Month: November 2013
Governments and central banks have more than one lsquo;monetary policy lever available to tame a property boom and our neighbours have demonstrated that they are not afraid to use them. With neighbouring New Zealand recently imposing loan to value (LTV) restrictions on housing loans will Australia follow?
New Zealand now joins Singapore in imposing LTV restrictions and from October New Zealand banks will be required to limit new residential mortgage lending from at LTV ratios of over 80 per cent to a maximum of 10 per cent of the value of their new lending.
Since January this year LTV limits in Singapore have been 50% for individuals with one outstanding housing loan and 40% for those with two or more outstanding loans. Where the loan tenure exceeds 30 years or extends beyond the borrower turning 65, a 20% LTV limit applies. Loopholes have been further tightened recently.
Singapore has now extended controls beyond LTV restrictions to add debt servicing ratios. The Monetary Authority of Singapore requires loan providers to take borrowers other outstanding debts into account before granting property loans. Under this framework, total monthly property loan repayments should not exceed 60% of a buyers income. Repayments which work out at more than this amount will be considered imprudent by the MAS.
And our other neighbours? Korea introduced LTV controls in 2002 and has changed the level and assets classes from time to time. In 2002 they mandated a 60% LTV and in 2009 added taxation on multiple residential properties to cool the market.
True to form, Hong Kong was an early mover and has used this tool since the early 1990s. Currently in Hong Kong the maximum LTV ratio for properties with a value of at least HK$12 million is 50% and for properties with a value between HK$ 8 million and HK$ 12 million is 60%. The maximum LTV ratio is 70% for residential properties valued at under HK$ 8 million.
In China since 2010, the LTV limit is 80% in general – 70% for first home-buyer and 40% for second home-buyers. There is no lending for third home-buyers and from time to time lending can be stopped entirely!
The use of LTV restrictions is not just limited to our region, although until New Zealands recent change Canada and Denmark were the only advanced Western nations to apply them.
The empirical literature seems to support the effectiveness of LTV ratios in taming housing booms.
Some countries have also used direct monetary policy instruments to constrain credit supply during booms, such as limits on the level or growth rate of aggregate credit or specific exposures, and reserve requirements, as well as fiscal policy tools, such as stamp duties on property holding, to tame speculation in real estate markets.
Using taxation and duties in Australia to tame booms would seem difficult in the extreme given the Federal /State tensions around the raising and spending of tax revenue.
Our regulators (APRA and the Reserve Bank) have never favored dampening markets by regulating LTV or debt servicing restrictions. APRA much prefers the tools of active supervision, risk weighting and capital allocation and then leaving the banks to make the decisions. They also favour Basel III counter cyclical capital buffers – even if this inherently allows borrowers to fail while protecting lending institutions.
Luci Ellis, Head of the Financial Stability Department at the Reserve Bank recently gave a very strong view against LTV restrictions. She makes an important point that the GFC was caused not by bad home lending (in the USA) but more by the nature of the securities and financial products that fed off these loans (and how they were funded).
LTV restrictions have worked well in Singapore, Hong Kong and South Korea, assisted perhaps because these are effectively constrained single markets. Australia where the residential market in one state or city can be markedly different from another is quite a different case altogether. With Australian regulators strong preference to avoid LTV and the recent change of Commonwealth government it is unlikely we will see such macro prudential tools here anytime soon.
New Zealand is another matter. Now that our Kiwi cousins have lost out to the United States Americas Cup team, the New Zealand Reserve Bankss decision to cool (at least the Auckland) residential market may seem a little hasty!
(This article was first published in The Weekend Australian on 24 November 2013)
The loans, said GE Capital, consisted of commercial property loans. Majority of the loans, GE Capital added, were up for renegotiation. 90% of the loans are located in Britain and had been backed against prime retail estate in central London like shops, offices and hotels, said a GE Capital Real Estate spokeswoman. The other 10% were backed against properties located in France and Germany.
Chief executive of GE Capital Real Estate Mark Begor said, This transaction supports GEs plans to grow our core commercial real estate lending business globally.
The Real estate division is one among the many divisions in GE Capital. The other divisions in GE Capital are GE Money, GE Capital Aviation Services, GE Commercial Distribution Finance and GE Energy Financial Services.
GE Capital also provides lending, leasing and other financial solutions in healthcare, communications, media, aviation consumers and entertainment. It has over 60,000 employees worldwide and operates in over 55 countries with assets totaling USD551 billion.
GEs financial arm reportedly underwrites its leases and loans to its own balance sheet, as opposed to generate fees normally by originating the debt and sell them to third-party entities.
According to the companys factsheet, GE capital provides services to small and medium-sized companies or SMEs. 70% of the loans GE Capital provided are under USD100 million.
* Home loan arrears 12.9 pct in third quarter from 12.7 pct
* Early arrears of less than three months fall 6 pct
* Employment, housing data show problems easing
By Padraic Halpin
DUBLIN, Nov 28 (Reuters) – The number of Irish mortgages in
arrears for over 90 days rose at a slower pace in the third
quarter and fewer borrowers fell into early stage arrears in a
tentative sign that the home loan crisis may be stabilising.
Households bad debts are a major impediment to Irelands
hopes of economic recovery as it comes out of an international
bailout next month, deterring spending and raising questions
over whether banks will need more capital.
It was Irelands spectacular property boom, financed eagerly
by banks, that drove Ireland to seek international help in late
At the end of this September, almost one in five home loans,
worth 25 billion euros ($34 billion), were still not being fully
repaid with 12.9 percent in arrears for more than 90 days, up a
touch from 12.7 percent at end-June and 12.3 percent in the
But the number of residential accounts in early arrears of
less than three months declined by 6 percent, the central bank
said, meaning the total number of home loans in arrears fell to
141,520 from 142,892 three months earlier.
I dont think you can call (the figures) encouraging,
sheerly by the scale of the problem, but it can be now said that
the improving economy, particularly in the labour market, looks
to be putting a lid on the deterioration, said Dermot OLeary,
chief economist at Goodbody stockbrokers.
The problem now is the stock of distressed loans rather
than the flow of mortgages going into distress but obviously
there is a large stock that financial institutions will have to
work through and restructure.
Data earlier this week showed that unemployment fell at its
fastest pace in four years in the third quarter, to 12.8
percent, while separate figures showed annual house price growth
hit a six-year high of 6.1 percent in October.
However retail sales fell by 0.9 percent in October from a
year earlier, figures from the Central Statistics Office showed
on Thursday, suggesting consumers are still constrained.
Home loans in arrears of over 720 days now constitute 23 per
cent of all accounts in difficulty, the central bank data shows.
A further 11 billion euros of investment property loans are
also in distress with the proportion of buy-to-let mortgages in
arrears for more than 90 days now standing at 21.2 percent
compared to 20.4 percent at the end of June.
The central bank has increased pressure on lenders,
requiring banks to conclude sustainable agreements with 15
percent of customers in arrears over 90 days by the end of this
year, rising to 25 percent by next March. It said 23,776 new
restructurings were agreed during the quarter.
Allied Irish Banks also said recently that the pace
of new impairments in its mortgage book slowed in the third
quarter while Bank of Ireland said total arrears had
stabilised and the level of early arrears was declining.
BIRMINGHAM, Alabama — The
company that owns the George Washington Memorial Gardens cemetery — which closed
in September, causing
concern among those who have loved ones buried there or who have purchased plots
— filed for bankruptcy Tuesday.
According to court documents,George Washington Carver Memorial Gardens Inc. filed a
voluntary petition for Chapter 7 bankruptcy Tuesday in US Bankruptcy Court.
The filing came a day after company President Louie Reese III, as the companys
sole director and a shareholder, decided bankruptcy was in the best interested
of the company,according to a court document.
Garfield, an attorney with Spain and Gillon LLC, is representing the company
during the bankruptcy.
In a Chapter
7 bankruptcy, a trustee gathers the debtors nonexempt assets and sells them in
order to pay creditors.
in an email he was hopeful they had invoked a problem-solving forum with
regard to issues surrounding the cemeterys closing.
1,000 people attended
a public forum hosted by state Rep. Juandalynn Givan on Oct. 3 to voice
their concerns about the closing. Their worries included maintenance issues,
misplaced graves and the uncertainty of their pre-need insurance purchases —
plots bought and paid for by living people who now arent sure theyll be able
to use them.
meeting, Givan, state Rep. Rod Scott and state Sen. Priscilla Dunn urged people
to file formal complaints about the cemetery with the state Department of Insurance.
Tuesday that the cemeterys lawyers had alerted her last week that they would
file for bankruptcy. She said she and others are not letting up.
pressing on because there are several lawsuits regarding problems at the
cemetery, she said.
another forum is planned for next week.
Bitcoin, the virtual currency that exists as alphanumeric strings online, is on the verge of getting intopolitics.
The Federal Election Commission is expected to vote Thursday on a proposal to allow bitcoin contributions to political action committees — even as skeptics say that bitcoins could undermine the disclosure standards of federallaw.
The FEC is acting as other federal agencies are also exploring the uses, and dangers, of digital currency. At a Senate hearing on Monday, federal law enforcement officials cited Silk Road, an online illegal marketplace that used bitcoin before it was shutdown.
Edward Lowery III, chief of the Secret Service Criminal Investigative Division, told the panel: While digital currencies may provide potential benefits, they present real risks through their use by the criminal and terrorist organizations trying to conceal their illicitactivity.
Still, no one at the Senate hearing wanted to stifle virtual currency, and neither does the FEC. The commission was brought into the issue by the Conservative Action Fund, a political action committee that is seeking approval to accept bitcoins ascontributions.
Our interest here is we know this is happening, were getting requests to make this happen. We really want to understand: How do we do this right? said Dan Backer, the PACs lawyer, at an FEC meeting on Nov.14.
But the six commissioners werent sure about nongovernmental currency, as commission chairwoman Ellen Weintraub, a Democrat,acknowledged.
The field of people out there who are more knowledgeable about how bitcoins work than we are is probably vast, she said. So if any of those folks want to comment, we would welcomethat.
Some still-unresolved questions: If a PAC like the Conservative Action Fund can accept bitcoins, what can it do with them? Could it give bitcoin contributions to a candidate? Or would it have to convert them into UScurrency?
And a bigger question: What about transparency? PACs and candidates have to publicly identify their donors. There are contribution limits to comply with, and basically no money is permitted from foreignsources.
But bitcoins are like cash, with no record of who owns them — making illegal or shadow contributionseasier.
Republican commissioner Matthew Petersen read from a letter submitted by lawyers for the Bitcoin Foundation. The letter says the bitcoin system is transparent, as Petersen read: This transparency is one of the features of the Bitcoin network that makes it ideally suited for politicalcontributions.
This transparency is a digital record of where any particular bitcoin has been since its creation — but these public keys do not reveal any names associated with thesetransactions.
As another passage of the letter notes: Bitcoin transactions are private in the sense that there are no names attached to the public keys recorded in the blogchain.
In an interview Wednesday with NPR, Democratic FEC Commissioner Ann Ravel expressed deep reservations about the PACs request. She said the commission wants to encourage new technology, but the important aspect for me is whether or not we can know who the donorsare.
Its true that the commission has set disclosure standards for other financial instruments, such as prepaid credit cards and cellphones. Backer, Conservative Action Funds lawyer, said that indicates a disclosure method can found forbitcoins.
On the other hand, says political scientist Ray La Raja, theres a kind of paradoxhere.
La Raja, who studies campaign finance at the University of Massachusetts, Amherst, says bitcoin could easily take disclosure in exactly the opposite direction — and it would be a good thing if donors were anonymous to both the public and thepoliticians.
It doesnt sound like [the FEC commissioners] are going to do this, but if they allow bitcoins to remain anonymous, he says, then politicians actually wouldnt know whos giving to them. And so at least in theory, that could cut off this corruptexchange.
Hes referring to the way political money works now, with big donors helping politicians, and then politicians helping big donors.
The following incident reports were on file Thursday with the Murfreesboro Police Department:
Bullet casing said found at city school
A bullet casing was found on a Murfreesboro City Schools bus, according to an incident report filed by Murfreesboro Police Officer William Drye.
Cason Lane Academy Principal Lee Wilkerson brought a spent ?simunition? round to Drye Wednesday morning when the DARE officer arrived on campus.
?Mr. Wilkerson revealed the item had been found on (a bus) that morning,? Drye reported. He added it was found by a first-grade student and was taken by ?a sixth-grade relative? who turned it over to the principal.
Drye said the casing, which comes from a non-lethal bullet used in military and police training, was not deadly.
This discovery comes a day after a bullet from a .357 caliber Winchester was found on a Murfreesboro City School bus. The police were unable to determine where the bullet came from after searching student backpacks and the bus, and none of the students seemed to have knowledge of where it might have come from, MCS spokeswoman Lisa Trail told The Daily News Journal.
Local business caught up in scam
Just days after the Murfreesboro Electric Department warned of a scam targeting residential and business owners, the Parthenon Restaurant fell victim to the scammers.
Restaurant owner Angelo Laris told Murfreesboro police he received a phone call Tuesday claiming his power would be turned off for failure to pay in 35 minutes.
?He was instructed to get Green Dot Cards for approximately $2,800 and call them back with the numbers off the backs of the cards, once loaded,? Officer Tracey Womack wrote in an incident report.
Laris purchased the prepaid credit cards and called MED. He was informed by the electric department that he was the victim of a scam.
Other Murfreesboro businesses have fallen victim to the scammers in the past few weeks, officials said.
If unsure about any recent requests received, MED encourages acall customer service at 615-893-5514 and report the call to the Murfreesboro Police Department at 893-1311.
THIS weeks Free exchange column examines a fascinating and important new paper from economists at the Federal Reserve Board (including William English, head of the Feds monetary-affairs division). The Fed researchers survey central banks responses to the crisis and then focus their attention on forward guidance, and in particular on how to make it work effectively. There are some issues, you see:
The authors point out the main difficulty in using talk about the future to perk up growth. For forward guidance to have any impact on the economy, markets must believe that rates will stay close to zero even as growth and inflation pick up, thus making current borrowing and investment more attractive than they otherwise would be. That puts prudent central bankers in an awkward position: to get the economy moving they must persuade markets that they will tolerate higher inflation…
The problem is that central bankers have an incentive to renege on promises to allow higher inflation, rendering them less credible. Making the promise, if it is believed, should boost economic activity. But once the economy is chugging along, the temptation is to try to get the best of both worlds, by raising rates before prices go up. And if markets doubt that central banks will really embrace higher inflation, the paper argues, then expectations will not adjust and the real interest rate will not fall.
The authors then model several different approaches to forward guidance in order to see which produce the best results. Baseline, simple policy rules generally perform poorly. Inflation converges toward 2% painfully slowly and unemployment drops to 5.5% or so sometime around 2018. Committing to allow inflation to rise above 2% generates much better performance; the economy hits a 5.5% unemployment rate about two years earlier–assuming the commitment is credible. But, as the authors point out, it probably isnt.
The use of thresholds on unemployment and inflation (at which interest rate increases become more likely) allow the Fed to get closer to what it could manage if it could credibly commit to allowing higher inflation. Interestingly, the authors find that there would be a meaningful improvement at the pace of the drop in unemployment from lowering the Feds threshold for the unemployment rate (which is currently 6.5%) down to 5.5% (beyond that inflation peaks at a higher level without much improvement on the unemployment side).
They model a few other possibilities as well:
A more radical option would be to raise the Fed’s target for inflation from 2% to 3%. That would reduce unemployment faster than setting unemployment thresholds, the paper finds, although it would presumably stir up even more opposition among monetary hawks. The authors also assess a “nominal income” objective, which would target growth in GDP in dollar terms (sometimes called nominal GDP). This would yield the fastest and largest drop in unemployment of any of the policies tested. Inflation, meanwhile, would stay lower than it would under a 3% target for inflation itself.
There is a buzz surrounding this paper for a few reasons. The very fact that it has been put together reflects interest within the Fed in ways to improve policy, particularly on the forward guidance side. The researchers also use techniques similar to those deployed by Janet Yellen in policy simulations she presented in a 2012 speech–the conclusion of which was that economic performance would improve by leaving interest rates lower for longer, even after the economy perks up. Conventional wisdom is rapidly shifting to the view that the Fed will soon reduce its unemployment rate threshold to 6.0%; Jan Hatzius of Goldman Sachs reckons that is now the baseline case. But we may look back in several years and note that more significant eventual policy shifts were rooted in the analyses in this paper.
But what might those shifts entail? In the scenarios these economists present the American economy is still two years away from an unemployment rate of 6.0%, even when the unemployment threshold is reduced to 5.5%. And in those scenarios the federal funds rate scarcely rises at all until late 2015. The pace of improvement is far too slow.
The longest economic expansion in Americas history, according to NBER, clocked in at 120 months:10 years exactly. The postwar average is only 58 months, or just under 5 years. A 10-year expansion would put the American economy falling back into recession in 2019. In almost all of the scenarios considered in the paper, the federal funds rate isat most 4% in 2019. Ill put that in perspective. Americas super-mild 2001 recession? The federal funds rate peaked at 6.5% as that downturn approached, and the Fed still almost ran out of room before hitting the zero lower bound; the fed funds rate bottomed out at 1%.
The point Im making is that taking the most aggressive policy adjustments that seem to be under consideration and assuming a very long expansion the odds of falling back to the zero lower bound in the next recession are quite high. Even if the Fed were to augment its forward guidance by changing target, to a 3% inflation target or a nominal income target. And what would happen then?
Looking at this paper it suddenly becomes very, very clear how Japan found itself stuck at the zero lower bound.
But (in part thanks to Japan) it is also increasingly clear how an economy can launch itself off. Based on the lessons of the Depression scholars like Ben Bernanke and Lars Svensson have hit on the key ingredients to amonetary-policysolution. They are:
- Announce an inflation or price-level target that guarantees a period of above-normal inflation.
- Depreciate the currency.
- Support the depreciation, to the extent necessary, through direct intervention in foreign-exchange markets: print money and buy foreign currencies or assets.
Mr Svensson describes his combining of these basic elements as the foolproof route off the zero lower bound. America followed this strategy in the 1930s, abandoning gold, devaluing the dollar, and reflating the economy. So did Britain. Interestingly, these were monetary actions in spirit but not execution; the key decisions were taken by elected governments rather than central banks. Japans experience with Abenomics is still in its early stages, but evidence so far looks promising. Japans new inflation target is relatively modest, but the combination of the higher inflation target, quantitative easing, and a substantial yen depreciation seems to be energising the Japanese economy.
Isnt depreciation just a beggar-thy-neighbour measure, though? Doesnt it simply boost an economy by siphoning off demand from other economies? No, because the depreciation isnt simply a ploy to add to demand through increased net exports. Rather it is a means to support expectations of higher inflation. Down the line there might be a boost to output through the net export channel thanks to devaluation. But in the meantime, higher inflation expectations should generate faster growth, including growth in domestic demand. The breakdown in the gold standard in the 1930s hurt economies (like France) that resisted leaving gold. But the enormous boost to world output relied on much more than everyone selling more goods to France.
There is an alternative to devaluation, which is coordination with fiscal authorities to engineer a helicopter drop. If the Fed said that it would finance a Treasury plan to mail every American a $1,000 cheque every day until nominal output was forecast to return to the pre-crisis trend, that would kick America off the ZLB.
That would require Congressional assent. But one might easily say that the devaluation solution would also require the governments approval, since undertaking something that aggressive without political backing could endanger the central banks independence.
And thats the real lesson, isnt it? Heads of state kicked economies off the ZLB in the 1930s, not central bankers. It wasnt a reflective Bank of Japan that decided to change course on monetary policy; the shift was imposed by a newly elected government. And so maybe thats the thing to keep in mind in weighing the scenarios presented in this Fed paper and assessing the likely path of Fed policy over the next decade.
The most aggressive policies the Fed is capable of adopting in the absence of significant external pressure are inconsistent with a permanent exit from the zero lower bound. The decision to avoid a Japanese scenario is one that has to be taken politically.
- Singer Aaron Carter Files for Bankruptcy
- Aaron Carter has filed for Chapter 7 bankruptcy, TMZ.com reports.
In the documents filed on Thursday, it was revealed that the 25-year-old singers assets total up to $8,232.16, while his liabilities come to more than $2.2 million.
Celebrities whove survived scandal
The bulk …
Although scheduled home auctions have risen in the past month, residential foreclosures are trending downward in Kenosha County.
Financial and real estate experts said the number of home auctions in October were up both nationally and locally, partly because rising home prices make it more inviting for lenders who have worked with struggling homeowners. They may have been reluctant to finish a foreclosure when prices were lower.
The market has been more favorable to foreclose now, said Daren Blomquist, a vice president with RealtyTrac, a real estate and foreclosure research firm.
Auctions in October were up 112 percent over the same period last year, according to RealtyTrac statistics.
Another factor is the expiration of the National Mortgage Settlement, a $25 billion agreement that targeted distressed borrowers. The agreement helped homeowners refinance or modify their mortgages in order to save money. It was a joint agreement among state and federal government agencies and the countrys five largest mortgage lenders: Ally/GMAC, Bank of America, Citi, JPMorgan Chase and Wells Fargo.
In Kenosha County, one in every 576 homes was in some stage of foreclosure in October.
But the foreclosure storm may soon be over.
We are seeing a decrease in the amount of foreclosures, said Mike Kellman, senior vice president of lending with North Shore Bank. A few more people have jobs and are better off now than they may have been.
Homeowners who sensed financial trouble early may have taken steps to remedy their circumstance, he said.
People have been paying down their debt so they will be able to pay their mortgage. They have been paying their car notes, their credit card bills, other things that would free up money for their mortgage payment, Kellman said.
If they are experiencing trouble, one of the best things they can do is to talk to their lender before the get too far in trouble, added Kellman.
And homeowners who get in trouble have options, such as bankruptcy, to save their foreclosed homes, said Ryan Blay, an attorney with LakeLaw in Kenosha.
Through bankruptcy, homeowners can seek mortgage modification or mediate other ways to pay off debt, he said.
Each homeowner may have options and should carefully explore them, Blay said. Time is of the essence.
Some lenders can direct troubled homeowners to federal and state programs, such as the Home Affordable Refinance Program, which allows troubled homeowner to refinance their homes at a more favorable mortgage rate, or the Home Affordable Modification Program, which helps lower mortgage payments for unemployed homeowners.
Unfortunately, Blay said, many borrowers are still unaware of how they can obtain a modified mortgage or address their housing situation through bankruptcy.
We still see some borrowers turning to out-of-state companies who … make promises to force lenders to accept payment terms they calculate from income and mortgage records. Thats a serious concern since these companies typically take money and abscond without providing any real relief.
Despite the best efforts of the HAMP and HARP programs, many borrowers are stuck in a seemingly endless loop of review and trial payments. Mediation departments tend to yield faster results generated by better trained employees of the servicers. The difficulty is getting the homeowners into these programs in a fast enough matter before it is too late to make a difference, Blay said.
If youve really been wanting to use Google Wallet but are bummed because your device doesnt have NFC, you still might be in luck. Google has silently begun offering their new Google Wallet Card and its accepted everywhere MasterCard is (unlike tap-to-pay).
The Google Wallet Card works the same way as a normal pre-paid debit card. When swiped the card will take the funds from your Wallet balance, or you can withdraw cash through an ATM. Adding funds via bank account is free, but adding funds through a connected credit card will cost some money. Essentially what were looking at here is Googles answer to PayPal (which also offers a free debit card upon request) or those prepaid credit cards you see all the time at grocery stores.
Its easy to request a card and best of all its free. Just login to wallet.google.com and at the top of the page youll be greeted with a banner to request the new Wallet Card for yourself. Google says it takes up to about 12 days to receive it in the mail, after which youll need to activate it through the site or via the Wallet app. Sorry to our overseas friends, this is US-only for now.
[Request a Google Wallet Card here | Google Wallet Card FAQ]
UPDATE: Turns out, in its current state, the card will only use your remaining Google Wallet balance when making purchases. This means if your balance is $0.00, the card will come back as declined. This is very much different from the app, which will use the primary credit card you have set up on Google Wallet once Google Wallet funds have been exhausted. But we still have hope
According to Googler Jeff Craig whos been using the Google Wallet Card for quite sometime now (working at Google has its perks) his version of the card acts just like the app, using the remaining Google Wallet balance before switching over to the primary card on file. This is much how the PayPal debit card works (after adding your bank account), and its odd to not see this feature in the Google Wallet Card.
Its entirely possible Google will change the way the Wallet Card works in the future, but until then, its nothing more than a pre-paid credit (read: kinda lame). Well let you know if we hear more.