US housing crisis heightens aversion to risk: study

Source : Business Times - 9 Sep 2008

The US housing crisis has left many Americans worried about losing their jobs, making many more cautious about how they save for retirement, according to a new report on Tuesday.

The study, commissioned by online investment firm Scottrade, found that one-third of Americans have become more conservative in their investment strategies because of the housing slump, the worst since the Great Depression.

Another third of respondents said they are currently investing less because of the economic downturn.

‘Three out of four Americans are stressed about their current financial situation,’ Scottrade said.

In keeping with a worsening job market, one-fifth of Americans said they believe their job could be at risk. Last week, the government reported a jump in the unemployment rate to 6.1 per cent, its highest level in five years.

Still, many remain optimistic over the longer term. Most Americans who were already investing some money said they would boost the amount they are investing during the next year despite their fears about the economy.

Moreover, 68 per cent said the stock market is a solid long-run investment despite a brutal sell-off that began in November of last year.

US to take control of mortgage giants: reports

Source : Business Times - 6 Sep 2008

The US government plans to put government sponsored mortgage finance companies Fannie Mae and Freddie Mac under federal control, the New York Times and Washington Post newspapers reported late Friday, in what could be the largest financial bailout in the nation’s history.

The two government sponsored enterprises (GSEs) own or guarantee almost half of the country’s US$12 trillion in outstanding home mortgage debt.

The The Wall Street Journal reported earlier on Friday that the US Treasury Department is close to finalising a plan to buttress the two companies that includes changes to their senior management. The plan could be announced as early as this weekend, the paper said.

The plan could be announced as early as this weekend, the Journal said.

US Treasury spokeswoman Brookly McLaughlin declined to comment on the Journal report on Friday.

Fannie Mae and Freddie Mac spokesmen also declined to comment.

The two firms would be placed in ‘conservatorship’, the Wasington Post said, citing sources familiar with the discussions.

The value of the company’s common stock would be diluted but not wiped out, while the holdings of other securities, including company debt and preferred shares, would be protected by the government, the Washington Post said.

Senior Bush administration and Federal Reserve officials called in top executives of Fannie Mae and Freddie Mac on Friday and told them that the government was preparing to place the two companies under federal control, officials and company executives told the New York Times.

Federal Reserve Chairman Ben Bernanke and Treasury Secretary Henry Paulson were present at meetings with James Lockhart, the director of the Federal Housing Finance Agency, the regulator of the two companies, and with Fannie Mae CEO Daniel Mudd and Freddie Mac CEO Richard Syron on Friday, Reuters can confirm. There were separate meetings with the two CEOs.

Mr Daniel H. Mudd, chief executive of Fannie Mae, and Mr Richard Syron, his counterpart at Freddie Mac, are expected to step down from their posts eventually, the Wall Street Journal reported.

Earlier, Mr McLaughlin had told sources the department was ‘making progress on our work’ with Morgan Stanley, the Federal Housing Finance Agency, and the US Federal Reserve.

The US Treasury had hired Morgan Stanley on Aug 5 to advise it on whether the companies were adequately capitalised and help it determine how it would use its new powers to support the GSEs.

The housing legislation signed into law by President George W. Bush in July requires the companies agree to a Treasury backstop.

Shares of the two government sponsored enterprises (GSEs) have plunged about 80 per cent since mid-May this year as the US housing market slump resulted in the two companies reporting about US$14 billion in losses in the past four quarters, eroding some of their capital.

‘People have priced in an equity infusion that would wipe out shareholders,’ said Mr Chuck Gabriel, managing director at Washington-based consultants Capital Alpha Partners. ‘On the other hand, they have come to understand you wouldn’t have such an event without the GSEs agreeing to it.’

The Wall Street Journal, citing people familiar with the matter, said the plan was expected to involve the creative use of authority the Treasury won from the US Congress to pump capital into the two government-sponsored enterprises if it believed it was necessary.

Instead of giving each company a big capital infusion up front, the government plans to make quarterly infusions as the companies’ losses warrant, sources told the Washington Post late Friday. This would be an attempt to minimize the initial cost of the rescue, the paper said.

Shares of Fannie Mae and Freddie Mac, which had rebounded since Aug 21 on speculation a government intervention might be averted, plunged in after-hours trading in New York on Friday.

Fannie Mae stock fell 16.9 per cent to US$5.85, while Freddie’s shares declined 7 per cent to US$4.74.

Analysts at Citigroup, Merrill Lynch, and Goldman Sachs since mid-August have issued reports saying the companies had plenty of capital to operate for the near term, and both companies have successfully rolled over debt on schedule in the meantime. Yield spread premiums on the companies’ senior debt narrowed as traders bet government funding would cut their risks.

However, the major credit rating companies since Aug 22 all cut their ratings on preferred stock of the two GSEs on expectations that the share price declines had cut access to capital, increasing the need for emergency financial support.

The companies never lost their access to capital markets where they raise money to support the US housing market, but the biggest buyers of the debt have grown more cautious.

Foreign central banks reduced their holdings of ‘federal agency’ debt in custody at the Federal Reserve in the past week for the seventh week in a row.

Russia has continued reducing its holdings of agency debt, Mr Alexei Ulyukayev, first deputy chairman of Russia’s central bank, said on Friday.

The US Congress created Fannie Mae as a government agency in 1938, during the Great Depression, to buy government-insured mortgages from lenders, providing them fresh money to make more loans.

Fannie continued to function as a government-run agency during the 1940s and 1950s, even as it took steps towards privatisation. In 1968, President Lyndon Johnson decided to turn Fannie into a shareholder-owned company.

US real estate, banks still troubled: French minister

Source : Business Times - 1 Sep 2008

The US economy has not yet recovered from the financial crisis and its banking and real estate sectors still face difficulties, French Economy Minister Christine Lagarde said on Monday.

Ms Lagarde said France was downgrading its 2008 growth forecast partly because it had underestimated the impact of the US crisis, and that it would now follow developments there closely.

‘American banks, especially regional banks, will again see difficulty in the weeks and months ahead,’ she told France Culture radio.

‘One must be patient and attentive… to determine if the American economy, which has not finished regurgitating the effects of the financial crisis, and of which in my opinion the real estate market has not yet touched bottom, will really take off again,’ she added.

Figures from the US government surprised markets last Thursday when a revision of second quarter GDP figures showed year-on-year growth came in at 3.3 per cent on strong exports and consumer spending.

France drew up its 2008 budget based on an estimated annual 1.7 to 2.0 per cent gross domestic product (GDP) growth, but Prime Minister Francois Fillon said earlier on Monday that figure would be revised down to just over 1 per cent.

US obsession with owning homes has gone too far

Source : Business Times - 30 Jul 2008

THE real lessons of America’s housing crisis have gotten lost. It’s portrayed as the financial system run amok; the housing market became a casino. The remedy is to enact rules that prevent a repetition. All this is partly true. But it ignores a larger truth: our infatuation with homeownership, embedded in dozens of government policies, has turned housing into something of a National Nightmare.

As a society, we’re overinvesting in real estate. We build too many McMansions. They use too much energy, and their carrying costs absorb too much of Americans’ incomes. We think everyone should become a homeowner, when many families can’t or shouldn’t. The result is to encourage lending to weak borrowers who are likely to default. The avid pursuit of a few more percentage points on the homeownership rate (it rose from 64 per cent of households in 1994 to 69 per cent in 2005) has condoned enormously damaging policies.

Does every house need a ‘home entertainment centre’? Well, no. But when you subsidise something, you get more of it than you otherwise would. That’s our housing policy. Let’s count the conspicuous subsidies. The biggest favour the upper-middle class. Homeowners can deduct interest on mortgages of up to US$1 million on their taxes; they can deduct local property taxes; profits from home sales are mostly shielded from taxes. In 2008, these tax breaks are worth about US$145 billion. Next, government funnels cheap credit into housing through Congressionally chartered Fannie Mae and Freddie Mac. Perceived as being backed by the US Treasury, Fannie and Freddie can borrow at preferential rates; they now hold or guarantee US$5.2 trillion of mortgages, two-fifths of the total. Finally, the Federal Housing Administration (FHA) insures mortgages for low- and moderate-income families that require only a 3 per cent down payment.

Congress’ response to the present crisis is, not surprisingly, more of the same. The legislation enacted last week adds new subsidies to the old. It creates more tax breaks; most first-time homebuyers could receive a US$7,500 tax credit. It expands the lending authority of Fannie Mae and Freddie Mac. Previously, the permanent ceiling on their mortgages was US$417,000; now that would go as high as US$625,500. And the FHA would be authorised to support, at much lower monthly payments, the refinancing of mortgages of an estimated 400,000 homeowners in danger of default.

More subsidies may - or may not - stabilise the housing market in the short run. But there are long-term hazards. Make no mistake: I’m not anti-housing. I believe that homeownership strengthens neighbourhoods and encourages people to maintain their property. It’s also true, as economist Mark Zandi shows in his book Financial Shock, that today’s housing collapse had multiple causes: overconfidence about rising home prices; cheap credit; lax lending practices; inept government regulation; speculative fever; sheer fraud.

Still, the government’s pro-housing policies contributed in two crucial ways. First, they raised demand for now suspect ’sub-prime’ mortgages. The Department of Housing and Urban Development sets ‘affordable’ housing goals for Fannie Mae and Freddie Mac to dedicate a given amount of credit to poorer homeowners. One way Fannie and Freddie fulfilled these goals was to buy sub-prime mortgage securities - many of which have now gone bad. Second, government’s housing bias created a permissive climate for lax lending. Both the Clinton and present Bush administrations bragged about boosting homeownership. Regulators who resisted the agenda risked being ’roundly criticised’, notes Zandi.

Good intentions led to bad outcomes: an old story. Fannie’s and Freddie’s losses impelled the Treasury Department to propose a rescue for the companies; given their size and the government’s implicit backing of their debt, doing otherwise would have risked a financial panic. Personal savings have been skewed toward housing. Many Americans approaching retirement ‘have accumulated little wealth outside their homes’, concludes a study by economists Annamaria Lusardi of Dartmouth College and Olivia S Mitchell of the University of Pennsylvania.

We might curtail housing subsidies without exposing the economy to the disruption of outright elimination. The mortgage interest deduction could be converted to a less generous credit; Fannie’s and Freddie’s expanded powers could be made temporary; FHA’s minimum down payment could be set at a more sensible 5 per cent. But even these modest steps would require recognising that the homeownership obsession has gone too far. It would require a willingness to confront the huge constituency of homeowners, builders, realtors and mortgage bankers. There is no sign of either. When tomorrow’s housing crisis occurs, we will probably find its seeds in the ’solution’ to today’s. — The Washington Post Writers Group

By ROBERT SAMUELSON

The US economy in perspective

Source : Business Times - 18 Jul 2008

THE past week has been pretty rough for those in charge of the US economy. For the second time this year, US Treasury and Federal Reserve officials had to work overtime last weekend to prevent another financial meltdown.

Between them, the two troubled entities in question - Fannie Mae and Freddie Mac - control just under half of US mortgages, worth a monumental US$5.2 trillion, or more than a third of US GDP. A serious situation, no doubt, but it’s also important to take a step back and look at things in perspective.

In nervous trading last Friday, Fannie and Freddie saw their share prices halve in the course of a few hours. Elsewhere in the financial sector, trading this week has seen troubled banking giant Citigroup’s share price tumble to 10-year lows, and insurance giant AIG’s fell to levels not seen since 1995.

But despite all the bad news from the US financial sector, and a growing fear that we could well see more US bank failures, Wall Street’s key indices still ended Wednesday trading as much as 3 per cent stronger, thanks to good news elsewhere - such as a great Q2 number from chip giant Intel.

True, Wall Street’s key stock indices have fallen 14 to 15 per cent year to date. On the other hand, we’ve witnessed losses of more than 20 per cent each in Germany, the Antipodes, Malaysia, Thailand and Hong Kong. The decline in Singapore’s STI and Japan’s Nikkei was somewhere in between.

And yes, on top of having to finance expensive military operations abroad, and a hefty US$100 billion fiscal stimulus package more recently, the US government now faces the prospect of having to inject taxpayer funds into both Fannie and Freddie. UK-based research firm IDEAglobal estimated yesterday that based on the US Savings and Loans crisis in the early ’90s, the final bill for US financial sector bailouts could possibly hit something like US$400 billion, or roughly 3 per cent of US GDP.

But here’s a bit more perspective. The US budget deficit currently stands at a manageable 2.4 per cent of GDP. Japan - which doesn’t have to finance any expensive wars abroad - has a larger deficit of 2.7 per cent of GDP.

What about US public debt? Yes, we are talking about a huge number of about US$14.5 trillion. But try to think about it this way: Would you be worried if your friendly next-door neighbour had bank borrowings equivalent to one year’s income? Well, that US public debt number is only slightly larger than the US economy’s annual GDP.

It remains true that, all things considered, the US economy is likely to get much worse before its get better, especially if the US dollar continues to slide from its near-record lows, and oil prices continue to rise. But even the doomsday scenario should be viewed in perspective - and the fact is that for all its troubles, the US economy still has strong foundations.

Sub-prime will take 1-2 years to sort out: Wee

Source : Business Times - 8 Jul 2008

UOB head calls it the worst crisis he has seen in 48 years

FOR those caught up in the sub-prime crisis, the light at the end of the tunnel is going to take one to two years to emerge, according to United Overseas Bank (UOB) chairman Wee Cho Yaw.

Mr Wee spoke at the start of the National University of Singapore (NUS) Commencement 2008 yesterday, during which he received an Honorary Doctor of Letters degree from the university.

The honorary title was conferred in recognition of his accomplishments in the banking, education and community leadership areas.

Mr Wee had strong words about the current financial crisis and the myopic nature of the players in the financial industry.

‘During these past 48 years, I have seen many economic crises, but I believe that this current financial crisis is the worst I have encountered.

‘As I see it, the crux of the problem lies in the transformation of the financial industry and a corporate culture that encourages financial players to focus on short-term gain.

‘I am very concerned about the current situation. I hope I am wrong, but my view is that this crisis will take one to two years to stabilise,’ he said.

Mr Wee also pointed out the ambiguous extent of the fallout from exotic lending instruments.

‘According to media reports, financial institutions have written down close to US$400 billion so far. But this is what frightens me most - no one can tell me how much more will be written off because no one really knows the size of the collaterised debt obligations (CDO) market before its collapse,’ he said.

According to him, a tighter rein is needed to ensure recovery.

‘The liquidity crunch can only be resolved by concerted efforts of the world’s major central banks.

‘Regulators around the world will also need to take steps to ensure close supervision of financial institutions and the exotic trades that have sprung up over the past decade,’ he said.

Yesterday was the first of a series of commencement ceremonies being held for NUS’s graduating class of 2008, which will continue until July 15.

It was presided over by the university’s chancellor, President S R Nathan, and the commencement address was given by Professor Shih Choon Fong, the president of NUS.

Also present was Dr Ng Eng Hen, Minister for Education.

US housing rebound to be prolonged: Harvard study

Source : Business Times - 23 Jun 2008

Record foreclosures and limited access to credit will make it harder than usual to rebound from this US housing market slump, the worst at least since World War Two, according to a Harvard University study on Monday.

A two-year home price drop is eating into housing wealth, curbing consumer spending and slicing away economic growth.

A two-year home price drop is eating into housing wealth, curbing consumer spending and slicing away economic growth

This is unlikely to change until potential home buyers are convinced that prices have stopped tumbling, the study found.

The downturn has room to run.

The highest home loan rates in nine months and strict lending standards are keeping buyers on the sidelines, even after aggressive Federal Reserve intervention and a 16 per cent national home price slide from the 2006 peak, by some measures.

‘Historically, housing markets recover only after the economy has entered a recession and a combination of falling mortgage interest rates and house prices have improved housing affordability,’ Nicolas P Retsinas, director of the Joint Centre for Housing Studies at Harvard, said in a statement.

‘It will take longer this time to rebound given the unusually high levels of foreclosures and constrained credit markets,’ he said. ‘The slump in housing markets has not yet run its full course.’

Price declines and mortgage defaults are the worst on records dating back to the 1960s and 1970s, the study noted.

Job losses and falling prices intensify risk of foreclosure.

The number of homes entering foreclosure nearly doubled to 1.3 million in 2007 from about 660,000 in 2005.

Payment shock after rate resets on some adjustable loans, many made to higher-risk borrowers, has propelled owners into foreclosure. For others in trouble, falling prices leave them with mortgages larger than the home’s value, and they are often unable to refinance or sell.

Also, new homebuilding and house sales rival the worst downturns in the post World War Two era.

The number of homeowners paying more than half of their income on housing surged by 35 per cent to 8.8 million in 2006 from 6.5 million five years earlier, according to the study, the centre’s 20th annual broad report on US housing trends.

After rising for years, the US homeownership rate fell to 67.8 per cent at the end of 2007 from an all-time high 69 per cent in 2004.

‘As investors demand a higher return for assumed risk and limit credit to riskier borrowers, costs are rising for all types of mortgage, consumer and corporate loans,’ the centre said in a press release. ‘Many would-be borrowers are now finding it impossible to get loans at any price.’

Economic weakness does not bode well for income growth in the short run, and housing cost pressures are unlikely to lighten in the long term. Much of employment growth will be in part-time and low-wage positions, the study said.

‘The sombre conclusion is that if the economy slips into recession or job losses keep racking up, household growth and homeownership demand could fall even more,’ the centre said in the release.

Barring a prolonged period of serious economic decline, the study projects household growth of about 14.5 million over the next 10 years. The main risk to that outlook is a drop in immigration from its recent 1.2 million annual pace due to weaker labour markets.

To get home affordability back to levels of 2000, before a five-year record home price and sales surge, ‘would take some combination of large price declines, interest rate reductions, rent deflation and unprecedented real income growth’, the study said.

Even then, homes were out of reach for many ‘vulnerable households’ often made up of low-wage workers, families with children and veterans. — REUTERS

US downturn may stretch: Paulson

Source : Business Times - 16 Jun 2008

Soaring oil prices could prolong a US economic downturn triggered by a housing market slump and credit crisis, Treasury Secretary Henry Paulson warned on Saturday.

Speaking after a meeting of Group of Eight (G- finance ministers, Mr Paulson repeated that he backed a strong dollar and dismissed any suggestion that the dollar’s depreciation was helping push up global energy prices. The US economy grew at an annual rate of 0.9 per cent in the first quarter. Growth should pick up this year, Mr Paulson said, although falling home prices, financial market turmoil and energy costs would all weigh on the economy.

‘While we are still working through housing and capital markets issues, and expect to be doing so for some time, we also expect to see a faster pace of US economic growth before the end of the year, while recognising that the recent increase in oil prices risks prolonging the US economic downturn,’ Mr Paulson said.

The impact of high energy and food costs on global growth were the main theme of talks between Japan, the United States, Britain, Canada, France, Germany, Italy and Russia.

While Italy and France played up the role of speculation in sending commodity costs skyward, Mr Paulson said that oil prices were being driven by the fundamentals of supply and demand.

‘At its heart, this run-up in price reflects long-term trends in global supply and demand and strong economic growth coinciding with a period of minimal investment in oil production.’

Mr Paulson said that in his talks with G-8 finance ministers, a number of them said that high commodity prices were being used as a hedge against inflation.

‘I don’t believe that is related to the dollar,’ he said in reply to a question on whether the falling US currency was a major factor behind soaring oil prices.

Mr Paulson noted that since February 2002 the dollar’s value had fallen about 25 per cent but oil prices had gone up 500 per cent in the same period.

‘In terms of financial investors, speculation and the role that that plays, we’re looking at that but all the evidence points to supply and demand,’ he said, making the point that he did not believe the dollar was a key culprit for costlier energy.

Mr Paulson said that there was a tendency to look for someone to blame for costly energy. ‘It is very easy for people who want to look for some short-term solutions and I think there’s a danger if people say that all it is is speculators.’

There has been no significant increase in global oil production capacity in the past 10 years and significant new investment to boost production was required, Mr Paulson said.

There were no short- term solutions but said oil users should ‘avoid subsidies and other market-distorting policies’ while suppliers needed to open up their economies to more oil-market investment, he said. ‘Producers need to increase output and capacity,’ he added.

Mr Paulson said that wealthy countries should offer emergency food assistance to help the hungry and developing countries should replace general food subsidies with better-targeted ones and drop export restrictions.

The G-8 finance chiefs met to set an agenda for a July meeting of political leaders from their countries, which will also take place in Japan.

Mr Paulson acknowledged that oil and food price inflation were turning people against globalisation, the term used to describe increasingly intertwined worldwide markets.

‘A shift inward would lead to economic stagnation and would cost millions of jobs, deter foreign investment, curtail growth, and increase the cost of many goods and services purchased by American households,’ he said.

There was support among the G-8 for a proposed Clean Technology Fund that would help poorer countries buy state-of- the-art anti-pollution equipment and so reduce greenhouse gases that damage the environment.

The fund, up to US$10 billion, is to be financed by both developed and developing nations. Mr Paulson said that the Bush administration was asking Congress to approve US$2 billion for it over three years. — Reuters

Greenspan says credit crisis easing

Source : Straits Times - 16 Jun 2008

UNITED States financial markets, roiled by the collapse of the sub-prime mortgage market, have shown a ‘pronounced turnaround’ since March, says Mr Alan Greenspan, the former US Federal Reserve chairman.

The worst of the credit crisis is over, or will be soon, and there is now a ‘reduced possibility’ of a deep recession, he said in remarks via satellite to a conference in Mexico City last Friday.

Mr Greenspan’s comments contrast with his view in February that the odds of a recession were ‘50 per cent or better’ and that the slump could be deeper than the previous two contractions.

The former Fed chief said that tax rebates to US consumers are bringing about increased sales. ‘There is a sense it is buoying the retail market,’ he said, adding that the US economy has shown a ‘remarkable resilience’.

A government report this month showed that US retail sales in May rose 1 per cent, twice as much as economists had forecast, as consumers spent rebates provided under a government economic stimulus plan.

Mr Greenspan said housing remains a ‘critical problem’ and financial markets may not recover fully until home prices stabilise, ‘perhaps by the end of the year’.

The US economy grew at an annual 0.9 per cent pace in the first quarter of the year, the government said late last month, in an upward revision that calmed the nerves of some economists.

The Commerce Department initially pegged first-quarter gross domestic product growth at 0.6 per cent, the same lacklustre pace as in the fourth quarter of last year.

The revision, in line with expectations, bolsters the stance of some economists who believe the world’s largest economy will avoid a recession despite a deep housing slump, a related credit crunch and soaring oil prices. - BLOOMBERG NEWS, REUTERS

HIGHER SALES

There is a sense that US tax rebates are buoying the retail market, says Mr Greenspan.

A cohesive nation, thanks to the HDB

Source : Straits Times - 25 Jun 2008

In some countries, an apartment can be the heart of the family, or just a place to store clothes and a bed. In others, it is the unattainable dream, a symbol of security as far away as the moon.

In Singapore, a 48-year-old programme has turned home ownership into a formidable tool to create cohesive communities and fuel economic expansion.

‘The housing programme is a key pillar for continued economic growth,’ says Mr James Koh Cher Siang, chairman of the Housing Board.

‘The underlying philosophy is nation-building, to root the population in Singapore and its future.’

That far-reaching vision was honoured by the United Nations on Monday during a day-long celebration of public-service innovations.

The HDB was one of 12 organisations recognised by the United Nations Public Administration Network (UNPAN), and the only one from Asia singled out for what is, effectively, a lifetime achievement award for excellence. Nearly 190 organisations from 39 countries entered the three public-service award categories.

The HDB, along with social programmes from Rwanda (improving community health and education), the United States (curbing juvenile delinquency and family violence) and Brazil (teaching building trades for historic preservation to unemployed youth), was cited for improving transparency, accountability and responsiveness in public service.

‘Singapore’s home-ownership programme has provided quality housing for more than 80 per cent of the people and helped more than 95 per cent of them to own their homes,’ said UN Undersecretary-General for Economic and Social Affairs Sha Zukang, who presented the awards on Monday.

‘The awardees are an inspiration for all of us in their ability with ingenuity, creativity and commitment to improve transparency, accountability and responsiveness in public service.’

In a statement issued in Singapore yesterday, National Development Minister Mah Bow Tan congratulated the HDB and said that the award was ‘a tribute not just to HDB, but also to the Singapore people because the home-ownership programme is very much a part of our lives today’.

It is a success story that goes back almost half a century, to the days when many Singaporeans lived in kampungs.

A government initiative to develop affordable housing changed people’s lives dramatically, putting families into basic high-rise homes with sanitation and clean running water.

With government commitments of land, money and enabling laws, the HDB built 50,000 flats in the first five years.

As the programme grew, the designs became more varied and ambitious: homes were larger, more pleasant and cost more.

Housing estates featured conveniences like transportation, shops, childcare and recreation. Soon, it was not just a question of affordability, but desirability.

‘As time progressed, people’s aspirations changed, they wanted quality housing,’ Mr Koh told The Straits Times on Monday. ‘They had more money, they wanted different kinds of flats, from smallest to the largest.’

With their upgraded fixtures and amenities, he added, the HDB flats rival private condos for sophisticated buyers.

Today, 80 per cent of Singaporeans live in HDB homes, the dream of owning them made possible by a combination of subsidies and access to their Central Provident Fund savings to pay for their flats.

This kind of stability and success is both a beacon and a taunt to countries struggling to cope with housing shortages and runaway prices.

‘My government cannot possibly undertake something like that,’ said a Brazilian diplomat, after listening to HDB deputy director Lily Wong’s brief presentation on the housing programme. ‘We do not have the money, the foresight, the land, the harmony. I cannot imagine trying to re-create this in Rio. Our slums are too large.’

The world is in something of a housing crisis: slums are spreading like a shadow across Latin America, Africa and Asia, devouring rural areas and extending cities far beyond their capacities.

The US economy is roiled by a mortgage crisis; major cities including Moscow, Copenhagen, Hong Kong, Tokyo and New York have a near-zero vacancy rate, especially for affordable homes.

UNPAN officials noted that the winning programmes should introduce new concepts to tackle widespread problems.

Singapore’s presentation sparked envy in many in the small audience, but also a touch of wistfulness.

‘I guess if you started with a clean slate, such a programme would be possible,’ said a European delegate. ‘Maybe they could replicate this in East Timor but I don’t know where else.’

In fact, housing officials from India and China - sprawling countries with masses packed into teeming cities - have sought out Singapore’s HDB for advice, HDB chief executive officer Tay Kim Poh told The Straits Times.

UN Deputy Secretary-General Asha-Rose Migiro praised the winners, who this year hail from Australia, Brazil, India, Jordan, Rwanda, Saudi Arabia, Singapore, South Africa, Spain, Sweden, Tunisia and the United States.

‘Your exemplary initiatives should inspire all governments around the world - at all levels - to strive for excellence in public service,’ she said.

‘While the private sector and civil society play a fundamental role in the development process, it is governments that have the main role to steer development efforts and provide the necessary conditions for a stable, peaceful and prosperous society.’

US Senate leaders agree on housing rescue fund bill

Source : Business Times - 19 Jun 2008

New mortgage insurance fund will underwrite US$300b of failing loans

US Senate leaders have agreed to a bipartisan bill to establish a US$300 billion rescue fund for troubled mortgages and a new regulator for Fannie Mae and Freddie Mac, lawmakers said on Tuesday.

The legislation was expected to be considered by the full Senate within days, with lawmakers keen to deliver a final bill to President George W Bush by July 4.

Barney Frank, chairman of the House of Representatives Financial Services Committee, in an interview with Reuters called the Senate bill ‘good progress’. But the Massachusetts Democrat said, ‘It’s not yet where we should be . . . To the extent that people say the House will just accept the Senate bill, that’s not appropriate.’

The House has already passed a housing bill, which differs from the Senate’s in a few respects. A final bill to be sent to Mr Bush would have to be a House-Senate compromise.

Mr Frank said it was still possible Congress could deliver a final measure to the White House by July 4. ‘The table is now set for serious House-Senate discussions about this,’ he said.

The Senate legislation agreed to by Banking Committee chairman Christopher Dodd, a Connecticut Democrat, and Alabama Senator Richard Shelby, the committee’s top Republican, represents the boldest step yet from Congress to try to stem the hundreds of thousands of foreclosures sweeping across the country amid the bursting of the real estate bubble.

‘We’re going to move to this. It’s important that we do it as soon as we can,’ said Senate Majority Leader Harry Reid.

The Senate bill would create a new mortgage insurance fund under the Federal Housing Administration (FHA) to underwrite up to US$300 billion of failing loans, although analysts expect it would cover a much smaller share of homeowner debt.

It would create a new regulator for home finance providers Fannie Mae and Freddie Mac, and set some new business practices for the two government-sponsored enterprises.

Language endorsed by the Senate leadership would increase the size of loans that Fannie Mae and Freddie Mac could buy by more than US$200,000, pushing the cap to US$625,000 in some costly housing markets, sources familiar with the bill said.

The bill would let Fannie Mae and Freddie Mac hold those larger loans in their investment portfolios, and set the higher loan size for mortgages financed by the FHA, sources said.

Disclosures given to prospective mortgage borrowers would be improved under the Senate bill, while a national licensing system would be set up for mortgage brokers.

In a measure that Republicans have criticised, federal grants would be issued to local governments or other housing groups for buying and renovating foreclosed properties.

Both the Senate plan and legislation passed by the House would open the mortgage insurance fund only to lenders that agreed to erase a large share of the original loan amount.

Tax measures included in the bill would include a tax credit for the purchase of a home; an increased cap on the issuance of mortgage revenue bonds; and reforms to encourage more investment in low-income housing development.

The House bill backed by Mr Frank differs by making the FHA refinancing fund last longer, by setting higher loan limits for FHA, Fannie Mae and Freddie Mac and on some tax provisions.

As lawmakers tried to push the housing package forward, Mr Dodd was forced to spend part of Tuesday answering questions from reporters about his personal mortgage finances.

At a news conference, Mr Dodd said he did not think he was getting a special deal when told in 2003 that he had been placed in a VIP programme while refinancing two home mortgages with Countrywide Financial Corp. The senator said he thought the VIP status was a ‘courtesy’ extended by the mortgage lender to him and his wife because they had been doing business with Countrywide since 1999.

‘At no point did anyone ever suggest to me that we were going to get some deal out of Countrywide,’ Mr Dodd said.

Conde Nast’s Portfolio.com website last week reported Mr Dodd was placed in a VIP programme that could save US$75,000 over the life of the loans he obtained from Countrywide.

Mr Dodd said, ‘To the best of my knowledge . . . the rates that we received were not some cut-rate deals at all, but were rather standard rates that you negotiate.’

Countrywide, the largest US mortgage lender, has been the subject of numerous lawsuits and regulatory probes into its lending practices. The company, which has agreed to be acquired by Bank of America, has suffered steep losses related to risky sub-prime mortgages.

The senator also said he was not acquainted with Angelo Mozilo, the high-flying founder of Countrywide who is under a federal regulatory probe into his stock sales.

‘I don’t know the man,’ Mr Dodd said. ‘I may have met him at a reception or something . . . I’ve never talked to him about my mortgages and I never would.’ - Reuters

Positive outlook for Asian property

Source : Straits Times - 19 Jun 2008

Inflows from outside region rising as a result of credit crisis in US and Europe, says report

THE flow of capital into the Asia-Pacific’s real estate market from outside the region is accelerating, a new report on property investment has found.

This is the result of the credit crisis in the United States and Europe, said the report by KPMG, FTSE Group and Asian Public Real Estate Association (Aprea).

The acceleration is coming off the back of prolonged steady growth, which has been powered by a combination of opportunistic and increasingly longer-term investments, it found.

‘With the credit crisis in the US and Europe, investors are seeing a slowdown there, so they are looking to Asia for growth,’ said FTSE Group’s head of quantitative research (Asia-Pacific), Mr Jamie Perrett.

Many institutional investors, such as pension funds, are looking to diversify their portfolios and increase their property allocations, he told The Straits Times.

Real estate as an asset class has outshone equities and long-term government bonds over the past decade, providing average returns of 7 per cent to 8 per cent, said the report.

And, while returns on real estate investments are expected to decline in most countries, returns in the Asia-Pacific are expected to remain higher than the global average of slightly over 5 per cent for the coming year, it said.

Market sentiment in Asia has been hit by the credit crunch and it is unclear when a rebound will occur, but the regional outlook should remain positive, said Aprea’s chief executive officer, Mr Peter Mitchell.

The interest in investing in Asia remains but there are signs of a wait-and-see approach, he said. ‘We need to take a longer-term perspective.’

Real estate investment trusts (Reits) are not growth stocks but good defensive stocks and inflation hedges, said Mr Mitchell. Projections show Asia’s Reit market with a capitalisation exceeding US$100 billion (S$136.8 billion) by 2010.

‘Despite the current tightening of credit from banks, the deals will continue to take place. But they may take longer, the price may be higher and it could lead to a temporary slowing in the supply cycle,’ said Mr Andrew Weir, KPMG’s partner in charge of property and infrastructure in China and the Asia-Pacific, in a statement.

‘However, the current sub-prime fallout elsewhere may well act as a catalyst for the inevitable further development of the Asia-Pacific as a centre of property and investment management.’

According to the report, real estate funds remain the dominant source of capital for property investments in Asia this year.

Asian real estate, it said, may be experiencing some short-term pain but will eventually benefit from the credit crunch.

‘In time, the credit crisis will result in Asia being regarded on a more equal and level-playing field compared to the more mature but struggling markets of the US and Europe.’

Yesterday, FTSE and Aprea also announced that they signed an agreement to develop new indexes for the Asia-Pacific real estate sector.

Said Mr Mitchell: ‘It will give more visibility to Asian real estate markets, thereby enhancing the region’s access to global capital.’

US mortgage refinance applications plunge: MBA

Source : Business Times - 18 Jun 2008

Applications for US home mortgages dropped for the fourth week in the last five as soaring rates on standard, fixed-rate mortgages choked off refinancing opportunities, an industry group said on Wednesday.

The Mortgage Bankers Association said its seasonally adjusted index of mortgage application activity fell 8.7 per cent to 508.4 in the week ended June 13.

The MBA’s seasonally adjusted index of refinancing applications tumbled last week by 15 per cent to 1,378.6 - its lowest since July 2006. The gauge of loan requests for home purchases declined 4.3 per cent to 360.2.

Fixed 30-year mortgage rates averaged 6.57 per cent in the week, up 33 basis points from the prior week and the highest since July 2007.

Yields on fixed-income securities that drive mortgage rates have surged this month as a chorus of central bankers, led by Federal Reserve Chairman Ben Bernanke, shed light on the potential for faster inflation in the months ahead. Benchmark 10-year Treasury note yields have climbed almost a full percentage point over the past three months.

The increase in mortgage rates is removing one of the few supports to the US housing market that has been in decline since 2006. Costlier interest rates have hurt the outlook for US homebuilders that have been trying to dig themselves out from burgeoning inventories of unsold homes, the National Association of Home Builders said on Monday.

The only sub-indexes to increase were those that measured applications for government programmes run by the Federal Housing Administration and the Veterans Administration. The volume of loans guaranteed by the FHA has soared this year as borrowers locked out of refinancings by lenders who have tightened credit standards scramble to escape high-cost loans. — REUTERS

US recession may end by next quarter: economists

Source : Business Times - 20 May 2008

Growth to pick up to 2.1% in 2nd half: NABE poll

THE US economy will probably exit from a recession by the end of the next quarter as credit markets improve after a year of turmoil, according to a survey of economists.

The worst of the US credit crunch and housing slump is about over, and growth will pick up to 2.1 per cent in the second half, according to the poll of 52 professional forecasters by the National Association for Business Economics (NABE).

More than 60 per cent of the economists surveyed between April 17 and May 1 predicted that businesses and consumers will find it easier to borrow in the final six months of the year.

The share of analysts who said that the US is in or will have a recession this year rose to 56 per cent from 45 per cent in February. They anticipate that the Federal Reserve’s steepest interest rate cuts in two decades, tax rebates, record exports and some stabilisation in housing will lead to a recovery this quarter or next.

‘We are most of the way through the downturn, or the worst of it,’ said Lynn Reaser, a Bank of America economist in Boston who chairs the economic survey committee. ‘Recovery forces are in place and conditions should improve over the next year and a half.’

The worst housing recession in a quarter century, turmoil in financial markets and higher energy prices are taking a toll on current growth.

The economists predicted the expansion will slow to an annual pace of 0.4 per cent in the second quarter, following two straight periods of 0.6 per cent gains. Second-half growth forecasts were cut to 2.1 per cent from 2.8 per cent in February. Still, about three-quarters of those predicting a recession said that it will end in the second or third quarter.

The NABE survey points to gradual improvement into 2009, when US gross domestic product (GDP) may increase 2.7 per cent, a forecast trimmed from 2.9 per cent in the February survey.

‘Although housing and credit markets will gradually loosen their grip, US economic growth is expected to only slowly return to health,’ Ellen Hughes- Cromwick, the group’s president and chief economist at Ford Motor Co, said in a statement.

The Fed will keep its benchmark overnight lending rate between banks at 2 per cent this year, and raise the rate to 3 per cent by the end of 2009 as the central bank fights the threat of faster inflation, according to the NABE survey median.

Futures markets show that traders expect the rate to hold at 2 per cent through October. The Fed’s next policy meeting is June 24-25. - Bloomberg