Archive for April, 2009

Re-default data shows Obama housing plan potential (Reuters)

Friday, April 3rd, 2009 | Finance News

WASHINGTON (Reuters) –
More than 58 percent of U.S. home loans modified in 2008 did not result in a decreased monthly payment, and those modifications often did not produce sustainable mortgages, according to a report released on Friday.

The recent data on re-default rates for modified home mortgages indicate that the Obama administration's modification plan is headed in the right direction, said John Dugan, Comptroller of the Currency.

Dugan said in light of the data released by his office on Friday, the OCC is going back to each of the servicers and directing them to review their modification policies to ensure that they are producing sustainable mortgages, and not just changing terms.

The OCC is the regulator for the nation's largest banks.

Modifications for loans that had "teaser rates" can result in payments that are unchanged or increase, but do not increase as much as contractually required.

"I think what that tells us is it really does make a difference to have reduced payments as a factor in getting at the sustainability of a mortgage modification," Dugan said.

"The approach the administration has taken with its program, which focuses very heavily on reducing monthly payments, this validates that kind of thought."

The Obama administration announced in February a modification plan that commits up to $275 billion to help reduce mortgage payments for up to 9 million families.

Prior attempts at broad modification programs focused more on borrowers who had already fallen behind on their mortgages, rather than reducing monthly payments for all at-risk borrowers.

A total of 8.1 million U.S. homes, or 16 percent of all households with mortgages, could fall into foreclosure by 2012, according to a report by Credit Suisse.

The data showed that re-default rates were high and rising for loans modified in each of the first three quarters of 2008.

About 31.3 percent of loans modified in the third quarter were in re-default -- defined as 60 or more days delinquent -- three months after the modification. That is an increase from loans that were modified in the second quarter, which had a 26.8 percent re-default rate three months after modification.

"We saw the same trend ... quite high re-default rates, no matter how we measured them," Dugan said on a call with reporters on Thursday.

The OCC said it still does not have a solid explanation for why the modified mortgages are sinking into trouble. The agency revealed the trend in data released in December, which at the time threatened to scuttle a nationwide modification plan being pushed by the Federal Deposit Insurance Corp.

FDIC Chairman Sheila Bair said in December that the high re-default rates could be explained by a large number of "cosmetic" modifications.

The OCC said on Friday that its data cannot capture the reasons for the delinquencies.

"They could result from such factors as a significantly worsening economy with more borrowers losing jobs, excessive borrower leverage, issues affecting consumer willingness to pay, or poor initial underwriting," the report said.

Dugan noted that data shows a marked deterioration in prime mortgages, which is the lowest risk loan category and accounts for about two-thirds of all mortgages studied.

The percentage of seriously delinquent prime mortgages increased to 2.4 percent at the end of the fourth quarter, from 1.11 percent at the end of the first quarter.

He said that while the delinquent rate is low compared to other classes of mortgages, the increase is concerning because prime mortgages account for such a large number of mortgages outstanding.

(Reporting by Karey Wutkowski)

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World markets pause after G-20-fueled rally (AP)

Friday, April 3rd, 2009 | Finance News

LONDON – World stock markets lost steam on Friday, as the previous day's rally — helped by world leaders' pledge to help world economies with new funds — gave way to caution ahead of a crucial U.S. jobs report later in the day.

In European morning trading, Britain's FTSE 100 was down 0.2 percent to 4,118.98, Germany's DAX rose 0.5 percent to 4,404.43, and France's CAC 40 slipped 0.1 percent to 2,990.49.

Asian markets climbed modestly on the back of Thursday's announcement by the world's major powers to make available more than $1 trillion to combat the global economic crisis and after China's hard-hit factories showed signs of life.

But gains were somewhat subdued as investors became cautious before a key U.S. employment report — expected to show massive job losses — draining momentum from a spectacular rally that lifted stock indexes across the world by double-digit percentages over the last four weeks.

The U.S. Labor Department is due to release a report at 1230 GMT expected to show that a net total of 654,000 jobs were lost last month. If economists are right, it would mark a record four straight months that job losses topped 600,000.

With employers axing payrolls, the U.S. unemployment rate is expected to jump to 8.5 percent, from 8.1 percent in February. If that happens, it would mark the highest jobless rate since late 1983, when the country was recovering from a severe recession that drove unemployment past 10 percent.

Wall Street pointed to a flat open. Dow Jones Industrial Average futures rose 0.2 percent to 7,971 and Standard & Poor's 500 futures climbed 0.3 percent to 837.90.

After meeting Thursday, the Group of 20 industrial and developing nations promised $1.1 trillion to the International Monetary Fund and other development bodies to lend to struggling countries reeling from the global economic turmoil. They also vowed new efforts to clean up banks' tattered balance sheets, shut down tax havens and tighten financial regulations.

Investors, their expectations for any meaningful progress low, cheered the moves — the latest as governments everywhere bring unprecedented resources to bear against the worst economic slump since the Great Depression.

"There was a fear at the G-20 was going to turn out to be damp squid and it appears instead there was some unity and progress," said Miles Remington, head of Asian sales trading at BNP Paribas Securities in Hong Kong.

After the FTSE, DAC and CAC 40 surged 4.3 percent, 6.1 percent and 5.4 percent Thursday, some clawback was to be expected.

"We're seeing a large degree of profit-taking this morning," said Gary Thomson, head of sales trading at CMC Markets in London. "In the last three sessions of the FTSE it's gone up 10 percent and we're coming up to the notoriously quiet Easter period when people take time off and volumes go down.

"On top of that we have got big figures such as the non-farm payroll data this afternoon. A couple of traders I've been speaking to are looking to ease their positions ahead of that because they fear it will drive the markets lower."

In Asia, figures showing Chinese manufacturing expanded slightly in March for the first time in six months boosted sentiment. The data supported hopes the Chinese economy — the world's third-largest and a key source of demand for other Asian countries — is nearing a bottom.

Japan's Nikkei 225 stock average added 30.06 points, or 0.3 percent, to 8,749.84, but traded well off its highs. Hong Kong's Hang Seng edged up 23.72, or 0.2 percent, to 14,545.69. South Korea's Kospi rose 0.5 percent to 1,283.75.

Stock measures in Australia, Taiwan and Singapore gained about 1 percent or more. But Shanghai's key index, after trading in the green, closed down 0.2 percent.

Overnight in New York, Wall Street's buying spree showed no signs of slowing as investors took comfort in an accounting rule change that will help banks pare their massive losses on bad assets.

Sentiment got a further boost from still more positive U.S. economic data, this time highlighting a large increase in factory orders in February. That followed better-than-expected readings on pending home sales, manufacturing activity and auto sales the day before.

The Dow Jones industrial average gained 216.48, or 2.8 percent, to close at 7,978.08, posting its best four weeks since 1933. Broader market indicators also rose sharply, with the Standard & Poor's 500 index up 23.30, or 2.9 percent, to 834.38.

Oil rose above $53 a barrel in Europe. Benchmark crude for May delivery added 55 cents to $53.19. The contract rose $4.25 overnight to settle at $52.64.

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AP business writer Jeremiah Marquez in Hong Kong contributed to this report.

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U.S. March payrolls seen down 650,000 (Reuters)

Friday, April 3rd, 2009 | Finance News

CHICAGO (Reuters) –
The struggling U.S. economy probably continued to bleed jobs at a rapid rate in March, continuing to drive up the jobless rate at a startling pace.

Forecasters polled by Reuters expect nonfarm payrolls to register a decline of 650,000 for March, similar to the 651,000 shed in February. The 78 estimates ranged from down 522,000 to down 750,000 jobs.

The jobless rate is forecast at 8.5 percent, up from 8.1 percent in February, when the rate unexpectedly surged from 7.6 percent.

"Layoffs continue at a record pace, although they are no longer accelerating," said Chris Low, chief economist at FTN Financial in New York.

"Many industries, from technology and electronics to airlines and retail, remain under pressure to rein in expenses and limit overhead."

Economists have started to see some "green shoots" in the U.S. economy after a long, bleak few months, but the labor market, a lagging indicator, is likely to be one of the last places where an improvement is seen.

"Companies will need to see stronger evidence of a sustained slowing in the rate of contraction in demand before the drop in payrolls will slow," said Ian Shepherdson, chief U.S. economist at High Frequency Economics in Valhalla, New York.

The unemployment rate has been climbing faster than in any recession since 1980, and has already surpassed the peaks of the 2001 and 1990 downturns. An 8.5-percent rate would match the level last seen in November 1983.

Federal Reserve officials have suggested that the jobless rate will keep climbing into 2010 even if at least a mild recovery catches hold in the second half of 2009.

On Wednesday, a report from ADP Employer Services showed that U.S. private-sector employers slashed 742,000 jobs in March, a record since the survey was started in 2001 and up from a revised decline of 706,000 in February.

The payrolls report is due at 8:30 a.m. EDT on Friday. Following are some analysts' comments and forecasts:

ECONOMISTS AT BARCLAYS CAPITAL:

(Forecast: payrolls, -675,000; jobless rate, 8.6 pct)

"The claims data point to further distress in the labor market: both initial and continuing claims are above February levels on a month-average and survey-week basis, and the insured unemployment rate climbed higher. We look for these depressed conditions to keep average hourly earnings subdued, and to push the average work-week to a new record low of 33.2."

STEVEN WOOD, ECONOMIST, INSIGHT ECONOMICS:

(Forecast: payrolls, -650,000; jobless rate, 8.5 pct)

"Payroll employment fell sharply in March for the seventh consecutive month. This substantial loss of jobs has been presaged by the lofty level of initial claims and the soaring number of continuing claims for unemployment insurance.

"The average work-week remained at its cyclical and secular nadir, with the risk of slipping slightly further. Hourly earnings remained weak, given the substantial slack in the labor market."

DAVID SLOAN, ECONOMIST, 4CAST LTD:

(Forecast: payrolls, -635,000; jobless rate, 8.4 pct)

"Most components of the breakdown should look fairly similar to February. Construction may see a deeper loss with weather less supportive, but job losses in business and professional are unlikely to match a very steep February fall. Government should rise by 5,000, leaving the private sector down 640,000.

"Manufacturing job losses are unlikely to repeat the very steep 259,000 loss of January, when autos adjusted to sharply lower first-quarter output plans. A 175,000 decline would be similar to those seen in December and February.

"Some recent data is suggesting that the pace of contraction in the economy has passed its peak."

(Polling by Bangalore Polling Unit; Editing by James Dalgleish)

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