by Calculated Risk on 11/10/2010 08:30:00 AM

Update: due to revisions, this is the lowest level since September 2008 for the 4-week moving average.

The DOL reports on weekly unemployment insurance claims:

In the week ending Nov. 6, the advance figure for seasonally adjusted initial claims was 435,000, a decrease of 24,000 from the previous week's revised figure of 459,000. The 4-week moving average was 446,500, a decrease of 10,000 from the previous week's revised average of 456,500.

Click on graph for larger image in new window.

This graph shows the 4-week moving average of weekly claims since January 2000.

The dashed line on the graph is the current 4-week average. The four-week average of weekly unemployment claims decreased this week by 10,000 to 446,500.

This is the lowest level for the 4-week moving average since January of this year September 2008 - an improvement over recent months, but still elevated - and still a sign of weakness in the job market.

by Calculated Risk on 11/10/2010 07:26:00 AM

The MBA reports: Mortgage Applications Increase in Latest MBA Weekly Survey

The Refinance Index increased 6.0 percent from the previous week. The seasonally adjusted Purchase Index increased 5.5 percent from one week earlier. This is the third consecutive weekly increase in purchase applications.
...
“The increases in purchase applications we have seen over the past couple of weeks align with the better than expected news from October’s employment report and other data indicating some improvement in the economy’s growth prospects. Refinance applications increased as rates continued to hover near record lows.” [said Michael Fratantoni, MBA’s Vice President of Research and Economics.]
...
The average contract interest rate for 30-year fixed-rate mortgages remained unchanged at 4.28 percent, with points decreasing to 1.05 from 1.07 (including the origination fee) for 80 percent loan-to-value (LTV) ratio loans.

Click on graph for larger image in new window.

This graph shows the MBA Purchase Index and four week moving average since 1990.

The four-week moving average of the purchase index has increased slightly for three straight weeks, however the index is still about 30% below the levels of April 2010. This suggests existing home sales will remain weak through the end of the year.

by Calculated Risk on 11/09/2010 09:58:00 PM

From the Financial Times Alphaville: US downgraded on QE2 ... by Chinese rating agency (ht Andrew)

Dagong Global Credit Rating Co. — the Chinese rating agency which hit headlines earlier this year for its AA-view on the United States — is back. With a US downgrade.

From the just-published, 10-page report:

Dagong has downgraded the local and foreign currency long term sovereign credit rating of the United States of America (hereinafter referred to as “United States” ) from “AA” to “A+“, which reflects its deteriorating debt repayment capability and drastic decline of the government’s intention of debt repayment.

The serious defects in the United States economic development and management model will lead to the long-term recession of its national economy, fundamentally lowering the national solvency.

I thought this was from The Onion. The report concludes:

[G]iven the current situation, the United States may face much unpredictable risks in solvency in the coming one to two years.

Uh, right. At least someone in China has a sense of humor ...

by Calculated Risk on 11/09/2010 04:56:00 PM

Last Friday I noted that the combined REO (Real Estate Owned) inventory for Fannie, Freddie and the FHA increased by 24% at the end of Q3 2010 compared to Q2 2010. However this is just a portion of the overall REO inventory.

Click on graph for larger image in new window.

Here is the graph I posted last Friday showing the REO inventory for Fannie, Freddie and the FHA through Q3 2010.

The REO inventory for the "Fs" increased sharply over the last year, from 153,007 at the end of Q3 2009 to a record 293,171 at the end of Q3 2010.

As I noted, this is just a portion of the total REO inventory. Private label securities and banks and thrifts also hold a substantial number of REOs.

The following is from housing economist Tom Lawler:

While the SF REO inventory of “the F’s” – Fannie, Freddie, and FHA – surged last quarter, the SF REO inventory for private-label RMBS continued to decline (and the overall size of the RMBS market continued to shrink. Here is an updated chart showing the SF REO inventory (EOQ) for Fannie, Freddie, FHA, and private-label RMBS combined. I got the RMBS REO data from Moody’s economy.com. I don’t yet have enough data to estimate bank and thrift REO holdings, though the limited amount of “Q’s” I’ve read suggest that bank and thrift SF REO holdings probably increased last quarter, but by a smaller % than the “F’s.”

Recall that back in 2007 and 2008 delinquencies on loans backing PL RMBS exploded upward, and the “timelines” from serious delinquency to in-foreclosure to completed foreclosure sale were much shorter. In addition, servicers of PL RMBS were initially a “little slow” in disposing of SF REO (sticker shock on prices?), and REO exploded upward in the first ten months of 2008. In order to get inventories under “better control,” servicers of private-label RMBS accelerated their REO sales dramatically in the fall of 2008 through the spring of 2009, even as the financial markets in general and the mortgage markets in particular were in a state of “disarray,” and “traditional” home sales demand plunged. Servicers found they had to slash prices to move homes, and they did in a fashion never before seen in US history. That action put enormous downward pressure on home prices in general and especially repeat-transactions home price indexes that include foreclosure sales, and resulted in an unprecedented “de-stickification” of home prices.

To give one of bit of perspective: according to Moody’s economy.com data, the SF REO of private-label RMBS hit a peak of over 409,000 properties in October 2008, and the number of loans backing PL RMBS was around 9.039 million (and about 10.9 million at its peak in May 2007). This September, the combined SF REO inventory of Fannie, Freddie, and FHA, who combined own or guarantee around 37 million SF mortgages, totaled 293,171. Don’t get me wrong – the runup in overall REO over the last few quarters is very disturbing and a clear negative for near-term home prices. But ... it’s occasionally important to take things into perspective!

The above was from housing economist Tom Lawler.

We still need to add in the bank and thrift REO - and those holdings probably increased significantly in Q3.

by Calculated Risk on 11/09/2010 01:44:00 PM

UPDATE: Two days after this post, I posted Ireland: Bank funding problems?

Ireland is fully funded until mid-2011, however I've heard this morning that certain European investors are no longer willing to provide Irish banks with overnight funding. This could lead to a serious liquidity problem for the Irish banks - and some investors believe that Ireland may need to borrow from the IMF or the EFSF to support the banks.

Original post:

I've been posting on Ireland recently because the 10-year bond yield is approaching 8% (some analysts think Ireland will use the European Financial Stability Facility (EFSF) above 8%). The Ireland 10-year yield hit a record 7.94% today.

To be clear: Ireland is not Greece. There is no short term liquidity issue; Ireland does not need to borrow until mid-2011 and rates could fall before then.

The increase in yields is being driven by investor fears of a permanent
crisis-resolution mechanism that will include possible haircuts for private investors.

Here are some excerpts from a proposal from the think-tank Bruegel about a permanent
crisis-resolution mechanism (Via the WSJ Making Default A Real Possibility):

We propose in this paper the creation of a European Crisis Resolution Mechanism (ECRM) consisting of two pillars:

A procedure to initiate and conduct negotiations between a sovereign debtor with unsustainable debt and its creditors leading to, and enforcing, an agreement on how to reduce the present value of the debtor’s future obligations in order to re-establish the sustainability of its public finances. This would require a special court to deal with such cases. The European Court of Justice is the natural institution for this purpose and a special chamber could be created within it for that purpose.

Rules for the provision of financial assistance to euro-area countries as an element in resolving the crisis. Should a euro-area country be found insolvent, the provision of financial aid should be conditional on the achievement of an agreement between the debtor and the creditors reestablishing solvency. The task of supplying financial assistance could be given to the EFSF provided that it is made permanent and an institution of the European Union. Lending by the permanent EFSF could also be provided, under appropriate conditions, to euro area countries facing temporary liquidity problems, as currently foreseen by the temporary EFSF.

This is similar to some of the recent German proposals.

Right now this is a side show (but still interesting).