Back from Gotham
Anyway, a lot happened while I was out...
* MBIA and Ambac stepped back from the brink thanks to some ratings news from Moody's and S&P ... but the capital markets are still expressing skepticism about the legitimacy of the bond insurers' top-notch credit ratings.
* Fannie Mae lost a hefty $3.55 billion in Q4. That was good for $3.79 per share, excluding certain items, more than triple the $1.20 per share loss analysts expected. Many lawmakers are looking to Fannie and Freddie to help shore up the mortgage markets by expanding into "formerly jumbo" loans and otherwise filling the breach left by the exodus of private lenders. But as these figures show, the GSEs face significant earnings and credit problems of their own.
* Existing home sales in January came in slightly better than expected, but the overall trend remains the same: Sales down double-digits from year-earlier levels, with median prices falling by the mid single-digits. More importantly (and troubling, in my view) is that inventory for sale is ticking up again on both an absolute basis and a "months supply at current sales pace" basis.
Meanwhile, the S&P/Case-Shiller national home-price index plunged 8.9% year-over-year in the fourth quarter of 2007. That's the largest drop in the two-decade history of the index. The Office of Federal Housing Enterprise Oversight said its price gauge fell 0.3%, the first drop seen in 16 years.
* This Wall Street Journal story has some interesting anecdotes about recent activity in the mortgage market and the Fed's attempts to combat the disappointing trends. In short, the Fed cuts have helped some adjustable rate mortgage holders, but haven't done much for borrowers seeking longer-term fixed-rate financing. An excerpt:
"One reason home prices are falling: Builders are trying to unload their unsold houses. Stuart Kaye, founder of Kaye Homes Inc. in Naples, Fla., has been offering discounts, including price cuts and other incentives, of 20% to 30% on about 50 homes in his inventory. He has sold 18 of them in recent months. "We want to be out from underneath this inventory, and we have made a commitment we will be through it in a 90-day period,'' he said.
But the interest-rate environment has brought a near halt to refinancing activity. P.H. Naffah, a musician in Goodyear, Ariz., has a roughly $415,000, 30-year mortgage with a fixed rate of 6.25%. He figures he could cut his mortgage costs by around $250 a month by refinancing into a loan with a 5.5% rate. "I'm waiting for the interest rates to go down," said Mr. Naffah, who added the savings "would be significant" because his monthly income as a musician fluctuates.
Other borrowers have been hamstrung by tighter credit standards as lenders eliminate programs and set tighter requirements, particularly in markets where home prices are falling. Steve Walsh, a mortgage broker in Scottsdale, Ariz., says his firm is originating about 300 loans a month, but closing only about 65. Mr. Walsh says that about 100 applications fell apart because of problems with appraisals. Another 100 loans didn't close because of rising mortgage rates.
In addition to inflation concerns, rates are rising because the market for mortgage-backed securities is in upheaval, thanks to rising mortgage delinquencies and the collapse of the high-risk subprime corner of the mortgage business."
I posted about this dynamic myself several days ago, in case you missed it.
* The dollar continues to sink into the currency market abyss. It breached the $1.50-to-the-euro level, and sank to a 23-year low against the New Zealand dollar. The catalyst is the ongoing interest rate dynamic around the globe. Our Federal Reserve is slashing interest rates aggressively, while policymakers in the euro region are holding the line, and central banks in some countries -- like Australia -- are actually still RAISING rates.
This makes travelling overseas more expensive for those of us who live in the U.S. But it also has a much bigger, broader impact on the economy -- it fuels inflation. The cost of goods imported from foreign countries rises when your currency declines, no matter how much claptrap the Fed wants to spew about "contained" inflation. Just look at what happened in January ... import price inflation rocketed to 13.7%, the highest in recorded U.S. history.
* Lastly, while the job market isn't so hot nationally, one institution is hiring -- the Federal Deposit Insurance Corp.! Turns out the FDIC is staffing up for a potential wave of bank failures. I've been talking about the potential for an increase in failures for some time. I think it's all but inevitable at this point. Here's an excerpt from the WSJ piece ...
"The notion of bringing back some people who have been through it before is very smart," said William Isaac, who was FDIC chairman from 1981 until 1985. All told, the FDIC has roughly 4,600 employees, far fewer than the about 15,000 it had as recently as 1992.
"On Sunday, the FDIC ran a newspaper ad seeking companies that could service commercial loans, mortgages and student loans in the event of a bank failure. It didn't say how much a company could earn in this area.
"The FDIC rated 65 banks and thrifts as "problem" institutions at the end of the third quarter of 2007, up from 47 institutions a year earlier. Both figures are low by historical standards. At the end of 1993, there were 572 "problem" banks and thrifts. The FDIC is expected to update its data on "problem" institutions today."