Monday, January 31, 2011

Crisis inquiry panel calls recession avoidable

Great, just what we need, a bunch of suits telling us something we already know! But after reading the article, it was actually very enlightening. Basically, due to politically partisan beliefs, the report can be viewed as quite flawed. But if you look past that part, you can start to see the genesis of our economic struggles. A good read.

By Adam Shell and Paul Davidson

Financial Crisis Inquiry Commission Vice Chairman Bill Thomas, left, and Chairman Phil Angelides.

A congressionally appointed panel reported Thursday that the financial crisis that set off the Great Recession was avoidable, casting a wide net of blame over regulators and financial giants alike.

The report — the government's first comprehensive review of what caused the crisis — offers a detailed and compellingly written narrative of an epic financial tailspin. It also raises an unavoidable question: More than two years after the financial crisis and more than six months after Congress passed sweeping financial reform, is it relevant?

Some say its impact will be muted because it was not supported by Republican members of the Financial Crisis Inquiry Commission. Others say much of the ground it covers was hashed out in previous hearings or reports.

The report is flawed, critics say. After more than a year of analysis costing $10 million, the 10-member Financial Crisis Inquiry Commission could not agree fully on the factors behind the crisis, issuing three different versions of the story told along partisan lines.

"The impact is diminished by the political nature of the report," says Arthur Levitt, former Securities and Exchange Commission chief. "The fact it had a divided authorship is never very constructive."

Yet, Ed Mierzwinski of U.S. PIRG, a consumer group, says the report vindicates the financial-regulatory reforms passed by Congress last year. Wall Street firms are trying to delay or weaken some of the rules, saying it will harm U.S. competitiveness. "The main takeaway is, don't let Wall Street roll back Wall Street reform," he said. It "should be implemented as quickly and strongly as possible."

Majority findings:

"The captains of finance and the public stewards of our financial system ignored warnings and failed to question, understand, and manage evolving risks within a system essential to the well-being of the American public," the nearly 600-page report says.

As a result of the crisis, the nation fell into the deepest economic slump in 70 years, sending millions into unemployment and costing taxpayers trillions.

The financial crisis was fueled by low interest rates and a booming housing market. As the subprime mortgage market boomed, so did demand for packages of risky mortgage-backed securities. Lenders eagerly made high-risk, subprime loans and sold them into the burgeoning mortgage-backed securities market. When the housing bubble burst, the value of mortgage-backed securities tumbled, taking down some of the nation's biggest financial firms: Bear StearnsFannie MaeFreddie MacCountrywide Financial andLehman Bros., among others.

The FCIC's analysis included a review of millions of pages of documents, interviews with more than 700 witnesses and 19 days of public hearings in parts of the country that were hard hit by the crisis.

The committee's final report, approved by the six Democratic commissioners, said the crisis was evident long before Lehman Bros. fell in September 2008.

The report says industry and government players at every layer of the financial system saw brightly flashing warning signs at every turn but chose to ignore or downplay them. The commission singles out the Federal Reserve as "the one entity" that could have stemmed the flow of toxic mortgages but failed to do so.

Although the Federal Reserve held hearings on predatory mortgages as early as 2000, it failed to follow through on proposals to require lenders to verify that borrowers could repay their mortgages.

"We want to encourage the growth in the subprime lending market," Fed GovernorEdward Gramlich said in early 2004.

Fed General Counsel Scott Alvarez told the commission: "There was concern that if you put a broad rule, you would stop things that were not unfair and deceptive." Ultimately, the Fed toughened its rules in 2002 but only modestly.

Mortgage lenders were aware of the dangers. In 2004 and 2005, Countrywide Financial CEO Angelo Mozilo e-mailed senior managers that subprime loans could bring "financial and reputational catastrophe" to the company. But that didn't stop Countrywide.

Financial giants, meanwhile, were snapping up the loans and packaging them into securities, despite the risks, to keep pace with rivals. "A decision was made that we're going to have to hold our nose and start buying the stated product if we want to stay in business," Citigroup banker Richard Bowen told the commission.

American International Group, which sold investors derivatives known as credit default swaps — insurance in case the mortgage securities defaulted — was similarly worried about impending doom. Former AIG CEO Maurice Greenberg told the commission that when the firm lost its AAA rating for the swaps in spring 2005, "it would have been logical for AIG to have exited or reduced its business." Instead, the company issued another $36 billion in credit default swaps.

Government-backed mortgage giant Fannie Mae was on a mission to perk up profits. As early as 2005, Thomas Lund, Fannie's head of single-family lending, told colleagues that risk had "accelerated dramatically." Yet, the firm widened its exposure to risky mortgages to compete.

The commission, in fact, concluded that Fannie Mae and Freddie Mac "followed rather than led Wall Street" and so were not a "primary cause" of the crisis. That contradicts the view of some economists and Republican lawmakers who blame the giants, which bought the lion's share of mortgages and were placed in a federal conservatorship in 2008.

The report also spotlights credit-rating agencies, "essential cogs in the wheels of financial destruction," as they awarded high ratings to securities that they barely investigated. The rub: Moody's was paid by the very companies it assigned ratings for. After Moody's went public in 2000, it went "from (a culture) resembling a university academic department to one which values revenue at all costs," said Eric Kolchinsky, a former managing director.

The report says lax regulation had been longstanding. "More than 30 years of deregulation and reliance on self-regulation by financial institutions, championed by former Federal Reserve chairman Alan Greenspan and others, supported by successive administrations and Congresses, and actively pushed by the powerful financial industry at every turn, had stripped away key safeguards, which could have helped avoid catastrophe," the report said.

Major dissent:

In a Thursday press conference via phone, commission Vice Chairman Bill Thomas, a former congressman and one of the three Republican dissenters, railed at what he called the politically driven "bumper sticker" type explanation for the cause of the crisis stated in the Democrat-dominated majority's report findings. Thomas also said the viewpoints of the commission's Republican members were downplayed in the final report.

The Republican trio argue that the Democrats' conclusion places too great an emphasis on missteps made by U.S. regulators and bankers, and ignores the global nature of the economic crisis.

That group of dissenters, which includes Keith Hennessey and Douglas Holtz-Eakin, two senior economic advisers to former president George W. Bush, places most of the blame on a global credit crisis caused in large part from a glut of savings from China and other countries that found their way to the U.S., resulting in record low interest rates. Those low borrowing costs helped inflate real estate bubbles in the U.S. and Europe. Singling out lax regulations in U.S. markets doesn't tell the whole story, they argue, since Europe suffered similar economic problems despite more stringent regulations than here in the U.S.

"By focusing too narrowly on U.S. regulatory policy and supervision, ignoring international parallels, emphasizing only arguments for greater regulation, failing to prioritize the causes, and failing to distinguish sufficiently between causes and effects, the majority's report is unbalanced and leads to incorrect conclusions about what caused the crisis," the three dissenters concluded in their report.

The second view comes from the other GOP panel member, Peter Wallison of theAmerican Enterprise Institute. He argues that the government policy to increase homeownership in the U.S. resulted in less stringent mortgage underwriting standards and some 27 million risky subprime loans that set the housing market up for a fall once the real estate bubble began to deflate. Had the government not embarked on this policy, "the great financial crisis of 2008 would not have occurred," Wallison argued in his written dissent.

Too little, too late?

Critics of the committee's work say that it uncovered little new ground and offered no policy changes to thwart another meltdown. "The fact that it doesn't cover new ground means its impact will be negligible," says Levitt, now a consultant for the Carlyle Group.

"A lot of good books have dissected these factors and causes," says Robert Pozen, author of The Fund Industry – How Your Money is Managed. "The real question is, what do we do from here." Currently, many aspects of the Dodd-Frank Wall Street Reform and Consumer Protection Act, passed last year, have yet to be finalized with regulators. Congress has yet to tackle reform of mortgage giants Freddie Mac and Fannie Mae. "It doesn't take a brilliant scientist to realize that the biggest area not touched is home mortgages," Pozen says.

But the panel was formed to investigate causes of the crisis, not recommend solutions, the majority says in the report. It was also instructed to report evidence of criminal wrongdoing to the appropriate authorities. Chairman Phil Angelides said Thursday that the commission passed along names to the authorities but would not say how many people were cited.

Fed says banks have eased business loan terms

Well, at least the commercial and business sector are starting to ease up the loan process again. What that typically means is that the residential and private sector are not too far behind. You have to think that the loan stipulations will start to ease up a little if we are to have any hope of beating this recession!

By Martin Crutsinger, AP Economics Writer

The Federal Reserve building in Washington DC
WASHINGTON — The Federal Reserve says banks loosened lending standards modestly for some business loans the past three months but kept tight standards on consumer loans.

The Fed say about 12% of banks responding to its latest survey had eased their standards on commercial and industrial loans to large- and midsize businesses.

However, the survey found little change in the tight lending standards imposed on consumer loans since the housing market collapsed.

For the business loans, banks said the slight easing in standards reflects a less uncertain economic outlook and increased competition from other banks to make business loans.

Real Estate Outlook: Home Prices Decline

I guess I we could all see this one coming. The experts having been saying as much for months now. But still, when it actually happens, it is still a bit un-nerving, especially for us realtors. But I have to say, if this isn't the time to buy, I don't when is.

By Carla Hill

The latest S&P/Case-Shiller Home Price index reveals that home prices, unfortunately, are still down and weakening.

According to Standard & Poor's, "The 10-City Composite was down 0.4% and the 20-City Composite fell 1.6% from their November 2009 levels. Home prices fell in 19 of 20 MSAs and both Composites in November from their October levels."

"With these numbers more analysts will be calling for a double-dip in home prices. ... The series are now only 4.8% and 3.3% above their April 2009 lows, suggesting that a double-dip could be confirmed before Spring."

Of course, many homeowners may feel that the recession never ended in the first place.
How much have some key cities' home prices fallen? From peak levels in 2006, Las Vegas is down 57.2%, Phoenix is down 53.9%, and Miami has dropped by 48.8% from its peak.

This is beyond worrisome for homeowners who bought at the top of the market, and now owe double what their home is worth. In response to price declines, both existing-home sales and pending sales are on the rise. This could signal that buyers feel we are nearing the bottom of the market and are now venturing out once again.

What are prices looking like across the nation? The national median existing-home price for all housing types was $168,800 in December, which is 1.0 percent below December 2009. Distressed homes rose to a 36 percent market share in December from 33 percent in November, and 32 percent in December 2009.

Existing-home sales rose sharply in December, when sales increased for the fifth time in the past six months, according to the National Association of REALTORS®.

NAR President Ron Phipps, broker-president of Phipps Realty in Warwick, R.I., said buyers are indeed responding to high levels of affordability. "Historically low mortgage interest rates, stable home prices, and pent-up demand are drawing home buyers into the market. Recent home buyers have been successful with very low default rates, given the outstanding performance for loans originated in 2009 and 2010," he says.

Lawrence Yun, NAR chief economist, feels the past six months have shown a recovery and that projections for 2011 levels are "getting much closer to an adequate, sustainable level."
In pending sales, the latest NAR index indicates a 2.0 percent increase over November. This is positive news despite the index being 4.2 percent below year ago levels.

"In the past two years, home buyers have been very successful, with super-low loan default rates, partly because of stable home prices during that time. That trend is likely to continue in 2011 as long as there is sufficient demand to absorb inventory," Yun said. "The latest pending sales gain suggests activity is very close to a sustainable, healthy volume of a mid-5 million total annual home sales. However, sales above 6 million, as occurred during the bubble years, is highly unlikely this year."

One in Five Mortgages Default Again After Modification

Well, at least we are trying! After reading so much about how foreclosures are ruining the economy, I am taking this one as a positive. This article is basically saying that mortgages are still defaulting even after the loan modification program, but lets read between the lines, it is also saying that 4 out of 5 modifications are working!

By John Gittelsohn

One in five U.S. homeowners whose loans were modified under a federal government program to help reduce foreclosures were at least 60 days late in their payments a year after their mortgages were reworked.
The re-default rate for the Making Home Affordable Program averaged 20.4 percent after 12 months, 15.9 percent after nine months, 10.7 percent after six months and 4.6 percent after three months, according to a report released today by the Treasury Department.
The program has been criticized by housing advocates, lawmakers and watchdog groups. The number of active, permanent modifications reached 521,630 as of Dec. 31 under the program, which originally was intended to help 3 million to 4 million homeowners save their properties from being seized by lenders.
“While we cannot prevent every foreclosure, it is important to remember that these programs have helped to create more options for affordable and sustainable assistance than have ever been available before,” Tim Massad, acting assistant Treasury secretary for financial stability, said in a statement today.
In a Jan. 25 report, Neil Barofsky, special inspector general for the Troubled Asset Relief Program, or TARP, called the loan-modification program “anemic” and “remarkably discouraging.” He said permanent loan modifications “pale in comparison” to foreclosure filings. A record 2.87 million properties received notices of default, auction or repossession in 2010, according to RealtyTrac Inc., an Irvine, California- based real estate data company.
Ninety Days Late
After one year, 15.8 percent of permanent modifications are at least 90 days late in the Treasury program, the department said today. That compares with a 29.8 percent rate after one year for all loan modifications tracked by the Treasury, according to a Dec. 29 report. Those loans, including ones modified by private institutions, were reworked in the third quarter of 2009.
In December, 30,030 homeowners newly qualified for permanent modifications that reduce home payments to 31 percent of gross income, the department said today. A total of 58,020 permanent loan modifications have been canceled since 2009.
For the first time, the Treasury Department today released demographic information about borrowers who received loan modifications.
Median Income
The median gross annual income for a homeowner with a permanent modification was $46,196, according to Treasury data. The median credit score was 570 upon entering the trial period. TheFederal Housing Administration requires at least a 580 FICO score to qualify for its loans with a minimum down payment of 3.5 percent. The largest lenders usually require scores above 620 to qualify for FHA loans.
The median loan balance was just over $232,196 after a modification and the median mark-to-market loan-to-value was 118 percent, meaning most homeowners had negative equity or were “underwater.” The median monthly payment reduction was more than $520 or about 40 percent.
Of borrowers who reported their race or ethnicity, whites accounted for 49 percent of active permanent modifications, Hispanics 26 percent, blacks 18 percent and Asians 4.6 percent.
The Los Angeles metropolitan area had 6.9 percent of borrowers with modifications, followed byNew York with 6.1 percent, Southern California’s Riverside-San Bernardino area with 5.4 percent, Chicago with 5.3 percent and Miami-Fort Lauderdale, Florida, with 4.6 percent, according to the report.

Thursday, January 27, 2011

Staging for The Five Senses

What a great article this is for sellers. If you are thinking of selling your home OR you already have it listed, I urge you to at least read through this article. Even the most seasoned agents could use a little refresher course of staging a home in this difficult market. I know I learned a lot!

By Carla Hill

Today's sellers are on the hunt for creative ways to ramp up their marketing. It is a necessity in today's tough market to have several tricks up your sleeve.

The idea is nothing new, but more and more sellers are beginning to discover the power of "staging."

In today's article, we will focus on staging for the five senses. Human beings are a sensory species. Our judgement and emotions are strongly influenced by what our senses tell us.
To harness the full power of staging, it's time you covered the basics.

1. Sight: This one is pretty obvious! Your rooms should be tidy and uncluttered. Photos, trophies, and kids' artwork should be replaced with simple, classic decor. A buyer needs to be able to imagine their own life in your home. If your budget allows, you may want to temporarily store outdated and oversized furniture. Rent new, modern pieces to create a simple and clean design.
For tighter budgets, slipcovers are an inexpensive way to neutralize loud patterns and to deter attention from stained and damaged furniture.

2. Smell: Be sure that each room is not only tidy, but that it smells clean. However, avoid harsh chemical smells, such as bleach. Many buyers may be sensitive to these smells and will want to make a quick exit. Consider installing simple room air fresheners or candles (when supervised) to create ambiance.

Pet owners and smokers may have their work cut out for them. Smoke can infiltrate furniture, carpets, and even walls. And with many buyers suffering from allergies, you may need to send Lassie to doggy day care for the day. To remove odors, clean carpets and repaint walls.

3. Touch: Broken and chipped tile, missing and loose handles, and wobbly handrails are all red flags to a would-be buyer. Be sure that you do any minor repairs before showing your home.

4. Hearing: An open house can be an event. For large-scale estates, they may even include musical performances. But for smaller sales, and that is most of us, simply be sure that barking dogs are taken to doggy daycare. Have noisy equipment shut off. Don't leave on televisions or radios. Peace and quiet is a sound, too!

5. Taste: Okay, this can be a hard one, depending on what kind of showing you are having. Open houses, though, are a great forum to provide wonderful food and drink. Many agents set up open houses much like a party. Be sure to have enough finger foods (that aren't messy) for all of your guests. And even small showings can play up the sense of taste by having freshly baked cookies or other goodies filling the air.

The bottom line? Staging is intended to create an atmosphere for the prospective buyer where they can envision themselves in your home. You create a lifestyle with your staging, and through how you stimulate the senses.

Is your home most likely to be bought by a large family? Do you have a downtown condo that will appeal to young professionals? When staging is done right, buyers will pay top dollar for not only your home, but the lifestyle it will afford them.

Staging done right creates ambiance, showcases the highlights of your home, and appeals to a wide range of buyers ... all sure fire ways to make a deal!

High unemployment drove foreclosures in 2010

Here is a good article explaining one of the main reasons why we have so many foreclosures in the system.

By Julie Schmit, USA TODAY

The pace of foreclosure filings slowed last year in the nation's hardest-hit housing markets but picked up in other U.S. metropolitan areas. High unemployment drove up foreclosures in 72% of 206 leading metropolitan areas last year, including many not hit as hard by the initial foreclosure waves that pounded cities in Nevada, California and Florida, market researcher RealtyTrac reports today.

Las Vegas posted the nation's highest metropolitan foreclosure rate, with one of nine homes receiving a foreclosure filing last year. That was down 7% from 2009.

Foreclosure filings dropped year-over-year in 17 of the 20 leading metro areas that had the highest foreclosure rates, RealtyTrac says. Nationwide, activity rose almost 2%.

While activity fell in some of the hard-hit areas, it increased in others.

Filings rose 3% in the Boise City-Nampa, Idaho, area last year from 2009. Greeley, Colo., saw a 12% rise. In both, one in 21 homes received a foreclosure filing last year.

The Atlanta region posted a 21% jump in filings last year. One in 23 homes received a foreclosure filing.

Nationwide, the rate was one in 45 homes.

"The recession has been brutal. The side effect of that is typically more foreclosures," says Rajeev Dhawan, director of the Economic Forecasting Center at Georgia State University.

The Seattle-Tacoma area also saw a 23% jump in foreclosure filings last year. Houston's rose 26%. But activity in those areas last year was still below the national average, RealtyTrac says.

"Foreclosures became more widespread in 2010 as high unemployment drove activity up," says James Saccacio, RealtyTrac CEO.

Despite some dips in hard-hit areas, foreclosure levels remained five to 10 times higher than historic norms in most of those markets, Saccacio said.

Activity will roar back in those regions, says Mark Zandi, chief economist of Moody's Analytics.

Last fall, major mortgage servicers, including Bank of America, delayed foreclosure activity as they revamped paperwork following revelations that foreclosure documents may have been improperly prepared. Zandi says the delays were more pronounced in the biggest housing-bust markets.

He expects foreclosure activity to pick up substantially in those areas in the next few months as the foreclosure process issues are resolved. Almost 2.9 million U.S. homes received foreclosure filings last year, a record high.

Wednesday, January 26, 2011

Fed: Economy needs $600B bond-buy program

This article is about the Feds still thinking that our economy is not out of the woods and still needs some artificial stimuli. Thus, they have decided to do a few more things to jump start the economy. Besides the bond buying program, the biggest thing I got out of this is that they are going to do everything they can to keep interests low or lower than they are currently. So that is avery good thing!

By Jeannine Aversa, AP Economics Writer

WASHINGTON — The Federal Reserve said Wednesday that the U.S. economy isn't growing fast enough to lower unemployment and must press ahead with its $600 billion Treasury bond-purchase program. 

Ending its first meeting of the year, the Fed made no changes to the program. The decision was unanimous.
The decision came from a new lineup of voting members that includes two officials who have criticized the bond purchases. They have said the purchases could eventually ignite inflation or speculative buying in assets like stocks.
The bond-buying program is intended to lower rates on loans and boost stock prices, spurring more spending and invigorating the economy. Chairman Ben Bernankefaces the challenge of trying to boost hiring and growth without creating new economic threats.
The tax-cut package that took effect this month is easing pressure on the Fed to stimulate growth through its bond purchases. The measure renewed income-tax cuts and cut workers' Social Security taxes, boosting their take-home pay.
The Fed's assessment of the economy was nearly identical to its last meeting in December. Fed policymakers seemed to downplay recent improvements in the economy including stronger spending by consumers and more production at factories.
Instead, the Fed noted that the economy continues to faces risks. The biggest: that high unemployment will damp consumer spending, which accounts for 70% of national economic activity.

Fed policymakers observed that the "economic recovery is continuing, though at a rate that has been insufficient to bring about a significant improvement in labor market conditions."
One of the Fed's main reasons for launching the bond-buying program was to lower stubbornly high unemployment.
The Fed noted a recent increase in the prices of commodities, such as oil and gasoline, but said they aren't likely to spark high inflation.
The Fed also repeated its pledge to hold interest rates at a record low near zero for an "extended period." To bolster the economy, the Fed has kept rates at ultra-low levels since December 2008.
There are four new voting members of the Fed's Open Market Committee: Charles Evans, president of the Federal Reserve Bank of Chicago; Richard Fisher, president of the Federal Reserve Bank of Dallas; Narayana Kocherlakota, president of the Federal Reserve Bank of Minneapolis; and Charles Plosser, president of the Federal Reserve Bank of Philadelphia.