KeNo's Housing and Economic Portal: Saturday June 20 Housing and Economic stories

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TOP STORIES:

Fed hiring veteran lobbyist to keep secrecy - (www.reuters.com) The U.S. Federal Reserve is on track to hire a veteran lobbyist to help manage its relations with Congress at a time of heightened attention to its role in national affairs, a source familiar with the situation said on Friday. The Fed plans to hire Linda Robertson, who previously worked for now-defunct energy company Enron, as well as the Clinton administration. She is currently head of government, community and public relations at The Johns Hopkins University in Baltimore, said the source, who spoke on condition of anonymity because the hiring process was not complete. The Fed believes it will be useful to add to its resources at a time when there is great public and congressional interest in the institution, the source said. The U.S. central bank has been at the forefront of government actions to limit damage from the financial crisis that began in August 2007 and the impact of the deep recession that began in December of that year. Members of Congress have chafed at the Fed's bold use of its emergency powers and in particular its multibillion-dollar bailouts of investment bank Bear Stearns and insurer American International Group. Critics also bristle at the Fed's practice of maintaining the confidentiality of the companies that borrow directly from the central bank on the grounds that divulging their names would risk runs on those institutions. Many lawmakers and private analysts also fault the Fed for failing to stop risky lending and flawed market practices that laid the groundwork for the crisis. A non-binding budget bill approved by Congress in April opened the door for lawmakers to seek disclosure of the names of firms that receive emergency Fed loans and paves the way for a possible study of the Federal Reserve System's structure of 12 regional banks and a Washington-based board. Some officials believe lawmakers would like to go so far as to demand that the presidents of these regional banks -- or at least the head of the powerful New York Fed -- be subject to congressional approval. Currently, directors at these regional banks pick their presidents, subject to the approval of the Fed's Washington board.

Fed Trying to Combat Those Trying to Audit Them: Forbes Story: Fed policies are undermining its independence - (www.forbes.com) Extraordinary times require extraordinary actions. Nowhere is that more apparent than in the bold policy moves undertaken by the Federal Reserve over the past two years. The financial crisis forced the Fed to be aggressive and creative in its attempts to provide liquidity to credit markets that had frozen up. These were necessary steps, and mostly applauded. But the very boldness of its actions has put the independence of the Fed at risk. Congress is now clamoring to audit the Fed, and some of the policy proposals currently under discussion at the Federal Reserve will only increase the threat to its independence. Before we deconstruct these issues, let's focus on why it is important to have an independent central bank. The answer is quite obvious. An independent central bank can focus on monetary policies for the long term--that is, policies targeting low and stable inflation and a monetary climate that promotes long-term economic growth. Political cycles, alas, are considerably shorter. Without independence, the political cycle would subject the central bank to political pressures that, in turn, would impart an inflationary bias to monetary policy. On this view, politicians in a democratic society are short-sighted because they are driven by the need to win their next election. This is borne out by empirical evidence. A politically insulated central bank is more likely to be concerned with long-run objectives. A variant of the argument for central bank independence is that control of monetary policy is far too important to put in the hands of politicians. As a group, they have repeatedly demonstrated the lack of political will power to make difficult economic decisions. But now they want to assert control over the Fed. Bills H.R.1207 and S.604, introduced, respectively, by Rep. Ron Paul and Sen. Bernie Sanders (who brought you the "Employ Americans First Act"), would assert greater control over the Fed. As Ron Paul writes on his Web site: "Auditing the Fed is only the first step towards exposing this antiquated insider-run creature to the powerful forces of free-market competition. Once there are viable alternatives to the monopolistic fiat dollar, the Federal Reserve will have to become honest and transparent if it wants to remain in business." Great! Obviously, monetary policy is so falling-off-a-log simple that your elected representatives can insert themselves via the demand for transparency into decisions of true complexity and subtlety. Why am I not feeling reassured? To a large extent, the Fed backed itself into this problem, and it has to find its way out. In the heat of the financial crisis, the Fed created a number of additional lending facilities and took a wider variety of non-Treasury assets onto its balance sheet. The goal was to provide liquidity for the financial system. At first it sterilized these transactions by selling Treasury assets, but since September 2008 it has expanded its balance sheet dramatically from roughly $900 billion to over $2 trillion, as of May 6. This has had the effect of increasing the reserves in the system that are available for lending. The current plan is to continue to expand the balance sheet with the Term Asset-Backed Securities Loan Facility (TALF), the program designed to buy securities backed by credit card debt, auto loans, student loans, small-business loans and real estate loans.

If you cashed out all your equity, do you deserve help? - (mortgage.freedombloggingcom) Homeowners who treated their houses like cash machines, tapping the equity as home values rose, are among the most likely to end in foreclosure, even more than those who bought at housing’s peak, a new study finds. Often homeowners have had second, third and even fourth mortgages at time of foreclosure — a trend not adequately addressed by any of the federal or state foreclosure avoidance progams, said Michael LaCour-Little, a finance professor at Cal State Fullerton who authored the study. LaCour-Little tracked all houses and condos set for foreclosure auctions, known as trustee’s sales, in the first two weeks of November 2006, 2007 and 2008 in Orange, Los Angeles, Riverside, San Bernardino and San Diego counties. He is presenting his study today in Washington, D.C. at the mid-year conference of the American Real Estate and Urban Economics Association. I plan a bigger story on his findings, but wanted to share a few results now. For example, for the early November 2008 data sample, he tracked 2,358 properties. Here’s what he found: They were purchased at an average price of $354,000 and average year of 2002 (long before the housing peak of 2005). Total debt on the properties averaged $551,000 at time of foreclosure. That’s 56% more than the properties were worth when purchased, meaning at least that much was cashed out! An automatic valuation model estimated average value at time of foreclosure was $317,000, which suggests a combined loan-to-value at foreclosure of more than 170% ($551,000/$317,000). And that is a conservative estimate. Properties that banks later sold had an average resale price of $271,000! LaCour-Little is, well, diplomatic in his conclusion that “borrower behavior, rather than housing market forces, seems to be the predominant factor affecting outcomes.”

Oakland California Ponders Bankruptcy - (globaleconomicanalysis.blogspot.com) Oakland California has serious budget troubles. In a closed door city council session, Oakland Mulls Bankruptcy. "We have asked the (bankruptcy) question because we wanted to know the impact," said District 5 council member Ignacio De La Fuente. "In closed session, the question has been asked, and an answer was given." He would not elaborate. "It's a possibility," he acknowledged. "Things are that bad." Council President Jane Brunner was equally aloof. She ably acknowledged the city's dire financial problem while managing to avoid the b-word altogether. "We're going to try to avoid it, but am I going to say it would never happen? I can't say that," Brunner said. Consider the city's cash position: Out of next year's general fund of approximately $415 million, police costs are estimated at $212 million, fire protection service $103 million and $41 million in debt service payments. That leaves about $60 million to pay for everything else, from library services to recreation centers to public works. And that calculation doesn't include $50 million more in deferred debt service in a budget proposal presented to the council last month by Mayor Ron Dellums. Alameda County Assessor Ron Thomsen said tax assessments fell $13.6 billion in the fiscal year that will end June 30. "Our assessment roll will go down 2 percent, and we've never had a year-to-year drop ever in stats going back to 1958," he said. [The city council] is faced with three choices: drastic pay reductions across the board, including police and fire services; massive layoffs; or bankruptcy. It has been a great run for municipal employees in Oakland and across the state, who have been the beneficiaries of one of the most generous civil service systems in the nation. Since the late 1940s, California municipal governments traditionally have employed fewer employees, who have been paid substantially more than other civil servants, Ellwood said. Indeed it has been a "great run for municipal employees" who worked less for more pay and received more benefits than anywhere else in the nation. Oakland should do itself a favor and beat the rush by declaring bankruptcy now unless the unions come forth and voluntarily agree to lower benefits and stop all defined benefit plans going forward. The structural damage caused by ridiculous pension plans is staggering. A point of no return has been reached. Cities can no longer put off the problem and the public is not willing to put up with higher taxes. So what's it going to be? The article mentioned three choices. I have it at four.

RALPH NADER and ROBERT WEISSMAN: Obama's GM Plan Looks Like a Raw Deal - (online.wsj.com) Congress, not a secret task force, should decide the company's fate. Millions of people in communities across the country depend on the government getting the GM rescue right. That's why it is startling -- and mistaken -- for the future of GM to rest with a small, largely unaccountable, ad hoc task force made up of a handful of Wall Street expats. A congressional abdication of authority of historic proportions has left the executive branch with nearly complete discretion over how to handle GM and Chrysler's restructuring. President Barack Obama has further delegated authority, giving effective control to this task force, which operates under the titular authority of a top-level interagency group headed by National Economic Council Director Larry Summers and Treasury Secretary Tim Geithner. In the days before an avoidable June 1 bankruptcy filing, it is imperative that Congress honor its constitutional duties and demand that the GM restructuring deal be sent to it for deliberative review -- before any irreversible measures, such as a voluntary bankruptcy declaration, are taken. This means delaying any precipitous decisions until after Congress returns from its Memorial Day recess. The case for congressional involvement would be solid enough on constitutional and procedural grounds alone. But the secretive task force's plan raises red flags and requires Congressional examination in open hearings. With the government set to take a 70% ownership stake in GM, there are too many unanswered, troubling questions to proceed with a risky bankruptcy declaration. Here are 10 pressing issues among many: 1) Has the task force conducted any kind of formal or informal cost-benefit analysis on the costs of a GM bankruptcy and excessive closures? These may include the social effects of lost jobs (including more than 100,000 dealership jobs alone), more housing foreclosures, the government expense of providing unemployment and social relief, lost tax revenues, supplier companies that will be forced to close, damaged consumer confidence in the GM brand, and impacts on GM's industrial creditors. 2) Do GM and Chrysler really need to close as many dealerships -- which do not cost manufacturers -- as have been announced? Is the logic of closing dealerships to enable the remaining dealers to charge higher prices? If so, why is the government facilitating such a move? 3) Is the task force asking for too many plants to close and the elimination of too many brands? 4) Why is the task force permitting GM to increase manufacturing overseas for export back into the U.S.? Under the GM reorganization plan, the company will rely increasingly on overseas plants to make cars for sale in the U.S., with cars made in low-wage countries like Mexico rising from 15% to 23% of GM sales here. For the first time, GM plans to export cars from China to the U.S. in what is a harbinger of the company's future business model. What is the conceivable rationale for permitting GM to increase manufacturing overseas -- especially in dictatorships, for export back into the U.S. -- when preserving jobs and industry is the avowed goal of this immense taxpayer bailout? 5) Why is the task force supporting GM's efforts to devise a two-tier wage structure, whereby new auto jobs no longer provide a ticket to the middle class?

One owner's tale of mortgage-modification hell - (www.marketwatch.com) Trying to get a mortgage modified is a long and arduous process, leaving tens of thousands of borrowers in the same baffling position -- frustrated and concerned they're not being heard. This story, from a reader named Jim, is typical: "I currently have a first mortgage with one lender and a second mortgage with another. I meet the criteria for a loan modification per the Treasury Department's guidelines, which state that the payment on the first mortgage, plus taxes and insurance, must be greater than 31% of gross income. Housing coming out of the woods: "I applied for a loan mod with Lender A on March 17, stating specifically that I was doing so in accordance with the new rules. Eight weeks later, I was notified that I am being turned down because my payments vs. my ability to pay (income) were not acceptable. But that's exactly the reason I qualify. "I pushed the issue and after speaking with the branch manager, he elevated my calls to what I believe was a national customer service group in "Mortgage Mitigation." The first customer service rep I spoke with verified that the reason for my denial was as the branch manager told me. I pushed the issue again, indicating that I thought they were obligated to help me. His response was that they still did not fully understand the program and that I should try again in three to six months. "I was not happy with the answer, so I asked to speak someone more senior. I spoke to another individual who researched my case and said that in addition to the previously stated reasons, I was being turned down because I did not have a hardship (my mortgage is current). She said I needed to speak to my other creditors. I indicated that I had never been asked to substantiate a hardship at anytime in the process. She didn't seem to care about that, and said my file had been reviewed by senior management, which made the decision to reject my request for help. "I am in contact with a local organization referred by the Department of Housing and Urban Development, called Better Neighborhoods, and while that group has been helpful, the process is moving slowly because of the backlog. I really would like to get further legal council but don't know where to turn and am fearful of getting scammed.

OTHER STORIES:

Foreclosure: Now an Upscale Blight - (www.businessweek.com)

Coming: A 3rd wave of foreclosures - (articles.moneycentral.msn.com)

Foreclosure crisis spreads from subprime to prime mortgages - (www.usatoday.com)

Rising interest rates start to worry investors - (www.sfgate.com)

Economy Shows Cracks in European Union - (www.nytimes.com)

The Economy Is Still at the Brink - (www.nytimes.com)

Number of problem US banks soars - (news.bbc.co.uk)

Latvia Budget Cuts May Trigger IMF Tranche, Help Lats - (www.bloomberg.com)

Saudi Arabia set to launch new bond market - (finance.yahoo.com)

Bank "Profits" From Accounting Changes Mask Looming Loan Losses - (www.bloomberg.com)

Costly San Francisco area neighborhoods seeing biggest price cuts - (www.sfgate.com)