450,000 at risk in foreclosure-prevention program

01/23/2010
NEW YORK (CNNMoney.com) -- Hundreds of thousands of troubled homeowners who are making lower mortgage payments on a trial basis are at risk of being kicked out of President Obama's foreclosure-prevention program.

Companies that service the mortgages have until Jan. 31 to review all trial modifications that have been underway for several months under the Home Affordable Modification Program (HAMP), according to a Treasury Department guideline issued late last month. The Treasury Dept. said it would issue new guidelines next week, but wouldn't give details.
During the review period, servicers must determine whether borrowers have made all their payments and have handed in all the necessary paperwork. Those who haven't will get letters giving them 30 days to comply.

The goal is to clear up the backlog of borrowers stuck in trial modifications, in which a homeowner's monthly payments are lowered to no more than 31% of pre-tax income.

Some homeowners have spent seven or eight months waiting to hear if they qualify for a permanent adjustment to their mortgages.

This directive, however, has some bank regulators concerned.

"About 450,000 homeowners currently have HAMP trial modifications and have demonstrated a willingness and ability to make timely payments for at least three months," said Richard Neiman, superintendent of the New York State Banking Department.

"Now, unfortunately and very alarmingly, these same homeowners face the prospect of foreclosure strictly on account of documentation issues," he said.

Paperwork has proved a major stumbling block for the president's foreclosure-prevention program. Homeowners complain that their servicers continuously lose the documents they send in, while financial institutions argue that borrowers have not been sending in their paperwork.

Aware of the problem, Treasury officials said they plan to issue new guidance to servicers next week that will help expedite the conversion of borrowers in the trial period to permanent modification. It may also lighten the documentation requirements.

Converting to permanent modifications
Under fire for the low number of people receiving long-term help, the Treasury Department in late November ramped up pressure on servicers to convert borrowers to permanent modifications.

Some 66,500 people have received permanent adjustments, with another 787,200 homeowners in trial modifications.

Under the president's plan, delinquent borrowers are put into trial modifications for several months to make sure they can handle the new payments and to give them time to submit their financial paperwork.

Once the modification becomes permanent, servicers, investors and homeowners are eligible to receive thousands of dollars in incentive payments.

Overall, about three-quarters of people are making their payments on time, according to the Treasury Department.

Treasury officials already lightened the documentation requirements in the fall in hopes of speeding up the conversion process. But more needs to be done, Neiman said.

For instance, Treasury should accelerate its implementation of a standardized documentation form and the creation of a Web portal that will allow homeowners to track the receipt of the paperwork, he said. Also, it should allow servicers more flexibility in accepting alternative documents.

If this isn't done, a lot of homeowners could soon face foreclosure, he said.

"This is a real concern to borrowers, particularly borrowers who've continued to make payments for three, four, five, even seven months," Neiman said.

Stocks: Trying to reverse the slide

01/24/2101
NEW YORK (CNNMoney.com) -- After the worst week on Wall Street in almost a year, investors will return to work looking for greater clarity -- from Washington, from the banks and from corporate America.

The Dow plunged 4% last week, its worst week since March 6, 2009, the bottom of the bear market.



Stocks got hit from all sides: The White House's proposal to impose more restrictions on banks; China's moves to rein in economic growth; and questions about whether Federal Reserve chairman Ben Bernanke will win confirmation for a second term. His first term ends Jan. 31.

"Obama talking about banking, China talking about limiting lending and the questions about Bernanke all added a level of uncertainty to the market that wasn't there before," said Ryan Detrick, senior technical strategist at Schaeffer's Investment Research.

That uncertainty sparked the selloff last week, but it doesn't mean that it will continue in the week ahead.

"This was a scary pullback, but we've seen a series of these 5% to 7% selloffs since the market bottomed in March of last year," Detrick said.

"Each time investors used that as an opportunity to put more money back in place and I think you can still give the bull market the benefit of the doubt," Detrick said.

The week ahead brings the latest Federal Reserve policy meeting, the first reading on fourth-quarter GDP growth, the president's State of the Union address and profit reports from a host of major companies.

Company financial results: More than a quarter of S&P 500 companies are due to report results this week, including Dow components Microsoft (MSFT, Fortune 500), Chevron (CVX, Fortune 500), DuPont (DD, Fortune 500) and Verizon (VZ, Fortune 500).

Ford Motor (F, Fortune 500) is expected to report a big profit versus a loss a year ago. Yahoo (YHOO, Fortune 500) is expected to report a drop in profits and Amazon.com (AMZN, Fortune 500) to report a rise.

So far, strong results have been met with indifference by investors. Google (GOOG, Fortune 500), IBM (IBM, Fortune 500), Intel (INTC, Fortune 500) and American Express (AXP, Fortune 500) all reported better-than-expected results, only to see their stocks tumble.

In the wake of the big stock rally of 2009, investors are looking for more than just improved earnings on the back of cost-cutting.

"The overwhelming majority of big companies have sold off after their earnings even if the results were good," said Donald Selkin, chief market strategist at National Securities.

"This historic rally may have discounted all the good earnings and now the companies are going to have to work to earn further stock gains," he said.

So far 18% of the S&P 500, or 92 companies, have reported results. Earnings are on track to have risen 193% from a year ago and revenue 5%, according to the latest from Thomson Reuters. But a lot of that is due to easy comparisons to an abysmal fourth quarter of 2008, the worst in history, according to Thomson.

A lot of the improvement this quarter is especially due to a big comeback for the financial sector. Strip out financial results and year-over-year S&P 500 earnings are up just 9% and revenue growth is flat.

The Fed: The Federal Reserve's two-day meeting gets underway Tuesday, with an announcement on interest-rate policy expected Wednesday afternoon. The Fed, led by Chairman Ben Bernanke, is widely expected to vote to hold interest rates steady at historic lows near zero.

However, as always, what the bankers say in the statement about the health of the economy will be key, especially if they hint at when they might begin to raise interest rates.

A sustained period of historically low interest rates -- combined with the infusion of trillions of dollars into the financial system -- has been credited with helping the country avert a bigger disaster. The Fed's actions are also seen as having boosted the stock market in the past 9 months.

But some dissent in the Senate about whether or not Bernanke should serve a second term could cloud the meeting.

In December, Bernanke received a vote of confidence from the Senate Banking Committee. However, some Democratic Senators say they plan to vote against approving a second term, leaving White House and Senate leaders struggling to rummage up the needed support.

In addition to the Federal Reserve, investors will also be focused on the week's economic news including reports on housing, employment, consumer confidence and durable goods orders. The biggest report of the week is the first reading on GDP growth in the fourth-quarter, due out Friday.

On the docket
Monday: Sales of existing homes are expected to have fallen to a 6 million unit annual rate in December from a rate of 6.54 million units in November, according to a consensus of economists surveyed by Briefing.com. The report from the National Association of Realtors is due out in the morning.

Tuesday: The consumer confidence index from the Conference Board is due out shortly after the start of trading. The index is expected to have dipped to 52.9 in January from 53.3 in December.

The S&P/Case Shiller Home Price index, covering 20 of the largest metropolitan areas in the nation, is expected to show that prices fell 5.2% in November from the previous month.

The Congressional Budget Office has its 2010 budget and economic outlook press briefing, starting at 11:00 a.m. ET.

Wednesday: New home sales likely rose in December to a 370,000 unit annual rate from a 355,000 unit annual rate in November, according to forecasts. The report from the census bureau is due out shortly after the start of trading.

The weekly crude oil inventories report from the government is due in the morning, while the Fed announcement is due in the afternoon.

Reportedly, Apple will unveil its much-anticipated new Tablet computer in San Francisco in the afternoon.

The World Economic Forum begins in Davos, Switzerland, and runs through Sunday.

In the evening, the President gives the State of the Union address, starting at 9:00 p.m. ET.

Thursday: December durable goods orders are expected to have risen 2% in the month versus a rise of 0.2% in the previous month.

The weekly reading on initial jobless claims is also due although no estimates were available at the time of this publication.

Friday: The initial reading on gross domestic product growth in the fourth quarter is due out Friday morning from the government. GDP is expected to have grown at a 4.6% annualized rate after growing at a 2.2% rate in the third quarter.

The consumer sentiment index from the University of Michigan is due shortly after the start of trading. The index is expected to have risen to 73 in late January from 72.8 in early January.

Goldman Sued by Pension Fund over Bonus Plans

January 8, 2010
REUTERS

Goldman Sachs was sued on Thursday by an Illinois pension fund seeking to recover billions of dollars of bonuses and other compensation being awarded for 2009, saying the payouts harm shareholders.

In a lawsuit filed in New York state supreme court in Manhattan on behalf of shareholders, the Central Laborers' Pension Fund said Goldman had by Sept. 25 set aside nearly $17 billion for compensation and might pay out more than $22 billion for the year. It said this "highlights the complete breakdown" of corporate oversight.

The lawsuit contends that Goldman's revenue for the year was artificially inflated by government bailouts of the banking industry and the insurer American International Group, as well as a change in Goldman's fiscal year.

Such sums, and Goldman's practice of continuing to pay out nearly 50 percent of net revenue as compensation, show "scant regard" for the interests of shareholders, it said.

Goldman spokesman Michael DuVally called the lawsuit "completely without merit." Other defendants are Chairman and Chief Executive Lloyd Blankfein, Chief Operating Officer Gary Cohn, Vice Chairman J. Michael Evans, Chief Financial Officer David Viniar, and 10 directors.

An individual shareholder, Ken Brown, filed a similar lawsuit in the same court on Tuesday.

Goldman has in recent months been faulted by banking critics who say it is one of the biggest beneficiaries of government efforts to shore up a financial system that seized up in September 2008, and who consider its pay awards outsized.

The bank repaid its $10 billion of bailout money last year, and thus is no longer subject to related curbs on pay.

Concern about financial industry pay generally is expected to rise over the next few months as companies release their proxy statements and hold annual meetings.

Other unions have also criticized Goldman conduct. Last month, the International Brotherhood of Teamsters had accused Goldman of making derivatives trades that would benefit from a bankruptcy by trucking company YRC Worldwide.

In its lawsuit, the Illinois fund is seeking damages sustained by shareholders, restitution from executive officer defendants, corporate governance changes and other remedies.

Goldman Sachs shares doubled in 2009 and have risen more than 5 percent in 2010, but are 29 percent below their record high set in October 2007. They closed Thursday up $3.41, or 2 percent, at $177.67 on the New York Stock Exchange.

Job-Creation Hopes Dashed; 85,000 Shed in December

January 8, 2010
REUTERS

U.S. employers unexpectedly cut 85,000 jobs in December, government data showed on Friday, cooling optimism on the labor market's recovery and keeping pressure on President Barack Obama.

The Labor Department said November payrolls were revised to show the economy actually added 4,000 jobs rather than losing 11,000 as initially reported. With revisions to October, however, the economy lost 1,000 more jobs than previously estimated over the two months.

The unemployment rate was unchanged at 10 percent in December. Analysts polled by Reuters had expected nonfarm payrolls to be unchanged last month and the unemployment rate to edge up to 10.1 percent.

"The American economy is clearly not going to burst out of the gate with growth and job creation but it will perform better than its major competitors in Europe and Japan," said Joseph Trevisani, chief market analyst at FX Solutions in Ridgewood, N.J.

U.S. stock futures turned negative on the data, while government bond prices erased losses. The U.S. dollar fell against the euro.

High unemployment is one of the toughest domestic challenges facing Obama. The administration's success in getting people back to work will shape prospects for Obama's political future.

Obama's popularity has steadily fallen, knocking his approval ratings down to around 50 percent. This could dim the election prospects for his Democratic Party in the November congressional elections. Obama is scheduled to make a statement on the economy at 2:40 p.m.

For the whole of 2009, the economy shed 4.2 million jobs, the department said.

Still the job market continued to show broad improvements last month, with a number of sectors showing gains.

Professional and business services added 50,000 positions, while education and health services increased payrolls by 35,000. Temporary help employment rose by 47,000.

Manufacturing payrolls fell 27,000 after dropping 35,000 in November. The construction sector lost 53,000 jobs, while the service-providing sector shed only 4,000 workers.

The average workweek was unchanged at 33.2 hours, while average hourly earnings increased by $18.80 from $18.77 in November.

The state of the job market is among the key factors that will determine the timing of the Federal Reserve's first interest rate increase since cutting benchmark overnight borrowing costs to near zero percent in December 2008.

The U.S. central bank has vowed to keep rates low for an extended period, and the jobs data supported that expectation

Capmark’s Troubles Highlight Plight of Many CRE Lenders

1/8/2010
NREI

With more than $1.6 billion in second-quarter losses and plans to sell off its most viable business operations, Capmark Financial Group Inc. provides a painful example of the turmoil plaguing many large lenders to the commercial real estate industry.


In its second-quarter report published earlier this month, the Horsham, Pa.-based commercial real estate finance company disclosed an agreement to sell its mortgage banking origination and servicing businesses to Berkadia III, a partnership owned by Warren Buffett’s Berkshire Hathaway Inc., and Leucadia National Corp., for $450 million. Later that week, rating agencies lowered Capmark’s credit ratings to reflect the company’s likelihood of defaulting on its cumbersome debt.


“This has been long coming,” says Edward Mermelstein, managing partner at Manhattan-based law firm Edward A. Mermelstein & Associates. “Anyone who has a good overview of the market has been expecting Capmark, as well as other companies of the same size, to either head into bankruptcy or somehow be repositioned or acquired.”


Selling Capmark’s mortgage-origination and loan-servicing units will enable those businesses to retain their value while the remaining banking and investment business units are wound down, sold piecemeal or stabilized, according to analyst Jeff Zaun, associate director at Standard & Poor’s. The rating agency left Capmark’s commercial mortgage servicer rankings unchanged when it lowered Capmark’s long-term credit rating to CC from B-minus on Sept. 4.


“In our view, the originate-to-distribute model is still viable,” Zaun says. “Large funds are going to want real estate exposure and they are not going to want their own origination shops.”


What happens to the rest of the company? Most likely, Capmark will either file for bankruptcy protection or will hammer out agreements with its lenders outside of bankruptcy court. Even if the company comes to an agreement with lenders, however, those lenders won’t be getting their full return under original terms, so the company is expected to default on its debts to some degree in either scenario. That likelihood is reflected in recent downgrades by Standard & Poor’s and by both Moody’s Investors Service and Fitch Ratings.


Although Capmark has made progress this year toward restructuring, deteriorating commercial real estate fundamentals and a spike in loan delinquency rates have overshadowed improvements in the company’s structure. In its second-quarter report, Capmark explains that growing numbers of its borrowers have been unable to obtain replacement financing to satisfy their matured loans, resulting in a growing number of defaults. Commercial real estate fundamentals, too, are eating away at property values and accelerating the rate of default.


Capmark isn’t alone in its struggles to deal with crippling defaults. Just this month, on Sept. 11, government regulators closed down Chicago-based condominium construction lender Corus Bank. Earlier this year, parent company Corus Bankshares reported that it had roughly $2 billion in non-performing loans.


According to a Fitch report published Aug. 18, the agency assigns a negative credit outlook to nearly half of the 20 largest U.S. lenders it rates, and a major concern contributing to those negative outlooks is the potential of further deterioration in loan portfolios with a specific emphasis on commercial real estate.


As lenders seek liquidity through distressed sales, and as bankruptcies mount, private buyers are circling to snatch up deals. Attorney Mermelstein has clients that are already poring over some of Corus’ properties in Miami and other markets where condominium development burned hottest.


Mermelstein offers a simple system for investors who want to determine which lenders are most likely to join the ranks of distressed sellers or be forced into bankruptcy liquidations. The writing is on the wall – or on the fence, to be exact.


“Lenders that are highly exposed in Miami, New York and other areas of the country that have had a tremendous amount of new construction in the last couple of years are the lenders that are most exposed,” he says. “You can drive from unfinished project to unfinished project, and looking at the names of the lenders on the gates, you basically know who’s in jeopardy of going under.”