News From Business

Home Prices Continue their Downward Trend

2009-01-01T04:43:00.001-08:00

Housing prices are still being pressured downward by foreclosure and unemployment trends.

Remember that Bruce Springsteen song from the 1980s, "I'm Goin' Down?" The Boss sang: "You used to love to drive me wild/But lately, girl, you get your kicks from just driving me down." If you wanted to put a theme song on what's been happening in the U.S. housing market lately, that old tune might be the perfect choice.

Values fall, foreclosures rise

The latest release of the S&P/Case-Shiller Home Price Indices confirms it: All around the country, home prices are continuing to deteriorate. The S&P/Case-Shiller Indices include a National U.S. Home Price Index, as well as two separate indices that track housing prices from 10 and 20 major metro areas. For the month of September, all three indices showed double-digit declines from the prior year.

The Case-Shiller National Index fell 16.6 percent from the prior year, while the Composite-10 Index and Composite-20 Index slid 18.6 percent and 17.4 percent, respectively. Of the metro markets tracked, Las Vegas and Phoenix were the weakest; both logged year-over-year declines greater than 30 percent.

The prevalence of bank-owned, or REO, properties on the market continues to be a major factor in the housing price tailspin. When bank-owned properties sell for below-market prices, it pulls down the values of comparable homes in the neighborhood. This impact is far more pronounced right now, because of the sheer number of bank-owned homes being sold. Back in August, RealtyTrac reported that it had roughly 750,000 properties in its national REO database. And some areas of the country are now reporting that bank-owned properties account for roughly half of the homes on the market.

A jobless homeowner is an unhappy homeowner

Rising unemployment is also working against home prices by putting pressure on existing homeowners and scaring potential buyers out of the market. Between May 2007 and September 2008, national unemployment climbed from 4.5 to 6.1 percent of the workforce.

More bloodletting on the way

Unfortunately, the trends in foreclosure and unemployment are likely to get worse. That means that home prices may keep falling. According to RealtyTrac, nearly 280,000 homeowners received a foreclosure filing in October. That's 25 percent higher than the number of filings recorded in the same month last year, and 5 percent higher than the number recorded in September.

The unemployment picture doesn't look any better. In October and November, the national unemployment rate rose 40 and 20 basis points, respectively. At 6.7 percent, the unemployment rate is now the highest it's been since October of 1993.

As a homeowner, you'll have to accept these value declines as part of the territory. If you feel the need to do something, try cleaning up your debt and polishing up your résumé. After that, you might as well pop in those headphones and let Springsteen drown out the noise.

Home Improvement taking a Hit from Financial Crisis

2008-12-30T00:00:00.000-08:00

The tables have turned in the home improvement world. During the red-hot housing market, finding a contractor who would perform simple home improvement jobs was nearly impossible. As the market has iced over, renovation specialists are finding that the shoe is definitely on the other foot.

In the heyday of the housing boom, a home building contractor couldn't walk out his front door without running into leads for new work. Homeowners were happily tapping into ever-increasing lines of credit to perform home improvement projects. Often the tasks were grand in scope, including major additions or complete kitchen renovations.

As the economy has gone ice cold, homeowners are reconsidering their spending habits, and home building specialists are feeling the effects.

Back to renovation basics

Home improvement projects are indicative of the economy. People, no longer thinking about their dream houses, are doing their best simply to keep their homes.

In the renovation industry, that means grandiose projects have gone by the wayside. Generally, people are now performing only basic maintenance: replacing rotting roofs, or fixing cracks in the foundation. For contractors, this is the type of work that many passed up during the boom times. Many are reporting that work is off up to 40 percent.

Instead of backlogs, renovators are on a job-by-job basis, and finding that work isn't easy. Phones once rang off the hook, but now, home improvement specialists are the ones doing the calling. Many have been forced to employ direct mail campaigns and other types of tactics to drum up business.

Do-it-yourselfers pulling back

If renovators are finding less work available, then the logical assumption is that homeowners are now adopting a do-it-yourself approach. It should be gravy time for stores like Lowe's and Home Depot, which cater to people who prefer to take hammer in hand and save a few extra bucks.

It should be gravy time, but it's not. Home Depot recently reported that its third-quarter profit fell by 31 percent. While the numbers are better than what analysts had expected, the trend is still indicative of the slowdown. Included in those store closings is one of Home Depot's flagship stores, marking the first time the chain has ever closed one of these for performance reasons.

Municipalities are noticing that people are also pulling back on building permits. Many are filing for a renovation or extension, but then neglecting to pay their fee and pick up a permit. Others are extending the time they have to build by paying an additional fee, and then waiting to start construction.

Home building has ground to a halt during the recession, but home improvement projects have also slowed. Renovation experts are finding that their goldmine industry has slowed significantly. Instead of big jobs backordered on the books, home improvement specialists are knocking on doors looking to make basic repairs. Like the rest of the country, this industry will have to grit its teeth and soldier on through the tough times.

Spooked by the Market? Keep Thinking Long Term!

2008-12-29T23:53:00.000-08:00

It's okay to be scared. Don't let fear ruin your portfolio, though.

Fear is a perfectly human emotion. It's only natural to feel queasy when looking at your stock portfolio these days, as nearly every company this year has been taken behind the woodshed for a solid beating. But if you let your worries change the way you invest, your fear of the market will soon turn into chrematophobia-the fear of handling money at all.

Stock market success

Investors who let emotions rule their trades rarely keep a long-term focus. Despite their good intentions, they forget about investing in great businesses and reaping the benefits of their growth over the years. Instead, the stock market becomes a high-stakes poker table.

If you react to good news one day and bad the next, it's easy to get sucked into day trading. It's fast money and fast decisions, where every second counts and you always need a ticker tape by your side. Get lucky once or twice, and you feel invulnerable. This feeling of invincibility may cause you to move on from trying to time trades in stocks you know well, to riskier bets on companies you've barely heard of. Then, perhaps, you'll consider stock options, which is a way to leverage your bets many times over and play a big game with limited capital. The more volatile the market gets, the bigger the gains from these leveraged bets.

Day trading failure

If this sounds too good to be true, it is. Study upon study and anecdotal evidence add up to one simple conclusion: day trading can ruin you.

Remember Newton's third law of motion: For every action, there's an equal and opposite reaction. The same is true on Wall Street. For every great gain, there's a great loss. While options and volatile stocks can make you money, they can lose just as much, very quickly. That's why "long-term buy and hold" is the credo of most truly successful investors, from Warren Buffett to Benjamin Graham.

Don't feel too bad if you've already started down this road of day trading. You're not the first, and you won't be the last. Newton himself didn't apply his own third law to money management, and lost a massive fortune in a distant economic bubble. We don't know if he was a day trader, but he got swept up in a national mania instead of thinking through his investments.

Bottom line: Long term wins the race

Remember that the stock market is a popularity contest in the short term, but a weighing machine in the long run. Day-to-day and hour-to-hour moves may look exciting, but they're hard to predict with any kind of accuracy. Add them up, and you get a relatively smooth upward curve that spans years and decades. That's what you should be looking at.

Close that stock ticker window and forget about leverage, options, and the quick buck. Allow yourself to become a true investor again. It's the safe bet, even if it looks scary right now.

Payday Lenders making a Comeback

2008-12-29T00:33:00.000-08:00

In the aftermath of the subprime lending crisis, it seems logical that high-risk loans would be scorned by the financial community. An increase in payday lending, however, proves that this is not the case. It's also an indication that the check cashing business is here to stay.

The financial services industry is known for having a variety of products. A segment of the population that has long gone underserved, however, are people with low incomes. According to the New York Times, more than 28 million Americans are without a bank account, and more than 50 million have no credit score.

Excluded from mainstream credit, low-income people turn to check-cashing outlets. Although the interest rates on the loans scream of predatory lending, these payday lending establishments are filling a void in the marketplace. Although they may not be as easily identifiable as the golden arches, they're everywhere.

More numerous than McDonalds and Starbucks

If you think payday lending outlets are restricted to poor sections of the country, think again. The various check cashing and payday lending storefronts throughout America outnumber all the McDonalds and Starbucks outlets combined.

Every day, lines of people visit check-cashing outlets with paycheck in hand. They charge a fee for each cashed paycheck- the average fee for a loan of $255 for two weeks equals $45, which is nearly18 percent. Those fees can equal 450 percent interest on an annualized basis, which is eerily reminiscent of the predatory lending that took place with subprime mortgages.

Serving the underserved

The outcry from consumer protection groups has fallen largely on deaf ears. Nationally, payday lenders are allowed to continue making unsecured loans, largely because these businesses aren't tied to larger financial institutions. Unlike the subprime mortgage industry, in which loans were tied to mortgage-backed securities, payday loans are unsecured. The risk falls entirely on the company.

Like it or not, this is the only industry which seems willing to serve low-to-middle income families. Without a credit score or bank account, traditional banks aren't likely to touch this clientele, especially considering the fallout from the subprime catastrophe. Credit unions, originally created to be the bastion of poor people with low incomes, are just beginning to consider the payday lending field. Kinecta Federal Credit Union, for example, bought the payday lender Nix Check Cashing. They're now charging a slightly lower rate for a payday loan, and including a $20 rebate if a loan is paid on time for six months with no bounced check. Yet the interest rate and the fees remain disproportionate to what people with good credit would pay.

Unfortunately, the laws of risk management dictate that people with poor credit should pay higher rates. Just what separates a higher rate from predatory lending is something the financial sector or Congress will need to resolve in the future. Until it does, payday lending will continue to thrive in its current form.

Is there a New Housing Boom in California?

2008-12-28T02:45:00.000-08:00

Housing sales in California picked up in October, prompting some to wonder if a recovery might be in the making.

An old proverb reminds us that, "it does not matter how deep you fall, what matters is how high you bounce back." Homeowners would certainly agree, particularly if the housing market were to stage a miraculous and historic recovery. That's why there's a tiny flame of excitement brewing about recent housing data out of California.

The start of something good?

The California Association of Realtors (CAR) reported that the Golden State's annualized home sales in October were 117 percent higher than they were in the same month in 2007. This is cause for a slight eyebrow raise, since California has been hit particularly hard by the housing decline and foreclosure crisis.

All that glitters is not gold, however. The improved pace of home sales was coupled with a steep decline in home prices. Between October 2007 and October 2008, the median price of a single-family home in California fell nearly 40 percent to $311,060.

While declining home prices usually aren't a good thing, this may be the right medicine for California. Like other housing markets, California has been plagued by too many homes for sale, and too few qualified buyers. Cheaper housing prices can help by attracting more buyers and fostering more loan approvals, because qualifying for a $200,000 mortgage loan is a lot easier than qualifying for a $300,000 one.

A CAR spokesperson indicated that the CA home sales increase was primarily driven by sales in areas with large inventories of foreclosed and distressed properties. It's likely that the selection of competitively priced real estate in those markets lured bargain hunter buyers out of the woodwork.

Other home sales metrics showed improvement, as well. CAR's Unsold Inventory Index for existing, single-family homes shortened significantly from 15.2 months to 5.9 months. This means that at the current sales rate, it will take just less than six months to deplete the inventory of homes on the market. A related figure, the median number of days a single-family home stayed on the market before selling, also shortened-from 58.8 days in 2007 to 45 days this year.

Regional data shows pockets of strength

The CAR data shows year-over-year sales increases in all regions tracked, but the amount of those increases varied widely. Northern California sales, for example, rose only about 16 percent from last year. But Riverside/San Bernardino, the High Desert, and Monterey County all showed increases in excess of 200 percent. The Southern California counties of Los Angeles, Orange, San Diego, and Ventura demonstrated strength as well; sales in each of these regions rose more than 100 percent relative to last year.

CAR's Vice President and Chief Economist Leslie Appleton-Young did warn that the figures don't definitively predict a recovery in the making. But the homeowners of sunny CA probably don't care-they're as ready as anyone to accept some good news on the housing front.

Seven Ways to Improve Your Credit

2008-12-27T07:26:00.000-08:00

This holiday season, give yourself the gift of improved credit. Use these seven simple steps to improve your credit and your score. A better score gives you access to cheaper credit-a true luxury in this tight economy.

If you've had credit problems or carry heavy consumer debt, your FICO score is probably lower than you'd like. That's not good news, considering how much banks and credit card companies are tightening lending requirements.

You can improve your credit score, however, by using these seven basic tips.

1. Pay off your consumer debt. Just like bad credit, consumer debt can cause your credit score to plummet. If you have the cash, be diligent about paying off your consumer debt. The more cash you have on hand, the better lending prospect you'll be.

2. Use retail cards. To help build up your credit score, sign up for a retail card or two. Use the plastic sparingly, however. The goal is simply to show credit bureaus that you can maintain a credit card without charging it to the limit.

3. Old accounts should never die. Credit scores are largely a reflection of your "reputation" among creditors. If you have a long-standing account with a credit card company, don't close it. Even if you find a better deal with another company, keep your older accounts open. Use them on occasion, and the credit bureau will recognize the account as being active.

4. Check your credit score; keep it tidy. Monitor your FICO score on a regular basis. By law, credit bureaus are required to provide you with a free credit report once a year. Request it, and then check it carefully for errors. Mistakes can cause your score to drop. Vigilance will also help you deter identity theft.

5. Budget your money. Good credit scores start with proper money management. Set up a regular budget and spend within your means. You'll get yourself in trouble by over-extending yourself with credit, and a budget will tell you when you're pushing the limit.

6. Shop online. Reports of identity theft tend to scare people away from using their credit cards online, but many top online retailers have extremely secure systems. Using a credit card online is a good way to keep track of your cash flow, and will help you monitor your spending habits.

7. Use professional services. Credit monitoring services are a good way to protect yourself from identity thieves. For a relatively low monthly cost, you'll be alerted to any large, suspicious charges to one of your accounts. You may also consult with a credit counseling service. These trained specialists will help you get your consumer debt under control.

This holiday season, treat yourself to a gift that you'll enjoy for years. Take a few simple steps toward improving your FICO score. It's a great way to improve your lending prospects, a particularly valuable trait since gift-giving time is here at hand.

Modified Mortgage Refinances Continue to Re-default

2008-12-26T08:14:00.000-08:00

From MortgageLoans: Modified Mortgage Refinances Continue to Re-default
US bank regulators continue to report escalating re-default rates on mortgage loan modifications. Data being assembled by bank regulators is showing a steady trend of rising month-over-month loan work-outs falling back into delinquency within six months.

This data, being presented by the Office of the Comptroller of the Currency, is giving concern to aggressive efforts by Congress and the Federal Deposit Insurance Corp (FDIC) to increase loan modifications. FDIC Chairman Sheila Bair, as well as House Leaders Nancy Pelosi (D-CA) and Barney Frank (D-MA) have been pushing hard for the next round of TARP funding to include, even require, loan modifications.

"One very troubling point is that, whether measured using 30-day or 60-day delinquencies, re-default rates increased each month and showed no signs of leveling off after six months or even eight months," John Dugan, head of the Office of the Comptroller of the Currency, said in a statement.

Defaults rose consistently across all loan types, but subprime loans understandably had the highest re-default average.

Although the data would indicate a general delay in the obvious, supporters of loan modifications advocate the over 60 percent that are staying current and preventing the costly foreclosure process. FDIC Chairman Bair has also questioned the loan modification process--pointing to data by Credit Suisse showing re-default rates as low as 19 percent is the mortgage rate is reduced.

Like any new lending product or process the data will have to evolve to create the right risk model. Loan modifications, although used in past mortgage crisis, have very little data and analysis on which to build underwriting models.

FDIC-Backed Debt Selling like Hot Cakes

2008-12-25T22:37:00.000-08:00

From Mortgageloan: FDIC-Backed Debt Selling like Hot Cakes
Finally, the feds may have made a strong move to start thawing the credit markets. The FDIC's TLGP is giving financial institutions the power to raise cash by issuing low-risk debt securities.

According to the eBay pulse, the hottest products available right now are Wiis, iPods, and Xboxs. But if you were to ask an investor what was at the top of her holiday list, she's likely to ask for risk-free securities instead.

Since the first quarter of this year, federal lawmakers have been rolling out a string of financial programs to shock the economy back into normal working order. Americans have seen the launch of mortgage assistance, economic stimulus payments, equity infusions into banks, enhanced FDIC deposit insurance, and now, the FDIC's Temporary Liquidity Guarantee Program (TLGP). While most of these haven't accomplished anything magical, the TLGP may be the initiative that finally starts to unlock both the commercial and consumer credit markets.

Commercial and consumer credit lockup

For a long time, it's been the industry norm for financial institutions to carry significant debt on their balance sheets. That structure works out all right as long as those institutions can secure refinancing for their debt when it matures. Historically, individual and institutional investors have stepped up to help with this refinancing need by purchasing bonds and other securities issued by those financial companies.

Lehman's bankruptcy, however, shattered investor confidence in the financial sector. Bondholders far and wide were left high and dry by the firm's collapse. Even those who weren't exposed to Lehman-issued debt became understandably reluctant to invest in other financial companies.

When financial institutions don't have the resources to refinance their own debt, they also don't have the resources to provide commercial and consumer credit.

FDIC-backed debt serves pent-up demand

The TLGP allows financial companies to issue debt that's backed by the full faith and credit of the U.S. government. The companies that participate have to pay the FDIC for the guarantee. But in return, they receive the ability to raise cash in an affordable way, by offering investors a risk-free debt security with a competitive yield.

Early indications are that the TLGP is encouraging the return of normal, functioning credit markets. Goldman Sachs Group was the first to jump on the program, selling $5 billion worth of notes that will mature in 2012. Morgan Stanley, JPMorgan Chase, Bank of America, GE Capital, Citigroup, and SunTrust have also announced plans to participate. So far, investors have responded enthusiastically-showing a strong demand for safe investments that outperform the currently depressed yields of Treasury securities.

Investors and financial advisors like the FDIC-backed debt as a diversification tool. It's essentially a new, low-risk asset class that should add stability to the investor's portfolio performance.

You can't buy FDIC-backed debt on eBay-but perhaps the debt's popularity will make it easier for you to make other purchases, vis-à-vis a healing of the credit markets that, hopefully, helps stimulate a broader economic recovery.

Fed Attacking High Mortgage Rates

2008-12-24T23:49:00.000-08:00

From MortageLoan: Fed Attacking High Mortgage Rates
The Federal Reserve and Treasury, faced with growing challenges and public outcry related to urgently needed bailout plans, are now attacking high mortgage rates. By doing so, they hope to help thaw credit markets, revive the dying real estate sector, and boost the overall economy.

After months of passionate controversy over Treasury bailout plans-and hardly any noticeable positive impact on bank lending or retail mortgage rates-the government is now resorting to direct manipulation of the markets that control those rates. The Federal Reserve just injected some $600 billion into the mortgage bond market, buying up mortgage-backed securities that are stalled because of the credit crisis and lending freeze. It's yet another attempt to bring down mortgage rates and help bail out the housing industry and homeowners alike.

Mortgage rates dropping

This time, it seemed to work, because mortgage rates immediately fell by more than half a point. Some analysts saw mortgage rates drop by more than a full point. The Fed is also buying about $100 billion of financial obligations from Fannie Mae and Freddie Mac, trying to unburden those debt-ridden agencies. The companies are vital to the availability of mortgages for American homeowners, but due to their own poor lending practices, they've been teetering on the verge of bankruptcy.

The average 30-year mortgage rate was slightly above 6 percent a month ago, but thanks to these newly announced moves by the Federal Reserve, rates dropped to around 5 1/2 percent. That level is significant because, when rates got to that level at the very beginning of 2008, it triggered one of the biggest waves of refinancing that the nation has seen in about five years.

Refinance to a better mortgage rate

When people refinance to a better mortgage rate, their payments go down. That frees up additional cash each month. If the Federal Reserve and Treasury can instigate a surge in refinancing by driving mortgage rates lower, that can have the same impact on the overall economy as a stimulus check, tax rebate, or other injection of money into American households.

Not only will that be good for the real estate markets and help to stem the tide of foreclosures, but it will also have a positive influence on the entire consumer economy. When people have smaller mortgage payments, they tend to spend the extra money buying goods and services. The more that happens, the faster the economy will recover and grow.

Unfortunately, there's a dangerous downside to both the manipulation by the Federal Reserve, and bailout money given to businesses by the Treasury. Taxpayers-the same ones who are supposed to spend more at the mall or the local realtor's office to help jumpstart the economy-are funding all of these programs. Unless they get a reasonable return on that investment, the situation could be just like borrowing from bankrupt Peter to pay debt-plagued Paul.

Loan Modifications may only be a Bandage for Foreclosures

2008-12-23T22:17:00.000-08:00

From MortageLoan: Loan Modifications may only be a Bandage for Foreclosures

Many critics-especially those who stand to lose money when mortgage restructuring occurs-say that loan modifications may only be delaying inevitable foreclosures. They argue that loan modification can mask problems temporarily, but can't make those troubles go away.

Mortgage restructuring through loan modification allows homeowners to receive more lenient terms on their home loans. These may include lowered interest rates, reduced principal, or longer amortization periods in order to stretch the life of the loan more than 30 years, thereby reducing the size of each monthly payment. Sometimes, homeowners facing foreclosure can do a loan modification to help bring the amount of their payment more in line with their current income. This could be enough to enable them to stay current with mortgage obligations and remain in their homes. The results are good for both lender and borrower alike because the foreclosure process costs banks money and creates a whole slew of personal and financial problems for families who must forsake their homes.
Loan modification postpones problems

Unfortunately, opting for a mortgage refinance to avoid foreclosure may be much less successful in the long run than proponents of loan modification would like to believe. According to a 2007 Fitch Ratings report, between 30 and 40 percent of borrowers who were granted loan modifications still defaulted on the newly modified loans within two years. Research from Moody's and other firms regarding both prime and subprime mortgage restructuring strategies confirms those findings, and makes many economists worry that loan modification only postpones the inevitable foreclosure without fixing the underlying cause.
Mortgage restructuring good for banks

Nevertheless, Fed Chairman Bernanke is pushing for loan modifications. He suggests that the federal government is ready and willing to do more to help back the types of mortgage restructuring efforts already supported and implemented by the FDIC. As the FDIC takes over the loan modification programs of failed institutions, they're trying to rework loans to a level that makes the payments not more than 38 percent of a homeowner's monthly income. This is especially helpful these days, as people tighten their budgets and fight to make ends meet. Loan modifications also give lenders a chance to upgrade delinquent loans into the status of current performing loans, which improves their balance sheets and frees them up to do more lending.

Those who service mortgages, and many who invest in them by providing the cash to make these real estate loans, are skeptical, however, and say that loan modifications are a bad idea. They prefer to go through with foreclosures and recoup their costs, complaining that delaying foreclosure auctions only makes matters worse. Homeowners already in serious financial trouble aren't going to be able to catch up during this historically poor economy, they theorize. They also believe that it's smarter to stop tinkering with mortgages and to simply accept the painful consequences now, not later, when they may come back to haunt us.

REIS: Commercial Real Estate Loan Defaults May Triple

2008-12-23T02:00:00.000-08:00

From Bloomberg: Commercial Loan Defaults May Triple as Rental Income Declines

U.S. commercial properties at risk of default could triple if rental income from office, retail and apartment buildings drops by even 5 percent, a likely possibility given the recession, according to research by New York-based real estate analysts at Reis Inc.

Lenders that used optimistic rent estimates to grant mortgages beginning in 2005 stand to lose as much as $23.1 billion, or 7.02 percent, of total unpaid balances if landlords lose 5 percent of net operating income, according to Reis. ...

[O]ffice vacancies are forecast to rise to 15.6 percent next year from an estimated 14.6 percent at the end of 2008. ...

At the end of Q3, REIS reported office vacancy rates hit 13.6% (see WSJ: Office Space Is Emptying Out). Clearly REIS expects a significant increase in the vacancy rate in Q4 2008 (to 14.6%), and then a further increase in 2009 to 15.6%. Although that 2009 projection might be low ...

This graph shows the office vacancy rate vs. the quarterly unemployment rate and recessions (hat tip Will)

Changes in the unemployment rate and the office vacancy rate are highly correlated. As the unemployment rate continues to rise over the next year or more, I'd expect the office vacancy rate to rise sharply - possible to 17% or more by the end of 2009 (significantly higher than the REIS forecast).

REIS believes the rise in defaults will primarily because of the overly optimistic projections used when properties were purchased in recent years:

“A large decline in net operating income isn’t necessary to shift a lot of properties underlying CMBS loans into debt- service coverage ratios that would be worrisome,” [Victor Calanog, REIS director of research] said in an interview.
...
Over the last three years, lenders raised income projections for commercial properties by as much as 15 percent more than those properties’ historical performance, he said.

“That optimism might not be warranted,” Calanog said. “There’s a big pool of loans underwritten in 2005 and 2006 coming due in 2010 and 2011 that I believe will experience a rise in delinquencies and defaults.”

Loans from those years assumed strong growth in rents, a scenario that seems unlikely as the recession deepens, Calanog said.

As I've noted several times, many existing properties were recently purchased at prices that were based on overly optimistic pro forma income projections. These loans typically included reserves to pay interest until rents increased (like a negatively amortizing option ARM), and it is likely that many of these deals will blow up when the interest reserve is depleted - probably in the 2009-2010 period.

We’ll Go Second IRS Tells Struggling Lenders

2008-12-22T00:33:00.000-08:00

Nothing is ever as simple as you think it is. What’s the likelihood that a homeowner falling towards forclosure on his mortgage might also be behind on his income taxes? Actually its pretty common, and unfortunately, it can put a family in a world of hurt.

Here’s the circumstance: if you fall far enough behind on paying your federal income taxes, either personally, or as a small businessperson, the IRS can file a Tax Lien against all of your personal property. That includes your house. And that tax lien takes precedence over your mortgage. That means the IRS can seize your home and sell it to cover your tax debt. If there isn’t enough money to pay back the lender, they are just out of luck. Unfortunately, that means no lender will want to carry a mortgage on your home. Which means you can’t possibly refinance your way out of an exploding mortgage and into a nice new safe mortgage.

Today the IRS announced that they are willing to “subordinate” their lien to your mortgage. If the house gets sold, the lender is protected and gets to go first. The IRS has over 1 million current tax liens against US residents, so a lot of families got a load of relief today.

19 Dec, 2008 in Interest Rates, Points, Refinance, Saving Money by Finance Editor

Thirty Year Loans at 4.5% - Refinance Your Home Loan Mortgage if you Can

WASHINGTON (AP) — With mortgage rates sinking to the lowest level since the early 1960s, homeowners around the country are giving themselves an early holiday present: a refinanced mortgage with lower monthly payments.

Should you be doing the same?

The depends mainly on what rate you have now and whether you’re planning to move anytime soon. Experts advise taking a careful look at your options before you jump in.

Mortgage brokers were quoting rates as low as 4.5 percent to 4.6 percent this week, a day after the Federal Reserve took extraordinary steps to boost the troubled U.S. housing market and slumping economy. The national average on 30-year fixed mortgages stood at 5.18 percent on Thursday, just over Wednesday’s average of 5.06 percent, which was the lowest number since the early 1960s, according to financial publisher HSH Associates.

Here are some answers to common questions about refinancing mortgages.

Q: How much does refinancing cost?

A: It can cost several thousand dollars, but there are ways to make upfront charges invisible to the borrower.

Typically there is a fee that goes to the mortgage broker or lender, plus fees for title insurance, a new appraisal, document processing and other charges. Often, mortgage brokers or lenders can create the appearance of a “no fee” mortgage by adding the costs to a total loan amount or charging a higher interest rate.

Q: So will refinancing my home save me money?

A: That depends on how soon you want to sell.

Let’s say you have a $200,000 loan. If you’re able to cut your rate from 6 percent to 5 percent, your monthly payment will drop from about $1,200 to about $1,075, so you’ll be saving $125 a month. If you have refinancing fees of $3,000, it would take two years to break even — so the refinancing deal is worth it only if you plan to stay in your place longer than that.

“Don’t get stars in your eyes based strictly on the interest rate or based on how much money you think you’re going to be saving every month,” said Kevin Iverson, owner of Reed Mortgage in Denver. If it doesn’t make economic sense, he says, “don’t do it.”

Q: What kinds of loans are out there these days?

A: Your options are far more limited than just a few years ago. The most attractive rates are on the most traditional loans: 15-year and 30-year fixed rate mortgages, and loans for borrowers who have at least 20 percent in a down payment or existing home equity.

Q: What are some common pitfalls?

A: Mortgage brokers are paid by lenders and therefore have the incentive to complete a deal. Not all brokers are dishonest, but unscrupulous ones may try to steer you into a loan that doesn’t actually improve your financial situation.

“There needs to be benefit in doing the transaction,” said Scott Gormley, owner of Oak Valley Mortgage in Chico, Calif. “It can’t be where the broker is just going to make a buck.”

Q: What’s the difference between a loan modification and a refinanced loan?

A: Loan modifications are for borrowers who are behind on their mortgage. They involve a reduction in the interest rate or a temporary break on payments. By contrast, a refinanced loan is an entirely new mortgage, often made with a different lender, with a new loan that will last either 15 or 30 years.

Q: My existing loan has a prepayment penalty that could cost me thousands of dollars. Should I still refinance?

A: Many of the riskier loans that were made during the housing boom carry prepayment penalties. However, many lenders are willing to waive those penalties and allow borrowers to refinance with another lender if doing so prevents foreclosure, said Scott Stern, chief executive of Lenders One Mortgage Cooperative, a national alliance of 140 mortgage bankers.

“If they let you refinance, they’ll lose the loan, but they won’t lose any money,” he said.

Q: If everybody wants to refinance at once, can the lending industry handle the rush?

A: There could be a backlog as applications surge, especially because thousands of workers have been laid off across the mortgage industry over the past 18 months.

While a refinancing boom is great news for the beleaguered mortgage business, “the industry as a whole is not quite prepared,” said Keith Gumbinger, a senior vice president with HSH Associates.

Where'd the bailout money go? Shhhh, it's a secret

2008-12-22T00:31:00.000-08:00

It's something any bank would demand to know before handing out a loan: Where's the money going? But after receiving billions in aid from U.S. taxpayers, the nation's largest banks say they can't track exactly how they're spending the money or they simply refuse to discuss it.

"We've lent some of it. We've not lent some of it. We've not given any accounting of, 'Here's how we're doing it,'" said Thomas Kelly, a spokesman for JPMorgan Chase, which received $25 billion in emergency bailout money. "We have not disclosed that to the public. We're declining to."

The Associated Press contacted 21 banks that received at least $1 billion in government money and asked four questions: How much has been spent? What was it spent on? How much is being held in savings, and what's the plan for the rest?

None of the banks provided specific answers.

"We're not providing dollar-in, dollar-out tracking," said Barry Koling, a spokesman for Atlanta, Ga.-based SunTrust Banks Inc., which got $3.5 billion in taxpayer dollars.

Some banks said they simply didn't know where the money was going.

"We manage our capital in its aggregate," said Regions Financial Corp. spokesman Tim Deighton, who said the Birmingham, Ala.-based company is not tracking how it is spending the $3.5 billion it received as part of the financial bailout.

The answers highlight the secrecy surrounding the Troubled Assets Relief Program, which earmarked $700 billion — about the size of the Netherlands' economy — to help rescue the financial industry. The Treasury Department has been using the money to buy stock in U.S. banks, hoping that the sudden inflow of cash will get banks to start lending money.

There has been no accounting of how banks spend that money. Lawmakers summoned bank executives to Capitol Hill last month and implored them to lend the money — not to hoard it or spend it on corporate bonuses, junkets or to buy other banks. But there is no process in place to make sure that's happening and there are no consequences for banks who don't comply.

"It is entirely appropriate for the American people to know how their taxpayer dollars are being spent in private industry," said Elizabeth Warren, the top congressional watchdog overseeing the financial bailout.

But, at least for now, there's no way for taxpayers to find that out.

Pressured by the Bush administration to approve the money quickly, Congress attached nearly no strings on the $700 billion bailout in October. And the Treasury Department, which doles out the money, never asked banks how it would be spent.

"Those are legitimate questions that should have been asked on Day One," said Rep. Scott Garrett, R-N.J., a House Financial Services Committee member who opposed the bailout as it was rushed through Congress. "Where is the money going to go to? How is it going to be spent? When are we going to get a record on it?"

Nearly every bank AP questioned — including Citibank and Bank of America, two of the largest recipients of bailout money — responded with generic public relations statements explaining that the money was being used to strengthen balance sheets and continue making loans to ease the credit crisis.

A few banks described company-specific programs, such as JPMorgan Chase's plan to lend $5 billion to nonprofit and health care companies next year. Richard Becker, senior vice president of Wisconsin-based Marshall & Ilsley Corp., said the $1.75 billion in bailout money allowed the bank to temporarily stop foreclosing on homes.

But no bank provided even the most basic accounting for the federal money.

"We're choosing not to disclose that," said Kevin Heine, spokesman for Bank of New York Mellon, which received about $3 billion.

Others said the money couldn't be tracked. Bob Denham, a spokesman for North Carolina-based BB&T Corp., said the bailout money "doesn't have its own bucket." But he said taxpayer money wasn't used in the bank's recent purchase of a Florida insurance company. Asked how he could be sure, since the money wasn't being tracked, Denham said the bank would have made that deal regardless.

Others, such as Morgan Stanley spokeswoman Carissa Ramirez, offered to discuss the matter with reporters on condition of anonymity. When AP refused, Ramirez sent an e-mail saying: "We are going to decline to comment on your story."

Most banks wouldn't say why they were keeping the details secret.

"We're not sharing any other details. We're just not at this time," said Wendy Walker, a spokeswoman for Dallas-based Comerica Inc., which received $2.25 billion from the government.

Heine, the New York Mellon Corp. spokesman who said he wouldn't share spending specifics, added: "I just would prefer if you wouldn't say that we're not going to discuss those details."

The banks which came closest to answering the questions were those, such as U.S. Bancorp and Huntington Bancshares Inc., that only recently received the money and have yet to spend it. But neither provided anything more than a generic summary of how the money would be spent.

Lawmakers say they want to tighten restrictions on the remaining, yet-to-be-released $350 billion block of bailout money before more cash is handed out. Treasury Secretary Henry Paulson said the department is trying to step up its monitoring of bank spending.

"What we've been doing here is moving, I think, with lightning speed to put necessary programs in place, to develop them, implement them, and then we need to monitor them while we're doing this," Paulson said at a recent forum in New York. "So we're building this organization as we're going."

Warren, the congressional watchdog appointed by Democrats, said her oversight panel will try to force the banks to say where they've spent the money.

"It would take a lot of nerve not to give answers," she said.

But Warren said she's surprised she even has to ask.

"If the appropriate restrictions were put on the money to begin with, if the appropriate transparency was in place, then we wouldn't be in a position where you're trying to call every recipient and get the basic information that should already be in public documents," she said.

Garrett, the New Jersey congressman, said the nation might never get a clear answer on where hundreds of billions of dollars went.

"A year or two ago, when we talked about spending $100 million for a bridge to nowhere, that was considered a scandal," he said.

Historic $17.4b Detroit bailout

2008-12-20T00:09:00.000-08:00

President Bush yesterday announced the federal government would provide up to $17.4 billion to troubled automakers General Motors and Chrysler, but warned that the loans would have to be paid back in several months if the companies fail to come up with restructuring plans that chart their return to profitability.

In announcing his decision at the White House, Bush reversed his opposition to tapping the $700 billion financial rescue fund for such a loan, and enacted through his executive powers what Congress failed to pass earlier this month. Bush also rejected calls from some, including Mitt Romney, former Massachusetts governor, to have the auto companies go into bankruptcy and reorganize themselves.

Bush said he took the action because he feared the collapse of the industry would "worsen a weak job market and exacerbate the financial crisis." Moreover, he said he did not want President-elect Barack Obama to have "to confront the demise of a major American industry in his first days of office."

Obama praised Bush's decision, while warning at a Chicago press conference that "the American people's patience is running out" with automakers. The president-elect urged the industry to "seize on this opportunity over the next several weeks and months to come up with a plan that is sustainable." Obama said that all parties would be hit by the restructuring, but he said he wanted assurance that "it's not just workers who are bearing the brunt of that restructuring."

As part of the three-year loan outlined yesterday, Bush said that the automakers must prove that everyone involved in the industry will bear some of the pain, including corporate executives, who agreed to limits on their compensation.

"The restructuring will require meaningful concessions from all involved in the auto industry - management, labor unions, creditors, bondholders, dealers, and suppliers," the president said. Bush said that the United Auto Workers must agree to make wages competitive with those paid by foreign-owned auto companies that have plants in the United States.

But Bush sidestepped the contentious issue of defining a competitive wage. Some Republican members of Congress have said the UAW should adopt the wage scale paid by foreign automakers with US plants, while the UAW has said it already made concessions in a 2007 contract. The union has said it would make further concessions. The UAW has also said that the major differential in costs between domestic and foreign companies is the cost of pension and retiree healthcare benefits, which the union said should not be figured into wage comparisons.

The UAW said in a statement it was "pleased" Bush had approved the loans, but said it was disappointed at what it called "unfair conditions singling out workers," reflecting the union's belief that the deal would require further wage concessions. The union said it would work with the incoming Obama administration to remove such provisions.
Bush's decision was welcomed by the Massachusetts State Auto Dealers Association, which has seen 40 of its dealerships close this year, largely as a result of the credit squeeze and declining sales. As a result of the loan, potential buyers "should have no fear that warranties or service will go by the wayside if they purchase a domestic vehicle," said Robert Okoniewski, the association's director of legal and government affairs.
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But Okoniewski, whose association represents 464 dealers that employ more than 20,000 people, expressed concern about Bush's statement that the automakers should wring concessions from the nation's car dealers. "They cannot afford anything else," Okoniewski said.

Under the plan announced yesterday, the federal government would provide $13.4 billion to GM and Chrysler, with another $4 billion available in February. Chrysler would get $4 billion of the total, with the rest going to GM. Ford has said it doesn't need an immediate cash infusion.

Louis Lataif, a former president of Ford's European operations who is now dean of the Boston University School of Management, yesterday applauded Bush's announcement as a necessary step but said it will "not be easy" for the automakers to prove viability in the three-month timeframe.

To do so, he said, the automakers "will probably take a bite out of the hide of suppliers, dealers, and employees." While Ford did not ask for an immediate loan, Lataif said the company would probably ask for the same concessions as those sought by GM and Chrysler in order to remain competitive with them.

GM chairman Rick Wagoner vowed to come up with a restructuring plan by the March 31 deadline, saying it would be "a blueprint for a new General Motors, one for our second 100 years." Chrysler chairman Bob Nardelli also praised the deal, and vowed to keep the commitment. Alan Mulally, Ford president, said the deal was crucial to his company even though it was not asking for funds immediately, noting that the "highly interdependent" nature of the auto industry meant that "the failure of one of our competitors would have a ripple effect that could jeopardize millions of jobs and further damage the already weakened US economy."

While members of Congress from states that are heavily dependent on the Big Three auto industry heaped praise on Bush's actions, some Republicans expressed disappointment that the president had, in effect, ignored the will of Congress by enacting the loan unilaterally. Romney, who wrote in a New York Times op-ed that the automakers should undergo a "managed bankruptcy" instead of getting a bailout, was unavailable for comment on Bush's action, his spokesman said. Bush said yesterday that an immediate bankruptcy would be too disruptive to the economy, but he said that if the automakers fail to come up with a plan for viability within three months, "the only option will be bankruptcy."

Shortly after Bush announced the loan, Treasury Secretary Henry Paulson said he would soon ask Congress to release the second half of the $700 billion financial rescue fund.

Democrats have been critical of Paulson's handling of the first $350 billion of the financial rescue package, saying that Paulson failed to buy up toxic mortgage assets as he initially promised. House Financial Services Committee Chairman Barney Frank, a Newton Democrat, said he expected Paulson to ask for the second $350 billion in early January. Congress would have the right to reject the request within 15 days after it is sent to Congress.

Frank said he expected Congress to insist that some of the money be used to help prevent home foreclosure. The second portion of the rescue program would also be the source of the $4 billion slated to be loaned to GM and Chrysler in February as part of the deal announced yesterday.

Apple Fans To Protest Jobs' Macworld Absence

2008-12-19T10:17:00.000-08:00

A miffed Mac user is asking fellow Apple fans to protest Steve Jobs' decision not to participate in next month's Macworld conference by remaining absolutely silent during a keynote presentation by Jobs' stand-in.

"Let there be no applause, no whistling just utter and complete silence," wrote Lesa Snider King, on a Web page she posted in order to publicize her campaign.

Apple earlier this week stunned the tech world with its announcement that Jobs would not deliver his annual keynote at Macworld -- a platform that he's used previously to introduce high-profile products like the iPhone -- and that Apple itself would pull out of the convention following the 2009 show in San Francisco.

Apple said the Macworld 2009 keynote will be delivered by senior marketing VP Philip Schiller instead of Jobs. That's not good enough, says Snider King, who claims she's "mad at Apple."

"By announcing their departure from this beloved show hosted by IDG, Apple is sending a message to the entire community -- professionals, hobbyists, media, Mac User Groups, and even IDG themselves -- that they care nothing for the community who supported them through thick and thin," Snider King wrote on her Web page.

IDG, Macworld's host, said in a statement this week that it has no plans to discontinue the conference, despite Apple's withdrawal.

"We are obviously disappointed in Apple's decision not to participate in Macworld 2010," IDG said. Still, the company added, "We look forward to many more successful years of Macworld to come."

The news of Jobs' decision has revived speculation about the CEO's health, which has come under scrutiny given his gaunt appearance at times.

Apple said it merely wants to use new venues to reach potential customers. "Apple is reaching more people in more ways than ever before, so like many companies, trade shows have become a very minor part of how Apple reaches its customers," the company said in a statement.

Apple noted that it has been scaling back its appearances at other trade shows, including NAB, Macworld New York, and Apple Expo Paris, in recent years.

Illinois Inquiry Goes Beyond Criminal Complaint

2008-12-18T22:14:00.000-08:00

Lawmakers here made it clear on Thursday that the inquiry into the possible impeachment of Gov. Rod R. Blagojevich would extend beyond the federal criminal complaint against him, questioning witnesses on whether Mr. Blagojevich had abused his powers in the ordinary work of governing.

“These are not as sensational as the criminal charges,” State Representative Lou Lang said of instances in which Mr. Blagojevich had been accused of failing to heed legislative decisions or ignoring federal law. “But in terms of abuse of power, in terms of the running of the governor’s office and in terms of his ability to continue to serve, these are very critical issues.”

Mr. Lang, a Democrat, is among 21 legislators holding hearings here to determine whether the House should go ahead with impeachment proceedings against the governor. Some lawmakers had considered the possibility of an impeachment inquiry for months, but feared political fallout and that it would be stymied in the Senate, where the governor had a powerful ally. Mr. Blagojevich’s arrest last week on federal charges of conspiracy and soliciting bribes changed all that.

Mr. Blagojevich is accused, among other things, of trying to sell President-elect Barack Obama’s Senate seat to the highest bidder. Through his lawyers, he has denied any wrongdoing.

Mr. Blagojevich was not in Springfield, and once again made no public statements Thursday. But his criminal lawyer, Edward Genson, attended the hearing for a second day, even as uncertainty grew about how the governor would pay his legal bills.

Lisa Madigan, the Illinois attorney general, denied a request on Thursday by Mr. Genson that his fees be financed with public money, and federal authorities advised officials with Mr. Blagojevich’s campaign fund not to spend any of that money, which amounted to $3.6 million as of June 30, public filings show.

On Wednesday, Mr. Genson had argued that Ms. Madigan should appoint publicly financed lawyers, including himself, to represent Mr. Blagojevich, because under normal circumstances that job would fall to her office. Mr. Genson suggested Ms. Madigan could not represent the governor without conflict because she had sought to have Mr. Blagojevich removed by the State Supreme Court. On Wednesday, the court declined to consider her request.

In a sharply worded letter, Ann Spillane, Ms. Madigan’s chief of staff, called his request “meritless.”

“It is absurd to suggest that taxpayers must finance the defense of a criminal action against Governor Blagojevich who is accused of corruptly betraying the public trust for personal and financial gain,” Ms. Spillane wrote.

After the hearing on Thursday was adjourned, Mr. Genson brushed off Ms. Madigan’s response, saying he had known she would never agree to his request. He seemed unworried about how Mr. Blagojevich, who federal prosecutors say complained of financial difficulties, would pay him.

“At this point, this is a historic sort of thing,” he told reporters, adding, “I want to have some input.”

Much of the testimony before the special committee centered Thursday on the machinations behind two high-profile and controversial moves by the Blagojevich administration: to expand health care to middle-income parents unilaterally in 2007 after the proposal was defeated in the State Legislature, and to buy flu vaccine from a European supplier before receiving necessary federal approval during the shortage scare in 2004-5.

The health care expansion is now tangled in court, and the flu vaccines were blocked from entering the United States. The vaccines, worth $2.6 million, were donated to Pakistan, but The Chicago Tribune reported that Pakistani heath officials destroyed all 500,000 doses because they had expired.

In Chicago, Mr. Blagojevich reported to his downtown office on Thursday morning. He took action on about 60 clemency cases and signed a bill into law having to do with medical licensing provisions, said his spokesman, Lucio Guerrero.

“Our hard-working physicians are one of the most important resources to the people in Illinois,” Mr. Blagojevich said in a statement. “Ensuring that we have the adequate framework in place to properly license them is of utmost concern.”

The impeachment inquiry reconvenes Monday, by which time lawmakers hope that the United States attorney’s office will have provided them with a list of witnesses whose testimony here will not interfere with the criminal case.

Personal loans are becoming more expensive

2008-12-18T00:25:00.000-08:00

High street banks and building societies are no longer offering personal loans with less than eight per cent APR, according to data released by uSwitch.com.

The price comparison website reported that six months ago, 23 per cent of loans on offer had interest rates of under eight per cent, whereas currently the lowest available rate is 8.2 per cent.

On average, interest rates have risen across the board by 0.13 per cent, despite the Bank of England's recent cuts in the base rate of interest.

Louise Bond, personal finance manager at uSwitch.com, said: "We have already seen six loan providers increasing rates over the last month by as much as two per cent.

"This has marked the death of the sub-eight per cent best-buy loan era which is really bad news for consumers trying to consolidate debts."

Earlier this month the Bank of England cut the base rate of interest to two per cent, a move aimed at enabling banks to reduce the interest rates charged on their loans and mortgages.
moneynews.co.uk

"Death map" shows heat a big hazard to Americans

2008-12-18T00:16:00.000-08:00

Heat is more likely to kill an American than an earthquake, and thunderstorms kill more than hurricanes do, according to a "death map" published on Tuesday.

Researchers who compiled the county-by-county look at what natural disasters kill Americans said they hope their study will help emergency preparedness officials plan better.

Heat and drought caused 19.6 percent of total deaths from natural hazards, with summer thunderstorms causing 18.8 percent and winter weather causing 18.1 percent, the team at the University of South Carolina found.

Earthquakes, wildfires and hurricanes combined were responsible for fewer than 5 percent of all hazard deaths.

Writing in BioMed Central's International Journal of Health Geographics, they said they hoped to dispel some myths about what the biggest threats to life and limb are.

"According to our results, the answer is heat," Susan Cutter and Kevin Borden of the University of South Carolina wrote in their report, which gathered data from 1970 to 2004.

"I think what most people would think, if you say what is the major cause of death and destruction, they would say hurricanes and earthquakes and flooding," Cutter said in a telephone interview. "They wouldn't say heat."

"What is noteworthy here is that over time, highly destructive, highly publicized, often-catastrophic singular events such as hurricanes and earthquakes are responsible for relatively few deaths when compared to the more frequent, less catastrophic such as heat waves and severe weather," they wrote.

The most dangerous places to live are much of the South, because of the heat risk, the hurricane coasts and the Great Plains states with their severe weather, Cutter said.

The south central United States is also a dangerous area, with floods and tornadoes.

California is relatively safe, they found.

"It illustrates the impact of better building codes in seismically prone areas because the fatalities in earthquakes have gone down from 1900 because things don't collapse on people any more," Cutter said.

"It shows that simple improvements in building codes in high-wind environments like hurricane coasts, and the effectiveness of evacuation in advance of hurricanes, has reduced the mortality from hurricanes and tropical storms," she added.

"So there are some things we are pretty good at in getting people out of harm's way and reducing fatalities."

Cutter said there is no national database on such deaths and this was a first try at getting one together.
yahoo.com

Borrowers rushing to refinance loans as rates drop

2008-12-18T00:15:00.000-08:00

Homeowners around the country are scrambling to refinance their mortgages at the lowest rates since the early 1960s as the economy staggers through what's likely to be the worst recession in decades.

Mortgage brokers are already reporting a surge of calls from borrowers trying to take advantage of the Federal Reserve's extraordinary actions this week.

The central bank, aiming to free up lending and jolt the economy back to life, on Tuesday cut the federal funds rate from 1 percent to a target range of zero to 0.25 percent and pledged to keep funneling money into the market for mortgage investments.

On Wednesday, some mortgage brokers were quoting mortgage rates of close to 4.5 percent for people with strong credit and hefty down payments.

"This is beautiful, oh my gosh!" said Patti Mazzara, a mortgage broker in the Minneapolis suburb of Edina, who was surprised when she looked up rates and found them well below 5 percent, down at least three-quarters of a percentage point from earlier in the week. "This is a whole new game now. Hopefully it's going to give people some relief."

The national average rate on 30-year, fixed mortgages was 5.06 percent on Wednesday, according to financial publisher HSH Associates — the lowest since the 1960s and down from 5.3 percent Tuesday.

It was the best news in months for anyone looking to lock in a 30-year, fixed-rate mortgage. But it was not expected to be a cure-all, and borrowers already in danger of foreclosure probably won't be able to take advantage.

"It's a call to action for homeowners looking to get out of adjustable-rate mortgages," said Greg McBride, senior financial analyst at Bankrate.com. "Unfortunately, it's not an equal-opportunity party."

Analysts say the Fed's moves to buy up mortgage debt are designed to reduce the an unusually large difference, or spread, between mortgage rates and yields on government debt.

In recent years, there has been about a 1.8 percentage point difference between the yield on a 10-year Treasury note and 30-year mortgage rates, but gap currently hovers around 3 percentage points.

Falling interest rates mean Americans could suddenly find billions of extra dollars in their pockets at a time when consumers have sharply cut back on spending amid rising unemployment and declining household wealth. But many experts believe that the interest rate cuts alone won't be enough to jump-start the economy.

"It's a tall order to get (people) to go out and spend again," said Joseph LaVorgna, chief U.S. economist at Deutsche Bank. "That's why you also need a stimulus."

President-elect Barack Obama's advisers are currently contemplating an economic recovery plan that could cost as much as $1 trillion over two years.

Meanwhile, government data to be released Thursday is expected to show that new claims for unemployment benefits dropped last week but remain near a 26-year high, and a monthly forecast of economic activity is forecast to fall for the second straight month in November, in two signs of a deepening recession.

The Labor Department's tally of initial jobless benefit claims for the week ending Dec. 13 is expected to drop by 15,000 to a seasonally adjusted level of 558,000, according to a survey of Wall Street economists by Thomson Reuters.

Last week, the government said claims jumped by almost 50,000 to 573,000, the highest level since 1982, though the labor force has grown by about half since then.

Later in the morning, the New York-based Conference Board's index of leading economic indicators is expected to fall 0.5 percent, according to the consensus estimate of economists surveyed by Thomson Reuters. The index posted a 0.8 percent decline in October.

The index is designed to forecast economic activity in the next three to six months based on 10 economic components, including stock prices, building permits and initial claims for unemployment benefits. And Freddie Mac, the mortgage company, is also scheduled to release its weekly survey of mortgage rates Thursday.

Wall Street stocks finished moderately lower Wednesday, as further signs of economic deterioration dampened investors' earlier enthusiasm about the Fed's record interest rate cut.

Stocks declined in the early going after a larger-than-expected loss from Morgan Stanley offered fresh evidence of the sizable obstacles the battered financial industry still faces. The company posted a loss of $2.37 billion, or $2.34 per share, for the fiscal fourth quarter. The report came a day after rival Goldman Sachs Group Inc. posted its first quarterly loss since going public in 1999.
yahoo.com

Chrysler, Ford idle factories; GM delays new plant

2008-12-18T00:14:00.000-08:00

Chrysler is closing all its North American manufacturing plants for at least a month, the starkest move yet taken by U.S. automakers as they anxiously await word about government loans.

The shutdown comes as The Wall Street Journal reported Thursday that Chrysler has restarted talks with General Motors about combining the two ailing automakers.

Chrysler, GM and Ford have been taking dramatic steps as they struggle to survive the recession and U.S. sales have dipped to their slowest rate in 26 years. Chrysler and General Motors fear they might not have enough money to pay their bills in a matter of weeks.

Attempting to cut costs, GM was halting construction of a plant tied to one of its most important projects, the Volt. Ford also said it will shut down 10 plants for an extra week in January because of sluggish sales.

Chrysler said Wednesday it would extend the normal two-week holiday shutdown that begins Friday to at least Jan. 19 at all 30 of its factories due to slumping sales.

The lack of consumer credit is hampering sales and forcing the production cuts, Chrysler LLC said in a statement. Chrysler, Jeep and Dodge dealers say they have willing buyers for vehicles, but they can't close the deals, Chrysler said.

The news of the shutdown was another blow to the company's employees already nervous about their future in the industry.

"I haven't even bought any Christmas presents yet because I don't know what's going to happen next," said Jerry Fogarty, a 48-year-old married father of three who lives in the Detroit suburb of Wyandotte. He has worked at the Chrysler Trenton engine plant for nearly 16 years.

Fogarty said even though state unemployment and supplemental unemployment benefits will maintain much of his weekly income during the shutdown, it's little consolation if the company that once gave employees profit sharing checks soon goes out of business.

"I don't want to be laid off," Fogarty said. "I want to go to work tomorrow. ... We all want to work. That's all we want to do. It's scary, man. It's really scary."

Chrysler and GM had been in merger talks earlier this year that stalled, with financing emerged as one of the biggest obstacles.

The Journal, citing people familiar with the discussions, said the talks have been rekindled after Cerberus Capital Management LP, the majority owner of Chrysler, signaled it is willing to part with some of its stake in the automaker.

Messages seeking comment were left early Thursday with spokesmen for GM and Chrysler.

The Bush administration is mulling ways to help the automakers after Congress failed to reach a deal on $14 billion in loans for GM and Chrysler. Ford has applied for a $9 billion line of credit but says it has enough cash to make it through 2009.

Funding for the loans is expected to come from the $700 billion Wall Street rescue fund, but many Republicans have objected.

"It's clear that the automakers are in a very fragile financial condition and they're taking steps to deal with it," White house press secretary Dana Perino said in a statement. "We're aware of their financial situation and are considering possible policy options to provide assistance in an appropriate way."

House Democrats have encouraged Treasury Secretary Henry Paulson to adopt accountability provisions included in a House-passed auto bailout bill — the product of a deal with the White House — as a condition to get the loans.

The measure would have given a Bush-appointed "car czar" oversight over any major business decisions by the automakers.

The Bush administration has signaled that concessions would likely be required of stakeholders in the deal — auto companies, the United Auto Workers union, bondholders and others.

Chrysler spokesman Dave Elshoff said four plants will be temporarily closed beyond Jan. 19: two plants in Toledo, Ohio, and one each in Ontario and Detroit.

Toledo North, which makes the Dodge Nitro and Jeep Liberty, and Toledo Supplier Park, which makes the Jeep Wrangler, will be closed until Jan. 26. The Windsor, Ontario, plant, which makes minivans, and Detroit's Conner Avenue plant, which makes the Dodge Viper roadster, will be closed until Feb. 2, Elshoff said.

Chrysler sales were off 47 percent last month and are down 28 percent through the first 11 months of the year.

At Ford, a company spokeswoman said Wednesday it will shut down 10 of its North American assembly plants for an extra week in January, also due to lower U.S. sales.

Spokeswoman Angie Kozleski says the normal two-week holiday shutdown will be extended to Jan. 12 at all operating assembly plants except those in Claycomo, Mo., near Kansas City, and the Dearborn, Mich., truck plant.

Ford will also extend the shutdown at some engine, transmission and parts stamping plants, or temporarily shut portions of them to match cuts at the assembly plants, she said.

The extra week of down time has been planned for several months as part of the company's first-quarter production schedule, Kozleski said.

Ford Motor Co.'s U.S. sales were down 31 percent in November and are off 20 percent through the first 11 months of the year.

Laid-off workers at Ford and Chrysler get vacation pay for the normal holiday shutdown, then will receive unemployment benefits and supplemental pay from the company that total about 85 percent of their normal pay.

General Motors Corp. said last week it will temporarily close 20 factories across North America and make sweeping cuts to its vehicle production. Many of those plants will be shut down for the entire month of January.

GM said Wednesday it was delaying construction of a new engine factory in Flint, Mich., in an effort to conserve cash. The plant is to make 1.4-liter engines for the Chevrolet Cruze and the Chevy Volt plug-in electric car, two key products in the century-old automaker's plan to turn itself around after relying on highly profitable truck and SUV sales.

The plant's engines will extend the range of the rechargeable Volt, GM's high-profile next-generation vehicle that will be able to travel 40 miles on electricity alone. They will also power the Cruze, GM's new small car that is supposed to get around 40 miles per gallon.

Also Wednesday, Chrysler Financial, the company's dealer and consumer finance arm, warned dealers that it may temporarily stop financing vehicle inventories if dealers keep pulling large amounts of their money out of an account that helps fund those loans.

Chrysler Financial said in a letter to dealers dated Dec. 12 that recent withdrawals from the company's cash management account have been "unusual and unprecedented."

Sluggish auto sales worldwide are taking a toll on foreign automakers as well. Honda Motor Corp. said Wednesday that it would halt expansion in Japan, Turkey and India and cut 450 temporary workers in Japan through February.

Nissan Motor Co. said it would reduce Japanese production by 78,000 vehicles and also cut 500 temporary workers there.
yahoo.com

British troops to leave Iraq 'by July'

2008-12-17T02:39:00.000-08:00

UK Prime Minister Gordon Brown and Iraqi Prime Minister Nuri al-Maliki say British forces will complete their tasks in the first half of 2009 and will then leave Iraq.

The two leaders made the announcement in a joint statement released as they held talks in Baghdad on Wednesday.

The pair said the partnership between the two countries would continue. Brown -- on his fourth trip to Iraq as prime minister -- said British troops had made a huge contribution and given people an economic stake in the future of Iraq.

Brown's previously unannounced visit comes three days after a similar trip by U.S. President George W. Bush -- who had a pair of shoes thrown at him by an Iraqi journalist during an appearance with al-Maliki on Sunday.

Britain was the leading U.S. ally during the invasion of Iraq, and still has about 4,000 troops based outside the southern city of Basra.

In their statement, Brown and al-Maliki said: "The role played by the UK combat forces is drawing to a close. These forces will have completed their tasks in the first half of 2009 and will then leave Iraq."

On Tuesday, the Iraqi council of ministers agreed a new resolution allowing troops to remain in the country until the end of July. It sets the end of May as the final date for combat operations.

Speaking at a press conference after the talks, Brown said: "We have agreed today that the mission will end no later than May 31 next year," he said. "Our troops will be coming home within the next two months (after that)."

"The biggest reduction will be at the end part of the period we are talking about."

Brown said: "It is important to remember we have been engaged in the most difficult and challenging of work. The tasks of overthrowing a dictatorship, the task of building a democracy for the future and defending it against terrorism.

"We have made a huge contribution and of course given people an economic stake in the future of Iraq. We leave Iraq a better place.

"I am proud of the contribution British forces have made. They are the pride of Britain and the best in the world."

Al-Maliki confirmed that the agreement included a provision for the Iraqi government to request an extension of the British military presence. However, both leaders indicated that it was not expected to be used.

Shortly after Brown landed in Baghdad, a car bomb detonated in a commercial district of central Baghdad, followed by a roadside bomb. At least six people were killed an 18 others wounded, an Interior Ministry official said.

Like the United States, Britain has been negotiating with the Iraqi government on the future of its military presence there. Ahead of Brown's arrival, Britain's Ministry of Defence said those talks were making "good progress."
cnn.com

Microsoft releasing emergency patch for perilous IE flaw

2008-12-17T02:33:00.000-08:00

Microsoft will release an emergency patch on Wednesday to fix a perilous software flaw allowing hackers to hijack Internet Explorer browsers and take over computers.

The US software giant said on Tuesday that in response to "the threat to customers" it immediately mobilized security engineering teams worldwide to deliver a software cure "in the unprecedented time of eight days."

According to researchers at software security firm Trend Micro, attacks based on the vulnerability in the world's most popular Web browser are spreading "like wildfire" with millions of computers already compromised.

Microsoft typically releases patches for its software on the second Tuesday of each month and rushing this fix to computer users out-of-cycle is testimony to the severe danger of the threat, according to Trend Micro.

"When the patch is released people should run, not walk, to get it installed," said Trend Micro advanced threat researcher Paul Ferguson.

"This vulnerability is being actively exploited by cyber-criminals and getting worse every day."

Trend Micro has identified about 10,000 websites that have been infected with malicious software that can be surreptitiously slipped into visitors' unprotected IE browsers to take advantage of the flaw.

A major Internet portal in Taiwan is among the legitimate websites unknowingly tainted with malicious software aimed at IE's weak spot, according to Ferguson.

Hackers can take control of infected computers, steal data, redirect browsers to dubious websites, and use machines for devious activities such as attacks on other networks, according to security specialists.

"What makes this so insidious is it takes advantage of a big gaping hole of IE, which has the largest install base of any browser on the market," Ferguson said.

IE is used on nearly three-quarters of the world's computers, according to industry statistics from November.

"At this time, we are aware only of attacks that attempt to use this vulnerability against Windows Internet Explorer 7," said Microsoft security response communications head Christopher Budd.

"Microsoft encourages customers to test and deploy this update as soon as possible. Microsoft's teams worked around the clock."

Ferguson said the flaw is being taken advantage of in "multiple versions" of IE not just the most current.

Trend Micro urges IE users to heed precautionary advice from Microsoft, or avoid using the browsers, until the patches are applied.

"There is a working flaw circulating in the criminal underground," Ferguson said. "It opens the window of opportunity that much wider to take advantage and there has not been real protection against it."

The "exploit" is similar to one used recently to steal user names, passwords and other information from people playing online games in China, according to Trend Micro.

A Chinese computer security firm that had discovered attacks taking advantage of the IE flaw released details last week after evidently thinking Microsoft had fixed the problem with routinely released software patches.

"It spread like wildfire from there," Ferguson said. "I guess they were trying to be responsible and share what they knew about what was going on, but they were mistaken about it being patched."
yahoo.com

US rates slashed to nearly zero

2008-12-17T00:48:00.000-08:00

The US Federal Reserve has slashed its key interest rate from 1% to a range of between zero and 0.25% as it battles the country's recession.

In its statement, the Federal Reserve warned that "the outlook for economic activity has weakened further".

It predicted that rates would stay at the current exceptionally low levels "for some time".

It added that it was considering ways it could spend money on supporting the economy and credit markets.

Analysts said that the key rate is now virtually zero.

"Whether it's zero or 0.25% actually does not make a huge difference," said Holger Schmieding at Bank of America.

He added that the more important factor is what policymakers plan to do now that they cannot cut interest rates any further.

The Federal Reserve is already injecting billions of dollars into the banking system as well as buying debt based on home loans.

Postpone purchases

The Federal Reserve stressed that it was already planning to buy large quantities of additional debt based on mortgages and is considering whether it would be a good idea to buy long-term US government bonds.

The strategy of a central bank buying government bonds mirrors the so-called quantitative easing carried out by the Japanese government when it was fighting deflation in the late 1990s and early 2000s.

Deflation becomes more of a risk as interest rates approach zero.

It is a serious problem for an economy because people postpone making any large purchases as they believe prices are going to fall, which stifles economic activity even further.

Quantitative easing is, "just another word for the central bank injecting so much money into the system that a good deal of it is passed onto households and businesses at a reasonably low interest rate," Mr Schmieding explained.

The rate has been cut drastically by the Federal Reserve from the 5.25% where it stood in September 2007.

Market response

It is the lowest the central bank's key rate - the target rate for banks to charge to lend to each other overnight - has been since records began in 1954.

The decision received a lukewarm initial reception from the stock market, with the Dow Jones Industrial Average rising from 8,684 just before the decision to 8,740 about half an hour after it, which is a rise of just 56 points.

But once the news had been digested, the Dow Jones closed up 360.4 points, or 4.2% at 8,924.9.

"You've seen the dollar weaken because it was a larger than expected cut - the dollar is falling against all major currencies," said Matt Esteve at Tempus Consulting in Washington.

"On one side, we effectively have a zero interest rate in the US - on the other side, the Fed has sent a sign that they are ready to use all tools to help the US economy out of recession."

Earlier in the day, official data confirmed that the threat of inflation is receding, as consumer prices fell a record 1.7% in November.

Government help

President-elect Barack Obama said in a speech on Tuesday that his administration would also be doing its bit to stimulate the economy because the central bank could no longer use its main tool.

"We are running out of the traditional ammunition that is used in a recession, which is to lower interest rates," he said.

"That's why the economic recovery plan is so absolutely critical."

He has undertaken to create at least 2.5 million jobs by 2011 as well as launching a programme of improvements to the country's infrastructure.
bbc.co.uk

Strange dark energy acts as galactic diet enforcer

2008-12-16T22:12:00.000-08:00

Mysterious dark energy, which likely causes the universe to keep expanding, seems to have another effect: It prevents the biggest clusters of galaxies from getting too fat. Astronomers used X-rays to study the formation of galactic clusters billions of years ago. Their research supports the hard-to-fathom concept of dark energy as a potent force that governs the growth of the universe.

It also means Albert Einstein's century-old theory of general relativity passes another crucial, but not conclusive, real-world test.

Scientist Alexey Vikhlinin used NASA's Earth-orbiting Chandra X-ray Observatory to find that dark energy acts as a force that keeps clusters of galaxies — around 1,000 bright galaxies or more — from essentially overeating and getting too big.

Without dark energy, these giant clusters would keep forming, getting denser and bigger because of gravity. But in the last few billion years that hasn't happened, said Vikhlinin, a scientist at the Harvard Smithsonian Astrophysical Observatory in Cambridge, Mass.

He looked at when 86 such clusters formed and saw the slowdown in girth, starting about 5.5 billion years ago. The logical cause: dark energy.

"They're put on a diet, a permanent diet," Vikhlinin said in a telephone interview.

Three outside experts praised the new study, which will be in February's Astrophysical Journal, as important to understanding a concept that is counterintuitive but crucial to figuring out the evolution of the universe.

The history of the universe has been a battle between "the two dark titans, dark matter and dark energy," said University of Chicago astrophysicist Michael Turner.

"This is the first time you've seen the effect of dark energy taking over," he said.

Dark energy is still a relatively new idea that came out a decade ago when measurements of star supernovae showed the universe was surprisingly expanding. One way to explain the expansion — building on an idea Einstein first broached and called his biggest mistake — is that another force in the universe is essentially fighting gravity. That force is dark energy.

"It's much more important and abundant in the evolution of the universe than the atoms that make us up," said Princeton theoretical astrophysicist David Spergal.

Clusters of galaxies are a good way to look at the effects of dark energy because they are "cosmic frogs" that are sensitive to small changes, Turner said. Our galaxy, the Milky Way, is not in a cluster but we are not too far from the Virgo cluster.

As the universe expands thanks to dark energy, clusters such as Virgo and other galaxies will get farther and farther way.

And in tens of billions of years, they will eventually disappear from sight, Vikhlinin said.

"Sometime down the road, we'll have nothing to observe," he said.
http://news.yahoo.com

Feds seize artifacts from hit show 'Survivor'

2008-12-16T07:33:00.000-08:00

The federal tribe has spoken: A contaminated monkey skull, termite-infested statues and other African artifacts of the TV show "Survivor" will not be allowed into the U.S.

Officials disclosed Monday that customs inspectors in Houston seized a variety of restricted items that were being shipped to the U.S. in a container belonging to the CBS reality show. Among the items: the hide from an African cat suspected of carrying a dangerous disease, a mandrill skull, civet hides, parrot, poultry and ostrich feathers, bones and cowries shells.

The 17th edition of "Survivor" took place in the West African nation of Gabon, the country from which the container was shipped. The final episode was shown Sunday night.

The imports were seized Nov. 18 out of concern that they were contaminated with pests and disease that could harm U.S. agriculture, according to officials. Civet cats are mongoose-like animals that are a delicacy in China and are suspected of spreading severe acute respiratory syndrome — SARS — to humans. Inspectors also found wooden statues with termites.

The restricted goods were fumigated by the Agriculture Department, said Customs spokeswoman Yolanda Chaotes. She said the prohibited items were sent away from the U.S. and no decision has been made about penalties on the importer.

Jeffery Baldwin Sr., Custom's director of field operations at the Houston port, said: "Introducing an exotic disease or pest could harm our citizens or devastate our agriculture crops."

Officials from "Survivor" did not return immediate requests for comment. Contestants are eliminated from the show each week with the mantra: "The tribe has spoken."
http://news.yahoo.com

The Money is Just Gone - Housing Prices Aren’t Ever Coming Back

2008-12-15T23:21:00.000-08:00

For every $100 spent on a house in 1950 the investment rose slightly through 2002, then soared to about $192 in 2006, adjusting for inflation. Then credit dried up, and the bust began.

Rick Wallick moved into a new, three-bedroom $200,000 home in Maricopa, Ariz., in October 2005. Today, the home is worth $80,000.

The disabled software engineer stopped making mortgage payments this month. His $70,000 down payment is now worthless. His dream house will be foreclosed on next year.

“We’re so far underwater it’s not funny,” says Wallick, 57, who had to return to his original home in Oregon to care for a sick family member and tend to his own medical problems. Wallick, one of the hardest-hit victims in one of the states hit hardest by the housing crisis, lost 60% of his home’s value in three years.

His story is an extreme example, but home values have fallen so sharply since hitting a historic peak in the spring of 2006 that many Americans are wondering how much more prices can sink.

As painful as the decline has been, history suggests home values still may have a long way to drop and may take decades to return to the heights of 2½ years ago.

“We will never see these prices again in our lifetime, when you adjust for inflation,” says Peter Schiff, president of investment firm Euro Pacific Capital of Darien, Conn. “These were lifetime peaks.”

The boom in home prices — fueled by heavily leveraged loans built on low or even no down payments — made it easy to forget that housing values had been remarkably stable for a half-century after World War II, rising at roughly the same pace as income and inflation. Prices soared in most of the country — especially in Arizona, California, Florida and Nevada and metro areas of Washington, D.C., and New York — during a brief period of easy lending, especially from 2002 to 2006. That era’s over.

So far, home values nationally have tumbled an average of 19% from their peak. As bad as that is, prices would need to fall as least 17% more to reach their traditional relationship to household income, according to a USA TODAY analysis of home prices since 1950. In that scenario, a $300,000 house in 2006 could be worth about $200,000 when real estate prices hit bottom.

The price plunge has wiped out trillions of dollars in home equity and caused the worst financial crisis since the Great Depression. Susan Wachter, professor of real estate at the University of Pennsylvania, fears that foreclosures and tight credit could send home prices falling to the point that millions of families and thousands of banks are thrust into insolvency.

“Homes are different than other goods and services,” she says. “The fragility of our banking system is tied to the value of homes.”

Home values have fallen before — during the Great Depression and in Texas after a 1980s oil boom, for example — but those drops were a response to other economic forces. This time, the housing price collapse is the cause of the nation’s broad economic troubles, not just an effect.

“If we have another 20% decline in prices, we’ll need another bailout of banks similar to what we just did,” Wachter says.

Other economists see a brighter picture in the long term. Wachovia economist Adam York expects home values to keep falling until 2010 but is optimistic they will recover.

“The one saving grace is the population is growing by 3 million people a year,” he says. “They need to live somewhere. That means more roofs.”

Until recently, homes were stable, unspectacular investments, not get-rich-quick schemes.

Nationally, the typical existing home was worth roughly the same in 2000 as it was in 1950, after adjusting for inflation, according to Yale University economist Robert Shiller.

Newly built homes generally were bigger and more expensive than older houses. As time passed, that meant Americans lived in larger, more valuable homes overall. But a house, once constructed, grew slowly in value. California in the 1970s, Texas in the 1980s and Florida on-and-off for a century were conspicuous exceptions to the rule.

Despite only modest increases in value, homes were smart investments. Owners lived in a house, then got their money back when they sold. That’s a better deal than renting. Borrowers got tax breaks, too, and built equity that could be leveraged into bigger houses as their incomes grew.

From 2002 to 2006, houses went from being a tortoise to a hare in the investment world. Home sale profits and relaxed lending standards such as lower down payment requirements and adjustable-rate mortgages (ARMs) made it possible for buyers of all income levels to pay more for houses.

When the housing bubble began to deflate in 2006, history had a sobering lesson to teach. Home values had closely tracked three common-sense measures for many years:

•Income — Home values floated at about three times average household income from 1950 to 2000. In 2006, the average household income was $66,500. Under the traditional model, home prices should have been about $200,000. Instead, the typical home sold for $301,000.

•Rent — Homes traditionally have sold for about 20 times what it would cost to rent them for a year. In 2006, houses were selling for 32 times annual rent.

•Appreciation — Existing homes grew in value by less than 0.5% per year, after adjusting for inflation, from 1950 to 2000. From 2000 to 2006, home prices rose at an average annualized rate of 8.2% above inflation and peaked with a 12.3% jump in 2005. Housing prices began to fall in the second quarter of 2006.

Inflation could help homes recapture their old prices, if not their value. But when inflation is factored in, home prices might not return to their 2006 peak for many years. Housing prices are meaningless if you don’t adjust for inflation, says Schiff, the investment manager.

He points out that gold peaked in 1980 at $850 an ounce in response to inflation and the Iranian hostage crisis. It never recovered. Today, it sells for about $750 an ounce and would have to top $2,000 an ounce when adjusted for inflation to match its value in 1980.

“That’s the nature of bubbles,” Schiff says. “The price never comes back.”

An extreme relaxation of lending standards inflated the housing bubble.

“Shoddy underwriting on mortgages” is the primary cause of the housing crisis, says York, the Wachovia economist. “People got caught off-guard by how bad it was.”

Millions of home buyers — poor, rich and middle class — were approved to buy homes at prices that had been out-of-reach just a few years earlier. Lenders offered low introductory “teaser” rates on adjustable rate mortgages and approved borrowers based on artificially low mortgage payments, not the higher ones that took effect later.

What else changed:

•Optional payments on principal — In 2005, 29% of new mortgages allowed borrowers to pay interest only — not principal — or pay less than the interest due and add the cost to the principal. That was up from 1% in 2001, according to Credit Suisse, an investment bank.

• No verification of income — Half of mortgages generated in 2006 required no or minimal documentation of household income, reports Credit Suisse.

•Tiny down payments — In 1989, the average down payment for first-time home buyers was 10%, reports the National Association of Realtors. In 2007, it was 2%.

Low down payments and ARMs gave homeowners enormous financial leverage to pay high home prices. Leverage boosts buying power through debt, the same way a 100-pound woman uses a lever to jack up a 3,000-pound car.

Consider a couple with $20,000 cash. In 2006, they easily could get a 5% down mortgage to buy a $400,000 house. Today, a 10% down payment would limit the couple to a $200,000 house.

“Leverage matters a lot when you buy a house,” says University of Wisconsin economist Morris Davis, an expert on housing prices and rents. “We’re not going to go back to the days of only 20% (down payment) mortgages, but the days of putting nothing down are long gone.”

Easy access to borrowed money reset all housing prices, even those paid by cautious borrowers. People of all income classes moved up a notch, Census Bureau housing data show.

The sale of new homes costing $750,000 or more quadrupled from 2002 to 2006. The construction of inexpensive homes costing $125,000 or less fell by two-thirds. The biggest boom was in the middle. Homes costing $200,000 to $300,000 became affordable to millions of families.

The failed titans of home lending — Countrywide Financial, IndyMac Bank and Washington Mutual — specialized in high-risk, highly leveraged loans.

“The price correction has been severe, rapid and probably permanent because lending standards have changed,” says mortgage credit analyst Suzanne Mistretta, a senior director at Fitch Ratings, a bond rating company. “We are not going to see 2006 peak levels for a very, very long time.”

The Great Depression of the 1930s was preceded by a real estate bubble, also fueled by loose lending standards and shrinking down payment requirements. Those real estate problems — and solutions — echo today’s.

Florida real estate was the epicenter of speculation in the mid-1920s. Developers ran up prices by selling to borrowers who put as little as 10% down. Those were shockingly risky loans at a time when the standard mortgage lasted five years and required a 50% down payment.

The risky loans went bad first, but it was the spread of credit problems to the supposedly safe loans — five years and 50% down — that caused the housing market to collapse.

The five-year loans required no payments to reduce principal. Homeowners expected to refinance mortgages when the loans expired, usually with the same lender. The stock market crash led to a “liquidity crisis” — no money to borrow — that dried up mortgage refinancing.

Millions of families lost their homes to foreclosure. Falling prices on nearly everything — homes, farm crops, wages — made consumers reluctant to buy and banks afraid to lend.

As part of the New Deal, the government took control of millions of loans and restructured them into something new: the modern mortgage, with 20% down and principal that is repaid over the life of the loan. The government extended the mortgages to 15 years, then 25 and finally 30.

When World War II ended in 1945 and the Baby Boom began the following year, the 30-year, fixed-rate mortgage became a cornerstone of society and led to unprecedented levels of homeownership.

This resilient home finance system should recover in a few years, some analysts say.

National Association of Realtors chief economist Lawrence Yun predicts home prices will keep falling in 2009 but could return to their 2006 peak in three years, not counting inflation.

He says the bubble largely was confined to four states — California, Nevada, Florida and Arizona. “People who bought at the peak in those states will need time for prices to recover, even up to five years,” he says. Yun says people who buy now “have much less risk of price declines and a great possibility of price gains.”

The danger of rapidly falling home prices is that — similar to the Depression — potential buyers and lenders will stay away, fueling even sharper price declines.

During the housing boom, buyers expected prices to rise, so they were quick to buy, borrow and pay a premium. As prices drop, home buyers wait for better deals. says economist Dean Baker of the liberal Center for Economic Policy Research in Washington, D.C.

Lenders want bigger down payments to protect against the falling value of collateral. Homeowners lose equity, so they can’t buy other houses. “Price declines can be a self-reinforcing mechanism,” Wachter says.

An out-of-control price collapse would have dire consequences, Baker says. Even the most conservative banks would find themselves carrying portfolios of toxic mortgage loans.

If housing prices don’t stabilize at traditional levels, financial troubles could spread everywhere — to credit cards, car loans and commercial mortgages, Baker says. “The waves of bad debt will just keep coming,” he says.

Baker and Wachter want the U.S. government to take aggressive steps to help homeowners, not just financial institutions. They support expanding programs that restructure troubled mortgages to prevent a flood of foreclosed homes from coming on the market and driving prices below their traditional level.

Rick Wallick is an example of how even cautious borrowers can be hurt by a price collapse. He made a 35% down payment on his house and got a 15-year, fixed-rate mortgage at 5.75%.

Arizona’s real estate mess wiped him out anyway. Now that he’s in Oregon, he’s renting out his Arizona house at a loss and can’t afford to keep two homes.

Wallick’s Arizona house is surrounded by countless foreclosed homes and empty lots. He told his mortgage company that his December payment will be his last. “It may ruin my credit rating, but I can still buy food,” he says.

Shelley McComb used a no-money-down, interest-only ARM to pay $199,000 in December 2006 for a new three-bedroom home near Birmingham, Ala. The house’s assessed value briefly rose to $225,000.

Now, she needs to move to Atlanta where her husband got a promotion. The McCombs put their home up for sale in March. After getting no offers, they dropped their price to $179,000. They’d settle for $160,000.

Shelley McComb, 30, who manages a doggie day care center, says, “I wish we’d rented.”
Original article

Gov. may allow special election for Senate seat

2008-12-15T08:00:00.000-08:00

SPRINGFIELD, Ill. – Gov. Rod Blagojevich hasn't ruled out signing a bill creating a special election to fill President-elect Barack Obama's Senate seat, his spokesman said Monday, the first hint that the embattled governor may loosen his grip on the seat.

Blagojevich was arrested last week on charges that he tried to profit from his power to choose Obama's replacement and shook down businesses seeking state deals.

The Legislature was to meet Monday afternoon to consider special election legislation, but lawmakers were also likely to discuss impeaching Blagojevich.

While Blagojevich hasn't seen a proposed special election bill, he hasn't ruled out the possibility of signing such a bill, spokesman Lucio Guerrero said early Monday without elaborating.

Blagojevich, meanwhile, remained defiant and returned to work Monday to sign a tax credit bill.
http://news.yahoo.com

Alleged Madoff fraud has worldwide exposure

2008-12-15T07:18:00.000-08:00

NEW YORK – The list of investors who say they were duped in one of Wall Street's biggest Ponzi schemes is growing, snaring some of the world's biggest banking institutions and hedge funds, the super rich and the famous, pensioners and charities.

The alleged victims who sunk cash into veteran Wall Street money manager Bernard Madoff's investment pool include real estate magnate Mortimer Zuckerman, the foundation of Nobel laureate Elie Wiesel, and a charity of movie director Steven Spielberg, according to the Wall Street Journal.

Among the world's biggest banking institutions, Britain's HSBC Holdings PLC, Royal Bank of Scotland Group PLC and Man Group PLC, Spain's Grupo Santander SA, France's BNP Paribas and Japan's Nomura Holdings all reported that they had fallen victim to Madoff's alleged $50 billion Ponzi scheme.

The 70-year-old Madoff, well respected in the investment community after serving as chairman of the Nasdaq Stock Market, was arrested Thursday in what prosecutors say was a $50 billion scheme to defraud investors. Some investors claim they've been wiped out, while others are still likely to come forward.

"There were a lot of very sophisticated people who were duped, and that happens a great deal when you've had somebody decide to be unscrupulous," said Harvey Pitt, a former chairman of the Securities and Exchange Commission, a regulator in charge of monitoring investment funds like the one Madoff operated.

The extent of the potential damage prompted a leading fund manager in London to lash out at U.S. regulators for failing to detect the fraud earlier.

"I think now it is very difficult for people to invest in things that are meant to be regulated in America, because they haven fallen down in the job," Nicola Horlick, the manager of Bramdean Alternatives, which has 9 percent of its funds invested in Madoff's scheme, told the British Broadcasting Corp.

"All through the credit crunch this has been apparent," Horlick added. "This is the biggest financial scandal, probably, in the history of the markets."

Among U.S. investors, the Boston-based Robert I. Lappin Charitable Foundation, a charity that financed trips for Jewish youth to Israel, sacked its staff after revealing that the money for its operations was invested with Madoff.

New Jersey Sen. Frank Lautenberg, one of the wealthiest members of the Senate, entrusted his family's charitable foundation to Madoff. Lautenberg's attorney, Michael Griffinger, said they weren't yet sure the extent of the foundation's losses, but that the bulk of its investments had been handled by Madoff.

Lautenberg's foundation handed out more than $765,000 to at least 100 recipients in 2006, according to the most recent listing on Guidestar, which tracks charitable organization filings.

The foundation helps support a variety of religious, educational, civic and arts organizations in New Jersey and elsewhere, and its contributions range from a gift of than $300,000 to the United Jewish Communities of MetroWest New Jersey to a $2,000 donation to a children's program at the Hackensack Medical Center.

Reports from Florida to Minnesota included profiles of ordinary investors who gave Madoff their money. Some had been friends with him for decades, others were able to invest because they were a friend of a friend. They told stories of losing everything from $40,000 to an entire nest egg worth well over $1 million.

They join a list of more powerful investors that have come forward, all worried about the extent of their losses. The roster of names include former Philadelphia Eagles owner Norman Braman, New York Mets owner Fred Wilpon and J. Ezra Merkin, the chairman of GMAC Financial Services, among others.

Among those overseas confirming exposure on Monday, Banco Santander, the largest bank in the euro zone by market capitalization, said its clients have 2.33 billion euros ($3.07 billion) in exposure with Madoff, mostly through a fund called Optimal Strategic US Equity.

HSBC, Britain's largest bank, said a "small number" of its insitutional clients had exposure totaling some US$1 billion in Madoff funds.

It added that it has custody clients who have invested with Madoff, but it did not believe those "custodial arrangements should be a source of exposure to the group."

Royal Bank of Scotland — Britain's second-largest bank, which is now 58 percent owned by the British government — said it could lose around 400 million euros pounds ($600 million) through exposure in trading and collateralized lending to funds of hedge funds invested with Bernard L Madoff Investment Securities LLC.

Man Group, the world's largest publicly traded fund manager that reported exposure of around $360 million on Monday, said "it appears that a systematic and comprehensive fraud may have been committed, evading a range of structural controls."

Nomura Holdings said it has 27.5 billion yen ($306 million) in exposure, but added that any losses were likely to be limited compared to its capital base.

On Friday, representatives from major U.S. banks — Bank of America Corp., Citigroup Inc., PNC Financial Services Group Inc. and Merrill Lynch & Co. — declined to comment on if they had exposure to Madoff's company. Both BlackRock Inc. and Goldman Sachs Group Inc. said they had no exposure.

Morgan Stanley, Wells Fargo & Co., Comerica Inc. and U.S. Bancorp did not immediately return calls seeking comment.
http://news.yahoo.com

Why Obama Has Georgia On His Mind

2008-06-24T04:59:00.000-07:00

Nowadays, Bob Barr is my favorite politician. Let me explain why.

According to Time magazine, Obama made the following statement regarding how competitive he believes he might be in normally Republican-leaning states:

"...Mississippi is 40% African American, but it votes 25% African
American. If we just got the African Americans in Mississippi to vote
their percentage, Mississippi is suddenly a Democratic state."

This is a strategy that looks to mine the untapped Black vote in Mississippi while not at all dismissing other voters. It is just a very true observation that a group that usually votes Democratic is not voting to its full potential at an unusual lagging rate compared to other groups. Obama, will of course, both need and court other groups' (Whites, Latinos etc.) votes.

However, he also wants to re-energize that black portion of the electorate that feel disillusioned by the political process and therefore are not engaged.

Georgia state has roughly 600,000 unregistered potential Black voters. But the reality is that Obama cannot win a state like Georgia with only the vote of Democratic Blacks, even as he receives his usual percentage of Whites and Latinos he garnered during the primaries.

Enter Bob Barr.

Bob Barr is the libertarian candidate this year who has a relationship with the Republican Party that mirrors the one that Ralph Nader has with the Democratic Party. Of course, Barr won't win enough votes necessary to win the presidency. However, Barr can peel valuable votes from McCain that could turn Georgia into a raging Democratic state come the general election. Here's why:

Bob Barr has a record littered with his support of issues that could carry immense appeal with the disillusioned conservative values base of the Republican Party. Barr supported gun rights at every turn and was opposed to lax drug laws. He even led the calls for the impeachment of the Republicans' favorite villain, President Bill Clinton, during the Lewinsky scandal. So, Barr has a lot of magnets to attract the Republican voter away from John McCain in November.

Furthermore, there was an interesting time in Barr's record where he fought against military bases providing people of Wicca faith accommodations on par with those of their fellow peers who were of Christian faith. That percentage who is of the Christian faith that is also intolerant might appreciate his stance - even though in reality most Christians are not intolerant and a majority of them don't care about such an issue.

Also, Barr has made further interesting moves like in 1998 when he spoke at a meeting of the Council of Conservative Citizens, a white supremacist organization. Barr was, too, a former president of the Southeastern Legal Foundation-- a foundation with a record of pursuing litigation against legislation concerning rights for minorities and gays. And after receiving an endorsement this year from the disgusting white supremacist group Stormfront, Barr issued the following statement:

"The Barr campaign is not going to be a vehicle for every fringe and
hate group to promote itself. We do not want and will not accept the
support of haters. Anyone with love in their heart for our country and
for every resident of our country regardless of race, religion, nationality
or sexual orientation is welcome with open arms.

Tell the haters I said don't let the door hit you on the backside on your
way out!"

It's a nice statement, to be sure. And it is further than Ron Paul was willing to go when he received not just an endorsement but donated money from Stormfront. No matter his rationale, Paul's acceptance of the money combined with past newsletters that carried his name alongside racist ideas is problematic. So, I guess it was decent of Barr to issue a statement against such support, even though it does little to reconcile some of his past activities.

So, shhhhh... Barr, however, may still garner the bigot vote although he spoke out against it. Even though it is common knowledge that voters with intolerant views tend to lean Republican, it has become apparent lately it is not okay to point that out. And it is even more unpopular to point out that those bigots, dissatisfied with the direction of the Republican Party over the last 8 years, might vote Barr instead of McCain out of spite.

Those types of folks will do anything to avoid voting for the black guy. Even if it means that by voting Barr, they increase the chances of the black guy getting into office. All Barr needs to do is cut into McCain's hold in Georgia among Republicans by about 4%, as reported by Huffingtonpost.com, and Barr stands the chance of handing the election over to Obama.

This is not to say that all Republican voters are monolithic - probably a majority of folks that vote Republican are not bigoted. However, the reality is that there are those who are bigoted that vote Republican, no matter how small their number. And to be fair, the Democratic Party discovered that it had ugly nests of bigoted folks among its voting ranks, as well. But it is certain those folks will jet from the Democratic Party, pronto.

Good riddance.

But in the eyes of those bigots who vote Republican, now their stark choice is between white guy McCain and black guy Obama. And if those folks aren't happy with the Republican Party, in general, then they may go to the only other white guy, Bob Barr.

Reality is harsh, but in the case of Obama's chances to get into the White House, reality is divine.

With his huge appeal, Obama widens the electorate net for the Democratic Party-- which will more than make up for any few people in the Democratic ranks who can't imagine voting for him for whatever reasons. And with the help of Bob Barr, Obama might end up humming "Georgia on My Mind" on Inauguration Day as he gets sworn in as the next President of the United States of America.

Mozilla Firefox 3 Guinness World Record (Actual Page)

2008-05-29T08:43:00.000-07:00

Help make a Guinness World Record By Downloading Firefox 3 within 24hrs of its release!

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Clinton did not raise 10mil in 24 hours: FEC reports

2008-05-29T08:36:00.000-07:00

According to this FEC report, Hillary raised only 4.3 million in the 48 hours following Pennsylvania. She raised 1.7 mil on April 23rd and 2.6 mil on April 24th. That's 5.7 million shy of her claim that she raised 10 million in the first 24 hours following that state's primary.

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French serial killer couple handed life sentences

2008-05-28T08:53:00.000-07:00

A man accused of seeking young virgins to rape and kill was convicted Wednesday of seven murders and sentenced to life in prison.

Michel Fourniret, 66, was given the maximum sentence by the jury in northeast France. In a particularly severe sentence for a French court, he cannot be considered for parole before serving 30 years behind bars.

His wife, Monique Olivier, 59, also was convicted of complicity in four of the murders and sentenced to life in prison. She must serve at least 28 years before she can be considered for early release.

The verdict closes a two-month trial that riveted France and neighboring Belgium, where one of the victims was killed.

The young women, aged 12 to 21, were strangled, shot or stabbed with a screwdriver between 1987 and 2001 to feed what prosecutors called Fourniret's obsession for virgins. Fourniret also was convicted of kidnapping and rape or attempted rape of all seven victims.

The lead prosecutor called Olivier "a witch," while Fourniret's court-appointed defense lawyer described him as "indefensible." Fourniret refused counsel and remained silent through most of the proceedings.
Watch a report on the trial of Fourniret and his wife Video

Lawyers for the couple had said they did not plan to appeal in the event of a conviction.

Prosecutors said that Olivier helped Fourniret track down virgins to feed his morbid fantasies.

Belgian police detained Fourniret in June 2003 after his bungled kidnapping of a 13-year-old girl. The girl gave authorities his license plate number after she managed to unbind her hands and escape from the back of his van.

Olivier was extradited to France in 2005, and Fourniret in 2006. Judicial officials in both countries decided the case should be tried in France because six of the victims were French citizens.

Investigators suspect Fourniret may also have been involved in several other murders.

The French case has drawn comparisons with that of Belgium's notorious pedophile Marc Dutroux, who was sentenced to life in prison in 2004 for a series of child kidnappings, rapes and murders.

Jobcentre's Are 'Pimping' Girls

2008-05-22T05:48:00.000-07:00

A charity that helps stop sex trafficking said that the government are effectively pimping women and girls by allowing adverts for escorts, strippers and lap dancers to be displayed in Jobcentres.

Denise Marshall, director of the Poppy Project, made these allegations to MPs during an address to the Commons’ Home Affairs Select Committee. She claimed that these roles could lure women into prostitution and that it was inappropriate for the government to be advertising them.

Ms Marshall also voiced her concerns that jobs in the adult industry were being offered to women as young as seventeen. She said: “We have had contact with two 17-year-olds who have gone into the Jobcentre and it brought up a number of vacancies. Their mother and older sister contacted us because they were so distressed that this had happened.” Underage girls are able to view this kind of role on the Jobcentre’s computer system because it is not monitored properly and does not verify the users age. As Ms Marshall explains, “Because no-one is monitoring it, you don't know who is using it.”

Ms Marshall also told MPs that a member of the Poppy Project team had managed to access a significant number of adult vacancies in Jobcentres throughout London. She explained that these adverts were for a range of positions within the adult industry. She said: “The jobs included stripper, webcam stripper, adult show hostess, lap dancing and work with an escort agency.”Ms Marshall summed up the situation by calling the Government a “pimp”, she said: “It's the Government as pimp. It's just dreadful. I'm appalled that the Government is giving women entree into the commercial sex industry.” However, the Department of Work and Pensions, which operates Jobcentres throughout the UK, said that they are legally obliged to carry this kind of advertisement after a test case, which was brought by the Ann Summers chain of sex shops in 2003. After the case at the High Court, the judge ruled that Jobcentres had to advertise vacancies for legal roles within the ‘sex and personal-services industries’.

Shadow immigration minister Damian Green showed his support for Ms Marshall’s findings. He said: “It beggars belief that while some ministers speak out so strongly against human trafficking, other departments are doing something as stupid as this.”