Mortgage Rates Etc.

Countrywide Financial Corporation logged in on Tuesday with its third consecutive quarterly loss due to a sharp increase it its provision for loan losses.

Countrywide reported that it lost $893 million or $1.60 per share during the first quarter of 2008. One year ago the quarterly earnings were $434 million or $0.72 per share. Most analysts were projecting earnings of $0.02 per share.

Countrywide said it has set aside $1.5 billion to cover impending loan losses. It charged off loans that were deemed unrecoverable in the amount of $606 million during the first quarter. One year ago charge-offs totaled $39 million. The bank said that 35.9 percent of its subprime loans were delinquent at the end of the quarter compared to 33.6 at the end of the fourth quarter. Delinquencies in conventional loans rose from 5.76 percent to 6.48 percent.

In January, facing widening losses from its concentration on subprime mortgages and teetering on the edge of bankruptcy, Countrywide agreed to sell itself to Bank of America for about $4 billion in stock. A few months earlier Bank of America invested $2 billion in Countrywide’s stock to shore up the smaller bank’s capital. Bank of America is now reporting large losses of its own, but maintains in intends to proceed with the Countrywide deal.

On Tuesday the Nashville Business Journal reported that Bank of America is planning to modify or otherwise work out some 265,000 Countrywide loans, allowing those customers to stay in their homes.

The troubled loans that Bank of America has targeted for workout after it closes on the Countrywide deal in the third quarter total at least $40 billion.

Under its current policy Bank of America allows tenants living in properties facing foreclosure to remain in their homes for 60 days after the actual sale but will pay them $2000 to defray the costs of moving and locating new housing if they leave the foreclosed property voluntarily within 30 days of completion of foreclosure proceedings. Bank of America said it will continue this policy as it takes over the Countrywide portfolio. The companies’ combined national consumer-mortgage headquarters will be located in Calabasas, California, Countrywide’s home. Bank of America is based in Charlotte North Carolina.

Bank of America also plans to spend $1.5 trillion over the next 10 years in community-development efforts that focus on affordable housing, economic development and consumer and small-business lending.

Countrywide Shows Steep Loss in Earnings ReportBLOOM Apr. 29, 2008. 08:01 AM EST An In-Depth Look and Reaction with Paul Miller of Friedman Billings Ramsey. VISIT OUR VIDEO PAGE FOR DAILY VIDEO NEWS

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The Conference Board’s consumer confidence index fell to 62.3 in April’s report on Tuesday, confirming declines seen earlier in the month from other measures of consumer sentiment, yet coming in slightly higher than the consensus expectation of 62.0.

The previous month’s reading of 64.0 was revised upwards to 65.9.

Following a 35-year low in the previous month, the expectations category saw some bounce-back to 50.1, up from 47.9 in March, but the present situation component fell nearly 10 points to 80.7 in April from 90.6 a month earlier.

Lynn Franco, director of the Conference Board’s consumer research center, said, “This continued weakening suggests that not only has the feeble level of growth in the first quarter spilled over into the second quarter, but that economic conditions may have slowed even further.”

Consumers’ appraisal of the job market was quite pessimistic in April, with those saying jobs were “hard to get” increasing to 27.9% from 24.5% and those claiming jobs were “plentiful” decreasing to 16.6% from 19.2%.

Inflation expectations moved up seven-tenths to 6.8%. Just one year ago, inflation expectations were 4.9%.

Respondents claiming business conditions were “bad” increased to 26.7% from 25.5% while those claiming business conditions were “good” declined to 15.3% from 15.6%.

“(N)ot only are lackluster business and job conditions eroding confidence, but rising gasoline prices are undoubtedly heightening concerns,” Franco added. “Consumers’ inflation expectations continue to rise and this measure now matches the all-time high reached in the aftermath of Hurricane Katrina.”

In the labor market, consumers expecting fewer jobs in the months ahead increased to 32.8% from 29.3%, while those anticipating more jobs advanced to 9.0% from 8.0%. Meanwhile, the proportion of consumers expecting their incomes to increase declined to 15.1% from 16.1%.

Looking ahead, consumers’ outlook for the economy, the job market and their income prospects remains quite pessimistic and little changed from last month.

Earlier in the month, a 26-year low was hit in April’s consumer sentiment index from Reuters and the University of Michigan, which fell to nearly 7 points to 62.6. Similarly, the weekly consumer comfort study from the Washington Post and ABC News tumbled to -40 last Tuesday, the lowest level since July 1993.

Before the economic turmoil began, the Conference Board’s consumer confidence index reached an annual high of 111.9 in June. The subprime crisis created a four-month decline to 87.0 in November before rebounding by a few points before the holidays. The index then resumed its downward trend in January, falling from 87.9 to 64.5 in the first quarter.

By Patrick McGee and edited by Cristina Markham

©CEP News Ltd. 2008

Speaking in an interview with Fox Business news on Monday evening, U.S. Treasury Secretary Henry Paulson said he did not believe that a second fiscal stimulus package was necessary and that the tax rebates mailed out yesterday would make a real difference to GDP.

With core inflation contained and economic fundamentals solid, he said the current economic situation in the United States was nothing like the stagflationary era of the 1970’s.

Paulson did however acknowledge that rising food and oil prices were burdening consumers and expressed concerns that oil prices would continue increasing.

By Erik Kevin Franco and edited by Nancy Girgis

©CEP News Ltd. 2008

The S&P Case-Shiller home price index continued its sharp decline in February as both the 10-city and 20-city composite indexes posted record annual declines in excess of 12.5%.

The 20-city composite index, which tracks the price path of typical single-family homes in 20 metropolitan areas, fell by 12.72% over the year to its lowest since December 2004. The 10-city composite index set yet another record, falling by 13.55% since last year.

Seventeen of the 20 metropolitan areas posted record low annual declines, with half of the 20 metropolitan areas posting double-digit declines.

“Prices of single family homes continue to drop across the nation,” said Standard & Poor index committee Chairman David Blitzer, adding there is no sign of a bottom in the numbers.

“All 20 metro areas were in the red for the February-over-January reading. In addition, 19 of the 20 MSAs are still reporting negative annual returns,” he added. “The monthly data show that every one of the MSAs has now declined every month since September 2007, marking six consecutive months. On top of that, the declines have remained steep with eight of the 20 MSAs and both composites reporting their single largest monthly decline in February.”

Ian Shepherdson, chief economist at High Frequency Economics, said, “We think it very likely that the plunge in home prices is a key driver of the collapse in consumers’ confidence, which is now a good deal weaker than traditional models, based on stock and gas prices, imply. If so, the numbers will only get worse, and spending will follow, falling a long way for a long time.”

The 20-city composite now stands at a level of 175.94 while the 10-city composite is at 190.58.

TJ Marta, fixed income strategist at RBC Capita Markets, said that rising foreclosures and vacancies will keep the downtrend in price changes steep. “The good news is that the faster prices correct, the faster that inventories can clear and the faster the economy will be able to return to trend growth.”

The weakest markets over the past year have been Las Vegas and Miami, which have fallen by 22.8% and 21.7%, respectively.

Jacqui Douglas, economic strategist at TD Securities, said, “Charlotte, NC continues to be the only Composite-20 city posting year-over-year gains, although only barely at 1.5% year over year. The Y/Y trend in Charlotte will likely turn negative soon enough, as the 3-month annualized trend in prices continues to come in below zero, at -4.3% in February.”

In the previous month, the 20-city composite had fallen by 10.7% over the year, while the 10-city composite had fallen by 11.4%, while in the December report, the 20-city composite recorded an annual decline of 9.1% and the 10-city composite had set a new record by declining 9.8%.

By Patrick McGee and edited by Nancy Girgis

©CEP News Ltd. 2008

Progress on the U.S. economic slowdown and housing sector have been encouraging, according to U.S. Treasury Undersecretary Robert Steel, speaking to Society of American Business Editors and Writers Annual Conference in Baltimore, Maryland.

“Our economy today has slowed after a period of very strong economic growth. Just last fall, GDP growth in the third quarter was 4.9 percent,” Steel said.

“Since then energy prices, housing correction, and credit contraction have created substantial economic headwinds. The Administration is focused on easing the housing correction and providing an economic stimulus. We are also focused on longer term improvements, such as enhanced market discipline and modernized regulatory policies,” he added.

Nevertheless, the housing sector remains the largest downside risk to the U.S., which should continue to see challenges in the future.

By Erik Kevin Franco and edited by Nancy Girgis

©CEP News Ltd. 2008

National vacancy rates in the first quarter of 2008 were 10.1% for rental housing, up from 9.6% in the fourth quarter of 2007, and 2.9% for homeowner housing this quarter, compared to 2.8% in the previous quarter, according to a report from the Census Bureau on Monday.

The rental vacancy rate was not statistically different from the first quarter rate last year (10.1%).

For homeowner vacancies, the current rate was not statistically different from the first quarter 2007 rate or the rate last quarter (2.8%).

The homeownership rate of 67.8% for the current quarter was lower than the Q1 2007 rate (68.4%), but equivalent to the rate last quarter.

For rental housing by area, the first quarter 2008 vacancy rates inside principal cities (9.7%), in the suburbs (10.3%), and outside Metropolitan Statistical Areas (MSA’s), 10.7%, were not statistically different from each other.

The homeowner vacancy rate in principal cities (4.3%) was higher than in the suburbs (2.5%) and outside MSA’s (2.3%).

Regionally, the rental vacancy rates for the current quarter were highest in the South (12.7%) and the Midwest (11.8%). The rates were lowest in the Northeast (7.3%) and the West (7.0%).

By Patrick McGee and edited by Cristina Markham

Wachovia Corporation, the rising Charlotte North Carolina banking star is having a very bad April.

On April 14 the bank announced it had lost $350 million or $0.20 per share during the first quarter of 2008. The losses, which were much higher than had been expected, were due primarily, or course, to problems in the mortgage markets.

Then this past Friday Wachovia got hit with a double whammy.

In the morning it was announced that Wachovia Corp. had agreed to a settlement with The Office of the Comptroller of the Currency (OCC) of as much a $144 million to end an 18 month investigation into its role in a telemarketing scheme that allegedly affected between 350,000 and 500,000 Wachovia customers, many of them elderly.

The OCC was investigating claims that the bank, over an approximate period of June 2003 to December 2006, had relationships with several telemarketers and payment processing companies that had marketed identity-theft certificates, discount travel vouchers, and other products or services, targeting a largely elderly and/or low-income clientele. The telemarketers obtained bank account information from respondents and used it to draw up a “remotely created check” which doesn’t require a signature. These remotely created checks would then be deposited into the telemarketing companies’ Wachovia accounts and Wachovia would withdraw the funds from the consumers’ bank accounts. Consumers frequently complained that they did not authorize the withdrawals or did not receive the services/merchandise ordered.

The OCC alleged that some Wachovia officials were aware of the telemarketing practices but failed to take quick action to resolve the problem but instead profited from the relationship because of fees collected and balances maintained in the telemarketers’ and payment processors’ Wachovia accounts.

Two class action suits have also been filed against Wachovia in the matter.

The settlement, a record for the OCC, includes as much as $125 in restitution to consumers harmed in the telemarketing schemes and $8.9 million toward consumer education for the elderly. There will also be a $10 fine.

The settlement is the kind of thing that corporate public relations departments dread, but the news was out and the spin had begun (”This situation was unacceptable and we regret it happened.” “We will work diligently to provide restitution to consumers affected by the situation and to educate consumers.”) when late Friday The Wall Street Journal (on-line) published a story headlined “Wachovia Is Under Scrutiny In Latin Drug-Money Probe.”

According to the Journal story, federal prosecutors are investigating the bank as part of “a broad probe of alleged laundering of drug proceeds by Mexican and Colombian money-transfer companies.”

The investigation is focusing on money-exchange houses (casas de cambio) which are set up along the U.S.-Mexico border to assist cross-border transfers of money which can include legitimate transactions such as workers’ remittances. These transfers are estimated to amount to more than $50 billion from the U.S. to Latin America every year and there is much money to be made from the high fees that are charged. While, as stated, most of the remittances are from aliens, both resident and illegal, sending wages home to family members, it is also a superhighway for narcotics traffickers to move the proceeds of U.S. drug sales to Latin America.

Wachovia hoped to use casas de cambio as an entr?e? to the legitimate Hispanic market. It held the foreign-exchange houses’ deposits and provided back-office services. In 2005, it introduced the Dinero Directo card to facilitate cross-border remittances.

Wachovia was apparently warned by the law enforcement community that the casas de cambio were sometimes used to launder drug money and, as early as the mid-1990s, U.S. regulators and drug investigators were warning U.S. banks that Mexican casas de cambio presented a significant money-laundering risk.

However, if the current allegations are true, this would not be Wachovia’s first brush with money laundering problems. The Journal states that internal emails and documents filed in federal courts in Miami, Chicago and New York describe former ties between Wachovia and money-changing firms. “In a case in U.S. court in Miami, federal agents seized more than $11 million in 23 Wachovia accounts belonging to Casa de Cambio Puebla, a Mexican chain. U.S. and Mexican prosecutors said they believed the money was being laundered, according to legal papers filed by Puebla. Mexican police raided Puebla offices last fall, alleging relationships with a major drug cartel.” An attorney for the owners of Puebla, said the money seized belongs to legitimate clients.

An official of Wachovia told WSJ it is cooperating in the probe. Wachovia and some other U.S. banks severed relationships with Mexican foreign-exchange firms late in 2007 as the investigation began. Some institutions have struck agreements with the government to improve their efforts to fight money laundering, avoiding prosecution.

M1 Money Supply fell $2.4 billion in the week ending April 14, while M2 fell $15 billion, according to figures released from the Federal Reserve Thursday.

The Fed’s Treasury holdings rose $29 million to $548.7 billion in the week.

Borrowing by securities firms fell $2.2 billion from the previous week, averaging $22.6 billion in the week.

Fed discount window lending rose $2.9 billion to $10.7 billion in the week.

By Stephen Huebl and edited by Cristina Markham

©CEP News Ltd. 2008

New home sales in the U.S. were down for the fifth consecutive month in March, falling by 8.5% to 526k, much lower than the 580k level expected by economists, and setting a new low since October 1991. Inventories soared from already-worrying levels.

This follows a downwardly revised reading of 575k in February, from the previously reported figure of 590k. The revision makes for a 5.3% decline from January, compared with the 1.8% originally reported.

The median sales price of new houses sold in March was $227,600, down from February’s revised median of $244,200. From a year ago, the median price of new homes has fallen 13.3%.

The overhang of supply soared to an 11-month supply. The February supply level was upwardly revised to 10.2 months from 9.8 months.

Regionally, new home sales fell across the board. In the Northeast, sales were down to 29,000, from 36,000 in the prior month, while in the Midwest sales were down to 63,000 from 72,000. In the South, sales fell to 312,000 from 327,000 a month earlier and in the West sales moved down by 18,000 to 122,000.

Earlier this week, the NAHB/Wells Fargo survey of builder confidence remained subdued at 20, where it has been for three months after rising from the record low of 18 in December 2007.

Prior to the release, Ellen Zentner, U.S. macro economist at the Bank of Tokyo-Mitsubishi, said several factors are preventing the housing sector from improving, including tight credit conditions and the fact potential homebuyers are sitting on the sidelines until prices stop deflating.

She also noted that the economy is continuing to lose jobs, and that consumers are worried about inflation eating up their disposable income, which prevents them from buying big-ticket items.

By Patrick McGee and edited by Stephen Huebl

©CEP News Ltd. 2008

Expectations for a pause in U.S. monetary policy were bolstered by an article in Thursday’s Wall Street Journal, where noted Fed watcher Greg Ip said, “The Federal Reserve is likely to cut its short-term interest rate by a quarter of a percentage point next week — but then may be ready for a breather.”

However, the Journal article also points out that a pause in rate cuts would not necessarily signal the end of the financial turmoil in the U.S. economy. “It is almost certain to signal continued concern about economic growth and a willingness to cut rates further if the outlook worsens,” Ip wrote.

The FOMC will announce its rate decision on April 30. Economists expect a 25bp cut to bring the Fed funds rate to 2.00%.

Ip also said the Fed is concerned that further easing could aggravate rising inflation expectations as food and oil prices soar to new records. Concerns about inflationary pressures “means the option of standing pat will likely also be on the table,” Ip wrote.

Fed fund futures imply a 90% chance of a 25bp cut with a 10% chance of no change. Looking further out, futures show a 19.8% chance of a second cut at the June 25 FOMC meeting, unchanged from a day earlier.

By Adam Button and edited by Nancy Girgis

©CEP News Ltd. 2008