Breaking Financial News

You may not have heard of this yuan yet – but the renminbi officially has a new, unofficial nickname – the “redback.” That’s right, it looks and sounds the way you think it’s trying to look and sound.  Not only is the renminbi note red, but it’s got a picture of Mao on the front.  Okay? – let’s get that part out of the way.  (See: the difference between “yuan” and “renminbi”)

Recent reports indicate that China’s currency is on track to become one of the world’s top three trading currencies in just 3-5 years.  That’s not so hard to believe, now that China is already the world’s largest auto maker, the world’s largest producer of rare metals, the second largest holder of US debt (the largest is now actually the Fed itself) and potentially a vastly larger economic market than the U.S. ever was.

How Your Strategy Should Change if The Redback Becomes a Reserve Currency

Rise of the Chinese Redback

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Tags: Redback, Redback Replacement

AMERICA’S south-west may be a very dry place but nowhere else in the country are more homeowners “under water”, owing more on their mortgages than their homes are worth. In cities like Phoenix and Las Vegas prices have fallen by up to 50% from their peak; more than half the mortgages in Arizona and Nevada are in negative equity (see map). Yet the problem is national. One in four American borrowers are under water. Over 4m households owe at least twice as much as their home is worth.

Such inundations have nasty effects. Homeowners that are reluctant to default but unable to sell at a loss are left stuck where they are. This throws sand in the gears of America’s famously fluid labour market. A recent IMF paper attributes 0.5 to 1.25 percentage points of America’s unemployment rate to this factor. Defaults may be an even bigger problem. Job losses will often push underwater borrowers into default since a sale isn’t a realistic option.

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Mortgage lenders in the UK have called on the Financial Service Authority (FSA) to alter their plans to restrict mortgage lending . The Council of Mortgage Lenders (CML) has warned that such a move by the financial regulator is flawed and impractical.

The FSA is introducing the changes in an attempt to curb irresponsible lending, arguing that borrowers should be protected from taking out expensive home loans that they can?t afford, which leaves them exposed to having their house repossessed. The regulator first proposed that self-certified lending should be banned last year, and began consulting on a wider raft of plans in July this year, which is making the CML concerned that the move will affect any positive movement in mortgage lending in the future.

Michael Coogan, director general of the CML, commented that their research showed “a wide range of evidence that suggests there would be a range of negative, unintended outcomes from the implementation of the FSA’s policy and proposed rules as currently drafted.”

The FSA, on the other hand, have said mortgage lenders have been guilty of major failures, such as risky lending that contributed to unaffordable borrowing before the credit crisis . Read more…

Tags: Lending

Lasr Friday I noted that the combined REO (Real Estate Owned) inventory for Fannie, Freddie and the FHA increased by 24% at the end of Q3 2010 compared to Q2 2010. However this is just a portion of the overall REO inventory.

Click on graph for larger image in new window.

Here is the graph I posted last Friday showing the REO inventory for Fannie, Freddie and the FHA through Q3 2010.

The REO inventory for the “Fs” increased sharply over the last year, from 153,007 at the end of Q3 2009 to a record 293,171 at the end of Q3 2010.

As I noted, this is just a portion of the total REO inventory. Private label securities and banks and thrifts also hold a substantial number of REOs.

The following is from housing economist Tom Lawler:

While the SF REO inventory of “the F’s” – Fannie, Freddie, and FHA – surged last quarter, the SF REO inventory for private-label RMBS continued to decline (and the overall size of the RMBS market continued to shrink.

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Tags: Reo