Posted tagged ‘foreclosures’

Failed Bank List Grows to Eighty-One

August 22, 2009

001-0820064521-Bank-CollapseThis week four more banks joined the FDIC failed bank list, including the second largest of the year – Guaranty Bank of Austin, Texas.

The others are ebank Atlanta, Georgia, CapitalSouth Bank, Birmingham, Alabama and First Coweta, Newnan, Georgia.

While Ben Bernanke may believe recovery is just around the corner, there are still some rather large red flags on the horizon.

McClatchy reports the following:

Delinquency and foreclosure rates for U.S. mortgages continued to rise in the second quarter, with loans to the most qualified borrowers going bust at an unnerving clip, especially in hard-hit states such as Florida and California.The numbers reported Thursday by the Mortgage Bankers Association show clearly that rising job losses are worsening the nation’s housing troubles and threaten the Obama administration’s efforts to keep owners from losing their homes.

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The Orlando Business Journal also reported Friday that as of June 30th, “Nationwide, a total of $3.4 trillion worth of property values was in risk of defaulting.”  That’s right – $3.4 Trillion worth of loans at risk of default.

Guaranty Financial Group was crippled not by engaging in overly risky practices but because it bought highly rated, straightforward structured mortgage-backed securities. It lent to home builders. Both of these things were what it specialized in, it’s “core compenentcy,” as it’s CEO puts it. They didn’t buy subprime loans, and didn’t buy much of the super-toxic 2006 and 2007 loans. They thought they would be safe. And they were wrong.

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Did we all get it wrong? Calculated Risk has charts of US mortgages by type and loans that are seriously delinquent or in foreclosure by type. The disturbing thing about the second chart is that it clearly shows the crisis has expanded to the Prime loan market in great numbers.

With so many loans defaulting, the list of problem banks remains large. Banking analyst Meredith Whitney predicts more than 300 banks will fall soon. See Calculated Risk for an unofficial list of problem banks.

Where does all this leave the FDIC? Once again, Calculated Risk provides some very informative charts pertaining to estimated losses to the FDIC. And Karl Denninger lays it all out in The Market Ticker – “about 75% of the FDIC’s “insurance fund” has been depleted over the last year.” So is the FDIC broke? Karl think so.

I believe the FDIC is broke and knows it; that under the law they should have seized these three banks (and many dozens more, including some really big ones) some time ago, but doing so will force them to tap the Treasury “emergency” credit line. They’re well-aware that this could instill quite a bit of panic in the public (never mind Congress!); as such they, along with OTS and OCC are conspiring to (once again) hide the truth and pray for an economic recovery before they are forced to act as the law demanded months or even years ago!

A new quarterly report from the FDIC is due out soon. Perhaps that will shed more light on the situation. Or not. Stay tuned.

Delinquencies Hit Record High

August 20, 2009

AP reports record high mortgage delinquencies:

With the recession throwing thousands of people out of work daily, more than 13 percent of American homeowners with a mortgage have fallen behind on their payments or are in foreclosure.

The record-high numbers published Thursday by the Mortgage Bankers Association are being driven by borrowers with traditional fixed-rate mortgages, rather than the shady subprime loans with adjustable rates that kicked off the mortgage crisis. As of June, more than 4 percent of all borrowers were in foreclosure while about 9 percent had missed at least one payment.

And the layoffs keep coming. Lockheed Martin Corp. said this week it’s handing out about 800 pink slips in its space systems division, and audio conferencing company Polycom Inc. said it will cut about 80 positions.

New jobless claims rose last week to a seasonally adjusted 576,000, the Labor Department said Thursday. While the recession, measured by the nation’s total economic output, is likely over, most economists expect layoffs and foreclosure to keep rising for many months as companies remain in cost-cutting mode.

“Their confidence has been shattered,” said Brian Bethune, chief U.S. financial economist at IHS Global Insight. “They are going to be very conservative. They don’t want to be blind sided by a false dawn economy.”

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But the visual at ZeroHedge makes it all so painfully clear:

delinquent

But recovery is just around the corner. Can’t you see the green shoots and glimmers?

March Economic Picture

April 4, 2009

Let’s start with the good (?) news.

Stock Market

The stock market rallied at the end of March. The Dow had its worst January ever and worst February since the Depression, then, in March, turned in its best month in six years.

On March 23, 2009, Joe Weisenthal at Clusterstock wrote:

On the day when Geithner first announced the non-details of his bank plan, the stock market began a hard tumble.

Today, as the government confirms that taxpayer money will be used to replenish bank coffers and help hedge funds make huge profits, stocks are soaring.

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Naturally, some “experts” like Doug Kass and Jim Cramer were quick to call the bottom.  But let’s see where we really are.

four-bears-large1

Judging by dshort.com‘s “Four Bad Bears” chart, it looks like the bottom callers are being a bit hasty. They just may end up on a modern version of the “1927 – 1933 Chart of Pompous Prognosticators“, especially considering that Nouriel Roubini is still predicting an L-shaped recovery.

Banking

The Office of the Comptroller of the Currency reported in March that banks lost $9.2 billion in derivatives trading losses in the 4th quarter.

Citigroup saw its shares drop below $1.00 and hover there for much of March.

Five banks were added to the FDIC ‘s failed bank list.

But good news (for banksters anyway) came from the Financial Accounting Standards Board when it relaxed the “mark to market” rule for bank assets on April 2. With banks no longer required to value assets based on reality, April at least will probably be a good month for banks.

Retail

retailyoyfeb2009

February Retail Sales Chart from Calculated Risk

Retailers reported continued sales declines in February, though not quite as steep as those seen in January.

Call me a doom-and-gloomer, but I suspect most sales increases seen in February and perhaps March (we should see those numbers soon) are due primarily to people getting – and spending – tax refunds. Let’s wait and see what the reports look like later this spring before we get too optimistic.

Wal-Mart, on the other hand, showed February growth of approximately 5% (about twice what was expected). Wal-Mart is doing so well, that on March 19, it announced $2 billion in bonuses to be given to hourly employees:

Wal-Mart Stores Inc is awarding approximately $2 billion to its U.S. hourly employees through financial incentives, including handing out $933.6 million in bonuses on Thursday, after the world’s largest retailer gained market share amid a recession.

In a memo distributed to Wal-Mart employees and obtained by Reuters, Wal-Mart CEO Mike Duke said the retailer is awarding roughly $2 billion to U.S. hourly employees, which includes $933.6 million in bonuses, $788.8 million in profit sharing and 401(k) contributions, millions of dollars in merchandise discounts, and contributions to its employee stock purchase plan.

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And now the not so good news.

Unemployment

Unemployment Claims Chart from Calculated Risk

Unemployment Claims Chart from Calculated Risk

697,000 jobs were cut in February and 742,000 were cut in March. The total number of people claiming unemployment benefits is currently about 5.56 million – the highest number since May 1983.

Broader measures showed the February unemployment rate at 14.8%, or 1 out of 7 Americans unemployed. This figure includes the “discouraged” job seekers and those working part-time jobs who want full-time work.

Unemployment rates rose in all US metro areas in February, with 7 states reporting rates at or above 10%.

Recent photo taken in San Diego. Click for source.

Recent photo taken in San Diego. Click for source.

I keep hearing that unemployment is a “lagging indicator” of the overall economy. Maybe I didn’t get enough government sponsored education, but it seems to me that a real recovery can’t happen until people are working again, earning money they can then spend. When the unemployment rate starts dropping instead of increasing by such huge amounts every month, that is when I’ll start to believe the recovery has begun.

Housing and Personal Finance

With so many unemployed, you know there is nothing good happening in housing and personal finance.

Case Shiller House Prices for January Chart from Calculated Risk

Case Shiller House Prices for January Chart from Calculated Risk

Home prices are still falling.  “The national peak-to-trough decline is now 27%, and it will likely exceed 40% before we hit bottom.  If there’s any good news here, it’s that the rate of decline appears to be stabilizing.

While this is certainly bad news for individual homeowners, it’s actually good news for the economy in general. It is evidence that in spite of all the doomed efforts being made by the government and the Fed to reinflate the bubble, the market is doing its job and the necessary correction is proceeding quite well.

The January drop in home prices is record setting, however, and it does contribute to severe financial problems for individuals. A study released early in March showed one in five US mortgages to be underwater.

Another report said 12% of all mortgages (one in nine) are now delinquent or in some stage of foreclosure. In fact, the rate of foreclosures in February rose 30% over the previous year.

On March 31, an FHA spokesman said FHA loans were “seriously delinquent” at the end of February.

Not surprisingly, foreclosures are especially rising in California.

February New Home Sales Chart from Calculated Risk

February New Home Sales Chart from Calculated Risk

The February new home sales report showed a 4.7% increase, leading many to believe the bottom was in for housing. Not likely, though, since even with the increase the numbers are the lowest sales for February since the Census Bureau started tracking sales in 1963.

Existing home sales also increased slightly in February, though nearly half of those sales were buyers taking advantage of extreme savings on forclosed properties. Many of these buyers, apparently, are foreign investors.

According to a Labor Department report, consumer prices rose 0.4% in February.

The Administrative Office of the US Courts reported bankruptcy filing were up 31% in 2008.

Early in March it was reported that food stamp enrollment had climbed to a record 31.8 million people.

All of which leads to the unsurprising news that consumer confidence is still at nearly record lows and personal savings increased to 5%.

US Auto Industry

The US Auto Industry was all over the headlines again in late March, beginning with a $5 billion bailout for auto suppliers and reports of steep drops in auto sales – 37% in March.

But the biggest headlines appeared when the Obama administration, operating in a weird double standard, forced GM CEO Rick Wagoner to step down – a move that sent GM stocks freefalling to a 74-year low.

GM’s new CEO, Fritz Henderson (former head of GMAC mortgage finance), is apparently more open to the possibility of bankruptcy than Wagoner was.

The Obama administration now plans to take a key role in “reshaping” GM’s board of directors, though Obama also said he has “no intention” of running GM. Good thing, too, since the administration’s  “plan” for the auto industry is pretty lightweight.

A great many comments posted to online articles about the big news at GM boiled down to “if they’re taking government money, the government can do whatever it wants”. Right or wrong, such thinking only highlights the moral hazard of government bailouts of private industry in the first place.

Shortly after the government’s de facto takeover of GM, Ford announced that it would cover car payments for buyers who lose their jobs. GM quickly followed with a similar program.

The Obama administration also announced that the government will guarantee all GM car warrantees (but remember, they’re not running the company). Auto shops run by the DMV maybe? Sounds great!

One last related bit of auto news caught my attention in March. It seems that an increasing number of desperate people, unable to continue making their auto loan payments, are instead setting their vehicles on fire to collect the insurance money.

Federal Government Spending

Early in March, President Obama signed the pork-laden $410 billion government spending bill.

The US Deficit in Global Perspective

The US Deficit in Global Perspective

Also early in March, the national debt hit a record $11 trillion, or about $36,000 for every man, woman and child in America. In the fastest increase of debt in American history, in Barack Obama’s first 50 days as president the Congress voted to spend $1.2 trillion, or “$1 billion an hour”, according to Senator Mitch McConnell.

 

 

In an exclusive interview with the NY Times, Mr. Obama floated the idea of another $750 billion to be given to banks, even though the amount already spent on “financial rescue” is nearly equal to GDP – in other words, the same amount as the value of everything the US produced last year.

All of this was enough to make China worry that the US might not be able to repay its debts. Of course, our dear leader reassured the Chinese that we’re still good for it (even if it means we have to inflate our currency to the moon and back).

Big news was also made in March by AIG and its $218 million executive bonus payments. Taxpayers were outraged (sort of) and Congress moved quickly to pass a 90% tax on “TARP bonuses”.

Signing a retroactive tax would have been a political disaster for the Obama administration, plagued with questions of the “who knew what and when did they know it” variety. Luckily for Obama, New York Attorney General Andrew Cuomo managed to get the AIG executives to return the money before the 90% tax bill landed on his desk. Instead, the administration will look to limit pay at all businesses receiving government money.

If government is going to dictate employee pay, they need to start with Fannie Mae and Freddie Mac. Freddie asked for another $30.8 billion after losing over $50 billion in 2008. Freddie’s $24 billion Q4 loss breaks down to $3000 per second lost yet Fannie and Freddie plan to pay more than $210 million in employee retention bonuses over the coming year.

And we want to retain these employees, why?

The “Newspaper Revitalization Act” was introduced in the Senate during the last week of March. The mainstream media bailout would rewrite tax law to allow newspapers to operate as tax-exempt nonprofit organizations, just as long as they don’t make official endorsements of political candidates. Critics say such a bailout would lead to government control of the news.

That would be different, how?

Also, the US Postal Service is going broke (again).

President Obama’s proposed budget was the main topic of a prime-time news conference in March. Fact checking afterwards showed the enormity of this president’s doublespeak capabilities.

Senator Judd Gregg, who turned down the nomination for Commerce Secretary, said “we’ll go bankrupt under Obama’s budget“. Sounds about right.

Obama Deficit in Pictures

Obama Deficit in Pictures

 

The Federal Reserve

With demand for US Treasurys declining, the Fed launched a “bold” plan to dump another $1 trillion into the US economy.

The Financial Times Alphaville blog posted some early reactions including one from Yves Smith of Naked Capitalism calling the Fed’s move “shock and awe” and comparing it to when that phrase was used at the start of the Iraq war.

Following the Fed’s “shock and awe” announcement, Treasurys continued to decline and the dollar fell dramatically against other currencies. It seems that more than a few analysts are certain the Fed’s plan has killed the dollar.

China and Russia are also skeptical, it seems. They are calling ever more loudly for a new reserve currency.

US Treasury

Tim “Tax Cheat” – “Markets won’t solve the crisis” Geithner (finally) announced his plan to resolve make taxpayers pay for banks’ toxic assets.

For a very limited amount of risk, private investors will “partner” with taxpayers to pay over-market-value for banks’ toxic assets, thus re-creating solvency for the banks. If it later turns out the assets really weren’t worth much, the private investors loses only their small (7%) investment in the deal. The taxpayers will be left holding the bag for the rest.

Even if the private investors make money on any of the deals, the taxpayers are still likely to get fleeced.

Here’s a more detailed explanation: Message from Cumberland Advisors.

Even though the Treasury said they don’t know if this plan will work, the stock market was overjoyed with it, closing up nearly 4% and kicking off the recent rally.

Geithner’s plan has been widely criticized by some heavy economic hitters including James Galbraith, Nassim  Taleb, and Nobel laureates Paul Krugman and Joseph Stiglitz.

And isn’t this plan really just a slightly modified version of the original Paulson-Bernanke plan from September – the one Paulson ended up scrapping, saying it couldn’t possibly work? Yes, actually, that’s just what it is.

Oh, by the way, the NewSpeak term for toxic assets is now “legacy assets“. After all, the only reason nobody wants these things is because we keep calling them “toxic”, right? It has nothing to do with the fact that they are piles of paper representing nearly worthless, defaulted loans. Right?

Last Words

The Quiet Coup by Simon Johnson in The Atlantic Magazine is highly recommended. Synopsis:

“The crash has laid bare many unpleasant truths about the United States. One of the most alarming, says a former chief economist of the International Monetary Fund, is that the finance industry has effectively captured our government—a state of affairs that more typically describes emerging markets, and is at the center of many emerging-market crises. If the IMF’s staff could speak freely about the U.S., it would tell us what it tells all countries in this situation: recovery will fail unless we break the financial oligarchy that is blocking essential reform. And if we are to prevent a true depression, we’re running out of time.”

And finally, if you have not yet seen Daniel Hannan’s heroic March 26, 2009 speech in the EU in which he calls British PM Gordon Brown (to his face) “the devalued Prime Minister of a devalued government”, click below and enjoy.

Mr. Hannan’s words could should be repeated to the governments and central bankers of every nation.

Obama’s Housing Bailout

February 22, 2009

President Obama’s $275 billion housing bailout is an exercise in futility at best. It’s wolf in sheep’s clothing at worst.

The Mortgage Bankers Association did a study in 2008 that found 70 percent of foreclosures were on properties either not occupied by owners, involved borrowers who could not be found or did not respond or involved borrowers who had already had a modification and were defaulting again. Of the 30 percent not in those categories must surely be quite a few of the repeat defaulters of tomorrow.

The housing rescue plan is, in part, an attempt to rescue banks, whose balance sheets will be further undermined by drops in house prices and defaults causing many more failures.

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One of the worst things about this housing bailout is that, for some, it would just reset the “exploding A.R.M.” that got them into trouble in the first place.

One brand of these innovative mortgages that have come under special criticism has been so-called “exploding A.R.M.’s” that lured borrowers with unusually low teaser rates that then reset skyward a few years later. These have often been derided as predatory, and lenders who offered them accused of luring homeowners into buying homes they couldn’t afford for the long-term.

Critics of these might want to check out the Homeowner Stabilization Plan put forward by the Obama administration today. The plan would reduce mortgage payments and interest rates for homeowners who have seen their payments rise to more than 38% of their monthly income. But those reductions last just five years, after which they begin to reset to higher rates. In short, Obama is just drawing out the teaser rates a bit longer.

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Another problem that it doesn’t even begin to address is that many homeowners in foreclosure or on the edge of foreclosure are in that situation because of job loss.

Having borrowers continue to pay into a bad loan, even with reduced payments, takes away money they could be using to start over. Redefault rates from existing government-backed loan modification programs indicate that they are often ineffective. And in the case of borrowers facing job losses, staying in one’s home while being saddled with a mortgage can delay the necessary step of moving to an area with more job opportunities.

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 The New York Times last week explained some of the problems with the plan in these terms:

  • Mortgage mod doesn’t work unless the homeowner’s payments and principal are cut significantly…and then, unless the bank gets a property appreciation right, it’s just a giveaway
  • They’re a bureaucratic nightmare
  • People who are deeply underwater will walk away anyway
  • Renters, responsible homeowners, and folks who are underwater but CAN make payments get the shaft.

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It also seems to me that the qualifications are rather narrowly defined. I can’t help but wonder how many people who have been barely avoiding foreclosure while waiting on Obama to “help” them are going to very disappointed to learn they do not qualify for said “help”. How many of them will give up the fight and walk away from a house they couldn’t afford in the first place?

That, Mr. President, is what some of us call “blowback”. Get ready for your share of it. Especially if your friends at ACORN keep teaching people to break into homes they no longer own.

I also have to wonder how long the government is going to keep trying to reinflate this economic bubble. Have you ever tried to blow up a balloon that has a hole in it? That’s what the government is doing now with the economy and I wish they’d either stop or pass out from trying pretty soon.

There will be no housing recovery until home prices decline further. They have been far too high for far too long to think we can avoid the inevitable decline.

Link for a larger version of the above chart and the article it was published in.