by Calculated Risk on 2/27/2013 03:39:00 PM

From economist Tom Lawler:

Yesterday the FDIC released its “Quarterly Banking Profile” for Q4/2012. Some of the “headline highlights” from the report, which reflects the activity at and performance of FDIC-insured financial institutions, were:

“Net Income Is More Than a Third Higher Than in Fourth Quarter 2011” despite the fact that “Banks See (Net Interest) Margins Erode,” as net income was “(bolstered by higher noninterest income and lower provisions for loan losses.” The jump in noninterest income was driven “primarily by higher gains on loan sales (up $2.4 billion, or 132.4 percent, over fourth quarter 2011), increased trading revenue (up $1.9 billion, or 75.3 percent), and reduced losses on sales of foreclosed property (down $1.2 billion, or 72 percent).” The higher gains on loans sales were driven by gains on sales of mortgages – partly reflecting higher origination volumes, but mainly reflecting extraordinarily large mortgage origination margins, which in turn partly reflected the unintended consequences of current government policy.

According to the report, the percent of loans and leases that were “noncurrent” last quarter fell to 3.60% -- the lowest rate since the end of 2008 – from 3.68% in the previous quarter and 4.19% in the fourth quarter of 2011. The % of loans secured by one-to-four family residential properties that were noncurrent last quarter was actually up from the fourth quarter of 2011, partly reflecting higher default rates on junior mortgage loans.

% of Loans & Leases Noncurrent, FDIC-Insured Financial Institutions
	2012:Q4	2012:Q3	2012:Q2	2012:Q1	2011:Q4
Total Loans & Leases	3.60%	3.86%	3.90%	4.11%	4.19%
Loans Secured by 1-4 Family Res. Mortgages	7.82%	8.07%	7.80%	7.84%	7.70%
Closed-End First Lien 1-4 Family Residential Mortgages	9.49%	9.88%	9.75%	9.87%	10.00%
Closed-End 2nd Lien 1-4 Family Residential Mortgages	5.09%	5.47%	3.86%	3.76%	3.50%
Home Equity Lines of Credit	2.88%	2.88%	2.62%	2.65%	1.83%
Other Loans & Leases	1.62%	1.84%	2.01%	2.28%	2.44%

Click on graph for larger image.

On the REO front, the report showed that the carrying value of one-to-four family REO properties at FDIC institutions declined to $8.3375 billion at the end of December, down from $8.7663 billion at then end of September and $11.6376 billion at the end of 2011.

by Calculated Risk on 2/27/2013 11:46:00 AM

At this point the biggest downside risk to the US economy is from cutting the deficit too quickly. The deficit is already declining and will continue to decline for the next few years. Additional short term deficit reduction will probably be counter productive (the focus should be on long term deficit reduction, especially health care costs). The "sequester" is bad policy - but it will probably happen anyway. Dumb.

From Brad Plumer at the WaPo Wonkblog: Bernanke: The sequester could make it harder to reduce the deficit, not easier

Federal Reserve Chairman Ben Bernanke had something to say about sequestration during his testimony before the House Banking Committee on Tuesday. He thinks the looming spending cuts could actually make it harder, not easier, to reduce the deficit. Why? They’ll hurt growth:

The CBO estimates that deficit-reduction policies in current law will slow the pace of real GDP growth by about 1-1/2 percentage points this year, relative to what it would have been otherwise.

A significant portion of this effect is related to the automatic spending sequestration that is scheduled to begin on March 1, which, according to the CBO’s estimates, will contribute about 0.6 percentage point to the fiscal drag on economic growth this year. Given the still-moderate underlying pace of economic growth, this additional near-term burden on the recovery is significant.

Moreover, besides having adverse effects on jobs and incomes, a slower recovery would lead to less actual deficit reduction in the short run for any given set of fiscal actions.

The logic here is simple enough. The sequestration cuts will drag down economic growth this year, which will mean that fewer Americans will have jobs and less tax revenue will pour in. Nothing cures deficits like stronger economic growth. And right now, Congress’s policies are standing in the way of stronger growth.

by Calculated Risk on 2/27/2013 10:14:00 AM

From the NAR: January Pending Home Sales Up in All Regions

The Pending Home Sales Index, a forward-looking indicator based on contract signings, increased 4.5 percent to 105.9 in January from a downwardly revised 101.3 in December and is 9.5 percent above January 2012 when it was 96.7. The data reflect contracts but not closings.

The January index is the highest reading since April 2010 when it hit 110.9, just before the deadline for the home buyer tax credit. Aside from spikes induced by the tax credits, the last time there was a higher reading was in February 2007 when it reached 107.9.

The PHSI in the Northeast rose 8.2 percent to 84.8 in January and is 10.5 percent higher than January 2012. In the Midwest the index increased 4.5 percent to 105.0 in January and is 17.7 percent above a year ago. Pending home sales in the South rose 5.9 percent to an index of 119.3 in January and are 11.3 percent higher January 2012. In the West the index edged up 0.1 percent in January to 102.1 but is 1.5 percent below a year ago.
emphasis added

Contract signings usually lead sales by about 45 to 60 days, so this would usually be for closed sales in February and March.

Also the NAR economist lowered his forecast for sales in 2013 to 5.0 million.  With limited inventory at the low end, and fewer foreclosures, we might see flat or even declining existing home sales this year. The key for sales is that the number of conventional sales is increasing while foreclosure and short sales decline.

by Calculated Risk on 2/27/2013 09:09:00 AM

From the MBA: Mortgage Applications Decrease in Latest MBA Weekly Survey

The Refinance Index decreased 3 percent from the previous week. The seasonally adjusted Purchase Index decreased 5 percent from one week earlier and is at its lowest level since the week ending December 28, 2012.
...
The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,500 or less) decreased to 3.77 percent from 3.78 percent, with points increasing to 0.48 from 0.40 (including the origination fee) for 80 percent loan-to-value ratio (LTV) loans.
emphasis added

Click on graph for larger image.

The first graph shows the refinance index.

The refinance activity is down over the last five weeks. Activity is still very high, but is declining from the levels of 2012.

There has been a sustained refinance boom for over a year, and 77 percent of all mortgage applications are for refinancing.

The second graph shows the MBA mortgage purchase index. The purchase index was at the low for the year last week, but the 4-week average of the index has generally been trending up over the last six months.

This index will probably continue to increase as conventional home purchase activity increases.

by Calculated Risk on 2/26/2013 09:40:00 PM

This is interesting, from the WSJ: Miami Condo Loan Marks Milestone

[A] group of lenders led by Birmingham, Ala.-based Regents Financial Corp. has agreed to lend $160 million to the developers of the Mansions at Acqualina, an ultraluxury, 47-story tower under construction in Sunny Isles Beach, near Miami.
...
The loan is the first debt deal of more than $100 million for a new condo development since the housing boom ... The lender required the builder to have completed $320 million in presales, and stipulated 50% downpayments from buyers as a condition of the loan

This is a pretty low risk loan - with the large number of presales and 50% downpayments - but it means lenders are a little more willing to make loans.

Wednesday economic releases:
• At 7:00 AM ET, the Mortgage Bankers Association (MBA) will release the results for the mortgage purchase applications index.

• Also at 8:30 AM, Durable Goods Orders for January from the Census Bureau. The consensus is for a 4.0% decrease in durable goods orders.

• At 10:00 AM, Pending Home Sales Index for January. The consensus is for a 3.0% increase in the index.

• Also at 10:00 AM, Repeat to House: Fed Chairman Ben Bernanke will deliver the "Semiannual Monetary Policy Report to the Congress", Before the Committee on Financial Services, U.S. House of Representatives