by Calculated Risk on 6/21/2010 01:35:00 PM

From Treasury: HAMP Servicer Performance Report Through May 2010

Click on table for larger image in new window.

About 347 thousand modifications are now "permanent" - up from 299 thousand last month - and 430 thousand trial modifications have been cancelled - up sharply from 277 thousand last month.

According to HAMP, there are 467,672 "active trials", down from 637,353 last month. However if we add the trials started since December (5 months!), there should only be 300,000 thousand borrowers in trial programs. That means there is still a huge number of borrowers in limbo, but with all the cancellations, the number is declining.

The second graph shows the cumulative HAMP trial programs started.

Notice that the pace of new trial modifications has slowed sharply from over 150,000 in September to just over 30,000 in May (down from 47,160 in April 2010). This is the slowest pace since the program started, probably because of two factors: 1) servicers are now pre-qualifying borrowers, and 2) servicers are running out of eligible borrowers. The program continues to slow down ...

Debt-to-income ratios worsen

If we look at the HAMP program stats (see page 5), the median front end DTI (debt to income) before modification was 44.8% - about the same as last month. And the back end DTI was an astounding 79.8 (down slightly from 80.2% last month).

Think about that for a second: for the median borrower, about 80% of the borrower's income went to servicing debt. And it is almost 64% after the modification.

And that is the median - and just imagine the characteristics of the borrowers who can't be converted!

Summary:

A large number of trial programs were cancelled (finally). This will mean more foreclosures (or short sales) in the near future.

A large number of borrowers are still in modification limbo. We should expect another 150 thousand cancellations pretty quickly (maybe in June).

The program is slowing down quickly (only 30,000 new trials started in May).

The borrowers DTI characteristics are poor - suggesting a high redefault rate over the next year or two.

by Calculated Risk on 6/21/2010 11:30:00 AM

David Rosenberg, chief economist at Gluskin Sheff + Associates, wrote this morning:

"We heard from Ivy Zelman (top-rated real estate research) on Friday that the bill that included an extension for the closing date of the homebuyer tax credit fell two votes short of passing in the Senate. This virtually assures that it will not become law prior to the June 30th deadline. Ivy says that while it is difficult to quantify the impact, the fact that as of yet there is no extension, which was widely expected in this bailout nation, it could trigger a jump in cancellations beginning in July if a sizeable number of sales are not closed in time."

Rosenberg is referring to H.R.4213 the "American Jobs and Closing Tax Loopholes Act of 2010".

The amendment (S.AMDT.4344) to extend the closing date for the tax credit passed last week on a vote of 60 to 37.

The Senate is still debating the other tax extenders, and was unable to obtain cloture (this is what Zelman was referring to). This bill also includes the extension of the date (not duration) of unemployment benefits and other provisions. One of the sticking points is the extension of the COBRA benefit.

by Calculated Risk on 6/21/2010 08:38:00 AM

From Reuters: China's Yuan Jumps After Flexibility Pledge

The yuan closed at 6.7976 against the dollar, up 0.42 percent from Friday's close ...

The yuan has been essentially pegged at 6.83 since July 2008.

On Saturday China announced more exchange rate flexibility ... here are some excerpts from the statement (via WSJ):

In view of the recent economic situation and financial market developments at home and abroad, and the balance of payments (BOP) situation in China, the People´s Bank of China has decided to proceed further with reform of the RMB exchange rate regime and to enhance the RMB exchange rate flexibility.
...
The global economy is gradually recovering. The recovery and upturn of the Chinese economy has become more solid with the enhanced economic stability. It is desirable to proceed further with reform of the RMB exchange rate regime and increase the RMB exchange rate flexibility.

by Calculated Risk on 6/20/2010 09:42:00 PM

Some landlords think rents have bottomed ... other are not so optimistic ...

From Jon Lansner at the O.C. Register: ‘Worst ever’ market hits O.C. landlords

Veteran Orange County apartment owner and manager Ray Maggi says this the current rental market “is the worst I’ve ever seen” for landlords.
...
Last year, landlords usually offered free months of rent as lures for new tenants. This year, Maggi says, more landlords have simply slashed rents to meet tight-fisted renters who have plenty of choice.

Making matters worse for property owners is that a growing number of tenants aren’t keeping up with payments. Charge-offs have roughly tripled to nearly 3 percent of rents due.

by Calculated Risk on 6/20/2010 05:17:00 PM

The previous post was the Weekly Summary and a Look Ahead.

The FOMC statement to be released on Wednesday will be interesting. This is the first scheduled FOMC meeting since the EU / ECB rescue package was announced on May 9th. In addition, some of the economic data since the last FOMC meeting has been somewhat disappointing.

Two things are nearly certain: 1) the FOMC will not increase the Fed Funds rate at this meeting, and 2) the key language about "exceptionally low levels of the federal funds rate for an extended period" will remain.

Here are a few excerpts from the last FOMC statement to see some possible changes:

Information received since the Federal Open Market Committee met in March suggests that economic activity has continued to strengthen and that the labor market is beginning to improve. Growth in household spending has picked up recently ...

Since the April meeting, growth appears to have slowed, the labor market has stumbled, and retail spending was weak. The first sentence will be less positive this meeting.

Housing starts have edged up but remain at a depressed level.

Housing starts plummeted in May.

With substantial resource slack continuing to restrain cost pressures and longer-term inflation expectations stable, inflation is likely to be subdued for some time.

It is possible that the Fed will mention the downside risk to prices (deflation). The Fed might also mention the European situation.

Last week, Jon Hilsenrath at the WSJ wrote "Federal Reserve officials are beginning to debate quietly what steps they might take if the recovery surprisingly falters or if the inflation rate falls much more". These discussions are probably part of the agenda, but I doubt there will be any mention in the FOMC statement.