Dilemma for the Fed as property recovery falters

Dilemma for the Fed as property recovery falters

By Krishna Guha and Sarah O’Connor in Washington

Published: May 28 2009 19:02 Last updated: May 29 2009 00:32

A record 9.1 per cent of all US mortgages were delinquent at the end of the first quarter, the Mortgage Bankers’ Association reported on Thursday, highlighting the pressure on policymakers as they attempt to engineer a still elusive bottom in the US property market.

Housing starts and sales appear to be stabilising, and homes no longer look expensive. But house prices are still falling rapidly – down 2.2 per cent in March alone, according to the Case-Shiller index.

Delinquencies and foreclosures are rising and spreading to so-called prime mortgages.

Now a partial rebound in mortgage rates – in conjunction with the growth of negative equity – threatens to maintain downward pressure on prices, while also limiting the capacity of indebted households to refinance at ultra-low rates.

“The housing recovery hasn’t even started, and it is already at risk,” said Ed Yardeni, president of Yardeni Associates.

Bank examiners say house prices and unemployment are critical for determining bank credit losses.

While the Federal Reserve and US Treasury have never set out to target house prices, they have attempted to mitigate the risk that house prices undershoot their fundamental value.

The Fed has sought to compress risk spreads on mortgages by buying up to $1,450bn (€1,040bn, £906bn) in securities issued by Fannie Mae and Freddie Mac, the home loan giants. Its strategy pushed mortgage rates down to levels not seen for decades.

But yields on Fannie and Freddie paper have moved higher in recent days as yields on government securities jumped. Mortgage rates – already back above 5 per cent – may climb higher.

Fed officials do not appear alarmed by the rise in mortgage rates thus far, which still leaves them low by historic standards, with ample room for borrowers to refinance. However, some analysts worry the financial market is moving too fast for the housing market. While cheap mortgages prompted a wave of refinancing applications, the downsizing of the mortgage industry since 2006 means the system cannot process large numbers of borrowers quickly. The danger is that mortgage rates rise before a large chunk of total household debt can be refinanced at very low rates.

Some economists say the Treasury should reconsider directly providing low-cost loans for new borrowers – an idea debated by George W. Bush’s administration.

Negative equity threatens to compound house price declines. Celia Chen, director of housing at Moody’s Economy.com, says one in five US homeowners has negative equity, and about one in 10 has a loan to value ratio of 130 per cent or higher.

US officials are considering whether Fannie and Freddie should be allowed to refinance mortgages worth more than 105 per cent of the underlying house.

Some administration officials are wondering whether they also need a policy that directly tackles the risk that households deeply “underwater” on their loans will start to walk away, fuelling further price declines.

Barack Obama’s administration has focused on making monthly payments affordable – and avoided subsidising politically controversial debt forgiveness.

A push towards debt renegotiation by giving bankruptcy judges the power to force writedowns failed in the Senate.

Some officials think they may have to revisit the negative equity problem and look at ways to revamp initiatives such as Hope for Homeowners, which set out to support loan writedowns but never gained scale, in part because of a lack of subsidies.

However, some analysts are sceptical. “You have so many properties so far underwater that foreclosure or at least a short sale ... is probably the only way out of the problem,” said Adam York, economist at Wachovia. “You’ve got to clean out the negative equity.”

Copyright The Financial Times Limited 2009

Indians refuse Air France compensation, demand more

Indians refuse Air France compensation, demand more

29 May 2009, 1935 hrs IST, PTI

MUMBAI: A group of 53 Indian passengers, who were allegedly subjected to racial profiling by Air France at Paris Airport on May 10, have threatened to move court if the airlines did not provide compensation in accordance with law.

Air France has offered €350 per passenger to settle the matter. But the aggrieved passengers have said they cannot accept anything less than €650 as compensation. "Air France has offered us €350 to settle the matter. This is a violation of the European Union law on such matters," Sachin Gupta, an aggrieved passenger, told PTI here. As many as 53 Indian passengers have accused the airlines of subjecting them to 'racial profiling', during their journey to Mumbai from US via Paris on an Air France flight on May 10.

The airline, while denying the charges, had regretted "any and all inconvenience caused to the passengers due to this incident" and offered a non-refundable voucher of Rs 23,500 or €350 per passenger as full and final settlement of the matter. "We have refused the offer and have written to the airline to duly compensate us, failing which we will be left with no option but to take to legal action," Gupta. According to him, the airline is liable to pay, by law, a cash compensation of €650 to all passengers who were subjected to "ill-treatment and denied certain rights by Air France authorities."

(SOURCE: http://timesofindia.indiatimes.com)

Limbaugh is going after Sonia Sotomayor.

Limbaugh slams Sotomayor: 'Reverse racist'
Posted: 06:04 PM ET
From CNN Ticker Producer Alexander Mooney

Limbaugh is going after Sonia Sotomayor.

(CNN) — While Republicans on Capitol Hill appear to be taking a wait-and-see approach with Supreme Court nominee Sonia Sotomayor, conservative talk radio host Rush Limbaugh is taking direct aim at President Obama's choice for the high court.

Calling Sotomayor a "racist" and a "hack" on his radio show Tuesday, Limbaugh took particular issue with a 2001 speech at Berkeley during which she stated, "Wise Latina woman with the richness of her experience would more often than not reach a better conclusion than a white male who hasn't lived that life."

"Here you have a racist – you might want to soften that, and you might want to say a reverse racist," Limbaugh said of that comment.

"And the [liberals] of course say that minorities cannot be racists because they don't have the power to implement their racism," he continued. "Well, those days are gone because reverse racists certainly do have the power to implement their power. Obama is the greatest living example of a reverse racist, and now he's appointed one."

"She's not the brain that they're portraying her to be. She's not a constitutional jurist," Limbaugh also said, referencing a New Republic article last month in which Jeffrey Rosen, the magazines legal affairs editor, wrote that "her opinions, although competent, are viewed by former prosecutors as not especially clean or tight, and sometimes miss the forest for the trees."

"She is an affirmative action case extraordinaire, and she has put down white men in favor of Latina women," Limbaugh said.

White House press secretary Robert Gibbs defended Sotomayor's Berkeley comments Tuesday. "If you look at the context of the longer speech that she makes, I think what she says is very much common sense in terms of different experiences, different people," he said.