VoiceofSanDiego.org

Articles that I have written for VoiceofSanDiego.org, a local news publication that provides continuing coverage of San Diego housing and economic issues.

Where the Jobs Were in July

Submitted by Rich Toscano on August 29, 2007 - 11:16am

It's time for that ornately-hued job sector chart:

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July Employment

Submitted by Rich Toscano on August 27, 2007 - 8:23pm

Last month, I took note of the fact that employment growth in June was worrying close to not being growth at all. According to the Bureau of Labor Statistics, the picture improved markedly in July.

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Confusion at the Transcript, Conspiracy at the NC Times

Submitted by Rich Toscano on August 16, 2007 - 11:19am

San Diego Daily Transcript executive editor George Chamberlin, previously criticized here for his dubious fact-checking skills, took a stab at the topic of Collateralized Debt Obligations (CDOs) last week. The result was less than exemplary. From his Friday "Money in the Morning" column:

Blame it on CDOs of ABS. That is the source of the problems that are rocking the stock and bond markets around the world. Unless you are a really serious trader you've probably never heard of Collateralized Debt Obligations of Asset-backed Securities, but that [sic] the source of all of the consternation these days. In particular, hedge funds that have made leveraged, highly speculative bets on the subprime mortgage market. It really has little to do with the underlying loans, but rather the technique used by traders.

I'm not sure you need to be a "really serious trader" to have heard of CDOs. I don't even think you need to be a not-serious trader, or any kind of trader at all -- just someone who reads the news. We at voiceofsandiego.org, along with many mainstream media outlets (including the Transcript itself!) have been writing about them for quite a while now. Heck, they've even been written about in that sophisticated news source read exclusively by serious financial professionals: USA Today.

The "serious trader" line is funny; the last sentence in the paragraph is just outright wrong.

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July Foreclosures

Submitted by Rich Toscano on August 9, 2007 - 3:11pm

2,033 San Diegans went into default on their mortgages in July. This is up 19 percent from June and up 157 percent from July 2006. Even adjusting for regional growth, as the blue line on the accompanying graph indicates, the rate of default absolutely dwarfs anything we saw during the early-1990s recession and housing bust.

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Mortgage Tightening, Round 2

Submitted by Rich Toscano on August 7, 2007 - 9:08am

I've authored repeated rants to the effect that burgeoning troubles in the mortgage market were caused by high risk loans, regardless of whether those loans were "subprime." This distinction recently became clear to the mortgage lending company called American Home Lenders, or AHL for short. AHL wrote very few subprime mortgages, but rather dealt primarily in "Alt-A" mortgages -- loans that are risky by virtue of their features, but made to borrowers with good credit. The company announced on Friday that it would file for bankruptcy.

We also learned last week that a couple of big lenders have moved to cut back on funding Alt-A loans, and that rates are rising for the loans that do get funded. Bloomberg has a good summary for those who want more details.

Mortgage companies abruptly going belly up... other lenders severely tightening the purse strings... doesn't all this sound familiar?

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As of May, Still No Spring Bounce

Submitted by Rich Toscano on August 3, 2007 - 9:46am

The latest release of the Case-Shiller Home Price Index indicates that San Diego home prices were, in aggregate, still falling as of May. Prices as measured by the HPI were down .4 percent from the prior month, 7.0 percent from May 2006, and 7.4 percent from the November 2005 peak.

As seen on the graph, the divergence between the HPI and the median-based price indicators remained firmly in place. This phenomenon, described elsewhere on this blog in lurid detail, is owed to the declining volume of entry-level home sales in the wake of the rapid tightening in the subprime mortgage lending market.

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Interest Rate Update

Submitted by Rich Toscano on August 2, 2007 - 12:17pm

When it comes to mortgages, the big story has been the ongoing tightening in underwriting guidelines. However, even those who weren't hoping for one of those ever-popular "exotic" loans have found getting a mortgage to be a bit less inviting than it was at the start of the year.

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Where the Jobs Are, June Edition

Submitted by Rich Toscano on July 26, 2007 - 8:11pm

Here is an update on how the various San Diego employment sectors fared in June:

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June Employment

Submitted by Rich Toscano on July 25, 2007 - 3:24pm

The employment sectors that benefitted from San Diego's housing boom continue to shrink now that the boom is over. The rest of San Diego's economy, meanwhile, is having a tougher time keeping up.

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Demand and Must-Sell Supply

Submitted by Rich Toscano on July 20, 2007 - 4:31pm

Back in April, I put up a long-term chart of the number of monthly home sales divided by the number of Notices of Default (NODs) in that same month. A summary of the reasoning behind the chart, explained at length in the original article, goes like this: price declines take place when there is a lot of "must-sell" inventory, meaning that sellers can't wait around for the price they want but rather have to take whatever price they can get. The number of defaulting homeowners can provide an admittedly rough indication of how much must-sell inventory is or soon will be on the market. Comparing sales volume to the number of NODs can tell us how much demand is likely to offset the potential must-sell supply, thus providing a clue about the direction of pricing pressure in the months ahead.

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June Foreclosures

Submitted by Rich Toscano on July 12, 2007 - 9:21am

The month of June saw 1,708 Notices of Default and 738 Notices of Trustee Sale.

Even when adjusting for San Diego's growth, as the graph shows, there were more NODs and NOTs filed in June than in any month during the entire 1990s housing bust.

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The Ratings Agencies Punch In

Submitted by Rich Toscano on July 11, 2007 - 8:34am

I ended my long piece on the mortgage credit sausage machine by suggesting that the real trouble would start when the ratings agencies start to downgrade the more highly-rated mortgage-backed structured products. Without such sterling ratings on these newfangled credit instruments, the funding from respectable institutions would start to dry up.

It seems that there may just have been a step in that very direction.

S&P, one of the three credit ratings agencies, announced that it is heavily revising its methodology for rating mortgage-backed securites (MBSs), reviewing previously rated MBSs, and downgrading a mess of them right off the bat. It will also be reviewing previously rated CDOs that consist of sliced-and-diced MBSs.

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Laid-Back Lenders

Submitted by Rich Toscano on July 5, 2007 - 8:03pm

An oft-heard theory regarding the foreclosure situation goes something like this: the overabundance of risky mortgages may cause a lot of defaults, but lenders won't be able to afford to foreclose on too many borrowers. Therefore, lenders will be more flexible than they have been in housing busts past, allowing delinquent borrowers more time or easier loan terms to help them get back on track.

We can test this theory fairly well using available data. But first, a terminology refresher. A Notice of Default (NOD) is a letter sent to a delinquent borrower saying, in effect, "pay up or else." A Notice of Trustee Sale (NOT) is filed upon the occurrence of the "or else" -- when the lender takes back the home. The law dictates that the lenders can't take back the home and file the NOT until three months after the sending of the NOD.

That three-month delay is not by any means set in stone, but it seems to be a fairly typical timeline between an NOD and the ensuing NOT. Thus, by dividing the number of NOTs filed in a given month by the number of NODs filed three months earlier, we can get a rough idea of how many lenders are actually going through with the foreclosures they've threatened against delinquent borrowers.

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April Case-Shiller HPI

Submitted by Rich Toscano on July 2, 2007 - 12:29pm

The divergence between the median home price and the Case-Shiller Home Price Index continues...

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It's Not a Subprime Problem

Submitted by Rich Toscano on June 28, 2007 - 1:57pm

A recent Bloomberg article illustrates why people who think that foreclosures will be confined to subprime mortgages are in for a rude awakening. Says the article:

U.S. homeowners with good credit are increasingly falling behind on mortgage payments, a sign lenders have been offering "higher risk" loans outside the so-called subprime market, Standard & Poor's Corp. said today.

Rising late payments and defaults on so-called Alt A mortgages made last year are "disconcerting" and delinquent borrowers appear to be "finding it increasingly difficult to refinance" or catch up on their payments, S&P analysts said today in a statement.

I covered the distinction between subprime mortgages and what S&P calls "higher risk" loans back in March, and again in April, but the vast majority of analysts continue to act as if the problems are limited to subprime loans. So I'm going to use the latest Bloomberg piece as an excuse to revisit the topic yet again.

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