by Calculated Risk on 10/25/2011 09:00:00 AM

S&P/Case-Shiller released the monthly Home Price Indices for August (actually a 3 month average of June, July and August).

This includes prices for 20 individual cities and and two composite indices (for 10 cities and 20 cities).

Note: Case-Shiller reports NSA, I use the SA data. The composite indexes were up about 0.2% in August (from July) Not Seasonally Adjusted (NSA), but declined Seasonally Adjusted (SA).

From S&P: Annual Rates of Change Continue to Improve According to the S&P/Case-Shiller Home Price Indices

Data through August 2011, released today by S&P Indices for its S&P/Case-Shiller Home Price Indices ... showed increases of +0.2% for the 10- and 20-City Composites in August versus July. Ten of the 20 cities covered by the indices also saw home prices increase over the month.d.

Click on graph for larger image.

The first graph shows the nominal seasonally adjusted Composite 10 and Composite 20 indices (the Composite 20 was started in January 2000).

The Composite 10 index is off 32.2% from the peak, and down 0.2% in August (SA). The Composite 10 is 1.0% above the June 2009 post-bubble bottom (Seasonally adjusted).

The Composite 20 index is off 32.0% from the peak, and down 0.1% in August (SA). The Composite 20 is slightly above the March 2011 post-bubble bottom seasonally adjusted.

The second graph shows the Year over year change in both indices.

The Composite 10 SA is down 3.6% compared to August 2010.

The Composite 20 SA is down 3.9% compared to August 2010. This is slightly smaller year-over-year decline than in July.

The third graph shows the price declines from the peak for each city included in S&P/Case-Shiller indices.

Prices increased (SA) in 6 of the 20 Case-Shiller cities in August seasonally adjusted. Prices in Las Vegas are off 59.8% from the peak, and prices in Dallas only off 9.0% from the peak.

As S&P noted, prices increased in 10 of 20 cities not seasonally adjusted (NSA). However seasonally adjusted, prices only increased in 6 cities.

The small increase reported by S&P was seasonal.

by Calculated Risk on 10/24/2011 11:12:00 PM

From the Financial Times: Hard line adopted on Greek debt loss

European negotiators have asked Greek debt holders to accept a 60 per cent cut in the face value of their bonds ...
excerpt with permission

The previous agreement was for a 21% cut in the net present value, not the face value. This is a 60% cut in the face value, and according to the Financial Times, this is about a 75% to 80% reduction in NPV.

The Greek 2 year yield is up to 78%. The Greek 1 year yield is at 183%.

The Portuguese 2 year yield is up to 18% and the Irish 2 year yield is up to 8.7%.

The Spanish 10 year yield is at 5.55% and the Italian 10 year yield is at 5.95%.

The Belgian 10 year yield is at 4.45% and the French 10 year yield is up to 3.3%.

by Calculated Risk on 10/24/2011 07:38:00 PM

Many of the reviews of the HARP changes are pretty negative. As an example, Felix Salmon wrote: Obama’s pathetic refinancing initiative. But I think Felix was expecting too much.

This program only applies to Fannie and Freddie loans because the U.S. taxpayer already has the credit risk for these loans. Felix seemed to expect more when he wrote: "If you’re a homeowner whose mortgage isn’t owned or guaranteed by Frannie, you’re out of luck."

What this program does do is remove many of the stumbling blocks to refinancing Fannie and Freddie loans (eliminate reps and warrants, reduce or eliminate fees, automatic 2nd subordination, minimal qualifying). These were all deal killers for HARP, and hopefully these changes will smooth the refinance road.

As far as non-GSE loans, Jon Prior at HousingWire mentioned some of the comments from the press conference today about the pending mortgage settlement:

As part of the negotiations, the AGs are working to force servicers to refinance current borrowers into lower-rate mortgages.

"The settlement negotiation is also going to be focused on significantly accelerating the reduction of principal," Department of Housing and Urban Development Secretary Shaun Donovan said Monday.

This sounds like a HARP type refinance program for non-GSE loans (the "accelerating the reduction of principal" is one of the goals of HARP by refinancing into shorter term mortgages).

And there is more to come. I expect an announcement in the next month or two of some sort of program for Fannie/Freddie/FHA REO disposition. This would probably involve selling REOs in bulk to investors and include some sort of plan to rent them to the current occupants.

Put those three programs together: HARP refinance for GSE loans, a HARP like refinance program as part of the mortgage settlement for many non-GSE loans, and and an REO dispositions program that keeps many occupants in place as renters and I think that will help.

This doesn't solve all of the housing problems. But the refinance programs provide a stimulus to a number of borrowers and lowers the probability of default. I'm probably in the minority, but I think this is helpful.

by Calculated Risk on 10/24/2011 04:38:00 PM

Here is the press release from the FHFA: FHFA, Fannie Mae and Freddie Mac Announce HARP Changes to Reach More Borrowers

• One of the key elements is the elimination of seller and servicer reps and warrants on these loans. Several readers have asked if that is a "gift" for the originators?

It is definitely a plus, but these are seasoned loans (the loans had to be originated before May 2009), so the borrower has been making payments for several years. From the FHFA:

Nearly all HARP-eligible borrowers have been paying their mortgages for more than three years, and most of those for four or more years. These are seasoned loans made to borrowers who have demonstrated a capacity and commitment to make good on their mortgage obligation through a period of severe economic stress and house price declines.

Reps and warrants protect the Enterprises from losses on defective loans; typically, such defects show up in the first few years of a mortgage and so the value of the reps and warrants decline over time. By refinancing into a lower interest rate and/or shorter term mortgage, these borrowers are recommitting to their mortgage and strengthening their household balance sheet, thereby reducing the credit risk they already pose to the Enterprises. Therefore, FHFA has concluded that eliminating the reps and warrants that may have discouraged industry participants from taking greater advantage of HARP to-date will be good for borrowers, housing markets, and the Enterprises and taxpayers.

This will hit some MBS owners since these borrowers will now be able to refinance and the previous loan will be paid off (and these borrowers were paying high interest rates).

• Some readers have pointed out this doesn't help with negative equity. However there is an attempt in this program to get borrowers to refinance in to shorter term loans - and by paying down the loan amount - the borrowers will reach positive equity sooner. But this doesn't reduce the loan balance.

• I suspect this will encourage some short term delinquent borrowers to bring their mortgage loans current. From the FHFA: "The borrower must be current on the mortgage at the time of the refinance, with no late payment in the past six months and no more than one late payment in the past 12 months." So some 30 day delinquent borrowers could refinance in 6 months - and many in a year if they can bring their loan current. Mortgage rates will probably still be pretty low in a year!

• The FHFA estimates this will help close to 1 million borrowers, but according to a Dow Jones report, analysts at Barclays Capital have estimated that between 1.9 million and 3.1 million homeowners will be eligible.

• All of the major lenders have agreed to automatically subordinate their second liens behind the new HARP loans. This makes sense - a lower payment on the first helps the 2nd lien - but under the old program this had to approved on a loan by loan basis.

This program will probably be more successful than the original HARP. Of course this doesn't help delinquent borrowers - or borrowers with loans not guaranteed by Fannie or Freddie. Frequently loans are sold to Fannie or Freddie and the borrower keeps paying the servicer and isn't aware that the loan has been sold. Anyone with a loan originated before May 2009 should probably check:

Homeowners can determine if they have a Fannie Mae or Freddie Mac loan by going to:
http://www.FannieMae.com/loanlookup/ or calling 800-7FANNIE (8 am to 8 pm ET)
https://ww3.FreddieMac.com/corporate/ or 800-FREDDIE (8 am to 8 pm ET)

by Calculated Risk on 10/24/2011 02:22:00 PM

The Department of Transportation (DOT) reported today:

•Travel on all roads and streets changed by -1.7% (-4.6 billion vehicle miles) for August 2011 as compared with August 2010.

•Travel for the month is estimated to be 263.0 billion vehicle miles.

•Cumulative Travel for 2011 changed by -1.3% (-26.0 billion vehicle miles).

The following graph shows the rolling 12 month total vehicle miles driven.

Click on graph for larger image.

In the early '80s, miles driven (rolling 12 months) stayed below the previous peak for 39 months.

Currently miles driven has been below the previous peak for 45 months - so this is a new record for longest period below the previous peak - and still counting! Talk about moving sideways ...

The second graph shows the year-over-year change from the same month in the previous year. The current decline is not as a severe as in 2008, but this is significant.

It appears the slowdown at the end of July and in August impacted miles driven, and perhaps miles driven will increase in September.