o Helps American families keep their homes by requiring the Treasury Dept. and any federal agency that owns or controls troubled mortgages to modify those mortgages wherever possible; this may include reducing the principal or interest rate; and extends till the end of 2012 the exclusion from federal income tax of mortgage debt forgiveness.
o Addresses the credit crisis by allowing financial institutions to immediately sell $250 billion in troubled assets to the U.S. Treasury Department under the newly created Troubled Assets Relief Program (TARP). Another $100 billion would be made available upon the President’s request. Should the President deem it necessary, and with Congressional review, the Treasury Dept. may utilize the remaining $350 billion;
o Protects taxpayers by allowing the Treasury Dept. to take an ownership stake in participating companies. In addition, if after five years TARP has incurred a net loss, the President must propose legislation that would force participating companies to reimburse the government to make up the difference;
o Sets up an insurance program, funded by the financial industry, to guarantee companies’ troubled assets, including mortgage-backed securities purchased prior to March 14 this year;
o Curbs executive pay for companies utilizing TARP;
o Sets up two oversight committees, a Financial Stability Board, and a congressional oversight panel, to which the Financial Stability Board would report;
o Creates renewable energy tax breaks for individuals and businesses, including a deduction for the purchase of solar panels; as well as continuing other tax breaks that were set to expire; and extends relief from the Alternative Minimum Tax (AMT) by another year;
o Allows the SEC to suspend the required mark-to-market accounting standards and orders a study to be done on the rule’s impact on financial institutions;
o Shields bank deposits by temporarily raising the FDIC insurance cap to $250,000 from $100,000; and temporarily increases the federal insurance level for credit union savings to $250,000, both till the end of 2009. (KNX-AM, CNN, and other sources throughout the week)
Many of you this week have asked me of my opinion of this bill. I agree that this is not a perfect bill as it appears we are "paying the poor decisions of bad-running institutions." But without this "rescue," I believe we will be in for such a sharp and deep recession. I have seen credit markets tighten up before my eyes throughout September. A couple of my buyers who had been pre-approved for a loan with reputable lenders but were unable to find a home during this time (see prior posts about bidding wars) are unable to currently obtain the same pre-approval terms. And no, they have not been reckless in their spending during this time of home-shopping. Their credit scores are near and above 700. I expect this bill will loosen up the credit markets for such buyers in the short term, but prolog the economic hardship. In other words, our economic problems will not be as deep, but will stretch out in time for a bit longer.
Santa Clarita sets up eAlert system - As Santa Clarita approaches the one year anniversaries of the I-5 Tunnel Accident and the Buckweed Wild Fire, the City has developed a new system that will allow its residents to subscribe and receive mobile phone text alerts concerning emergencies impacting the community. All residents can subscribe to automatically receive emergency related text alerts (eAlerts) from the City by simply texting the term "SCEMERGENCY" to 41411 from any mobile phone device and mobile service provider. As a City of Santa Clarita and LAFD CERT Volunteer, I encourage you to join me in signing up for this helpful service. More details at http://www.santa-clarita.com/emergency. (email from City of Santa Clarita dated 9/26/2008)
European Countries Rescue their Banks - The leaders of Germany, France, Britain and Italy met Saturday to discuss the meltdown that has leapfrogged across the Atlantic from the United States to Europe, but shied away from action on the scale of the massive $700 billion bailout passed by the U.S. Congress on Friday and later signed into law by President Bush. Their failure to agree to an EU-wide plan showcased the divisions in Europe on how to deal with the crisis. France had suggested a multibillion-euro (multibillion-dollar) EU-wide government bailout plan, but backed off after Germany said banks must find their own way out. Individual countries intervened within their own countries:
o Germany is in crisis talks on the collapse of a ballyhooed 35 billion euro ($48.4 billion) bailout of Hypo Real Estate AG, the country's second-biggest property lender.
o Germany has set up a guarantee for all investors with money in its banks. Finance Ministry spokesman Torsten Albig said the unlimited guarantee covered some 568 billion euros ($785 billion) in savings and checking accounts as well as time deposits, or CDs.
o Belgian Prime Minister Yves Leterme said he aims to find a new owner for troubled bank Fortis NV to restore confidence in the company before the opening of markets on Monday.
o British treasury chief Alistair Darling said that he was ready to take "pretty big steps that we wouldn't take in ordinary times" to help the country weather the credit crunch. In the past year the government has nationalized struggling mortgage lenders Northern Rock and Bradford & Bingley.
o The Icelandic government last week took over Iceland's third-largest bank, Glitnir, a decision that prompted major credit ratings agencies to downgrade both Iceland's four major banks and its government credit rating. Icelandic banks expanded rapidly after deregulation of the domestic financial market in the 1990s and now have combined foreign liabilities in excess of 100 billion euros ($138.34 billion) -- dwarfing the tiny country's gross domestic product of 14 billion euros ($19.4 billion).
o None of the banks, including the European Central Bank and Bank of England, have commented on potential rate hikes or cuts. But analysts believe the Bank of England, which meets this Thursday, will likely lower its rate below 5 percent. The ECB left its rate unchanged at 4.25 percent on Thursday, but opened the door to a rate cut. (CNN, 10/5)
Good News - Local Markets still show upswing in number of closed transactions. See prior blog entitled "Monthly Home Market Analysis"
Wells Fargo Named Among Safest Banks Worldwide - Corporate financial magazine Global Finance named Wells Fargo among the top 10 safest banks worldwide in an article expected to be published in its October 2008 edition. It is the only U.S. bank in the top-10 list, which was dominated by European banks from Germany and France. Netherland bank RaboBank, with retail offices in Ventura to San Luis Obispo Counties was also in the Top-10 list. (per undated distributed document from Global Finance received 9/30. Wells Fargo has a news release dated 9/4/2008 online, but I was unable to view)
Wachovia ownership uncertain - After J.P. Morgan Chase's takeover of Washington Mutual, rumblings emerged of a bidding war for Wachovia Bank, which took over World Savings just in the last couple of years. Citibank was apparently the winner early in the week, stating it would buy the troubled bank with the help from the FDIC. An announcement from Wachovia and Wells Fargo on Friday stated that the Wachovia Board of Directors approved an all-stock takeover bid from Wells Fargo that did not need FDIC or other federal monies. Citibank cried foul stating it had an "exclusivity agreement" with Wachovia, demanded that Wachovia abide by the agreement, and succeeded Saturday in getting an injunction halting all deals from a New York Supreme Court judge. Wachovia and Citibank will appear in front of this judge on Friday. Meanwhile, the FDIC says it stands by its agreement with Citibank in its takeover bid for Wachovia. (KNX-AM, 10/1, 10/3, 10/4; CNNMoney, 10/5)
LA Not Among Cities With "Greatest Exposure to Financial Crisis" - BusinessWeek identified the top-10 communities across the country that are most likely to be most affected by the financial crisis, based on how many people are employed in finance, real estate, and insurance, and leasing.
· Darien, Conn.: 27.23 percent employed in finance and real estate
· Bloomington, Ill.: 26.31 percent
· Hoboken, N.J.: 23.33 percent
· West Des Moines, Iowa: 22.15 percent
· Garden City, N.Y.: 20.22 percent
· Summit, N.J.: 19.74
· Westport, Conn.: 19.39 percent
· University Park, Texas: 18.83 percent
· Wethersfield, Conn.: 18.73 percent
· Mountain Brook, Ala.: 18.66 percent (Business Week, 9/25)
Greater Oversight Likely to Accompany Rescue Plan - Once a financial rescue plan is executed, legal and political observers expect Capitol Hill legislators to turn their attention to tightening the regulation of mortgage lending—an especially obvious target due to the fact that so much of the troubled debt handcuffing the nation's banks originated with the lax practices of mortgage brokers and lenders. In addition, lawmakers may try to overhaul the patchwork of government authority over the nation's banks, which are currently regulated by four agencies with overlapping jurisdictions: the Comptroller of the Currency, the Federal Deposit Insurance Corp., the Office of Thrift Supervision, and the Federal Reserve. Finally, legislators may try to bring unregulated markets, such as those for credit default swaps, under control. The market for credit default swaps alone has mushroomed to $44 trillion in face value, so vast that a problem at any one of the major participants poses a global risk. (LA Times, 9/25)
C.A.R. REPORTS SALES INCREASED 56.7 PERCENT; MEDIAN HOME PRICE FELL 40.5 PERCENT IN AUGUST - Home sales increased 56.7 percent in August in California compared with the same period a year ago, while the median price of an existing home fell 40.5 percent, C.A.R. reported Sept. 25. The median price of an existing, single-family detached home in California during August 2008 was $350,140, a 40.5 percent decrease from the revised $588,670 median for August 2007, C.A.R. reported. The August 2008 median price fell 0.2 percent compared with July's revised $350,890 median price. (CAR, 10/3)
"All The News That's Fit To Blog"TM
Sources: KNX-AM, CNNMoney, California Association of REALTORS, Global Finance, BBC, National Association of REALTORS, Business Week, Los Angeles Times.
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