Mortgage Buybacks May Cost Banks $106 Billion, FBR’s Miller Says – JPMorgan Chase & Co. and Bank of America Corp. are among U.S. banks that may face $54 billion to $106 billion in costs as more investors demand that issuers of mortgage-backed securities repurchase faulty loans, according to Paul Miller of FBR Capital Markets. Miller estimated in September that underwriters of mortgage-backed securities may face losses of $44 billion to $91 billion. The increase reflects that liabilities will rest with issuers of the securities, the analyst wrote today in a note to investors. Miller also said his new estimate reflected banks disclosing more about possible losses. Analysts have issued differing estimates on how much mortgage buybacks may cost banks, as the government-sponsored enterprises Fannie Mae and Freddie Mac press lenders to repurchase loans that may have been based on inaccurate data. Private investors in mortgage-backed securities are also pursuing claims.

Germany watches with concern as euro falls despite Ireland bailout – Germans braced for even more turmoil in the Eurozone after a multibillion-dollar rescue package for Ireland failed Monday to satisfy financial markets alarmed at the cost of having to bail out heavily indebted partners that share the common currency.  With indications that not just tiny Portugal but the large economies of Spain and even Italy may also need rescue deals, some German commentators debated whether the time had come to rethink membership in Europe‘s single currency.  Germany was a reluctant participant in the bailout of Greece’s economy in May, when taxpayers here vented their frustration in regional elections at having to throw their weight behind a country perceived to have lived beyond its means for years. When Ireland’s crisis loomed, Germans again balked at the prospect of having to help a country whose per-capita annual income is more than $5,000 higher than Germany’s $40,000.

Falling again – MOST of the news out of the American economy has been relatively good, of late, at least by comparison to the news we were getting over the summer. Consumer confidence is up. Third quarter GDP rose by more than originally estimated. There are even hints that the labour market may be close to a recovery speed sufficient to actually bring down the unemployment rate. Except where housing markets are concerned. Prices, which had been leveling off, and in some cases rising again, sagged once more. That sag seems to have turned into a new, nationwide slump. The latest Case-Shiller home price data, for the month of September, is a three-month moving average of homes sold in July, August, and September. The data shows a monthly decline across all markets, with the single exception of the Washington metropolitan area. The 20-city index was off 0.7% in September, after falling just 0.2% the prior month. Fully 15 of the measured markets are down over the past year.
Case-Shiller: Broad-based Declines in Home Prices in Q3 – From S&P: Broad-based Declines in Home Prices in the 3rd Quarter of 2010 – Data through September 2010, released today by Standard & Poor’s for its S&P/Case-Shiller Home Price Indices … show that the U.S. National Home Price Index declined 2.0% in the third quarter of 2010, after having risen 4.7% in the second quarter. Nationally, home prices are 1.5% below their year-earlier levels. In September, 18 of the 20 MSAs covered by S&P/Case-Shiller Home Price Indices and both monthly composites were down; and only the two composites and five MSAs showed year-over-year gains The first graph shows the nominal seasonally adjusted Composite 10 and Composite 20 indices (the Composite 20 was started in January 2000). The Composite 10 index is off 29.8% from the peak, and down 0.7% in September(SA). The Composite 20 index is off 29.6% from the peak, and down 0.8% in September (SA). The second graph shows the Year over year change in both indices. The Composite 10 is up 1.5% compared to September 2009.  The Composite 20 is up 0.5% compared to September 2009. Case-Shiller reported that nationally home prices are 1.5% below their year-earlier levels. The year-over-year increases in the composite indexes are slowing, and will probably be negative later this year.  The third graph shows the price declines from the peak for each city included in S&P/Case-Shiller indices.
A Look at Case-Shiller, by Metro Area (November Update) – The S&P/Case-Shiller national home price index, which is released on a quarterly basis, posted a 2% decline from the previous quarter and are 1.5% below year-earlier levels. On a monthly basis, 18 cities notched declines from August, compared to 15 month-on-month drops in August and just eight the July report. Seasonal variations can distort month-on-month comparisons. Based on a seasonal adjustment calculated by S&P, no city posted a monthly home-price increase in September. Read the full story. Below, see data from the 20 metro areas Case-Shiller tracks, sortable by name, level, monthly change and year-over-year change — just click the column headers to re-sort.


Real House Prices, Q3 2010 – This morning, S&P reported that there were "broad based" house price declines in Q3. And earlier this month, CoreLogic reported that house prices declined 1.8% in September.  The following graph shows the Case-Shiller National index (quarterly), the Case-Shiller Composite 20 index, and the CoreLogic House Price Index in real terms (adjusted for inflation using CPI less shelter).In real terms, all three indexes are back to 2000 / 2001 prices. The real Case-Shiller national index is at a new cycle low, and the real Case-Shiller Composite 20 and real CoreLogic indexes are just above the cycle low (and will be at new lows soon). A few key points:
• In many areas – if the population is increasing – house prices increase slightly faster than inflation over time, so there is an upward slope in real prices.
• Even if real prices are still too high, they are much closer to the eventual bottom than the top in 2005. This isn’t like in 2005 when prices were way out of the normal range.
• With high levels of inventory, prices will probably fall some more. (My forecast earlier this year was for 5% to 10% additional price declines on the repeat sales indexes).
Why European debt defaults are necessary – Jim O’Neill of Goldman Sachs is now going around saying that the eurozone needs “solidarity,” and that Germany in particular needs to get with the all-for-one-and-one-for-all program, after getting itself into this mess by encouraging far too many countries to join the euro in the first place. At the same time, the survival of the euro, he says, “requires Germany to be not so noisy and aggressive about how other countries should run their economies.” You can see the problem here: if enacted, it would mean that the European periphery can run up massive debts, safe in the knowledge that Germany will pay them off. Willem Buiter calls this by its proper name—permanent fiscal transfer—and says that it’s “most unlikely” even in Ireland, let alone in (say) Greece. Even Buiter—who now works for Citigroup, remember, which has a long and painful institutional memory when it comes to sovereign lending—is talking about the fact that some kind of default (he calls it “restructuring”) will be necessary, certainly in Greece and Ireland, before markets have any confidence that the problems in those countries are resolved.
The Italian Job – Krugman – OK, folks, this is getting really serious. Spain is bad enough, but Italy … Italy has puzzled me a bit. On one side, it has a lot of debt (net 99 percent of GDP), and if you look at prices and wages it looks almost as overvalued as Spain. On the other side, Italy’s deficit isn’t nearly as bad (5.1 percent in 2010, sez the IMF), and the economy doesn’t seem to be suffering as much as you’d expect. But now Italy’s under pressure too. I still don’t see a wide euro breakup. But I guess it’s worth posting, for future reference, one thought I have here: namely, that a rump eurozone, without the southern Europeans, doesn’t look workable to me. It’s not about economics per se; it’s about political economy.

The Impoverished, and Impoverishing, Debate about Fiscal Deficits – It is like living in a dream—a very bad dream. Everything seems at once real and imaginary, serious and deliriously impossible. The language is familiar and incomprehensible. And it seems there is no waking up, ever. I’m talking about the “debate” over America’s fiscal deficits, which is what I stumbled into after a night of much happier visions. Now, according to this morning’s New York Times, the left has weighed in with its own plans to achieve deficit stability. Of course, it is more reasonable than the pronunciamenti of the Simpson-Bowles cabal, with a wiser assortment of cuts and more progressive tax adjustments. Still, it is part of the same bizarre trance, disconnected from the basic laws of income accounting. All you need to know is the fundamental identity. In its financial balance form, it appears as: Private Deficits + Public Deficits ≡ Current Account Balance. If the US runs, say, a 4% CA deficit, the sum of its net public and private deficits must equal 4%. You can’t alter this no matter how you juggle budgets.Add to this one more piece of wisdom, which we should have learned from the past three years, even if we were blind to everything else: private debts matter as much as public ones.

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