U.S. Business Headlines

Government Extends 125% for Refinancing Mortgages

By: Diana Olick, CNBC Real Estate Reporter | 01 Jul 2009 | 01:47 PM ET
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Homeowners refinancing their mortgages through loans backed by government agencies will be able to borrow up to 125 percent of their homes’ value under new regulations enacted Wednesday.

The rule changes, part of the government’s attempts to restore housing affordability and stem the foreclosure crisis, apply to loans backed up by Fannie Mae and Freddie Mac.

By: Diana Olick, CNBC Real Estate Reporter | 01 Jul 2009 | 01:47 PM ET
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Homeowners refinancing their mortgages through loans backed by government agencies will be able to borrow up to 125 percent of their homes’ value under new regulations enacted Wednesday.

The rule changes, part of the government’s attempts to restore housing affordability and stem the foreclosure crisis, apply to loans backed up by Fannie Mae and Freddie Mac.

Previously, homeowners could borrow up to 105 percent of their home’s value. The new loan-to-value ratio is set up at 125 percent in a further effort to address those mortgage holders who owe more than their homes are worth.

The government in March enacted the Home Affordable Refinance standards in response to the rash of defaults and foreclosures that have occurred as national housing prices have plummeted.

The new LTV rate will be offered only to borrowers who are current on their mortgages that are owned by either Fannie or Freddie.

Also, the government is encouraing borrowes to take advantage of a chance to lower their mortgages from 30-year to 25-year in order to save on interest charges.

“This is a change that will put affordable refinancing opportunities within reach of performing borrowers who have suffered the effects of local home price erosion,” Freddie Mac Executive Vice President Don Bisenius said in a statement.

Auto Company Sales Beat Estimates

By Jeff Green and Mike Ramsey

July 1 (Bloomberg) — Ford Motor Co. and Nissan Motor Co. reported June U.S. sales that were better than estimates, as analysts predicted a stabilizing U.S. economy may have led the auto industry to its strongest month this year.

Deliveries at Ford slid 11 percent from a year earlier, according to a statement today from the Dearborn, Michigan-based company. Nissan posted a 23 percent decline. Toyota Motor Corp. said its sales fell 32 percent. Chrysler Group LLC reported a 42 percent drop after it ended most sales to fleet customers.

The U.S. sales slide may have slowed last month, with an annual rate of more than 10 million cars and light trucks for the first time this year as consumers gain confidence and shrug off bankruptcies at General Motors Corp. and Chrysler. A June decline would be the 20th straight monthly drop.

“Sales still haven’t recovered in terms of sheer volume numbers, but things are stabilizing,” Al Castignetti, U.S. vice president for Nissan, said in a telephone interview. “I’m not sure if the economy is getting better or worse, but it appears to me that consumer confidence is getting better, and that drives sales.”

Ford’s drop was 14 percent adjusted for one more sales day than in June 2008, compared with the average estimate of 17 percent from five analysts surveyed by Bloomberg. Tokyo-based Nissan’s adjusted decline was 26 percent, after three analysts estimated an average of 28 percent.

Toyota’s adjusted decline was 35 percent, higher than the 32 percent average of three analysts.

Helped by Discounts….

I’ll Guess @ 10 Below Par

Barry Ritholtz’s reader Steve Barry has updated the New York Times chart of Case Shiller housing prices to account for the latest data (April).

We can quibble about about precision, but here’s the bottom line: Prices still have a bit further to fall just to get back to fair value.  And “fair value” is fair value because prices have spent about half the time below that level.  So, if anything, Steve’s projection is probably optimistic.

Nationwide, prices are now down 33% from the peak.  They’ll likely be down 40%-50% before we’re through.  And they’ll probably stay there for a while.

case-shiller-updated2.png

Feldstein Sees Renewed U.S. Slump After ‘Improvement’

By Vincent Del Giudice

July 1 (Bloomberg) — The U.S. economy will grow for a few quarters and then contract again, said Martin Feldstein, a professor of economics at Harvard University.

“I think we’re going to see a temporary substantial improvement,” Feldstein, the former head of the National Bureau of Economic Research and a Reagan administration adviser, said today in an interview on Bloomberg Radio. “I emphasize the words temporary and substantial.”

Feldstein — a member of the private panel that dates the start of recessions and recoveries — suggested the economy will contract into next year, and that the pattern of economic turnaround will be more of a seesaw than what he called “a beautiful symmetrical W.”

The National Bureau of Economic Research Business Cycle Dating Committee said the current recession, the worst in half a century, started in December 2007. Since then the economy has lost about 6 million jobs, and gross domestic product contracted in the final quarter of 2007, the third and fourth quarters of last year and the first quarter of this year.

After the economy shrank at a 5.5 percent annual pace in the first quarter of the year, the change in GDP will be “closer to zero” or “even a small plus” for the April-to- June period, Feldstein said.

“We’ll get a bounce for a few quarters and then it will fade out,” Feldstein said. “We’re now going through the getting-better phase for a while.”

Interest Rates….

Banks Increase Mortgage Backed debt by 5.6%

By Jody Shenn

July 1 (Bloomberg) — Banks are buying the mortgage-backed bonds that hobbled the global financial system, helping to sustain higher prices for the debt, according to Federal Reserve data, investors and traders.

Large U.S. commercial banks held $154.6 billion in mortgage securities that lack government backing on June 17, an increase of 5.6 percent since April, Fed data show. Typical prices for the most-senior such securities backed by prime-jumbo mortgages have risen to 75 cents on the dollar from 63 cents in March, according to Barclays Capital.

Banks are investing more in securities as deposits rise faster than lending. Commercial bank deposits have soared 9.5 percent to $7.56 trillion since the week before Lehman Brothers Holdings Inc.’s September collapse triggered a stock-market sell-off and about a month before the Federal Deposit Insurance Corp. increased coverage to $250,000 per account, from $100,000. Bank lending rose 1.4 percent to $7.01 trillion in the same period, Fed data show.

U.S. Mortgage Applications Fall To A 7 Month Low

NEW YORK (Reuters) – U.S. mortgage applications plunged to a seven-month low last week as demand for home refinancing loans tumbled 30 percent, data from an industry group showed on Wednesday.

The drop does not bode well for the hard-hit U.S. housing market, which has been showing some signs of stabilization, with sales rising and home price declines moderating in many regions of the country.

The Mortgage Bankers Association said its seasonally adjusted index of mortgage applications, which includes both purchase and refinance loans, for the week ended June 26 decreased 18.9 percent to 444.8, the lowest reading since the week ended November 21, 2008.

Kenneth Rosen, chairman of the Fisher Center for Real Estate and Urban Economics at the University of California, Berkeley, said mortgage rates are just one factor driving potential borrowers.

“Rising unemployment, concerns about job security, potential buyers’ inability to sell their existing homes and problems with appraisals coming in too low are all weighing on demand,” he said.

“The government needs to take more aggressive action to bring mortgage rates back down to below 5 percent as that seems to be a key level for the market,” he said.

Borrowing costs on 30-year fixed-rate mortgages, excluding fees, averaged 5.34 percent, down 0.10 percentage point from the previous week, but significantly higher than the all-time low of 4.61 percent set in the week ended March 27. The survey has been conducted weekly since 1990.

Mortgage rates remained above 5 percent for a fifth straight week, but were well below year-ago levels of 6.33 percent.

Thirty-year mortgage rates had mostly been on a downward trend since the Federal Reserve unveiled its plan to buy mortgage-backed debt in late November. But the Fed met resistance in the bond market in late May and early June.

Treasury yields, which act as a benchmark for mortgage rates, rose sharply during that period. Treasury yields, however, have come down recently, allowing rates to fall.

The MBA’s seasonally adjusted purchase index fell 4.5 percent to 267.7.

The four-week moving average of mortgage applications, which smooths the volatile weekly figures, was down 9.2 percent….

Oil Rises Above $71 pb

Oil prices climbed over $71 a barrel Wednesday as a drop in U.S. crude inventories suggested demand might be picking up.

By midday in Europe, benchmark crude for August delivery was up $1.21 to $71.10 a barrel in electronic trading on the New York Mercantile Exchange. On Tuesday, it dipped $1.60 to settle at $69.89.

U.S. inventories dropped by 6.8 million barrels last week, the American Petroleum Institute said Tuesday. Investors will be watching for inventory data from the Energy Department’s Energy Information Administration on Wednesday for more signs crude demand may be growing.

Crude fell Tuesday after the New York-based Conference Board said its consumer confidence index dropped in June after gaining the last three months, a downbeat sign for the overall economy.

“You’ve got conflicting signals,” said Mark Pervan, senior commodity strategist with ANZ Bank in Melbourne. “The inventory data is giving people a reason to buy today.”

Oil prices will likely fall between 10 percent and 15 percent during the third quarter as the global economy remains sluggish and the dollar strengthens, Pervan said. Prices will probably then rebound in the fourth quarter by about 20 percent, he said….

CA Misses Last Nights Budget Deadline & Will Issue IOUs

By Jim Christie

SAN FRANCISCO (Reuters) – California’s lawmakers failed to agree on a balanced budget by the start of its new fiscal year on Wednesday morning, clearing the way to suspend payments owed to the state’s vendors and local agencies, who instead will get “IOU” notes promising payment.

The notes will mark the first time in 17 years the most populous U.S. state’s government will have to resort to the unusual and dramatic measure.

Democrats who control the legislature could not convince Republicans late on Tuesday night to back their plans to tackle a $24.3 billion budget shortfall or a stopgap effort to ward off the IOUs. The two sides agree on the need for spending cuts but are split over whether to raise taxes.

Democrats have pushed for new revenues while Republican lawmakers and Governor Arnold Schwarzenegger, also a Republican, have ruled out tax increases. They instead see deep spending cuts as the solution to balancing the budget, but Democrats say that would slash the state’s safety net for the needy to the bone.

Tempers flared in the state Senate as the midnight start of the new fiscal year neared.

“There is no excuse to hold this whole state hostage,” state Senate President Pro Tem Darrell Steinberg told Republicans during a floor debate.

Senate Republican Leader Dennis Hollingsworth countered that major cuts are urgently needed. Otherwise, “There will be entire programs that will have to be lopped off,” he said.

CASH CRISIS LOOMS…

BAC Getting Low Bids On Its Asset Management Unit

(Reuters) – Bank of America Corp’s (BAC.N) primary investment management unit is drawing lower than expected bids after its likeliest suitor, BlackRock Inc (BLK.N), inked a blockbuster deal to buy Barclays Global Investor (BARC.L), the Financial Times reported, citing people close to the matter.

Bank of America has been trying to sell its Boston-based Columbia Management unit since earlier this year, but the bank has so far not announced a deal for the unit.

The company is hoping to get at least $3 billion from a sale of Columbia Management, but bids so far have come in closer to $2 billion, the paper said, citing the people….

GIS Profits Beat

NEW YORK (Reuters) – General Mills Inc (GIS.N), the maker of Cheerios cereal and Yoplait yogurt, forecast better-than-expected earnings for the current fiscal year, helped by new products and moderating commodity costs.

It also posted a higher-than-expected quarterly profit, boosted by a 12-percent increase in its U.S. retail unit, which includes Pillsbury baking products and Green Giant frozen vegetables.

The net profit was $358.8 million, or $1.07 per share for the fourth quarter that ended May 31, compared with $185.2 million, or 53 cents a share, a year earlier….

Auto Sales Expected To Show Signs Of A Comeback

By David Bailey

DETROIT (Reuters) – Major automakers are expected to report the highest sales rate of 2009 when they post results for June, as deep discounts limit industry-wide results to a 30-percent decline.

In the context of the U.S. auto industry, where sales have been slumping for four years, that would constitute good news and support the view sales are near bottom after a punishing decline to nearly 30-year lows, analysts and executives said.

All of the largest automakers are expected to post deep U.S. light vehicle sales declines for June to round out what has been the weakest market since the early 1980s…..

U.S. Treasury Plans To Sell TARP Warrants Leaving The People With a Low Bid

By David Mildenberg

July 1 (Bloomberg) — The Treasury’s plan to sell warrants back to banks that are leaving the U.S. bailout program undervalues the securities by $525 million, said a University of Louisiana professor who has studied the process.

The expected value of warrants for 10 of the largest banks that repaid their Troubled Asset Relief Plan funds earlier this year is $3.3 billion using the Treasury’s valuation approach, compared with $3.82 billion with a more conventional method, Linus Wilson, a finance professor in Lafayette, Louisiana, said in an interview.

Investors are debating whether taxpayers will be fairly compensated for the risk they took by providing rescue funds for the banking industry. Wilson contends prices on 10 buybacks so far were too low; bankers say the U.S. shouldn’t get a short- term windfall. The Treasury said June 26 it will employ “well- known” financial models to come up with fair values that use a range of assumptions about market conditions and dividends.

“Treasury should be making assumptions that favor taxpayers,” Wilson said. “With this statistical sleight of hand, the Treasury’s approach favors the banks.”

Estimates of the total value of all warrants outstanding vary from $5 billion by the Treasury to Wilson’s projection of about $11 billion. The Congressional Budget Office pegs the value at $6 billion.

The Treasury’s formula corrects for “well-documented” biases of some pricing models, the agency said. The regulator’s approach is more appropriate for estimating the volatility of a three-month option that won’t be actively traded, Wilson said. It’s less useful for determining the volatility of a 10-year warrant such as the TARP securities, he said.

Exit Strategy

Policy makers want to speed the withdrawal of the government from the banking industry, rather than attempt to maximize returns for the taxpayers by waiting for share prices to rise, Washington banking lawyer William Sweet of Skadden, Arps, Slate, Meagher & Flom said last week.

“The president has clearly stated that his objective is to dispose of the government’s investments in individual companies as quickly as is practicable,” the Treasury statement said.

The Obama administration gave approval in June for 10 of the biggest U.S. banks, including JPMorgan Chase & Co., Goldman Sachs Group Inc. and Morgan Stanley, to repay $68 billion of TARP funds. When the money was first obtained, banks had to give the Treasury preferred stock plus warrants to buy stock at a future date at a specific price, called the strike price.

Negotiated Prices….


European Markets Rise Along With U.S. Futures

By Daniel Hauck

July 1 (Bloomberg) — European stocks and U.S. index futures rose while the yen fell after an expansion in Chinese manufacturing indicated that economies are recovering from the worst global slump since World War II. Oil and copper gained.

The MSCI World Index added 0.3 percent at 12:15 p.m. in London after the gauge of 23 developed countries yesterday capped its biggest quarterly advance in a decade. Standard & Poor’s 500 Index futures gained 0.5 percent, and emerging-market stocks rose to a two-week high. The yen weakened 0.7 percent against the euro. Crude jumped 1.6 percent to $71 a barrel on the New York Mercantile Exchange and copper advanced 2 percent to $5,065 a metric ton on the London Metal Exchange.

Speculation the $12.8 trillion pledged by the U.S. government and Federal Reserve will end the recession helped send the MSCI World to a 20 percent gain last quarter. China’s Purchasing Managers’ Index climbed for a fourth month in June, the latest sign the country’s 4-trillion yuan ($585 billion) stimulus is reviving the world’s third-largest economy. European retailers rallied as Marks & Spencer Group Plc reported its smallest quarterly sales decline in almost two years…..

MS Joins forces With Mitsubishi Financial To Lend Up To $100 Billion

Morgan Stanley is joining forces with Japan’s Mitsubishi UFJ Financial Group in a US corporate lending venture that will give the Wall Street bank extra firepower to compete with rivals such as Citigroup and JPMorgan Chase.

Under a deal announced on Tuesday and first reported on FT.com, Morgan Stanley and MUFG, which is the US group’s largest investor through its holding of preferred shares, will pool their lending resources in an effort to gain a stronger position when dealing with American companies.

The new venture, set to be extended to Latin America and Canada, will draw on MUFG’s existing US loans of about $70bn and Morgan Stanley’s $30bn….


C Makes A Last Dithch Effort To Enjoy USURY

Citigroup has sharply increased interest rates on up to 15m US credit card accounts just months before curbs on such rises come into effect, in a move that could fuel political anger at the treatment of consumers by bailed-out banks.

People close to the situation said that Citi, which is about to cede a 34 per cent stake to the US government as part of its latest rescue, had upped rates on between 13m and 15m credit cards it co-brands with retailers such as Sears.

Citi’s rate increases emerged on the day the government proposed legislation to create a new regulator with sweeping powers on consumer protection and a week after the bank was attacked by some politicians for raising employees’ salaries.

Holders of co-branded cards who failed to pay their balance in full at the end of the month saw their rates rise by an average 24 per cent – or nearly 3 percentage points – between January and April, according to a Credit Suisse analysis of data from the consultancy Lightspeed Research.

After FT.com broke news of the hike, Citi issued a statement saying: ”We have adjusted pricing and card terms for some customers as part of our regular account reviews. This is an ongoing process to ensure we offer terms, interest rates, credit lines and products based on individual needs and risk profiles. These changes also reflect the dramatically higher cost of doing business in our industry as we work to preserve the broad availability of credit.”


Fed’s Yellen ZIRP Could Last For Years

SAN FRANCISCO (Reuters) – U.S. benchmark lending rates could stay near zero for a couple of years based on the amount of slack now in the economy, San Francisco Federal Reserve Bank President Janet Yellen said on Tuesday.

“My staff has looked at 12 different ways to calculate the output gap,” and every one points to a large gap between current and potential output, Yellen told reporters after a speech in San Francisco.

Bets in futures markets on a rate increase as soon as late 2009 are “jumping the gun,” she said.

The jobless rate is likely to continue climbing this year, and the moment the recession ends is “not the right time to take away the punchbowl,” said Yellen.

She added that views circulating that the Fed risks triggering some kind of hyper-inflation by not rushing to raise interest rates are “misplaced.”

Yellen is a voting member of the Federal Open Market Committee in 2009.


Monster Shows A decline in Online Job Index

NEW YORK, July 1 (Reuters) – A monthly gauge of online labor demand in the United States fell a touch in June and its decline slowed on a year-over-year basis, suggesting stabilization in the jobs market, a private research group said on Wednesday.

Monster Worldwide Inc MNST.O, an online careers and recruiting firm, said its employment index fell to 117 in June from 118 in May. The current month’s reading is 28 percent below the 163 mark a year ago.

While job openings posted online are at their lowest in nearly 2-1/2 years, there are encouraging signs that the worst of job losses might have passed, said Jesse Harriott, Monster’s senior vice president.

“The annual pace improved during the second quarter, suggesting some expansion in underlying employer demand for workers,” Harriott said in a statement.

Online job availability rose in eight of the 20 industries Monster tracks and they also increased in 12 of 23 occupations it monitors.

Labor demand in the real estate, rental and leasing industry jumped the most in June, coinciding with signs of stabilization in the housing sector, Monster said.

By occupation, online job hirings for lawyers, police and fire-fighters jumped the most in June, it said.

The Monster Employment index is a monthly analysis based on a selection of corporate career sites and job boards. The margin of error is approximately plus or minus 1 percent.

Comments are closed.

U.S. Business Headlines

Government Extends 125% for Refinancing Mortgages

By: Diana Olick, CNBC Real Estate Reporter | 01 Jul 2009 | 01:47 PM ET
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Homeowners refinancing their mortgages through loans backed by government agencies will be able to borrow up to 125 percent of their homes’ value under new regulations enacted Wednesday.

The rule changes, part of the government’s attempts to restore housing affordability and stem the foreclosure crisis, apply to loans backed up by Fannie Mae and Freddie Mac.

By: Diana Olick, CNBC Real Estate Reporter | 01 Jul 2009 | 01:47 PM ET
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Homeowners refinancing their mortgages through loans backed by government agencies will be able to borrow up to 125 percent of their homes’ value under new regulations enacted Wednesday.

The rule changes, part of the government’s attempts to restore housing affordability and stem the foreclosure crisis, apply to loans backed up by Fannie Mae and Freddie Mac.

Previously, homeowners could borrow up to 105 percent of their home’s value. The new loan-to-value ratio is set up at 125 percent in a further effort to address those mortgage holders who owe more than their homes are worth.

The government in March enacted the Home Affordable Refinance standards in response to the rash of defaults and foreclosures that have occurred as national housing prices have plummeted.

The new LTV rate will be offered only to borrowers who are current on their mortgages that are owned by either Fannie or Freddie.

Also, the government is encouraing borrowes to take advantage of a chance to lower their mortgages from 30-year to 25-year in order to save on interest charges.

“This is a change that will put affordable refinancing opportunities within reach of performing borrowers who have suffered the effects of local home price erosion,” Freddie Mac Executive Vice President Don Bisenius said in a statement.

Auto Company Sales Beat Estimates

By Jeff Green and Mike Ramsey

July 1 (Bloomberg) — Ford Motor Co. and Nissan Motor Co. reported June U.S. sales that were better than estimates, as analysts predicted a stabilizing U.S. economy may have led the auto industry to its strongest month this year.

Deliveries at Ford slid 11 percent from a year earlier, according to a statement today from the Dearborn, Michigan-based company. Nissan posted a 23 percent decline. Toyota Motor Corp. said its sales fell 32 percent. Chrysler Group LLC reported a 42 percent drop after it ended most sales to fleet customers.

The U.S. sales slide may have slowed last month, with an annual rate of more than 10 million cars and light trucks for the first time this year as consumers gain confidence and shrug off bankruptcies at General Motors Corp. and Chrysler. A June decline would be the 20th straight monthly drop.

“Sales still haven’t recovered in terms of sheer volume numbers, but things are stabilizing,” Al Castignetti, U.S. vice president for Nissan, said in a telephone interview. “I’m not sure if the economy is getting better or worse, but it appears to me that consumer confidence is getting better, and that drives sales.”

Ford’s drop was 14 percent adjusted for one more sales day than in June 2008, compared with the average estimate of 17 percent from five analysts surveyed by Bloomberg. Tokyo-based Nissan’s adjusted decline was 26 percent, after three analysts estimated an average of 28 percent.

Toyota’s adjusted decline was 35 percent, higher than the 32 percent average of three analysts.

Helped by Discounts….

I’ll Guess @ 10 Below Par

Barry Ritholtz’s reader Steve Barry has updated the New York Times chart of Case Shiller housing prices to account for the latest data (April).

We can quibble about about precision, but here’s the bottom line: Prices still have a bit further to fall just to get back to fair value.  And “fair value” is fair value because prices have spent about half the time below that level.  So, if anything, Steve’s projection is probably optimistic.

Nationwide, prices are now down 33% from the peak.  They’ll likely be down 40%-50% before we’re through.  And they’ll probably stay there for a while.

case-shiller-updated2.png

Feldstein Sees Renewed U.S. Slump After ‘Improvement’

By Vincent Del Giudice

July 1 (Bloomberg) — The U.S. economy will grow for a few quarters and then contract again, said Martin Feldstein, a professor of economics at Harvard University.

“I think we’re going to see a temporary substantial improvement,” Feldstein, the former head of the National Bureau of Economic Research and a Reagan administration adviser, said today in an interview on Bloomberg Radio. “I emphasize the words temporary and substantial.”

Feldstein — a member of the private panel that dates the start of recessions and recoveries — suggested the economy will contract into next year, and that the pattern of economic turnaround will be more of a seesaw than what he called “a beautiful symmetrical W.”

The National Bureau of Economic Research Business Cycle Dating Committee said the current recession, the worst in half a century, started in December 2007. Since then the economy has lost about 6 million jobs, and gross domestic product contracted in the final quarter of 2007, the third and fourth quarters of last year and the first quarter of this year.

After the economy shrank at a 5.5 percent annual pace in the first quarter of the year, the change in GDP will be “closer to zero” or “even a small plus” for the April-to- June period, Feldstein said.

“We’ll get a bounce for a few quarters and then it will fade out,” Feldstein said. “We’re now going through the getting-better phase for a while.”

Interest Rates….

Banks Increase Mortgage Backed debt by 5.6%

By Jody Shenn

July 1 (Bloomberg) — Banks are buying the mortgage-backed bonds that hobbled the global financial system, helping to sustain higher prices for the debt, according to Federal Reserve data, investors and traders.

Large U.S. commercial banks held $154.6 billion in mortgage securities that lack government backing on June 17, an increase of 5.6 percent since April, Fed data show. Typical prices for the most-senior such securities backed by prime-jumbo mortgages have risen to 75 cents on the dollar from 63 cents in March, according to Barclays Capital.

Banks are investing more in securities as deposits rise faster than lending. Commercial bank deposits have soared 9.5 percent to $7.56 trillion since the week before Lehman Brothers Holdings Inc.’s September collapse triggered a stock-market sell-off and about a month before the Federal Deposit Insurance Corp. increased coverage to $250,000 per account, from $100,000. Bank lending rose 1.4 percent to $7.01 trillion in the same period, Fed data show.

U.S. Mortgage Applications Fall To A 7 Month Low

NEW YORK (Reuters) – U.S. mortgage applications plunged to a seven-month low last week as demand for home refinancing loans tumbled 30 percent, data from an industry group showed on Wednesday.

The drop does not bode well for the hard-hit U.S. housing market, which has been showing some signs of stabilization, with sales rising and home price declines moderating in many regions of the country.

The Mortgage Bankers Association said its seasonally adjusted index of mortgage applications, which includes both purchase and refinance loans, for the week ended June 26 decreased 18.9 percent to 444.8, the lowest reading since the week ended November 21, 2008.

Kenneth Rosen, chairman of the Fisher Center for Real Estate and Urban Economics at the University of California, Berkeley, said mortgage rates are just one factor driving potential borrowers.

“Rising unemployment, concerns about job security, potential buyers’ inability to sell their existing homes and problems with appraisals coming in too low are all weighing on demand,” he said.

“The government needs to take more aggressive action to bring mortgage rates back down to below 5 percent as that seems to be a key level for the market,” he said.

Borrowing costs on 30-year fixed-rate mortgages, excluding fees, averaged 5.34 percent, down 0.10 percentage point from the previous week, but significantly higher than the all-time low of 4.61 percent set in the week ended March 27. The survey has been conducted weekly since 1990.

Mortgage rates remained above 5 percent for a fifth straight week, but were well below year-ago levels of 6.33 percent.

Thirty-year mortgage rates had mostly been on a downward trend since the Federal Reserve unveiled its plan to buy mortgage-backed debt in late November. But the Fed met resistance in the bond market in late May and early June.

Treasury yields, which act as a benchmark for mortgage rates, rose sharply during that period. Treasury yields, however, have come down recently, allowing rates to fall.

The MBA’s seasonally adjusted purchase index fell 4.5 percent to 267.7.

The four-week moving average of mortgage applications, which smooths the volatile weekly figures, was down 9.2 percent….

Oil Rises Above $71 pb

Oil prices climbed over $71 a barrel Wednesday as a drop in U.S. crude inventories suggested demand might be picking up.

By midday in Europe, benchmark crude for August delivery was up $1.21 to $71.10 a barrel in electronic trading on the New York Mercantile Exchange. On Tuesday, it dipped $1.60 to settle at $69.89.

U.S. inventories dropped by 6.8 million barrels last week, the American Petroleum Institute said Tuesday. Investors will be watching for inventory data from the Energy Department’s Energy Information Administration on Wednesday for more signs crude demand may be growing.

Crude fell Tuesday after the New York-based Conference Board said its consumer confidence index dropped in June after gaining the last three months, a downbeat sign for the overall economy.

“You’ve got conflicting signals,” said Mark Pervan, senior commodity strategist with ANZ Bank in Melbourne. “The inventory data is giving people a reason to buy today.”

Oil prices will likely fall between 10 percent and 15 percent during the third quarter as the global economy remains sluggish and the dollar strengthens, Pervan said. Prices will probably then rebound in the fourth quarter by about 20 percent, he said….

CA Misses Last Nights Budget Deadline & Will Issue IOUs

By Jim Christie

SAN FRANCISCO (Reuters) – California’s lawmakers failed to agree on a balanced budget by the start of its new fiscal year on Wednesday morning, clearing the way to suspend payments owed to the state’s vendors and local agencies, who instead will get “IOU” notes promising payment.

The notes will mark the first time in 17 years the most populous U.S. state’s government will have to resort to the unusual and dramatic measure.

Democrats who control the legislature could not convince Republicans late on Tuesday night to back their plans to tackle a $24.3 billion budget shortfall or a stopgap effort to ward off the IOUs. The two sides agree on the need for spending cuts but are split over whether to raise taxes.

Democrats have pushed for new revenues while Republican lawmakers and Governor Arnold Schwarzenegger, also a Republican, have ruled out tax increases. They instead see deep spending cuts as the solution to balancing the budget, but Democrats say that would slash the state’s safety net for the needy to the bone.

Tempers flared in the state Senate as the midnight start of the new fiscal year neared.

“There is no excuse to hold this whole state hostage,” state Senate President Pro Tem Darrell Steinberg told Republicans during a floor debate.

Senate Republican Leader Dennis Hollingsworth countered that major cuts are urgently needed. Otherwise, “There will be entire programs that will have to be lopped off,” he said.

CASH CRISIS LOOMS…

BAC Getting Low Bids On Its Asset Management Unit

(Reuters) – Bank of America Corp’s (BAC.N) primary investment management unit is drawing lower than expected bids after its likeliest suitor, BlackRock Inc (BLK.N), inked a blockbuster deal to buy Barclays Global Investor (BARC.L), the Financial Times reported, citing people close to the matter.

Bank of America has been trying to sell its Boston-based Columbia Management unit since earlier this year, but the bank has so far not announced a deal for the unit.

The company is hoping to get at least $3 billion from a sale of Columbia Management, but bids so far have come in closer to $2 billion, the paper said, citing the people….

GIS Profits Beat

NEW YORK (Reuters) – General Mills Inc (GIS.N), the maker of Cheerios cereal and Yoplait yogurt, forecast better-than-expected earnings for the current fiscal year, helped by new products and moderating commodity costs.

It also posted a higher-than-expected quarterly profit, boosted by a 12-percent increase in its U.S. retail unit, which includes Pillsbury baking products and Green Giant frozen vegetables.

The net profit was $358.8 million, or $1.07 per share for the fourth quarter that ended May 31, compared with $185.2 million, or 53 cents a share, a year earlier….

Auto Sales Expected To Show Signs Of A Comeback

By David Bailey

DETROIT (Reuters) – Major automakers are expected to report the highest sales rate of 2009 when they post results for June, as deep discounts limit industry-wide results to a 30-percent decline.

In the context of the U.S. auto industry, where sales have been slumping for four years, that would constitute good news and support the view sales are near bottom after a punishing decline to nearly 30-year lows, analysts and executives said.

All of the largest automakers are expected to post deep U.S. light vehicle sales declines for June to round out what has been the weakest market since the early 1980s…..

U.S. Treasury Plans To Sell TARP Warrants Leaving The People With a Low Bid

By David Mildenberg

July 1 (Bloomberg) — The Treasury’s plan to sell warrants back to banks that are leaving the U.S. bailout program undervalues the securities by $525 million, said a University of Louisiana professor who has studied the process.

The expected value of warrants for 10 of the largest banks that repaid their Troubled Asset Relief Plan funds earlier this year is $3.3 billion using the Treasury’s valuation approach, compared with $3.82 billion with a more conventional method, Linus Wilson, a finance professor in Lafayette, Louisiana, said in an interview.

Investors are debating whether taxpayers will be fairly compensated for the risk they took by providing rescue funds for the banking industry. Wilson contends prices on 10 buybacks so far were too low; bankers say the U.S. shouldn’t get a short- term windfall. The Treasury said June 26 it will employ “well- known” financial models to come up with fair values that use a range of assumptions about market conditions and dividends.

“Treasury should be making assumptions that favor taxpayers,” Wilson said. “With this statistical sleight of hand, the Treasury’s approach favors the banks.”

Estimates of the total value of all warrants outstanding vary from $5 billion by the Treasury to Wilson’s projection of about $11 billion. The Congressional Budget Office pegs the value at $6 billion.

The Treasury’s formula corrects for “well-documented” biases of some pricing models, the agency said. The regulator’s approach is more appropriate for estimating the volatility of a three-month option that won’t be actively traded, Wilson said. It’s less useful for determining the volatility of a 10-year warrant such as the TARP securities, he said.

Exit Strategy

Policy makers want to speed the withdrawal of the government from the banking industry, rather than attempt to maximize returns for the taxpayers by waiting for share prices to rise, Washington banking lawyer William Sweet of Skadden, Arps, Slate, Meagher & Flom said last week.

“The president has clearly stated that his objective is to dispose of the government’s investments in individual companies as quickly as is practicable,” the Treasury statement said.

The Obama administration gave approval in June for 10 of the biggest U.S. banks, including JPMorgan Chase & Co., Goldman Sachs Group Inc. and Morgan Stanley, to repay $68 billion of TARP funds. When the money was first obtained, banks had to give the Treasury preferred stock plus warrants to buy stock at a future date at a specific price, called the strike price.

Negotiated Prices….


European Markets Rise Along With U.S. Futures

By Daniel Hauck

July 1 (Bloomberg) — European stocks and U.S. index futures rose while the yen fell after an expansion in Chinese manufacturing indicated that economies are recovering from the worst global slump since World War II. Oil and copper gained.

The MSCI World Index added 0.3 percent at 12:15 p.m. in London after the gauge of 23 developed countries yesterday capped its biggest quarterly advance in a decade. Standard & Poor’s 500 Index futures gained 0.5 percent, and emerging-market stocks rose to a two-week high. The yen weakened 0.7 percent against the euro. Crude jumped 1.6 percent to $71 a barrel on the New York Mercantile Exchange and copper advanced 2 percent to $5,065 a metric ton on the London Metal Exchange.

Speculation the $12.8 trillion pledged by the U.S. government and Federal Reserve will end the recession helped send the MSCI World to a 20 percent gain last quarter. China’s Purchasing Managers’ Index climbed for a fourth month in June, the latest sign the country’s 4-trillion yuan ($585 billion) stimulus is reviving the world’s third-largest economy. European retailers rallied as Marks & Spencer Group Plc reported its smallest quarterly sales decline in almost two years…..

MS Joins forces With Mitsubishi Financial To Lend Up To $100 Billion

Morgan Stanley is joining forces with Japan’s Mitsubishi UFJ Financial Group in a US corporate lending venture that will give the Wall Street bank extra firepower to compete with rivals such as Citigroup and JPMorgan Chase.

Under a deal announced on Tuesday and first reported on FT.com, Morgan Stanley and MUFG, which is the US group’s largest investor through its holding of preferred shares, will pool their lending resources in an effort to gain a stronger position when dealing with American companies.

The new venture, set to be extended to Latin America and Canada, will draw on MUFG’s existing US loans of about $70bn and Morgan Stanley’s $30bn….


C Makes A Last Dithch Effort To Enjoy USURY

Citigroup has sharply increased interest rates on up to 15m US credit card accounts just months before curbs on such rises come into effect, in a move that could fuel political anger at the treatment of consumers by bailed-out banks.

People close to the situation said that Citi, which is about to cede a 34 per cent stake to the US government as part of its latest rescue, had upped rates on between 13m and 15m credit cards it co-brands with retailers such as Sears.

Citi’s rate increases emerged on the day the government proposed legislation to create a new regulator with sweeping powers on consumer protection and a week after the bank was attacked by some politicians for raising employees’ salaries.

Holders of co-branded cards who failed to pay their balance in full at the end of the month saw their rates rise by an average 24 per cent – or nearly 3 percentage points – between January and April, according to a Credit Suisse analysis of data from the consultancy Lightspeed Research.

After FT.com broke news of the hike, Citi issued a statement saying: ”We have adjusted pricing and card terms for some customers as part of our regular account reviews. This is an ongoing process to ensure we offer terms, interest rates, credit lines and products based on individual needs and risk profiles. These changes also reflect the dramatically higher cost of doing business in our industry as we work to preserve the broad availability of credit.”


Fed’s Yellen ZIRP Could Last For Years

SAN FRANCISCO (Reuters) – U.S. benchmark lending rates could stay near zero for a couple of years based on the amount of slack now in the economy, San Francisco Federal Reserve Bank President Janet Yellen said on Tuesday.

“My staff has looked at 12 different ways to calculate the output gap,” and every one points to a large gap between current and potential output, Yellen told reporters after a speech in San Francisco.

Bets in futures markets on a rate increase as soon as late 2009 are “jumping the gun,” she said.

The jobless rate is likely to continue climbing this year, and the moment the recession ends is “not the right time to take away the punchbowl,” said Yellen.

She added that views circulating that the Fed risks triggering some kind of hyper-inflation by not rushing to raise interest rates are “misplaced.”

Yellen is a voting member of the Federal Open Market Committee in 2009.


Monster Shows A decline in Online Job Index

NEW YORK, July 1 (Reuters) – A monthly gauge of online labor demand in the United States fell a touch in June and its decline slowed on a year-over-year basis, suggesting stabilization in the jobs market, a private research group said on Wednesday.

Monster Worldwide Inc MNST.O, an online careers and recruiting firm, said its employment index fell to 117 in June from 118 in May. The current month’s reading is 28 percent below the 163 mark a year ago.

While job openings posted online are at their lowest in nearly 2-1/2 years, there are encouraging signs that the worst of job losses might have passed, said Jesse Harriott, Monster’s senior vice president.

“The annual pace improved during the second quarter, suggesting some expansion in underlying employer demand for workers,” Harriott said in a statement.

Online job availability rose in eight of the 20 industries Monster tracks and they also increased in 12 of 23 occupations it monitors.

Labor demand in the real estate, rental and leasing industry jumped the most in June, coinciding with signs of stabilization in the housing sector, Monster said.

By occupation, online job hirings for lawyers, police and fire-fighters jumped the most in June, it said.

The Monster Employment index is a monthly analysis based on a selection of corporate career sites and job boards. The margin of error is approximately plus or minus 1 percent.

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