KeNo's Housing and Economic Portal: Monday October 25 Housing and Economic stories

Sunday, October 24, 2010

Monday October 25 Housing and Economic stories

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TOP STORIES:

New York Fed Faces ‘Inherent Conflict’ in Mortgage Buybacks - (www.bloomberg.com) The Federal Reserve Bank of New York’s effort to recover taxpayer money used in bailouts during the crisis may be at odds with its mission to ensure the stability of the financial system. The New York Fed, which acquired mortgage debt in the 2008 rescues of Bear Stearns Cos. and American International Group Inc., joined a bondholder group including Pacific Investment Management Co. that aims to force Bank of America Corp. to buy back some bad home loans packaged into $47 billion of securities, people familiar with the matter said this week. Concern that Bank of America may be forced to buy back soured mortgages helped send its stock down almost 5 percent in the last two days, wiping out $5.92 billion of its market value. The decline runs counter to the Fed’s goal of strengthening the banking system after the worst crisis since the Great Depression.

Rare-Earth Prices Soar as China Quotas Hit Manufacturers Abroad - (www.bloomberg.com) Rare-earth prices have jumped as Chinese export quotas crimped worldwide supplies for the elements used in the manufacture of disk drives, wind turbines and smart bombs. Prices have climbed sevenfold in the last six months for cerium oxide, which is used for polishing semiconductors, and other elements have more than doubled, according to Metal-Pages Ltd. in London, which tracks rare-earth prices. Actions by China, which produces more than 90 percent of the world’s rare earths, have drawn criticism from U.S. lawmakers and officials in Japan and Germany. China reduced its second-half export quota for the minerals by 72 percent in July. It is now further restricting exports, according to industry participants.

Extreme Drought Grips Parts of South, Midwest - (online.wsj.com) An extreme drought has taken hold in parts of nine states stretching from the Southeast to the lower Midwest, damaging crops, driving up the cost of keeping livestock and putting officials on alert for wildfires. Climatologists say the dry weather likely will continue at least until spring, raising the possibility of prolonged drought in some areas next summer. "Six months from now, we could be in a fairly significant drought situation throughout the Southeast," said Brian Fuchs, a climatologist at the National Drought Mitigation Center, a federally funded center at the University of Nebraska that monitors drought conditions across the U.S. "The general pattern is going to show worsening." Parts of Alabama, Louisiana, Arkansas, Mississippi, Tennessee, Missouri, Kentucky, Florida and southern Indiana are suffering "extreme drought," according to data expected to be released by the center Thursday.

Banks Face Two-Front War on Bad Mortgages, Flawed Foreclosures - (www.bloomberg.com) Shoddy mortgage lending has led bankers into a two-front war, pitting them against U.S. homeowners challenging the right to foreclose and mortgage-bond investors demanding refunds that could approach $200 billion. While federal regulators and state attorneys general have focused on flawed foreclosures, a bigger threat may be the cost to buy back faulty loans that banks bundled into securities. JPMorgan Chase & Co., Bank of America Corp., Wells Fargo & Co. and Citigroup Inc. have set aside just $10 billion in reserves to cover future buybacks. Bank of America alone said this week that pending claims jumped 71 percent from a year ago to $12.9 billion of loans. Investors such as Bill Gross’s Pacific Investment Management Co. contend that sellers are obligated to repurchase some mortgages because of misrepresentations such as overstatements of borrowers’ income or inflated appraisals. Their case may be bolstered by probes in 50 states into whether banks used documents that were also flawed to conduct foreclosures. Neither dispute is likely to be resolved quickly.

Fannie and Freddie may need another $215 billion - (www.reuters.com) Fannie Mae and Freddie Mac may need as much as $215 billion in additional capital from the Treasury through 2013 to offset losses and maintain a positive net worth, their federal regulator said on Thursday. Fannie Mae and Freddie Mac, whose programs fund the lion's share of all new home loans, are at the center of debate as Congress sets to overhaul a U.S. mortgage finance system that contributed to the worst housing crisis since the 1930s. The cumulative capital needs of the two housing finance giants, which were seized by the government in late 2008, will likely fall between $221 billion and $363 billion through 2013, the Federal Housing Finance Agency estimated.