by Calculated Risk on 9/23/2010 08:30:00 AM

The DOL reports on weekly unemployment insurance claims:

In the week ending Sept. 18, the advance figure for seasonally adjusted initial claims was 465,000, an increase of 12,000 from the previous week's revised figure of 453,000. The 4-week moving average was 463,250, a decrease of 3,250 from the previous week's revised average of 466,500.

Click on graph for larger image in new window.

This graph shows the 4-week moving average of weekly claims since January 2000.

The dashed line on the graph is the current 4-week average. The four-week average of weekly unemployment claims decreased this week by 3,250 to 463,250.

The 4-week moving average has been moving sideways at an elevated level for about 10 months - and that suggests a weak job market.

by Calculated Risk on 9/22/2010 10:42:00 PM

From Harriet Johnson Brackey at the Sun Sentinel: Man's home sold out from under him in foreclosure mistake (ht Clint)

When Jason Grodensky bought his modest Fort Lauderdale home last December, he paid cash. But seven months later, he was surprised to learn that Bank of America had foreclosed on the house, even though Grodensky did not have a mortgage.

Grodensky knew nothing about the foreclosure until July, when he learned that the title to his home had been transferred to a [Fannie Mae]. ... Bank of America has acknowledged the error and will correct it at its own expense, said spokeswoman Jumana Bauwens.

Talk about a foreclosure error. I'm surprised a notice wasn't posted on the front door. At least the property wasn't sold to another party on the court house steps - imagine if that 3rd party had shown up with an eviction notice.

by Calculated Risk on 9/22/2010 07:39:00 PM

Last month it was obvious that the consensus forecast for existing home sales was way too high. For July, the consensus was 4.65 million on a seasonally adjusted annual rate (SAAR) basis, and the National Association of Realtors (NAR) reported sales of 3.83 million SAAR (the lowest sales rate in almost 15 years).

Tomorrow (Thursday), the NAR will report existing home sales for August at 10 AM ET (existing home sales are counted when transactions close). The consensus is for an increase to 4.1 million (SAAR) in August from 3.83 million in July, and down sharply from the 5.1 million SAAR in August 2009.

Housing economist Tom Lawler is also projecting 4.1 million SAAR.

Other key numbers will be the the level of inventory and months-of-supply.

Inventory will be close to 4 million houses (not seasonally adjusted).

That would give about 11.5 months-of-supply, and that level of supply will put downward pressure on house prices.

Excluding July, the last time sales were this low was in 1997. And based on the MBA purchase index, I don't expect much of a sales increase in September or October either.

by Calculated Risk on 9/22/2010 05:18:00 PM

From Treasury: HAMP Servicer Performance Report Through August 2010

And here is the HUD Housing Scorecard.

Click on table for larger image in new window.

About 468 thousand modifications are now "permanent" - up from 422 thousand last month - and 663 thousand trial modifications have been cancelled.

The pace of new trial modifications has slowed sharply from over 150,000 in September 2009 to under 18,000 in August. The program has slowed way down.

The second graph shows the aged trials (greater than 6 months) as a percent of total trials.

According to HAMP, there are 202,521 "active trials", down from 255,934 last month.

The shows that the HAMP servicers have made progress on getting borrowers out of "modification limbo" - although the trial program was originally designed to be for 3 months - so maybe the measurement should be 4 months (instead of 6 months).

Debt-to-income ratios

If we look at the HAMP program stats (see page 3), the median front end DTI (debt to income) before modification was 44.9% - the same as last month. And the back end DTI¹ was an astounding 79.9%.

This means that for the median borrower, about 80% of the borrower's income went to servicing debt. And the median is 63.5% after the modification.

These borrowers still have too much debt, even after the modification - and that suggests an eventual high redefault rate. There have been 18,773 redefaults already. It would be nice to see percent defaults by months from when the "permanent modification" started.

¹ Back end DTI from HAMP:

Ratio of total monthly debt payments (including mortgage principal and interest, taxes, insurance, homeowners association and/or condo fees, plus payments on installment debts, junior liens, alimony, car lease payments and investment property payments) to monthly gross income.

by Calculated Risk on 9/22/2010 01:41:00 PM

Next week I'll have an estimate of the impact of the temporary decennial hiring and layoffs on the September employment report.

It is worth noting that the Census came in well under budget, and the temporary workers are almost all gone. One of the reasons the Census came in under budget was because of the quality of temporary workers hired (a small benefit from the high unemployment rate).

This month also marks the end of the weekly payroll report from the Census Bureau: "These data will continue through the end of September with the last release of data being the week of Sept. 26-Oct. 2."

Click on graph for larger image in new window.

This graph shows the number of Census workers paid each week. The red labels are the weeks of the BLS payroll survey.

The temporary Census payroll decreased to 9,820 last week, and September will be the last month with a significant impact on the employment report.

by Calculated Risk on 9/22/2010 11:14:00 AM

An update by request ...

Click on graph for larger image in new window.

This graph shows single family housing starts and the unemployment rate through August (inverted).

You can see both the correlation and the lag. The lag is usually about 12 to 18 months, with peak correlation at a lag of 16 months for single unit starts. The 2001 recession was a business investment led recession, and the pattern didn't hold.

Housing starts (blue) rebounded a little last year,and then moved sideways for some time, before declining again in May.

This is what I expected when I first posted the above graph over a year ago. I wrote:

[T]here is still far too much existing home inventory, a sharp bounce back in housing starts is unlikely, so I think ... a rapid decline in unemployment is also unlikely.

Usually near the end of a recession, residential investment¹ (RI) picks up as the Fed lowers interest rates. This leads to job creation and also household formation - and that leads to even more demand for housing units - and more jobs, and more households - a virtuous cycle that usually helps the economy recover.

However this time, with the huge overhang of existing housing units, this key sector isn't participating. So in this recovery there is less job creation, less household formation, and less demand for housing units than in a normal recovery. This is sort of a circular trap for both GDP growth and employment that will persist until the excess housing units are absorbed.

Although there are other factors impacting the unemployment rate, the weakness in RI is one of the reasons I expect the unemployment rate to tick up over the next several months.

¹ RI is mostly new home sales and home improvement.

by Calculated Risk on 9/22/2010 08:30:00 AM

Note: This index is a leading indicator for new Commercial Real Estate (CRE) investment.

Reuters reports that the American Institute of Architects’ Architecture Billings Index increased to 48.2 in August from 47.9 in July. Any reading below 50 indicates contraction.

Project cancellations continue to be the main roadblock to recovery for the construction sector, the group said.

The ABI press release is not online yet.

Click on graph for larger image in new window.

This graph shows the Architecture Billings Index since 1996. The index has remained below 50, indicating falling demand, since January 2008.

Note: Nonresidential construction includes commercial and industrial facilities like hotels and office buildings, as well as schools, hospitals and other institutions.

According to the AIA, there is an "approximate nine to twelve month lag time between architecture billings and construction spending" on non-residential construction. So there will probably be further declines in CRE investment into 2011.

by Calculated Risk on 9/22/2010 07:12:00 AM

The MBA reports: Mortgage Applications Decrease in Latest MBA Weekly Survey

The Refinance Index decreased 0.9 percent from the previous week, which is the third straight weekly decrease. The seasonally adjusted Purchase Index decreased 3.3 percent from one week earlier.
...
The average contract interest rate for 30-year fixed-rate mortgages decreased to 4.44 percent from 4.47 percent, with points decreasing to 0.81 from 1.08 (including the origination fee) for 80 percent loan-to-value (LTV) ratio loans.

Click on graph for larger image in new window.

This graph shows the MBA Purchase Index and four week moving average since 1990.

Purchase applications have declined for two consecutive weeks after rising slightly from the lows in July. Purchase applications are at about the levels of 1996 or 1997, suggesting existing home sales (closed transactions) in August, September and even October, will be weak. (Lawler's estimate is existing home sales will be around 4.1 million SAAR in August - to be reported Thursday)

by Calculated Risk on 9/21/2010 08:31:00 PM

I was going to ignore this, but I realized Tanta had written some informative and entertaining pieces that will help everyone understand the issues.

First an update from Bloomberg earlier today: Ally Says GMAC Mortgage Mishandled Affidavits on Foreclosures

Ally Financial Inc., whose GMAC Mortgage unit halted evictions in 23 states amid allegations of mishandled affidavits, said its filings contained no false claims about home loans.

The “defect” in affidavits used to support evictions was “technical” and was discovered by the company, Gina Proia, an Ally spokeswoman, said in an e-mailed statement.

The basic facts are:

The homeowners had a mortgage.

The homeowners are in default.

The lender was sloppy and filed inaccurate documents with the court.

This is great for the lawyers (fighting foreclosure), and costly for the lender, but this is nothing new - except that GMAC must not have been paying attention!

The best reporting on the GMAC story comes from 2007 (just change the name of the lender) - and you can learn all about affidavits from Tanta's posts:

From 2007: Deutsche Bank FC Problems and Revenge of the Nerd

And a follow-up in 2007: In Re Foreclosure Cases

And in 2008 on Lost Note Affidavit (LNA): Lost Note Affidavits & Skeletons in the Closet

And what Tanta wrote in 2007 applies to the GMAC stories:

To summarize: there were dollars on the table encouraging secondary market participants to get real sloppy. ... The big news here is that the true cost of doing business is belatedly showing up. I happen to think that's a more important story than was originally reported.

Another amazing story is that three years later all these lenders haven't realized how sloppy the original work was!

Note that all of these stories were for non-GSE lenders and/or loans that were in private label MBS. These guys tried to cut corners everywhere, and they are now paying the price for being sloppy. They deserve to be ridiculed ...

by Calculated Risk on 9/21/2010 06:50:00 PM

From the White House: Dr. Lawrence H. Summers, Director of the National Economic Council, to Return to Harvard University at the End of the Year

From Bloomberg: Summers to Leave White House After Election

From the NY Times: Top White House Economic Adviser to Depart

This is quite a turnover: Christina Romer, Peter Orszag, and now Lawrence Summers. I expect Treasury Secretary Timothy Geithner will stay on (just a guess) - and I have no idea who will replace Summers.