by Calculated Risk on 10/07/2010 10:23:00 PM

From Andrew Martin and David Streitfeld at the NY Times: Flawed Foreclosure Documents Thwart Home Sales

[A]s a scandal unfolds over mortgage lenders’ shoddy preparation of foreclosure documents, the fallout is beginning to hammer the housing market, especially in states like Florida where distressed properties are abundant. ... the agents are being told the freeze will last 30 to 90 days ...

[One Florida] agency had 35 deals that were supposed to close this month. As of Thursday, Fannie had postponed 11 of them.

This will probably just be a delay. And the delays will mostly be in the judicial foreclosure states, although the story has one example of a house withdrawn from the market in California.

by Calculated Risk on 10/07/2010 08:00:00 PM

Here is the video of Professors Paul Krugman and Martin Feldstein (former Reagan advisor and NBER president), and Jan Hatzius, chief economist of Goldman Sachs:

The Economic Policy Institute conference on October 5, 2010

I'm not sure who is the most pessimistic.

by Calculated Risk on 10/07/2010 05:09:00 PM

CR Note: This is from economist Tom Lawler, who joked today: Maybe large servicers should be forced to put up billions in "claims fund," like BP? (the latter "caused" slime, while the former are just "slimy"!)

The mortgage-foreclosure debacle, which started with a story about a GMAC “technicality” (and included a “GMAC denies foreclosure moratorium” story) but which quickly “ballooned” as more mortgage servicers were “implicated,” has now exploded into a full-blown “issue” of unknown proportions. One thing is pretty clear – many larger mortgage servicers simply “screwed up” by trying to deal with the surge in foreclosures by taking shortcuts to keep costs down, and this mistake has blown up in their faces.

But … is it just “their” faces?

It seems pretty clear that one of the outcomes of the recent “revelations” is that many foreclosures will be postponed; there will be more “refilings” of foreclosure petitions that will cost money; more borrowers facing foreclosures will hire lawyers, and servicers will have to reimburse more borrowers for legal fees; and some foreclosures could be delayed for quite a while. It is unclear at this point whether there will be any significant number of completed foreclosures that might be reversed, but if so that’s gonna cost! Net, there are going to be significant costs that someone is going to have to bear.

But who will bear those costs? Will it be mortgage servicers? Well, if they also own the mortgage, sure. But what about for loans they service for others (including private-label securities, Fannie, Freddie, FHA, VA, …)? Who’s a’ gonna’ pay?

From a “who should” perspective, any increase in losses associated with mistakes made by mortgage servicers, especially if those mistakes involved not following state foreclosure laws, which is a “violation” of most servicing contracts, the answer is crystal clear – the mortgage servicers. But how easy is it going to be to determine losses associated with mistakes by mortgage servicers? What are the “rules” on what a servicer can “recoup” in terms of costs associated with foreclosure when a servicer makes a mistake in private-label deals? With loans serviced for Fannie and Freddie, or FHA? What about delays in foreclosures clearly associated with servicer mistakes, which generally result in increased loss severities? Mortgage investors shouldn’t bear those costs, but how can they be sure they won’t?

What if there is a national “foreclosure moratorium” triggered by mortgage servicer mistakes that ultimately increase the severity of losses? Who “pays the price” in reality, as opposed to who “should?” Will there be lawsuits from mortgage investors whose loans and/or loans backing securities they own find that their incidence and/or severity of loss was adversely impacted by servicers mistakes, and will they be able to ensure that servicers who “screwed up” bear those losses instead of them?

I don’t know the “technically right” answers to any of the above questions, but it is crystal clear that the “right” answer should be that mortgage servicers who messed up should bear all of the costs associated with their mess up.

CR Note: This is from economist Tom Lawler

by Calculated Risk on 10/07/2010 03:19:00 PM

The Federal Reserve reports:

In August, total consumer credit decreased at an annual rate of 1-3/4 percent. Revolving credit decreased at an annual rate of 7-1/4 percent, and [Non] revolving credit increased at an annual rate of 1-1/4 percent.

Click on graph for larger image in new window.

This graph shows the increase in consumer credit since 1978. The amounts are nominal (not inflation adjusted).

Revolving credit (credit card debt) is off 15.2% from the peak. Non-revolving debt (auto, furniture, and other loans) is off 1.1% from the peak. Note: Consumer credit does not include real estate debt. This has been very different from previous recessions with the decline in non-revolving debt.

by Calculated Risk on 10/07/2010 01:33:00 PM

From Dallas Fed President Richard Fisher: To Ease or Not to Ease? What Next for the Fed?

I am afraid that despite recent speculation in the press and among market pundits, we did little at that meeting to settle the debate as to whether the Committee might actually engage in further monetary accommodation, or what has become known in the parlance of Wall Street as “QE2,” a second round of quantitative easing. It would be marked by an expansion of our balance sheet beyond its current footings of $2.3 trillion through the purchase of additional Treasuries or other securities. To be sure, some in the marketplace―including those with the most to gain financially―read the tea leaves of the statement as indicating a bias toward further asset purchases, executed either in small increments or in a “shock-and-awe” format entailing large buy-ins, leaving open only the question of when.

Since the FOMC meeting, a handful of my colleagues have fanned further speculation about QE2 by signaling their personal positions on the matter quite openly in recent speeches and interviews in the major newspapers. Hence the headline in yesterday’s Wall Street Journal, “Central Banks Open Spigot,” a declaration that surely gave the ghosts of central bankers past the shivers and sent a tingle down the spine of gold bugs from Bemidji to Beijing.
...
There is a great deal of legitimate debate still to take place within the FOMC on the subject of quantitative easing and the pros and cons and costs and benefits of further monetary accommodation. Whatever we might do, if anything, must be consistent with long-term price stability and not add to the nightmare of confusing signals already being sent to job creators.

What will we likely decide at the next FOMC meeting? ... “You’ll find out soon enough.”

Fisher suggests the debate on QE2 isn't over (he opposes QE2). However he is not a voting member of the FOMC this year (an alternate). He is always fun to read - but barring some upside surprise, I think QE2 will be announced on November 3rd.

by Calculated Risk on 10/07/2010 08:41:00 AM

The DOL reports on weekly unemployment insurance claims:

In the week ending Oct. 2, the advance figure for seasonally adjusted initial claims was 445,000, a decrease of 11,000 from the previous week's revised figure of 456,000. The 4-week moving average was 455,750, a decrease of 3,000 from the previous week's revised average of 458,750.

Click on graph for larger image in new window.

This graph shows the 4-week moving average of weekly claims since January 2000.

The dashed line on the graph is the current 4-week average. The four-week average of weekly unemployment claims decreased this week by 3,000 to 455,750.

The 4-week moving average has been moving sideways at an elevated level since last December - and that suggests a weak job market.