by Calculated Risk on 11/09/2011 05:38:00 PM

CR note: Here is some more REO data from economist Tom Lawler.

From Tom Lawler: Using data from Barclays Capital for private-label RMBS, the latest reports from Fannie and Freddie, and a “reasonable guess” for FHA (which is having “problems” with its September report), here is a chart showing SF REO inventories for “the F’s” and PLS.

Note that the FHA SF REO inventories shown in this chart are from various “Monthly Reports to the FHA Commissioner,” even though the REO data in these reports are not “stock/flow” consistent, and not quite accurate.

Click on graph for larger image.

CR: This chart does not include REO owned by FDIC insured institutions (we will get an estimate when the Q3 Quarterly Banking Profile is released in a few weeks). Last quarter, Lawler estimated that REO inventory at FDIC insured institutions was about 81,000. That has probably declined slightly in Q3.

Also, as Tom Lawler noted before: "This is NOT an estimate of total residential REO, as it excludes non-FHA government REO (VA, USDA, etc.), credit unions, finance companies, non-FDIC-insured banks and thrifts, and a few other lender categories."

CR: Although we still need more data, my initial guess is total REO was around 500,000 in Q3.

Of course there are many more foreclosures to come - see my post this morning: Housing: REO and Mortgage Delinquencies

by Calculated Risk on 11/09/2011 03:34:00 PM

Although Italian Prime Minister Silvio Berlusconi pledged to resign, it is unclear when - and what will happen next. The yield on 10 year Italian bonds is at 7.25%.

Meanwhile in Greece, there is still no decision on a new Prime Minister or coalition government. Two rudderless ships ...

A few stories:

From the NY Times: As Italy’s Cost of Borrowing Surges, Europe Shudders

Italian bond rates crossed a crucial level of 7 percent, prompting questions about whether Italy could soon need an international bailout just as the financially strapped nations of Greece, Ireland and Portugal did before it.

The difference this time is that Italy, the third largest economy in the euro zone, is on a different scale than those other, much smaller European nations.

From the Athens Times: Coalition deal collapses; new meeting Thursday

A meeting of political leaders with the country's president has been postponed until 10am Thursday morning, the president's office has said, in a sign consensus on a new prime minister has yet to be sealed.

The meeting was called off after outgoing Prime Minister George Papandreou and opposition New Democracy leader Antonis Samaras began talks with President Karolos Papoulias on a new coalition.

From the LA Times: Italy at breaking point, Merkel calls for "new Europe"

[German Chancellor Angela] Merkel said Europe's plight was now so "unpleasant" that deep structural reforms were needed quickly, warning the rest of the world would not wait. "That will mean more Europe, not less Europe," she told a conference in Berlin.

She called for changes in EU treaties after French President Nicolas Sarkozy advocated a two-speed Europe in which euro zone countries accelerate and deepen integration while an expanding group outside the currency bloc stayed more loosely connected -- a signal that some members may have to quit the euro if the entire structure is not to crumble.

"It is time for a breakthrough to a new Europe," Merkel said. "A community that says, regardless of what happens in the rest of the world, that it can never again change its ground rules, that community simply can't survive."

A few comments:
1) Europe has the resources to solve the problem, but not the political mechanism.
2) I'm frequently told by European analysts: Never underestimate the desire of EU policymakers to hold the eurozone together.
3) The ECB is just passively buying sovereign debt - and that probably will not change any time soon.
4) Other than the ECB, Europe probably does not have the mechanism to help Italy. The EFSF lacks the firepower.

A few other bond yields: The Greek 2 year yield is up to 108%. The Greek 1 year yield is up to 222%.

The Portuguese 2 year yield is down to 18.4% and the Irish 2 year yield is down to 9.2% (from 8.8%).

The Spanish 10 year yield is at 5.8%, the Belgian 10 year yield is at 4.4% and the French 10 year yield is down to 3.2%.

by Calculated Risk on 11/09/2011 12:11:00 PM

Yesterday Fannie Mae reported their third quarter results. Fannie's REO inventory fell to 122,616 houses from 135,719 at the end of Q2. Fannie's REO inventory has declined for four straight quarters.

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

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

Since sales have been higher than acquisitions, REO inventory has been falling. However there are many properties delayed in the foreclosure process, and acquisitions will pick up when the mortgage servicer settlement is reached.

Click on graph for larger image.

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.

The second 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 September), 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 3.1 million more properties than normal. Probably when the mortgage settlement is announced, some of these loans will cure as part of the settlement with loan modifications that include principal reduction, but many of these properties will become REOs fairly quickly.

So even though REO inventory is declining, there are still many more to come.

by Calculated Risk on 11/09/2011 09:00:00 AM

This is the UCLA Anderson Forecast and Ceridian Corporation index using real-time diesel fuel consumption data: Pulse of Commerce Index Increased 1.1 Percent in October, Offsetting the 1.0 Percent Decline in September

The Ceridian-UCLA Pulse of Commerce Index®(PCI®), issued today by the UCLA Anderson School of Management and Ceridian Corporation, rose 1.1 percent in October after three consecutive months of negative numbers.

Over the past three months, compared to the prior three months, the PCI declined at an annualized rate of 5.8 percent and the PCI remains lower than it was during most of the first half of 2011. “The October data offer some welcome relief from the double-dip fears that were rampant a month ago, but one month does not mean a new trend. Until we get a series of positive months, it remains a she-loves-me, she-loves-me-not economy with bad news followed by good followed by bad,” said Ed Leamer, chief economist for the Ceridian-UCLA Pulse of Commerce Index and director of the UCLA Anderson Forecast.

On a year-over-year basis, the PCI was up 1.3 percent in October compared to the -0.2 percent decrease in the prior month. ... Based on the latest PCI data, our forecast for October Industrial Production is a 0.12 percent increase when the government estimate is released on November 16.

Click on graph for larger image.

This graph shows the index since January 2000.

This index declined sharply in late summer and this small rebound only offsets some of the recent decline.

Note: This index does appear to track Industrial Production over time (with plenty of noise).

All current Transportation graphs

by Calculated Risk on 11/09/2011 07:57:00 AM

• The Italian 10 year yield is at 7.32% after hitting 7.48% this morning.

• From Reuters: LCH.Clearnet Raises Initial Margin Call on Italian Debt

LCH.Clearnet increased the margin on debt from the [Italy] at a time when its bonds yields are close to levels deemed unsustainable.
...
When LCH.Clearnet Ltd took similar action on Portuguese and Irish debt as bond yields soared, it added to selling pressure on the paper. Both countries were later forced to seek bailouts.

• European stocks are off today with the FTSE down 2%, and the DAX down 3%.