Economic stimulus/tax rebates

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Mortgage rescue not tricklin' down...

Mortgage demand drops despite falling rates
20 Aug.`08 — Mortgage applications fell last week despite a drop in interest rates, the Mortgage Bankers Association said Wednesday.

The fall in application volume is the latest sign of a struggling housing market. On Tuesday, a Commerce Department report showed construction of homes and apartments fell in July to the lowest level in more than 17 years. And while fewer new homes are being built, fewer customers are also refinancing existing mortgages. A sharp drop in refinance volume in recent weeks has been the leading driver of declining application volume. The association said the refinance share of mortgage activity slipped to 34.8% of applications from 35.2% the previous week.

The trade group's application index fell to 419.3 during the week ended Aug. 15, a 1.5% decline from the week prior. Application volume is down 61% from its 2008 peak in February. Application volume fell despite a drop in interest rates as well. The average rate for traditional, 30-year fixed-rate mortgages fell to 6.47% during the week ended Aug. 15, from 6.57%. The average rate for 15-year fixed-rate mortgages, often a popular option for refinancing a home, fell to 5.99% from 6.17%. The average rate for one-year adjustable-rate mortgages fell to 7.07% from 7.15%.

The MBA's index peaked at 1,856.7 during the week ending May 30, 2003, at the height of the housing boom. An index value of 100 is equal to the application volume on March 16, 1990, the first week the MBA tracked application volume. The survey provides a snapshot of mortgage lending activity among mortgage bankers, commercial banks and thrifts. It covers about 50% of all residential retail mortgage originations each week.

Source

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The Loan Arranger gonna fix things...

Paulson's Fannie-Freddie fix
August 22, 2008: Investors fear the Treasury chief will maul shareholders, a la Bear Stearns. But he may be less heavy-handed this time.

The market is betting Henry Paulson is about to put on his black hat again. But the Treasury secretary may not be so easily typecast in the saga of the government-sponsored mortgage finance companies. Shares in Fannie Mae and Freddie Mac hit new lows this week on speculation that the government will be forced to support the companies. With the shares down more than 90% over the past year, analysts such as Paul Miller at Friedman Billings Ramsey say the only way the companies can raise enough money to soothe the markets is to lean on the government.

"They're going to need some help here," says Miller, who has written that Fannie and Freddie need to raise $15 billion each to see them through the housing bust. Fannie and Freddie are shareholder-owned, though they have been able to borrow at below-market rates thanks to an implicit government backing for their debt. Paulson said last month he wants to keep the companies, which buy and guarantee around half of all U.S. home mortgages, in their current form to help ease the pain of the housing bust.

But with investors fretting over possible changes in the companies' capital structure - while Paulson has essentially stood behind the companies' senior debt, he hasn't said what would happen in any restructuring to other securities - the companies' low-cost funding advantage has eroded, pushing mortgage rates up and adding to the pressure on house prices. So Paulson may soon have to act. The big question is whether he'll reprise his villainous role in the Bear Stearns rescue. For now, there are reasons to think he might not.

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Looks good on the surface, but is it really?...

The economic growth mirage
August 27, 2008: Sure, the economy grew at a decent clip in the second quarter. But economists say the gain may be temporary and warn of tougher times ahead.

Despite all the talk about the U.S. economy falling on hard times this year, experts are predicting that the economy grew at a more solid pace during the second quarter. The government will release an update to the second-quarter gross domestic product report Thursday. Economists surveyed by Briefing.com are forecasting an increase of 2.7% in the quarter, up from the 1.9% growth first reported last month. The GDP is the broadest measure of the nation's economic activity. Economic growth between 2.5% and 3.5% is typically viewed as the norm for a healthy economy.

But that doesn't mean that the United States has avoided a recession, some economists say. In fact, there are growing concerns that weakness will extend through the rest of this year and even into 2009. "My feeling is that the recession started in the fourth quarter of 2007," said David Wyss, chief economist with Standard & Poor's. "I think the worst quarter will be the first quarter of 2009, which would make it a long recession." The National Bureau of Economic Research, a research group charged with dating the start and end of recessions, looks at factors such as payrolls, industrial production, real income and sales when determining when recessions begin and end. It has yet to make a ruling about the current state of the economy.

But many economists say temporary factors, such as the more than $90 billion in economic stimulus checks that reached taxpayers during the quarter, make the jump in the second quarter an anomaly. The economy grew at just a 0.9% rate in the first three months of the year and declined in the fourth quarter of 2007. "Mostly what this report will say is, when you give somebody an $1,800 check, he spends it," said Wyss, referring to the tax rebate received by many families.

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Housing fix backfires
August 27, 2008: A new law was supposed to make it easier for buyers in expensive markets to get affordable loans. Instead, rates are going up for everyone.

Back in February, Congress passed into law a quick fix for the housing market. Unfortunately, it hasn't done much good. As part of the economic stimulus plan, lawmakers raised the limit on the size of home loans mortgage giants Fannie Mae and Freddie Mac can guarantee, from $417,000 to as high as $729,750 in some of the most expensive U.S. markets. That was supposed to bring down mortgage rates on jumbo loans and help goose sales in cities across the country - mostly on the East and West coasts - where even outhouses go for close to half a mil.

So just how much help has this change been for homeowners? Not much. Six months ago, the rate on a $500,000 30-year fixed mortgage was 6.73%. Today the rate today is only slightly lower at 6.69%. No surprise then that the housing market is still stuck in reverse.

The problem has a lot to do with news that has been bedeviling Fannie (FNM, Fortune 500) and Freddie (FRE, Fortune 500). Basically, the mortgage giants have been racking up losses faster than Brangelina's adding children. And the market grows more convinced every day that these two so-called government-sponsored entities will in fact need to bailed out with taxpayer funds, according to a plan recently proposed by Treasury Secretary Henry Paulson and passed into law by Congress.

The catch

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Maybe they have helped from things being worse than they are?...

Why the Fed cuts haven't worked
September 4, 2008: One of the Federal Reserve's staunchest proponents of its rate-cutting spree explains why lower rates haven't helped boost the economy.

It's been almost a year since the Federal Reserve issued the first of what turned out to be seven rate cuts to deal with the credit crisis. So why does the economy still seem like it's in a big funk, with banks continuing to suffer? One of the biggest proponents of the Fed's aggressive rate-cutting spree has an explanation. Eric Rosengren, president of the Federal Reserve Bank of Boston, said in a speech Wednesday that the low federal funds rate of 2% is providing "much less stimulus...than it otherwise would" because of the credit crunch.

The federal funds rate is an overnight bank lending rate that banks charge each other to borrow money. But Rosengren argues that just because banks are charging each other a relatively low rate, this does "not necessarily translate into lower costs to the vast majority of borrowers." In other words, even though the Fed has slashed the federal funds rate from 5.25% to 2%, many beaten-up banks have nevertheless substantially tightened credit standards for businesses and consumers.

Rosengren said that the rate cuts have "merely offset the tightening in credit conditions created by the financial turmoil that began last summer." Rosengren is not currently a member of the Fed's policy-making Federal Open Market Committee. But he was a voting member last year for three of the cuts, and also voted in favor of the surprise three-quarter of a point rate cut at an unscheduled meeting this past January.

In fact, Rosengren could be considered one of the more dovish (i.e. in favor of lower rates) of the Fed presidents. He actually dissented with the Fed's decision to cut rates by just a quarter-point last December because he wanted a bigger reduction. So it's interesting that he's now acknowledging that the cuts haven't worked. Still, Rosengren defended the Fed's strategy, saying that "credit conditions would likely be much worse" if the Fed had not acted. But Rosengren's comments highlight a big problem facing the Fed right now.

More Why the Fed rate cuts haven't worked - Sep. 4, 2008

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Mortgage rates drop sharply after bailout plan...

Mortgage rates fall on bailout plan
9 Sept.`08 - Brokers see fresh wave of interest as 30-year rate falls below 6 percent

For the first time in nearly eight months, mortgage brokers and lenders have good news for their clients. That’s because the federal bailout of mortgage giants Fannie Mae and Freddie Mac has resulted in a sharp and sudden drop in mortgage rates. Sunday's announcement that the government would intervene in the troubled lending giants sent long-term mortgage rates plunging. The average rate on a 30-year, fixed-rate mortgage has fallen to 5.88 percent, down from 6.26 percent last week, according to Bankrate. The average rate on a 15-year loan fell to 5.49 percent, down from 5.77 percent during the week prior. For the mortgage market, that represents a huge drop, virtually overnight.

“I’ve seen a drop like this happen maybe two or three times in my 17 years in the business,” said Bob Walters, chief economist at Quicken Loans. “That’s an extraordinary rate drop.” He said the Detroit-based company logged its busiest day of the year Monday in terms of combined new loan and refinancing applications. Mortgage rates fell because the government stepped in to guarantee billions of dollars in outstanding mortgage-backed securities issued by Fannie and Freddie, making them instantly more desirable to investors.

As investors bid up the price of mortgage-backed securities, that sent interest rates tumbling, with the average 30-year fixed rate falling below 6 percent for the first time since January, when rates stayed down only briefly. This time, lenders say, rates are likely to stay low for much longer — good for homeowners, prospective buyers and the troubled real estate industry. “When you see rates go down nearly half a point in one day, people notice,” said Joey Hansen, a mortgage broker in Apex, N.C. “I think we’ve entered a new world. The confidence restored in world markets will last for awhile.”

More Mortgage rates drop sharply after bailout plan - Stocks & economy - MSNBC.com

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Stimulus Checks Boost Child Support...

Stimulus Checks Seized for Child Support
September 9, 2008 : 1.4 Million Government Stimulus Checks Are Seized to Pay Overdue Child Support

Deadbeat dads and moms around the country are discovering that their economic stimulus checks from Washington — intended to encourage the purchase of TVs, cars and other goods — are being intercepted and funneled toward the support of their children. Treasury Department figures obtained by The Associated Press show that more than 1.4 million of the checks have been seized since the payments began last spring, and a total of $831 million has been collected by child support agencies nationwide.

Cheryl Hayes, a 32-year-old paralegal student from Auburn, Mass., said her ex-husband owes about $30,000 in support for their three children, and she hopes to see some of that via his stimulus check. Hayes said that while she knows the stimulus checks were intended to encourage people to head down to the local Wal-Mart, Best Buy or Home Depot, in the case of deadbeat parents, their children's well-being should come first. "The stimulus check is something at least they can get to help live off of," Hayes said. "It should go to the children because the children are the ones that would need it."

The parents who are owed child support won't immediately see the money. And in some cases they may not receive it at all. The intercepted checks in Massachusetts, for example, are deposited with the state and held for 180 days to allow the parent to file an appeal. If the appeal is denied, the money is turned over to the parent who has custody — in most cases, the mother — unless she has been on public assistance, in which case the funds can go back to the state and federal government to reimburse the taxpayers. Some states hold the funds longer, others for less time.

More ABC News: Stimulus Checks Boost Child Support

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Throwing good money after bad?...

Fed pumps $70 billion into financial system
16 Sept.`08 WASHINGTON - Amid Wall Street meltdown, central bank wants to keep cash flowing

Urgently trying to keep cash flowing amid a Wall Street meltdown, the Federal Reserve on Tuesday pumped another $70 billion into the U.S. financial system to help ease credit stresses. The Federal Reserve Bank of New York's action came in two operations in which $50 billion and then another regularly scheduled $20 billion were injected in temporary reserves.

The maneuver takes place as Federal Reserve Chairman Ben Bernanke and his central bank colleagues prepare to meet to decide their next move on interest rates and conduct a fresh assessment of the country's financial and economic troubles. Some believe the financial system turmoil raises the odds the Fed will cut rates. Others still predict the Fed will hold its key rate steady at 2 percent. In the last few days, the American financial system has been badly shaken as bad bets on dodgy mortgage-backed securities claimed more Wall Street giants.

Lehman Brothers, the fourth-largest U.S. investment bank, filed for bankruptcy protection. A weakened Merrill Lynch, deciding it couldn't go it alone anymore, found help in the arms of Bank of America. Now, the insurance giant American International Group is dangerously wobbling. Against this backdrop, Wall Street on Monday plunged 500 points, the most since the September 2001 terror attacks.

The cash infusion Tuesday was designed to help ease a spike in the overnight lending rate between banks. A sharp rise in such borrowing costs makes banks reluctant to lend to each other and to hoard cash, worsening already tight credit conditions. Harder-to-get credit has crimped spending by consumers and business, a factor in the slowing economy. To help grease the financial plumbing Monday, the Fed pumped a total of $70 billion into the system through open market operations.

Fed pumps $70 billion into financial system - Stocks & economy - MSNBC.com

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Fearless W gonna fix the economy...

Big bailout: Where things stand
September 20, 2008: Federal officials and lawmakers will spend the weekend hammering out the details of what could be the biggest government bailout in history.

The federal government is on the verge of instituting the most sweeping intervention in the financial markets since the Great Depression. Details remain scarce as the Bush administration and Congress work to hammer out the final plan, which is aimed at stemming the credit crisis that's roiling Wall Street and threatening the global markets. The Bush administration sent its proposal to members of Congress overnight, according to White House spokesman Tony Fratto. "Secretary Paulson and his team will continue their discussions with Congress and staff throughout the weekend, and we're hopeful that good progress will be made," Fratto said. Here's what we know so far:

The plan: The federal government would buy up "hundreds of billions of dollars" of illiquid mortgage assets at a deep discount from banks. The Treasury Department is likely to run the program directly, unlike the savings and loan crisis of the 1990s that led to the creation of the Resolution Trust Company. "The federal government must implement a program to remove these illiquid assets that are weighing down our financial institutions and threatening our economy," said Paulson.

In the proposal sent overnight, President Bush has asked Congress for the authority to spend as much as $700 billion to purchase troubled mortgage assets and contain the financial crisis. President Bush said Saturday that the plan matches the scope of the problem. "It is a big package because it's a big problem," he told reporters at a joint news conference with Alvaro Uribe, the president of Colombia. What remains to be seen is how the Treasury Department will structure the purchases and what price they'll pay.

The cost:

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Economists see financial bailout as necessary
WASHINGTON - The economy could suffer a massive hangover from the government's efforts to rescue the financial system in the form of a soaring debt burden. But the alternatives look infinitely worse.

The $700 billion the administration is seeking from Congress as the upper bounds of what it will need to take a mountain of bad loans off the books of financial firms is certainly an eye-popping figure. To get the funds to buy up the bad mortgage loans that have threatened to bring the financial system to its knees, the government will have to borrow. And that borrowing will come at a time when the federal budget deficit is already soaring. The deficit for this budget year, which ends on Sept. 30, is expected to rise to $407 billion, a figure that is more than double the $161.5 billion imbalance for 2007, reflecting what the economic slowdown and this year's $168 billion economic stimulus program are already doing to the government's books.

The Bush administration is estimating that the deficit for the budget year that begins Oct. 1, which will cover the new president's first year in office, will hit $482 billion, a record in dollar terms. And that forecast doesn't include the $200 billion the administration committed to spending two weeks ago when it took over the nation's two biggest mortgage companies, Fannie Mae and Freddie Mac. And it doesn't have any of the $700 billion the administration is seeking to soak up the bad mortgage-backed securities that have been at the heart of the severe credit crisis the country has been struggling with since August 2007.

The legislation Congress passed this summer that gave the authority to rescue Fannie and Freddie boosted the limit on the national debt by $800 billion to $10.6 trillion. The legislation the administration is now seeking to authorize the financial system bailout, according to a draft obtained by The Associated Press, would boost that debt limit to $11.3 trillion, up another $700 billion. It is the rapidly rising debt that is cause for concern. The government is already spending more than $400 billion a year just to pay interest on the national debt. The higher that debt goes, the higher the government's borrowing costs and the less it has to spend on other programs.

More http://apnews.myway.com/article/20080920/D93AMMB80.html

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Wall St. not impressed...

Bailout uncertainty sinks Wall Street
Mon Sep 22, 2008 - Stocks tumbled on Monday as investors worried a $700 billion bailout for the financial sector may not resuscitate a slumping economy, while a record spike in oil prices renewed concern about consumer spending.

Banks, home builders and big manufacturers were among the biggest decliners as negotiations over the government's rescue plan to mop up bad mortgage debt on banks' balance sheets heated up in Washington. Investors also dumped consumer-oriented companies and airlines as oil surged $16.37 to settle at $120.92 a barrel, its biggest one-day jump on record. A sharp fall in the dollar added to oil's gains.

A Wall Street analyst downgrade hit shares of JPMorgan Chase, the No 3 U.S. bank, which fell 13.3 percent, making it the top drag on both the Dow and the S&P 500. Wells Fargo dropped 11.6 percent. The S&P financial index shed 8.5 percent, while an index of airline stocks fell 9.4 percent.

Monday's market swoon wiped out nearly all the gains seen on Friday when the bailout announcement sparked Wall Street's best one-day advance since 1987. Only 2 of the Nasdaq 100 stocks end higher. Investors cited uncertainties about the rescue plan's details and concern about whether it would provide a lift for the U.S. economy, which many fear is already in recession.

More Bailout uncertainty sinks Wall Street | Reuters

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Angst Returns to Wall St.: Stocks Dive, Oil Soars

Wall Street Worries: Bailout Could Cost Too Much and Still Not Work
September 23, 2008 - Angst Returns to Financial Markets as Investors Fret Over Bailout Plan; Stocks Fall, Oil Soars

After a brief spell of elation, angst has returned to Wall Street. Financial markets' initial relief over a $700 billion U.S. government bailout plan has given way to concerns the rescue package may cost too much, drive up inflation, swell the already-bloated deficit and hurt the ailing economy. On Monday, investors sold off stocks, sent oil prices to their biggest one-day gain and dumped the dollar. The Dow Jones industrials lost 372 points, wiping out the gains the index made Friday after administration officials and congressional leaders promised swift action to get bad debt off the books of banks and end the financial crisis.

"Investors had a weekend to look at the news that was streaming out, and they are now finding fault in it," said Joseph Battipaglia, market strategist in the private client group at the investment firm Stifel Nicholaus. Oil prices briefly spiked more than $25 a barrel before falling back to settle at $120.92, up $16.37, on the New York Mercantile Exchange. That shattered the previous record for a one-day jump in crude oil, $10.75. Monday was also the last day for investors to trade the October oil futures contract, adding fuel to the rally. But the November contract also saw a sharp gain, up $6.62 to $109.37.

Markets appeared to calm somewhat overnight. In Asia, oil prices dipped below $109 a barrel Tuesday, while regional stock markets were mixed. Futures in the Dow industrials and Standard & Poor's 500, meanwhile, inched higher. Reacting to Monday's volatile oil trading, the government agency that regulates commodities markets said it was working with Nymex to "ensure that no one is taking advantage of the current stresses facing our financial marketplace for their own manipulative gain." The Commodity Futures Trading Commission said in a statement it was "closely monitoring today's large movement in the price of crude oil."

More ABC News: Angst Returns to Wall St.: Stocks Dive, Oil Soars

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AMT relief...

Senate Passes Huge Tax Break Package
WASHINGTON, Sept. 23, 2008 - $100 Billion Bill Targets Alternative Minimum Tax; President Signals His Approval

The Senate passed a giant tax package Tuesday that saves more than 20 million taxpayers from the bite of the alternative minimum tax. At a cost of more than $100 billion, the bill also nudges the nation toward greater use of alternative energy resources, renews popular tax breaks for businesses and individuals, and extends relief to disaster victims.

It includes a provision to ensure that mental health problems get the same level of insurance benefits as other medical treatment. The bill passed 93-2. "The economy is struggling," Senate Finance Committee Chairman Max Baucus, D-Mont., said. "At times like these, Americans need tax cuts that they've come to count on, that can help them get by."

But with time running out in this session of Congress, the House is choosing to diverge from the Senate by taking up a bill that fully pays for the business and individual tax breaks by eliminating some tax breaks for hedge fund managers and for corporations doing business overseas. The Senate only partially offsets the costs of its business and individual tax breaks, and Senate leaders warned that any changes could doom the bill. The House could take up its version as early as Wednesday.

More http://www.cbsnews.com/stories/2008/...n4473092.shtml