by Calculated Risk on 7/03/2007 10:49:00 AM

From the AP: Late Payments Rise for Home Equity Loans, Fall for Credit Cards, Painting Mixed Picture (hat tip barely)

The American Bankers Association, in its quarterly survey of consumer loans, reported Tuesday that late payments on home equity loans rose to 2.15 percent in the January-to-March quarter. That was up sharply from 1.92 percent in the final quarter of last year and was the highest since the late summer of 2005.
...
The survey also showed that the delinquency rate on a composite of other types of consumer loans, including those for autos and boats, home improvement and for certain home equity loans, increased to 2.42 percent in the first quarter. That was up from the fourth quarter's 2.23 percent delinquency rate and was the highest since the second quarter of 2001, when the economy was in a recession.

by Calculated Risk on 7/03/2007 10:27:00 AM

From Bloomberg: U.S. Pending Sales of Existing Homes Drop 3.5 Percent

Americans unexpectedly signed the fewest contracts to buy previously owned homes in more than five years in May as buyers waited for lower prices and lenders made it harder to get mortgages.

The index of signed purchase agreements, or pending home resales, dropped 3.5 percent to 97.7 from a revised 101.2 in April, the National Association of Realtors said today in Washington.
...
Economists expected pending sales to rise 0.5 percent, from an originally reported decline of 3.2 percent, according to the median of 27 forecasts in a Bloomberg News survey of economists. Estimates ranged from a drop of 2.5 percent to an increase of 2 percent.

Today's report showed that the May reading was the lowest level since September 2001, when the economy was in the midst of the last recession. April pending home resales were revised to a decline of 3.5 percent.

I usually don't follow the pending home sales index, but I wonder why was this "unexpected"? And this was for May. There was another downturn in the housing market in June.

Here is the NAR release.

by Calculated Risk on 7/02/2007 09:52:00 PM

From Bloomberg: United Capital's Devaney Halts Redemptions on Funds

United Capital Markets Holdings Inc. ... halted redemptions on some of its hedge funds that invest in subprime-mortgage bonds.
...
``We did that as a defensive move because we had an unusually high number of redemption requests and we didn't want to be a forced seller in this market,'' Gregory said in a telephone interview. One of the redemption requests was from an investor who had put up about 25 percent of the funds' money.

by Calculated Risk on 7/02/2007 05:40:00 PM

From Reuters: Paulson: Housing 'at or near bottom'

Treasury Secretary Henry Paulson said Monday the U.S. housing market correction was "at or near the bottom," although it could be some time before an upturn.

"In terms of looking at housing, most of us believe that it's at or near the bottom," he told Reuters. "It's had a significant impact on the economy. No one is forecasting when, with any degree of clarity, that the upturn is going to come other than it's at or near the bottom."

Perhaps Paulson missed the BofA Monthly Real Estate Agent Survey released on Friday. The analysts wrote:

"Another leg down in June as traffic and prices worsen further."

Or maybe Paulson missed the incredible surge in inventory in the recent housing reports.

Click on graph for larger image.

Maybe Paulson should spend a few minutes looking as this graph. This graph shows Total Inventory (new and existing homes) vs. housing starts.

Existing homes are a competing product for new homes, and the record inventory of total homes for sale will continue to negatively impact home-building activity. Until inventory drops significantly, starts will most likely continue to fall. And, with tighter lending standards, demand will probably continue to fall too. Instead of calling the bottom for home-building activity, perhaps Paulson should be looking for the next decline in housing starts.

Or maybe Paulson is just repeating the same comments he made in April:

"All the signs I look at" show "the housing market is at or near the bottom," Paulson said.

The more he repeats the same positive comments, the more he sounds like NAR economist David Lereah. (hat tip Brian for the post title)

by Calculated Risk on 7/02/2007 01:53:00 PM

Paul Krugman writes in the NY Times: Just Say AAA

(For excerpts, see Economist's View)

What do you get when you cross a Mafia don with a bond salesman? A dealer in collateralized debt obligations (C.D.O.’s) — someone who makes you an offer you don’t understand.

Krugman criticizes the rating agencies and regulators, and notes these failures have been all too common:

... you might have thought that S.& P. and Moody’s, which gave Thailand an investment-grade rating until five months after the start of the Asian financial crisis, and gave Enron an investment-grade rating until days before it went bankrupt, would by now have learned to be a bit suspicious. And you would think that the regulators, in particular the Federal Reserve, would have learned from the stock bubble and the wave of corporate malfeasance that went with it to keep a watchful eye on overheated markets.

But apparently not.

by Tanta on 7/02/2007 01:19:00 PM

It seems that not everybody is getting the point yet. From Reuters, "U.S. regulators stymie mortgage lenders again":

"I think (regulators) are coming in after the fire," said Peter Paul, president of Paul Financial LLC in San Rafael, California. "I'm a little concerned about legislating credit standards. You could start to limit credit."

Why, yes, Mr. Paul, you certainly could start to limit credit. There's a theory that those heartless regulators actually thought that was a feature, not a bug.

by Calculated Risk on 7/02/2007 11:55:00 AM

From the WSJ: New York Building's Record Price Shows Office Market's Strength

... investors agreed late last week to buy 450 Park Ave., ... for $1,589 a square foot, or about $510 million.

The price -- believed to be the most expensive on a per-square-foot basis for an office building in U.S. history -- demonstrates that trends like strong foreign currencies and the availability of equity are helping the market for commercial office space, at least in premium markets such as New York, despite concerns over tighter lending practices.
....
The 33-story building at 57th Street and Park is being sold by a partnership that includes New York State Common Retirement Fund and Taconic Investment Partners LLC, which paid $158 million, or about $492 per square foot, in 2002.
...
The contract shatters the per-square-foot record set just four weeks previously, when Italy-based Gruppo Zunino agreed to pay $1,476 a square foot for New York's 660 Madison Ave....

It doesn't look like tighter lending standards have slowed the NY commercial real estate market yet.

by Tanta on 7/02/2007 10:00:00 AM

This may not be the most hysterical article ever to appear on the subject of the subprime mortgage market, but it is certainly the most hysterical one I've yet seen on Bloomberg. Please note that I am using the term "hysterical" here in the clinical sense, not the ha-ha-funny sense. "Bear Stearns Meets Possums in Georgia as Foreclosures Increase." That's the headline.

And how did them city slickers at Bear Stearns become acquainted with southern varmints?

July 2 (Bloomberg) -- Only the possums are enjoying the backyard of 2035 Lilac Lane in Decatur, Georgia, where Wall Street titan Bear Stearns Cos. is just another homeowner by default. . . .

Bear Stearns took possession of the three-bedroom Lilac Lane house for $76,500 on March 6, according to the foreclosure deed. The owner who defaulted had purchased the house in April 2005 for $160,000 using a subprime loan that required no money down. He had been renting it out, according to the neighbor, Ford.

The lender was Meritage Mortgage Corp., one of more than 60 subprime home loan companies that have halted operations, gone bankrupt or sought buyers since the start of 2006, according to data compiled by Bloomberg. Bear Stearns had bought the mortgage from Meritage at a discount.

The firm sold the Lilac Lane house on June 28 for $84,000, said Elisa Marks, a Bear Stearns spokeswoman. That's about half the price paid two years ago. Other homes on the street sold this year for $85,000 to $185,000, according to public records.

The house's condition deteriorated while it was a rental property, Ford said. Being empty for six months only made it worse to the extent that possums had the run of the backyard, she said. . . .

Home values and the $6 trillion U.S. mortgage-backed securities market are locked in a downward spiral. Bear Stearns is bailing out one money-losing hedge fund it controls and leaving another to liquidation by creditors. Both funds invested in securities backed by subprime loans. The loans, for borrowers with bad or limited credit histories, are secured by houses such as the one on Lilac Lane. . . .

Conditions are the worst since the 1990-1991 recession, which was caused by a credit crunch that followed a boom-bust real estate cycle similar to the last seven years, Gumbinger said. Like the 2000 to 2005 boom, the previous surge in sales and prices was sparked by a decline in mortgage rates, and featured ``risky mortgage lending,'' he said.

The whole article is one of the strangest combinations of fact, hype, oversimplification and just weirdness that I've seen in a long time in the "respectable press." Look, I grew up in a part of the country in which having occasional possums--not to mention raccoons, rabbits, squirrels, chipmunks, groundhogs and, if you lived close enough to the river, the odd muskrat--in the backyard was considered, um, neither surprising nor particularly subprime. Am I imagining things, or are we beginning to see this "subprime contaigon" metaphor work itself into something a bit panicky?

by Calculated Risk on 7/02/2007 01:58:00 AM

From the WSJ: Bear Stearns Investors Await Tally on Losses

Investors in two Bear Stearns hedge funds will have to wait until as late as July 16 to learn how much money they have lost.

The Wall Street firm has had difficulty calculating the funds' fair value, apparently because many of the mortgage-related securities they hold are thinly traded and the market for them has been volatile.
...
Investors are watching the process closely because they believe that other hedge funds also are holding thinly traded mortgage-related securities, and they want to see how far Bear thinks their value has fallen.

by Calculated Risk on 7/01/2007 02:49:00 PM

There is barely a mention of the Q2 consumer spending slowdown in the weekend papers. One of the few who noticed was the ever reliable Asha Bangalore at Northern Trust: Core Inflation Is In “Comfort Zone,” Q2 Consumer Spending Should Be Noticeably Slow

The April-May data of consumer spending and a conservative assumption for June point to about a 1.7% annualized increase in consumer outlays during the second quarter. Consumer spending grew at an annual rate of 4.2% in each of the prior two quarters. This bodes poorly for headline GDP in the second quarter, after a 0.7% increase in the first quarter.

Is this just a one quarter slowdown? Or is this the beginning of a housing related slump in consumer spending?