Monday Morning Coffee

Monday Morning Coffee

Anybody Need a Few (thousand) Notepads?

Monday Morning Coffee

Monday Morning Coffee

Stupid Peppers!

Good morning,
I hope you had a great weekend. I had another interesting (and humorous for you) event in the garden. Cori and I were cleaning up some tomato plants that were way past their prime and decided to sample a lone bell pepper from a sickly looking plant. It was ok, so we decided to try a sample of the smaller sweet peppers we are growing. The timing went something like:

• Scott takes a small bite and the taste is neutral.
• Scott pops the small pepper into his mouth, chews 3 times and swallows.
• Cori says, “Hey, didn’t you plant some habaneros back here”
• OMG!!!!
That was painful.

Real estate was not quite as bad, but it is definitely slow. It is too early to look at the October numbers, but I will have them here next week and on the radio show Wednesday (AM 1000 at 7:30am). I expect sales numbers to be down more than 20% from last year. (more…)

Inflation, Deflation, and Investing in Real Estate

Real Estate for Cash Flow Rather than Appreciation

It seems like the experts can’t decide if we are going to have inflation or deflation.  If you’re a real estate investor, you need to figure which is more likely, and then decide what it means for your investment goals.   My belief is that the answer is fairly complicated and that many people need to look at real estate as a good investment, but for a different reason and with different goals than in the immediate past.

It is my opinion that we have been and currently are in a deflationary period.  Home prices are down, rents are down, milk and eggs are cheaper.  Even if an item itself has not gone down in price, the consumer has shifted to less expensive alternatives (when was the last time you saw a new Hummer on the road?)  We are in an unusual period where consumers are deleveraging.  Most people I talk to say if you gave them an extra $10k, they would use it to pay off a credit card, not buy more “stuff”.   We are all busy paying for the fun toys we bought and trips we took several years ago.  At least the fortunate are, there are close to 20% of us that are unemployed or underemployed.  So, I think that right now, we are in a deflationary period, but what happens next?

I believe that the current period of deflationary prices and low interest rates will be replaced in several years by higher inflation and higher interest rates.  If you agree, you can skip to the end of this post to the real estate analysis, if you are not sure, you can read the next couple sections to see if it makes sense. (more…)

Monday Morning Coffee – US Resale Home Sales

Monday Morning Coffee

US Home Resales Come in Low – But Within Expectations

Good morning,

I hope you had a great weekend.  Ours was very quiet – a lot of housecleaning!

Last week, the August resale numbers came out.  As expected, it was the lowest August on record, but it was in line with what was expected.  The hope is that after a couple of months of “down” demand after the tax credit expiration, that sales will start to get back to normal in the next couple of months.

Looking at current San Diego numbers for September, it does not look like we will apprach last year’s number of around 3,100 homes sold.  We are currently sitting around 1,700 with a few days left in the month.  If the number gets up to 2,500, then we will be off 20% from last year, which probably would not be too concerning considering July was off by the same amount. (more…)

Resale Numbers and the Success of HAMP

Resale Numbers Dissappoint – but…  HAMP was a Success!

NAR released the July home resale numbers, and as predicted, they fell significantly.  The fell far below analysts expectations, and even farther that I predicted in my Coffee on Monday.  Here are two graphs that illustrate the results (once again taken from www.CaluclatedRiskBlog.com)

This first one shows home sales by month (resale homes only):

Existing Home Sales Slump in July

You can see the trend was clearly down until early 2009 when the administration stimulated the housing market with the tax credit.  Sales spiked in November of 2009 with the scheduled expiration of the tax credit and then again early this year with the real end of the tax credit.  Now, we have resumed the downard trend.  Based on August numbers in the San Diego market so far (I know, small sample size), it looks like things may get a little worse (July sales were down in San Diego 20% from a year ago and I think August will be down about 24%), I will look at the numbers more closely in next week’s Coffee. 

With the combination of slower sales and more homes being put on the market by builders (new construction spurred by the short term rise in demand), banks (more aggressively processing foreclosures), and individuals (summer season sees more homes offered for sale), inventory as measured by months of sales, spiked:

Nationwide Inventory Jumps to over 12 months

Ouch, that’s a big jump.  Inventory rising that quickly in one month is a bad indicator.  Plus, as foreclosures will continue to be put on the market, this number could grow to 14-15 months.  Inventory levels over 6-7 months usually result in lower prices.  Fortunately, we are in much better shape here in San Diego with inventory levels still under 5 months.  However, significantly lower sales levels in August will drive that number up.

I found an interesting article about a meeting at the Treasury between top players there (including Geitner) and several prominent bloggers.  You can see the article here.  The blog this is taken from is www.interfluidity.com.  The interesting part was when they addressed HAMP, you know, the Home Affordable Modification Program.  While it has been considered by most to be a failure, the Treasury thinks it was a success because it basically pushed the foreclosure problem down the road 3-6 months so the banks could recover.  The argument was that if all the homes had been foreclosed on instead of going through the delay, the system might have failed:

The conversation next turned to housing and HAMP. On HAMP, officials were surprisingly candid. The program has gotten a lot of bad press in terms of its Kafka-esque qualification process and its limited success in generating mortgage modifications under which families become able and willing to pay their debt. Officials pointed out that what may have been an agonizing process for individuals was a useful palliative for the system as a whole. Even if most HAMP applicants ultimately default, the program prevented an outbreak of foreclosures exactly when the system could have handled it least. There were murmurs among the bloggers of “extend and pretend”, but I don’t think that’s quite right. This was extend-and-don’t-even-bother-to-pretend. The program was successful in the sense that it kept the patient alive until it had begun to heal. And the patient of this metaphor was not a struggling homeowner, but the financial system, a.k.a. the banks. Policymakers openly judged HAMP to be a qualified success because it helped banks muddle through what might have been a fatal shock. I believe these policymakers conflate, in full sincerity, incumbent financial institutions with “the system”, “the economy”, and “ordinary Americans”. Treasury officials are not cruel people. I’m sure they would have preferred if the program had worked out better for homeowners as well. But they have larger concerns, and from their perspective, HAMP has helped to address those.

It’s an interesting take, and correct from the standpoint that it helped the system.  Isn’t it interesting that when the politicians sold it to us, they emphasized the saving of people’s homes rather than saving the system.  Also a sidelight to watch is  now that the stimulus is over, we are seeing the foreclosures that were delayed by HAMP start to be processed just as demand is falling.

Monday Morning Coffee – Home Sales Data out Tomorrow

Monday Morning Coffee

New Listings Plus Home Sales Data out Tomorrow

Good morning,

I hope you had a nice weekend.  Mine was interupted by something called the Security Tool virus.  A bundle of joy that took 5 hours to fix (of course, I didn’t fix it – luckly, I have a client who is much more familiar with network security who spent a good part of his weekend fixing it.  Thanks Marc!)  I did find time to work with Cori and make our first ever batch of jam from our tree (golden nectarines).  The good news is it tastes good and the jars sealed.  The bad news is it didn’t jell, so we have lots of golden nectarine sorta jelly runny stuff.  Oh well.

This week, the big real estate news will come on Tuesday when the National Association of Realtors announces the Existing Home Sales for July.  Last month was off a bit as the affect of the tax credit started to appear.  This month, I expect it to be off a lot.  The “experts” are predicting a rate of 4.65M annual sales (June was 5.27M).  I think that the number will be closer to 4.0M – in which case the stock market will probably react negatively as a number that low could be seen as a strong indicator of a double dip in housing. (more…)

Updated Foreclosure Data

Updated Government Foreclosure Data

This week, the government released some updated foreclosure date from Q2.  These charts are re-prints from a blog I subscribe to called CalculatedRisk.   It can be found at www.CalculatedRiskBlog.com  I highly recommend it as the person who runs it does a pretty good job of assimilating different economic data.  Even if I don’t always like it, which brings me to the following charts:

Government Guaranteed and Owned Foreclosures

This first chart shows that Fannie, Freddie and FHA are now the proud owners of almost 250,000 homes (this is not all the foreclosures, just the ones taxpayers are on the hook directly for).  The number is increasing as banks are processing more foreclosures for people who just don’t qualify for a loan modification. 

This next chart taxes it a step farther and is really what caught my attention, it shows how many people are upside down on their mortgages.  This is important because if the economy were to go into another recession, these are people who have less incentive to hold onto their homes.  I look at it as the worst case, since anyone with positive equity would try to sell and avoid foreclosure. 

Almost one-third of homeowners are underwater

 The number are scary – 30.6% of homeowners under water and a total of almost $2.4B under water (this is just the portion of their loan in excess of the home value).  Also, these are first mortgages; more people are under water if you consider their second mortgages also.  But, it’s not all bad.  The next chart made me happy I don’t live in Nevada!

Negative Equity by State

Ouch.  California doesn’t look as bad as some of these other states.  And, for those of us in San Diego, we’re better off than most of California.

 Combining all three of these charts, it is evident that the housing recovery is tenuous at best.   Combined with the slowing pace of sales after the tax credit expiration I believe it is cause for concern.

Monday Morning Coffee – Quarterly Mortgage Report

Monday Morning Coffee

OCC and OTS Mortgage Metrics Report for Q1, 2010

Good morning,

I hope you had a great weekend.  Ours was a nice, quiet one with nothing remarkable – which seems in itself, remarkable. 

Every quarter, I have gone through the report from the Treasury department on the mortgage market called OCC and OTS Mortgage Metrics Report.  The report usually comes out about a quarter after the data it is reporting as it takes awhile to compile it.  I have to confess, that I received the report in early July, but did not look at it until last week.  I am not going to go into as much depth as I usually do because the report was mostly more of the same, but here are a few highlights and lowlights:

• Delinquency rates dropped during the first quarter on all loan types (Yea!)
• The number of foreclosures increased substantially (Boo!)
• Modifications and other retention actions also increased (Yea!)
• Re-default rates for modified mortgages remains high (over 50% are 60+ days late after 12 months) (Boo!)

The last detail I took out of the report has the potential to be good news.  Modifications done in the last 3 quarters have had a lower re-default rate than those done previously.  This is because lenders are working harder to create a significant difference in payments when loans are modified now than in the past.  However, the difference in the re-default rate gets less and less the farther out from the modification date.  In other words, it is possible, that the new modifications are only delaying the re-defaults and not eliminating them.  We won’t know for sure for another couple of quarters, but at least there’s a possibility the efforts might be succcessful.

We don’t have any new listings this week, but are working on a smaller detached home in 4S for next week.

That’s it, enjoy the Coffee!

This week, the Coffee is not a motiviational or inspirational story, I am venturing out on a limb.  I read something a couple of weeks ago that really made me angry.  I try and walk a fairly neutral political line as I have friends and family who are both on the far right and the far left.  I tend to sit in the camp that distrusts most politicians from all parties.  I definitely am in the group that doesn’t care for large political action commities or lobbies (yes, I am aware I am a Realtor and we have one of the strongest of all – that doesn’t mean I think it’s right).  This particular story is a prime example of one lobby putting its members above the children they are supposed to help.  It may be old news to many of you, but for the life of me, two weeks after first reading it, I still don’t get it.

The education debacle of the decade

By Bob Ewing | Published: 3:30 PM 07/06/2010

Dr. Patrick Wolf spoke to a packed audience in the Capitol Visitors Center last Monday.

The seats were full and people stood all along the edges of the room, even spilling out into the hallway.  We all came to hear him explain his latest research on the tiny education program that has caused a national uproar—arousing so much passion that African-American leaders from around the country recently gathered downtown to engage in an act of civil disobedience.

The Department of Education commissioned Wolf to conduct a series of detailed studies on the results of the Washington DC Opportunity Scholarship Program (OSP).  Established in 2004 as a five-year pilot program, OSP is among the most heavily researched federal education programs in history.

OSP targeted about 2,000 of the poorest kids in DC who were stuck in some of the worst schools in the country.  It gave their parents a $7,500 scholarship to attend a private school of their choice.

The response was immediate.  Four applications were filled out for every slot available.    Parents loved the program, considering it a lifeline for their children, a way to escape failing schools and enter safe, functional schools.

Everyone knew OSP would be a bargain.  DC has among the highest spending per pupil in the nation.  At a conservative estimate of $17,542, the public schools spend over $10,000 more per child than the $7,500 spent through the scholarship program.

But would OSP achieve measureable results?

The answer is a resounding yes.  Previous studies by Wolf showed an improvement in academic performance, to the point that a student participating in OSP from kindergarten through high school would likely be 2 ½ years ahead in reading.  The key finding in this final round of research, Wolf told us, was the graduation rates.   OSP dramatically increases prospects of high-school graduation.

Wolf pointed to research showing that high-school diplomas significantly improve the chance of getting a job.  And dropouts that do find employment earn about $8,500 less per year than their counterpoints with diplomas. Further, each graduate reduces the cost of crime by a stunning $112,000.  Cecelia Rouse, an economic advisor to President Obama, found that each additional high school graduate saves the country $260,000.

Simply put, OSP has a profoundly positive effect not just on students, but on the city and the country as a whole.

So when it came time for Congress to reauthorize OSP, it would seem to be a no-brainer:  Expand the program.

Instead, they killed it.

Buried deep inside a 1000+ page, half-trillion-dollar spending bill was a provision that prohibited any new students from entering the program.  To top it off, the 216 new students added to OSP for the new academic year were pulled out by Education Secretary Arne Duncan just before the school year started.

Why did this happen?  According to former DC Mayor Anthony Williams and former DC Councilman Kevin Chavous (both Democrats), the answer is politics at its worst.

Williams and Chavous co-authored an op-ed arguing that politicians opposing OSP “are largely fueled by special-interest groups that are more dedicated to the adults working in the education system than to making certain every child is properly educated.”

The editorial board of the Washington Post put it a little more bluntly:

It’s clear, though, from how the destruction of the [OSP] program is being orchestrated, that issues such as parents’ needs, student performance and program effectiveness don’t matter next to the political demands of teachers’ unions.

The Post board also wrote that “the debate unfolding on Capitol Hill isn’t about facts.  It’s about politics and the stranglehold the teachers unions have on the Democratic Party.”

As it turns out, the teachers unions are the single largest contributor to federally elected politicians, with the vast majority of their funds going to Democrats.  The teachers unions don’t like programs like OSP because when parents have the freedom to choose, they may choose schools that don’t have unionized teachers.

DC Congresswoman Eleanor Holmes Norton was one of the principal opponents of OSP and was instrumental in ending the program.   Guess who her largest donor is?  (American Federation of Teachers.)

The three main critiques of OSP are that it takes money away from the public schools, is not accountable and does not provide a cure-all solution to improving education.  None of these critiques has merit.

First, OSP takes no money away from public schools.  By stark contrast, it pumps millions of dollars into the public schools. OSP is funded with new federal money as part of a plan that allocates matching funding directly to the public schools.  So for every dollar that goes to OSP, the public schools get an extra dollar.

Plus, the public schools get to keep all the money saved through OSP.  This means that in addition to the matching funds, the public schools receive over $10,000 for every child in OSP—children that the public schools do not have to educate.  Also worth noting, the Education Secretary has a $159 billion budget with billions going to education programs that are unproven.

Second, OSP is truly accountable.  Parents care about the welfare of their individual children more than any politician or bureaucrat. The parents are overjoyed with the program, unlike their prior dissatisfaction with the DC public schools they are desperate to escape.

Third, DC kids need help right now and OSP provides it.  Systemic reform takes time, and while we all should support and applaud recent efforts to reform the public schools, it will be years before they perform as well as the private schools that the OSP students attend, if they ever do.  That is, children in school today need help today.  They cannot wait for years or decades for reform to hopefully come.  

To his credit, Education Secretary Arne Duncan acknowledged that the OSP students are “safe and learning and doing well.” He argued, “We can’t be satisfied with saving 1 or 2 percent of children and letting 98 or 99 percent down.”
The obvious answer would seem to be to expand OSP and “save” more kids, not shut it down and force 100 percent of DC students to be “let down.”

When Congress killed OSP, there was a national backlash.  Editorials in papers across the country denounced the decision.  Thousands of kids from several states rallied on Capitol Hill to save the program.  Black leaders gathered in an act of civil disobedience before the front doors of the Department of Education.  They pointed out that just about half of African-American and Latino students are graduating from high school today and the OSP students are almost completely African-American and Latino.

Even the DC public-school chancellor supported OSP and told Congress that the public schools would likely not be able to reabsorb the students and give them the same quality education.  The DC City Council went so far as to petition Arne Duncan to reverse his decision.

Duncan understands the importance of school choice.  He famously said that “my family has given up so much so that I could have the opportunity to serve; I didn’t want to try to save the country’s children and our educational system and jeopardize my own children’s education.”  So he chose to send his kids to public schools in Virginia rather than DC.

In fact, 38 percent of Congress chooses to send their kids to private schools.  That’s four times the national average.  A vote in the Senate to save OSP was defeated 58-39.  If only the Senators who exercise school choice themselves had voted in favor of OSP, the program would have been saved.

And so OSP will end.  Thankfully, the students currently enrolled will be able to continue through to graduation.  But with no new students allowed in the program, it will die through attrition.

I’ve had the pleasure of working with the OSP parents and kids for the last four years. And I’ve come to know many of them personally, and experience firsthand their reaction to the heartbreaking news.

Latasha Bennett’s son, for example, attends an excellent school on a scholarship and he’s doing great.  Her daughter was going to attend  kindergarten at the same school, thanks to OSP.  And then Latasha got the letter from Arne Duncan stating that her daughter was being forced to leave the program.  Her son was safe, but her daughter was one of the 216.  Latasha cannot afford the school’s tuition and the charter schools were all filled up by the time Duncan’s rejection letter showed up.  So her daughter had no option but to attend the local public school, which has two-thirds of its students failing to meet basic benchmarks in math and reading.

In fact, 90 percent of the 216 kids shut out of OSP were reassigned to failing public schools.

It’s too late to save OSP.  But thankfully, elsewhere the tide is turning.  Two weeks ago a bi-partisan school choice bill was signed into law in Louisiana.  It comes on the heels of a similar program in Oklahoma and is the nation’s 20th school choice program.

People will continue to have intelligent and respectful debates about school choice and education reform.  And whether we are liberal, conservative, libertarian or independent, we can all agree that special interest groups should not be able to force politicians to kill cost-effective programs that work.

It boils down to this:  Parents deserve the freedom to choose the schools that best meet their needs.  And every child, regardless of background, deserves a quality education.  We should not dash their hopes and their futures to appease the politically powerful.

________________________

I wish I could send you in a direction to protest or that I had a great plan.  But, I am dumbfounded.  I don’t get it.  A teachers’ union did this to kids?  Maybe there’s another side to this story, but after 2 weeks, I have not seen it.

Have a great week,

Scott

Inside the Numbers

New Home Sales and Case-Shiller Numbers Easily Misunderstood

This week, two important real estate numbers were reported that had a positive spin put on them that wasn’t really warranted. 

First, New Home Sales were announced for the Month of June by the Census Bureau.  Last month, the May number was reported at 300,000 homes (on an annualized basis) and the forecast was for the sales rate to be at 310,000 homes (annualized) in June, providing an average for the two months of a 305,000 sales rate.  The June number surprised to the high side, coming in at 330,000 which helped spark the market on Monday.  The problem?  The May number was revised downward to 267,000 to provide an average for the two months of 298,000 homes, LOWER than the forecast.  I don’t know why the initial forecast was off by 11% for May.  It could be that since new home sales are calculated when the contract is signed and not when the sale closes, many of the sales cancelled.  If that’s the case,  I would think that the Census Bureau would have allowed for that.  It’s a pretty big mistake, and hopefully we don’t see it again next month.  I like the fact that the government was able to put a positive spin on a negative number, but surprised that the press didn’t question it at all.

The second number was the Case-Shiller Home Prices Index that was released on Wednesday.  The 10 city composite was up 5.4% and the 20 city composite was up 4.6% compared to a year ago.  Case-Shiller is a great index and tool for tracking the real estate market and I know a lot of large banks and investors rely on it because it actually looks at sales of the same home over different periods rather than a median which changes as the size and type of home change.  This makes it a very reliable number.  The weakness is that it is not able to track recent trends.  The reason is that it is a 3 month moving average with a 2 month lag.  In other words, the numbers that were reported up on July 27th were the months of March, April and May – the end of the tax credit when people were paying more than homes were worth to capture the tax credit.  We won’t see the result of the end of the tax credit until the July, August, and September numbers come out in late November. 

So, while I welcome the good press for the real estate market, tread carefully; there was more to the story.

Treasury Department Foreclosure Report

Foreclosure and Mortgage Deliquencies

Q4 2009

I finally finished the OCC and OTS Mmortgage Metrics Report for the fourth quarter of 2009 (I know you’re jealous at how much fun I get to have).   The report looks at all first liens held by most of the largest mortgage servicers.  It covers almost 34 million loans totaling almost $6 trillion.  It is the raw data before it gets spun by the press or politicians.  Here are some highlights and lowlights from the report:

Delinquent Mortgages

• Mortgage performance declined for the seventh consecutive quarter.  Delinquent mortgages and mortgages in foreclosure rose to 13.6% of all mortgages (once again, just talking about first mortgages).

• The percentage of mortages 30-59 days late stayed stable, most of the increase was in seriously delinquent mortgages.  This may be a positive as it is showing that the pace of new delinquencies is not picking up, and that loans are staying seriously delinquent longer which is an indication that banks are working longer to modify before moving to foreclosure.

• Option Arms continue to be the worst performing loans with only 662% current.

• There was a large increase in the number of seriously delinquent prime loans as the number jumped fro 838k to 976k in one quarter.  Almost 1 in 25 prime borrowers is more than 60 days late on the mortgage.

• Overall, 7.1% of all mortgages are seriously delinquent (60+ days late) and an additional 3.4% are 30-59 days late.

• Although the Sub-Prime and Alt-A loans have the highest percentage of delinquencies, the Prime loans have the highest number – this is important as if the percentage of prime loans going bad keeps rising it has a real chance of bringing the market down again.  However, these are also the borrowers that have the best chance of recovering if employment and the economy continue to recover after the stimulus expires.

Home Retention Actions

• The number of home retention actions slipped by 19.1% compared to the third quarter.  This is probably likely to the fact that HAMP received so much publicity in the third quarter that most people who were eligible applied then. 
• Discouraging number on the HAMP program was that although 349k people had entered the 3 month trial period in the second and third quarters, only 21k of those received permanent modifications during the fourth quarter.  That’s about a 6% conversion rate (it’s too early to have data to see how many re-default).  If that is an accurate number (it is possible that many were delayed past 3 months by paperwork issues, etc.) then the program is really a failure.  Let’s hope the numbers get better.
• More than 50% of HAMP trial plans and modifications are for prime borrowers
• There were almost twice as many home retentions started as foreclosures (this would also explain the increase in seriously delinquent mortgages as they stay delinquent until fully modified).
• The percentage of loans modified that had principal reductions fell to 6.8%.  Rate reduction and capitalization (adding your late payments back to the loan) were the most common modifications.
• HAMP modifications only included principal reduction 0.1% of the time, but they did utilize principal deferral 26.8% of the time.
• 42% of all modifications decreased payments by 20% or more – this is important to the  borrower being able to keep up with payments on the modified mortgage.
• 82% of HAMP modifications decreased payments by 20% or more.

Modified Loan Performance

•  The performance of modifications continues to improve over time:
  • Only 33.5% of loans done in the second quarter of 2009 were 60+ days late six months later compared to 42.7% of loans in the first quarter.
  • Only 14.7% of loans modified in the third quarter were 60+ days late 90 days later as compared to 30.8% of the loans done in the first quarter of 2009.
• Loans 30+ days late were obviously a higher percentage; 47.5% after 6 months for loans modified in the second quarter and 29.8% after 3 months for loans modified in the third quarter.  Both of these are significantly better than they were prior to the second quarter.
• The highest Re-Default rate is for Government-Guaranteed loans (FHA, VA, etc.)  with 67.8% 60% days late a year after modification (these are obviously reflecting pre-HAMP modifications as none have been modified for a year yet).
• One reason to be a little more positive about HAMP modifications (if more get completed) is that they seem to be reducing payments by 20% or more, and historically loans that have payments reduced by 20% or more have a re-default rate of only 39.8% a year later (as opposed to 67% if the payments are unchanged).

Foreclosures

• Newly initiated foreclosures declined in the 4th quarter as homes are staying in the seriously delinquent phase longer as lenders are working harder on modifications.
• Completed foreclosures increased by 8.6% over the previous quarter and 35.7% higher than a year ago. 
• There are almost 4x as many foreclosures as short sales and Deed-in-Lieu actions, although short sales are up 96.8% over a year ago.
• 7.8% of all subprime mortgages are in foreclosure while only 2.3% of prime mortgages are in foreclosure (however since there are more prime mortgages, there are actually more total prime loans in foreclosure than subprime).

A couple of key numbers to look at next quarter will be:

• How many of the HAMP trial periods get converted to permanent modifications.
• If the loans that are seriously delinquent transfer into the foreclosed or modified category.
• If loans modified in the third quarter of 2009 and later continue to have a lower re-delinquency rate.

I expect that the data for the first quarter will continue to improve and the real questions will come with the second and third quarter data as that data will reflect the market after the stimulus has expired.