WASHINGTON — American consumers, battered by a steep downturn in housing and a severe credit crunch, slowed spending growth in September to the weakest performance in three months.
The Commerce Department reported Thursday that consumer spending rose by 0.3 percent in September, slightly lower than the 0.4 percent increase that analysts had been expecting. Incomes grew by 0.4 percent, matching the August gain, and in line with analysts' forecasts.
Economists are worried that consumers, the main support for the economy, may cut back on their visits to the malls in coming months as they struggle with the housing slowdown, tighter credit and now record-high oil prices.
The Federal Reserve on Wednesday cut a key interest rate for the second time in six weeks in an effort to make sure the economy does not tumble into a recession.
The news about inflation from the consumer spending report was good. Prices paid by consumers on the Fed's preferred inflation gauge rose a moderate 0.2 percent in September, excluding food and energy.
This measure is up 1.8 percent over the past 12 months, inside the Fed's comfort zone of increases in core inflation of between 1 percent and 2 percent.
source: 1nov2007
NEW YORK — Foreclosure filings climbed during the third quarter of 2007 with no relief in sight, according to a report released Thursday.
The report by RealtyTrac, an online marketer of foreclosure properties, showed the number of filings rose 30 percent from the previous quarter and nearly doubled from a year earlier.
"Given the number of loans due to reset through the middle of 2008, and the continuing weakness in home sales, we would expect foreclosure activity to remain high and even increase over the next year in many markets," James J. Saccacio, chief executive of RealtyTrac said in a statement.
More than 635,000 foreclosure filings were reported nationwide — one for every 196 households. The filings include everything from default notices to auction sale notices to actual bank repossessions.
"August and September were the two highest monthly foreclosure filing totals we've seen since we began issuing our report in January 2005," said Saccacio.
States in the Sun Belt and the Rust Belt continued to dominate foreclosure filings.
In the third quarter, Nevada had the highest foreclosure rate — one for every 61 households. Filings in the state rose 23 percent from the last quarter and more than tripled from the year before.
California recorded the second-highest foreclosure rate with one filing for every 88 households. Numerically, the state had the most filings with 94,772 properties, which was up 36 percent from the second quarter. That was nearly four times higher than a year ago.
Florida had the next highest total among the states, one for every 95 households. Foreclosure filings jumped to a total of 86,465, up more than 50 percent from the previous quarter and nearly doubling from last year.
Rust Belt states located in the nation's former industrial centers that made the top 10 included Michigan (one in 102), Ohio (one in 107), and Indiana (one in 196).
"Although not all areas are being hit as hard as others, the rise in foreclosures is quite widespread, with 45 out of the 50 states documenting year-over-year increases in the third quarter," Saccacio said.
Foreclosures are expected to continue to increase as many of the adjustable-rate mortgages written during 2004 and 2005 reset, causing interest rates and mortgage payments to rise.
Resets could turn affordable loans into totally unaffordable ones for some borrowers, forcing them to go into default. In October, about $50 billion in ARMs reset, driving interest rates up for many borderline borrowers.
Some consumer advocates forecast more than 2 million homeowners are in danger of losing their homes over the next couple of years.
source: 1nov2007
NEW YORK — About $50 billion in adjustable rate mortgages reset this month, driving interest rates up for many borderline borrowers. And despite efforts to raise awareness, it doesn't look like anyone is really prepared for what's to come.
"I don't know if there's anything much [borrowers] can do," said Keith Gumbinger of HSH Associates, a publisher of mortgage related information. "Hopefully, they've been prudent about preparing for it, building a nest egg or refinancing the loan."
But most borrowers are likely to just scramble to pay the higher expenses — some of which will jump by 50 percent and come as a big surprise.
According to a survey conducted last month for the AFL-CIO by Peter D. Hart Research Associates, three quarters of borrowers have little clue about how much their payments will increase when their loans adjust. Nearly half don't know how their loans actually reset.
"This survey shows that many homeowners simply are not prepared for the steep rise in mortgage payments that this market inflicts on ARM holders," John Sweeney, president of the AFL-CIO, said in a press release.
When asked whether they were confident or worried about making their monthly mortgage payments over the next few years, 41 percent of homeowners whose adjustable rate mortgages (ARMs) had already reset said they were worried. Only 18 percent of pre-reset borrowers were concerned.
The record round of resets has been getting a lot of attention across the board. Congress, the Bush administration, government agencies, regulators and community groups and lenders all have their own ideas on how to offer relief. Mark Zandi, chief economist for Moody's Economy.com, believes that borrowers are more informed than in the past, but he doesn't see that knowledge translating into better results.
"The success rate for loan modifications is not improving much," said Zandi. "In September, defaults surged."
Zandi blamed the surge, in part, on the sheer number of borrowers seeking help; servicers who need to hire and train new loan counselors are unprepared for the volume.
And technical roadblocks to mortgage modifications are slow to being dismantled. Contractual obligations between servicers and investors who buy the loans can limit the options servicers may offer borrowers.
According to Michele Taylor, a community reinvestment organizer for the Chicago-based National Training and Information Center (NTIC), some investors stand to make less money if a loan is modified, so they're not playing ball.
"We're hearing from servicers, 'Nothing can be done because the investor won't allow it,'" she said. That occurs even when the same servicers have worked out favorable modifications for other borrowers.
Tax and accounting considerations are also hindering workouts. One initiative that could help is the Bush administration's proposal to forgive taxes when mortgage principals are lowered. But any relief action as a result is unlikely to take place before October's record round of resets.
There is a light at the end of the tunnel, however. "We may be approaching a tipping point after which we'll have more success with saving borrowers' homes," said Zandi.
He thinks servicers may move toward giving ARM borrowers an extra three to five years of payments at initial low "teaser rates," giving them a little breathing room until home prices rebound. Unpaid interest could then be folded back into principals and loans refinanced.
NTIC is pushing for a similar freeze as part of its "Save the American Dream" campaign. It's suggesting a two-year moratorium on resets.
But the mortgage situation can't hope to improve until banks tighten lending practices, and it doesn't look like they're quite on track. This past summer, the Mortgage Bankers Association revealed that delinquency rates for loans made in 2006 were rising.
And a new report from investment bank, Friedman, Billings, Ramsey, suggests that as conditions began to collapse during the first half of 2007, lenders still failed to vet borrowers carefully.
According to the report, lenders did not tighten underwriting standards until July or August, when the subprime crisis came to a head. As a result, delinquency rates for these most recent loans are even higher than those for 2005 and 2006.
With so many poorly underwritten loans, future delinquency rates and foreclosures could soar. And while October will be the peak year for resetting ARMs in 2007, new records will be set in early 2008; March will see more than $100 billion in resetting loans.
It could be a bumpy ride.
source: 1nov2007
NEW YORK — Lend a hand to distressed homeowners? No way, say many, who worry the tab will come out of their pockets as taxpayers.
Some proposals, it's true, would be directly financed by taxes. For example, the Senate voted in favor of an appropriations bill that earmarks $100 million to provide housing counseling for those facing foreclosure.
But some proposals would cost taxpayers money only in a worst-case scenario.
The worst case for FHA and Fannie and Freddie Taxpayer dollars, for instance, don't directly support the Federal Housing Administration's loan insurance program — the premiums paid by homeowners with FHA loans do.
But moves to liberalize FHA loan guidelines concern some because the government would presumably step in if the FHA stumbles after taking too much risk.
In the wake of the credit crunch, the agency instituted FHASecure to loosen guidelines to make more FHA loans available to homeowners in trouble. A modernization bill under consideration would allow the agency to insure bigger loans and loans with 0 percent down.
Those provisions would expose the FHA to more expensive and more risky loans. If too many of those loans fail, the thinking goes, the government would step in with taxpayer money.
"While the subprime market has witnessed considerable stress, the losses in that market are being borne by investors. Were these same losses to occur in FHA programs, it is likely they would be borne by the taxpayer," said Richard Shelby (R-AL), ranking member on the Senate Banking Committee, in a July hearing.
Other proposals on the Hill focus on Fannie Mae and Freddie Mac. The agencies guarantee the purchase and trading of mortgages, which helps promote homeownership. Fannie and Freddie can't buy loans valued above $417,000 and some proposals call for an increase in that limit.
Some proposals also call for higher limits on the amount of mortgage assets that Fannie and Freddie buy and keep in their own portfolio, and earmarking a portion of the raised limit for the purchase of subprime loans.
Fannie and Freddie are "government sponsored," not government funded, but there is an implicit understanding that should Fannie and Freddie falter, the government would feel pressure to help out.
"As a purely legal matter, it's not required to. But it's bailed out private companies before," said Patrick Fleenor, chief economist for the Tax Foundation, a nonprofit research group that advocates for lower taxes.
Some tax dollars well spent Some bills would impose more stringent regulation on mortgage lenders and brokers, and administering such oversight would cost the government money.
But even those who oppose tax-funded bailouts say more stringent regulations is a good idea.
"Government cannot stop the housing market from expanding and contracting, but it can make future contractions less painful ... [by holding] lenders and brokers to higher, more uniform standards during loan origination," wrote economics and public policy associate professor Jacob Vigdor of Duke University in a paper critical of most bailout proposals.
What likely won't hit taxpayers There is a bill that would amend the bankruptcy code to let judges reduce the value of a mortgage to the value of a home for Chapter 13 filers. That cost would be borne most directly by lenders. But lenders could price that risk into the price of loans, making it more expensive for consumers to buy a home.
One proposal, while directly tax related, is not likely to affect most taxpayers. The Mortgage Forgiveness Debt Relief Act (MRDA) would exempt homeowners paying income tax on any mortgage debt their lenders forgive. That would reduce federal tax revenue by an estimated $1.3 billion over 10 years, but another provision in the bill would actually raise more money, making the bill revenue neutral, according to the Joint Committee on Taxation.
That money-raising provision would reduce the amount of capital gains some second-home owners may exempt from tax when they sell that second home.
Some initiatives are not at all funded by taxpayer dollars. One example is that the newly formed alliance among a select group of mortgage lenders, servicers and housing counselors brokered by Treasury Secretary Henry Paulson. The alliance will coordinate efforts between servicers and counselors to provide subprime loan "workouts," which can include lowering the interest rate on a loan, spreading out past-due payments over the life of the loan or a short-term repayment plan.
Another example is the Treasury-facilitated debt rescue fund financed by three major banks to enhance liquidity in the short-term credit markets.
But those who oppose bailouts say it's as much about principle as it is about cost.
"Using government power to absolve borrowers or lenders of their responsibility, even without the direct use of taxpayer dollars, is likely to be costly to many, hurtful to the innocent and helpful to those whose avarice and overreaching contributed so much to the creation of this situation," Vigdor wrote.
Those who are more supportive of such efforts say the cost to everyone could be much greater by not doing anything.
Correction: An earlier version of this story incorrectly stated that Massachusetts was using taxpayer dollars to help troubled subprime borrowers refinance their loans through a foreclosure prevention program. The program will be partly funded by issuing taxable bonds, but those bonds will be repaid by MassHousing using money generated from that agency's mortgage loan business. MassHousing was created by the state legislature but is self-funded, said spokesman Tom Farmer.
source: 1nov2007
|
To
send Mindfully.org your comments, questions, and suggestions click
here |