by Calculated Risk on 11/07/2012 03:49:00 PM

From economist Tom Lawler: Freddie Mac: GAAP Net Income $2.9 Billion in Q3, GAAP Net Worth $4.9 Billion at End of Quarter (no additional Treasury Draw); SF REO Down Again

Freddie Mac reported that its GAAP net income “attributable” to Freddie Mac last quarter was $2.9 billion, down just a tad from the previous quarter. GAAP net income “attributable” to common stockholders last quarter was $1.1 billion, with the difference reflecting the $1.8 billion “paid” to Treasury on its senior preferred stock holdings.

Freddie also reported “other comprehensive income” of $2.7 billion (mainly reflecting “spread-tightening” on its non-agency AFS securities), and that its GAAP net worth on September 30th was $4.9 billion, up from $1.1 billion in the previous quarter. As a result, Freddie’s regulator does not need to request another Treasury “draw.”

Freddie Mac said that its internal Freddie’s internal national home price index, which is based on repeat transactions of homes backed by mortgages owned or guaranteed by Freddie or Fannie with state value weights based on Freddie’s SF mortgage book, increased by 1.3% from June to September, and was up 4.3% from last September.

Freddie’s improved “GAAP” income this year vs. last year has been mainly attributable to lower credit losses – mainly lower provision for credit losses, though its REO operations expense is also down – driven by improving home prices. Here is a table showing Freddie’s December 2011 home price forecast (for it’s internal HPI) vs. “actuals” so far this year.

Annualized Growth Rate, Freddie Mac Home Price Index
	Dec. 2011 Forecast	"Actual"
Q1/12	-2.0%	0.6%
Q2/12	1.5%	4.9%
Q3/12	-0.5%	1.3%

Freddie noted in it’s 10-Q that “(t)he decline in (REO) expense for the 2012 periods was primarily due to improving home prices in certain geographical areas with significant REO activity, which resulted in gains on disposition of properties as well as lower write-downs of single-family REO inventory.”

Beginning next year, Freddie Mac’s dividend payment on Treasury’s senior preferred stock will change in a fashion that makes it impossible for Freddie Mac (or Fannie Mae) to Here is an excerpt from Freddie’s 10-Q.

“We currently pay cash dividends to Treasury at an annual rate of 10%. On August 17, 2012, Freddie Mac, acting through FHFA, as Conservator, and Treasury entered into a third amendment to the Purchase Agreement, that, among other items, changed our dividend payments on the senior preferred stock. For each quarter from January 1, 2013 through and including December 31, 2017, the dividend payment will be the amount, if any, by which our net worth at the end of the immediately preceding fiscal quarter, less the applicable capital reserve amount, exceeds zero. The applicable capital reserve amount will be $3 billion for 2013 and will be reduced by $600 million each year thereafter until it reaches zero on January 1, 2018. For each quarter beginning January 1, 2018, the dividend payment will be the amount, if any, by which our net worth at the end of the immediately preceding fiscal quarter exceeds zero. If the calculation of the dividend payment for a quarter does not exceed zero, then no dividend will accrue or be payable for that quarter.”

As Freddie noted, “(t)his effectively ends the circular practice of Treasury advancing funds to us to pay dividends back to Treasury, and “(a)s a result of this amendment, over the long term, our future profits will effectively be distributed to Treasury.” This change, of course, eliminates the possibility that the GSEs can re-build capital.

CR Note: Freddie's REO declined to 50,913 houses, down from 53,271 in Q2. I'll have more on REO when Fannie reports.

by Calculated Risk on 11/07/2012 12:31:00 PM

From the US Court: Bankruptcy Filings Down in Fiscal Year 2012

Bankruptcy cases filed in federal courts for fiscal year 2012, the 12-month period ending September 30, 2012, totaled 1,261,140, down 14 percent from the 1,467,221 bankruptcy cases filed in FY 2011, according to statistics released today by the Administrative Office of the U.S. Courts.
...
For the 12-month period ending September 30, 2012, business bankruptcy filings—those where the debtor is a corporation or partnership, or the debt is predominantly related to the operation of a business—totaled 42,008, down 16 percent from the 49,895 business filings reported in the 12-month period ending September 30, 2011.

Non-business bankruptcy filings totaled 1,219,132, down 14 percent from the 1,417,326 non-business bankruptcy filings in September 2011.

The number of filings for the quarter ending Sept 2012 were the lowest since 2008.

Click on graph for larger image.

This graph shows the business and non-business bankruptcy filings by year since 1987.

Note: The peal in 2005 was due to the so-called "Bankruptcy Abuse Prevention and Consumer Protection Act of 2005". (a good example of Orwellian named legislation).

This is another indicator of less economic stress.

by Calculated Risk on 11/07/2012 09:49:00 AM

The economic data has already shown some impact from Hurricane Sandy, and we will see more over the next couple of months. As an example, auto sales were down in the Northeast at the end of October, home listings were down in New York and New Jersey in early November, and this morning the MBA reported mortgage applications were down sharply in those states.

Goldman Sachs analysts Sven Jari Stehn and Shuyan Wu tried to quantify the short term impact: The Effect of Hurricane Sandy on Near-Term Economic Activity

1. Employment dips and rebounds ... Both nonfarm payrolls and household employment typically fall one month after landfall and then rebound in the following two months. Our estimates suggest that the hit of Hurricane Sandy on November employment might be around 20,000 with a rebound in December and January. ...

2. ...as claims rise and fall slowly. Initial jobless claims typically rise over the first three weeks after landfall before gradually falling back over the subsequent two months. Our analysis suggests that Hurricane Sandy might push initial jobless claims up by around 14,000 in the week ended November 17 and that it might take until late December for the distortion to disappear entirely from the claims report.

3. Small effects on housing and manufacturing. ... we find that housing starts tend to rise only by a few thousand units in the aftermath of storms as rebuilding of damaged houses begins. Regional manufacturing surveys typically weaken following hurricanes, but the effect is small. Our results would suggest that manufacturing surveys in the affected states—the Empire and Philadelphia Fed indexes—might weaken temporarily by a point or two in December due to Hurricane Sandy, but this is likely to be hard to distinguish from statistical noise.
...
[W]e conclude that we should expect a notable hit to labor market indicators but only small effects on regional manufacturing surveys and construction activity over the next couple of months.

This will be something to keep in my mind as data is released over the next couple of months. Best wishes to all recovering from the hurricane.

by Calculated Risk on 11/07/2012 07:02:00 AM

From the MBA: Storm Leads to Decrease in Mortgage Applications

The Refinance Index ... decreased 5 percent from the previous week. The Refinance Index has declined for five straight weeks and is at its lowest level since the end of August. The seasonally adjusted Purchase Index decreased 5 percent from one week earlier.

“Last week’s storm had a significant impact on application volumes on the East Coast,” said Mike Fratantoni, MBA’s Vice President of Research and Economics. “Applications fell more than 60 percent compared to the prior week in New Jersey, almost 50 percent in New York and nearly 40 percent in Connecticut. Other East Coast states also saw declines over the week, while many states in other parts of the country had increases in application volumes.”

The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,500 or less) decreased to 3.61 percent from 3.65 percent, with points increasing to 0.45 from 0.39 (including the origination fee) for 80 percent loan-to-value ratio (LTV) loans.

Some of this decline in activity was related to Hurricane Sandy.

Click on graph for larger image.

This graph shows the MBA mortgage purchase index. The purchase index has been mostly moving sideways over the last two years.

As Fratantoni noted, some states in the Northeast had a sharp decline in activity: "Applications fell more than 60 percent compared to the prior week in New Jersey, almost 50 percent in New York and nearly 40 percent in Connecticut." Most of those areas will bounce back fairly quickly.

by Calculated Risk on 11/06/2012 05:09:00 PM

A new post for comments and a few election resources:

The WSJ is free online tonight.

CNBC: National election results

From the WaPo: Coming at 6 p.m. ET: Live election results for each state and county

Times polls close in a few key states:

7 PM ET: Polls close in Virginia.

7:30 PM ET: Polls close in Ohio and North Carolina.

8:00 PM: Polls close in Florida and New Hampshire.

9:00 PM: Polls close in Wisconsin and Colorado.

10:00 PM: Polls close in Nevada and Iowa.

Note: I'll add more resources based on comments ...

UPDATE FROM Nemo:

Intrade

Betfair (Take reciprocals of the back/lay numbers to get probabilities)

Profoundly strange (Betting market manipulation? at Self Evident )

UPDATE 2:

Nate Silver's FiveThirtyEight

Ezra Klein's Wonkblog