Bank of America to pay $9.3 billion to settle mortgage bond claims

Iraq buys 36 tons of gold, valued at $1.56 billion, biggest purchase in 3 years http://bloom.bg/1fe6oJb Wed, Mar 26 21:47 PM EDT By Margaret Chadbourn and Aruna Viswanatha WASHINGTON (Reuters) - Bank of America agreed to pay $9.3 billion to settle claims that it sold Fannie Mae and Freddie Mac faulty mortgage bonds, helping the bank to end one of the largest legal headaches it still faced from the financial crisis. The settlement, announced on Wednesday, includes $6.3 billion in cash and the rest in securities that Bank of America will purchase from the two housing finance entities. The second-largest U.S. bank by assets said it had now resolved around 88 percent of its total exposure to securities at issue in the mortgage bond litigation it has faced. Bank of America's first-quarter profits could take a substantial hit from the deal. The bank said the settlement was expected to reduce first-quarter income by about 21 cents a share, or three-quarters of what analysts surveyed by Thomson Reuters I/B/E/S forecasted the bank to earn before the settlement was announced. Also on Wednesday, Bank of America and its former chief executive, Kenneth Lewis, settled a lawsuit by New York's attorney general that alleged it misled investors about mounting losses at Merrill Lynch & Co, which the bank agreed to acquire at the height of the financial crisis. Lewis, who resigned in 2009, agreed to pay $10 million and be barred for three years from serving as an officer or director of a public company. Bank of America agreed to pay $15 million and adopt corporate reforms. Both payments will cover the costs of New York's investigation, and neither Lewis nor Bank of America is admitting wrongdoing or paying damages. Bank of America still faces a lawsuit from the U.S. Justice Department and several other probes by the DOJ and states over mortgage-backed securities it sold during the housing boom. On Wednesday, the bank said it has had "preliminary discussions" to resolve the matters. 'REASONABLE AND PRUDENT' The new settlement with Fannie Mae and Freddie Mac resolves lawsuits filed against Bank of America, Merrill Lynch, and Countrywide, the subprime mortgage lender it bought at the height of the financial crisis. The regulator of Fannie Mae and Freddie Mac, the Federal Housing Finance Agency, had accused the bank of misrepresenting the quality of loans underlying residential mortgage-backed securities purchased by the two mortgage finance companies between 2005 and 2007. The two taxpayer-owned firms have operated under conservatorship since 2008, when they were seized by regulators after losses on subprime loans pushed them toward insolvency. It was the 10th settlement that the FHFA has reached in litigation that began in 2011 when it filed 18 lawsuits over about $200 billion in mortgage-backed securities, an investment product at the center of the recent global financial crisis. Many of the settlements were reached after a series of court rulings that went against the banks. "FHFA has acted under its statutory mandate to recover losses incurred by the companies and American taxpayers and has concluded that this resolution represents a reasonable and prudent settlement," FHFA Director Mel Watt said in a statement. So far, the FHFA has recovered more than $10 billion from banks by asserting similar claims over mortgage securities. Seven other banks still need to resolve similar lawsuits. Merrill Lynch would have been the first of the banks with legal disputes still pending to face trial, with a date of June 2. U.S. District Judge Denise Cote has scheduled September trial dates for Goldman Sachs Group Inc and HSBC Holdings plc. (Reporting by Margaret Chadbourn and Aruna Viswanatha in Washington and Nate Raymond and Peter Rudegeair in New York; Editing by Jonathan Oatis, Lisa Shumaker and Peter Cooney)

Fannie, Freddie could send $179.2 billion to taxpayers: White House

Fannie, Freddie could send $179.2 billion to taxpayers: White House Mon, Mar 10 13:54 PM EDT image By Margaret Chadbourn WASHINGTON (Reuters) - U.S. government-owned mortgage financiers Fannie Mae and Freddie Mac could send about $179.2 billion in profits to taxpayers over the next 10 years if the terms of their bailout remain intact, the White House budget office said on Monday. The amount is more than triple the estimated 10-year payments calculated last year in the White House budget proposal, driven by the companies' increased profitability. Fannie Mae and Freddie Mac have operated under federal conservatorship since 2008, when regulators agreed to inject capital into the companies to keep them afloat. They received $187.5 billion in taxpayer funds, but they have returned to profitability and by the end of March they will have had paid $202.9 billion in dividends to the U.S. Treasury. No one expected them to become profitable again so quickly, but when home prices surged in 2012, they were able to recover more money than expected on soured loans. The profit projections come in an addendum to President Barack Obama's fiscal 2015 budget proposal. In a budget proposal last year, the administration estimated that Fannie Mae and Freddie Mac would send the Treasury $51 billion through 2023. Under a 2012 revamp of their bailout terms, Fannie Mae and Freddie Mac send a majority of their profits to the Treasury as dividends, and they are unable to repurchase the controlling share the government took when it bailed them out. Previously, they were required to pay only a 10 percent dividend on their bailout funds in profitable quarters. Shareholders, including Perry Capital and Fairholme Capital Management, have sued the United States over the changes. They argue that since the companies are returning profits to taxpayers, the government's stake should shrink. Both Republicans and Democrats in Congress and the Obama administration want to wind down and replace Fannie Mae and Freddie Mac. (Reporting by Margaret Chadbourn; Editing by Leslie Adler)

Exclusive: FBI suspects front running of Fannie, Freddie in swaps market

World) Southwest grounds pilots who landed jet at wrong airport http://tribune.com.pk/story/658968/southwest-grounds-pilots-who-landed-jet-at-wrong-airport/ … #USA #Missouri pic.twitter.com/PoZRj7MmZi GKP limits on buying trying to encourage sellers A 50k buy limit paying over 190p Exclusive: FBI suspects front running of Fannie, Freddie in swaps market By Richard Leong Tue Jan 14, 2014 12:35am EST REUTERS/Gary Cameron Fannie Mae headquarters is seen in Washington November 7, 2013. Credit: Reuters/Gary Cameron (Reuters) - Wall Street traders may be manipulating a key derivatives market and front running Fannie Mae and Freddie Mac, hurting the US-owned mortgage giants in the process, according to an FBI intelligence bulletin reviewed by Reuters. Using what Federal Bureau of Investigation agents described as "unsophisticated tradecraft," such as hand signals and special telephone ring tones, some traders are conspiring to rig rates on large orders submitted by Fannie Mae and Freddie Mac, or front running them in the interest rate swaps market, the document says. The FBI said in the bulletin that the information came from a former high-level employee at a U.S. bank and an employee at a Canadian Bank, plus interviews with other bank workers conducted in 2012 and 2013. The former high-level employee at the U.S. bank estimated the front running had resulted in profits of $50 million to $100 million for the bank, the FBI said. The bulletin did not name any of the traders or banks suspected of the activity, or indicate whether it may extend beyond the two banks. Front running occurs when someone with advance knowledge of another market participant's plan to make a sizable transaction puts an order in first, often profiting from a market move that can occur once the big trade has gone through. The FBI bulletin is the latest indication that officials are concerned that traders are manipulating financial markets. U.S. and European authorities have fined 10 banks around $6 billion for allegedly manipulating the London Interbank Offered Rate, or LIBOR, and other interest rate benchmarks, and authorities are actively investigating comparable behavior in the foreign exchange market. PHONES PROGRAMMED Current and former employees at the U.S. bank said that swap traders at the bank programmed their phones with different ring tones to identify when certain customers were calling, alerting traders that a large order was about to be placed, the FBI said. According to the bulletin, one employee at the U.S. bank and the Canadian bank employee reported that senior bankers at the two banks "planned and encouraged this behavior because it led to higher revenue for their respective parent banks." Disclosure of the suspected manipulation and front running came in an FBI intelligence bulletin that was distributed last week by the bureau's field office in Charlotte, North Carolina, to security officers at financial services firms. The FBI said it had "medium confidence" in the information, which the bulletin described as coming from "multiple corroborating sources with first-hand access." However, it said it had "low confidence" that law enforcement could prosecute suspected traders because the trades concerned seem to be completely legitimate. "It is standard policy for the FBI to share intelligence information with our private sector partners to help protect our economy, thwart crime, and prevent threats impacting American businesses," Shelley Lynch, spokeswoman for the FBI in Charlotte, said in a statement. She would not elaborate. Spokesmen for Fannie Mae and Freddie Mac did not immediately return calls for comment. Spokesmen for the U.S. Securities and Exchange Commission and the Commodities and Futures Trading Commission declined to comment. Fannie Mae and Freddie Mac, which are government-sponsored enterprises (GSEs), often submit large swap orders to hedge their huge holdings of home mortgages against swings in the bond market. The size of the orders provide an incentive for front running ahead of the trades. "GSEs frequently submit large interest-rate swap trades, making them easy targets for front running and lucrative targets for market manipulation," the FBI bulletin said. The interest rate swap market is huge with a notional value of about $400 trillion. In addition to GSEs, pension funds and insurers use interest rate swap as a hedging tool, while municipal governments sometimes enter into these contracts to limit their interest rate risk on the debt they issued. The FBI said its sources reported that voice brokers and senior traders at both the U.S. and Canadian banks encouraged traders to listen in on calls with the investors to gain transaction information "which could be used to facilitate front running or market manipulation." They would then use hand signals to inform other traders of the details of the planned swaps, allowing these traders to also benefit, employees at the banks said, according to the bulletin. (Reporting by Richard Leong; Additional reporting by Mark Hosenball, Sarah Lynch and Margaret Chadbourn in Washington; Editing by Dan Burns and Martin Howell) ======================================= Fannie, Freddie watchdog in probe of alleged Wall Street front running Tue, Jan 14 17:51 PM EST image By Aruna Viswanatha WASHINGTON (Reuters) - A U.S. government watchdog is involved in an investigation of whether bank traders manipulated markets and engaged in front running of orders from Fannie Mae and Freddie Mac in the interest-rate swaps market, according to an FBI intelligence bulletin reviewed by Reuters. Reuters reported on Monday that the FBI had warned regulators and security officers at financial services firms about potential abuse by traders with advance knowledge of large orders submitted by the U.S. government-owned mortgage giants. The bulletin, which did not provide the names of the banks or traders under suspicion, warned of "unsophisticated tradecraft" such as hand signals or special ring tones that traders were using to deliver information about impending orders. The FBI attributes some of the information to its own interviews with former and current employees at a U.S. bank and a Canadian bank, but also cites information from the inspector general's office of the Federal Housing Finance Agency. According to a footnote to the bulletin, the source for some of the information was an employee at the U.S. bank in an interview conducted by a special agent with the FHFA, the regulator of Fannie and Freddie. The memo does not make clear how active or advanced the FHFA involvement is. Officials at the inspector general's office were not available to comment. Representatives for FHFA, Fannie Mae and Freddie Mac declined to comment. Fannie and Freddie, which are government-sponsored enterprises, often do large swap trades to hedge their huge holdings of home mortgages against swings in the bond market. The size of the orders makes the GSEs lucrative targets for front running and market manipulation, the FBI bulletin said. Front running occurs when someone with advance knowledge of another market participant's plan to make a sizable transaction puts an order in first, often profiting from a market move that can occur once the big trade has gone through. The unethical practice of a broker trading an equity based on information from the analyst department before his or her clients have been given the information. For example, analysts and brokers who buy up shares in a company just before the brokerage is about to recommended the stock as a strong buy are practicing front running. Another example is a broker who buys himself 200 shares in a stock just before his or her brokerage plans to buy a large block of 400,000 shares. One former high-level employee at the U.S. bank estimated that the front running had resulted in profits of $50 million to $100 million for the bank, the FBI said. The FBI said it had "medium confidence" in the information. However, it also described the challenge of prosecuting such activity. "The FBI assumes law enforcement will have difficulty detecting and proving illegal activity perpetrated through the use of the identified tradecraft because the resulting trades appear completely legitimate," the bulletin said. The FHFA inspector general's office has authority to investigate crimes affecting the regulator's programs, including those that have an impact on Fannie and Freddie. Between April and September of last year, the office's investigations led to the indictment of 75 individuals, the conviction of 55 individuals and $104 million in criminal fines and restitution orders, according to a report to Congress on its activities. (Reporting by Aruna Viswanatha; additional reporting by Margaret Chadbourn; Editing by Karey Van Hall, Martin Howell and Dan Grebler) ===================== Investopedia explains 'Tailgating' When a broker or advisor buys or sells a security for a client(s) and then immediately makes the same transaction in his or her own account. This is not illegal like front running, but it is not looked upon favorably because the broker is mostly likely placing a trade for his or her own account based on what the client knows (like inside information). ================ Bank of America fourth-quarter profit rises as bank shakes off financial crisis Wed, Jan 15 17:10 PM EST By Peter Rudegeair and Anil D'Silva (Reuters) - Bank of America Corp said on Wednesday its quarterly profit surged by nearly $3 billion as revenue increased and mortgage losses plunged, the clearest sign yet the bank was shaking off the impact of the financial crisis. The results for the second largest U.S. bank were strong across most businesses, with consumer banking having its best quarter since 2011 and the wealth management and global banking divisions posting record revenues. "They're showing some positive momentum on growing their customer base and their revenues," said Jonathan Finger of Finger Interests Ltd, a Houston investment firm that owns shares in the bank. "Certainly the stock has been performing very well." Bank of America's shares rose 2.3 percent to $17.15 on Wednesday, after earlier rising to $17.42, the highest level since May 2010. The bank's shares rose 34.6 percent last year, outpacing the broader market, and have risen some 250 percent from their post-crisis nadir in December 2011. Bank of America has been groaning under the weight of bad mortgages it took on when it bought Countrywide Financial Corp in 2008, just before the housing crisis turned into a full-blown banking meltdown. The purchase has cost it more than $45 billion in write-downs and legal settlements. On Wednesday, the bank said losses in its mortgage unit fell to $1.1 billion in the fourth quarter from $3.7 billion in the same period in 2012. In the year-earlier quarter, the bank reached several settlements totaling more than $5 billion with the federal government and mortgage finance giant Fannie Mae over foreclosures and bad loans. Results in the most recent quarter were hurt by an industry-wide drop in mortgage refinancing activity, as rates have risen. The bank made $11.6 billion in home loans, down 49 percent from the third quarter. Not all of the lingering problems from the financial crisis are behind the bank. Litigation expenses jumped to $2.3 billion in the fourth quarter from $916 million in the same period a year earlier. Chief Financial Officer Bruce Thompson said the increase was tied to mortgage securities litigation, but declined to elaborate. Even so, the company is in a much stronger position than it was during the financial crisis, when it took two bailouts from the federal government. A measure of its capital that regulators look at, known as the Basel III capital ratio, rose to 9.96 percent from 9.25 percent in the fourth quarter of 2012, and the bank said it could last 38 months without having to tap the debt markets again. Overall, fourth-quarter net income for common shareholders rose to $3.18 billion, or 29 cents per share, from $367 million, or 3 cents per share, in the same quarter of 2012, when profit was dented by about $5 billion in mortgage-related charges. Revenues increased 14 percent to $22.3 billion. Analysts estimated earnings of 26 cents per share, according to Thomson Reuters I/B/E/S. "There's a company emerging from what was a pile of trouble," said Nancy Bush, a banking analyst at NAB Research LLC. Other banks are doing well now, too. JPMorgan Chase & Co and Wells Fargo & Co both reported better-than-expected quarterly earnings on Tuesday. Bank of America's improvement has been helping one investor in particular: Warren Buffett, whose Berkshire Hathaway Inc bought $5 billion of preferred shares and warrants from the bank in 2011, when investors were panicking about its mortgage holdings. Buffett has said he has no plans to exercise the warrants until near their expiration date in 2021; if he exercised them at current prices, he could sell the shares for an immediate $7 billion profit. LITTLE TERRIER Bank of America's chief executive officer, Brian Moynihan, has focused on cutting costs at the bank since he took the top job in 2010 and announced plans in 2011 to save the bank $8 billion per year. The bank is making progress toward his goals - operating costs in the fourth quarter fell by 6 percent to $17.3 billion. "If you think back three years when he got there, nobody believed that he could do what he's done," said Bush. "He's like a little terrier. When you set him on a task, he's going to keep digging and digging till he finds the bone." Credit costs have also been falling. The bank set aside $336 million to cover bad loans in the quarter, compared with $2.2 billion a year earlier. It released $1.2 billion from reserves to cover bad loans, compared with $900 million a year earlier and $1.4 billion in the third quarter. As the bank's executives get other issues under control, Moynihan said last April, boosting revenue has to be the main focus. Those efforts may be paying off. For the fourth quarter, Bank of America's global wealth and investment management business posted a 7 percent increase in revenue, to $4.5 billion, driven by higher fee income and customers depositing more funds into their accounts. Net income rose 35 percent to a record $777 million. Revenue also rose in investment banking, where fees increased 9 percent to $1.7 billion as companies around the world took advantage of record high stock prices to raise equity capital. Bank of America executives were optimistic the bank would benefit as dealmaking activity and debt and equity underwriting increased. "There's not one piece we look at within the pipelines that we don't feel good about," Thompson said on the call. Revenue for global banking as a whole rose 9 percent to $4.31 billion, but net income dropped 9 percent to $1.27 billion as the company set aside more funds to cover possible losses on commercial loans. Equity trading revenue jumped 27 percent to $904 million from a year earlier, and bond trading revenue rose 16 percent to $2.08 billion, excluding accounting adjustments linked to changes in the value of the company's debt. In bond trading, stronger results in credit and mortgage products offset weakness in rates and commodities. (Reporting by Peter Rudegeair in New York and Anil D'Silva in Bangalore; Editing by Dan Wilchins, Ted Kerr, Jeffrey Benkoe and Leslie Adler) ======================

JPMorgan's Dimon meets with U.S. Attorney General Holder, JPM director Jackson offers his apologies

Reynolds Holding and Breakingviews editors discuss the bank's talks to settle state and federal mortgage probes for as much as $11 billion and what that could mean for CEO Jamie Dimon. JPMorgan chief in 'constructive' talks on settlement A meeting between JPMorgan Chase & Co chief executive Jamie Dimon and U.S. attorney general Eric Holder at the Department of Justice in Washington on Thursday failed to produce a final deal on the settlement of all outstanding mortgage probes for $11 billion but people familiar with the situation described the talks as "constructive". ======================================================================= UPDATE 4-JPMorgan's Dimon meets with U.S. Attorney General Holder Thu, Sep 26 19:29 PM EDT By David Henry and David Ingram Sept 26 (Reuters) - JPMorgan Chase & Co CEO Jamie Dimon met with U.S. Attorney General Eric Holder on Thursday, seeking to make sure a possible $11 billion settlement will end the bank's pain from mortgage-securities probes, a source said. The bank is close to settling many of the probes into how it sold mortgage bonds before the financial crisis, but Dimon fears that as soon as this deal is worked out other investigations will emerge, the person familiar with the matter said. It is unusual for a CEO of a company to meet with the head of the U.S. Justice Department. But the bank is seeking to tamp down its legal problems as it fends off a spate of probes covering everything from possibly illegal nepotism in China to whether it hid losses from its disastrous "London whale" trades. On the mortgage front, the Department of Justice in California, New Jersey and Philadelphia has been looking into mortgages that the bank packaged into bonds before the financial crisis. Meanwhile, government-owned home finance giants Fannie Mae and Freddie Mac have been pressuring JPMorgan to buy back mortgage bonds that they said the bank should not have sold them. Those claims and the investigation in California would be the two biggest pieces of any deal, another source said. After the meeting at the U.S. Justice Department, which lasted about an hour, Holder told reporters that he had met with representatives of JPMorgan but did not mention Dimon by name. He declined to give details of the talks. Speaking at a news conference on an unrelated topic, the attorney general also said the Justice Department plans to make announcements about financial cases in the coming weeks and months. A source familiar with the matter said a JPMorgan mortgage deal could come within days. JPMorgan has already paid billions of dollars this year to resolve probes into areas including power market manipulation and failing to supervise employees that lost $6 billion from the London whale trades. Many investors see the heat on the bank as evidence of Dimon's dysfunctional relationship with regulators. A member of JPMorgan's board of directors said on Thursday at a conference in Chicago that the company is determined to make amends and improve its reputation. "We've got these things that we actually are guilty of and we've got to fix them," said Labon Jackson, the head of the audit committee on JPMorgan's board of directors. "It's embarrassing for the board." The bank avoided the worst losses in the financial crisis but has been under intense scrutiny since May 2012, when it said it was losing money on derivatives bets that became known as the "London Whale" trades. UNUSUAL BUT NOT UNPRECEDENTED JPMorgan's settlement talks heated up this week following a threat by the Justice Department to file a lawsuit over a mortgage probe being led by federal authorities in California. Legal sources said high-level meetings between corporate executives and the U.S. attorney general are unusual but not unprecedented, especially as big investigations move toward resolution. These conversations are difficult for a U.S. Attorney General, because he or she often does not want to be seen internally as caving to pressure from people or companies being prosecuted, said a former senior employee at the Justice Department. The meeting between Dimon and Holder, the highest-ranking U.S. law enforcement official, marks another step in the nation's attempts to sort out responsibility for the financial crisis that hit five years ago. The two men were backed in the meeting by top advisors. Dimon brought with him the bank's general counsel, Steve Cutler, and outside counsel Rodgin Cohen, a partner with Sullivan & Cromwell, according to a source familiar with the matter. Joining Holder was Deputy Attorney General James Cole and Associate Attorney General Tony West, one of the sources said. Negotiations this week have involved JPMorgan paying as much as $7 billion in cash and $4 billion in consumer relief to settle several investigations - a hefty sum, but representing little more than half of the bank's 2012 profit of $21 billion. A settlement in the $11 billion range would likely include claims from the regulator of Fannie Mae and Freddie Mac, which has sought some $6 billion from the bank over risky mortgage securities sold to the government-sponsored entities, according to two people familiar with the matter. The New York Attorney General's office has been participating in those talks because it is part of a working group formed by President Barack Obama in January 2012 to investigate misconduct in mortgage securities that contributed to the financial crisis. The talks have been described as "fluid" and filled with uncertainties over exactly which claims against the bank would be resolved. JPMorgan's litigation costs totaled $17.3 billion over the last three calendar years, according to the company's annual report. The cases that prosecutors are working on include probes of the mortgage businesses of Bear Stearns and Washington Mutual, two failing banks that JPMorgan bought during the financial crisis. New York Attorney General Eric Schneiderman also sued the bank last October over mortgage-backed securities packaged and sold by Bear Stearns. It was not clear if JPMorgan would be able to include the New York state lawsuit in the settlement being discussed. ======================= On stage in Chicago, JPM director Jackson offers his apologies Thu, Sep 26 15:58 PM EDT By Ross Kerber CHICAGO Sept 26 (Reuters) - The head of JPMorgan Chase & Co's audit committee acknowledged on Thursday that the bank had made mistakes and said it has tried to learn from them. "We've got these things that we actually are guilty of and we've got to fix them," said Laban Jackson, the head of the audit committee of JPMorgan's board of directors. "It's embarrassing for the board," he added. Jackson spoke at a conference at a downtown Chicago hotel on Thursday. The remarks could underscore the bank's eagerness to resolve the raft of regulatory investigations it now faces. Earlier on Thursday, JPMorgan Chief Executive Jamie Dimon met with U.S. Attorney General Eric Holder in Washington to discuss a settlement to end investigations into its sales of shoddy mortgage securities leading up to the financial crisis. In Chicago, Jackson spoke publicly with Anne Sheehan, chair of the Council of Institutional Investors, which sponsored the event. Jackson did not discuss in detail the bank's settlement talks with regulators. But he did offer a picture of some board decision making and vowed that it would try to become more open with investors. When Sheehan, as moderator, suggested that many directors would not share the same goal, Jackson replied, "That's got to change, and you guys have to drive it." Asked what he learned from JPMorgan's troubles, Jackson said that while few boards or managers could stop malfeasance, JPMorgan made sure its response to problems like the so-called "London whale" trading losses were correct, such as by bringing in law firms to investigate its actions. Jackson quoted JPMorgan's top director, former Exxon Mobil CEO Lee Raymond, as saying: "our job is to get the respect back in the market." Jackson received a polite reception from attendees at the conference, which included hundreds of officials from state pension funds, endowments and other institutions. Several said, however, they wished the directors had taken a harder line. "I think he was very light on the board's self-evaluation," said Dieter Waizenegger, executive director of CtW Investment Group, an adviser to union pension funds. CtW previously had opposed Jackson's re-election to the board. Jackson noted that after problems emerged, JPMorgan had clawed back millions of dollars from executives, demoted some and fired others to send a strong message the bank's rules and culture had to be respected. "I don't know what else we could have done because we're not allowed to shoot people," Jackson said. "That's what happened. I'm sorry to all you shareholders." ==============================

U.S. tweaks Fannie Mae, Freddie Mac bailout terms, requires all profits

Fri, Aug 17 10:31 AM EDT WASHINGTON (Reuters) - The Treasury said on Friday it is changing the way Fannie Mae and Freddie Mac will repay taxpayers in a move the Obama administration said would accelerate the winding down of the government-owned mortgage financiers. The finance companies, which buy mortgages from lenders and repackage them as securities for investors, will now be required to hand over all their profits to the U.S. Treasury instead of the 10 percent dividend repayment required under the terms of their government bailout. The change comes as the Treasury's unlimited support for the companies gets set to expire at the end of the year. Fannie Mae and Freddie Mac have drawn down a total of $188 billion in taxpayer funds to stay afloat since they were taken over by the government in 2008. Over the past three years, the companies have had to repeatedly tap the Treasury lifeline in order to make the required quarterly repayments -- a situation that had Fannie Mae and Freddie Mac taking government funds to repay the government. "The market's worry is that Fannie and Freddie will exhaust this Treasury capital and default on bond payments," the Washington Research Group said in a note to clients. "Just the fear of this could drive up their borrowing costs, which would require them to seek government capital more quickly," it said. With the housing market showing signs of improvement and Fannie Mae and Freddie Mac reducing their portfolios of loans with poor credit quality, the government-owned companies posted strong profits in the second quarter of this year. The Treasury said this change would ensure that "every dollar of earnings that Fannie Mae and Freddie Mac generate will be used to benefit taxpayers for their investment in those firms." The companies will also be required to reduce their investment portfolios at an annual rate of 15 percent instead of the previous 10 percent. That will put them on track to cut their portfolios to the $250 billion target in 2018, four years earlier than previously scheduled, the Treasury said. (Reporting by Rachelle Younglai; Editing by Chizu Nomiyama) =========== Frantastic Treasury's Frannie fix puts Congress on the spot 17 August 2012 | By Agnes T. Crane, Daniel Indiviglio Print Email Save . The U.S. Treasury has put Congress on the spot over the future of housing finance. On Friday Team Geithner unveiled some bold moves to speed up winding down Fannie Mae and Freddie Mac. Now it’s up to the nation’s lawmakers to figure out what will replace the troublesome twins. Treasury is ending the onerous 10 percent annual dividend the two mortgage agencies have to pay on the $188 billion they borrowed from taxpayers. That payout had created a bizarre feedback loop which forced them, until recently, to borrow even more money from the Treasury to pay their annual tithe. Instead, the companies will hand over all their profit to Uncle Sam. At present, that means extra cash for the nation’s coffers: both earned more than what they owed for the dividend in the second quarter but kept the extra. The new agreement also removes the temptation for the two lenders to use any unreturned profit to grow their business or overpay their staff. Treasury has also ordered the agencies to shrink their $1.3 trillion investment portfolios by 15 percent annually, up from 10 percent. That means they should hit the $250 billion target by 2018, four years early. Freddie already slimmed its portfolio at the new rate over the past year. This still leaves the dilemma of how to reform the dysfunctional U.S. housing finance system. The Obama administration put forth some suggestions over a year ago, but lawmakers have done little since. Even the most crucial of questions remains unanswered: should the government guarantee home loans at all? It must be tempting to do nothing: Fannie’s and Freddie’s earnings go straight into the general fund for a cash-strapped Congress to spend. But just letting the agencies shrink is not an answer. They account for more than 60 percent of all home loans made in the past few years. Banks do not have the balance-sheet capacity to fill the gap and investors prefer buying federally guaranteed mortgages. Saying goodbye to potential revenue is never easy. It is especially difficult in the middle of a budget war. But keeping the Franken-Frannie monster alive is no solution. ================ U.S. sues Wells Fargo in mortgage fraud case Tue, Oct 09 19:31 PM EDT By Rick Rothacker and Aruna Viswanatha (Reuters) - The U.S. government filed a civil mortgage fraud lawsuit on Tuesday against Wells Fargo & Co, the latest legal volley against big banks for their lending during the housing boom. The complaint, brought by the U.S. Attorney in Manhattan, seeks damages and civil penalties from Wells Fargo for more than 10 years of alleged misconduct related to government-insured Federal Housing Administration loans. The lawsuit alleges the FHA paid hundreds of millions of dollars on insurance claims on thousands of defaulted mortgages as a result of false certifications by Wells Fargo, the fourth-biggest U.S. bank as measured by assets.

"As the complaint alleges, yet another major bank has engaged in a longstanding and reckless trifecta of deficient training, deficient underwriting and deficient disclosure, all while relying on the convenient backstop of government insurance," said Manhattan U.S. Attorney Preet Bharara.

Wells, the largest U.S. mortgage lender, denied the allegations and said in a statement it believes it acted in good faith and in compliance with FHA and U.S. Department of Housing and Urban Development rules. The bank said many of the allegations have been previously addressed with HUD and added that its FHA delinquency rates have been as low as half the industry average. In a regulatory filing in August, the bank said it was being investigated for possible violations of laws and regulations relating to mortgage origination practices, including FHA loans. Wells said it will vigorously defend itself against the suit. Bharara's office has brought similar cases in the past few years, including one against Citigroup Inc unit CitiMortgage Inc, which settled the case for $158.3 million in February, and against Deutsche Bank, which paid $202.3 million in May to resolve its case. The U.S. Attorney's office in Brooklyn brought the biggest such case, against Bank of America Corp's Countrywide unit, which agreed in February to pay $1 billion to resolve the allegations. The Wells Fargo case is brought under the False Claims Act, which provides penalties for fraud against the government, and under the Financial Institutions Reform, Recovery, and Enforcement Act, or FIRREA for short, a little-used statute that has grown in popularity in the past year. The law requires a lower burden of proof than criminal charges, has a longer statute of limitations than other financial laws and potentially could bring big fines. A civil fraud unit that Bharara created in March 2010 filed its first lawsuit under FIRREA in December of that year. DAMAGES AND PENALTIES At issue In Tuesday's suit are loans Wells Fargo made through a program that allows banks to originate, underwrite and certify mortgages for FHA insurance, according to the complaint. Under the so-called Direct Endorsement Lender program, neither the FHA nor HUD reviews a loan before it is approved for FHA insurance, but lenders are supposed to follow program rules. Between May 2001 and October 2005, according to the complaint, Wells certified more than 100,000 loans for FHA insurance, even though the bank knew its underwriters had failed to verify information that was directly related to the borrower's ability to make payments. "The extreme poor quality of Wells Fargo's loans was a function of management's singular focus on increasing the volume of FHA originations (and the bank's profits), rather than the quality of the loans being originated," the complaint said. The bank also failed to properly train its staff, hired temporary workers and paid improper bonuses to its underwriters to encourage them to approve as many loans as possible, the complaint said. During a 7-month stretch in 2002, at least 42 percent of the bank's FHA loans failed to actual qualify for the insurance they were submitted for, even though the bank's internal benchmark for such violations was set at 5 percent. Wells also kept its defective loans secret from HUD, the complaint said. From January 2002 to December 2010, the bank internally identified more than 6,000 "materially deficient" loans, including 3,000 that had defaulted in the first six months, but did not comply with its self-reporting obligations, the complaint said. Prior to October 2005, the bank did not self-report a single bad loan, and the inadequate reporting continued even after a HUD inquiry that year, the suit states. All told, from 2002 through 2010 the bank self-reported only 238 loans, according to the complaint. Some of the mortgages Wells Fargo suspected of fraud but declined to report to HUD include loans it separately reported as suspicious activity to the U.S. Treasury Department, according to the suit. The complaint seeks treble damages and penalties for hundreds of millions of dollars in insurance claims already paid to Wells Fargo, as well as penalties on claims HUD may pay in the future. Citi, in its settlement, paid $158 million to resolve allegations that a "substantial percentage" of around $200 million in insurance claims failed to meet FHA requirements. The Wells Fargo complaint also includes specific allegations that the lender failed to report another $190 million in loans it should have flagged as potentially problematic to HUD, which potentially adds to any eventual payout from the bank. The lawsuit adds to the growing number of civil cases the government has filed targeting conduct that allegedly contributed to the financial crisis. The Justice Department has indicted few individuals and institutions on criminal charges for roles in the collapse, and officials have said prosecutors determined much of the conduct amounted to greed but not crimes. A joint federal-state task force set up earlier this year to continue to probe conduct tied to the 2007-2009 crisis has also acknowledged the bulk of its inquiries are under civil law. (Reporting by Rick Rothacker in Charlotte, N.C. and Aruna Viswanatha in Washington; Editing by Matthew Lewis and Tim Dobbyn) =============== Mortgage boom leads to profit surge for JPMorgan, Wells Fri, Oct 12 17:41 PM EDT 1 of 2 By David Henry and Rick Rothacker (Reuters) - Two of the nation's biggest banks, Wells Fargo & Co and J.P. Morgan Chase & Co, made record profits over the last three months from a sharp rise in mortgage lending, though performance stumbles elsewhere left investors worried about how long those profits can last. Both banks reported double-digit increases in third-quarter earnings on Friday, as record-low interest rates and an uptick in the housing market drove a boom in mortgages. But analysts said those record earnings might not be sustainable, as each bank posted declining margins that suggest they may have a harder time earning as much in the future. J.P. Morgan shares closed the day down 1.1 percent at $41.62, while Wells Fargo declined 2.6 percent to $34.25. Both underperformed the broader market, which was essentially flat. The issue is the "net interest margin," or the spread between what the banks earn from loans and what they pay out on deposits. That margin contracted in both cases. "You have a battle between net interest margin and mortgage banking," said Marty Mosby, an analyst at Guggenheim Securities, referring to the tension between profit-drivers now and potential future results. Barclays Capital said it was the 17th time in the last 18 quarters that the bank beat Wall Street's forecasts. Net interest margin contracted to 2.43 percent in the quarter, 4 basis points less than the prior quarter and 23 basis points lower than a year earlier. Wells, Warren Buffett's favorite bank, stumbled on the net interest margin. It fell 25 basis points to 3.66 percent in the third quarter. That was a sharper drop than expected, though bank executives insisted they were unconcerned and that investors should focus on overall profitability. Keefe, Bruyette & Woods analyst Frederick Cannon, in a research report for clients, said the strength in mortgages was good but the weakness in the interest margin was more important. MORTGAGES ON THE MOVE The mortgage market dragged on banks during the worst of the financial crisis but has become a bright spot of late. After the Federal Reserve said in September it would buy huge quantities of mortgage bonds every month for the foreseeable future, rates fell sharply and loan applications soared. Wells Fargo, by far the largest mortgage lender in the country - three times the size of its closest peer - made $139 billion in mortgages in the three months ending in September, up $50 billion from a year earlier. There is a limit to that growth, though, warned J.P. Morgan Chief Executive Jamie Dimon. "We don't expect to count on high margins and mortgage origination forever," Dimon said on Friday. The refinancing trend, he added, will continue "next quarter, maybe for a couple of quarters after that, but it won't last much longer." SMALLER WHALES Besides the good news about the housing market, J.P. Morgan also reported that losses are shrinking rapidly from the bad trades engineered by the so-called London Whale, which cost the bank almost $6 billion in the first half of the year. The losses cast a harsh light on Dimon, the chief executive viewed by some as a potential leading candidate for U.S. Treasury secretary in a second Obama administration. He has apologized repeatedly, and at length, for failing to catch the problem before it grew so big. The nation's largest bank by assets posted net income of $5.71 billion, or $1.40 a share, up 34 percent from a profit of $4.26 billion, or $1.02 a share, a year earlier. Analysts on average had expected a profit of $1.24 a share, according to surveys by Thomson Reuters I/B/E/S. Barclays Capital said it was the 17th time in the last 18 quarters that the bank beat Wall Street's forecasts. Net interest margin contracted to 2.43 percent in the quarter, 4 basis points less than the prior quarter and 23 basis points lower than a year earlier. Wells Fargo, the nation's fourth-largest bank by deposits, earned $4.9 billion in the quarter, 22 percent more than a year earlier. Per-share earnings of 88 cents just beat the average Wall Street forecast of 87 cents, although revenue missed estimates by some $270 million. Wells, Warren Buffett's favorite bank, stumbled on the net interest margin. It fell 25 basis points to 3.66 percent in the third quarter. That was a sharper drop than expected, though bank executives insisted they were unconcerned and that investors should focus on overall profitability. Keefe, Bruyette & Woods analyst Frederick Cannon, in a research report for clients, said the strength in mortgages was good but the weakness in the interest margin was more important. (Reporting by David Henry in New York and Rick Rothacker in Charlotte, N.C.; additional reporting by Dan Wilchins and Jed Horowitz in New York; writing by Ben Berkowitz; editing by Matthew Lewis) ===============

Securitizing rent has more problems than promise

Your rent is my bond Securitizing rent has more problems than promise 26 July 2012 | By Daniel Indiviglio Several firms, including Colony Capital and Waypoint Homes, are exploring using securitization to finance purchasing blocks of foreclosed homes. Issuers would rent out these homes and securitize their tenants’ monthly payments to create bonds for investors to purchase. The details of how such a transaction would look remain sketchy. Underlying properties may or may not secure the transactions. Wall Street’s wizards think they have finally have found a way to clear up foreclosures. The securitization industry is aching to work its magic on blocks of repossessed properties that have been, or could be, turned into rented accommodation. Done properly, that could help finance investors buying such homes from Fannie Mae and Freddie Mac. But creating bonds from monthly tenant payments faces serious obstacles. Such a product - let’s call it a foreclosed rent-backed security, or FRBS - might borrow a couple of features from its asset-backed brethren. Like commercial mortgage bonds, for example, it would finance buildings that rely on rental income. But like credit card bonds, it might not be backed by any hard assets - it might simply rely on rental income alone. That makes it a real challenge because of the utter lack of useful data for this proposed security. First, the new product may require an entirely new infrastructure for appraising how rentable a home is and at what price. And the faults that the crisis exposed in securitization reinforce how crucial a good crop of historical information is on rental trends. Without them, investors and rating agencies will have no certainty on loss estimates. They’ll also have to make assumptions on new stats like vacancy rates, tenant turnover costs and property management fees. Moreover, potential buyers of the bonds are unlikely to assume the income on a property is stable until tenants have lived in the home for some time or signed a medium to long-term lease. That practice is unusual for renters just moving in. Property managers will also need vetting and monitoring. And with foreclosures focused in a few key regions and resulting rentals appealing to specific segments of the population, concentration risk is likely to be magnified. Tot it all up and these are more than enough challenges for bondholders to demand some juicy compensation for ponying up the cash. That raises the prospect that FRBS could cost more than it’s worth. But even if bankers and issuers do work out the kinks, a deal might not close for years.

Q+A-Policy impact of Republican takeover of US Congress

11 Oct 2010 18:09:44 GMT
Source: Reuters
By Thomas Ferraro

WASHINGTON, Oct 11 (Reuters) - The Nov. 2 election may turn the U.S. Congress upside down, putting Republicans back on top and President Barack Obama's Democrats in the minority.

Polls show Republicans headed toward control of the House of Representatives and perhaps the Senate, primarily because of voter anger with the weak U.S. economy.

The loss of even one chamber would slam the brakes on the president's agenda and rev up action on conservative Republican causes, particularly tax cuts.

Here are some questions and answers about how a Republican-led House and/or Senate would handle key issues:

HOW WOULD REPUBLICAN CONTROL AFFECT THE AGENDA?

The party that controls the House or the Senate holds crucial power, taking the lead in writing bills and deciding which to bring up for a vote and when.

A Republican House could pass legislation, such as promised tax relief, on simple majority votes and without any Democratic support. But Senate Democrats could block House-passed bills, including any repeal of Obama's healthcare overhaul.

Even if Republicans win control of the Senate, they would need 60 seats to avoid a Democratic "filibuster," a procedural hurdle used to block measures in the 100-member chamber.

( 1.
1. The use of obstructionist tactics, especially prolonged speechmaking, for the purpose of delaying legislative action.
2. An instance of the use of this delaying tactic.
2. An adventurer who engages in a private military action in a foreign country.)

Republicans are not expected to get 60 seats in the Senate -- or the 67 needed to override presidential vetoes. That could cause gridlock, with Congress passing only mandatory spending bills and uncontroversial measures.

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Top News-U.S. election http://link.reuters.com/fyq86p

Reuters.com-U.S. election

http://www.reuters.com/politics/elections-2010

Take a Look at the election [ID:nUSVOTE]

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WHAT ARE SOME REPUBLICAN PRIORITIES?

House Republican leaders will push their "Pledge to America," a governing agenda they say would create jobs, cut taxes and shrink government.

While short on specifics, the plan calls for saving $100 billion next year by scaling back spending to 2008 levels (with exceptions for the elderly and U.S. troops), ending government control of mortgage giants Fannie Mae and Freddie Mac and imposing a freeze on federal hiring.

Obama is unlikely to sign many or any of the Republican proposals into law. But they set markers in what could be a rough fight in the final two years of the president's term.

HOW WOULD CONGRESS TACKLE THE DEFICIT?

A presidential panel is set to make recommendations on Dec. 1 on tackling the budget deficit, estimated at $1.3 trillion for the fiscal year that ended on Sept. 30. With voters alarmed about the U.S. debt load and the pace of federal spending, the deficit debate is certain to get renewed attention next year.

Republicans favor spending cuts over tax hikes but some deficit hawks say everything should be on the table.

Among possible solutions: cutting retirement benefits, reforming federally funded healthcare programs and raising taxes. But these remedies would face an uphill climb in the House and the Senate no matter who is in charge.

WHAT HAPPENS TO TAXES?

Tax cuts brought in by former President George W. Bush run out at the end of 2010, on the watch of the current Congress that ends its term in December.

If lawmakers fail to extend the cuts due to partisan differences, Republicans are certain to try to renew them in early 2011 once the new Congress starts.

Obama and most Democrats want to renew tax cuts only for individual annual incomes below $200,000 and for family incomes below $250,000. Republicans want to extend all of the tax cuts, including for the portion of any income above those levels.

WOULD REPUBLICANS REPEAL OBAMA'S HEALTHCARE LAW?

Republicans very likely will not have the votes to override an Obama veto of any legislation to repeal his healthcare law.

But they could try to cut off funding to prevent full implementation of the landmark program that passed Congress without Republican support. [ID:nN28217327]

Republican John Boehner, in line to become House speaker if his party wins control of that chamber, recently said: "I am committed to do everything I can do, and our team can do, to prevent Obamacare from being implemented."

But Ethan Siegal of the Washington Exchange, a private firm that tracks Congress for investors, said:

"It's going to be very difficult for Republicans to defund, defang, kill or impede healthcare reform legislatively."

Siegal said while Obama would veto any bill to repeal, he could also reject any measure that fails to provide funds to various federal agencies to implement the overhaul.

Failure to agree on spending bills could result in the shutting down of some agencies but that is unlikely. The bigger threats to full implementation of Obama's healthcare overhaul are public opposition and court challenges, Siegal said.

WHAT HAPPENS TO OBAMA'S WALL STREET CRACKDOWN?

Republicans want to roll back the landmark Wall Street reforms enacted in July but tinkering around the edges may be all they can muster. [ID:nN06113356]

Analysts see little to no chance of a full dismantling of the law meant to prevent a repeat of the 2007-2008 financial crisis that set off the worst U.S. recession in generations.

But Republicans are targeting specific provisions of the reforms, such as funding for the new consumer watchdog. On such narrow issues, they might get some traction.

CLIMATE-CHANGE LEGISLATION

Republicans would be positioned to reverse Democrats' already stalled drive for comprehensive climate control legislation. [ID:nN07281063]

A Republican takeover of either chamber, or even large gains by Republicans, will make it harder -- if not impossible -- for Obama to win legislation imposing mandatory reductions of greenhouse gas emissions from smokestacks and tailpipes.

That is especially true if next year's Senate is filled by more skeptics of human-induced global warming.

Obama would still have the regulatory power to steer the country away from polluting fuels such as coal and oil but Republicans could counter by trying to deny funds.

WHAT ABOUT INVESTIGATIVE HEARINGS?

If they win the House or Senate, Republicans would take over the chairmanships of powerful committees that can hold investigative hearings into administration actions, from the war in Afghanistan to the cleanup of the BP oil spill.

Republicans promise plenty of hearings, including into Obama's $814 billion economic stimulus plan.

WHAT ABOUT ENERGY LEGISLATION?

Congress might manage to pass a bill this year to reform offshore oil drilling practices in the wake of the BP spill in the Gulf of Mexico. If it does not, the effort likely would be revived next year but again face hurdles.

A Congress with more Republicans could see a renewed push to open drilling in protected areas like Alaska's wilderness.

Republicans will push for more government support for the nuclear power industry. The Obama administration has taken some steps in that direction but has made more progress conditional on achieving a broader climate change bill. Democratic cooperation would be needed for either effort to succeed.

One bill with bipartisan support that could advance: legislation requiring electric utilities to generate 15 percent of their power from renewable sources such as solar, wind, geothermal and hydroelectric by 2021. (Additional reporting by Richard Cowan and Kevin Drawbaugh; Editing by John O'Callaghan)


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Backing the backstop
U.S. housing has added problem: mortgage insurance
28 October 2011 | By Agnes T. Crane


There’s a growing chorus among U.S. legislators to get the government out of the housing business. That’s understandable given the possible $311 billion bill that Fannie Mae and Freddie Mac may rack up for taxpayers, according to a Federal Housing Finance Agency estimate on Thursday. But the recent failure of PMI Group’s mortgage insurance business is a reminder that chunks of housing’s private sector need fixing, too.

PMI, like its rivals Radian and MGIC, was once a highflier in the mortgage boom. It even sported a $4 billion market capitalization. Last week, PMI was effectively seized by the Arizona Department of Insurance. The state regulator took over its mortgage-writing unit after prohibiting it from issuing new policies. That’s a death knell in an industry that needs new premiums to counterbalance claims delivered by the housing bust.

And PMI is hardly alone. Only one of the six major home loan insurers has an investment-grade credit rating. A few are dangerously close to breaching their risk-to-capital limit of 25 to 1 - the minimum required to ensure they have enough firepower to pay claims. It took just one quarter for PMI to race through this threshold, moving from 24.4 to 1 to 58.1 to 1 by the end of June, according to CRT Capital.

The duration of the housing crisis has made life hard for mortgage insurers. They make their money by insuring lenders against future losses on mortgages that don’t come with a 20 percent down payment from the borrower. As home sales have slumped and banks become loath((Unwilling or reluctant; disinclined:)) to lend to borrowers who don’t deliver chunky down payments, the business has suffered.

But bad practices prevalent in the good years bear a good part of the blame. For instance, as lenders loosened their credit standards during the boom, many mortgage insurers felt compelled to give banks a share of their premium income. That left the insurers with a smaller cushion to weather losses from claims during the housing collapse.

If the government ever hopes to extricate itself from the business of housing finance, it needs to ensure private sector backstops are well fortified and well regulated.

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Congress reaches payroll tax-cut deal
Thu, Feb 16 02:20 AM EST
image

By Richard Cowan and Thomas Ferraro

WASHINGTON (Reuters) - A payroll tax cut for 160 million Americans, set to expire at the end of this month, would be extended through December under a bipartisan deal announced early on Thursday by U.S. congressional leaders.

The accord would also renew expiring jobless benefits for millions of others and prevent a pay cut for doctors of elderly Medicare patients.

The comprehensive agreement represents a victory for President Barack Obama and his fellow Democrats in Congress, and allows Republicans to put behind them a tax debate that threatened to hurt them in the November elections.

Economists say the tax cut extension and renewal of jobless benefits should provide a lift to the U.S. economy, certain to be a key issue in the battle for control of Congress and the White House in the run-up to Election Day.

"We have reached an agreement and we're moving forward," Republican Representative Dave Camp, who headed the negotiating committee, told reporters shortly after midnight EST on Thursday.

It was not immediately clear when the House of Representatives and Senate would vote on the deal, but lawmakers hoped to do so before they leave Friday for a week-long recess.

While congressional leaders announced a deal, they said a few undisclosed details had to be resolved before the agreement could be turned into a final bill. They expressed confidence this would be done quickly.

Senator Max Baucus, a lead Democratic negotiator, said, "This is very important to a lot of people: 160 million Americans are now going to maintain their payroll tax cuts (and) a lot of folks who lost their jobs through no fault of their own are going to be receiving unemployment benefits."

Their announcement capped a long day of fits and starts, political drama and high-level negotiating.

At one point, the deal seemed in jeopardy just hours after aides said it had been struck by lead negotiators.

Democrats complained that Senate Republicans were suddenly demanding that a new restriction on physician-owned hospitals had to be eased to gain their support.

Aides said some Democratic negotiators were also reluctant to sign off on the deal because of cuts in the pensions of federal workers.

The overarching issue, however, was the proposed extension for 10 months of the payroll tax cut set to expire on February 29.

Many Republicans had initially balked at the extension while others insisted that its cost had to be offset by spending cuts to prevent an increase in the U.S. deficit.

Their positions drew fire from many fellow Republicans, who argued that the party had long been for lower taxes and that blocking a tax-cut extension could rile voters in advance of the November elections.

House Speaker John Boehner and fellow Republican leaders cleared the way for a deal on Monday when they dropped their demand that there be spending reductions to pay for the tax-cut extension.

The payroll tax was first reduced from 6.2 percent to 4.2 percent in the beginning of 2011 at the request of Obama as part of his bid to stimulate the economy.

The new deal would continue the 4.2 percent rate until the end of this year, during which it is projected to put an additional $1,000 in the pockets of the average American working family.

Analysts said opinion polls showing public disgust with a gridlocked Congress may have helped drive lawmakers, many of whom are up for re-election this year, toward a deal.

(Reporting By Thomas Ferraro; Editing by Philip Barbara)

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Jobs, factory data strengthen growth outlook
Thu, Feb 16 16:36 PM EST
image

By Lucia Mutikani

WASHINGTON (Reuters) - The number of Americans filing for new unemployment benefits unexpectedly fell to a near four-year low last week, suggesting the labor market recovery was quickening.

Other data on Thursday showing solid expansion in factory activity in the Mid-Atlantic area this month and builders breaking more ground on new residential projects in January offered more evidence of a sustained momentum in the economy.

"The numbers add to the belief that the economy is shifting gears. There is just no number that is giving us a whole lot of trouble, except for consumer spending," said Joel Naroff, chief economist at Naroff Economic Advisors in Holland, Pennsylvania.

The reports are the latest in a series of fairly upbeat data and could prompt economists to further temper expectations of a sharp moderation in growth in the first quarter. Economists have also dialed down their expectations for another round of bond-buying or quantitative easing by the Federal Reserve.

Initial claims for state unemployment benefits dropped 13,000 to a seasonally adjusted 348,000, the lowest level since March 2008, the Labor Department said.

Economists polled by Reuters had forecast claims rising to 365,000. The four-week average of new claims, seen as a better measure of labor market trends, was the lowest since April 2008.

In a separate report, the Philadelphia Federal Reserve Bank said its business activity index rose to 10.2 this month from 7.3 in January as orders and shipments jumped.

Though factories in the region covering eastern Pennsylvania, southern New Jersey and Delaware hired fewer workers this month, they increased hours for existing employees, which bodes well for wage growth.

In addition, order backlogs are rising and factories are taking a bit longer to make deliveries.

"We are not seeing much indication that growth has slowed from the fourth quarter of 2011 to the first quarter of 2012," said Gus Faucher, senior economist at PNC Financial Services in Pittsburgh, Pennsylvania.

The economy grew at a 2.8 percent annual pace in the last three months of 2011, with inventories accounting for two-thirds of the rise. That left economists worrying businesses will have little appetite to add more stocks with demand not that strong.

For now, the run of solid data continues. The Commerce Department reported that housing starts rose 1.5 percent to an annual rate of 699,000 units last month, beating economists' expectations for a 675,000-unit pace.

Starts were boosted by multi-unit buildings, reflecting growing demand for rental apartments as Americans move away from homeownership. Permits for future home construction rose 0.7 percent to a 676,000-unit pace in January.

Home building is expected to add to economic growth this year for the first time since 2005.

The data and rising hopes for a deal on a second bailout package for Greece buoyed U.S. stocks, with the broader Standard & Poor's 500 index touching a nine-month high.

U.S. Treasury debt prices fell and the dollar rallied against the yen.

BRIGHTENING OUTLOOK

The data on employment, manufacturing and retail sales have also raised doubts on whether the U.S. central bank will keep its pledge to hold interest rates at ultra-low levels until at least through 2014. The Fed made its low rate commitment before January's employment report was released.

Minutes of the Fed's January 24-25 meeting released on Wednesday showed a few policymakers believed a third round of quantitative easing would be needed this year to support the U.S. economy.

"Fed policy looks more and more at odds with a brightening economic outlook," said Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ in New York.

"Our guess is they start normalizing their low interest rate policy sometime early next year if the data keep running like this. The economy really doesn't seem to require it at this stage."

But rising oil prices as tensions mount over Iran's nuclear program pose a major risk to the economy's increasingly upbeat outlook. Brent crude rose on Thursday for a fourth day in a row, topping a six-month high of $120 a barrel.

Last week's drop in new unemployment claims pushed them below the 350,000 level that economists normally associate with sustained strength in the labor market. Claims have declined for three straight weeks.

Job gains have exceeded 200,000 for two straight months and the unemployment rate dropped to a three-year low of 8.3 percent in January. Economists are cautiously optimistic that February will be another month of solid job gains.

Despite the improvement, considerable slack still remains. About 23.8 million Americans are either out of work or underemployed and there are no job openings for nearly three out of every four unemployed.

In a second report, the Labor Department said prices received by farms, factories and refineries edged up just 0.1 percent in January as food and energy costs fell. Wholesale prices dipped 0.1 percent in December.

But producer prices excluding food and energy rose 0.4 percent last month, the largest gain since July, after increasing 0.3 percent in December.

Wholesale prices outside of food and energy were pushed up by higher drugs costs, which accounted for about 40 percent of the increase. Higher prices for light motor trucks and household appliances also contributed.

(Additional reporting by Jason Lange; Editing by James Dalgleish)

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