by Calculated Risk on 10/05/2007 08:46:00 AM

From MarketWatch: Job growth rebounds to 110,000 in September

Nonfarm payrolls rose by 110,000 in September, including 73,000 in the private sector, very close to expectations of 113,000 total payrolls.

Payroll growth in July and August was revised higher by 118,000, the government said. Instead of falling by 4,000 in August, payrolls rose 89,000 after revisions. The unemployment rate ticked up to 4.7%, the highest in a year. ...

The annual benchmark revision will lower the level of employment by an estimated 297,000 as of March 2007. ... The actual revision occurs in February, but a preliminary estimate is given in October.

Here is the BLS report. Note that the decline in employment in August has been revised away. The unemployment rate increased slightly again and is now at 4.7%.

Click on graph for larger image.

This graph shows the year-over-year change in nonfarm employment. This shows the weak - but not recessionary - job growth over the last year.



Residential construction employment declined 20,000 in September, and including downward revisions to previous months, is down 191.5 thousand, or about 5.6%, from the peak in March 2006. (compare to housing starts off 30%+).

Note the scale doesn't start from zero: this is to better show the change in employment.

The initial benchmark revision shows the loss of an additional 8,000 construction jobs, but the initial report doesn't breakout residential construction.

Overall this is a stronger than expected report. Even the projected downward revision (that will be included in the January report) is smaller than expected.

by Tanta on 10/05/2007 08:45:00 AM

Because we really needed to know that 47% of you think a professional opinion about cycling vs. jogging or miniblinds vs. drapes or mary janes vs. t-straps is of more value to you than a professional opinion about stocks vs. bonds.

According to the Securities Industry and Financial Markets Association:

Washington, D.C., October 3, 2007 – A majority of adults (53%) would choose to receive financial advice over that of a personal trainer, interior designer or fashion consultant if given the opportunity, according to the findings of a recent survey conducted on behalf of the Securities Industry and Financial Markets Association (SIFMA).

Should you for some reason really care, the question was "If you could have a free consultation session with an expert, which would you choose?" The responses were:

Financial Advisor: 53%
Personal Trainer: 23%
Interior Designer: 9%
Fashion/Style Consultant: 6%
Don't Know: 8%

We have certainly managed successfully to redefine the term "expert." I for one see great opportunities for financial advisors who also offer personal training services. If you could discuss portfolio allocation while teaching yoga--good morning, CR!--you could make a fortune. (I, whose interior design has been described as "presence of the usual items of furniture" and whose fashion has been described as "clothed and shod" and whose major form of aerobic exercise is typing, am angling for the "don't know" crowd.)

by Calculated Risk on 10/05/2007 12:00:00 AM

From the Chicago Tribune: Here's a new one: Being too broke to sell

A survey of mortgage brokers suggests that one in three consumers who recently signed purchase contracts canceled in August -- up from just 4 percent three years ago, according to the research firm that conducted the survey for Inside Mortgage Finance, a trade journal.

The cancellation rate undoubtedly was fed by two scenarios playing out: Many buyers couldn't get mortgage approval because lending suddenly tightened; or, financially strained lenders yanked funding from their borrowers at the last minute.

But another factor was at work: Sellers -- not buyers -- were in trouble as their closing dates neared.

"Our office had four sales in one week that failed to close because the seller didn't have the cash," said the real estate agent, who declined to be identified because she feared office repercussions.

Actually this isn't "new"; if the seller is making the payments - and can afford the payments - the lender won't do a short sale. The only way out is for the seller to bring cash to the closing. I wrote about this in March: Escrow to Seller: "Bring Money". Tanta called this "making your downpayment after the fact."

by Tanta on 10/04/2007 05:50:00 PM

As a follow-up to CR's post below, here's a chart from the Moody's report, "Subprime Mortgage Market Update: September 2007," released yesterday.

Note that this chart calculates delinquencies as a percent of the original security balance, so these numbers may not match other delinquency measures you have seen reported that are based on current security balances.

And what seems to be driving 2006 and 2007 delinquencies?

The data show that, as we have noted in previous communications, loan performance for the 2006 subprime vintage seems to be driven primarily by the proportions of stated documentation loans and high CLTV loans backing the transactions as well as the proportion of loans that combine (or "layer") these risk characteristics. (Stated documentation loans are those loans for which the borrower's income and assets are not verified by documentation during the loan approval process and therefore are more likely to be overstated.) Interestingly, FICO scores and LTV ratios do not vary significantly between the strongest and weakest performing transactions and on average transaction performance does not appear to have been influenced by these characteristics.

by Calculated Risk on 10/04/2007 04:34:00 PM

From Bloomberg: Subprime Borrowers' Payments Should Be Fixed, FDIC's Bair Says (hat tip Brian)

Federal Deposit Insurance Corp. Chairman Sheila Bair called for payments on most subprime mortgages to be fixed at current levels.

Lenders should extend "teaser" rates on all subprime adjustable-rate mortgages if the borrowers haven't missed any payments and they live in the homes, Bair said today in New York. Modifying loans on a case-by-case basis and fixing rates for limited periods won't avert enough foreclosures, she said.

And from Congress: (hat tip NYT junkie)

House: "Miller and Rep. Linda Sánchez Introduce Legislation to Protect Consumers in Financial Distress from Losing Their Homes"

Senate: Durbin Introduces Bill to Help Hundreds of Thousands of Homeowners Avoid Foreclosure

To help families save their homes, the Durbin bill would:

* Eliminate a provision of the bankruptcy law that prohibits modifications to mortgage loans on the debtor’s primary residence, so that primary mortgages are treated the same as vacation homes and family farms.

* Extend the time frame debtors are allowed for repayment, to support long-term mortgage restructuring.

* Waive the bankruptcy counseling requirement for families whose houses are already scheduled for foreclosure sale, so that precious time is not lost as families fight to save their homes.

To further help families get back on their feet financially as they go through bankruptcy, the bill would also:

* Combat excessive fees that are sometimes charged to debtors in bankruptcy.

* Maintain debtors’ legal claims against predatory lenders while in bankruptcy.

* Reinforce that bankruptcy judges can rule on core issues rather than deferring to arbitration.

* Enact a higher homestead floor for homeowners over the age of 55, to help older homeowners who are fighting to keep their homes as they go through bankruptcy but live in states with low homestead floors.

* Reinforce that consumer protection claims are still available in bankruptcy.

And from Sentor Specter: Specter Introduces Bill To Combat Home Mortgage Crisis

And there is a growing backlash against the bailout proposals, from CNNMoney Subprime: Bailout backlash

But judging from the hundreds of reader responses CNNMoney.com has received in recent weeks, "foreclosure prevention" sounds a lot like "bailout" to many Americans, and they don't like it one bit.
...
Joseph Mason, an associate professor of finance at Drexel University and a senior fellow at Wharton, argues in a research paper released Wednesday that proposed remedies could actually make things worse and even that troubled borrowers have gotten some benefit from their loans.
...
One proposal seems to be garnering support from everyone: exempting homeowners who foreclose or otherwise have some of their mortgage debt forgiven from having to pay income tax on the forgiven amount.

Who is this "everyone"? I support no income taxes on debt forgiveness on the purchase debt (or equal amount if the homeowner refi'd), but for homeowners that borrowed money on their home - tax free using their home as an ATM - shouldn't they be liable for the taxes on that forgiven debt? What a mess.

Note: Say someone bought a house with a $200K first, and then loses the house in foreclosure. I don't think there should be any tax consequences. But if they borrowed an additional $50K tax free (now owe $250K) and then lose their home in foreclosure, I think they should be liable for taxes on the additional $50K.

by Calculated Risk on 10/04/2007 03:58:00 PM

From MarketWatch: Citizens Banking Co. takes on Miami Valley deposits (hat tip REBear)

The Citizens Banking Company of Sandusky, Ohio, got federal approval to take over the insured deposits of the failed Miami Valley Bank on Thursday, a U.S. banking regulator announced.

The Ohio Superintendent of Financial Institutions' closure of Miami Valley, which had $86.7 million in total assets and $76 million in total deposits, marks the third FDIC-insured bank to fail this year.

FDIC link is here.

by Calculated Risk on 10/04/2007 03:04:00 PM

From Bloomberg: Subprime Delinquencies Accelerating, Moody's Says (hat tip Brian)

Subprime mortgage bonds created in the first half of 2007 contain loans that are going delinquent at the fastest rate ever, according to Moody's Investors Service.

The average rate of "serious loan delinquencies" in the bonds has been higher than 2006 bonds ...

"It is shocking what you see," said Kyle Bass of Hayman Advisors LP, a Dallas-based hedge fund that reported a 400 percent return on its bet the U.S. housing market would fall. "Anything securitized in 2007 has got to have the worst collateral performance of any trust I've seen in my life."

by Calculated Risk on 10/04/2007 10:35:00 AM

From the WSJ: Rent Growth Slows a Bit In Sluggish Office Market

... the three-and-a-half year old office recovery is still under way, if showing signs of weakness. The vacancy rate hit its lowest level in six years, dropping to 12.5% in the third quarter from 12.7% in the second quarter, though the pace of absorption -- the change in the total amount of space leased nationwide -- slowed. Absorption totaled 14.8 million square feet in the third quarter compared to 17.3 million in the second.

"There is a slowdown," said Barry M. Gosin, chief executive of Newmark Knight Frank, a New York-based commercial real-estate services firm.

For my area - Orange County, CA - Jon Lansner of the O.C. Register notes: O.C. office vacancies soar

Third-quarter data from commercial real estate brokers show that renting O.C. office space has gotten suddenly easier. Why? New buildings and shuttered mortgage makers add to supply. As a result, the countywide vacancy rate ... rose to 10.9% in the last quarter vs. an average of 7.1% a year ago.

by Tanta on 10/04/2007 08:49:00 AM

Reader Avinash sends us the following from "Creditflux," which is not something I made up either:

In a new research report entitled "Leveraging CLO illiquidity premia", JP Morgan says that the combination of historically wide CLO liability spreads and near-zero default rates makes this an optimal time for buy-and-hold investors to consider investing in CLOs-squared. It says this is a way to efficiently monetise the current illiquidity created in the "spread rout of 2007".

The report concludes that CLOs-squared offer reasonably low risk relative to the underlying CLOs. Junior tranches in particular offer higher spreads than triple B and double B tranches of regular CLOs with similar or lower risk.

The researchers point out that CLOs-squared are conceptually similar to ABS CDOs, but that they are better suited for leverage. Corporate loans are simpler than subprime mortgages and hence more predictable, argues the report.

Yes, that makes a great deal of sense. These stupid subprime borrowers have been taking mortgage loans that are more complex than corporate loans, but we have no idea why nobody seems to understand what got signed at the closing table. Also, it's an excellent time for investors to look for more leverage opportunities, because this whole problem, you see, was just a matter of the underlying collateral and had nothing whatsoever to do with levering up complex derivatives or having to unwind some goofy structured deal.

Just shoot me . . .

by Tanta on 10/04/2007 07:20:00 AM

Sorry my posting was so light yesterday, but I was working on my Ten Point Plan in anticipation of being named Mortgage Czar. I actually completed Point One, no sacraments for any public figure who recommends negative amortization ARMs. Then--get this--I find out that apparently this "church-state separation" and "free speech" and some nonsense about these products being legal are going to hamper my plan. Well, jeepers, why call it a "czar" if it can't involve theocratic absolutist ukases? I mean, if it's just going to involve a bunch of posturing with no ability to imprison dissidents, I'll stick to blogging. Why bother to change out of my pajamas for that?

Fear not, though, innovation in the mortgage gig continues apace. From the Washington Post:

CitiMortgage plans to announce today that it has set aside $200 million for mortgages to Washington area residents who have limited credit histories and therefore often end up with high-cost or risky home loans. . . .

To qualify for the program, a person must be in the country legally and have alternate credit lines -- such as rental payments, utility bills or a tithing record -- that a lender can use to evaluate creditworthiness.

Gathering the paperwork to confirm these trade lines historically has been a laborious process that could take months, which often discouraged potential buyers and hurt their chances of closing a deal.

But Neighborhood Housing Services, a sister organization of District-based housing advocacy group NeighborWorks America, will use a system that automates the credit-verification process and delivers results to CitiMortgage within 48 hours.

The technology evaluates whatever information is available at the national credit bureaus as well as from other sources. . . .

Mary Lee Widener, president and chief executive of Neighborhood Housing Services, said the program is set up to comply with technical rules that allow CitiMortgage to service or collect payments for all the loans, even though the loans are resold. CitiMortgage has agreed to work with Widener's group to keep borrowers in their homes should they face job loss, illness or other events that temporarily prevent them from making payments.

"It's important to us that we have one lender to deal with in those situations," Widener said. "Our borrowers have more than their share of life events, but we've been able to stick with them, and it's very rare that we have to move to foreclose." . . .

If the best loan is with CitiMortgage, then CitiMortgage will fund that loan and sell it to Neighborhood Housing Services. The nonprofit group will then sell the loans to State Farm and Fannie Mae.

So, basically, we have CitiMortgage offering to do $200MM of "nontraditional credit history" loans, which have been around for what, 20 years? Only this time, they'll be really fast because technology is involved, and we know that the biggest problem with loans to first-time homebuyers and persons with possibly shaky credit has always been speed: you really need to do those loans just as fast as you do the ones based solely on simple-minded FICO qualification. And that thing about the importance of a single lender/servicer? Yeah, well, that would involve having some outfit like Citi actually hold the risk on these loans, and we can't have that. So let's think outside of the box: we'll sell the loans to an investor, just like we always have, and Citi will just be the servicer, like it always has, and the answer to all questions will be "I can't do that, it's not in my PSA."

Mortgage Czar? We don't need no steenkin' Mortgage Czar. We're doing just fine innovating our way out of this mess.