Unstructured Finance

Will FHFA opposition to principal reductions boost eminent domain efforts?

By Matthew Goldstein and Jennifer Ablan

There’s nothing surprising about FHFA head Ed DeMarco’s decision to nix the idea of writing down some of the debt owed by cash-strapped homeowners on mortgages guaranteed by Fannie and Freddie. DeMarco, whose agency regulates Fannie and Freddie, has been a consistent opponent of principal reductions–something we pointed out last October in our story on the need for a “great haircut” on consumer loans and including student and mortgage debt to stimulate the economy.

But DeMarco’s renewed opposition comes at a time that there is a growing consensus that something needs to be done on the housing front to get the U.S. economy going, as opposed to simply churning along at the current anemic rate of growth. More and more economists are saying that reducing mortgage debt will not only reduce foreclosures, it will give ordinary Americans more money to spend on goods and services.

It doesn’t take an MBA from Harvard to know that when people have spending power it translates into more demand and that usually prompts employers to hire more people to fill that demand.

DeMarco’s opposition also comes at a time that some local government officials in communities hit hardest by the housing crisis are toying with ideas that once seemed too controversial to imagine. We’re, of course, talking about the idea of using eminent domain to seize and restructure underwater mortgages–something we first reported on in early June. (Sorry, Matt Taibbi, we had the story first).

Mortgage Resolution Partners, the investment firm that is pushing the idea of eminent domain as a mortgage fix, is only talking about seizing home loans held in private labeled mortgage-backed securities.  The firm is deliberately avoiding MBS issued by Fannie and Freddie possibly because of DeMarco’s opposition to principal reductions. MRP’s focus on private label MBS has earned the wrath of many mortgage bond investor trade groups.

UF Weekend Reads

Nice weather today in NYC. Enjoy it today before Sunday’s deluge. Here’s Sam Forgione’s picks. You can now follow Sam on twitter @samuelforgione

 

From The New Yorker:

Nicholas Lemann explores new books that illustrate the ties between politics and the economy.

From BusinessWeek:

Lazard’s Michele Lamarche takes on the tough task of courting debt-strapped nations.

Bad data?

By Matthew Goldstein

The jobs situation is still pretty bad in the U.S. and the nation has a long way to go to make up for the millions of jobs lost during the financial crisis. But today’s job’s report and recent revisions point out that maybe things aren’t as bad as everyone feared just a few months ago.

Remember this summer, when everyone was convinced the U.S. was headed into another recession. The August jobs report seemed to confirm that bleak outlook when the Department of Labor said the nation produced a big fat 0 in terms of new jobs. But now we know that 100,000 jobs were created in August. And the Labor Department says the 103,000 jobs thought to have been added in September was actually 210,000.

The October number also was revised up by 20,000 to 100,000.

So who knows, maybe November’s report, which said the nation added 120,000, will be revised upwards next year when the December jobs reported is released.

Wall Street protesters just want to be heard

Early morning at Occupy Wall Street

Updated Oct. 5

By Matthew Goldstein and Jennifer Ablan

There’s been a lot of talk that other than rallying against bankers and corporate greed, the message coming from Occupy Wall Street isn’t a clear one. And many of the college students, artists, unemployed, transients who’ve set-up camp in a concrete plaza in  lower Manhattan wouldn’t disagree with that assessment.

In fact, many of the young protesters–mostly in their 20s–seem to embrace the notion that it’s hard to define just what Occupy Wall Street is all about and what it hopes to achieve. For many, sleeping on the streets and staging a “Zombie March,” or getting arrested for blocking traffic on the Brooklyn Bridge is enough to bring attention to the fact that too many Americans are still suffering from the financial crisis.

“I’m here because in this recession, the rich have become richer — and it ties in to the bank bailouts,” says Dylan Bozlee, a college student from Hilo, Hawaii, who booked a one-way ticket to New York to join the protest. “Think about it? Wall Street got us into this huge mess, enabled by our government, and we are in the same state of affairs–recession.”

Check Out Line: Consumers beware! Rising prices even at Wal-Mart

walmart1Check out rising prices even at Wal-Mart.

Pressures created by rising costs have caused even the world’s largest retailer, known for its ”rollback” discounts, to boost the prices that consumers pay for groceries.
    
Wal-Mart Stores raised average prices on supermarket items by about 6 percent in a month, according to a recent J.P. Morgan study in Virginia that compared the prices of 31-item goods sold at its supercenters, and at supermarket rivals Kroger, Safeway, Harris Teeter and Whole Foods.
    
Specifically, the study found that prices at a supercenter in Virginia rose 5.8 percent, the most significant sequential increase since JP Morgan started price comparisons in January 2009.
    
While the world’s largest retailer remains the cheapest among supermarkets, rivals such as Kroger and Safeway are gaining ground, according to J.P. Morgan.
    
Rising costs of raw materials and oil are pressuring companies to pass on costs to consumers with higher prices.

Indeed, clothes makers such as Nike, VF Corp and Hanesbrands are facing the same conundrum. And British baker Greggs said soaring wheat prices were set to push up costs, emphasizing a theme that may be repeated for such food makers as General Mills, Kellogg, Kraft and Sara Lee.

However, the timing is not good as the state of the U.S. economy is still uncertain and unemployment remains stubbornly high, leading many consumers to still be wary about spending. U.S. retailers in July posted weaker-than-expected sales  despite increased discounting.
    
Also in the basket:

Check Out Line: Frugality — Part Two?

shopCheck out the apparent return of the frugalista.

Worries about stubbornly high U.S. unemployment and a tempermental economic recovery has shoppers reeling in spending on all but the essentials.

The 28 retailers tracked by Thomson Reuters reported an overall 2.9 percent rise in July sales at stores open at least one year, missing Wall Street forecasts of 3.1 percent. Seventeen of those retailers reported lower-than-expected sales, while nine — including Macy’s and Kohl’s — beat estimates.

“We are now in an environment where the dollars in consumers’ pockets are fewer, so the competition for those dollars has increased,” said Lawrence Creatura, portfolio manager at Federated Clover Investment Advisors.

Panera’s pick-what-you-pay cafe holds its own

panera2Panera Bread’s hometown experiment in altruism appears to be working.

About eight weeks after opening Panera Cares — a nonprofit restaurant that invites customers to take what they need and pay what they can — executives say it appears to be on-track to covering its costs and becoming self-sufficient.

“It’s a fascinating test of humanity,” Panera Executive Chairman Ron Shaich told Reuters.

“On average, we’re coming in around 85 percent of the average retail price,” said Shaich, whom Panera Bread’s CEO has dubbed the “guiding light” of Panera Cares.

Check Out Line: Have a Coke and a confused looking grin

Check out the confused American consumer. COCACOLAENTERPRISES/

Coca-Cola Co actually saw sales volume rise in North America in the second quarter, a rare feat.

Now imagine what would happen if U.S. consumers could actually figure out if they can afford to keep spending the money on a soda, what with high unemployment and the jittery stock market.

The world’s biggest soft-drink company says it has the brands to grow in North America, the ability to spend to support those brands and other factors.

Check Out Line: Earnings to quench investors’ thirst

pepsi1Check out the latest quarterly earnings for signs of a recovery.

Whirlpool and PepsiCo both reported better-than-expected quarterly profits and pointed to improving trends, lending hope to optimists that the economy is slowly improving.

While citing continuing macroeconomic challenges, PepsiCo, which makes Tropicana juice, Frito-Lay snacks and Quaker Oats in addition to its namesake cola,  posted stronger-than-expected results and affirmed its earnings per share growth target for the fiscal year.

“We are benefiting from both the acquisition of our anchor bottlers earlier this year and from improving trends across our global business.  As planned, we have stepped up incremental investments around the world to capitalize on untapped consumer demand,” Chief Financial Officer Hugh Johnston said in a statement.

Check Out Line: Summer job search advice for teens

jobfair1Check out tough times for job-seeking teens.

Outplacement firm Challenger, Gray & Christmas said teens looking for a summer job will need to dedicate themselves full-time to the search, meaning getting a full-time job will be a full-time job. While many employers have filled summer positions, some may need more than expected while others delayed hiring until summer business conditions became clearer, Challenger CEO John Challenger said.

“The point is, you never know if or when a job opening is going to materialize, so you want to keep pushing,” he said in a statement.

Earlier this spring, the Challenger firm predicted an improved summer hiring outlook for teens compared with last year, when employment among 16- to 19-year-olds grew by less than 1.2 million jobs from May through July.

  •