KeNo's Housing and Economic Portal: Monday December 7 Housing and Economic stories

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TOP STORIES:

FHA-Backed Lending Is a ‘Train Wreck,’ Toll Says - (www.bloomberg.com) The Federal Housing Administration, the agency that insures home purchases made with down payments as small as 3.5 percent, may create another lending crisis, Toll Brothers Inc. Chief Executive Officer Robert Toll said. “Yesterday’s subprime is today’s FHA,” Toll said today at a New York conference for builders sponsored by UBS AG. “It’s a definite train wreck and the flag will go up in the next couple of months: Bail us out. Give us more money.” Toll Brothers is largest U.S. luxury homes builder. The FHA’s insurance reserve ratio fell to 0.53 percent, the lowest level in history, and more steps are needed to shore up the agency that guarantees one of every five single family loans, Housing and Urban Development Secretary Shaun Donovan said Nov. 12. While the insurance fund’s capital ratio is at an all-time low, Donovan said those who say FHA is the next subprime- mortgage crisis are “dead wrong.” The quality of the loans FHA insures is “actually very good,” Donovan said. FHA’s total reserves are more than $31 billion, giving it an overall capital resource ratio of 4.5 percent, according to statement by FHA Commissioner David Stevens. The 0.53 percent net capital loan insurance ratio takes into account projected losses and is the yardstick Congress uses to determine the health of the fund. Congress requires the FHA to maintain a loan reserve ratio of at least 2 percent to protect the insurance fund from default. Record Defaults: The FHA said 456,000 of its loans, or 8.2 percent, were in default as of September. That was up from 5.6 percent in September 2008. The default rate for loans tracked by the Mortgage Bankers Association was a record 9.24 percent for the three months through June, the most recent period for which data is available. That was up from 6.41 percent a year earlier. FHA loans accounted for about 8 percent of the mortgages Toll Brothers closed in the past quarter, Robert Toll said. About 80 percent of the company’s financing is loans guaranteed by Fannie Mae or Freddie Mac, he said. Those government- supported agencies require larger down payments and better credit than loans insured by the FHA.

California faces a projected deficit of $21 billion - (www.latimes.com) What do you expect when politicians kick the can down the road a few months. They cut some spending, then suspended many of the cuts. The legislative budget analyst's projection, to be released Wednesday, threatens to send Sacramento back into gridlock and force more broad cuts to state programs. Less than four months after California leaders stitched together a patchwork budget, a projected deficit of nearly $21 billion already looms over Sacramento, according to a report to be released today by the chief budget analyst. The new figure -- the nonpartisan analyst's first projection for the coming budget -- threatens to send Sacramento back into budgetary gridlock and force more across-the-board cuts in state programs. The grim forecast, described by people who were briefed on the report by Legislative Analyst Mac Taylor, comes courtesy of California's recession-wracked economy, unrealistic budgeting assumptions, spending cuts tied up in the courts and disappearing federal stimulus funds. "Economic recovery will not take away the very severe budget problems for this year, next year and the year after," said Steve Levy, director of the Center for Continuing Study of the California Economy. In fact, after two years of precipitous revenue declines, the new report projects relatively stable tax collections for the state, said those who were briefed. But that won't stop the deficit from climbing to nearly $21 billion. Gov. Arnold Schwarzenegger, who will present his next proposed budget to Californians in January as he begins his last year in office, started sounding the alarm last week. "I think that there will be across-the-board cuts again," he said at a San Jose news conference. The task in 2010 could be even harder than it was this year, when record deficits and cash shortfalls drove California to issue IOUs for only the second time since the Great Depression. Lawmakers have already cut billions from education, healthcare and social services while temporarily hiking income, sales and vehicle taxes. "I can't think of any good solutions," said Assemblywoman Noreen Evans (D-Santa Rosa), who chairs the lower house budget committee.

White House Admits: Federal ‘improper spending’ surges to $98bn in Past Year (60B in Medicaid/Medicare fraud payments) - (www.cnn.com) Anyone who thinks Government (which is operated like a corrupt and inept DMV office on a much larger scale) can operate health care effectively should read this CNN story. Obama inherited this mess (so appreciate that he is trying), but Obama, Pelosi, and Reid need to slow down, stop taxing others to pay for their health care dream, and get the Medicaid/Medicare fraud under control before expanding the program. Has anyone stopped to consider that Obama and team are trying to implement the "public option" (worth between $1 Trillion and $4 Trillion) to hide the fact that Medicare and Medicaid are bankrupt. This will kick the can down the road for another 5-10 years. The federal government made $98 billion in improper payments in fiscal 2009, and President Obama will issue an executive order in coming days to combat the problem, his budget director announced Tuesday. The 2009 total for improper payments -- from outright fraud to misdirected reimbursements due to factors such as an illegible doctor's signature -- was a 37.5 percent increase over the $72 billion in 2008, according to figures provided by Peter Orszag, director of the White House Office of Management and Budget. In an evening media briefing, Orszag was unable to provide an overall figure for what percentage of the bad payments was due to fraud. He also lacked a breakdown on how much of the total improper payments involved spending on Obama's $787 billion economic recovery package passed in February. Orszag said the executive order coming in the next week will promote transparency, strengthen accountability and provide incentives to improve the government payment process, Orszag said. "Our goal is to make sure the right person or entity gets the right amount at the right time," he said. The increase in the total over the previous year was due in part to improved detection through stricter and expanded accounting methods, Orszag said. For example, $24 billion of improper payments in the Medicare fee-for-service health care program for senior citizens represented 7.8 percent of total payments to the program, compared to 3.6 percent in improper payments for the program a year earlier, he said. This year, Orszag said, an improper doctor's signature was "much more likely" to trigger an improper payment than in 2008. Overall, improper payments for the Medicare fee-for-service program and the Medicare Advantage accounted for $36 billion, or more than a third of the 2009 total. Obama and Democratic leaders say that wiping out waste and fraud in Medicare, including the elimination of more than $100 billion in government subsidies for the Medicare Advantage program in which private insurers supplement standard Medicare coverage, will reduce government health care costs by several hundred billion dollars. Obama's executive order will include setting up Web site dashboards for each agency to provide the public with "easy-to-follow" information on improper payments, including tracking error rates and identifying responsible officials, Orszag said. It also will designate Senate-appointed officials in each agency to be accountable for combating improper payments, and require specific plans for reducing improper payments when any agency shows an increase two years in a row, according to Orszag. Incentives in the executive order will reward states, local communities and other organizations for reducing improper payments and increase penalties for contractors that fail to report problems such as receiving double payments for work done or getting paid despite doing no work, Orszag said. He cited progress already in new efforts to reduce bad payments, including pilot programs in three states that have recovered $9 million in improper Medicare payments. The recovery audit program will be expanded to all 50 states, Orszag said. In addition, Orszag noted the administration requested $1.9 billion in federal funds to bolster accounting and monitoring of government spending. Sen. Tom Carper, D-Delaware, said in a statement Tuesday night that the news "shows that we have a lot to do here in the federal government when it comes professionalizing financial management and rooting out waste." "It goes without saying that these results would be completely unacceptable in the private sector, as they should be in government, especially at a time of record deficits," Carper continued. "That said, there is a silver lining. More agencies are becoming better at estimating and identifying costly mistakes." In total, Orszag listed 99 agencies and programs that received $1.98 trillion in 2009, with $98 billion of the money -- or 5 percent -- in improper payments. Some of the larger figures for improper payments were:

• $24 billion for Medicare fee-for service, out of a total of $308 billion

• $18 billion for Medicaid health care for the poor, out of a total of $188 billion

• $12 billion for Medicaid Advantage, out of a total of $77 billion

• $12 billion for unemployment insurance, out of a total of $119 billion

• $12 billion for the Earned Income Tax Credit, out of a total of $48 billion

Private-Equity Funding Plunges 62% at Calpers Amid Fee Review - (www.bloomberg.com) The biggest U.S. pension plan doled out 62 percent less cash to buyout companies in the first seven months of the year and pressed for fee cuts as firms, including Apollo Management LP, struggled to revive deal=making. The California Public Employees’ Retirement System wrote checks for $2.23 billion to the firms through July, compared with $5.93 billion during the same period last year, according to documents prepared for Calpers’s investment committee meetings. Joseph Dear, Calpers’s chief investment officer, said he may extend his review of the plan’s “relationship” with Leon Black’s Apollo to other private-equity managers. After contributing to the record $1.2 trillion raised by buyout funds this decade, many pensions, endowments and wealthy families suffered their worst losses last year. Now fund managers face mounting pressure from those investors, known as limited partners, to deploy cash more judiciously and rein in fees that transformed founders of the largest funds, Blackstone Group LP, KKR & Co. LP and Carlyle Group, into billionaires. “You’re in a period where performance is poor and, particularly for the big guys, it’s coming home to roost,” said Steven Kaplan, who teaches a course on private equity at the University of Chicago Booth School of Business. “When performance is poor and money is scarce, the limited partners have the power.” The investors in a private-equity fund agree to make a set amount of money available over the life of the fund. As the buyout firm makes acquisitions, it requests the cash from the partners to fund their share of each deal. While the firm has the right to call capital as needed, the limited partners may cut commitments to future funds if they disagree with how the firm spends the money.