by Calculated Risk on 10/18/2009 09:38:00 AM

From Roger Vincent at the LA Times: Southern California's vast desolation indoors

... Almost 51 million square feet of office space in Los Angeles County, Orange County and the Inland Empire is now empty -- more than 17% of the total. ... "These vacancies are a direct reflection on unemployment," said Joe Vargas, an executive vice president at Cushman & Wakefield. "Companies continue to reduce their workforce, or they are not hiring."
...
Real estate rentals are a lagging indicator of the economy, so the shrinking-space trend is expected to persist well into next year even if the nation's financial outlook continues to improve.
...
Cushman & Wakefield's Vargas predicts Southern California will remain a tenant's market through mid-2010 and perhaps longer if employment doesn't start picking up.

"This is certainly the worst downturn we've seen," Vargas said. "We're not going to see real improvement until job growth occurs."

Usually the unemployment rate and the office vacancy rate tend to peak around the same time. So, as the unemployment rate continues to rise into 2010, the office vacancy rate will probably increase too.

On a national basis, Reis' forecast is for the office vacancy rate to peak at 18.2 percent in 2010 (currently 16.5%), and for rents to continue to decline through 2011.

by Calculated Risk on 10/17/2009 10:12:00 PM

From the Telegraph: Era of cheap mortgages is over, British homeowners warned

[T]he Financial Services Authority ... plans to tighten up regulation and crack down on risky lending ...

The FSA's Mortgage Market Review, published tomorrow, will focus on the third of the market considered "higher risk". ... Among the report's proposals, the financial regulator is expected to call for an end to self-certification mortgages and rule that responsibility for income verification be transferred from mortgage brokers to lenders.
...
Second charge and buy-to-let mortgages, neither of which are regulated by the FSA, are expected to be brought under its supervision. In addition, sub-prime, interest-only, and 125pc mortgages will all be subjected to closer scrutiny and higher capital requirements.

The terms are different in the U.K.: "Self certification" is stated income, "second charge" is a second mortgage, and "buy-to-let" is a rental unit.

Subprime, interest only (IO) and 125 percent loan-to-value (LTV) are the same.

There is no purpose for self certification (stated income) loans and these should be banned everywhere. Self certification means "buyer underwritten" as opposed to "lender unwritten" - and that makes no sense. Tanta wrote a couple of great posts on this in 2007: Just Say No To Stated Income and What's Really Wrong With Stated Income .

About time ...

by Calculated Risk on 10/17/2009 06:35:00 PM

Just a follow-up to the previous post - here is the HUD Inspector General's report on the FHA single-family lender approval process (ht MrM)

Click on graph for larger image in new window.

This graph from the Inspector General's report shows the number of approved FHA lenders by year. In 2008 there were 3,297 lender applications approved by the FHA, more than triple the number in 2007.

And 2009 is on pace for a similar number of approvals as 2008 (another 3,000+ lenders).

From the report:

Congressional concerns brought about in part by media coverage has raised concerns that former subprime lenders and brokers are obtaining approval to participate in the FHA program and that they will be responsible for FHA insurance of loans to people unlikely to make their payments.

Our audit objective was to determine whether the application process for Title II provided effective controls to ensure approval of only those lenders that complied with FHA requirements ...

And from the results:

Finding 1: FHA's Lender Approval Process Did Not Ensure That Only Eligible Applicants Were Approved

FHA's lender application process was not adequate to ensure that all of its lender approval requirements were met. This condition occurred because FHA control procedures had been enhanced and automated to handle the recent large increase in the number of lenders applying for the FHA program.

by Calculated Risk on 10/17/2009 03:35:00 PM

From the WaPo: FHA Set to Hire Freddie Mac Official

On Friday, the Inspector General of the Department of Housing and Urban Development, which includes FHA, said the agency lacks the ability to ensure that lenders meet its requirements.

The report also said that FHA did not obtain or consider negative information on lenders from other HUD offices, follow up on whether the required fees or documentation were collected, or properly dispose of lender application files containing personally identifiable information.

The AP has more on the report. (I haven't seen the report yet).

No wonder so many FHA lenders have off-the-chart default rates (see: FHA Lenders with High Default Rates).

by Calculated Risk on 10/17/2009 01:17:00 PM

From the Miami Herald: Florida's jobless rate hits 11 percent as public toll worsens

Florida's overall jobless rate hit 11 percent in September, up two-tenths of a percentage point from the previous month, according to figures released by the state labor department on Friday. That's the highest since 1975, and represents more than a million Floridians out of work.
emphasis added

The BLS will report all the state data this week, and just like in California and Nevada, unemployment in Florida is at an all time high for the state series (started in 1975).

A couple other high unemployment states ...

In Illinois, from the Chicago Tribune: Ill. jobless rate hits 10.5 percent in September

The jobless rate in Illinois increased to 10.5 percent in September after falling to 10 percent in August.

That is almost 700 thousand people unemployed in Illinois.

And the "good news" from the Detroit Free Press: State's jobless rate is showing stability

Michigan's unemployment rate inched slightly higher during September, rising one-tenth of a percentage point to 15.3%.
...
"Michigan's unemployment rate was largely unchanged in September, as a modest recall of auto workers from temporary layoff was countered by job losses in the service sector," said Rick Waclawek, director of [Michigan Department of Energy, Labor & Economic Growth]'s Bureau of Labor Market Information and Strategic Initiatives. "The state jobless rate, which rose sharply by five percentage points from December 2008 to June 2009, has stabilized somewhat since June."

That is the good news. The recall of some auto workers kept the unemployment rate "largely unchanged".

My guess is the overall unemployment rate will hit 10% this month or in November.