by Calculated Risk on 3/20/2009 11:30:00 AM

UPDATE: Here is the transcript of Bernanke's speech.

Federal Reserve Chairman Ben Bernanke will speak at Noon ET on "The Financial Crisis and Community Banking", at the Independent Community Bankers of America’s convention in Phoenix, AZ.

I expect CNBC to cover this ...

Here is the CNBC feed.

by Calculated Risk on 3/20/2009 11:12:00 AM

In addition to watching for bank failures this afternoon, the 2nd largest mall owner in the U.S. - General Growth Properties - is facing a significant deadline:

From the WSJ: General Growth Shakes Up Executive Ranks

[General Growth's] most critical deadline is 5 p.m. Friday, when it hopes the majority of its bondholders will have agreed to refrain from demanding payment this year on $2.25 billion in bonds. If that effort fails, General Growth says it might need to seek Chapter 11 bankruptcy protection.

Yesterday: Moody's Cuts General Growth To Last Pre-Default Level

Moody's Investors Service lowered its ratings on debt-laden mall owner General Growth Properties Inc. (GGP) and some of its subsidiaries to C, the last stop before default, after the company let a $395 million bond payment pass without a payment earlier this week.
...
On Wednesday, Standard and Poor's Ratings Services lowered its credit ratings on the company to default on the missed bond payment.

by Calculated Risk on 3/20/2009 09:03:00 AM

From HotelNewsNow.com: STR reports U.S. hotel data for week ending 14 March

The U.S. hotel industry posted declines in three key performance measurements during the week of 8-14 March 2009, according to data from STR..

In year-over-year measurements, the industry’s occupancy fell 15.7 percent to end the week at 55.2 percent. Average daily rate dropped 11.2 percent to finish the week at US$99.60. Revenue per available room for the week decreased 25.1 percent to finish at US$55.02.

Click on graph for larger image in new window.

This graph shows the YoY change in the occupancy rate (3 week centered average).

The three week average is off 14.4% from the same period in 2008.

Note that the average daily rate dropped significantly too, so RevPAR (Revenue per available room) is off 25.1% from last year.

Data Source: Smith Travel Research, Courtesy of HotelNewsNow.com

by Calculated Risk on 3/20/2009 01:45:00 AM

From the FDIC: FDIC Closes Sale of Indymac Federal Bank, Pasadena, California

The Federal Deposit Insurance Corporation (FDIC) has completed the sale of IndyMac Federal Bank FSB, Pasadena, California, to OneWest Bank, FSB, a newly formed Pasadena, California-based federal savings ...

IndyMac Federal sustained losses of $2.6 billion in the fourth quarter 2008 due to deterioration in the real estate market. The total estimated loss to the Deposit Insurance Fund is $10.7 billion.

The original loss estimate was $4 to $8 billion, and that estimate was later increased to $8.9 billion. Now it is $10.7 billion.

Ouch.

by Calculated Risk on 3/19/2009 09:11:00 PM

From the WSJ: Travel Spending Sinks Sharply

Spending on travel and tourism declined last year for the first time since the Sept. 11, 2001, terrorist attacks, the Commerce Department said Thursday, as Americans canceled vacations, a strong dollar kept foreigners away and businesses slashed travel budgets.

Spending fell at a 22% annualized rate in the October through December quarter, compared with the prior three-month period. The decline was the sharpest since the government's quarterly records began in 2001, topping the 19% drop after the terrorist attacks that year.

As a result, the trillion-dollar industry -- a major employer in the U.S. -- is reeling ...

More cliff diving ... and more bad news for the hotel industry.

by Calculated Risk on 3/19/2009 04:55:00 PM

From Zach Fox at the North County Times: HOUSING: Banks selling properties in bulk for cheap

Lenders have become so overwhelmed by the foreclosure crisis that they are starting to unload properties in bulk to investor groups at steep discounts.

Investors then flip the properties for a profit without necessarily improving the home.

For example, a unit of Citigroup, the troubled financial giant, sold a foreclosure in Temecula to an Arizona investment firm for $139,000 when comparable homes in the area were selling for $240,000 to $260,000.

The firm listed the home for $249,000, received multiple offers and the property has entered escrow, said Amber Schlieder, the real estate agent who handled the listing.

...the Temecula foreclosure was first listed for sale by Citigroup in May 2007 for $420,000, according to Multi-Regional Multiple Listing Service ...

The property was listed on the site for 19 months before selling to the investors in a bulk sale in December 2008. The lowest price it was listed for was $314,000.

"It should have been listed for less," said Craig Finlayson, a real estate agent in the area who listed the property for Citigroup. "But it would have sold for more than 139 (thousand); 139 was a giveaway price."

There is much more in the story.

I'm hearing stories frequently of banks selling REOs far below market prices, only to have local investors flip the properties.

A reader sent me some info on a property in Redwood City that is typical. The lender turned down two short sale offers at close to $649,000, and then, after foreclosing on the property, the bank listed the property at $509,000. The property sold for $493,000 all cash, even though there were other offers above the list price.

What is going on? I think the lenders are swamped, and this is OPM (other people's money). The money doesn't belong to the people making the decisions, and it is hard for them to accept a short sale, and after foreclosure, it is probably easier for them to just take a check and get the property off their desk. The result is the banks make a series of less than optimal decisions, and they leave money on the table at several points in the process.

In the story above, Citigroup left $100,000 on the table with just this one property.

by Calculated Risk on 3/19/2009 04:37:00 PM

From the Fed:

The Federal Reserve Board on Thursday announced that the set of eligible collateral for loans extended by the Term Asset-Backed Securities Loan Facility (TALF) is being expanded to include four additional categories of asset-backed securities (ABS):

ABS backed by mortgage servicing advances

ABS backed by loans or leases relating to business equipment

ABS backed by leases of vehicle fleets

ABS backed by floorplan loans

Mortgage servicing advances are loans extended by residential mortgage servicers to cover payments missed by homeowners. Accepting ABS backed by mortgage servicing advances should improve the servicers' ability to work with homeowners to prevent avoidable foreclosures. The additional new ABS categories complement the consumer and small business loan categories that were already eligible--ABS backed by auto loans (including auto floorplan loans), credit cards loans, student loans, and SBA-guaranteed small business loans.

The new categories of collateral will be eligible for the April TALF funding. Additional details on the April funding will be released on March 24. Subscriptions for the April funding will be accepted on April 7, and those loans will settle on April 14.

The subscription period for the first TALF funding ends today. The requested loans will settle on March 25.

The Board authorized the TALF on November 24, 2008, under section 13(3) of the Federal Reserve Act. Under the TALF, the Federal Reserve Bank of New York extends three-year loans secured by AAA-rated ABS backed by newly and recently originated loans.

On February 10, 2009, the Board announced that it is prepared to undertake a significant expansion of the TALF. Today's announcement marks the first step in that expansion; a number of other asset classes are under review.

A new term sheet and a revised frequently-asked-questions document are attached.

Terms and conditions

Frequently asked questions

by Calculated Risk on 3/19/2009 02:45:00 PM

With the Fed buying longer term Treasury securities, how far will 30 year mortgage rates fall?

On CNBC yesterday, PIMCO's Bill Gross suggested mortgage rates might fall to 4%. I think this is unlikely.

Click on graph for larger image in new window.

This graph shows the relationship between the Ten Year yield (x-axis) and the 30 year mortgage rate (y-axis, monthly from Freddie Mac) since 1971. The relationship isn't perfect, but the correlation is very high.

Based on this historical data, the Fed would have to push the Ten Year yield down to around 2.3% for the 30 year conforming mortgage rate to fall to 4.5%.

Currently the Ten Year yield is 2.58% (typo corrected) suggesting a 30 year mortgage rate around 4.7%.

If the Fed buys Ten Year treasuries with the goal of 4.0% mortgage rates, they might have to push Ten Year yields down under 2.0%, maybe close to 1.5%.

by Calculated Risk on 3/19/2009 01:04:00 PM

From DataQuick: Bay Area home sales climb above last year as median falls below $300K

Note: Beware of the median price. That is skewed by the change in mix towards the low end.

Bay Area home sales beat the year-ago mark for the sixth straight month in February as the winter market sizzled in many foreclosure-heavy inland areas offering the deepest discounts. The median price dipped below $300,000 for the first time since late 1999, pushed lower by an abundance of inland distressed sales and a dearth of coastal high-end activity ...

A total of 5,032 new and resale houses and condos closed escrow in the nine-county Bay Area last month. That was essentially unchanged from 5,050 in January but up 26.1 percent from 3,989 in February 2008, according to MDA DataQuick of San Diego.
...
The allure of such discounted foreclosures helped lift sales of existing single-family houses to record levels for a February in Vallejo, Brentwood, Antioch, Pittsburg, Oakley and Gilroy.

The use of government-insured, FHA loans – a common choice among first-time buyers – represented a record 24.9 percent of all Bay Area purchase loans last month.

Conversely, use of so-called jumbo loans to finance high-end property remained at abnormally low levels. Before the credit crunch hit in August 2007, jumbo loans, then defined as over $417,000, represented 62 percent of Bay Area purchase loans, compared with just 17.5 percent last month.
...
Last month 52 percent of all homes that resold in the Bay Area had been foreclosed on at some point in the prior 12 months, up from a revised 51.9 percent in January and 22.3 percent a year ago.

At the county level, foreclosure resales last month ranged from 12.1 percent of resales in San Francisco to 69.5 percent in Solano County. In the other seven counties, foreclosure resales were as follows: Alameda, 46.2 percent; Contra Costa, 65.1 percent; Marin, 18.9 percent; Napa, 63.1 percent; Santa Clara, 42.9 percent; San Mateo, 31.3 percent; and Sonoma, 57.1 percent.
emphasis added

And there is this interesting comment:

Only 321 newly constructed homes sold last month, down 55 percent from 713 a year ago, the lowest on record for a February, and the second-lowest for any month back to 1988. Many builders have had a difficult time competing with falling resale prices – especially foreclosures.

Only 321 new homes in the entire Bay Area? Wow.

This really shows what is happening. Volumes have all but disappeared for high end homes (and jumbo loans), and the low end is dominated by foreclosure resales (and more FHA loans). The builders can't compete with the foreclosure resales, so new home sales have declined sharply.

by Calculated Risk on 3/19/2009 11:49:00 AM

The Dept of Transportation reports on U.S. Traffic Volume Trends:

[T]ravel during January 2009 on all roads and streets in the nation changed by -3.1 percent (-7.0 billion vehicle miles) resulting in estimated travel for the month at 222.4 billion vehicle-miles.

Click on graph for larger image in new window.

The first graph shows the rolling 12 month total vehicle miles driven since 1971.

The second graph shows the annual change in the rolling 12 month average of U.S. vehicles miles driven. Note: the rolling 12 month average is used to remove noise and seasonality.

By this measure, vehicle miles driven are off 3.6% Year-over-year (YoY); the decline in miles driven is worse than during the early '70s and 1979-1980 oil crisis.

As the DOT noted, miles driven in January 2009 were 3.1% less than January 2008.

Even with much lower gasoline prices in January 2009 ($1.84 per gallon) compared to January 2008 ($3.09 per gallon), the total vehicle miles driven is less because of the weaker economy.