| PIMCO, Blackrock, NY Fed Seek to Force BofA to Repurchase $47 Billion in Soured Mortgages; Viral Nonsense on "Show Me the Note" and "ForeclosureGate" Posted: 19 Oct 2010 06:56 PM PDT At long last, the real issue regarding soured mortgages has stepped up to the plate. The misguided focus on "ForclosureGate" is but a sideshow compared to Pimco, NY Fed Said to Seek BofA Mortgage RepurchasesPacific Investment Management Co., BlackRock Inc. and the Federal Reserve Bank of New York are seeking to force Bank of America Corp. to repurchase soured mortgages packaged into $47 billion of bonds by its Countrywide Financial Corp. unit, people familiar with the matter said.
A group of bondholders wrote a letter to Bank of America and Bank of New York Mellon Corp., the debt's trustee, citing alleged failures by Countrywide to service loans properly, their lawyer said yesterday in a statement that didn't name the firms. The New York Fed acquired mortgage debt through its 2008 rescues of Bear Stearns Cos. and American International Group Inc.
Investors are stepping up efforts to recoup losses on mortgage bonds, which plummeted in value amid the worst slump in home prices since the 1930s. Last month, BNY Mellon declined to investigate mortgage files in response to a demand from the bondholder group, which has since expanded. Countrywide's servicing failures, including insufficient record keeping, may open the door for investors to seek repurchases by bypassing the trustee, said Kathy Patrick, their lawyer at Gibbs & Bruns LLP.
Patrick represents investors who own at least 25 percent of so-called voting rights in the deals and stand to recover "many billions of dollars," Patrick said.
Countrywide hasn't met its contractual obligations as a servicer also because it hasn't asked for loan repurchases and is taking too long with foreclosures, Patrick said. The delays stem from missing documents, process mistakes and insufficient staffing to evaluate borrowers for loan modifications, she said.
If Countrywide doesn't correct the servicing problems within a few months, her clients could have the right to pursue legal action against Bank of America, Bank of New York or both, she said. "None of the bondholders are opposed to modifications for deserving borrowers, but you've got to get it done" in a timely fashion, she added.
Mortgage-bond contracts are explicit in requiring repurchases of loans when their quality fails to match sellers' promises, said Scott Simon, Pimco's head of mortgage bonds. The contracts also call for trustees and servicers to ask lenders to take back debt under those circumstances, he said.
The initiative covered by the letter sent to Bank of America and BNY Mellon yesterday is separate from the effort coordinated through Dallas lawyer Talcott Franklin, Patrick said. That firm is coordinating action for a larger group of mortgage-bond investors holding more than $500 billion of the debt.
The Real DealOne way we know this is the real deal is by who is participating. The New York Fed's participation says this is going to happen. Right now the number is at $47 billion. How large does it get? Bear in mind that is $47 billion in mortgages, not $47 billion in potential losses. However the amount is bound to grow by leaps and bounds. It is curious as to why this took so long. Smoking GunsThat these mortgage pools were misrepresented is widely understood. The banks even knew they were doing it. In case you missed it, please consider Smoking Gun: New Evidence of How Wall Street Shafted Pension Funds by Misrepresenting Mortgages; Rep Miller Calls for Full Audit of Fannie Mae. Dylan Ratigan ShowDemocratic congressman Brad Miller calls for an audit of all the loans at Fannie and Freddie to see if they were conforming to the standards necessary to get government backing. |
| Gallup Mid-Month Survey Confirms Prior Reading of 10% Unemployment; Expect Huge Rise in Unemployment After Mid-Term Elections Posted: 19 Oct 2010 10:38 AM PDT Earlier this month Gallup released a survey that showed unemployment rose .8% to 10.1% Unemployment, as measured by Gallup without seasonal adjustment, increased to 10.1% in September -- up sharply from 9.3% in August and 8.9% in July. Much of this increase came during the second half of the month -- the unemployment rate was 9.4% in mid-September -- and therefore is unlikely to be picked up in the government's unemployment report on Friday. See Gallup Finds U.S. Unemployment at 10.1% in September for more details. Gallup has since conducted a second survey that confirms the sharply rising unemployment of the first: Gallup Finds U.S. Unemployment at 10.0% in Mid-OctoberUnemployment, as measured by Gallup without seasonal adjustment, is at 10.0% in mid-October -- essentially the same as the 10.1% at the end of September but up sharply from 9.4% in mid-September and 9.3% at the end of August. This mid-month measurement confirms the late September surge in joblessness that should be reflected in the government's Nov. 5 unemployment report.
Certain groups continue to fare worse than the national average. For example, 14.2% of Americans aged 18 to 29 and 13.8% of those with no college education were unemployed in mid-October.
Fewer Working Part Time Looking for Full-Time Employment
The percentage of part-time workers who want full-time work is at 8.6% of the workforce, not much different from the 8.7% at the end of September, but well below the 9.2% reading in the middle of last month.
U.S. Unemployment Rate Should Increase on Nov. 5
Gallup modeling suggests the government's unemployment rate report for October will be in the 9.7% to 9.9% range when it is released Nov. 5. The government's last report showed the U.S. unemployment rate at 9.6% in September on a seasonally adjusted basis, as Gallup anticipated. In addition to seasonal adjustments, the official unemployment rate is likely to be held down by a continued exodus of people from the workforce. It is easy for potential workers to become discouraged when the unemployment rate is expected to remain above 9% through the end of 2011.
In this regard, the lack of increase in Gallup's underemployment measure when the unemployment rate is increasing would normally be a good sign for jobs and the economy. However, the current decline in the percentage of workers employed part time but looking for full-time work is not necessarily positive. It might be that some workers who are employed part time are losing their jobs -- becoming unemployed or dropping out of the workforce -- and are not being replaced, while new part-time workers are not being hired. Something Amiss in BLS DataNote that the BLS Jobs Report for September shows a whopping 612,000 increase of involuntary part-time workers from 8,860,000 to 9,472,000 while Gallup has the number declining substantially. The BLS report is also inconsistent with recent ADP reports. Please see Rosenberg says "ISM Flunks Sniff Test "; Cashin calls ISM "an Outlier"; ADP, Other Data Does Not Confirm for details regarding August discrepancies between BLS data and ADP. Those discrepancies continued with the ADP September 2010 National Employment Report in which ADP reported " Private-sector employment decreased by 39,000 from August to September on a seasonally adjusted basis" That was the second straight month of private sector contraction for ADP, consistent with what Gallup is saying. The odd man out is the BLS which shows private sector expansion. Labor Pool ContractionOne of the things holding down the BLS unemployment rate is the huge number of people the BLS claims has dropped out of the labor pool. Allegedly 175,000 dropped out of the labor pool in September. Moreover, 1,768,000 workers supposedly dropped out of the labor force in the past year. While demographics suggest there will be a large number of boomers retiring, that fact is indicative of a labor pool that should be growing more slowly, not a labor pool massively contracting. Even with the above astonishing numbers, the BLS reported unemployment rate is 9.6%. I smell a huge rise in unemployment in the November 5th BLS jobs report, conveniently after the mid-term elections. I am sticking with my forecast that says new highs in the unemployment rate are yet to come. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List 
|
| Lie of the Month: Geithner Says US will Not Engage in Devaluing Dollar Posted: 19 Oct 2010 12:23 AM PDT Given all the problems with foreclosures, it might seem hard to pick a winner for the lie of the month contest. However, fraud and lies are not the same thing, but even if they were, Geithner is up to the task. Please consider Geithner denies US bid to weaken dollarSpeaking at a meeting in California on Monday, Tim Geithner, Treasury secretary, denied that the US was trying to devalue the dollar to boost its economy.
"It is very important for people to understand that the United States of America and no country around the world can devalue its way to prosperity and competitiveness," he said. "It is not a viable, feasible strategy and we will not engage in it." "US Needs a Weaker Dollar" Theory Running RampantEveryone but Geithner seems to be latching on to the "US Needs a Weaker Dollar" theory. Check out this Bloomberg story: Geithner Weak Dollar Seen as U.S. Recovery Route Versus BRICS For U.S. Treasury Secretary Timothy F. Geithner, a weaker dollar may now be in the national interest.
The dollar has dropped more than 7 percent since Aug. 27, when Chairman Ben S. Bernanke signaled the Federal Reserve is prepared to ease monetary policy. Where once such a decline may have been met with resistance from the U.S., Geithner may now be tolerating it as a way of bolstering the recovery.
Companies from Costco Wholesale Corp. to Deere & Co. have credited the weaker dollar for giving their earnings a boost, and the currency's slide has helped propel the Dow Jones Industrial Average above 11,000 for the first time since May.
"In an era where deflation pressures appear to be the greatest risk, growth is below trend and the U.S. wants to boost exports, why would they not want" a weaker dollar, Jim O'Neill, chairman of Goldman Sachs Asset Management in London, said in an interview. "The answer is when it becomes a problem for financial markets. Until then it's a straightforward strategy."
"The dollar is going to go down," Martin Feldstein, a Harvard University professor who was chief economic adviser to President Ronald Reagan, said Oct. 7 in a Bloomberg Television interview on "Surveillance Midday" with Tom Keene. "It will cause Americans to shift from imported goods into domestic services. All of that will strengthen the economy."
A weaker dollar is "a positive for equities as long as it's not viewed as a collapse of the dollar," said Paul Zemsky, the New York-based head of asset allocation for ING Investment Management, which oversees $550 billion.
Matt McCormick, portfolio manager at Cincinnati-based Bahl & Gaynor Inc., which manages $2.9 billion, said the dollar's weakness is benefiting companies he owns with "significant" overseas revenue, including McDonald's Corp., Procter & Gamble Co., Intel Corp. and Qualcomm Inc.
"A low dollar will be with us for longer than most people expect," he said.
"Geithner's comments recently have been not exactly dollar-supportive," said Barry Knapp, chief U.S. equity strategist at Barclays Plc in New York. "Typically what happens is that the Treasury either says we support a strong dollar or we think a free market should decide where the dollar goes, and that means we don't mind if it goes down." Misguided TheoryThe problem with this misguided "we need a weaker dollar" theory is that it only looks at one side of the equation. Small businesses have been crucified by rising input prices and falling output prices. Indeed NFIB Small Business Trends for October Continue to Show No Recovery, Inflation Not a Threat; Fed Governor Hoenig Blasts Bernanke's QE StrategyEvery month I report on NFIB small business trends and every month it looks like a broken record. October is no different. Please consider NFIB Small Business Trends for October.
Inflation Not A Threat
Inflation? Not a threat. Far more owners have cut prices than raised them for 21 months in a row. Deflation? It certainly feels that way to a quarter of the owners reporting price declines for the goods and services they produce and sell, and apparently a majority at the Federal Reserve are now worried. New "inflation targets" are being floated out there, like two percent (characterized as price stability?). This will be the justification for more "quantitative easing". Buying more Treasury securities may push rates even lower, but to what end? The impact on home sales will surely be minimal. With mortgage rates at record low levels already, even lower rates are unlikely to invite new entrants to the market.
Of course, there may be other "agendas" such as a weakening of the dollar and support for asset prices. This is very dangerous as hundreds of billions of dollars are being "allocated" based on false prices (interest rates). The charade can't be maintained forever and weakening the dollar only invites others to join the party.
And lost in all of this focus on credit is the loss of hundreds of billions in interest rate income for savers. Certainly their spending has been curtailed as a result. Every dollar a borrower saves from some sort of refinance deal is a dollar of interest income lost to savers. Even lenders will lose income as loans with interval rate re-sets will be set based on historically very low Treasury rates (lowering net interest margins). No wonder confidence is low and uncertainty is high, it is hard to make sense of this. The previous three paragraphs hold the key to understanding just how wrong the Fed's weak dollar policy is. Multinationals and exporters may like it, but the net effect on jobs is negative. Geithner says " It is not a viable, feasible strategy and we will not engage in it." Half of that sentence is true, and that is about the best you can expect from Geithner. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List 
|
Postări
