by Calculated Risk on 11/08/2009 11:59:00 AM

CR Note: This is a guest post from albrt.

A great deal has been written in the last year or so about cases in which a court has denied a lender the right to foreclose on a mortgaged house. Lately many of the decisions have involved MERS, an acronym for the nationwide Mortgage Electronic Registration Systems, Inc. This post focuses on two August decisions in which the courts decided MERS should be able to foreclose, despite vigorous legal efforts by the homeowners.

Bucci vs. Lehman Brothers

This is a trial court decision from Rhode Island. The homeowners stopped making mortgage payments in September of 2008, the lender sent a notice of non-judicial foreclosure sale the following March. After slight delays the foreclosure sale ended up being scheduled in July. So lesson number one from this case is that you can’t necessarily count on staying in your house for years if you stop paying the mortgage. The amount of time to foreclosure will vary a great deal depending on the lender and the state you live in.

The day before the scheduled sale, the homeowners filed a lawsuit to stop it. The homeowners’ primary argument was that the foreclosure was being carried out in the name of MERS, but MERS was not really the owner of the mortgage and note. After a short hearing in July, the court decided that MERS could foreclose. The judge primarily based his decision on the plain language of the mortgage document, which said:

MERS (as nominee for Lender and Lender’s successors and assigns) has the right to exercise any or all of those interests, including, but not limited to, the right to foreclose and sell the Property.

The homeowners also argued the lender had not properly designated MERS as a nominee with power to foreclose on the lender’s behalf, because the lender didn’t sign the mortgage. The judge held:

[I]n consideration for Mr. Bucci receiving $249,900, the Buccis granted a mortgage to MERS. If Lehman had not approved of MERS acting as its nominee, Lehman would not have disbursed the loan proceeds to the Buccis.

This is only a trial court decision, but I don’t see anything glaringly wrong with it. It’s pretty typical of the large number of decisions finding that MERS can indeed foreclose on mortgages if it has the paperwork more or less in order. The lawyer representing the homeowners obviously disagrees. He says he has devoted his entire legal practice to challenging MERS, and he has appealed the Bucci decision.

Jackson v. MERS

This is a decision from the Minnesota Supreme Court. Several homeowners facing foreclosure banded together to bring a lawsuit arguing that MERS had not properly recorded its loan assignments under Minnesota law. The case was removed to federal court, but because this precise issue had not been decided by Minnesota state courts, the federal court punted the issue to the Minnesota Supreme Court. The Minnesota Supreme Court accepted the following question:

Where an entity, such as defendant [MERS], serves as mortgagee of record as nominee for a lender and that lender’s successors and assigns and there has been no assignment of the mortgage itself, is an assignment of the ownership of the underlying indebtedness for which the mortgage serves as security an assignment that must be recorded prior to the commencement of a mortgage foreclosure by advertisement under Minn. Stat. ch. 580?

The court ultimately decided that the MERS process did not violate the recording requirements of Minnesota’s non-judicial foreclosure statute. The court only considered an idealized version of what is supposed to happen with MERS assignments, so this decision does not tell us what happens when the note is missing or the final assignment back to MERS is not properly completed. The court also considered a number of policy arguments raised by the homeowners, but in the absence of any compelling individual facts, the Court decided that the general policy concerns were not enough to change the outcome. One justice dissented, saying that every assignment of the loan should be recorded before MERS can foreclose.

The decision includes several points of interest. First, the Minnesota legislature passed a statute in 2004 that was specifically intended to allow a “nominee or agent” like MERS to record documents on behalf of lenders. The MERS recording statute did not directly control the requirements of the foreclosure statute, but the majority of the justices seemed to think it was important that the legislature had approved the MERS system.

Second, the decision was substantially based on the notion that MERS retained legal title and the right to foreclose the mortgage, even though the beneficial interest in the mortgage had been assigned when the note was assigned. This analysis pretty clearly requires a trust relationship between MERS and the lender (See Jackson Decision at 25). My strong impression (as an outsider) is that MERS is not set up to fulfill the fiduciary duties of a trustee, and has done everything in its power to avoid taking on fiduciary duties to lenders, borrowers or anyone else. This means the Jackson case, and others like it, may turn out to be something of a Pyrrhic victory for MERS once the litigation among the lenders and securitizers really gets going. This could be one more factor weighing against restarting Wall Street’s liar-loan securitization machine.

Finally, the homeowners argued that allowing MERS to cover up the chain of title was generally bad policy, and would prevent borrowers from seeking rescission or other remedies based on misrepresentation claims or federal truth in lending laws. The court declined to address these general policy concerns because that is the legislature’s job.

So what does it take for a homeowner to win a foreclosure case?

To win in the short run, the homeowner needs to show something wrong with the paperwork – an incomplete or untimely chain of assignments, a lost note, or a violation of whatever peculiar requirements may exist under the local foreclosure law. In order to win in the long run, the homeowner probably needs to be able to show some type of harm beyond the foreclosure itself. Bankruptcy cases are a little different, but in foreclosure cases the vast majority of judges simply aren’t going to start canceling mortgage debt without a very good reason. Here are some potential issues a homeowner might be able to raise to stop or seriously slow down a foreclosure:

Loss of claims and defenses. The Jackson court recognized that some homeowners might not be able to raise predatory lending claims and defenses because the person foreclosing on the loan was not the same person who made the loan. This is frequently true regardless of whether MERS is involved. Maybe in a future post we can talk about how lenders and securitizers deliberately use assignments to insulate themselves from liability for predatory lending claims. For now it is enough to note that a homeowner who was the victim of predatory lending will probably need to get a lawyer in order raise these issues during the foreclosure process. In fact, the foreclosure process does not necessarily give the borrower a chance to raise any claims or defenses at all. Notice that in both of the cases discussed today, the foreclosures were non-judicial and the homeowners had to file their own lawsuits in order to get a hearing on their claims. In addition, there may be numerous parties involved in the origination and handling of the loan, and the homeowner will need to use the local court rules to discover who those people were and what they have to say. But if a homeowner has plausible claims about predatory lending, a decent lawyer should be able to find a way to get those claims in front of a judge.

Loss of opportunity to negotiate. I don’t believe I’ve seen any cases on this specific issue yet, but if a homeowner can show that a non-responsive lender prevented the homeowner from getting a loan modification or from qualifying for an assistance program, that might be a good reason for a judge to stop the foreclosure proceeding. The judge might at least require the lender to disclose who can approve the modification before proceeding with the foreclosure. The judge may also have power to require the parties to negotiate in good faith in front of a mediator or another judge.

Double recovery. If there is a realistic chance the wrong person is getting the money from the foreclosure, a judge may stop the process until the right person is identified. If the investors were paid off by AIG through a credit default swap, for example, it may be an open question whether the pool trustee is entitled to foreclose on the mortgage. If legitimate questions along these lines can be raised, the case could get very complicated and go on for a very long time.

Fair Debt Collection Practices. Christopher Peterson, a law professor at the University of Utah, has raised the interesting issue of whether MERS should be treated as a debt collector under federal law. The Fair Debt Collection Practices Act imposes a number of limitations on debt collection activities, and Professor Peterson argues that some of MERS’ methods are just the sort of deceptive practices that ought to be regulated under the Act. This might not be a defense against foreclosure, but it might improve the homeowner’s negotiating leverage quite a bit. A draft article by Professor Peterson is available here. The article contains a great deal of information, but it is a rough draft and contains some typos and incomplete footnote references.

CR Note: This is a guest post from albrt.

by Calculated Risk on 11/08/2009 09:16:00 AM

Matt Padilla has an interesting chart on REOs and delinquent loans in Orange County, California: Banks hold few foreclosures.

The chart shows the number of REOs (bank owned real estate) has dropped sharply while 90+ day delinquencies continue to increase. Although this chart is for Orange County, we are seeing the same dynamics in many areas across the county (declining REOs, rising delinquency rates).

Sam Khater, senior economist with First American CoreLogic gave Matt his view of why this is happening:

The reason REOs have declined is that flow of distressed properties into REO has been artificially restricted due to local, state and GSE foreclosure moratoria, loan modifications and servicer backlogs. This has led to a drop in the supply of REO properties, while at the same time sales (including REO sales) increased due to the artificially low rates and first-time homebuyer tax credits, which further depleted the supply of REOs. This dynamic has led to the rapid improvement in home prices over the last six to eight months.

However, the mortgage distress is high and rising as is evident by the 90+ day category, which means the pending supply is building up due to high levels of negative equity and rising unemployment. So we have a situation where at the back end (ie REOs) it appears as if it’s getting better, but it’s really a mirage as we know that the pending supply pipeline default (ie 90+ day DQs) is looming larger.
emphasis added

We have to be careful with the 90+ day delinquency data because that includes loans in the trial modification process. If many of these trial modifications are successful - and become permanent - the delinquency rate could drop sharply without a large increase in foreclosures. We should know much more in Q1 when many of the trial modifications end.

by Calculated Risk on 11/07/2009 07:40:00 PM

Brian Wargo writes at the Las Vegas Sun: Construction nears standstill

The state bird of Nevada, the construction crane, is on the endangered species list.

... there are nine commercial projects of consequence under construction off from the Strip in Southern Nevada. Once most of those projects wind down early next year, there’s not much in the pipeline and development will essentially cease ... the long-range outlook ... is that there won’t be another major casino project built on the Strip for another decade. ...

As these remaining projects are completed thousands of construction workers will leave Las Vegas - impacting the local housing market and the Las Vegas economy.

“Once CityCenter is done, that is going to be it for a while,” [Steve Holloway, executive director of Associated General Contractors of Las Vegas] said. “It is going to be ugly. ... I think Southern Nevada is going to remain in this recession two to five more years.”

In many bubble areas, people thought high levels of construction activity and real estate related employment were the norm. I pointed out the obvious in 2005: "the areas most at risk have had the greatest increase in real estate related jobs". As usual, Vegas took the building boom to excess ...

by Calculated Risk on 11/07/2009 05:13:00 PM

From the Independent: Personal insolvencies rise to new record as unemployment bites

More people than ever before were declared insolvent in England and Wales during the third quarter of the year. Figures released by the Insolvency Service yesterday reveal that there were 35,242 personal insolvencies over the three months to the end of September, up by 28 per cent on the same period of 2008 ...

There was a decrease in corporate insolvencies in the U.K.

For the most recent stats in the U.S., from the American Bankruptcy Institute: October Consumer Bankruptcy Filings Reach New Highs, Up 28 Percent Over Last Year and a graph of U.S. personal bankruptcy filings here.

by Calculated Risk on 11/07/2009 01:09:00 PM

From the LA Times: United Commercial Bank is shut down, sold to East West Bancorp

Toppled by loan losses and misstated financial reports, San Francisco's United Commercial Bank was shut down by regulators Friday night ...

United Commercial's collapse may cause a greater-than-usual stir because a year ago the federal government invested $299 million in bailout funds in the bank in exchange for preferred stock, which was made worthless by the failure.

In addition, the FDIC said the collapse would cost the federal deposit insurance fund an estimated $1.4 billion.
...
United Commercial was burned by commercial lending losses, especially loans to developers and home builders during the housing boom. But it also was tainted by a financial scandal that resulted in a shake-up of its top management.

UCBH announced in September that its financial reports could not be trusted because of the "deliberate and improper actions and omissions of certain bank officers," who had understated losses in "an apparent desire to downplay deteriorating financial conditions."

UCBH Holdings, Inc. received $298,737,000 under the Troubled Asset Relief Program one year ago.

by Calculated Risk on 11/07/2009 09:08:00 AM

From The Telegraph: Bank of England says financiers are fuelling an economic 'doom loop'

On the eve of the G20 meeting of finance ministers in Scotland, Andy Haldane, the Bank's executive director for financial stability warned that the relationship between the state and banks represents a "doom loop" which will keep inflicting crises on the public unless arrested.

The warning, which follows Governor Mervyn King's call for investment banks to be split from their high street wings, is the most radical yet from the Bank, and comes amid growing concern that the G20 has abandoned any plans for far-reaching reforms.
...
Mr Haldane, who was a key part of a Bank unit which was among the first to warn, well ahead of the crisis, of a dangerous gap between what banks had in their balance sheets and what they were lending customers ...

Not much has been done to reform the banking system despite warnings from BofE's King, former Fed Chairman Paul Volcker, BofE's Haldane and others. As Haldane says, no reform equals a "doom loop".

by Calculated Risk on 11/06/2009 11:59:00 PM

From David Leonhardt at the NY Times: Broader Measure of Unemployment Stands at 17.5% Excerpts:

Officially, the Labor Department’s broad measure of unemployment goes back only to 1994. But early this year, with the help of economists at the department, The New York Times created a version that estimates it going back to 1970.
...
If statistics went back so far, the measure would almost certainly be at its highest level since the Great Depression.

In all, more than one out of every six workers — 17.5 percent — were unemployed or underemployed in October. The previous high was 17.1 percent, in December 1982.

There is much more in the article, but this suggest that the BLS' "Alternative measure of labor underutilization U-6"¹ is now at the highest level since the Great Depression.

¹ "Total unemployed, plus all marginally attached workers plus total employed part time for economic reasons, as a percent of all civilian labor force plus all marginally attached workers"

by Calculated Risk on 11/06/2009 09:40:00 PM

Sunrise in the East
United Commercial Bank
Sunsets in the West
by Soylent Green is People
From the FDIC: East West Bank, Pasadena, California Assumes All the Deposits of United Commercial Bank, San Francisco, California

United Commercial Bank, San Francisco, California, was closed today by the California Department of Financial Institutions, which appointed the Federal Deposit Insurance Corporation (FDIC) as receiver. ...

As of October 23, 2009, United Commercial Bank had total assets of $11.2 billion and total deposits of approximately $7.5 billion. ...

The FDIC estimates that the cost to the Deposit Insurance Fund (DIF) will be $1.4 billion. ... United Commercial Bank is the 120th FDIC-insured institution to fail in the nation this year, and the 14th in California. The last FDIC-insured institution closed in the state was Pacific National Bank, San Francisco, which closed on October 30, 2009.

A late night whale makes five ...

by Calculated Risk on 11/06/2009 09:27:00 PM

Note: This was before the FDIC seized four banks today.

This is an unofficial list of Problem Banks.

Changes and comments from surferdude808:

The steady climb in members on the Unofficial Problem Bank list continued this week despite the failure of the multi-bank holding company FBOP Corporation, which took down 9 banks including 5 banks with aggregate assets of $17.5 billion that were on the Unofficial Problem Bank List.

There were 10 additions this week, which pushes the total number of institutions on the list to 505, up from 500 last week. Aggregate assets did drop to $330 billion from $341 billion a week ago.

Notable additions include Hanmi Bank, Los Angeles, CA ($3.9 billion, ticker HAFC); Bank of Blue Valley, Overland Park, KS ($810 million, ticker BVBC.OB); and San Luis Trust Bank, FSB, San Luis Obispo, CA ($369 million, ticker SNLS..OB). In addition, another banker’s bank was added -- Independent Banker's Bank of Florida, Lake Mary, FL. The failure of Silverton Bank, N.A., another banker’s bank based in Georgia, back in May was a costly failure for the FDIC.

By next Friday, the OCC may release its actions for October.

This week we looked over the numbers to determine which states have the most stress in their banking sector. For the ranking, we added together the number of institutions that are on the Unofficial Problem Bank List and failures since 2008 and divided by the number of institutions headquartered in the state and failures since 2008. Interestingly, Georgia is not the top ranked state. Here is the top 10 list; actually top 11 as Maryland and Colorado are in a virtual tie. Please note that we only ranked states with at least 15 institutions headquartered within their borders, as we did not want the ranking influenced by a small banking market.

State	Percent
Washington	26.3%
Utah	25.0%
Arizona	21.3%
Nevada	20.0%
Oregon	19.5%
Georgia	19.2%
California	17.8%
Florida	16.3%
Michigan	13.2%
Maryland	10.8%
Colorado	10.6%

Washington State leads the way with more than 26 percent of its banking industry either under formal enforcement action or having failed. No wonder the esteemed governor wrote a letter to the state’s congressional delegation complaining about bank regulators (see Wall Street Journal article).

Washington Gov. Christine Gregoire sent a letter to her congressional delegation Oct. 9 complaining that "federal regulators have applied inflexible 'one size fits all' regulatory standards on community banks and potential investors that hinder the ability of these community banks to weather the financial storm and actually inhibit opportunities to raise critically needed capital at the local level." Her letter came just days after the Federal Reserve declined to approve the sale of Frontier Financial, the fifth-largest bank in her state, to a New York investment fund for $450 million. Frontier Financial Chief Executive Patrick Fahey declined to comment.

The list is compiled from regulator press releases or from public news sources (see Enforcement Action Type link for source). The FDIC data is released monthly with a delay, and the Fed and OTC data is more timely. The OCC data is a little lagged. Credit: surferdude808.

See description below table for Class and Cert (and a link to FDIC ID system).

For a full screen version of the table click here.

The table is wide - use scroll bars to see all information!

NOTE: Columns are sortable - click on column header (Assets, State, Bank Name, Date, etc.)





Class: from FDIC

The FDIC assigns classification codes indicating an institution's charter type (commercial bank, savings bank, or savings association), its chartering agent (state or federal government), its Federal Reserve membership status (member or nonmember), and its primary federal regulator (state-chartered institutions are subject to both federal and state supervision). These codes are:

N National chartered commercial bank supervised by the Office of the Comptroller of the Currency

SM State charter Fed member commercial bank supervised by the Federal Reserve

NM State charter Fed nonmember commercial bank supervised by the FDIC

SA State or federal charter savings association supervised by the Office of Thrift Supervision

SB State charter savings bank supervised by the FDIC

Cert: This is the certificate number assigned by the FDIC used to identify institutions and for the issuance of insurance certificates. Click on the number and the Institution Directory (ID) system "will provide the last demographic and financial data filed by the selected institution".

by Calculated Risk on 11/06/2009 07:13:00 PM

Whats a "Prosperan"?
A breakfast food, car or band?
Answer: money pit

Looming Gateway Arch
Symbol of pioneer spirit
Their bank now a ghost.
by Soylent Green is People
From the FDIC: Alerus Financial, National Association, Grand Forks, North Dakota, Assumes All of the Deposits of Prosperan Bank, Oakdale, Minnesota

Prosperan Bank, Oakdale, Minnesota, was closed today by the Minnesota Department of Commerce, which appointed the Federal Deposit Insurance Corporation (FDIC) as receiver. ...

As of August 31, 2009, Prosperan Bank had total assets of $199.5 million and total deposits of approximately $175.6 million. ...

The FDIC estimates that the cost to the Deposit Insurance Fund (DIF) will be $60.1 million. ... Prosperan Bank is the 118th FDIC-insured institution to fail in the nation this year, and the sixth in Minnesota. The last FDIC-insured institution closed in the state was Riverview Community Bank, Ostego, on October 23, 2009

From the FDIC: Central Bank of Kansas City, Kansas City, Missouri, Assumes All of the Deposits of Gateway Bank of St. Louis, St. Louis, Missouri

Gateway Bank of St. Louis, St. Louis, Missouri, was closed today by the Missouri Division of Finance, which appointed the Federal Deposit Insurance Corporation (FDIC) as receiver. ...

As of September 25, 2009, Gateway Bank of St. Louis had total assets of $27.7 million and total deposits of approximately $27.9 million. ...

The FDIC estimates that the cost to the Deposit Insurance Fund (DIF) will be $9.2 million. ... Gateway Bank of St. Louis is the 119th FDIC-insured institution to fail in the nation this year, and the third in Missouri. The last FDIC-insured institution closed in the state was First Bank of Kansas City, Kansas City, on September 4, 2009.

That makes four today ...

by Calculated Risk on 11/06/2009 06:17:00 PM

Motor City crash.
Home Federal has spun out.
Bagholders totaled
by Soylent Green is People
From the FDIC: Liberty Bank and Trust Company, New Orleans, Louisiana, Assumes All of the Deposits of Home Federal Savings Bank, Detroit, Michigan

Home Federal Savings Bank, Detroit, Michigan, was closed today by the Office of Thrift Supervision, which appointed the Federal Deposit Insurance Corporation (FDIC) as receiver. ...

As of September 24, 2009, Home Federal Savings Bank had total assets of $14.9 million and total deposits of approximately $12.8 million. ...

The FDIC estimates that the cost to the Deposit Insurance Fund (DIF) will be $5.4 million. ... Home Federal Savings Bank is the 117th FDIC-insured institution to fail in the nation this year, and the third in Michigan. The last FDIC-insured institution closed in the state was Warren Bank, Warren, on October 2, 2009.

A small one ... but it counts.

by Calculated Risk on 11/06/2009 05:05:00 PM

"Feds!... Come and Take Them"
United Security
Sparta Bank is dead.
by Soylent Green is People
From the FDIC: Ameris Bank, Moultrie, Georgia, Assumes All of the Deposits of United Security Bank, Sparta, Georgia

United Security Bank, Sparta, Georgia, was closed today by the Georgia Department of Banking and Finance, which appointed the Federal Deposit Insurance Corporation (FDIC) as receiver. ...

As of September 14, 2009, United Security Bank had total assets of $157 million and total deposits of approximately $150 million. ...

The FDIC estimates that the cost to the Deposit Insurance Fund (DIF) will be $58 million. ... United Security Bank is the 116th FDIC-insured institution to fail in the nation this year, and the twenty-first in Georgia. The last FDIC-insured institution closed in the state was American United Bank, Lawrenceville, on October 23, 2009.

Off to a quick start ...

by Calculated Risk on 11/06/2009 03:00:00 PM

From MarketWatch: Consumer debt drops for record 8th straight month

Outstanding consumer debt fell at a 7.2% annual rate in September, the eighth consecutive decline, the Federal Reserve reported Friday.

Click on graph for larger image in new window.

This graph shows the year-over-year (YoY) change in consumer credit. Consumer credit is off 4.7% over the last 12 months - and falling fast. The previous record YoY decline was 1.9% in 1991.

Here is the Fed report: Consumer Credit

Consumer credit decreased at an annual rate of 6 percent in the third quarter of 2009. Revolving credit decreased at an annual rate of 10 percent, and nonrevolving credit decreased at an annual rate of 3-3/4 percent. In September, consumer credit decreased at an annual rate of 7-1/4 percent.

Note: The Fed reports a simple annual rate (multiplies change in month by 12) as opposed to a compounded annual rate. Consumer credit does not include real estate debt.

by Calculated Risk on 11/06/2009 01:47:00 PM

Update: A couple points: CRE is a lagging sector (see Business Cycle: Temporal Order), and I make some pretty optimistic comments in the middle of this post. I'll try to put some number togther on household formation and excess inventory.

From Carolyn Said at the San Francisco Chronicle: Gloomy times for commercial real estate

Values will plunge, vacancies will rise and rents will decrease across all types of commercial property before the market hits bottom in 2010, according to the "Emerging Trends in Real Estate" forecast from the Urban Land Institute and PricewaterhouseCoopers LLP.
...
No quick recovery is in store, the report said. "2010 looks like an unavoidable bloodbath for a multitude of 'zombie' borrowers, investors and lenders," it said. "The shake-out period may extend several years as even some conservative owners with well-underwritten loans from the early 2000s see their equity destroyed."

The report suggests the first sector to recover will be apartments as "people who were forced to move back in with their parents seek their own places as soon as they find jobs".

This household creation is really the key to entire housing market. During a recession people double up with friends or move into their parent's basements - and this is pent-up demand for housing units (mostly apartments) once these people find jobs and regain confidence about their future earnings.

All will not be grim forever. The number of housing units currently being completed (single family and apartments) is significantly below the level normally required for population growth. This level of completions would usually be reducing the excess inventory, however the improvement is being masked by the loss of households due to the recession. Once the job market starts to improve, I'd expect a surge in household creation (mostly renters).

Unfortunately there is a catch-22. Usually residential investment contributes significantly to job creation at the beginning of a recovery - and the excess housing inventory is holding down residential construction employment this time.

For the other CRE sectors the outlook is very grim. From the Urban Land Institute:

Among property sectors, the survey finds declines or near low record lows in investment sentiment for almost every property type. Only rental apartments register fair prospects and all other categories sink into the fair to poor range. Hotel and retail record the most precipitous falls. Development prospects are “largely dead” and drop to new depths and practically to “abysmal” levels for office, retail and hotels. Warehouse and apartments score only marginally better at “modestly poor.”

by Calculated Risk on 11/06/2009 10:29:00 AM

A few more graphs ...

Stress Test Scenarios

The economy is performing better that the stress test baseline scenario for GDP and house prices, but worse than the "more adverse" stress test scenario for unemployment.

Click on graph for larger image in new window.

This graph shows the unemployment rate compared to the stress test economic scenarios on a quarterly basis as provided by the regulators to the banks (no link).

This is a quarterly forecast: the Unemployment Rate for Q4 is just October at 10.2%. The unemployment rate is higher than the "more adverse" scenario, and much higher than the peak of the baseline scenario.

Unemployed over 26 Weeks

The DOL report yesterday showed seasonally adjusted insured unemployment at 5.75 million, down from a peak of about 6.9 million. This raises the question of how many unemployed workers have exhausted their regular unemployment benefits (Note: most are still receiving extended benefits, and President Obama signed a further extension of benefits this morning).

The monthly BLS report provides data on workers unemployed for 27 or more weeks, and here is a graph ...

The blue line is the number of workers unemployed for 27 weeks or more. The red line is the same data as a percent of the civilian workforce.

According to the BLS, there are a record 5.6 million workers who have been unemployed for more than 26 weeks (and still want a job). This is a record 3.6% of the civilian workforce. (note: records started in 1948)

Diffusion Index

The third graph shows the BLS diffusion indexes for total private employment and manufacturing employment.

Think of this as a measure of how widespread the job losses are across industries. The further from 50 (above or below), the more widespread the job losses or gains reported by the BLS.

Both the "all industries" and "manufacturing" employment diffusion indices had been trending up - meaning job losses were becoming less widespread. However both turned down in October. This series is noisy month-to-month, but it still appears job losses are widespread across industries.

Earlier employment posts today:

Employment Report: 190K Jobs Lost, 10.2% Unemployment Rate for graphs of unemployment rate and a comparison to previous recessions.

Employment-Population Ratio, Record Part Time Workers, Weak Holiday Hiring

by Calculated Risk on 11/06/2009 09:24:00 AM

The [un]employment report headline numbers were ugly, but the internals are even less encouraging ...

Employment-Population Ratio

Click on graph for larger image in new window.

This graph shows the employment-population ratio; this is the ratio of employed Americans to the adult population.

Note: the graph doesn't start at zero to better show the change.

The general upward trend from the early '60s was mostly due to women entering the workforce.

This measure fell in October to 58.5%, the lowest level since the early '80s.

The Labor Force Participation Rate fell to 65.1% (the percentage of the working age population in the labor force). This is also the lowest since the mid-80s.

When the job market starts to recover, many of these people will reenter the workforce and look for employment - and that will keep the unemployment rate elevated for some time.

Part Time for Economic Reasons

From the BLS report:

The number of persons working part time for economic reasons (sometimes referred to as involuntary part-time workers) was little changed in October at 9.3 million. These individuals were working part time because their hours had been cut back or because they were unable to find a full-time job.

The number of workers only able to find part time jobs (or have had their hours cut for economic reasons) is at a record 9.284 million.

Note: the U.S. population is significantly larger today (about 308 million) than in the early '80s (about 228 million) when the number of part time workers almost reached 7 million. Still - even adjusted for population - part time workers is at record levels.

Seasonal Retail Hiring

The old saying is "Watch what they do, not what they say". Yesterday there were some reports that retail sales were up slightly year-over-year. But retailers are hiring seasonal workers at the same pace as last year ...

Typically retail companies start hiring for the holiday season in October, and really increase hiring in November. Here is a graph that shows the historical net retail jobs added for October, November and December by year.

This really shows the collapse in retail hiring in 2008.

Retailers only hired 63.5 thousand workers (NSA) net in October. This is essentially the same as in 2008 (59.1 thousand NSA), and suggests retailers are being very cautious with their seasonal hiring.

Earlier employment post today:

Employment Report: 190K Jobs Lost, 10.2% Unemployment Rate for graphs of unemployment rate and a comparison to previous recessions.

by Calculated Risk on 11/06/2009 08:30:00 AM

From the BLS:

The unemployment rate rose from 9.8 to 10.2 percent in October, and nonfarm payroll employment continued to decline (-190,000), the U.S. Bureau of Labor Statistics reported today. The largest job losses over the month were in construction, manufacturing, and retail trade.

Click on graph for larger image.

This graph shows the unemployment rate and the year over year change in employment vs. recessions.

Nonfarm payrolls decreased by 190,000 in October. The economy has lost almost 5.5 million jobs over the last year, and 7.3 million jobs¹ during the 22 consecutive months of job losses.

The unemployment rate increased to 10.2 percent. This is the highest unemployment rate in 26 years.

Year over year employment is strongly negative.

The second graph shows the job losses from the start of the employment recession, in percentage terms (as opposed to the number of jobs lost).

For the current recession, employment peaked in December 2007, and this recession was a slow starter (in terms of job losses and declines in GDP).

However job losses have really picked up earlier this year, and the current recession is the worst recession since WWII in percentage terms, and 2nd worst in terms of the unemployment rate (only early '80s recession with a peak of 10.8 percent was worse).

The economy is still losing jobs at about a 2.2 million annual rate, and the unemployment rate is finally above 10%. This is a very weak employment report - just not as bad as earlier this year. Much more to come ...

¹Note: The total jobs lost does not include the preliminary benchmark payroll revision of minus 824,000 jobs. (This is the preliminary estimate of the annual revision that will be announced early in 2010).

by Calculated Risk on 11/06/2009 12:31:00 AM

See the poll in the right sidebar ...

Catherine Rampell at the NY Times Economix offers a Jobs Report Preview

Ms. Rampell suggests three things to look for:

1) The unemployment rate may hit 10 percent.
...
2) Job losses continue to mount, but more slowly.
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3) Hours worked stagnate.

There will be many more interesting details such as the employment-population ratio, part time workers, how many people are unemployed more than 26 weeks (for unemployment benefits), and how many part time workers were hired for seasonal retail jobs - just to mention a few.

by Calculated Risk on 11/05/2009 09:24:00 PM

From CNBC: Boomers in Denial About Retirement Savings

Wells Fargo just released the results of its Retirement Fitness survey and looked hard at the investment habits of pre-retirees ages 50 to 59. What did they find?

“There is a sense of denial among the pre-retirees,” said Lynne Ford, head of Wells Fargo Retail Retirement.

Even after suffering significant losses last year, many remain overly optimistic about their investment returns and the ability of their savings to fund their expenses after they stop working.
...
On average, these pre-retirees expected they would need $800,000 to fund their retirement. However, most had only saved about $300,000.

I expect many of these pre-retirees will start saving more soon, and this is part of the reason I expect the saving rate to increase to 8% or so over the next couple of years. And for a more humorous take:

by Calculated Risk on 11/05/2009 05:20:00 PM

Press Release: Fannie Mae Reports Third-Quarter 2009 Results

Fannie Mae (FNM/NYSE) reported a net loss of $18.9 billion in the third quarter of 2009, compared with a loss of $14.8 billion in the second quarter of 2009. ... Third-quarter results were largely due to $22.0 billion of credit related expenses, reflecting the continued build of the company’s combined loss reserves and fair value losses associated with the increasing number of loans that were acquired from mortgage backed securities trusts in order to pursue loan modifications.
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As a result, on November 4, 2009, the Acting Director of the Federal Housing Finance Agency (FHFA) submitted a request for $15.0 billion from Treasury on the company’s behalf.
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The seriously delinquent loans in our single-family book of business, which we define as those loans 90 or more days delinquent or in the process of foreclosure, increased and aged during the third quarter. This was caused by a greater number of loans that transitioned to seriously delinquent status, while the proportion of already seriously delinquent loans that cured or transitioned to completed foreclosures declined. Factors contributing to the increase in serious delinquencies included: high unemployment that hampered the ability of many delinquent borrowers to cure their delinquencies; Home Affordable Modifications in trial periods, which remain classified as delinquent; our directive that servicers delay foreclosure sales until other alternatives, including Home Affordable Modification, have been exhausted; and, the slowdown in the legal process for foreclosures in a number of states.
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Total nonperforming loans in our guaranty book of business were $198.3 billion, compared with $171.0 billion on June 30, 2009, and $119.2 billion on December 31, 2008. The carrying value of our foreclosed properties was $7.3 billion, compared with $6.2 billion on June 30, 2009, and $6.6 billion on December 31, 2008.
emphasis added