by Calculated Risk on 3/26/2012 03:57:00 PM

From housing economist Tom Lawler:

Several media stories, including one from NPR/ProPublica, suggest that new analysis by folks at Fannie and Freddie indicate that engaging in some principal reduction modifications may be cost effective to the GSEs.

At least one of these stories, however, made what appears to be a “most erroneous” statement. E.g. a ProPublica reporter, in a follow-up article to the original NPR/ProPublica article on this issue, wrote that the GSE’s analysis suggested that “(s)uch loan forgiveness wouldn’t just help hundreds of thousands of families (stay) in their homes,” but “it would help save Freddie and Fannie money,” which “would help taxpayers…”

That latter statement, however, appears to be incorrect. Other reports, including an interview with Freddie’s CEO, indicate that the GSEs’ analysis finds that principal reductions would be “cost effective” for the GSEs ONLY after factoring in the new, turbo-charged incentives Treasury would pay to the GSEs (and other lenders/investors) for doing a principal reduction under HAMP. Such incentives -- which were recently tripled, and which the administration recently agreed would be paid to the GSEs as well as other HAMP participants (the GSEs didn’t use to get any HAMP incentives) – are obviously paid for by the government/taxpayers.

HousingWire reported on Friday, e.g., that Freddie CEO “Ed” Haldeman said the following at a symposium:

"I have to say recently the Treasury sweetened the program and tremendously increased the incentive payments in their offer to us. We will reevaluate that to see what may be in our economic best interest. If there are very large incentive payments — which could be 50% of what you could write down — it may be in our economic self-interest to participate in that."

So here’s the “taxpayer” scoop: as best as I can tell, the GSEs’ analysis (which, to be fair, some have questioned) suggests that principal reductions would NOT make sense for them (or, implicitly, for taxpayers) without any Treasury/taxpayer incentive payments. However, IF the GSEs receive hefty incentive payments from Treasury/taxpayers to engage in principal reductions, then in some cases doing so WOULD make sense to the GSEs – but NOT to taxpayers!

CR Note: Hopefully the analysis will be released!

by Calculated Risk on 3/26/2012 01:22:00 PM

I still think QE3 is likely around mid-year. Fed Chairman Bernanke's comments this morning that the "job market remains far from normal", and that he views the high unemployment rate as cyclical, not structural (I think this is obvious), suggests the Fed remains ready to take more action.

The next two meetings of the FOMC (April 24th and 25th, and June 19th and 20th) are both two day meetings. Although the Fed remains data dependent, I think they might hint at further action in April, and possibly announce QE3 in June.

From Kristina Peterson and Jon Hilsenrath at the WSJ: Bernanke Notes Labor Market Concerns

Federal Reserve Chairman Ben Bernanke said low interest-rate policies were needed to confront deep, continuing problems in the labor market.

The comments run counter to a view that has emerged in financial markets recently that the Fed is preparing to back away from its low-interest-rate policies. ... Mr. Bernanke's comments indicate that his own views about policy haven't shifted as much as the markets have in recent weeks.
...
Mr. Bernanke avoided trying an answer another question: Whether the Fed will launch another bond-buying program, known to many as "quantitative easing," to push long-term interest rates even lower. The Fed has clearly left the door open to another program, but hasn't made any decisions on whether or how to proceed on that front. Mr. Bernanke's comments Monday suggested another round of bond buying is still on the table if the economy slows or unemployment starts rising again, but it's not a sure thing.

Goldman Sachs economists wrote in early March:

We expect that the Fed will ultimately announce a return to balance sheet expansion sometime in the first half of 2012, likely including purchases of mortgagebacked securities (MBS).

At the same time, Merrill Lynch noted:

In our view, it is wishful thinking to believe the Fed will do QE when the data flow is healthy. We expect renewed QE only after Operation Twist ends in June ... only if the economy is slowing ... Under our growth forecast ... QE3 comes in September.

If the economy slows, and key inflation measures start falling again - then QE3 remains likely. But right now, with most data somewhat better than expected, and inflation a little higher than the Fed's target, the Fed is still in "wait and see" mode.

If we look at the most recent projections, the unemployment rate has fallen a little faster than expected, GDP has been a little stronger, and inflation is a little higher. My guess is the decline in the unemployment rate will slow, and inflation will ease - so I think QE3 remains likely around mid-year.

by Calculated Risk on 3/26/2012 10:00:00 AM

From the NAR: Pending Home Sales Ease in February but Solidly Higher Than a Year Ago

The Pending Home Sales Index, a forward-looking indicator based on contract signings, eased 0.5 percent to 96.5 in February from 97.0 in January but is 9.2 percent above February 2011 when it was 88.4. The data reflects contracts but not closings.
...
The PHSI in the Northeast slipped 0.6 percent to 77.7 in February but is 18.4 percent above a year ago. In the Midwest the index jumped 6.5 percent to 93.8 and is 19.0 percent higher than February 2011. Pending home sales in the South fell 3.0 percent to an index of 105.8 in February but are 7.8 percent above a year ago. In the West the index declined 2.6 percent in February to 99.3 and is 1.8 percent below February 2011.

This was below the consensus of a 1.0% increase for this index.

Contract signings usually lead sales by about 45 to 60 days, so this is for sales in March and April.

by Calculated Risk on 3/26/2012 08:57:00 AM

The Chicago Fed released the national activity index (a composite index of other indicators): Index shows economic growth near average in February

Led by weaker production-related indicators, the Chicago Fed National Activity Index decreased to –0.09 in February from +0.33 in January. ...

The index’s three-month moving average, CFNAI-MA3, increased from +0.22 in January to +0.30 in February—its highest level since May 2010. February’s CFNAI-MA3 suggests that growth in national economic activity was above its historical trend. The economic growth reflected in this level of the CFNAI-MA3 suggests limited inflationary pressure from economic activity over the coming year.

This graph shows the Chicago Fed National Activity Index (three month moving average) since 1967.

Click on graph for larger image.

This suggests growth near trend in February - still not strong growth.

According to the Chicago Fed:

A zero value for the index indicates that the national economy is expanding at its historical trend rate of growth; negative values indicate below-average growth; and positive values indicate above-average growth.

by Calculated Risk on 3/26/2012 08:11:00 AM

From Fed Chairman Ben Bernanke: Recent Developments in the Labor Market

We have seen some positive signs on the jobs front recently, including a pickup in monthly payroll gains and a notable decline in the unemployment rate. That is good news. At the same time, some key questions are unresolved. For example, the better jobs numbers seem somewhat out of sync with the overall pace of economic expansion. What explains this apparent discrepancy and what implications does it have for the future course of the labor market and the economy?
...
A wide range of indicators suggests that the job market has been improving, which is a welcome development indeed. Still, conditions remain far from normal, as shown, for example, by the high level of long-term unemployment and the fact that jobs and hours worked remain well below pre-crisis peaks, even without adjusting for growth in the labor force. Moreover, we cannot yet be sure that the recent pace of improvement in the labor market will be sustained. Notably, an examination of recent deviations from Okun's law suggests that the recent decline in the unemployment rate may reflect, at least in part, a reversal of the unusually large layoffs that occurred during late 2008 and over 2009. To the extent that this reversal has been completed, further significant improvements in the unemployment rate will likely require a more-rapid expansion of production and demand from consumers and businesses, a process that can be supported by continued accommodative policies.

I also discussed long-term unemployment today, arguing that cyclical rather than structural factors are likely the primary source of its substantial increase during the recession. If this assessment is correct, then accommodative policies to support the economic recovery will help address this problem as well. We must watch long-term unemployment especially carefully, however. Even if the primary cause of high long-term unemployment is insufficient aggregate demand, if progress in reducing unemployment is too slow, the long-term unemployed will see their skills and labor force attachment atrophy further, possibly converting a cyclical problem into a structural one.

If this hypothesis is wrong and structural factors are in fact explaining much of the increase in long-term unemployment, then the scope for countercyclical policies to address this problem will be more limited. Even if that proves to be the case, however, we should not conclude that nothing can be done. If structural factors are the predominant explanation for the increase in long-term unemployment, it will become even more important to take the steps needed to ensure that workers are able to obtain the skills needed to meet the demands of our rapidly changing economy.

by Calculated Risk on 3/25/2012 07:16:00 PM

From the Financial Times: Merkel set to allow firewall to rise

Senior European officials ... would allow the €440bn [EFSF] ... to keep running when a new permanent €500bn fund, called the European Stability Mechanism, starts up in the middle of this year.

[With] about €200bn committed to Greek, Irish and Portuguese bailouts, the total available would be €740bn. ... the system to fall back to €500bn once the EFSF expires in mid-2013.
excerpt with permission

This is probably still not enough to bailout Spain or Italy.

And from Bloomberg:

German Chancellor Angela Merkel and her finance minister, Wolfgang Schaeuble, have abandoned their opposition to combining the two funds, Der Spiegel reported yesterday, citing unnamed government officials. The two leaders have agreed that the EFSF and ESM may be “in operation” for a transitional period, the magazine reported.

The focus by policy makers and investors has shifted over recent weeks from Greece to Spain, where Prime Minister Mariano Rajoy is struggling to reduce the country’s budget deficit in the face of a looming recession.

Rajoy faces his first general strike on March 29 as unions protest against changes to employment laws making it cheaper to fire workers and cut wages. Three months after coming to power, he is due to present the 2012 budget on March 30, which is designed to cut the deficit.

Yesterday:
• Summary for Week ending March 23rd
• Schedule for Week of March 25th

by Calculated Risk on 3/25/2012 01:20:00 PM

Kathleen Pender has some details at the SF Chronicle: Harp 2 mortgage-refinance program

Harp 2 got into full swing last week after Fannie Mae and Freddie Mac updated their automated underwriting systems ... Fannie and Freddie updated their systems March 17 and 15, respectively. That means lenders can now refinance any loans, and do it more efficiently. ...

Banks are free to add their own requirements, and some have. Wells Fargo spokesman Jim Hines says, "We also employ minimum credit standards to ensure customers have capacity to repay the mortgage." Some banks, including Chase and Bank of America, are not refinancing loans under Harp 2 that they do not already service. ... originators - who often continue to service loans they sell to Fannie or Freddie - don't want all the headaches associated with servicing defaulted loans. That's why some lenders are still imposing loan-to-value limits and other requirements.

This means high LTV borrowers will probably have to stick with their current servicer to refinance - and the servicer can charge high fees for the refinance. Still - with the automated version - we should see an increase in HARP refinance activity.

Yesterday:
• Summary for Week ending March 23rd
• Schedule for Week of March 25th

by Calculated Risk on 3/25/2012 08:42:00 AM

From ProPublica: Fannie and Freddie: Slashing Mortgages Is Good Business

New analyses by mortgage giants Freddie Mac and Fannie Mae have added an explosive new dimension to one of the most politically charged debates about the housing crisis: Whether to reduce the amount of money beleaguered homeowners owe on their mortgages.

Their conclusion: Such loan forgiveness wouldn’t just help keep hundreds of thousands of families in their homes, it would also save Freddie and Fannie money. That, in turn, would help taxpayers, who bailed out the companies at a cost of more than $150 billion and are still on the hook for future losses.

The analyses, which have not been made public, were recently presented to the agency that controls the companies, the Federal Housing Finance Agency, according to two people familiar with the matter. Freddie Mac’s meeting with the FHFA took place last week.

ProPublica added an update:

[F]ollowing the publication of this story by ProPublica and NPR, lawmakers called on the Federal Housing Finance Administration to provide Congress with the new analyses on principal reductions by Fannie Mae and Freddie Mac.

Hopefully this will be made public, and this might lead to more principal reductions.

by Calculated Risk on 3/24/2012 04:11:00 PM

This is an unofficial list of Problem Banks compiled only from public sources.

Here is the unofficial problem bank list for March 23, 2012. (table is sortable by assets, state, etc.)

Changes and comments from surferdude808:

The FDIC got back to shuttering banks this week which contributed to the changes to the Unofficial Problem Bank List this week. In total, there were four removals and one addition, which leaves the list with 949 institutions with assets of $379.8 billion. A year ago, there were 985 institutions with assets of $431.1 billion on the list.

The removals from failure were Premier Bank, Wilmette, IL ($269 million) and Covenant Bank & Trust, Rock Spring, GA ($96 million), which is the 78th bank failure in Georgia since the inception of the crisis. The removals include two action terminations - by the Federal Reserve - against The Citizens Bank of Edmond, Edmond, OK ($262 million) and Mid America Bank & Trust Company, Dixon, MO ($129 million). Look for the Federal Reserve to ramp-up its termination of orders against community banks as it recently issued guidance to its examiners to upgrade ratings if progress has been made "when there is a demonstrated improvement in the organization's financial condition and risk management practices, and where improvement is likely to continue."

The addition this week is Orrstown Bank, Shippensburg, PA ($1.4 billion Ticker: ORRF). Next week, we anticipate for the FDIC to release its enforcement action activity during February 2012.

Earlier:
• Summary for Week ending March 23rd

by Calculated Risk on 3/24/2012 01:05:00 PM

Earlier:
• Summary for Week ending March 23rd

The key reports this week are the January Case-Shiller house price index, to be released on Tuesday, the February Durable Goods report on Wednesday, the February Personal Income and Outlays report on Friday, and the third estimate of Q4 GDP on Thursday.

There are several regional manufacturing surveys that will also be released this week. Fed Chairman Ben Bernanke will discuss the labor market on Monday and deliver two more college lectures on Tuesday and Thursday. The Thursday lecture will discuss current policy.

----- Monday, Mar 26th -----
8:00 AM ET: Speech by Fed Chairman Ben Bernanke, "Recent Developments in the Labor Market", At the National Association for Business Economics Annual Conference, Arlington, Virginia

8:30 AM: Chicago Fed National Activity Index (February). This is a composite index of other data.

10:00 AM ET: Pending Home Sales Index for February. The consensus is for a 1.0% increase in the index. Housing economist Tom Lawler (based on limited data) thinks there could be a "sizable increase" in this index.

10:30 AM: Dallas Fed Manufacturing Survey for March. The consensus is for 15.5 for the general business activity index, down from 17.8 in February.

----- Tuesday, Mar 27th -----
9:00 AM: S&P/Case-Shiller House Price Index for January. Although this is the January report, it is really a 3 month average of November, December and January.

This graph shows the nominal seasonally adjusted Composite 10 and Composite 20 indexes (the Composite 20 was started in January 2000).

The consensus is for a 3.8% decrease year-over-year in prices (NSA) in January. I expect these indexes to be at new post-bubble lows, not seasonally adjusted. The CoreLogic index declined 1.0% in January (NSA).

10:00 AM: Conference Board's consumer confidence index for March. The consensus is for a decrease to 70.4 from 70.8 last month.

10:00 AM: Richmond Fed Survey of Manufacturing Activity for March. The consensus is for a decrease to 18 for this survey from 20 in February (above zero is expansion).

12:45 PM: Fed Chairman Ben Bernanke's lecture series to college students, "The Federal Reserve and the Financial Crisis" Part 3 of 4

----- Wednesday, Mar 28th -----
7:00 AM: The Mortgage Bankers Association (MBA) will release the mortgage purchase applications index. This index has been weak this year, although this does not include all the cash buyers.

8:30 AM: Durable Goods Orders for February from the Census Bureau. The consensus is for a 2.9% increase in durable goods orders.

----- Thursday, Mar 29th -----
8:30 AM: The initial weekly unemployment claims report will be released. The consensus is for claims to increase to 350,000 from 348,000 last week.

8:30 AM: Q4 GDP (third estimate). This is the third estimate from the BEA. The consensus is that real GDP increased 3.0% annualized in Q4 (same as second estimate).

11:00 AM: Kansas City Fed regional Manufacturing Survey for March. The index was at 13 in February (above zero is expansion). This is the last of the regional Fed manufacturing surveys for March, and the surveys released earlier in the month indicated stronger expansion in March than February.

12:45 PM: Fed Chairman Ben Bernanke's lecture series to college students, "The Federal Reserve and the Financial Crisis" Part 4 of 4

----- Friday, Mar 30th -----
8:30 AM ET: Personal Income and Outlays for February.

This graph shows real Personal Consumption Expenditures (PCE) through January (2005 dollars). Real PCE increased less than 0.1% in January and has essentially been flat since October.

The consensus is for a 0.4% increase in personal income in February, and a 0.5% increase in personal spending, and for the Core PCE price index to increase 0.2%.

9:45 AM: Chicago Purchasing Managers Index for March. The consensus is for a decrease to 63.0, down from 64.0 in February.

9:55 AM: Reuter's/University of Michigan's Consumer sentiment index (final for March). The consensus is for a slight increase to 74.9 up from the preliminary reading of 74.3.

10:00 AM: Regional and State Employment and Unemployment (Monthly) for February 2012