Friday, February 1, 2013

Today's links

1---Government-insured mortgages are about to get more expensive, CNN

The Federal Housing Administration, which is the largest insurer of low-down payment mortgages, announced Wednesday that it will raise premiums by 10 basis points, or 0.1%, on most of the new mortgages it insures.                          

Translation: A borrower opting for a 30-year, fixed-rate mortgage who puts 5% or more down will now pay an annual insurance premium of 1.3% of their outstanding balance. And someone who puts less than 5% down will pay a premium of 1.35%.

2---Obama to refi underwater private label mortgages, Bloomberg

The U.S. Treasury Department and members of Congress are preparing to move forward with plans to expand government-backed refinancing programs to underwater homeowners whose loans are packaged in private-label securities.
Senator Jeff Merkley, an Oregon Democrat, is drafting a bill modeled on a proposal he outlined last year to set up a federal trust to purchase or guarantee refinanced mortgages, according to two people familiar with the discussions who asked not to be identified because the bill hasn’t been introduced

The trust, as described in Merkley’s earlier proposal, would provide relief to borrowers with privately owned loans and probably would be set up under the oversight of an existing housing agency. If Congress doesn’t pass such a measure, the Treasury is drafting a plan to step in to pay for rate modifications for those homeowners, according to two other people, who asked not to be identified because the initiative is not final.

“We must continue helping as many responsible borrowers as possible refinance into affordable mortgages by taking advantage of today’s historically low interest rates,” Michael Stegman, counselor to the Treasury secretary on housing policy, said Jan. 29 in a Las Vegas speech. “We must expand streamline refinancing to families whose loans are not guaranteed by the government.”...

Nearly 1.8 million borrowers have taken advantage of the Home Affordable Refinancing Program for mortgages backed by government-owned Fannie Mae and Freddie Mac since it began in 2009. The Merkley plan would create a similar avenue for an estimated 930,000 borrowers whose loans are in private-label securities and who are current on their payments, according to the proposal outlined last year.

Federal Trust

The proposal called for creating a federal trust to buy or guarantee mortgages, enabling borrowers otherwise ineligible for refinancing to obtain new loans with terms of either 15 or 30 years at lower rates. .....

New efforts to expand refinancing won’t be limited to aid for homeowners with privately owned loans. Senators Robert Menendez of New Jersey and Barbara Boxer of California, both Democrats, plan to introduce as soon as this week a new version of a bill that didn’t advance last year. It would expand HARP by promising lenders they won’t be forced to absorb the loss on refinanced loans that default.

3----Our incredible shrinking government, NYT

Here’s a comparison, using the BEA numbers, of the relevant numbers in the current business cycle and during the Bush-era recession and aftermath:
By this measure, the era since the Great Recession began has been marked by unprecedented fiscal austerity.

How big a deal is this? Government consumption and investment is about $3 trillion; if it had grown as fast this time as it did in the Bush years, it would be 12 percent, or $360 billion, higher. Given a multiplier of more than one, which is what the IMF among others now thinks reasonable under current conditions, that ends up meaning GDP something like $450 billion higher, which is 3 percent — and an unemployment rate 1.5 points lower.

So fiscal austerity is the difference between where we are now and an unemployment rate not much above 6 percent. It’s a policy disaster.

4----Why the stimulus worked, CEPR (The  stimulus was only projected to create 2.4 million jobs....which it did!)

. First, even as late as March of 2009 CBO hugely underestimated the severity of the downturn. The actual drop in employment from 2008 to 2009 was 5.5 million. The predicted drop was just 3.8 million. In other words, CBO underestimated the initial hit from the downturn by 1.7 million jobs, even after it was already well underway.

If anyone wants to blame the greater severity of the donwturn on the stimulus they would have a hard story to tell. Most of the hit was before a dollar of the stimulus was spent. Employment in March of 2009 was 5.4 million before its year ago level.

Of course CBO was overly optimistic about the pace of the turnaround. It predicted that employment would rise by 1.7 million in 2010 even if we did nothing. Someone may have a story about how this increase would have happened had it not been for the stimulus (lower interest rates?), but it is difficult to envision what that story would look like.

The other point that this chart makes nicely is that the predicted gains from the stimulus were small relative to the size of the downturn. CBO predicted that the maximum benefit from the stimulus would be in 2010 when employment would be 2.4 million higher than without the stimulus. This needs to be repeated a few hundred thousand times the stimulus was only projected to create 2.4 million jobs.

That is not rewriting history or making it up as we go along. This is a projection from an independent agency made at the time the stimulus was passed. The economy ended up losing over 7 million jobs. At its peak impact, the stimulus was only projected to replace 2.4 million of these jobs. And after 2010 the stimulus' impact quickly went to zero as the spending and tax cuts came to an end.

5----Risky Student Debt Is Starting to Sour, WSJ

The number of student loans held by subprime borrowers is growing, and more of those loans are souring, the latest signs that a weak job market and rising debt loads are squeezing recent graduates.
In all, 33% of all subprime student loans in repayment were 90 days or more past due in March 2012, up from 24% in 2007, according to a Wednesday report by TransUnion LLC.

Meanwhile, the Chicago-based credit bureau found that 33% of the almost $900 billion in outstanding student loans was held by subprime, or the riskiest, borrowers as of March 2012, up from 31% in 2007.

"If you become subprime, it's more likely that you will not pay your debt," said TransUnion Vice President Ezra Becker, who oversaw the study.
image
The federal government has taken a more active role in student lending and now makes about 93% of all loans....

In the five years through last March, the portion of all student loans that were 90 days or more delinquent rose to 11.4% from 8.8%, while the average student- loan balance per borrower increased 30% to $23,829, TransUnion found....

Stafford loans, which account for more than three-fourths of federal student loans, impose no credit standards and are capped at a total of $57,500 for undergraduates

6---Inflation falls to 1.55, economist's view

There Is An Inflation Problem: It's Falling Below Target

 
 
 
 
 
In the fifth year of the economic depression, and amid signs of the worst global slowdown since 2008, world stock markets are booming.

In the US, the three major stock indices have either reached or are within a few percentage points of their 2007 highs, despite the fact that the economy has stalled, contracting for the first quarter since 2009, according to figures released Wednesday.

Europe is in a state of disintegration, with Greece and Spain facing conditions not seen since the Great Depression, while Germany is experiencing a sharp slowdown. In Britain, the economy is now 3.3 percent smaller than at the start of the downturn, but the benchmark FTSE 250 index has doubled. China, Brazil and India have posted sharply lower figures for economic growth, amidst a slowdown in exports. Yet global share prices have risen ten to twenty percent in the past year alone.

These apparently contradictory phenomena—surging financial markets and economic stagnation—are in fact intimately linked. The continued rise in the markets is not a sign of health, but a particular expression of the diseased state of the world capitalist system.

The world’s ruling classes, confronting a historic crisis of productivity and investment, have responded through the reflation of asset values—and their own incomes—through historically unprecedented measures of wealth redistribution.

Above all, there has been a massive infusion of cash into the financial system by the US Federal Reserve and other central banks. The US Fed is currently purchasing some $85 billion worth of mortgage-backed securities and treasury bills every month, essentially printing money to buy up government debt and bad assets held by the banks. The total assets owned by the Federal Reserve have climbed to $3.01 trillion, more than triple what it was in 2008.

All major world central banks have taken similar actions. In July, the European Central Bank moved to lower its benchmark interest rate to the lowest level in the history of the euro. The size of the holdings of the six largest world central banks has likewise nearly tripled, to €14 trillion in 2012.
The actions of the central banks are invariably described in the mass media as necessary measures to address unemployment and other social ills. In fact, their central purpose is to make virtually unlimited sums of money available for financial speculation

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