by Calculated Risk on 3/01/2007 07:50:00 PM

From Fremont:

Fremont General Corporation (the "Company"), today announced that it intends to file a Form 12b-25 with the Securities and Exchange Commission before the close of business on Friday, March 2, 2007. As previously reported by the Company, the Form 12b-25 will explain the reasons for the Company not filing today with the Securities and Exchange Commission its Annual Report on Form 10-K for the fiscal year ended December 31, 2006.

This could be interesting.

by Calculated Risk on 3/01/2007 05:59:00 PM

"The main take away from these jobless claims data is that there is a significant weakness developing in the labor market which will be validated or refuted by the February employment report."
Asha Bangalore
Northern Trust Vice President and Economist, Mar 1, 2007

Click on graph for larger image.

This graph shows the 4-week moving average of weekly claims since 1990 (for more on claims, see Dr. Bangalore's commentary today).

I think the level of concern for the 4-week moving average is around 350K (dashed line on graph).

Last week I wrote about claims: "there is nothing indicating a significant slowing of the labor market". And just one more week of typically noisy claim data hasn't changed my view, but I am watching these numbers more closely right now.

by Calculated Risk on 3/01/2007 05:34:00 PM

From AP: GMAC's Subprime Mortgages a Threat to GM

The cratering of the subprime mortgage industry could present more than just a pothole for General Motors Corp.

The world's largest auto maker disclosed Thursday that it will need more time to file its 2006 annual report with the Securities and Exchange Commission, marking the second year in a row the company has postponed the key filing.

Many analysts attribute this year's delay to a substantial hit the Detroit-based automaker might take from the exposure its part-owned finance unit _ GMAC Financial Services _ has to the business of making mortgage loans to people with weak credit or heavy debt burdens.
...
Lehman Brothers analyst Brian Johnson estimated that loan-loss provisions and writedowns of mortgage securities at ResCap could cost GM $900 million to $950 million in cash charges in the first half of this year.

Among the areas of concern to analysts and investors: At the end of the third quarter, ResCap, long viewed as the crown jewel in GMAC's businesses, held $57 billion of subprime mortgages for investment, or 77 percent of its total loans held for investment. Its exposure to "residual interest" in mortgage securities _ the high-yielding slices that suffer some of the first losses if loan defaults are higher than expected _ was $1.4 billion as of Sept. 30. Meanwhile, ResCap is one of the biggest providers of short-term "warehouse" funding to smaller mortgage lenders.

"While warehouse lending is typically secured, the recent rash of bankruptcies among smaller lenders increases the risk the company will have loss exposure with this product," said analyst Kathleen Shanley at GimmeCredit, which says investors should sell their ResCap bonds.

by Calculated Risk on 3/01/2007 03:31:00 PM

I recommend Kash's post and graphs today: New Data on House Prices

by Calculated Risk on 3/01/2007 03:04:00 PM

From the Census Bureau:

The U.S. Census Bureau of the Department of Commerce announced today that construction spending during January 2007 was estimated at a seasonally adjusted annual rate of $1,180.2 billion, 0.8 percent below the revised December estimate of $1,189.3 billion. The January figure is 1.2 percent below the January 2006 estimate of $1,194.5 billion.

Note: all dollars are seasonally adjusted, but not price adjusted.

Click on graph for larger image.

Construction spending can be divided into three parts: private residential construction, private nonresidential construction, and public construction.

Private residential construction spending continues to fall. Based on Starts, residential construction spending will continue to fall for most of 2007 as housing units currently under construction are completed.

One of the keys for the general economy is for private nonresidential construction to offset some of the declines in private residential construction. For private nonresidential, spending was flat from December to January, but spending is still 14.7% ahead of January 2006.

Unfortunately for the general economy, the typical pattern is for nonresidential investment in structures to follow residential construction with a typical lag of 4 to 5 quarters for structures (see Investment Lags).

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.