by Calculated Risk on 10/13/2010 03:00:00 PM

This is the new UCLA Anderson Forecast and Ceridian Corporation index using real-time diesel fuel consumption data: Pulse of Commerce Index^TM

Click on graph for larger image in new window.

This graph shows the index since January 1999.

This is a new index, and doesn't have much of a track record in real time, although the data suggests the recovery has "stalled" since May.

Press Release: Economy Devoid of Momentum: Ceridian-UCLA Pulse of Commerce Index™ Declines for Second Consecutive Month in September

The Ceridian-UCLA Pulse of Commerce Index™ (PCI), a real-time measure of the flow of goods to U.S. factories, retailers, and consumers, fell .5 percent in September after falling 1.0 percent in August, which is the first time the index has experienced a consecutive monthly decline since January 2009. Furthermore, August and September 2010 together produced the worst combined two-month decline since the recessionary months of January and February 2009.

The decline indicates four consecutive months of limited to no increases in over the road movement of produce, raw materials, goods-in-process and finished goods since the PCI peaked in May 2010. Moreover, the PCI forecasts GDP growth in the third quarter of 2010 at an anemic 0.7 percent to 1.7 percent, below the PCI’s previous 1.5 to 2.5 percent estimate reported last month (which at the time approximated the consensus economic view). The PCI forecast of the Federal Reserve's monthly Industrial Production (IP) index (to be released later this month) also signals IP growth for September to be very close to zero with an even odds chance for a negative number.

“The PCI tells us that inventory is stalled on the nation’s thoroughfares. The good months of growth are now seemingly in our rear view mirror,” said Ed Leamer, chief PCI economist and director of the UCLA Anderson Forecast. “Our economy’s loss in traction is alarming and for the ‘Cassandras of the double-dip,’ may foretell a coming decline in GDP and spike in unemployment. However, with residential investment, consumer durables, business spending, and other component indicators already at or near record lows relative to GDP, it remains unlikely that we will experience an outright decline into recession.”
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The Ceridian-UCLA Pulse of Commerce Index™ is based on real-time diesel fuel consumption data for over the road trucking ...

I'm not confident in using this index to forecast GDP growth, although it does appear to track Industrial Production over time (with plenty of noise).

by Calculated Risk on 10/13/2010 02:15:00 PM

First, "Foreclosure-Gate" is primarily about "robo-signers". These are individuals who signed affidavits stating that they had "personal knowledge" of the facts in the case when in fact they did not.

As JPM admitted this morning: "We've identified issues relating to the mortgage foreclosure affidavits and those include signers not having personally reviewed the underlying loan files but instead having relied upon the work of others."

There are also situations of questionable notarization of the affidavits.

Questions reporters might consider asking is what constitutes "personal knowledge" and why can't the affiant sign with "information and belief". Also what are the typical remedies for a false affidavit? But I digress ...

Unfortunately I've seen a number of articles conflating the "robo-signer" scandal with MERS issues and LNAs (Lost Note Affidavits). How many servicers have put a moratorium on foreclosures for these issues? None. But I do hope they are reviewing the entire process.

Fortunately, for those trying to understand LNAs, we have an excellent description of the process from my former co-blogger and mortgage banker Tanta written in early 2008: Lost Note Affidavits & Skeletons in the Closet. A few excerpts:

FCs are routinely filed with either a certified true copy of the promissory note or a Lost Note Affidavit (LNA), which in every instance I have ever personally seen is a sworn statement that the original note is lost, and is accompanied by a certified true copy of the lost original.
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I note for y'all that I have personally executed one or two LNAs in my day, and have therefore had all known hard file folders associated with this loan (the servicing file, the branch's copy, the custodial file, whatever there is), as well as all correspondence with the warehouse bank or custodian or whoever else might have had it brought to my desk, so I could personally root through it all once more before I put my officer's signature on an LNA. In all but one of the LNAs I can remember executing, I had documentation from FedEx or some other shipper that a package had indeed been lost, plus clear documentation in the loan file that this specific note had been included in that specific lost shipment. (My shipping department always put the copy of the airbill in the loan file. Always.) And of course I always had a certified true and correct copy of the note to attach to the affidavit.

I bring all this up because ... not only can original notes be lost or damaged, so can car titles and any other piece of paper. (I have a friend who once had to execute over 100 LNAs after a fire in an adjoining office suite triggered the sprinkler system in her post-closing department. Those LNAs were accompanied by copies of sodden bits of semi-readable paper that had been patched together on the copier plate, one at a time.) A financial institution in the business of making mortgage loans has no business routinely losing or damaging original promissory notes, and any institution that does so should be shut down by the federal regulators and I mean that.

But if consumer attorneys want to create a situation in which the simple fact of loss of or irreparable damage to an original note vacates the debt, I can promise you you will not like the consequences of that. If it turns into Total War here, don't ever lose an original cancelled check. You should know that there is actually one fairly respectable reason for doing FC filings with note copies, besides servicer laziness or loan sale screw-ups: taking your original note out of the custodian's vault to send to some local attorney to attach to a court filing creates several more opportunities for it to get lost. If it becomes a requirement that FC can proceed only with the original note in the courtroom, and the presence of an LNA always means dismissal, then the things are going to have to be handled and shipped and received with the same level of security as a million-dollar bearer bond. Like, a Brink's truck and a bonded courier carrying a briefcase handcuffed to his wrist. You want to pay the cost of that? No. You don't. But you will.

There is much more in her piece (she was writing about a specific case in Florida).

by Calculated Risk on 10/13/2010 12:04:00 PM

From the JPM conference call this morning (ht Brian)

JPM: We've identified issues relating to the mortgage foreclosure affidavits and those include signers not having personally reviewed the underlying loan files but instead having relied upon the work of others. Those others, Chase employees, did conduct reviews of the underlying loan files. And there are circumstances where affidavits have not been properly notarized. So I want to just step back and have you understand what the nature of some of the information in this affidavit relates to. They obviously differ by jurisdiction but in general the types of content that we're attesting to includes the name of the borrower, property address, the date, whether or not the borrower was actually defaulted and if they've cured the default and the total amount of indebtedness. As a result of these actions, we're reviewing 115,000, plus or minus, loan files that are currently in the foreclosure process. And we'll do the following based on that review, either refile the affidavits where appropriate. As you know, we delayed our foreclosure sales and so to the extent we can, we'll reinitiate those when appropriate. And we're also in the process of putting additional processes in place to make sure on a go-forward basis we fulfill all the procedural requirements. ……And just to remind everyone, this is a very lengthy process and so from the initial default to the actual foreclosure sale, for our serviced mortgages, that's on average 14 months. Mortgages in the state of Florida for us, that process is 678 days, in New York it is 792 days, more than two years. And in most, if not all instances, over that period of time no principal or interest payments have been made on the mortgage. So I think we would like to conclude by saying is that we really believe the proper approach and response here is to go loan by loan, file by file, customer by customer, and if mistakes have been made then we need to address them individually which we absolutely will do.

Analyst: I was wondering if you could give us any sense for timing of resolution in terms of reopening these 115,000 cases?

JPM: It's going to take several weeks to go through the files and make sure and correct any errors that are in there. The underlying stuff is all accurate. So that's the key substance. Obviously we know there's a lot of state AGs and we have conversations with them. We're hoping [to get back to] the normal process -- for us, the sooner the better for everybody involved. We don't think there are cases with people have been evicted out of homes where they shouldn't have been. These foreclosures go through multiple process, so we're hoping it will be sooner rather than later and those conversations are starting to take place.

Analyst: And is it fair to assume that at least a fair portion of that litigation reserve that you added to is specifically for this topic within mortgage?

JPM: No, nothing in it for this topic. I think the way you should look at this topic is that we're bearing today $7 billion of charge-offs, foreclosure, repurchase costs, this is ex-reserves. That $7 billion will go up or down based upon the economy and stuff like this. I'm not sure stuff like this is going to dramatically change that number. It may extend it a little bit longer and stuff like that but -- and remember, we have in total, between the repurchased reserves and $11 billion, we have $14 billion of reserves for repurchases or loan losses. Look, the mortgage thing is -- we're halfway through all this. We think we should continue and get done and make sure we do the right thing for the consumers, the investors and the country.

Analyst: And the foreclosure stuff, outside of how it directly may impact you or somebody else, how do you look at the drag it may have on the housing market, kind of the macro impact, what do you think about that?

JPM: Again, I hope -- this is a hope. This is not a knowledge. Is that when people take a deep, sigh breath, go back to the right, look to the substance underlying the files and go back to modifying, foreclosing and doing the right thing, all told, it could be a blip. Talking about three or four weeks it will be a blip in the housing market. If it went on for a long period of time it will have a lot of consequences, most of which would be adverse on everybody.

Analyst: The foreclosure suspension, it's a matter of weeks instead of months, did I hear you say that?

JPM: No. I didn't say weeks to clean up the files. We actually have to have little in depth conversations with regulators and AGs and stuff like that. So I don't know exactly when. I'm hopeful that it all starts to move at one point. I don't know if it's going to be three weeks or five. But I think it will be a real shame if we don't get this resolved and moving again.

Analyst: In all likelihood you should be allowed to foreclose as we go into next year.

JPM: I hope so. It's not up to me.

by Calculated Risk on 10/13/2010 10:05:00 AM

Report the MBA reported on the increase in refinance activity:

The Refinance Index increased 21.0 percent from the previous week.
...
“Refinance application volumes are now close to the highest level this year." [said Michael Fratantoni, MBA’s Vice President of Research and Economics].

Click on graph for larger image in new window.

This graph shows the MBA's refinance index (monthly average) and the the 30 year fixed rate mortgage interest rate and one year ARM rate, from the Freddie Mac Primary Mortgage Market Survey®.

As mortgage rates have fallen, there has been an increase in refinance activity. The peak this year was in late August, although the most recent week was close.

However the level of activity is still well below the previous refinance booms in 2009 or in 2002/2003. It takes lower and lower rates to get people to refi - and many borrowers have insufficient equity (or negative equity) or inadequate income to refi.

With 30 year mortgage rates more than 0.5% below the lows of 2009, we might see another surge in refinance activity (the average contract interest rate for 30-year fixed-rate mortgages last week was at 4.21% according to the MBA). According to the NY Fed's Brian Sack, lowering longer-term borrowing costs for many households is one of the key transmission mechanisms that the Fed is targeting with QE2.

by Calculated Risk on 10/13/2010 07:56:00 AM

The MBA reports: Mortgage Refinance Applications Jump as Rates Continue to Fall in Latest MBA Weekly Survey

The Refinance Index increased 21.0 percent from the previous week. The seasonally adjusted Purchase Index decreased 8.5 percent from one week earlier.
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“Refinance application volumes are now close to the highest level this year. Purchase activity remains generally weak" ... said [Michael Fratantoni, MBA’s Vice President of Research and Economics].

“Last week saw a big jump in applications for FHA loans to purchase homes. We surmised that this was due to potential buyers wanting to beat the stricter FHA standards that went into effect October 4th. This conjecture was confirmed by the fact that this week FHA applications fell back to a level closer to the average seen over the past four months, ”continued Fratantoni.
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The average contract interest rate for 30-year fixed-rate mortgages decreased to 4.21 percent from 4.25 percent, with points increasing to 1.02 from 1.00 (including the origination fee) for 80 percent loan-to-value (LTV) ratio loans. The 30-year contract rate is the lowest recorded in the survey, while the previous low was observed last week.

Click on graph for larger image in new window.

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

The decrease in purchase activity this week appears to be related to the slight change in FHA standards.

Note that the 30 year contract rate is at another record low of 4.21%.

by Calculated Risk on 10/13/2010 12:00:00 AM

On Friday, Fed Chairman Ben Bernanke will speak at the Federal Reserve Bank of Boston Conference "Monetary Policy Objectives and Tools in a Low-Inflation Environment".

Jon Hilsenrath at the WSJ has a preview: Fed Chief Gets Set to Apply Lessons of Japan's History

Mr. Bernanke is preparing for a potentially important policy speech Friday, when he could detail his thinking on the Fed's next steps ... The conference is a reprise of a 1999 conference at which Mr. Bernanke and other academics took Japanese officials to task for failing to get their economy moving.

Here is the 1999 paper that Hilsenrath mentions: From Ben Bernanke (1999): Japanese Monetary Policy: A Case of Self-Induced Paralysis?* (via Professor Krugman: Self-induced Paralysis)

There is quite a bit about deflation and monetary policy in his 1999 paper, including arguing for a higher inflation target of 3% to 4%. Bernanke even made some "helicopter drop" comments before his well known speech in 2002: Deflation: Making Sure "It" Doesn't Happen Here

On Friday, Bernanke might discuss possible future steps the Fed could take in addition to buying longer-term Treasury securities.