over" - more bank failures in 2010 than 2009. This is primarily because many FDIC insured banks are overly exposed to Construction & Development (C&D) and Commercial Real Estate (CRE) loans.

FDIC Chairwoman Sheila Bair is also taking the "over".

From CNBC: Worst of Bank Failures Isn't Over Yet: FDIC's Bair

Bank failures will continue to accelerate into next year despite "some encouraging signs" that things are turning around for the battered industry, FDIC Chair Sheila Bair told CNBC.

... Bair did not quantify how bad the failures would get but said the worst isn't over yet for institutions that will suffer even as the economy improves.

"There's a lag generally with bank recovery from the overall economy," she said. "We do think bank failures will continue to go up next year but will peak. Even at higher levels than we have this year, it's still far below where we were during the S&L days."
...
"Even though the insured depository institutions are having their share of problems, it's really much lower than it was during the S&L days simply because most of this occurred outside the insured banks," Bair said.

Amid the problems for the industry, Bair said the Federal Deposit Insurance Corp's financial standing remains solid. She said the FDIC will head into 2010 with about $60 billion in cash reserves.

A industry contact told me this weekend that they expect 400 bank failures in 2010.

by Calculated Risk on 12/14/2009 10:35:00 AM

The Mortgage Bankers Association's (MBA) current forecast for refinance activity in 2010 is $693 billion, and falling further in 2011 to $591 billion. The MBA is currently estimating 2009 refinance originations will be $1,246 billion - so they expect activity to fall almost in half.

This gives me an excuse for a graph or two (as if I need one).

Click on graph for larger image in new window.

Refinance activity picks up when mortgage rates fall (for obvious reasons), and this graph shows the monthly refinance activity (MBA refinance index) and the Freddie Mac 30 year fixed mortgage rate and one year adjustable mortgage rate - and the Fed Funds target rate since Jan 1990.

Mortgage rates would have to fall further in 2010 to get another increase in refinance activity, and with the Fed MBS purchase program scheduled to end by the end of Q1, it seems unlike that rates will fall - unless the program is extended or the economy weakens significantly.

Notice that following the '90/'91 and '01 recessions, the Fed kept lowering the Fed Funds rate because of high unemployment rates. This spurred refinance activity.

The second graph shows the weekly MBA refinance activity, and the Ten Year Treasury yield.

Every time the 10 year yield drops sharply, refinance activity picks up. But notice what happened at the end of 1995. The Ten Year yield dropped, but the increase in refinance activity was muted. This was because mortgage rates didn't fall below the rates of a couple years earlier - and many people had already refinanced at those lower rates. The same thing will happen in 2010 and 2011 - there will only be a surge in refinance activity if rates fall below the rates of 2009.

by Calculated Risk on 12/14/2009 08:13:00 AM

Press Release from Citigroup: Citigroup, U.S. Government and Regulators Agree to TARP Repayment

Citi to Issue $17 Billion of Common Stock and $3.5 Billion of Tangible Equity Units

Citi to Repay $20 Billion of TARP Trust Preferred Securities

Agreement with the U.S. Government and Regulators to Terminate Loss-Sharing Agreement

U.S. Treasury to Sell Up To $5 Billion of its Common Shares via Concurrent Secondary Offering; Plans Orderly Exit

From the NY Times: Citigroup Says It Has Reached a Deal to Repay Bailout Funds

by Calculated Risk on 12/14/2009 12:33:00 AM

From the WSJ: Abu Dhabi Supplies $10 Billion to Dubai

Dubai's government Monday said it received $10 billion in financing from Abu Dhabi, which will pay part of the debt held by conglomerate Dubai World and its property unit Nakheel.

From the NY Times: Citigroup Nears Deal to Return Billions in Bailout Funds

Citigroup was close to a deal on Sunday night to be the last of the big Wall Street banks to exit the government’s bailout program, after trying to persuade regulators that it was sound enough to stand on its own.

And on CRE:

by Calculated Risk on 12/13/2009 10:06:00 PM

A couple more articles on the impact of the housing bust on mobility ...

From Patrick Coolican at the Las Vegas Sun: Mobility bust bad for Vegas

“Vegas is going to be disproportionately affected by the absolute crashing halt of interstate migration,” said Michael Hicks, director of the Center for Business and Economic Research at Ball State University.

About 4.7 million Americans moved from one state to another in 2007 and 2008, according to the Census Bureau. That’s just 55 percent of the total in 1999 and 2000. Geographers and economists think the number will plummet further this year.
...
“People are underwater on their homes and that affects mobility,” said Isabel Sawhill, a Brookings Institution economist.
...
Geographic mobility is what economists call “countercyclical.” When a recession hits, people usually move to where the jobs are. Job-related stasis — staying put in one’s job versus hitting the road in search of a better one — is unique to this recession.

And a personal tale from Brian Fitzgerald at the WSJ: Confessions of an Underwater Homeowner

We never considered purposefully defaulting ... Although, if I were laid off and unemployed for more than a few months we might have to. ... if I was offered a job in another city, we wouldn't be able to sell.

There is much more in Fitzgerald's story, but this bit on mobility is important - he can't sell, and he can't move to change jobs - and just like most Americans trapped underwater, he is trying to stick it out and hoping for the best.

Worker mobility has always been a significant positive for the U.S. economy, and this decline in mobility is one of the long lasting tragedies of the bubble. As I wrote almost two years ago:

Less worker mobility [due to negative equity] is kind of like arteriosclerosis of the economy. It lowers the overall growth potential.

Perhaps as many as 15 to 20 million households will be saddled with negative equity by 2009. Even if most of these homeowners don't "walk away", there might still be a negative impact on the economy due to less worker mobility.