by Calculated Risk on 12/19/2009 06:22:00 PM

A few graphs and some predictions ... the first graph shows bank failures by week in 2009:

Click on graph for larger image in new window.

Note: Week 1 on graph ended Jan 2nd.

There have been 140 bank failures this year, and there are only a few days left to close banks in 2009.

Based on history, I think the FDIC is done for the year.

This sets the over-under line for 2010 at 140 (assuming no more failures). Will there be more bank failures in 2010 than in 2009? I'll definitely take the over (more failures in 2010 than in 2009).

The second graph shows bank failures by year since the FDIC was started.

The 140 bank failures this year was the highest total since 1992 (181 bank failures). Next year will probably be much higher ... although I doubt we will see as many failures as in 1988 or 1989 (470 and 534 failures respectively).

The third graph is of bank failures by number of institutions and assets, from the December Congressional Oversight Panel’s Troubled Asset Relief Program report. (ht Catherine Rampell):

Note: This is through Nov 30th for 2009.

From the report (page 45):

Figure 11 shows numbers of failed banks, and total assets of failed banks since 1970. It shows that, although the number of failed banks was significantly higher in the late 1980s than it is now, the aggregate assets of failed banks during the current crisis far outweighs those from the 1980s. At the high point in 1988 and 1989, 763 banks failed, with total assets of $309 billion.¹⁶⁷ Compare this to 149 banks failing in 2008 and 2009, with total assets of $473 billion.¹⁶⁸

Note: This is in 2005 dollars and this includes the failure of WaMu in 2008 with $307 billion in assets that didn't impact the DIF.

So my (easy) predictions: 1) The FDIC is done for 2009 (140 bank failures is the final count), 2) There will be more bank failures in 2010, and 3) there will be less failure in 2010 than the peak of the S&L crisis.

by Calculated Risk on 12/19/2009 12:49:00 PM

Bernanke misspoke in the recent TIME magazine interview:

TIME: Do you have a mortgage?

Bernanke: Oh, yes, we refinanced.

TIME: Oh, perfect. When?

Bernanke: About 5%. A couple of months ago.

TIME: Good time.

Bernanke: Yes. We had to do it because we had an adjustable rate mortgage and it exploded, so we had to.

TIME: So, did you get a fixed rate at 5%? I think this might be the most valuable piece of information. (Laughter.)

Bernanke: Thirty years fixed rate at a little over 5%.

Bernanke did have an adjustable rate mortgage, but it did not "explode".

First, Dr. Bernanke is the Fed Chairman and "exploding" ARMs are a very important mortgage issue. So I think this topic is relevant and newsworthy (and Bernanke mentioned it).

Second, "explode" has a very clear meaning when discussing mortgages; it means that the borrower's mortgage payment has increased sharply. An ARM can "explode" for two reasons:

1) The interest rate can reset to a much higher level. This isn't much of a concern right now because the most common indexes like LIBOR are at very low levels and most loans are resetting lower.

2) The loan can recast. From Tanta on resets and recasts:

"Reset" refers to a rate change. "Recast" refers to a payment change. ... "Recast" is really just a shorter word for "reamortize": you take the new interest rate, the current balance, and the remaining term of the loan, and recalculate a new payment that will fully amortize the loan over the remaining term.

Neither applied to Bernanke. From the WSJ: Looking a Little Deeper at Bernanke’s Floating Rate Mortgage

The Fed chairman was in an adjustable rate mortgage with a rate that started at 4.125% in 2004 and adjusted after five years to a rate that would be 2.25 percentage points above one-year Libor, which as of the first reset date in June was a little more than one and a half percent. That suggest his costs wouldn’t be exploding now, as the interview suggested. In fact, they’d be going down.

So Bernanke refinanced into a loan with a higher interest rate and with a larger mortgage payment for the security of a fixed rate. This suggests he thinks fixed mortgage rates have bottomed (otherwise he could have paid less on his mortgage, at a 3.75% interest rate, and then refinanced next year). He did not "have to do it".

by Calculated Risk on 12/19/2009 10:01:00 AM

From the WaPo: For retailers, snow would pile on

Retailers can stop accusing the economy of holding back holiday sales. Now they can blame it on the weather.

The mighty blizzard expected to descend on the Northeast today comes on the last Saturday before Christmas, typically the busiest day of the year for retailers. But with as much as a foot of snow forecast from North Carolina to New Jersey, retailers are worried that their customers will spend the Super Saturday shoveling rather than shopping. One meteorologist predicts that could result in a retail snowmaggedon.

Blame it on the weather!

by Calculated Risk on 12/19/2009 08:40:00 AM

The Senate passed another extension of unemployment benefits and Cobra insurance premiums this morning as part of the Defense spending bill. This bill had already passed the House.

In addition to the defense spending, the bill contained an extension of the date for qualification for existing tiers of unemployment benefits to Feb. 28th 2010 (previously only those losing benefits by Dec 31, 2009 qualified). Also the Cobra insurance premium subsidy was extended for two months.

This issue will be revisited early next year for those losing benefits after February.

From the WSJ: Senate Sends Defense Bill to Obama

by Calculated Risk on 12/19/2009 12:11:00 AM

From the WSJ: Down-Payment Standards Eased

Earlier this month, MGIC removed New Orleans, Dover, Del., Akron, Ohio, and four other areas in Ohio from its list of restricted markets. ...

Under the looser requirements, a borrower with a credit score of 680 or higher in New Orleans, for instance, can finance up to 95% of a home's value. Before the change, a borrower who wanted to finance that much of a home's value would have needed a credit score of at least 700.

In September, Genworth Financial Inc. winnowed its list of declining and distressed markets to five states: Arizona, California, Florida, Michigan and Nevada.

The changes are small. As the article notes, this is due to slightly improved markets and an attempt to regain market share from the FHA.

I wonder if this is related - just two weeks ago: Wisconsin Regulator Approves MGIC Regulatory Cap Waiver Thru 2011 (ht jb)

Mortgage insurance giant MGIC Investment Corp. (MTG) announced, Thursday, that the Office of the Commissioner of Insurance for the State of Wisconsin approved the company’s revised business plan and agreed to waive minimum regulatory capital requirements until Dec. 31, 2011.