by Calculated Risk on 7/21/2010 07:43:00 AM

The MBA reports: Interest Rate Drops Spur Refinance Applications in Latest MBA Weekly Survey

The Refinance Index increased 8.6 percent from the previous week and was the highest Refinance Index observed in the survey since the week ending May 15, 2009.
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The seasonally adjusted Purchase Index increased 3.4 percent from one week earlier, driven by an 8.0 percent increase in government purchase applications.
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"As rates on 30- and 15-year fixed-rate mortgages declined to the lowest levels recorded in the survey, refinance activity increased last week. The refinance index is up almost 30 percent over the past 4 weeks, but is still well below the peak seen last spring,” said Michael Fratantoni, MBA’s Vice President of Research and Economics.
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The average contract interest rate for 30-year fixed-rate mortgages decreased to 4.59 percent from 4.69 percent, with points increasing to 1.04 from 0.96 (including the origination fee) for 80 percent loan-to-value (LTV) ratio loans. This was the lowest 30-year contract rate ever recorded in the survey.

Click on graph for larger image in new window.

This graph shows the MBA Purchase Index and four week moving average since 1990.

Although the weekly applications index increased slightly, the four-week moving average is at a 15 year low (lowest since August 1995). The four week average is off 36% since the mini-peak in April (the weekly index is off 42% since the end of April).

This collapse in the mortgage application index has already shown up as a decline in new home sales, and will show up in the July and August existing home sales reports (counted at close of escrow).

by Calculated Risk on 7/20/2010 10:08:00 PM

The Semiannual Monetary Policy Report to the Congress 02:00 PM - 05:00 PM ET

by Calculated Risk on 7/20/2010 07:45:00 PM

Tomrrow, starting at 10 AM ET, Fed Chairman Ben Bernanke will report to the Senate Banking Committee: The Semiannual Monetary Policy Report to the Congress

David Wessel at the WSJ has a preview: The View From Bernanke's Perch at the Fed

Neil Irwin at the WaPo has some comments: Why Wall Street doesn't understand the Fed

Bernanke will very likely tell the Senate Banking Committee on Wednesday that cutting [interest on excess reserves] is one of a handful of options that the Fed is evaluating should the economic recovery continue to stumble. The others ... are strengthening its promise to keep interest rates low for an extended period and buying enough mortgage securities to replace those that mature. He will indicate openness to buying more long-term assets, but only if the economy appears to be heading back toward recession.

I doubt Bernanke will mention options for further easing in his prepared statement, however he will probably be asked about what options are available in the Q&A. As Andrew Tilton at Goldman Sachs noted yesterday: "Any commentary on easing options seems more likely to come in the question-and-answer session rather than prepared remarks. One way for Chairman Bernanke to keep specific ideas at arm’s length might be to couch them in terms of a discussion of what other central banks have done."

I think Bernanke will mention the recent weak economic data in his prepared testimony, and it will interesting to see how he phrases it. As far as policy options, I think the options Irwin mentions are possible - and also possible is setting target ceiling rates for 3 to 5 year Treasury securities (he discussed this in his 2002 speech: Deflation: Making Sure "It" Doesn't Happen Here).

by Calculated Risk on 7/20/2010 04:31:00 PM

The Obama Administration released the June Housing Scorecard today. The graphs are a little hard to read, but they do provide a list of sources.

On modifications they provide a graph showing 2.95 million total modifications for Hope Now, HAMP, and FHA loss mitigation (page 3). There are also private modifications too (not mentioned) - so quite a few borrowers have had some sort of loan modification.

For housing supply (page 2 last graph), they show existing home inventory and "vacant housing units, held off market, year round, other" from the Census Bureau. I suppose they are using this number (about 3.6 million now - usually around 2.7 million) as a measure of shadow inventory. I think a better measure of the excess supply is to use the vacancy rates from the Census Bureau. The Q2 vacancy rates will be released next week on July 27th.

by Calculated Risk on 7/20/2010 01:07:00 PM

From Treasury: HAMP Servicer Performance Report Through June 2010

Click on table for larger image in new window.

About 389 thousand modifications are now "permanent" - up from 347 thousand last month - and 521 thousand trial modifications have been cancelled - up sharply from 430 thousand last month.

According to HAMP, there are 364,077 "active trials", down from 467,672 last month. There is still a large number of borrowers in limbo since only 235 thousand trials were started over the last 5 months. I expect another large number of cancellations in July.

The second graph shows the cumulative HAMP trial programs started.

Notice that the pace of new trial modifications has slowed sharply from over 150,000 in September to just over 15,000 in June (down from 30,000 in April 2010). This is the slowest pace since the program started, probably because of two factors: 1) servicers are now pre-qualifying borrowers, and 2) servicers are running out of eligible borrowers. The program is winding down ...

Debt-to-income ratios

If we look at the HAMP program stats (see page 3), the median front end DTI (debt to income) before modification was 44.8% - the same as last month. And the back end DTI was an astounding 79.9 (up slightly from last month).

Think about that for a second: for the median borrower, about 80% of the borrower's income went to servicing debt. And the median is 63.7% after the modification.

And that is the median - and just imagine the characteristics of the borrowers who can't be converted!

Summary:

Another large number of trial programs were cancelled. This will mean more foreclosures (or short sales) in the near future.

A large number of borrowers are still in modification limbo, so there will probably be more cancellations coming.

The program is winding down quickly (only 15,000 new trials started in June).

The borrowers DTI characteristics are poor - suggesting a high redefault rate over the next year or two.

Note: On page 3, HAMP added the delinquency rates for "permanent" modifications. As an example, 5.9% of borrowers are 60+ days delinquent six months after their modifications became "permanent". Over 8,800 "permanent" modifications have been cancelled, and only 195 have been paid off (probably sold property). The others probably are in foreclosure (or other distress sale).