by Calculated Risk on 5/17/2009 03:55:00 PM

Here is a photo of the Doris "Tanta" Dungey memorial bench on the campus of Illinois State University (another photo below).

Click on photo for larger image in new window.

This bench was paid for by your donations to The Doris "Tanta" Dungey Endowed Scholarship Fund setup by our very own Bacon Dreamz.

The scholarship received over $26,000 in donations and is fully endowed, although more contributions are welcome (see above link).

Tanta's niece Kate spoke at the dedication of the bench (Kate is a junior journalism student at ISU), and Tanta's parents also attended. Note: "Tanta" was a family nickname for Doris, and means "Aunt" in several languages. Tanta also has a nephew Erik who helped with the Mortgage Pig Wear charity.

For those visiting the campus, here is a map (from Cathy) showing the location of the bench.

This was one of Tanta's favorite spots - just outside Milner Library.

There were many donations to other charities in Tanta's name. OSU has received about $4,000, and the Normal Community High School’s Drama Club about $1,800. Thanks to all!

The Mortgage Pig wear for Charity raised over $3,500 for charity (I'm wearing a Mortgage Pig sweat shirt as I type!). Note: the Mortgage Pig Wear is closed for now.

And here is an excerpt from an email from the University of Maryland Medical System (to Cathy):

My name is Nichole Barbuzanes and I work in the UMMS Foundation office ...[and I wanted to] touch base with you regarding donations that have been made in your sisters memory. I am very sorry to hear about her passing but from the numerous ... contributions it is clear that she was loved by all.

So far we have received 45 contributions in her memory, including ... a $40,000 gift from the Denver Foundation from an anonymous contributor. The total is therefore $44,775. WOW!

When our Wall of Honor is updated in the next year ... your sister's name will be included. ...

Sincerely,
Nichole Barbuzanes
Contributor Relations Coordinator
UMMS Foundation

And a second photo of Tanta's bench.

Thank you to everyone for your nice emails, comments and donations to these charities. A special thanks to Bacon Dreamz and Cathy.

Best to all.

by Calculated Risk on 5/17/2009 12:05:00 PM

From the WSJ: Orszag: Economy's Freefall 'Seems to Have Stopped'

"The freefall in the economy seems to have stopped," Mr. Peter Orszag [director of the White House Office of Management and Budget] said during an interview on CNN's "State of the Union." "The analogy is there are some glimmers of sun shining through the trees, but we're not out of the woods yet."

Mr. Orszag ... urged patience when it came to seeing results from the government's $787 billion economic-stimulus plan, noting that only $100 billion has been allocated since the legislation was enacted three months ago.

"It takes time to get money out the door wisely," he said.

I like the "sun shining through the trees" better than "green shoots". And it's important to note that only a fraction of the fiscal stimulus has been allocated so far.

Orszag also made an important comment on healthcare: "If you look at the deficit in Social Security, it's a fraction of the deficit in Medicare. We're trying to deal with the big problem first." I've made this same argument many times - ignore Social Security Insurance until after we find a solution for health care and the structural General Fund budget deficit. That is just good management - go after the big problems first.

by Calculated Risk on 5/17/2009 09:57:00 AM

From the San Francisco Chronicle: More high-end properties sitting on the market

High-end properties are increasingly coming under the sort of pressure once reserved for moderate homes. In fact, as slowing price declines fuel hope that the real estate bottom is near, other signs suggest the worst is on its way for the region's upscale market.
...
In the Bay Area, the months of unsold inventory of existing single-family homes priced above $1 million reached 14 months in March, more than double where it stood a year ago, according to the California Association of Realtors.
...
[T]he type of person who might have been looking to buy a more expensive house in the past today often doesn't have the necessary equity appreciation to consider a million-dollar home.
...
"When you look and see supply has increased, you ask, 'Who are the potential buyers?'" [Esmael Adibi, director of the Anderson Center for Economic Research at Chapman University in Orange] said. "That's where the problem kicks in."

The mid-to-high end will come under increasing pressure (see House Price Puzzle: Mid-to-High End). This article touched on the key problem "Who are the potential buyers?".

Usually mid-to-high end homes are bought by move up buyers - in a kind of real estate chain reaction. However, right now a large number of sellers at the low end are lenders (foreclosure resales or short sales) and there is no buyer to move up!

by Calculated Risk on 5/16/2009 09:29:00 PM

Note on comments: Ken will be performing maintenance on the comment system tonight sometime for about 30 minutes.

I don't know if this is real or fake ... but for your amusement on a Saturday night ... a secret basement below an REO in Las Vegas.

In a nondescript Las Vegas house, which was foreclosed/sold at auction, behind a secret panel wall in the kitchen, a stairway leads down 1 1/2 stories to a full-size bank vault door. Behind the door is a whole secret suite of rooms ... A main room with about 1200 sq ft., a toilet, a passage tunnel to a place outside of the property (which was drywalled off), and the kicker, is two concrete and steel tiny rooms with sound-proofed interiors, and no inside doorknob.

Someone alert Geraldo.

by Calculated Risk on 5/16/2009 05:52:00 PM

Alan Blinder (Princeton professor of economics, and former vice chairman of the Federal Reserve) writes in the New York Times: It’s No Time to Stop This Train

From its bottom in 1933 to 1936, the G.D.P. climbed spectacularly (albeit from a very low base), averaging gains of almost 11 percent a year. But then, both the Fed and the administration of Franklin D. Roosevelt reversed course.

In the summer of 1936, the Fed looked at the large volume of excess reserves piled up in the banking system, concluded that this mountain of liquidity could be fodder for future inflation, and began to withdraw it. ...

About the same time, President Roosevelt looked at what seemed to be enormous federal budget deficits, concluded that it was time to put the nation’s fiscal house in order and started raising taxes and reducing spending. ...

Thus, both monetary and fiscal policies did an abrupt about-face in 1936 and 1937, and the consequences were as predictable as they were tragic. The United States economy, which had been rapidly climbing out of the cellar from 1933 to 1936, was kicked rudely down the stairs again ...

At some point the Fed will have to withdraw liquidity. And at some point the budget deficit will have to be addressed. Note: the budget deficit is especially difficult because there is a cyclical deficit built upon a significant structural deficit.

And reversing these monetary and fiscal policies will no doubt raise concerns of a double dip recession. But we are getting ahead of ourselves - we still need to get out of the current recession!

by Calculated Risk on 5/16/2009 02:14:00 PM

From the Boston Globe: Sovereign Bancorp reports $817.3m loss

Sovereign Bancorp ... lost $817.3 million in the quarter, compared with a net income of $100.1 million in the same period a year ago. It also reported that it set aside $505 million for bad loans, up from $135 million a year ago. The Philadelphia-based holding company owns Sovereign Bank and was acquired in January by Spain's Banco Santander.

The bank's total allowance for loan losses was $1.3 billion at the end of the quarter. Sovereign also has a large exposure to soured investments: nearly $1 billion in unrealized losses on investment securities - losses it could have to write down as permanent in the future.

It had total assets of $78.1 billion ...

Soverign Bancorp wasn't one of the 19 stress test banks (assets are less than $100 billion) and they are now owned by Banco Santander. But this is an example of the next tier of banks - and of more losses coming.

Click on graph for larger image in new window.

This pie chart shows the breakdown of loans by category that are held for investment ($53.7 billion) from Sovereign Bancorp's 10-Q SEC filing.

If we use the indicative loss rates from the Federal Reserve (more adverse scenario) for each loan category, this would suggest $4.0 to $5.3 billion in losses over the next two years. Note: this doesn't include losses on investment securities.

As an example, the two year indicative loss rate for CRE, nonfarm, non-residential are 7% to 9%. Sovereign Bancorp shows $10.4 billion in assets in this category (excluding C&D), and that suggests two years indicative losses of $730 to $940 million. Soverign might do better or worse depending on their portfolio, but this suggests there are more losses to come.

by Calculated Risk on 5/16/2009 09:06:00 AM

From The Times: Home repossessions jump as downturn continues to put pressure on borrowers

Home repossessions jumped by more than 50 per cent between January and March as the recession continued to take a heavy toll of borrowers.
...
About 12,800 homeowners lost their properties because they could not keep up with repayments in the first three months of the year, up from 8,500 in the same period last year, [Council of Mortgage Lenders (CML)] figures show.
...
[I]ncreasing numbers of homeowners are struggling with the burden of their mortgage. About 265,000 borrowers had missed three or more monthly payments between January and March, up from 135,800 in the first quarter of last year, the CML said.
...
“We fear a second, more devastating tidal wave of repossessions is coming as unemployment continues to rise, the recession continues and at some point interest rates begin to climb again.” [Shelter, the housing charity, said]

The UK is working through a rule change that required lenders "to prove that they have examined all alternatives to keep borrowers in their homes before seeking a court order" - and that has probably skewed the data. But just like in the U.S., it appears there is a second wave of foreclosures coming.

by Calculated Risk on 5/16/2009 12:35:00 AM

From CNBC: Economic Recovery Still Months Away: Roubini, Rogoff

"People talk about a bottom of the recession in June, but I see it more like six to nine months from now," Roubini said. "The green shoots everyone talks about are more like yellow weeds to me."
...
"I see slow growth for the next couple of years," Roubini said, "even if there is a recovery. Large budget deficits will push out growth."
...
"I think there will be a bounce in the second half of the year from the massive stimulus package," [Kenneth Rogoff, professor at Harvard University's Department of Economics] said. "But I think the longer run trend is very slow, so we're vulnerable to dipping down again sometime in the next couple of years, like Japan."

by Calculated Risk on 5/15/2009 07:11:00 PM

Home Depot (Tuesday) and Lowes (Monday) announce results next week, and this might be something to watch!

Residential investment, according to the Bureau of Economic Analysis (BEA), includes new single family structures, multifamily structures, home improvement, broker's commissions, and a few minor categories.

In Q4 - for the first time - investment in home improvements exceeded investment in new single family structures. This continued into Q1 2009.

Click on graph for larger image in new window.

This graph shows the various components of RI as a percent of GDP for the last 50 years. The most important components are investment in single family structures followed by home improvement.

Investment in home improvement was at a $162.3 billion Seasonally Adjusted Annual Rate (SAAR) in Q1, significantly above investment in single family structures of $113.7 billion (SAAR).

Let's take a closer look at these two key components of RI:

As everyone knows, investment in single family structures has fallen off a cliff. This is the component of RI that gets all the media attention - although usually from stories about single family starts and new home sales.

Currently investment in single family structures is at 0.8% of GDP, significantly below the average of the last 50 years of 2.35% - and also below the previous record low in 1982 of 1.20%.

But what about home improvement?

The third graph shows home improvement investment as a percent of GDP.

Home improvement is at 1.15% of GDP, off the high of 1.30% in Q4 2005 - but still above the average of the last 50 years of 1.07%.

This would seem to suggest there remains significant downside risk to home improvement spending.

NOTE: Home improvement is a rough estimate by the BEA - and could be lower. Also, there could be changes in spending patterns leading to a higher percentage of GDP on home improvement.

by Calculated Risk on 5/15/2009 03:55:00 PM

Click on graph for larger image in new window.

This graph is from Doug Short of dshort.com (financial planner): "Four Bad Bears".

Note that the Great Depression crash is based on the DOW; the three others are for the S&P 500.

And while we wait for the FDIC on BFF ...

From the NY Times: G.M. Notifying 1,100 Dealers That They Will Be Dropped

General Motors is telling about 1,100 dealers on Friday that they will lose their franchises by late next year.
...
“They’re dealerships that are in most cases hurting, losing money and in danger of going out of business anyway,” Mark LaNeve, G.M.’s vice president for sales, service and marketing, said in a conference call. “It’s a move that people could argue should have been taken years ago ...”

Why didn't they drop these dealerships earlier? Another example of weak management.

And from CNBC: Goldman, JPMorgan May Be First to Repay TARP

Goldman Sachs and JPMorgan Chase may receive government permission as early as next week to pay back the billions in TARP money they received last fall, sources close to both banks told CNBC.

These are not the first banks to repay TARP funds (several smaller banks have already paid the money back). Goldman received $10 billion in TARP funds, and JPMorgan received $25 billion.

by Calculated Risk on 5/15/2009 03:03:00 PM

From CNBC: Credit Card Defaults Reach Record Highs in April

U.S. credit card defaults rose in April to record highs, with Citigroup and Wells Fargo posting double digit loss rates ...

	April	March
Citigroup	10.21%	9.66%
Wells Fargo	10.03%	9.68%
JPMorgan Chase	8.07%	7.13%
Discover Financial Services	8.26%	7.39%

And the beat goes on ...

by Calculated Risk on 5/15/2009 02:00:00 PM

Note: this is not seasonally adjusted.

Sometimes port traffic gives us an early hint of changes in the trade deficit. The following graph shows the loaded inbound and outbound traffic at the ports of Los Angeles and Long Beach in TEUs (TEUs: 20-foot equivalent units or 20-foot-long cargo container). Although containers tell us nothing about value, container traffic does give us an idea of the volume of goods being exported and imported.

Click on graph for larger image in new window.

Inbound traffic was 21.5% below April 2008.

Outbound traffic was 18.3% below April 2008.

There has been some slight recovery in exports the last two months (the year-over-year comparison was off 30% from December through February). But this is the 2nd worst YoY comparison for imports - only February was worse, and that might have been related to the Chinese New Year. So imports from Asia appear especially weak.

This suggests a little more improvement in the trade balance with Asia in the April trade report. Of course the overall trade deficit will probably be worse because of rising oil prices.

by Calculated Risk on 5/15/2009 12:33:00 PM

Click on puzzle for larger image in new window.

I've linked to a few pieces of the puzzle below.

But this adds up to more supply (in the mid-to-high end) because of rising foreclosures - and limited demand because sellers at the low end are mostly banks or short sales (so there are no move up buyers), and tight financing.

To me, this suggests prices will fall much further in many mid-to-high end areas.

Surging prime delinquencies.

See: OCC: More Seriously Delinquent Prime Loans than Subprime

and Fannie, Freddie Report Surge in Prime Delinquencies

and S&P: Delinquencies Surge for HELOCs and Jumbo Prime Loans

Option ARM Loan Recasts are coming.

See: Loan Reset / Recast Schedule

Limited Jumbo Financing

See: More Jumbo Financing Coming

Few Move up buyers

See: Home Sales: One and Done

And even more shadow supply, see: High Percentage of Homeowners Waiting for a Market Turnaround

by Calculated Risk on 5/15/2009 11:51:00 AM

2nd Update: From FDIC: FDIC Statement Clarifying Bloomberg Article

Statement from the FDIC Office of Public Affairs, "The Bloomberg story referencing Chairman Bair's discussion of management and board changes is misleading and does not provide the proper context of her comments. Chairman Bair said that management changes could happen based on the capital plans that an institution must submit to the government. She did not refer to CEOs specifically and the comment was in the context of capital plans submitted by the institutions. Chairman Bair also did not suggest the federal government will remove the bank CEOs."

Transcript of the exchange from Bloomberg follows:

MR. HUNT: But in the same situation, or similar situation, the government already replaced CEOs at Fannie and Freddie and General Motors -

MS. BAIR: Yes, that's right.

MR. HUNT: And some people say, well, why is the head of Bank of America still there? Or why are some of these other banks' CEO's still there?

MS. BAIR: Right, well, obviously I don't comment on open and operating institutions. I think the review needs to go with both the management and the boards as well, absolutely. And management needs to be evaluated and is this the right skill set, have they been doing a good job, are there people who can do a better job, those kinds of questions.

MR. HUNT: Do you think some will be replaced in the next couple of months without getting into the particulars?

MS. BAIR: Yeah, I think there will be an evaluation process. We're requesting it as part of the capital plan and yes.

Update: From Bloomberg: Bair Says Some Bank Chiefs Will Be Replaced in Next Few Months

From FDIC's Sheila Bair on Political Capital with Al Hunt this weekend (Bloomberg TV):

Some Bank CEOs will be replaced in next few months

'No one accountable' for entire U.S. banking system

U.S. needs to fill 'hole' on oversight of holding companies

U.S. to have management 'evaluation' process at banks

'Need is still there' to remove toxic assets from banks

Liquidity crisis is over

by Calculated Risk on 5/15/2009 09:15:00 AM

The Federal Reserve reported:

Industrial production decreased 0.5 percent in April after having fallen 1.7 percent in March. Production in manufacturing declined 0.3 percent in April and was 16.0 percent below its recent peak in December 2007. The decreases in manufacturing in April remained broadly based across industries. Outside of manufacturing, the output of mines fell 3.2 percent, as oil and gas field drilling and support activities continued to drop. The output of utilities moved up 0.4 percent. At 97.1 percent of its 2002 average, industrial output in April was 12.5 percent below its year-earlier level. The capacity utilization rate for total industry fell further in April, to 69.1 percent, a low over the history of this series, which begins in 1967.
emphasis added

Click on graph for larger image in new window.

This graph shows Capacity Utilization. This series is at another record low (the series starts in 1967).

In addition to the weakness in industrial production, there is little reason for investment in new production facilities until capacity utilization recovers.

by Calculated Risk on 5/15/2009 08:36:00 AM

From the NY Fed: Empire State Manufacturing Survey

The Empire State Manufacturing Survey indicates that conditions for New York manufacturers worsened only modestly in May. Although negative, the general business conditions index rose 10 points to -4.6, its highest level since August of last year. The new orders index fell several points and remained below zero, while the shipments index inched into positive territory. The inventories index remained negative, but rose from last month’s record low. Price indexes also continued to be negative, with the prices received index falling 10 points to a record low. Employment indexes indicated further contraction in employment levels and in the average workweek.

Here is the general business conditions index. Note that the data only goes back to July 2001 (chart to Jan 2002). Any reading below zero is contraction, so this index shows manufacturing is contracting - but "only modestly" in May.

by Calculated Risk on 5/15/2009 12:21:00 AM

From Floyd Norris at the NY Times: A Bank Is Survived by Its Loans

World Savings ... did not sell its loans into securitizations, so it knew it stood to lose if a loan went bad. Virtually all of the pick-a-pay loans were for less than 80 percent of the appraised value of the home, and the average was just 71 percent. World said it made loans only to those who could afford the stepped-up monthly payment after the reset, and said it did not lend to subprime borrowers.
...
Most banks forced the borrower to start making much larger monthly payments if the amount owed ... rose to 110 percent of the appraised value of the home when the loan was made. World ... did not force the payments up until the amount owed was 25 percent greater than the original value.

World Savings appeared to make safe loans, but they were very generous on the cap for when the loans recast. World also used the original appraised value, and there was no reappraisal provision.

So even though the borrowers originally had substantial "skin in the game", many of the borrowers are deep underwater - and are now really renters.

Note: World was part of Golden West which was bought by Wachovia, and is now owned by Wells Fargo.

The amount owed on such loans at the end of March was $115 billion, which Wells estimates is 107 percent of the current value of the properties underlying the mortgages.
...
Only $325 million of the loans — less than a third of 1 percent — will reset by the end of 2012.
...
Wells Fargo has written the value of the pick-a-pay portfolio down by about 20 percent, and is offering to restructure some of the loans. But many of the owners may have no reason to seek such a restructuring. ... The result may be perverse: a prolonged foreclosure crisis ...

At least we don't have to worry about many of these loans blowing up over the next few years!

Note: I think Norris means recast, not reset, "Reset" refers to a rate change. "Recast" refers to a payment change.

by Calculated Risk on 5/14/2009 09:17:00 PM

After the insurers comes ...

From the WSJ: YRC to Apply for Bailout Funds

YRC Worldwide Inc., one of the nation's largest trucking companies, will seek $1 billion in federal bailout money to help relieve pension obligations, the chief executive said Thursday.
...
Chief Executive William Zollars said the company will seek the money to help cover the cost of its estimated $2 billion pension obligation over the next four years.
...
By applying to the U.S. Treasury for money under the Troubled Asset Relief Program, Mr. Zollars said he hopes to "get the conversation started" with federal authorities about reducing the company's pension obligations. He said YRC will submit an application to the Treasury Department as early as Friday.

Is YRC a bank holding company?

by Calculated Risk on 5/14/2009 07:34:00 PM

Update:from the WaPo: Insurance Companies Approved for TARP Money

The Treasury today granted preliminary approval for some of the nation's largest insurance companies to receive capital infusions under the government's Troubled Assets Relief Program, Treasury spokesman Andrew Williams said.

Recipients are Hartford, Prudential, Allstate, Ameriprise, Lincoln National and Principal Financial Group, Williams said.

From Hartford: The Hartford Receives Preliminary Approval For $3.4 Billion Participation In Treasury's Capital Purchase Program (ht jb)

The Hartford Financial Services Group, Inc. (NYSE: HIG - News) announced today that the United States Treasury Department has provided preliminary approval for the company to participate in Treasury’s Capital Purchase Program (CPP) in the amount of $3.4 billion.

by Calculated Risk on 5/14/2009 05:44:00 PM

From Edmund Andrews at the NY Times: My Personal Credit Crisis

If there was anybody who should have avoided the mortgage catastrophe, it was I. As an economics reporter for The New York Times, I have been the paper’s chief eyes and ears on the Federal Reserve for the past six years. I watched Alan Greenspan and his successor, Ben S. Bernanke, at close range. I wrote several early-warning articles in 2004 about the spike in go-go mortgages. Before that, I had a hand in covering the Asian financial crisis of 1997, the Russia meltdown in 1998 and the dot-com collapse in 2000. I know a lot about the curveballs that the economy can throw at us.

Both Tanta and I linked to articles by Andrews over the years, and I'm amazed by this story ...

But in 2004, I joined millions of otherwise-sane Americans in what we now know was a catastrophic binge on overpriced real estate and reckless mortgages. Nobody duped or hypnotized me. Like so many others — borrowers, lenders and the Wall Street dealmakers behind them — I just thought I could beat the odds.
...
Patty [his new wife] discovered a small but stately brick home in a leafy, kid-filled neighborhood in Silver Spring, Md. We sent in an offer of $460,000 and one day later got our answer: the sellers accepted.
...
The only problem was money. Having separated from my wife of 21 years, who had physical custody of our sons, I was handing over $4,000 a month in alimony and child-support payments. That left me with take-home pay of $2,777, barely enough to make ends meet in a one-bedroom rental apartment. Patty had yet to even look for a job. At any other time in history, the idea of someone like me borrowing more than $400,000 would have seemed insane.

But this was unlike any other time in history.

I won't spoil the story, but it should be obvious the number don't work...