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