by Calculated Risk on 10/13/2010 09:42:00 PM

Here is a different view ...

From Richmond Fed President Jeffrey Lacker: Economic Outlook, October 2010

[I]nflation is now on target, as far as I'm concerned. Over the last 12 months the price index for personal consumption expenditure has risen 1.5 percent, which is exactly what I've been recommending for the last six years. We also track a core price index that omits volatile food and energy prices, and it is sending the same message, having risen by 1.4 percent over the last 12 months. I believe that the Fed's best contribution to our nation's economic prosperity over time would be to keep inflation stable near the current 1.5 percent rate. But inflation has been lower this year, with overall inflation increasing at only a 0.7 percent annual rate, which is too low for me. I would point out that these inflation numbers often run hot or cold for several months at a time, which is why economists focus on the 12-month number I cited a moment ago. I am not yet convinced that inflation is likely to remain undesirably low. Moreover, the public's expectation of future inflation is not at such a low level; indeed, the latest survey from the University of Michigan puts the public's short-run inflation expectation at 2.2 percent. So I do not see a material risk of deflation — that is, an outright decline in the price level.

Lacker speech is a little strange because he mentions three possible reasons for the high unemployment rate - skills mismatch, extended benefits, uncertainty regarding government policies - and leaves out the most widely accepted reason: lack of aggregate demand. Weird.

And on inflation, core CPI (from the BLS) is up 1.0% over the last 12 months and median CPI from the Cleveland Fed (an alternative measure of inflation) is up only 0.5% over the last year - so I'd argue inflation is below Lacker's target.

Lacker is not currently on the FOMC.

by Calculated Risk on 10/13/2010 05:39:00 PM

From the FHFA: Statement By FHFA Acting Director Edward J. DeMarco On
Servicer Financial Affidavit Issues

“On October 1, FHFA announced that Fannie Mae and Freddie Mac are working with their respective servicers to identify foreclosure process deficiencies and that where deficiencies are identified, will work together with FHFA to develop a consistent approach to address the problems. Since then, additional mortgage servicers have disclosed shortcomings in their processes and public concern has increased.

Today, I am directing the Enterprises to implement a four-point policy framework detailing FHFA’s plan, including guidance for consistent remediation of identified foreclosure process deficiencies. This framework envisions an orderly and expeditious resolution of foreclosure process issues that will provide greater certainty to homeowners, lenders, investors, and communities alike. ..."

This is a four-point plan:

1) Verify Process -- Mortgage servicers must review their processes and procedures and verify that all documents, including affidavits and verifications, are completed in compliance with legal requirements. ...

2) Remediate Actual Problems -- When a servicer identifies a foreclosure process deficiency, it must be remediated in an appropriate and timely way and be sustainable.

Note: this includes actions for a) Pre-judgment foreclosure actions, b) Post-judgment foreclosure actions (prior to foreclosure sale), c) Post-foreclosure sale (Enterprise owns the property), and d) Bankruptcy Cases. This includes actions to clear title.

3) Refer Suspicion of Fraudulent Activity

4) Avoid Delay -- In the absence of identified process problems, foreclosures on mortgages for which the borrower has stopped payment, and for which foreclosure alternatives have been unsuccessful, should proceed without delay.

by Calculated Risk on 10/13/2010 03:00:00 PM

This is the new UCLA Anderson Forecast and Ceridian Corporation index using real-time diesel fuel consumption data: Pulse of Commerce Index^TM

Click on graph for larger image in new window.

This graph shows the index since January 1999.

This is a new index, and doesn't have much of a track record in real time, although the data suggests the recovery has "stalled" since May.

Press Release: Economy Devoid of Momentum: Ceridian-UCLA Pulse of Commerce Index™ Declines for Second Consecutive Month in September

The Ceridian-UCLA Pulse of Commerce Index™ (PCI), a real-time measure of the flow of goods to U.S. factories, retailers, and consumers, fell .5 percent in September after falling 1.0 percent in August, which is the first time the index has experienced a consecutive monthly decline since January 2009. Furthermore, August and September 2010 together produced the worst combined two-month decline since the recessionary months of January and February 2009.

The decline indicates four consecutive months of limited to no increases in over the road movement of produce, raw materials, goods-in-process and finished goods since the PCI peaked in May 2010. Moreover, the PCI forecasts GDP growth in the third quarter of 2010 at an anemic 0.7 percent to 1.7 percent, below the PCI’s previous 1.5 to 2.5 percent estimate reported last month (which at the time approximated the consensus economic view). The PCI forecast of the Federal Reserve's monthly Industrial Production (IP) index (to be released later this month) also signals IP growth for September to be very close to zero with an even odds chance for a negative number.

“The PCI tells us that inventory is stalled on the nation’s thoroughfares. The good months of growth are now seemingly in our rear view mirror,” said Ed Leamer, chief PCI economist and director of the UCLA Anderson Forecast. “Our economy’s loss in traction is alarming and for the ‘Cassandras of the double-dip,’ may foretell a coming decline in GDP and spike in unemployment. However, with residential investment, consumer durables, business spending, and other component indicators already at or near record lows relative to GDP, it remains unlikely that we will experience an outright decline into recession.”
...
The Ceridian-UCLA Pulse of Commerce Index™ is based on real-time diesel fuel consumption data for over the road trucking ...

I'm not confident in using this index to forecast GDP growth, although it does appear to track Industrial Production over time (with plenty of noise).

by Calculated Risk on 10/13/2010 02:15:00 PM

First, "Foreclosure-Gate" is primarily about "robo-signers". These are individuals who signed affidavits stating that they had "personal knowledge" of the facts in the case when in fact they did not.

As JPM admitted this morning: "We've identified issues relating to the mortgage foreclosure affidavits and those include signers not having personally reviewed the underlying loan files but instead having relied upon the work of others."

There are also situations of questionable notarization of the affidavits.

Questions reporters might consider asking is what constitutes "personal knowledge" and why can't the affiant sign with "information and belief". Also what are the typical remedies for a false affidavit? But I digress ...

Unfortunately I've seen a number of articles conflating the "robo-signer" scandal with MERS issues and LNAs (Lost Note Affidavits). How many servicers have put a moratorium on foreclosures for these issues? None. But I do hope they are reviewing the entire process.

Fortunately, for those trying to understand LNAs, we have an excellent description of the process from my former co-blogger and mortgage banker Tanta written in early 2008: Lost Note Affidavits & Skeletons in the Closet. A few excerpts:

FCs are routinely filed with either a certified true copy of the promissory note or a Lost Note Affidavit (LNA), which in every instance I have ever personally seen is a sworn statement that the original note is lost, and is accompanied by a certified true copy of the lost original.
...
I note for y'all that I have personally executed one or two LNAs in my day, and have therefore had all known hard file folders associated with this loan (the servicing file, the branch's copy, the custodial file, whatever there is), as well as all correspondence with the warehouse bank or custodian or whoever else might have had it brought to my desk, so I could personally root through it all once more before I put my officer's signature on an LNA. In all but one of the LNAs I can remember executing, I had documentation from FedEx or some other shipper that a package had indeed been lost, plus clear documentation in the loan file that this specific note had been included in that specific lost shipment. (My shipping department always put the copy of the airbill in the loan file. Always.) And of course I always had a certified true and correct copy of the note to attach to the affidavit.

I bring all this up because ... not only can original notes be lost or damaged, so can car titles and any other piece of paper. (I have a friend who once had to execute over 100 LNAs after a fire in an adjoining office suite triggered the sprinkler system in her post-closing department. Those LNAs were accompanied by copies of sodden bits of semi-readable paper that had been patched together on the copier plate, one at a time.) A financial institution in the business of making mortgage loans has no business routinely losing or damaging original promissory notes, and any institution that does so should be shut down by the federal regulators and I mean that.

But if consumer attorneys want to create a situation in which the simple fact of loss of or irreparable damage to an original note vacates the debt, I can promise you you will not like the consequences of that. If it turns into Total War here, don't ever lose an original cancelled check. You should know that there is actually one fairly respectable reason for doing FC filings with note copies, besides servicer laziness or loan sale screw-ups: taking your original note out of the custodian's vault to send to some local attorney to attach to a court filing creates several more opportunities for it to get lost. If it becomes a requirement that FC can proceed only with the original note in the courtroom, and the presence of an LNA always means dismissal, then the things are going to have to be handled and shipped and received with the same level of security as a million-dollar bearer bond. Like, a Brink's truck and a bonded courier carrying a briefcase handcuffed to his wrist. You want to pay the cost of that? No. You don't. But you will.

There is much more in her piece (she was writing about a specific case in Florida).

by Calculated Risk on 10/13/2010 12:04:00 PM

From the JPM conference call this morning (ht Brian)

JPM: We've identified issues relating to the mortgage foreclosure affidavits and those include signers not having personally reviewed the underlying loan files but instead having relied upon the work of others. Those others, Chase employees, did conduct reviews of the underlying loan files. And there are circumstances where affidavits have not been properly notarized. So I want to just step back and have you understand what the nature of some of the information in this affidavit relates to. They obviously differ by jurisdiction but in general the types of content that we're attesting to includes the name of the borrower, property address, the date, whether or not the borrower was actually defaulted and if they've cured the default and the total amount of indebtedness. As a result of these actions, we're reviewing 115,000, plus or minus, loan files that are currently in the foreclosure process. And we'll do the following based on that review, either refile the affidavits where appropriate. As you know, we delayed our foreclosure sales and so to the extent we can, we'll reinitiate those when appropriate. And we're also in the process of putting additional processes in place to make sure on a go-forward basis we fulfill all the procedural requirements. ……And just to remind everyone, this is a very lengthy process and so from the initial default to the actual foreclosure sale, for our serviced mortgages, that's on average 14 months. Mortgages in the state of Florida for us, that process is 678 days, in New York it is 792 days, more than two years. And in most, if not all instances, over that period of time no principal or interest payments have been made on the mortgage. So I think we would like to conclude by saying is that we really believe the proper approach and response here is to go loan by loan, file by file, customer by customer, and if mistakes have been made then we need to address them individually which we absolutely will do.

Analyst: I was wondering if you could give us any sense for timing of resolution in terms of reopening these 115,000 cases?

JPM: It's going to take several weeks to go through the files and make sure and correct any errors that are in there. The underlying stuff is all accurate. So that's the key substance. Obviously we know there's a lot of state AGs and we have conversations with them. We're hoping [to get back to] the normal process -- for us, the sooner the better for everybody involved. We don't think there are cases with people have been evicted out of homes where they shouldn't have been. These foreclosures go through multiple process, so we're hoping it will be sooner rather than later and those conversations are starting to take place.

Analyst: And is it fair to assume that at least a fair portion of that litigation reserve that you added to is specifically for this topic within mortgage?

JPM: No, nothing in it for this topic. I think the way you should look at this topic is that we're bearing today $7 billion of charge-offs, foreclosure, repurchase costs, this is ex-reserves. That $7 billion will go up or down based upon the economy and stuff like this. I'm not sure stuff like this is going to dramatically change that number. It may extend it a little bit longer and stuff like that but -- and remember, we have in total, between the repurchased reserves and $11 billion, we have $14 billion of reserves for repurchases or loan losses. Look, the mortgage thing is -- we're halfway through all this. We think we should continue and get done and make sure we do the right thing for the consumers, the investors and the country.

Analyst: And the foreclosure stuff, outside of how it directly may impact you or somebody else, how do you look at the drag it may have on the housing market, kind of the macro impact, what do you think about that?

JPM: Again, I hope -- this is a hope. This is not a knowledge. Is that when people take a deep, sigh breath, go back to the right, look to the substance underlying the files and go back to modifying, foreclosing and doing the right thing, all told, it could be a blip. Talking about three or four weeks it will be a blip in the housing market. If it went on for a long period of time it will have a lot of consequences, most of which would be adverse on everybody.

Analyst: The foreclosure suspension, it's a matter of weeks instead of months, did I hear you say that?

JPM: No. I didn't say weeks to clean up the files. We actually have to have little in depth conversations with regulators and AGs and stuff like that. So I don't know exactly when. I'm hopeful that it all starts to move at one point. I don't know if it's going to be three weeks or five. But I think it will be a real shame if we don't get this resolved and moving again.

Analyst: In all likelihood you should be allowed to foreclose as we go into next year.

JPM: I hope so. It's not up to me.