Economic stimulus/tax rebates

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Fed to the rescue...

US spells out Fannie-Freddie backstop plan
13 July `08 WASHINGTON - The Federal Reserve and the Treasury announced steps Sunday to shore up mortgage giants Fannie Mae and Freddie Mac, whose shares have plunged as losses from their mortgage holdings threatened their financial survival.

The steps are also intended to send a signal to nervous investors worldwide that the government is prepared to take all necessary steps to prevent the credit market troubles that started last year with losses from subprime mortgages from engulfing financial markets and further weakening the economy and housing markets. The Fed said it granted the Federal Reserve Bank of New York authority to lend to the two companies "should such lending prove necessary." They would pay 2.25 percent for any borrowed funds — the same rate given to commercial banks and Big Wall Street firms.

The Fed said this should help the companies' ability to "promote the availability of home mortgage credit during a period of stress in financial markets." Secretary Henry Paulson said the Treasury is seeking expedited authority from Congress to expand its current line of credit to the two companies should they need to tap it and to make an equity investment in the companies — if needed. "Fannie Mae and Freddie Mac play a central role in our housing finance system and must continue to do so in their current form as shareholder-owner companies," Paulson said Sunday. "Their support for the housing market is particularly important as we work through the current housing correction."

The Treasury's plan also seeks a "consultative role" for the Fed in any new regulatory framework eventually decided by Congress for Fannie and Freddie. The Fed's role would be to weigh in on setting capital requirements for the companies. The White House, in a statement, said it believed the plan outlined by Paulson "will help add stability during this period." The White House said President Bush directed Paulson to "immediately work with Congress" to get the plan enacted. Fannie Mae and Freddie Mac either hold or back $5.3 trillion of mortgage debt. That's about half the outstanding mortgages in the United States.

More US spells out Fannie-Freddie backstop plan - Yahoo! News

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Billion-dollar bailout saves US bank
July 13, 2008 : Federally-seized IndyMac Bank is due to reopen this week after suffering one of the biggest bank closures in US history, as the troubled US mortgage industry struggles to stem further meltdown.

The regulatory Office of Thrift Supervision (OTS) announced yesterday it had placed the California-based bank, worth an estimated $US32 billion ($33.3 billion), under the control of the Federal Deposit Insurance Corporation (FDIC). The mortgage lender, which will re-open as IndyMac Federal Bank, marked the largest bank failure in a year of mortgage and foreclosure crisis highlighted by a surge in defaults and a plunge in housing prices which are rippling through the US economy.

The FDIC stressed today it was seeking to return the bank to private operation within a few months. "When we reopen Monday, we will begin the process of marketing this bank to try to get it back into the private sector. We expect that to take about 90 days," FDIC spokesman David Barr said on CNN.

The bank was the fifth FDIC-insured failure of the year, and is expected to cost the FDIC between $US4 billion ($4.2 billion) and $US8 billion ($8.3 billion), wiping out as much as 10 per cent of its $US53-billion ($55.2 billion) Deposit Insurance Fund. OTS regulators said the closure was prompted by withdrawals of $US1.3 billion ($1.35 billion) made by the bank's customers since last month, when doubts were raised publicly about the institution's long-term viability.

More Billion-dollar bailout saves US bank | NEWS.com.au Business

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It all gonna work out, don't worry, be happy, stay the course...

Treasury chief: Hard months still ahead
Sun., July. 20, 2008 WASHINGTON - Paulson seeks to reassure, brace an anxious public. In TV appearances, treasury secretary assures that banking system is sound

Treasury Secretary Henry Paulson sought to reassure an anxious public Sunday that the banking system is sound, while also bracing people for more troubled times ahead. “I think it’s going to be months that we’re working our way through this period — clearly months,” he said. Paulson said the number of troubled banks will increase as they struggle to cope with big losses on bad mortgages. The government this month took over IndyMac after a run led it to become the largest regulated thrift to fail.

“Of course the list is going to grow longer given the stresses we have in the marketplace, given the housing correction. But again, it’s a safe banking system, a sound banking system. Our regulators are on top of it. This is a very manageable situation,” he said in broadcast interviews. Paulson used appearances on the Sunday talk shows to tell people that deposits up to $100,000 are fully insured. He said no one has lost a single penny on an insured deposit in the 75 years that the Federal Deposit Insurance Corporation has operated.

“We’re going through a challenging time with our economy. This is a tough time. The three big issues we’re facing right now are, first, the housing correction which is at the heart of the slowdown; secondly, turmoil of the capital markets; and thirdly, the high oil prices, which are going to prolong the slowdown,” he said. “But remember, our economy has got very strong long-term fundamentals, solid fundamentals. And you know, your policy-makers here, regulators, we’re being very vigilant.”

More Paulson warns more hard months are ahead - Stocks & economy - MSNBC.com

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Economists pessimistic on second-half rally
21 July `08 WASHINGTON - More than half polled see 1 percent growth or less for rest of the year

Call it the big fizzle. The hoped-for second-half economic rebound is looking to be lethargic, with the country straining under high energy prices and fallout from the housing and credit debacles. Forty-five percent of economists believe the economy won’t log any growth or will clock in at a feeble 1 percent pace in the final six months of this year, according to a survey being released Monday by the National Association for Business Economics, which is known by the acronym, NABE. And, 10 percent think economic activity could actually contract during the period.

“Forecasters are approaching the second half with a lot of caution,” Ken Simonson, point person on the survey and chief economist for the Associated General Contractors of America, said in an interview. “Most forecasters are suggesting the outlook will be sluggish, but not desperate. I’m afraid we’re stuck on the ground floor of growth.” Thirty-two percent, meanwhile, think the economy growth’s during the second half could be between 1 and 2 percent, which would mark a plodding performance. The more bullish are clearly in the minority camp: 11 percent think growth will come in between 2 and 3 percent. Only 1 percent expect growth to surpass 3 percent.

The economy’s growth slowed sharply in the final quarter of 2007 and remained stuck in a rut in the first quarter of this year. Tax rebates, which have energized shoppers, should help lift the country out of the doldrums somewhat in the second quarter. The government releases its estimate of the second-quarter’s economic performance at the end of this month. However, as the bracing force of the rebates fade, some analysts fear the economy could hit another rough patch near the end of this year. Earlier this year, many thought that the first half of this year would be difficult and the second half would be stronger, lifted by the government’s $168 billion stimulus, including tax rebates for people and tax breaks for businesses. With the rebates kicking in earlier than some expected, the second half could turn sluggish. Many have “abandoned the notion of seeing a rebound,” Simonson said.

More Economists pessimistic on second-half rally - Stocks & economy - MSNBC.com

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Falling Home Prices Continued Drag on U.S. Economy...

Home Prices Fall; Congress Urged to Act on Fannie, Freddie Fears
July 22, 2008 - Average U.S. home prices dropped 4.8 percent in May from a year ago, according to a government report released Tuesday morning.

The Office of Federal Housing Enterprise Oversight calculated the drop in prices by examining the sales of homes owned by or guaranteed by Fannie Mae and Freddie Mac. From April to June, home prices dropped about 0.3 percent. Since housing prices peaked in April 2007 they have dropped an average of nearly 5 percent, although the decreases have been much larger in some parts of the country. OFHEO regulates Fannie Mae and Freddie Mac. The two mortgage financing giants became household names in the last several weeks after their stock prices plummeted and the government announced a series of bailout proposals.

Treasury Secretary Henry Paulson has embarked on a public speaking tour to get Congress to act quickly on the proposals made a week ago last Sunday. This Sunday he was on CBS’s “Face the Nation.” Monday, he met with reporters and editors at the New York Times and on Tuesday, he gave a speech at the New York Public Library. Critics of the plan worry it would be the equivalent of giving the two companies -- which own or guarantee nearly half of the outstanding mortgages in the country -- a blank check secured by taxpayer dollars.

My colleague Lisa Chin in Washington, D.C. attended a briefing by the Congressional Budget Office this morning about the potential impact of the administration's plan on the federal deficit. She reported that Congressional Budget Director Peter Orszag said the Treasury's proposal for a potential Fannie/Freddie bailout might cost the government about $25 billion. Orszag said there was a better than 50 percent chance that the government might not need to expend any money to help the ailing Freddie and Fannie. He said there was a 5 percent chance that a bailout could cost the government as much as $100 billion, if a worse-case scenario came to fruition.

Formal legislation has not been introduced to the Congress as of yet. A full copy of Orszag's letter to the chairman of the House Budget Committee can be found here. Later this week, the National Association of Realtors will report existing home sales for June and the Census Bureau will release new home sales in June. Both reports are expected to show further declines in prices and total sales. Many economists believe that the nation’s current downturn will end when home prices stop dropping and sales start increasing. That might not start to happen, however, until 2009.

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Congress Floats Fannie, Freddie Salary Caps
July 22, 2008 WASHINGTON (AP) -- Some Lawmakers Call for Curbing Compensation for Fannie and Freddie Execs

Democrats and Republicans queasy about a federal rescue of mortgage giants Fannie Mae and Freddie Mac are coalescing around the idea of letting the government slap limits on the multimillion-dollar pay packages of their executives. Key lawmakers -- puzzling over how to explain to constituents why they voted to bail out the troubled government-sponsored firms -- see new curbs on compensation for the top officers as a crucial measure to cut down on the cringe factor. At a time when Fannie Mae's and Freddie Mac's troubles have investors worried and the government ready to jump in with untold sums of cash, the lavish pay of the two companies' executives is increasingly difficult to defend, they say.

Sen. Bob Casey, D-Pa., says Fannie and Freddie "have had their hard-won credibility undermined in recent weeks," on the heels of major accounting scandals at the firms in 2003 and 2004. "While the subprime mortgage crisis is hardly the fault of these companies, past practices of awarding huge bonuses and higher executive salaries calls into question the prudence of extending an unlimited credit line of taxpayer money to the companies whose management practices have been questionable over recent years," Casey said in a letter to Treasury Secretary Henry M. Paulson.

Casey called for capping the companies' executive pay "at reasonable levels" if they used the line of credit or need Treasury to step in and buy their stock. Casey also said their boards should sue to recover recent bonuses. Last year, Freddie Mac paid Chairman and Chief Executive Richard Syron nearly $19.8 million in compensation even though the mortgage company's stock lost half its value. During the same period, Fannie Mae President and Chief Executive Daniel Mudd got compensation valued by the company at $12.2 million, including a $2.2 million bonus.

More ABC News: Congress Floats Fannie, Freddie Salary Caps

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Gas and food increases eat up minimum wage raise...

Minimum wage earners see new raise vanish
23 July `08 WASHINGTON - Seventy cents in federal standard immediately eaten up by gas, food costs

About 2 million Americans get a raise Thursday as the federal minimum wage rises 70 cents. The bad news: Higher gas and food prices are swallowing it up, and some small businesses will pass the cost of the wage hike to consumers. The increase, from $5.85 to $6.55 per hour, is the second of three annual increases required by a 2007 law. Next year's boost will bring the federal minimum to $7.25 an hour.

Workers like Walter Jasper, who earns minimum wage at a car wash in Nashville, Tenn., are happy to take the raise, but will still struggle with the higher gas and food prices hammering Americans. "It will help out a little," said Jasper, who with his fiancee support a family of seven, and who earns the minimum plus commissions when customers order premium car-wash services.

The bus fare he pays each day to get to work already went up to $4.80 this spring from $4. "I'd like to be on a job where I can at least get a car," he said. Last week, the Labor Department reported the fastest inflation since 1991 — 5 percent for June compared with a year earlier. Energy costs soared nearly 25 percent. The price of food rose more than 5 percent.

More Minimum wage earners see new raise vanish - Stocks & economy - MSNBC.com

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House OKs rescue for homeowners, Freddie, Fannie
Jul 23, `08 WASHINGTON (AP) - Rescue legislation sailed through the House on Wednesday aimed at helping 400,000 strapped homeowners avoid foreclosure and preventing the collapse of troubled mortgage companies Fannie Mae and Freddie Mac.

The 272-152 vote reflected a congressional push to send election-year help to struggling borrowers and to reassure jittery financial markets about the health of two pillars of the mortgage market. Hours before the vote, President Bush dropped his opposition to the measure, which now is on track to pass the Senate and become law within days.

The White House swallowed its distaste for $3.9 billion in grants for devastated neighborhoods. In return, the administration got both the power to throw Fannie Mae and Freddie Mac a lifeline and the legislation Republicans long have advocated to rein in the government-sponsored mortgage companies.

Treasury Secretary Henry M. Paulson and lawmakers in both parties negotiated the final deal. It accomplishes several Democratic priorities, including aid for homeowners, a permanent affordable housing fund financed by the two mortgage companies and the money for hard-hit neighborhoods. The grants are for buying and fixing up foreclosed properties.

More My Way News - House OKs rescue for homeowners, Freddie, Fannie

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Mortgage relief on the way...

Senate passes landmark housing bill
July 26, 2008: Controversial measure aims to help borrowers, bolster the housing market and provide a fail-safe for Fannie and Freddie. Bush is likely to sign it soon.

The Senate on Saturday overwhelmingly passed a landmark housing bill that will offer up to $300 billion in loans for troubled homeowners and establish a government rescue plan for mortgage finance giants Fannie Mae and Freddie Mac. The House passed the bill on Wednesday just hours after President Bush reversed his long-standing vow to veto the bill. Bush is expected to sign it soon.

The legislation, one of the most far-reaching on housing in decades, marks the centerpiece of Washington's efforts to address the nation's housing meltdown. "This legislation won't perform miracles. But as others have said, it's a step - and I hope an important step - to putting our nation on the road to economic recovery," said Sen. Christopher Dodd, D-Conn., chairman of the Senate Banking Committee and a principal author of the bill.

Following the vote, Dodd said he will meet on Tuesday with representatives from the Treasury, the Federal Reserve, the FDIC and the Department of Housing and Urban Development to discuss how the legislation can be implemented as quickly as possible. "I'm not going to tolerate a slow walk," he said. Though the Senate vote was 72 to 13, the bill was not without its staunch opponents.

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Senate Passes Housing Bill to Bush
Saturday, Jul. 26, 2008 (WASHINGTON) — Congress passed the most significant housing legislation in decades Saturday, offering help to struggling homeowners and seeking to stabilize a troubled housing market that has dragged down the economy.

President Bush will sign it quickly, the White House said, despite reservations over $3.9 billion in the bill that would aid neighborhoods devastated by the housing crisis buy and fix up foreclosed properties. The bill, approved 72-13 in a rare weekend session in the Senate, would give the government power to throw a financial lifeline to the ailing mortgage companies Fannie Mae and Freddie Mac. They back or own $5 trillion in mortgages, or nearly half the nation's total. The rescue plan is intended to prevent the two pillars of the home loan market from failing and causing broader market turmoil, while strengthening oversight of their operations.

An estimated 400,000 homeowners would escape foreclosure by getting the chance to refinance into more affordable loans backed by the Federal Housing Administration. There would be higher limits on loans that Fannie Mae and Freddie Mac can buy and the Federal Housing Administration can insure. The loans would be capped at $625,000. The Senate on Friday removed the last hurdle to passage on a 80-13 test vote that showed broad support for the election-year help. The House passed the bill Wednesday.

Bush initially said the proposal was a burdensome bailout for irresponsible borrowers and lenders. But he dropped a threat to veto it this week after Treasury Secretary Henry M. Paulson argued that the support for Fannie Mae and Freddie Mac was vital to calming markets in the U.S. and abroad. The administration also opposed the aid for neighborhoods, arguing that approach would hurt homeowners by giving lenders an incentive to foreclose rather than help people stay in their homes.

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Getting relief from the housing bill...

How housing rescue bill can help you
July 26, 2008: The legislation - likely to be enacted soon - devotes $300 billion to helping troubled homeowners avoid foreclosure. See if you qualify.

The Senate on Saturday passed a $300 billion housing rescue bill aimed at helping troubled homeowners avoid foreclosure and supporting mortgage giants Fannie Mae and Freddie Mac.

President Bush is likely to sign the bill into law within days. After the law kicks in on Oct. 1, thousands of at-risk borrowers will be able to refinance their unaffordable old mortgages into new low-cost fixed-rate loans insured by the Federal Housing Administration (FHA).

The Congressional Budget Office estimates that 400,000 borrowers with $68 billion in loans may benefit from the program - but the bill allows for as many as 1 million or 2 million borrowers to participate in the program. Here's what homeowners need to know.

Who's eligible?

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New deal for banks...

Paulson unveils new mortgage plan
July 28, 2008: Four big banks sign onto the 'covered bond' concept in a new bid to ease the strains in U.S. mortgage markets.

The government is reaching across the Atlantic in its latest bid to revive the U.S. housing market. On Monday, Treasury Secretary Henry Paulson laid out guidelines for banks seeking to issue so-called covered bonds as a way to finance home mortgages. Four big U.S. lenders - Citi, Bank of America, JPMorgan Chase and Wells Fargo - said they support the venture. By issuing covered bonds, a bank borrows money from investors, using assets on its balance sheet - such as home mortgage loans - as collateral. Until now, covered bonds haven't been issued in the U.S., though the concept has long been in use in Europe.

But with the housing bust threatening to push the economy into recession - the International Monetary Fund warned Monday that "a bottom for the housing market is not visible" - policymakers and financial institutions have been trying out new ideas in hopes of making mortgages more available, while breaking the cycle of falling house prices and rising foreclosures. "I believe covered bonds have the potential to increase mortgage financing, improve underwriting standards, and strengthen U.S. financial institutions by providing a new funding source that will diversify their overall portfolio," Paulson said. The efforts of the big banks would "kick-start" the development of the U.S. covered bond market, he added.

"We believe a robust U.S. covered bond market would provide an additional stable and cost-effective funding source for banks to originate and hold mortgages on their balance sheet," the banks said in a joint statement. "We look forward to being leading issuers as the U.S. covered bond market develops, with programs consistent with the FDIC and Treasury statements." The move comes as shares of banks and brokerage stocks posted their latest sharp decline and investors fret over the fallout of falling house prices on the health of financial institutions. While the Federal Reserve has slashed short-term interest rates over the past year, partly in response to the sharp decline of house prices, mortgage rates recently soared to highs last seen at the turn of the century.

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Fannie and Freddie still losin' money...

Fannie, Freddie seen boosting loss estimates, again
Fri Aug 1, 2008 - U.S. mortgage market giants, Fannie Mae and Freddie Mac, may report further downgrades to their forecasts for credit losses in their upcoming second-quarter results, starting next week.

The government-sponsored enterprises have already warned investors that credit-related losses, such as payouts on loans they guarantee, would likely rise through 2008 as falling U.S. home prices aggravate defaults on mortgages. But the collapse in the shares of Fannie Mae and Freddie Mac last month, which led to the U.S. Treasury and Congress extending them government support, suggests investors think the companies sorely underestimated the housing market debacle.

Since the two companies' May forecasts, the U.S. housing market has continued to deteriorate, leading credit rating agency Standard & Poor's this week to raise its loss estimates on risky loans which, in turn, may extend the vicious cycle of asset write-downs at banks. In the market's view, Fannie Mae and Freddie Mac may not have enough capital to offset losses and maintain their roles as the engines of the U.S. housing market.

"They've increased credit loss expectations for the past three quarters and this next one is probably going to be the fourth," Robert Napoli, an analyst at Piper Jaffray in Chicago, said in a recent interview. Freddie Mac, which in May boosted its forecast for total credit losses in 2008 to 16 basis points or 0.16 percent of their total mortgage book, from 12 basis points, plans to report second-quarter results on Wednesday.

More Fannie, Freddie seen boosting loss estimates, again | Special Coverage | Reuters

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Will it be enough?...

Foreclosure crisis: The $4 billion fix
August 7, 2008: Washington will give funds to states and cities to rehab houses. Proponents say it will help stabilize neighborhoods, but others say it's too little to do much good.

City officials and community activists can't wait to get their hands on nearly $4 billion the federal government is about to inject into blighted neighborhoods suffering from record foreclosures. Opponents of the measure say the paltry sum won't do much good considering the number of vacant homes on the market - one million families are expected to lose their homes this year - and will more likely turn into a political boondoggle.

It remains to be seen which side is right. But the program - part of the massive housing rescue bill Bush enacted last month despite his own misgivings - will serve as one test of Washington's ability to mitigate the foreclosure crisis. The U.S. Department of Housing and Urban Development is expected in late September to come up with a formula for how to distribute $3.92 billion to states and cities nationwide to turn foreclosed property to affordable housing for sale or rent.

The funds are intended to help communities deal with the flood of vacant homes, which drain public resources and drag down property values of neighboring houses. "This money will help get neighborhoods hard hit by foreclosures back on their feet again," said Jeff Falcusan, policy advisor for the National Association of Housing and Redevelopment Officials, a trade group.

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Its a loan - not a credit...

Beware the $7,500 'tax credit'
August 18, 2008: The housing rescue credit may prod some new homebuyers. But the money must be repaid, and the program probably won't be enough to jump start housing market.

Washington policy makers and housing industry insiders hope a new tax credit for first-time home buyers will get the moribund housing market moving again. But most analysts agree that the program is more of a band-aid than a cure-all for the battered real estate market. What's more, others are quick to point out that the credit must be repaid, which means it's actually an interest-free loan that could get some homeowners in trouble. "It's one of those things that are more complicated than it seems at first blush, said Allen Fishbein, director of housing and credit policy for the Consumer Federation of America. "Consumers have to make sure they understand the credit thoroughly.

The $7,500 credit is for people buying their first homes, and was passed as part of the Housing and Economic Recovery Act of 2008 and signed into law in July. To qualify for the full $7,500, individuals must earn less than $75,000 annually, while couples may earn up to $150,000. Individual buyers with income of up to $95,000 and couples with income up to $170,000 are eligible for a partial credit. The Senate Finance Committee estimates that about 1.6 million people will use the credit.

The housing industry pushed for the program. "Breaking the log jam of unsold homes is something we are very much behind," said Richard Dugas, president of builder Pulte Homes, at a news conference to discuss the program. First time home buyers represented about 20% of the market for new homes in 2007. Realtors are also behind the credit. "[It] will help chip away at inventory levels, stabilize prices and spur [sales] activity," said Richard A. Smith, CEO of Realogy, the parent company of both Coldwell Banker and Century 21.

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Corporations Use $20 Billion Legal Tax Loophole
August 18, 2008 - Experts Say Transfer Pricing, Which Is Perfectly Legal, Costs the Treasury Over $20 Billion a Year

As the economy threatens to fall into a recession and an increasing number of Americans are struggling to make ends meet, many corporations are drastically reducing their tax liability to the federal government through a perfectly legal practice known as transfer pricing, costing the Treasury more than $20 billion a year. "Large corporations don't hide income, but they might engage in very sophisticated transactions that reduce their tax liability in ways that aren't appropriate," said Eric Toder, a senior fellow at the Urban Institute who focuses on taxes and retirement.

One such loophole that corporations are likely exploiting, says Toder, is transfer pricing, or prices charged for items or services within groups of the same company. Multinational companies commonly sell assets to overseas subsidiaries in low-tax countries to reduce taxable profits in the United States and increase them in the countries with lower tax rates. For tax purposes, these groups are all treated as separate companies. "If a U.S. firm is purchasing a product from their foreign subsidiary, then they've moved potential U.S. profit to their offshore subsidiary," said Mike Brostek of the Government Accountability Office.

The GAO released a report just last week revealing that three percent of large US corporations – defined as having more than $50 million in gross receipts or $250 million in assets – paid no tax to the federal government for all eight years analyzed, raising, but not answering questions on how these corporations are legally evading Uncle Sam. While the report briefly alluded to a transfer pricing problem existing, it did not elaborate on the subject or specify which firms might be engaging in the practice. Firms often overpay for products to hold more income off-shore and deduct the expenses on their U.S. tax returns.

More http://abcnews.go.com/Blotter/story?id=5601895&page=1