by Calculated Risk on 2/15/2010 10:25:00 PM

James Hagerty at the WSJ reports on two studies, one from John Burns Real Estate Consulting Inc., and another from Standard & Poor's Financial Services LLC that both forecast most modification efforts will eventually fail - and that mods have just delayed foreclosures. The Burns forecast is for another 5 million distressed sales over the next few years. See the WSJ: Foreclosures Seen Still Hitting Prices

Hagerty reports that Burns study suggests prices will be mostly flat unless the economy turns down, and the S&P study forecasts further price declines.

S&P says current trends suggest that 70% of [modified loans] eventually will redefault.
...
Loan servicers ... seem to have "nearly exhausted the supply of plausible candidates for loan modifications" and will find that many loans are "unredeemable," the S&P study says.

As a result, servicers increasingly are looking to arrange "short sales," in which homes are sold for less than their loan balances.

This will be the year of the short sale.

by Calculated Risk on 2/15/2010 07:15:00 PM

Based on reports from Dow Jones: Juncker: Euro Zone Ready To Support Greece If Needed and the BBC: Greece 'may cut spending further', here are some comments from Jean-Claude Juncker, Luxembourg's prime minister and chairman of the 16 euro-zone finance ministers:

Greece has until March 16th to show progress on their budget. If Greece is not on track, the EU will demand extra cost cutting measures. Dow Jones quotes Juncker: "If it appears in mid-March that they are not on track we will ask for additional measures."

Juncker said the 16 euro-zone nations stand ready to help Greece.

Mr Juncker said there would be no details released of any possible bail-out. According to the BBC, Juncker said it would be "unwise" to discuss the details now.

Juncker also said that Greece will not be forced out of the euro.

It looks like this will be an issue next month (or tomorrow - you never know).

by Calculated Risk on 2/15/2010 03:51:00 PM

From Carolyn Said at the San Francisco Chronicle: Mortgage rates poised to jump as Fed cuts funds. The following predictions are excerpts from her article:

Guy Cecala, publisher of Inside Mortgage Finance. "My opinion is that rates will go up a full percentage point initially," meaning that 30-year fixed conforming loans, now hovering around 5 percent, would hit 6 percent.

Keith Gumbinger, vice president of HSH Associates, which compiles mortgage loan data, thinks that rates will slowly rise to about 5.75 percent after the Fed withdraws.

Julian Hebron, branch manager at RPM Mortgage's San Francisco office, anticipates a bump up to around 5.5 percent by summer ...

Christopher Thornberg, principal at Beacon Economics in Los Angeles [said] "Clearly, when they stop printing all that money, it's going to be a shock to the system. I have to assume that when they pull back on it, it will cause a 100- to 200-basis-points rise" to rates of 6 percent or 7 percent ...

And a couple earlier predictions:

Eric S. Rosengren, president and chief executive of the Boston Fed, expects a 50 to 75 bps increase.

Pimco's Bill Gross expects about a 50 bps increase. He also thinks the Fed will restart the program later in 2010.

My own estimate is for an increase in the spread - relative to the 10 Year Treasury - of about 35 bps (maybe 50 bps).

by Calculated Risk on 2/15/2010 01:52:00 PM

The following chart is based on data from a research paper by Andrew Sum and Ishwar Khatiwada at the Center for Labor Market Studies, Northeastern University (ht Ann):

"Labor Underutilization Problems of U.S. Workers Across Household Income Groups at the End of the Great Recession: A Truly Great Depression Among the Nation’s Low Income Workers Amidst Full Employment Among the Most Affluent"

Update: Bob Herbert at the NY Times wrote about this paper last week: The Worst of the Pain and so did Ryan McCarthy at Huffington Post: 'No Labor Market Recession For America's Affluent,' Low-Wage Workers Hit Hardest: STUDY

Click on graph for larger image in new window.

This graph shows the labor underutilization rates by household income based on the author's research and calculations.

"At the end of calendar year 2009, as the national economy was recovering from the recession of 2007-2009, workers in different segments of the income distribution clearly found themselves in radically different labor market conditions. A true labor market depression faced those in the bottom two deciles of the income distribution, a deep labor market recession prevailed among those in the middle of the distribution, and close to a full employment environment prevailed at the top. There was no labor market recession for America’s affluent."
emphasis added

A few notes:

The number of workers in each income group is not the same. Ranges were chosen based on available data. Actual income decile boundaries are provided in Appendix A of the paper.

The three categories of labor underutilization are:

Unemployed

Underemployed

Labor force reserve or hidden unemployment: "workers who express a desire for immediate employment but are not actively looking for work and thus are not counted as unemployed."

The authors calculated the total labor underutilization rate at 18.5% at the end of Q4 2009. The BLS reported U-6 at 17.3%, so this is somewhat higher rate than the BLS measure of "Total unemployed, plus all marginally attached workers plus total employed part time for economic reasons, as a percent of all civilian labor force plus all marginally attached workers"

by Calculated Risk on 2/15/2010 11:18:00 AM

A few articles this morning ...

From Bloomberg: Europe Economy Chief Calls for More Steps by Greece

The European Union’s top economic official said Greece should take more measures to cut the region’s largest budget deficit as evidence emerged that the nation may have used swaps to mask its swelling debt.

From The Times: Greece refuses EU austerity measures demand

... Olli Rehn, the new EU Commissioner for Economic and Monetary Affairs said: "Our view is that risks... are materialising, and therefore there is a clear case for additional measures.”
...
[George Papaconstantinou, Greece's Finance Minister] said: “If we announce today new measures, will that stop markets attacking Greece?

"My guess is that what will stop markets attacking Greece at the moment is a further more explicit message that makes operational what has been decided last Thursday at the European council."

And on the swaps from Simon Johnson at Baseline Scenario: Goldman Goes Rogue – Special European Audit To Follow

Remember Greece is a small country with about 10 million people. And they have a special problem because the previous government published false data on the size of their debt and deficit. The larger problem is how a single currency works when different countries have different issues ...

From Paul Krugman: The Making of a Euromess

I’ve been troubled by reporting that focuses almost exclusively on European debts and deficits ... For the truth is that lack of fiscal discipline isn’t the whole, or even the main, source of Europe’s troubles — not even in Greece, whose government was indeed irresponsible (and hid its irresponsibility with creative accounting).

No, the real story behind the euromess lies not in the profligacy of politicians but in the ... policy [of] adopting a single currency well before the continent was ready for such an experiment.