Sunday, August 24, 2008
Thursday, August 21, 2008
Friday, August 15, 2008
September 17: Surround the State Capitol in Lansing, Michigan!
Sept 17: Stop Foreclosures and Evictions in Michigan!
Moratorium NOW! Coalition to
Stop Foreclosures and Evictions
September 17: Surround the State Capitol in
http://www.moratorium-mi.org/petition.shtml
Foreclosures and evictions are devastating working families around the country. One in nine homeowners nationwide is either behind in their mortgage payments or their family homes are in foreclosure. Over 72,000 homeowners have lost their homes in the
Since the federal government has now taken over and bailed out the big mortgage firms of Fannie Mae and Freddie Mac at taxpayer expense, it is the government's responsibility to bail out and protect those who need it most -- working people and their families, the elderly and the disabled who are facing foreclosure and eviction!
The Moratorium NOW! Coalition to Stop Foreclosures and Evictions has been in the forefront of a mass struggle to win a moratorium or freeze on foreclosures. It is organizing throughout
The Coalition is organizing a mass demonstration in
See www.moratorium-mi.org for more information.
The Moratorium NOW! Coalition has already scored important victories in the fight against foreclosures and evictions in
· Through a community rally and picket of Bank of America, we successfully stopped the foreclosure of Ruby Curl-Pinkins, a 72-year-old disabled woman, scheduled to be evicted from her home of 35 years by Countrywide.
· We have intervened with direct action to insure that other families facing foreclosure remained in their homes even after bailiffs came to evict them.
· We successfully fought HUD’s policy of violating its own regulations by not allowing continued occupancies of FHA-backed homes by tenants after foreclosure.
· We won an important First Amendment victory that guaranteed the right of anti-foreclosure activists to leaflet and petition at sham “prevent foreclosure forums” organized by Michigan’s pro-business attorney general for the banks and financial interests.
· We have helped sponsor legal challenges that have called into question the right of MERS, the Mortgage Electronic Registration System, to carry out foreclosures. MERS currently is the foreclosing party in tens of thousands of foreclosures in
ACT NOW TO HELP US CONTINUE THIS STRUGGLE!.
What you can do:
Join us at the State Capitol in
(see www.moratorium-mi.org)
Send email messages to the members of the Michigan Legislature and the Governor demanding enactment NOW of the 2 year Moratorium at
http://www.moratorium-mi.org/petition.shtml
Donate to help finance buses and vans to bring people facing foreclosure to
http://www.moratorium-mi.org/donate.shtml
The Moratorium NOW! Coalition needs funds to continue the struggle to win a moratorium on foreclosures in this hard-hit state. Funds are needed to help with printing costs, phone calls, travel costs to get the word out around the state about this vital demonstration. Every donation raised comes from grass-roots donors.
Donate Now at http://www.moratorium-mi.org/donate.shtml.
Moratorium NOW! Coalition
To Stop Foreclosures and Evictions
23 E.
313-887-4344
Wednesday, August 13, 2008
Labor Day Outreach!
A lot of outdoor gatherings are scheduled around Michigan on the Labor Day
weekend (Aug. 30, 31 and Sept. 1)
weekend (Aug. 30, 31 and Sept. 1)
The UP organizers will be at and in the Mackinac Bridge walk with Freeze
the Foreclosures - Moratorium NOW! literature.
Detroit is silkscreening signs. More t-shirts are being ordered. If you
need signs for your area or help with a banner, let the Detroit office
know (but please don't wait until the last minute ... )
Are you planning any outreach that weekend? Let us know so we can share it.
08Aug12: Outreach to Churches
The day after the first staff meeting significant outreach started to
churches. Direct contact with several pastors was made by phone -
messages were left for others. One leaflet drop off was coordinated with
the Moratorium NOW! office and another church agreed to put the
information in the bulletin.
churches. Direct contact with several pastors was made by phone -
messages were left for others. One leaflet drop off was coordinated with
the Moratorium NOW! office and another church agreed to put the
information in the bulletin.
Pointers to keep in mind - one Detroit pastors told the Moratorium
organizer that he was not aware of anyone affected! When she rightly
pointed out that people are often too ashamed to admit they are losing
their homes, he told her she was probably correct. The pastor of a
downtown church stated most of his parishioners are renters who suffer
high rent increases. (Although not covered in SB 1306, it is related to
the increasing cost of credit and mortgages - even commercial mortgages
- but in Detroit is related to the gentrification of downtown and the
conversion of buildings to high price condos - no seniors trying to
survive on social security welcome!)
Lists of organizations and individuals are coming in! The mailing is
almost ready to go!
Detroit News: Foreclosure fallout: Houses go for a $1
Foreclosure fallout: Houses go for a $1
Ron French / The Detroit News
Ron French / The Detroit News
DETROIT -- One dollar can get you a large soda at McDonald's, a used VHS
movie at 7-Eleven or a house in Detroit.
The fact that a home on the city's east side was listed for $1 recently
shows how depressed the real estate market has become in one of
America's poorest big cities.
And it still took 19 days to find a buyer.
The sale price of the home may be an anomaly, but illustrates both the
depths of the foreclosure crisis in Detroit and the rapid scuttling of
vacant homes in some of the city's impoverished neighborhoods.
The home, at 8111 Traverse Street, a few blocks from Detroit City
Airport, was the nicest house on the block when it sold for $65,000 in
November 2006, said neighbor Carl Upshaw. But the home was foreclosed
last summer, and it wasn't long until "the vultures closed in," Upshaw
said. "The siding was the first to go. Then they took the fence. Then
they broke in and took everything else."
The company hired to manage the home and sell it, the Bearing Group,
boarded up the home only to find the boards stolen and used to board up
another abandoned home nearby.
Scrappers tore out the copper plumbing, the furnace and the light
fixtures, taking everything of value, including the kitchen sink.
"It about doesn't make sense to put the family out," Upshaw said. "Once
people are gone, you're gonna lose the house in this neighborhood."
Tuesday, the home was wide open. Doors leading into the kitchen and the
basement were missing, and the front windows had been smashed. Weeds
grew chest-high, and charred remains marked a spot where the garage
recently burned.
Put on the market in January for $1,100, the house had no lookers other
than the squatters who sometimes stayed there at night. Facing $4,000 in
back taxes and a large unpaid water bill, the bank that owned the
property lowered the price to $1.
$1 sale to cost bank $10,000
While it's not unusual for $1 to be exchanged when property is
transferred for legal reasons, listing a home in the Multiple Listing
Service for $1 was surprising and unsettling to Kent Colpaert, the
listing real estate agent for the property.
"I've never seen a home listed for $1," Colpaert said.
"But it's been hit hard: It's just a shell."
On Tuesday, Realtor.com listed one other single-family home, one duplex
and one empty lot at $1 in Detroit.
Dollar property sales are the financial hangover from the foreclosure
crisis, said Anthony Viola of Realty Corp. of America in Cleveland.
Lenders that made loans to unqualified buyers during the height of the
subprime market now find themselves the owners of whole neighborhoods of
vacant, deteriorating homes.
"No one has much sympathy for these banks that made subprime loans,"
Viola said. "And in some cities like Cleveland, judges aren't letting
them sit on the properties -- they're ordering them to tear them down or
sell them."
So desperate was the bank owner of 8111 Traverse Street to unload the
property that it agreed to pay $2,500 in sales commission and another
$1,000 bonus for closing the $1 sale; the bank also will pay $500 of the
buyer's closing costs. Throw in back taxes and a water bill, and
unloading the house will cost the bank about $10,000.
"It doesn't make sense in some neighborhoods to keep paying costs and
costs," Colpaert said. "It can make more financial sense to give it away."
Buyer calls it an investment
Colpaert declined to provide the name of the prospective purchaser,
because the deal had not been through closing. The agent did say that
the buyer agreed to pay the full list price of $1, and planned to pay cash.
The buyer, a local woman, considers the home to be an investment
property and will not live there, Colpaert said, though exactly how soon
the buyer can expect to recoup her four-quarter investment is
questionable. Replacing the guts of the house will costs tens of
thousands of dollars, and the owner will have trouble keeping scrappers
from stealing the improvements as quickly as they're installed. Home
demolition costs about $5,000, Colpaert said.
Meanwhile, the new owner will owe $3,900 in property taxes in 2009 on
her dollar purchase unless she challenges the tax assessment.
While selling a home for the amount of change most people could find
between their couch cushions is unusual, some abandoned homes in Detroit
sell for $100; vacant lots can be purchased for $300.
"My 14-year-old son could buy a block of Detroit property," said Ann
Laciura, senior servicing specialist for the Bearing Group.
You can reach Ron French at (313) 222-2175 or rfrench@detnews.com.
Find this article at:
http://www.detnews.com/apps/pbcs.dll/article?AID=/20080813/METRO/808130360
Tuesday, August 12, 2008
Upcoming Week of August 11 - August 18 - How you can help in the Detroit area
Monday "Stop the Foreclosures" Staff meetings are held at the Moratorium
NOW! Coalition office 23 E. Adams at Grand Circus Park in downtown Detroit.
NOW! Coalition office 23 E. Adams at Grand Circus Park in downtown Detroit.
Special tabling and distribution scheduled at the African World Festival
- August 15, 16 and 17.
Table hours: Friday and Saturday from 5 pm to 8 pm and Sunday from 3 pm
to 6 pm
Table location: Jefferson and Woodward by the Coleman A. Young Municipal
Building (formerly City County Building)
Stop by the table, sign the petition, pick up literature, get a t-shirt,
help out for awhile!
Monday, August 11, 2008
The Fight for SB 1306 in Michigan
The three articles that appeared just before this post show that the
economic crisis is not slowing down, but rippling wider. Fighting for
Michigan Senate Bill 1306 is an important step to stop that wave before
each of us and our neighborhoods are all engulfed while the banks are
bailed out.
economic crisis is not slowing down, but rippling wider. Fighting for
Michigan Senate Bill 1306 is an important step to stop that wave before
each of us and our neighborhoods are all engulfed while the banks are
bailed out.
No one can fight this battle for you - if we stand together we can win!
Come to Lansing, Michigan on Sept. 17. Volunteer to take leaflets to
your workplace, church or block association. Become an organizer.
For more information and Michigan organizing centers go to:
www.moratorium-mi.org
WSJ: Students Face Hit As Private Lending Dries Up
The Wall Street Journal
August 11, 2008
PAGE ONE
Students Face Hit
As Private Lending Dries Up
By ROBERT TOMSHO
August 11, 2008; Page A1
A retreat by private-sector lenders from the market for education loans
is threatening to keep thousands of students out of college in the
coming academic year.
About 10% of the nine million student borrowers in the U.S. seek such
private loans, which supplement the limited amounts available from
government-aid programs. Over the past decade, as government grants and
loans have failed to keep pace with rising tuitions, private-loan
borrowing has increased more than tenfold to $17.1 billion annually.
More than two dozen lenders, including Bank of America Corp. and
Citigroup Inc., have stopped or curtailed private lending to students
since the beginning of the last school year. On Tuesday, Wachovia Corp.
joined their ranks. Ferris Morrison, a Wachovia spokeswoman, said the
bank decided to stop making private loans to undergraduates after
"evaluating our organization in the current environment." Lenders have
cut back on making such loans as investors have shunned the securities
they rely upon to raise lending capital.
[chart]
The nonprofit Massachusetts Educational Financing Authority, or MEFA,
said late last month that it couldn't raise the capital for private
loans, forcing some 32,000 would-be borrowers to scramble to find funds
elsewhere. Earlier this year, the Michigan Higher Education Student Loan
Authority, another nonprofit lender, stopped making certain private loans.
Some of the hardest-hit students are at for-profit schools that offer
training in everything from nursing to computer programming. These
schools often cater to low-income students who tend to have lower credit
scores and higher loan-default rates.
After multiple rejections from lenders, Katrina Cardin, a single mother
of two from Mount Horeb, Wisc., recently landed a $3,000 loan to pay off
her overdue nursing-school bills from the summer term. But she's still
not sure how she will pay for fall classes at Southwest Wisconsin
Technical College, in Fennimore, Wisc. "I was approved for a loan with
no problem last year," she says.
Most colleges say it's still too early to say how many students could
fail to come up with the money to cover their costs. Bills for the first
semester are typically due this month. Because the government shored up
the federal student-loan program in May, which accounts for about four
out of five student loans, educators don't believe the problems on the
private lending side will lead to a collapse of the broader market. But
for many students, the private-sector turmoil could lead to delays,
disruptions and fewer choices on where to attend.
Tighter Standards
Students are being hit on another front: Many banks that are still
making private loans are tightening their standards. Among other
factors, lenders consider a loan applicant's so-called FICO score, a
measure of creditworthiness used to rate consumers on a 300-to-850 point
scale. Some student borrowers say that, in recent years, they have
qualified for private loans with FICO scores in the 600-point range.
This year, some lenders have raised that threshold by as much as 100
points, according to financial-aid administrators and industry analysts.
The hike is especially troubling for younger college students who
haven't had a chance to build up a good credit score.
This could leave as many as 200,000 students ineligible for private
loans this fall, says Mark Kantrowitz, publisher of Finaid.org, a Web
site devoted to financial aid. Mr. Kantrowitz came to this estimate by
using publicly available information to track securities backed by
student loans. He then counted the number of those borrowers with credit
scores that don't meet the tougher standards. With only a few weeks
before classes begin, "students are definitely having more trouble
finding the lenders," says Mr. Kantrowitz, who has testified before
Congress on aid issues.
Education for All
Easier access to student loans has helped advance the American dream of
college education for all. More than two-thirds of high-school graduates
went right to college in 2006, up from fewer than half in 1980,
according to the Department of Education's latest tally. Another recent
federal report indicated that 44% of all adults were taking classes of
some kind, up from 33% in 1991. But that trend, like the notion that
everyone should own their own home, is under pressure now.
With policymakers and corporate leaders saying post-secondary education
is pivotal to maintaining a competitive work force, the lending squeeze
could spawn election-year pressure for the government to intervene in
the same way it has with the troubled housing market.
Credit rater Standard & Poor's last month warned that problems with
private student loans could be widespread this year, causing some
students to drop out of college. Its report added that if the economic
downturn leads more students and families to default on their loans, the
availability of such funds may dwindle further. "We think it could
affect not just poor-credit-risk borrowers but the middle class and the
upper middle class," says credit analyst Mary Peloquin-Dodd, a co-author
of the report.
Keiser University, based in Fort Lauderdale, Fla., with 13,000 students
on 13 campuses, says only about 25% of its applicants are getting
approved for private loans these days, down from about 80% a year ago.
"And from what I can see, it's going to get worse, not better," says
founder Arthur Keiser, whose school has begun making loans on its own.
More than 50 students a year used to be approved for private loans at
the International Academy, a cosmetology school in Daytona Beach, Fla.
So far this year, administrators say there have only been three, and the
recipients face interest rates as high as 23%, more than double the
typical rates of a year ago. As a result, the school, which charges
$15,600 in tuition for its cosmetology program, says it expects some
won't be able to enroll.
Those turned down for loans include Patricia Bannister, a 22-year-old
who hoped to become a hairdresser and use the income to eventually
pursue a teaching degree. School officials say Ms. Bannister fits the
credit profile of loan applicants who have been approved in the past,
but this year she was rejected by three lenders with little explanation.
"People are constantly telling you to go to school and, all of a sudden,
when you try to get in you can't get anywhere," says Ms. Bannister, who
now works as a program director at a karate school and has put off plans
to go to school.
A Financial Lifeline
Critics of private education lending, including student-advocacy groups,
say these loans typically have higher interest rates and fewer consumer
protections than government loans, and that many borrowers would be
better off seeking a cheaper education than resorting to them.
Even so, they have become a financial lifeline for many students.
Antonio Flores, president of the Hispanic Association of Colleges and
Universities, an industry group that represents schools serving Hispanic
students, says that if access to private loans is cut off, schools and
families would expect Washington to "do something to insure that private
lenders are stimulated to do what is right and provide loans to the
students who need them."
Students and their families often turn to private loans when they have
borrowed as much as they can under lower-cost federal programs.
Theoretically, after a student has used up the federal maximum --
usually $7,500 a year for students at the undergraduate level -- parents
can borrow all that their child needs to pay for college via a federal
"Plus" loan, but the parents must be deemed creditworthy. Needy students
with parents unwilling or unqualified to borrow have few alternatives
other than private lenders.
Getting By
Amorelle Henry, 25, has two semesters left to go of nursing school at
the University of Northern Colorado in Greeley, Colo. She borrowed about
$15,000 in private loans from various lenders in each of the past two
years to supplement federal grants and loans and cover her living
expenses. This year, her lenders rejected her loan applications, citing
her FICO score, which, at 626, is unchanged from last year, she says.
She says that her parents are dealing with financial setbacks of their
own and haven't qualified for federal Plus loans in the past.
Ms. Henry says she will try to get through the fall semester by working
24 hours a week as a nurse's assistant while also dealing with a full
load of classes and clinical assignments. But she worries she won't be
able to maintain her B average and handle the job during the spring
semester, when she is required to complete an unpaid, 40-hour-a-week
internship. "I'm scared half to death," Ms. Henry says.
In May, the securities markets that lenders use to raise capital for
students loans -- both federal and private -- seized up. The Bush
administration announced a plan to avert problems with the federally
guaranteed loans made by private-sector lenders. Using authority granted
earlier this year by Congress, the government plans to buy and invest in
such loans, freeing up capital so lenders can make new ones. But that
didn't provide any new money for private lending.
Some industry observers say that families may be able to cobble together
the funds to pay for the fall, but then run into trouble later in the
year. Their concern is that lenders may grow even more selective, and
some parents could face job losses and see a decline in the home-equity
lines that many have tapped for college costs. "The second semester
could really be a problem," says Maureen Budetti, director of
student-aid policy for the National Association of Independent Colleges
and Universities.
Write to Robert Tomsho at rob.tomsho@wsj.com1
URL for this article:
http://online.wsj.com/article/SB121841359412328449.html
Hyperlinks in this Article:
(1) mailto:rob.tomsho@wsj.com
Copyright 2008 Dow Jones & Company, Inc. All Rights Reserved
This copy is for your personal, non-commercial use only. Distribution
and use of this material are governed by our Subscriber Agreement and by
copyright law. For non-personal use or to order multiple copies, please
contact Dow Jones Reprints at 1-800-843-0008 or visit www.djreprints.com.
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WSJ: "We are on the cusp of a renewed deceleration in growth,"
The Wall Street Journal
August 11, 2008
Economists Expect
2008's Second Half
To Be Worse Than First
By KELLY EVANS
August 11, 2008; Page A2
The U.S. economy, facing a consumer-spending slowdown and a weakening
global economy, is poised for an unpleasant finish to 2008.
WSJ's Adam Najberg talks with reporter Kelly Evans about her outlook on
the U.S. economy.
The pattern of growth that is emerging this year -- a mediocre first
half followed by a weaker second half -- is the reverse of what most
forecasts showed at the beginning of the year.
"We now believe the economic weakness in the U.S. will likely worsen,"
Kenneth Chenault, chief executive of American Express Co., said last
month when it posted second-quarter earnings short of analyst estimates.
Economists have downgraded growth forecasts in recent weeks. "We are on
the cusp of a renewed deceleration in growth," Goldman Sachs economists
said, noting that a contraction in consumer spending is likely over the
second half of this year and that "the risk that foreign-demand weakness
will wash back onto U.S. shores is clearly growing."
Households are grappling with layoffs, stagnant wages, falling home
values and tighter credit. The U.S. government's economic-stimulus
program, which was intended to give households a boost in the middle of
the year, may not have done enough to stave off recession. The payments
coincided with a run-up in fuel prices, so a portion of the checks were
gobbled up at the gas pump. So far, most of the money appears to have
gone to savings and debt rather than to immediate spending in stores.
"The air is coming out of the balloon pretty quickly here," said Brian
Bethune, a senior economist with Global Insight, a Lexington, Mass.,
forecasting firm. "Consumers are just throwing in the towel."
ECONOMICS BLOG
[go to blog]1
• Real Time Economics: A Global Recession?2
Retail sales in July were weaker than expected at many chain stores,
suggesting the May and June sales boost from the stimulus checks is
quickly fading. Talbots Inc., Kohl's Corp. and Gap Inc. were among those
retailers reporting double-digit sales declines last month.
Discounters, including Wal-Mart Stores Inc. and Costco Wholesale Corp.,
fared better, but Wal-Mart U.S. President Eduardo Castro-Wright warned
that spending could slow: "With the end of the stimulus checks, we know
consumers are spending more cautiously," he said.
Consumer spending is poised to weaken just as foreign growth -- a vital
offset to sluggish domestic demand -- also shows signs of slowing.
Surging export growth, coupled with falling demand for imports, added
2.4 percentage points to second-quarter growth in U.S. gross domestic
product -- marking the largest contribution in nearly three decades.
Without that contribution, GDP would have slipped 0.5%.
Last month the "beige book" survey of regional economic conditions
compiled by the regional Federal Reserve banks found that producers
worried about weakening overseas demand. In the Chicago area,
export-oriented firms "noted a recent slowing in the pace of growth,
particularly in demand from Europe." Boston-area manufacturers indicated
that "foreign demand growth may be slowing," while in Dallas some
manufacturers specifically cited "weak demand in Western Europe."
And Norbert Ore, an executive at Georgia-Pacific Corp. who oversees the
Institute for Supply Management's monthly survey of U.S. manufacturing
activity, called declining exports "the biggest risk we face as an
industry."
European Central Bank President Jean-Claude Trichet, in holding
euro-zone interest rates steady at 4.25% last week, said that while he
remains focused on inflation, data point to weaker growth.
Japan, meanwhile, may already be in recession. Second-quarter GDP data,
set to be released Tuesday, are expected to show the world's
second-largest economy contracted.
J.P. Morgan's index of global manufacturing activity contracted in July
for the second straight month, turning in its worst performance in five
years as new orders fell to their lowest level since late 2001.
Production in Japan and the U.K. contracted at the sharpest rate since
the 1998 Asian financial crisis, while euro-zone production had its
fastest fall since early 2002. Spreading weakness means that the U.S.,
the euro zone, and Japan, which together make up nearly two-thirds of
global GDP, are flirting with recession. Fast-growing economies like
China, India and Brazil could follow.
Weak exports could lead to further deterioration in the U.S. labor
market as companies lose business, according to Joseph Lupton, a senior
economist at J.P. Morgan. "The bottom line is it's going to be a weak
second half."
Federal Reserve policy makers appear concerned about the second half. In
a statement following the Tuesday decision to hold its interest-rate
target at 2%, the Fed policy-setting committee omitted a reference from
its prior statement suggesting that the risks of weaker growth had
diminished. The Fed reiterated its view that "tight credit conditions,
the ongoing housing contraction, and elevated energy prices are likely
to weigh on economic growth over the next few quarters." Still, there
may be a silver lining: Slowing global demand is helping to bring down
the cost of oil and other commodities. Falling prices could offer relief
to consumers and ease some companies' cost pressures. That could also
ease inflation concerns at the Fed, giving it more leeway to bolster the
economy through lower interest rates.
Write to Kelly Evans at kelly.evans@wsj.com3
URL for this article:
http://online.wsj.com/article/SB121840429062728035.html
Hyperlinks in this Article:
(1)
http://blogs.wsj.com/economics/2008/08/10/the-second-half-outlook-a-global-recession-2/
(2)
http://blogs.wsj.com/economics/2008/08/10/the-second-half-outlook-a-global-recession-2/
(3) mailto:kelly.evans@wsj.com
Copyright 2008 Dow Jones & Company, Inc. All Rights Reserved
This copy is for your personal, non-commercial use only. Distribution
and use of this material are governed by our Subscriber Agreement and by
copyright law. For non-personal use or to order multiple copies, please
contact Dow Jones Reprints at 1-800-843-0008 or visit www.djreprints.com.
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WSJ: Mortgage-Market Trouble, Reaches Big Credit Unions
The Wall Street Journal
August 11, 2008
PAGE ONE
Mortgage-Market Trouble
Reaches Big Credit Unions
By MARK MAREMONT
August 11, 2008; Page A1
Five of the nation's largest credit unions are reporting big paper
losses on mortgage-related securities, a sign that housing-market
distress is spreading even to the most risk-averse financial sectors.
The federal regulator overseeing credit unions says the losses are
likely to be reversed when mortgage markets stabilize, and that the
institutions are sound and adequately capitalized. But some outside
observers are concerned that the credit unions are underestimating the
depth of their mortgage-market problems.
[Banking Alternative]
"This is a serious situation," says Gerald Hanweck, a finance professor
at George Mason University, who studies the banking industry and is a
visiting scholar at the Federal Deposit Insurance Corp. Mr. Hanweck
believes the five firms have sufficient access to funding to handle a
deeper downturn, but he worries that perceptions of added risk could
lead to a run on one or more of them.
Credit unions are not-for-profit, member-owned cooperatives that take
deposits and lend money like banks. The mortgage problems are focused on
so-called corporate credit unions, which are key players in the
industry. They don't deal directly with consumers, but provide
investment services and financing to regular credit unions, which do.
The five corporates showing big mortgage-related losses, according to
federal regulatory filings, are U.S. Central Federal Credit Union;
Western Corporate Federal Credit Union; Members United Corporate Federal
Credit Union; Southwest Corporate Federal Credit Union; and Constitution
Corporate Federal Credit Union. Together, they reported about $5.7
billion in "unrealized" losses as of the end of May, the filings
indicate. Unrealized losses happen when the market value of a security
falls, even if it hasn't been sold.
Credit unions in general are among the most conservatively run financial
institutions in the U.S. That some are showing strains indicates that
almost no financial sector is immune from the mortgage meltdown that has
caused widespread carnage among commercial banks and on Wall Street.
Financial-services firms have already taken write-downs of more than
$300 billion in connection with the mortgage mess.
"We're not much different from any financial institution," says Michael
Kinne, chief financial officer of Constitution Corporate in Wallingford,
Conn. "Nobody is insulated from this. It seems like every time you turn
around, somebody else is taking a billion-dollar write-down."
Kent Buckham, director of the office of corporate credit unions for the
National Credit Union Administration, the federal regulator, says the
mortgage investments held by corporate credit unions are safer than many
that are causing havoc on Wall Street, and are very likely to rebound in
value. In his view, the paper losses reported by the corporate credit
unions reflect unrealistically low market values for mortgage
investments, in part due to investor nervousness about the sector. He
says he doesn't expect the firms will have to sell those assets at
"fire-sale prices."
There have been predictions for months that the mortgage-market turmoil
was coming to an end, and that mortgage-related assets would bounce back
in value. So far, that hasn't happened.
Negative Equity
The paper losses of the five big corporate credit unions are large
enough to wipe out the net worth of each of them. Added together, their
negative equity totals $2.9 billion -- meaning, in theory, that their
debts exceed the current market value of their assets by that amount.
That would be a troubling situation for a commercial bank. But credit
unions say their balance sheets are a lot stronger than they appear
because current accounting rules don't allow them to show a key source
of capital -- certain funds parked with the corporates by regular credit
unions.
[Mortgage Woes]
To address what it says is a misleading financial picture, the federal
regulator, the NCUA, plans this month to revise an accounting rule to
allow corporate credit unions to more clearly highlight in their federal
filings these funds, called membership capital.
The corporate credit unions showing the biggest losses, U.S. Central and
Western Corporate, reacted to the mortgage-market turmoil with an
unusual accounting change. They reclassified some assets in a way that
allows them to avoid recording any more unrealized losses. Executives at
those firms say the shift, which was reviewed by regulators, frees them
from reporting losses on investments they have no plans to sell.
Critics say the move is accounting window dressing that covers up real
problems. "What all of a sudden changed?" says Lynn Turner, a former
chief accountant at the Securities and Exchange Commission. "The only
reason to do it is to avoid reporting further losses in the financial
statements."
Little Impact
So far, the troubles of the corporate credit unions appear to be having
little impact on regular credit unions. Executives at several of the
regular firms say they are closely monitoring the financial condition of
the corporates, but that they remain confident and haven't reduced their
funds on deposit with the corporates.
There were about 8,400 credit unions holding more than $775 billion in
assets at the end of last year, according to an industry trade group.
Many serve employees of a specific company, members of occupational or
other groups, or a geographical area. Some have expanded greatly in
recent years, adding branches and competing more directly with
commercial banks.
Corporate credit unions were founded to serve regular credit unions,
many of which are too small to engage directly in sophisticated
investing. Regular credit unions park a portion of their funds with one
or more of the corporates, which in turn invest the money. In total, the
28 corporates, which are owned by their member credit unions, have about
$90 billion in assets. (U.S. Central serves as a credit union for
corporates, providing them with similar investment services.)
By regulation, the corporates are supposed to invest only in safe
securities that are highly liquid, meaning easy to sell. In recent
years, some have made investments backed by subprime and so-called Alt-A
loans extended to buyers with poor or spotty credit. Despite the risky
underlying loans, Wall Street had concocted ways to package the loans so
that slices of the investments appeared ultrasafe. Most bought by the
credit unions initially carried top credit ratings of AAA.
The big credit unions, like other investors, generally were caught
unprepared for the meltdown in mortgage markets that began in mid-2007.
Buyers became scarce, and even some high-rated investments dropped
sharply in value.
The result: Some corporate credit unions have been forced to record
large unrealized losses on their assets, even though they continue to
own the securities. For example, Southwest Corporate reported $672
million in such losses as of the end of May. The Plano, Texas-based
company, with $12.2 billion in total assets, says the problems are
centered on about $2.5 billion in securities backed by subprime or Alt-A
mortgages and home-equity loans.
Bruce Fox, Southwest Corporate's chief investment officer, says the
securities it holds generally are safer than the ones causing massive
losses on Wall Street. "These are very high-quality assets, and all of
them are paying principal or interest at the moment," he says. As of the
end of May, 94% of its mortgage-related securities were still rated AAA.
Instead of selling at what it views as distressed prices, Southwest
plans to hold the investments until they recover or until maturity, he says.
Crucial Contention
The contention that the mortgage losses are temporary is a crucial one
for the corporate credit unions. Under accounting and regulatory rules,
temporary losses don't eat into earnings or capital, while permanent
losses do. (Financial institutions are required to have adequate
capital, usually expressed as a percentage of assets.)
In the case of Southwest Corporate, if it counted as permanent $100
million of its $672 million in "unrealized" losses as of the end of May,
it would have fallen below the minimum capital threshold set by the
NCUA. Unlike banks, credit unions can't easily raise new capital, which
they generally get from accumulating earnings over the years.
Mr. Fox says there's "a very low probability" of any significant
permanent write-offs. Southwest's capital, he adds, continues to grow
with strong earnings.
Todd Adams, chief financial officer of Members United -- another of the
five firms -- also says that any unrealized losses are likely to be
temporary. But "if market conditions continue to deteriorate," he says,
"some of [the investments] could see real cash losses." He adds that "it
would take a lot to do that, but there's a lot of bad news in the market
right now."
Reclassified Assets
Starting early this year, the two biggest corporates, Western Corporate
and U.S. Central, reclassified a large portion of the mortgage-related
assets on their balance sheets from "available for sale" to "held to
maturity." The NCUA says no corporate credit union had ever done that.
Under accounting rules, if a firm says it plans to hold an asset until
it matures, it doesn't need to record any temporary swings in the
asset's market value. The move allowed the two firms to avoid taking
further unrealized losses on those holdings, although they would have to
write off any permanent or realized losses.
At the end of May, Western Corporate had moved $9.6 billion to the new
category -- about one-third of its total investments -- including all
its Alt-A mortgage-related assets. Chief Financial Officer Jim Hayes
says the shift "wasn't a matter of jury-rigging the accounting." He says
the securities chosen were ones for which the firm had difficulty
getting accurate pricing. "We never felt like we had to do it before,
because we didn't feel like we had the pricing dislocations before." He
adds that Western intends to hold the securities to maturity, which the
new category more accurately reflects. He says the company consulted
with its outside auditors and the NCUA before making the change.
U.S. Central, which shifted a big batch of assets to the new category in
June, had $10.9 billion of its $35.3 billion of investments in that
grouping at the end of that month, compared with none at year-end 2007.
Chief Financial Officer Kathryn Brick says the decision stemmed partly
from "the negative perception of these unrealized losses, which are
paper losses....We just wanted to cap the unrealized losses." A bigger
factor, she says, is that U.S. Central arranged new sources of
financing, including credit lines with federal agencies, so no longer
needed to consider all of its holdings as available for sale. Ms. Brick
says the shift is allowed under accounting rules.
Other corporate credit unions haven't followed suit. Mr. Adams, the
finance chief at Members United, says the traditional accounting better
shows his firm's members where the problems are in its portfolio. "We
had selected available-for-sale before, and we should stay consistent,
even though we're going through an historic situation in the market," he
says.
The accounting shift has a potential downside for the two big credit
unions. If the market value of the reclassified investments starts to
climb, they won't be able to show that increase on their balance sheets.
As with banks, credit unions are federally insured up to $100,000 per
account and $250,000 per retirement account. So far this year, nine
regular credit unions have failed, including at least two due to
mortgage-related problems. Seven failed in 2007.
In theory, the failure of a corporate credit union could lead to losses
for any regular credit union that has deposited money with the
corporate, and ripple down to individual depositors. The last time a
corporate credit union failed was in 1995. Ultimately, the regular
credit unions that were involved recovered their money.
The NCUA's Mr. Buckham says the possibility that a corporate credit
union might fail now is "so remote" that "I can't even imagine that
happening."
Write to Mark Maremont at mark.maremont@wsj.com1
URL for this article:
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