KeNo's Housing and Economic Portal: Wednesday November 25 Housing and Economic stories

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FHA delays the release of disputed audit of its finances - (www.washingtonpost.com) The Federal Housing Administration abruptly delayed the release of a long-awaited independent audit of the financial soundness of the agency, citing potential problems with the accuracy of some of the study's economic models. The audit, compiled by Integrated Financial Engineering of Rockville, was scheduled to be released Wednesday, and the agency's top officials planned to brief reporters on its results. But on Tuesday evening, the agency postponed the event, saying the report had yet to be finalized. In a separate statement Wednesday, FHA Commissioner David H. Stevens said the delay was related to economic scenario tests that the agency requested "above and beyond" what was originally to be included in the audit so that the FHA could "better understand a broader range of risk scenarios." "Based on these results, we raised questions about the accuracy of IFE's modeling, and IFE therefore advised us that we should not treat the report as final," Stevens said. "IFE is now running additional tests to ensure that the final report is accurate." FHA's financial health has been a topic of growing concern as the agency's loan volume exploded and its default rate climbed. Congress has been worried about the prospect of a taxpayer bailout. FHA officials have said the agency will not need one. But Reps. Darrell Issa (R-Calif.) and Spencer Bachus (R-Ala.) asked Housing and Urban Development Secretary Shaun Donovan on Monday to provide data backing up that claim. In September, Stevens said the audit would show that the agency's cash reserves had dropped below federally mandated levels. As of Oct. 1, the reserve fund no longer had enough cash to cover at least 2 percent of the agency's outstanding loans, as required by law, he said.

Municipal bond case settled by J.P. Morgan - (www.washingtonpost.com) J.P. Morgan Chase agreed to a $722 million settlement with federal regulators over accusations that the bank and two former executives made illegal payments to win municipal bond business from Jefferson County, Ala. The Securities and Exchange Commission said Wednesday that J.P. Morgan and former managing directors Charles E. LeCroy and Douglas W. MacFaddin paid $8 million to friends of Jefferson County commissioners who voted to hire the bank to carry out municipal bond offerings and other transactions to finance a new sewer system. The friends worked for local financial firms, but did not work on the deal. The SEC said the bank passed on the costs of these payments to Jefferson County, but did not disclose the payments or conflicts of interest. "The transactions were complex but the scheme was simple. Senior J.P. Morgan bankers made unlawful payments to win business and earn fees," Robert Khuzami, the SEC's enforcement director, said in a statement. The financial deals arranged by J.P. Morgan ultimately resulted in millions of dollars in losses and pushed the county to the brink of bankruptcy, causing residents to pay much higher rates for water and sewer services. The SEC charges are a blot on J.P. Morgan, which has had a cleaner record than other financial companies because it avoided many dangerous bets and swooped in to buy two banks, Bear Stearns and Washington Mutual, as they were collapsing. Last year, the SEC filed civil charges against Birmingham, Ala., Mayor Larry Langford, a former president of the Jefferson County Commission, on allegations that he accepted payments in connection with the matter. He was also found guilty of bribery, fraud and other charges in a criminal case and awaits sentencing.

Default Rate Rises to Most Since Great Depression, Moody’s Says - (www.bloomberg.com) The global speculative-grade default rate rose to 12.4 percent in October, the highest proportion of defaults since the Great Depression, according to Moody’s Investors Service. The annual rate at which companies worldwide fail to meet their commitments may peak at 12.5 percent next month, Moody’s said in a report today. The New York-based firm revised its September figure to 12.3 percent, also higher than the 12.2 percent rate reached in 1991. The total number of defaults declined to eight in October, the lowest monthly count this year and down from 19 in September, Moody’s said. “The global default rate is now likely near its cyclical peak, as indicated by a rapidly slowing pace of defaults in recent months,” said Kenneth Emery, the director of corporate default research at Moody’s. The firm’s model predicts eight to 10 defaults per month on average for the coming year, down from the rate of 20 per month for the past year. While stocks have rallied, with the Morgan Stanley World Index gaining 21 percent this year, the economy remains weak and credit is scarce. The Federal Reserve yesterday pledged to keep interest rates “exceptionally low” for an “extended period,” and the Bank of England said today it’s extending its bond- purchase plan by a further 25 billion pounds ($41 billion), the third increase since March. U.S. banks tightened standards on loans in the second quarter and expect to restrict lending until at least the second half of 2010, the Fed’s quarterly Senior Loan Officer survey showed in September.

Dubai Shares Fall Most in World on Moody’s Cuts, Oil Decline - (www.bloomberg.com) - Dubai shares dropped for a third time this week, led byEmaar Properties PJSC and Dubai Islamic Bank PJSC, after Moody’s Investors Service downgraded five of the emirate’s state-run companies and as oil retreated. Emaar, the United Arab Emirates’ biggest developer, fell 3.5 percent, erasing much of yesterday’s gain. Dubai Islamic Bank declined for the third time this week. The DFM General Index has fluctuated this week, alternating between losses and gains of as much as 5.5 percent. The measure lost 1.9 percent to 2,097.63, bringing the drop for the week to 4.6 percent. “There seems to be some nervousness around the Moody’s downgrade on some Dubai Inc. names,” Mark Friedenthal, fund manager at Abu Dhabi Commercial Bank, wrote in an e-mail. “It was anticipated but there is always some reaction, especially from retail investors, to this kind of headline.” DP World Ltd. and Dubai Electricity & Water Authority were among the companies downgraded at Moody’s during yesterday’s trading day. The rating company cited tighter government criteria for supporting state-controlled entities. Dubai, the second-biggest of seven states that make up the U.A.E., and its government-owned companies borrowed $80 billion to finance its transformation into a financial and tourist hub before credit markets froze. Burj Dubai: The emirate borrowed $10 billion by selling bonds to the U.A.E. central bank in February and may raise another $10 billion in November, Mohammed Alabbar, the chairman of Emaar who headed the government committee evaluating the impact of the credit crisis on Dubai, said last month. Crude oil dropped for the first time this week, declining as much as 1 percent to $79.58 a barrel. The six states in the Gulf Cooperation Council supply about 20 percent of the world’s oil.

Fannie Mae to rent out homes instead foreclosing - (www.google.com/hostednews/ap) Thousands of borrowers on the verge of foreclosure will soon have the option of renting their homes from Fannie Mae, under a policy announced Thursday. The government-controlled company, through its new "Deed for Lease" program, will allow borrowers to transfer ownership to Fannie Mae and sign a one-year lease, with month-to-month extensions after that. The program will "eliminate some of the uncertainty of foreclosure, keeps families and tenants in their homes during a transitional period, and helps to stabilize neighborhoods and communities," Jay Ryan, a Fannie Mae vice president, said in a statement. But the effort is likely to affect a relatively small number of homeowners. In the first half of the year, Fannie Mae took back about 1,200 properties through this process, known as a deed-in-lieu of foreclosure. That pales in comparison to the 57,000 foreclosed properties the company repossessed in the period. While neither option is particularly attractive for the homeowner, a deed-in-lieu does less harm to the borrower's credit record. The rental program is designed to help homeowners who don't qualify for a loan modification under the Obama administration's plan, but still want to remain in their homes. Fannie Mae is not planning to market the homes for sale during the one-year rental period. Fannie Mae has hired an outside company, which officials declined to identify, to manage the properties. To qualify, homeowners have to live in the home as their primary residence and prove that they can afford the market rent, which would be determined by the management company. The rent can't be more than 31 percent of their pretax income. Fannie Mae's sibling company, Freddie Mac, launched a similar effort in March. That policy, however, requires the foreclosure to be complete and only allows month-to-month leases. A Freddie Mac spokesman declined to say how many borrowers have participated.

Boomers in Denial About Retirement Savings - (www.cnbc.com) No doubt last year’s financial crisis dealt a body blow to many investors, but many Boomers approaching retirement have yet to turn their reaction to last year’s events into action. Wells Fargo just released the results of its Retirement Fitness survey and looked hard at the investment habits of pre-retirees ages 50 to 59. What did they find? “There is a sense of denial among the pre-retirees,” said Lynne Ford, head of Wells Fargo Retail Retirement. Even after suffering significant losses last year, many remain overly optimistic about their investment returns and the ability of their savings to fund their expenses after they stop working. Only 23 percent of pre-retirees are saving more for their retirement than they were a year ago, the survey found. Most, some 57 percent, are saving the same amount, and 20 percent are saving less. Perhaps even more startling is the extent to which their savings are falling short of their goals. On average, these pre-retirees expected they would need $800,000 to fund their retirement. However, most had only saved about $300,000. Despite their inadequate savings, nearly two-thirds of the group lack any formal plans for retirement savings or spending strategies. Of the 35 percent of those who had a written plan for retirement, only slightly more than half — about 52% percent — say they had updated it in the past year during the market downturn.

Countrywide ex-CEO Mozilo must face SEC fraud case - (www.reuters.com) A federal judge rejected a request by Angelo Mozilo, the former chief executive of mortgage lender Countrywide Financial Corp, to dismiss a U.S. Securities and Exchange Commission lawsuit accusing him of securities fraud and insider trading. In a Tuesday court filing, U.S. District Judge John Walter in Los Angeles also rejected requests by David Sambol and Eric Sieracki, respectively Countrywide's former chief operating officer and former chief financial officer, to dismiss related SEC fraud charges. Countrywide had been the largest U.S. mortgage lender before liquidity dried up in summer of 2007, leading to its acquisition the following year by Bank of America Corp (BAC.N) for $2.5 billion. Mozilo's lawyer David Siegel did not immediately return a call for comment. Walter Brown, who represents Sambol, declined to comment. Nicolas Morgan, who represents Sieracki, also did not immediately return a call. The SEC sued the defendants in June, accusing them of misleading investors about the quality of Countrywide's loans, including tens of billions of dollars of risky subprime and adjustable-rate mortgages. "The specific allegations of the complaint relied on by the SEC describe in great detail the virtual abandonment of prudent underwriting guidelines and the resulting proliferation of poor quality loans, during the same period Countrywide was touting the superior quality of its underwriting guidelines and its loan portfolio," the judge wrote. "Moreover, given that Countrywide's core business, i.e., selling mortgages into the secondary market, admittedly depended upon the quality of its loan production, it is certainly not difficult for the court to conclude that the poor quality of Countrywide's underwriting practices and loan portfolio would be material to investors," he added. The insider trading charge concerned Mozilo's alleged exercise in 2006 and 2007 of more than 5.1 million stock options and sale of the resulting shares, leading to more than $139 million of profit.