Weak housing market weighs on job growth

[waltky]

Just think of all the jobs that have already been outsourced...

Stark Sign: Highest Job Loss in 5 Years
March 7, 2008 - 63,000 Lost Jobs in February; Another Recession Sign? Employers Slash the Most Jobs in Five Years

U.S. employers slashed jobs by 63,000 in February, the most in five years, the starkest sign yet the country is heading dangerously toward recession or is in one already. The Labor Department's report, released Friday, also showed that the U.S.'s unemployment rate dipped to 4.8 percent as hundreds of thousands of people -- perhaps discouraged by their prospects -- left the civilian labor force. The jobless rate was 4.9 percent in January.

Job losses were widespread, with hefty cuts coming from construction, manufacturing, retailing and a variety of professional and business services. Those losses swamped gains elsewhere including education and health care, leisure and hospitality, and the government. he latest snapshot of the nation's employment climate underscored the heavy toll of the housing and credit crises on companies, jobseekers and the overall economy.

The report also showed that the job losses suffered in January were worse than the government first reported. Employers cut 22,000 jobs, versus 17,000. It was the first monthly back-to-back job losses since May and June 2003, when the job market was still struggling to recover from the blows of the 2001 recession. The health of the U.S.'s job market is a critical factor shaping how the overall economy fares. If companies continue to cut back on hiring, that will spell even more trouble.

More ABC News: Stark Sign: Highest Job Loss in 5 Years

See also:

Countrywide reportedly under FBI investigation
March 8, 2008: The troubled home loan servicer is being probed by Feds for using fraudulent lending practices, financial reporting.

The FBI has launched an investigation into the lending practices of battered home lender Countrywide Financial Corp., according to a report in The Wall Street Journal. The mortgage company is suspected of widespread fraud, the paper said, which may have contributed to the subprime mortgage crisis that has rocked the U.S. economy. The probe will examine underwriting and mortgage origination practices, and whether the company misrepresented losses related to subprime loans.

Bank of America, which agreed in January to acquire Countrywide for $4 billion in stock, denied any knowledge of a federal investigation. Calabasas, Calif.-based Countrywide is the nation's largest home lender, responsible for roughly one-fifth of the mortgages in the United States. When the housing crash began, Countrywide was faced with an increasing number of subprime customers who were delinquent with their mortgage payments. The company was forced to essentially shut down its subprime lending operations last year to focus on originating loans that conform to Fannie Mae and Freddie Mac guidelines, considered to be safe investments.

On Friday Countrywide's founder and former CEO, Angelo Mozilo, testified before the House Committee on Government and Oversight Reform, along with two other CEOs who resigned in the wake of the mortgage crisis -- Charles Prince of Citigroup, and Stanley O'Neal of Merrill Lynch. All three defended their lofty compensation packages, despite the loss of billions to their companies and shareholders. There is no evidence to suggest that Bank of America will back out on its acquisition of Countrywide, the paper said, and may even be trying to speed up the process, according to some sources.

Source

[waltky]

Changin' the rules to suit themselves...

Boards change rules to keep big exec bonuses
Fri., March. 7, 2008 - Tied to performance? Well we’ll just not count losses from those bad loans

Financial company CEOs often talk about needing better incentives to perform. How about this one: You’re lucky to have a job when many of your peers don’t. But that’s not how it’s working in the marketplace. Despite being hard hit by the housing and mortgage slump, some companies — including Washington Mutual Inc. and Toll Brothers Inc. — have made surprising changes in benchmarks for executive bonuses going forward. What they are doing is moving the goal posts in a way that all but guarantees executives will score big paydays. That’s the result when you take out the bad stuff that could drag down compensation and include things that will likely prop it up.

It makes you wonder what boards of directors are thinking in the midst of a housing and mortgage crisis. Billions of dollars in shareholder value have vanished since last summer, leading to the ouster of CEOs at Citigroup Inc., Merrill Lynch & Co. and other companies. Corporate boards, already under attack from shareholder groups for not properly monitoring risk, should be doing what they can to avoid controversy. Instead, some of them seem to be inviting more of it. “Six years after Enron, and it’s still clear there isn’t a culture of board accountability,” said Richard Ferlauto, director of pension and benefits policy at the American Federation of State, County and Municipal Employees, a Washington-based labor group representing government workers. “They are doing things that promote risk-taking with little downside for executives.”

The compensation committee on Washington Mutual’s board looked like it was on the right track by not giving CEO Kerry Killinger a cash bonus in 2007. After all, operating earnings fell 40 percent last year and the shares of the nation’s largest thrift tumbled 68 percent in price. But that kind of pay-for-performance accountability seems destined to slip away in 2008. The Seattle-based company late Monday disclosed in a securities filing that its board changed the executive pay structure to exclude certain credit costs when calculating cash bonuses. Now, 30 percent of the bonuses will be tied to operating profits excluding expected mortgage defaults or the costs of real estate foreclosures. Another 25 percent of the calculation will exclude some restructuring and business resizing costs as well as foreclosures. The board will “subjectively” evaluate the company’s performance in credit-risk management.

More Boards change rules to keep big exec bonuses - U.S. business - MSNBC.com

[waltky]

Eatin' his words now...

Paulson: Time to toughen rules on mortgage brokers
Thu Mar 13, `08 WASHINGTON - Financial regulators pledged on Thursday to toughen rules for mortgage brokers, lenders and credit agencies in a bid to ease a credit crunch and to try to restore investor confidence in markets.

Treasury Secretary Henry Paulson, unveiling a 20-page set of recommendations from the top-level President's Working Group, blamed a "dramatic weakening" of underwriting standards for lower-quality home loans for helping trigger turmoil in credit markets that raged on unabated as he spoke. Stock prices tumbled on rising fears of U.S. recession, gold prices soared and the dollar's value plumbed fresh record lows as investors shunned it in favor of the euro and other stronger currencies.

Paulson, a Wall Street veteran before taking over the Treasury in mid-2006, said "financial innovation" -- like the practice of slicing up so-called subprime mortgages and using them as collateral for securities sold around the world -- had made the situation worse by introducing a baffling level of complexity. In a speech at the National Press Club, Paulson appealed to banks and other lenders not to stop issuing loans and implied they should cut back on dividends paid to shareholders if necessary to raise capital.

"We are encouraging financial institutions to continue to strengthen balance sheets by raising capital and revisiting dividend policies; we need those institutions to continue to lend and facilitate economic growth," he said. Among recommendations from a top-level Presidential Working Group that he heads, Paulson said he wanted "strong nationwide licensing standards" for mortgage brokers as part of an effort to ward off future housing crises and reassure investors.

Paulson said the focus of the Presidential Working Group's work since the current bout of market turmoil began last summer was to reduce the chance of repeating past mistakes. "Regulation needs to catch up with innovation and help restore investor confidence but not go so far as to create new problems, make our markets less efficient or cut off credit to those who need it," Paulson said.

More Paulson: Time to toughen rules on mortgage brokers - Yahoo! News

See also:

February foreclosures up 60 percent over '07
Feb. foreclosures up 60 percent over year before; Nevada, California, Florida have highest rates of those losing their homes

Nearly 60 percent more U.S. homes faced foreclosure in February than in the same month last year, with Nevada, California and Florida showing the highest foreclosure rates, a research firm said Wednesday. A total of 223,651 homes across the nation received at least one notice from lenders last month related to overdue payments, up 59.8 percent from 139,922 a year earlier, according to Irvine, Calif.-based RealtyTrac Inc. Nearly half of the homes on the most recent list had slipped into default for the first time.

Nevada had the nation’s highest foreclosure rate, with one in every 165 households receiving at least one foreclosure-related notice. It had 6,167 properties facing foreclosure, a 68 percent increase from a year earlier and up 1 percent from January, RealtyTrac said. Most of the troubled properties were located in California, Florida, Texas, Michigan and Ohio — states where home prices have plunged as the housing boom went bust. The overall U.S. foreclosure rate last month was one filing for every 557 homes.

February’s total represents a 4 percent dip from January, but the decline was just a seasonal blip, said Rick Sharga, RealtyTrac’s vice president of marketing. “We seem to be settling in at a new plateau in terms of monthly activity, but it’s a much higher plateau than we were at a year ago,” he said. February marked the 26th consecutive month with a national year-over-year increase in foreclosure-related filings.

Meanwhile, the number of foreclosed properties that didn’t sell at auction and ended up going back to lenders soared more than 110 percent last month versus February 2007, RealtyTrac said. Last month, some 46,508 properties were repossessed by lenders, up from 22,114 a year earlier.

More Feb. foreclosures up 60 percent over year before - Mortgage Mess - MSNBC.com

[waltky]

Credit gets tighter...

The next shoe to drop in housing
March 15, 2008: Rising foreclosures and big losses at Fannie Mae and Freddie Mac are making it harder for people with good credit backgrounds to get a traditional mortgage.

The credit crunch has finally hit the traditional mortgage market. Investors are now shunning mortgage-backed securities issued by government sponsored enterprises Fannie Mae and Freddie Mac, which have been critical in keeping the real estate market from completely falling apart. Some fear this development will make it harder for people, even those with strong credit histories, to get a home loan.

"Even if you have good credit, you don't know if they are going to give you a loan or not," said Joseph Mason, a senior fellow at the Wharton School of the University of Pennsylvania. And for those who can still get a loan, the tremors in the mortgage-backed securities market has made loans more expensive for borrowers. As the prices of mortgage-backed securities have fallen, their yields have risen, leading to higher mortgage rates.

The national average rate on a 30-year fixed-rate mortgage was 5.96% Thursday, after jumping to 6.08% earlier this week, according to Bankrate.com. Rates on a 30-year fixed mortgage were about 5.90% a week ago. A borrower looking for a 5-year adjustable-rate mortgage would pay 5.71% today, up from around 5.03% a week ago. "The cost of mortgage financing has increased dramatically and it couldn't come at a worse time," said Tom LaMalfa, managing director of Wholesale Access, a mortgage research firm. "We're going to see a further diminishment of available mortgage money."

Not just a subprime problem anymore

[waltky]

A financial domino effect?...

Is Bear Stearns Just the Beginning?
March 17, 2008 - Wall Street Wondering if More Firms Will Collapse, Despite Fed Efforts

With the collapse and then fire sale of Bear Stearns within the span of a few days, many on Wall Street are now looking around and asking, "Who might be next?" Bear Stearns fell victim to what was essentially a bank run. Investors who feared that the 85-year-old firm was too deeply invested in bad mortgages cut off funding, crippling the firm.

Just a month ago, Bear's stock was trading at $80 a share. As news spread about the run on Friday, the bank's stock plunged, closing at $30 a share. And then — in what appears to be the final nail in the coffin — J. P. Morgan Chase announced plans over the weekend to buy the firm for a shockingly low $2 a share. Bear was worth $20 billion in January and now — less than three months later — is being sold for less than $240 million. So what about the other big Wall Street investment firms? Could we wake up tomorrow to suddenly find that another has become virtually worthless?

"It absolutely could happen to any one of these guys," said David Trone, a brokerage analyst at Fox Pitt Kelton. "There was a panic. If that degree of panic hit any of these guys, they're going down." Trone said that while Bear Stearns showed some losses in the forth quarter of 2007 from the subprime mortgage market, it was doing a lot better during the start of this year. "Bear was actually in a pretty good position," he said. "It was really no worse than other institutions that are standing today."

More ABC News: Is Bear Stearns Just the Beginning?

See also:

Paulson Defends Bailout as 'Right Decision'
March 16, 2008 - Says That Drop In Home Prices Is 'Inevitable' And 'Necessary' Decline

Secretary of the Treasury Henry Paulson Sunday defended the Federal Reserve's recent bailout of investment bank Bear Stearns. "The right decision here, I am convinced, was the decision that the Fed made, which was to do things, work with market participants to minimize the disruptions," Paulson said in a "This Week" interview with George Stephanopoulos.

When asked if the Bear Stearns loan goes against the administration's consistent refusal to use tax dollars to bail out financial institutions, Paulson said, "We're very aware of moral hazard. But our primary concern right now -- my primary concern -- is the stability of our financial system." He declined to "speculate about what the outcome of this situation is going to be." And he added that "we're working our way through this right now. We have a lot of conversations going on."

The Bear Stearns bailout has come under scrutiny from critics questioning why the Fed can manage to funnel money to a major bank, but not to homeowners facing foreclosure, as Congressional Democrats have proposed. In response, Paulson explained that "what's going on right now is an inevitable decline, and a necessary decline, in home prices."

More ABC News: Paulson Defends Bailout as 'Right Decision'

[waltky]

FBI Probes Banks 'Not Doing Due Diligence'...

FBI Subprime Mortgage Probe Expands
March 19, 2008 - List of Companies in Lending Criminal Probe Grows After Bear Stearns Collapse

Criminal investigations have been launched against 17 companies in the fallout of the subprime mortgage collapse, the FBI disclosed late Tuesday. The list of corporate fraud investigations focused on subprime mortgage lending practices by major banks and companies has grown since January, when the bureau announced a probe of 14 mortgage lenders. While the bureau will not comment on the companies that are under investigation, two Justice Department officials confirmed to ABC News reports in last week's Wall Street Journal that Countrywide Financial is under investigation.

FBI and Justice Department officials declined to comment on any open cases after the recent troubles of investment bank Bear Stearns, which JPMorgan Chase bailed out earlier this week by purchasing the company. But in an interview with the Reuters news service Tuesday, Neil Power, section chief of the FBI's Economics Crimes Unit, alluded to a possible probe, saying, "Common sense would indicate that we would look at something that big."

"The problem is that banks weren't doing their due diligence," Power said. Although Justice Department officials declined to specifically address a possible Bear Stearns inquiry, the investment bank noted in a Jan. 29 filing with the Securities and Exchange Commission that federal investigators were looking at the operations of its hedge funds, which heavily invested in subprime lending and debt obligations.

More ABC News: FBI Probes Banks 'Not Doing Due Diligence'

See also:

A Break for Freddie and Fannie
March 20, 2008 WASHINGTON — With the blessing of the Bush administration, the regulator of Fannie Mae and Freddie Mac, the nation’s two largest mortgage finance companies, eased a major restriction on the companies on Wednesday in an effort to unfreeze credit markets and stabilize housing prices.

By reducing the extra cushion of capital the two companies have been required to hold since 2004, the regulator, the Office of Federal Housing Enterprise Oversight, is enabling the companies to invest $200 billion more in home loans. In essence, the companies are being allowed to take billions of dollars that had been used as a reserve against possible further losses and invest that money now in the housing market. “Additional capital will enable the companies to help more homeowners and will strengthen the underlying fundamentals of the mortgage market,” said Treasury Secretary Henry M. Paulson Jr.

Officials hope that by unshackling Fannie and Freddie they can begin to reduce the cost of borrowing for prospective home buyers or refinancing for people who already own homes, help unlock the credit markets and possibly reduce some of the downward pressure on home prices. But critics said that if the housing market continued to decline, the move could put the two companies on a less sure footing and ultimately require a huge taxpayer bailout.

At the end of 2007, Fannie Mae had $45 billion in capital and Freddie Mac had $37 billion, for a total of $82 billion between them. But that cushion supports more than $1.4 trillion of combined debt and debt guarantees. “I think it’s very dangerous and it’s a sign that people are very frightened,” said Thomas H. Stanton, an expert on the two companies who teaches a course on credit risk at Johns Hopkins University. “At a time in which finance companies are holding questionable assets and facing losses, regulators typically require more capital, not less.”

More http://www.nytimes.com/2008/03/20/bu...fannie.html?hp

[waltky]

Mortgage rates dippin' a bit...

Mortgage rates fall, 1st time since February
March 20, 2008: Fed actions spur drop in 30-year fixed-rate mortgages, but ARM rates still climb.

Borrowers looking for fixed-rate mortgages can now find the lowest rates in more than a month. But experts warn the decline may not last for long. Rates on fixed-rate mortgages dropped sharply in the past week, after the Federal Reserve took several historic steps to shore up the financial markets. The rate on a 30-year loan dropped to an average of 5.87%, down from 6.13% a week ago, according to new Freddie Mac figures released Thursday. A 15-year mortgage now can be had for 5.27%, down from 5.60%

Mortgage rates had been climbing since mid-February as investors turned away from securities backed by traditional loans issued by Fannie Mae and Freddie Mac. This market had remained fairly stable throughout the mortgage meltdown, which started last summer and made it much tougher and more expensive to get subprime and jumbo mortgages. But even traditional mortgages became costlier after investors started to question the value of these agency securities when Fannie and Freddie reported a combined $6 billion in losses last month. Then, financial fund Carlyle Capital announced its lenders wanted more money to make up for the depressed value of the agency mortgage-backed securities Carlyle had put up as collateral for loans.

In the past week, the Federal Reserve worked to calm the markets by taking a series of steps, including allowing investment banks to borrow funds and put up mortgage-backed securities as collateral. Also, it backed JPMorgan Chase's fire-sale purchase of Bear Stearns and cut the interest rate by three-quarters of a point. Finally, regulators enabled Fannie and Freddie to invest more in mortgages by lowering the amount of capital they have to hold as a reserve against potential losses.

MORE

[waltky]

BoA facing a big loss...

Bank of America may face $6.5 bln loan loss: analyst
Sun Mar 23, `08 - Bank of America Corp (BAC.N), the largest U.S. retail bank, may set aside a record $6.5 billion in the first quarter to cover possible future loan losses, including in its mortgage and home equity portfolios, according to a banking analyst.

Richard Bove of Punk Ziegel & Co also slashed his earnings forecasts for the bank through 2010, though he still expects a first-quarter profit. He said actual losses in the portfolios should be "somewhat less" than the amount he expects set aside, suggesting the bank would be conservative in its forecast of future credit trends. "I do not foresee the economy plunging to a level that will substantiate this reserve build," wrote Bove, who has a "buy" rating on the bank, in a report dated March 24. "It is my impression that the management has made a decision to try to take, upfront, the potential losses that it believes may be nascent."

Bove cut his profit per share forecast to $2.98 from $3.81 for 2008, to $3.96 from $4.30 for 2009, and to $4.78 from $4.93 for 2010. He sees first-quarter profit of 37 cents per share. Bank of America was not immediately available for comment. In January, Chief Executive Kenneth Lewis said he expected full-year profit would top $4 per share. He predicted credit costs would rise by more than 20 percent, largely in consumer portfolios, but that such an increase would be manageable.

The Charlotte, North Carolina-based bank set aside $3.31 billion for credit losses in the fourth quarter, and $8.39 billion for all of 2007, up 67 percent from a year earlier. Bank of America agreed in January to buy Countrywide Financial Corp (CFC.N), the largest U.S. mortgage lender, in a transaction now valued at about $4.4 billion. The all-stock transaction values Countrywide at $7.63 per share, which is 32 percent above Countrywide's Thursday closing price of $5.78. The gap reflects some investors' expectations that Bank of America might at least try to renegotiate the merger terms because the housing market has weakened.

MORE

See also:

Wealth funds losing their money to subprime banks
Sunday 23rd March, 2008 - Sovereign wealth funds, controlled by various world governments, are monitoring multibillion-dollar losses after helping to bail out major western banks.

Lately, banks including Citigroup, Morgan Stanley and UBS have turned to sovereign investment funds to prop up their accounts as stock markets plunged. Singapore's GIC, one of the world's largest sovereign wealth funds, bought a 9% stake in UBS last year. Shares in the Swiss bank are down 46% so far this year.

It spent more money in January as part of a multi-billion dollar bailout for the embattled US bank Citigroup. The Abu Dhabi Investment Authority invested money in Citigroup bonds that will convert to shares in 2010. The ADIA is now battling with the knowledge that Citigroup’s share price has plunged nearly 40% lower than when it made its investment.

China Investment Corporation's investment in Morgan Stanley, made just before Christmas, is also facing a significant loss. While the losses sustained by sovereign wealth funds are relatively insignificant compared to the trillions of dollars at their command, it is possible the losses may dampen their appetite for further involvement in bailing out western banks.

Wealth funds losing their money to subprime banks

[waltky]

Another drop in homes sales...

Home prices: Down record 11%
March 25, 2008: The residential real estate market continues to deteriorate in 2008, with 20 key markets reporting steep drops.

Residential real estate has posted another record decline.

The S&P Case/Shiller Home Price index of 20 key markets, released Tuesday, shows that home prices plunged 10.7% in the 12 months ending January. That marks their lowest level since the index launched in 2000.

Of those 20 metro areas, 16 reported record annual declines. Ten of those cities posted double digit declines through the 12 months that ended in January. The survey's 10-city index fell 11.4% year-over-year, its steepest decline since its inception in 1987.

A national decline

See also:

U.S. Home Prices See Record Decline
March 25, 2008 - The Standard & Poor's/Case-Shiller Index Shows Home Prices Fell 11.4 Percent

Prices of existing U.S. single-family homes slumped in January, with 16 of 20 regions measured posting record annual declines, according to the Standard & Poor's/Case-Shiller home price index reported Tuesday. The composite month-over-month index of 20 metropolitan areas fell 2.4 percent to 180.65 from December, bringing the measure down 10.7 percent from a year earlier and 12.5 percent from its July 2006 peak.

"It shows that the housing correction is still under way," said Michelle Meyer, an economist at Lehman Brothers in New York. "The weakness is not contained to the bubble areas."

Home prices in Las Vegas and Miami fell the most of any region, at 19.3 percent year-over-year, while Phoenix, San Diego and Los Angeles also suffered double-digit drops. S&P said its composite month-over-month index of 10 metropolitan areas fell 2.3 percent to 196.06 for an 11.4 percent year-over-year drop.

Source

[waltky]

More good money after bad...

$100bn Fed move over credit fears
Friday, 28 March 2008, The Fed makes billions of dollars available to banks in an auction hoping to ease credit-crunch concerns.

The US Federal Reserve will make a further $100bn (£50bn) available to major banks in April, trying to ease concerns about a global credit crunch. The sum, offered across two auctions, is in addition to $260bn provided in short-term loans to the end of March.

Other unorthodox steps include the Fed allowing investment banks to borrow from it directly - previously only possible for commercial banks. The financial crisis has caused chaos on US and global markets.

This month Bear Stearns became the highest profile US victim of the credit crunch - facing near collapse before a deal was struck for it to be bought at a bargain price by JP Morgan Chase. The rescue was supported by the Fed, which agreed to buy up to $29bn of Bear Stearns debts.

The Fed's chairman, Ben Bernanke, will be quizzed about the auctions, and other Fed actions to ease the credit crunch, when he faces Congress next week. Critics say that the central bank is bailing out banks who have not assessed their risks properly

Auctions continue BBC NEWS | Business | $100bn Fed move over credit fears