Seven U.S. Banks Are Seized, Raising Year’s Failure Toll to 140

Dec. 19 (Bloomberg) -- By Dan Reichl

Seven U.S. banks were seized: by regulators, bringing this year’s total of failed lenders to 140 as financial companies are tested by the recession and the Federal Deposit Insurance Corp. anticipates more shutdowns.


The budget: “will ensure that we are prepared to handle an ever-larger number of bank failures next year, if that becomes necessary,” FDIC Chairman Sheila Bair said in a statement. Yesterday’s bank closings will cost the agency about $1.8 billion, according to the FDIC statements.

U.S. lenders are buckling: under the weight of loans tied to commercial real estate, which is plummeting in value. Prices have dropped 43 percent from their peak in October 2007, Moody’s Investors Service said last month.


Comments:
It could have been worse for 2009. Clearly we still have more pain in front of us for 2010.

Soaring U.S. Unemployment Threatens Path to Economic Recovery

Nov. 7 (Bloomberg) By Timothy R. Homan--


Highlights:

Key Point to review:

• Unemployment Rate: in the U.S. jumped to 10.2 percent in October, the highest level since 1983.
• Payrolls: fell by 190,000 last month, more than forecast by economists,
• U.S. Economy: has lost 7.3 million jobs since the recession began in December 2007, when the unemployment rate stood at 4.9 percent.
• Underemployment rate: -- which includes part- time workers who’d prefer a full-time position and people who want work but have given up looking -- reached a record 17.5 percent in October from 17 percent, yesterday’s report showed.
• Average Work Week: held at a record low of 33 hours in October. Average weekly earnings rose to $617.76 from $616.11 a month earlier. Workers’ average hourly earnings were 2.4 percent higher than October 2008, the smallest gain since 2004.

“We’ve got lots of people just giving up and leaving the labor force,” said Julia Coronado, a former Fed economist now at BNP Paribas in New York. “Consumer incomes are under pressure, and that raises questions about the sustainability of the improvement we’ve seen in consumer spending.”


COMMENTS:

I am sorry to say, this month unemployment report hits my last year forecast of over ten percent by years end with no end in sight.

China Economy May Slow Next Year

Oct. 24 (Bloomberg) -- By Bloomberg News

Highlights

• Stephen Roach, chairman of Morgan Stanley Asia: China may face an economic slowdown in the middle of next year because the nation’s growth model is unsustainable.
• Economic growth in China: accelerated to 8.9 percent last quarter, fueled by government stimulus spending and more than $1 trillion of new bank lending. “China’s growth model is much more about supply than demand,” Roach said. “It’s not a sustainable model for China. It’s not a sustainable model for any nation.”
• Stimulus Plan: The government’s $586 billion stimulus plan unveiled in November last year spans earthquake reconstruction work, roads, railways and low-cost housing. Chinese banks doled out a record 8.67 trillion yuan ($1.27 trillion) of new loans in the first nine months, more than double the same period a year earlier.
  
• Stimulus Growth: China grew 6.1 percent in the first quarter of 2009, the slowest pace of expansion in almost a decade, as shipments abroad fell 17.1 percent during the period. Growth picked up to 7.9 percent in the second quarter as exports slid 21.4 percent.
• Balancing Need: In the next few months, the government will focus on balancing the need to maintain stable and relatively fast growth with the need to adjust the structure of China’s economy and better manager inflationary expectations, the State Council, China’s cabinet, said Oct. 21. The nation also faces increasing difficulty in managing liquidity and the structure of loans is “not rational,” the State Council said.
  

Comments:

Newton observed that when an apple disconnected from a tree it fell. He call that gravity. In a well organized centralized government like China, which is a major world economic player, they claim the apple rises. Why am I skeptical. Maybe because;

Banking: My banking friends and associates quiver when they think of Chinese accounting and reconciling asset value to book value.

Gasoline Consumption: I am told, (sorry I don't have the exact numbers) new vehicle purchase are up and business is booming domestically; yet; year or year gasoline consumption is down.

Electrical Output: Ditto for electrical output for the country. Business is booming domestically but year over year electrical consumption is down.

After decades of a worldwide economic party which was driven by a constant deterioration of credit standards and the creation of derivatives that required a religious quality to believe we are all experiencing the hangover. Sorry folks, quick fixes and the solutions will not occur until new leadership faces and policies continue to emerge and reach a critical mass. Half way through 2010 we may look back at 2009 as having been a very prosperous time for the world economy.

Best,

James Monachino

U.S. Economy: Retail Sales Unexpectedly Fall for Second Month

May 13 (Bloomberg) --By Courtney Schlisserman

HIGHLIGHTS

Retail sales in the U.S. unexpectedly dropped in April for a second month.

• Retail Drop: The 0.4 percent decrease followed a revised 1.3 percent drop in March that was larger than previously estimated, the Commerce Department reported today.
  
• Carl Riccadonna an Economist at Deutsche Bank Securities: “It looks like consumers are losing momentum heading into the second quarter and that is a very worrisome development, They have very significant headwinds and number one among them is that the labor market is far from turning the corner.”
• US Business Inventories: Commerce Dept. showed inventories at U.S. businesses fell 1 percent in March, a seventh consecutive drop as slumping sales forced companies to pull back. The streak of decreases is the longest since 2001-2002.
• Sales Decline: was led by falling demand at electronics, furniture, clothing and grocery stores.
  
• Prices of goods Imported: into the U.S. climbed 1.6 percent in April, more than three times as much as forecast, a report from the Labor Department also showed. Excluding oil, prices were down 0.4 percent.

COMMENTS

Rising unemployment and falling family wealth is clearly ripping into the fabric of the economy. Issues of note include:

Grocery store sales declined: I Don't think the implication is that people and families are eating out more. Disturbing at the core if the trend continues.

Rising Oil Prices: Isn't it great to know how the free market really works. Business, Governments, and Families are feeling the pressures of a world wide slow down and as Memorial Day Season draws near we experience the free market price of oil begin it's seemingly obligatory rise for the start of the summer.

Finally, to all you Fat Cats left standing. This is your year. The year the market sucks you in. Be careful you aren't standing by a 747 Wallstreet propaganda engine starting up. Why, because there is tremendous amount of toxic debt and poorly structured equity opportunities that in this new environment will not profit you as they may have in the past.

James Monachino

Rich Americans Default on Luxury Homes Like Subprime Victims

May 6 (Bloomberg) -- By Bob Ivry and Dan Levy

HIGHLIGHTS:

The number of U.S. homes valued at more than $729,750, the jumbo-loan limit in the most affluent areas, entering the foreclosure process jumped 127 percent during the first 10 weeks of this year from the same period of 2008, data compiled by RealtyTrac Inc. of Irvine, California, show. The rate rose 72 percent for homes valued at less than $417,000 and 78 percent for all homes, RealtyTrac said.

• Jumbo lending Slowed: in the fourth quarter to $11 billion, or 4 percent of the mortgage market, the lowest quarterly figure since Inside Mortgage Finance, a Bethesda, Maryland-based trade publication, started tracking the data in 1990.
• Sales: for all homes in the state increased 2.5 percent last year from 2007, sales of homes valued at more than $1 million declined 43 percent to the lowest since 2003, MDA DataQuick reported. Part of the reason is falling prices as California’s median home price dropped 41 percent in February to $247,590, according to the state’s Association of Realtors.
• David Adamo, chief executive officer of Luxury Mortgage Corp.: “Just like homeowners in smaller homes, these homeowners anticipated being able to refinance mortgages to continue making payments and at a future date sell for a gain and put it toward their next home. That strategy backfired when the market for jumbo mortgages dried up.”
• Andrew Laperriere, Managing director at research firm International Strategy & Investment Group: “There was this unrealistic view that the crazy financing was limited to subprime when of course it was across the board,” in addition “A lot of jumbo mortgages were nothing down with high debt-to-income ratios.”
• Philip Tirone, president: of Los Angeles-based Mortgage Equity Group Inc., Values have taken longer to decline in more affluent areas, taking some homeowners by surprise. People are coming to me to do a refinance or buy another property, and what they thought they had in the equity of the home they don’t have and they don’t know what to do.”

COMMENTS

All real estate pricing is connected. Don't expect your home to be isolated from the equity storm.

Near Term: Loans qualification for Jumbo loans can be very conservative compared to Freddie and Fannie conforming loans. Look for values to keep sinking for 2009.

New Threat: Rising unemployment is an emerging home equity threat that has not been fully valued into the majority of econometric type models. Yes, if you lose your job you might not be able to pay the mortgage there by forcing you to take action against your best economic judgment.

Finally, the message going forward continues to be the same, stay liquid and protect principle. Deflation is counter intuitive to inflation. Almost all Americans only understand inflation and that type of strategy will prove unsuccessful these next couple of years. Save your money if you can and only spend what you feel you must.

James Monachino

U.S. Economy: Unemployment Hits 25-Year High, Services Contract

By Bob Willis and Shobhana Chandra

Highlights

April 3 (Bloomberg) The U.S. unemployment rate jumped to 8.5% in March to the highest level since 1983 and service industries shrank at a faster than anticipated pace, indicating the economy remains trapped in what’s likely to be the longest recession since the 1930s.

Additional points of interest include:

• Lost Jobs: The economy lost 663,000 jobs in March, bringing losses since the slump began to about 5.1 million, the worst in the postwar era, Labor Department figures showed in Washington.
• Revisions: subtracted 86,000 workers from January payrolls while February’s drop of 651,000 was not revised.
• Average Number of Hours Worked: fell to 33.2 per week, down six minutes from February and the fewest since records began in 1964.
• Nariman Behravest: Chief economist at IHS Global Insight in Lexington,“We could continue to see a few more months of really bad employment numbers before it starts to ease,”. Behravesh projected the jobless rate will peak between 10 percent and 10.5 percent in early 2010. “We aren’t there yet, but we are getting closer to a bottom,” he said.
  
• Service industries: which include banks, insurance companies, restaurants and retailers, cut 358,000 workers after a 366,000 decline in February. Financial firms cut payrolls by 43,000, after a 44,000 decrease the prior month. Retail payrolls decreased by 47,800 after a 50,800 drop.
• Federal Reserve Vice Chairman Donald Kohn: said both the Obama administration and central bank must remain “flexible and open” to further measures because the economy and financial markets aren’t “out of the woods yet.” The labor-market rout will make it tougher for President Barack Obama to follow through on his pledge to save or create 3.5 million jobs.

COMMENTS

The economy is experiencing the flip side of prosperity. High rising unemployment is adding another layer of downward pricing pressure on everything. Yes, deflation is still alive and we need to realize unless more people go back to work and we start seeing a rise in real wages at the middle and working class level, problems will continue to loom.

Finally, buyers beware of false market starts in the housing and stock market. We are to early in this market cycle to see a turn around in this bear market. 2009 is the year we will see all the toxic asset securities and life support blue chip companies go to the public. Everyone want to try and unload their bad debt and equity. Yep, fortunes are made at the bottom of markets but what you never hear is fortunes are also lost by those unlucky folks trying to pick a bottom.

James Monachino

Heard from the Street - Fiday 3/27/09

Heard from the Street - Pasadena, California - Friday 3/27/09
The "Heard from the Street" report represents a series of short interviews regarding what Main Street in Southern California is thinking regarding, "How are you coping with the changing economy?"

Young Working Class Father: It was a beautiful day with the sun shining and the temperature just right. Carl was in a hurry to return home with some badly needed baby formula but did have time to tell me how he is adjusting to the downturn. "It is Limiting". Everything I do now is less than before. Now I think about where I am driving, gas cost money you know. I am still working but business is way down and so they are cutting back on my hours. I go to the store and buy less and cheaper food. I would love to take my wife to the movies more but that is out of the question for now. Limited is how I describe my life right now and I really am feeling it.

Comment
Carl wasn't sure how long this temporary downturn would take before life reverted back to normal. In the mean time, he is adjusting his life style to reflect changes he is experiencing.

James Monachino

Heard from the Street - Tuesday 03/24/09

Silver Lake, California

The "Heard from the Street" report represents a series of short interviews regarding what Main Street in Southern California is thinking regarding, "How are you coping with the changing economy?"

Retired Network Staffer: Joan has seen alot of life and is now comfortably in retirement. She currently receives; social security, pension, 401k account (Less than it was) and has a husband with a few more work years in him. They are both healthy and own their own home. Yet Joan is concerned. She holds her purse tight to her chest and is worried about the future. Remembering the Great Depression as a little girl she fears we may be heading down the same painful path. Careful about all her purchases, Joan feels a need to be thrifty especially during these uncertain times.

Comment
Joan has made all the right move regarding her retirement. Yet she is clearly worried that her golden years might be spent under some dark economic clouds.

James Monachino

Treasury Department Releases Details on Public Private Partnership Investment Program

U S Treasury Fact Sheet

Public-Private Investment Program

View White Paper and FAQs at http://financialstability.gov/

The Financial Stability Plan – Progress So Far: Over the past six weeks, the Treasury Department has implemented a series of initiatives as part of its Financial Stability Plan that – alongside the American Recovery and Reinvestment Act – lay the foundations for economic recovery:

• Efforts to Improve Affordability for Responsible Homeowners: Treasury has implemented programs to allow families to save on their mortgage payments by refinancing, assist responsible homeowners in avoiding foreclosure through a loan modification plan, and, alongside the Federal Reserve, help bring mortgage interest rates down to near historic lows. This past month, the 30% increase in mortgage refinancing demonstrated that working families are benefiting from the savings due to these lower rates.
• 
  Consumer and Business Lending Initiative to Unlock Frozen Credit Markets: Treasury and the Federal Reserve are expanding the TALF in conjunction with the Federal Reserve to jump start the secondary markets that support consumer and business lending. Last week, Treasury announced its plans to purchase up to $15 billion in securities backed by Small Business Administration loans.
• 
  Capital Assistance Program: Treasury has also launched a new capital program, including a forward-looking capital assessment undertaken by bank supervisors to ensure that banks have the capital they need in the event of a worse-than-expected recession. If banks are confident that they will have sufficient capital to weather a severe economic storm, they are more likely to lend now – making it less likely that a more serious downturn will occur.
• 
  The Challenge of Legacy Assets: Despite these efforts, the financial system is still working against economic recovery. One major reason is the problem of "legacy assets" – both real estate loans held directly on the books of banks ("legacy loans") and securities backed by loan portfolios ("legacy securities"). These assets create uncertainty around the balance sheets of these financial institutions, compromising their ability to raise capital and their willingness to increase lending.

COMMENTS

Proceed with caution regarding this multi-phase marketing operation. The links are from the US Treasury so you can determine for yourself what you are dealing with.

We are now witnessing the circus big top. Only the finest and the best will be permitted in the tent to sell you the repackaged toxic assets that the original owners went broke on.

That doesn't mean there isn't opportunity to make a profit. But the key question is who is taking the risk and who is making the money. Folks, you may want to consider letting the bus go by a couple of times before you step on board and go for the ride. Don't worry about missing an opportunity. They have $$ trillions.

James Monachino

Heard from the Street - Friday 3/20/09

Teluca Lake, California

The "Heard from the Street" report represents a series of short interviews regarding what Main Street in Southern California is thinking regarding, "How are you coping with the changing economy?"

Middle Aged Businessman: It was sunset and a cool moist wind was blowing as we spoke. John has been a business owner for over 25 years. Obviously proud of that statement, he told me he was very concerned about the future. His head was balding and his eyes were alive with emotion. I am in a real jam. I have never seen business this bad, really Jim. I have maximized my credit cards to the limit. I can’t get any credit. Now I am living off my mother’s money. Voice quivering, I am not sure how long I can hang on. I don’t understand it, what happen?

Comment
John is worried about what comes next. So am I.

James Monachino

Heard from the Street: Glendale,Ca. - 03/19/09

New Series - Heard from the Street - Glendale, Ca.

Introduction

The "Heard from the Street" series will represent short interviews regarding what Main Street is thinking. The only question I will ask is, How are you coping with the changing economy? Since I am currently in a position that allows me to talk to 100's of poeple on the street each week through out the Los Angeles county area my belief is that readers might benefit from some of their insight.

Retired Veteran: Walking alittle slowly toward the store Dave has seen alot of crisis in his life. He currently has a liver transplant and is waiting for a kidney transplant courtesy of VA hospital. His strategy for coping with the current economic changes is to live within his means. Something he has done all his life. Upbeat and with a small smile he tries to maintain a positive attitude and is happy to see each day as it comes.

Comments
Dave did not appear to be a rich man in dress or manner but he clearly has the right idea.

Jim Monachino

Unemployment in U.S. Surges to 8.1% as Payrolls Slide

By Bob Willis -- March 6 (Bloomberg) --

HIGHLIGHTS

U.S. Unemployment Rate - jumped in February to 8.1 percent, the highest level in more than a quarter century.
Employers eliminated 651,000 jobs - the third straight month that losses surpassed 600,000 -- the first time that’s happened since the data began in 1939, Labor Department figures showed today in Washington.

• Representative Carolyn Maloney - Chairman of the congressional Joint Economic Committee said, "The magnitude of these losses indicates that additional measures will likely be needed,” & “As unemployment continues to rise, our foreclosure crisis will only grow worse.”
• Payroll Revisions - for January and December eliminated an additional 161,000 positions. The drop in January was revised to 655,000, and December’s to 681,000.
• Working Hours - The average work week held at 33.3 hours in February. Average weekly hours worked by factory workers dropped to 39.6 hours from 39.8 hours, while overtime also decreased to 2.6 hours from 2.8 hours. That brought the average weekly earnings up by $1 to $615.05.
  

COMMENTS

We are now looking for a break in the momentum of jobs being lost. Just trying to stabilize what we have. An as Washington DC burns our politicians fiddle. Entertainment talk show hosts are elevated to pseudo party leaders status and solutions to problems are being served up with 30 year old left overs.

• Appointments: New deal, new cards, represents a difficult task for the Obama administration. How do you find and secure new talent and fresh ideas - Through trial and error.
• Can't go Home: Folks, the financial landscape is in a paradigm shift. Opportunities are out there but you have to find the new trend lines. Unfortunately, we don't have the option of being able to do nothing and ride it out. Pay attention to the actual numbers not the projections. The projections will be flawed for quite a while due to model drift of assumptions that are now invalid and have not been updated. Major trend changes are always tough to navigate.

Finally, you have to protect yourself by trying to think for yourself. What is best for you and your family during this time of extended economic uncertainty. No politician, economist, or media representative can help you determine that answer.

James Monachino

U.S. Existing Home Sales Fell in January to 4.49 Million Rate

Feb. 25 (Bloomberg) -- By Courtney Schlisserman

HIGHLIGHTS

Issues of interest:

• National Association of Realtors: Stated purchases fell 5.3 percent to an annual rate of 4.49 million, the fewest since 1997, from 4.74 million in December. The median price dropped 15 percent from a year ago, and distressed properties accounted for 45 percent of all sales.
• Resales: Of single-family homes decreased 4.7 percent to an annual rate of 4.05 million. Sales of condos and co-ops dropped 10 percent to a 440,000 rate. Total sales were down 8.6 percent compared with a year earlier.
• Home Sales: have been falling since 2005 and prices peaked in 2006. The S&P/Case-Shiller home-price index of 20 metropolitan cities was down 18.5 percent in December from a year earlier, a record decline, the group said yesterday.
• RealtyTrac Inc: Stated home foreclosures were up 17.8 percent in January from a year earlier. A total of 274,399 properties got a default or auction notice or were seized by banks, the 10th straight month that foreclosures topped 250,000.
• Fed Chairman Ben S. Bernanke: Stated on 2/24/09 the U.S. economy is in a “severe” contraction, and warned the recession may last into 2010 unless policy makers can stabilize the financial system.

COMMENTS

Another dismal report on the housing front. Get use to it. The housing market ran for years on speculation and on unstable funding practices. It is going to take a number of years for this market to stabilize.

What's a savvy financial novice to do. Right now, my advise is to do nothing. Understand the meaning of patience and timing. Why because:

• The Federal, State, and local laws and taxes our in flux.
• Rising Unemployment.
• Continuation of falling families net worth.
• Home prices have not demonstrated a bottom.

Don't worry about missing the boat, cash is king and will continue to be so for the rest of 2009 plus.

James Monachino

Homeowner Affordability and Stability Plan - Executive Summary

EXECUTIVE SUMMARY - FROM THE PRESS ROOM OF THE DEPT OF TREASURY

February 18, 2009
tg-33

Homeowner Affordability and Stability Plan

Executive Summary

Read the Homeowner Affordability and Stability Plan Fact Sheet HERE
Read Support Under the Homeowner Affordability and Stability Plan: Three Cases HERE

The deep contraction in the economy and in the housing market has created devastating consequences for homeowners and communities throughout the country.

• Millions of responsible families who make their monthly payments and fulfill their obligations have seen their property values fall, and are now unable to refinance at lower mortgage rates.
  
  
• Millions of workers have lost their jobs or had their hours cut back, are now struggling to stay current on their mortgage payments – with nearly 6 million households facing possible foreclosure.
  
  
• Neighborhoods are struggling, as each foreclosed home reduces nearby property values by as much as 9 percent.

Refinancing for Up to 4 to 5 Million Responsible Homeowners to Make Their Mortgages More Affordable A $75 Billion Homeowner Stability Initiative to Reach Up to 3 to 4 Million At-Risk Homeowners Supporting Low Mortgage Rates By Strengthening Confidence in Fannie Mae and Freddie Mac

The Homeowner Affordability and Stability Plan is part of the President's broad, comprehensive strategy to get the economy back on track. The plan will help up to 7 to 9 million families restructure or refinance their mortgages to avoid foreclosure. In doing so, the plan not only helps responsible homeowners on the verge of defaulting, but prevents neighborhoods and communities from being pulled over the edge too, as defaults and foreclosures contribute to falling home values, failing local businesses, and lost jobs. The key components of the Homeowner Affordability and Stability Plan are:

1. Affordability: Provide Access to Low-Cost Refinancing for Responsible Homeowners Suffering From Falling Home Prices

· Enabling Up to 4 to 5 Million Responsible Homeowners to Refinance: Mortgage rates are currently at historically low levels, providing homeowners with the opportunity to reduce their monthly payments by refinancing. But under current rules, most families who owe more than 80 percent of the value of their homes have a difficult time refinancing. Yet millions of responsible homeowners who put money down and made their mortgage payments on time have – through no fault of their own – seen the value of their homes drop low enough to make them unable to access these lower rates. As a result, the Obama Administration is announcing a new program that will help as many as 4 to 5 million responsible homeowners who took out conforming loans owned or guaranteed by Fannie Mae or Freddie Mac to refinance through those two institutions.

· Reducing Monthly Payments: For many families, a low-cost refinancing could reduce mortgage payments by thousands of dollars per year:

o Consider a family that took out a 30-year fixed rate mortgage of $207,000 with an interest rate of 6.50% on a house worth $260,000 at the time. Today, that family has about $200,000 remaining on their mortgage, but the value of that home has fallen 15 percent to $221,000 – making them ineligible for today's low interest rates that now generally require the borrower to have 20 percent home equity. Under this refinancing plan, that family could refinance to a rate near 5.16% – reducing their annual payments by over $2,300.

2. Stability: Create A $75 Billion Homeowner Stability Initiative to Reach Up to 3 to 4 Million At-Risk Homeowners

• Helping Hard-Pressed Homeowners Stay in their Homes: This initiative is intended to reach millions of responsible homeowners who are struggling to afford their mortgage payments because of the current recession, yet cannot sell their homes because prices have fallen so significantly. Millions of hard-working families have seen their mortgage payments rise to 40 or even 50 percent of their monthly income – particularly those who received subprime and exotic loans with exploding terms and hidden fees. The Homeowner Stability Initiative helps those who commit to make reasonable monthly mortgage payments to stay in their homes – providing families with security and neighborhoods with stability.
  
  
• No Aid for Speculators: This initiative will go solely to helping homeowners who commit to make payments to stay in their home – it will not aid speculators or house flippers.
  
  
• Protecting Neighborhoods: This plan will also help to stabilize home prices for all homeowners in a neighborhood. When a home goes into foreclosure, the entire neighborhood is hurt. The average homeowner could see his or her home value stabilized against declines in price by as much as $6,000 relative to what it would otherwise be absent the Homeowner Stability Initiative.
  
  
• Providing Support for Responsible Homeowners: Because loan modifications are more likely to succeed if they are made before a borrower misses a payment, the plan will include households at risk of imminent default despite being current on their mortgage payments.
  
  
• Providing Loan Modifications to Bring Monthly Payments to Sustainable Levels: The Homeowner Stability Initiative has a simple goal: reduce the amount homeowners owe per month to sustainable levels. Using money allocated under the Financial Stability Plan and the full strength of Fannie Mae and Freddie Mac, this program has several key components:
  
  
  • A Shared Effort to Reduce Monthly Payments: For a sample household with payments adding up to 43 percent of his monthly income, the lender would first be responsible for bringing down interest rates so that the borrower's monthly mortgage payment is no more than 38 percent of his or her income. Next, the initiative would match further reductions in interest payments dollar-for-dollar with the lender to bring that ratio down to 31 percent. If that borrower had a $220,000 mortgage, that could mean a reduction in monthly payments by over $400. That lower interest rate must be kept in place for five years, after which it could gradually be stepped up to the conforming loan rate in place at the time of the modification. Lenders will also be able to bring down monthly payments by reducing the principal owed on the mortgage, with Treasury sharing in the costs.
    
    
  • "Pay for Success" Incentives to Servicers: Servicers will receive an up-front fee of $1,000 for each eligible modification meeting guidelines established under this initiative. They will also receive "pay for success" fees – awarded monthly as long as the borrower stays current on the loan – of up to $1,000 each year for three years.
    
    
  • Incentives to Help Borrowers Stay Current: To provide an extra incentive for borrowers to keep paying on time, the initiative will provide a monthly balance reduction payment that goes straight towards reducing the principal balance of the mortgage loan. As long as a borrower stays current on his or her loan, he or she can get up to $1,000 each year for five years.
    
    
  • Reaching Borrowers Early: To keep lenders focused on reaching borrowers who are trying their best to stay current on their mortgages, an incentive payment of $500 will be paid to servicers, and an incentive payment of $1,500 will be paid to mortgage holders, if they modify at-risk loans before the borrower falls behind.
    
    
  • Home Price Decline Reserve Payments: To encourage lenders to modify more mortgages and enable more families to keep their homes, the Administration -- together with the FDIC -- has developed an innovative partial guarantee initiative. The insurance fund – to be created by the Treasury Department at a size of up to $10 billion – will be designed to discourage lenders from opting to foreclose on mortgages that could be viable now out of fear that home prices will fall even further later on. Holders of mortgages modified under the program would be provided with an additional insurance payment on each modified loan, linked to declines in the home price index.
    
    
• Institute Clear and Consistent Guidelines for Loan Modifications: Treasury will develop uniform guidance for loan modifications across the mortgage industry, working closely with the bank agencies and building on the FDIC's pioneering work. The Guidelines will be used for the Administration's new foreclosure prevention plan. Moreover, all financial institutions receiving Financial Stability Plan financial assistance going forward will be required to implement loan modification plans consistent with Treasury Guidance. Fannie Mae and Freddie Mac will use these guidelines for loans that they own or guarantee, and the Administration will work with regulators and other federal and state agencies to implement these guidelines across the entire mortgage market. The agencies will seek to apply these guidelines when permissible and appropriate to all loans owned or guaranteed by the federal government, including those owned or guaranteed by Ginnie Mae, the Federal Housing Administration, Treasury, the Federal Reserve, the FDIC, Veterans' Affairs and the Department of Agriculture.
  
  
• Other Comprehensive Measures to Reduce Foreclosure and Strengthen Communities
  
  

  • Require Strong Oversight, Reporting and Quarterly Meetings with Treasury, the FDIC, the Federal Reserve and HUD to Monitor Performance
    
    

  • Allow Judicial Modifications of Home Mortgages During Bankruptcy for Borrowers Who Have Run Out of Options
    
    

  • Provide $1.5 Billion in Relocation and Other Forms of Assistance to Renters Displaced by Foreclosure and $2 Billion in Neighborhood Stabilization Funds
    
    

  • Improve the Flexibility of Hope for Homeowners and Other FHA Programs to Modify and Refinance At-Risk Borrowers

3. Supporting Low Mortgage Rates By Strengthening Confidence in Fannie Mae and Freddie Mac:

• Ensuring Strength and Security of the Mortgage Market: Today, using funds already authorized in 2008 by Congress for this purpose, the Treasury Department is increasing its funding commitment to Fannie Mae and Freddie Mac to ensure the strength and security of the mortgage market and to help maintain mortgage affordability.
  
  
  • Provide Forward-Looking Confidence: The increased funding will enable Fannie Mae and Freddie Mac to carry out ambitious efforts to ensure mortgage affordability for responsible homeowners, and provide forward-looking confidence in the mortgage market.
    
    
  • Treasury is increasing its Preferred Stock Purchase Agreements to $200 billion each from their original level of $100 billion each.
    
    
• Promoting Stability and Liquidity: In addition, the Treasury Department will continue to purchase Fannie Mae and Freddie Mac mortgage-backed securities to promote stability and liquidity in the marketplace.
  
• Increasing The Size of Mortgage Portfolios: To ensure that Fannie Mae and Freddie Mac can continue to provide assistance in addressing problems in the housing market, Treasury will also be increasing the size of the GSEs' retained mortgage portfolios allowed under the agreements – by $50 billion to $900 billion – along with corresponding increases in the allowable debt outstanding.
  
• Support State Housing Finance Agencies: The Administration will work with Fannie Mae and Freddie Mac to support state housing finance agencies in serving homebuyers.
  
• No EESA or Financial Stability Plan Money: The $200 billion in funding commitments are being made under the Housing and Economic Recovery Act and do not use any money from the Financial Stability Plan or Emergency Economic Stabilization Act/TARP.
  

OBSERVATIONS:

A work in progress, the arrow is pointing in the right direction with this program. In addition:

Implementation: Knowing how slow the government is on enacting laws, it will be interesting to watch how quickly this ambitious outreach program can be implemented given the complexity.

Agencies Involvement: Freddie Mac and Fannie Mae are a resource that have the institutional reach and capacity to help make this program work. (Good Choice)

What's Not Addressed: Jumbos, underwater housing equity, and the voluntary nature of the law. The point is, this is not a single silver bullet.

Refinancing: Plan will limit homeowners from qualifying if they owe more than 105 percent of their homes value.

U.S. Housing Market: lost $3.3 trillion in value last year and almost one in six owners with mortgages owed more than their homes’ worth (according to a Feb. 3 report from Zillow.com).

Clearly this is phase one of a multi-phase program. Stay tune, more to come.


James Monachino

U.S. Jobless Rate Soars as Payrolls Plunge by 598,000 (Update2)

By Shobhana Chandra

Feb. 6 (Bloomberg)

HIGHLIGHTS:

• Unemployment Rate: Rose to 7.6 percent from 7.2 percent in December - the highest level since 1992.
  
• Payrolls Fell: 598,000, the biggest monthly decline since December 1974. Losses spanned almost all industries, from construction and manufacturing to retailing, trucking, media and finance.
  
• James Galbraith: Economics professor at the University of Texas in Austin stated, "We are in the middle of a very severe, a violent, collapse in activity and it could go on for months,” today on Bloomberg television.
  
• Since the Start of the Recession: In December 2007 , 3.57 million of job losses marks the biggest employment slump of any economic contraction in the postwar period.
• Average Work Week: remained at 33.3 hours in January. Average weekly hours worked by production workers fell to 39.8 hours from 39.9 hours, while overtime decreased to 2.9 hours from 3 hours. Average weekly earnings rose by $1.67 to $614.72.
  

Comments

Rising Unemployment Rate: No surprise there. Everyday we hear more and more companies trimming back to adjust to the new economic realities of a deflationary negative feed back loop. The opposite of prosperity, you cut than they cut and like a virus it spreads resulting in the immediate solution becoming part of the big problem.

Where is all the Money? Waiting on the sidelines. Yes, that may be partially true but what about:

• 401k Holders: They have taken a real equity and Dividend /Interest Rate hit regarding payout values.
• Home Owners: How much equity do I have in my home? Less - alot less depending on where you live with no immediate relief in sight.
• De-leveraging and Saving: As the economy tries to right itself we are seeing the de-leveraging of financial institutions and consumers increasing savings. Sounds reasonable, however, the result is less money is available for lending combined with the consumer now trying to build up their savings. Suggesting -- a negative short term implications for the economy as it adjusts to the new dynamics.
  
• Job Losses: Many of those well paying jobs in Real Estate, Banking, Auto, and Financial Services have disappeared and will never come back. A plan B is clearly needed to help bump us all in another direction and slow the free fall.
  

Conclusion

It should be obvious to all of us that we need to take a new direction with fresh faces, ideas, along with a dash of imagination. It will not be easy with full recovery down a long dusty road.

We need to explore and execute innovative solutions to help get people back to work and productive. That will cost us - - no tax cut will generate the depth and breathe of job creation that will be needed.

Finally, fear is quickly becoming our biggest enemy. Folks, we need to try and pull together on this one. We are all on the same economic ocean liner that is sinking, even if you think first class is higher up and you won't get wet - - Please realize that the rip in the bow of this wonderful ship is huge and needs all hands on deck to repair.

James Monachino

U.S. Payrolls Post Biggest Annual Drop Since 1945

U.S. Payrolls Post Biggest Annual Drop Since 1945
By Shobhana Chandra

HIGHLIGHTS

• Labor Department: U.S. lost more jobs in 2008 than any year since 1945 as employers fired another 524,000 people in December. In 2008, the nation lost 2.589 million jobs with the unemployment rate climbing more than economists forecast, to a 15-year high of 7.2 percent in December.
• Negative Feedback Loop: Analysts said the economy may be in danger of a reinforcing cycle of rising unemployment and declining household spending, what policy makers call a negative feedback loop, which is difficult to snap once it’s begun.
• Michael Darda: chief economist at MKM Partners LP stated, “This was the most rapid deterioration in the labor market over a six-month period since 1975,” “Policy makers will go full throttle” until “the labor market starts to turn,” he said.
• Average Work Week: shrank to a record-low 33.3 hours from 33.5 hours, today’s figures showed. Average weekly hours worked by production workers dropped to 39.9 hours from 40.3 hours, while overtime decreased to 3 hours from 3.3 hours. That brought the average weekly earnings down by $2 to $611.39.
• President Elect Obama: is pressing for a stimulus plan including tax cuts and spending on everything from roads and schools to the energy network. Yesterday he called for “dramatic action as soon as possible” to help pull the world’s largest economy out of a slump that’s in its second year. “If nothing is done, this recession could linger for years,” he said in Fairfax, Virginia.

COMMENTS:

Presidential Course of Action: Jobs, Jobs, Jobs, will be the mantra to try and turn momentum of the country around. With no silver bullet fixes in sight, the attempt to shore up the workers and middle class segment of the country will be a good start.

Old Faces New Policy: Not sure how that works, clearly recovery will be a difficult road to navigate and what we all have to admit is that legacy leadership confidently guided us all into this major world wide economic slow down. Whats worse, many of our governmental and business leaders never saw it coming. The financial system is faltering severely and putting together a fresh team of talent that will be capable of recognizing past failures and not defending previous career actions could get sticky.

Opportunity: Yes it is out there but be careful because the birds of 2009 have abandon their old nests of 2008 and will be finding new locations to feather their nests.

Solutions: Start with responsible management. I believe we will begin to see a major rotation of Legacy Leadership in business and government. Meaning, we will experience the injection of fresh faces in positions of leadership with passion, talent, and energy to carry the Country and the World into the new business and governmental paradigms that are being forged.

James Monachino