Congress fiddles while the economy burns

[waltky]

Almost gotta be a Rockefeller to get a mortgage these days...

Mortgages: More expensive, more scarce
July 14, 2008: As rumors of big mortgage companies' collapse swirl, many Americans are unable to find affordable home loans.

The fate of Fannie Mae and Freddie Mac may be hanging in the balance but many mortgage borrowers already find themselves struggling to find affordable loans. Because of the turmoil surrounding Fannie and Freddie, recent borrowers are likely paying at least 10% more in monthly mortgage payments than they would have. The added cost stems from an erosion in confidence in Fannie and Freddie, according to Mark Zandi, chief economist for Moody's Economy.com.

Fannie and Freddie borrow money in the bond markets to pay for the mortgages they buy from lenders and then sell them to hedge funds and other investors. Their cost of borrowing that money has now gone up, and that filters down to lenders who have to charge more to borrowers. "It does have an impact on mortgage interest rates," said Richard DeKaser, chief economist for National City Corp. "It will be more expensive for Fannie and Freddie to acquire mortgages and that will ripple through the market."

Indeed, borrowers have been spending more for mortgage loans than usual ever since credit markets went through an upheaval last summer. Before then, the interest rate on a 30-year, fixed-rate mortgage was about 1.5 percentage points higher than yields on 10-year Treasury notes, according to Keith Gumbinger, vice president of HSH Associates, a publisher of consumer loan information. Treasuries are a benchmark for mortgage rates. Now, the difference is closer to 2.5 percentage points and has expanded by about a 0.3 percentage points since late June, as angst over the futures of Fannie and Freddie reached fever pitch.

MORE

See also:

Credit seen drying up for small business
Sun Jul 20, 2008 - As losses mount at American banks and the pain of the credit crisis spreads from housing and finance to the broader economy, many small companies complain it is increasingly difficult to obtain loans.

Tighter credit could not only help to push the United States into recession, but prolong the downturn as ideas for new businesses get stymied once entrepreneurs sit down with local bank managers, small business representatives warn. "In recent weeks we've seen banks becoming more cautious and the pace of lending has slowed considerably," said Weldon Gibson, a consultant at the Lamar University Small Business Development Center in Texas. "They are demanding higher credit scores and want more collateral before lending."

Small businesses are a linchpin of the U.S. economy because they form the backbone of the country's jobs market and are crucial for job creation. According to U.S. Census Bureau data, in 2002 the United States had 112 million paid employees. About 56.4 million of them, or just more than 50 percent, worked at companies with fewer than 500 employees. In the wake of the U.S. housing crisis and the shock waves this has sent through the financial sector, evidence has mounted that, as well as facing the strains of a weak economy and the pain of high fuel costs, many small companies face a tough time getting loans.

"If you have a great credit score, a solid business plan and a bank that hasn't been burned by the housing crisis, then you should be able to get a loan," said George Cloutier, chief executive of Orlando, Florida-based American Management Services Inc, a small business consultant. "If you don't have good credit or your bank made some bad choices in the property boom, you'll be told to look elsewhere."

More Credit seen drying up for small business | Special Coverage | Reuters

[waltky]

Fat cats gettin' fatter while Fannie and Freddie flounder...

CEO Salaries Weather Mortgage Crisis
July 21, 2008 - Fannie Mae and Freddie Mac CEOs earned roughly $30 million last year.

The chiefs of the nation's two largest mortgage lenders reaped roughly $30 million in salary, incentives and other perks last year, despite setting their banks on courses which now may require government bailouts. Daniel Mudd, the CEO of Fannie Mae, received $11.6 million in salary, stock and other compensation for 2007. Richard Syron, CEO of Freddie Mac, took home about $18.3 million last year.

In addition to Syron's salary, stock options and a $3.45 million bonus, Freddie Mac paid for a number of other perks for Syron, such as a car and driver, a home security system, travel costs for his wife, even $100,000 to pay his lawyer to negotiate his employment contract with the bank. "Yes, yes," said Freddie Mac spokeswoman Sharon McHale, when asked if Syron's leadership was worth $18 million a year. "He's done a lot." Syron led the overhaul of the institution's lax accounting controls following an earlier scandal before his tenure, McHale noted. "Under his leadership the company continues to do a lot for homebuyers and the housing market," she said, including playing "a major stabilizing role in the marketplace."

Fannie and Freddie, which hold or guarantee nearly half of the $12 trillion U.S. mortgage market, have seen their stock prices tumble from over $60 a share in 2007 to under $10 last week as the ongoing foreclosure crisis sparks worry among investors that the companies don't have money at hand to cover defaulting borrowers. Despite the worries, many believe that the U.S. government would stand behind the lenders even if they faced high default rates. Indeed, the Treasury Department and the Federal Reserve recently took steps to increase the banks' ability to borrow from the government. On Capitol Hill, lawmakers began weighing their options on how best to rescue the beleagured institutions.

More ABC News: CEO Salaries Weather Mortgage Crisis

See also:

Paulson: Mortgage Bigs Need Support
Tuesday, Jul. 22, 2008 (WASHINGTON) — Treasury Secretary Henry Paulson said Congress needs to quickly approve a support package for Fannie Mae and Freddie Mac to make sure the two mortgage giants maintain their critically important role in housing finance.

Paulson said Tuesday that the continued operations of Fannie and Freddie — which guarantee or own almost half of the home mortgages in the country — would be "central to the speed with which we emerge from this housing correction." Paulson made his comments in a speech in New York in which he again sought to reassure Americans that despite the recent turmoil, the nation's banking system is fundamentally sound.

Treasury officials confirmed that bank examiners from both the Federal Reserve and the Office of the Comptroller are currently inspecting the books at both Fannie Mae and Freddie Mac. Paulson said in an interview published Tuesday in the New York Times that he believed the results of those examinations would provide an important signal of confidence for the markets. Paulson spoke in advance of the release later Tuesday of a review by the Congressional Budget Office giving an estimate of the budgetary impact of the administration's request for new authority to provide support for Fannie Mae and Freddie Mac.

After a period of market turbulence in which fears grew about the fiscal soundness of both institutions, the administration on July 13 unveiled a plan to provide unlimited government loans to the two mortgage giants and also to purchase stock in the two companies if needed. Paulson has stressed that the proposal is a backup effort that would be in effect for 18 months as a way to calm investor fears. Critics have charged that the open-ended offer of support exposes taxpayers to billions of dollars of losses, however. The administration and leaders in both the House and Senate have been in negotiations over the plan. Paulson predicted in his speech that Congress would "act to complete work on this legislation this week." The House is expected to vote on the support plan as part of a larger housing rescue package on either Wednesday or Thursday.

Paulson said that Fannie and Freddie have issued $5 trillion in debt and mortgage backed securities. Of that amount more than $3 trillion is held by U.S. financial institutions and over $1.5 trillion is held by foreign institutions, making the stabilization of the two companies essential to the global economy. "Because of their size and scope, Fannie and Freddie's stability is critical to financial market stability," Paulson told an audience at the New York Public Library. "Investors in our nation and around the world need to know that we understand how important these institutions are to our capital markets broadly and to the U.S. economy."

MORE

[waltky]

WaMu loses more...

Washington Mutual loses $3.3 billion
July 22, 2008: Hurt by higher loan loss provisions, nation's largest thrift reports worse-than-expected results.

Washington Mutual reported a $3.3 billion quarterly loss Tuesday -- far worse than Wall Street was anticipating -- as it set aside more money for bad loans. The Seattle-based thrift reported a net loss of $6.58 a share, which included a charge related to a $7 billion capital raise the company announced in April. Excluding the charge, WaMu reported a loss of $3.34 a share. Analysts polled by Thomson Reuters were expecting the nation's largest savings and loan to report a loss of $1.05 a share on this basis.

Just a year ago, the company reported a profit of $830 million, or 92 cents a share. Washington Mutual shares initially climbed in after-hours trading, before turning lower after the credit rating agency Moody's put WaMu under review for possible downgrade. WaMu shares finished Tuesday's regular session more than 6% higher. When quizzed about the report from Moody's by an analyst, WaMu management said it didn't see much impact from the announcement, saying there wasn't any need to raise debt at this time. Driving this quarter's loss was a sharp increase in WaMu's loan loss reserves, which grew $3.74 billion during the quarter to $8.46 billion.

WaMu warned that the company would need to continue to reserve against loan losses over the next couple years, but said that 2008 would represent the peak of loan loss provisioning. "I still think there is more to come in the way of provisions because of the increasing rate of non-performing loans in the home loan, home equity, and subprime categories," said Stephanie Hall, a senior analyst with the Scottsdale, Ariz.-based research firm Gradient Analytics. "But they have taken a step in the right direction by increasing the loan loss accrual."

More Washington Mutual loses $3.3 billion - Jul. 22, 2008

[waltky]

Sad...

Woman Chooses Death Over Foreclosure
July 23, 2008 - Mass. Wife Faxes Suicide Letter To Mortgage Company, Then Fatally Shoots Herself

A 53-year-old wife and mother fatally shot herself shortly after faxing a letter to her mortgage company saying that by the time they foreclosed on her house that day, she would be dead. Police said that Carlene Balderrama used her husband's high-powered rifle to kill herself Tuesday afternoon, shortly after faxing the letter at 2:30 p.m.

The mortgage company called police, who found Balderrama's body at 3:30 p.m. The auction was scheduled to start at 5 p.m. and interested buyers arrived at the property in Taunton, about 35 miles south of Boston, while Balderrama's body was still inside, according to Taunton police chief Raymond O'Berg. Police did not immediately release the name of the mortgage company. O'Berg said Balderrama's fax read, in part, "By the time you foreclose on my house I'll be dead."

O'Berg also said a suicide note found next to Balderrama told her husband, John, and 24-year-old son to "take the (life) insurance money and pay for the house." Joe Whitney, who works with Balderrama's husband, a plumber, said that Balderrama handled the bills and her husband didn't know about the foreclosure. "John didn't even know about it, that's the surprise," Whitney told The Boston Globe. "It's just one of those awful, awful tragic events."

Source

[waltky]

Foreclosures spike...

Foreclosure filings up 120%
July 25, 2008: 220,000 homes were lost to bank repossessions in the second quarter, and the annual forecast for 2008 will have to be revised upward.

As foreclosures continue to soar, 220,000 homes were lost to bank repossessions in the second quarter, according to a housing market report Friday issued by RealtyTrac. That's nearly triple the number from the same period in 2007. A total of 739,714 foreclosure filings were recorded during that three-month period, up 14% from the first quarter, and 121% from the same period in 2007. That means that one of every 171 U.S. households received a filing, which include notices of default, auction sale notices and bank repossessions.

"Most areas of the country are seeing at least some increase in foreclosure activity," said James Saccadic, CEO of RealtyTrac, an online marketer of foreclosed homes. "Forty-eight of 50 states and 95 out of the nation's 100 largest metro areas experienced year-over-year increases in foreclosure activity." Because foreclosure filings are growing so quickly, RealtyTrac will have to reevaluate its foreclosure forecast for the year, according to spokesman Rick Sharga.

"We've been saying foreclosures will total 1.9 million to 2 million this year," he said. "But midway through the year, we're already at 1.4 million so we're going to be raising our projections." And there is more bad news: Bank repossessions are up as a proportion of total filings, representing 30% of the notices issued during the quarter, up from 24% a year ago.

MORE

[waltky]

Granny says dey takin' too many trips...

Democrat Senate Passed 94% of Bills without Debate or Roll Call Vote
Monday, July 28, 2008 - Sens. Tom Coburn (R-Okla.) and Jim DeMint (R-S.C.) expressed outrage last week over a government report that shows the majority of bills that have passed in the Democrat-controlled Senate of the 110th Congress have done so without any debate or even a vote.

“The U.S. Senate has a nine percent approval rating, because the American people believe that much of our work is done in secret with no debate, no transparency and no accountability,” Coburn told reporters at press conference Wednesday at the Capitol. “This report shows that the reality is worse than the public’s fears. Instead of encouraging open debate, I’m disappointed that Majority Leader Reid often chooses secrecy or demagoguery,” he added.

Coburn was referring to a non-partisan study released on June 10 by the government’s Congressional Research Service (CRS), which indicates that 855 of the 911 bills passed by the Senate of the 110th Congress have been streamlined by Democratic Party leadership with a procedural tactic known as Unanimous Consent (UC), which requires no debate or even a vote.

With the Senate’s traditional August recess about to start, Majority Leader Harry Reid (D-Nev.) has repeatedly accused Republicans, however, and especially Coburn and DeMint, of blocking UC on legislation that he says is critical to the well-being of many Americans.

More CNSNews.com - Democrat Senate Passed 94% of Bills without Debate or Roll Call Vote

[waltky]

Economy hard on the seniors...

Economy hitting the elderly especially hard
Mon., July. 28, 2008 - Bankruptcies soar as retirees, agencies struggle to keep up with rising costs

Bob Emily put in an honest day’s labor every day of his life. “I worked for the railroad, for the town marshal, security, bars, Sealy down here, UPS,” said Emily, 82, of Commerce City, Colo. “Worked hard all my life until I got sick.” Then the bills started piling up. “Hospital bills built up,” said Emily, who didn’t have health insurance. “I had to get loans to take care of my bills. Then I was getting behind on the loans.”

Every day, more calls and letters would come in from creditors and collectors. “I just got tired of it,” Emily said, so three months ago, he filed for bankruptcy. That could take some of the pressure off. Then again, it might not. Food prices and medical costs are still rising, tarnishing what are supposed to be the golden years for the elderly, perhaps the hardest-hit victims of the slumping economy.

Elderly Americans are filing for bankruptcy in record numbers, according to a study by AARP, formerly the American Association of Retired Persons. At the same time, support is drying up from meal, transportation and other home assistance agencies that can’t pay their own bills. There's no question that the downturn in the economy is dramatically impacting those at the doorstep of retirement and those that have already decided to retire,” said Mark Kitchens, a senior vice president of AARP.

Soaring bankruptcy among the elderly

See also:

Economy not like to rebound any time soon...

Profit rebound unlikely as warnings increase
Mon Jul 28, 2008 - With about half the second-quarter U.S. corporate earnings reporting season over, a recovery in profits in the second half of the year is looking increasingly unlikely.

Overall, earnings have come in 2.7 percent below Wall Street's already low estimates, but more important for investors is that a number of companies' forecasts for the third quarter are looking anything but rosy. While analysts are still expecting an 10.5 percent increase in earnings for companies in the benchmark S&P 500 index in the third quarter, according to Thomson Reuters proprietary research, that view has been revised down as more companies have given disappointing outlooks.

On July 1, the third quarter estimate was for 12.6 percent growth, while on April 1 it was 17.3 percent, the research showed. "We still expect earnings to be down again this next quarter. A lot of companies are talking about higher costs of energy and that will serve to bring down their margins," said Paul Nolte, director of investments at Hinsdale Associates, in Hinsdale Illinois. "That will provide a double whammy for earnings, with top line slowing and margins contracting a little bit."

This year's operating margins are likely to be below their respective 10-year averages for a majority of sectors, according to a Merrill Lynch research report. The price of oil, while off the $147 peak it hit at the beginning of the month is still about double what it was a year ago and far above the comfort level for many companies.

More Profit rebound unlikely as warnings increase | Special Coverage | Reuters

[waltky]

Startin' to lose ground...

Growth weaker than hoped; economy shrinks in Q4
WASHINGTON - Thu Jul 31, `08 : Rebates helped economy — some — in second quarter

The prospects for a quick economic recovery dimmed Thursday, with new data showing the economy grew at a slower-than-expected rate this spring despite some oomph from tax rebate checks — and actually shrank late last year. Democrats called for a second economic stimulus package, while the Bush administration said the growth was proof the checks helped. Armed with government stimulus checks of up to $600 per person, Americans boosted spending on food, clothing and other items in the second quarter, the Commerce Department reported.

But the gross domestic product still increased at a 1.9 percent annual rate, up from 0.9 percent in the first quarter but less than the 2.4 percent economists were looking for. Government revisions showed the economy actually shrank at the end of last year at a 0.2 percent annual rate. It was the first quarterly dip for the GDP since the 2001 recession. Meanwhile, the Labor Department said the number of newly laid-off people rose to 448,000 last week, the most in five years. More job cuts are expected in coming months, and Americans may cut back on spending, kindling recession fears.

Wall Street didn't like what it saw. Following two days of gains, the Dow Jones industrials fell 205.67 points to 11378.02. President Bush acknowledged the economic news was "not as good as we'd like it to be." His commerce secretary, Carlos Gutierrez, said the growth showed the stimulus package was providing some relief. "Some said the rebates would not have an impact. Well, they were wrong," Gutierrez told The Associated Press. "The stimulus checks are having an impact in spite of the energy prices."

More Rebates helped economy — some — in second quarter - Yahoo! News

[waltky]

More jobs lost...

Unemployment at 4-year high
August 1, 2008: Employers trim payrolls for seventh straight month in July, as jobless rate rises to 5.7%, a full percentage point higher than year ago.

Employers trimmed jobs once again in July and the unemployment rate hit a four-year high, according to a government report Friday that showed the seventh straight month of job losses . The Labor Department reported a net loss of 51,000 jobs in the month, compared to a revised loss of 51,000 jobs in June. Economists surveyed by Briefing.com had been forecasting a loss of 75,000 jobs in the latest report. The latest report brought job losses this year to 463,000.

The unemployment rate edged up to 5.7% from a 5.5% reading in June. It was the worst reading since March 2004, and slightly worse than economists' forecast of a 5.6% rate. Construction lost 22,000 jobs as housing continued to suffer, while manufacturing employment plunged 35,000 jobs, as automakers cut production in the face of weak sales.

But the job losses were spread far beyond the battered construction and auto industries. Retailers cut 17,000 jobs, while business and professional services lost 24,000 postions. In another sign of weakness, the average hourly work week fell 0.1 hour to 33.6 hours. The average hourly wage edged up 6 cents to $18.06, bringing salaries up 3.4% over the year-ago levels. The rate has now jumped a full percentage point from a year ago.

Unemployment rate hits 4-year high as job losses continue - Aug. 1, 2008

See also:

Another bank fails...

Florida bank closed by FDIC
August 1, 2008: First Priority Bank becomes the eighth bank failure of the year. Branches will reopen as Sun Trust Bank.

Federal regulators closed Florida's First Priority Bank on Friday, marking the eighth bank failure of the year. The Federal Deposit Insurance Corp., which was named the receiver of the failed bank, entered into an agreement with Atlanta-based SunTrust Bank to assume the insured deposits of First Priority. All six branches of the Bradenton, Fla.-based bank will reopen on Monday as branches of SunTrust. First Priority depositors will automatically become depositors of SunTrust, the FDIC said.

First Priority had assets of $259 million and total deposits of $227 million, according to the FDIC. That includes $13 million in uninsured deposits held in approximately 840 accounts that potentially exceeded the federal insurance limits. Account holders with more than the $100,000 insured limit will essentially "become a creditor" of the failed bank, said FDIC spokesman Andrew Gray. Those accounts will be credited as the FDIC sells more of the failed bank's assets, Gray said.

SunTrust Bank will purchase approximately $42 million of the failed First Priority's assets, which are made up of mainly cash, cash equivalents and securities. And LNV Corp. of Plano, Texas, a subsidiary of Beal Bank Nevada, will purchase $14 million in First Priority's assets. The remaining $171 million in assets will be sold by the FDIC. Proceeds of these sales will be used to pay creditors including bank clients whose accounts exceed the $100,000 limit. Customers with accounts in excess of $100,000 should contact the FDIC toll free at 1-800-837-0215.

Florida bank closed by FDIC - Aug. 1, 2008

[waltky]

Time to split for vacation...

Lawmakers End With Impasse on Gas
Friday, Aug. 01, 2008 (WASHINGTON) — Lawmakers sped for the exits Friday as Congress was to begin a five-week recess after a summer session noteworthy for bitter partisanship and paralysis on the issue topmost in the minds of many voters: the cost of gasoline.

As its last major act, the House passed by a 409-4 vote its first spending bill, a $72.7 billion measure awarding generous increases to veterans programs and military base construction projects. More noteworthy however, was what Congress failed to do: pass energy legislation and other measures aimed at lowering the price of gasoline.

Senate Republicans blocked a bill aimed at curbing speculation in oil markets, while a similar bill and several others by House Democrats — including a plan to encourage drilling in already available coastal areas and in Alaska — failed to advance after party leaders brought them to the floor under procedures that required supermajorities to pass. That procedure blocked Republicans from forcing a vote on opening new areas to oil drilling.

Republicans have been pressing to allow oil exploration in areas that are currently off limits, including the eastern Gulf of Mexico and the Atlantic and Pacific coasts. They have been relentless in their assault on Democrats over the topic, even though opening the Outer Continental Shelf to new exploration wouldn't put any oil on the market for a decade or more.

Democratic leaders have been resolute in blocking new offshore exploration, even as oil patch members and moderates in the party support the idea. It's clear that if a vote were allowed, new offshore drilling would be allowed. "Congress shouldn't leave its business unfinished while American wallets are drained at the pump," said Rep. Ander Crenshaw, R-Fla.

MORE