Defaults on privately insured U.S. mortgages rose in February

NEW YORK, March 31 (Reuters)

Defaults on privately insured U.S. mortgages rose 38.1 percent in February, as a growing number of homeowners failed to keep up with their loan payments.

The Mortgage Insurance Cos of America on Monday said 60,911 insured borrowers were at least 60 days late on payments in February. That is up from 44,111 a year earlier, but down 11.7 percent from January's record 68,950.

On March 27, Radian Group Inc (RDN.N: Quote, Profile, Research), one of the largest mortgage insurers, said its main unit would no longer insure home loans where borrowers cannot document income or assets, citing the loans' "poor performance."

I had to double check the dateline. That should have been written in March 2007. Talk about slow learners!

Stop the Housing Bailout

People are getting organized to Stop The [incipient] Housing Bailout. Here's an email I got yesterday:

"We have created a website www.StopTheHousingBailout.com (currently hosted on NationalBubble) that is designed to be a clearinghouse of information for a movement against the bailout. The website is in its infancy, but currently consists of a statement why the bailout is wrong and several links to efforts to stop the bailout."

I don't think the Federal Government can afford to bail out the housing crash - it is too big - but that doesn't mean they won't try.

Buyers' Revenge: Trash the House After Foreclosure

In today's Wall Street Journal, an article pertaining to loss severity: Buyers' Revenge: Trash the House After Foreclosure.

Vandals who break into empty houses often smash windows and paint graffiti on the walls, he says. But it takes an enraged, delinquent mortgagor to indulge in a frenzy of destruction, such as the one that took place recently in a three-bedroom, 1,949-square-foot house in a residential and industrial area northeast of the casinos on the Strip.

Light switches, outlet covers and thermostats were smashed. There was what looked to be crowbar damage along the staircase. A large pool of paint had hardened on the living-room carpet. It appeared that someone had dripped motor oil in a trail that wound its way through every carpeted room. The appliances were gone, as were most light fixtures. A cabinet door had been removed and left soaking in a full tub of water. Not a wall was left without a hole the diameter of a closet rod, including the pink child's room once carefully decorated with a floral wallpaper stripe. It's damage that Mr. Carver described as "a vengeance-type thing."

This is a phenomenon that we first observed a year ago. Another important principle regarding loss severity: default rates and recovery rates are inversely correlated.

Jim Cramer Truth Watch

This is kind of old news but if you haven't seen it yet, you need to watch this YouTube of Jim Cramer: "No. No. No. Bear Stearns is fine."

I discussed Cramer almost a year ago in my post James J. Cramer: Mad Money, Indeed. To this day it is one of the most popular posts on this blog.

This is a problem with CNBC (which I'm fortunate enough to not watch), not just Cramer. Market Ticker puts it well in a blog post today:

"We do not have 'financial TV' in this country. We have blatant market manipulation in the guise of 'news' on a daily basis."

If you must watch CNBC, put it on mute, and preferably hang your TV set sideways or upside down so that you can remember to only watch it ironically.

Commodity Selloff

I don't know whether it will continue.

Gary North thinks that it might.

Fed is Almost Out of Ammo

"I know what you're thinking, punk: you're thinking, 'Did he fire six shots or only five?' Now, to tell you the truth, I've forgotten myself with all this excitement. But being this is a .44 Magnum, the most powerful handgun in the world, and will blow your head clean off, you gotta ask yourself a question: 'Do I feel lucky?' Well, do ya, punk?"

Shiller on Long Term Home Prices

Here's an amazing chart from a Robert Shiller paper (Long-Term Perspectives on the Current Boom in Home Prices) that has been making the rounds.

This is a chart of real home price indexes for the U.S. 1890-2005, Amsterdam 1628-1973, and Norway 1819-1989.

Note that the price indexes for Amsterdam and Norway end well before the U.S. data series, and so their current real estate bubbles not visible in the chart.

California Sales Tax Receipts Down Again in February

This is from the February California Controller's report.

Sales taxes had the weakest year-over-year revenue growth, falling $59 million below (-1.6%) last February. Income taxes were up $58 million (3.7%) and corporate taxes grew by $26 million (17.5%). In total, the three largest taxes were $25 million higher (0.5%) than February 2007.

These year-over-year changes are not as bad as they were in January. However, February 08 was 3.6% longer than February 07 (leap year), making the comparison easier.

Wednesday Interesting Articles

Real interest rates are now negative [Mankiw].

"Nothing in economic theory precludes negative real interest rates, or even suggests they should be anomalous. Nominal interest rates cannot be negative, because people would just hold cash instead of bonds,* but real interest rates can be negative. If real interest rates were very negative, investors could start investing in inventories of goods, but this arbitrage is not easy. Storing goods is costly, and many things in the CPI basket, such as services, are not storable at all.

In standard models of asset pricing, negative real interest rates are most likely to arise if growth expectations are particularly low or if uncertainty is particularly high."

Amit has a new post up about Downey [Kinnaras Capital Blog].

"...as we've covered, DSL's balance sheet greatly overstates its credit quality by ignoring market prices for the homes these mortgages are secured against. Based on Table II, there's about $2B in "extra" collateral value that DSL is implying its loans are secured against when market prices are much lower. NPAs are rapidly accelerating and the bank is facing a very challenging recast schedule. All of these obstacles are stacked against just $1.3B in capital which is why I've maintained my puts against DSL."

Collection of bearish data from [Mish's Global Economic Trend Analysis].

The Party is Over in Arizona?

From a Joint Legislative Budget Committee Staff report prepared for the Arizona Legislature on February 29, 2008.

• Total January General Fund revenue collections were $849.3 million, or (16.1)% below January of last year. The January decrease represents the largest percentage year over year decline since April 2002. The dramatic drop in January revenues was across the board in all 3 main revenue categories...
  
• Sales Tax collections were $406.9 million in January. This amount was down (7.5)% compared to last January... This is the largest percentage year over year decrease since at least FY 1991.
• There were significant variations in January [Sales Tax] collections by sector. Retail and contracting collections together account for two-thirds of all sales tax revenues. The retail sector declined by (3.8)% and contracting by (24.1)%. The restaurant and bar category also decreased by (11.3)%. The only positive growth in the major categories was in use tax, which increased 5.7%.
• Individual Income Tax collections were $479.6 million, or (11.9)% below last year. January withholding was (4.9)% below last year.

Tax receipts are directly proportional to the gross amount of whatever is being taxed. So this big decline in all forms of tax revenue means a big decline in economic activity.

Note that retail sector collections for January were down drastically despite the Super Bowl being held in AZ.