The Big Picture - Macro Perspective on the Capital Markets, Economy, Technology, and Digital Media

This is an astonishing number:

“A survey found that one in eight U.S. households with mortgages was in foreclosure or behind on its mortgage payments during the second quarter, putting added pressure on programs aimed at preventing foreclosures.”

As previously discussed, subprime is no longer the main offender — Prime mortgages are becoming  delinquent at an accelerating pace:

“While foreclosure starts have slowed on the subprime loans that ignited the mortgage and banking crisis, loans extended to borrowers with good credit are deteriorating at a faster clip as falling home prices and mounting job losses weigh on more households.

The Mortgage Bankers Association said its latest survey, released Thursday, showed that 13.2% of mortgages on homes with one to four units were at least a month overdue or in the foreclosure process in the April-to-June period, up from 12.1% in the first quarter and 9% a year earlier . . .

Deteriorating prime loans are increasingly behind the steady rise in delinquencies and foreclosures. Among prime loans, 9% were past due or in foreclosure at the end of June, up from 5.35% one year ago. For subprime loans, those for borrowers with weak credit records or high debts relative to income, the rate was 39.5%, compared with 30% last year.

Prime loans, however, accounted for 58% of foreclosure starts, up from 44% last year. Meanwhile, subprime mortgages accounted for 33% of foreclosure starts, down from 49%. Prime fixed-rate mortgages, usually considered among the safest of all loan types, accounted for one in three foreclosure starts, up from one in five.” (emphasis added)

Note that this represents a significant shift — subprime was what drove the boom and eventual bust; the prime foreclosure issue is a function of the deep recession and job losses of the past 2 years.

As the chart shows, Foreclosure rates vary dramatically by region: its 1 in 20 in NJ, but closer to 1 in 8 in Florida.

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Sources:
Delinquencies Continue to Climb, Foreclosures Flat in Latest MBA National Delinquency Survey
MBA, 8/20/2009

http://www.mbaa.org/NewsandMedia/PressCenter/70050.htm

Souring Prime Loans Compound Mortgage Woes
NICK TIMIRAOS
WSJ, AUGUST 21, 2009

http://online.wsj.com/article/SB125082120504548471.html

J.D. Power and Associates today is quantifying in their estimation the impact on auto sales this year due to the clunker program and the extent that it steals sales from 2010. They said that based on data seen thus far, August will see the first 1mm+ unit sales (includes fleet sales) month since last year. “This marks the first increase in retail sales (not including fleet) volume since June 2007.” They raised their 2009 retail sales estimate by 300,000 vehicles to 8.6mm units but cut their 2010 retail sales estimate by 100,000 to 9.5mm “in light of the expected pull-ahead sales as a result of the CARS program and a flatter than anticipated recovery.” This steroid shot into the economy is about to end and as with any drug, after the hangover, when it wears off you feel like you did before and thus there is nothing sustainable to it.

Let’s not mince words: AIG is on the hook for $182.5 billion dollars to the taxpayers. And it high-grade, enzyme-free manure to pretend this is going to be repaid anytime soon.

Chief Executive Officer Robert Benmosche may be a nice guy, and possibly capable of squeezing some performance out of AIG, but the massive amounts of money involved means bailout it will be a very very long time coming.

Not likely in your lifetime.

Consider that if the company comes up with an extra $2 billion dollars per year — $1.83 billion too be precise — it would take a full century to repay the taxpayers the $182.5 billion.

Note that AIG’s profit last quarter was $1.82 billion. Thus, they could accelerate the repayment dramatically if they decided to turn over every last cent of profit to Uncle Sam for every quarter for the next 25 years. That assumes they can continue to maintain profitability, and not have a losing quarter.

I don’t know about you, but I am not holding my breath.

My father Richard Whalen was a long time friend and contemporary of Robert Novak, whose funeral is tomorrow in Washington.  I knew Bob and his family growing up in Washington and even went on some memorable fishing trips off of Ocean City, MD.   Dad wrote the following remembrance of Bob earlier this week.  — Chris

By Richard Whalen

I knew Bob Novak for almost fifty years.  I first met him in Washington, D.C. when he was a member of the Wall Street Journal Washington’s bureau and I was a New York based Wall Street Journal editorial writer assigned to write an editorial page article on Republican politics.  Bob, defending his Washington turf, asked me what I was doing in DC.  After shouting at each other, we had a drink and then another and a third and by that time, Bob helped me outline my piece.  We became great friends – best friends.

As the media elite emerged as part of Washington’s permanent government in the 1970s, Bob was at the center of it, but he resisted the social phoniness like a true son of the working class from Joliet, IL.  He was determined to keep the realistic perspective of his father, an intelligent small businessman who was quietly proud of his celebrated son. .Bob was in the special category occupied earlier by Arthur Krock, David Lawrence and Walter Lippmann. He was not a pundit but a hard-nosed, hard-working, shoe leather reporter whose sources ranged wider and deeper than anybody else’s. He distilled truth from depths of fresh reporting.
Read the rest of this entry »

Foreclosure rates in the U.S. remain near record highs. More than 13% of American homeowners with a mortgage are either behind on their payments or in foreclosure. The latest report from the Mortgage Bankers Association, released today, shows the percentage of loans that entered the foreclosure process dipped slightly to 1.36%, down from an all-time high of 1.37% in the first quarter.

However, that number may soon rise again as mortgage delinquency rates continued to climb in the second quarter.

That news is no surprise to Karen Weaver of Deutsche Bank. She startled everyone a few weeks ago when she predicted that, by 2011, nearly half of American mortgage holders would be underwater (meaning that they’ll owe more on their mortgages than their houses were worth).

Zero Hedge has this hilarious offering memorandum of GS’ bonus pool this year:

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click for larger, readable version

China’s efforts to curb asset inflation undercuts Shanghai Composite, spreads weakness to U.S., Barrons.com’s Bob O’Brien:

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A quick note before I hop out the door — I will be on Liz Claman’s show from 3:00 to 4:00pm today on Fox Business, discussing the usual.

Liz was always one of my favorite people at CNBC, and it will be nice to see her.

Here are 10 items to keep you busy this afternoon. (All links are guaranteed to be gluten and lactose-free).

• The Roubini Backlash Begins: Roubini is clearly an intelligent fellow who has produced some interesting works. However, just as clearly, he is not a prophet or anything close. More accurately, Roubini has disingenuously promoted himself as nailing the crisis, when truthfully he was wrong until other hard working analysts fixed his broken crystal ball. (Wall St Cheat Street)

• UBS Money Laundering: What Did Phil Gramm Know? (Robert Scheer, Nation) Current Senators for rent — ex-senators for sale cheap!

• No Bull! Rally Hits the Wall (Barron’s)  The equity market has hit a wall, declared Mohammed El-Erian, the chief executive and co-chief investment officer of Pimco. After soaring on a “sugar high” induced by earnings reports that topped Wall Street analysts’ lowered expectations, stock valuations have gotten ahead of fundamentals, he told Reuters television.

• Replay of 1930? (Econbrowser)

• Bernanke, a Hero to His Own, Can’t Shake Critics (NYT) Front Page article on the Fed Chief:  He has been frustrated that many in Congress do not give the Fed what he believes is enough credit for what it has accomplished. Indeed, Mr. Bernanke has met privately with hundreds of lawmakers in recent months to explain the Fed’s strategy. Yet fellow economists are heaping praise on Bernanke for his bold actions and steady hand in pulling the economy out of its worst crisis since the 1930s.

• Will the Fall Economic “Holiday Celebrations” Come Early this Year? (Northern Trust) We had been expecting that real economic growth would emerge in the fourth quarter of this year, coinciding with the celebrations of the Thanksgiving and Christmas holidays. We now think that it might emerge, albeit, just barely, in the third quarter, in time for the Labor Day celebration – although labor will have little to celebrate. We arrive at this conclusion from observing some economic variables that typically signal the end of a recession.

• How to Manage Your Online Life When You’re Dead (Time)

• We Know it’s August, But C’mon (Marketbeat) But besides the meanderings of the Dow and S&P some market watchers have been eyeing volume numbers which have been pretty piddling lately. True, it is August, when plenty of Wall Street players skulk away from muggy Manhattan for their share of sun and sand in the Hamptons. So a bit of sluggishness is to be expected.

• Introducing Google Social Widgets

• Can Game Theory Predict When Iran Will Get the Bomb? (NYT Magazine)

Bueno de Mesquita is one of the world’s most prominent applied game theorists. For 29 years, de Mesquita has been developing and honing a computer model that predicts the outcome of any situation in which parties can be described as trying to persuade or coerce one another. Since the early 1980s, C.I.A. officials have hired him to perform more than a thousand predictions; declassified C.I.A. studies find his predictions “hit the bull’s-eye” twice as often as its own analysts did.

Anything else tickling your fancy?