Posts Tagged ‘congress’
Wednesday, October 26th, 2011
Federal officials and some of the nation’s largest banks are collaborating on a plan that would make refinancing available to some borrowers whose houses are worth less than their loans, with the caveat that they must be up-to-date on mortgage payments. Typically, these borrowers can’t refinance because they don’t have enough equity in their homes. The plan would apply only to bank-owned mortgages.
Federal officials have been trying to negotiate a deal with the five largest mortgage servicers – Ally Financial, Inc, Bank of America, Citigroup Inc, J.P. Morgan Chase and Wells Fargo & Co. Officials favor a plan that would break a legal impasse with big banks over alleged foreclosure abuses such as robo signing and ease problems in the housing market. Discussions are still underway and the final outcome is not yet known.
Pressure is building in Washington, D.C., to help underwater homeowners with a generous refinance plan. President Barack Obama told Congress that he wants to help “responsible homeowners” refinance, saying it would “give a lift to an economy still burdened by the drop in housing prices.” A bipartisan coalition of 16 senators wrote to the administration urging swift action on a refinance plan.
“A huge floodgate would open up” if underwater refinancing were broadly available, said Fif Ghobadian, a broker at Guarantee Mortgage in San Francisco. “It would provide the help that lowering interest rates cannot do alone. Someone who’s been making payments at 7.5 percent religiously but cannot qualify to refi – boy, would that four percent make a huge difference in their life.”
A program has existed for some time that provides guidelines to lenders for refinancing some Fannie Mae- and Freddie Mac-backed underwater mortgages. The program is called HARP (Home Affordable Refinance Program), it’s two years old and has resulted in approximately 800,000 refinances, far short of the five million originally envisioned. Only a fraction of those homeowners were deeply underwater. HARP’s main impediment has been the lenders themselves. Concerns about issues such as being forced to take responsibility for refinances that default (known in the industry as “buybacks”) has made lenders reluctant to issue HARP mortgages. The proposed new plan would likely expand HARP to make it more acceptable to lenders and more usable by a broader swath of homeowners. “Changes (being contemplated) would address several HARP obstacles,” said Erin Lantz, director of the mortgage marketplace for Zillow. “The industry now makes it hard for people to qualify. The process would be more streamlined.”
According to a recent Harvard study, approximately 11 million homeowners with mortgages are underwater. This accounts for roughly one-fourth of all homes with mortgages in the nation. An additional five percent have near-negative equity (<five percent home equity).
Writing for Reuters, Felix Salmon doesn’t think much of the potential mortgage plan. “It’s pretty weak tea: under the terms of the deal, if (a) you’re underwater on your mortgage, and (b) you’re current on your mortgage payments, and (c) your mortgage is owned by the bank outright, rather than having been securitized, then you would be given the opportunity to refinance your mortgage at prevailing market rates. It’s worth remembering, at this point, that mortgages are by their nature pre-payable. When you write a fixed-rate mortgage, you make a general assumption that if mortgage rates fall substantially, the borrower is going to pay you off and refinance. The underwater questions we’re talking about here were written during the housing boom, when banks simply assumed that house prices always went up; those banks cared massively about prepayment risk at the time, and spent huge amounts of money and effort trying to hedge it. As it happened, mortgage rates did fall substantially — with the result that the banks’ hedges paid off. But then the banks realized that they could make money on both legs of the deal — that they could collect on their mortgage-rate hedges, without having to worry about prepayment. Because now the borrowers are underwater, they’re not allowed to refinance. So the banks continue to cash above-market mortgage payments every month — something they never expected that they would be able to do.
“It’s not inconceivable at all. In fact, wholesale mortgage refinance for underwater borrowers is a major part of Barack Obama’s jobs bill, and the Congressional Budget Office (CBO) has been costing it in various ways. At heart, it’s a way of rectifying a market failure, and thus makes perfect sense. But that’s precisely why I don’t think that this plan deserves a place in the mortgage-settlement talks. For one thing, it’s downright unfair and invidious to allow 20 percent of underwater homeowners to refinance while ignoring the other 80 percent. More to the point, giving homeowners the ability to refinance their mortgages is what you do, if you’re a bank. It’s not some kind of gruesome punishment.”
Tags: Ally Financial, Bank of America, Citigroup Inc, congress, Congressional Budget Office, Fannie Mae, Fixed-rate mortgage, Freddie Mac, Harvard, Home Affordable Refinance Program, Inc., J P Morgan Chase, Mortgage refinancing plan, President Barack Obama, refinancing, underwater mortgages, Wells Fargo & Co., Zillow
Posted in Economics, Financing, General, Residential | No Comments »
Wednesday, October 5th, 2011
Federal Reserve Chairman Ben Bernanke, in a long-awaited speech in Jackson Hole, WY, announced no new steps the Fed will take to prop up the shaky U.S. economy. Rather, he expressed optimism that the economy will continue to recover, based on its inherent strength and from assistance provided by the central bank. Bernanke restated the Fed’s determination to keep the federal funds rate “exceptionally low” for a minimum of two years. He did not say what many had been hoping to hear: that the Fed would begin another round of quantitative easing – usually referred to as QE3.
Bernanke said that he expected inflation to remain at or below two percent. Additionally, he acknowledged that the recent downgrade of the nation’s AAA credit rating had undermined both “household and business confidence.” He implied that there was only so much more the Fed can do to stimulate the economy, and that the time has come for Congress and the Obama administration to create “policies that support robust economic growth in the long term,” to reform the nation’s tax structure and to control spending.
“In addition to refining our forward guidance, the Federal Reserve has a range of tools that could be used to provide additional monetary stimulus. We discussed the relative merits and costs of such tools at our August meeting. We will continue to consider those and other pertinent issues, including, of course, economic and financial developments, at our meeting in September,” Bernanke said. He went on to clarify the Fed’s guidance about how long interest rates will remain exceptionally low. “In what the committee judges to be the most likely scenarios for resource utilization and inflation in the medium term, the target for the federal funds rate would be held at its current low levels for at least two more years.”
As Bernanke delivered his remarks, the government cut its estimated 2nd quarter GDP growth to a paltry rate of one percent, a revision from the 1.3 percent previously reported. The revision was expected and primarily due to weaker exports. In more positive news, private spending and investment in April through June were slightly higher than initially estimated. The GDP grew by an annual rate of just 0.4 percent in the 1st quarter. The 2nd half of 2011 is expected to be somewhat stronger, but a major driver of the economy — consumer spending — remains weak amid slow hiring and sluggish income gains.
“This economic healing will take a while, and there may be setbacks along the way,” Bernanke said. “Although the issue of fiscal sustainability must urgently be addressed, fiscal policymakers should not, as a consequence, disregard the fragility of the current economic recovery. Although important problems certainly exist, the growth fundamentals of the United States do not appear to have been permanently altered by the shocks of the past four years,” Bernanke said. “It may take some time, but we can reasonably expect to see a return to growth rates and employment levels consistent with those underlying fundamentals.”
“Economic performance is clearly subpar, and from that standpoint the case for some sort of further economic-policy assistance is just being made by the poor performance,” said Keith Hembre, chief economist and investment strategist in Minneapolis at Nuveen Asset Management. Although Bernanke said the Fed has stimulus tools left, “the threshold to utilizing them is going to require fairly different conditions than what we have today,” such as lower inflation or a return of financial instability, Hembre said.
Bernanke also used the occasion to scold Congress for its tardiness in resolving the deficit debate. “The country would be well served by a better process for making fiscal decisions,” Bernanke said at the Federal Reserve Bank of Kansas City’s annual economic symposium. “The negotiations that took place over the summer disrupted financial markets and probably the economy, as well, and similar events in the future could, over time, seriously jeopardize the willingness of investors around the world to hold U.S. financial assets or to make direct investments in job-creating U.S. businesses.” Bernanke implied that a return to economic prosperity is at stake. “I do not expect the long-run growth potential of the U.S. economy to be materially affected by the crisis and the recession if — and I stress if — our country takes the necessary steps to secure that outcome,” he said. The budget process, according to Bernanke, would be more effective if negotiators set “clear and transparent budget goals” and established “the credibility of those goals.”
Bernanke reassured investors that United States prospects for growth are sound over the long term and that the Fed has tools to aid the recovery if needed, even though he is not planning another stimulus at this time. “What no action will do is give confidence to investors that things are not as bad as many people perceive, otherwise he would’ve acted,” Keith Springer, president of Springer Financial Advisors in Sacramento, CA, said. “Investors will eventually see the positives.”
Tags: Ben Bernanke, congress, consumer spending, Debt-ceiling battle, economic stimulus, exports, Federal Reserve, Federal Reserve Bank of Kansas City, GDP, interest rates, Jackson Hole, Nuveen Asset Management, Obama administration, QE3, Springer Financial Advisors, WY
Posted in Economics, General | No Comments »
Thursday, September 8th, 2011
The Treasury Department is laughing all the way to the bank. Insurance Giant AIG repaid $2.15 billion that it had borrowed through the Troubled Asset Relief Program (TARP). In 2008, the government helped the giant get back on its feet with a $180 billion loan. AIG has been gradually repaying the money. The most recent repayment is the result of the sale of AIG’s Taiwan-based subsidiary Nan Shan Life Insurance Company. One of AIG’s strategies for cutting its debt has been to raise funds by selling assets. “We continue to make progress in helping the Treasury and taxpayers recoup their investment in AIG,” according to AIG CEO Robert Benmosche.
Not surprisingly, the Treasury Department is pleased with the transaction. “This is another important milestone in AIG’s remarkable turnaround,” Tim Massad, the assistant secretary for financial stability, said in a statement. “We continue to make progress in recovering the taxpayers’ investments in AIG.” AIG still owes Treasury $51 billion. TARP legislation was passed by Congress in late 2008 to rescue the financial sector, which was on the verge of collapse.
Benmosche is still weighing whether to retain a stake in AIA Group Ltd. while repaying TARP funds. AIG sold 67 percent of Hong Kong-based AIA last year in an IPO that raised $20.5 billion. The remaining interest added $1.52 billion to AIG’s second-quarter profit as the Asian insurer’s stock price surged. AIA has soared 19 percent this year and is the number one gainer in the 73-company Bloomberg World Insurance Index. “It’s been a great investment, so they may want to hold onto it,” said Paul Newsome, an analyst at Sandler O’Neill & Partners LP.
Now that the Nan Shan deal has closed, AIG’s final significant disposal will be International Lease Finance Corporation, or ILFC, which purchases airplanes to lease them to airlines. The company is considering an initial public offering (IPO) for ILFC later this year. Using Nan Shan proceeds to repay the special purpose vehicle gives AIG “more flexibility as to what to do with ILFC and other assets, too. It adds in general to their cash-flow flexibility.” He is telling his clients to buy AIG stock. Treasury holds a $9.3 billion preferred interest in the special-purpose vehicle after accepting proceeds from the Nan Shan sale, according to AIG. Benmosche may delay or forego selling AIA shares. AIG’s agreement with underwriters lets Benmosche reduce or hedged the stake in October. “We’re looking potentially at monetizing other assets that we have so that AIA might be sold much later on, if at all,” he said.
Writing in The Hill, Peter Schroeder says that “In many ways, AIG came to serve as a symbol of much of the public’s anger over the bailout, as it found itself at the center of the historic financial crisis and reliant on substantial government support. That dissatisfaction came to a head in 2009, when executives at the company planned to distribute hundreds of millions of dollars in bonuses after billions in losses during the financial crisis. In January, AIG completely repaid the Federal Reserve Bank of New York with a $47 billion payment, and the Treasury in May agreed to sell 200 million shares of AIG stock, raising nearly $9 billion in that offering. The latest payback from AIG means the Treasury has recovered $313 billion of the investments it made under the Troubled Asset Relief Program (TARP) — roughly three-quarters of the $412 billion it originally dished out to keep the financial system afloat. The Treasury announced in March that it had officially turned a profit on the bank portion of TARP. It followed that up with a July announcement that it had exited its investment in Chrysler, ahead of schedule but losing about $1.3 billion in the process.”
On the Huffington Post, Jason Linkins has a cynical take on AIG’s recent repayment of TARP money. “Okay, I’m just going to stop it right there, because when it comes to ‘AIG’s remarkable turnaround,’ the devil is in the details. Time and time again we’re asked to celebrate the success of TARP. Back in March, the good news was that, ‘The Treasury currently estimates that bank programs within TARP will ultimately provide a lifetime profit of nearly $20 billion to taxpayers.’ But this profit that the government has turned on the bailout of AIG rings pretty hollow in light of the four different restructurings of the original agreement that the government has acquiesced to since the fall of 2008.
“When the Fed first stepped in to prevent AIG from collapse in September 2008, the deal was actually pretty good — it carried a punitively-high interest rate appropriate for a bailout, the CEO was dismissed and the company was going to sell itself off in parts, ending its too-big-to-fail status. If the government were turning a profit on a deal like this, it would indeed be good news. The trouble is, AIG’s new management didn’t break up the company very quickly. And even as it paid out lavish bonuses to its top-performing traders and executives, it couldn’t make good on its interest payments to the government. So the feds stepped in again — and again, and again — throwing more money at the company, reducing the interest that it would pay taxpayers and eventually converting the government’s loans to common stock, abandoning concrete repayment obligations in favor of whatever the stock might someday be worth.”
Tags: AUG, Bloomberg World Insurance Index, Chrysler, congress, Federal Reserve, Federal Reserve Bank of New York, financial crisis, International Lease Finance Corp, IPO, Nan Shan Life Insurance Company. AIA Group Ltd., Sandler O’Neill & Partners LP, TARP, Too big to fail, Treasury Department
Posted in Economics, Financing, General | No Comments »
Thursday, September 1st, 2011
Former Federal Reserve chairman Alan Greenspan says that Italy is the root of most of Europe’s economic problems, as well as our own. In a recent appearance on “Meet the Press”, “It depends on Europe, not the United States,” Greenspan said. “The United States was actually doing relatively well, sluggish but going forward until Italy ran into trouble.” According to Greenspan, 50 percent of American corporations have offices in Europe, and the continent “has been a very important driving force in the overall earnings of U.S. corporations.” Greenspan also noted that S&P’s downgrade “hit a nerve”. The ratings agency said it was reducing the AAA rating to AA+ not only because of the country’s debt load, but because it doesn’t believe that Congress can resolve the country’s debt problems. Mark Zandi, chief economist at Moody’s Analytics, agrees, noting that “There’s a lot of fear and misunderstanding and confusion, and that all could come out in the stock and bond markets. I don’t think it takes much to unnerve investors given the current environment. I think anything could drive investors to sell given how fragile sentiment is.”
At the same time, Greenspan downplayed the risk of a double-dip recession in the United States, noting that the economy is in better shape than its European peers. With all of this bickering going on, the economy is slowing down,” Greenspan said. “You can see it in all the data. I don’t see a double-dip, but I do see it slowing down.” Europe, which purchases 25 percent of American exports and is home to the operations of many American companies, could determine the course of the U.S. economy’s recovery, according to Greenspan. European leaders are working to control a sovereign-debt crisis, which has spread to Italy, the euro zone’s third-largest economy, and is causing chaos in global financial markets.
“When Italy first showed signs of weakness and started selling its bonds — the yield is now over six percent, which is an unsustainable level — it created a massive problem in Europe because Italy is a very large country, cannot be easily bailed out and indeed cannot be bailed out. This is not an issue of credit rating. The United States can pay any debt it has because we can always print money to do that. There is zero probability of default,” Greenspan said.
In the meantime, Fitch Ratings delivered some good news to the U.S. economy when it reaffirmed its AAA credit rating and said it did not anticipate downgrading the nation’s debt in the near future. The firm said the outlook for the rating is stable because the recent deal to raise the debt ceiling and cut the budget deficit proved that the nation’s political leaders are willing to do what’s necessary to cut the nation’s growing debt. The debt-ceiling deal “was a significant positive development that provided a substantive and necessary increase in the federal debt ceiling. It also signaled that there is the political commitment to place U.S. public finances on a sustainable path consistent with the U.S. sovereign rating remaining ‘AAA’,” Fitch said. Fitch’s outlook is the most positive on the U.S. of the primary credit rating agencies. Standard & Poor’s downgraded long-term debt to AA+ after concluding that the planned $2.1 trillion to $2.4 trillion budget cuts over the next 10 years are not large enough to stabilize the nation’s rising debt. Moody’s Investor Services also retained the nation’s AAA rating, but changed its outlook to negative. This means that there’s a possibility of a downgrade.
“The key pillars of the U.S.’s exceptional creditworthiness remains intact: its pivotal role in the global financial system and the flexible, diversified and wealthy economy that provides its revenue base. Monetary and exchange-rate flexibility further enhances the capacity of the economy to absorb and adjust to ‘shocks,’ Fitch said.
“I think they’re looking at a broader perspective than S&P in the global aspects,” Steve Goldman, Weeden & Company market strategist said of Fitch’s decision. “It’s giving a sigh of relief to investors here.”
Tags: AAA credit rating, Alan Greenspan, Austan Goolsbee, Budget deficit, congress, Debt ceiling, default, Euro zone, Federal Reserve, Fitch Ratings, Italy, Mark Zandi, Moody’s Analytics, Moody’s Investor Services, President Barack Obama, Sovereign-debt crisis, Standard & Poor’s, U.S. Treasuries, Unemployment crisis, “Meet the Press”
Posted in Economics, General | No Comments »
Monday, August 22nd, 2011
Standard & Poor’s may have downgraded the United States credit rating from AAA to AA+ and the bears may have taken over Wall Street, but the Berkshire Hathaway chairman and billionaire Warren Buffett believes that the nation deserves a AAAA rating.
In a recent appearance on CNBC, Buffett said that he still believes that the United States’ debt is AAA and that he’s not changing his mind about Treasuries based on Standard & Poor’s downgrade. “If anything, it may change my opinion on S&P,” according to the Oracle of Omaha. “I wouldn’t dream of putting it anywhere else,” Buffett said, noting that at Berkshire, the only reason he’s sold Treasuries in the past is to purchase stocks or make acquisitions. Berkshire is still buying T-bills, even though yields have declined. “If I have to buy (Treasuries) at a zero percent yield, I will,” he said. “I don’t like it, but we’ll do it.”
Buffett has something of a vested interest in criticizing Standard & Poor’s. Berkshire Hathaway is one of the biggest shareholders in Standard & Poor’s main competitor Moody’s with about 28 million shares. But the billionaire has long urged people to make their own decisions about an investment’s prospects without relying on credit rating agencies. Buffett said the action doesn’t change his view on the soundness of U.S. Treasury bills. At least $40 billion of Berkshire Hathaway’s approximately $48 billion cash and equivalents is in U.S. Treasury bills, and Buffett won’t consider investing it elsewhere.
According to Buffett, America’s leaders may have a difficult time agreeing on the country’s financial future and the value of the dollar may slide, but that won’t keep the world’s richest nation from paying its debts. The United States has a GDP of about $48,000 per person, and the Federal Reserve can always print more money. “Our currency is not AAA, and in recent months the performance of our government has not been AAA, but our debt is AAA,” Buffett said.
Writing on the InvestorPlace.com website, Jeff Reeves says that “Before you scoff that Buffett is just a bygone relic of an era during which stocks like General Electric truly did have bulletproof dividends and it would have been unfathomable for stocks like General Motors to go bankrupt, consider this: In September 2008, the depths of the financial crisis when nobody knew which bank would fail next, Buffett and Berkshire dumped $5 billion into preferred stock of Goldman Sachs. Thanks to the 10 percent interest on those shares, Berkshire Hathaway earned a cool $500 million per year in dividends before Goldman bought back the stock several months ago. What’s more, the investment bank paid a hefty 10 percent premium to buy back those preferred shares. Maybe it was crazy to jump into banks headfirst when the market was going haywire in 2008. But it was awfully profitable for Buffett. You might think it’s crazy to stick to your buy-and-hold strategy now, or to continue to rely on U.S. Treasury Bonds. But take a deep breath and remember that not everyone is screaming and running for the hills. Yes, persistent problems with unemployment, the political bickering in Congress and the flatlining of our American economy are serious issues. But they are hardly new.”
Not everyone agrees with Buffett. According to the Equity Master website, “We must say that we do not agree with Mr. Buffett. We are not arguing with the credibility of S&P, whose reputation admittedly became tainted when it gave the highest rating to many mortgaged backed securities in the months leading up to the demise of Lehman. But that does not mean that the U.S. is without some serious problems. Indeed, the U.S.’ mounting debt is a huge cause for concern and the government’s latest move to raise the debt ceiling is only likely to postpone an eventual default and not entirely extinguish it. Moreover, the claim that the U.S. can pay its debt because it can print more money is a dangerous one to make. Printing money never really solved America’s problems. The two big quantitative easing programs and their failure to revive the sagging U.S. economy is testimonial to the fact. One thing that it will certainly do is bring down the value of the dollar and cause inflation to accelerate posing a fresh set of problems for the U.S. So, while criticisms can be piled on S&P, downgrading of the U.S.’ credit rating is something that the world’s largest economy had a long time coming.”
Firstpost agrees that Buffett is wrong. “Among other things, he said that the U.S. deserved a AAA credit rating when the S&P decided to bring it down to AA+. He also believes the U.S. will avert a double-dip recession. Well, Mr. Buffett, you are already half-wrong. A slow-growing nation with a 100 percent debt-to-GDP ratio cannot be AAA by any stretch of economic logic. It makes India’s 70-72 percent debt-GDP ratio look like the epitome of prudence. As for the other half of your prediction – that the U.S. will avoid a double-dip recession – the jury is out on that one, but the recession wasn’t the reason for the S&P downgrade anyway. There are two reasons, or maybe three, why the U.S. is in a mess. One is that it is overleveraged – in deep debt – both at the level of government and the common people. Two, the law that the U.S. can indefinitely live beyond its means has a flaw. It was built on the assumption that dollar debts can be paid off by printing more of the green stuff forever.”
Tags: AAA credit rating, Bear market, Berkshire Hathaway, Buy-and-hold strategy, CNBC, congress, Double-dip recession, Federal Reserve, financial crisis, GDP, General Electric, General Motors, Goldman Sachs, Lehman Brothers, Moody’s, Political bickering, Quantitative easing, Standard & Poor’s, T-bills, The Oracle of Omaha, Treasuries, unemployment, Wall Street, Warren Buffett
Posted in Economics, General | 1 Comment »
Wednesday, August 3rd, 2011
The 
Environmental Protection Agency and Department of Transportation (DOT) have directed that cars and light trucks carry labels comparing estimated five-year fuel costs with those of the average new vehicle following industry opposition to adding fuel-economy letter grades to the window stickers. The labels, which will include yearly fuel-cost estimates, must be affixed to passenger cars and trucks starting with model year 2013. The new stickers will rate vehicles on a scale of one to 10 for smog and greenhouse-gas emissions. “These new window stickers are a win-win” for car buyers and the auto industry, Transportation Secretary Ray LaHood said. “They’ll help consumers make informed choices to save at the pump.”
Plug-in hybrids and electric vehicles must carry labels that specify how far a car can drive on electric power when charged. The government decided to scrap plans for labels with letter grades after automakers, dealers and Congress said that consumers may avoid vehicles labeled with lower rankings. Regulators abandoned the letter-grade proposal after being criticized by automakers and consumer tests indicating that some found the plan confusing, according to EPA Administrator Lisa Jackson. “About half the people didn’t think the letter grade gave them all the information they needed,” Jackson said. “And there was confusion that the letter grade was about the whole car.”
The labels will be quite detailed. The estimated annual fuel cost is there, as are the standard miles-per-gallon figures for city and highway driving. New features include the amount of fuel or electricity the vehicle will require to drive 100 miles, as well as the expected savings or cost of fuel over the next five years. The miles-per-gallon range for same-class vehicles will be featured on the decals, as well as the highest fuel economy. “The new labels…are the most dramatic overhaul to fuel economy labels since the program began more than 30 years ago,” the DOT said.
The labels have some new features, including a QR Code that allows smart phones users to access online information about how various models compare on fuel economy. Consumers can enter information about their particular commutes and driving habits to get a more exact estimate of fuel costs. The rule also finalizes new labels for electric vehicles and plug-in hybrids to convert the use of electricity to a miles-per-gallon equivalent — and to allow users to compare charging costs to gasoline use. In 2010, the EPA approved interim labels for the electric Nissan Leaf and extended range electric Chevrolet Volt, which it categorizes as plug-in hybrids.
The Alliance of Automobile Manufacturers – the trade association representing Detroit’s Big Three automakers, Toyota and seven other automakers, praised the move and said the move complements labels between the federal government and California. “Today’s announcement by EPA and DOT is a victory for consumers. The average car buyer is a savvy shopper who gathers much information prior to buying a car, so the decision to go with informative MPG labels fits consumer needs well. This label provides clear, visible data on fuel economy in a format consumers are already familiar with,” the group said.
Not everyone is happy with the move. Dan Becker, director of the Safe Climate Campaign, said “The Obama administration caved to auto industry pressure and pulled the plug on a key consumer education proposal intended to help us determine which cars are cleanest. This decision denies consumers clear information to help them make educated choices.”
The EPA created the new labels with the Transportation Department as part of rules adopted in 2010 requiring a 42 percent increase in average CAFE efficiency standards to 35.5 miles per gallon for 2012 – 2016 vehicles. The agencies plan to require that 2017 – 2025 cars and trucks push efficiency goals to 60 mpg, a target automakers would likely resist. Automakers, who supported the new labels, are retooling their production lines to meet government and consumer demands that they offer greater efficiency and cut pollution.
Tags: Alliance of Automobile Manufacturers, Big Three Automakers, Chevrolet Volt, congress, Department of Transportation, Electric cars, Environmental Protection Agency, Fuel-economy letter grades, greenhouse gas emissions, Lisa Jackson, Nissan Leaf, Plug-in hybrids, QR codes, Ray LaHood, Safe Climate Campaign, Smart phones, Smog
Posted in General, Green | No Comments »
Tuesday, August 2nd, 2011
Mortgage finance giants Fannie Mae and Freddie Mac might find themselves merged into a single government-run entity. Representative Gary Miller (R-CA) is set to unveil a bill that would create a utility-like entity and phase out government-controlled Fannie Mae and Freddie Mac. The new company would buy mortgages and repackage them as government-backed securities. The major difference from Fannie and Freddie lies in the fact that it would not have shareholder investors. The National Association of Homebuilders and the National Association of Realtors are expected to support the proposal, which reflects concerns by the industry, consumer groups and some policymakers that a complete withdrawal of government support for home lending could make the housing recession go further downhill.
A competing proposal by Representatives Gary Peters (D-MI) and John Campbell (R-CA) would create a minimum of five private companies to replace the two co-called government-sponsored enterprises, or GSEs. The point of contention for many lawmakers is whether to provide a government backstop for mortgages and on what terms to provide the guarantee. House Financial Services Committee Chairman Spencer Bachus (R-AL) is trying to forge a consensus among Republican members. Any bill that is generated by Bachus’ committee and is passed by the Republican-led House would likely still be in jeopardy once it reaches the Democratic-controlled Senate.
“There was the idea that people were so tired of taxpayer losses related to housing that the traditional housing lobby would not be able to retaliate effectively,” said Jim Vogel, chief of agency debt research at Memphis-based FTN Financial. “It’s time to start waving the housing flag again.”
That would represent a sea change from February, when the Treasury Department recommended selling off Fannie Mae and Freddie Mac holdings within 10 years; Jeb Hensarling (R-TX) wanted to do it in half that time. Since then, homebuilders, real estate agents, investment banks, civil rights leaders and consumer advocates have lobbied to retain a government role — including the unspoken federal guarantee behind Fannie Mae and Freddie Mac. Congress created the programs as private companies to expand home ownership.
Already, the government is slowing its efforts to prop up the housing market. Beginning this fall, the cap on Fannie and Freddie-backed mortgages — loans where taxpayers are on the hook if borrowers don’t pay — will decline in some regions. At the height of the housing crisis, Congress raised the cap to $729,750 in areas where homes are most expensive. After October, that will fall to $625,500. The limit varies by county. Mortgages that are too expensive to get backing from Fannie and Freddie are called jumbo loans and usually have higher interest rates and require larger downpayments. That maximum was set by Congress in 2008 in an attempt to ensure that borrowers could continue to obtain loans in particularly expensive housing markets during the credit crunch, especially in prime real estate locations, such as New York, Los Angeles and Washington, D.C.
The Deal Book column in the New York Times thinks that the idea of merging Fannie and Freddie is not as outrageous as it may at first seem. “Consider the math: For the first six months of this year, both companies spent $1.825 billion in overhead costs combined; on an annualized basis, that means the companies are spending about $3.65 billion. Given that the companies do pretty much the same thing – buying mortgages from banks, insuring them and creating mortgage-backed securities – there might be opportunities for savings if many of their managers and staff are, to put it politely, redundant. Conservatively, a combined Fannie and Freddie could probably cut a third of its overhead and staff, saving some $1.2 billion annually. The way Wall Street values companies, that means – presto – billions more in value, perhaps as much as $18 billion or $19 billion, could be created overnight.”
“It would instill a huge amount of confidence. The market will know that both entities combined will have much more consistent, stable margins,” John Lekas, chief executive of Leader Capital, an investment firm, said on CNBC last week. He added that it “doesn’t cost taxpayers one nickel.”
Additionally, Fannie and Freddie are on track in 2011 to spend about $1.8 billion on what is known as “foreclosure costs,” which means maintaining and selling thousands of homes that became part of their ownership portfolios after the owners were unable to pay the mortgage. The costs are staggering, given that Fannie and Freddie together own approximately 153,000 foreclosed homes. “This is just one of the costs that Fannie and the rest of us will pay to dig out of a very big hole,” says Karen Petrou, of Federal Financial Analytics. When she says “the rest of us,” she is telling the truth. Fannie Mae’s tab to American taxpayers is up to $86 billion since September 2008 when it was taken into government conservatorship. During the 1st quarter of 2011, Fannie racked up $488 million in foreclosure-related expenses, including holding costs (insurance, taxes and maintenance); valuation adjustments for changes in market value; gains/loss when the property is sold; legal fees; eviction costs; weatherization costs to prevent pipes from bursting; costs to secure the property; and repair costs.
“We want to make sure that we’re comparable with the market or with the neighborhood,” said Elonda Crocket, a Fannie Mae executives who is part of the management team of its massive portfolio of foreclosed properties. The goal is to stabilize the neighborhoods where there are foreclosed homes and get the properties to a condition where first-time homebuyers want to purchase them. “We want to make sure that we can maximize our return on the investment,” she said. In 2010, Fannie Mae repaired 87,000 foreclosed homes.
“It makes them — I think — indisputably the largest purchaser of paint and general appliances for these homes they’re fixing up,” said Guy Cecala, publisher of Inside Mortgage Finance. “If they don’t maintain the houses, then the neighborhoods go downhill, other people are put at risk and the housing crisis gets worse because you have still more downward pressure on overall house prices,” Petrou said.
Tags: congress, Department of the Treasury, Downpayments, Fannie Mae, Federal Financial Analytics, foreclosure, Freddie Mac, FTN Financial, Government-backed securities, GSEs, House Financial Services Committee, Inside Mortgage Finance, mortgages, National Association of Homebuilders, National Association of Realtors, Representative Gary Miller, Representative Gary Peters, Representative Jeb Hensarling, Representative John Campbell, Senate, Spencer Bachus, Wall Street
Posted in Development, Financing, Residential | No Comments »
Wednesday, June 8th, 2011
Social Security Commissioner Michael Astrue calls it “America’s silver tsunami.”
The name Kathleen Casey-Kirschling likely doesn’t ring any bells with the majority of Americans. She holds the singular honor of being the nation’s very first baby boomer, born one minute after midnight on January 1, 1946 in Philadelphia celebrating her 65th birthday on New Year’s Day. A retired teacher, Casey-Kirschling is the first of approximately 78 million baby boomers who will begin collecting Social Security and Medicare benefits over the next 20 years. The Pew Research Center reports that approximately 10,000 baby boomers turn 65 every day. Baby boomers, who were born between 1946 and 1965, are celebrating their 65th birthdays between 2011 and 2030. Despite a recent Pew survey that found baby boomers feel more downbeat than other generations about their future, Casey-Kirschling is taking a positive approach. “I’m OK with knowing that I don’t know what tomorrow will bring,” she said. “I’m going to live for today. And I’m thankful that I could live for today, and I am healthy.” Casey-Kirschling retired at 60 and began taking her Social Security benefits at age 62.
In an interview with AARP at the time of her retirement, she said “I don’t work compulsively anymore. My priorities are now family and friends, and if something’s not fun, I don’t want any part of it.” Today, the New Jersey resident works part-time, travels with her husband, and spends time with her children and grandchildren. Because Casey-Kirschling opted to start collecting Social Security at age 62, she receives only about 75 percent of the total amount for which she was eligible –approximately $240 less per month. If Casey-Kirschling had waited until her 66th birthday, she would have received full benefits; at age 70 she would have received 135 percent of full benefits.
When asked how she deals with her celebrity, Casey-Kirschling said “In the beginning, it was overwhelming. But I said I’m just going to be who I am and do what I can, especially for Social Security. They asked me to do public service (ads) for the generation and help baby boomers apply (for benefits) online and get direct deposit. Whatever I could do, I would try to have a positive impact. So many things are negative in the nation today. Like all human beings, we are not a perfect generation. We certainly created so much, built so much and have an incredible work ethic to this day.”
“Like many of her fellow boomers, Kathy leads a full and busy life,” said Jim Courtney, Social Security Deputy Commissioner for Communications. “By choosing direct deposit, Kathy’s benefit is safely and conveniently deposited into her bank account. No matter where in the country – or the world – Kathy is, her money is as close as the nearest ATM or just a mouse click away through online banking.”
David Walker, formerly the comptroller general of the Government Accountability Office, Congress’ legislative arm, warned that before too long, the Social Security system will have more recipients than it can afford to pay out. “We face a tsunami of spending due primarily to the retirement of the baby boom generation and rising healthcare costs,” Walker said. “So what’s happened is we’ve gone from 16 workers paying into Social Security for every person drawing benefits in 1950 to 3.3 to one today, and we’re going down to two to one by the time the boomers retire in big numbers and that’s about where it will stay over the long run.”
“I think I’m just lucky to be at the top of the boom. I’m just one of many millions and am blessed to have been in this generation and really blessed and to take my Social Security now,” Casey-Kirschling said.
Tags: AARP, America’s silver tsunami, ATM, baby boomers, congress, Direct deposit, Government Accountability Office, Healthcare costs, Kathleen Casey-Kirschling, Medicare, Mouse click, New Year’s Day, Pew Research Center, social security
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Wednesday, May 25th, 2011
American renters who pay more than 50 percent of their income on housing has peaked at the highest level in 50 years, according to a report from the Harvard Joint Center for Housing Studies. Approximately 26 percent of renters – that’s more than 10 million people – are spending more than 50 percent of their pre-tax income on rent and utilities because salaries have fallen significantly amid rising rents. An analysis conducted by the Washington Post found that rents in the nation’s capital, for example, had risen 22 percent in 2009 over the past 10 years.
“It’s a real squeeze for the lower-income and moderate-income families, and we’re even starting to see it affecting middle-income families, too,” according to Erick Belsky, managing director of Harvard’s Joint Center for Housing Studies. “The prospects for improvement any time soon are dim.” In other words, finding an affordable house or apartment to rent can be difficult.
When the economy went south in 2008, developers stopped building new apartments at a time when foreclosures were pushing many Americans into the rental market. Because supply and demand were at odds with each other, rental rates climbed and are expected to remain high for the foreseeable future. “In real terms, it means more people have less money to spend on household necessities such as food, healthcare, or savings,” Belsky, said. Households that spend half or more of their income on rent also spend almost 40 percent less on food and more than 50 percent less on healthcare than households with more affordable rent. “In the last decade, rental housing affordability problems went through the roof,” Belsky said. “And these affordability problems are marching up the income scale.”
The report notes that – in a perfect world – renters should not have to pay more than 30 percent of their income on housing. Over the last 10 years, low-income renters have experienced difficulty staying within that limit. In 2009, 7.5 percent of moderate-income renters had to spend more than 50 percent of their salaries on rent, double the number reported in 2001.
According to the report, 28.6 percent of metropolitan Chicago renters are severely burdened by their rental costs. Ten years ago, only 20.4 percent of area renters paid that high a percentage of their incomes.
With the number of renters growing, the Low Income Housing Coalition says it’s time for policymakers to put more money into rental assistance and affordable housing. Throughout the housing crisis and recession, lawmakers have placed resources primarily on helping troubled homeowners avoid foreclosure; but approximately 40 percent of foreclosures also displace renter households. The coalition has asked Congress to fund the National Housing Trust Fund, which creates a permanent funding source to construct, renovate and preserve 1.5 million units of rental housing for low-income families over the next 10 years. Although the trust fund legislation passed in 2008, Congress hasn’t funded it because of the economic downturn. The fund will not increase government spending or taxes because it was designed to be funded through contributions from Fannie Mae, Freddie Mac and the Federal Housing Administration.
Sheila Crowley, the president of the coalition, said now was the time to act. “Providing $1 billion for the National Housing Trust Fund will help address the growing shortage of affordable housing, which is one of the most serious economic problems facing the country,” she said. Crowley expects the House of Representatives to begin debating the Section 8 Voucher Reform Act, which passed the House Financial Services Committee last summer. “We are very much hoping that the Senate will take it up as well,” she said. The bill would provide rent subsidies for 150,000 low-income families, , and the coalition is seeking another 2 million Section 8 housing vouchers over the next decade, doubling the current number.
Tags: congress, Department of Housing and Urban Development, Fannie Mae, Federal Housing Administration, foreclosures, Freddie Mac, Harvard Joint Center for Housing Studies, House Financial Services Committee, Income, Low Income Housing Coalition, National Housing Trust Fund, Pre-tax income, Rent, Rental Assistance, Renters, Section 8 Voucher Reform Act, Utilities
Posted in Economics, General, Residential | No Comments »
Monday, May 23rd, 2011
Now that the nearly 10-year-long manhunt for Osama bin Laden has ended, the question remains of what to do with the $50 million reward on the Al Qaeda leader? New York Representatives Anthony Weiner and Jerry Nadler have introduced a bill in Congress that would direct the money to groups that have helped those affected move on with their lives. “If the bounty isn’t paid, Osama bin Laden’s victims should get it,” Weiner said, noting that “families and groups who helped deal with survivors of 9/11″ should “benefit.” Nadler added that the money “was allocated for 9/11 victims in effect, and this is simply saying to use it more effectively for the purpose that it was set up for in the first place.”
The State Department offered up a $25 million reward for bin Laden in 2001; in 2004, then-Senator Hillary Clinton of New York led the effort to pass a bill that would give the secretary of state the discretion to raise that total to $50 million.
The Obama administration appears to oppose Nadler’s and Weiner’s proposal. White House spokesman Jay Carney said that no one took the necessary steps to make themselves eligible for the sum. “As far as I’m aware, no one knowledgeably said, oh, Osama bin Laden’s over here in Abbottabad at 5703 Green Avenue,” Carney said. “My sense is that the requirement for any kind of reward is to say that — not to accidentally, through intelligence gathering, provide information that leads to the whereabouts of somebody like that.”
Gary Faulkner, an American who went to Pakistan last year to hunt for bin Laden — albeit unsuccessfully — thinks he deserves a share of the $50 million. Several petitions and websites think the money should go directly to the Navy SEALs team that caught bin Laden, even though as government employees they are not entitled to reap the reward. A third option would be for the government to keep the money, sparing the deficit another $25 million-$50 million dent. In fact, there is no money set aside for the bin Laden reward. But while the State Department maintains a broader fund that is used to pay for these kinds of rewards, there is no designated bin Laden reward money waiting to be collected. Officials have said the information that pinpointed bin Laden’s location came from multiple sources and intelligence gathering efforts. No single source was responsible for the intelligence that led to the end of the hunt for the terrorist leader.
John Feal, a Ground Zero construction veteran and advocate said 9/11 rescuers still bear the scars of that day, and could use the funds. “If it was up to me it would be called the ‘No Responder Left Behind Act’ because my attitude now is we will not leave anybody behind who’s affected by 9/11,” Feal said. His FealGood Foundation helped finance the funerals of five Ground Zero responders and workers in the past two months.
Tags: 911 families, Abbottabad, Al Qaeda, congress, FealGood Foundation, Gary Faulkner, Ground Zero, Hillary Rodham Clinton, Jay Carney, Manhunt, Navy SEALs, Osama bin Laden, Pakistan, President Barack Obama, Representative Anthony Weiner, Representative Jerry Nadler, Reward, September 11 attacks, State Department, World Trade Center
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