Bloomberg - foreclosure deal falls short but worth the wait
In any out-of-court settlement for alleged wrongdoing, the test
of whether prosecutors got a good deal rests on the answers to
three questions: Does it hold the miscreants accountable? Does it
make victims whole? And does it prevent similar misconduct in the
future? Thursday’s $25 billion agreement by five banks to end
a 16- month investigation of abusive foreclosure practices fails
on the first two counts. And we won’t know for some time
whether it is successful on the third. Nonetheless, the deal is
in the country’s interest because it clarifies the liabilities
of banks that filed bogus court documents to speed up
repossessions. That could clear the clogged foreclosure process
and, more importantly, help bring a moribund real-estate market
back to life.
The banks -- Bank of America Corp., Wells Fargo & Co., JPMorgan
Chase & Co., Citigroup Inc. and Ally Financial Inc. (the five
largest home-loan servicers) -- have committed to spend the bulk
of the $25 billion on reducing the principal owed by at-risk
homeowners. Smaller amounts will go to people who already lost
their homes or are in the foreclosure process. The settlement
could help as many as 2 million borrowers, including many whose
mortgages are underwater. Cash payments of up to $2,000 will go
to those whose homes were repossessed from September 2008 to
December 2011. Since 2007, about 4 million families have lost
their homes or are about to, and an additional 11 million owe
about $750 billion more on their mortgages than their homes are
worth. Even taking into consideration that some borrowers acted
irresponsibly and don’t deserve compensation, the settlement
amount is a pittance.
The deal does have teeth. It calls for an outside monitor and for
heavy penalties if banks don’t make good on their commitments.
More important, banks will be given credit only for what they
actually accomplish for homeowners -- and not for any refinancing
offers that borrowers refuse. This rightly gives the victims some
leverage. If a bank falls short of its agreed benchmarks, it
must pay the difference plus a penalty. And it must meet all its
obligations in three years. The settlement also reverses the
banks’ incentives to foreclose on families rather than keep
them in their homes with loan forgiveness. Until now, banks had
been loath to reduce principal amounts because it meant
recognizing losses on their balance sheets. This deal awards more
credit for principal reduction and less for lowering interest
rates or extending payment terms. Banks have calculated that the
settlement is in their interest, even though it means they may
have to continue paying huge mortgage-related litigation costs.
The deal enables them to predict their legal exposure. Even
better, it could help the housing market recover. Banks own
outright almost half a million homes and have 2 million more in
various stages of foreclosure. Such so-called shadow inventory
has been a drag on the market, which after six years remains
depressed, holding back the overall recovery. With this
settlement, banks can clear out their backlog of stalled
foreclosures. In the short run, that may drive prices down even
more, but it will also help the housing market find its natural
bottom faster. Only then can home prices, which have fallen by
more than a third since 2007, begin to rise again. Borrowers can
finally start to rebuild equity. Once banks reduce their
real-estate inventory, and their balance sheets recover,
they’ll be able to loosen up home- lending standards to create
new mortgages. If this is the result of a less-than-satisfactory
legal settlement, it will have been worth the wait.
Obama's budget to raise taxes, keep spending
Obama’s fiscal 2013 budget proposal to Congress will defer
significant cuts in the deficit until the economy is securely
back on track, a priority as he seeks re-election in November,
while outlining measures to shrink that funding gap over time.
“I think there is pretty broad agreement that the time for
austerity is not today,” new White House chief of staff Jack
Lew, the president’s budget director until a few weeks ago,
told NBC’s “Meet the Press” on Sunday. Obama will repeat a
demand for millionaires to pay a minimum tax rate of 30%, named
after billionaire investor Warren Buffett, and identify $4
trillion in deficit reduction over 10 years that broadly mirrors
a plan he laid out in September. The budget projects a deficit
of $901 billion in 2013, representing 5.5% of gross domestic
product (GDP), down from $1.33 trillion, or 8.5% of GDP this
year, White House officials say. Obama pledged back in 2009 to
have cut the deficit in half by next year, but his budget does
not anticipate getting it back under 3% of GDP until 2018.
Overall, the budget proposes raising $1.5 trillion over a decade
through higher taxes, with around half coming from allowing tax
breaks for families earning more than $250,000 a year to expire
at the end of 2012 — a longstanding Obama administration goal.
Republicans say Obama uses gimmicks to massage the deficit
numbers, pointing to savings from winding down wars in Iraq and
Afghanistan, which they complain amounts to counting funds that
were never going to be spent. His budget is likely to be
declared a non-starter by Republicans too, in control of the US
House of Representatives, who point out that the president is a
tax-and-spend liberal. They warn that tax hikes will kill jobs
while doing nothing to halt the climb in the crushing level of
national debt. “We’re taking responsibility for dealing with
the drivers of our debt,” said Republican Paul Ryan, chairman
of the House Budget Committee. “Unfortunately, the president
and his party's leaders — they’re not a part of this
conversation,” he told ABC News’ “This Week” on Sunday.
Olick - private homebuilders, dead men walking
"One of the biggest impediments to housing's recovery is credit,
tight credit. The Chairman of the Federal Reserve, Ben Bernanke,
said in a speech to the National Association of Home Builders
today: 'Current lending practices appear to reflect, in part,
obstacles that are limiting or preventing lending even to
creditworthy households.' While the Fed chairman talked a lot
about the credit barriers for homebuyers, he did not discuss the
credit crunch for homebuilders. Last year was the worst on
record for the nation’s builders, in sales and starts, but
demand is slowly returning, and the concern is that when demand
really surges in the coming years, there will be too little
supply to meet it. 'There will be a shortage that will create
inflation,' says Wade McGuinn, of South Carolina's McGuinn Homes.
With acquisition and development (A and D) loans from the big
banks gone, the only way for builders to finance new development
now is through private equity, smaller community/regional banks
or self-financing. That last one gives the big public builders a
huge advantage, as they have been stockpiling billions of dollars
in cash during the housing downturn.
Not so for the smaller private builders, who have downsized
dramatically and built individual homes to order. Now that
demand is coming back, McGuinn says the big builders are inhaling
lots, some developed, some not, and outbidding the smaller
builders at every turn. He likens it to when Main Street
retailers were taken out by the likes of Wal-Mart Stores and
Target. 'A lot of private guys here today who think they've
survived the worst of it, they don't know it yet, but they're
dead men walking,' he said. McGuinn says federal regulation of
the banking industry has gone too far, and it’s locking out the
little guys. Big builders with big cash continue to gain market
share and will be way out ahead when home buying demand does
finally come back toward the middle of the decade. Homebuilding
used to be the No. 1 family-owned business sector in America,
with restaurants a close second; that may already be part of
history."
Construction jobs are a quarter of Q4 mass layoffs
The Department of Labor reported 528 mass layoffs in the
construction segment, impacting 66,110 workers this week.
Construction cuts alone represented 32% of mass layoffs over the
final three months of 2011. Most of those job losses were
attributable to the end of seasonal construction activity in an
already anemic building market. Overall, employers in the fourth
quarter began 1,638 layoffs, leading to the dismissal of 266,971
employees, the Bureau of Labor Statistics said. When comparing
the most recent fourth quarter to a year earlier, the Labor
Department noted a decline in layoffs, with the government
reporting 1,999 layoff events, impacting 338,643 workers, in the
2010 fourth quarter. Mass layoffs grew to 1,638 cuts in 4Q from
1,393 in the third quarter. Still, 3Q cuts displaced more
workers, with 289,330 losing their jobs during that period. The
Bureau of Labor Statistics concluded, "The construction and the
accommodation and food services sectors experienced the largest
declines in the numbers of worker separations over the year.
Fourteen of the 21 manufacturing subsectors experienced
over-the-year decreases in the number of layoff events."
Gas up to $3.51 per gallon
The average price for a gallon of gasoline in the United States
rose nearly 12 cents in the past three weeks to about $3.51, due
in part to higher prices for North Sea crude oil, according to
the nationwide Lundberg Survey. The national average for a
gallon of regular gasoline rose 11.57 cents to $3.5101 as of
February 10, the survey of about 2,500 gasoline stations in the
continental United States found. That was a greater change than
the 3.5-cent rise in the previous survey, which covered the two
weeks that ended January 20. Survey editor Trilby Lundberg told
Reuters that the higher prices came as the price for North Sea
Brent crude rose more than $7 per barrel. Brent prices are more
volatile and sensitive to changes in the Middle East than is US
crude. One barrel holds 42 gallons. Lundberg said US pump
prices will likely rise a few more cents in the short-term
because retailers have yet to pass along all of the recent
wholesale price increases. Among cities covered by the survey,
the lowest average price was in Denver at $3.01 per gallon. The
price was highest in Long Island suburbs of New York, at $3.82.
The price difference is largely because of taxes, Lundberg said.
Investors plead guilty to bid rigging
Three Northern California real estate investors agreed to plead
guilty to forming a conspiracy to rig bids at foreclosure
auctions, the Department of Justice Financial Fraud Enforcement
Division said last week. Charges were filed in the US District
Court for the Northern District of California against Barry
Heisner of Brentwood, Calif.; Dominic Leung of Alameda, Calif.;
and Hilton Wong of San Ramon, Calif. The investigation into
auction bid-rigging in North California has resulted in 20 plea
agreements thus far.
The Department of Justice says the three defendants conspired
with others to obtain favorable auction selling prices by
agreeing not to bid against each other in certain circumstances
and by selecting a winning bidder for each auction item in
advance. Authorities say the defendants carried out these
activities at various real estate auctions, spanning from August
2008 to January 2011. Authorities claim Heisner, Leung and Wong
also committed mail fraud by fraudulently acquiring title to
properties sold at public auctions and then by holding second,
private auctions open only to members of the conspiracy. The
properties selected were then given to the conspirators who
submitted the highest bids. Some of the violations related to
the uncompetitive practices are breaches of the Sherman Act,
which carry a maximum penalty of 10 years in prison and a $1
million fine. Each count of conspiracy to commit mail fraud
carries a maximum sentence of 30 years in prison and a $1 million
fine. The FBI and the antitrust division have been working on
California auction rigging cases for the past year. In October,
two real estate investors pleaded guilty to bid rigging in the
counties of Contra Costa and Alameda.
In any out-of-court settlement for alleged wrongdoing, the test
of whether prosecutors got a good deal rests on the answers to
three questions: Does it hold the miscreants accountable? Does it
make victims whole? And does it prevent similar misconduct in the
future? Thursday’s $25 billion agreement by five banks to end
a 16- month investigation of abusive foreclosure practices fails
on the first two counts. And we won’t know for some time
whether it is successful on the third. Nonetheless, the deal is
in the country’s interest because it clarifies the liabilities
of banks that filed bogus court documents to speed up
repossessions. That could clear the clogged foreclosure process
and, more importantly, help bring a moribund real-estate market
back to life.
The banks -- Bank of America Corp., Wells Fargo & Co., JPMorgan
Chase & Co., Citigroup Inc. and Ally Financial Inc. (the five
largest home-loan servicers) -- have committed to spend the bulk
of the $25 billion on reducing the principal owed by at-risk
homeowners. Smaller amounts will go to people who already lost
their homes or are in the foreclosure process. The settlement
could help as many as 2 million borrowers, including many whose
mortgages are underwater. Cash payments of up to $2,000 will go
to those whose homes were repossessed from September 2008 to
December 2011. Since 2007, about 4 million families have lost
their homes or are about to, and an additional 11 million owe
about $750 billion more on their mortgages than their homes are
worth. Even taking into consideration that some borrowers acted
irresponsibly and don’t deserve compensation, the settlement
amount is a pittance.
The deal does have teeth. It calls for an outside monitor and for
heavy penalties if banks don’t make good on their commitments.
More important, banks will be given credit only for what they
actually accomplish for homeowners -- and not for any refinancing
offers that borrowers refuse. This rightly gives the victims some
leverage. If a bank falls short of its agreed benchmarks, it
must pay the difference plus a penalty. And it must meet all its
obligations in three years. The settlement also reverses the
banks’ incentives to foreclose on families rather than keep
them in their homes with loan forgiveness. Until now, banks had
been loath to reduce principal amounts because it meant
recognizing losses on their balance sheets. This deal awards more
credit for principal reduction and less for lowering interest
rates or extending payment terms. Banks have calculated that the
settlement is in their interest, even though it means they may
have to continue paying huge mortgage-related litigation costs.
The deal enables them to predict their legal exposure. Even
better, it could help the housing market recover. Banks own
outright almost half a million homes and have 2 million more in
various stages of foreclosure. Such so-called shadow inventory
has been a drag on the market, which after six years remains
depressed, holding back the overall recovery. With this
settlement, banks can clear out their backlog of stalled
foreclosures. In the short run, that may drive prices down even
more, but it will also help the housing market find its natural
bottom faster. Only then can home prices, which have fallen by
more than a third since 2007, begin to rise again. Borrowers can
finally start to rebuild equity. Once banks reduce their
real-estate inventory, and their balance sheets recover,
they’ll be able to loosen up home- lending standards to create
new mortgages. If this is the result of a less-than-satisfactory
legal settlement, it will have been worth the wait.
Obama's budget to raise taxes, keep spending
Obama’s fiscal 2013 budget proposal to Congress will defer
significant cuts in the deficit until the economy is securely
back on track, a priority as he seeks re-election in November,
while outlining measures to shrink that funding gap over time.
“I think there is pretty broad agreement that the time for
austerity is not today,” new White House chief of staff Jack
Lew, the president’s budget director until a few weeks ago,
told NBC’s “Meet the Press” on Sunday. Obama will repeat a
demand for millionaires to pay a minimum tax rate of 30%, named
after billionaire investor Warren Buffett, and identify $4
trillion in deficit reduction over 10 years that broadly mirrors
a plan he laid out in September. The budget projects a deficit
of $901 billion in 2013, representing 5.5% of gross domestic
product (GDP), down from $1.33 trillion, or 8.5% of GDP this
year, White House officials say. Obama pledged back in 2009 to
have cut the deficit in half by next year, but his budget does
not anticipate getting it back under 3% of GDP until 2018.
Overall, the budget proposes raising $1.5 trillion over a decade
through higher taxes, with around half coming from allowing tax
breaks for families earning more than $250,000 a year to expire
at the end of 2012 — a longstanding Obama administration goal.
Republicans say Obama uses gimmicks to massage the deficit
numbers, pointing to savings from winding down wars in Iraq and
Afghanistan, which they complain amounts to counting funds that
were never going to be spent. His budget is likely to be
declared a non-starter by Republicans too, in control of the US
House of Representatives, who point out that the president is a
tax-and-spend liberal. They warn that tax hikes will kill jobs
while doing nothing to halt the climb in the crushing level of
national debt. “We’re taking responsibility for dealing with
the drivers of our debt,” said Republican Paul Ryan, chairman
of the House Budget Committee. “Unfortunately, the president
and his party's leaders — they’re not a part of this
conversation,” he told ABC News’ “This Week” on Sunday.
Olick - private homebuilders, dead men walking
"One of the biggest impediments to housing's recovery is credit,
tight credit. The Chairman of the Federal Reserve, Ben Bernanke,
said in a speech to the National Association of Home Builders
today: 'Current lending practices appear to reflect, in part,
obstacles that are limiting or preventing lending even to
creditworthy households.' While the Fed chairman talked a lot
about the credit barriers for homebuyers, he did not discuss the
credit crunch for homebuilders. Last year was the worst on
record for the nation’s builders, in sales and starts, but
demand is slowly returning, and the concern is that when demand
really surges in the coming years, there will be too little
supply to meet it. 'There will be a shortage that will create
inflation,' says Wade McGuinn, of South Carolina's McGuinn Homes.
With acquisition and development (A and D) loans from the big
banks gone, the only way for builders to finance new development
now is through private equity, smaller community/regional banks
or self-financing. That last one gives the big public builders a
huge advantage, as they have been stockpiling billions of dollars
in cash during the housing downturn.
Not so for the smaller private builders, who have downsized
dramatically and built individual homes to order. Now that
demand is coming back, McGuinn says the big builders are inhaling
lots, some developed, some not, and outbidding the smaller
builders at every turn. He likens it to when Main Street
retailers were taken out by the likes of Wal-Mart Stores and
Target. 'A lot of private guys here today who think they've
survived the worst of it, they don't know it yet, but they're
dead men walking,' he said. McGuinn says federal regulation of
the banking industry has gone too far, and it’s locking out the
little guys. Big builders with big cash continue to gain market
share and will be way out ahead when home buying demand does
finally come back toward the middle of the decade. Homebuilding
used to be the No. 1 family-owned business sector in America,
with restaurants a close second; that may already be part of
history."
Construction jobs are a quarter of Q4 mass layoffs
The Department of Labor reported 528 mass layoffs in the
construction segment, impacting 66,110 workers this week.
Construction cuts alone represented 32% of mass layoffs over the
final three months of 2011. Most of those job losses were
attributable to the end of seasonal construction activity in an
already anemic building market. Overall, employers in the fourth
quarter began 1,638 layoffs, leading to the dismissal of 266,971
employees, the Bureau of Labor Statistics said. When comparing
the most recent fourth quarter to a year earlier, the Labor
Department noted a decline in layoffs, with the government
reporting 1,999 layoff events, impacting 338,643 workers, in the
2010 fourth quarter. Mass layoffs grew to 1,638 cuts in 4Q from
1,393 in the third quarter. Still, 3Q cuts displaced more
workers, with 289,330 losing their jobs during that period. The
Bureau of Labor Statistics concluded, "The construction and the
accommodation and food services sectors experienced the largest
declines in the numbers of worker separations over the year.
Fourteen of the 21 manufacturing subsectors experienced
over-the-year decreases in the number of layoff events."
Gas up to $3.51 per gallon
The average price for a gallon of gasoline in the United States
rose nearly 12 cents in the past three weeks to about $3.51, due
in part to higher prices for North Sea crude oil, according to
the nationwide Lundberg Survey. The national average for a
gallon of regular gasoline rose 11.57 cents to $3.5101 as of
February 10, the survey of about 2,500 gasoline stations in the
continental United States found. That was a greater change than
the 3.5-cent rise in the previous survey, which covered the two
weeks that ended January 20. Survey editor Trilby Lundberg told
Reuters that the higher prices came as the price for North Sea
Brent crude rose more than $7 per barrel. Brent prices are more
volatile and sensitive to changes in the Middle East than is US
crude. One barrel holds 42 gallons. Lundberg said US pump
prices will likely rise a few more cents in the short-term
because retailers have yet to pass along all of the recent
wholesale price increases. Among cities covered by the survey,
the lowest average price was in Denver at $3.01 per gallon. The
price was highest in Long Island suburbs of New York, at $3.82.
The price difference is largely because of taxes, Lundberg said.
Investors plead guilty to bid rigging
Three Northern California real estate investors agreed to plead
guilty to forming a conspiracy to rig bids at foreclosure
auctions, the Department of Justice Financial Fraud Enforcement
Division said last week. Charges were filed in the US District
Court for the Northern District of California against Barry
Heisner of Brentwood, Calif.; Dominic Leung of Alameda, Calif.;
and Hilton Wong of San Ramon, Calif. The investigation into
auction bid-rigging in North California has resulted in 20 plea
agreements thus far.
The Department of Justice says the three defendants conspired
with others to obtain favorable auction selling prices by
agreeing not to bid against each other in certain circumstances
and by selecting a winning bidder for each auction item in
advance. Authorities say the defendants carried out these
activities at various real estate auctions, spanning from August
2008 to January 2011. Authorities claim Heisner, Leung and Wong
also committed mail fraud by fraudulently acquiring title to
properties sold at public auctions and then by holding second,
private auctions open only to members of the conspiracy. The
properties selected were then given to the conspirators who
submitted the highest bids. Some of the violations related to
the uncompetitive practices are breaches of the Sherman Act,
which carry a maximum penalty of 10 years in prison and a $1
million fine. Each count of conspiracy to commit mail fraud
carries a maximum sentence of 30 years in prison and a $1 million
fine. The FBI and the antitrust division have been working on
California auction rigging cases for the past year. In October,
two real estate investors pleaded guilty to bid rigging in the
counties of Contra Costa and Alameda.
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