by Adam Quinones
THE EMPLOYMENT SITUATION – AUGUST 2010 – BETTER THAN EXPECTED
From the Release...
Nonfarm payroll employment changed little (-54,000) in August, and the unemployment rate was about unchanged at 9.6 percent, the U.S. Bureau of Labor Statistics reported today. Government employment fell, as 114,000 temporary workers hired for the decennial census completed their work. Private-sector payroll employment continued to trend up modestly (+67,000).
The number of unemployed persons (14.9 million) and the unemployment rate (9.6 percent) were little changed in August. From May through August, the jobless rate remained in the range of 9.5 to 9.7 percent.
The number of long-term unemployed (those jobless for 27 weeks and over) declined by 323,000 over the month to 6.2 million. In August, 42.0 percent of unemployed persons had been jobless for 27 weeks or more.
In August, the civilian labor force participation rate (64.7 percent) and the employment-population ratio (58.5 percent) were essentially unchanged.
The number of persons employed part time for economic reasons (sometimes referred to as involuntary part-time workers) increased by 331,000 over the month to 8.9 million. These individuals were working part time because their hours had been cut back or because they were unable to find a fulltime job.
About 2.4 million persons were marginally attached to the labor force in August, little changed from a year earlier. (The data are not seasonally adjusted.) These individuals were not in the labor force,wanted and were available for work, and had looked for a job sometime in the prior 12 months. They were not counted as unemployed because they had not searched for work in the 4 weeks preceding the survey.
Among the marginally attached, there were 1.1 million discouraged workers in August, an increase of 352,000 from a year earlier. (The data are not seasonally adjusted.) Discouraged workers are persons not currently looking for work because they believe no jobs are available for them. The remaining 1.3 million persons marginally attached to the labor force had not searched for work in the 4 weeks preceding the survey for reasons such as school attendance or family responsibilities.
Over the month, government employment fell by 121,000, largely reflecting the loss of 114,000 temporary workers hired for Census 2010. The number of temporary Census 2010 workers peaked in May at 564,000 but has declined to 82,000 in August.
Construction employment was up (+19,000) in August. This change partially reflected the return to payrolls of 10,000 workers who were on strike in July.Manufacturing employment declined by 27,000 over the month. A decline in motor vehicles and parts (-22,000) offset a gain of similar magnitude in July as the industry departed somewhat from its usual layoff and recall pattern for annual retooling.The average workweek for all employees on private nonfarm payrolls was unchanged over the month at 34.2 hours. The manufacturing workweek for all employees increased by 0.1 hour to 40.2 hours, and factory overtime was up by 0.1 hour. The average workweek for production and nonsupervisory employees on private nonfarm payrolls increased by 0.1 hour to 33.5 hours.
Average hourly earnings of all employees on private nonfarm payrolls increased by 6 cents, or 0.3 percent, to $22.66 in August. Over the past 12 months, average hourly earnings have increased by 1.7 percent. In August, average hourly earnings of private-sector production and nonsupervisory employees increased by 3 cents, or 0.2 percent, to $19.08.
The change in total nonfarm payroll employment for June was revised from -221,000 to -175,000, and the change for July was revised from -131,000 to -54,000.
Recap from Reuters....
Plain and Simple: while 54,000 job losses are no reason to celebrate an economic recovery, there were several upside surprises in this data. Upside surprises include: private industry added 67,000 jobs, Average Hourly Earning rose 0.3%, and significant revisions to June and July numbers which added 123,000 jobs. After an exhausting summer of stagnation and panicky behavior, the market will welcome this better than expected data as a reason to run with a stock market rally and generate returns. This does not change the fact that 42% of the unemployed have been without a job for longer than 27 weeks. This group of workers will continue to drag on the economy for years to come as many of the jobs that were lost in the last two years have likely been lost forever.
FHA Commissioner David Stevens wrote to the industry today. He discusses over exuberant underwriting standards, lender accountability, and sustainable homeownership. Below are his comments. I called attention to specific points of interest...
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After touring the country and talking to lenders over the past few weeks, I think it is important to take a moment and emphasize to all lenders the important role they play in this housing market, particularly in their role as responsible stewards of underwriting quality loans that will perform sustainably over time.
In some cases I am seeing activities that reflect an over exuberance in the marketplace to find ways to increase loan origination revenues. Some may say it’s only “a few opportunistic lenders,” while others may say it’s a more widespread trend. It is our job at FHA to ensure that the FHA portfolio is not impacted by dangerous lender behavior that could threaten the safety of a financially sound, viable program for decades to come. Therefore, I want to be very clear on FHA’s position as it relates to underwriting, lender accountability and affordable programs.
Quality underwriting is not only essential; it is expected. Every lender engaging in business with FHA is expected to perform and maintain quality underwriting standards. FHA has flexible guidelines in place so we can best serve our mission of providing affordable housing opportunities to American families and be a source for insuring the availability of mortgages in a time of market contraction. We delegate that responsibility to you, our lender partners, each and every day. We expect your organization to have the right people and processes in place to make quality underwriting decisions, perform thoughtful analysis of a borrower’s ability to repay the loan, and adhere to realistic underwriting ratios.
We know that in today’s economy, there are a wide range of applicant profiles. We expect you to ensure that your processes and staff are well-equipped to assess the overall quality of the loan, determine a realistic income level and analyze the borrower’s true ability to repay the loan. It is imperative we look at income levels, credit history, and qualifying ratios realistically and make decisions responsibly.
To ensure that our partners perform the quality underwriting we expect, we have refined and re-tooled our loan level review processes to more effectively spot unsatisfactory underwriting performance. Utilizing updated risk targeting criteria and a collaborative approach, we are executing an enhanced strategy to identify underwriting deficiencies and take action to protect FHA from unwarranted risks and losses. This comprehensive and calculated risk management endeavor will permit us to single out those lenders that are needlessly endangering FHA and the continued availability of its programs.
FHA’s loan level review processes have been enhanced to more effectively manage risks and minimize losses arising from poorly underwritten or fraudulent loans. Processes have been modified and aligned across all Single Family offices to achieve a collaborative and comprehensive approach to evaluating loans throughout the loan lifecycle. For Post-Endorsement Technical Reviews, case selection criteria have been revised and review procedures enhanced and standardized. For lender and servicer reviews, the targeting tools and methodology have been strengthened to better target lenders and loans that pose the greatest risks to FHA.
And, as FHA continues to increase our quality control efforts, we are paying close attention to areas where some may try to take unique advantage of the flexibility of FHA without the appropriate focus on quality. One example is in how loans are originated for our non-FHA to FHA refinanced loans. Even with our FHA streamline refinance program we can identify risk simply by looking at the original loan quality before it was refinanced into an FHA loan. Through this process of reviewing the original loan we can ensure that it was a quality loan and one of FHA caliber.
Affordable products are core to FHA serving its mission. FHA plays a critical role in the market. Not only does FHA help to stabilize the housing recovery by providing liquidity at a much needed time, but FHA, as a mission driven organization, also has a goal to provide affordable homeownership opportunities in America. We want to make sure those who buy a home today, buy a home they can keep over the long term.
Our affordable lending programs and those specifically created to help during the housing crisis, such as Hope for Homeowners, are designed to provide flexibility to serve this unique, often distressed segment of the population. We expect you to maintain the spirit and intention of these programs by providing close control over how these programs are executed in the marketplace and how compensation on these loans is paid to your staff. We need to learn from past lessons and protect consumers from behaviors where they are overcharged or adversely selected. We are paying close attention to how these programs are administered and expect you will too. Lenders must keep very close control over compensation programs to ensure borrowers are not paying more than they should to have access to FHA’s affordable programs.
We have to join together to oppose predatory lending, fraud, and irresponsible business practices that threaten the housing industry and the financial security of homeowners and people trying to save for retirements. We have to create a climate of trust and confidence that will attract investors and free liquidity. If we are wise now, the market will be healthier and more secure in the future.
Our goal must be nothing less than to craft a solid, sustainable housing market, a market with a secure foundation based on trust and integrity for the future. Let’s continue to work together.
Borrowers face foreclosure after Obama loan assistance program fails to provide help
WASHINGTON (AP) -- The Obama administration's flagship effort to help people in danger of losing their homes is falling flat.
More than a third of the 1.24 million borrowers who have enrolled in the $75 billion mortgage modification program have dropped out. That exceeds the number of people who have managed to have their loan payments reduced to help them keep their homes.
Last month alone,155,000 borrowers left the program -- bringing the total to 436,000 who have dropped out since it began in March 2009.
About 340,000 homeowners have received permanent loan modifications and are making payments on time.
Administration officials say the housing market is significantly better than when President Barack Obama entered office. They say those who were rejected from the program will get help in other ways.
But analysts expect the majority will still wind up in foreclosure and that could slow the broader economic recovery.
A major reason so many have fallen out of the program is the Obama administration initially pressured banks to sign up borrowers without insisting first on proof of their income. When banks later moved to collect the information, many troubled homeowners were disqualified or dropped out.
Many borrowers complained that the banks lost their documents. The industry said borrowers weren't sending back the necessary paperwork.
Carlos Woods, a 48-year-old power plant worker in Queens, N.Y., made nine payments during a trial phase but was kicked out of the program after Bank of America said he missed a $1,600 payment afterward. His lawyer said they can prove he made the payment.
Such mistakes happen "more frequently than not, unfortunately," said his lawyer, Sumani Lanka. "I think a lot of it is incompetence."
A spokesman for Bank of America declined to comment on Woods's case.
Treasury officials now require banks to collect two recent pay stubs at the start of the process. Borrowers have to give the Internal Revenue Service permission to provide their most recent tax returns to lenders.
Requiring homeowners to provide documentation of income has turned people away from enrolling in the program. Around 30,000 homeowners started the program in May. That's a sharp turnaround from last summer when more than 100,000 borrowers signed up each month.
As more people leave the program, a new wave of foreclosures could occur. If that happens, it could weaken the housing market and hold back the broader economic recovery.
Even after their loans are modified, many borrowers are simply stuck with too much debt -- from car loans to home equity loans to credit cards.
"The majority of these modifications aren't going to be successful," said Wayne Yamano, vice president of John Burns Real Estate Consulting, a research firm in Irvine, Calif. "Even after the permanent modification, you're still looking at a very high debt burden."
So far nearly 6,400 borrowers have dropped out after the loan modification was made permanent. Most of those borrowers likely defaulted on their modified loans, but a handful either refinanced or sold their homes.
Credit ratings agency Fitch Ratings projects that about two-thirds of borrowers with permanent modifications under the Obama plan will default again within a year after getting their loans modified.
Obama administration officials contend that borrowers are still getting help -- even if they fail to qualify. The administration published statistics showing that nearly half of borrowers who fell out of the program as of April received an alternative loan modification from their lender. About 7 percent fell into foreclosure.
Another option is a short sale -- one in which banks agree to let borrowers sell their homes for less than they owe on their mortgage.
A short sale results in a less severe hit to a borrower's credit score, and is better for communities because homes are less likely to be vandalized or fall into disrepair. To encourage more of those sales, the Obama administration is giving $3,000 for moving expenses to homeowners who complete such a sale or agree to turn over the deed of the property to the lender.
Administration officials said their work on several fronts has helped stabilize the housing market. Besides the foreclosure-prevention plan, they cited government efforts to provide money for home loans, push down mortgage rates and provide a federal tax credit for buyers.
"There's no question that today's housing market is in significantly better shape than anyone predicted 18 months ago," said Shaun Donovan, President Barack Obama's housing secretary.
The mortgage modification plan was announced with great fanfare a month after Obama took office.
It is designed to lower borrowers' monthly payments -- reducing their mortgage rates to as low as 2 percent for five years and extending loan terms to as long as 40 years. Borrowers who complete the program are saving a median of $514 a month. Mortgage companies get taxpayer incentives to reduce borrowers' monthly payments.
Consumer advocates had high hopes for Obama's program when it began. But they have since grown disenchanted.
"The foreclosure-prevention program has had minimal impact," said John Taylor, chief executive of the National Community Reinvestment Coalition, a consumer group. "It's sad that they didn't put the same amount of resources into helping families avoid foreclosure as they did helping banks."
May foreclosure notices level off but remain high; banks give delinquent borrowers more time
WASHINGTON (AP) -- The foreclosure crisis appears to be leveling off.
The number of people facing foreclosure is nearly flat from a year ago, according to the latest report from a private foreclosure listing service. A third fewer people are receiving legal warnings that they could lose their homes. And foreclosures are receding in some of the hardest-hit cities.
Still, the number of foreclosures remains extraordinarily high. Experts caution that a big reason for the stabilization is that banks are letting delinquent borrowers stay longer in their homes rather than adding to the glut of foreclosed properties on the market. New consumer protection laws, which vary by state, have also meant borrowers can spend more time in their homes.
A new wave of foreclosures could be coming in the second half of the year, especially if the unemployment rate remains high, mortgage-assistance programs fail, and the economy doesn't improve fast enough to lift home sales.
"It's not anything like a recovery yet," said Rick Sharga, a senior vice president at RealtyTrac Inc., a foreclosure listing service.
RealtyTrac reported Thursday that nearly 323,000 households, or one in every 400 homes, received a foreclosure-related notice in May. That was up 0.5 percent from a year earlier but down 3 percent from April. The report tracks notices for defaults, scheduled home auctions and home repossessions.
But in a sign that the crisis is far from over, the number of homeowners who lost their homes to foreclosure hit a record of nearly 94,000 in May. That number may finally peak next year, as lenders try to work their way through millions of delinquent loans.
Economic woes, such as unemployment or reduced income, are the main catalysts for foreclosures this year. Initially, lax lending standards were the culprit. Now, homeowners with good credit who took out conventional, fixed-rate loans are the fastest growing group of foreclosures.
A record high of more than 10 percent of homeowners with a mortgage had missed at least one payment as of the end of March, according to the Mortgage Bankers Association. But the number of homeowners just starting to show trouble is trending downward as the economy improves.
"That's a very good thing," said Thomas Lawler, an independent housing economist in Virginia. But he noted that even with that positive trend, "you are highly likely to see an acceleration in the number of actual completed foreclosures."
Lenders are offering to help some homeowners modify their loans. But many borrowers can't qualify or they are falling back into default. The Obama administration's $75 billion foreclosure prevention effort has made only a small dent in the problem.
About 25 percent of the 1.2 million homeowners who started the program over the past year had received permanent loan modifications as of April. About 23 percent of those enrolled dropped out during a trial phase that lasts at least three months. Many more are in limbo.
Among states, Nevada posted the highest foreclosure rate in May. One in every 79 households there received a foreclosure notice. However, foreclosures there are down 16 percent from a year earlier.
Arizona, Florida, California and Michigan were next among states with the highest foreclosure rates. Rounding out the top 10 were Georgia, Idaho, Illinois, Utah and Maryland.
Las Vegas continued to be the city with the nation's highest foreclosure rate, but activity there was down 18 percent from a year earlier. And nine out of the top 10 cities with the highest foreclosure rates posted annual declines. The exception was the Vallejo-Fairfield area in California, where foreclosures were up 1 percent from a year ago.
Foreclosed homes are typically sold at steep discounts, lowering the value of surrounding properties. That's a concern for local communities, and a drag on the economic recovery.
In recent months, home prices have started to sink again after stabilizing last summer. Economists at Goldman Sachs predicted in a report last week that prices will fall about 3 percent nationally over the next year, with the largest declines in cities where mortgage defaults are rising.
"The housing market remains plagued by enormous excess supply," wrote Goldman economist Sven Jari Stehn.
“Home buyer tax credits clearly did their job and got people back into the marketplace,” said NAHB Chief Economist David Crowe, who also served as moderator of the webinar.
With the expiration of the tax credits in April, Crowe said the housing momentum is being carried forward by low interest rates, pent up household formations, stabilizing prices and budding employment growth.
However, many factors continue to drag on housing at this time–including the critical shortage of credit for new and existing projects, competition from short sales and foreclosures and regional economic disparities.
The availability of acquisition, development and construction (AD&C) financing remains a major concern as the industry moves forward, Crowe said. “Builders still tell us that credit is extremely tight. Banks are saying not so much. That gap is an indication that something is broken, at least when it comes to residential construction.”
NAHB is forecasting 552,000 single-family starts in 2010, up 25% from last year’s 445,000 level, which was the lowest annual output since 1959 when the government began collecting this data.
Suffering from an acute shortage of available financing and a significant shadow inventory of homes lost to foreclosure that are competing against normal inventory, Crowe said that multifamily housing starts are expected to lose further ground this year, falling 18% to 93,000 units, before rebounding to 150,000 units in 2011.
Crowe anticipates that nationwide home prices will remain flat this year and post a modest increase in 2011 and that mortgage interest rates will continue to stay low, barely breaking 6% by the end of this year, and not rising much above that level through 2011.
The road back to normal levels of residential construction will be longer for some states than others. By the end of 2011, the top 20% of the states will see their production levels back to normal. Those states include Texas, Oklahoma, Montana, Wyoming, Tennessee, Louisiana, Mississippi, Alabama, Arkansas and Kansas. The previous boom markets in California, Arizona, Florida and Nevada, along with the Great Lake states of Michigan, Indiana, Ohio, Illinois and Wisconsin that were hit by deep cuts in auto production and manufacturing, will be the last ones to recover.
Housing Demand Reflects Job GrowthLike his co-panelists, Mark Zandi, chief economist of Moody’s Analytics, said that housing will improve as the job market does. He forecast that the economy will average monthly job gains of 125,000 this year, 250,000 in 2011 and 300,000 in 2012.
Mirroring anticipated employment growth, Zandi expects GDP to rise 3% this year, approximately 4% in 2011 and closer to 5% in 2012.
The key factor driving housing demand is jobs, said Zandi. “We’re not going to get home sales unless we have jobs. Here the prospect is good. Business balance sheets are in good shape and improving rapidly. These are pre-conditions for better job growth and we should see the job market steadily gain traction.”
Zandi forecast that overall housing starts will total 700,000 units this year, close to 1 million in 2011 and about 1.7 million by 2012, which he describes as close to trend and consistent with demographics in a normal functioning economy.
Driven largely by the high foreclosure rate, Zandi expects that home prices will continue to fall modestly in 2010, down about 5% on a national average. He calculates that the difference between supply and demand is approximately 750,000 units annually, and it will require until the end of 2011 to work off this extra inventory.
“The good news,” he said, is “as the job market improves, so will household formations and demand. So I anticipate we will work off the excess inventory more quickly than the two-year period.”
He added that most of the housing surplus is regionally concentrated in Florida, around Atlanta, along the South Carolina coast, in Las Vegas, Phoenix, and Tucson and in the central valley of California.
Consumers Fuel RecoveryTaking the most bullish approach to the ongoing recovery, Chris Varvares, president of Macroeconomic Advisers, LLC, forecast that GDP will rise 3.7% this year and that housing starts will total 750,000, well above the Blue Chip Economic Indicators consensus of 690,000.
“Personal consumption expenditures are making a very solid recovery,” said Varvares. “Residential investment is going from a drag to a contributor. The difference between our forecast and the consensus is the strength in personal consumption and housing.”
Although the huge number of foreclosures on the market are accounting for about 300,000 to 400,000 fewer starts than there otherwise would be, Varvares said the fundamentals still point to a solid trajectory for housing.
“With prices stabilizing, demand is picking up and we expect builders to respond. By the end of 2011, we expect about 1.2 million housing starts. This suggests we can have recovery in starts this strong while simultaneously working down excess housing inventory.”
The panelists were in unanimous agreement on a number of areas–the Federal Reserve will likely continue to keep interest rates near rock bottom levels at least through the end of the year; the chance of a double dip recession is extremely slim; and policymakers will need to take action within the next two years to increase revenues and cut spending to rein in the burgeoning structural deficit.
For more information, visit www.nahb.org.
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