Interest Rate Roundup

Thursday, July 16, 2009

Lots to chew on this morning -- on foreclosures, the economy, and more

I feel like it's Thanksgiving afternoon, with a feast of stories to chew on today. In no particular order ...

* The government is finally going to allow one of these ne'er-do-well financial firms fail, apparently. I'm talking about CIT Group, the commercial lender that's been struggling for months. Apparently, the Treasury, Federal Reserve and especially the FDIC have denied its request for more aid -- which could precipitate a bankruptcy filing as soon as the next couple of days. CIT has lost $3.4 billion over the past eight quarters; it has already received about $2.3 billion in bailout money.

* Initial jobless claims fell to 522,000 from 569,000 in the most recent week. There was a huge drop in continuing claims -- from 6.915 million to 6.273 million -- but some of that may be seasonal distortions related to the July 4 holiday and auto production shutdowns. The news follows a better-than-expected reading on the Empire manufacturing index for July (-0.6 vs. a forecast of -5) yesterday. Industrial production fell at the slowest pace (-0.4%) in June in eight months, but capacity utilization plunged to a record low of 68%.

* The foreclosure problem continues unabated. RealtyTrac data showed monthly filings climbing 4.6% between May and June to 336,173. That's just shy of April's record high (342,038). On a year-over-year basis, filings were up 33.2%. The hardest hit areas are the ones you would expect -- parts of California, Florida, and especially Nevada. In Nevada, a whopping 1 in 16 households were hit by at least one kind of filing in the first half of 2009.

* Speaking of foreclosures, we continue to see reports from various media outlets about how difficult it has been for lenders to rework loans, despite prodding from government officials. The Wall Street Journal tackles the topic this morning, focusing on Morgan Stanley's Saxon Mortgage Services arm. It's a good read if you have time. And if you're looking for figures on the size and scope of the problem, the Journal notes the following:

"New foreclosure notices will total 2.4 million this year, which could trigger price drops in 69.5 million nearby homes, estimates the Center for Responsible Lending, a financial-services research and policy firm. At an average decline of $7,200 a house, that translates to a potential drop of $502 billion in total U.S. property values."

* On the credit front, there's been a mixture of moderately better and worse news. Credit card trust reports yesterday from the likes of American Express and Capital One showed some improvement in delinquency rates. On the other hand, JPMorgan Chase CEO Jamie Dimon is forecasting worsening commercial real estate market conditions on that firm's conference call. So I guess the way you interpret the news depends on if you're an optimist or pessimist. Clearly the stock market has been very optimistic the past few days!


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