News for March 22nd 2009

Mortgage Market Minute: At mid-day the MBS market is flat-ish with the FNMA 4.5% is flat at 102.03, the 5.0% is up a tick at 103.00, and the 5.5% is up a tick at 103.56. Stocks are up hugely on the great Existing Home Sales data (although it was driven by foreclosure sales, which must mean we’ll take any good news there is, even if it is “bad” good news). Treasuries are flat, with the 10-year at 100-31/32, the yield at 2.63%. Tuesday we get a 2-Yr US Treasury Note Auction. Wednesday we get Durable Goods (expect -2.0% vs -5.2% in February), New Home Sales (expect 315,000 after last months record low 309,000) and a 5-Yr US Treasury Note Auction. Thursday we get the GDP figure for Q1 (expect -6.6% after last quarter’s -6.2%) and Jobless Claims (expect 650K versus last week’s 646K). Friday we get Personal Income and Outlays (expect income -0.2% after last month’s +0.4%, and consumer spending +0.3% after last month’s +0.6%), Personal Consumption Expenditure report (expect +0.2%, last month +0.1%), and Consumer Sentiment (expect 56.7 after last month’s 56.6).Existing home sales up strongly.The National Association of Realtors reported this morning that existing home sales grew +5.1% from 4.49 million in January to 4.72 million in February, versus an expected -0.9% decline, and following January’s -5.3% decline. Sales of single-family homes rose +4.4% (versus -4.7% in January), while sales of condos and other multiple-family units climbed +11.4% (versus -10.2% in January). The average price of a single-family home in February was $209,600, slumping -15.5% versus a year ago, the second-biggest drop on record, with distressed properties accounting for 45% of all sales. “The decline in home prices and presence of deeply discounted foreclosures has increased affordability and enticed bargain hunters,” Michelle Meyer, an economist at Barclays Capital Inc. in New York, said before the report. “However, rising unemployment, depressed confidence and expectations of home-price depreciation serve as powerful offsets.”
Administration unveils details of $1T plan to buy up toxic bank assets.The administration today revealed details of its long-awaited plan to purchase toxic bank assets in order to revive a stalled lending system. The plan will target up to $1 trillion in purchases of illiquid real-estate assets, using $75 billion to $100 billion of the Treasury’s remaining bank-rescue funds. The Public-Private Investment Program will also rely on Federal Reserve financing and FDIC debt guarantees, the Treasury said in a statement in Washington. The program depends on private investors stepping up, officials still have to pick private asset managers, and banks have yet to commit to selling their illiquid investments. That means it could take weeks to determine the plan’s effectiveness. “The big question is what is the incentive for the banks to sell?” said Dino Kos, managing director at Portales Partners LLC in New York and former executive vice president at the New York Fed. “What is the incentive for a hedge fund to pay a price close to where the banks have it marked at?” Half of the Treasury’s funds will go to a FDIC-run “Legacy Loans Program” that will be overseen by the FDIC with the FDIC guaranteeing financing for the investors, and auctioning the pools of loans. The second half of the Treasury’s contribution will go to the “Legacy Securities Program,” which will attempt to generate prices for securities backed by mortgages that are no longer traded because investors have little confidence about the underlying value of the home loans. The announcement provides details on an initial strategy laid out by Geithner last month, which caused a slump in stocks because it lacked an explanation of how the effort would work. The S&P 500 index is still down about 10% since Geithner’s Feb. 10 outline.Commercial real estate – the next shoe is dropping.Banks must now weather increasing loan delinquencies from owners of skyscrapers and shopping malls, as businesses close and employees are laid off. The country’s 10 biggest banks have $327.6 billion in commercial mortgages, where a projected tripling in the default rate would result in losses of about 7% percent of total unpaid balances, according to estimates from analysts at research firm Reis Inc. Commercial property prices are down almost 20% in the past year, and there is “significant stress” in the market, according to William Schwartz, a credit analyst at DBRS Inc. in New York. Bank of Hawaii Corp., City National Corp., Comerica Inc. and Sovereign Bancorp Inc. were among the companies put on Moody’s list of lenders with a “negative outlook” on March 12, partly because of their “risk concentrations” in the commercial market. Wells Fargo & Co. and Bank of America Corp. account for about half of commercial mortgages owned by the 10 largest banks, company reports show.

On today’s date: March 23…1912: Dixie Cup invented 1922: 1st airplane lands at the U.S. Capitol in Washington, D.C.1934: U.S. Congress accepts Philippines independence in 19451943: German counter attack on U.S. lines in Tunisia 1972: Evil Knievel breaks 93 bones after successfully clearing 35 cars2001: Russian Mir space station is crashed into the Pacific during a controlled re-entry