Not So Easy Anymore? Part II

Tidbits from Bloomberg with lots of Nattering love sprinkled in, cuz we care. The Nattering One muses... we've commented before on the potential impact from...

data latency, tighter credit, declining home prices & MEW (mortgage equity withdrawal) and lowered consumer spending;

on the broader US and global economy (we catch a cold, they get the flu...)

Easy Money, No More...

Eliminated: Subprime Loans; NINJA loans (No Income, No Job or Assets); NO down (100% to 120% LTV with piggyback 2nd); LOW down (95% and most 90% LTV); Interest Only (Negative Amortization).

Restrictions: 20% skin in the game is now required. Jumbo (over 417K SFR) and stated income (low doc) funds going from 6% to 8% on average.

#1 in Dead Pool or soon to be swallowed by BofA...

Countrywide Financial, the largest U.S. mortgage lender, said Sept. 7 that it will eliminate as many as 12,000 positions in the next three months.

As defaults have climbed, half of the 20 biggest providers of so-called prime jumbo loans have sold or shut mortgage units this year, or gone bankrupt.

Today's offering from Bloomberg, submitted for your approval: Anna Morita, a neuropsychologist in the San Francisco Bay Area with near-perfect credit, was certain she could get the loan of her choice to buy an $880,000 three- bedroom house.

Morita, 34, with more than $300,000 for a down payment and a credit score of 825 out of a possible 850, was banking on a 30-year loan with interest-only payments for 10 years.

That mortgage became too expensive when her lender quoted a rate of 7.6%. She's now applying for another mortgage
.

Stuart Gabriel, director of the Ziman Center for Real Estate at UCLA:

"
Home prices in many coastal markets in California and on the eastern seaboard make the consumer highly reliant on the availability of jumbo mortgages.

The tighter the underwriting, the sharper the fall back in demand
."

Douglas Duncan, chief economist at the Mortgage Bankers Association:

"Investors have just vanished. It will reduce the number of sales and that may well bring prices down."

Latency in data & the economic impact... Economists say the labor market will slacken further. The unemployment rate will rise to 4.8% by year-end and 4.9% by mid-2008.

Brian Fabbri, chief economist at BNP Paribas: "
It takes a while for the kind of turmoil we've seen to filter through the economy.

We're going to see a significant weakening
." Fabbri cut his Q4 growth forecast by more than a percentage point to 1.3%.

Janet Yellen, Frisco Fed Head
in a speech given today:

"
significant downward pressure based on recent data indicating further weakening in the housing sector and the tightening of financial markets.

Beyond the housing sector’s direct impact on GDP growth, a significant issue is its impact on personal consumption expenditures, which have been the main engine of growth in recent years.

Another engine of growth that could be a little weaker going forward due to the ongoing turmoil is foreign economic activity.

Should the decline in house prices occur in the context of rising unemployment, the risks (to consumption expenditures & the economy) could be significant.

In determining the appropriate course for monetary policy, we must recognize that most of the data available now reflect conditions before the disruptions began and...

therefore, tell us less about the appropriate stance of policy than they normally would.

In addition to data lags, appropriate policy decisions must also, I believe, entail consideration of the role of policy lags--that is, the lag between a policy action and its impact on the economy."


Thus far, consumer spending has held up for the most part. Economists say, the loss of jobs suggests those gains won't be sustained.

Lena Komileva, economist at Tullet Prebon: "A lot of the data we've seen so far may be the lull before the storm."

Atlanta Fed Head Dennis Lockhart: "Friday's data... (-4K Non Farms Jobs) shows employment was beginning to soften back in June."

June & July Non Farms job data were revised downwards subtracting another 81K jobs. The 90 DMA for monthly job "growth" has sank from 194K in January to 44K in August.

Many globalization fans say "its different this time"; and emerging economy growth will save the day.

The Nattering One muses...
They can't decouple, we catch a cold, they get the flu.

Global economies will be hit by a double whammy: lessened US consumer demand and higher credit costs.

Otmar Issing, former chief economist of the European Central Bank: "If we have a major problem in the U.S., the rest of the world will feel an impact."

Spanish home starts plunged 21% in May, virtually wiping out growth for the year... Irish house prices suffered their first annual decline in at least a decade in July.

German business confidence fell to a 10-month low in August after a rise in the cost of credit.

Ahhh-chou... Any decline in consumer spending, which accounts for about 70% of the U.S. economy...

will takes its toll on export driven Asian economies which cannot support themselves on internal demand.

Thailand's export growth slowed to an annual rate of about 6% in July and August from 18.1% in June. Malaysia's exports declined for a second straight month in July.

The U.S. is China's biggest single-nation trading partner, accounting for nearly 20% of its record $107.7 billion exports in July.

Tankin Tan-kan... Japan, Asia's biggest economy, is already showing signs of faltering.

Toyota, Japan's largest automaker, saw its U.S. sales drop for the second straight month in August, the first back-to-back decline in 4 1/2 years.

Japan's GDP contracted to 1.2% in Q2, almost twice the rate forecast by economists, as companies pared spending and net exports failed to contribute to growth.

Comments