Charge Your Batteries…Here Comes Some Stimulus
The President announced today $2.4 billion in stimulus spending on advanced battery technology spread across 48 different projects. The money will go to a variety of battery makers, tech companies, automakers and Universities.
General Motors appears to be the biggest winner, essentially receiving $392.8 million to advance development of its hybrid plug-in, the Volt. Of that sum, $151.4 million goes to Compact Power, a subsidiary of LG Chem, who is producing batteries for the Volt. The rest goes directly to General Motors.
The other U.S. automakers received considerably less money. Ford gets $40 million, and Chrysler is getting $70 million. Don’t feel too bad for Ford, the company is supposed to receive $5.9 billion in a low cost loan from the DOE.
Nissan’s plan to change the world gets a nice shot in the arm from this go round of government spending. Its partner, Electric Transportation Engineering Corporation is receiving $99.8 million to deploy charging stations in the nine markets–towns in Tennessee, Arizona, California, Washington, Oregon–where Nissan initially plans on selling its electric car at the end of 2010.
The program will help out Nissan, but it will also help turn those parts of the country in electric vehicle hubs. They should have plenty of charging stations and infrastructure in place by the end of next year.
Other notable recipients include A123 and Johnson Controls, who will receive $550 million between them. EnerDel is also going receive $118.5 million.
President Obama announced the funding in Elkhart, Indiana, where unemployment is 16.8%, highest in the country. The emphasis of this spending was on job creation and weaning America off the always hated “foreign” oil. Says Obama in the release, “”If we want to reduce our dependence on oil, put Americans back to work and reassert our manufacturing sector as one of the greatest in the world, we must produce the advanced, efficient vehicles of the future.”
Private matching funds will be spent by each company that receives stimulus money.
Here’s a map of where the money is going, and below that, a list of all the companies and projects.
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U.S. Private Sector Jobs # Raises Questions of Recovery
By Steven C. Johnson
NEW YORK (Reuters) – U.S. private employers cut more jobs than expected last month and the vast services sector contracted again, stoking concern about the strength of a U.S. recovery, data showed on Wednesday.
In addition, U.S. firms planned to increase layoffs in July for the first time in six months, another report showed, increasing investor anxiety about the government’s unemployment report for July due on Friday.
“We’re looking at a U-shaped recovery, which means getting off the bottom is going to be a lot more difficult than people are anticipating in the market,” said Doug Roberts, chief investment strategist at Channel Capital Research in Shrewsbury, New Jersey.
Wall Street stocks fell, snapping a four-day winning streak, while the dollar dipped against the Japanese yen but rose against the euro.
American private employers cut 371,000 jobs last month, according to the ADP Employer Services report, jointly developed with Macroeconomic Advisers LLC.
That was less than 463,000 cuts in June but above the 345,000 job losses economists had expected for July.
Outplacement consultancy Challenger, Gray & Christmas, Inc. also reported that U.S. firms’ layoff plans in July surged 31 percent compared with June, which had marked a 15-month low.
Labor market strains were evident in the services sector, which comprises 80 percent of U.S. economic output. The Institute for Supply Management said its services index fell to 46.4 last month from 47.0 in June.
Economists had expected the number to rise to 48.0, closer to the dividing line between growth and contraction at 50. The last time the index was above 50 was August of 2008.
“This is not good news for the labor market, given the disappointing ADP reading,” said Richard DeKaser, president of Woodley Park Research in Washington. “These are not good numbers in the same day.”
A Reuters poll of economists predicted Friday’s payrolls report, which includes private and public employment, would show 320,000 job cuts in July, down from 467,000 in June.
The White House said the Labor Department report will show hundreds of thousands more lost jobs in July.
HOUSING HOPES
Recent data has painted a mixed picture of U.S. economic health, with the ISM’s manufacturing index earlier this week showing a slower-than-expected contraction in July.
Investors gleaned a glimmer of hope from a Commerce Department report showing new orders at U.S. factories unexpectedly rose in June, though DeKaser said that was driven by factories “eking out gains due to low inventories.” Continued…
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By Courtney Schlisserman and Shobhana Chandra
Aug. 5 (Bloomberg) — Service industries in the U.S. shrank more than forecast in July, and companies cut another 371,000 jobs, indicating rising unemployment will erode spending.
The Institute for Supply Management’s index of non- manufacturing businesses, which make up almost 90 percent of the economy, fell to 46.4 from 47 in June, according to the Tempe, Arizona-based group. Fifty is the dividing line between expansion and contraction. ADP Employer Services said companies cut staff last month more than economists anticipated.
The reports signal most of the economy has yet to benefit from government programs, such as the cash-for-clunkers plan, aimed at reviving manufacturing. The highest jobless rate in 26- years, stagnating wages, falling home values and mounting bankruptcies mean consumer spending will be slow to recover.
“There are still plenty of problems out there,” said Joshua Shapiro, chief U.S. economist at Maria Fiorini Ramirez Inc., a New York forecasting firm. “To declare everything is fine is premature at this stage.”
Stocks dropped after the reports and Treasury securities rose, recovering from earlier losses. The Standard & Poor’s 500 index fell 0.9 percent to 996.90 at 11:58 a.m. in New York. The yield on the benchmark 10-year note was 3.65 percent compared with 3.69 percent late yesterday.
Economists forecast the ISM index would rise to 48, according to the median of 77 projections in a Bloomberg News survey. Estimates ranged from 44 to 49.3.
Job Losses
The report from ADP, the world’s largest payroll processor, was projected to show a 350,000 drop in payrolls, according to the median estimate in a Bloomberg survey.
The Labor Department’s July jobs report is due Aug. 7. The U.S. has lost 6.5 million jobs since the recession began in December 2007, the biggest decrease of any economic slump since the Great Depression.
Today’s figures from the purchasing managers at service companies contrasted with a report two days ago from their factory counterparts. The ISM’s manufacturing index rose in July to the highest level in almost a year and its measure of new orders jumped to a two-year high. The gauge showed the factory slump easing over the last seven months.
A report from the Commerce Department today showed orders placed with factories rose 0.4 percent in June, a third consecutive gain, reflecting increases in the value of petroleum bookings and improving demand for goods such as metals and construction equipment.
Services ‘Lagging’
Services are “lagging manufacturing and housing in terms of generating upward momentum,” said David Resler, chief economist at Nomura Securities International Inc. in New York. “Demand is improving, but not very significantly. We’ll have to see employment stabilize” in order to sustain a rebound in growth beyond this quarter, he said.
Bruce Kasman at JPMorgan Chase & Co. in New York, and Joseph LaVorgna at Deutsche Securities Inc. have been among economists boosting growth forecasts for the second half of the year as lean inventories and increased car sales revive production.
The Obama administration’s cash-for-clunkers program, which offers as much as $4,500 for trading in older, less fuel- efficient cars, ran through its $1 billion fund in about a week, and Congress is considering adding $2 billion. Auto industry data this week showed sales jumped to an 11.3 million annual pace last month, the highest level since September.
Orders Slow
The ISM non-manufacturing industries employment index fell to 41.5 from 43.4 the prior month, and its gauge of new orders decreased to 48.1 from 48.6. The measure of new export orders slumped to 47.5 from 54.5.
Simon Property Group Inc., the biggest U.S. shopping-mall owner, reported a drop in second-quarter earnings excluding items and a decline in revenue as the recession hurt consumer spending. The Indianapolis-based company yesterday cut its forecast for the year.
“The economic and retail environments remain difficult,” Chief Executive Officer David Simon said on a conference call.
Even companies seeing better times are concerned a recovery will be slow to develop. Wyndham Worldwide Corp., the franchiser of Ramada and Super 8 hotels, reported last week that it beat second-quarter earnings estimates.
“People are taking shorter vacations and staying closer to home,” Chief Executive Officer Stephen Holmes said in an interview with Bloomberg News after the earnings release on July 29. “We see that shift continuing through the rest of the year. We don’t see this as being a quick rebound.”
Housing, a component of the ISM non-manufacturing index, is one area showing signs of improvement from its worst slump since the 1930s. Construction of single-family houses jumped in June by the most since 2004, figures from the Commerce Department showed last month.
Combined sales of new and existing houses climbed in June for a third consecutive month, reaching the highest since October, figures from Commerce and the National Association of Realtors also showed.
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European Markets Rise on Earnings
By Daniela Silberstein
Aug. 5 (Bloomberg) — European stocks rose as companies from Societe Generale SA to Axa SA posted earnings that beat analysts’ estimates. U.S. index futures fluctuated and Asian shares declined.
Societe Generale, France’s second-largest bank by market value, and Axa, Europe’s second-biggest insurer, climbed more than 4 percent after posting smaller-than-estimated declines in profit. Isuzu Motors Ltd. and Elpida Memory Inc. retreated more than 4 percent in Tokyo after reporting losses.
Europe’s Dow Jones Stoxx 600 Index added 0.9 percent to 229.78 at 12:32 p.m. in London. The gauge has climbed 45 percent since March 9 as companies from Goldman Sachs Group Inc. to GlaxoSmithKline Plc reported better-than-estimated earnings. The Stoxx 600 is valued at 37.5 times the profits of its companies, the highest level since September 2003, weekly data compiled by Bloomberg show.
“There is a strong, synchronized, ‘V’-shaped recovery under way,” Trevor Greetham, director of asset allocation at Fidelity International Ltd., which has $261 billion under management, said in a Bloomberg Television interview. “This is an environment where banks start to look better. We’re going to see a tremendous recovery in profits.”
Standard & Poor’s 500 Index futures added 0.1 percent before reports on employment, service industries and factory orders. The benchmark gauge for U.S. equities yesterday rose for a fourth day as a bigger-than-estimated increase in pending sales of existing homes overshadowed speculation that the market’s five-month rally has made stocks too expensive.
The MSCI Asia Pacific Index fell 1.1 percent today, posting the first back-to-back drop in a month.
SocGen, Axa
Societe Generale climbed 6.1 percent to 49.14 euros. The bank reported second-quarter profit of 309 million euros ($445 million), exceeding the 68 million-euro median estimate of 16 analysts surveyed by Bloomberg.
Axa gained 4.6 percent to 16.01 euros. The insurer said first-half profit dropped 39 percent, less than analysts estimated, and as the company boosted its capital level.
Lloyds Banking Group Plc jumped 13 percent to 94.95 pence. The British lender that acquired HBOS Plc in January said provisions for bad loans will decline “significantly” after it posted a first-half loss of 3.1 billion pounds ($5.2 billion).
UniCredit SpA rose 6.1 percent to 2.36 euros after Italy’s biggest bank reported second-quarter profit that beat analysts’ estimates.
Carlsberg Gains
Carlsberg A/S added 5.2 percent to 388 kroner. The Danish maker of Tuborg and Baltika beer said second-quarter net income rose 37 percent on higher beer prices and improved profitability in Russia, its biggest market.
CSM NV soared 8.2 percent to 13.37 euros. The world’s biggest supplier of ingredients to bakeries posted first-half profit of 36.6 million euros, beating the 23.6 million-euro average estimate of three analyst estimates compiled by Bloomberg.
Henkel AG, the German maker of Loctite glues and Persil detergent, jumped 6.1 percent to 27.06 euros after second- quarter profit more than tripled to 143 million euros.
Adidas AG, the world’s second-largest sporting-goods maker, rose 6 percent to 32.24 euros after second-quarter earnings fell less than analysts had estimated and the company said the second half will show improved business.
Deutsche Boerse Slips
Deutsche Boerse AG declined 6.2 percent to 53.15 euros. Europe’s largest exchange by market value said second-quarter profit dropped as revenue from stock and derivative trading dropped.
Swiss Reinsurance Co. slid 1.9 percent to 42.6 Swiss francs. The world’s second-largest reinsurer reported an unexpected quarterly loss of 381 million francs ($359 million) because of writedowns on risky investments and the cost of hedging corporate bonds.
Isuzu sank 4.7 percent to 163 yen as Japan’s largest maker of light-duty trucks reported a net loss of 16.6 billion yen ($170 million) in the quarter ended June 30. Elpida slumped 5.1 percent to 1,115 yen after Japan’s biggest computer-memory chipmaker reported a 44.5 billion yen loss.
Service industries in the U.S. probably shrank at a slower pace in July, bringing the economy closer to emerging from the worst recession in eight decades, economists said before a report today.
U.S. Economy…..
Asian Markets Fall on Earnings
By Shani Raja and Jonathan Burgos
Aug. 5 (Bloomberg) — Asian stocks fell, sending the MSCI Asia Pacific Index to its first back-to-back drop in a month, after Isuzu Motors Ltd. and Elpida Memory Inc. reported losses.
Isuzu, Japan’s largest maker of light-duty trucks, sank 4.7 percent and Elpida, the country’s biggest computer-memory chipmaker, slumped 5.1 percent. Industrial Bank Co. slid 3.8 percent in Shanghai, contributing to the first decline in Chinese stocks in five days amid valuation concerns. Sun Hung Kai Properties Ltd., the world’s biggest developer by value, dropped 4.7 percent in Hong Kong as the city’s home sales fell.
The MSCI Asia Pacific Index fell 1.1 percent to 111.79 as of 7:22 p.m. in Tokyo, having swung between gains and losses at least seven times. Before today, the gauge had risen on all but two days since July 14 amid earnings reports that beat analyst estimates. The measure’s relative strength index rose to 75 yesterday, above the 70 level some traders use as a sell signal.
“Equities are pricing in a very strong recovery,” said Pearlyn Wong, a Singapore-based investment analyst at Bank Julius Baer & Co., which manages $350 billion. “Valuations are stretched. It’s hard to support a case for a continued rally.”
Japan’s Nikkei 225 Stock Average, which has gained 29 percent in the past six months, lost 1.2 percent. China’s Shanghai Composite Index fell 1.2 percent, while Hong Kong’s Hang Seng Index declined 1.5 percent.
David Jones Ltd., the country’s No. 2 department-store chain, dropped 8.4 percent after reporting a decline in same- store sales. Limiting declines in Australia, Axa Asia Pacific Holdings Ltd., a unit of France’s biggest insurer, climbed 2.3 percent as it returned to profitability. Westfield Group, the world’s biggest shopping center owner by value, rose 0.8 percent after UBS AG upgraded the stock.
U.S. Housing
Futures on the Standard & Poor’s 500 Index were little changed. The gauge added 0.3 percent yesterday after the National Association of Realtors said the number of contracts to purchase previously owned homes rose 3.6 percent last month from June. Economists had estimated a 0.7 percent advance.
MSCI’s Asian gauge has rallied 58 percent from a more than five-year low on March 9 amid growing speculation the global economy is recovering. Reports this week from China, Europe and the U.S. pointed to improving manufacturing industries in the three regions, while U.K. consumer confidence rose to the highest level in more than a year last month as house prices stopped falling, Nationwide Building Society said.
Companies from Nissan Motor Co. to Samsung Electronics Co. have reported earnings in the past two weeks that exceeded analyst estimates, lifting the average valuation of companies in the MSCI Asia Pacific Index to 25 times estimated profit, the highest level since March 30.
Good Data
“There’s so much good data around that I’m losing track,” said Nader Naeimi, a Sydney-based strategist at AMP Capital Investors, which manages about $95 billion. “Given the extent of the rally so far, I wouldn’t be surprised to see quite a significant pullback.”
Isuzu sank 4.7 percent to 163 yen as the company turned to a net loss of 16.6 billion yen in the quarter ended June 30, from a 17.7 billion yen profit a year earlier. Elpida slumped 5.1 percent to 1,115 yen after its first-quarter net loss widened on lower semiconductor prices.
Hallenstein Glasson Holdings Ltd., a New Zealand clothing retailer, dropped 1.1 percent in Wellington to NZ$2.82. Full- year profit fell 23 percent as the company cut prices to boost sales amid a recession.
Expensive Shares
Industrial Bank slid 3.8 percent to 39.91 yuan, as the Shanghai Composite Index snapped a four-day, 6.3 percent advance. Companies in the index trade at an average 37 times reported earnings, near an 18-month high and almost twice the level of the MSCI Emerging Market Index.
Jiangxi Copper Co., China’s largest producer of the metal, dropped 2.2 percent to 46.60 yuan. The company, whose shares have more than quadrupled this year, last week said first-half profit may decline by more than half.
“With shares so expensive, I doubt there will be much room for upside,” said Yan Ji, who helps oversee about $850 million at HSBC Jintrust Fund Management Co. in Shanghai.
In Hong Kong, Sun Hung Kai Properties dropped 4.7 percent to HK$113.80. New World Development Co., controlled by billionaire Cheng Yu-tung, lost 4.4 percent to HK$17.40. Henderson Land Development Co. sank 4.6 percent to HK$50.70.
The value of residential units changing hands in Hong Kong dropped 12.4 percent in July from a month before, to HK$43.6 billion ($5.6 billion), according to the city’s Land Registry.
Government Response…..
Oil prices slipped to near $71 a barrel Wednesday as mixed economic news from the U.S. stalled a weeklong rally.
By midday in Europe, benchmark crude for September delivery was down 35 cents to $71.07 a barrel in electronic trading on the New York Mercantile Exchange. On Tuesday, the contract fell 16 cents to settle at $71.42.
Crude prices have jumped from below $63 a barrel last week on investor optimism the U.S. economy, the world’s biggest oil consumer, is recovering from a severe recession.
On Tuesday, the Commerce Department said consumer spending rose 0.4 percent in June. But personal incomes dropped by 1.3 percent, the steepest slide in four years.
“Consumer spending is still in the dog house,” said Jonathan Kornafel, Asia director for market maker Hudson Capital Energy in Singapore. “We’re living off government stimulus, which is going to end not too long from now.”
U.S. crude inventories unexpected fell last week, a sign demand could be rebounding.
Inventories dropped 1.5 million barrels last week, the American Petroleum Institute said late Tuesday. Analysts expected the API numbers to gain 1.5 million barrels, according to a survey by Platts, the energy information arm of McGraw-Hill Cos.
Gasoline supplies rose 2.1 million barrels.
Investors will be watching for inventory data from the Energy Department’s Energy Information Administration on Wednesday for more signs about crude demand.
The API numbers are reported by refiners voluntarily while the EIA figures are mandatory.
Crude will likely trade between $65 a barrel and $85 the rest of the year, Kornafel said.
“I think all the optimism is somewhat misplaced,” Kornafel said. “People don’t understand that things can get bad and stay bad for more than two years.”
U.S energy consultancy Cameron Hanover used wrestling terms to illustrate the shift in oil markets away from fundamentals and toward external factors.
“After a quarter century of holding the belts, supply and demand have been giving up their titles regularly to equities and currencies, the current tag-team champs,” Cameron Hanover said.
In other Nymex trading, gasoline for August delivery fell 1.92 cents to $2.0375 a gallon and heating oil dropped 0.88 cent to $1.8926. Natural gas for August delivery slid 2.1 cents to $3.98 per 1,000 cubic feet.
In London, Brent prices fell 19 cents to $74.09 a barrel on the ICE Futures exchange.
China To Keep Monetary Policy Loose
By Bloomberg News
Aug. 5 (Bloomberg) — China’s central bank warned that its counterparts in developed nations face difficult choices as monetary easing threatens to cause “severe” inflation and exchange-rate volatility.
“Failure to manage the degree of easing may lead to concerns about mid- and long-term inflation and exchange-rate stability,” the People’s Bank of China said in a quarterly monetary policy report, posted on its Web site today.
China, the owner of $801.5 billion of Treasuries, pressed the U.S. at a summit in Washington last month for economic polices to protect the dollar’s value. The Bank of England is poised to end a five-month program of bond purchases, part of so-called “quantitative easing,” according to a Bloomberg News survey of firms bidding at government debt auctions.
“The discussion about quantitative easing and the reversal of it is going to capture the market’s attention for the rest of this year,” said Tai Hui, head of Southeast Asian economic research at Standard Chartered Plc in Singapore. “The fact that China is talking about it, again, is reflecting its concern about its holdings of U.S. Treasuries.”
Quantitative easing is the creation of new money to purchase government or private assets, including bonds, to encourage new bank lending.
Exiting too quickly from such policies, which the Chinese central bank said helped to prevent a repeat of the Great Depression, may undermine an economic recovery, today’s report said. Waiting for too long may trigger “a new round of asset bubbles and severe inflation,” the central bank added.
“Central banks in major developed nations face a difficult choice between keeping government bond yields relatively low to promote economic recovery and maintaining currency stability” to protect national creditworthiness, the Chinese central bank said.
Indonesia Lowers Rates to 6.5%
By Aloysius Unditu
Aug. 5 (Bloomberg) — Indonesia’s central bank lowered interest rates for a ninth month and signaled that further cuts may be unwarranted as inflation is expected to accelerate.
Bank Indonesia reduced its reference rate by a quarter- point to 6.50 percent, according to a statement in Jakarta today. The decision was predicted by 26 of 29 economists in a Bloomberg News survey. The others expected no change.
Central banks elsewhere in Asia have stopped cutting rates and have indicated their next moves may be to increase them as the region’s economies begin to emerge from the global recession. President Susilo Bambang Yudhoyono said in his Aug. 3 budget speech that policy makers will “protect” Indonesia’s poor from inflation, which is expected to quicken to 5 percent next year.
“If the central bank is being conservative, then this month’s cut will be the last for this year,” said Purbaya Yudhi Sadewa, chief economist at PT Danareksa Sekuritas in Jakarta.
Bank Indonesia has been able to reduce its policy rate from 9.5 percent in December as inflation slows. Consumer prices rose 2.71 percent in July from a year earlier, the smallest gain since June 2000.
Quantitative Easing Will End in The U.K.
By Anchalee Worrachate and Anna Rascouet
Aug. 5 (Bloomberg) — The Bank of England will end a five- month program of bond purchases as Europe’s second-largest economy shows signs of emerging from a recession, said a majority of the firms that bid at government debt auctions.
Eight of 12 primary dealers surveyed by Bloomberg said the central bank will stop the program after announcing a pause at its monthly meeting tomorrow. Four — BNP Paribas SA, RBC Capital Markets, Merrill Lynch & Co. and UBS AG — predict policy makers will increase purchases.
The Bank of England has spent 125 billion pounds ($212 billion) of the 150 billion pounds authorized by the Treasury in March, equivalent to almost 10 percent of Britain’s gross domestic product, to help contain borrowing costs and pull the economy out of the recession. Central bank Governor Mervyn King’s policy of so-called quantitative easing helped spur a 23 percent increase in loans to small companies, British Bankers’ Association data show.
“The Bank of England may have done enough,” said Jamie Searle, a fixed-income strategist in London at Citigroup Inc. “They will probably announce a pause and reassure the market they can step in and resume the program quickly if need be. Our view is they won’t need to because the economy is beginning to recover.”
‘Watching’ Stance
The bank’s nine-member Monetary Policy Committee, which cut rates to a record low of 0.5 percent on March 5, voted against expanding the program on July 9 while it assessed whether the worst of the recession was over. The central bank may shift to a “watching” stance at their meeting tomorrow if officials decide the purchases worked, Andrew Sentance, a member of the committee, said in an interview in London on July 23.
An index of services recorded the biggest expansion in 1 1/2 years, Markit data showed today. Factory output unexpectedly climbed 0.4 percent in June, the Office for National Statistics said. Lloyds Banking Group Plc’s Halifax division said home values rose almost twice as much as economists forecast last month. The Bank of England said on July 29 mortgage approvals jumped to a 14-month high in June.
The U.K. inflation rate will be the fastest in the G-7 next year, the Paris-based Organization for Economic Cooperation and Development predicts.
“The bank is likely to pause given the upturn in leading indicators that suggests we’re through the trough,” said Francis Diamond, a fixed-income strategist in London at JPMorgan Chase & Co. “Policy makers might be cautious about continuing to provide further stimulus in this kind of environment. It’s not clear exactly what quantitative easing has done in terms of sparking growth for credit.”
Yield Increase…..
FHA Mortgages To Take a Hit As Taylor Been & Whitkaer Mortgage Corp Are Shut For Fraud
By David Mildenberg and Jody Shenn
Aug. 5 (Bloomberg) — Taylor, Bean and Whitaker Mortgage Corp.’s expulsion from the ranks of Federal Housing Administration lenders may make it harder and more expensive for cash-strapped consumers to finance home purchases.
The FHA, the government mortgage insurer, yesterday suspended Taylor Bean, its third-largest lender, citing possible fraud. It’s “distinctly possible this is going to be the end of Taylor Bean,” said David Lykken, managing partner at consultant Mortgage Banking Solutions in Austin, Texas.
FHA mortgages represent about half of all new loans for home purchases, up from about 10 percent at the start of 2008, as borrowers with low down payments or poor credit get turned down for other financing, according to a Bank of America Corp. report last month. Taylor Bean, based in Ocala, Florida, does business across the U.S. through loan brokers and other lenders. It ranked 12th among U.S. mortgage originators in the first half of this year with $17 billion of loans, or 1.7 percent of the total, according to industry newsletter Inside Mortgage Finance.
If closely held Taylor Bean goes out of business, mortgage rates may rise as lenders face less competition, said Michael Moskowitz, president of the New York-based home lender Equity Now Inc., which last sold a loan to Taylor Bean a year ago.
“It’s just a question of demand and supply,” he said in a telephone interview yesterday. “If Taylor Bean goes down, it’s a pretty big deal.”
Unresolved Issues
Taylor Bean didn’t submit a required annual financial report and “misrepresented that there were no unresolved issues with its independent auditor,” the FHA said in a statement. The auditor discovered “irregular transactions that raised concerns of fraud,” the FHA said. The agency’s decision follows a failed attempt by Taylor Bean to lead an investor group that would pay $300 million for a controlling stake in Colonial BancGroup Inc., one of its own lenders.
Agents bearing federal warrants searched Colonial’s Orlando offices, and the Ocala Star-Banner reported a similar search at Taylor Bean. A call to Taylor Bean spokeswoman Melissa Spata wasn’t returned, and Chairman Lee Farkas didn’t respond to messages.
Mortgage brokers and their clients with applications at Taylor Bean will be hard hit because “most of the quality shops have stopped dealing with brokers,” Moskowitz said. The number of contracts to buy previously owned homes in the U.S. rose in June for a fifth straight month, climbing 3.6 percent and exceeding economists’ forecasts, the National Association of Realtors said.
‘A Big Player’
“They’re a big player in Florida and this is bound to have a detrimental effect, especially the loans sitting in their pipeline that haven’t closed,” Valerie Saunders, president of the Tallahassee-based Florida Association of Mortgage Brokers, said in an interview.
Potential homebuyers who are unable to fund loans through Taylor Bean will have to try to switch lenders, potentially adding time and cost to their purchase, Saunders said. She doesn’t have any buyers seeking mortgages from the company.
The importance of FHA loans to the housing market after retreats by banks and private mortgage insurers is “Capital-H huge,” Lykken said. “It’s so huge it’s not even funny.”
In June, applications for loans backed by the FHA or Department of Veterans Affairs represented 35.9 percent of all submissions for refinancings or home purchases, the highest share since 1990, according to the Mortgage Bankers Association. The agency insures mortgages with down payments as low as 3.5 percent, and doesn’t have minimum credit-score requirements.
Less Strict….
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