KeNo's Housing and Economic Portal: Sunday October 18 Housing and Economic stories

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TOP STORIES:

Golden State Mutual Life seized by California regulators - (www.latimes.com) State insurance regulators have seized control of Golden State Mutual Life Insurance Co., a financially struggling company that has primarily served the African American community for the last 84 years. The Los Angeles company, which has been losing money for six consecutive years, has agreed to immediately stop selling any new policies, state officials said Wednesday. The state takeover shocked African American political leaders. "Golden State Mutual is a revered community institution," state Assembly Speaker Karen Bass (D-Los Angeles) said. "My grandfather worked there." At the time, she said, it was "probably the only company in the Los Angeles area that would provide insurance to African Americans." Bass vowed "to do whatever we can to restore this institution to the control of the community." Larkin Teasley, Golden State Mutual's chairman and president, was not available for comment, and a company spokeswoman said no statement would be forthcoming from management. Regulators stepped in after convincing a Los Angeles County Superior Court judge that the insurer's reserves had run dangerously low. By law, the state insurance commissioner has the power to reorganize and revitalize the company -- much as with a bankruptcy for corporations -- or he or she can liquidate it. "For the protection of its policyholders, the company has been seized to prevent continuing financial deterioration," state Insurance Commissioner Steve Poizner said. As Golden State Mutual's legal "conservator," Poizner has sole authority under state law over all company business activities and assets. State Department of Insurance examiners, who said they had been monitoring Golden State Mutual closely for a number of years, reported that the insurer was losing about $200,000 a month and was expected to run out of money by year's end. According to court documents, state law requires that Golden State Mutual have at least $5 million in capital and surplus funds to pay claims and operating expenses. But as of June 30, the company had only $909,443, insurance examiners said. Golden State Mutual, which started in a cubicle-size office on Central Avenue with $17,800 in capital in 1925, now offers a wide variety of financial products, including life, burial, disability and mortgage protection insurance. The loss of Golden State Mutual is a sad event for Los Angeles' black community, said Cecil Fergerson, a retired curator of modern art at the Los Angeles County Museum of Art. "We owe a debt of gratitude to those men who founded that company in the 1920s," said Fergerson, who grew up in Watts. Golden State Mutual "was not only an insurance company. It was a social, political and historic institution that brought jobs and proper insurance to the black community." In a 2007 opinion piece in The Times, Fergerson lamented Golden State Mutual's decision to sell its renowned collection of African American art. The paintings, sculptures, prints and drawings sold for a total of $1.5 million at a New York auction in October 2007. Although most of the art is gone, the company's headquarters on West Adams still hosts a number of important murals by artist Richard Wyatt Jr. One figure, titled "The Insurance Man," portrayed a Golden State Mutual agent with "the rumpled look and briefcase that I remember seeing at my mother's door in Watts in the 1940s," Fergerson wrote. The "Golden State Mutual Insurance man was special; he was doing something for our community, helping us live and die in dignity." The murals and all of Golden State Mutual's assets now are in the hands of the California Department of Insurance's Conservation and Liquidation Office. The office, which currently controls 25 seized insurance companies, will oversee the payment of pending claims while it develops a plan to "wind down" Golden State Mutual's operations, the department said.

Wells Fargo Pocketing Difference When Customers Make ATM Errors? - (www.huffingtonpost.com) Three of the biggest banks in the country -- Wells Fargo, Bank of America, Chase -- all touted their decisions last week to reduce overdraft fees amid criticism from lawmakers and growing public frustration. But plenty of fees - from foreign currency surcharges to balance transfer fees - are still being charged by most banks, which are expected to make $38.5 billion from overdraft fees alone this year, according to economist Michael Moebs who tracks the industry. And Wells Fargo, which received $25 billion in bailout funds last fall, is now being accused of taking advantage of customers who make math errors on ATM deposits through a little-known policy. According to a class-action suit filed in San Diego Superior Court, Wells Fargo customer Brandi McLay says that when she and other customers have made ATM deposits and mistakenly entered a dollar amount lower than the amount of the cash or checks on the keypad, the bank "pockets the difference," as first reported by Courthouse News Service. McLay claims that when such "Under-inputs" are below than $10, the bank retains the money under an "Excess Funds Retention Policy." McLay's lawyer, David Gallo, says that the bank has not responded to the complaint. A Wells Fargo spokesperson declined comment on pending litigation but emphasized that the bank does not charge such a fee, telling Huffington Post: "We do not assess a fee in such a case, if the customer makes a mistake." But Gallo says he has reason to believe "that it has occurred to many people," most of whom were unaware that the bank kept their money since the amounts were so small. Such a policy is not unique to banks - the Pennsylvania State Employees Credit Union charges a $1 processing fee when depositors make math errors, according to a spokesman. The PSECU Website describes ATM deposit adjustment charges (e.g., entry errors, math errors, deposit incorrect endorsements) but the spokesman emphasized that refers to pass-through fees when their members go to other financial institutions and make entry errors. "Our general philosophy is to try to limit fees whenever possible because it's not in our interest to make money off of our members," said the spokesman. Consumer advocates at the Consumer Federation of American and the National Consumer Law Center had never heard of such a policy at banks and credit unions. "That surprises me," says Mark E. Budnitz, a law professor affiliated with the NCLC. "Banks keep adding more and more fees, according to various studies, and they are supposed to disclose all those fees."

Initiative to shrink California's pensions gains steam - (taxdollars.freedomblogging.com) Coming, most likely, to a ballot box near you in 2010: The Public Employee Benefits Reform Initiative, whose time may have finally come. Launched in 2007 - and fading quickly from view after attacks from employee unions - the initiative would do what state and local politicians can’t, or won’t: “Place responsible limits on the defined benefit pension and retiree health care plans that can be offered to new state and local government employees.” Reducing benefits and hiking retirement ages for new hires would save $500 billion over 30 years, backers say. It’s the brainchild of Keith Richman (right) - physician, former Republican assemblyman and longtime advocate for overhauling the state’s pension system - who thinks now is the time to strike. The fiscal meltdown, and the tens of billions in unfunded pension liabilities that taxpayers would be on the hook for, translate into a public that’s far more savvy (and angry) about the issues than it was two years ago. (On the advisory board of Richman’s California Foundation for Fiscal Responsibility, which is spearheading the initiative, are some familiar names: Orange County Supervisor John Moorlach, and Reed Royalty of the Orange County Taxpayers Association. Jack Dean, president of the Fullerton Association of Concerned. Taxpayers, is on its board as well.) The foundation is revising the text of its 2007 initiative (which you can read by clicking here) to reflect 2009 realities. In coming weeks, it will post a new version online and invite people to weigh in with suggested changes - including the employee unions (who may well sense an angry mob just beyond the horizon, and be more willing to play ball this time around). Marcia Fritz (right), who has just replaced Richman as the foundation’s president (Richman remains on its board as a director), says there will be a couple of big revisions in the new text:

· An “anti-double dipping clause.” This will be a job-creator for California, she says; she continues to be shocked to see retirees collecting full pensions hired back by their old agencies, which gets them a pay check as well.

· Formulas will be reworked so that low-wage people who are not covered by Social Security won’t be worse off than if they had Social Security.

After folks weigh in with problems and suggestions, the text will be revised again, and perhaps again after that, Fritz said. She hopes to have it to the Attorney General by the end of October so the wording can be approved. After that, the intensive work of gathering signatures begins. That’s where the last effort ran into a bit of a brick wall. “If you value the job that your police officers, firefighters and teachers do for the community, please don’t sign this petition,” said radio ads that aired in 2007, paid for by the Los Angeles Police Protective League. “We just feel very strongly about it,” President Tim Sands told the Los Angeles Daily News at the time. “We’re going to fight to tell people the truth - that we need to keep the benefits to hire the brightest and best.” Many people agree that California’s current pension system has become so generous it’s unsustainable. Even the chief egghead for the gargantuan California Public Employees Retirement System said the same at a recent meeting. “I don’t want to sugarcoat anything,” said Ron Seeling, the CalPERS chief actuary, according to a story in the Capitol Weekly. “We are facing decades without significant turnarounds in assets, decades of - what I, my personal words, nobody else’s - unsustainable pension costs of between 25 percent of pay for a miscellaneous plan and 40 to 50 percent of pay for a safety plan (police and firefighters) … unsustainable pension costs. We’ve got to find some other solutions.” Fritz aims to be on the ballot in November 2010. Brace for a red hot rhetoric war in the months to come. (And be glad you’re not a director for the Metropolitan Water District of Southern California, which will vote on new contracts hiking employee pay and pensions Oct. 13.)

Car sales suffer clunker hangover - (www.marketwatch.com) In the first month after the end of the "cash-for-clunkers" program, automakers on Thursday are reporting virtually across-the-board sales declines with Chrysler and General Motors seeing volumes nearly halved, but Ford not hit as hard as expected and even robust gains for Hyundai. The big Japanese firms were also down although two German carmakers - BMW and Volkswagen - posted sales gains. General Motors sold some 156,673 vehicles in September, a slump of 45% with retail sales off 46% and fleet sales dropping 43%. Car sales were down 43% and total truck sales -- light and heavy -- plummeted 47%. On a percentage basis, Cadillac saw the smallest dip, down 9% to 11,339 vehicles, with the largest decline in the soon-to-be-wound-down Saturn division, which posted a 84% drop in sales to 2,993 units. GM's best-selling Chevrolet division posted a 41% decline for the month to 102,538 vehicles. "September was a tough transitional month for the industry, and a difficult year-over-year comparison for GM," said Mark LaNeve, vice president of U.S. sales, in the report. "Fortunately, the fourth quarter looks brighter and our year-over-year comparisons should look more favorable." Ford was first off the mark, reporting its U.S. auto sales for September dropped 5.1% to 114,655 vehicles from 116,734 a year ago. Total Ford, Lincoln and Mercury sales fell 5.8% to 109,939 units while Volvo sales rose better than 16% to 4,716. Retail sales fell 14% percent while fleet sales jumped 23%. The company said its new Taurus "bucked an industry trend," as sales last month came in at 5,077 units, 60% higher than a year ago and half as much again as in August. Ford said its total truck sales, which include SUVs and crossovers, dropped 6.9% to 71,049 units. In July, Ford's total sales rose 2% and then rocketed 17% in August at the height of the clunkers program. For the full quarter, Ford, Lincoln and Mercury sales were 5% higher than a year ago. The automaker estimates it gained more than 2 points of market share in September and for the full quarter -- the 11th time in the last 12 months it has gained in that metric. Industry-wide, Edmunds.com was looking for a seasonally adjusted annual sales rate of about 9.3 million cars and trucks, down from 14.1 million in August, with some leftover deliveries from the so-called clunker deals buoying results.

47% will pay no federal income tax - (money.cnn.com) Worth repeating again. 53% of the working-age population is paying for all the government taxes, programs, and other non-profit special-interest groups funded by our government (i.e., ACORN). An increasing number of households end up owing nothing in major federal taxes, but the situation may not be sustainable over the long run. Most people think they pay too much to Uncle Sam, but for some people it simply is not true. In 2009, roughly 47% of households, or 71 million, will not owe any federal income tax, according to estimates by the nonpartisan Tax Policy Center. Some in that group will even get additional money from the government because they qualify for refundable tax breaks. The ranks of those whose major federal tax burdens net out at zero -- or less -- is on the rise. The center's original 2009 estimate was 38%. That was before enactment in February of the $787 billion economic recovery package, which included a host of new or expanded tax breaks. The issue doesn't get a lot of attention even as lawmakers debate how to pay for policy initiatives like health reform, whether to extend the Bush tax cuts and how to reduce the deficit. The vast majority of households making up to $30,000 fall into the category, as do nearly half of all households making between $30,000 and $40,000. As you move up the income scale the percentages drop. Nearly 22% of those making between $50,000 and $75,000 end up with no federal income tax liability or negative liability as do 9% of households with incomes between $75,000 and $100,000. Of course, income taxes don't tell the whole story. Workers are also subject to payroll taxes, which support Social Security and Medicare. When considering federal income taxes in combination with payroll taxes, the percent of households with a net liability of zero or less is estimated to be 24% this year, according to the Tax Policy Center's estimates. A key reason why there is a zero-liability group at all is because the U.S. tax system is progressive. Those who bring in more money pay more than those lower down the income scale to support government functions such as national defense and social safety nets like Medicaid for those in need. That progressivity can be dialed up or down. "Some think it's too progressive. Some don't think it's progressive enough," said Roberton Williams, a senior fellow at the center. President Obama falls into the latter camp. He has proposed increasing the income tax burden on families making more than $250,000 and individuals making more than $200,000, while offering new measures to reduce the tax bite for most Americans making less. One of Obama's proposals is to extend the 2001 and 2003 Bush tax cuts for everyone except high-income tax filers, which was the group that derived the most benefit from those cuts. As a result, under Obama's budget, he would keep the ranks of the non-payers higher than they would otherwise be. Why the tax-free matter: The question of who pays and who doesn't is not a trivial matter. But Washington policymakers are not dealing with it in an explicit way. And that's a problem, given the country's fiscal outlook. If asked to vote up or down on whether they are comfortable with such a large group of voters contributing no federal income tax or payroll tax revenue, the majority may well decide it is appropriate given the means of the households involved. Or they may decide that it's not. Either way, that decision should inform the debate about the many costly policies and deficit-reduction strategies that lawmakers will be grappling with for years to come. "As the number [of nonpayers] becomes larger, we have to question whether we'll make good decisions about how to allocate resources," economist George Zodrow, a professor at Rice University. "Most people don't understand how skewed the tax distribution is." Experts say that to pay for all the things on the country's growing tab, the money can't just come from a shrunken pool of taxpayers.

Recession Rising Like Phoenix With Area Delinquencies Surging - (www.bloomberg.com) Drive up to the Peaks Corporate Park in north Scottsdale, Arizona, and the only person you’ll encounter at the luxury office complex is a security guard. The development was planned to offer executive suites with views of the McDowell mountains, neighbors such as General Electric Co. and a location just minutes away from Jack Nicklaus’s Desert Mountain golf courses. Plans to lure tenants haven’t materialized and today the complex in this city next to Phoenix is empty, the entrance blocked by a traffic barricade. Delinquencies in the Phoenix area on loans backed by office, industrial, retail and apartment properties have risen more than five-fold since March, according to data compiled by Bloomberg. The Phoenix region has the second-worst U.S. delinquency rate, behind Detroit’s 10 percent. In Phoenix, the economic recovery looks a lot like a recession. “A commercial recovery in markets that are heavily dependent on construction will be slow, which means the overall recovery will lag the nation as a whole,” said Susan Wachter, a real estate professor at the University of Pennsylvania’s Wharton School in Philadelphia. “These are more volatile markets and getting back to normal could take years.” Phoenix and other southern and western cities such as Atlanta, Houston and Dallas grew because they offered an affordable lifestyle to middle-class Americans, said Edward Glaeser, an economics professor at Harvard University in Cambridge, Massachusetts. That growth has slowed.

Nevada Acorn Chapter Members Charged With Fraud: Community Organization Accused of Registering Fake Voters in Nevada - (www.cbsnews.com) The Association of Community Organization for Reform Now or ACORN, and two key officials were charged on Monday with 39 counts of voter registration fraud in Nevada, stemming from allegations that they paid canvassers to submit fake registration forms during the 2008 Presidential race. Along with ACORN, Christopher Howell Edwards, the Las Vegas Field Director and Regional Director Adele Busefink are accused of compensating employees with a payment structure, that according to the complaint, provided an incentive for registrants to fill out phony forms, illegal under Nevada State law. The complaint details what authorities called ACORN’s "blackjack" bonus program, where representatives were paid an additional five dollars if they registered more than 21 voters per shift. Nevada Attorney General Catherine Cortez Masto who filed the charges told CBS News they are now taking action, to “stop this type of activity, so that in future elections this process will be cleaned up.” Of the more than 91,000 people ACORN registered in Clark County, Nevada, which includes Las Vegas, 28,097 were duplicates and 18,947 did not match motor vehicle or social security records. The bogus names included Dallas Cowboy players Tony Romo and Terrell Owens, and Disney characters Mickey Mouse and Donald Duck. In a statement, ACORN spokesman Scott Levinson told CBS News the organization does not pay employees on a “bonus or incentive system” and that ACORN brought all suspicions of voter registration fraud to the attention of Nevada election officials. He also called the charges “the latest in an ongoing assault designed to blame the victim and prioritize media grandstanding about the pursuit of justice.” CBS News reported extensively on voter registration fraud during the election season, but found no evidence of a link between fraudulent registration forms and actual voter fraud. If convicted, Edwards and Busefink could face up to four years in prison and a 5,000 fine.

OTHER STORIES:

Capitol Alert: Brown to investigate ACORN - (www.sacbee.com) Attorney General Jerry Brown's office has opened an investigation into the controversy surrounding videos that purportedly show members of community organizing group ACORN giving advice on how to open a brothel.

Ex-ACORN organizer describes voter signup bonuses - (www.sacbee.com)

Bank suspends dealings with ACORN housing entity - (www.sacbee.com)

Wal-Mart Sees Slow US Business Recovery - (www.cnbc.com)

Chrysler CEO: No Reprieve on US Plant Closings - (www.cnbc.com)

Financial Reform More Likely After Fed Changes Its Tone - (www.cnbc.com)

US secretly tried to make deal with Goldman Sachs in wake of financial crisis - (www.rawstory.com)

Median house price plunges in pricey Irvine ZIP - (irvinehomes.freedomblogging.com)

Brooklyn Prices Falling - (www.therealdeal.com)

Leaving Affordable Mortgage May Become Winning Gambit - (www.bloomberg.com)

Record number of complaints target modification lawyers - (www.dailybusinessreview.com)

U.S. Has Enough Vacant Housing For All Of U.K. plus Israel - (www.paul.kedrosky.com)

Shiller Sees 5 Years of Stagnant House Prices - (www.blogs.wsj.com)