by Calculated Risk on 3/26/2010 08:18:00 AM

From the BEA:

Real gross domestic product -- the output of goods and services produced by labor and property located in the United States -- increased at an annual rate of 5.6 percent in the fourth quarter of 2009 ... Real personal consumption expenditures increased 1.6 percent in the fourth quarter.

The headline GDP number was revised down to 5.6% annualized growth in Q4 (from 5.9%). The following table shows the changes from the "advance estimate" to the "second estimate" to the "third estimate" for several key categories:

	Advance	Second Estimate	Third Estimate
GDP	5.7%	5.9%	5.6%
PCE	2.0%	1.7%	1.6%
Residential Investment	5.7%	5.0%	3.8%
Structures	-15.4%	-13.9%	-18.0%
Equipment & Software	13.3%	18.2%	19.0%

Note that PCE and Residential Investment (RI) - the two leading categories - were both revised down for Q4. This suggests that final demand was weaker in Q4 than in the previous two estimates.

by Calculated Risk on 3/25/2010 08:37:00 PM

1) From David Streitfeld and Sewell Chan at the NY Times: U.S. Plans to Expand Aid to Troubled Homeowners

One major element of the program ... will strongly encourage lenders to write down the value of loans for borrowers in modification programs. Until now, modification programs have focused on lowering interest rates.

2) From the WSJ: Europeans Agree on Bailout for Greece

Leaders of the 16-nation euro zone ... backed a deal under which they and the International Monetary Fund would jointly bail out Greece should the country's debt troubles intensify.

The agreement won't immediately trigger a Greek rescue, but it lays the groundwork for both the first intervention by the IMF in a euro-zone country and a major relaxation of the tight restrictions on country-to-country bailouts that have been a feature of the currency union since its birth.

3) Tallest office tower in Seattle is "underwater", from Eric Pryne at the Seattle Times: Columbia Center misses mortgage payment

When [Beacon Capital Partners] bought the Columbia Center in April 2007 it was 89 percent leased. The firm paid $621 million, according to county records, and borrowed a total of $480 million to help pay for the tower.

... At the Columbia Center ... almost 600,000 square feet — nearly 40 percent of the building — is listed as "available" on online commercial real-estate database Officespace.com. ... Its assessed value now is $380 million.

4) From Mary Ann Milbourn at the O.C. Register: 130,000 in Calif. due to lose jobless benefits

As many as 130,000 Californians are expected to exhaust their unemployment benefits within the next three weeks, based on estimates from the state Employment Development Department. About 3,300 already have fallen off the unemployment rolls.

Currently, the unemployed in California are eligible for up to 99 weeks of benefits — 26 weeks of regular unemployment plus four extensions and so-called FedEd relief.

Loree Levy, an EDD spokeswoman, said it was the first time in two years that the department is seeing large numbers of people running out of benefits.

by Calculated Risk on 3/25/2010 05:55:00 PM

Senior administration officials will update reporters on the Obama administration’s housing policy on Friday at 10 AM ET. This will include Michael Barr and Herbert Allison, both from Treasury, FHA Commissioner David Stevens, and Diana Farrell of the National Economic Council.

Complete details will be available tomorrow, but I've been told ...

1) Principal reduction will be optional, but it will at the top of the waterfall.

Note on current "Waterfall": Right now according to HAMP guidelines, "servicers must apply the modification steps enumerated below in the stated order of succession until the borrower’s monthly mortgage payment ratio is reduced as close as possible to 31 percent ...

Step 1: Capitalization of accrued interest and expenses.

Step 2: "Reduce the starting interest rate in increments of .125 percent to get as close as possible to the target monthly mortgage payment ratio. The interest rate floor in all cases is 2.0 percent."

Step 3: Extend the term and reamortize.

Step 4: If necessary, the servicer must provide for principal forbearance to achieve the target monthly mortgage payment ratio.

2) Servicers will be required to completely underwrite each loan.

3) Apparently after the new underwriting, the FHA might take out some of the loans. This will be interesting to see the details ...

4) TARP funds will be used to make this work (not clear how much or for what purpose).

5) These changes will apparently take effect in September.

And from the WaPo: Obama administration to order lenders to cut mortgage payments for jobless

The Obama administration plans to overhaul how it's tackling the foreclosure crisis, in part by requiring lenders to temporarily slash or eliminate monthly mortgage payments for many borrowers who are unemployed, senior officials said Thursday.
...
The administration's newest push also seeks to more aggressively help borrowers who owe more on their mortgages than their properties are worth, by encouraging lenders to cut the loan balances of millions of these distressed homeowners and possibly refinance into loans backed by the Federal Housing Administration.
...
For one, the government will for the first time provide financial incentives to lenders that cut the balance of a borrower's mortgage. ...

Second, government will double the amount it pays to lenders that help modify second mortgages ...

Third, the administration is increasingly turning to the Federal Housing Administration to help underwater borrowers who are still keeping up their payments. ...

by Calculated Risk on 3/25/2010 03:27:00 PM

One week and $2 billion to go ... (UPDATE: Mortgage News Daily says $6.1 billion left).

So the program is essentially over. We should be watching to see if 10 Year Treasury yields rise - and if mortgages take "a beating".

From the Atlanta Fed weekly Financial Highlights released today (as of last week):

Click on graph for larger image in new window.

Graph Source: Altanta Fed.

This graph shows the cumulative MBS purchases by week. From the Atlanta Fed:

The Fed purchased a net total of $10 billion of agency-backed MBS through the week of March 17. This purchase brings its total purchases up to $1.24 trillion, and by the end of the first quarter of 2010 the Fed will have purchased $1.25 trillion (thus, it is 99% complete).

The NY Fed purchased an additional net $8 billion in MBS for the week ending March 24th. This puts the total purchases at $1.248 trillion or 99.84% complete. Just $2 billion and one more week to go ...

Note: The Fed's balance sheet shows significant less MBS. As mentioned before, the difference is the NY Fed announces the purchases when they contract to buy; the Federal Reserve places the MBS on the balance sheet when the contract settles. The Fed's balance sheet will probably expand by close to $200 billion over the next two months as the remaining contract settle.

by Calculated Risk on 3/25/2010 01:28:00 PM

IMPORTANT note from CR: The following is from long time reader Shnaps (the views are his). Shnaps has been working in the mortgage industry in various capacities "since people were extending the antennas on their mobile phones". Shnaps currently serves in a key role related to HAMP at one of the largest non-prime mortgage servicers in the Nation.

Shnaps offered to write a couple of posts from the viewpoint of a servicer.

Several readers reacted negatively to Shnaps previous post. Shnaps writes: "Most HAMP applicants ARE hurting, no doubt. But that shouldn't justfy a free pass for the minority of applicants who are just trying to take advantage. That was the point of the post."

You HAFA to be kidding

One might suppose that after the abject failure that HAMP has proven to be at modifying mortgages for ’millions’ of struggling homeowners, the US Treasury might have learned something before rolling out ‘HAFA’. This scheme was briefly known, in its conceptual stage, as FAP(!) - short for ‘Foreclosure Avoidance Program’. It eventually was redubbed HAFA - which is short for ‘Home Affordable Foreclosure Alternatives’. Whatever they call it, the program’s purported goal is to help (millions?) of Americans avoid the horror of foreclosure via the slightly-less -awful ‘deed-in-lieu’ alternative.

For those just tuning in and asking “What is a ‘deed-in-lieu’?” - allow me to explain. This term is used to describe a situation in which a mortgagor voluntarily turns over the deed to the mortgaged property to the mortgagee ‘in lieu’ of a foreclosure. It’s different than the mortgagee taking ownership via foreclosure in two key ways: first, in the sense that it is ‘voluntary’, and also in that a deed transferred in this manner would come subject to any other liens. So for this to happen, realistically – there better not be any other liens. The other option HAFA incentivizes is similar – the so-called ‘short-sale’, which basically amounts to the borrower doing the bank’s customary post-foreclosure task of liquidating the collateral for them. In exchange, the borrower may receive $1500 “walkin’ around money”, forgiveness of any deficiency balance remaining, and a less-severe hit to their credit record as the cherry on top.

Sound like a good deal for the borrower? Eh, maybe. In most cases, the biggest incentive for them is that by going the HAFA route they might get back in the credit game a couple years earlier than they would by doing nothing (and being foreclosed upon).

Now if you think the borrowers have a rather minimal incentive to participate in HAFA, get a load of the, uh, not so tasty treat that HAFA wishes to serve up to second-lien holders. In a foreclosure, people seem to be fond of pointing out that such subordinate liens ‘get nothing’ insofar as their lien interest in the property is extinguished. However, that party’s claim to the money that they are owed is not otherwise diminished. For some reason, the HAFA scheme thinks that second lien holders should not only release their lien, but also waive their right to collect on the money they are owed. In exchange, they may receive as much as $3000, which might cover their administrative cost of participating in the program - provided they do enough of these deals. Hello!? This is the reason the entire program is a non-starter – virtually all of the borrowers who might be interested in this program have huge second liens.

Not that it matters, but for those wondering ‘How about the party servicing the first mortgage? What’s in it for them?’ In short: A thousand bucks, a potentially shortened timeline to liquidation, and perhaps diminished risk that the property will end up trashed. That’s not bad – except that with short-sales come tremendous opportunities for fraud in the form of collusion, and non-arms-length transactions, leading to such unwanted outcomes such as ‘flopping’.

I really don’t ‘get’ HAFA at all. I have to assume it is just being rolled out to make HAMP look like a relative success.

CR Note: This was from Shnaps who works for one of the largest non-prime mortgage servicers in the U.S. My view is HAFA will help with the process, but as I noted before, the 2nd liens are a huge stumbling block.

by Calculated Risk on 3/25/2010 12:13:00 PM

From HotelNewsNow.com: STR: NYC leads weekly occupancy rate gains

Overall, the U.S. industry’s occupancy ended the week with a 5.2-percent increase to 61.4 percent. Average daily rate dropped 1.9 percent to finish the week at US$98.30. Revenue per available room for the week was up 3.2 percent to US$60.39—the third consecutive week that RevPAR experience a year-over-year increase.

The following graph shows the occupancy rate by week since 2000, and the rolling 52 week average occupancy rate.

Click on graph for larger image in new window.

Note: the scale doesn't start at zero to better show the change.

The graph shows the distinct seasonal pattern for the occupancy rate; higher in the summer because of leisure/vacation travel, and lower on certain holidays.

Although the occupancy rate is up 5.2% over the same week last year, the level is still well below normal - the average occupancy rate for this week is close to 65%, significantly above the current 61.4%.

The low than normal occupancy rate is still pushing down room rates (on a YoY basis) although revenue per available room (RevPAR) increased for the third straight week.

Data Source: Smith Travel Research, Courtesy of HotelNewsNow.com

by Calculated Risk on 3/25/2010 10:04:00 AM

Fed Chairman Ben Bernanke is testifying before the House Committee on Financial Services: Federal Reserve's exit strategy

This is mostly a technical discussion, but the Q&A might be interesting.

Here is the CNBC feed.

Here is the C-Span Link (updated link)

by Calculated Risk on 3/25/2010 08:30:00 AM

The DOL reports on weekly unemployment insurance claims:

In the week ending March 20, the advance figure for seasonally adjusted initial claims was 442,000, a decrease of 14,000 from the previous week's revised figure of 456,000. The 4-week moving average was 453,750, a decrease of 11,000 from the previous week's revised average of 464,750.
...
The advance number for seasonally adjusted insured unemployment during the week ending March 13 was 4,648,000, a decrease of 54,000 from the preceding week's revised level of 4,702,000.

Click on graph for larger image in new window.

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

The four-week average of weekly unemployment claims decreased this week by 11,000 to 453,750.

The dashed line on the graph is the current 4-week average. The current level of 442,000 (and 4-week average of 453,750) is still high, and suggests continuing weakness in the jobs market. Note: There is no way to compare directly between weekly claims, and net payrolls jobs.

Note: by request, next week I'll post a graph as a percent of covered employment.

by Calculated Risk on 3/24/2010 11:58:00 PM

From Sewell Chan at the NY Times: China Says It Will Not Adjust Policy on the Exchange Rate

After meeting with officials at the Treasury and Commerce Departments on Wednesday, China’s deputy commerce minister, Zhong Shan, told reporters, “The Chinese government will not succumb to foreign pressures to adjust our exchange rate."
...
“It is wrong for the United States to jump to the conclusion that China is manipulating currency from the sheer fact that China is enjoying a trade surplus,” Mr. Zhong told reporters in a meeting at the Chinese Embassy. “Besides, it’s wrong for the United States to press for the appreciation of the renminbi and threaten to impose punitive tariffs on Chinese experts. This is unacceptable to China.”

This is more posturing before the Treasury releases the worldwide currencies report on April 15th that might name China a "currency manipulator".

by Calculated Risk on 3/24/2010 08:01:00 PM

From Fed Vice Chairman Donald Kohn: Homework Assignments for Monetary Policymakers

Kohn's assignments:
1) "One assignment is to evaluate the implications of the changing character of financial markets for the design of the liquidity tools the Federal Reserve has at its disposal when panic-driven runs on banks and other key financial intermediaries and markets threaten financial stability and the economy."

2) "In addition to providing liquidity on an unprecedented scale, we reduced our policy interest rate (the target for the rate on overnight loans between banks) effectively to zero, and then we continued to ease financial conditions and cushion the effect of the financial shock on the economy by making large-scale purchases of several types of securities. My second assignment involves improving our understanding of the effects of those purchases and the associated massive increase in bank reserves."

3) "Number three involves considering whether central banks should use their conventional monetary policy tool--adjusting the level of a short-term interest rate--to try to rein in asset prices that seem to be moving well away from sustainable values, in addition to seeking to achieve the macroeconomic objectives of full employment and price stability."

4) "The fourth and final assignment concerns whether central banks should adjust their inflation targets to reduce the odds of getting into a situation again where the policy interest rate reaches zero."

All four topics are interesting ... Kohn believes that the inflation target should be around 2%, and that the impact on rates from the MBS purchase program "comes mainly from the total amount we purchase relative to the total stock of debt outstanding", not the flow of purchases - suggesting little increase in mortgage rates when the Fed stops buying MBS in a week.