more economic reports AWOL; August consumer credit and the LPS Mortgage Monitor for August

  it should go without saying that “non essential” government operations have remained shut down over the past week, and we are rapidly closing in on the October 17th date when the full faith and credit of the United States turns into a pumpkin…the partisan barbs that characterized last week continued early into this week, but by Wednesday House Republicans, perhaps reading opinion polls giving them a 5% approval rating, proposed a 6 week extension to the debt ceiling that would allow the Treasury to continue to issue script after the accounting legerdemain it had been engaged in had run its course, an idea Obama at first seemed open to…but after talks were finally underway Thursday, Obama and Reid backed off that, insisting that a clean debt ceiling increase be accompanied by a bill to a refund the government and end the shutdown…possibly pushed by business leaders, eyeing the possibility that we’d be doing this all over again during Thanksgiving week, the White House then began to insist on a debt ceiling extension that would take us past the holidays…as negotiations between Obama and the House leaders subsequently broke down, the focus has shifted back to the Senate late Saturday, where Harry Reid and Mitch McConnell have been trying to hash out a package that would be acceptable to both parties…if you’re interested in a complete review of the news and opinion surrounding these issues as it happened, there are again over a hundred linked summary paragraphs included in this week’s globalglassonion, beginning right after the Fed coverage and continuing to encompass the first one-third of the blog post…

of course, with the agencies that produce the monthly economic reports we usually cover in this space shut down or operating with bare bones staffing, those reports are not being issued; you all know we missed the September unemployment report and Factory Orders for August last week, but the shutdown will also delay the data gathering for the October unemployment report; as both the establishment survey and the household survey for October should take place this week; since the 12th of the month, the target date for those surveys, occurred late in the week, it probably wont skew the data that much if there’s a quick resolution and the surveys can be conducted this week; but they’re delayed any longer, the typical month over month comparisons we and others typically look at in these reports will be meaningless …similar caveats may also have to be applied to the other reports that have been missed; construction spending for August, the trade balance for August, the Job Openings and Labor Turnover Survey (JOLTS) for August, wholesale trade, sales and inventories for August, business inventories for August and retail sales for September…in addition, the producer price index was to have been issued Friday and the consumer prices index is due this coming Wednesday, and the data collection for those may have gone by the boards as well…and despite the fact that the Fed is opening and functioning, their G-17, the report on industrial production and capacity utilization, will not be released on schedule this coming week because they rely on data collected by other government agencies

Consumer Credit Up at 5.4% Rate as Feds Adds $172 Billion Revision to Student Loans Outstanding 

one report that we’ve been following that was released this week was the Fed’s G-19 on Consumer Credit for August, which showed that seasonally adjusted consumer borrowing outstanding at the end of August was up $13.6 billion to $3,036.9 billion, increasing at an annual rate of 5.4% over July’s revised $3,023.3 billion total…revolving credit, which is mostly credit card debt, contracted at an annual rate of 1.25%, decreasing from $849.8 billion in July to $848.9 billion in August, while non-revolving debt, which includes long term borrowing for items such as cars and yachts and tuition, but not real estate, rose at an annual rate of 8.0% to a seasonally adjusted $2,188.0 billion from $2,173.5 billion in July…

ALFRED Graph

this release includes a major backward revision extending back to January 2006 that boosted estimates of non-revolving credit from that time forward by adding several items to better reflect outstanding student loan debt; first, Perkins loans, which are low interest rate loans to impoverished students from the Dept of Education, were added to the Federal Government credit sector, as were loans purchased under the Ensuring Continued Access to Student Loans Act of 2008 from nonprofit and educational institutions, all defaulted loans held by the federal government, and accrued interest on all federal student loan balances; this boosted the totals in that credit sector, which we’ll look at later, by roughly $110 billion; in addition, they’ve added a new credit sector to this report under the heading “Nonprofit and Educational Institutions” which encompasses loans directly from those institutions not previously included in this report; as of August, this new non-revolving credit showed $62.9 billion in loans outstanding….our ALFRED graph above shows the cumulative effect of these revisions; in blue, we have the total non-revolving credit outstanding back to 2006 as had been indicated by this G19 report as released on the 9th of September; while the red line shows what this report now shows as non-revolving credit over the same history as it’s been revised..

despite the large cumulative addition to outstanding non-revolving credit from the above revision, the month over month changes from this year reports were for the most part modest; the overall July increase in consumer credit was originally reported at $10.4 billion in July, or a 4.4% seasonally adjusted annual rate of increase; after the revision, the total July increase is still at $10.4 billion, but that’s now only a 4.1% rate of increase; that, of course, came from the revision in the aggregate non-revolving amount, as the originally reported $12.3 billion increase in non-revolving credit was unchanged, but its month over month rate of change, originally reported as a 7.4% rate of increase, is now seen to have increased at a 6.8% annual rate…meanwhile, the originally reported $1.8 billion July decrease in credit card debtwas unchanged as a decrease at a 2.6% rate…meanwhile, June’s seasonally adjusted consumer credit increase was originally reported at $13.82 billion, then revised to a increase of $11.98 billion with the July report, with non-revolving credit up $15.5 billion and revolving credit down $3.7 billion; and as of this release, June’s credit increase has been again revised to show a $14.42 billion month over month increase, with non-revolving credit up $18.14 billion, at a rate of 10.2%, and revolving credit down $3.7 billion from May…our FRED bar graph below shows the monthly change at an annualized rate in overall consumer credit in blue since January 2011, with the revolving credit change monthly shown in red, and the nonrevolving credit change shown in light green…note that we’ve just seen 3 consecutive monthly declines in revolving credit for the first time since 2010, although that did follow a spike in May, seasonally adjusted revolving credit is now up only 0.25% year over year and still 16.8% below the levels of August 2008

FRED Graph

now, the reason we’ve been following this report for the past few years was to keep an eye on the expansion of the student debt bubble, and although the increases in student loans outstanding over the past two months have been modest compared to most months during the recession, the double digit increases we’ve seen earlier reasserted themselves in August…below we have a screenshot of a portion of the second table in the Fed G-19 release from which we’ve eliminated the revolving credit details to focus on the non revolving credit, and more specifically student loans held by the federal government…with the simplified table below, you can see all contributions to non revolving credit from each credit sector for every year from 2008 to 2012, and then also the contributions to non revolving credit from those sectors for the first quarter (Q1) the 2nd quarter (Q2), and the monthly aggregates for June, July and August; note also that these totals are not seasonally adjusted….the line labeled “non profit and educational institutions”, representing student loans from those institutions, is new with this report as per the revision we discussed earlier, as are the annual and current totals for consumer credit held by the Federal government…(compare the table below to last month’s)…in July, that total was $679.4 billion; by August it had grown to $701.3 billion, a $21.9 billion increase, or at an annual rate of 46.3%; meanwhile the change in total non-revolving credit from July to August  ($2,164.6 billion to $ 2,196.3 billion) was $31.7 billion, so the lion’s share, or 69% of the August increase in non-revolving credit, was new student debt, not car loans as bloomberg would have you believe…from August a year ago, student debt owned by the federal government has increased from $582.4 billion, a 20.4% increase…

August Consumer Credit Outstanding selected

August LPS Mortgage Monitor: Average Days to Foreclose at 895 as National Pipeline Ratios Remain Over 3 Years

another report out this week which we cover for a monthly look at the ongoing mortgage crisis is the August Mortgage Monitor (pdf) released by Lender Processing Services (LPS) …LPS reported that 1,340,995 loans, or 2.66% of active first lien mortgages, were in the foreclosure process in August, down from 1,406,000, or 2.82% in July and down from 4.04% of all mortgages a year earlier; as you may recall, these are home mortgages where foreclosure proceedings have been started, but the homes had not yet been seized by the bank…in addition to homes in foreclosure, LPS also reports the national delinquent mortgage rates; in August, LPS found that 3,124,000​ home loans, or 6.20% of mortgages outstanding, were at least one payment (30 days) behind; when combined with those in foreclosure, that means 4,465,000​ home mortgages, or more than one in eleven, were either delinquent or in foreclosure at the end of August…of those delinquent, 1,288,000​ were seriously delinquent, or more than 90 days late on their housepayments, and 1,836,000 were more than 30 but less than 90 days delinquent at the end of the month….the bar graph below, from the August summary on page 19 of the mortgage monitor (pdf) shows the percentage of homes that were delinquent each month for the past 13 months; you can see that May was the low water mark this year at 6.08% followed by the large jump in delinquencies in June to 6.68%, driven by an 18.3% spike in new delinquencies which LPS called “seasonal”; also evident it the large spike in delinquencies in September of last year, coinciding with the release of the iphone5…since there was a similar rush to buy the new iphone5c and well as record sales for Grand Theft Auto V in September, we would not be surprised to see another spike of 10% or more in mortgage delinquencies when LPS releases the September mortgage monitor a month from now…

LPS August delinquencies bar graph

next we’ll include this month’s table show the percentages of non-current (NC) mortgages for each state (from page 20 of the pdf); shown for each state are the percentage of home loans that are delinquent (Del%), the percentage of mortgages that are in foreclosure (FC%), the total mortgages that aren’t current with their payments (NonCurr%) and the year over year change in the number of non-current mortgages; also note that states that have a judicial foreclosure process, where the bank must prove their right to foreclose on a homeowner in court, are marked by a red asterisk …although the percentage of non-current mortgages in Florida is down 27.2% from last year’s 20.7% level, they still lead the nation in the percentage of non-current mortgages at 15.1% and percentage of mortgages in foreclosure at 8.5%, while all the states that still have more than 4% of their mortgaged homes in foreclosure are also all judicial states; New Jersey with 7.2%, New York with 5.6%, Hawaii with 5.3%, Maine with 5.1%, Connecticut with 4.4%, and Illinois with 4.1%…also note that the non-judicial state of Mississippi, the state with the 2nd most non-current mortgage, is something of an outlier here, as they’ve has a chronic delinquency problem, with 12.6% of homeowners late on their housepayments, while they’re still below the national average of homes in foreclose at 2.2%…

August LPS noncurrent states table

the next graph that we’ll look at from the mortgage monitor (page 15) shows the historical tracks of monthly foreclosure starts in blue and foreclosure sales in red since the beginning of 2005; foreclosure starts are those mortgages that had the first foreclosure action taken against them in that month, while foreclosure sales are those mortgages that have proceeded through the last legal step in that month, which is typically an auction that transfers the home into the bank REO (real estate owned) portfolio….we can see foreclosure starts in blue beginning to rise from just over 50,000 a month in 2005 to 135,000 in September 2007 to where it peaks at 316,000 foreclosure starts in March of 2009, after which the number of foreclosure starts tended to stay well over 175,000 a month until early this year, falling to a post housing bust low of 108,000 in August, down 4.7% from July’s 112,850…completed foreclosures in red, however, have trended much lower throughout the recession; they rose from a pre-crisis 25,000 a month to an average of near 100,000 a month throughout 2009 to peak at 124,000 in September of 2010, then fell back to below well below 100,000 a month after the robosigning foreclosure fraud scandal hit….and although the foreclosure sales line has been trending down, averaging 61,000 a month in 2013 compared to 73,000 a month in 2012, they have remained above 50,000 a month until August, when completed foreclosures jumped 23.7% over July’s level to 70,000….

August LPS foreclosure starts vs sales

now what you should also notice from this graph is that foreclosure starts have been running well ahead of foreclosure completions, by as much as 200,000 a month from 2009 through 2011, and more than normal (defined by the gap of less than 50,000 a month in 2005) throughout the crisis….so what happened to all those homeowners who had foreclosure actions taken against them early in the crisis? while some who had foreclosures started against them may have cured their mortgage by making the missing payments, negotiated a short sale or otherwise worked out a mortgage modification, the lions share of them appear to still be in foreclosure limbo…in the table below (from page 20) we have the total loan counts of delinquent mortgages by days delinquent, the number in foreclosure (FC) and the foreclosure starts for each January since  2008 and each month since 01/2012…but what we want to look at it is the last column, which lists the “average days delinquent for foreclosure” for each month listed; you can see that by the beginning of 2012 those in foreclosure had been delinquent for an average of 668 days, and some obviously much longer, since a number of those in foreclosure probably first has theirs initiated in 2011…by June of last year, those in foreclosure had been delinquent on their mortgages for over 2 years, and that duration continued to lengthen to 876 days by July of this year and increase by another 19 days with this August report…when an average length in foreclosure jumps as much as 19 days over a month even as new foreclosures are started, it’s obvious that most of those who’ve been in foreclosure for years aren’t going anywhere…

August LPS delinquent and foreclosure count table

we would also note on the above table the second column from the right, which similarly shows the average of how may days those who’ve been delinquent for more than 90 days have remained in their homes without being foreclosed on…in a reversal of the trend, the average length of time that those seriously delinquent have remained in their homes without being foreclosed on has fallen to 505 days, down from 517 days in July and at a 4 month low…since foreclosure starts are at a new crisis low, we’d have to guess many of those who left that long term delinquency status in August either exited via a short sale or a mortgage modification of some kind; nonetheless, of the 1,347,000 plus homeowners who were seriously delinquent in July, a significant portion of them likely lived in their homes without making payments for 2 years or more before making that exit…

returning to the predicament where we see that the average homeowner who is in the foreclosure process has been in that situation for nearly 900 days, we’ll now look at a bar graph below (from page 17) that shows the pipeline ratios for 10 select judicial states in red and 10 non-judicial states in blue…the foreclosure “pipeline’ is the duration that a mortgage spends in the foreclosure process between the foreclosure start and the foreclosure sale, which completes the process; in computing the pipeline ratio, the industry takes the sum of all those mortgages that are seriously delinquent or in foreclosure in a given state and divides it by the average number of completed foreclosures per month over the last 6 months….what this number gives us is the number of months it would take for all those in the foreclosure inventory and the pre-foreclosure inventory to clear at the current rate foreclosures are being completed in that state…thus, for the judicial states, where a foreclosure must go through the courts, at the rate at which foreclosures are being processed nationally, it would take more than 4 years – 49 months to be exact, for all those seriously delinquent and in foreclosure homes to be adjudicated…but as you see by the red bars; the pipeline ratio in some states is much longer; in New York at the rate foreclosures are being processed, it would take 323 months, yes, nearly 27 years to clear the backlog; New Jersey at 211 months, or 17 and a half years, and Hawaii, at 201 months, aren’t much faster…but overall the foreclosure pipeline in these judicial states has been dropping, from an average of 118 months in early 2011 too the current 49 months now…however, the non-judicial states, where foreclosures have always been faster, have not seen much change, because several of them have passed laws protecting homeowners and levying fines for foreclosure fraud…so we now see a nonjudicial state such as Massachusetts with a pipeline ratio of 168 months, up 136% from the second quarter a year ago, meaning it would now take 14 years to clear that state’s foreclosure backlog; the ostensible reason? last year Massachusetts passed a law giving judges the power to decide whether a bank can foreclose or must modify the mortgage; similarly, California, a non judicial atate where foreclosures had been executed rapidly, has now seen a 68% increase in the foreclosure pipeline with the passage of a homeowners Bill of Rights, written to curtail lender abuses; likewise, Nevada passed a law in 2011 making it a felony if a mortgage servicer made fraudulent representations concerning a title, and imposed fines up to $5,000 for falsifying documents, which temporarily brought foreclosures in that state to a standstill… although foreclosure proceedings in Nevada have since resumed, they’re at a slower pace, and hence the foreclosure pipeline for that state at 42 months is still 56% higher than it was before the law was passed…

August LPS pipeline ratios by state

(the above is my weekly commentary that accompanied my sunday morning links emailing, which in turn was mostly selected from my weekly blog post on the global glass onion…if you’d be interested in getting my weekly emailing of selected links that accompanies these commentaries, most coming from the aforementioned GGO posts, contact me…)

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