ELYAC Realty- Fed appears ready to cut key interest rate again

Fed appears ready to cut key interest rate again

Central bank’s leaders will begin a two-day meeting on Monday

The Associated Press

updated 6:43 a.m. PT, Mon., Dec. 15, 2008

WASHINGTON – With the country spiraling deeper into recession, the Federal Reserve is ready to slash its key interest rate — perhaps to an all-time low — in hopes of cushioning some of the economic fallout felt by many struggling Americans.

To battle the worst financial crisis since the 1930s, Fed Chairman Ben Bernanke and his colleagues already have ratcheted down their main lever for influencing the economy — the federal funds rate — to 1 percent, a level seen only once before in the last half-century.

The Fed opens a two-day meeting Monday to assess to economy and decide its next move on rates. Another reduction to the funds rate, the interest banks charge each other on overnight loans, is all but certain to be announced Tuesday.

Many economists predict the Fed will cut its rate in half — to just 0.50 percent. A few think the Fed could opt for an even more forceful action — lowering rates by a whopping three-quarters percentage point or more. If that larger cut occurs, it would be the lowest on records that track the monthly average of the targeted funds rate going back to 1954.

Even an aggressive rate reduction won’t turn the economy around, analysts said.

“It is not so much going to give the economy a big push forward. It’s more a case of trying to help the economy from being pushed further backward by all these negative events,” said Stuart Hoffman, chief economist at PNC Financial Services Group.

However deeply the Fed decides to cut rates, the prime rate — now at 4 percent — for many consumer and small-business loans would drop by a corresponding amount. The prime lending rate is used to peg rates on home equity loans, certain credit cards and other consumer loans. Cheaper rates could give pinched borrowers a dose of relief.

The goal of lower borrowing costs is to entice people and businesses to spend more, which would revive the flat-lined economy. So far, though, the Fed’s aggressive rate reductions have failed to lift the country out of a recession that started last December.

Clobbered by the financial crisis, worried banks have hoarded their cash and been extremely reluctant to lend money to customers. Fearful consumers, watching jobs vanish and their investments tank, have sharply cut back their spending, including big-ticket purchases like homes and cars that typically involve financing.

The negative forces have fed off each other, creating a vicious cycle that Bernanke and Treasury Secretary Henry Paulson have been desperately trying to break.

To unlock lending and get financial markets to operate more normally, the U.S. has resorted to a string of radical actions, including a $700 billion financial bailout where the government is making cash injections in banks in return for partial ownership stakes.

In terms of rate cuts, the Fed is getting ever closer to running out of ammunition.

It can lower the funds rate only so far — to zero. Even if that were to happen — a point of debate among economists — the prime rate would fall to 3 percent but no lower.

Against that backdrop, Bernanke says the central bank is exploring other ways to stimulate the economy.

The Fed could buy longer-term Treasury or agency securities on the open market in substantial quantities, Bernanke says. This might lower rates on these securities and help spur buying appetites.

Another option the Fed has mulled: issuing its own debt, which would give the central bank cash and more flexibility to battle the financial crisis. To do that, however, the Fed would need new powers from Congress.

“The Fed wants to show that it has tools and options and is not out of tricks because interest rates are very low,” said Michael Feroli, economist at JPMorgan Economics. “The problems holding back the economy are fairly long lived in nature.”

To combat the financial crisis, the Fed already has created first-of-its-kind programs, such as getting cash directly to companies by buying up mounds of “commercial paper,” the short-term debt firms use to pay everyday expenses such as payroll and supplies.

It also recently launched massive programs to boost the availability of consumer credit, including that for cars, student loans, homes and credit cards. The Fed also is making loans to banks, is providing a financial backstop to the mutual fund industry, and has injected billions of dollars in financial markets here and abroad.

The Fed could opt to expand programs by enlarging loans it’s now making, providing loans to other types of companies, or buying more and different types of debt. The Fed’s balance sheet has ballooned to $2.2 trillion, from close to $900 billion in September, reflecting some of those other activities to get credit flowing again.

Even with all the bold moves, the economy continues to sink deeper into despair.

Skittish employers axed 533,000 jobs in November alone. That drove the unemployment rate up to 6.7 percent, a 15-year high.

Since the start of the recession, the economy has shed nearly 2 million jobs. Analysts predict another 3 million more will be lost between now and the spring of 2010.

Last week alone, Bank of America Corp., tool maker Stanley Works and Sara Lee Corp., known for food brands such as Jimmy Dean and Hillshire Farm, announced job cuts.

General Motors Corp., Chrysler LLC and Ford Motor Co., meanwhile, are fighting for their survival. GM and Chrysler have said they’re in danger of running out of money within weeks. The White House is exploring new ways to help Detroit after rescue efforts collapsed in Congress.

With the employment market eroding and consumers retrenching, the economy could stagger backward at a shocking 6 percent rate in the current October-December quarter, analysts predict. It shrank at a 0.5 percent pace in the third quarter.

President-elect Barack Obama is advocating an economic recovery plan that includes spending on big public works projects to bolster jobs. His plan also includes tax cuts to spur consumers to spend more and businesses to step up investment and hiring.

Americans are sorely feeling the toll of the housing, credit and financial crises.

Households’ net worth fell 4.7 percent in the third quarter to $56.5 trillion as people watched the value of their homes and investments tank. It marked the fourth straight quarterly decline, the Fed said.

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ELYAC Realty- Mortgage Troubles Are Moving Downtown

Like others who got caught up in the recent commercial real estate frenzy, Joseph Moinian, the owner of 20 million square feet of office towers, apartment buildings and hotels throughout the country, sought to take advantage of the huge run-up in values as banks feverishly competed to make loans with exceedingly generous terms.

But now that office rents in Manhattan and elsewhere are declining and empty space is beginning to flood the market, Mr. Moinian, who is developing a 58-story W hotel and residential tower just south of the World Trade Center, finds himself with a problem.

He recently missed part of a $319,000 monthly payment on a $66.5 million mortgage for 60 Madison Avenue, a second-tier Midtown Manhattan office building that he refinanced in April 2007, Commercial Mortgage Alert, a trade publication, reported in October. The cash flow from the property does not come close to what was projected in the loan documents, according to Realpoint, a credit ratings agency which has put the loan on its watch list.

Mr. Moinian quickly made good on the delinquent payment and has pledged to keep current on future payments, but his difficulties demonstrate that the troubles that have already begun to afflict the commercial real estate industry will be widespread and not limited to high-profile deals.

So far, the delinquency rate for loans that were packaged and sold to investors as commercial mortgage-backed securities and are at least 30 days behind is only 0.63 percent, Realpoint said. But the unpaid balance of delinquent loans — $5.3 billion as of October — has increased by 70 percent since January.

And analysts say the low default rate is deceptive. For one thing, as banks competed for business during the heady period from 2005 to 2007, most of the loans they wrote were interest-only, at least initially, so monthly payments were artificially low for the first few years, said Mike Kirby, a principal in Green Street Advisors, a research company.

Delinquencies are expected to accelerate next year. And many more delinquencies and defaults are expected in 2010, when five-year interest-only loans issued in 2005 begin to mature and borrowers are unable to refinance them because credit is scarce and property values have declined instead of risen.

“Defaults on mortgages are a trickle right now, but the pace will pick up over the next year, more than I would have thought in October,” Mr. Kirby said. “It’s coming, and it can’t be avoided. There’s going to be a lot of it, and it’s going to be bad.”

As the market heated up in the middle of the decade, the volume of securitized loans exploded — to $200 billion a year in the period from 2005 to 2007, from $70 billion a year in the 2000-to-2004 period, according to Green Street. And as volume picked up, projections of rent growth became increasingly optimistic and the reserve funds intended to make up for the amount not covered by the property’s cash flow were often inadequate, analysts said. The $1.5 million debt-service reserve fund for 60 Madison Avenue has dwindled to $7.80, Realpoint said.

“The underwriters were very aggressive,” said Victor Franco M. Calanog, the senior economist at Reis, a research company. “They were under a lot of pressure for deals to be made. They allowed investors to take a lot of risks.”

When Mr. Moinian refinanced 60 Madison Avenue, a 1910 building at 27th Street, it was 86.5 percent occupied. But the 10-year loan was underwritten for occupancy of 95.1 percent, according to documents filed with the Securities and Exchange Commission. In the interim, the building has lost tenants instead of gaining them. CoStar Group, a research company, said that occupancy was now 66 percent.

The mortgage was written as if the annual net cash flow from the building amounted to $4.9 million, when in fact the building was generating only $3.2 million then and is bringing in only $1.9 million now, Realpoint said.

Mr. Moinian, a co-owner of the Sears Tower in Chicago, declined to be interviewed. But he told Commercial Mortgage Alert that he made up the shortfall in the debt service payment as soon as he learned about it. “We will continue to make all payments promptly,” he said in a statement.

Some borrowers are already rushing to try to renegotiate their loans because the current terms are untenable. This can only be done by transferring the mortgage to a special servicer, a financial services unit that is charged with resolving problems with distressed assets in the interests of investors.

Last month, the industry was shocked to discover that two loans JPMorgan Chase had packaged with other mortgages and sold to investors in May as a commercial-mortgage-backed security were delinquent. Both loans — one for an open-air shopping center in the Southern California community of Corona, and another for Westin hotels in Tucson and Hilton Head, S.C. — were transferred to a so-called special servicer.

The transfer startled investors because the loans were originated and sold to investors long after the credit squeeze became apparent in the summer of 2007, said Steve Kuritz, a Realpoint senior vice president. “You would figure a 2008 deal would be a little cleaner,” he said.

The 350,000-square-foot shopping center, the Promenade Shops at Dos Lagos, was developed by Poag & McEwen, a Memphis company that is often credited with originating the concept of “lifestyle center” — a retail property without a roof or a traditional department store anchor that is aimed at relatively affluent shoppers. The loan anticipated that the shopping center would bring in $10.5 million a year, but the net operating income for 2007 was only $6.3 million, Realpoint said.

Josh Poag, the chief operating officer of Poag & McEwen, said the shopping center had been on track to achieve revenue goals until the retail industry began to struggle. He said the shopping center also faced competition from other projects that sprang up anticipating further growth in the counties east of Los Angeles, where Corona is located. Instead, the area is among those hit especially hard by the housing crisis.

“We’ve had three retailers close their doors,” Mr. Poag said. “Other retailers are struggling to meet their payments and some are getting dangerously late — are on the verge of not paying the rent.” He said the company believed in the shopping center’s prospects and hoped to work out a solution with the special servicer.

As the recession progresses, many borrowers with leveraged loans will seek to modify terms, said Alan L. Todd, an analyst at JPMorgan Chase. “If the borrower knows that going forward, the cash flow, or net operating income, is expected to drop, the first time they hit a 30-day delinquency, they’re going to say, ‘I need help,’ “ he said. “They can see how it is going to play out.”

But there is likely to be a tug of war between property owners and investors who bought the bonds backed by the mortgages. The owners will want their mortgages extended, said Orest Mandzy, the managing editor of Commercial Real Estate Direct, a news service. But holders of AAA-rated bonds, the least risky, are likely to press the special servicer to sell the loan so that they can get their money back. “That’s going to be the sort of battle that goes on,” Mr. Mandzy said.

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ELYAC Realty- It May Be Time to Think About Buying a House

Five or 10 years from now, when the financial crisis has ended and housing prices are up smartly once more, we will look in the rearview mirror and realize that we missed a golden age for first-time home buyers.

Then, everyone who sat on their down payment savings accounts for a few years too long will kick themselves for not taking advantage of what may turn out to be the buying opportunity of a lifetime for those who can qualify for a mortgage.

Unfortunately, we do not know when this golden age will begin, because we will be able to identify a bottom to the housing market only with the benefit of hindsight. But as it does with the stock market, the moment will probably arrive when everyone is feeling the most pessimistic.

That moment is certainly getting closer. Housing prices have fallen drastically from their peak levels in many areas of the country. Rates on 30-year fixed-rate mortgages are already close to 5.5 percent, and this week there were suggestions that the federal government might try to drive them down to 4.5 percent, a truly incredible figure to be able to lock in for three decades.

Meanwhile, first-time home buyers have the same advantage they have always had, which is that they do not have to sell their old place before buying a new one. That is an added advantage in areas where many available houses simply are not moving, because the people trying to sell them will not be bidding against you.

If you’re hoping for a recovery in the housing market, you ought to be cheering on the first-time home buyers. When they purchase homes, their sellers are free to move on or move up, stimulating further sales.

But if you are a potential first-time buyer yourself, or lending or giving the down payment to one, you are probably as frightened as you are tempted by all the “For Sale” signs that have become “On Sale” signs. So let’s quickly review some of the still-grim pricing data in certain areas — and consider the reasoning offered up by first-time buyers who have forged ahead anyhow.

As is always the case with real estate, much depends on location. One study, “The Changing Prospects for Building Home Equity,” tries to predict where today’s first-time buyers in the 100 biggest metropolitan areas may actually have less home equity by 2012 as a result of continued price declines. The verdict was that buyers in 33 of the markets could see a decline by 2012, including potential six-figure drops on an average home in the New York City, Los Angeles, San Francisco and Seattle metropolitan areas.

This is obviously scary. (I’ve linked to the study, a joint effort of the Center for Economic and Policy Research and the National Low Income Housing Coalition, from the version of this article at nytimes.com/yourmoney.) It’s worth noting, however, that these predictions came before the government made its most recent move to reduce borrowing costs.

Also, the price projections in the study are based, in part, on the fact that the ratio of purchase prices to annual rents is still higher in many areas than the historical average, which is roughly 15 times rents. While past figures may well have some predictive value, I have never been convinced that first-time buyers compare a home that they could own and one that they would rent in purely or even primarily economic terms.

When Jaime and Michael Proman moved this fall to Minneapolis, his hometown, from New York City, they craved a different sort of life after two years together in a 450-square-foot studio apartment. “We didn’t want a sterile apartment feel,” said Mr. Proman, who is 28 (his wife is 26). “We wanted something that was permanent and very much a reflection of us.”

The fact is, in many parts of the country there are few if any attractive rentals for people looking to put down roots and enjoy the sort of amenities they may spot on cable television home improvement shows. Comparing a rental with a place that you may own seems almost pointless in these situations, especially for those who are now grown up enough to want to make their own decisions about décor without consulting the landlord.

Still, for anyone feeling the urge to buy, a number of practical considerations have changed in the last year or two. The basics are back, like spending no more than 28 percent of your pretax income on mortgage payments, taxes and insurance. Even if a lender does not hold you to this when you go in for preapproval, you should hold yourself to it.

You will also want to start now on any project to improve your credit score because it may take several months to get it above the 720 level that qualifies you for many of the best mortgage rates.

John Ulzheimer, president of consumer education for credit.com, a consumer credit information and application site, suggests starting to pay down and put away credit cards months before you apply for a loan. That is because the credit scoring system could penalize you if you use a lot of credit each month, even if you always pay in full. Also, check your three credit reports (it’s free) at annualcreditreport.com and dispute errors.

While no one can easily predict the likelihood of losing a job, Friday’s startling unemployment figures suggest the need for caution if you think you might be vulnerable. A. C. Panella, who teaches communications at Pasadena City College in California, waited until she had a tenure-track job before buying a home in the Highland Park section of Los Angeles with her partner, Amy Goldman, a lawyer for a nonprofit organization. “We could afford the mortgage payment on one salary, were something to come up,” Ms. Panella, 31, said. “It’s really about being able to stay within our means.”

For many first-time home buyers, that philosophy stretches to the down payment, too. Ms. Panella and her partner put down 20 percent when they bought their home in September, as did the Promans when they bought their home in the Lowry Hill neighborhood of Minneapolis.

Alison Nowak, 29, put just 3 percent down on a Federal Housing Administration-backed loan last month when she and her partner, Lacey Mamak, bought a $149,900, 800-square-foot home several miles south of where the Promans live. “Anything that is an opportunity also has a bit of risk,” she said. Her house was in foreclosure before a plumber bought it and fixed it up. “One way we mitigated it was that we bought a really tiny house in a very good neighborhood.”

One other strategy might be to buy new instead of used. Ian Shepherdson, chief United States economist for the research firm High Frequency Economics, says he believes that a steep drop-off in inventory of new homes is coming soon, thanks to a rapid decrease in home builder activity.

Since prices generally soften in the winter, it may make sense to start looking seriously once the mercury bottoms out. “If you look at new developments next spring, you may not have the choice you thought you would have or be in the bargaining position you thought you would be,” Mr. Shepherdson said. Also, if you wait after June 30, you will miss out on a $7,500 federal tax credit for income-eligible first-time home buyers that works like an interest-free loan.

Finally, allow yourself to consider how it would feel if you bought and then prices dropped another 10 or 15 percent. It might not bother you if you plan to stick around. Plenty of people seem to be making a longer commitment to their homes. According to a survey that the National Association of Realtors released last month, typical first-time buyers plan to stay in their home 10 years, up from 7 last year.

Perhaps people are more aware that they will not be able to build equity as rapidly as others did in the real estate boom. Or they simply have more confidence in hard, hometown assets now than in other markets.

“We wouldn’t let another decline bother us,” said Michael Proman. “You can never time a bottom. This is a long-term investment for us, and it truly is the best investment we have in our portfolio right now.”

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ELYAC Realty- White House Struggles to Find G.O.P. Support for Auto Bailout

WASHINGTON — Even as House Democrats pressed for a vote Wednesday afternoon on a government rescue of the automobile industry, the Bush administration failed to generate enough support for the measure among Senate Republicans who have the power to kill the bill, dimming the prospects for the $15 billion plan.

The White House chief of staff, Joshua B. Bolten, attended a weekly lunch of Republican senators in an effort to persuade them to support the auto rescue plan. But he encountered stiff resistance. Some senators said the automakers should be allowed to go into bankruptcy while others said the White House plan for a car czar was weak.

Senator George V. Voinovich, Republican of Ohio, and one of the few outspoken Republican supporters of a government rescue for the auto industry, emerged from the lunch and suggested there was little hope that the bill could be approved. He said that even substantial changes to the bill may not change the minds of many colleagues.

Efforts by the Bush administration and Congressional Democrats to fashion a government rescue of the foundering American auto industry hit other snags on Wednesday, with a dispute over the precise wording of the bill. That led the House and Senate to put forward competing versions of the legislation.

The last-minute disagreement centered on a single word — with the Senate bill requiring the automakers “to comply with all applicable federal fuel efficiency and emissions requirements” and the House bill referring to “all applicable fuel efficiency requirements,” which would include state emissions rules that the automakers oppose.

Aides to House Speaker Nancy Pelosi said that she was prepared to push ahead with plans for a vote on the legislation Wednesday afternoon, while Democratic Senate aides warned that the House version of the bill was doomed in the Senate because it would be rejected by Republicans and would never be signed by President Bush.

Even as negotiators sought to iron out that final disagreement, a group of Republican senators held a news conference to say that they would oppose an auto bailout in any form and that they stood ready to filibuster the bill. It was not immediately clear if the opposition would be sufficient to block the measure.

Senator Richard C. Shelby, Republican of Alabama, said he remained opposed to a bailout. “I intend to talk to the American people about it from the Senate floor,” he said.

In the broadest sense, the competing bills provide an identical government rescue of the two most imperiled automakers, General Motors and Chrysler, in the form of $15 billion in emergency loans. In exchange for the loans, the auto manufacturers would have to submit to strict government oversight and carry out sweeping reorganization plans.

The auto bailout plan would be supervised by a so-called car czar to be appointed by President Bush within the executive branch.

The bill also provides for extensive taxpayer protections that would give the government warrants to take an equity stake in the automakers. It would limit executive pay, bar “golden parachute” severance packages and prohibit the paying of shareholder dividends while the emergency government loans are outstanding.

The bill would require the companies and their stakeholders, including creditors, labor unions, and dealers to agree on sweeping reorganization plans that would lead to long-term financial viability. If they fail to agree, the auto czar would be able to impose a plan, and could also force the companies into bankruptcy if they fail to meet requirements.

Even if the final dispute over the legislation could be resolved on Wednesday, it seemed likely that the Senate would not be able to approve the bill until sometime next week.

Senator Shelby was joined by three other Republican senators, John Ensign of Nevada, Tom Coburn of Oklahoma and David Vitter of Louisiana, in speaking against a bailout.

“How does anybody expect some ‘car czar’ to make the decisions that are right?” Mr. Ensign asked rhetorically as he and his colleagues alluded to the decades-long, systemic problems of the domestic auto industry.

Before the unexpected snag, Congressional aides said a deal between House Democrats and the White House was close, and White House aides said good progress had been made. But House Republicans, who are at a 236-to-198 disadvantage, were circulating an alternate plan that they said would allow the car companies to be competitive again without putting public money at risk.

Some Republicans, notably Mr. Shelby, have said the carmakers’ problems were of their own making and they should be forced into bankruptcy, if necessary. Others, like Mitch McConnell of Kentucky, the minority leader, have said they would like to find a way to save the companies without putting taxpayers’ money at risk.

Republican support for a rescue is vital in the Senate, since 60 votes are needed to advance the measure because of procedural rules. With the resignation of President-elect Barack Obama, Democrats have only a 5o-to-49 advantage in the Senate, and it is not clear if the White House can muster broad support among Republicans.

The rescue plan would extend $15 billion in emergency loans to General Motors and Chrysler, the two most imperiled automakers, and would subject them to far-reaching government oversight at the direction of a so-called car czar to be named by Mr. Bush.

Ford is not seeking short-term loans because it is not as bad off as the other two big automakers.

By Tuesday evening, White House and Democratic Congressional negotiators, meeting at the Capitol, had narrowed their differences to one major issue: a proposal to bar the automakers from fighting state laws that seek to cap greenhouse gas emissions.

A senior administration official said that bill would set a firm deadline of March 31 for the car czar to certify that the automakers and their stakeholders, including creditors, labor unions and dealers, had agreed to carry out a long-term viability plan and that the bill would set out “a hard economic definition of what it means to be a viable firm.”

The official said that if there were no such agreement, the auto czar would be required to demand repayment of the administration rather than giving the czar discretion to call in the loan, which Democrats had initially proposed. The bill would also allow the auto czar to impose a viability plan, which could force a company into bankruptcy.

To address concerns raised by the White House on Monday, the bill will require the car czar to call in the emergency loans for repayment should the auto companies fail to carry out aggressive reorganization plans or meet other obligations in the law.

Congressional Democrats also agreed to a White House request to raise to $100 million, from $25 million, the size of business transactions requiring the approval of the auto overseer. The administration said it did not want to micromanage the automakers.

Aides suggested that Speaker Pelosi, whose district is in California, where an emissions lawsuit is under way, might be willing to compromise on that point in exchange for White House assurances that Republican lawmakers would support the bill.

Meanwhile, House Republicans were putting forth a proposal calling for the government to provide insurance to cover up to half the losses of new investment in the auto industry in the case of default. That way, they said, taxpayers’ money would be protected and private investment would be encouraged.

The Senate majority leader, Harry Reid of Nevada, said that lawmakers might need to work through the weekend to get the rescue plan approved. But he expressed resolve.

“There will be no stalling us from doing this,” Mr. Reid said on the Senate floor on Tuesday afternoon. “We are going to complete this legislation.”

The Democrats may face difficulties generating votes in their own caucus as well. There were 10 Democrats who voted against the $700 billion financial system bailout in October, some of whom could similarly oppose a taxpayer rescue of the auto companies.

In addition, Senators John Kerry of Massachusetts and Amy Klobuchar of Minnesota, both Democrats, are scheduled to leave Washington on Wednesday for a trip overseas.

Mr. Reid said he would urge lawmakers in both parties to be available to vote on the auto-rescue package. “I would suggest it’s not a very good vote to miss,” he said. “Maybe multiple votes.”

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ELYAC Realty- Job market is awful, but may get worse

Job market is awful, but may get worse

Sharp jump in unemployment shows the economy is rapidly weakening

ANALYSIS

By John W. Schoen

Senior producer

msnbc.com

updated 12:22 p.m. PT, Fri., Dec. 5, 2008

Friday’s report showing the biggest monthly job loss in 34 years confirmed forecasters’ worst fears that the decline in the U.S. economy accelerated in November, after the financial system seized up and consumers hunkered down. As the government scrambles to break the downward spiral, some economists are predicting the unemployment rate is headed substantially higher through next year.

Since the start of the recession in December 2007, the economy has lost 1.9 million jobs, lifting the number of Americans out of work to 2.7 million. At 6.7 percent, the jobless rate has now risen 2.3 percentage points since it bottomed in March 2007.

Most sectors of the economy are now losing jobs, including manufacturing, construction, financial firms, retailers, and the leisure and hospitality industries. Only government, education and health services managed to post job gains.

Friday’s report also slashed another 200,000 jobs from the numbers already reported for September and October — a sign that the economy was hit harder than first reported when the credit crunch deepened.

Economists, who had been expecting a loss of some 350,000 jobs last month, were stunned by the news, describing the report as “horrendous,” “horrific” and “eye-poppingly bad.”

“We’re scrambling around here for historical parallels,” said Robert Barbera, chief economist at ITG, an investment advisory firm.

More big job cuts are on the way, as companies slash costs to try to offset the expected drop in revenues. In just the past few weeks, major employers like AT&T Inc., DuPont, Citibank, JPMorgan Chase and Pratt & Whitney have announced steep job cuts.

“These numbers are shocking,” said economist Joel Naroff, president of Naroff Economic Advisors. “Companies are sharply reacting to the economy’s problems and slashing costs. They are not trying to ride it out.”

Chrysler, General Motors and Ford continued to fight for survival Friday with another round of testimony on Capitol Hill, where the companies’ CEOs are asking lawmakers for as much as $34 billion in emergency aid. But the auto industry has already sustained major damage. Car sales cratered to a 26-year low last month after the financial storm erupted in September.

“This is unprecedented in the history of the industry — and it happened from one day to the next,” said Mike Jackson, chairman and CEO of AutoNation, the largest U.S. chain of car dealers. “The strong will survive and the weak will be swept away by this toxic combination of Depression sales level and the lack of credit for business. It’s going to be painful and unfortunate, but it does need to happen.”

What makes the latest data so worrisome is that they point to an economic decline that is picking up speed.

“The economy is now locked in a vicious downward spiral in which employment, incomes and spending are collapsing together,” said Nigel Gault, chief U.S. economist at IHS Global insight.

Consumers also are taking a hit to their finances as the collapse in housing prices and the rise in foreclosures that tipped the economy into recession show no signs of abating.

A record one in 10 American homeowners with a mortgage were either in foreclosure or at least a month behind on their payments at the end of September, according the latest survey released Friday by the Mortgage Bankers Association. The percentage of auto loans that was behind by 60 days or more rose 15.9 percent in the third quarter compared to last year, according to credit reporting agency TransUnion.

As consumers struggle to keep up with existing debts, lenders have cut credit card limits and tightened up on extending new loans, which has further crimped spending. The collapse of the stock market has wiped out trillions of dollars of personal wealth, forcing consumers to try to increase savings to make up for those losses.

All of which is accelerating the pullback in consumer spending – the main engine of the U.S. economy that accounts for roughly two-thirds of gross domestic product. Consumption dropped 3.7 percent in the third quarter; the spending pullback is expected to worsen during the holiday season that retailers rely on for the bulk of their profits. Gault expects consumer spending to shrink by 4.7 percent in the fourth quarter.

Economists already have begun comparing the current downturn to the back-to-back recessions of 1980-1982. The unemployment rate peaked at 10.8 percent then after the government pushed interest rates to high double-digits to try to break a decadelong inflationary spiral.

“You had interest rates that soared, the credit system shut down, and everything stopped,” said Barbera. “That’s what this (jobs) number says, and that’s what it suggests for the GDP numbers.”

Before Friday’s jobs data, economists had expected GDP to contract at a sharp 4 to 5 percent rate in the current fourth quarter. Barbera said the latest data indicated the drop could be more like 8 percent.

“We’re in a deep contraction with very little offset now,” said former Treasury Secretary John Snow. “The consumer is parked. China is slowing. India’s slowing — Brazil, Mexico. Virtually every sector of the American economy is being affected.”

To some observers, the current economy is in even worse shape than the early 1980s recession that was brought on by the government-induced credit squeeze. Once the government cut rates, the economy recovered quickly.

Now the government has so far been unable to halt the steep decline, despite the commitment of trillions of dollars in spending, investment and loan guarantees.

The current credit drought follows the excesses of a prolonged period of low interest rates and easy-money lending that began to reverse course in 2007 and all but shut down lending in mid-September. To spur borrowing, the Federal Reserve has cut the target overnight lending rate to 1 percent and is expected to cut by as much as a half-percentage point on Dec. 16. But short term market rates have been well below the Fed’s official target for weeks.

With short-term rates approaching zero, the Treasury and the Fed are considering other measures to try to drive down the cost of long-term borrowing, including mortgage rates.

President-elect Barack Obama already has called for a half-trillion-dollar government spending package to generate 2.5 million jobs over his first two years in office, which Congress is hoping to have ready by Inauguration Day in January. The latest data may prompt enactment of an even bigger spending package.

“We had assumed a $550 billion package over three years — we will need more than that,” said Gault. “The trick will be making the stimulus effective quickly, which is difficult since infrastructure projects take time to gear up.”

Regardless of the size of the package, Friday’s jobs report heightens the urgency of an aggressive government response, said Mark Zandi, an economist at Moodys’ Economy.com.

“The only way out is for government to be extremely aggressive on every front — the Federal Reserve, economic stimulus, help for the automakers, extending out TARP money (to buy bad assets from banks) — everything,” he said.  “Because we’re now in this self-reinforcing, negative cycle, and the only way out is for the government to fill the void.”

Even if the government acts quickly and stems the slide in the financial markets and the economy, some economists believe the jobless rate will top 10 percent before beginning to subside.  If this recession drags on past mid-2009, it would be the longest since the Great Depression. (The recessions of 1973-75 and 1981-82 both lasted 16 months according to the National Bureau of Economic Research.)

In any case, the eventual recovery will likely be more gradual and weaker than after past recessions, according to Stuart Hoffman, chief economist at PNC Financial.

“I think the mind-set will be different on the other side of this recession over the next couple of years,” he said. “That will prevent borrowers and would-be borrowers and lenders from saying, “Alright, game’s back on. Let’s start running house prices up and credit cards and credit limits up. It’s not going to happen.”

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ELYAC Realty- Treasury weighs action on mortgage rates

Treasury weighs action on mortgage rates

Plan would aim to buoy housing market by forcing down the cost of loans

By David Cho, Zachary A. Goldfarb and Dina ElBoghdady

The Washington Post

updated 12:30 a.m. PT, Thurs., Dec. 4, 2008

The Treasury Department is strongly considering a plan to intervene directly in the mortgage industry to dramatically force down rates and stimulate the moribund housing market, according to sources familiar with the proposal.

Under the initiative, the Treasury would offer to buy securities that finance newly issued loans for home purchases, according to the sources. But to participate in the government’s program, mortgage lenders would have to set exceptionally low interest rates, for instance, no more than 4.5 percent for traditional, 30-year fixed-rate loans.

These securities would be purchased primarily from Fannie Mae and Freddie Mac, the financing giants that buy most mortgages from U.S. lenders, according to sources who spoke on condition of anonymity because the plan has not been finalized.

The cost of the plan and source of funding remain unclear. One possibility is for the Treasury to raise money by issuing bonds to the public at 3 percent interest. This could allow the government to turn a profit because it would be buying securities that pay 4.5 percent.

At a meeting attended by the Treasury’s Interim Assistant Secretary for Financial Stability Neel Kashkari and the National Association of Realtors in mid-November, senior Treasury officials said they were optimistic that subsidizing lower mortgage rates with taxpayer dollars would help revive the housing market, sources said.

Treasury officials told the Realtors that the plan could be a more effective way to help homeowners than focusing efforts solely on borrowers who are struggling to meet their monthly payments, the sources said. Democratic lawmakers have been advocating a proposal to modify the mortgages of distressed homeowners.

A source said Treasury officials suggested at the meeting that the Realtors start a grass-roots campaign to press the mortgage rate plan with lawmakers.

Treasury officials described the situation as fluid and said the plan was still being finalized, according to people in contact with the department. The officials expressed concerns yesterday that premature disclosure of the plan could prompt Americans to put off buying homes and hold out for a better rate, sources added.

Treasury spokeswoman Brookly McLaughlin said she would not comment on the matter.

Key to solving financial crisis
Treasury Secretary Henry M. Paulson Jr. has said that a recovery in the housing market is key to solving the financial crisis. Such a rebound would restore confidence in the banking system and support the value of troubled assets backed by mortgages.

Though he has said a mortgage modification plan proposed by Federal Deposit Insurance Corp. Chairman Sheila C. Bair could help the housing market, Paulson has expressed concerns about whether it would reward borrowers who bought houses they couldn’t afford. Bair’s plan would use tens of billions in federal funds to modify adjustable-rate mortgages for several million financially troubled homeowners.

The initiative under review at the Treasury would be an alternative. Borrowers would have to meet standards set by Fannie Mae, Freddie Mac or the Federal Housing Administrations that include documenting their income, sources said. Fannie and Freddie were put under government control in September. The Treasury plan would not apply to refinances.

Any efforts by the Treasury to lower rates on new mortgages would work in concert with a Federal Reserve plan announced last week to buy $500 billion worth of existing mortgage-backed securities issued by Fannie Mae and Freddie Mac, and $100 billion worth of those companies’ debt.

The Fed was pleasantly surprised that 30-year fixed mortgage rates fell by as much as three-quarters of a percentage point in anticipation of their program. Homeowners rushed to refinance. Cheaper monthly payments may bolster consumer spending, the most important component of U.S. economic activity.

‘Short-term windfall’
News of the Treasury plan spread quickly through the markets. Shares of home builders rose. At Long & Foster, the Washington area’s largest real estate brokerage, top brass informed agents that they should gear up for increased demand from potential buyers.

“This is going to be a short-term windfall that everybody needs to jump on,” said Dave Stevens, the firm’s president and chief operating officer and a former Freddie Mac official. The move by the Treasury certainly would mean “interest rates will drop,” he added.

But it is unclear whether lower mortgage rates will spark home buying, which is a weightier decision for ordinary people than refinancing a loan.

There are also questions about how much the Treasury would spend to buy down the mortgage rate. One industry source said another idea being pushed by trade groups calls for the Treasury to spend $50 billion of its $700 billion financial rescue package to reduce the fees, or points, that home buyers pay when they want a lower rate for a mortgage.

Yesterday, the average rate on a 30-year fixed-rate mortgage increased slightly to 5.75 percent yesterday, up from 5.54 the previous day, said Keith Gumbinger, a vice president at research firm HSH Associates.

“What’s not known is the timing of the purchasing of the mortgage-backed securities and how quickly money will be pumped into the marketplace and that matters as to how low the mortgage rates will go,” Gumbinger said.

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ELYAC Realty- Record 1-in-10 Americans in mortgage trouble

Record 1-in-10 Americans in mortgage trouble

Many at least a month behind on their payments or in foreclosure

The Associated Press

updated 12:07 p.m. PT, Fri., Dec. 5, 2008

WASHINGTON – A record one in 10 American homeowners with a mortgage were either at least a month behind on their payments or in foreclosure at the end of September as the source of housing market pressure shifted from risky loans to the crumbling U.S. economy.

The percentage of loans at least a month overdue or in foreclosure was up from 9.2 percent in the April-June quarter, and up from 7.3 percent a year earlier, the Mortgage Bankers Association said Friday.

The foreclosure crisis continued to be concentrated in states like Florida, where a stunning 7.3 percent of all loans were in foreclosure at the end of September, by far the highest in the country.

In Nevada, the number was 5.6 percent. It was 3.9 percent in California — compared with about 3 percent nationally.

Distress in the home loan market started about two years ago as increasing numbers of adjustable-rate loans reset to higher interest rates. But the latest wave of delinquencies is coming from the surge in unemployment.

Employers slashed 533,000 jobs in November, the most in 34 years, catapulting the unemployment rate to 6.7 percent, the Labor Department said Friday. “Now it’s a case of job losses hitting more across the board,” Jay Brinkmann, the trade group’s chief economist.

With the economy worsening, the much-anticipated bottom of the housing market likely will be pushed further into the future.

“Things are going to get worse before they get better,” said Northern Virginia housing economist Thomas Lawler.

Most troubling, he said, is that the mortgage bankers’ report reflects conditions before October’s stock market plunge and the resulting economic fallout.

“The number of homes that are in the foreclosure process is so high — right before the economy has fallen off a cliff,” Lawler said.

The U.S. tipped into recession last December, a panel of experts declared earlier this week, and economists fear it could be the longest and most severe in decades. Since the start of the recession, the economy has lost 1.9 million jobs.

Job losses are already having an impact in rising delinquency rates for traditional 30-year fixed rate loans made to borrowers with strong credit. Total delinquencies on those loans rose to 3.35 percent in September from 3.07 percent at the end of June, the Mortgage Bankers Association said.

Lenders appear to be on track to initiate 2.25 million foreclosures this year, up from an average annual pace of less than 1 million during the pre-crisis period, Federal Reserve Chairman Ben Bernanke said this week. In the third quarter, there were about 575,000 new foreclosures, with about 183,000 in California and Florida combined, according to the MBA’s data.

There were some modest signs of stabilization. The number of loans that entered the foreclosure process totaled 1.07 percent of all loans in the third quarter, flat from the second quarter.

That number, however, likely reflects changes in state laws that delay or extend the foreclosure process and efforts to work out or modify loans that could still fall back into foreclosure.

Also, the total delinquency rate on subprime adjustable-rate loans remained just over 21 percent, down from a peak of 22 percent in the first quarter.

With delinquencies still accelerating on many types of loans, efforts to stabilize the U.S. housing market are accelerating. The Treasury Department is now considering a plan to make loans at 4.5 percent as a way to revive the U.S. housing market. The plan being considered would apply to new home purchases, not refinanced loans.

But some analysts worry that the government’s plan will delay a necessary deflation of the housing bubble. With the government effectively lowering mortgage rates, housing prices could be prevented from falling to a more affordable level.

Any government assistance plan should exclude homes that are out of line with rents or other measurements of affordability, said Dean Baker, an economist and co-director of the Center for Economic Policy Research in Washington.

“It’s absolutely counterproductive,” he said, “to try and prop up prices.”

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ELYAC Realty Los Angeles Realtors Specializing in Foreclosure Homes for Sale, Home Loans, and Mortgage Brokers

310.562.0572

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