Foreclosure leaders focused on 4 states in new metro list
The 26 cities with the highest foreclosure rate in the nation are all located in four hard-hit states, with Las Vegas topping the list, according to a report released Wednesday.
Metro areas in California, Florida, Nevada and Arizona topped the foreclosure filing list for the first quarter of 2009 in a report from RealtyTrac, an online marketer of foreclosed properties. A foreclosure filing includes default papers, auction sale notices and repossessions.
Las Vegas had the highest rate of foreclosures of any city, with one in every 22 homes subject to a foreclosure filing in the first three months of the year. The rate of foreclosure filings was 4.5%, seven times the national average.
Merced, Calif., had the second highest rate, with Cape Coral-Fort Myers, Fla., Stockton, Calif., and Riverside-San Bernardino-Ontario, Calif., rounding out the top five.
"The metro areas with the highest levels of foreclosure activity in the first quarter of 2009 paint a picture of concentrated problems in a relatively small number of hard-hit areas," said James J. Saccacio, chief executive officer of RealtyTrac, in a written statement.
Foreclosure rates have been very high in the 4 key states throughout the bursting of the housing bubble, and so it was to be expected that cities from those states would pepper the top of the list.
However, it was a surprise to see the list so top heavy, according to Rick Sharga, senior vice president at RealtyTrac.
"The concentration of troubled metro areas within the hardest-hit states, candidly, was even more severe than we expected it to be," Sharga said. "The degree to which those four states dominated the rankings surprised even us."
New problem cities: Meanwhile, some metropolitan areas had a surge in foreclosures. Boise City-Nampa, Idaho, in 27th place, Provo-Orem, Utah, in 37th, and Charleston-North Charleston, S.C., in 51st were examples Sharga gave of areas that had particular strong gains in filings.
Sharga said the rise of foreclosures in additional regions indicates new factors influencing the housing market as the recession drags on.
"What we believe we are seeing is some of the areas with unemployment problems," said Sharga. "These are people living paycheck to paycheck and, when the paycheck is gone, suddenly they can't afford to make their mortgage payments."
The data for RealtyTrak's metro area foreclosure report is collected from 2,200 counties across the nation, and those counties represent more than 90% of the U.S. population. Some 203 areas are covered by the report.
Across the nation, foreclosure activity in the first quarter hit a record high, according to another RealtyTrac report issued last week. Total foreclosure filings reached 803,489 in the first three months of the year, the highest monthly and quarterly totals since RealtyTrac began reporting in January 2005.
The national report also found that the worst of the foreclosures were centralized in a handful of worst-hit states. California, Florida, Arizona, Nevada and Illinois accounted for nearly 60% of the total foreclosure activity in the first quarter, with 479,516 properties received foreclosure filings in those states.
WASHINGTON – David Kellermann, the acting chief financial officer of money-losing mortgage giant Freddie Mac was found dead at his home Wednesday morning in what police said was an apparent suicide.
Mary Ann Jennings, director of public information for the Fairfax County, Va., Police Department, said Kellermann was found dead in his suburban Virginia home. The police would not say if a suicide note was found.
Kellermann, 41, lived in Hunter Mill Estates, a well-off neighborhood of large single-family homes with manicured lawns. County records show Kellermann's home is worth about $900,000.
He worked for Freddie Mac for the past 16 years and was named acting chief financial officer last September when the government seized control of the company to keep it from failing. Freddie Mac lost more than $50 billion last year, and the government has pumped in $45 billion to keep the company afloat.
Freddie Mac, which owns or guarantees about 13 million mortgages, has been criticized for financing risky mortgage loans that fueled the real estate bubble.
News of Kellermann's death came as a shock to employees of the McLean, Va.-based company, with those who knew Kellermann tearing up on Wednesday morning and a quiet mood prevailing.
Early Wednesday, Sharon McHale, a Freddie Mac spokeswoman, said senior executives at the company heard the news on local radio before going to work. "It's just so awful," she said.
John Koskinen, the company's interim chief executive, said in a statement that Kellermann, "was a man of great talents .... His extraordinary work ethic and integrity inspired all who worked with him."
Freddie Mac and sibling company Fannie Mae have both come under fire from lawmakers as they plan to pay more than $210 million in bonuses through next year to give workers the incentive to stay in their jobs. While Fannie Mae has disclosed the names of executives in line for the bonuses, Freddie Mac has yet to do so.
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Associated Press Writer Matt Small contributed to this report.
Yesterday, mortgage backed securities (MBS) had a stable day which allowed a few lenders to reprice for the better. Overall mortgage rates moved slightly lower after the long holiday weekend.
What's Moving Money Today....
So far this morning, despite some very friendly MBS data, mortgage rates are holding steady near yesterday's closing rate levels
Before we get to the data I should remind all that we are currently in the midst of corporate earnings season. During this time, I will spot light a few "money moving" earnings reports from various companies focusing on financials since they are the most relevant to the mortgage industry.
Goldman Sachs, a recipient of TARP money, pre-released much better than expected 1Q earnings per share and 1Q revenues. This is the 2nd financial institute, Wells Fargo being the other, who reported better than expected earnings. Goldman also indicated that they intend to issue more common stock in effort to raise $5 billion so they can pay back their TARP funds. This news will dilute the earnings potential for current shareholders but will create a buying opportunity for new entry equity investors. Unfortunately this will encourage investors to move money from bonds to higher yielding stocks.
The US Department of Labor released producer price inflation data this morning. This report measures inflation on the producer level and has very influential implications for fixed income (bond) markets. Consumer inflation data is however slightly more important due to the fact that companies have several means by which to spread around higher prices (as opposed to passing them directly to consumer). There are 2 readings released with this report, core inflation and overall inflation. The core reading strips out food and energy due to their volatility. The month to month core reading was expected to show producer prices rising 0.2%; the actual reading indicated no change from last month (0.0%). The headline producer inflation number unexpectedly declined 1.2% from February, much lower than economist forecasts. So, we have yet another report confirming that a deflationary spiral is much more applicable compared to inflation worries (it will become a problem down the road though). Since inflation is the biggest enemy to mortgage rates, this report is very favorable for MBS, however, as has been the trend lately, MBS remains insulated from individual economic reports (that dont move money from stocks to bonds or from bonds to stocks).
Also today we received perhaps the most important data of the week: retail sales report. Since consumer spending accounts for 2/3rds of our economy, investors pay this report a lot of attention. Our economy will not recover until the consumer starts to spend. Economists expected this report to indicate retail sales had increased by 0.3% from the prior month, unfortunately the number came in weaker than forecasted, a month over month decline of 1.2%!!! When excluding auto sales, retail sales were still weaker than expected, a 0.9% month over month decline. Economists were expecting a flat 0.0% reading. Retails sales were weak in all areas with electronics and appliances showing the largest declines. This report took the wind out of the sails of optimistic investors, the stock market immediately moved lower on the news. Stock markets moving lower implies money flowing into fixed income securities and support for lower mortgage rates. But, once again, MBS remains insulated from major swings in money flows. Mortgages continue to take only "directional guidance" from the "stock lever" and its effects on Treasury yields.
At 10AM we got the release of business inventories. Economists had expected business inventories to show a month over month decline of 1.0%, but this also came in worse than expected at a month over month decline of 1.3%.
In a sign of the crazy times we live in today, we got 2 reports this morning that are very favorable for MBS but we are not getting any love, yet. In a speech last night, Ben Bernanke made forward looking comments on his hope for sunny days ahead. This served to create some optimism in stock markets which will offset potential gains in MBS.
President Obama is scheduled to deliver a "MAJOR" speech on the economy any minute now. All ears will be tuning in to see what he has to say. Headline news always remains a possible money mover. I suspect President Obama will speak of brighter days ahead and attempt to highlight the positives of his young administration. Remember, just a month or so ago the Dow was at 6500! Check out MBS Commentary for mortgage updates after he reads President Obama reads speech (off the teleprompter :-D). I will post an update later today if mortgage rates move higher or lower.
Early reports from fellow mortgage professionals have shown at least one lender offering 4.5% as par rate this morning. To qualify, you must have a 740 FICO credit score, pay all closing costs and 1 point.
Buying a B2B Franchise
By: Jeff Elgin
It has been fascinating to watch the ever-increasing numbers and varieties of industries that have begun using franchising as a growth strategy over the past 25 years. One of the most interesting of these is the business consulting services segment.
These types of franchises come in many forms, but the common denominator is the delivery of services by the franchisee to businesses and/or entrepreneurs. While some may wonder why you'd need to buy a franchise to deliver such services, many of these franchises have proven that a great system, a strong brand and effective marketing can create a much more successful consulting business than youd get going it on your own.
Business consulting franchises offer a number of different services. Some of the most common include:
These are some of the most common forms of business consulting franchises. They can be wonderful opportunities if you're attracted to the lifestyle and income potential of a personal services consulting business but also want the security of a proven operating system, marketing approach and brand.
The secret to success in these types of franchises, as in all others, is to carefully research the opportunity before deciding to buy. Call a lot of existing franchisees and spend the time necessary to really understand their working environment and role. In these types of franchises, its also wise to shadow an existing franchise to find out exactly how a typical day in the life of the franchisee goes. Take the time to make sure youre comfortable with the role, and you should be in great shape for a positive and rewarding experience.
Anyone who is involved in any business activity at all is acutely aware of the economic turmoil that is currently shaking the business world.
While it is critical to be conscious of the global economic climate, it is equally important to understand how to respond when it impacts your company. In that connection, I have often had managers and entrepreneurs say to me that turbulent times like today provide terrific opportunities for those willing to move aggressively to address an identified market opportunity.
If you reflect on the goods and services that were common as recently as the 1990s, it is not difficult to recognize that much of our current economy simply did not exist at that time. (How often did you tell someone that you would “Google” for information in 1994?) Most companies evolve over time in order to respond to a changing business environment. Now might be such a time for your company.
How can you position your company to take advantage of the times?
Many companies make the concept of constantly identifying new business and revenue opportunities a deeply imbedded part of their corporate culture. The payback for incorporating this mindset can be immense if properly executed. Times like these can provide an opportunity for innovative managers and owners to identify new openings for growth using the resources at hand.
Entrepreneurs start businesses for lots of reasons. If you have a great business idea today, Stuart Jamieson, a startup expert and CEO at three different companies says, “Before diving into entrepreneurship, it pays to be brutally honest about why you want to start a business and what you expect to get out of it.”
As CEO of Slipstream Design, a product development firm and venture incubator, Jamieson works with scientists, inventors and people with great ideas who are looking to realize their startup dreams. His work has shown that in some cases an entrepreneur has more interest in and aptitude for generating insightful product ideas versus running the business. In those cases a CEO is recruited. Being honest about preferences early on enables strategic decision making that can help an entrepreneur dramatically increase the odds of success and happiness. At a recent Northwest Entrepreneur Breakfast meeting, Jamieson discussed the smart decisions required to increase the odds of realizing your entrepreneurial dreams.
Getting real: A recession can be a great motivator for starting a business, especially if you’ve been laid off and job prospects are weak. But is it really a good time? Jamieson says it depends. Forecasters expect the overall economy to drop 2 percent to 8 percent annually. However, most startups grow 100 percent annually in the first few years. These two facts have to be reconciled when analyzing business opportunities. For example, what are your time-to-market and cash requirements? Although funding channels are currently tight, ideas with rapid return on investment could spur interest.
Knowing what you want to get out of the business is also critical. This helps align personal goals and skills with opportunities and funding sources. For example, are you creating: A business to support a lifestyle choice? A high-growth startup? A single product? Or is your business a moonlighting venture that you’ll work on after your real job?
If you’re moonlighting on your own, you’ll likely be self-funded and grow much more slowly. This low-risk approach enables testing of the waters while creating the potential to evolve. Likewise, you may be driven to create a lifestyle or family business. Small service providers fall into this category. Lifestyle businesses are usually self-funded. They have the potential to offer intrinsic benefits like control, flexibility and monetary rewards if you’re cut out to wear many hats and excel at multitasking.
If your business idea is a larger concept or product, you’ll likely need investors. Working with investors requires understanding what your business means to external stakeholders. If your business is a single, innovative product, angel resources might be a great investment source, but not venture capitalists (VC) who seek high-growth startup opportunities. Jamieson cautions against trying to mold your business idea to fit available cash sources and explains, “angel and VC investors will see right through an inconsistent value proposition, so know what you want to be so that you can engage the right stakeholders.” Honesty early on will filter decision making, helping to exponentially increase happiness later.
Be aware — if outside money is taken it will define your business direction. You’ll need to be committed to growing at a rate that works with your investors’ exit plan. The typical VC exit plan is seven years. Being honest with yourself about the type of business you want to run and what you can achieve within your financial model helps create positive investor alignment.
Entrepreneurs should also remember that they are always giving something to get something. Balancing how much and what control to give up is a continual process. Expect to lose some level of control every time you need more resources such as key management, more cash, and channel access. Managing resources efficiently and consistently is not only smart; it provides more control over your destiny.
Selling is everything: Startups compete for everything — resources, people, free advice, money, channel access and office space.
One of the first sales will be to recruit staff. Veterans will use a “startup club.”These teams of repeat performers are an investor’s dream because they’re proven, efficient and low risk. If you don’t have a startup club, leverage your professional network for referrals. Stay on the lookout for ways to get more than you pay for. Only hire staff when a job is required full time. Use consultants for other work. Find people who have time, desire and are results-driven. Leverage the romance of a startup to get people excited and involved. Set up an advisory board for free advice.
Selling should be a constant focus during product development. Get comfortable selling a product long before it’s ready. Early recruits only require the product concept on the back of an envelope. Likewise, most seed investors are smart and can extrapolate from a smoke-and-mirrors pitch as long as the concepts presented create clarity. When it comes to the sales channel, customers need an “as good as real” prototype, but don’t stall waiting for perfection. Finally, when selling the full production version, sell it with the utmost integrity and lots of support.
Once the startup roller coaster begins, it’s hard to stop the momentum. That’s why knowing the type of company you want to build at the onset will be one of most important aspects to creating the company of your dreams. Pick the lifestyle you want, and then execute to achieve it.
WASHINGTON — The federal government wants banks to lend more money to small businesses, but regulators’ demands for more capital, higher deposit insurance premiums and fears about what Congress might do next are working against that goal.
Business lobbyists shook their heads at the latest example of the government working at cross-purposes: Legislation that would impose a hefty tax on bonuses awarded by companies that receive large investments from the government’s financial rescue program. These bills target executives and derivatives traders at American International Group, which recently awarded $165 million in previously contracted retention bonuses, but the fallout may be felt by all businesses that need credit, according to the U.S. Chamber of Commerce.
This retroactive change may make investors wary of participating in the U.S. Treasury Department’s new program to purchase real estate loans and mortgage-backed securities, chamber officials said.These “toxic assets” are dragging down banks’ balance sheets, and selling them is seen as a necessary step in getting credit flowing again.
Bruce Josten, the chamber’s executive vice president for government affairs, wonders whether investors will risk buying toxic assets if they think Congress might come back later and say, “We didn’t want you to do that well. ... We’re going to take back some of that profit.”
Treasury Secretary Timothy Geithner addressed these concerns March 23, when he outlined the public-private partnership that will purchase toxic assets. Asset managers and investors in the firms that buy these loans and securities will not be subject to executive compensation restrictions, he said.
“We have seen, and I expect to see, a lot of interest from the private sector,” Geithner said.
Earlier actions to cap executive compensation at financial institutions that received Troubled Asset Recovery Program funding led many banks to regret taking the money. Other banks that could use TARP money to expand their lending now say they have no interest in it.
Take, for example, Gulf Coast Bank & Trust Co. in New Orleans. Dramatically higher Federal Deposit Insurance Corp. premiums are forcing that community bank to reduce its lending this year, but President Guy Williams isn’t interested in TARP.
The program’s executive compensation limits would force a pay cut for the husband-and-wife team that runs its mortgage division, he said, and the bank won’t do that.
“We don’t have Wall Street types here,” Williams said. “Our people take bonuses when we make money.”
When banks cut back on their lending, small businesses suffer. About 55 percent of small and midsize businesses surveyed three months ago by the National Small Business Association reported difficulty in getting credit. Nearly 30 percent said banks had reduced their credit lines.
“It stands to reason that credit is even more elusive today,” NSBA President and CEO Todd McCracken said.
Bob Cockerham, president of Car World Inc. in Santa Fe and Albuquerque, N.M., said his once successful dealership is having difficulties now. He traveled to Washington on March 19 to discuss those financial issues with a Senate committee.
When sales slumped last August, Cockerham cut costs by closing locations and laying off workers. For a while, its lender continued to provide it with loans to buy vehicles from automakers.
In January, however, the lender said it had decided 2009 “would be a much more difficult year, and we were not big enough,” Cockerham said.
The lender canceled the dealership’s emergency $200,000 line of credit and told Cockerham to find another bank within 90 days, he said. Unless he can find another lender, the dealership will go out of business and he and his wife, Mary, will be forced to file for personal bankruptcy, he said.
But Cockerham said, “This isn’t a Bob and Mary problem. Thousands of these businesses are in peril.”
By Megan Ainscow and edited by Ernest Hoffman©CEP News Ltd. 2009
Atlanta Fed President Dennis Lockhart said Monday the U.S. government's public/private partnership to tackle the toxic asset problem is sufficient.
The plan introduced this morning proposes a private and public partnership that will buy toxic assets and resell them to the public, with all the risk taken by the U.S. government.
In an interview with Reuters, Lockhart said the Federal Reserve's decision last week to buy long-dated U.S. Treasuries was discussed in a healthy debate before the final decision , which was made based on the worsening economic outlook.
He said he was happy with the market reaction following the Fed's announcement, but added he did not consider the negative effect it would have on the U.S. dollar. He said the Treasury purchases will be easier to remove from the Fed's balance sheet once it is time to exit the plan.
He also said personal spending is suffering and unemployment could rise above 9%.
NEW YORK(CNNMoney.com) -- Fannie Mae and Freddie Mac won't be leaving the federal government's nest anytime soon.
President Obama is leaning heavily on the teetering mortgage finance titans to help stabilize the housing market, even as it pumps hundreds of billions of dollars into them to keep them afloat.
As the housing crisis deepens, the question of the companies' long-term future has been set aside.
"The Obama administration has indicated that Fannie and Freddie will continue having a key role in the nation's economy as we go forward," James Lockhart, director of the Federal Housing Finance Agency, which regulates the companies, said in a speech last week. "At this point, our primary focus has to be getting through the present crisis."
Fannie (FNM, Fortune 500) and Freddie (FRE, Fortune 500), which long straddled the line between private companies and government agencies, were taken into conservatorship last September to prevent their collapse. Each were given a lifeline of $100 billion.
Their importance to homebuyers and lenders is clear - they accounted for more than 75% of mortgage originations at the end of last year, injecting much-needed financing into the lending arena. They own or guarantee almost 31 million mortgages worth $5.3 trillion.
And they are playing an pivotal role in Obama's foreclosure prevention program, which was announced Wednesday.
Under the plan, Fannie and Freddie will provide access to low-cost refinancing to borrowers with little or no equity in their home. The administration expects this will help up to 5 million borrowers avoid foreclosure.
The companies are also contributing more than $20 billion to subsidize struggling borrowers' interest rate reductions as part of Obama's $75 billion loan modification program. This is expected to prevent up to 4 million foreclosures.
The administration, realizing it needs to boost confidence in the struggling companies, has agreed to double its level of support for the firms to $200 billion each, as well as boost the amount of mortgages they can own or guarantee to $900 billion, up from $850 billion.
The additional funding comes at a crucial time for the firms, which are contending with soaring defaults in their own portfolios as the economy weakens. Both are expected to report large losses -- Fannie by next Monday and Freddie by the end of March.
Already Fannie has said it needs up to $16 billion to cover fourth-quarter losses, while Freddie plans to draw down up to $35 billion more, on top of the nearly $14 billion it already received.
The firms may need more than $200 billion each in government funding, especially since they are holding $1.6 trillion in subprime and Alt-A loans, experts say. But all signs indicate that the federal government will be there to back the companies.
"The government wants Fannie and Freddie to help people buy houses," said James Angel, associate professor at the McDonough School of Business at Georgetown University. "They don't want there to be any limit."
In the near-term, the federal government could continue operating the companies as they are now or it could deepen its commitment. Many experts are arguing for the latter.
If the administration were to fully take over Fannie and Freddie - putting it into receivership and wiping out the remaining shareholders - it would have a lot more flexibility to use them to prop up the housing market, said Thomas Stanton, a lecturer at Johns Hopkins University. Right now, the government has to keep in mind shareholder interests instead of devoting all efforts to the company's role in housing policy.
Federal officials might choose to use Fannie and Freddie to soak up the toxic residential mortgage assets at other financial institutions, creating a so-called "bad bank," Angel said.
At least Obama should come out and say that the government will back the company's debt, many experts say. Right now, that guarantee is implicit, but it's not enough for some investors, who are shifting to other forms of debt that are explicitly backed by the United States.
Such a guarantee could bring down their financing costs by as much as one percentage point, by some estimates, since the debt would be viewed as less risky.
"Using Fannie and Freddie to address the bust would be cheaper and easier if Congress would simply enact an explicit guarantee of their debt, reflecting the de facto reality," Alex Pollock, resident fellow at the American Enterprise Institute, said in a recent speech.
As for the long-term future of the companies, there are many wide-ranging opinions. Any of these changes, however, are likely years away, experts said.
Lockhart outlined several options. The first scenario calls for the firms to be nationalized and merged with either the Federal Housing Administration or Ginnie Mae, a government corporation that guarantees federally insured mortgages. Lockhart opposes this option because it would expose the government to the significant risks posed by insurance programs.
Or the companies could remain as government-sponsored enterprises, possibly with a continued lifeline from Treasury or a sharp reduction of their mortgage portfolios.
Finally, Lockhart said, the companies could become purely private-sector firms.
Other experts say the companies' functions should be broken up: The securitization business could be turned over to the private sector, and the housing subsidy mission could remain within the government. Many say the current hybrid structure has proven not to work.
Determining the future of Fannie and Freddie won't be an easy task, no matter when it happens.
"This kind of decision has to be made very carefully," Stanton said. "If they can postpone the decision, it wouldn't be surprising that they might."
NEW YORK (CNNMoney.com) -- Freddie Mac's chief executive, installed last year after the government took over the troubled mortgage finance company, is resigning, the company and its regulator said Monday.
David Moffett will step down by March 13. Freddie Mac (FRE, Fortune 500) said it would announce a successor by then.
Moffett said that he planned to return to the financial services sector. He served as chief financial officer of U.S. Bancorp from 1993 until 2007.
"We are very sorry to see David go," Freddie Chairman John Koskinen said in a statement. "He made valuable contributions to Freddie Mac as the company transitioned into conservatorship."
Moffett replaced Richard Syron as Freddie CEO in September, when Freddie and Fannie Mae (FNM, Fortune 500) were placed under conservatorship by its regulator, the Federal Housing Finance Agency. Herb Allison, former CEO of pension provider TIAA-CREF, replaced Daniel Mudd as CEO of Fannie Mae.
Both companies back mortgages held by private homeowners, and have received massive cash infusions from the government.
Freddie Mac, which has accessed nearly $14 billion in government funds, said it may need up to $35 billion more when it reports its financial results in coming weeks.
According to Freddie Mac, Moffett was hired "to provide leadership for the company during one of the toughest housing markets in decades" and to work with the FHFA in bringing stability to the housing market.
Back in November, Freddie Mac reported a third-quarter loss of $25 billion, or $19.44 per share. In the next few weeks, the company is expected to report a fourth-quarter loss of $10.27 per share, according to a consensus of analyst opinion compiled by Thomson Reuters.
Fannie Mae reported a fourth-quarter loss of $25.2 billion, or $4.47 per share, its sixth straight quarter of losses.
President Obama announced last month that Fannie and Freddie will be used to provide access to low-cost refinancing for borrowers with little or no equity in their home. The Obama administration intends to help five million home owners avoid foreclosure through this plan.
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