by Calculated Risk on 2/25/2011 09:15:00 PM

Update: From Cheyenne Hopkins at American Banker: Don't Believe Everything You Read: The Real Skinny on Servicer Settlement Talks (ht Nemo)

Regulators have not agreed on a dollar figure, and $20 billion is in the words of one source involved in the negotiations "a crazy figure."

From Nelson Schwartz and Eric Dash at the NY Times DealBook: 3 Banks Warn of Big Penalties in Mortgage Inquiries

Several big banks warned investors on Friday that they could face sizable financial penalties as a result of state and federal investigations into abusive mortgage practices.
...
The state and federal inquiries “could result in material fines, penalties, equitable remedies (including requiring default servicing or other process changes), or other enforcement actions, and result in significant legal costs,” Bank of America said

Wells Fargo said in its filing that it was “likely that one or more of the government agencies will initiate some type of enforcement action,” including possible “civil money penalties.”

Citigroup acknowledged that federal and state regulators were investigating its foreclosure processes, which could result in increased expenses, fines and other legal remedies ...

Earlier stories suggested the penalties and "equitable remedies" could total $20 billion for all mortgage servicers.

by Calculated Risk on 2/25/2011 06:06:00 PM

Midwest core meltdowns
Radioactive assets
Toxicity rise
by Soylent Green is People
From the FDIC: First State Bank, Mendota, Illinois, Assumes All of the Deposits of Valley Community Bank, St. Charles, Illinois

As of December 31, 2010, Valley Community Bank had approximately $123.8 million in total assets and $124.2 million in total deposits ... The FDIC estimates that the cost to the Deposit Insurance Fund (DIF) will be $22.8 million. ... Valley Community Bank is the 23rd FDIC-insured institution to fail in the nation this year, and the second in Illinois.

It is Friday ...

by Calculated Risk on 2/25/2011 04:54:00 PM

Yesterday I noted that the combined REO (Real Estate Owned) inventory for Fannie, Freddie and the FHA increased 71% compared to Q4 2009 (year-over-year comparison). As I noted, this is just a portion of the total REO inventory. Private label securities and banks and thrifts also hold a substantial number of REOs.

Click on graph for larger image in graph gallery.

This graph from economist Tom Lawler shows an estimate of all the REO inventory. Lawler writes:

Based on the FDIC’s QBP report, as well as preliminary data on REO for private-label securities (using Barclay’s Capital data, as I don’t have data from my other source yet), REO inventory at “the F’s,” FDIC-insured institutions, and PLS would look as follows [see graph]

From CR: REO inventory is still below the levels in 2008 - but not much - and that was when prices were falling quickly. I think the various lenders are a little more careful disposing of REOs now, but the level of REOs suggest downward house price pressure.

The 2nd graph (repeated from yesterday) just shows the REO inventory for Fannie, Freddie and FHA through Q4 2010.

The REO inventory for the "Fs" has increased sharply over the last year, from 172,368 at the end of 2009 to a record 295,307 at the end of 2010. Although this slowed in Q4 - as the "Fs" slowed foreclosures - this will probably increase some more in 2011.

by Calculated Risk on 2/25/2011 03:20:00 PM

This speech from Fed Vice Chair Janet Yellen provides the Fed's view of the impact of QE2: Unconventional Monetary Policy and Central Bank Communications (see Effectiveness of Asset Purchases and the associated graphs).

Yellen also commented on forward guidance:

Down the road, once the recovery is well established and the appropriate time for beginning to firm the stance of policy appears to be drawing near, the FOMC will naturally need to adjust its "extended period" guidance and develop an alternative communications strategy to shape market expectations about the policy outlook.

This is part of the timeline I outlined earlier this week: When will the Fed raise rates?

My view is the Fed will complete the $600 billion “QE2” large-scale asset purchase program (probably in June, but they may taper it off), then they will stop the reinvestment of maturing MBS and Treasury Securities (could be concurrent with the end of QE2), and then the FOMC will change the "extended period" language. That suggests the Fed will not raise until 2012 at the earliest.

Earlier today, Richmond Fed President Jeffrey Lacker suggested QE2 might end early, via MarketWatch:

Federal Reserve should seriously consider adjusting its $600 billion bond-buying program in light of a recent pickup in U.S. economic activity, said Jeffrey Lacker, president of the Richmond Federal Reserve Bank, on Tuesday.
...
“The distinct improvement in the economic outlook since the [bond-buying] program was initiated suggests taking that re-evaluation quite seriously,” Lacker said ...

I think it is very unlikely the program will end early. Note: I've heard suggestions that high oil prices might lead to an expanded QE2 (or QE3) - that also seems unlikely to me at this point. It would probably take renewed weakness in the U.S. economy before we see additional stimulus.

by Calculated Risk on 2/25/2011 12:30:00 PM

A few notes and stories ...
• The Irish election is today. The polls stay open until 10 PM (5 PM ET).
Here is the Irish Times for election results. The yield on Ireland's Ten Year bond is up to 9.35% - very near the all time high.

• There is a meeting of several EU leaders, apparently including Angela Merkel and Nicolas Sarkozy, in Helsinki on March 4th, and then a special eurozone debt crisis summit on March 11th.

• Portugal will probably be high on the agenda. The yield on Portugal's Ten Year bond is at 7.55% - an all time high.

• There has been some concern about Italy because they import a large amount of oil from Libya. The yield on Italy's Ten Year bond is up to 4.85% - but the WSJ reports Italy’s €9.5B Bond Sale Goes Smoothly.

• And on oil, Bloomberg reports: Spain Cuts Speed Limit on Highways as Oil Surges on Libya (ht Brian)

Spain will cut the speed limit on its highways, slash the price of train tickets and increase the use of biofuels after oil prices surged because of turmoil in North Africa.

Spain will reduce the speed limit on highways to 110 kilometers per hour (68 miles per hour) from 120 kilometers per hour ...

• Here are the Ten Year yields for Spain, Greece, and Belgium. Still elevated ...

by Calculated Risk on 2/25/2011 09:55:00 AM

The final February Reuters / University of Michigan consumer sentiment index increased to 77.5, the highest level in three years.

Click on graph for larger image in graphic gallery.

This was above the consensus forecast of 75.4.

In general consumer sentiment is a coincident indicator. This is still fairly low, but improving.