KeNo's Housing and Economic Portal: Sunday January 16 Housing and Economic stories

Saturday, January 15, 2011

Sunday January 16 Housing and Economic stories

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JPMorgan Legal Bills Soar in Credit Aftermath, Menacing Profits - (www.bloomberg.com) JPMorgan Chase & Co. and the biggest U.S. banks face billions of dollars in legal costs related to their role in the financial crisis, threatening their profits and the stock price gains they made in 2010, analysts said. JPMorgan, the second biggest bank by assets, reported $5.2 billion of legal costs in the first nine months of last year, compared with a gain of $10 million in the same period a year earlier. The costs would rise if the bank reserves for multibillion-dollar lawsuits by Lehman Brothers Holdings Inc. and the trustee liquidating Bernard L. Madoff’s firm. Bank of America Corp., the largest U.S. bank, and Citigroup Inc., ranked third, are also besieged by lawsuits stemming from the credit crisis, brought by plaintiffs ranging from foreclosed-upon homeowners to institutional investors whose mortgage-backed bonds turned out to be money-losers.

Congress unlikely to extend hand to ailing states – (finance.yahoo.com) Cut spending, raise taxes and fees, and accept billions of dollars from Congress. That's been the formula for states trying to survive the worst economy since the 1930s. As Republicans prepare to take control of the House and exert more influence in the Senate, it's clear that option No. 3 will soon wither. States will continue to face substantial deficits over the next few years, but they will have to get by with the end of stimulus spending and less financial help from the federal government. In recent interviews, top GOP lawmakers made clear it will be much less. "We've got to put our fiscal house in order in Washington, D.C.," said Rep. Mike Pence of Indiana. "It's going to be essential that leaders at the state level roll their sleeves up, make the hard choices and put their fiscal health in order, as well." Rep. Kevin McCarthy of California, the new House majority whip, said GOP lawmakers will try to provide states with relief by cutting their expenses, not by giving them more money. For example, he advocates repeal of the national health care reforms enacted last year. "More importantly, what the states can really hope for is that we turn the economy around so revenues will pick up," he said. "But Washington is in very bad financial shape itself."

Foreclosures May Be Undone by State Ruling on Mortgage Transfer - (www.bloomberg.com) Massachusetts’s highest court is poised to rule on whether foreclosures in the state should be undone because securitization-industry practices violate real- estate law governing how mortgages may be transferred. The fight between homeowners and banks before the Supreme Judicial Court in Boston turns on whether a mortgage can be transferred without naming the recipient, a common securitization practice. Also at issue is whether the right to a mortgage follows the promissory note it secures when the note is sold, as the industry argues. A victory for the homeowners may invalidate some foreclosures and force loan originators to buy back mortgages wrongly transferred into loan pools. Such a ruling may also be cited in other state courts handling litigation related to the foreclosure crisis.

House Budget Chief Says No Bailouts to Bar U.S. State Defaults - (www.bloomberg.com) “We are not interested in a bailout,” the Wisconsin Republican said today in Washington. Ryan said some states are “already telling us” that, when asked what his response would be if he was told they were in danger of defaulting. U.S. states face a combined $140 billion in deficits in the next fiscal year, the Washington-based Center on Budget and Policy Priorities said Dec. 16. State tax collections remain below pre-recession levels, according to the Nelson A. Rockefeller Institute of Government in Albany, New York. No state has defaulted on its debt since Arkansas did in 1933. “Should taxpayers in frugal states be bailing out taxpayers in profligate states?” Ryan asked during a forum near the Capitol. “Should taxpayers in Indiana, who have paid their bills on time, who have done their job fiscally, be bailing out Californians, who haven’t? No, that’s a moral hazard we are not interested in creating.”

Postcrisis, a Struggle Over Mortgage Bond Ratings - (www.nytimes.com) Two weeks ago, Standard & Poor’s put out a news release warning that it was poised to lower its ratings on almost 1,200 complex mortgage securities. So what? Isn’t that dog-bites-man at this point? Well, two-thirds of these mortgage bonds were rated only last year, long after the financial crisis. And S.&P. was supposed to have taken the distress of the housing crash and credit crisis into account when it assessed them. But in December, the ratings agency acknowledged that it had made methodological mistakes, including not understanding who would get interest payments when.