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Three Questionable Housing Related Reports

By Anonymous

Here are the European bank stress test results by country and bank. From MarketWatch: Seven European banks fail stress tests

Since there are plenty of reports on the stress tests, I'd like to comment on three housing related reports that readers have emailed me today ...

   1) The FHA

There are some reports out today that the FHA is "broke". This is based on an entry in the Federal Register that I reported on last week. What is important about the notice is the FHA is tightening standards - like cutting seller concessions in half - and this is the public notice of these changes. These changes will become effective after the 30 day comment period - or in mid-August.

But the "breaking" reports focused on this statement in the Federal Register:

A recently issued independent actuarial study shows that the Mutual Mortgage Insurance Fund (MMIF) capital ratio has fallen below its statutorily mandated threshold.

Uh, that is not news. The study was released back in November 2009!

   2) Fed MBS Program

There is a story out today about how the Fed was still buying MBS after March 31st! That would be news, but the evidence was that MBS was still showing up on the Fed's balance sheet.

I covered this several times, but it takes a few months for the purchases to settle on the Fed's balance sheet (see: the discussion from SIFMA: "To-Be-Announced" Trading of Agency Passthrough Securities). Here is what I wrote in March:

The coming increase in the Fed's balance sheet (and the expansion of the Supplementary Financing Program (SFP) over the same period) are related to the MBS settling on the Fed's balance sheet. Now that the short term liquidity facilities are finished - the balance sheet will increase by about $200 billion over the next couple of months as the remaining MBS settle.

The Fed stopped buying on March 31st (I even predicted some people would be fooled by the increase of the Fed's balance sheet!).

Update: I'm not referring to this Bloomberg story about a minor adjustment in holdings.

   3) Lenders holding REO off market

There is a report arguing lenders are sitting on a huge amount of REO. I disagree with the methodology in the report (I corresponded with the author). In my view, better (and much lower) estimates come from Barclays and housing economist Tom Lawler.

See: Barclays Lowers REO Inventory Estimate and Lawler's REO: Agencies vs. Private Label

Final Note: My goal is to let everyone know what I know - my intention is not to embarrass anyone (so no links to the articles). If I'm receiving these articles (multiple times) others are probably reading them too. Heck, I'm concerned about the FHA (but this report is not new news) and housing in general. The situation is bad enough ...

Full post as published by Calculated Risk on July 23, 2010 (boomark / email).