by Calculated Risk on 8/07/2011 08:16:00 PM

Earlier the ECB announced a bond buying program. Although there are no details, Professor Krugman argues it is worth a try since the Italian problem is different than Greece, Ireland and Portugal.

And from the G7 via the WSJ:

Statement of G7 Finance Ministers and Central Bank Governors

August 8, 2011

In the face of renewed strains on financial markets, we, the Finance Ministers and Central Bank Governors of the G-7, affirm our commitment to take all necessary measures to support financial stability and growth in a spirit of close cooperation and confidence.

We are committed to addressing the tensions stemming from the current challenges on our fiscal deficits, debt and growth, and welcome the decisive actions taken in the US and Europe. The US has adopted reforms that will deliver substantial deficit reduction over the medium term. In Europe, the Euro area Summit decided on July 21 a comprehensive package to tackle the situation in Greece and other countries facing financial tensions, notably through the flexibilisation of the EFSF. We are now focused on the quick and full implementation of the agreements achieved. We welcome the statement of France and Germany to that effect. We also welcome the statement of the Governing Council of the ECB.

We are committed to taking coordinated action where needed, to ensuring liquidity, and to supporting financial market functioning, financial stability and economic growth.

These actions, together with continuing fiscal discipline efforts will enable long-term fiscal sustainability. No change in fundamentals warrants the recent financial tensions faced by Spain and Italy. We welcome the additional policy measures announced by Italy and Spain to strengthen fiscal discipline and underpin the recovery in economic activity and job creation. The Euro Area Leaders have stated clearly that the involvement of the private sector in Greece is an extraordinary measure due to unique circumstances that will not be applied to any other member states of the euro area.

We reaffirmed our shared interest in a strong and stable international financial system, and our support for market-determined exchange rates. Excess volatility and disorderly movements in exchange rates have adverse implications for economic and financial stability. We will consult closely in regard to actions in exchange markets and will cooperate as appropriate.

We will remain in close contact throughout the coming weeks and cooperate as appropriate, ready to take action to ensure stability and liquidity in financial markets.

Yesterday:
• A long Summary for Week ending August 5th
• Schedule for Week of August 7th

by Calculated Risk on 8/07/2011 04:33:00 PM

UPDATE2: From ECB:

7 August 2011 - Statement by the President of the ECB
....
6. It is on the basis of the above assessments that the ECB will actively implement its Securities Markets Programme. This programme has been designed to help restoring a better transmission of our monetary policy decisions – taking account of dysfunctional market segments – and therefore to ensure price stability in the euro area.

UPDATE: from Reuters: ECB to intervene decisively on markets - source (ht Rickkk)

"The Euro system will intervene very significantly on markets and respond in a significant and cohesive way," the euro zone monetary source said, adding a statement by the ECB will be issued shortly.

From the WSJ: ECB Officials Weigh Massive Purchases of Italian, Spanish Bonds

European Central Bank officials on Sunday evening were weighing whether to purchase government bonds of Italy and Spain on a massive scale ... ECB intervention to prop up Italy and Spain would be a watershed in Europe's effort to fight the financial crisis.

Sunday's meeting, which began in the early evening via a video conference ...

Also the G7 is expected to put out a statement later today.

Sunday is the new Monday again.

Yesterday:
• A long Summary for Week ending August 5th
• Schedule for Week of August 7th

by Calculated Risk on 8/07/2011 04:09:00 PM

Over the last few days, I noted that the FHA and Fannie Mae recently sold a record number of REOs (Real Estate Owned), and that their REO inventories are declining. That is interesting data, but just a small part of the overall distressed property picture.

Let's start at the beginning: The lenders report delinquent loans in four delinquency buckets, a "30-day" delinquent loan is past due by one payment, a "60-day" is past due by two payments, "90 days delinquent" is past due by three or more payments, and "loans in foreclosure" are if the foreclosure process has started.

There are always quite a few "30 day" delinquent loans and it can get a little complicated. As Tanta noted:

30-day delinquencies are very volatile. They are often seasonal, for one thing, and they can very often turn into what underwriters call a "rolling 30" ("rolling" in this case is not to be confused with a "roll rate" of 30 to 60 days delinquent). Imagine a borrower who is current through the June payment, misses the July payment, makes the August payment, and continues on through the end of the year making a payment each month, but never making up that missed payment from July. That borrower would be considered "current" in July (you aren't "delinquent" for our purposes until you're at least 30 days delinquent), 30 days delinquent in August, 30 days delinquent in September, and so on to the end of the year. It doesn't matter how far in time you get from that missed payment: you only missed one, so you are never on any given reporting date more than 30 days down.

You can have "rolling 60s," but servicers are rather less likely to put up with them than rolling 30s.

And on the difference between 90 days and "in-foreclosure":

As a general rule, most servicers do not begin foreclosure proceedings until a loan is 90 days delinquent. This isn't a "magic number," it's just a rule of thumb. For our purposes, one thing it means is that a servicer will usually report separately on loans "90 days delinquent" and "loans in foreclosure." "In foreclosure" means the loan is in a process, often a long one, that starts with the filing of a foreclosure notice and ends at an auction on the courthouse steps.

The foreclosure process starts with the filing of either a "Notice of Default" or a "Lis pendens" depending on the local requirements.

After the foreclosure is completed, the property is "acquired" by the lender and is counted as "Real Estate Owned" (REO) until the lender sells the property. Here is a look at REO inventory:

Click on graph for larger image in graph gallery.

There was a huge surge in REOs for the Private Label Securities (the loans securitized by Wall Street). This was the worst of the worst loans, but the number of REOs held by the PLS has been declining since 2008.

The number of REOs for Fannie, Freddie, the FHA, and FDIC insured institutions have just started to decline. This is a combination of increasing the pace of selling REOs and a slowdown in acquisitions (see Fannie Mae sells record number of REO in Q2 for a graph of acquisitions, dispositions and inventory - and Fannie's discussion of the slowdown in acquisitions).

If we just looked at REO inventory, we might think that the situation is getting better pretty quickly. However there are a large number of properties in the "90 days delinquent" and "in foreclosure" buckets.

This graph shows the delinquent and REO buckets over time. The delinquency data is from LPS, and the REO estimates are based on work by Tom Lawler and my own calculations.

The dashed lines are "normal" historical levels for each bucket. The 30 day bucket is only slightly elevated (as of June), and the 60 day buckets is somewhat elevated. But the glaring problems are in the 90 day and in-foreclosure buckets.

There are 4.1 million seriously delinquent loans (90 day and in-foreclosure). This is about 3 million more properties than normal. Probably when the mortgage settlement is announced, some of these loans will cure as part of the settlement with principal reduction loan modifications, but many of these properties will become REOs fairly quickly (I've spoken to servicers and they don't know when the dam will break).

So even though REO inventory is declining - and the lenders are selling a record number of REOs - there are still many more to come.

Yesterday:
• A long Summary for Week ending August 5th
• Schedule for Week of August 7th

by Calculated Risk on 8/07/2011 10:05:00 AM

Yesterday:
• A long Summary for Week ending August 5th
• Schedule for Week of August 7th

The graph below shows the number of construction payroll jobs (blue line), and the number of construction jobs as a percent of total non-farm payroll jobs (red line).

Construction employment is down 2.194 million jobs from the peak in April 2006, but up slightly this year (through July).

Click on graph for larger image in graph gallery.

Unfortunately this graph is a combination of both residential and non-residential construction employment. The BLS only started breaking out residential construction employment fairly recently (residential building employees in 1985, and residential specialty trade contractors in 2001). Usually residential investment (and residential construction) lead the economy out of recession, and non-residential construction usually lags the economy. Because this graph is a blend, it masks the usual pickup in residential construction following previous recessions. Of course residential investment didn't lead the economy this time because of the huge overhang of existing housing units.

This table below shows the annual change in construction jobs (total, residential and non-residential) and through July for 2011.

	Annual Change in Payroll jobs (000s)
Year	Total Construction Jobs	Residential Construction Jobs	Non-Residential
2002	-85	88	-173
2003	127	161	-34
2004	290	230	60
2005	416	268	148
2006	152	-62	214
2007	-198	-273	75
2008	-787	-510	-277
2009	-1053	-431	-622
2010	-149	-113	-36
Through July 2011	34	6	28

Not much, but after five consecutive years of job losses for residential construction (and four years for total construction), this is a start.

by Calculated Risk on 8/06/2011 10:54:00 PM

Last week the FHA reported a record number of Real Estate Owned (REO) sales in June, and a sharp decline in end-of-quarter REO inventory.

Yesterday Fannie Mae also reported a record number of REO sales in Q2, and a decline in REO inventory. In Q2, Fannie Mae acquired 53,697 properties, and sold 71,202. Fannie's REO inventory fell to 135,719 from 153,224 at the end of Q1.

Here is a graph of Fannie Mae REO acquisitions (completed foreclosure or deed-in-lieu) and dispositions (sales) (ht Tom Lawler).

Note the slowdown in REO acquisitions in Q4 2010, and the increase in sales.

Since sales are higher than acquisitions, REO inventory is falling. However there are many properties delayed in the foreclosure process, and acquisitions will pick up later this year (or when the mortgage servicer settlement is reached).

From Fannie:

The continued weak economy, as well as high unemployment rates, continue to result in a high level of mortgage loans that transition from delinquent to REO status, either through foreclosure or deed-in-lieu of foreclosure, which has resulted in a higher inventory of REO properties as of June 30, 2011 compared with June 30, 2010. Our foreclosure rates remain high; however, foreclosure levels were lower than what they otherwise would have been during the first half of 2011 due to delays in the processing of foreclosures caused by continuing foreclosure process issues, changes in state foreclosure laws, and new court rules and proceedings.

Freddie Mac will report next week, but clearly overall REO inventory is falling (I'll have more on this soon).

Earlier:
• A long Summary for Week ending August 5th
• Schedule for Week of August 7th