2---What's behind the sudden improvement in US loan growth?, sober look
Credit growth in the US seems to have stabilized and may be on the rise. It's worth mentioning that the bottom in loan growth just happened to correspond to the start of Fed's taper. Coincidence?
|Total loan growth rate YoY|
Whatever the case, this may be a sign of improving demand for credit and banks' willingness to accommodate. The key to this change in trend is that improvements in loan growth have been primarily driven by a sudden jump in corporate lending.
|Corporate loan growth rate YoY|
3---Terrible Feature Of The Housing Bubble Makes A Comeback, mark gongloff
Remember adjustable-rate mortgages, which helped pump up the U.S. housing bubble that led to the financial crisis? Well, those things are back, The Wall Street Journal reported on Monday.
To help juice their profits, banks have recently been writing many more ARMs and their slightly more-evil cousins, interest-only ARMS -- which allow borrowers to pay only interest for a certain period, leading to more debt and higher payments in the future -- according to the WSJ.
"The tactics are reminiscent of the period before the 2008 crisis, when ARMs exploded in popularity as banks and mortgage brokers touted their low initial rates to consumers," wrote AnnaMaria Andriotis and Shayndi Raice.
Not to worry: Banks say they are totally being careful this time, giving ARMs mainly to high-income borrowers with good credit. ARMS make up only about 10 percent of mortgages under $417,000 -- the dividing line between regular and "jumbo" mortgages. At the peak of the bubble, roughly half of these mortgages were risky ARMs.
But ARMs make up about a third of all mortgages between $417,000 and $1 million, the highest percentage since before the recession, according to WSJ data. And they make up about 60 percent of all mortgages above $1 million.....
as the WSJ pointed out, when writing ARMs, banks are betting that interest rates are going to rise. That is the opposite of the bet you'd be making if you took out an ARM. Some homeowners might be gambling that they can sell their house or otherwise get out of their mortgage if their interest-rate bet goes wrong. But as we learned when the housing bubble popped, selling a house is not always such an easy thing. It'll be even harder when interest rates are rising.
As history has shown us, when banks bet against homeowners, the banks usually win.
4---Inflation Misses By Most In 6 Months; Core CPI Drops To 10 Year Low, zero hedge
5---Abe aide urges more BOJ easing as sales tax increase threatens recovery, JT
The Bank of Japan can double its annual pace of bond accumulation to ¥100 trillion to give fresh impetus to the economy after next month’s sales tax increase, according to an aide to Prime Minister Shinzo Abe.
“It’s not taboo for the BOJ to double the goal of bond holdings,” Koichi Hamada, 78, a retired Yale University professor who advises Abe on monetary policy, said in a recent interview in Tokyo. “The BOJ will be concerned about the real risk of being seen as financing debt, but drastic action is justified to pull Japan’s economy out of 15 years of stagnation.”
Hamada said the central bank should add stimulus as soon as May should indicators show the 3 percentage point tax rise is seriously damaging the economy. He said annualized growth of 0.7 percent in the final quarter of 2013 showed that ” ‘Abenomics’ isn’t strong enough.”...
Economists at BNP Paribas SA and HSBC Holdings were among 10 of 34 analysts in a Bloomberg survey who said the BOJ would need to accumulate at least ¥90 trillion of Japanese government bonds a year — equal to all new issuance and up from about ¥50 trillion now — to have the same impact as April’s easing.
BOJ Gov. Haruhiko Kuroda said in an interview last week with Jiji Press that there is “no limit” to what the BOJ could do if it needed to adjust its policy. The bank doesn’t have to “outwit” the market, he said.
The yen weakened 18 percent against the dollar last year and the benchmark Topix stock index rose 51 percent after the BOJ began unprecedented stimulus last April 4. The yen has strengthened about 4 percent this year, and the Topix has fallen more than 10 percent
6---Is Abenomics About To Fail?, Forbes
The Bank of Japan wants just this sort of non-existent inflation. It increases money supply but in effect that money supply is mopped up by the huge public deficit of the public sector of Japan. (Pro-tip: U.S. QE buys U.S. Government bonds; QE has been approximately the same size as the U.S. deficit. The government is therefore the funder of its own deficit not the general bond market.) This money flow doesn’t lead to a particularly good allocation of productive resources and hence has a stifling hand on recovery.
This is the state Japan finds itself in, only worse.
7---Will The Last Bear Please Turn Out The Lights , Testosterone Pit
The VIX volatility index has been bouncing around near the bottom of its historic range. Stock market leverage, as measured by margin debt, has been setting records month after month, while the volume on the New York Stock Exchange has been declining since the last crash and now languishes at lows not seen this millennium. And the percentage of stock market bears in the Investor Intelligence Sentiment survey is hovering at around 15%, the lowest since early 1987, a few months before the epic crash when "portfolio insurance," invented, engineered, and provided by the geniuses on Wall Street, had once and for all eliminated the risks in the stock market.
In February, Goldman’s Chief US Equity Strategist David Kostin wrote in his report “When does the party end?" that the enterprise-to-sales ratio was “now the highest in 35 years (and probably far longer), surpassing even the dotcom bubble.”
Corporate investment in plant and equipment in the US to stimulate the economy in the US, not in China, has been lagging behind. But these same companies are using their stratospherically valued stocks as an inflated currency to buy other companies with equally inflated valuations: so far this year, M&A deal value primarily paid for in stock jumped 67%.
And companies are taking on enormous amounts of new debt, not to create productive assets, but to buy back their own shares at nosebleed valuations. Share buybacks are at long-term record highs. This blind buying has pushed share prices further into the stratosphere and accomplished a masterpiece of Wall Street engineering: goosing EPS growth while actual earnings growth is anemic and revenue growth is near stagnation. Goldman’s report summarized it this way: "February was the busiest month in our buyback desk’s history."
8---Urban Institute Calls for more Bad Loans, ds news
"There is an urgent need to expand the credit box to improve opportunities for households to build wealth and strengthen the economic recovery," the report said....
Another factor leading to a decrease of new home purchases was an increase of investor activity in the housing market, rising from 17.8 percent in 2001 to 39.5 percent in 2012. "[W]e can largely explain the drop in originations by the concurrent decline in home sales and the increase in the all-cash share," the report said.
An increase in foreclosures, nearly 7 million, creates a situation where foreclosed-upon borrowers must wait at least three to five years to qualify for a new mortgage, according to the Urban Institute report. The large volume of renters with a limited availability of credit to purchase a home only exacerbates purchases by investors paying cash.
The report found that borrowers looking to purchase a home with credit scores in the middle tier (660-750) and lower tier (sub-660) declined 46 percent and nearly 70 percent, respectively, from 2001 to 2012.
An estimated 273,000 to 1.2 million loans were not originated due to limited credit availability.
The report commented, "The truth is somewhere between these estimates, but likely closer to the upper bound because many prospective borrowers with FICO scores well above 660 are affected by the tight credit box and credit overlays."
Race also played a factor in the decline of loan originations.
"Comparing 2001 to 2012, the number of purchase loans to African American and Hispanic borrowers declined by 55 and 45 percent, respectively. In contrast, purchase loans to non-Hispanic whites and Asians dropped 41 and 15 percent, respectively," the report said.
Florida was the hardest-hit state, with a 61 percent drop in purchase loans
9---ARMs are Baaaack, ds news
Adjustable-rate mortgages used to be one of the hottest products on the market in 2005, making up nearly 40% of purchase money mortgages. Now almost nine years later, ARMs sit roughly around 5%.
So why the change?
Mortgage rates started to trend higher at the end of last year, leading to a 5% drop in January existing home sales and the fifth decline over the last sixth months, Orawin Velz, director of economic and strategic research with Fannie Mae, said.
“In the past, surging mortgage rates led to a sharp rise in the use of ARMs,” Velz said. “However, in today’s mortgage market, borrowers have fewer options for affordable ARM products as they face more stringent underwriting standards.”
Between rising mortgage rates and falling affordability, ARMs are beginning to look more appealing to the industry since they help boost purchasing power by lowering the monthly mortgage payment.
Currently, Fannie Mae noted that the most appealing ARM is the 5/1 ARM, which has the potential to enhance housing affordability by about 15% on average.
As a result, from the end of 2012 to the end of 2013, the ARM share of purchase applications more than doubled...
But despite all these factors, the market still remains significantly below peak levels in 2005.
“It will likely remain subdued going forward, given tighter lending standards for ARMs and the new Qualified Mortgage rule that took effect in January of this year – which curtailed availability of the riskier ARMs, including interest-only products and those with balloon payments,” Velz said.
“The limited ability of potential homebuyers to switch to ARMs in the face of rising rates and declining affordability in the current environment supports the Economic and Strategic Research Group’s cautious outlook of the existing home market this year,” she added.
10--Loan mods, OC Housing
lenders benefit most from loan modifications, but homeowners not so much. Loan modifications are one of the ways Washington enables Wall Street to ransack Main Street. Today’s loan modifications are tomorrow’s distressed property sales because borrowers redefault in large numbers, and the loan modification entitlement will be rescinded as prices near the peak.