by Calculated Risk on 7/28/2010 10:55:00 AM

Several analysts noted the reported re-default rate appeared too low ... it was.

Shahien Nasiripour at the HuffPo has the story: HAMP Report Revised After Analysts Question New Metric

The Obama administration has revised its latest monthly report on its signature foreclosure-prevention plan, deleting a heavily-criticized performance metric used to measure whether assisted homeowners are re-defaulting on their taxpayer-financed mortgages.
...
"Subsequent to releasing the report, Treasury received inquiries regarding the calculation methodology used in this table," spokesman Mark Paustenbach said Tuesday. "These inquiries were related to the treatment of modifications that are cancelled from HAMP and ultimately become ineligible for TARP incentives after 90 days delinquency.

"In an effort to review and better explain the methodology, we learned from our program administrator, Fannie Mae, that not all cancelled loans were included in the underlying information provided to Treasury," Paustenbach continued. "The error caused inconsistent reporting of permanent modifications during the snapshots reported. These omissions have impacted our previous analysis... with respect to the performance of HAMP permanent modifications."
...
In place of the now-deleted table, in a revised report posted Monday to their FinancialStability.gov Web site, Treasury said:

"Since the Making Home Affordable report was posted on July 20th, Fannie Mae, which administers the program, has reported to Treasury an issue in its implementation of the delinquency statistic methodology used to report performance of permanent modifications. Fannie Mae is now revising the data, and Treasury has retained a third-party consultant to provide additional review and validation. Upon completion of that independent review, a revised table will be provided.".

As Nasiripour notes, most analysts think a majority of HAMP modifications will eventually re-default. Nasiripour mentions a Fitch analyst's forecast that 75 percent will re-default; Barclays estimates 60 percent.

Last month, the reported median back end DTI¹ was 63.7% AFTER modification. That just screams "re-default".

From HAMP: ¹ Ratio of total monthly debt payments (including principal and interest on the first mortgage, taxes, insurance, homeowners association and/or condo fees, plus payments on installment debts, junior liens, alimony, car lease payments and investment property payments) to monthly gross income.

by Calculated Risk on 7/28/2010 08:33:00 AM

From the Census Bureau:

New orders for manufactured durable goods in June decreased $2.0 billion or 1.0 percent to $190.5 billion, the U.S. Census Bureau announced today. This was the second consecutive monthly decrease and followed a 0.8 percent May decrease.
...
Shipments of manufactured durable goods in June, down two consecutive months, decreased $0.7 billion or 0.3 percent to $195.0 billion. This followed a 0.7 percent May decrease.

From Reuters: Durable Goods Orders Fall Short as Demand Stays Weak

The Commerce Department said durable goods orders fell 1.0 percent after a revised 0.8 percent drop in May.

Analysts polled by Reuters had forecast orders increasing 1.0 percent in June from May's previously reported 0.6 percent fall.

This was well below expectations, and is further evidence of a slowdown in the manufacturing sector.

by Calculated Risk on 7/28/2010 07:53:00 AM

The MBA reports: Mortgage Applications Decrease in Latest MBA Weekly Survey

The Refinance Index decreased 5.9 percent from the previous week. The seasonally adjusted Purchase Index increased 2.0 percent from one week earlier and is the highest Purchase Index observed in the survey since the end of June.
...
The average contract interest rate for 30-year fixed-rate mortgages increased to 4.69 percent from 4.59 percent, with points decreasing to 0.88 from 1.04 (including the origination fee) for 80 percent loan-to-value (LTV) ratio loans.

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 4-week average is still near the levels of 1996.

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 7/27/2010 10:58:00 PM

Alan Blinder and Mark Zandi will release a new paper tomorrow analyzing the impact of the policy response to the crisis ... Sewell Chan at the NY Times has a preview: In Study, 2 Economists Say Intervention Helped Avert a 2nd Depression

In a new paper, [Alan S. Blinder, a Princeton professor and former vice chairman of the Fed, and Mark Zandi, chief economist at Moody’s Analytics] argue that without the Wall Street bailout, the bank stress tests, the emergency lending and asset purchases by the Federal Reserve, and the Obama administration’s fiscal stimulus program, the nation’s gross domestic product would be about 6.5 percent lower this year.

In addition, there would be about 8.5 million fewer jobs, on top of the more than 8 million already lost; and the economy would be experiencing deflation, instead of low inflation.

I'll post a link tomorrow (if it is available). David Leonhardt adds:

As Mr. Blinder and Mr. Zandi note, their estimates of the fiscal stimulus are similar to the estimates of others — including the Congressional Budget Office.

Although Zandi completely missed the housing bubble, I've been using his estimates of the impact of policy (and estimates from Goldman Sachs), and I think they have been very useful in forecasting.

by Calculated Risk on 7/27/2010 07:32:00 PM

Earlier today the Census Bureau released the homeownership and vacancy rates for Q2 2010.

I posted a few graphs this morning, and I noted that the homeownership rate had fallen to the 1999 level of 66.9%.

A few years ago - when the homeownership rate was at 69%, I forecast that the rate would probably fall to the 66% to 67% range. Here is a repeat of the graph from this morning showing the trend of the homeownership rate since 1965.

Click on graph for larger image in new window.

Note: graph starts at 60% to better show the change.

As I noted this morning, the homeownership rate increased in the '90s and first half of the '00s because of changes in demographics and "innovations" in mortgage lending. My guess is the increase due to demographics (older population) will probably stick, but the mortgage "innovation" increase will disappear.

Using the data from the Census Bureau on number of households per age cohort, we can calculate what would have happened to the overall homeownership rate if the rate per age cohort had stayed the same as in 1989 or in 1999.

Using the 1989 percentages, the homeownership rate would have increased from 63.9% in 1989 to 66.2% in 2009 just because of the aging population. Using the 1999 homeownership percentages, the homeownership rate would be 66.8% given the changes in demographics. That was the basis for my original forecast of the homeownership rate falling to the 66% to 67% range.

It is certainly possible that the homeownership rate might fall further than I originally expected since certain cohorts now own at a lower than historically normal rate - and many of these people might be turned off on home ownership for some time (if not forever).

The second graph shows the homeownership rate by age cohort for 1989, 1999, 2005 (peak of housing bubble), and Q2 2010.

For those currently under 30, the homeownership rate is above the 1989 and 1999 levels - probably because most of these people were too young to participate in the insanity and some have taken advantage of the first time home buyer tax credit.

For the 30 to 60 groups, the homeownership rate is currently below the 1989 and 1999 levels. These groups were in their early 20s to early 50s during the bubble years - the prime buying years.

For the groups above 60 years old, the homeownership rate has stayed above the 1989 level. Most of these people already owned and probably didn't participate in the insanity.

But notice the highest cohort (over 75 years old). The homeownership rate is above the bubble years! This could mean that some people are staying in their homes, perhaps waiting for a better market to sell.

This does shows that the most impacted cohorts are currently in the 30 to 60 age groups, with the 30 to 35 year old cohort the hardest hit group (in their mid to late 20s during the bubble). The next hardest hit groups are the 45 to 59 cohorts - probably because some people were moving up to more home than they could afford.

For now I'll stick with my prediction of the homeownership rate falling to 66% or so, but it could certainly fall lower.