Fed stands pat on short-term rates
The Federal Reserve is keeping its target for the interest rate banks charge each other for overnight loans at 2 percent, as expected, saying labor markets have softened and financial markets remain "under considerable stress."
The Federal Market Committee in June ended a string of seven successive cuts to the federal funds rate, which brought the rate down from 5.25 percent in an attempt to stimulate borrowing and economic growth. Some critics say the Fed’s actions have devalued the dollar and fueled inflation, which could put upward pressure on long-term interest rates including fixed-rate mortgages.
In a statement, the committee acknowledged that inflation has been high, but expects it to moderate later this year and next. Nevertheless, the inflation outlook remains "highly uncertain," the committee said, and "the upside risks to inflation are also of significant concern."
The Fed could eventually decide it needs to fight inflationary pressures by gradually raising its target for the federal funds overnight rate. But that might restrict borrowing by businesses and consumers that the Fed hopes will stimulate economic growth.
For the next few quarters, the committee expects tight credit conditions, the ongoing housing contraction and elevated energy prices to weigh on economic growth.
"Over time, the substantial easing of monetary policy, combined with ongoing measures to foster market liquidity, should help to promote moderate economic growth," the committee said.
Richard Fisher, president of the Federal Reserve Bank of Dallas, sees the threat of inflation as a bigger concern. As was the case in June, Fisher was the lone member of the committee to vote for increasing the target for the federal funds rate.
Genworth boosts workouts but claims grow faster
Mortgage insurer Genworth Financial Inc. said it boosted loan workouts during the second quarter by 32 percent from a year ago, to 3,000, but saw claims on bad loans more than double to $92 million.
In its most recent quarterly report to investors, Genworth said net operating losses in its U.S. mortgage insurance division totaled $59 million, as increased claims more than offset 28 percent growth in premiums earned. Genworth also said 5.59 percent of the 1.03 million U.S. mortgages it insures were delinquent at the end of June, or a total of 57,805 loans. The delinquency rate was 4.25 percent at the end of 2007 and 2.92 percent a year ago.
Genworth reported that an increasing percentage of delinquent loans are ending up in foreclosure, particularly in Florida, California, Arizona and Nevada. The company boosted reserves for U.S. mortgage insurance losses by $202 million, with more than 80 percent of the increase related to those four states. Genworth paid U.S. mortgage insurance claims of $92 million during the second quarter, an increase of $51 million from a year ago and up $8 million from the previous quarter.
"While we continue to expect paid claims to increase throughout 2008, the rate at which claims are being paid has begun to slow somewhat due to loss mitigation opportunities, as well as from various state and lender foreclosure moratoriums and the overall volume of potential foreclosures in the marketplace," Genworth said in a regulatory filing. "Going forward, we expect the slowdown in the pace at which we are paying claims to continue to have an impact on our delinquency inventory levels."
Genworth said it relied less on repayment plans with borrowers — which critics say often only delay, rather than prevent, foreclosures — and more on loan modifications and short sales. In the second quarter of 2008, 45 percent of Genworth’s workouts involved repayment plans, compared with 69 percent a year ago. Genworth engaged in loan modifications with 32 percent of borrower workouts, up from 25 percent a year ago, and in short sales 10 percent of the time, double the percentage of a year ago.
JPMorgan Chase not taking jumbos from brokers
JPMorgan Chase & Co. will no longer write non-agency jumbo mortgages through the wholesale channel, accepting only conforming loans from mortgage brokers. The bank will continue to underwrite jumbo mortgages through the retail channel, spokesman Tom Kelly told Inman News, confirming a report in American Banker. JPMorgan Chase stopped accepting subprime and home equity loans originated by brokers in May, American Banker said.
Simon Baker leaves REA Group
Australian-based REA Group, which operates RealEstate.com.au in Australia, nine other country-specific sites and a global property site, on Monday announced the sudden departure of company CEO Simon Baker.
ZdNet Australia, a technology news Web site, reported that REA Group didn’t give a reason for Baker’s departure but said its board felt it was "time for new leadership to take the business to the next level."
Baker had joined the company in 2001 and oversaw the expansion of the company into New Zealand, Europe and Saudi Arabia. His contract "provided for fixed remuneration of $600,000 per annum, with performance targets which could deliver an extra $300,000 per annum. The executive also stood to receive $200,000 of shares that would vest over three years and were contingent upon the group’s long-term business plan," according to ZdNet. If the company decides to terminate Baker’s contract, he would receive six months of fixed remuneration, or $300,000.
REA announced that Chief Financial Officer Georg Chmiel has been appointed as acting CEO until a replacement is announced.
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