Tuesday, May 14, 2013

Today's links

1--Fed Gov Plosser says, time to wind down QE, Bloomberg

Plosser said a slowing in U.S. inflation doesn’t warrant a policy response and reiterated that the Fed should begin to curtail its purchases as early as its next meeting, scheduled for June 18-19. He won’t vote on the Federal Open Market Committee until 2014.

“Labor market conditions warrant scaling back the pace of purchases as soon as our next meeting,” Plosser said in a speech in Stockholm today. “Moreover, unless we see a significant reversal in current trends that jeopardizes my forecast of near 7 percent unemployment rate by the end of this year, then I anticipate that we could end the program before year-end.”

2---In push to taper QE3, Plosser warns on Fed credibility, Reuters

A hawkish Federal Reserve policymaker warned on Tuesday the U.S. central bank risks putting its hard-won credibility on the line if it fails next month to reduce its accommodative asset purchases.
Most economists do not expect the Fed to reduce its $85 billion in monthly bond buys as soon as a policy-setting meeting set for June, given the still high U.S. unemployment rate and weak inflation.

Were the FOMC to refrain from reducing the pace of its purchases in the face of this evidence of improving labor market conditions, it would undermine the credibility of the Committee's statement that the pace of purchases will respond to economic conditions," Plosser said of the Fed's policy-setting Federal Open Market Committee, or FOMC.

In an effort to spur investment and boost the lumbering U.S. economic recovery from the 2007-2009 recession, the Fed is snapping up Treasury and mortgage bonds and has pledged to keep interest rates near zero until the jobless rate falls from 7.5 percent last month to 6.5 percent or so.

While Chairman Ben Bernanke and the majority of the Fed's 19 policymakers have backed this support for the economy, Plosser and a handful of other so-called hawks worry that the central bank's bloated balance sheet risks trouble down the road.

Plosser, who does not vote on policy this year, argued the Fed should take seriously its promise to only buy bonds until labor market conditions improve significantly - and start to taper purchases.
He pointed to improvements in the average length of unemployment, the long-term jobless, and measures of working hours and earnings as evidence it's time to dial back the quantitative easing program, called QE3 because it is the Fed's third such effort.

If "we become reluctant to dial back on purchases over concerns of disappointing or surprising markets, then we will find ourselves in a very difficult position going forward," he said in prepared remarks to the Center for Business and Policy Studies and the Institute for Financial Research.
Plosser repeated he expects the U.S. economy to improve enough that QE3 should end by year end.
Investors are anxiously handicapping when the Fed will adjust the buying.

In a poll done this month, 11 of 15 U.S. primary dealers said they expect the Fed to continue QE3 into 2014, while four expect the Fed to end it late this year.

Inflation has recently dipped further below the Fed's 2 percent target to near 1 percent, tempering expectations of a policy change this summer. And while the jobless rate has fallen to 7.5 percent from 7.8 so far this year, much of that is thanks to Americans who have given up the search for work.
Plosser also repeated he expects the unemployment rate to drop to about 7 percent by year end and to below 6.5 percent by the end of next year. He predicts about 3 percent U.S. GDP growth through 2014.

3----Russia’s Plan For The BRICS To Dismantle The Dollar System, naked capitalism

4---U.S. Labor Participation May Be Low for Years: Fed Study, Bloomberg

5---Private Equity Residential Landlords Rushing to Cash Out via IPOs, naked capitalism

But then we have hot money stories like Las Vegas. As Reuters reported last week:
Local real-estate broker Fafie Moore says private-equity firms and hedge funds have largely “crowded out” local buyers like Marchillo. That’s because the investment firms have broadened beyond their initial focus – buying homes at foreclosure auctions. Now, they are also bidding for homes listed by private owners and banks. In a sign of how freely the money is flowing, Moore notes around 60 percent of all sales are in cash these days.
Fellow broker Trish Nash says she has seen cases where a home gets listed and quickly draws a dozen bids, many in cash. Realtors are talking about a mini-bubble forming here.
“There is an artificial appreciation in our market,” says Nash. “I know (the big investors) say they aren’t going to be flippers, but for them it is all about the bottom line.”
The article describes why the “recovery” may have been pushed beyond sustainable levels by hot money:
Cracks are showing in Vegas and beyond. Here, rents on single-family homes were down an average of 1.9 percent in March from a year ago. In other regions targeted by institutional buyers, such as Phoenix, Southern California, Atlanta and
6---Investors dropping out as Phoenix home prices show 36.5 percent gains, Biz Journal

The price gains and short supply indicate sellers are maintaining full control of the market, especially for homes priced at the low end. But as bargain deal -- whether through short sales or foreclosures -- are increasingly harder to come by, investor activity is seeing a “significant down trend,” said the report’s author, Michael Orr, a real estate expert at ASU’s W.P. Carey School of Business.

After reaching a high point last summer, investor purchases accounted for less than 30 percent of all home sales in Maricopa County last month -- down from 37 percent a year ago.

“The shortage continues to get more severe among the most affordable housing sectors,” Orr said in the report. “Overall, ‘distressed’ bargain supply is down 32 percent from last February, since we’re seeing fewer foreclosures and short sales. First-time home buyers face tough competition from investors and other bidders for the relatively small number of properties available in their target price range.”...

In Maricopa County, there were 1,462 foreclosure starts last month — far below the peak of about 10,100 in March 2009. By the end of next year, Orr predicts foreclosure notices may drop “below long-term averages.”
Although short sales have become a popular alternative to foreclosures, Orr said they have declined as lenders “have been insisting on higher contract prices” before approving short sales, which has “dampened buyer enthusiasm.”
While still slightly less expensive than foreclosures, short sales and pre-foreclosures are still pricier than the average price of a home owned by a government-sponsored enterprise (GSE), such as Freddie Mac.
For example, the average price of short sales and pre-foreclosures climbed by about 10 percent year over year in February, to $165,388, while the average price of a GSE-owned home was $160,269. Bank-owned properties, on the other hand, posted a 42 percent jump in average price last month, to $216,498.
Short sales and pre-foreclosures thus accounted for only 11 percent of all sales in February -- almost half their market share last year of 20 percent.

7---Phoenix housing: prices up, sales down, P Housing

8---Rising home prices in the SW Valley pushing out investors, az central

Rising home prices in the Southwest Valley and throughout metro Phoenix have prompted investors to go elsewhere for a good deal, Avondale real-estate agent Joe Bourland said.
“The good house for $70,000 has gone,” Bourland said, adding that out-of-state markets, such as Las Vegas and Atlanta, still offer homes at much lower prices.
Investors move out
The median price for single-family homes surged more than 30 percent from February 2012 to February 2013 in many Southwest Valley cities, according to ASU figures.
The increases ranged from 39 percent in Buckeye, where the median price grew from $95,000 to $130,000, to 33 percent in Litchfield Park. There, prices rose to $230,000 from $172,000 over the 12-month period.

In 2012 the percentage of Maricopa County homes bought by investors fell from 37 percent in February 2012 to 30 percent in February 2013

9---62% of delinquent loans are more than 90 days past due, oc housing

Since 2009 loan performance on new loans has steadily improved, largely because the buyers didn’t fall deeply underwater. The loans from 2012 are performing very well because most of those borrowers have new-found equity. Unfortunately for lenders, the crappy loans from the bubble linger on like a bad odor. Lenders attempted to cover this pungent aroma with the perfume of loan modifications. What they’ve got now is a compost pile of bad loans they keep turning over with loan modifications that redefault over and over again at rates of between 41% for prime loans and 65% for subprime...

The delinquency rate on U.S. home mortgages rose in the first quarter as more homeowners fell behind on payments for the first time, data from an industry group showed on Thursday.
The seasonally adjusted delinquency rate on all loans rose to 7.25 percent from 7.09 percent in the first quarter, but was down from 7.40 percent a year ago, according to a report from the Mortgage Bankers Association.

The number of loans that were 30 days late on payments rose to 3.21 percent from 3.04 percent at the end of last year. Mortgages that were 90 days or more past due, which are considered less likely to get back on track, edged down to 2.88 percent from 2.89 percent. …
Among the different types of loans, subprime fixed and adjustable rate mortgages saw the largest increases in delinquencies, though there were fewer subprime loans sitting in the foreclosure process.

10--Fannie makes "no doc" loans available immediately, DS News

Fannie Mae and Freddie Mac are offering the new Streamlined Modification Program to distressed borrowers before the effective date of July 1.

Rather than delay assistance to borrowers, Freddie Mac stated it is making the program immediately available to all eligible borrowers across the country, according to a release. In an email, Fannie Mae also confirmed the program is already available.

As part of the program, Fannie Mae and Freddie Mac borrowers who are at least 90 days delinquent but no more than 720 days past due may be eligible for a modification that does not require the borrower to submit financial or hardship documentation

11---Bidding Wars Begin to Cool in Some Markets , DS News

12---Obama’s underwater rescue Daily News
A single bureaucrat stands in the way of widespread foreclosure relief

President Obama’s nomination last week of Rep. Mel Watt as permanent director signals that he’s ready for a confirmation fight that should result in better housing policy. But the outcome of that fight is far from certain. And even if the President succeeds, how long will it take, and how many more homeowners will lose their homes, before Watt takes office?

There is a quicker way to get rid of DeMarco now, and pave the way for a new policy direction for the Federal Housing Finance Agency. He can be replaced as acting director by one of the agency’s three deputy directors — today.

The Congressional Budget Office estimates that without a policy change to provide principal reduction for Fannie and Freddie mortgages, an additional 600,000 homeowners will go into default over the next two years

13---  U.S. banks push back on change in loan loss accounting, Reuters

Currently, banks do not have to reserve for risky loans until there are signs of a loss.
Reserves were criticized as being "too little, too late" during the global crisis, when major banks were buffeted by defaults on loans and other debt. Many had to be bailed out because they had not set aside enough for losses.
Numerous banking regulators have called for more timely reserves, though critics have also warned that proposed accounting changes would make quarterly earnings more volatile as banks adjust their expectations for losses.
In a letter to accounting rule-makers, banks suggested that trying to predict losses too far ahead would be unreliable....

Relative to the IASB's proposal, the FASB's proposal would generally require entities to recognize allowances for credit losses sooner and in larger amounts," said Bruce Pounder, director of professional programs at Loscalzo Associates, a Shrewsbury, New Jersey-based accounting education company.
The balance sheets of U.S. banks could look significantly worse than that of banks using international standards, even in identical economic conditions, he said.
FASB officials have estimated some U.S. banks may have to increase their reserves by 50 percent under its proposed change...

The IASB's proposal would only make banks consider losses expected over the next 12 months, unless a loan's credit has deteriorated significantly. If that is the case, reserves would have to be made for the full expected loss.

14---The race for the door, zero hedge

Someday we will learn the simple truth that, despite our best efforts, market and economic cycles can only be momentarily manipulated and not repealed and the end result will always be the same.  This time will be no different.

15--Afghanistan demands arrest of ‘American’ death squad leader, RT

16--David Rosenberg: Why cash is your least safe bet, Fi Post

17---Detroit’s emergency manager outlines slash and burn “restructuring” plan, wsws

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