Saturday, July 6, 2013

Today's links

Today's quote: "Two things are infinite: the universe and human stupidity; and I’m not sure about the universe."    Albert Einstein

1---The Lagging Public Sector, NYT

Private sector employment in the United States is growing at about the same rate it did during the best days of the last decade.
The difference is in the government. It continues to shed workers.
Year-over-year change in employment.Source: Bureau of Labor Statistics, via Haver AnalyticsYear-over-year change in employment.
The above chart shows the annual change in employment for the private sector, and for government jobs, since the end of 2002.

Over the last 12 months, private sector employment rose 2 percent. That is down a little from the 2.5 percent rate early last year, but it is about the same as the rate of growth in the fall of 2005.

But government employment continues to fall. It is down 0.2 percent, which is the best year-over-year showing since 2009, when the government cutbacks were starting to be felt.

On a monthly basis, over the last 12 months the economy added an average of 191,000 jobs a month in the private sector, and cut public sector employment by 3,000 jobs a month.

2---Yes, the Sequester Is Affecting the Job Market, NYT

Source: Bureau of Labor Statistics, Current Population SurveySource: Bureau of Labor Statistics, Current Population Survey
As you can see, there was a huge jump in the number of reluctant federal part-timers in June compared with the same month in 2011 and 2012. In June 2013, 148,000 federal workers were working part-time hours (defined as fewer than 35 hours a week) but wished they were working full time, compared with 58,000 in June 2012 and 55,000 in June 2011.

3---A Surge in Part-Time Workers, NYT

The June jobs report saw a surge in part-time workers, and the health care law that starts coming into full effect next year might be in part responsible. The number of part-time workers for economic reasons climbed to 8.2 million in June from 7.6 million in March.

. The Affordable Care Act gives employers an incentive to hire part-time workers rather than full-time workers, as they might be compelled to offer health coverage to the latter, but not the former. That’s why a number of big employers have started offering more temporary or part-time positions.

It also makes part-time jobs more attractive for workers. Say you currently have a 20-hour-a-week job with no health coverage, and that you cannot afford to buy insurance on the private market. Soon, the government will start offering you generous subsidies to buy a plan on the new health care “exchanges” – meaning, provided your income is low enough, you get an expensive benefit with taxpayers picking up most of the tab.

4----First signs of rate-driven weakness in the housing sector, sober look
 
Today Citi and some other banks quoted the 30-year conforming mortgage rate at 4.625%. Others are quoting the rate even higher (see national averages below).
First signs of rate-driven weakness in the housing sector
Source: Mortgage News Daily 


5---Ouch! 326,000 Full-Time Jobs Lost, Mish
Involuntary part-time jobs increased by 322,000 while voluntary part-time jobs increased by another 110,000. Thus, of the 160,000 household survey gain, 486,000 of them were part-time jobs, a loss of 326,000 full-time jobs. This caused a spike of 0.5 percentage points in U6 (alternative unemployment) to 14.3%.

The Participation Rate rose 0.1 to 63.5% 
 
6---How to prevent disaster in mortgage lending, oc housing
 
A cash-out refinance is a mortgage taken out for a higher balance than the one on an existing loan, net of fees. Across the nation, cash-outs became ubiquitous during the mortgage boom, as skyrocketing house prices made it possible for homeowners, even those with bad credit, to use their home equity like an ATM. But not in Texas. There, cash-outs and home-equity loans can’t total more than 80 percent of a home’s appraised value. There’s a 12-day cooling-off period after an application, during which the borrower can pull out. And when a borrower refinances a mortgage, it’s illegal to get even $1 back. Texas really means it: All these protections, and more, are in the state constitution. The Texas restrictions on mortgage borrowing date back to the first days of statehood in 1845, when the constitution banned home loans entirely.
“Delinquency and foreclosure rates are significantly lower in Texas,” boasts Scott Norman, the president of the Texas Mortgage Bankers Association. “The 80 percent loan-to-value limit—that’s the catalyst for a lot of this.”
That’s were the lockbox comes in. If a house is supposed to represent financial security, it should be a place of money storage, not an endless ATM machine spitting out spending money. The Texas experience shows that if you deny people access to this money, the housing market is more stable, and everyone has tangible ownership in their property with real equity. That is the real American dream.

7---The Lone Star Secret,   How Texas avoided the worst of the real estate meltdown, Alyssa Katz, gold talk

(WOW!) One of Alan Greenspan’s lesser-known contributions to the annals of the credit crisis was a pair of studies he co-authored for the Fed, sizing up exactly how much Americans borrowed against their home equity in the bubble and what it was they were spending their newfound (phantom) wealth on. Greenspan estimated that four-fifths of the trifold increase in American households’ mortgage debt between 1990 and 2006 resulted from “discretionary extraction of home equity.” Only one-fifth resulted from the purchase of new homes. In 2005 alone, U.S. homeowners extracted a half-trillion-plus dollars from their real estate via home-equity loans and cash-out refinances. Some $263 billion of the proceeds went to consumer spending and to pay off other debts.

But there is a broader secret to Texas’s success, and Washington reformers ought to be paying very close attention. If there’s one single thing that Congress can do now to help protect borrowers from the worst lending excesses that fueled the mortgage and financial crises, it’s to follow the Lone Star State’s lead and put the brakes on “cash-out” refinancing and home-equity lending.

A cash-out refinance is a mortgage taken out for a higher balance than the one on an existing loan, net of fees. Across the nation, cash-outs became ubiquitous during the mortgage boom, as skyrocketing house prices made it possible for homeowners, even those with bad credit, to use their home equity like an ATM. But not in Texas. There, cash-outs and home-equity loans can’t total more than 80 percent of a home’s appraised value. There’s a 12-day cooling-off period after an application, during which the borrower can pull out. And when a borrower refinances a mortgage, it’s illegal to get even $1 back. Texas really means it: All these protections, and more, are in the state constitution. The Texas restrictions on mortgage borrowing date back to the first days of statehood in 1845, when the constitution banned home loans entirely.

“Delinquency and foreclosure rates are significantly lower in Texas,” boasts Scott Norman, the president of the Texas Mortgage Bankers Association. “The 80 percent loan-to-value limit—that’s the catalyst for a lot of this.”...

The home-equity borrowing restrictions helped keep home prices from overinflating, and homebuyers therefore didn’t need to turn to exotic mortgages with features like 2/28 ARMs, interest-only payments, or negative amortization in order to purchase a home. Even when they did, Texas law requires these risky features to be clearly disclosed. Fewer than 20 percent of Texas subprime mortgages included any of them.

8--Housing, MBS, Forbes

Of Mr. Bernanke’s $85 billion of QE III monthly securities purchases, $40 billion of this amount is MBS (Mortgage-Backed Securities). At this torrid pace current Federal Reserve balance sheet holdings of MBS move from $1.1 to $1.5 trillion by year end 2013. Exiting a position of this magnitude would be next to impossible without moving rates higher. The total position will comprise 27 percent of the entire MBS market. Point one is the obvious that these purchases artificially keep mortgage rates lower than the free market thus keeping buyers payments lower and thus causing home prices to adjust higher.

9---Down payment, Wikipedia

Down payment (or downpayment) is a payment used in the context of the purchase of expensive items such as a car and a house, whereby the payment is the initial upfront portion of the total amount due and it is usually given in cash at the time of finalizing the transaction.[1] A loan or the amount in cash is then required to make the full payment.

The main purposes of a down payment are to ensure that the lending institution has enough capital to create money for a loan in fractional reserve banking systems and to recover some of the balance due on the loan in the event that the borrower defaults. In real estate, the asset is used as collateral in order to secure the loan against default. If the borrower fails to repay the loan, the lender is legally entitled to sell the asset and retain a portion of the proceeds sufficient to cover the remaining balance on the loan, including fees and interest added. A down payment in this case reduces the lender's risk to less than the value of the collateral, making it more likely that the lender will recover the full amount in the event of default.

The size of the down payment thus determines the extent to which the lender is protected against the various factors that might reduce the value of the collateral, as well as lost profits between the time of the last payment and the eventual sale of the collateral.

Furthermore, making a down payment demonstrates that the borrower is able to raise a certain amount of money for long-term investment, which the lender may desire as evidence that the borrower's finances are sound, and that the borrower is not borrowing beyond his or her means.
If the borrower is unable to pay off the loan in its entirety, he/she forfeits the down payment amount.

10--What’s a Reasonable Home Down Payment?, NYT

11---Mortgages with 10% or less down are on the rise, USA Today

Until recently, many borrowers had to go through a government guaranteed loan program, such as the Federal Housing Administration (FHA) or the Department of Veterans Affairs, to get a mortgage with less than a 10% down payment.
Now, a growing number of lenders are offering such mortgages without the backing of a government guarantee — the definition of a conventional loan.
Loans with down payments between 5% and 10% accounted for almost a fifth of the conventional loan offers that lenders made on the LendingTree online exchange in the first quarter, according to LendingTree.

That's up from just 6% of conventional loan offers in last year's first quarter and only 1% of the offers in 2011's first three months.
A similar trend shows up on the Zillow Mortgage Marketplace. The number of lenders quoting non-FHA loans with down payments of 5%-10% is almost double what it was two years ago, Zillow says.
That can be a big help. On a $200,000 mortgage, a 20% down payment is $40,000, but 5% is only $10,000.

12---No down? Never say never, marketwatch

The shrinking down payments are partly due to the growth of mortgage insurance, which is typically required for homebuyers who want to put less than 20% down, says Gumbinger. Insurers became more willing to offer the coverage as the credit quality of borrowers improved. Could this eventually lead to a comeback of no-money down mortgages? “ I would never say never,” says Gumbinger

13---Obama glorifies militarism on the Fourth of July, wsws

...the US president himself personifies modern tyranny, the domination of the world by a new aristocracy of wealth and privilege whose rule is more rapacious and bloodstained than that of King George III.....

the United States is a land of mass poverty and mass unemployment, in the sixth year of the worst economic crisis since the Great Depression. It is characterized by staggering and ever-rising levels of social inequality. It is the “global defender” of the interests of American big business, to which it systematically sacrifices the democratic rights of both the American working class and the population of the world.
Far from being a “beacon of hope,” the United States is looked on around the globe as the purveyor of death and destruction, whether raining down missiles from remote-controlled drones, or vacuuming up the private communications of virtually the entire population of the world. The American military has attacked and occupied more countries than any other since the Second World War. The United States spends more on war than the next 17 countries combined. US troops have been engaged in nearly continuous warfare for the past dozen years.....

Today the American capitalist class is the most parasitic and reactionary social force on the planet, wallowing in untold wealth while the conditions of life for the vast majority of the American population stagnate and decline....

. A Gallup poll published this week found that 71 percent felt the Founding Fathers would be ashamed of modern America. That percentage has doubled over the last decade.

14---Rates “Carnage” Summary…Housing & Mortgage Significantly Impacted, Mark Hanson

We have been raising red flags on the spike in rates for weeks now.  But today, the back of the market was broken, as “real rates” used by the majority of buyers / refinancers — not the “bait & switchers” quoted in your local rag, by the GSE’s, or by organizations that don’t realize people don’t take out mortgages that cost 3 points — rates shot over 5% today with conviction…3% 10s and 5.75% mortgage rates look to be in the bag.

But even at today’s levels “the surge” was a significant “credit event” for housing and mortgage.   It’s going to be an ugly Q3/Q4 for these sectors.....

1) To Existing Home Sales and macro house prices “the surge” takes the PE investor out of the equation.  ...

2) To Builders / New Home “Sales” – at least half of which are not associated with a “locked-in” mortgage rate at the time the “sale” is counted as such — “the surge” will increase fall out of the past 6 months’ sales by 19%, I estimate

...., by the end of Q3/early Q4 house prices will be on the decline as measured by every other index besides CS who lags real prices by 4 to 7 months.

The regional/national mortgage-centric banks in the US have been operating as little more than the gov’t mortgage brokers — refinancing everybody who could refi — each time rates drop another 100bps over the past 4 years.   How exactly will a rise in “NIM” make up for the almost total loss of “Mortgage Banking” that has driven top and bottom line revenue for 2 years??

15---Home prices rise in May by most in 7 years, USA Today

U.S. home prices jumped 12.2% in May from a year ago, the most in seven years. The increase suggests the housing recovery is strengthening......

Sales of previously occupied homes topped the 5 million mark in May for the first time in 3 ½ years. And the proportion of those sales that were "distressed" was at the lowest level in more than four years for the second straight month. Distressed home sales include foreclosures and short sales. A short sale is when a home sells for less than what is owed on the mortgage.

Home sales are expected to increase in the coming months. That's because the number of people who signed contracts to buy homes rose in June to the highest level since December 2006. There's generally a one- to two-month lag between a signed contract and a completed sale.
One worry is that higher mortgage rates could slow the housing recovery. Still, rates remain low by historical standards. And increases in rates could boost home sales. That's' because many Americans may act to lock in the lower rates before they rise further.

A survey by the University of Michigan released last week found more Americans believe it is a good time to buy a home because both rates and prices are just starting to rise.

Rates have been trending higher for two months. And the average rate on a 30-year fixed mortgage leapt to 4.46% last week, according to mortgage buyer Freddie Mac. That's the highest in two years and a point more than a month ago

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