Posts Tagged ‘Federal Reserve Bank of Philadelphia’

Keen for ’14

Wednesday, January 29th, 2014

The nation’s CEOs are bullish about their prospects for the new year, according to annual PricewaterhouseCoopers survey of more than 1,300 chief executives, which was released on Wednesday.  A full 39 percent were “very confident” that their company’s revenues would grow this year (up 3 percent from a year ago). More than 60% of the U.S. CEOs in the survey said they expect to hire more people this year–the highest in the past five years of the report. Sure they’re feeling good — businesses in the US are sitting on $1.4 trillion in cash; worldwide its $4.5 trillion,  73% more than the pre-recession level in 2006 (of course, you could argue that the reason it’s so high is that businesses hoard cash when they are uncertain about the market).

Add to this, the fact that the indicators have been good:  the IMF has upped its world economy growth prediction to 3.7 percent in 2014 and says the U.S. will grow 2.8 percent. Goldman Sachs and Credit Suisse First Boston (CSFB) are both expecting this to be the best year since 2011. The World Bank is slightly more tepid but still optimistic , predicting growth of 3.2%, less because of the US and more because Japan and Europe are slowly getting their acts together.

Going back to the CEOs, 44 percent said they believe the global economy will improve in the next 12 months. Last year, 18 percent said so. So where do they see growth? A full 86 percent say it’s in “advancing technologies” that are going to transform their businesses in the next first years. They cite how tech intersects with other industries, such as healthcare and retail, to create new hybrid industries, according to the survey. One of the biggest drivers will be replacing outdated equipment (the average piece of equipment is 17 years old in the US).

That’s the good news. But let’s remember that it still doesn’t feel like a recovery for a lot of people. Despite the unemployment rate falling to its lowest level since October of 2008 at 6.7 percent,  the labor participation rate is still a concern for many. 347,000 people dropped out of the labor force (that is, are no longer looking for work) according to the December report. However, even that number may have a bright side. a A recent study by Shigeru Fujita, a senior economist at the Federal Reserve Bank of Philadelphia says that “discouraged workers” only made up about a quarter of those leaving the labor force between 2007 and 2011, while “the decline in the participation rate since the first quarter of 2012 is entirely accounted for by increases in nonparticipation due to retirement.” If this is in fact the case, the current headline 6.7% unemployment rate may indeed reflect the true health of the labor market

Despite the dueling numbers, it is clear that partisans on both sides are correct: we have a lot of work still to do and we have a lot to be positive about.

 

As Foreclosures Decline, Federal Government Makes Deal With 49 States

Tuesday, February 21st, 2012

In good news for beleaguered homeowners, the Obama administration announced a $26 billion mortgage settlement, which 49 out of 50 state attorneys general signed on to.  The deal won praise from such groups as the Mortgage Bankers Association, the industry trade group for lenders, and the Center for Responsible Lending, a public interest group advocating for borrowers.

Conservatives suggested that the Obama administration is overreaching, and that the agreement rewards homeowners who haven’t been paying their mortgages.  On the other side, some liberal groups say it falls far short of providing the needed level of help to troubled homeowners hurt by the housing bubble, problems they blame on Wall Street banks and investors.  They would prefer additional relief for homeowners who are underwater on their mortgages.

“It’s a big check with narrow immunity,” said Paul Miller, a former examiner for the Federal Reserve Bank of Philadelphia and currently an analyst with FBR Capital Markets in Arlington, VA.  “You get the state attorneys general off your back, but you’re not getting immunity from securitizations, which could come with their own steep cost down the road.”

Regulators are “aggressive” on pursuing securities claims and have set up a task force to do so, said Department of Housing and Urban Development Secretary Shaun Donovan.  The $26 billion deal doesn’t protect banks from claims related to faulty loans sold to government-owned Fannie Mae and Freddie Mac, he said.  “It wasn’t the servicing practices that created the bubble, nor caused its collapse,” Donovan said.  “It was the origination and securitization of these horrendous products.”

Writing on Salon, Matt Stoller says that the deal lets the banks down relatively easily.  “Rather than settling anything, this agreement is simply a continuation of the policy framework of both the Bush and the Obama administrations.  So what exactly is that framework?  It is, as Damon Silvers of the Congressional Oversight Panel which monitored the bailouts, once put it, to preserve the capital structures of the largest banks.  ‘We can either have a rational resolution to the foreclosure crisis or we can preserve the capital structure of the banks,’ said Silvers in October, 2010.  “’We can’t do both.’  Writing down debt that cannot be paid back — the approach Franklin Roosevelt took — is off the table, as it would jeopardize the equity keeping those banks afloat.  This policy framework isn’t obvious, because it isn’t admissible in polite company.  Nonetheless, it occasionally gets out.  Back in August 2010, at an ‘on background’ briefing of financial bloggers, Treasury officials admitted that the point of its housing programs were to space out foreclosures so that banks could absorb smaller shocks to their balance sheets.  This is consistent with the president’s own words a few months later.”

Very gradually, the foreclosure crisis seems to be easing. The number of homes in foreclosure declined by 130,000, or 8.4 percent last year to 830,000, according to a report from CoreLogic, an economic research firm.  That compares with 1.1 million homes foreclosed in 2010.  These are homes whose owners had fallen far behind on payments, forcing lenders to put them into the foreclosure process.  The homes remain in the foreclosure inventory until they’re sold — either at auction or in a short sale, which is when a home is sold for less than the mortgage value — or until homeowners are current again on payments

There are two reasons for the decline in the foreclosure inventory, according to Mark Fleming, CoreLogic’s chief economist.  “The pace at which properties are entering foreclosure is slowing,” he said.  “And servicers nationwide stepped up the rate at which they were able to process distressed assets.”

In the last few years, homes have entered foreclosure more slowly because lenders carefully scrutinized applicants; only low-risk borrowers are granted loans.  Along with a measured improvement in the economy, this equals fewer borrowers getting into trouble.  Even borrowers in default are avoiding foreclosure in many instance and are being held up by judicial and regulatory constraints, according to Fleming.

The practice of robo-signing, in which banks filed slapdash and sometimes improper paperwork, made lenders more cautious about getting their paperwork in order before foreclosing.  When a bank does put a home into foreclosure, they are trying to speed the process.  One way they’ve done that is by encouraging short sales.  Another is that they’ve stepped up their foreclosure prevention efforts — often with the aid of government programs such as Home Affordable Modification Program (HAMP), which the government says has helped nearly one million Americans stay in their homes.

After foreclosures are completed and the homes are back in the lenders’ hands, they sell quickly.  “This is the first time in a year that REO sales (those of bank-owned properties) have outpaced completed foreclosures,” Fleming said.  In December, there were 103 sales of bank-owned homes for every 100 homes in the foreclosure inventory.  That was a significant increase from November of 2010, when there were only 94 REO sales for every 100 homes in the foreclosure process.

As of December of 2011, Florida still topped the nation’s foreclosure inventory at 11.9 percent, followed by New Jersey with 6.4 percent and Illinois 5.4 percent.  Nevada, consistently the number one foreclosure state in the nation, has fallen to fourth place with 5.3 percent.