by Calculated Risk on 3/01/2007 11:05:00 AM

From the WSJ: Mortgage Defaults Start to Spread

The mortgage market has been roiled by a sharp increase in bad loans made to borrowers with weak credit. Now there are signs that the pain is spreading upward.

At issue are mortgages made to people who fall in the gray area between "prime" ... and "subprime" ... A record $400 billion of these midlevel loans -- which are known in the industry as "Alt-A" mortgages -- were originated last year, up from $85 billion in 2003 ... Alt-A loans accounted for roughly 16% of mortgage originations last year and subprime loans an additional 24%.
...
Data from UBS AG show that the default rate for Alt-A mortgages has doubled in the past 14 months. "The credit deterioration has been almost parallel to what's been happening in the subprime market," says UBS mortgage analyst David Liu.

by Calculated Risk on 3/01/2007 11:02:00 AM

From Bloomberg: Countrywide Says Late Payments on Subprime Loans Rose

Countrywide Financial Corp., the biggest U.S. mortgage lender, said payments were late at the end of last year on almost 20 percent of the subprime loans it tracks for other companies and investors who own them.

Delinquencies of at least 30 days on "nonprime" loans, those made to borrowers whose credit rating fell short of the highest criteria, widened to 19 percent as of Dec. 31 from 15 percent a year earlier, the Calabasas, California-based lender said in an annual regulatory filing with the U.S. Securities and Exchange Commission. The rate stood at 17 percent at the end of September, according to the company's last quarterly filing.

by Calculated Risk on 3/01/2007 12:15:00 AM

“It is impossible to get a number. And I don’t think they even know.”
Richard X. Bove, an analyst with Punk Ziegel & Company on big investment bank’s exposure to subprime loans.

NY Times: Calm Returns to Market, but Worries Persist Over Subprime Loans. Excerpts:

Wall Street now faces risks on two fronts. First, it stands to earn less from originating, packaging and trading mortgage-backed securities. Second, it will have to absorb more of the losses from loans when borrowers are no longer making payments.
...
For some analysts, the bigger risk to Wall Street is simply that the spigot has been turned off.

“Does the flow of mortgages to the securitization machine slow?” asked Jeffrey Harte, an analyst with Sandler O’Neill. “That’s what I’m most worried about.”

Volume is falling. Production of nonagency mortgage securities fell almost 50 percent between January and February, according to preliminary numbers compiled by Inside Mortgage Finance. The data indicate that new subprime and Alt-A loans fell significantly in February.

There is much more in the NY Times article.

by Calculated Risk on 2/28/2007 04:50:00 PM

It has only been during the last couple of weeks that lenders have been tightening some of their lending standards. The New Century and HSBC losses were announced on February 7th, and the Fremont lending changes were announced on Feb 12th.

These changes will probably have a measurable impact on sales in 2007. See: Subprime: The impact on Existing Home Sales in 2007

Since New Home sales are counted when contracts are signed, these changes in lending standards will probably show up in the March numbers (announced in April).

Existing home sales are counted at the close of escrow. So these changes might start showing up in the March numbers if earlier sales fail to close (announced in April) or possible in the April numbers (announced in May).

But I wouldn't expect any impact on the February numbers to be announced in March.

by Calculated Risk on 2/28/2007 12:01:00 PM

For more graphs, please see the earlier post: January New Home Sales: 0.937 Million SAAR

Click on graph for larger image.

The first graph shows New Home Sales vs. Recession for the last 35 years. New Home sales were falling prior to every recession, with the exception of the business investment led recession of 2001. This should raise concerns about a possible consumer led recession in the months ahead.


The second graph shows Not Seasonally Adjusted (NSA) New Home Sales for January.

Sales have fallen back close to the levels of '99 - '02.


The third graph shows monthly NSA New Home sales. This provides a different prospective of the housing bust.

This shows why the Spring selling season is so important in 2007. Will sales recover? Or will Spring 2007 look like 1982 or 1991 when Spring sales were disappointing.

by Calculated Risk on 2/28/2007 11:26:00 AM

The Mortgage Bankers Association (MBA) reports: Mortgage Applications Increase

This week’s results include an adjustment to account for the Presidents Day holiday. The Market Composite Index, a measure of mortgage loan application volume, was 626.1, an increase of 3.2 percent on a seasonally adjusted basis from 606.6 one week earlier. On an unadjusted basis, the Index decreased 5.4 percent compared with the previous week and was up 8.8 percent compared with the same week one year earlier.

The Refinance Index increased 1.2 percent to 1943.5 from 1921.1 the previous week and the seasonally adjusted Purchase Index increased 5.2 percent to 401.3 from 381.4 one week earlier.

Mortgage rates were mixed:

The average contract interest rate for 30-year fixed-rate mortgages decreased to 6.16 percent from 6.19 percent ...

The average contract interest rate for one-year ARMs increased to 5.92 from 5.81 percent ...

Click on graph for larger image.
This graph shows the Purchase Index and the 4 and 12 week moving averages since January 2002. The four week moving average is down 0.4 percent to 397 from 398.7 for the Purchase Index.

The refinance share of mortgage activity decreased to 43.2 percent of total applications from 44.9 percent the previous week. The adjustable-rate mortgage (ARM) share of activity decreased to 21.1 from 21.2 percent of total applications from the previous week.

by Calculated Risk on 2/28/2007 10:12:00 AM

According to the Census Bureau report, New Home Sales in January were at a seasonally adjusted annual rate of 0.937 million. Sales for December were revised up slightly to 1.123 million, from 1.120 million. Numbers for October and November were revised downwards.


Click on Graph for larger image.
Sales of new one-family houses in January 2007 were at a seasonally adjusted annual rate of 937,000 ... This is 16.6 percent below the revised December rate of 1,123,000 and is 20.1 percent below the January 2006 estimate of 1,173,000.


The Not Seasonally Adjusted monthly rate was 70,000 New Homes sold. There were 89,000 New Homes sold in January 2006.

On a year over year NSA basis, January 2007 sales were 21.3% lower than January 2006. January '07 sales were the lowest since January 2002 (66,000).


The median and average sales prices were up. Caution should be used when analyzing monthly price changes since prices are heavily revised.

The median sales price of new houses sold in January 2007 was $239,800; the average sales price was $313,000.


The seasonally adjusted estimate of new houses for sale at the end of January was 536,000.

The 536,000 units of inventory is slightly below the levels of the last six months. Inventory numbers from the Census Bureau do not include cancellations - and cancellations are at record levels. Actual New Home inventories are much higher - some estimate about 20% higher.


This represents a supply of 6.8 months at the current sales rate.


More later today on New Home Sales.

by Calculated Risk on 2/28/2007 09:46:00 AM

From MarketWatch: Fourth-quarter GDP revised down to 2.2%

The U.S. economy has now grown at a rate of less than 3% for three quarters in a row, government data show, after a significant downward revision to fourth-quarter estimates.

The economy grew at a real annual rate of 2.2% in the three months of 2006, not at the 3.5% rate reported last month, the Commerce Department said Wednesday.

While consumer spending remained healthy, slower investments in homes, businesses and inventories were a major drag on growth in the quarter.

Gross private domestic investment was revised downwards significantly, even though residential investment (RI) was essentially unchanged. RI was revised slightly from -19.2% (SAAR) to -19.1% for Q4.

Perhaps ominously, nonresidential investment was revised downwards from -0.4% to -2.4%. Investment in equipment and software was revised downwards from -1.8% to -3.2%. And nonresidential structures (a key category) was revised downwards from 2.8% to -0.8%.

As mentioned yesterday, nonresidential investment typically trails residential investment by three to five quarters. So a nonresidential investment slump, starting about now, is expected based on historical investment patterns (See Investment Lags for an analysis of the lag times, as compared to residential investment, for equipment and software, and non-residential structures).

by Calculated Risk on 2/27/2007 09:52:00 PM

Press Release: Fremont General Corporation to Postpone Release of Results for 2006

Fremont General Corporation ... a nationwide residential and commercial real estate lender doing business primarily through its wholly-owned industrial bank, Fremont Investment & Loan, today announced that it will postpone the release of its fourth quarter and full-year 2006 results of operations, as well as the conference call to discuss such results, each previously scheduled for February 28, 2007. The Company also announced that it will not file its Annual Report on Form 10-K for the fiscal year ended December 31, 2006 by March 1, 2007 and that it intends to file a Form 12b-25 with the Securities and Exchange Commission explaining the reasons therefor.

by Calculated Risk on 2/27/2007 09:34:00 PM

From the NY Times: For Manufacturing, a Recession Has Arrived

The nation’s manufacturing sector managed to slip into a recession with almost nobody seeming to notice. Well, until yesterday.

And it's not just manufacturing. See Menzie Chinn's charts at Econbrowser: The Fundamentals Are...