Weak housing market weighs on job growth

Weakness in the housing and auto industry traditionally signal an approaching downturn in the economy...

March 8, 2007 - Workers in housing-related business facing an increased risk of layoffs

Since the middle of last year, a downturn in the U.S. housing market has taken its toll on a wide group of people and companies, clobbering homebuilders, condo flippers, borrowers with weak credit, lenders who oversold loans, and just about anyone with a home for sale. Now the housing slump is hitting yet another target: housing-related jobs, a list that includes everyone from the people who build and sell houses to makers of appliances and furnishings.

That's a sharp contrast to the height of the housing boom in 2005-06, when the industry was responsible for creating some 25,000 to 50,000 new jobs every month, according to Mark Zandi, chief economist at Moodys.com. “In the recent months it’s been laying off workers at a pace of 25,000 to 50,000 per month,” he said. “And I think the next couple of quarters we’ll start seeing job losses of between 50,000 and 75,000 per month. ... I think the housing market is going down a whole other notch.”

With the global stock market on edge and analysts debating the odds of recession, the government’s monthly jobs data due out Friday will be scrutinized more closely than ever for hints of what lies ahead. Housing-related job losses are expected to put a dent in the overall pace of February job growth, which forecasters believe will slow to 100,000 new jobs or less — down from a gain of 111,000 in January. Market watchers got a preliminary read on the February job numbers Wednesday with the release of a separate survey from payroll processor ADP, which showed non-government job gains of just 57,000 in February. (Since the ADP report doesn't include government jobs, that's roughly equivalent to job gains of just 70,000 in the official government numbers.)

Greenspan the oddsmaker

Subprime housing slowdown...

Subprime mortgage woes keep home builders glum in March
19 Mar. 2007 — Deepening problems in the subprime mortgage sector, which makes the riskiest home loans, chipped away at U.S. home builder confidence in March, the National Association of Home Builders said Monday.

The NAHB/Wells Fargo Housing Market index fell three points in March to 36 from a downwardly revised 39 a month earlier, the group said. "Builders are uncertain about the consequences of tightening mortgage lending standards for their home sales down the line, and some are already seeing effects of the subprime shakeout on current sales activity," said NAHB Chief Economist David Seiders.

While the March reading was up from a 15-year low of 30 in September 2006, it was well below the reading of 54 in the same month a year ago. Readings below 50 mean fewer builders view market conditions as favorable rather than poor. Economists polled by Reuters had forecast the index would drop to 38 from an originally reported 40 in February.

Several dozen companies have closed in the past year in the subprime sector, battered by borrower defaults and demand from the companies' own lenders to take back soured loans at a loss. "The critical issue is whether the deterioration in the subprime mortgage market infects other sectors, not just the housing market," said Gregory Miller, chief economist at SunTrust Banks in Atlanta, Georgia.

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This could be as damaging to the economy as the savings and loan scandal...

Fraudulent lenders blamed for US crisis
23 March 2007 - American banking regulators defended their handling of the sub-prime mortgage market yesterday, blaming abusive lending and fraud by unsupervised lenders for the current surge in defaults that has sent tremors through credit and financial markets.

Christopher Dodd, chairman of the Democrat-controlled Senate Banking Committee, said: "Our nation's financial regulators were supposed to be the cops of the beat, protecting Americans from unscrupulous financial actors." Instead, "they were spectators for far too long". Yesterday's hearing by the Committee came the day after the Federal Reserve indicated it might cut interest rates in the months ahead. That move was aimed in part at limiting the fallout of the crisis engulfing some banks and other lenders specialising in loans to borrowers with low incomes or bad credit ratings.

Among those testifying were top officials of four leading sub-prime lenders: the American arm of HSBC, Countrywide Financial, WMC Mortgage and First Financial. A notable absentee was New Century Financial, the second largest lender and the worst hit by the crisis, which has been ordered to cease all lending in its home state of California. Mr Dodd accused the Fed of being aware three years ago that lending standards were slipping amid the credit boom fuelled by historically low interest rates. Yet the central bank encouraged the spread of precisely the sort of adjustable mortgages whose rates are now jumping higher, forcing overstretched borrowers into default and foreclosure.

"A sort of frenzy gripped the markets," the Connecticut Senator said. "Many brokers and lenders started selling these complicated mortgages to lower-income borrowers, many with less than perfect credit." Both Mr Dodd and his opposite numbers in the House are drawing up new legislation to clamp down on so-called predatory lending, but fierce resistance is certain from the financial sector. Federal regulators say the main problem is that about half of such loans are issued by state-licensed and standalone mortgage brokers and finance companies that largely escape federal supervision. Roger Cole, head of the Fed's bank supervision department, told the committee: "Given what we know now, yes, we could have done more sooner."

http://news.independent.co.uk/busine...cle2383922.ece

The human cost...

Subprime Bust Forces Families From Homes
Mar 24, 2007 -- The lights are still on inside Foreclosure No. A200642668 - so while there's time, have a look around.

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Buying a home is the American dream and a record number of Americans - nearly 70 percent - are living it. Many families, though, likely never would have become owners if not for the tremendous growth over the past decade of a new kind of mortgage business called subprime lending. It long seemed like a winning proposition for all parties. Now the costs are becoming apparent - and they are very unsettling.

Subprime lenders peddle new kinds of mortgages, often requiring no money down and made at "teaser" interest rates that soon rise. They target marginal borrowers with weak credit or questionable incomes who previously might not have gotten a loan at all. By last year, subprime loans made up 20 percent of the market for new mortgages.

But as the housing market cools, thousands of subprime borrowers are struggling to keep their homes. A number of subprime lenders, saddled by failed loans and a shortage of cash, have folded or staggered. In some particularly hard-hit neighborhoods in Denver's suburbs - one of a few metropolitan areas where the problem is especially grave - home after home sits dark. Clearly, this isn't how the American dream is supposed to play out, but who's to blame?

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How bad is the subprime mess?...

The Panic of 2007?
March 28, 2007 - The subprime mortgage mess hasn't yet depressed overall lending. But a larger horror story may be unfolding.

Remember the bank panic of 1907? Probably not. But revisiting it is one way to clarify the differences between the old financial order and the new—and the challenges posed to the new order by the subprime mortgage mess. Higher defaults on these loans to weaker borrowers raise a question: is the new order better than the old? For the U.S. economy, the stakes are huge.

Consider the financial upheaval. Since the early 1800s, banks had dominated the system. People and businesses deposited their cash in banks; then the banks made loans. Now, much money bypasses banks. In 1975, banks and savings and loan associations—close cousins—issued 73 percent of all home mortgages. By 2006, their share of the $10 trillion mortgage market was 29 percent. Almost 60 percent had been "securitized": bundled into bonds and sold to investors (pensions, mutual funds, foreign investors).

The old system had defects. Periodic panics were one. In 1907, rumors of bad loans triggered a bank run. People wanted their money; no one knew which banks were safe. Although the legendary banker J. P. Morgan ultimately organized a rescue of many banks, it was too late. Some banks failed; savers lost funds. A recession worsened.

More http://www.msnbc.msn.com/id/17830983/site/newsweek/

The dominoes startin' to fall...

New blow to US housing market
Monday, 2 April 2007, Top US lender in Chapter 11 move; New Century Financial, one of the largest sub-prime lenders in the US, files for bankruptcy protection.

New Century sought protection from creditors after it was forced by its backers to repurchase billions of dollars worth of bad loans. The company said it would immediately cut 3,200 jobs, more than half of its workforce, as a result of the move. Sub-prime lenders, who target customers with poor credit histories, have suffered from a downturn in the market.

Shares in New Century were suspended in March on fears the company may be heading for bankruptcy, following a sharp rise in people defaulting on their loans. "We suspect the problem in the sub-prime area is just the tip of the iceberg for the mortgage market as a whole" - David Shulman, University of California Anderson Report

New Century's creditors include investment bank Goldman Sachs and Britain's Barclays bank. The company said it planned to sell its loan servicing operations to Carrington Capital Management for $139m (£70m), subject to bankruptcy approval.

Barclays deal

This reeks of the old savings and loan scandal...

Congressional panel sees spike in foreclosures
11 Apr. 2007 - Sen. Schumer urges federal bailout worth ‘hundreds of millions’ of dollars

Amid continued signs of deterioration in the nation’s mortgage market, a Congressional panel Wednesday forecast a sharp rise in housing foreclosures, and several Democratic lawmakers called for a federal bailout for borrowers who are at risk of losing their homes As msnbc.com reported Monday, state and federal regulators are now looking into a pattern of questionable lending practices and outright fraud that has already sparked a wave of criminal and civil actions against various players in the $10 trillion market for residential mortgages.

As hundreds of billions of dollars worth of loans sold to so-called “subprime” borrowers — historically those with shaky credit histories — are now “resetting” to higher monthly payments, many of these borrowers are facing default. And as lenders foreclose on these loans, homes are re-sold quickly, creating further downward pressure on housing prices. Median home prices this year are expected to post their first year-over-year decline in decade, a real estate trade group said Wednesday. On Wednesday, the Joint Economic Committee of Congress provided a detailed report on the impact of those foreclosures on local communities — some of which are getting hit harder than others, according to the report.

Areas expected to be hardest hit include Atlanta, Indianapolis, Denver, Dallas and Detroit. In the latter city, one of every 21 mortgages foreclosed last year, according to the report, which used statistics from RealtyTrac's foreclosure database. At a press conference held to present the findings, Sen. Charles Schumer (D-N.Y.) said the U.S. government should offer hundreds of millions of dollars to help troubled borrowers avoid losing their homes. "The federal government can send in an infusion of (money) to prevent foreclosure," said Schumer.

More http://www.msnbc.msn.com/id/18059004/from/RS.3/

See also:

Mortgage mess spreads to Alt-A segment
Subprime turmoil ensnaring companies that lend to people with good credit
April 11, 2007

Turmoil in the mortgage market is ensnaring more companies who lend to people with decent credit. The spread of home lending woes beyond loans to those with weak credit threatens to reduce the availability of loans for some consumers and even threaten the existence of some lenders.

Rising delinquencies and defaults among subprime borrowers — those with blemished credit histories — have resulted in more than two dozen lenders going out of business, moving into bankruptcy protection or putting themselves up for sale. Now the so-called Alternative-A mortgage sector, which loans to borrowers with better credit than subprime borrowers but not quite prime, is starting to hurt.

One Alt-A lender, American Home Mortgage Investment Corp. of Melville, N.Y., announced late last week that it was having trouble selling its mortgages into the secondary market and would have to cut its earnings forecast for the quarter and the year. At least five analysts downgraded the stock on Monday, and its shares fell more than 15 percent on the New York Stock Exchange. The shares dropped $2.37, or 11 percent, on Tuesday to close at $19.55. Other Alt-A lenders that have taken hits in the market in recent days are First Horizon National Corp. of Memphis, Tenn., which some analysts predict may be forced to sell out to a bigger bank, and M&T Bank Corp. in Buffalo, N.Y.

More http://www.msnbc.msn.com/id/18043828/from/RS.4/

Capitol Hill looking into the matter...

Congress mulls Wall Street's role in subprime woes
Thu, May. 17, 2007 - One of the toughest questions facing Congress as it tries to address the meltdown in the subprime mortgage market, which caters to borrowers with poor credit, is deciding whether Wall Street is part of the problem or part of the solution.

Twenty years ago, mortgages were primarily issued and held for their entire loan life by banks, credit unions or savings and loan associations. Today, almost as soon as the ink is dry from closing on a home, the mortgage is sold by the loan originator, often to a Wall Street company that pools loans together and packages them as a mortgage-backed security, essentially a mortgage bond.

When homeowners make their monthly payments, their payments combine with those on other loans in the package. Together, these payments are the cash flow that repays the investors who bought the mortgage bonds. These bonds are divided into a range of risk categories, with the safest bonds paying the lowest returns and the riskiest, a combination of subprime loans, offering the highest returns.

This process is known as securitization. It's brought a lot more capital into the mortgage business, which has made more lending possible, and enabled more Americans, nearly 70 percent now, to buy homes. Last year, outstanding mortgage bond debt - $6.5 trillion - was almost three times the debt issued by municipalities and exceeded the outstanding debt of all U.S. corporations.

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[waltky]

More houses on an already weakened market...

Americans Struggle as Foreclosures Jump
July 30, 2007 - More and more people are struggling to pay their mortgage bills.

The number of people struggling to pay their mortgages has skyrocketed in the first half of 2007, according to new data released today by RealtyTrac. During that time period there were 925,986 foreclosure filings -- default notices, auction sale notices and bank repossessions -- on 573,397 properties nationwide, up more than 30 percent from the previous six-month period and up more than 55 percent from the first six months of 2006.

"Despite a slight drop in June, foreclosure activity shows no sign of slowing down," James J. Saccacio, chief executive officer of RealtyTrac said in a statement. "Based on the rate of foreclosure activity in the first half of 2007, we could easily surpass 2 million foreclosure filings by the end of the year, which would represent a year-over-year increase of over 65 percent." Many homeowners, particularly those with poor credit, are finding it harder and harder to make mortgage payments. Many of them have variable rate mortgages and are now starting to see those interest payments increase, leading to some of these defaults.

Nevada, Colorado and California had the highest foreclosure rates. Nevada is No. 1, posting the nation's highest foreclosure rate, with one foreclosure filing for every 40 households during the first half of 2007. Colorado reported one foreclosure filing for every 60 households and California had one for every 69 households, RealtyTrac said. Other states with foreclosure rates among the Top 10 included Michigan, Florida, Ohio, Georgia, Arizona, Connecticut and Indiana.

Source

[waltky]

Not a good sign when a major lender goes down, remember the recession after the savings and loan scandal?

US mortgage lender closing down
Friday, 3 August 2007, American Home says it was the tenth biggest retail mortgage lender

American Home Mortgage plans to close down most of its operations, making it one of the biggest casualties of the US housing slump. Seven thousand employees will lose their jobs from Friday, leaving the company with only about 750 staff.

Analysts say that American Home may have to seek bankruptcy protection as soon as Monday. American Home's problems suggest the housing slump is widening because it is not a sub-prime lender.

Visitors to the firm's website are told it is "no longer taking mortgage loan applications". Most of the companies that have had difficulties so far have been those that specialise in lending to people with inferior credit records.

American Home offered many "Alt-A" mortgages, which fall between prime and sub-prime mortgages. It also made loans with adjustable interest rates, which are more unusual in a US market where long term fixed rates are the norm.

BBC NEWS | Business | US mortgage lender closing down