Archive for September, 2010
The CEOs of the country's largest companies plan to boost capital spending over the next six months, but have lower sales and employment expectations, according to the Business Roundtable’s third-quarter CEO index.
"Sales forecasts are down from last quarter, prompting CEOs to remain cautious," said Ivan G. Seidenberg, chairman of the Business Roundtable and chairman and CEO of Verizon Communications. "However, they are preparing for future demand by increasing investment in capital."
The survey showed 49% of CEOs expect higher capital spending over the next six months, up from 43% who said they expectetd increased capital outlays in the previous quarter's survey.
Only 31% expect to hire in the next six months, however, down from 39% who planned to hire when the second- quarter survey was taken. CEOs also were more cautious about expected sales increases with 66% saying they expected sales to increase in the next six months, down from 79% who saw an increase when the 2Q10 survey was taken. (Click to expand.)
In terms of the overall U.S. economy, member CEOs estimated real GDP will grow by 1.9% in 2010 — down significantly from the 2.7% increase in the previous survey. Despite being cautious, CEOS were still more optimistic than they were in the fourth quarter of 2009. (Click to expand.)
The index decreased to 86 in the third quarter of 2010, down from 94.6 in the second quarter of 2010, but still higher than 71.5% in 4Q09.
Business Roundtable’s CEO survey has been conducted quarterly since the fourth quarter of 2002 and provides a forward-looking view of the economy by its members. The survey was completed between Sept. 1 and Sept. 21. The percentages in some categories may not equal 100 due to rounding. The group's members consist of chief executive officers of leading U.S. companies with nearly $6 trillion in annual revenue and more than 12 million employees. Member companies comprise nearly a third of the total value of the U.S. stock markets.
Write to Kerry Curry.
Imagine financing a home purchase with a no-interest mortgage. You probably never would want to move again.
Granted, it is doubtful that you will ever have that luxury. But if rates continue to drop, as some in the mortgage industry suggest they may, mortgage rates could inch in the direction of 0%. The Federal Reserve's recent indication that it is willing to take extradordinary steps to keep the economy growing and continued concerns of deflation may also put pressure on mortgage rates.
"So long as the Fed allows the word 'deflation' to get bandied about, mortgage rates will ease lower," said Dan Green, a loan officer with Waterstone Mortgage in Cincinnati.
How much lower?
"In theory, the only stopping point there is is 0%—that's where all nominal interest rates have to stop," said Mike Larson, real-estate analyst for Weiss Research.
It's Chicago politics at its best.
Sneed hears an effort by Chicago mayoral hopeful Rahm Emanuel to move back into his North Side home next month was axed by the man who leased it.
• The kicker: Sneed also hears rumbles there was a nixed request for Rahm to move into the basement of his leased home if the tenant didn't move out.
• To wit: Emanuel, the White House chief of staff, who has been in the process of quickly building a network to run for mayor — had been trying to move back into his leased home at 4228 N. Hermitage.
• The upshot: Sneed has learned the tenant, Robert P. Halpin, 59, who holds the lease with his wife, Lori, until June 2011, refused to budge.
What I suspect will eventually be referred to by future historians as a depression now has a name.
According to the National Bureau of Economic Research's Business Cycle Dating Committee, the 2007-2009 Recession (that's the new name, by the way) lasted from December 2007 until June 2009. Sorry if you weren't notified that it was all over. Feel free to move about the cabin and party as the committee sees little chance of further turbulence tossing you into the overhead bins.
Of course, I doubt those who feel they have already been stuffed into a bin by the downturn will take much joy in the announcement. In fact, I suspect this news, first anticipated in HousingWire nearly three weeks ago, caught many by surprise. That's because, at least on the surface, it has nothing to do with the plight of the average taxpayer, who is now unemployed in almost 10% of cases and under-employed in more than 16%, not to mention lighter by the elimination of 21% of his net worth.
The NBER committee said the economy is showing signs of recovery, companies are making money and stock prices are going up. Mergers and acquisitions are back as those who still hold money swoop down upon those that have spent all they had to stay alive through the downturn.
This is all good, we're told, even though the average taxpayer is not likely to feel much like putting on a party hat, at least not yet. Politicians weren't making much noise about the news either, for their own reasons. Republicans can't concede that the Obama administration hasn't completely burned everything down, and Democrats dare not confront the millions of voters who asked for change but then watched in horror as their lives changed for the worse.
I am tempted to suggest that this will go down in history as another “The War is Over” banner, except that the committee was too clever for that. In its report, the committee pointed out that if things did not continue to trend upward we were not to assume they were wrong, rather just consider it a whole new recession. Great.
Getting mad at the committee for defining a negative or positive economic event in terms that have nothing to do with the people whose actions create the economy is no better than killing the messenger. They can't help it that they're working from within a tower, an ivory tower. They are academics. They're not part of our world, or more precisely, we, in all of our real-world filth and theory-defying reality, are not part of theirs. We can't expect them to speak in terms that make any sense to the rest of us.
And yet, many in our industry seem content to stand by until the big brains tell us that it's OK to begin talking to our customers again, that the recession is over and we can begin hiring again. Is this really something we should leave up to people who obviously don't operate in the real world?
The members of the Business Cycle Dating Committee are teachers from Stanford, Harvard, Northwestern, M.I.T., Berkeley, and Princeton. If you're going to go with academics, I don't see how you could do better. The only problem is, I don't trust academics. It's probably a personal thing going back to that teacher who told me I'd never pass college English, much less make a living as a writer.
The economy will turn around when the American public becomes convinced that they are once again in control of their financial future. The industry can't give them that assurance with loan programs they don't understand. Waiting for them to make sense of a bunch of economic indicators won't work either. I think the industry has an opportunity to give the American homeowner something to believe in. We have to give them back their American dream.
This is not something a committee of academics can do. But without clearer dissent, the American public will listen and many will believe. We can stand by and let others try to figure out what the country's top brains are saying about a recovery that feels like a depression and watch them hunker down and do nothing — or we can start rebuilding America's trust in our industry.
That means selling mortgages and real estate again. It means talking to our customers and giving them some hope in their financial future.
Yes, some need jobs, I understand that. But remember 85% of them actually have jobs with some money stuffed in the mattress to boot. What they don't have is a reason to spend it. The best option, they think, will be to sit on their hands if people they trust tell them that's all they can do.
It's high time we quit letting anyone with a microphone tell the consumer what they can and can't do. Let's start reaching out to our customers again and tell them what they can do. And let the academics talk to themselves.
Rick Grant is veteran journalist covering mortgage technology and the financial industry.
Follow him on Twitter: @NYRickGrant
Researchers at the Joint Center for Housing Studies at Harvard University found that nontraditional mortgages, even subprime loans, when underwritten to fit upcoming regulations under Dodd-Frank can and should still be made in a post-crisis housing market.
Eric Belsky and Nela Richardson make the case that when done correctly, lending to low-income and risky borrowers can be viable business. The rise of nonprime lending during the housing boom in the mid-2000s created an unfair test of lending to risky, low-income borrowers.
Currently, the data analytics firm CoreLogic reported more than 2.3 million subprime mortgages were delinquent in July, down 12.5% from the year before.
But 39.6% of the subprime loan market is 60-days delinquent — 35% of that is 90-days delinquent, 13% of that are now in foreclosure and 3.8% of mortgages are in REO.
But according to the Harvard study, not all subprime was created equal. Belsky and Richardson compared loan types and delinquency rates in the third quarter of 2009 and found that some subprime performed better than others.
In that quarter, the serious delinquency rate on adjustable-rate subprime mortgages stood at 40.8%. But on fixed-rate subprime loans, the rate was significantly lower at 19.7%. Belsky and Richardson noted that a larger share of subprime ARMs were written than FRMs, but even after controlling the data for vintage loans, fixed-rate subprime still performed better.
Who originated the loan was also a factor. Borrowers were four or five times more likely to default when they obtained a subprime mortgage from a broker. Keith Johnson, former president and chief operating officer of Clayton Holdings testified last week before the Financial Crisis Inquiry Commission, that brokers hold much of the subprime fault.
"[P]erformance data has shown that the broker model became flawed with greed, fraud and deception," Johnson said. "Low barriers of entry, lack of regulatory supervision or enforcement, coupled with rich incentives for production created an environment that contributed to the surge in defaults."
The Dodd-Frank Act and the Consumer Protection Act established minimum underwriting standards, clarified what is to be disclosed on adjustable-rate loans, and prohibited prepayment penalties for all but some fixed-rate mortgages.
"When prudently underwritten—and when systemic risk was not ballooning—many nontraditional loan products performed well," according to the study. "It would therefore be wrong to conclude from the poor overall performance of nontraditional prime loans that the products themselves should be prohibited."
Write to Jon Prior.
Commercial banks reported trading revenue of $6.6 billion in the second quarter of 2010, down 20% from the first quarter, but up 28% from one year prior, according to a report released by the Office of the Comptroller of the Currency.
The total of credit derivatives outstanding is $13.9 trillion, a marginal 3.4% decrease quarter-over-quarter, showing that efforts to clear credit default swaps are dragging. CDS account for 97.1% of total credit derivatives at commercial banks.
All categories of trading revenue decreased quarter-over-quarter, except foreign exchange which increased 8% to $4.3 billion. Commodity trading saw the biggest drop in 2Q, down 108% to a negative $25 million, followed by equity (down 61% to $378 million), interest rate trading (down 56% to $145 million), and credit (down 32% to $1.8 billion).
Deputy comptroller for credit and market risk, Dave Wilson said the second quarter drop is part of a standard cycle, and that the average drop between first and second quarter commercial revenue trading is 24%.
"It is normal to see trading revenues drop in the second quarter of the year,” Wilson said. “In addition to the normal seasonal decline in revenues we expected to see, client demand fell under the weight of uncertainty about global economic growth and sovereign credit risks."
According to the OCC report, credit risk — noted in the report as net current credit exposure — increased 11% to $397 billion in 2Q10, as the $909 billion increase in gross receivables exceeded the $871 billion increase in netting benefits. The NCCE reached its highest level of $800 billion at the end of 2008 and declined for five consecutive quarters before 2Q.
The netting benefit percentage, which reflects the amount of gross receivables eliminated by having legally enforceable netting agreements, hit a record high of 91.9%.
The report also noted that the five largest banks hold 96% of derivatives contacts, while the 25 largest banks hold virtually 100%. The number of commercial banks holding derivatives increased by 14% in 2Q to 1,064.
Write to Christine Ricciardi.
Household incomes shrank for the second year in a row in 2009, as the recession eroded the share of American families earning over $100,000 and swelled the ranks of people who are poor or just barely making it, according to census statistics released Tuesday.
The income estimates from the American Community Survey, a wide array of census statistics reported annually, underscore the devastation the recession has caused to millions of American households and families
The average contract rate for 30-year, fixed mortgages in August fell 14 basis points to 4.7% from 4.84% (or 3% overall) from the month earlier, according to the Federal Housing Finance Agency.
The agency said its monthly survey showed the average rate on the purchase of a previously owned home decreased 13 basis points in August from the prior month to 4.65%. The average rate for a 15-year, fixed-rate mortgage fell 20 basis points to 4.46% in August, according to the FHFA.
The rate for all mortgages in August slid 14 basis points to 4.63% from July. The FHFA said the average loan for the month was $216,700, down nearly 3% from $223,400 the prior month.
Last week, Freddie Mac said mortgage rates were unchanged from the prior week, while another rate survey set new record lows. The Freddie Mac weekly survey put the average for a 30-year fixed-rate mortgage at 4.37% for the week ending Sept. 23. A year ago, the average rate was 5.04%, according to the government-sponsored entity.
Meanwhile, the weekly Bankrate survey of large banks and thrifts shows the average rate for a 30-year, fixed mortgage is 4.5%, marking a new low in the 25-year survey.
Write to Jason Philyaw.
