by Calculated Risk on 7/09/2015 05:52:00 PM

Headlines on Greece - and a voice of reason:

Headline only from the WSJ: New Greek economic-reform proposals appear to be closer to creditor demands

From the Financial Times: Tsipras submits new plan to bailout monitors

From the WSJ: Greece Submits Reform Proposals as Pressure Mounts to Reach Rescue Deal

“The realistic proposal from Greece will have to be matched by an equally realistic proposal on debt sustainability from the creditors,” [said Donald Tusk, the European Council president]

No word from Wolfgang Schäuble yet, but I expect "Nein, nein, nein".

Friday:
• At 12:30 PM ET, Speech by Fed Chair Janet Yellen, U.S. Economic Outlook, at The City Club of Cleveland's Sally Gries Forum Honoring Women of Achievement, Cleveland, Ohio

by Calculated Risk on 7/09/2015 01:59:00 PM

From Freddie Mac today: Global Uncertainty Pushes U.S. Mortgage Rates Lower

Freddie Mac today released the results of its Primary Mortgage Market Survey® (PMMS®), showing an investor flight to safety for U.S. Treasuries is pushing average fixed mortgage rates lower and helping to keep buyer activity strong toward the close of the spring homebuying season. ...

30-year fixed-rate mortgage (FRM) averaged 4.04 percent with an average 0.6 point for the week ending July 9, 2015, down from last week when it averaged 4.08 percent. A year ago at this time, the 30-year FRM averaged 4.15 percent.

15-year FRM this week averaged 3.20 percent with an average 0.5 point, down from last week when it averaged 3.24 percent. A year ago at this time, the 15-year FRM averaged 3.24 percent.

Click on graph for larger image.

This graph shows the 30 year and 15 year fixed rate mortgage interest rates from the Freddie Mac Primary Mortgage Market Survey®.  

30 year mortgage rates are up from the all time low of 3.35% in late 2012, but down from 4.15% a year ago. 

The Freddie Mac survey started in 1971. Mortgage rates were below 5% back in the 1950s.

by Calculated Risk on 7/09/2015 10:57:00 AM

Here is a new paper from FHFA Senior Economist Saty Patrabansh: The Marginal Effect of First-Time Homebuyer Status on Mortgage Default and Prepayment

During the housing bubble, there an increase in first time buyers as shown in the first graph below (from paper).

Also first time homebuyers defaulted at a higher rate than repeat buyers.

Patrabansh shows that the higher default rate for first-time homebuyers is related to borrower differences, and, after adjusting for these differences, first-time hombuyers defaulted at the same rate as repeat homebuyers.

 From the conclusion:

First-time homebuyer mortgages acquired by the Enterprises generally performed worse than repeat homebuyer mortgages. But fi rst-time homebuyers are also inherently diff erent from repeat homebuyers. For example, they are younger, and have lower credit scores, lower home equity, and less income and therefore are less likely to withstand fi nancial stress or take advantage of financial innovations available in the market than repeat homebuyers. In other words, in terms of many borrower, loan, and property characteristics that can be determined at the time of loan origination, the distributional make-up of fi rst-time homebuyers is somewhat weaker than that of repeat homebuyers.

Click on graph for larger image.

This graph from the paper shows the surge in first-time homebuying during the housing bubble.

Note: As I've noted before, this is one of the tragedies of the housing bubble - many people were lured into buying before they were really ready, and have soured on the homebuying experience.

Patrabansh presents several charts on the differences between first-time homebuyers and repeat buyers (see paper Appendix A). First time homebuyers are younger than repeat buyers, have lower monthly income, lower FICO scores, have a higher percentage of one borrower mortgages, took out higher LTV loans, and had a higher payment-to-income and debt-to-income ratios.

From the paper:

Once these distributional di fferences are accounted for in an econometric model, however, there appears to be virtually no di fference between the "average" first-time and repeat home- buyers in their probabilities of default. Therefore the di fference in the first-time and repeat homebuyer loan performance is due to the diff erence in distributional make-up of the two groups in terms of borrower, loan, and property characteristics and not because fi rst-time homebuyers are an inherently riskier group. As long as the borrower, property, and loan characteristics known at the time of origination are able to determine a borrower's ability to repay well and risk is priced accordingly, there should not be a concern that the average first-time homebuyer mortgages are inherently any riskier than the average repeat home- buyer mortgages once those characteristics are taken into account. Both types of mortgages can be expected to default at a similar rate if borrowers, loans, and properties are similar in all other regards.

by Calculated Risk on 7/09/2015 08:33:00 AM

The DOL reported:

In the week ending July 4, the advance figure for seasonally adjusted initial claims was 297,000, an increase of 15,000 from the previous week's revised level. The previous week's level was revised up by 1,000 from 281,000 to 282,000. The 4-week moving average was 279,500, an increase of 4,500 from the previous week's revised average. The previous week's average was revised up by 250 from 274,750 to 275,000.

There were no special factors impacting this week's initial claims.

The previous week was revised up by 1,000.

The following graph shows the 4-week moving average of weekly claims since 1971.

Click on graph for larger image.


The dashed line on the graph is the current 4-week average. The four-week average of weekly unemployment claims increased to 279,500.

This was above the consensus forecast of 275,000, however the low level of the 4-week average suggests few layoffs.

by Calculated Risk on 7/08/2015 08:04:00 PM

From the Financial Times: Lew and Lagarde raise pressure on EU to avoid Grexit.  Both the US and the IMF are pushing for debt relief, but it doesn't seem like anyone is listening.

From the WSJ: Greece Requests Three-Year Bailout in First Step Toward Meeting Creditors’ Demand

The government in Athens formally asked for a three-year bailout from the eurozone’s rescue fund on Wednesday and pledged to start implementing some economic-policy overhauls by early next week, according to a copy of the request seen by The Wall Street Journal.

But whether European leaders accept the application for more emergency loans at a crisis summit on Sunday still depends on Prime Minister Alexis Tsipras making a drastic turnaround on pension cuts, tax increases and other austerity measures after five months of often-acrimonious negotiations.

From the NY Times: Greek Debt Dispute Highlights Prospect of a Euro Exit

“We have a Grexit scenario prepared in detail,” Jean-Claude Juncker, the president of the European Commission, said on Tuesday, using the term for a Greek exit from the euro. On the other side, Greece’s leaders have decried similar comments as “blackmail.”

A grim situation - and Greece is already in a Great Depression size slump.