Obama’s Economic Recovery Program Is Failing – New Wave of Mortgage Foreclosures, Unemployment Continues To Rise, Automakers Prepare to Shut Plants – Layoff 10’s Of Thousands

As job losses rise, growing numbers of American homeowners with once solid credit are falling behind on their mortgages, amplifying a wave of foreclosures.

In the latest phase of the nation’s real estate disaster, the locus of trouble has shifted from subprime loans — those extended to home buyers with troubled credit — to the far more numerous prime loans issued to those with decent financial histories.

With many economists anticipating that the unemployment rate will rise into the double digits from its current 8.9 percent, foreclosures are expected to accelerate. [Remember, the Obama Administration predicted a maximum unemployment rate of 8.9 in its projections of economic recovery- McAuley’s World]

That could exacerbate bank losses, adding pressure to the financial system and the broader economy.

“We’re about to have a big problem,” said Morris A. Davis, a real estate expert at the University of Wisconsin. “Foreclosures were bad last year? It’s going to get worse.”

Economists refer to the current surge of foreclosures as the third wave, distinct from the initial spike when speculators gave up property because of plunging real estate prices, and the secondary shock, when borrowers’ introductory interest rates expired and were reset higher.

“We’re right in the middle of this third wave, and it’s intensifying,” said Mark Zandi, chief economist at Moody’s Economy.com. “That loss of jobs and loss of overtime hours and being forced from a full-time to part-time job is resulting in defaults. They’re coast to coast.”

Those sliding into foreclosure today are more likely to be modest borrowers whose loans fit their income than the consumers of exotically lenient mortgages that formerly typified the crisis. [Now that we have wasted 100’s of Billions in tax payer dollars helping the reckless and those not qualified to be homeowners, where is the assistance for those who played by the rules? Mc Auley’s World].

Economy.com expects that 60 percent of the mortgage defaults this year will be set off primarily by unemployment, up from 29 percent last year.

Over all, more than four million loans worth $717 billion were in the three distressed categories in February, a jump of more than 60 percent in dollar terms compared with a year earlier.

Under a program announced in February by the Obama administration, the government is to spend $75 billion on incentives for mortgage servicing companies that reduce payments for troubled homeowners. [The Obama Administration claimed the program would help 4 million home owners]. But three months after the program was announced, a Treasury spokeswoman, Jenni Engebretsen, estimated the number of loans that have been modified at “more than 10,000 but fewer than 55,000.” [Why can’t the Government be more exact than this – a 45,000 mortgage gap between 10,000 and 55,000. Where is the $75 Billion in Taxpayer money going? If the “true number” of modified mortagges is 10,000,  the Obama program cost taxpayers $7.5 million per mortgage. Who is kidding who? Someone is robbing the US Taxpayer blind] 

In the first two months of the year alone, another 313,000 mortgages landed in foreclosure or became delinquent at least 90 days, according to First American CoreLogic.

“I don’t think there’s any chance of government measures making more than a small dent,” said Alan Ruskin, chief international strategist at RBS Greenwich Capital.

Last year, foreclosures expanded sharply as the economy shed an average of 256,000 jobs each month. Since then, the job market has deteriorated further, with an average of 665,000 jobs vanishing each month.

http://www.nytimes.com/2009/05/25/business/economy/25foreclose.html?pagewanted=1&sq=May%2025,%202009%20Mortgage%20foreclosures%20&st=cse&scp=1

GM announces an additional 47,000 job cuts amid palns to shut 5 US auto plants.   (February 2009). http://www.wilx.com/home/headlines/39750882.html

U.S. to steer GM toward bankruptcy … The Obama administration is preparing to send General Motors into bankruptcy as early as the end of next week under a plan that would give the automaker tens of billions of dollars more in public financing as the company seeks to shrink and re-emerge as a global competitor, sources familiar with the discussions told the Washington Post. http://scoop.chrysler.com/2009/05/22/us-to-steer-gm-toward-bankruptcy/

Chrysler confirms 6 additional plant closings – May 2009. http://scoop.chrysler.com/2009/05/06/chrysler-issues-plant-closing-statement/ 

GM plans to shut 14 more auto plants, reduce employees by 20,000.  (April 2009) Gm announces planned cuts did not go far enopugh, additional cuts planned. http://money.cnn.com/2009/04/17/news/companies/gm_jobs/?postversion=2009041712

From the WSJ: Mortgage Defaults, Delinquencies Rise

… A spokesman for the FHA said 7.5% of FHA loans were “seriously delinquent” at the end of February, up from 6.2% a year earlier. Seriously delinquent includes loans that are 90 days or more overdue, in the foreclosure process or in bankruptcy.

The FHA’s share of the U.S. mortgage market soared to nearly a third of loans originated in last year’s fourth quarter from about 2% in 2006 as a whole, according to Inside Mortgage Finance, a trade publication. That is increasing the risk to taxpayers if the FHA’s reserves prove inadequate to cover default losses. http://www.calculatedriskblog.com/2009/03/fha-mortgage-defaults-increase.html

 

 

Housing Recovery? April foreclosures rise 32 percent!

MIAMI – The number of U.S. households faced with losing their homes to foreclosure jumped 32 percent in April compared with the same month last year, with Nevada, Florida and California showing the highest rates, according to data released Wednesday.

More than 342,000 households received at least one foreclosure-related notice in April, RealtyTrac Inc. said. That means one in every 374 U.S. housing units received a foreclosure filing last month, the highest monthly rate since the Irvine, Calif.-based foreclosure listing firm began its report in January 2005.

April was the second straight month with more than 300,000 households receiving a foreclosure filing, as the number of borrowers with mortgage troubles failed to abate.

The April number, however, was less than one percent above that posted in March, when more than 340,000 properties were affected. The March data was up 17 percent from February and 46 percent from a year earlier.

“We’ve never seen two consecutive months like this,” said Rick Sharga, RealtyTrac’s senior vice president for marketing. “It’s the volume that’s surprising.”

While total foreclosure activity was up, the number of repossessions by banks was down on a monthly and annual basis to their lowest level since March of last year, RealtyTrac said.

But that’s far from positive news. Because much of the foreclosure activity in April was in the default and auction stages — the first parts of the foreclosure process — it’s likely that repossessions will increase in coming months, RealtyTrac said.

About 63,900 homes were repossessed in April, down 11 percent from about 71,700 in March, RealtyTrac said. But the mortgage industry has resumed cracking down on delinquent borrowers after foreclosures were temporarily halted by mortgage finance companies Fannie Mae and Freddie Mac, together with many other lenders.

“All of these loans are now being processed pretty rapidly by the servers,” Sharga said.

http://news.yahoo.com/s/ap/20090513/ap_on_bi_ge/us_foreclosure_rates

Bank Bailout Failing – Now Government Wants To Run “Detroit 3”

Auto bailout could be tied to gov’t-run overhaul

 

Stock intended to eventually earn taxpayers a profit as part of the Bush administration’s massive bank bailout has lost a third of its value — about $9 billion — in barely one month, according to an Associated Press analysis. Shares in virtually every bank that received federal money have remained below the prices the government negotiated.

Most of the Treasury Department’s investments since late October have been in preferred bank stocks, more than $180 billion worth, with investments in giants like Citigroup and JPMorgan Chase, and many small community banks. But the government also negotiated options to buy up to 1.2 billion shares of common bank stock that was valued at $27 billion.

Now, however, the value of that common stock is worth less than $18 billion. If the government exercised all its warrants to purchase the stock today, it would lose money on 51 of its 53 agreements. Taxpayers would be out $9.1 billion.

“The markets are saying this plan isn’t going to work for the banks,” said Ross Levine, Tisch professor of economics at Brown University. “They’re asking where this plan is going.”

“It’s a complete mistake to think this is a good investment for us,” said Paola Sapienza, a finance associate professor at Northwestern University’s Kellogg School of Management, who spearheaded a September protest of the bailout by more than 200 of the nation’s leading economists. “It’s a gamble. It’s like going to Las Vegas.”

http://news.yahoo.com/s/ap/20081205/ap_on_bi_ge/bailout_returns

 

Taxpayer’s Investment In Bank Bailout Losing Money

AP IMPACT: Some bailout holdings down $9 billion

Stock intended to eventually earn taxpayers a profit as part of the Bush administration’s massive bank bailout has lost a third of its value — about $9 billion — in barely one month, according to an Associated Press analysis. Shares in virtually every bank that received federal money have remained below the prices the government negotiated.

Most of the Treasury Department’s investments since late October have been in preferred bank stocks, more than $180 billion worth, with investments in giants like Citigroup and JPMorgan Chase, and many small community banks. But the government also negotiated options to buy up to 1.2 billion shares of common bank stock that was valued at $27 billion.

The Treasury Department said it did not expect these common stock options to be profitable immediately and negotiated them so taxpayers could share in the wealth if the bank stocks recover.

Now, however, the value of that common stock is worth less than $18 billion. If the government exercised all its warrants to purchase the stock today, it would lose money on 51 of its 53 agreements. Taxpayers would be out $9.1 billion.

The markets are saying this plan isn’t going to work for the banks,” said Ross Levine, Tisch professor of economics at Brown University. “They’re asking where this plan is going.”

Potential losses among these common stocks include more than $3 billion for the administration’s biggest deal, a $45 billion injection into Citigroup Inc. The government gave the New York-based giant $25 billion on Oct. 28. In addition to preferred stock worth $1,000 per share, the deal included warrants to pick up 210 million shares of common stock at $17.85. In late November, the White House put together a plan to give Citibank another $20 billion. The deal also included warrants to pick up 254 million shares, with the price set at $10.61.

Citigroup stock has since fallen below $8.

More companies would be in the black, but the government used a 20-day stock price average to set the warrant price, meaning it willingly negotiated to pay roughly 25 percent more than the stock was worth on the day it signed the deals on behalf of taxpayers.

Nara Bancorp, created in 1989 to serve Southern California’s growing Korean-American community, borrowed $67 million from taxpayers on Nov. 21, when its stock was trading at $7.50 per share. But the government negotiated the option to buy 1 million shares of Nara common stock at $9.64, higher than its stock is currently trading.

“It’s a complete mistake to think this is a good investment for us,” said Paola Sapienza, a finance associate professor at Northwestern University’s Kellogg School of Management, who spearheaded a September protest of the bailout by more than 200 of the nation’s leading economists. “It’s a gamble. It’s like going to Las Vegas.”

http://news.yahoo.com/s/ap/20081205/ap_on_bi_ge/bailout_returns

 

Taxpayer Alert – The Bailout – What Happens In January

WHICH DEMOCRAT IS PROMISING HER CONSTITUENTS FREE HOUSES COME JANUARY?

Steve
stevem_brown@hotmail.com | 174.153.210.108

I am total agreeing with you in all respects, except for one. There is more ‘debt’ that is not being disclosed from the ‘financial intuitions.’ The anticipated $850 Billion Dollars is just the icing on the cake. I speculate that it will cost the tax payers more to the tune of $1.8-2.5 Trillion Dollars.
Thanks for the insight, looking forward to your blog after the vote.

From Analysis Of Senate Bailout Bill – To Be Considered By House On Thursday, 2008/10/01 at 11:27 PM

mcauleysworld
markdaoust@sbcglobal.net | 69.209.137.126

Steve – I agree –
If you want my estimate of where the “total” might go once the banks can start dumping their bad debt on the public – on Joe Taxpayer – my guess is $7 Trillon – there is $14 Trillion in “late” loans around the world.

Then we have an added unkown – The Liberal Democratic Congress. Did anyone else see Rep Maxine Waters (One of the infamous Fannie Defenders) on Fox Business News last night – Live from the Capital – Representative Waters plans on getting involved further – after the first of the year – when “we have a Democratic President and Congress”. Her plan – forgive the mortgages of her constituents and let them keep their Houses for free”. Free for her Constituents – The Working taxpayer will be picking up the tab.

From Analysis Of Senate Bailout Bill – To Be Considered By House On Thursday, 2008/10/02 at 6:00 AM

CALL YOUR CONGRESSPERSON AND TELL THEM TO VOTE NO

Contact Your Senators Here:  http://www.emailyoursenator.com/senators.html  Click on your Senators, Select the Contact Folder and then  click on the email address.

Contact Congresspeople: http://www.house.gov/zip/ZIP2Rep.html You’ll need your zip  code

Analysis Of Senate Bailout Bill – To Be Considered By House On Thursday

The voting on the Senate Version of the Bailout Bill has not started 08:56 PM (est) – but it is expected to be passed and sent to the House where an up or down vote will be required. The last word is that the House will not be given an opportunity to amend or change the bill.

After reviewing all 451 pages of the bill – I’m very surprised – minimal changes were made to the Bill that the House of Representatives defeated two days ago. Very minimal. The additional 331 pages concern completely unrelated items.

The Senate included these unrelated bills in this package to provide “cover” for those Congresspeople  who intend to vote for the passage of the Bailout, but are looking for an excuse to justify their vote. You can expect to hear this spin tomorrow, “Oh I didn’t really support the Bailout, I was voting for – fill in the blank – instead”.

The following items have been included for passage with the “Bailout Bill” when there was no impending emergency that required the items to be passed in the late evening of October 1st,  2008:

Pages 113 –  165  ENERGY SECTION: Energy Tax Credits, Steel Industry Fuel Credits, Carbon Mitigation Credits, Coal Gasification Credits, Black Lung Funding.

Why are these items attached to the “Bailout”, so a Congressperson can tell their irate Constituent, I didn’t really vote for the “Bailout”, I voted for Energy Tax Credits or Black Lung Funding – Of course we know better.

Page 254 – Information Authorization for Covered Securities to Brokers – I’ll bet you had no idea that this was a topic that required immediate attention. I’ll bet that 80 of 100 Senators didn’t know this was an emergency either.

Pages 261 -266  Temporary Relief from the Alternative Minimum Tax. I’d like to see the Alternative Minimum Tax eliminated, however, this section should not be attached to this bill. I can hear the Congressperson now – I was really against the Bailout – but I was voting to end the Alternative Minimum Tax – for a time. If your Congressperson says this, ask them why they didn’t pass this legislation in September?

Page 279 – Rum Excise Tax Relief for Peurto Rico – Ok, truth be told, I’m all for tax relief on adult beverages – but did it really need to be attached to the “Bailout”.

Page 280 – Funding for Mine Rescue Training

Page 288 – Depreciation of Business Property on Indian Reservations (The actual Bill language – I thought our Native Americans were Native Americans and not Indians).

Page 289 – Railroad Track Maintenance

Page 290 – Cost Recovery for Motor Sport Racing Tracks

Page 295 – Duty Suspension on Wool Products

Page 297 – Child Tax Credit Extension – We all favor this – How many Congress people will hide behind this one. The question to ask is this – Couldn’t you vote this through on Thursday and not attach it to this stinker of a Bill. It will be represented and passed if the House Votes the Bailout Bill down again on Thursday Night.

PAGE 298 – Film and TV Production Tax Credits – Limits taxes to the first $15 Million of production costs. (On a $100 Million Dollar Movie – The last $85 Million are tax free. No wonder Hollywood is far left – it pays for them to be there). 

Page 300 – Excise Tax Break for Wooden Arrows used by Children.

Page 301 – Exxon Valdez Llitigation Income Averaging.

Page 310 – 334 Domenici Mental Health Bill – This bill has been debated for 10 years. I will not discuss the merits of the proposal, however, the cost to the American Public might exceed a trillion dollars. After 10 years of debate this bill should have been brought up independent of any other bill. Senator Domenici, the sponsor, is retiring at the end of this term.  

Page 334 – Secure Rural Schools

Page 364 – Special Projects Federal Land

Page 394  – Hurricane Ike Relief

Page 442 – Spending Reductions and Revenue Raisers to Support Tax Relief – I love this Sections name. It reminds me of an earlier life. We called them K-Rats, I believe they are called Meals Ready To Eat now. Now you get three lies, for the price of one. (Actually, MRE’s are much better than Krats ever were).

Now as to the “improvements to the Bailout Bill” that the House defeated. The changes are nothing more than window dressing.

1). Mark to Market – whether you like it or don’t like it – there is no mandated change. There is no specific rule change in this law. The language is identical to the defeated House BIll.

2). FDIC Increase in insured deposit limit from $100,000 to $250,000 – A purely cosmetic change. The “Bailout Supporters” claim it calms the markets. It may calm someone who doesn’t understand that individuals have either placed their money in separate accounts or used one of the “services” that have been available for 3 or 4 years to distribute funds between different banks so that all of a depositors money has always been insured. As far as helping liquidity – the change is irrelevant.

This provision may actually be a tax increase in disguise: Read the Myth of the FDIC Fund, By Bill Isaac, Former FDIC Chairman Here: https://mcauleysworld.wordpress.com/2008/10/02/fdic-insurance-an-accounting-myth-not-a-fund-bill-isaac-former-fdic-ch/

3). Additional oversight – minimal changes.

4). Executive Compensation (pg 30) is essentially unchanged – covers current but not past CEO’s and Executives. Only covers Executives from Companies who participate in the asset sale to the Government. Political claims that this provision covers all Wall Street Executives is false. Most Wall Street Executives won’t be involved in the Program.

Golder Parachutes are eliminated – in participating Companies – for 2 years (that 2 year limitation is found on page 112, 82 pages away from the main section on Executive Compensation). Gee, my bet is that no one is going to qualify for a Golden Parachute in the next two years – but I wouldn’t be surprised if someone’s Parachute opened in two years and one day.    

5) Mortgage Relief – Assistance – Modification: No Change here. The language is unchanged. The Government picks the winners and losers. While not completely defined – the Bailout only provides help to those homeowners who have a mortgage with a failed bank or lending institution. If the bank that holds your mortgage is not participating in the bailout – this plan provides no help.  

6). Fixing what got us here. Suspending the operations of the Communirty Reinvestmant Authority (The CRA is the agency that fostered the development of NINJA & LIAR Loans) removing the Boston Federal Reserve Manual on Mortgage Underwritng Reform from use (The Manual that set the standards for the worst of the sub-prime loans – the Manual that was used to coerce Banks into making these loans) or implementing  the 2003-2004 suggested Accounting and Oversight Reforms for Fannie and Freddie are not even discussed in the Senate Bill.  

The Bailout Supporters claim the “Bailout” will create easier credit (easy money) and improve the economy. They also claim that the “Bailout” will help liquidity. I wonder where that liquidity or money will flow to – the same scams that caused this problem in the first place?

The Senate Bill fails to reduce the burden on Taxpayors – there is no increased use of Insurance or Loan Programs. 

For those of you who are familiar with Dave Ramsey’s Suggested “Fix” – they have failed to adopt any of his suggestions.  

My estimate is that the current “Bailout Program” has an initial “buy-in” cost of $850 Billion Dollars – just for the “Bailout” (Not including Mental Health – etc). Not all of this tax payor cash is to be paid out up front. Of course there is no guarantee that the Government won’t be back for more once we start down this road.

CONTACT YOUR REPRESENTATIVE AND LET HIM KNOW HOW YOU FEEL – TELL THEM TO VOTE NO ON THE BAILOUT – 

Contact Your Senators Here:  http://www.emailyoursenator.com/senators.html  Click on your Senators, Select the Contact Folder and then  click on the email address.

Contact Congresspeople: http://www.house.gov/zip/ZIP2Rep.html You’ll need your zip  code

I reviewed a copy of the Senate Bailout Bill through the FOX Business Channel Web Site:  http://www.foxbusiness.com/story/markets/economy/senate-version-economic-rescue-package/

Tommorows Post: What is wrong with tighter Credit? – Credit Availablity In America Today.

Small Biz No Fan of $700B Rescue Plan

Small Biz No Fan of $700B Rescue Plan  – Gee, and to hear the Main Stream Media – you might think Small Business couldn’t wait for the Bailout.

Dunstan Prial FOXBusiness

The anger out in America triggered by Washington’s proposal to rescue the U.S. financial system to the tune of $700 billion is palpable — almost visceral.

That’s hardly surprising, given the broad knowledge that the executives in charge of the giant now-faltering financial institutions that stand to benefit most from the bailout make more money in a year than most Americans will in a lifetime (or two).

Small-business owners, in particular, are having a hard time reconciling the concept that bosses who essentially gambled big and lost will get another opportunity to play in the casino.

“They screwed up with all that money and they’re rewarded by a bailout from the government,” said the owner of Creative Design & Landscape, a Doylestown, Pa., contractor.

“Can you imagine if any one of us screwed up that way? I wish the government would come bail us out,” he quipped.

Talk to just about any small business owner and the response is virtually the same.

“It think it’s ludicrous. They’re taking my money to bail out these people who made major mistakes with their lending, but they can’t help the little guy — they don’t bail out hard working Americans. It’s not fair,” said 64-year-old Larry Peterson, owner of The Dog House restaurant in Bradenton, Fla.

An unfortunate paradox of these difficult times is that these very same business owners, in the same breath used to condemn the bailout proposal, make strong cases for why some form of action to ease clogged credit markets is so necessary.

The Doylestown contractor said his business is off sharply because his potential clients can’t get the home-equity loans and extra cash from mortgage refinancings typically used for the type of home improvements in which his company specializes.

The credit crunch, he said, has had a “direct affect on our jobs. When they’re not able to raise the money, that directly affects us as contractors.”

He’s not alone.

According to the 2008 Small Business Mid-Year Economic Report from the National Small Business Association, a trade group, 67% of small businesses have been impacted by the collapse of global credit markets brought on largely by the bursting of the U.S. housing bubble. That’s up from 55% in February.

A whopping 79% of small business owners, according to the survey, believe the immediate future doesn’t hold much promise, predicting either a flat economy or an outright recession awaiting on the horizon.

Peterson, proprietor of The Dog House, said the lousy economy forced him to close down earlier this week, and he will remain closed unless he can find an investor to help him pay off $300,000 in loans he’s already carrying.

Banks are no longer an option, he said.

“The economy is killing me and our government is not doing a damn thing about it. It’s terrible,” he said.

In fact, the government is trying to do something. But is it the right thing?

Treasury Secretary Henry Paulson, in testimony this week before decidedly skeptical members of Congress, argued repeatedly that, while imperfect, the plan to create a government-run haven of sorts for up to $700 billion in bad assets held by financial institutions is the only way to ward off a complete disaster. Hasty approval is needed, according to Paulson, to prevent tighter credit markets, significant job losses and a sharp rise in home foreclosures.

And Paulson assured elected leaders that he’s sensitive to the visceral concerns of the politicians’ constituents.

Are U.S. taxpayers best served by a $700 billion bailout of arguably mismanaged, for-profit financial companies? “This is all about the American taxpayer. That’s all we care about,” he said.

How about the widespread anger at the missteps that brought us to this point? “I share the outrage that people have. It’s embarrassing to look at this, and I think it’s embarrassing to the United States of America,” Paulson said.

But few small-business owners heard the nationally televised daytime testimony. They were working.

President Bush gave a prime time speech last night to address the widespread anger and confusion surrounding the plan.

It was sorely needed, because even some of the strongest detractors of the Bush Administration’s rescue plan acknowledge that doing nothing might be worse.

On Wednesday, Sen. Charles Schumer, D-N.Y., said there’s a consensus in the Senate that “we need to do something,” and that something will get done perhaps as soon as this weekend.

http://www.foxbusiness.com/story/small-bi-fan–billion-rescue-plan/

%d bloggers like this: