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Bailout

: Calculated Risk

Misc: Expectations, Dallas Fed Manufacturing, HAMP and Foreclosure-Gate

By Anonymous

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Earlier posts on Existing Home sales:

September Existing Home Sales: 4.53 million SAAR, 10.7 months of supply

Existing Home Inventory increases 8.9% Year-over-Year

Almost every analyst comment I read this morning started with "existing home sales were above expectations". Really? Here was Tom Lawler's projection of 4.50 million (NAR reported 4.53 million). Pretty close. Of course inventory and months-of-supply were a little higher than I expected.

The Dallas Fed released the regional manufacturing survey this morning: Texas Manufacturing Activity Expands and Business Conditions Improve

Texas factory activity increased in October, according to business executives responding to the Texas Manufacturing Outlook Survey. The production index, a key measure of state manufacturing conditions, was positive for the second consecutive month and slightly higher than its September reading.

Despite the rise in output, several other manufacturing activity indicators fell again. The new orders and shipments indexes were negative for the fifth consecutive month. The capacity utilization index dipped below zero, with more than one-quarter of respondents reporting a decrease.
...
Labor market indicators worsened slightly in October. Hours worked fell for the fourth consecutive month, and the employment index dipped back into negative territory ...

So the headline number improved slightly, but the internals were weak.

From Treasury: HAMP Servicer Performance Report Through September 2010. If we look at the HAMP program stats (see page 3), the median front end DTI (debt to income) before modification was 45% - about the same as last month. And the back end DTI was an astounding 79.7%.

This means that for the median borrower, about 80% of the borrower's income went to servicing debt. And the median is 63.3% after the modification. So I expect the redefault rate to be high. Although Treasury is arguing the modifications are performing "well":

At nine months, nearly 90% of homeowners remain in a permanent modification, with 11% defaulted. Fewer than 16% of permanent modifications are 60+ days delinquent.

With a median back end DTI after modification of 63.3%, I expect the redefault rate will move higher. Also here the October Housing Scorecard.

From Fed Chairman Ben Bernanke this morning:

Before I address the specific topics of this conference, I would like to note that we have been concerned about reported irregularities in foreclosure practices at a number of large financial institutions. The federal banking agencies are working together to complete an in-depth review of practices at the largest mortgage servicing operations. We are looking intensively at the firms' policies, procedures, and internal controls related to foreclosures and seeking to determine whether systematic weaknesses are leading to improper foreclosures. We take violations of proper procedures seriously. We anticipate preliminary results of the review next month. In addition, Federal Reserve staff members and their counterparts at other federal agencies are evaluating the potential effects of these problems on the real estate market and financial institutions.

And from Nelson Schwartz at the NY Times: Foreclosures Had Errors, Bank Finds