Archive for May, 2009

Borrowers with good credit fuel foreclosures in 1Q (AP)

Thursday, May 28th, 2009 | Finance News

NEW YORK – The mortgage crisis is spreading and hitting new heights: Borrowers with good credit now make up the largest share of foreclosures as job losses and pay cuts exact their toll.

A record 12 percent of homeowners with a mortgage were behind on their payments in the first quarter, the Mortgage Bankers Association said Thursday. And the trend is predicted to continue until the end of next year, about six months after unemployment is expected to peak.

The genesis of the recession — risky adjustable-rate loans made to borrowers with bad credit — remains a significant factor in foreclosures. Today, almost half of all subprime ARMs are past due or in foreclosure. In Florida, New Jersey and New York the number is above 55 percent.

When those borrowers started defaulting in droves in late 2006, it forced dozens of lenders out of business and sparked a credit crisis in the summer of 2007. Businesses nationwide couldn't get short-term loans to finance new orders or even cover their payrolls. Economic production began shrinking at the end of 2007 in what has become the longest recession in the United States since World War II.

The impact has now filtered out, consuming homeowners who until recently had a good track record of paying their bills on time. Nearly 6 percent of these prime borrowers with fixed-rate mortgages were past due or in foreclosure, nearly doubling in the last year.

"These (borrowers) are the best of the best out there," said real estate analyst Mike Larson with Weiss Research in Jupiter, Fla. "Clearly, borrowers far and wide are getting hit by this."

The worst of the trouble continues to be focused in California, Nevada, Arizona and Florida, which accounted for 46 percent of new foreclosures in the country and reported the worst delinquency and foreclosure rates on prime fixed-rate loans. The four have suffered massive job cuts in the housing industry. There were no signs of improvement.

But experts expect the pain to spread throughout the country as job losses mount. MBA's chief economist Jay Brinkmann estimates the unemployment rate will top out in mid-2010 and foreclosures to abate about six months afterward.

The number of newly laid off people requesting jobless benefits fell last week, the government said Thursday, but the number of people receiving unemployment benefits reached 6.78 million in mid-May, the highest on record.

The continuing rise in unemployment, which economists say could reach double digits, means more trouble for the ailing financial system and the economy. Lower incomes and lost jobs are the No. 1 reason people lose their homes through foreclosure. Higher unemployment also means people have less money to spend on basic necessities, let alone luxuries.

And borrowers without jobs are harder for lenders to help with loan modifications.

Nadine Harris in Bakersfield, Calif., is hoping to modify her 30-year fixed-rate mortgage under President Barack Obama's loan modification and refinancing program introduced earlier this year.

The 55-year-old was laid off two years ago by Sears after working there 34 years. Harris found another job, but she makes $20,000 less a year. The $925 she takes home every two weeks doesn't cover her $1,522 mortgage and other living expenses. She's used all her savings to stay current on her payments, but next month the reserves will run dry.

"I'll have to scrimp to make up the payment in June," she said.

Jodi Woodsmith, a housing counselor at Self-Help Enterprises in Visalia, Calif., said in the last eight weeks she's seen more and more homeowners with similar stories walk through her door.

"Those who had savings, they've exhausted their savings hoping they could ride it out," she said.

Woodsmith said a recent change to the president's program allows borrowers to use unemployment benefits as a source of income for a loan modification. Income from spouses who are not on the mortgage also is taken into account.

Though the plan might stem some foreclosures, it might not be enough to significantly alter the crisis.

"It may be too much to say that the numbers will fall because of the plan," Brinkmann said. "It's more correct to say that the numbers won't be as high."

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Energy shares, falling bond yields lift Wall Street (Reuters)

Thursday, May 28th, 2009 | Finance News

NEW YORK (Reuters) –
Stocks climbed more than 1 percent on Thursday as higher oil prices drove up energy shares and falling yields in the bond market eased concerns that higher borrowing costs would hinder economic recovery.

Energy company shares, including Exxon Mobil Corp (XOM.N), rose as U.S. crude oil settled above $65 a barrel for its highest close since November, 64boosted by a drop in crude inventories last week.

"We had the OPEC meeting today, plus we had inventory numbers, and both were favorable for oil. That's helping that whole sector," said Owen Fitzpatrick, head of U.S. Equity Group at Deutsche Bank Private Wealth Management in New York. OPEC decided to hold production at current levels.

The Dow Jones industrial average (.DJI) gained 103.78 points, or 1.25 percent, to finish at 8,403.80. The Standard & Poor's 500 Index (.SPX) was up 13.77 points, or 1.54 percent, at 906.83. The Nasdaq Composite Index (.IXIC) was up 20.71 points, or 1.20 percent, at 1,751.79.

Equities recovered Wednesday's losses, extending gains late in the session.

After the market's close, shares of computer maker Dell Inc (DELL.O) rose more than 1 percent to $11.61 after its results narrowly beat analysts' estimates.

The U.S. bond market also rebounded as benchmark 10-year notes bounced 24/32 higher for a yield of 3.64 percent, 10 basis points lower on the day, after an auction of $26 billion in new seven-year Treasury notes. Another Treasury auction on Wednesday helped fuel selling of bonds and stocks as investors worried about expanding U.S. government debt.

Investors have grown concerned that rising bond yields, which move inversely to bond prices, portend a possible rise in borrowing costs, which could choke a much-anticipated economic recovery.

Hopes that the economy may be stabilizing helped stocks recover from 12-year lows of early March, but since early this month the market's rebound has been a bit bumpier. Still, at Thursday's close, the S&P 500 was up 34 percent since the March 9 low.

Financial shares also helped boost the Dow in Thursday's trade, with JP Morgan Chase & Co (JPM.N) up 5.7 percent at $36.65.

Chevron Corp (CVX.N) also led gains in the energy sector. The stock was up 1.9 percent at $65.81. Exxon was up 1.4 percent at $69.23.

But General Motors Corp (GM.N) bucked the trend, ending down 2.6 percent at $1.12 as the automaker appeared closer to filing for bankruptcy protection.

Thursday's economic data was mixed, with new orders for durable goods seeing their biggest gain in 16 months, while new home sales rose slightly less than expected.

On the Nasdaq, Costco Wholesale Corp (COST.O) fell 1.8 percent to $47.97 after it posted a quarterly profit that was short of Wall Street's expectations.

Trading was moderate on the New York Stock Exchange, with about 1.37 billion shares changing hands, below last year's estimated daily average of 1.49 billion, while on Nasdaq, about 2.24 billion shares traded, below last year's daily average of 2.28 billion.

Advancing stocks outnumbered declining ones on the NYSE by 2 to 1 and on the Nasdaq by about 14 to 11.

(Reporting by Caroline Valetkevitch; Editing by Kenneth Barry)

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GM bankruptcy looms after bondholders back deal (Reuters)

Thursday, May 28th, 2009 | Finance News

DETROIT/BERLIN (Reuters) –
General Motors Corp persuaded its major bondholders to accept a sweetened ownership plan on Thursday, a deal that could result in a smoother ride for the carmaker through bankruptcy.

But the troubles for Detroit's automakers deepened when former Ford Motor Co unit Visteon Corp and another parts supplier filed for bankruptcy protection -- a move some analysts worried could affect Ford's cash position.

Ford, the only U.S. automaker operating without emergency government support, played down the concerns.

In the biggest news of the day, GM said it had reached a debt-for-equity deal with some major bondholders that would give them a bigger stake in a reorganized automaker and could pave the way for a fast-track bankruptcy backed by the U.S. Treasury.

One senior U.S. government official suggested GM could emerge from a court-supervised restructuring in as few as two or three months. GM is widely expected to file no later than June 1, a U.S. government-imposed deadline for the automaker to prove its viability or seek court protection.

The announcement of a possible deal with bondholders was the clearest indication yet that GM, the No. 1 U.S. automaker, is close to filing for bankruptcy under the direction of the Obama administration. It would be the biggest-ever bankruptcy for a U.S. industrial company and the third-largest in U.S. history after Lehman Brothers and Worldcom.

Under the proposed deal, bondholders representing $27 billion in debt would be offered 10 percent of a reorganized GM -- the same stake they had been offered previously.

But bondholders would now also receive warrants to acquire another 15 percent of the equity in the new company, provided they support a quick Treasury-backed sale process similar to one now being used for rival Chrysler.

A committee representing the major bondholders said they supported the revised offer as the "the best alternative ... in the current difficult and dire situation." But two groups representing individual bondholders continued to balk, with one calling the proposal "chilling."

A senior Obama administration official, who spoke on the condition of anonymity because he was not authorized to speak publicly, said the government expects at least 35 percent of bondholders to accept the new offer.

The official, who estimated that any GM bankruptcy would take at least 60 to 90 days and perhaps longer, said that potential new aid to GM could total $40 billion, including $9 billion from Canada. But he predicted GM would emerge from bankruptcy a "highly, highly profitable" company.

UAW APPROVAL KEY

Members of the United Auto Workers, meanwhile, were voting Thursday on an agreement that would give the union a stake in GM in return for concessions. Initial tallies suggested the rank-and-file workers would ratify the deal.

In an interview with Reuters, UAW President Ron Gettelfinger said he expected the process to be complete by 4 p.m. EDT on Friday and predicted the automaker would be "a much stronger company" after restructuring.

The UAW will have one director on the board of the reorganized GM and a 17.5 percent stake in the company.

The union does not expect to exercise a warrant to buy another 2.5 percent of GM because of a requirement that the new automaker be valued at $75 billion for that to be exercisable, Gettelfinger said.

Gettelfinger also said both GM and Chrysler should not expect any further concessions after the recent cost-cutting contract changes negotiated by the union.

"The companies cannot use this contract as an excuse for anything that happens in the future. There is no question about that," he told Reuters. "We're scrubbed clean."

In a court in New York, meanwhile, Chrysler, which filed for bankruptcy last month, pushed for approval to sell most of its operations to a group that includes Italy's Fiat, labor unions and the U.S. and Canadian governments.

Approval would be a victory for the White House, which many bankruptcy specialists had criticized as unrealistic when it set a 30-to-60-day schedule for bringing the automaker's operations through Chapter 11.

During the hearing, Chrysler CEO Bob Nardelli said the only alternative to the Fiat deal would have been a "cataclysmic" liquidation of his company.

THE OPEL ROADBLOCK

In Europe, Germany's goal of shielding Opel from GM's imminent bankruptcy hit a roadblock, raising the risk of insolvency for the German carmaker.

German Foreign Minister Frank-Walter Steinmeier said he would talk to U.S. Secretary of State Hillary Clinton later in the day, after German ministers emerged from 12 hours of talks having failed to strike a deal to provide Opel with temporary financing in the event of a GM bankruptcy.

"(I will) urgently ask that attention is directed at Opel in the coming hours," he said.

The battle for Opel has effectively narrowed to a race between carmaker Fiat and auto parts supplier Magna, but it remains unclear whether Opel will be drawn into GM's bankruptcy.

German ministers put the blame for the failed deal talks on GM and the U.S. Treasury.

Opel traces its roots in Germany back to the 19th century and employs about 25,000 staff in four plants there. UK-based Vauxhall Motors, which employs 5,000 people, is being spun off from GM Europe along with Opel.

($1=.7232 Euro)

(Additional reporting by Reuters bureaus across the world; Writing by James B. Kelleher; editing by Patrick Fitzgibbons, Will Waterman and Matthew Lewis)

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