The Collapse of the U.S. Economy

Business Loan Demand Drops, Defaults Rise

April 1, 2010

Reuters - Small and medium-sized business borrowers in the United States showed signs of continued stress in February as the percentage of loans in default stayed at a two-year high, PayNet Inc reported on Thursday.

Accounts behind 180 days or more, and unlikely ever to be paid, remained at 0.90 percent of lenders' portfolios in February, unchanged from the 25-month high they reached in January, according to PayNet, which provides risk management tools to the commercial lending industry.

Accounts in moderate delinquency, or those behind by 30 days or more, rose in February to 4.41 percent from 4.37 percent in January, according to PayNet.

The only glimmer of hope in PayNet's monthly report was with accounts 90 days or more behind in payment, or in severe delinquency, which improved modestly in February, slipping to 1.36 percent from 1.38 percent in January. It was the seventh consecutive monthly improvement in the measurement.

But the Thomson Reuters/PayNet Small Business Lending Index, which measures the overall volume of financing, fell 6 percent year-over-year in February and was down 8 percent from the previous month.

In January, the SBLI had risen for the first time in 27 months, a uptick that fueled hopes prospects were improving for small businesses, which led the broader economy into the past two recessions and are widely regarded as the best hope for job creation in any recovery.

Bill Phelan, president and founder of Skokie, Illinois-based PayNet, said the drop indicated that lenders remain reluctant to extend credit to small and medium-sized businesses.

"What we see in these trends is that it's an anemic recovery," Phelan said. "Business expansion is tepid. The financial health of small businesses is still tenuous. Job creation certainly can't be occurring with these kinds of indicators."

On Wednesday, three separate reports raised questions about the job-creating strength of the current U.S. recovery.

The payroll processing company ADP reported that U.S. private employers unexpectedly shed jobs in March [see The Federal Government is the Nation's Largest Employer and Recession Chugs on, Except in Government] and measures of U.S. Midwest business activity and New York City business conditions both fell.

"It just shows the plodding nature of the recovery," Phelan said. "Usually you see growth ignite as you come out of a recession because there's pent-up demand. But we don't see that in these numbers."

PayNet collects real-time loan information from more than 227 leading U.S. lenders. The company's proprietary database, which is updated weekly, encompasses more than 16.5 million current and historic contracts worth $740 billion.

More than half the money invested in plants, equipment and software in the United States in any given year is financed with loans, leases and lines of credit.

Sales of New U.S. Homes Dropped in February to Lowest on Record

March 24, 2010

Bloomberg - Sales of new homes in the U.S. unexpectedly fell in February to a record low as blizzards, unemployment and foreclosures depressed the market.

Purchases decreased 2.2 percent to an annual pace of 308,000, figures from the Commerce Department showed today in Washington. The median sales price climbed by the most in more than two years.

The new-home market is vying with foreclosure-induced declines in prices for existing homes in an economy where unemployment is forecast to average 9.6 percent this year, close to a 26-year high. Treasury Secretary Timothy F. Geithner yesterday said it would take a “long time” to repair the housing market as the administration takes steps to overhaul real-estate financing and regulation.

“It’s going to be a long, slow slog and the lagging sector will be new home sales because they have to compete with existing sales and foreclosures,” Bill Hampel, chief economist at the Credit Union National Association in Washington, said before the report. “New home sales probably have until the fourth quarter until they start recovering.”

Sales were projected to climb to a 315,000 annual pace, according to the median estimate in a Bloomberg survey of 78 economists. Forecasts ranged from 275,000 to 343,000. The Commerce Department revised January data to show 315,000 sales at an annual pace, up from the previously estimated 309,000 ...

The report on home sales showed purchases dropped in three of four U.S. regions last month, those most likely to have been influenced by the winter storms. Purchases fell 20 percent in the Northeast, 18 percent in the Midwest and 4.6 percent in the South, which includes the Washington area.

Demand climbed 21 percent in the West, pushing the year-over-year increase in that region up to 35 percent, the biggest 12-month jump since March 2004.

The median price of a new home in the U.S. increased 5.2 percent to $220,500 in February from a year earlier. The advance was the largest since September 2007.

The supply of homes at the current sales rate increased to 9.2 months’ worth, the highest since May, from 8.9 months in January.

Housing, the industry that triggered the worst recession in seven decades as the subprime mortgage market collapsed, showed signs of recovering in 2009 as an $8,000 first-time buyer tax credit boosted sales ahead of its originally scheduled expiration in November.

Extension of the credit for contracts signed by April and its expansion to include some current homeowners has failed to boost sales in recent months.

New-home purchases are considered a leading indicator because they are based on contract signings. Sales of previously owned homes, which make up the remainder, are compiled from closings and reflect contracts signed weeks or months earlier.

Sales of existing homes fell 0.6 percent in February to a 5.02 million rate, the lowest since June, and the inventory of unsold homes rose to its highest level in almost two years, the National Association of Realtors reported yesterday in Washington.

Prices for existing home have dropped due to foreclosures, which RealtyTrac Inc. forecasts will reach a record 3 million this year. Such sales draw buyers away from the market for new houses.

A lack of jobs is another hurdle to a housing recovery. Economists surveyed by Bloomberg in early March forecast the jobless rate this year will average 9.6 percent, near the 26- year high of 10.1 percent reached in October.

The end of Fed purchases of mortgage-backed securities, aimed at keeping borrowing costs low, represents another challenge for the industry. The program is scheduled to expire at the end of this month.

“Promoting and maintaining stability in the housing market is critical to achieving economic recovery and sustainable long-term growth,” Geithner said in testimony before Congress yesterday. The administration will develop a “comprehensive reform proposal” beginning later this year, he said.

Half of Commercial Mortgages to be Underwater

March 29, 2010

CNBC.com - By the end of 2010, about half of all commercial real estate mortgages will be underwater, said Elizabeth Warren, chairperson of the TARP Congressional Oversight Panel, in a wide-ranging interview on Monday.

“They are [mostly] concentrated in the mid-sized banks,” Warren told CNBC. “We now have 2,988 banks—mostly midsized, that have these dangerous concentrations in commercial real estate lending."

As a result, the economy will face another “very serious problem” that will have to be resolved over the next three years, she said, adding that things are unlikely to return to normalcy in 2010.

Meanwhile, the U.S. Treasury on Monday pledged to sell its 7.7 billion Citigroup shares this year, a step that further reduces the government's influence on the banking giant. Warren said she is having difficulty getting clarity on Citigroup’s business plans.

“This is a cake that is still being baked,” she said of the company's plans. “[Citi's CEO] Vikram Pandit said he was going to shrink the company by 40 percent...and Citi’s numbers keep moving around so much I don’t know.”

Speaking on troubled mortgage lenders, Warren said it’s time for the government to "pull the plug" on mortgage lenders Fannie Mae and Freddie Mac.

“I’m one of those people who never liked public-private partnership to begin with. I think what they did was use public when public was useful and private when private was useful,” she said. “And I think we’ve got to rethink that whole thing.”

“There is no implicit guarantee anymore,” she added. “I don’t care how big you are, if you make serious enough mistakes, then your business can be entirely wiped out."