KeNo's Housing and Economic Portal: Saturday July 25 Housing and Economic stories

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FHA To Start Insuring Hospital Refinance Loans – (online.wsj.com) -The Federal Housing Administration will now allow hospitals in the U.S. to obtain mortgage insurance for refinancings, the U.S. Department of Housing and Urban Development said Monday. This may be a welcome move for hospitals that have struggled with rising interest rates and fewer financing alternatives due to the credit crisis. Previously, hospitals were able to get FHA mortgage insurance only for loans to finance renovations or the replacement of existing structures. "This refinance program will help hospitals struggling with skyrocketing interest rates and limited credit options," HUD Secretary Shaun Donovan said. "The savings provided through FHA refinancing should also help hospitals decrease the cost of health care, which is a major priority of the Obama administration," Donovan added. And although analysts see the move as a positive, how big an effect the program will have is yet to be determined. "The program provides a kick-start to lending activity, which has fallen off a cliff," said David Aubuchon, analyst at Robert W. Baird & Co. "But with a lot of these [government] programs, it's very early to tell if anyone will take advantage of them." Aubuchon said the program is likely to benefit more rural hospitals and not necessarily publicly traded health-care real-estate investment trusts. He said the program adds liquidity into the market and could provide the "momentum" for other lenders to follow suit. HUD said it expects hospitals will submit applications by August and that the agency would begin issuing commitments for refinancings in October.

Chicago Cubs Bankruptcy Looms - (www.bloomberg.com) The Chicago Cubs may become the first Major League Baseball team in 39 years to file for bankruptcy as Tribune Co. seeks to sell the franchise after months of negotiations. Tribune sought Chapter 11 protection in December. It is contemplating a separate filing for the Cubs to expedite the team’s estimated $900 million sale to interested bidders, including Incapital LLC Chairman Tom Ricketts, according to four people familiar with the plan. A brief Cubs bankruptcy would be a legal maneuver to clear the team from any future liability in the Tribune bankruptcy, according to two of the people familiar with the matter. Sam Zell, chief executive officer of Chicago-based Tribune, pledged the company’s interest in the Cubs as collateral when he negotiated the deal to take the publisher private in 2007, according to one of those people. “You take it in the front door, and it’s just like you’re getting radiation,” said Michael J. Cramer, a former president of the Texas Rangers who teaches sports business at New York University. “It comes out the other door about a half minute later. It’s clean.” Richard Levin, a spokesman for Major League Baseball, and Ricketts through a spokesman, Dennis Culloton, both declined to comment. “The company doesn’t comment on any potential transactions,” Gary Weitman, a Tribune spokesman, said in an interview yesterday. The Cubs weren’t a part of Tribune’s bankruptcy filing. The people familiar with the matter said it remained possible the sale would close without the team filing as well. Millions of Fans: While Denise Brown, a Tribune spokeswoman, said the company doesn’t disclose the finances of individual units, the club is one of the most popular franchises in baseball. It drew more than 3 million spectators to 95-year-old Wrigley Field in each of the past five seasons. Sale of the Cubs is subject to approval by Major League Baseball. The move could guarantee that the Cubs are sold free and clear of Tribune’s creditors, Cramer said.

California ills could give US headache - (www.ft.com) California’s fiscal crisis is in danger of becoming a serious headache, not just for the state and its feuding politicians in Sacramento, but for the entire nation. California is not the only state facing dire financial straits, as our interactive graphic shows in a coast-to-coast analysis of their budgets. In public, federal government officials talk about California’s problems as if they were ringfenced – a crisis for the state but with few national ramifications. They know the slightest whiff of federal intervention would take away the incentive for California’s politicians to agree on tough spending cuts and tax increases. But they know they cannot ignore a fiscal crisis in the most economically important state in the middle of a global financial crisis. So they are keeping a careful eye on events and it would be surprising if they were not also reviewing the options at their disposal to mitigate the damage. California has a budget deficit of $26.3bn (€18.85bn, £16.18bn) on revenues of just $113bn, according to Keefe, Bruyette and Woods, a broking firm. It has a balanced budget rule that forces it to eliminate the deficit but no agreement as to how. It has already effectively decided to selectively default – paying vendors with IOUs rather than cash. Worse could follow if the impasse is not resolved soon. The worst case scenario would be a default by the state which has $59bn in general debt, $8bn in bonds linked to securitised revenues such as tolls and $2bn commercial paper, according to Standard and Poor’s, the rating agency. A California default would be a shock for fragile financial markets. While no other state is in quite as difficult a position, there would be danger of widespread contagion in US markets and beyond. Default still looks like a so-called “tail risk” – a high cost but low probability event. California’s constitution makes debt service a high priority. Its main constraint is cash flow. The decision to pay bills in IOUs saves cash for debt servicing and that should be enough for now. But it is not sustainable indefinitely. In the absence of a fix for the underlying deficit, vendors and banks will eventually lose faith in the value of the IOUs, forcing California to pay for vital services in cash instead. Moreover, there are institutional reasons why the budget gap is proving difficult to close. Aside from the absurdity of having to balance the budget in the midst of the worst recession in half a century, California’s fiscal flexibility is diminished by other statutory restrictions, mostly imposed by state referendums known as propositions. These restrictions make it exceptionally difficult for the state to raise property taxes or cut basic education spending. About 25 per cent of revenue is, meanwhile, ringfenced. If the gridlock continues for months and the risk of default escalates, it would take a brave Treasury secretary not to step in with some kind of guarantee, credit line or outright bail-out for California. The immediate outlays involved would not be vast compared with federal bail-outs for banks and carmakers.

CIT Group Says Its Failure Risks Demise of Customers - (www.bloomberg.com) CIT Group Inc., the century-old lender that hasn’t been able to persuade the government to back its debt sales, says its demise would put 760 manufacturing clients at risk of failure and “precipitate a crisis” for as many as 300,000 retailers. A collapse would ripple across the “small and medium-sized businesses who rely on CIT to operate -- to pay their vendors, ship goods to their customers and make their payroll,” the New York-based lender said in internal documents obtained by Bloomberg News that make the case for its importance to the U.S. economy. CIT spokesman Curt Ritter declined to comment on the documents. CIT executives spoke with regulators during the past two days, according to a person familiar with the talks, after its bonds and shares tumbled on concern that the Federal Deposit Insurance Corp. won’t allow the lender into its bond-guarantee program created last year to unfreeze debt markets. CIT may default as soon as April, when a $2.1 billion credit line matures, according to Fitch Ratings. “A CIT default would create liquidity issues for the corporate sector,” Ed Grebeck, chief executive officer of debt consulting firm Tempus Advisors in Stamford, Connecticut. “If CIT isn’t doing trade finance and lending, its customers will look to other banks for replacement and from what I’ve seen, they aren’t willing to step up.” Bonds, Shares Fall: A failure of CIT, run by Chief Executive Officer Jeffrey Peek, would be the biggest bank collapse since regulators seized Washington Mutual Inc. in September. CIT reported $75.7 billion in assets and $68.2 billion in liabilities, including $3 billion in deposits, at the end of the first quarter. CIT’s $656 million of 5.125 percent notes due in 2014 fell 4.5 cents on the dollar to 53 cents as of 9:21 a.m. in New York, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority. The debt yields 20 percent.

US mulls tax on rich to pay for healthcare - (www.ft.com) The Obama administration is open to the idea of taxing the wealthiest Americans to pay for healthcare reform, health secretary Kathleen Sebelius suggested yesterday as the House of Representatives prepares to incorporate such a plan in its draft healthcare bill. Congress is gearing up to tackle healthcare before it leaves for recess in August, although the timetable has been slipping amid wrangling over how reform should be paid for and whether it should include a public insurance option. Democrats in the House will present a bill as soon as today proposing a 1 per cent surtax on couples with a joint income of more than $350,000, rising to as much as 3 per cent on those earning more than $1m. They estimate this will raise about $540bn over 10 years – half the expected cost of reforming the system. The rest would be covered by lower spending on Medicare, the programme for the elderly, and other savings. The plan has drawn heavy fire from Republicans, and Democrats in the Senate will probably propose a different plan. But Ms Sebelius said on CNN: “I think everything is on the table and discussions are under way,” adding: “I think the bottom line is: it’s got to be paid for.” President Barack Obama’s goal is to get a fully funded bill passed this year to expand coverage to the nearly 50m uninsured Americans. Charles Rangel, chairman of the House ways and means committee, said the tax on the wealthy would be the simplest way to fund reform. But Kent Conrad, chairman of the Senate budget committee, disagreed: “I don’t think the House proposal as I’ve heard it will be what’s part of the final package.” The administration’s goal is to have a fully funded bill passed this year but it has left the details to Congress to thrash out. Many are waiting for the president’s team to draw lines in the sand, particularly on whether or not it will insist on a public option. Rahm Emanuel, the president’s chief of staff, last week said that was only one way to get cheaper and broader coverage. “The goal is non-negotiable,” he told the Wall Street Journal. “The path is not.” That worried liberals who fear the president is backing away from comprehensive reform. Mr Obama last week said he still believed “one of the best ways to bring down costs, provide more choice and assure quality is a public option that will force the insurance companies to compete and keep them honest”. The House is expected to present a draft bill as soon as Monday. The Senate is also preparing to release a draft, but it is likely to be very different. Mr Conrad has said he does not believe a public option could win enough votes in the Senate, where there is a strong cadre of moderate Democrats unhappy about the idea. He has suggested a network of co-operatives instead that would compete with private insurers. Republicans argue the timetable has slipped too much and the divisions within the Democrats are too great, particularly in the Senate. But Mr Conrad insisted on Sunday: “I think we’ll be through the finance committee by the August recess and I think that’s a realistic goal. There really is plenty of time.”

NYC Comptroller Sees 400,000 Jobless By 2010, Most Since 1993 - (www.bloomberg.com) New York City’s unemployment rate will reach 9.5 percent by 2010, leaving 400,000 jobless for the first time since 1993, city Comptroller William Thompson said. Thompson, the frontrunner for the Democratic nomination to challenge Mayor Michael Bloomberg this year, said the number of unemployed New Yorkers more than doubled to 361,100 in May from 169,700 in February 2008. By 2010, the jobless tally will swell to the most in more than 15 years, he said. “The severity of the current recession raises fears that the city’s job losses will match or exceed those of previous downturns,” Thompson said in a statement accompanying a report on the city’s economy. The mayor, a political independent seeking a third term on the Republican and Independence Party ballot lines, has said his citywide economic plan helped place 10,500 city residents in jobs in the first six months of this year, a 26 percent increase over the same period of 2008. “Last year, we provided free training to more New Yorkers and placed more of them in jobs than ever before,” Bloomberg said during his regular Sunday radio address, referring to the city’s “Workforce1 Career Centers,” which provide training and job-placement counseling in each of the city’s five boroughs. Although Thompson didn’t challenge these job-placement assertions, he said the mayor exaggerated when he said a $174.4 million federally-funded infrastructure contract to rehabilitate ramps at the St. George Ferry Terminal on Staten Island would create 4,865 jobs. “They will no way approximate the exaggerated number of jobs claimed by your administration,” Thompson wrote in a July 12 letter to the mayor. “It is a disservice to the public to publish such an inflated statistic and then claim it as an accomplishment.” Second Most: New York City’s unemployment rose a full percentage point to 9 percent in May compared with April, the second-biggest jump in the past 33 years after February’s record, the state Labor Department reported June 18. The city has lost 108,000 jobs since August 2008, according to Thompson’s report. Seventy percent of the increase in unemployment between the first quarters of 2008 and 2009 affected men. Among African-Americans, the jobless rate more than doubled to 14.7 percent from 5.7 percent, the report found. Between March 1 and May 31, the city’s income tax withholding, an indicator of worker earnings, fell 3.8 percent from the same period of 2008, Thomson’s report said. General city sales tax collections declined 7.8 percent for the first five months of 2009, compared with the same period in 2008. The mayor is founder and majority owner of Bloomberg News parent Bloomberg LP.