As part of releasing more details on his economic plan, Barack Obama has also called for a 90-day moratorium on foreclosures. From the L.A. Times:
Democrat Barack Obama today called for a moratorium on mortgage foreclosures as part of a package of proposals to deal with the impact of the current economic crisis on voters, while Republican John McCain portrayed himself as a fighter who should not be counted out of the race for president...
Obama called on banks that accept federal aid to grant up to a 90-day moratorium on foreclosures for families making an effort to pay their mortgages. He also called for a $3,000 temporary tax credit for each additional full-time job a business creates and allowing people to withdraw up to $10,000 from their retirement accounts without any penalty this year and next. To help municipalities caught in the current credit crunch, Obama proposed creating a government agency to lend money to cities and states.
Click here to read the full story.
Monday, October 13, 2008
Barack Obama calls for 90-day foreclosure moratorium
Dow rises as Europe pledges billions to shore up banks
After last week's financial chaos, central bankers on both sides of the Atlantic have finally started planning in tandem to shore up the global banking system. From a New York Times story:
After a weekend of crisis talks on both sides of the Atlantic, European nations and the United States unveiled on Monday a staggering and coordinated series of multibillion-dollar rescue packages to shore up teetering banks and guarantee credit to free up lending between them...
Click here for full story.
States tried to warn about subprime mortgage crisis in 2003?
Now that the blame game for the financial meltdown is in full swing (Democrats? Republicans? Bush? Clinton?), it's getting harder than ever to wade through the partisan opinions out there to get a straight answer. For its part, Business Week has a story in the current issue that discusses what happened when some officials from various states tried to warn the feds about the coming crisis:
More than five years ago, in April 2003, the attorneys general of two small states traveled to Washington with a stern warning for the nation's top bank regulator. Sitting in the spacious Office of the Comptroller of the Currency, with its panoramic view of the capital, the AGs from North Carolina and Iowa said lenders were pushing increasingly risky mortgages. Their host, John D. Hawke Jr., expressed skepticism...
Click here for the full story.
Saturday, October 11, 2008
White House already overhauling rescue plan
First we'll buy up distressed mortgages, and then...no, wait, maybe we should just inject some capital into the weaker banks. After all it's only $700 billion plus change. Still, some economists had originally suggested that injecting federal funds into the banking sector -- in effect partly nationalizing the financial system -- was the better way to go. From the New York Times:
Two weeks after persuading Congress to let it spend $700 billion to buy distressed mortgage-backed securities, the Bush administration has put that idea on the back burner in favor of a new approach, which would have the government inject capital directly into the nation’s banks — in effect, partially nationalizing the industry...
"The Economist" on the Presidential election
The Economist magazine has an excellent series of articles on the upcoming election, the issues we face and how the opposing candidates have pledged to handle them. And how does a group of economists rate Bush's tenure? It ain't pretty. Listed below are links to each of the major articles:
Introduction
A choice of remedies
Changing the rules
The best of enemies
Which war?
Running for cover
The lurking monster
Greener than thou
Still at risk
Hanging fire
Endless culture war
The three elections
Examining the candidates
Friday, October 10, 2008
Pending sales show surprise rise
Despite the tales of impossible-to-get mortgages (and perhaps due to more cash buyers chasing foreclosures?), the number of pending sales showed a surprising rise in August. From an AP via CNNMoney.com story:
The National Association of Realtors says pending home rose 7.4% from July to August, an unexpected piece of positive news for the battered U.S. housing market.
The group said Wednesday its seasonally adjusted index of pending sales for existing homes rose to 93.4 from an upwardly revised July reading of 87. The reading was the highest since June 2007.
Experts don't like McCain's mortgage buy-up plan
Citing the complexity of mortgages that have been sliced and diced up into securities held by multiple owners, many financial experts think that the plan announced by John McCain at the second presidential debate for the government to directly purchase troubled mortgages probably won't work. From an AP story via MSNBC.com:
Ordering the government to buy up bad mortgages to cut homeowners' monthly payments might sound good, but experts are skeptical. They say the plan John McCain is promoting is unlikely to solve the housing crisis that's pushing the economy toward recession.
One big problem: The vast majority of the toxic home loans that are clogging financial markets and freezing up credit have been sliced, diced and repackaged into complex investments that the government would be hard-pressed to unravel and buy.
Even if the government did gain access to the mortgages, it would have to pay far more than they would ever be worth, housing specialists said Wednesday. That would effectively bail out banks and lenders with taxpayer money to a greater degree than Congress and the Bush administration are already doing through the $700 billion financial industry rescue enacted last week...
Nearly 1 out of 6 homeowners now underwater on mortgages
With housing prices continuing to slide, the number of homeowners owing more than their homes are worth continues to rise, and now counts nearly 1 of 6 mortgages in this club. From the Wall Street Journal:
The relentless slide in home prices has left nearly one in six U.S. homeowners owing more on a mortgage than the home is worth, raising the possibility of a rise in defaults -- the very misfortune that touched off the credit crisis last year...
And having more homeowners under water is likely to mean more eventual foreclosures, because it is hard for borrowers in financial trouble to refinance or sell their homes and pay off their mortgage if their debt exceeds the home's value. A foreclosed home, in turn, tends to lower the value of other homes in its neighborhood.
About 75.5 million U.S. households own the homes they live in. After a housing slump that has pushed values down 30% in some areas, roughly 12 million households, or 16%, owe more than their homes are worth, according to Moody's Economy.com.
The comparable figures were roughly 4% under water in 2006 and 6% last year, says the firm's chief economist, Mark Zandi, who adds that "it is very possible that there will ultimately be more homeowners under water in this period than any time in our history."
Among people who bought within the past five years, it's worse: 29% are under water on their mortgages, according to an estimate by real-estate Web site Zillow.com...
California: a bellwether for a national recession?
With its $1.8 trillion economy, California tends to act as a early precursor to national trends in economics. According to story in the Wall Street Journal, the fall-out from its own recession could portend things to come in other states as well:
It's all but certain the U.S. economy is in a recession, as falling home prices and Wall Street turmoil have put the brakes on consumer spending and stoked unemployment. But California got there first. Now, the state provides a template of how a broad U.S. downturn could look.
With its export businesses, manufacturing sector, professional services and big retail employers, California looks like many other U.S. states, only more so. California's $1.8 trillion economy -- twice the size of India's and accounting for about 15% of the U.S. gross domestic product -- is powerful enough to have ripple effects nationally...
Tuesday, October 7, 2008
BofA to slash mortgage payments for troubled loans
Bank of America has announced a drastic plan to address the toxic loans it inherited from Countrywide Financial, which is to slash mortgage payments or even reduce the principal balance owed so mortgage holders can stay in their homes and avoid foreclosure. CNNMoney.com explains:
A plan announced today by Bank of America will be the most aggressive foreclosure prevention effort ever undertaken by a U.S. bank.
The program, scheduled to start in December, will be open to distressed borrowers who signed up with Countrywide Financial between January 1, 2004 and December 31, 2007. Countrywide was acquired by Bank of America (BAC, Fortune 500) in July.
It came in a legal settlement that the company entered into with the attorney general offices of 11 states, who had sued Countrywide over predatory lending practices, but the company stated that borrowers in all 50 states will be eligible to participate in the program...
As part of the initiative, Bank of America will cut monthly housing payments, including mortgage, property taxes and insurance, to no more than 34% of gross income. The move is expected to help keep as many as 400,000 troubled borrowers in their homes.
The program targets holders of subprime adjustable rate mortgage (ARMs), subprime fixed rate loans and option ARMs, but prime and Alt-A borrowers, who did not document their income, will be eligible as well.
No other foreclosure prevention effort has aimed to keep borrowers' house payments so low...
By contrast, the much heralded foreclosure-prevention initiative announced in August by the FDIC for customers of IndyMac Bank, the subprime lender that the agency took over in July, said it will keep borrower payments to no more than 38% of gross income.
"This is the biggest mandatory modification of loans in U.S. history," said Jerry Brown, attorney general of California, the state with the largest number of borrowers who may benefit from the settlement. "Of course, we never saw such a big rip-off by any other company either."
According to Simon, the Countrywide program will proactively screen all of its borrowers for eligibility, and then contact them directly to offer loan workouts. No prepayment penalties or modification fees will apply. But the program can't help every Countrywide borrower. Some, because of illness, divorce, job loss and the like, simply won't be able to afford any reasonable mortgage payment...
As the credit crisis continues, more and more lenders and mortgage servicers are coming to grips with the fact that preventing a foreclosure is usually cheaper than going through the repossession process and then reselling the property in a declining market.
(DUH!)
Depending on each borrower's circumstances, Bank of America might freeze or lower a loan's interest rate or even cut the principal loan balance. The bank said it will also participate in the government's Hope for Homeowners program, a provision of the housing rescue bill which went into effect Oct. 1 and makes FHA-insured loans available for delinquent borrowers.
McCain announces plans to buy failing mortgages directly
As Barack "That One" Obama (apparently no relation to "That Girl," played in the late 1960s-early 70s by actress Marlo Thomas) sat on a nearby stool at Tuesday night's debate, John McCain outlined a bold proposal to spend up to $300 billion to purchase unaffordable mortgages directly from lenders and homeowners and replace them with the fixed-rate variety. From an LA Times story:
The Republican nominee, who long has railed against excess government spending, outlined a program that his campaign said would cost roughly $300 billion.
As Sen. Barack Obama, the Democratic nominee, watched from a nearby stool, McCain promised to launch a major federal effort to purchase failing mortgages directly from homeowners and mortgage providers and replace them with less expensive, fixed-rate mortgages....
"Is it expensive?" McCain asked. "Yes. But we all know, my friends, until we stabilize home values in America, we're never going to start turning around and creating jobs and fixing the economy."...
McCain's bold proposal carries considerable political risk. Democrats have sought to portray him as erratic and impulsive, and his abrupt unveiling of such a complex plan may fuel those charges.
Only time will tell...
Were Obama and Barney Frank responsible for the subprime crisis?
Although it's not too surprising to see the level of partisan vitriol escalating so close to the election, the facts about the subprime mortgage crisis are getting so badly mangled that I decided to turn to snopes.com to see what they had to say about it.
First, on the contention that Barack Obama filed a lawsuit to force banks to make loans to poor people: False. I can't pull anything from that site, so click here to read the post.
Next, on the 1999 email warning against potential troubles with FannieMae and FreddieMac: True. Click here to read. Still, that was NINE YEARS ago. What's more serious is the idea that attempts by the Bush Admin. to institute more regulation of the GSEs was stopped by a Democratic Congress.
I think there's plenty of blame to go around on this issue, and neither major party can claim to be innocent.
Benanke warns of greater economic pain to come
Fed Chairman "Ray of Sunshine" Ben Bernanke warns that the current economic crisis will likely extend the downturn and make it more painful. At least he's being realistic! From an AP story:
Federal Reserve Chairman Ben Bernanke warned Tuesday that the financial crisis has not only darkened the country's current economic performance but also could prolong the pain.
The Fed chief's more gloomy assessment appeared to open the door wider to an interest rate cut on or before Oct. 28-29, the central bank's next meeting, to brace the wobbly economy...
All told, economic activity is likely to be "subdued" during the remainder of this year and into next year, Bernanke said. "The heightened financial turmoil that we have experienced of late may well lengthen the period of weak economic performance and further increase the risks to growth," he warned.
Consumers - major shapers of economic activity - have buckled under the weight of rising joblessness, shrinking paychecks, hard-to-get credit, declining net wealth and tanking home and stock values. All the strains are "now showing through more clearly to consumer spending," Bernanke said.
Inflation numbers are "very ugly right now," Bernanke acknowledged. Even so, he believed slowing growth in the United States and overseas will continue to damp prices for energy, food and other commodities, meaning a better inflation outlook ahead. Inflation will moderate "pretty significantly" over the next few quarters, he predicted...
Employers cut jobs in September at the fastest pace in more than five years, the government reported last week. Payrolls were slashed by 159,000 last month alone. It was the ninth straight month of job losses. A staggering 760,000 jobs have disappeared so far this year.
The financial and credit crises, which took a turn for the worst in September and continue to stubbornly persist, are likely to "increase the restraint on economic activity in the period ahead," Bernanke said.
Even households with good credit histories are now facing difficulties obtaining mortgages or home equity lines of credit, he noted. Banks are also reducing credit card limits and denial rates on auto loan applications are rising, he said.
Banks, too, are feeling the strain of a lockup in lending, particularly in the market for commercial paper.
To that end, the Fed on Tuesday announced a radical plan to buy massive amounts of this short-term debt in an effort to break through a credit clog that is imperiling the economy.
Shopping mall vacancies rise, apartment market healthy
Retail centers are being especially hard-hit by the economic slowdown as consumers reign in their spending and sentiment plummets. Apartments, however, are performing well as people either decide to rent or have no choice due to the tight credit market. From the Wall Street Journal:
Malls are seeing their highest vacancy rate since 2001, according to data released by real-estate-research firm Reis Inc. For shopping centers, the rate is the highest since 1994.
In contrast, the apartment market remained one of the most healthy real-estate markets in the third quarter, benefiting from the struggling home-sales market. Many would-be buyers, unable to get mortgages or worried about the darkening economy, are renting apartments instead.
In the top 79 U.S. markets, apartments posted a slight increase in the vacancy rate to 6.1%, up from 6% from the previous quarter, and a rise in rents of roughly half a percentage point, according to Reis...
In the retail sector, vacancy rates have climbed and rent increases have slowed for the past year. The vacancy rate at malls in the top 76 U.S. markets rose to 6.6% in the third quarter, up from 6.3% in the previous quarter, to its highest level since late 2001, according to Reis.
For strip centers and other open-air shopping venues, the vacancy rate climbed to 8.4% in the third quarter from 8.1% in the second quarter. That marks the highest rate since 1994, according to Reis. Meanwhile, retailers' closures outpaced new leases by 2.8 million square feet in U.S. strip centers in the third quarter, the third consecutive quarterly net decline. It is the first nine-month period of so-called negative net absorption since Reis started tracking the data in 1980.
The combined vacancy rate for malls and strip centers in the third quarter was 8%, up from 7.8% in the second quarter. Vacancy tends to be higher in strip centers during economic slowdowns because they have more independent, local tenants, which are more vulnerable to drops in sales than are the national retailers found in malls.
Still, the economic slump has taken its toll on national retailers. Among those that have closed stores in recent months are Starbucks Corp., Dillard's Inc. and Linens 'n Things Inc. More closures likely are on tap, as retailers such as Circuit City Stores Inc. struggle with dwindling sales...
Retail landlords are hurt directly by slumping sales because many of them have leases that, in addition to base rent, give them a small portion of payments based on the tenant's sales growth. And retailers feeling the pinch from the shopping slowdown increasingly are asking for rent concessions...
Analysts report strong apartment occupancy and rent growth in markets including San Francisco, Boston, San Diego and the Pacific Northwest. Rents and occupancy have suffered in boom-bust markets such as Phoenix and Orlando, Fla. But some previously strong apartment markets, namely New York and Charlotte, N.C., might suffer from the loss of financial jobs amid the banking shakeout.
East Bay Economic Conference tomorrow, October 8th!
Tomorrow is the first of four economic conferences produced by the unusually objective Beacon Economics (meaning no spin at these events!). Space is limited though, so if you want to go be sure to pre-register here or click on the link on the upper right-hand side of this blog.
Here's an overview of what to expect:
With the economic news getting worse by the day, what's the future hold for various parts of the California economy? On October 8th, Beacon Economics will host the first of four regional economic conferences, with this one focusing on San Francisco's East Bay region, which has been hard hit by the housing bust. MetroIntelligence Real Estate Advisors is participating in this event as a sponsor, including writing the real estate section for the conference books.
Want to learn more and attend? Read on:
Where do some of California's most renowned and straight-talking economists think local, state, and national economies are headed in 2009?
The East Bay: Emerged as a Bay Area growth leader following the 2001 downturn - can the region regain its leadership role...
- How bad will East Bay housing get? Any sign of a bottom? When will builders see new demand?
- Are woes in the residential housing market spilling over into the retail and office sectors?.
- How will local government handle revenue shortages?
The State: California hit harder than the nation as a whole...
Do the harder hits imply a quicker recovery? Will the Federal housing bill do anything to stabilize California's residential markets?
The Nation: Recovery, continued doldrums, or worse yet to come...
Can consumer spending keep up once the Rebate afterglow wears off?
Featured Speakers
Jon Haveman
Founding Principal
Beacon Economics
Christopher Thornberg
Founding Principal
Beacon Economics
Sean Randolph
President
Bay Area Council Economic Institute
Beacon Economics is pleased to announce that it has joined forces with the Bay Area Council Economic Institute (BACEI) in hosting its 2nd annual East Bay Economic Forecast Conference. Beacon’s track-record of truth-seeking economic analysis and the Bay Area Council’s reputation as the voice for Bay Area business promise a candid, thought-provoking, and revealing discussion. The event is already generating a buzz, and seating is limited. So reserve today!
Attendees also receive Beacon's new 2008 East Bay Economic Forecast Book. This original, in-depth look at the region’s labor markets, income, real estate markets, demographic trends, and other indicators, is a valuable and enduring resource for anyone facing important economic and financial decisions over the next year.
Want to register for this event? I'll be there! Click here.
