KeNo's Housing and Economic Portal: Saturday August 28 Housing and Economic stories

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TOP STORIES:

Loan Mod Profiles: Delayed then Denied, Often Mistakenly - (www.propublica.org) Retired pastor David Moe describes the process of trying to get a loan modification -- only to be denied after more than a year -- as nothing short of "The Twilight Zone." "I keep waiting for Rod Serling to walk out and sit down in my living room," he says. Moe is one of more than 520,000 homeowners who have had trial modifications through the government's foreclosure relief program but have eventually been denied permanent modifications, according to Treasury Department data [PDF]. The program puts eligible homeowners in three-month trials, at which point their mortgage servicer determines if they qualify for a permanent modification. An additional 538,000 homeowners have been rejected for even trial modifications by the eight largest mortgage companies participating in the program. (The Treasury Department has not released program-wide data.) Program guidelines say homeowners can be denied for a number of reasons, including further reductions in income, missing trial payments or not being able to document their income. However, it appears that in many cases, servicer errors, such as losing paperwork and improperly calculating income, have caused denials.

U.S. Alleges Fraud in New Jersey Pension Funding - (www.nytimes.com) Federal regulators accused the State of New Jersey of securities fraud on Wednesday for claiming it was properly funding public workers’ pensions when it was not. The Securities and Exchange Commission said the action was its first ever against a state, and only its second against any government over the handling of a public pension fund. The city of San Diego was the first. The S.E.C. settled its civil complaint with New Jersey by issuing a cease-and-desist order, which the state accepted without admitting or denying the findings. The agency did not impose a financial penalty. The S.E.C.’s powers of enforcement against the states are tightly limited by states’-rights concerns and constitutional law, and it has standing to get involved only when there is a clear-cut case of fraud. Nor did the S.E.C.’s order name the bond underwriters whose job it was to vouch for the state’s financial statements. That raised the possibility that investors might decide to file suit. The action could also put pressure on other states and cities that have used various accounting maneuvers to portray their pension funds as healthier than they currently are. Actuaries have been raising questions, for example, about the plans Illinois has laid out for strengthening its pension funds.

Subsidies Cuts Worry Renewables Investors - (www.online.wsj.com) Salvador Guerra i Salamo can't sleep at night. "I fear that I can't pay back the bank loan. And this after I've honored my debts all my life," he says as he walks through the 2.1-megawatt Riudarenes II solar park near the Catalan city of Girona, in which his family owns a stake. His family has invested €7 million ($9 million) in solar parks, but now Spain's cash-strapped government is contemplating steep cuts to subsidies for renewable power, even for plants already producing power. Investors in these plants thought subsidies had been guaranteed by the government. Such cuts could push small businesses like Mr. Guerra's over the edge. In the years before the financial crisis of 2008, many European governments granted generous subsidies to boost their fledgling renewable-energy sectors and meet ambitious goals to reduce greenhouse-gas emissions: The European Union has set 2020 as the date by which 20% of its energy consumption will be met from renewable energy sources, helping it cut greenhouse-gas emissions by 20% compared with 1990 levels. But now, amid budgetary pressures and worries about high power prices eroding consumer spending, those governments are finding themselves forced to scale back that aid, causing pain for investors and the renewables industry. Mr. Guerra's venture into the solar industry started eight years ago, after he sold his stake in a beverage-distribution business and was looking for a low-risk sector in which to reinvest his capital. His then-15-year-old son, Pere, who in school had been studying photovoltaic power generation—which converts the rays of the sun into electricity using solar panels—persuaded him to invest part of the profits in solar installations and tap into Spain's lavish subsidy regime.

Zombie Love: Do Fannie and Freddie Provide Any Benefit to the U.S. Economy? - (www.irabankratings.com) Andrew Ross Sorkin wrote in the New York Times Monday about a conversation with Rep. Barney Frank (D-MA). He quotes the Chairman of the House Financial Services Committee as saying that the GSEs -- Fannie Mae and Freddie Mac -- are dead and no longer creating losses to taxpayers. Perhaps Chairman Frank misunderstands the nature of the zombie in the American economy, but we think not. Anthony Sanders at George Mason University says that GSEs not only pump-primed the housing market far beyond what the stated policy goals justified, but also caused more damage by actively helping to push up household leverage during the real estate boon. This aspect of the "benefit" of Fannie and Freddie is little understood publicly as it contradicted their stated underwriting policies. So just where is the benefit here Chairman Frank? "Fannie Mae CEO James Johnson said in Q3 1998 that they were going to ramp up homeownership when it was 66.8%," Sanders notes. "Now, it is 66.9%. So, after trillions of dollars, a housing bubble, a banking sector crash, and a 90%+ market share for Fannie, Freddie and the FHA, we are back where we started. Not to mention about $6 trillion in wealth destruction. Can we politely ask that the Feds please stop screwing up the U.S. housing market?" As Achim Duebel illustrates, the cost to the taxpayer of the continued existence of the GSEs far outweigh any benefit to society. Only an immediate decision to liquidate and close Fannie and Freddie and reduce and refocus public guarantees can end the damage, contrary to the public statements of Chairman Frank. Politicians such as Frank as well as the homebuilders and the rest of the Housing Industrial Complex are the real beneficiaries of the zombie housing GSEs. Still more significant to the U.S. economy and to taxpayers is the way in which Frank, other Congressional Democrats and state and federal regulators have come together to destroy the housing sector. The noxious mixture of ineptitude by the Federal Reserve Board in reacting to the financial crisis, combined with the refusal by the Fed and the Treasury under Secretary Timothy Geithner to restructure the largest banks, and new legal and regulatory limits on housing finance, has created a perfect storm for homeowners, consumers and politicians alike. The funny part is that neither Chairman Frank nor President Barack Obama get the fact that they have engineered their own political destruction.

Celebs with the worst money problems - (money.cnn.com) It's almost too easy to come up with a list of celebrities who have money problems. It seems that the more money celebrities have, the more problems they're likely to have with it. WalletPop compiled a list of the 10 celebrities with the worst money problems. Most are from incidents in 2010, although some had such large debts from the past that they couldn't be ignored. We may have missed a few, so search the Internet for your favorites and let us know in the comments section who else should make the list. Here is one example….

Jay-Z: $50 million: The rapper must be thankful he signed that $150 million music deal with concert promoter Live Nation. That money should come in handy as he tries to cover his $50 million loss on two Manhattan hotel projects that he bought in 2007, but has been unable to turn into J Hotels. Some reports have him spending $65 million on the property. Whatever the amount, it's been a losing proposition for Jay-Z. The housing market crashed, something even Jay-Z, born Shawn Carter, couldn't fix with the Midas touch he has had on his other businesses.

OTHER STORIES:

Higher taxes for the rich - how much will they pay? - (money.cnn.com)

The rich are suckers, too - (money.cnn.com)

Home builder mood sours - (www.news.yahoo.com)

Treasury Fixing Home-Finance Juggles Limitless Bailout, Economy - (www.bloomberg.com)

Manufacturing in New York Expands Less Than Forecast - (www.bloomberg.com)

Another Threat to Economy: Boomers Cutting Back - (online.wsj.com)

Growth Prospects Dim in U.S. After Retail Sales, Trade Reports - (www.bloomberg.com)

Federal Reserve Official Sees Chance of a New Boom-and-Bust Cycle - (www.nytimes.com)

Economists Want Policy Makers to Back Off Now - (online.wsj.com)

Higher airfares thwart vacation travelers - (www.usatoday.com)

Fed’s Effort to Bolster U.S. Recovery Fails to Calm Investors - (www.bloomberg.com)