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DOW 10,213.62 DOWN 57.59, 0.6%
NASDAQ 2179.76 UP 0.81, 0.04%
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KLMNO ECONOMY BUSINESS &
S&P 500 1071.69 DOWN 3.94, 0.4%
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CRUDE OIL $73.46 DOWN $0.97, 1.3%
U.S. toes fine line on affordable housing
FEDERAL VS. PRIVATE ROLE
Officials wrestle with finding right balance
by Zachary A. Goldfarb The Obama administration is
grappling over how much to force private lenders to pay for apart- ments and homes for the poor as it presses ahead with a major overhaul of the government’s housing policy, officials said. The question is among the thorniest facing the administra- tion as it tries to build consensus around a new system that would ensure ordinary Americans have the financing they need for their homes without the government backing nearly every mortgage, as it is doing today. Most administration officials agree that the government should continue to have a major role in the housing market. But how much federal assistance should be extended to make sure financ- ing is available to low- and mid- dle-income families has stirred debate within the administration. Agreement has yet to form over whether the government should take on this task or whether the private sector should bear some of this responsibility. A decision, whenever it comes, could have severe consequences. Some say government pressure on mortgage giants Fannie Mae and Freddie Mac to spend a por- tion of their profits on affordable housing pushed the companies to finance risky loans, adding to the troubles that nearly led to the firms’ collapse. The companies’ federal regulators, which relaxed the firms’ affordable-housing re- quirements after seizing them,
Rocky road
Te Standard & Poor’s 500-stock index has slid sharply over the past two weeks, as weaker-than-expected economic data and bad news from major companies have unsettled investors.
Intraday performance of the S&P 500-stock index since Aug. 6
1000 1025 1050 1075 1100 1125 1150
Performance of the S&P 500’s 10 component sectors over past two weeks
Open: 1122.07
Close: 1071.69
Consumer discretionary Consumer staples Energy Financials Health
Industrials
Information technology Materials Telecommunications services Utilities
8/6 8/9 8/10 8/11 8/12 8/13 8/16 8/17 8/18 8/19 8/20
–3.6% –1.5% –6.1% –6.6% –3.5% –5.8% –5.0% –3.3% –0.6% –2.0%
MARK WILSON/GETTY IMAGES
Rep. Barney Frank (D-Mass.) said private firms should not have to meet specific affordable-housing goals while also making a profit.
are among those who hold that view.
But without government in-
tervention, it may not be profit- able for lenders to make loans to low-income families, and so those people may be unable to get fi- nancing.
One option under consider-
ation is simply to require mort- gage lenders to provide a portion of their loans to affordable hous- ing, essentially putting the bur- den on the private sector. Another idea being discussed is to put the onus on government agencies such as the Federal Housing Ad- ministration, which makes loans to borrowers who cannot afford to make a standard down pay- ment. A third choice would be a hy- brid of private and public partici- pation. For instance, the govern- ment could make private firms pay a fee into a federally adminis- tered fund that would subsidize affordable housing. A senior Housing and Urban
Development Department official said that officials are looking at all of their options. “Consider- ation about affordability and ac- cess are going to be really impor- tant,” the official said. The official, like other sources interviewed for
this story, spoke on the condition of anonymity because the plans are still under discussion. Senior HUD officials lean toward requiring that private firms pay part of their profits to low-income housing. Treasury of- ficials who are also leading the housing-policy discussions have said affordable housing must re- main part of government policy, but they have not specified where the money should come from. “They don’t know the exact de- sign of the mechanism they’re go- ing to endorse,” said Sarah Rosen Wartell, a former HUD official who is contact with administra- tion officials. Rep. Barney Frank (D-Mass.), chairman of the House Financial Services Committee, said the gov- ernment must continue to sup- port affordable housing by ensur- ing that underserved communi- ties get loans and that financing is available to create affordable rental housing. But he added that private firms should not have to meet specific affordable-housing goals while also making a profit. “I do not want the private-
sector entities . . . to have a dual mission,” he said. “A better way is to make some part of the profit and make it for an entity to sub-
sidize housing.” Some banking executives said
they already accept that the in- dustry will have to pay money toward affordable housing. But they said they prefer to pay a fee rather than become embroiled in decisions about affordable hous- ing itself. Fannie and Freddie faced the
contradictory mission of generat- ing profits while financing loans that caused them losses, said Mike Heid, co-president of Wells Fargo Home Mortgage. A safer and more predictable business for lenders would be to “have a fee for affordable-housing initia- tives. . . . You can model that cost in and you can structure the busi- ness model,” he said. The Obama administration is required under the Dodd-Frank financial regulatory legislation to make a proposal to overhaul housing finance by January. Frank will continue to hold hear- ings on the subject in coming months but said he does not plan to offer legislation on his own. While administration officials
have promised fundamental re- form, they have said they will maintain a big role for the gov- ernment to backstop private lending. “It’s important to be careful not to throw out the baby with the bathwater,” the HUD of- ficial said. A Treasury Department official added that one of the big chal- lenges will be transitioning to any new system. Fannie, Freddie and the Federal Housing Administra- tion now stand behind nine out of 10 new home loans. The Treasury is trying to figure out how to get more private capital into the mar- ket so it can move to a system where taxpayer money is not as much on the line. The official said the adminis-
tration is wary of causing dis- ruptions while the economy and housing market remain fragile.
goldfarbz@washpost.com
10-YEAR TREASURY DOWN $3.10 PER $1,000, 2.61% YIELD
CURRENCIES $1 = 85.60 YEN; EURO = $1.271 DIGEST HOUSING Nearly half drop out of mortgage aid program
Nearly half of the homeowners who enrolled in the Obama ad- ministration’s flagship mortgage- relief program have fallen out. A new report issued Friday by
the Treasury Department said that about 630,000 people who had tried to get their monthly mortgage payments lowered through the effort have been cut loose through July. That’s about 48 percent of the 1.3 million homeowners who had enrolled
BANKRUPTCY
since March 2009, up from more than 40 percent through June. The report suggests foreclo- sures could rise in the second half of the year and weaken the ailing housing market, analysts say. An additional 421,804, or
32.3 percent of those who started the program, have received per- manent loan modifications and are making payments on time. — Associated Press
SATURDAY, AUGUST 21, 2010
TIM BOYLE/BLOOMBERG NEWS Tribune says negotiations have failed
The Tribune Co.’s plan to emerge from bankruptcy has unraveled in the wake of an independent report concluding that talks leading up to the company’s 2007 leveraged buyout bordered on fraud, attorneys said Friday.
ALSO IN BUSINESS ShoreBank seized: Regula- tors closed a big community bank based in Chicago that has been known for its social activism but racked by financial troubles in re- cent months. It was one of eight financial institutions seized on Friday, bringing the total of failed U.S. banks to 118 this year. The Federal Deposit Insurance Corp. took over ShoreBank, with $2.16 billion in assets and $1.54 billion in deposits. Urban Partnership Bank, a new institu- tion comprised of several Wall Street firms and a private founda- tion, agreed to assume Shore- Bank’s deposits and nearly all its assets. The bank had been under FDIC orders for more than a year to boost its capital reserves. Shore- Bank raised more than $146 mil- lion in capital this spring but failed to secure funds from the Troubled Assets Relief Program. Also Friday, the FDIC seized Community National Bank at Bartow, in Bartow, Fla.; Inde-
pendent National Bank of Ocala, Fla.; Imperial Savings and Loan Association of Martinsville, Va.; Pacific State Bank of Stockton, Calif.; Butte Community Bank of Chico, Calif.; Los Padres Bank of Solan, Calif.; and Sonoma Valley Bank of Sonoma, Calif. The FDIC estimates that Fri-
day’s failures will cost the federal deposit insurance fund $473.5million. Ex-CEO wants lawsuit tossed: Former Bank of America chief ex- ecutive Kenneth D. Lewis asked a judge to throw out the New York attorney general’s lawsuit accus- ing him of fraud when he led the bank’s purchase of Merrill Lynch. The allegations by Attorney
General Andrew M. Cuomo are “implausible,” Lewis’s attorneys said in documents filed Wednes- day. The Merrill Lynch acquisi- tion, they said in the answer to Cuomo’s complaint, has been proven to be of “major financial benefit to shareholders.” — From news services
Faster Forward ROB PEGORARO Open: 1116.89 Excerpt from
voices.washingtonpost.com/fasterforward Radio royalties fix: Require FM radios in phones? Close: 1089.47
Aug. 6: Hewlett-Packard announces the sudden resignation of its chief executive, Mark Hurd, over allegations of misconduct.
Aug. 10: Citing concerns about the recovery, the Federal Reserve says it will resume debt purchases to keep interest rates low.
SOURCE: Bloomberg News, photos by Reuters, Bloomberg and Getty Images
Aug. 11: U.S. releases data showing wider-than-expected trade deficit. S&P 500 drops 2.8 percent.
Aug. 19: Weekly claims for jobless benefits top 500,000 for first time since November 2009. S&P drops 1.7 percent.
THE WASHINGTON POST Stocks slip for second straight week
S&P, Dow close at lowest levels in a month
By Rita Nazareth
U.S. stocks slumped Friday, sending Wall Street to its second straight weekly decline and high- lighting investors’ concerns that the economic recovery could be faltering. The Dow Jones industrial aver-
age slipped 57.59 points, or 0.6 percent, to 10,213.62, while the broader Standard & Poor’s 500- stock index dropped 3.94, 0r 0.4 percent, to 1071.69. Friday’s loss- es left the major indexes closed at their lowest levels in a month. “There’s a lack of confidence,” said Stephen Wood, chief market strategist for Russell Invest- ments. “It’s a tug-of-war between good corporate balance sheets
and a soft patch for the economy. The market is looking for growth. Economic reports have been disappointing. It’s going to be an extremely volatile path.” The S&P 500 has fallen 12 per- cent from this year’s high in April as signs that the economic re- bound is stalling have overshad- owed better-than-expected earn- ings growth. U.S. stocks tumbled Thursday as initial jobless claims increased to the highest level since November and an index of Philadelphia area manufactur- ing unexpectedly fell. Declines in two major technol-
ogy firms weighed on the mar- kets Friday.
Research in Motion shares slumped 3.5 percent, to $48.72, as the BlackBerry maker was cut to “underweight” from “over- weight” at Morgan Stanley, which cited mounting evidence that the company could lose mar- ket share faster than expected because of competition from Ap-
ple’s iPhone and Google’s An- droid smartphone software. Shares of Hewlett-Packard dropped 2.2 percent, to $39.85. The computer maker late Thurs- day reported quarterly results that were slightly ahead of ana- lysts’ forecasts, but investors re- main concerned about the com- pany’s direction after the ouster of chief executive Mark Hurd two weeks ago. Morgan Stanley also lowered its estimate for HP’s stock price to $56 from $62. Energy producers fell 1.2 per- cent, collectively, the second-big- gest decline among the S&P 500’s 10 industry sectors. Raw materi- als producers dropped 0.4 per- cent. Schlumberger, the world’s largest oilfield-services contrac- tor, declined 2.4 percent, to $56.46. The dollar climbed to its high-
est level against the euro since July 13 after European Central Bank council member Axel We- ber told Bloomberg Television
that the ECB should keep stimu- lus measures in place through the end of the year. As the dollar rose — reducing the appeal of commodities as an alternative investment — copper, gold and oil fell. Freeport-McMo- Ran, the world’s largest publicly traded copper producer, dropped 1 percent, to $71.37. Friday’s expiration of August options on U.S. stocks and equity indexes might have added to heightened price swings as trad- ers sell this month’s options to buy contracts with longer matu- rities, according to Michael Nas- to, trader at U.S. Global Inves- tors. Option dealers must buy and sell stocks to hedge their holdings. “The expiration just adds up to an uncertain environment,” Nas- to said. “Economic numbers have disappointed this week. Every- thing from employment to man- ufacturing was bad.” —Bloomberg News
A tech-policy problem that’s been festering for the past decade may be nearing a solution — but, in keeping with the sad history of this issue, the proposed fix has far more to do with lobbying than with logic. The issue should be familiar to Web-radio fans: the disproportionate royalties that those sites pay to the musicians whose work they stream over the Internet. A flawed process resulted in punitively high rates that would have put many webcasters out of business, and even the more reasonable rates negotiated last year are infinitely higher than those paid by AM and FM stations. That’s because in the United States — unlike in most other countries — radio stations don’t pay “performance royalties” to musicians at all. Instead, they pay “mechanical royalties” to songwriters, the same ones that webcasters and other non-radio broadcasters pay on top of performance royalties. Legislation requiring radio stations to pay performance royalties has slowly been gathering steam in Congress, and now broadcasters appear open to compromise. For the most part, a proposal by the National Association of Broadcasters seems reasonable. Stations would pay up to 1 percent of their annual revenue, and would pay less to simulcast their content online. Stations would also be able to air the same commercials online and over the air. But there’s one weird wrinkle: The government would also have to require mobile-phone manufacturers to include FM tuners in every phone. NAB spokesman Dennis Wharton said: “From a public safety perspective, it is critically important to have broadcast radio’s unparalleled lifeline service available instantaneously in times of emergency. For that reason, NAB would oppose any legislation related to royalties that did not include that feature.” Somehow, the broadcasters did not think to make such a request earlier, even though an entire generation of Americans has grown up thinking “phone” means “mobile phone.” Over at the MusicFirst Coalition, a lobbying group that advocates
radio performance royalties, spokesman Marty Machowsky wrote that “inclusion and activation of FM chips in cell phones and PDAs would give consumers more choice and more ways to listen to and enjoy music.” Which is a fair point, except it’s not the government’s job to make manufacturers provide those things. But electronics manufacturers are predictably unamused by the idea — the Consumer Electronics Association denounced this proposal in a press release. But in a separate statement, CEA President Gary Shapiro allowed for a compromise: Some of this performance royalty would get kicked back to phone manufacturers to compensate for their added costs.
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