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Friday, August 06, 2010

FHA Refinance of Borrowers in Negative Equity Positions

by Calculated Risk on 8/06/2010 01:23:00 PM

This is the introduction of the program originally announced back in March.

From the FHA: FHA Launches Short Refi Opportunity for Underwater Homeowners

In an effort to help responsible homeowners who owe more on their mortgage than the value of their property, the U.S. Department of Housing and Urban Development today provided details on the adjustment to its refinance program which was announced earlier this year that will enable lenders to provide additional refinancing options to homeowners who owe more than their home is worth. Starting September 7, 2010, the Federal Housing Administration (FHA) will offer certain 'underwater' non-FHA borrowers who are current on their existing mortgage and whose lenders agree to write off at least ten percent of the unpaid principal balance of the first mortgage, the opportunity to qualify for a new FHA-insured mortgage.

The FHA Short Refinance option is targeted to help people who owe more on their mortgage than their home is worth - or 'underwater' - because their local markets saw large declines in home values.
Today, FHA published a mortgagee letter to provide guidance to lenders on how to implement this new enhancement. Participation in FHA's refinance program is voluntary and requires the consent of all lien holders. To be eligible for a new loan, the homeowner must owe more on their mortgage than their home is worth and be current on their existing mortgage. The homeowner must qualify for the new loan under standard FHA underwriting requirements and have a credit score equal to or greater than 500. The property must be the homeowner's primary residence. And the borrower's existing first lien holder must agree to write off at least 10% of their unpaid principal balance, bringing that borrower's combined loan-to-value ratio to no greater than 115%.

In addition, the existing loan to be refinanced must not be an FHA-insured loan, and the refinanced FHA-insured first mortgage must have a loan-to-value ratio of no more than 97.75 percent.
The FHA insured first is less than current appraised value, and the FHA is not involved in any principal reduction (that is the responsibility of the lender).

Note: this has nothing to do with that nonsense rumor yesterday about a government principal reduction program. This was previously announced in March.

Employment Report: Why the different payroll numbers?

by Calculated Risk on 8/06/2010 12:00:00 PM

Technical Update: A few readers have asked if I'm mixing SA and NSA data. Usually that is not appropriate, but I checked with the BLS, and in this special situation it is correct. I even submitted it as a question when the BLS had their first live chat back in March:

9:34 Michele Walker (BLS-CES) -
Submitted via email from Bill: Hi. The headline payroll number is seasonally adjusted, and the hiring for the 2010 Census is NSA. How would you suggest adjusting for the 2010 Census hiring to determine the underlying trend (not counting the snow storms!)?

Thanks for your question Bill.

There is an adjustment made for the 2010 Census. Before seasonally adjusting the estimates, BLS makes a special modification so that the Census workers do not influence the calculation of the seasonal factors. Specifically, BLS subtracts the Census workers from the not-seasonally adjusted estimates before running seasonal adjustment using X-12. After the estimates have been seasonally adjusted, BLS adds the Census workers to the seasonally adjusted totals. Therefore, to determine the underlying trend of the total nonfarm (TNF) employment estimates (minus the Census workers), simply subtract the Census employment from the seasonally adjusted TNF estimate.

Original Post:

Once again there is some confusion about which payroll number to report.

Basically the media is confusing people. I explained this last month: Employment Report: Which payroll number to use?

The headline payroll number for July was minus 131,000.

The number of temporary decennial Census jobs lost was 143,000.

To be consistent with previous employment reports (and remove the decennial Census), the headline number should be reported as 12,000 ex-Census. That is consistent with non-Census reports.

Instead most media reports have been using the private hiring number of 71,000 apparently because of the complicated math (subtracting -143,000 from -131,000). Private hiring is important too, but leaves out changes in government payroll and is not consistent.

I've posted all the numbers, but I've led with the headline number ex-Census - and that is especially important now since state and local governments are under pressure.

Note: early this year I announced my intention to lead with the headline number ex-Census during the period of significant decennial Census employment changes. I thought everyone would lead it this way ... oh well ... at least the decennial Census will be over soon.

Earlier employment posts today:
  • July Employment Report: 12K Jobs ex-Census, 9.5% Unemployment Rate for graphs of unemployment rate and a comparison to previous recessions.
  • Employment-Population Ratio, Part Time Workers, Unemployed over 26 Weeks

  • Employment-Population Ratio, Part Time Workers, Unemployed over 26 Weeks

    by Calculated Risk on 8/06/2010 09:50:00 AM

    Here are a few more graphs based on the employment report ...

    Percent Job Losses During Recessions, aligned at Bottom

    Longer. Deeper. And flat at the bottom. Unfortunately that describes the 2007 employment recession.

    Percent Job Losses During RecessionsClick on graph for larger image.

    This graph shows the job losses from the start of the employment recession, in percentage terms - this time aligned at the bottom of the recession (Both the 1991 and 2001 recessions were flat at the bottom, so the choice was a little arbitrary).

    The dotted line shows the impact of Census hiring. In July, there were 196,000 temporary 2010 Census workers on the payroll. The number of Census workers will continue to decline - and the gap between the solid and dashed red lines will be gone in a few months.

    Employment-Population Ratio

    The Employment-Population ratio decreased to 58.4% in July from 58.5% in June. This had been increasing after plunging since the start of the recession, and the recovery in the Employment-Population ratio was considered a good sign - but the ratio has now decreased for three consecutive months.

    Employment Population Ratio This graph shows the employment-population ratio; this is the ratio of employed Americans to the adult population.

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

    The Labor Force Participation Rate decreased to 64.6% from 64.7% in June. This is the percentage of the working age population in the labor force. This decline is very disappointing, and the rate is well below the 66% to 67% rate that was normal over the last 20 years.

    The reason the unemployment rate was steady at 9.5% was because people left the workforce - and that is not good news. As the employment picture improves, people will return to the labor force, and that will put upward pressure on the unemployment rate.

    Part Time for Economic Reasons

    Part Time WorkersFrom the BLS report:

    The number of persons employed part time for economic reasons (sometimes referred to as involuntary part-time workers) was essentially unchanged over the month at 8.5 million but has declined by 623,000 since April. These individuals were working part time because their hours had been cut back or because they were unable to find a full-time job.
    The number of workers only able to find part time jobs (or have had their hours cut for economic reasons) was at 8.53 million in July. This small decline was a little bit of good news.

    The all time record of 9.24 million was set in October 2009.

    These workers are included in the alternate measure of labor underutilization (U-6) that was steady at 16.5% in July.

    Unemployed over 26 Weeks

    Unemployed Over 26 Weeks The blue line is the number of workers unemployed for 27 weeks or more. The red line is the same data as a percent of the civilian workforce.

    According to the BLS, there are 6.,572 million workers who have been unemployed for more than 26 weeks and still want a job. This is 4.3% of the civilian workforce, just below the record set last month. (note: records started in 1948). The number of long term unemployed might have peaked ... perhaps because people are giving up.


    The underlying details of the employment report were mixed. The positives: a slgiht increase in hours worked and in hourly wages, and the slight decreases in part time workers (for economic reasons) and in the long term unemployed.

    The negatives include the weak hiring of only 12,000 ex-Census, the declines in the participation rate and employment-population rate, and the significant downward revision to the June employment report.

    Overall this was a weak report.

    Earlier employment post today:
  • July Employment Report: 12K Jobs ex-Census, 9.5% Unemployment Rate for graphs of unemployment rate and a comparison to previous recessions.

  • July Employment Report: 12K Jobs ex-Census, 9.5% Unemployment Rate

    by Calculated Risk on 8/06/2010 08:30:00 AM

    From the BLS:

    Total nonfarm payroll employment declined by 131,000 in July, and the unemployment rate was unchanged at 9.5 percent, the U.S. Bureau of Labor Statistics reported today. Federal government employment fell, as 143,000 temporary workers hired for the decennial census completed their work. Private-sector payroll employment edged up by 71,000.
    Census 2010 hiring decreased 143,000 in July. Non-farm payroll employment increased 12,000 in July ex-Census. Also June was revised down sharply to 267,000 221,000 jobs lost (revised from 125,000 jobs lost).

    Employment Measures and Recessions Click on graph for larger image.

    This graph shows the unemployment rate and the year over year change in employment vs. recessions.

    Nonfarm payrolls decreased by 131 thousand in July. The economy has lost 52 thousand jobs over the last year, and 7.7 million jobs since the recession started in December 2007.

    Ex-Census hiring, the economy added 12,000 jobs in July. The unemployment rate was steady at 9.5 percent.

    Percent Job Losses During Recessions The second graph shows the job losses from the start of the employment recession, in percentage terms (as opposed to the number of jobs lost).

    The dotted line is ex-Census hiring. The two lines will rejoin later this year when the Census hiring is unwound.

    For the current employment recession, employment peaked in December 2007, and this recession is by far the worst recession since WWII in percentage terms, and 2nd worst in terms of the unemployment rate (only early '80s recession with a peak of 10.8 percent was worse).

    This is a very weak report, especially considering the downward revision to June. The participation rate declined again, and that is why the unemployment rate was steady - and that is bad news. I'll have much more soon ...

    Update: there is much more in the next post: Employment-Population Ratio, Part Time Workers, Unemployed over 26 Weeks

    Thursday, August 05, 2010

    Jim the Realtor: Auction on the Steps

    by Calculated Risk on 8/05/2010 11:29:00 PM

    Here is an auction at the court house steps in San Diego. Jim submitted an offer on this house as a short sale at $600K. The bank never responded, and it sold for less at auction ...

    Fannie Mae: REO Inventory doubles, expected to increase "significantly"

    by Calculated Risk on 8/05/2010 07:55:00 PM

    Fannie Mae reported: "a net loss of $1.2 billion in the second quarter of 2010, compared to a net loss of $11.5 billion in the first quarter of the year." and the FHFA requested another $1.5 billion from Treasury.

    On house prices, Fannie Mae "expects home prices to decline slightly for the balance of 2010 and into 2011 before stabilizing, and that home sales will be basically flat for all of 2010."

    Fannie Mae REO Inventory Click on graph for larger image in new window.

    Fannie Mae reported that their REO inventory more than doubled since Q2 2009, from 62,615 to 129,310 in Q2 2010.

    REO: Real Estate Owned.

    See page 11 of the 2010 Second Quarter Credit Supplement (ht jb)

    This graph shows the rapid increase in REO.

    From Fannie Mae 10-Q (page 9):

    During the second quarter of 2010, we acquired approximately 69,000 foreclosed single-family properties, up from approximately 62,000 during the first quarter of 2010, and we disposed of approximately 50,000 single-family properties. The carrying value of the single-family REO we held as of June 30, 2010 was $13.0 billion, and we expect our REO inventory to continue to increase significantly throughout 2010.
    Freddie Mac and the FHA together have about the same number of REOs as Fannie Mae. When that data is released, I'll put up a chart of all three.

    Also this does not include REO held by other lenders and private-label RMBS.