KeNo's Housing and Economic Portal: Sunday July 17 Housing and Economic stories

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Mortgage-Bond Slump in US Deepening as Jumbo, Alt-A Debt Extend Losses - (www.bloomberg.com) U.S. mortgage bonds without government backing are extending losses as signs of a weakening U.S. economy and concern thatGreece may default on its debt curb risk-taking. Typical prices for the senior-most securities backed by prime-jumbo mortgages that started with a few years of fixed rates fell 1.5 cents on the dollar to 79 cents last week, bringing losses over the past three months to 6 cents, Barclays Capital data show. Similar bonds linked to Alt-A adjustable-rate mortgages dropped 1 cent to 60 cents, bringing their three-month slump to 7 cents, the data show. A rout in the $1.2 trillion market for so-called non-agency home-loan securities has widened in recent weeks after the Federal Reserve’s auctions of bonds once held by American International Group Inc. helped roil debt backed by subprime mortgages. Non-subprime securities may face further challenges, analysts at Barclays Capital wrote in a June 24 report. “It is more likely that the Fed will continue the sale of the prime/Alt-A part of the portfolio” than the subprime-tied portion, the New York-based analysts led by Ajay Rajadhyaksha wrote. “With continued supply and better price performance (vs. subprime) in the past couple of months, Alt-A/prime might face relatively more price pressure in the coming weeks.”

English bank chief warns of wave of repossessions if rates rise - (www.guardian.co.uk) UKAR chief presiding over £80bn of bailed-out mortgages says 'tough love' would be fairer on those struggling with payments. Britain is facing a 'tsunami' of house repossessions as soon as interest rates start to rise, one of the country's leading bankers has warned. Richard Banks, the chief executive of UK Asset Resolution (UKAR), the body that runs the £80bn of mortgages bailed out by the taxpayer during the banking crisis, also said in an interview with the Guardian that the Labour government's pleas at the start of the crisis for lenders to keep families in their homes was forcing some homeowners further into debt. In a warning that the industry may have been too lenient with some of its customers, he said he believed a policy of "tough love" would be fairer to people facing long-term difficulty in keeping up payments on loans taken out when house prices were at their peak and personal incomes on the rise. His warning came the day after the international bank regulator said the Bank of England, which has kept rates at 0.5% for more than two years, would have to raise rates shortly to curb inflation.

Biggest Tax Avoiders Would Win on US Tax Break - (www.bloomberg.com) Cisco Systems Inc. (CSCO) has cut its income taxes by $7 billion since 2005 by booking roughly half its worldwide profits at a subsidiary at the foot of the Swiss Alps that employs about 100 people. Now Cisco, the largest maker of networking equipment, wants to save even more -- by asking Congress to waive most federal taxes due when multinationals bring such offshore earnings home. Chief Executive Officer John T. Chambers has led the charge for the tax holiday, which would be the second since 2004. He says it would encourage companies to “repatriate” as much as $1 trillion held abroad, spur domestic investment and create jobs. Cisco’s techniques cut the effective tax rate on its reported international income to about 5 percent since 2008 by moving profits from roughly $20 billion in annual global sales through the Netherlands,Switzerland and Bermuda, according to its records in four countries. The maneuvers, permitted by tax law, show how companies that use such strategies most aggressively would get the biggest benefit from the holiday, said Edward D. Kleinbard, a law professor at the University of Southern California in Los Angeles. “Why should we reward firms for successfully gaming the tax system when we in turn are called on to make up the missing tax revenues?” said Kleinbard, a former corporate tax attorney at Cleary Gottlieb Steen & Hamilton LLP. “Much of these earnings overseas are reaped from an enormous shell game: Firms move their taxable income from the U.S. and other major economies -- where their customers and key employees are in reality located -- to tax havens.”

American pockets short trillions - (www.firsttuesdayjournal.com) Real estate’s dry spell accounts for much of the $16.4 trillion loss American households saw disappear between the peak of the Millennium Boom and the trough of the Great Recession, says a recent report from the Federal Reserve (Fed). The housing market was out $6 trillion — 30% of its peak value — between the end of 2006 and the end of 2010. Only $8.7 trillion of the starting $16.4 trillion loss has been regained since 2009, and literally none of that was in California. [For more information on home pricing tiers in California, see the first tuesday Market Chart, California tiered home pricing.] An $885 billion bump in stocks and mutual funds in the first quarter of 2011 helped increase the nation’s household net worth $943 billion in the same quarter, however this figure is very shy from the $7.7 trillion needed to return to pre-recession levels. The recovery of American household wealth is still far behind the pace of national economic activity (measured in gross national product), which has already recouped all of its losses from the Great Recession.