by Calculated Risk on 2/16/2010 04:35:00 PM

From Diana Olick at CNBC: What Mortgage Modifications Say About the Housing Market

Treasury officials today said they are still concerned about a coming wave of foreclosures, many from pay option ARMs and many from the prime jumbo basket, particularly hard hit by unemployment.

Olick also notes that the HAMP report for January has been delayed by weather until tomorrow. And she reports that only 2/3 of HAMP borrowers are current on their payments.

A couple of comments:

The main reason 1/3 of HAMP borrowers are delinquent is because some servicers didn't adequately pre-qualify borrowers before putting them in the program. The Treasury recently changed the guidelines for placing borrowers in to a trial program, and these more stringent pre-qualification requirements must be implemented by June. Most servicers have already started using the new requirements, and the number of new trial modifications will probably slow dramatically.

As James Haggerty at the WSJ noted this morning:

Loan servicers ... seem to have "nearly exhausted the supply of plausible candidates for loan modifications" and will find that many loans are "unredeemable," [a] S&P study says.

Note: the HAMP report tomorrow will be for January. Although the number of permanent modifications probably increased significantly, the actual number will still be very low compared to the number of HAMP trial modifications. Also - it is the report for February that will be VERY interesting because the servicers have been instructed to remove many of the delinquent borrowers from the program after Jan 31, 2010.

by Calculated Risk on 2/16/2010 02:43:00 PM

This will probably be the year of the "short sale", especially after the Home Affordable Foreclosure Alternatives starts (scheduled for April 5th).

The Sacramento Association of REALTORS® is breaking out monthly resales by equity sales (conventional resales), and distressed sales (Short sales and REO sales), and I'm following this series as an example to see mix changes in a distressed area.

Click on graph for larger image in new window.

Here is the January data.

The Sacramento Association started breaking out REO sales in 2008, but they have only broken out short sales since June 2009. Almost 69 percent of all resales (single family homes and condos) were distressed sales in January.

Note: This data is not seasonally adjusted, and the decline in sales from December to January was about normal.

The second graph shows the percent of REO and short sales (and total distressed sales). The percent of REOs had been declining, and the percent of short sales had been steadily increasing. In January REOs were up to 45% - the highest percent since last September - and the percent short sales declined slightly to 23.6%.

Now that the trial modification period has ended, I expect the REO sales to increase. Also, I expect the percentage of short sales to be higher in 2010 than in 2009 - but probably not as high as foreclosures (it will be interesting to watch).

Also total sales in January were off 23.4% compared to January 2009; the eight month in a row with declining YoY sales.

On financing, over half the sales were either all cash (26.7%) or FHA loans (28.5%), suggesting most of the activity in distressed former bubble areas like Sacramento is first time home buyers using government-insured FHA loans, and investors paying cash.

by Calculated Risk on 2/16/2010 01:00:00 PM

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

Click on graph for larger image in new window.

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

The housing market index (HMI) was at 17 in February. This is an increase from 15 in January.

The record low was 8 set in January 2009. This is still very low - and this is what I've expected - a long period of builder depression. The HMI has been in the 15 to 19 range since May.

Housing starts will be released tomorrow, and both the HMI and housing starts are moving sideways.

Press release from the NAHB: (added) Builder Confidence Improves in February

Builder confidence in the market for newly built, single-family homes rose two points to 17 in February ...

“Builders are just beginning to see the anticipated effects of the home buyer tax credit on consumer demand,” said NAHB Chief Economist David Crowe. “Meanwhile, another source of encouragement is the improving employment market, which is key to any sustainable economic or housing recovery. That said, several limiting factors are still weighing down builder expectations, including the large number of foreclosed homes on the market, the lack of available credit for new and existing projects, and inappropriately low appraisals tied to the use of distressed properties as comps.”
...
The HMI for February gained two points to 17, its highest level since November of 2009, with two out of three of its component indexes also rising. The component gauging current sales conditions rose two points to 17, while the component gauging sales expectations in the next six months rose a single point to 27. Meanwhile, the component gauging traffic of prospective buyers remained flat, at 12.

Regionally, February’s HMI results were mixed. While the Midwest and South each registered two-point gains, to 13 and 19, respectively, the Northeast and West each registered one-point declines, to 19 and 14, respectively.

by Calculated Risk on 2/16/2010 10:36:00 AM

From Reuters: Capital One credit card defaults rise in January (ht jb)

Capital One Financial Corp's U.S. credit-card defaults rose in January, in a sign that consumers continue to remain under stress, it said in a regulatory filing.

Capital One said the annualized net charge-off rate -- debts the company believes it will never collect -- for U.S. credit cards rose to 10.41 percent in January from 10.14 percent in December.

Click on graph for larger image in new window.

This graph shows the COF annualized credit card charge-off rate since January 2005.

Notice the spike in 2005 associated with a surge in bankruptcy filings ahead of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA).

Capital One credit card annualized net charge-off rate is now at 10.41% - above the peak in 2005.

As Reuters notes, Capital One is usually the first to report monthly credit card charge-offs. The other major credit card issuers will report later today.

by Calculated Risk on 2/16/2010 08:30:00 AM

The headline number showed improvement, but two key numbers to watch are new orders and inventories. The new order index fell, and the inventory index rose sharply - and the declining gap between new orders and inventory points to a possible future slowdown in production.

From the NY Fed: Empire State Manufacturing Survey

The Empire State Manufacturing Survey indicates that conditions for New York manufacturers improved at a healthy pace in February. The general business conditions index climbed 9 points, to 24.9. The new orders index fell, though it remained positive, and the shipments index inched downward as well. The inventories index rose sharply, to 0.0, its highest reading in considerably more than a year.
...
Employment indexes were positive for a second consecutive month, although at relatively low levels.

Below is the general business conditions index. Note that the data only goes back to July 2001 (chart from Jan 2002). Any reading above zero is expansion, so this index shows manufacturing was expanding since August. (chart from NY Fed)