Fannie’s competitor Freddie Mac—combined, the two prop up the housing market by buying mortgages from lenders—also is easing its similar policy, something the Journal correctly says means they’re increasing their risk.
Borrowers who put just 3% to 5% down in many areas are likely to find within a year that they owe more than the homes are worth because prices have fallen, a situation known as being underwater.
In some cases, deeply underwater borrowers are choosing to walk away from their homes rather than trying to find a way to keep on paying, Patricia Cook, Freddie’s chief business officer, told analysts this week.
These guys can take all the risk they want because, as we quoted yesterday, the government will bail them out no matter what when they fall flat. In fact, the government wants them to take more risks.
Is Senate close on housing-bailout plan?
In another who-do-you-believe story, the papers disagree on what exactly did or did not happen with Senate negotiations over a housing-bailout plan last night. The Washington Post on D3 says senators “broke off talks” but “were close to an agreement.” But the Journal says they came to an “agreement in principle” and Reuters agrees. The Associated Press goes the WaPo route.
Steve Forbes, grassroots warrior
The Journal has an excellent page-one “ahed” this morning on the origins of a site called “Angry Renter” that purports to be a grass-roots campaign of tenants opposing government bailouts for homeowners. We love this blow-them-out-of-the-water paragraph:
Angry they may be, but the people behind AngryRenter.com are certainly not renters. Though it purports to be a spontaneous uprising, AngryRenter.com is actually a product of an inside-the-Beltway conservative advocacy organization led by Dick Armey, the former House majority leader, and publishing magnate Steve Forbes, a fellow Republican. It’s a fake grass-roots effort—what politicos call an AstroTurf campaign—that provides a window into the sleight-of-hand ways of Washington.
The Journal goes on to note Forbes owns an 8,000-square-foot house in New Jersey on ten acres, plus an adjacent 112 acres. In a very interesting finding, it says the parcel is assessed at just $45,500. Land for $400 in acre? Forty miles from Manhattan? This seems to call for a story in its own right. The paper tweaks Forbes some more, noting “The Forbes family has sold off its private island in Fiji and palace in Morocco, but still owns a château in France.”
Here’s the kicker and the Quote of the Day:
Among the renters who work at FreedomWorks is Chris Kinnan, who designed the site. He says he’s not in the market to buy a house. “I’m a renter,” he says. “I’m not an angry renter.”
American skimps on inspections
American Airlines is the latest flyer to come under investigation in the safety-inspection scandal. The WSJ leads its A1 Business & Finance column and fronts a Marketplace section story saying the airline changed its inspection procedures for possible lightning strikes to keep them from disrupting flight schedules.
Used to be, mechanics had leeway to call for a time-consuming inspection of a plane they suspected had been struck by lightning. Now the airline prevents that unless pilots specifically call for it, and the Journal says they often can’t tell if it’s happened from the cockpit. It looks like just another example of skimping on safety caused by the industry’s financial troubles, something that would have surely come back to haunt it had whistleblowers not exposed the problem.
Fed still bird-dogging Libor
The Journal on C1 says the Fed is poking around into how the key Libor rate is set. It’s talking to traders and the British Bankers Association, which oversees the measure, to figure out how accurate it is. The move comes a month to the day after a good WSJ story that questioned whether the rate—which underpins trillions of dollars in interest rates on loans—was being manipulated.
That caused a quick spike in the rate, something that’s evidence that banks were low-balling their reported interest rates to make themselves seem healthier than they really are.
Quiet cuts on Wall Street
The NYT looks at how the huge layoffs on Wall Street are coming quietly, unlike past downturns. Instead of getting all their firings out of the way at once, banks are slicing people here and there, killing morale.
While the financial markets have found a bit of a footing lately, banks are pushing ahead with plans for some of the deepest job reductions in years. Since last summer, banks worldwide have announced plans to cut 65,000 employees.
But exactly how many jobs have been or will be eliminated is unclear. In the past, banks typically made sharp reductions all at once. After the 1987 stock market crash, for example, employees were herded into conference rooms and dismissed en masse.