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Prepare
For Tough Times If Your Job Has Anything To Do With Real Estate Or Mortgage - (theeconomiccollapseblog.com) If
you have a job that involves building homes, buying homes, selling homes or
that is in any way related to the mortgage industry, you might want to start
searching for alternate employment. Seriously. Interest rates are
starting to rise dramatically, and mortgage lenders such as Bank of America,
Wells Fargo and JPMorgan Chase are all cutting thousands of mortgage-related
jobs. Last week, mortgage refinance activity plunged to the lowest level
that we have seen since June 2009 and total mortgage activity dropped to the
lowest level since October 2008. Unfortunately, this is only the beginning.
Mortgage rates closely mirror the yield on 10 year U.S. Treasuries, the the
yield on 10 year U.S. Treasuries has nearly doubled since
early May. But it is still only sitting at about 3 percent right
now. As I have written about previously, it has a ton of room to go up before it hits
"normal" historical levels, and so do mortgage rates. As I
noted the other day, some analysts believe that the yield on 10
year U.S. Treasuries is going to hit 7 percent eventually.
'How can you have a recovery when people are
getting poorer?' - (www.telegraph.co.uk) Those
retailers, including Morrisons, Next, John Lewis and Homebase, will be cursing
George Osborne. Earlier this week the Chancellor declared that the British
economy had turned a corner and was starting to recover. Such declarations make
a 1.6pc fall in like-for-like sales over the past six months rather difficult
to explain, and that was the challenge Dalton Philips of Morrisons faced on
Thursday. With shops in every corner of Britain, retailers are as good a
bellwether for the health of the UK consumer as any business. So the large
number of reports published this week offer a useful measure against which to
check the accuracy of Osborne’s comments. At first glance, you might think that
he has been spending too much time in the sun. Yes, sales of outdoor furniture
and plants at Homebase and B&Q have soared thanks to the heatwave but the
chief executives on the high street still hold grave concerns about the health
of Britain’s economy. “It is not yet filtering through into people’s pockets,”
Philips said. “Our customers aren’t any wealthier today than they were a year
ago. For most people, at the end of month, there is no money left in their
pocket.” Lord Wolfson, Next’s chief executive, was even more blunt. “We believe
that talk of a full-blown recovery is premature,” he said.
Portugal’s
10-Year Bonds Decline for Fourth Day as Italy’s Drop - (www.bloomberg.com) Portugal’s
10-year bonds fell for a fourth day before European Union and International
Monetary Fund officials begin two reviews next week on how the nation is
meeting the terms of its financial aid program. Italy’s 10-year government
bonds declined for the first time in three days as euro-area leaders voiced
concern that political instability could threaten economic reforms. Italian
three-year borrowing costs rose to the most since October at an auction yesterday. German (GDBR10)bonds
rose after a report showing U.S. retail sales climbed less than economists
forecast boosted demand for safer assets before the Federal Reserve decides
whether to slow the pace of bond purchases next week. “Italy and Portugal are
the riskiest places in Europe right now,” said Allan von Mehren, chief analyst
at Danske Bank A/S (DANSKE) in Copenhagen. “There is also the
tapering issue next week and people are probably cutting down on risk ahead of
the meeting.”
Factory
Rebirth Fizzles in U.S. as Work Shipped Overseas - (www.bloomberg.com) Randy
Webb sees scant evidence of a U.S. manufacturing rebound
in the Ohio plant
where he’s fixed aircraft electronics for 25 years. Honeywell International Inc. (HON) is closing the shop in 2014 as it expands
such work overseas. Webb is among 80 employees poised to lose their jobs in
Strongsville, Ohio, outside Cleveland, near where General Electric Co. (GE) will shut a lighting factory in favor of
production in Hungary. Delphi Automotive Plc (DLPH) is sending parts assembly to Mexico from
Flint, Michigan, and Eaton Corp. (ETN) will make extra-large hydraulic cylinders
in the Netherlands, not Alabama. “Manufacturing is clearly on the downswing,”
said Webb, 49, who was told in April that the Strongsville Service Center would
close. “Everybody I know is jumping to the service industry or taking some
other kind of job.” The U.S. industrial comeback, an idea embraced by PresidentBarack Obama and some economists as 12 years of
factory-job losses gave way to three annual gains, is now sputtering. Even with
nonfarm payrolls up 1.1 percent in 2013 to 136.1 million, manufacturing has
stagnated at less than 12 million. Factories added more than 500,000 positions
after falling in February 2010 to the lowest since 1941.
Social Security overpays $1.3 billion in
benefits - (www.cnbc.com) An upcoming GAO report obtained by NBC News
says the federal government may have paid $1.29 billion in Social
Securitydisability
benefits to 36,000 people who had too much income from work to qualify. At
least one recipient collected a potential overpayment of $90,000 without being
caught by the Social Security Administration, according to the report, which
will be released Sunday, while others collected $57,000 and $74,000. The GAO
also said its estimate of "potentially improper" payments, which was
based on comparing federal wage data to Disability Insurance rolls between 2010
and 2013, "likely understated" the scope of the problem, but that an
exact number could not be determined without case by case investigations.
TOP STORIES:
Clueless
Democratic State Rep Wants To Muzzle Your Free Speech & Access To
Government - (www.mfi-miami.com)
Michigan State Representative
Ellen Cogen Lipton has introduced a bill in the Michigan Legislature that
narrowly defines the term "journalist" in FOIA requests for public
documents to anyone who works for a "newspaper or FCC-licensed radio or TV
station" This would not only bar bloggers or writers for hyper-local sites
like Ferndale115.com located in Lipton's district or specialty sites like
MFI-Miami from obtaining public documents, it would even bar online wire
services like the Associated Press and Reuters from obtaining records. Local
media sites like Deadline Detroit, MLive and international sites like the
Huffington Post and other recognized news websites would be barred as well.
Lehman
Brothers Abyss Had Paulson Seeking Prayer Amid Crisis - (www.bloomberg.com) People weren’t taking Dick
Fuld’s calls the weekend before Sept. 15, because Dick had been in
denial for a long time. As the chief executive officer of Lehman Brothers, he
had asked the New York Fed and the Treasury weeks earlier to put capital into a
pool of nonperforming illiquid mortgages that he wanted to put in a subsidiary
he called SpinCo and spin off. We had explained that we had no authority to do
that. He thought somehow there was something the government could do to help.
How could it be that no one would want to buy his company? He just couldn’t
believe it. I was one of the few people speaking with him, and I told him what
was happening: We couldn’t find a buyer, and without one, the government was
powerless to save Lehman. He was devastated.
Indonesian central bank
surprises market with rate hike - (www.cnbc.com)
Bank Indonesia raised its
benchmark interest rate by 25 basis points to 7.25 percent on Thursday. The
move comes as a surprise to market participants who widely expected the central
bank to keep rates on hold after it raised the benchmark rate by 50 basis points
in late August in an attempt to prop up the beleaguered rupiah. The bank also
raised the overnight deposit facility rate, known as the FASBI, by 25 basis
point to 5.5 percent. Thursday's rate hike is the fourth for the Indonesian
central bank this year; rates stood at 5.75 percent in January, 150 basis
points below their current level. The central bank's hawkish stance is largely
aimed at curbing weakness in the rupiah, which has fallen over 16 percent
against the U.S. dollar year to date, as well as the country's troubling
current account deficit.
[Bloomberg]
Italian Yields Rise on Political Instability Concerns - (www.bloomberg.com) Italian borrowing costs rose to the highest in
almost a year today at a sale of three, five and 15-year debt as investor
concern about the country’s political stability persists. Italy sold 4 billion
euros ($5.3 billion) of three-year notes maturing in November 2016 at 2.72
percent, up from 2.33 percent when Italy sold similar maturing debt on July 11.
That’s the highest yield since October 2012. Investors bid 1.52 times the
amount of the notes sold, up from 1.34 at the previous sale. “Our borrowing
costs, instead of decreasing, continue to suffer because of political
instability,” Prime Minister Enrico Letta said yesterday at the Senate in Rome.
“It’s a significant cost, every year we pay 85 billion euros.” Earlier this
week, Italian 10-year bond yields rose above those of Spain for
the first time in 18 months on concern that former Premier Silvio
Berlusconi will pull his party out of the current coalition
government if he’s expelled from the Senate following a tax fraud conviction. A
Senate panel is scheduled to resume discussions of the matter today.
HUD
Revises the Rules Related to Reverse Mortgages - (mandelman.ml-implode.com) It was last April, right after the release of
President Obama’s 2014 budget, when Assistant Housing Secretary Carol Galante was quoted as saying… “The President’s
budget projects that FHA may need a $943 million credit from the U.S. Treasury
in October to make certain sufficient reserves are on hand today to cover
projected losses over the next 30-years. This is not a certainty and FHA
is taking every appropriate action to reduce the likelihood that such
assistance is needed.” So, what’s going on here? Why is the Federal
Housing Administration (“FHA”) projected to lose so much money on its insuring
of reverse mortgages? The overall answer is
simple… it’s just another outcome of the severe decline in U.S. home values,
which began during the summer of 2006. You see, one of the key benefits
of HUD’s Home Equity Conversion Mortgage (“HECM”), is that they are
“non-recourse” loans. That means that at the end of the reverse mortgage, which occurs either upon
the death of the last surviving spouse or the sale of the home, if the balance
owed exceeds the home’s value… then the borrower (or borrower’s heirs) can just
walk away and owe nothing… with the balance paid by FHA, who is the insurer of
these loans. To cover this risk of loss at the end of a reverse mortgage, FHA
receives an initial premium and an annual mortgage insurance premium, which
borrowers pay at the rate of 1.25 percent of the outstanding loan balance.
Lehman
Recovery Seen as Justifying $2 Billion Bankruptcy - (www.bloomberg.com) Harvey
Miller,
the lawyer guiding Lehman Brothers Holdings Inc. through the biggest-ever U.S.
bankruptcy, sipped a cappuccino at a tourist-filled cafe near Manhattan’s
Central Park and reflected on how his client’s collapse five years ago went
from unthinkable to inevitable. Lehman’s demise “ignited a worldwide
conflagration that almost brought down the global financial system,” said
Miller, who filed the Chapter 11 petition at 2 a.m. on Sept. 15, 2008, in New
York after the bank failed to win U.S. government aid or attract a buyer. “The
consequences were unknown.” Five years later, Miller takes credit for helping
fend off some creditors’ liquidation demands and instead turning the remains of
one of the biggest failures of the financial crisis into a going concern. In
the process, the Lehman estate has paid more than $2 billion in fees and
expenses to professionals like him for that work, dwarfing the previous record
of $757 million in Enron Corp.’s bankruptcy.
Investors yank record $20 billion from ETFs - (money.cnn.com) Investors yanked more than $20 billion out of
exchange-traded funds in August, according to Morningstar. That's the largest
monthly outflow since the first ETF launched 20 years ago. Although stocks have
been surging for most of the year, August was the worst month of 2013. Stocks
fell as traders worried about the potential impact of the Federal Reserve
scaling back its stimulus program sooner rather than later. Fears about a U.S.
military strike against Syria didn't help either. Investors pulled more than
$15 billion out of U.S. stock ETFs alone. The SPDR S&P 500, the
largest and most liquid ETF, was the biggest loser.
What Might Have Been and the Fall of Lehman - (finance.yahoo.com) Let’s play a game. It is called “What if … .” As
we observe the five-year anniversary of the financial crisis — Lehman Brothers
filed for bankruptcy five years ago this coming weekend — the most intriguing
hypothetical question about those fateful days is what would have happened had
the government bailed out Lehman. It would have changed the course of history,
certainly, but maybe not for the better. The collapse of Lehman has long been
considered the domino that led to the tumbling of so many others: Merrill
Lynch’s hasty sale to Bank of America; the bailout of the American International Group; the breaking of the buck in the money market;
the near collapse of Goldman Sachs and
Morgan Stanley that
led them to become banking holding companies; and the decision by the
government to pursue the $700 billion Troubled Asset Relief Program to bail out
the entire banking industry. The decision not to rescue Lehman has been called
a mistake and worse. Christine Lagarde, the French finance minister at the
time, called it “horrendous.” No one suggested Lehman deserved to be saved. But
the argument has been made that the crisis might have been less severe if it
had been saved, because Lehman’s failure created remarkable uncertainty in the
market as investors became confused about the role of the government and
whether it was picking winners and losers. The government had bailed out Bear
Stearns and then nationalized Fannie Mae and Freddie Mac but
left Lehman for dead only to turn around and save A.I.G.
Mortgage
Applications Plunge to Near 5-Year Low - (www.reuters.com) Applications
for U.S. home loans plunged as mortgage rates matched
their high of the year, with refinancing activity falling to its lowest in
nearly five years, data from an industry group showed on Wednesday. The Mortgage Bankers Association said its seasonally adjusted index of mortgage application activity, which includes both refinancing and home
purchase demand, sank 13.5 percent in the week ended September 6, after rising
1.3 percent the prior week. That puts the index at its lowest since November
2008 and the depths of the financial crisis. The data come just a week
before U.S. Federal Reserve policymakers
meet to consider slowing a massive bond-buying program, which includes
purchases of mortgage-backed securities.
The Fed's support has been a major factor in boosting home prices in the
United States after a slump during the crisis, and many economists worry that a
pullback now may set back the housing market's nascent recovery.
Swedes
Face Forced Deleveraging as Debt Swells to Record - (www.bloomberg.com)
Sweden is
looking into the option of forcing households to start amortizing their
mortgages in an effort to prevent debt loads rising from a record. “We want to
make clear that the next step, should we judge that we have to take it, rather
is amortization than something else,” Martin Andersson, director-general at the
Swedish Financial Supervisory Authority, told reporters yesterday after a
parliament hearing in Stockholm. “If household debt accelerates, as we’ve seen
before, well, then we must do something.” Swedish apartment prices have more
than doubled since 2000, sparking concern a housing bubble may be brewing after
private debt hit a record last year. A report in March from the Financial
Supervisory Authority showed that, at the current pace of amortization, it
takes Swedish households 140 years on average to repay their home loans. Only
40 percent of borrowers with mortgages smaller than 75 percent of their
property’s value actually pay down their debt, according to the report.
TOP STORIES:
Left
with nothing - (www.washingtonpost.com)
On
the day Bennie Coleman lost his house, the day armed U.S. marshals came to
his door and ordered him off the property, he slumped in a folding chair across
the street and watched the vestiges of his 76 years hauled to the curb. Movers
carted out his easy chair, his clothes, his television. Next came the things
that were closest to his heart: his Marine Corps medals and photographs of his
dead wife, Martha. The duplex in Northeast Washington that Coleman bought with
cash two decades earlier was emptied and shuttered. By sundown, he had nowhere
to go. All because he didn’t pay a $134 property tax bill. The retired Marine
sergeant lost his house on that summer day two years ago through a tax lien sale
— an obscure program run by D.C.
government that enlists private investors to help the city recover unpaid
taxes. For decades, the District placed liens on properties when homeowners
failed to pay their bills, then sold those liens at public auctions to
mom-and-pop investors who drew a profit by charging owners interest on top of
the tax debt until the money was repaid. But under the watch of local leaders,
the program has morphed into a predatory system of debt collection for
well-financed, out-of-town companies that turned $500 delinquencies into $5,000
debts — then foreclosed on homes when families couldn’t pay, a Washington Post
investigation found.
Find
the Loan Behind the Loans - (www.nytimes.com)
ONLINE lenders who charge
borrowers stratospheric interest rates are coming under pressure from state
regulators — and it’s about time. But to get at the root of the problem, the
regulators may need to dig much deeper. Last month,
for example, the New York attorney general followed other states’ regulators in
suing Western Sky Financial and its affiliate Cash Call Inc. The lawsuit contended that rates charged to
borrowers by the companies — from 89 to 343 percent, depending on loan size —
far exceed the caps determined by the state’s civil and criminal usury laws. A
borrower receiving $1,000 could wind up owing almost $5,000 in finance charges,
fees and principal over two years, the complaint said. Last Tuesday, Western
Sky suspended operations, saying it was a victim of regulatory overreach,
though its affiliate, Cash Call, was still functioning. Katya Jestin, a lawyer
at Jenner & Block who represents the companies, said that because Western
Sky operated on the Cheyenne River Indian Reservation in Eagle Butte, S.D., New
York officials had no jurisdiction over it.
GE
to IBM Ending Retiree Health Plans in Historic Shift - (www.bloomberg.com)
America’s biggest employers,
from GE to IBM, are increasingly moving retirees to insurance exchanges where
they select their own health plans, an historic shift that
could push more costs onto U.S. taxpayers. Time Warner Inc. yesterday said
it would steer retired workers toward a privately run exchange, days after a
similar announcement by International Business Machines Corp. General Electric
Co. last year said it, too, would curb benefits in a move that may send
some former employees to the public insurance exchanges created under the 2010
Affordable Care Act. While retiree health benefits have been shrinking for
years, the newest cutbacks may quickly become the norm. About 44 percent of
companies plan to stop administering health plans for their former workers over
the next two years, a survey last month by consultant Towers Watson &
Co. found. Retirees are concerned their costs may rise, while analysts
predict benefits will decline in some cases.
Banks
Seen at Risk Five Years After Lehman Collapse - (www.bloomberg.com) Ruth Porat didn’t see it coming. The Morgan Stanley (MS) banker who advised
the U.S. Treasury Department on its rescue of Fannie Mae and Freddie Mac in
September 2008 and thought she understood the risks to the financial system had
just spent a weekend trying to save Lehman Brothers Holdings Inc. when she got
a message: Would she come back to deal with American International Group Inc. (AIG)? “The
call I got was ‘We worked on the wrong thing,’” Porat, 55, said in an interview
last month at the New York headquarters of the bank where she’s now chief
financial officer. That AIG “could vanish that quickly and the impact that
could have throughout the country, and that nobody could see it coming, was
just staggering.” Porat’s own bank almost vanished when hedge funds, spooked by
difficulties getting money out of bankrupt Lehman Brothers, pulled more than
$128 billion in two weeks from Morgan Stanley. To stay afloat it sold a 20
percent stake, became a bank holding company and borrowed $107.3 billion from
the Federal Reserve on a single day.
US "Involuntary"
Borrowing Drives Debt to New High – (www.cnbc.com)
Americans cut back on using
their credit cards in July for the second straight month, while taking on more
debt to buy cars and attend school. The Federal
Reserve says consumers increased their borrowing $10.4 billion
in July from June to a record high of $2.85 trillion. That followed an $11.9
billion gain in June. A measure of borrowing that includes credit card debt
fell $1.8 billion in July following an even larger $3.7 billion decline in
June. A category that includes auto loans and student loans increased $12.3
billion after an even larger $15.6 billion gain in June. The reduction in credit
card debt suggests that consumers remain cautious about accumulating
high-interest debt. That could hold back consumer spending, which accounts for
70 percent of economic activity.
Monte
Paschi's new capital needs could force nationalization - (www.reuters.com) The
prospect of nationalisation looms large for Italy's Monte dei Paschi di Siena (BMPS.MI)
now that the beleaguered lender needs to raise more than twice as much capital
as originally planned to meet new European Union requirements. Italy's third
largest bank said on Monday it would approve a tougher than initially expected
restructuring plan on September 24 to comply with European Union demands,
confirming investor fears it is struggling to emerge from the euro zone debt crisis. The bank's statement came
after the EU told the bank over the weekend to carry out a 2.5 billion euro
($3.3 billion) capital increase if it wants EU approval of a 4.1 billion euro
state bailout it received earlier this year. The required cash call is more
than twice the 1 billion euros capital increase initially planned by the bank. The
latest financial woes compound ongoing legal troubles the 540-year-old lender
is facing over its expensive acquisition of rival Antonveneta in 2008 and
loss-making derivative trades the Siena-based bank made in the deal's
aftermath.
Russians
elected to board of Cyprus' biggest bank - (www.miamiherald.com) Shareholders
of Cyprus' largest bank on Tuesday elected six Russians to sit on its new,
16-member board of directors, a consequence of the country's bailout agreement
with international creditors. The vote puts more foreign nationals on the board
of the Bank of Cyprus than ever before. The fact that they are all Russians —
one of whom, Vladimir Strzhalkovskiy, was elected by other board members as
vice chairman — reflects the large stake they had in Cyprus' banking system. Russians
kept billions in Cypriot bank accounts because of benefits such as low taxes
and high interest rates, helping to swell the size of the financial sector at
its peak to eight times the country's entire economy. Cyprus turned for help to
its euro area partners and the International Monetary Fund in June, 2012, to
rescue its Greece-exposed banks and to stave off bankruptcy. But Cyprus'
creditors sought a fundamental restructuring of the country's financial system
which they saw as unsustainable. According to the terms of Cyprus' rescue deal
it agreed in March, depositors with over 100,000 euros in the Bank of Cyprus,
and the second-largest lender Laiki, were forced to take huge losses on their
savings in order for the country to qualify for a 10 billion euro ($13.2
billion) loan.
Europe's
carmakers warn of more cuts in weak recovery - (www.reuters.com) European
carmakers need to close more factories and cut more jobs, executives at the
Frankfurt car show said on Tuesday, warning any recovery in demand was likely
to be long and slow as unemployment remained high and bank lending weak. The
bosses of automakers including Volkswagen, PSA Peugeot Citroen, and Ford Europe
said on the opening day of the biennial event that sales in Europe appeared to
be stabilizing after five years of decline. But recovery was not assured and
likely to take years with the industry still needing to cut capacity to staunch
losses at some manufacturers and ease price pressures on all, they added. Peugeot,
which incurred the wrath of French ministers and workers last year by scrapping
a major factory and 8,000 jobs, said it would seek more plant cutbacks from
unions. Volkswagen (VW) chief Martin Winterkorn said the European industry
could do with closing around 10 factories, although he stressed the German
carmaker itself did not need to make cuts thanks to strong growth in the United
States, China and Russia.
Mortgage
Lenders, Home Buyers Feel Rate Squeeze - (online.wsj.com) A
rise in interest rates is slamming homeowners' demand for mortgages, prompting
large and midsize banks to cut jobs and warn investors of declining
profitability in the home-loan business. Wells Fargo
& Co., the nation's largest mortgage company by loan value, on Monday told
investors at a conference that it expects mortgage originations to drop nearly
30% in the third quarter to roughly $80 billion, down from $112 billion in the
second quarter. J.P. Morgan Chase & Co., the largest U.S. bank as
measured by assets, said during the conference sponsored by Barclays PLC
that it expects to lose money on its mortgage-origination business in the
second half of the year. On Aug. 29, Bank of America Corp.,
notified about 2,100 employees that they were being let go largely due to a
decline in refinancing activity, said a bank spokesman. Mortgage originations
include loans for home purchases and refinancings. Rates are rising on investor
worries the Federal Reserve soon will take steps toward reducing an
$85-billion-a-month bond-buying program designed to help stimulate the economy.
Loan
Size to Be Cut for Fannie, Freddie - (online.wsj.com) Federal
officials are preparing to reduce the maximum size of home-mortgage loans
eligible for backing by Fannie Mae and Freddie Mac, a
move that is likely to face resistance from some lawmakers in Congress and the
real estate industry. The proposed move is designed to wean the mortgage market
off government support and allow the market for non-government-guaranteed
mortgages to take a bigger role. But critics argue that any such move will
shrink the pool of eligible home buyers, stunting the nation's housing
recovery. "It would be counterproductive to make changes to the loan
limits before private capital is fully engaged," said Gary Thomas,
president of the National Association of Realtors. Currently, Fannie and
Freddie Mac can back mortgages that have balances as high as $417,000 in most
parts of the country and up to $625,500 in expensive housing markets, including
parts of California and New York, and as much as $721,050 in Hawaii. Mortgages
within the limits are called "conforming" loans; mortgages that
exceed them are called "jumbo" mortgages.
