KeNo's Housing and Economic Portal: Tuesday November 24 Housing and Economic stories

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Clunker' data show pickup-for-pickup trades - (news.yahoo.com/s/ap) Billed as a way for the government to put more fuel-efficient vehicles on highways, the popular $3 billion Cash for Clunkers program mostly involved swaps of old Ford or Chevrolet pickups for new ones that got only marginally better gas mileage, according to an analysis of new federal data by The Associated Press. The single most common swap — which occurred more than 8,200 times — involved Ford F150 pickup owners who took advantage of a government rebate to trade their old trucks for new Ford F150s. They were 17 times more likely to buy a new F150 than, say, a Toyota Prius. The fuel economy for the new trucks ranged from 15 mpg to 17 mpg based on engine size and other factors, an improvement of just 1 mpg to 3 mpg over the clunkers. Owners of thousands more large, old Chevrolet and Dodge pickups bought new Silverado and Ram trucks, also with only barely improved mileage in the middle teens, according to AP's analysis of sales of $15.2 billion worth of vehicles at nearly 19,000 car dealerships in every state. Those deals helped the Ford F150 and Chevy Silverado — along with Ford's Escape midsize SUV — climb into the Top 10 most-popular vehicles purchased with the government rebates. The most common truck-for-truck and truck-for-SUV deals totaled at least $911 million. In scores of deals, the government reported spending a total of $562,500 in rebates for new cars and trucks that got worse or the same mileage as the trade-ins — in apparent violation of the program's requirements. The government said it is investigating those reports and said in some cases they were probably entered incorrectly by dealers or based on outdated fuel economy figures. The National Highway Traffic Safety Administration is still reviewing the reports, and any dealers that submitted invalid trade-ins will be directed to return the government rebate, spokesman Eric Bolton said. The new data, obtained by the AP under the Freedom of Information Act, include details of 677,081 clunker trade-ins processed by the government through Oct. 16. More than 95,000 of the new vehicles purchased under the program — or about 1 in 7 — got less than 20 mpg, according to the data.

BOE May Expand Bond Plan as Officials ‘Throw Money’ at Economy - (www.bloomberg.com) The Bank of England may increase its bond-purchase plan by 50 billion pounds ($83 billion) today as central bankers and politicians scramble to shore up Britain’s banking system and drag the economy out of recession. Governor Mervyn King’s nine-member Monetary Policy Committee will expand the asset-buying program to 225 billion pounds at 12 p.m. in London, the median of 48 forecasts in a Bloomberg News survey shows. That follows Prime Minister Gordon Brown’s pledge this week to spend almost 40 billion pounds in a second bailout of two the nation’s biggest banks. Any increase in the Bank of England’s emergency program would be the third since King unveiled the plan in March. Brown’s first bank bailout, the government’s fiscal stimulus measures and an injection of 175 billion pounds in newly printed central bank money have so far failed to end Britain’s longest recession on record. “They’ve got to throw money at it,” said Neil Mackinnon, an economist at VTB Capital Plc and a former U.K. Treasury official. “The fact of the matter is that the U.K. economy is lagging behind. As to whether quantitative easing is working, the jury is still out.” The central bank will keep its benchmark interest rate at a record low of 0.5 percent, according to all 60 economists in a Bloomberg survey. The European Central Bank, which also meets today, will maintain its main rate at 1 percent at 1:45 p.m. in Frankfurt, a separate survey showed. Vote Split: The Bank of England’s bond plan already split the rate panel once this year when King’s push to increase the plan to 200 billion pounds was defeated in August. While he argued that being too cautious was less of a risk than spending too much, Chief Economist Spencer Dale says that there is a danger of stoking asset prices too much. “It is a lot of money, but if it does restart the economy and gets it moving again then it’s worth it,” said George Buckley, an economist at Deutsche Bank AG in London. “It’s very difficult to say if quantitative easing is working, but it is doing something.”

This Loan Is Example Of What Went Wrong In America - (www.huffingtonpost.com) Last December, Virginia Naill learned that the monthly mortgage payment for her three-bedroom home on Ordinary Road in tiny Mineral, Va., would jump by hundreds of dollars. "I started crying," she said, "'Oh no, what did I do?'" In 2006, it turned out, she'd unwittingly gotten herself into an adjustable-rate mortgage with a two-year teaser rate. As a result, in December, the interest rate shot up from 7.5 percent to just over 10.1 percent, and the monthly payment on her $280,000 loan went from $1,800 to more than $2,300. She and her husband didn't know how they were going to pay it. Naill, 50, thought she'd refinanced into a fixed-rate mortgage. Back in 2006, that's what she'd told the broker she wanted. But she signed the documents that were put in front of her, and what she got was a case study in irresponsible lending -- a debt trap that even the broker has admitted was based on a fraudulent application. Naill works at a Wal-Mart distribution center. Her husband, Donald Naill, is a roofing contractor. "They knowed me and my husband were illiterate, that we had a hard time reading and understanding what we read," Naill told the Huffington Post. "We told 'em straight up they'd have to read it to us, and they said that they would." In a September deposition for a lawsuit filed on behalf of Donald Naill, the Naill's broker said she knew the loan application contained bogus information -- an inflated income statement that qualified them for a loan virtually guaranteed to blow up in Virginia Naill's face when the interest rate adjusted. "This loan is an example of what went wrong in America," said Tom Domonoske, a lawyer on contract for the Virginia Legal Aid Justice Center who is representing Donald Naill in the lawsuit against the broker, Lincoln Mortgage. Through the lawsuit, Domonoske obtained documents showing how the loan was put together. The Naills first refinanced their mortgage in 2005, when Lincoln Mortgage, which had been recommended by a friend, cobbled together an unusual deal. The Naills owned another house in Mineral (a town of under 500 people about an hour from Richmond) where one of their grown sons lived and paid rent. To inflate the size of their new loan, said Domonoske, the broker had the Naills borrow to pay off the $138,000 mortgage on their son's house and pile the debt onto their own house, on which they owed less than $50,000. The Naills wound up with one much larger $250,000 mortgage, the additional debt either covering other liabilities or providing cash. Virginia Naill said she does not remember exactly why she refinanced the way she did or what she got out of it. All she remembers is that it was a snap. "A friend told me about Lincoln Mortgage and she took me over to meet 'em," said Virginia Naill, "and then one lady called and got some information and said, 'Come in and we're gonna close 'em.'" Domonoske, the attorney, called the arrangement "bizarre." "I've just never seen any transaction where they refinanced a loan from another piece of property without also taking a security interest on the other piece of property," he said. But there was nothing bizarre about why the broker wanted to do it that way: "The broker added that other one to inflate the size of the loan so they could get a higher commission." Lincoln Mortgage did not respond to multiple requests for comment left at its Winchester, Va., office or with its lawyer. Multiple attempts to reach the broker were unsuccessful. When Virginia Naill reconnected with Lincoln Mortgage in 2006, she wanted a fixed rate. The broker, a woman named Monica Gregory (who has since left the company), started off by making notes on the 2005 loan application based on conversations with the Naills, which the lawyers obtained in the process of the lawsuit. Beneath a field indicating that the existing loan had an adjustable rate, Gregory wrote, "Want a fixed rate this time!!"

FHA Digging Out After Loans Sour - (www.online.wsj.com) Last fall, as the financial system was teetering and the biggest banks were tightening credit, Karen DeForte couldn't find a lender to refinance the two mortgages on her New York home, until she received a phone call from Lend America. Most banks rejected Ms. DeForte because her debt level was too high and her credit score too low. But Lend America put Ms. DeForte into a $402,000 loan backed by the Federal Housing Administration, a New Deal-era agency that Washington and Wall Street were relying upon to pick up the slack in the mortgage market as private lenders pulled back. Ms. DeForte fell behind on payments six months later and is seeking a loan modification. Taking the loan was "a stupid mistake," the 46-year-old office manager said. In late 2007 and early 2008, thousands of borrowers with marginal credit were allowed to refinance via the government-insured FHA program, just as home-price declines began to accelerate. Policy makers were urging the agency to fill the gap left by the exit of private lenders, refinancing subprime borrowers out of loans that threatened to reset to unaffordable payments. Although the FHA has tightened credit standards, many of the 2007 and early 2008 mortgages are going bad. The agency expects defaults on 24% of all loans insured in 2007, and 20% of those backed in 2008. "The orders from Congress and us were clear: We want to save as many families as we can, recognizing that a lot of loans people were looking to refinance out of should never have been made in the first place," said Brian Montgomery, who served as the agency's commissioner for four years ending in July. This month, the FHA is to release the findings of its annual audit, which will show that the projected value of the agency's reserves has fallen below a federally mandated level, raising concerns that the FHA may need taxpayer money for the first time in its 75-year history. FHA officials say the agency has enough capital to withstand expected losses. The report is likely to reignite a debate over how aggressively the government should move to prop up the housing market by providing a steady source of mortgages that require little money down. The FHA, which doesn't make loans but insures lenders against losses if a borrower defaults, is guaranteeing half of all home-purchase loans in some of the nation's hardest-hit housing markets. That is helping to heal housing markets but puts taxpayers at risk if home-price declines resume. Refinance loans are hitting the FHA hard. While delinquencies on refinance loans have been lower than those for purchases, that began to change in 2006, and delinquencies on refinance loans have risen faster than those on new loans in the past three years, according to First American CoreLogic. The FHA began to take on riskier loans in 2007. By the end of 2007, the share of borrowers with credit scores of less than 600 had grown to 37%, up from 30% a year earlier, according to LPS Applied Analytics. The FHA says it is insuring better loans today, but that is primarily because lenders that originate FHA-backed loans began instituting their own minimum standards in 2008, several months after FHA volume surged. Average credit scores have jumped by nearly 70 points, to around 690.

Feds Try To Prop Up House Prices, $729,750 At A Time - (www.cbsnews.com) Never mind the debate about whether to prop up the U.S. housing market by extending the $8,000 home-buying tax credit. (See related CBS News video about the credit, which is scheduled to expire on December 1.) A more important housing subsidy has already snuck into law without many people noticing. Last Thursday, President Obama signed legislation, H.R.2996, that was billed as providing funding for the Forest Service and the Indian Health Service and temporary cash for the rest of the government. It also extended, substantially, the federal government's support for higher housing prices for another year. You won't see any mention of housing policy in the Congress' official summary or the White House's announcement that Obama had signed the measure. But if you look carefully, you'll find it buried in the middle of the 31,332-word bill (which can claim the dubious virtue of topping out at over 1,000 words longer than George Orwell's novel Animal Farm). If Congress had done nothing, the maximum government-backed loan for a house or condo in the continental United States would have dropped from $729,750 to $625,500 on January 1, 2010. Other loans -- known as "non-conforming" loans -- would still be available, but they'd be more expensive. TotalMortgage.com, for instance, puts the difference at around 1.1 percentage points as of this week. It's true that the extension applies mostly to coastal areas (and it's even higher in Alaska, Guam, Hawaii, and the Virgin Islands), deemed sufficiently "high cost" to exceed the normal $417,000 limit. Home-buyers in the wastelands of Detroit, where you can buy houses for a few thousand dollars, won't be affected. Not so ones in Washington, D.C., New York, Boston, and San Francisco. Nevertheless, letting the maximum loan amount fall back to normal levels would have been wise. First, it would reduce the cost of any possible future taxpayer-funded bailout if housing prices continue to fall. Or have we forgotten how taxpayers bailed out Fannie Mae and Freddie Mac in over $400 billion of stock and debt guarantees? That's despite the federal law creating them in the first place, which clearly says: "This chapter may not be construed as obligating the federal government, either directly or indirectly, to provide any funds... or to honor, reimburse, or otherwise guarantee any obligation or liability..." Second, it would rescind a sliver of one of the government distortions of the market that gave us the housing bubble and bust, coupled with all the economic pain of the past year or two. Without cheap loans, it's more difficult to have excessive speculation and a housing frenzy.

Al Gore Could Become World's First Carbon Billionaire - (www.telegraph.co.uk) Last year Mr Gore's venture capital firm loaned a small California firm $75m to develop energy-saving technology. The company, Silver Spring Networks, produces hardware and software to make the electricity grid more efficient. The deal appeared to pay off in a big way last week, when the Energy Department announced $3.4 billion in smart grid grants, the New York Times reports. Of the total, more than $560 million went to utilities with which Silver Spring has contracts. The move means that venture capital company Kleiner Perkins and its partners, including Mr Gore, could recoup their investment many times over in coming years. Few people have been as vocal about the urgency of global warming and the need to reinvent the way the world produces and consumes energy as Mr Gore. And few have put as much money behind their advocacy and are as well positioned to profit from this green transformation, if and when it comes. Critics, mostly on the political right and among global warming sceptics, say Mr. Gore is poised to become the world's first "carbon billionaire," profiteering from government policies he supports that would direct billions of dollars to the business ventures he has invested in. Representative Marsha Blackburn, Republican of Tennessee, has claimed that Mr Gore stood to benefit personally from the energy and climate policies he was urging Congress to adopt. Mr Gore had said that he is simply putting his money where his mouth is. "Do you think there is something wrong with being active in business in this country?" Mr. Gore said. "I am proud of it. I am proud of it."