Flood of Foreclosures Prove Loan Modification Isn't Working

Bloomberg is reporting Foreclosures Climb 65% as Loan Workouts Fall Short.

U.S. foreclosure filings climbed 65 percent and bank seizures more than doubled in April from a year earlier as mortgage industry efforts to modify loans fell short.

More than 243,300 properties were in some stage of foreclosure, the highest monthly total since RealtyTrac Inc., a seller of default data, began in January 2005. One in every 519 households received a filing and Nevada, California and Florida had the highest rates. Filings rose 4 percent from March.

"Loan modification isn't working," Rheingold said. "It's extremely difficult for a homeowner to talk to a servicer and even if they do, it's hard to get the servicer to change the terms. You get voice-mail hell, they don't return calls, you can't get a live person on the phone."

Bank repossessions jumped 145 percent in April from a year earlier to 54,574, according to Irvine, California-based RealtyTrac. The company has database of more than 1.5 million properties and monitors foreclosure filings including defaults notices, auction sale notices and bank seizures.

Banks will seize about 60,000 properties a month through December, when about 1 million U.S. homes, or a quarter of all homes for sale, may be bank-owned, Rick Sharga, RealtyTrac's executive vice president of marketing, said in an interview.

1,000 Foreclosure Auctions Per Day

In California there are 1,000 auctions per day.

California's foreclosure crisis passed another ominous milestone in April, when more than 1,000 foreclosed homes were auctioned off every weekday at courthouses across the state, the auction tracking firm ForeclosureRadar reported today.

The April total of foreclosure sales at auction -- 22,838 for the state -- represents a jump of 44% over March totals and the highest level ever in California, ForeclosureRadar reports.

It appears the pipeline of potential foreclosures is jampacked, too: the ForeclosureRadar reported 44,101 new "Notices of Default" filings in April, a new record for California. Notices of Default are the first step in the foreclosure process.

"We expected a significant increase in auction sales based on previous default patterns," said Sean O'Toole, founder of ForeclosureRadar. "Unfortunately, the continued increases in defaults tell us that the worst is still ahead."

California foreclosures surge

Peter Viles is reporting California foreclosure "surge": Up 327% from '07 levels.

The number of California homes lost to foreclosure in the first quarter surged 327% from year-ago levels -- reaching an average of more than 500 foreclosures per day -- DataQuick said in a report, warning that the widening foreclosure problem could "spread beyond the current categories of dicey mortgages, and into mainstream home loans."

From DataQuick's report on California foreclosures in the first three months of 2008: "Trustees Deeds recorded, or the actual loss of a home to foreclosure, totaled 47,171 during the first quarter. ... Last quarter's total rose 48.9 percent from 31,676 in the previous quarter, and jumped 327.6 percent from 11,032 in first quarter 2007." That translates into 517 foreclosures every day in the first quarter of 2008.

More: "Homeowners received 113,676 default notices in the first quarter, up 143 percent from a year ago, La Jolla, California- based DataQuick said today in a statement. The level was the highest since at least 1992, when DataQuick's statistics begin."

Despite well publicized federal efforts to reach out to homeowners in default, the odds that they will ultimately lose their homes appear to be increasing. DataQuick reports that, of the homeowners in default, "an estimated 32 percent emerge from the foreclosure process by bringing their payments current, refinancing, or selling the home and paying off what they owe. A year ago it was about 52 percent.

Bottom Callers Beware

Banks are so capital impaired they are not able to take writedowns until they raise still more capital. More asset sales are coming. In the meantime, because so many problem mortgages are securitized in pools, banks cannot act even if they wanted to.

As the recession deepens, a downward spiral of foreclosures, REOs, and capital raising efforts is going to accelerate. We are nowhere near a bottom. Many banks and lending institutions are going to fail.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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CPI Numbers For April: Spotlight On Energy

The BLS has released the April Consumer Price Index (CPI). Let's take a look.

The Consumer Price Index for All Urban Consumers (CPI-U) increased 0.6 percent in April, before seasonal adjustment, the Bureau of Labor Statistics of the U.S. Department of Labor reported today. The April level of 214.823 (1982-84=100) was 3.9 percent higher than in April 2007.

On a seasonally adjusted basis, the CPI-U advanced 0.2 percent in April, following a 0.3 percent increase in March.

The index for energy was virtually unchanged after advancing 1.9 percent in March. In April, the index for petroleum-based energy fell 1.6 percent, offsetting a 2.5 percent increase in the index for energy services.

The food index rose 0.9 percent in April. The index for food at home increased 1.5 percent, reflecting substantial increases in all six major grocery store food groups. The index for all items less food and energy advanced 0.1 percent in April, following a 0.2 percent rise in March. Downturns in the indexes for public transportation, for household furnishings and operations, and for recreation, coupled with a larger decline in the index for lodging away from home, more than offset an upturn in the index for apparel.

click on chart for sharper image

Gasoline Prices Rose Or Fell?

During the first four months of 2008, the CPI-U rose at a 3.0 percent seasonally adjusted annual rate (SAAR). This compares with an increase of 4.1 percent for all of 2007. The deceleration thus far this year reflects smaller increases in the indexes for energy and for all items less food and energy. The index for energy advanced at a 6.3 percent SAAR in the first four months of 2008 compared with 17.4 percent in 2007.

Petroleum-based energy costs decreased at a 0.7 percent annual rate while charges for energy services rose at a 17.7 percent annual rate. The food index has increased at a 6.9 percent SAAR thus far this year, following a 4.9 percent rise for all of 2007. Excluding food and energy, the CPI-U advanced at a 1.8 percent SAAR in the first four months, following a 2.4 percent rise for all of 2007.

back to back paragraphs from the report...

The transportation index declined 0.7 percent in April, reflecting a 2.0 percent decrease in the index for gasoline. The index for new vehicles declined 0.2 percent and was 1.3 percent lower than in April 2007. The index for used cars and trucks declined 0.3 percent in April, but was 1.8 percent higher than a year ago. The index for public transportation declined 0.4 percent in April, reflecting a 0.5 percent decrease in the index for airline fares. (Prior to seasonal adjustment, airline fares rose 0.9 percent and were 10.1 percent higher than a year ago.)

Gasoline prices rose 5.6 percent in April. Compared to a year ago, these prices were up 20.9 percent. Gasoline prices increase seasonally during the first five months of the year, with the largest increases occurring in March and April and decline seasonally for the remainder of the year.

Housing

The index for housing rose 0.3 percent in April. The index for shelter increased 0.1 percent in April, the same as in March. Within shelter, the indexes for rent and owners' equivalent rent increased 0.3 and 0.2 percent, respectively. The index for lodging away from home declined for the third consecutive month--down 1.9 percent in April. The index for household energy registered its third consecutive large increase--up 2.6 percent in April. The index for fuel oil rose 4.4 percent and was 52.6 percent higher than in April 2007. The indexes for natural gas and for electricity rose 4.8 and 1.5 percent, respectively. During the last 12 months charges for natural gas and for electricity increased 10.9 and 5.0 percent, respectively. The index for household furnishings and operations, which increased 0.5 percent in March, declined 0.1 percent in April.

Looks like we have some heavy duty "seasonal adjustment" going on in energy. The guy on the street does not believe energy prices are falling or that gasoline prices fell 2%. Neither do I. Supposedly they did "seasonally adjusted".

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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Iran Studies Plan To Cut Crude Output

The BBC is reporting Oil hits new high on Iran fears.

Oil prices have hit a record just shy of $127 a barrel after Iran said it was studying a plan to cut crude output. President Mahmoud Ahmadinejad said a proposal to reduce Iran's crude output was being reviewed by experts, Iran's Fars News Agency reported.

Analysts doubted whether Iran would actually cut output but the report sent jitters through oil trading floors.

"That sounds like it would get people excited," said Peter Beutel, president of Cameron Hanover.

Tanker Prices Soar

Flashback May 2

Super tanker prices are soaring as Iran Doubles Oil Stored in Tankers.

Iran, OPEC's second-largest oil producer, more than doubled the amount stored in tankers idling in the Persian Gulf, sending ship prices higher as demand for some of its crude fell, people familiar with the situation said.

The 10 tankers hold at least 20 million barrels of oil, equal to about 5 days of the country's output, said the people, who asked not to be identified because the information isn't public. Rates for tankers have more than tripled since April 8, based on data from the Baltic Exchange and ship-fuel prices.

Iran's use of ships for storage cut the supply of available supertankers, owned by companies including Hamilton, Bermuda- based Frontline Ltd. and Euronav NV, based in Antwerp, Belgium. The number of double-hull very large crude carriers, or VLCCs, available to rent within the next 30 days dropped to 28 from 56 a month ago, according to Paris-based broker Barry Rogliano Salles.

The benchmark tanker rental rate for voyages to Asia from the Middle East is $148,000 a day, compared with $44,300 on April 8, according to prices from the London-based Baltic Exchange and a formula from Oslo-based RS Platou Shipbrokers A/S.

Iran typically keeps two or three supertankers on standby to deliver crude, Per Mansson, a tanker broker at Nor Ocean Stockholm AB, said by phone. "There's a lack of on-land storage and this enables quick supply" to buyers in Europe and Asia, he said.

Refinery Maintenance Schedules

Morningstar has this Table Of Asia Refinery Maintenance Schedules to consider.

Asia Refinery Maintenance Schedule For 2008
Country    Company      Location   Unit(B/D)         Period/Duration

India      HPCL         Mumbai     whole refinery    Apr 21, 35 days
                              (110,000)
S Korea    Hyundai      Daesan     No.1 CDU          May 17-Jun 12
                              (110,000)
S Korea    SK Energy    Ulsan      No.5 CDU          May 19, 40 days
                              (260,000)
S Korea    SK Energy    Ulsan      No.1 CDU          Jun 10, 10 days
                              (60,000)
S Korea    SK Energy    Ulsan      No.4 CDU          Jun 10, a few days
                              (240,000)
Japan      Cosmo Oil    Chiba      No.2 CDU          Apr 25-Jun 30
                              (130,000)
Japan      Nippon Oil   Negishi    CDU               Early May, 34 days
                              (Part of 340,000)
Japan      Nippon Oil   Sendai     CDU               Late May, 38 days
                              (145,000)
Japan      Kyushu       Oita       CDU               A Month From Late May
                              (136,000)
Japan      Nansei       Nishihara  CDU               Late May to early Jun
                              (100,000)

The above is just a partial table of dates that are relevant now.

Congress urges Bush to halt oil reserve shipments

The Associated Press is reporting Congress urges Bush to halt oil reserve shipments.

Congress voted overwhelmingly Tuesday to challenge President Bush to temporarily halt the daily shipment of thousands of barrels of oil into the government's emergency reserve.

Bush has steadfastly refused to halt shipments of about 70,000 barrel barrels of oil a day into the Strategic Petroleum Reserve, a system of salt caverns on the Gulf coast. The reserve, created to respond to major oil supply disruptions, holds 701 million barrels and is at 97 percent of capacity.

The Senate voted 97-1 to suspend the shipments for the rest of the year. Hours later, the House followed suit, voting 385-25 to halt the deliveries. The votes don't compel Bush to act because the measures differ somewhat and would need to be reconciled before final congressional approval.

The Strategic Petroleum Reserve was created in the 1970s as a precaution against major interruptions of oil supplies. Today at 701 million barrels it has enough to replace two months of oil imports.

Earlier, the Senate rejected, 56-42, a broader Republican energy plan that called for opening the Arctic National Wildlife Refuge in Alaska and some offshore waters that are now off limits to oil development.

Strange Picture

If there is not much demand for heavy crude, why isn't the discount greater?
Why has Iran been storing oil in tankers instead of the ground by simply not pumping it?
Why do analysts doubt Iran will cut back if Iran has no above ground place to store oil?
Why the mad rush to fill the reserves when they are 97% full? Planning something?

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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$100,000+ Condos Made From Discarded Containers

Discarded containers have been stacking up at ports. They are cheaper to build new than to return to their country of origin, so they have been piling up by the thousands.

Now a Detroit condo project hopes to put discarded containers to use.

The idea of putting people in empty shipping containers hardly evokes images of stylish urban living. But a Detroit-based group hopes to use empty shipping containers to build one of the most unusual -- and certainly one of the most innovative -- residential projects in southeast Michigan.

The project would stack empty containers four high, cut in windows and doors, install plumbing, stairways and heating, and add amenities such as balconies and landscaped patios.

If it wins city approvals, the 17-unit condominium project could break ground this fall and open near Wayne State University in 2009. Steven Flum, a Detroit-based architect who designed the project, said it solves several problems at once, including the need to build environmentally sensitive buildings cheaply. The project is going to cost about $1.8 million, about 25% less than a normal condo project of similar quality would run.

The partners plan to build their prototype on the southeast corner of Rosa Parks and Warren, on lots now vacant or containing burned-out homes. They call their project "Exceptional Green Living on Rosa Parks."

The project will offer condominium units measuring 960 to 1,920 square feet. Prices will range from about $100,000 to around $190,000.

Container Living European Style

Inquiring minds may wish to check out Container City.

Containers are an extremely flexible method of construction, being both modular in shape, extremely strong structurally and readily available. Container Cities offer an alternative solution to traditional space provision. They are ideal for office and workspace, live-work and key-worker housing.

Container Cities do not even have to look like containers!

click chart for sharper image



click chart for sharper image

If "Container Cities do not even have to look like containers" than why do they all look like containers?

Five Things

Professor Kevin Depew was talking about Container housing in points 4 and 5 in today's "Five Things". Here is point 5.

There are several themes at play in today's Five Things that we believe could potentially converge into a singular, overarching housing solution: Foreclosures and Economic Hardship, High Gasoline Prices, Diminishing SUV Demand, Self-Storage Units, Shipping Container Shortages, Emergency Modular Housing Units.

The answer? Stackable Modular Housing Units Built from Used SUV's. I believe that one day in the not-so-distant future, the unwanted steel carcasses of four-wheel drive sport utility vehicles will be converted into stackable, modular low-income housing units. Think about it. They have nice seats, power windows, built in radio/cd players. Some things just make too much sense.

Thanks Kevin

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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LIBOR Credibility In Doubt

Bloomberg is reporting Libor Poised for Shake-Up as Credibility Is Doubted.

The benchmark interest rate for $62 trillion of credit derivatives and mortgages for 6 million U.S. homeowners faces its biggest shakeup in a decade as lawmakers question if banks are understating borrowing costs.

For the first time since 1998, the British Bankers' Association is considering changing the way it sets the London interbank offered rate, according to Chief Executive Officer Angela Knight, who appeared before a parliamentary committee in London today. ``We've put Libor under review,'' Knight said in an interview yesterday. The BBA will announce changes May 30, she said.

The BBA, an unregulated London-based trade group, sets Libor by polling 16 banks each day on the rates they pay for loans in dollars, British pounds, euros and eight other currencies. The association is under pressure to show the rates are reliable following complaints by investors that financial institutions weren't telling the truth after the collapse of subprime mortgages nine months ago contaminated credit markets and drove up borrowing costs.

While the BBA set the one-month dollar Libor rate at 2.72 percent on April 7, the Federal Reserve said banks paid 2.82 percent for secured loans later that day. Secured loans typically yield less than unsecured debt.

"The Libor numbers that banks reported to the BBA were a lie," said Tim Bond, head of global asset allocation at Barclays Capital in London. "They had been all the way along."

The cost of borrowing in dollars for three months should be as much as 30 basis points, or 0.30 percentage point, higher than the current rate, Citigroup Inc. said in a report last month. Banks are understating borrowing costs on concern they will be perceived as "weakened" by the credit turmoil that forced banks to record $323 billion of losses and credit-markets writedowns, said Peter Hahn, a fellow at the London-based Cass Business School.

"Since the credit crunch, it's something that appears to have been manipulated," said Hahn, a former managing director at Citigroup. "We are in an extraordinarily delicate confidence time where a small event can shatter things quite easily."

The Bank for International Settlements said in a March report some lenders were manipulating the rates to prevent their borrowing costs from escalating.

Libor is used to guide banks in setting rates on most adjustable-rate mortgages. The prices they quote for credit default swaps are also linked to Libor.

"Libor is a proxy for the effective rates of the economy," said Rav Singh, an interest-rate strategist at Morgan Stanley in London. "Libor eventually feeds into the economy. There's so much on the back of the Libor problem. There are structured products, all the swaps and then there are the hedging positions."

LIBOR As Of 2008.05.13

Curve watchers anonymous has been watching LIBOR.


The above table from Bloomberg.
Reasonable spreads can be seen in the red box on the right.

A year ago the spread between the Fed Funds Rate and LIBOR 7 basis points, today it is 52 basis points. Bear in mind these are snapshots. LIBOR was acting poorly many times over the past year, especially last August-September and November-December, where the spreads were even greater than they are today.

I checked LIBOR the day after the last Fed rate cut. It was 2.72 so it has been drifting lower in recent weeks. This has been the pattern. The Fed cuts rates and it takes weeks for LIBOR to come in. Historically that is not the case, nor should it be the case.

One Month LIBOR Table



click on chart for sharper image
The above chart thanks to MoneyCafe

Money Cafe reports one Month LIBOR on or after the first of the month for a one month deposit in U.S. Dollars on the last business day of the previous month. Thus the above table reflects a credit crunch in August and November.

At the end of April the spread between LIBOR and the Fed Funds rate was 80 basis points. It is now down to 51 basis points, assuming of course one can believe that is what banks are really charging each other for overnight loans.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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