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Weekly U.S. Economic Growth Rises, Annual Growth Dips Slightly

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NEW YORK (12/30/13)--An indicator of future economic growth increased last week while another measure of annualized growth lost pace, according to a New York-based research firm.
The Economic Cycle Research Institute said on Friday that its Weekly Leading Index rose the week ending Dec. 20--to 131.93 from 130.91--while its annualized growth rate dropped to 1.86% from 2.14%. (Reuters and Dec. 27).
Moody's analysts said that the ECRI annualized growth rate fell to its lowest level in eight weeks, well below the third quarter average of 4.3%, and just above the 2013 low of 1.7%. The measure hasn't breached a 3% ceiling this quarter after averaging 6.7% in the first six months of 2013.
The analysts also said that the modest rise in the weekly index is consistent with recent positive measures of industrial growth. Before it grew during the week that ended Dec. 20, WLI growth had dropped for two weeks in a row, from 132.5 for the week ending Nov. 29.
The WLI is just above its 52-week moving average of 130.65, while the annualized growth rate is below its 52-week moving average of 5.07%.
Moody's analysts said they expect the annualized growth rate to expand in the coming weeks, with house and equity prices on the up, and economic growth and payrolls both expanding. Negative outlooks are muted, the observers say, because of the recent congressional budget agreement and the "relatively smooth" tapering of the Federal Reserve's quantitative easing program--set to begin in January. The research firm said annualized GDP growth will hit 4% in the second half of 2014.

Jobless Claims Improve More Than Expected

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WASHINGTON (12/27/13)--Initial jobless claims fell by 42,000 to 338,000 for the week ending Dec. 21, according to U.S. Labor Department data released Thursday.

The drop--the biggest one-week drop since Nov. 17, 2012--was 7,000 greater than a Bloomberg forecast had predicted ( Dec. 26). However, analysts note that data this time of year is unreliable.

Moody's analysts said there won't be an accurate measure of the labor market until late January ( Dec. 26). Poor data are often collected because unemployment offices are open fewer hours during the holiday season, causing delays in claims processing (MarketWatch Dec. 26).

The four-week moving joblessness average was up to 348,000 from 343,750--the highest it's been since early November, pushed upwardly due to a 75,000 increase in first-time filings recorded over the two weeks leading up to the Dec. 21 data. First-time claims for the week ending Dec. 14 were revised up to 380,000, from 379,000.

Continuing claims also rose 46,000 to 2.923 million for the week ending Dec. 14, while the number of people claiming federal emergency benefits fell 40,699 to 1.33 million.

Moody's noted that emergency benefit recipients will lose their unemployment insurance on Jan. 1 and won't have it restored unless the U.S. Congress acts after the winter recess.

Moody's also said that it did not expect November's 0.3% decline in unemployment to be reversed this month. Bloomberg analysts echoed this sentiment, remarking that consumer spending has been strong recently.

The Federal Reserve, having just announced a scaling back of its quantitative easing program, believes the job market is gradually improving. Fed officials improved their outlook of the labor market, predicting that unemployment rate will drop to as low as 6.3% in 2014--down from a September forecast ranging from 6.4% to 6.8%.

Thursday's data also showed that only 183 people claimed extended benefits during the week that ended Dec. 7--45,000 had received them during the same time in 2012.

Mortgage Volume Decreases Again Following FOMC Decision

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WASHINGTON (12/27/13)--A measure of mortgage application volume fell by 6.3% for the week ending Dec. 20, according to the Mortgage Bankers Association..
The drop, which was announced Tuesday, was caused by decreases in both components of the MBA market composite index. The refinance index fell by 7.7%%, and the seasonally adjusted purchase index fell by 3.5%. The latter is 11% lower on a year-over-year basis. 
Interest rates were also up during a week that saw the Federal Reserve decide to cut back its $85 billion monthly quantitative easing program by $10 billion. The average contract rate on a 30-year fixed-rate mortgage was up two basis points (bp), rising for the seventh consecutive week to 4.64%. The five-year adjustable-rate mortgage was up by 6 basis points to 3.26%--60 bp higher on an annual basis.

Refinance applications dropped to 65% of total mortgage market activity, down from 66% the previous week. A four-week moving average of refinance activity has fallen by 22.7% over the past month and 66.3% over the past year.
Adjustable-rate mortgage share of market activity rose to 8.3%--its highest proportion since July 2008. 
MBA Vice President of Research and Economics Mike Fratantoni noted that the government purchase application volume is also down by about a quarter on a year-over-year basis, with the drop likely caused by an increase in Federal Housing Administration mortgage insurance premiums.
Moody's analysts said that an increase in mortgage rates is expected to continue, with the Fed scaling back its asset-purchase program, and that stronger job growth and rising incomes will be needed to spark housing demand ( Dec. 24).
The MBA survey covers three-quarters of retail residential mortgage applications in the U.S. and has been conducted since 1990 since 1990.

Ally Approved to Become Financial Holding Co.

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WASHINGTON (12/26/13)--The Federal Reserve has approved Ally Financial Inc.'s application to change its regulatory status.
Ally said Monday that the decision will allow it to become a financial holding company and shed its current status as a bank holding company. The Fed's ruling means that the publicly owned car loan provider can continue offering insurance products and car sales through its SmartAuction website (Bloomberg Dec. 23).
Formerly the in-house lender for General Motors, Ally's bank holding status was approved in December 2008, allowing it to receive $17.2 billion in bailout funds through the Treasury Department's Troubled Asset Relief Program.
Ally had a December 2010 deadline to align its activities with its regulatory status. The Fed granted to company three extensions--the maximum permitted by the Fed, according to Bloomberg--pushing the deadline to the end of 2013. The company had said it wouldn't apply until it met regulatory standards. It said Monday that it applied to change its status earlier this month (The Wall Street Journal Dec.23).
The federal government still owns 64% of the company--the third biggest auto lender in the U.S. by market share.
Last week, Ally announced that it agreed to a $98 million settlement with the Consumer Financial Protection Bureau over claims that it discriminated against non-white borrowers. The company agreed to pay $80 million in compensation to victims and $18 million to the CFPB civil penalty fund (The New York Times Dec. 20).
The case arose from alleged discriminatory markup policies employed by the company between April 2011 and December 2013. The federal agency claimed that 235,000 African-American, Hispanic, and Asian and Pacific Islander borrowers were impacted (News Now Dec. 23).
According to federal regulators, Ally permitted auto dealers to charge consumers interest above its established rate. The firm then allegedly paid dealers with revenue obtained through markups, and, failed to monitor whether or not illegal discrimination was occurring.
The CFPB, in conjunction with the Department of Justice, found that African-American borrowers paid $300 more over the lifetime of loans than non-Hispanic whites. The agencies also found that Hispanic and Asian/Pacific Islander borrowers each paid $200 more than whites over the lifetime of loans. The study accounted for credit status.
Federal regulators called on Ally to halt its practices, establish a compliance committee and regularly report to the CFPB and DOJ on its adherence to non-discriminatory lending laws. Ally agreed to pay the fines but claimed it didn't agree with the CFPB's conclusions.

Consumer Sentiment, Spending Trending Up at Year End

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WASHINGTON (12/26/13)--A pair of reports published Monday indicate that consumers are in a jolly mood this holiday season.
A final monthly reading from the University of Michigan showed that consumer confidence in December held steady at 82.5, while Commerce Department data showed that household spending rose this month by 0.5%. Both measures are at five-month highs.
The University of Michigan index rose by 7.4% from November, with its current economic conditions component up 10.6 points to 98.6 and its economic outlook survey up 5.3 points to 72.1. The former was revised up by 0.7 points, and the latter was revised down by 0.6 points.
The Commerce Department monthly consumer spending measurement was up for the seventh straight month, with November's increase in inflation-adjusted spending the largest since February 2012 (Reuters Dec. 23).
Reuters said that the monthly increase in consumer spending will probably see the measure rise in the fourth quarter. In the third quarter, consumer spending was up on a 2% annual basis, bringing annualized GDP growth up to 4.1%.
The newswire also reported that the International Monetary Fund announced Sunday that it would upwardly revise its growth forecast for the U.S.--currently a 2.6% estimate made in October. Consumer expenditures account for roughly 70% of the economy.
Bloomberg, however, warned that the gains might not last. Incomes were only up by 0.2% in November, buoyed by a 0.4% gain in wages and salaries. The firm's analysts had predicted a gain of 0.5% ( Dec. 23). Meanwhile, the saving rate dropped to 4.2%, the lowest since February, down from 4.5%.
The firm did point out that consumer expenditures are being lifted by improving labor markets, lower gas prices and rising home values and stock prices. Outlays on durable goods, including automotive purchases, were up by 2.2% in November after increasing by 1.2% in October--the largest monthly increase in a year.
The same factors have driven the University of Michigan consumer confidence index to its current five month high. In July, it was at a six-year high ( Dec. 23).
Moody's analysts said that the assessment was likely a result of additions to the payrolls over October and November, and the relatively insignificant long-term impact of October's partial government shutdown.
A survey of economists conducted by MarketWatch predicted the measurement would be revised higher, to 82.9, due to stock gains, the progress on a budget deal in Congress and other factors (MarketWatch Dec. 23).
Economists polled by Bloomberg estimated a final reading ranging from 77 to 85 ( Dec. 23). The financial analysis firm said that the index averaged 89 in the years leading up to the Great Recession and averaged 64.2 during the contraction's official 18-month run.
Moody's analysts also cautioned against reading too much into the data. They said that disposable personal income only rose by 0.1% between October and November, and the growth of income on a year-over-year basis only rose by 2.3%, its weakest pace since May 2010. There is little upward pressure on wage growth, with three job-seekers for every job opening nationally. The research and ratings firm also warned that the recent Congressional budget deal has not raised the debt ceiling, which the Treasury Department estimates will be breached in late February.

Moebs Analyzes Fed's Money Management

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LAKE BLUFF, Ill. (12/23/13)--Money supply has fluctuated significantly in the short-term over the past half-century, according to an independent economic research firm.
Moebs Services released a report last week claiming that the volume of money in the U.S. financial system has changed by an average of 7.5% per quarter since 1959 (Business Wire Dec. 18).
The Lake Bluff, Ill.-based firm attributed the inconsistency to the Federal Reserve's use of asset purchases--"open market" activity--which is currently being employed in the form of quantitative easing. Moebs said that since Congress granted the Fed with asset purchasing authority in 1947, money supply has been inconsistent as the central bank attempts to promote job growth while controlling inflation. Inconsistency, the firm said, has been most pronounced since 1988--throughout the AlanGreenspan and Ben Bernanke eras. 
The study measured deposit money broken down into three categories: M1, which accounts for checking deposits; M2, which consists of savings and bonds; and M3, which is made up of uninsured, non-reservable deposits and money market mutual funds. The study did not include currency, and took into account foreign deposits invested in money market mutual funds. 
Moebs pointed out that in addition to open market purchases, the Federal Reserve can influence money supply by altering the minimum reserve ratio, changing the rate of interest it charges for wholesale lending, and, as of 2008, by either charging or paying interest on reserves held within the system. 
The research firm said that the Fed has used the last option to pay out 25 basis points on reserves, and that charging banks to hold money would stimulate credit markets--a policy, Moebs says, favored by  Federal Reserve Governor James Bullard of the St. Louis Federal Reserve Bank.

At 4.1%, GDP Shows Biggest Gain Since 2011

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WASHINGTON (12/23/13)--The U.S. economy grew at an annualized rate of 4.1% in the third quarter--the fastest pace since the fourth quarter of 2011--according to revised data released Friday by the U.S. Commerce Department.
The upward revision from 3.6% was largely due to more complete data on consumer spending. The Commerce Department said Thursday that consumer expenditures grew by an annual rate of 2%, instead of the previously estimated 1.4% (The Wall Street Journal Dec. 20). On a quarterly basis, this tweak added 0.4% to growth ( Dec. 20).
Business spending and non-residential fixed investment also rose on a year-over-year basis to 4.8%, from 3.5%.
Export growth was revised up slightly on annual basis to 3.9% from 3.7%.
Economists surveyed by Dow Jones had predicted no revisions to aggregate third-quarter gross domestic product (GDP) growth.
The Federal Reserve accounted for the economy's recent growth when it decided last week to scale back its $85 billion monthly quantitative easing by $10 billion (The New York Times Dec. 20).
Fed officials said that they expect GDP to grow by 2% this year, and by between 2.8% and 3.2% next year, according to The Wall Street Journal. A survey conducted by the newspaper showed economists expect an average of between 2.5% and 3% GDP growth in 2014.
A two-year budget passed this month by both houses of Congress is expected to contribute to next year's predicted expansion, with the deal reversing recent sequestration cuts. Third-quarter data also saw public spending make its first contribution in a year, driven by increases in state and local outlays.
Moody's analysts cautioned that future growth could take a hit. Inventory growth contributed to more than 40% of third-quarter economic expansion, dampening analysts' outlook for the fourth quarter. Real disposable income also grew at 3%, down from 4.1% in the second quarter. Gross domestic income, an alternative measure of economic growth, shrank to 1.8% from 3.2%--the slowest growth in a year.
GDP growth that doesn't account for inventory accumulation only increased to 2.5% from 2.1% in the second quarter. The third quarter also doesn't cover October, when the partial government shutdown significantly slowed economic growth. The analysts did note, however, that both the labor market and housing market appear to have recovered from the worst of the Great Recession.

Citibank Closes Last of Its Philadelphia Branches

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PHILADELPHIA (12/20/13)--A global bank has decided it isn't making enough money from depositors in Philadelphia, so it is pulling out all its branches in the area.

Citigroup announced it will close the last 10 branches of its 23 Citibank retail bank branches in the Philadelphia area in early 2014.

The ninth largest retail bank in the area, Citibank closed 13 branches in the area last year (Philadelphia Business Journal Dec. 17). It cited four key reasons for the closures:  operational costs, ability to gain efficiencies, economic conditions in the area and real estate.

The closures include seven branches in Philadelphia plus in its suburbs in Bala Cynwyd, Cherry Hill, N.J., and Wilmington, Del.

The branch closings, coupled with the announcement by Sunoco that it is moving its headquarters elsewhere, will cost the city jobs, said (Dec. 18).  The station reported Citibank's deposits in the area had increased to $2 billion in local deposits, but it was not happy with its performance against other big banks such as Wells Fargo, TD, PN,Citizens and Santander (Philadelphia Inquirer Dec. 18).

"For global behemoth Citibank, staying in Philadelphia is not financially worthwhile," said the station.

The New York-based Citigroup spent tens of millions of dollars opening 23 branches in the area, beginning in 2006, to broaden its geographical footprint, said the Inquirer.

Citibank did not say how many employees would be impacted or whether they would be offered severance packages. A Citibank spokesperson said Philadelphia remains an important market for several of Citi's other businesses, including municipal finance, equities, commercial banking and private banking.

Existing-home Sales Decline for Third-Straight Month

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WASHINGTON (12/20/13)--The real estate market cooled for the third straight month in November, according to a report published Thursday by the National Association of Realtors (NAR).
Total existing-home sales fell by 4.3% to a seasonally adjusted annualized rate of 4.9 million, down from 5.12 million in October. The decline brought sales down on a year-over-year basis by 60,000--the first annual decline in 29 months.
A MarketWatch analysis based on a survey of economists predicted that November sales would slow to an annualized pace of 5 million (MarketWatch Dec. 19). Moody's analysts also forecast a smaller monthly decline ( Dec. 19).
Single-family home sales fell by 3.8% to an annualized rate of 4.32 million, down 0.9% on a year-over-year basis, while existing condominium and co-op sales fell by 7.9% to an annualized rate of 580,000 units, down from 630,000 in October and 600,000 in November 2012.
The national median price for existing homes of all types was $196,300--up 9.4% on an annual basis but less than the 11.6% year-over-year increase in October. The median price for existing single-family homes was also up by 9.4% on an annual basis to $196,200. The median price for existing co-ops and condominiums was $197,400, up by 10% from November 2012.
All four census regions reported a decline in monthly sales. The West and Midwest saw sales drop by 8.5% and 4.1%, while the Northeast and South saw contractions of 3% and 2.4%.
NAR Chief Economist Lawrence Yun said that higher interest rates, shrinking inventory and tightening credit markets have caused demand and supply to move in opposite directions, causing rent prices and annual home prices to appreciate at their fastest levels in five and eight years, respectively.
The total inventory of houses for sale declined by 0.9% to 2.09 million. Homes were on the market for a median time of 56 days, up from 54 days in October, and down from 70 days on a year-over-year basis.

The supply decline can partially be attributed to a drop-off in distress sales, which accounted for 14% of all transactions--unchanged from October, but down from 22% of all sales in November 2012.
Freddie Mac data cited by NAR showed that the national average for 30-year conventional fixed-rate mortgages rose to 4.26%, from 4.19% in October--an increase from 3.35% in November 2012.
Moody's analysts said that demand is being propped up by investors and cash-purchases, which accounted for 32% of transactions in November--up from 31% in October and 30% in November 2012. Seven out of 10 investors paid for residential assets in cash.
A MarketWatch analysis suggested that existing-home sales could pick up next year, if the labor market improves, and lenders compete to bring up dropping mortgage applications.
Housing inventories are also expected to increase, according to Commerce Department data for November that was released Wednesday. Construction started on 1.09 million houses last month--an increase of 22.7% from October, and the greatest one-month expansion since early 2008. Permits issued for one-unit dwellings, the most stable and largest component of the housing market, were up by 2.1% (Market News Dec. 19).
Growing inventory could reverse the recent increase in prices and kickstart demand, according to both MarketWatch and Moody's.
The Federal Reserve drawing down its monthly purchase of assets from $85 billion to $75 billion could lead to higher mortgage interest rates, MarketWatch pointed out. Moody's said that a sudden rise in rates--which have steadily increased since May--is the "primary threat" to the housing recovery.
MarketWatch also pointed out that impending changes to federal regulations and subsidies add an element of uncertainty to predictions. There are plans to lower limits for mortgages backed by federal tax dollars, and Congress is currently discussing how to reform Fannie Mae and Freddie Mac.
NAR President Steve Brown, a realtor in Dayton, Ohio, also noted that the federal qualified mortgage rule is set to go into effect in January--a change that will likely mean lower delinquency rates, but more stringent prerequisites for  home financing.

Seasonal Market Behind Rise in Jobless Claims

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WASHINGTON (12/20/13)--Initial jobless claims filed the week ending Dec. 14 were up by 10,000, according to the Labor Department, but officials and analysts warned that the report is unreliable.
First-time unemployment claims rose to a nine-month high of 379,000 from a revised 369,000 in October, according to data released Thursday.
A department spokesperson said that the four-week moving average was a better gauge of labor market activity during the holidays, with seasonal adjustments notoriously unreliable this time of year (Bloomberg Dec. 19). That measure still climbed to a month-high of 343,500, from 330,250 for the week ending Dec. 7, and continuing claims also rose by 94,000 to 2.88 million that week.
But Moody's analysts said that they don't see a reversal of recent labor market improvements in Thursday's data, claiming that the Labor Department won't get "a clean reading" until the middle of January at the earliest ( Dec. 19). The ratings and research firm said that other reports this month show business confidence improved, with a near-majority of firms currently hiring and manufacturers adding to payrolls.
The analysts predicted a small decline in jobless claims. The median forecast of 48 economists polled by Bloomberg also predicted first-time claims would drop--to 336,000.
The budget passed by the House last week and approved by the Senate this week could affect jobless benefit recipients soon, with emergency unemployment insurance in the tentative deal set to run out in the new year. The number of Americans receiving these payments was up 125,100 to 1.37 million for the week ending Nov. 30, according to Thursday's report.
A half-million people are also set to use up regular state benefits in the first quarter and won't have access to federal emergency unemployment insurance unless Congress appropriates funds for it after the winter recess.
The roughly 1.8 million people joining the ranks of those without jobs and benefits will shave about 0.15% off GDP growth next year, according to Moody's.
The firm is predicting that fiscal policies will be responsible for a 0.4% overall abatement of growth next year, but said that the agreed-upon federal budget, which reverses some sequestration cuts, will be less of a drag on GDP than the budget this year, which cut 1.5% off growth.

Market Reaction to Fed Taper Bodes Well for Loans, Says CUNA

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MADISON, Wis. (12/19/13)--The market reaction to the Federal Open Market Committee's decision Wednesday to taper its asset-buying program is good news for housing and auto lending, according to a Credit Union National Association economist.
"The fact that interest rates did not jump after the taper announcement is good news for interest-rate sensitive sectors like housing and autos," said Steve Rick, CUNA senior economist. "This will keep these very important credit union lending categories growing strong well into 2014."
CUNA is forecasting overall credit union loan growth to exceed 7% in 2014 as the economy's growth rate approaches 3%, Rick added.
After its two-day meeting, the Fed policy-making group announced it would "modestly reduce the pace" of its monthly asset-bond purchases to $75 billion per month from $85 billion, beginning in January.
"It's important to realize that this taper is not equivalent to Fed tightening monetary policy," Rick said. "It is a slowing in the expansion of monetary policy, which still remains highly accommodative."
He added that it appeared the taper of quantitative easing (QE) was priced into the bond market, which saw little movement in the 10-year Treasury interest rate after the announcement. The equity markets, however, rallied over 1% in the first hour of trading after the Fed's announcement.  
During his final press conference as Fed chairman, Ben Bernanke said similar, moderate taper steps would continue throughout 2014 to bring QE to an end later next year.
In a 9-1 vote, FOMC also reaffirmed the low target rate of the federal funds rate at 0% to 0.25%.
The monetary policy committee also gave more clarity on "forward guidance" related to its interest-rate target for Fed funds, Rick noted. "The forward guidance is for exceptionally low short-term interest rates until the jobless rate falls 'well past' 6.5%. The unemployment rate is currently running at 7%.
"Translation: Don't expect the Fed to raise short-term rates until well into 2015, if not 2016. This will keep credit union cost of funds at record low levels and asset yields under downward pressure," said Rick.
To offset this "rate effect," Rick said that credit unions would continue to alter the mix of their balance sheet toward higher-yielding assets.
Voting for the FOMC monetary policy action were Bernanke, Vice Chairman William Dudley, James Bullard, Charles Evans, Esther George, Jerome Powell, Jeremy Stein, Daniel Tarullo and chair nominee Janet Yellen. Eric Rosengren, who voted against the action, said he believes that with an elevated unemployment rate and below-target inflation rate, changes in the purchase program are premature.
See related News Now story, Fed Tapers Bond-Buying Program by $10B a Month, by using the link.
For the full statement from FOMC, use the link.

Weekly Mortgage Applications Drop 5.5%

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WASHINGTON (12/19/13)--Mortgage market activity fell by a seasonally-adjusted 5.5% for the week ending Dec. 13, as rising interest rates continue to discourage prospective applicants.
The two components that make up the Mortgage Bankers Association's composite index both declined. A gauge of refinance activity was down by 4.3% and the purchase applications index fell by 6.1%, according to a weekly MBA mortgage applications report released Wednesday.
Refinancing, as a share of total mortgage activity, increased to 66%, from 65% the week before, while the adjustable-rate mortgage share of market activity remained steady at 8%.
Rates for 30-year fixed-rate mortgages rose to 4.62% from 4.61%, while rates for 30-year jumbo mortgages and five-year adjustable rate mortgages rose to 4.61% and 3.2%, from 4.59% and 3.11%.
Moody's analysts said that rising interest rates and home values are putting off potential buyers. They pointed to National Association of Realtors data published Tuesday, which indicated that home ownership is more costly than it has been since December 2008 ( Dec. 18). The interest rate for 30-year fixed rate mortgages is 16 basis points higher on a monthly basis, 112 basis points higher on an annual basis, and up by 100 basis points since May. The five-year adjustable mortgage rate is 59 basis points higher on an annual basis.
A four-week moving average of refinance activity has fallen by 19.3% over the past month and 65% over the past year, said MBA.
Purchase applications are at about the same level on a monthly basis, but down by 10% on an annual basis. A 12-week moving average of purchase activity is at its lowest level since September last year, according to Moody's.
A report released Tuesday by the National Association of Homebuilders showed builders of single family homes expressing greater confidence in the economy this month, in spite of weak mortgage market activity (Market News Dec. 18). (See News Now's article, November Home Building at Fastest Pace since 2008.)

November Home Building at Fastest Pace since 2008

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WASHINGTON (12/19/13)--The housing supply expanded significantly in November, according to data released Wednesday by the Department of Commerce.

Housing starts were up to a seasonally adjusted annualized rate of 1.09 million last month--an increase of 22.7% and the greatest expansion of construction since early 2008 (MarketWatch Dec. 18)

A key indicator of future construction didn't appear quite as strong. There were 1.007 million new permits issued on an annualized basis, a decline of 3.1% from October and an increase of 7.9% from November 2012. But permits for one-unit dwellings--the most stable and largest data component--were up by 2.1% for the month and 10.5% on an annual basis. The annualized growth rate last month, at 634,000, was the highest it's been since April 2008, according to MarketWatch.

Analysts for the newswire, which had predicted 936,000 housing starts, said that rapid construction could reverse the recent rise in home prices, but noted that home-construction data can be volatile and subject to revisions.

Total completions in November fell to an annualized rate of 823,000, down from 824,000 in October, but up on an annual basis by 21.6% ( Dec. 18)

Moody's analysts said that the emerging two-year federal budget agreement, relative consistency in monetary policy and a recovering job market could improve the market outlook compared to several months ago--particularly with increasing home values indicating robust demand, despite rising interest rates.

A report released Tuesday by the National Association of Homebuilders showed builders of single family homes expressing greater confidence in the economy this month, in spite of weak mortgage market activity (Market News Dec. 18).

Commerce Department data showed housing starts were up on an annual basis in all four census regions, but down in the Northeast on a monthly basis, by 29.4%. The Midwest, South, and West saw monthly gains of 41.7%, 38.5% and 8.8%, respectively.

The department also released data whose publication was delayed by October's partial government shutdown. Housing starts in October and September reached annualized rates of 889,000 and 873,000.

NEW: Fed Tapers Bond-Buying Program by $10B a Month

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WASHINGTON, D.C. (12/18/13, UPDATED 2:45 p.m. ET)--In its last meeting of the year, the Federal Open Market Committee voted to "modestly reduce the pace" of its monthly asset-bond purchases to $75 billion per month from $85 billion, beginning in January.
The Federal Reserve monetary policymaking group announced today that it would begin to taper what has been known as its quantitative easing program.
In a 9-1 vote, the committee also reaffirmed the low target rate of the federal funds rate at 0% to 0.25%, as long as the unemployment rate remains about 6.5% and taking into consideration projected inflation of less than 2%.
In its statement released after today's meeting, the committee said its "sizable and still-increasing holdings of longer-term securities should maintain downward pressure on longer-term interest rates, support mortgage markets, and help to make broader financial conditions more accommodative." In turn, this should promote a stronger economic recovery and help to ensure that inflation, over time, is at the rate most consistent with FOMC's dual mandate, it added.
The FOMC said it saw improvement in economic activity and labor market conditions that are consistent with growing underlying strength in the broader economy. These conditions led the committee to modestly reduce the pace of its asset purchases. Beginning in January, it will add $35 billion per month of agency mortgage-backed securities to its holdings, down from $40 billion. Additionally, long-term Treasury securities will drop to $40 billion per month, down from $45 billion.
Economists predicted earlier this week that the Fed would not reduce quantitative easing until January, with some pushing the stimulus taper as far as March 2014.
Risks to the economic and labor outlook have become "more nearly balanced," the committee said, noting that an inflation rate of less than 2% could pose risks to economic performance. It will continue to monitor inflation for movement toward the Fed's 2% objective.
Inflation remains low, showing only a 1.2% increase in November compared with a year ago, the Labor Department reported Tuesday.
It was expected that the moderate improvements in the unemployment rate--November's number was 7%--might not meet Fed Chairman Ben Bernanke's threshold of 5.5% to tip the scales in favor of raising the short-term interest rates (The Wall Street Journal Dec. 17).
For the full statement, use the link.

Cost of Living Index Unchanged

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WASHINGTON (12/18/13)--There was no measurable inflation in November, according to Labor Department data released Tuesday. The department's consumer price index didn't change last month, after falling by 0.1% in October.

Falling fuel costs kept downward pressure on prices. The energy index declined by 1% after a 1.7% decrease in October. Gasoline prices dropped by 1.6% in November. Core CPI, however, which excludes food and fuel, rose by 0.2% last month, after increasing by 0.1% in October and September.

The CPI rose by 1.2% on an annual basis, with core CPI up by 1.7%.

The data were released before Federal Reserve officials met in Washington for a two-day meeting to determine monetary policy and the future of the Fed's quantitative easing program. Fed officials have expressed concerns about deflation, and may refrain from scaling back their $85 billion in monthly asset-purchases, despite a recent string of positive economic news in the U.S. ( Dec. 17).

St. Louis Fed President James Bullard, who votes on the Federal Open Market Committee, said last week that slight changes in monetary policy could account for labor market gains, but that weak CPI numbers could see quantitative easing sustained in 2014. After the FOMC meeting in September, Fed officials said that inflation below 2% could hinder economic growth (Bloomberg Dec. 17). Watch News Now for results of the FOMC meeting, which ends today.

The median prediction of 83 economists polled by Bloomberg forecast a 0.1% CPI increase, with predictions ranging from a 0.1% decrease to a 0.2% expansion.
Laura Rosner, a U.S economist at BNP Paribas in New York also told Bloomberg that a glut in holiday season inventory could drive prices down further in the coming months.

Home Builder Confidence Up In December

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WASHINGTON (12/18/13)--Builders of new single-family homes expressed more confidence in December, according to a survey conducted by the National Association of Home Builders.

The trade association's Wells Fargo Housing Market Index was up to 58, from 54 in November.
All three components of the measurement were up. Indexes of current sales conditions, sales expectations and traffic of prospective buyers increased by six, two and three points, respectively, to end the month at 64, 62 and 44.
In three out of four census regions, the measurement increased. In the Midwest, West and South, the gauge was up by eight, two and six points to end December at 62, 60 and 61. In the Northeast, the NAHB measurement dropped by four points to 40.
The index reading was higher than prominent forecasts had predicted. Economists polled by Reuters expected the HMI to be at 55 in December (Reuters Dec. 17). Moody's Analysts said that the results--an eight-year high for December--were surprising, given that data showed weak existing home sales and mortgage purchase applications in recent weeks ( Dec 17).
The Moody's analysts also said that stronger job and income growth is needed to sustain the market by encouraging more young adults to become first-time homeowners.

A measurement of 50 and higher means that more builders view conditions as good than poor.

No Tapering from Fed by Year-End, Forecasters Say

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WASHINGTON (12/17/13)--A majority of economists surveyed in prominent polls don't expect the Federal Reserve to rein in quantitative easing after a key meeting this week.

Just over half (55%) of economists polled by USA Today, predicted that the Fed won't start cutting its stimulus program until January (USA Today Dec. 15). Only slightly more than a third (34%) of economists polled by Bloomberg earlier this month, predicted that the Fed will taper its stimulus before the new year, while 40% said they expected a contraction in March ( Dec 16). Half of the 60 economists polled by Reuters last week also said that they don't expect the Fed to ease its asset purchasing program until March (Reuters Dec. 15).

The central bank's Federal Open Market Committee is meeting on Tuesday and Wednesday--the first meeting since a number of reports signaled substantial economic growth since the end of the Great Recession. (Watch CUNA's News Now for news from the meetings.)

The House of Representatives' agreement last week on a two-year budget deal also will reduce uncertainty about fiscal policy, if both the Senate and the President approve of the legislation.
The Fed's monthly $85 billion worth of bond purchases has put downward pressure on interest rates and upward pressure on stock prices since it was launched in August 2012.

PNC Financial Services chief economist Stuart Hoffman told USA Today that the Fed is likely to wait until January, when more complete information about holiday retail sales and year-end economic growth will be available, to move toward winding down the purchases.

Barclays Capital economist Michael Gapen told the paper that the Fed won't change tack until March, due to low inflation and a shrinking labor force--rather than strong hiring and consumer demand--driving some of the decline in the unemployment rate.

Since surprising observers and investors by maintaining the scope of the quantitative easing program in September, the Fed has stressed that it is not abiding by "a pre-set course." Fed Vice Chair Janet Yellen, the nominee to replace current chair Ben Bernanke, told the Senate Banking Committee Nov. 14 that the central bank is dealing with "unprecedented circumstances."
Fed officials have said, according to Bloomberg, that they will stay the course with its asset-buying regime "until the outlook for the labor market has improved substantially."

Key meetings are also being held by the Bank of Japan and the European Union this week. The Bank of Japan is expected to maintain its aggressive expansionary monetary policy after meeting on Thursday and Friday, according to Reuters, and E.U. leaders are discussing a final agreement on a process for winding up failing banks within the euro zone.

FHA's Finances Stabilize: Report

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WASHINGTON (12/17/13)--The Federal Housing Administration mortgage insurance fund appears to be approaching a key post-subprime crisis benchmark sooner than expected.
FHA accounting shows the fund moving toward a 2% statutory capital requirement two years ahead of schedule, according to an agency report released on Friday.

The fiscal year 2013 report shows capital reserves at a negative $1.3 billion on Sept. 30, up $15 billion from $16.3 billion, on an annual basis. The capital ratio consequently moved to negative 0.11% in fiscal year 2013, from negative 1.44% in fiscal year 2012.

FHA forecasts had predicted the minimum capital requirement would be reached by 2015.
With the updated data, the administration estimates that its mortgage insurance fund will reach a positive net worth of $15 billion in fiscal year 2014 and $27 billion in fiscal year 2015.

Rep. Jeb Hensarling (R-Texas), who is chairman of the House Financial Services Committee, criticized the agency after the report's publication, pointing out that the capital ratio is still negative and that there was a recent bailout of the FHA. In September, the agency had to ask the U.S. Treasury Department for $1.7 billion in emergency financing due to recent losses. Its reverse mortgage program needed the infusion in addition to $4.3 billion from the FHA forward fund (American Banker Dec. 13).

However, Commissioner Carol Galante said that the situation resulted from accounting rules. The administration claims it has over $48 billion in liquid assets to cover expected claims, with the reverse mortgage program now in possession of $9.1 billion in capital.

American Banker reported that Housing and Urban Development Secretary Shaun Donovan is also asking Congress to allow the agency to grant it more enforcement authority over mortgage servicers and to improve its risk management--moves, according to Donovan, that would bolster the HUD Mutual Mortgage Insurance Fund.

Texas Community Bank Closed by Federal Regulators

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WASHINGTON (12/17/13)--A community bank in Texas closed, bringing the total number of failed banks this year to 25, the Federal Deposit Insurance Corp announced Friday.

Texas Community Bank N.A., The Woodlands, Texas, was shuttered by the Office of the Comptroller of the Currency. Its deposits were assumed by Spirit of Texas Bank SSB, College Station, Texas, after it entered into a purchase and assumption agreement with the FDIC.
As of Dec. 13, the two banks had approximately $700 million in combined assets, and $580 in deposits.

The cost of the failure to the Deposit Insurance Fund will be roughly $10.8 million, the FDIC estimated.

The National Credit Union Administration has closed 13 credit unions this year.

Decline in Mortgage Delinquencies Expected in 2014

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CHICAGO (12/16/13)--Mortgage delinquencies are expected to decline for the fifth straight year in 2014, but at a slower rate than previous years, according to an annual forecast.
Credit analysis firm TransUnion said that mortgage delinquencies are expected to fall to 3.75% at the end of 2014, down from 3.94%, the predicted rate for the end of 2013.
If correct, the predicted delinquency rate will decline at 4.82%. In 2010, 2011 and 2012, it fell by 6%, 7%, and 15%. It is expected to decline by 23% this year.
A TransUnion executive said that rising mortgage interest rates will abate the decline, with the cost of refinancing and the time it takes to sell homes set to rise (American Banker Dec. 12).
Delinquency rates are still expected to be at historic lows--they were at 6.88% at the end of 2009, and 6.44% at the end of 2010.
Among states with the largest projected delinquency rate declines are those forecast to have the highest overall incidence of delinquency. TransUnion predicts that delinquency in Nevada, Florida, and New Jersey will decline by 25.17%, 15.31% and 10.17%. Florida will lead the nation with the highest delinquency rates, at 7.21%, with New Jersey and Nevada in second and third at 6.11% and 5.38%.
TransUnion expects mortgage delinquency to rise by 47.72% in North Dakota, but said the state will have the second lowest rate, at 1.94%.
The firm's analysts also predict that credit card delinquencies will increase by nearly 10% next year, to 1.66% from a predicted 1.51% at the end of 2013.
From 2007 to 2012, year-end credit card delinquency rates averaged 2.38%.
TransUnion, which is based in Chicago, accounts for consumer confidence, unemployment rates, gross state product and real estate values when making its forecasts.
The firm considers mortgage debtors and credit card borrowers to be delinquent if they are 60 days or more and 90 days or more past due on respective loan payments.

BofA to Pay Another $131.8M in Penalties

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WASHINGTON (12/16/13)--Bank of America reached an agreement Thursday with the Securities Exchange Commission (SEC), resolving allegations of illegal activity from the housing bubble era.
The bank will pay $131.8 million for Merrill Lynch's failure to disclose a conflict of interest in mortgage securities packaged and sold to investors in 2006 and 2007. Merrill Lynch was acquired by Bank of America during the stock market meltdown in September 2008.
Federal regulators had accused Merrill of failing to reveal that the Evanston, Ill.-based Magnetar Capital held influence over which mortgage securities were bundled together and that the hedge fund had bet against the financial instruments.
A July 13, 2006, email from a Merrill sales representative to a Magnetar principal revealed that the bank believed its "ultimate goal" was to maximize the hedge fund's return "with the best structure possible" (Reuters Dec. 12).
Magnetar itself was cleared of wrongdoing by the SEC.
The collateralized debt obligations at the heart of the deals, called Norma CDO and Octans 1 CDO, were sold in 2006 and 2007 for a combined face value of $3 billion. The agreement also included a third security, Auriga CDO, worth $1.5 billion, that Merrill had also sold for Magnetar and others. The SEC found that Merrill failed to record relevant trades in a timely fashion and charged the bank with bookkeeping violations. Bank of America agreed to pay $75.5 million in penalties and interest.
The SEC also reached a $472,000 settlement Thursday with two managing partners of NIR Capital Management, a firm that oversaw and managed the packaging of securities for the $1.5 billion Norma CDO deal. The regulator said Scott H. Shannon and Joseph G. Parish III did not initially know of Magnetar's involvement but made no objections after learning about it. Merrill had told investors that assets within Norma were aggregated solely by NIR, according to the SEC. Neither Shannon, Parish, nor Bank of America admitted or denied wrongdoing in the settlement.
A spokesperson for Bank of America told The New York Times that it had already set aside reserves to cover the cost of the settlement.
Magnetar selected and bet against securities at the heart of another high-profile civil case brought by the SEC against JPMorgan Chase. In June 2011, the bank agreed to pay $153.6 million to settle fraud charges regarding an instrument called Squared CDO 2007.
Bank of America is gearing up for more housing crisis-related litigation, it was also revealed Thursday. Vermont Attorney General William Sorrell is suing the bank for allegedly violating the state's foreclosure mediation and consumer protection laws (Burlington Free Press Dec. 12).

State prosecutors accuse the bank of failing or refusing to comply with mediation settlements by billing homeowners in foreclosure for sums exceeding the agreed-upon maximum. They also said the bank misrepresented amounts owed and the status of foreclosure actions in letters to homeowners.

Post-Thanksgiving Jobless Claims Up by 68,000

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WASHINGTON (12/13/13)--First-time unemployment claims rose dramatically during the week after the Thanksgiving holiday, according to the Labor Department.
Initial applications for jobless benefits increased by 68,000 to a seasonally adjusted 368,000 for the week ending Dec. 7--the highest one-week increase since Nov. 10, 2012, and the highest absolute level in two months (MarketWatch Dec. 12)
The Dec. 7 data on initial claims was higher than expected. Economists surveyed by Bloomberg collectively predicted 320,000 claims, with estimates ranging from 300,000 to 351,000 ( Dec. 12). A Dow Jones poll of economists predicted 328,000 claims (The Wall Street Journal Dec. 12).
The spike in claims could be revised down due to erratic seasonal adjustments that typically occur around holidays. First-time benefit filings have fallen seven out of the past nine weeks, and the jobless rate fell to a post-recession low of 7% in November, reflecting employment gains in a range of industries. Moody's analysts predict that claims will fall to around 300,000 in the coming weeks--about what they were before the start of the Great Recession ( Dec. 12).
Continuing claims rose 40,000 to 2.79 million for the week that ended Nov. 30, according to the data released Thursday by the Labor Department.
The four-week moving average of initial claims--a more stable measure of weekly data--rose to 328,750. Meanwhile, the four-week average of continuing claims fell 4,750 to 2.79 million, the lowest level since January 2008.
Pierpoint Securities economist Stephen Stanley told MarketWatch, however, that hiring isn't robust, even if the Thanksgiving week claims are revised down.

Moody's analysts also warned that claims could rise with a drop in demand caused by the sudden loss of emergency unemployment insurance. Roughly 1.2 million people receiving jobless aid will lose benefits on Jan. 1, if the preliminary budget agreement reached this week in Congress passes. About a half million people on state benefits are also expected to be cut off in the first quarter of 2014, depriving about 1.7 million people of an average weekly benefit of $300.
The analysts pointed out, however, that they expect the withdrawal to be offset by a delay to sequestration cuts that is part of the deal.

Retail Sales See Solid Rise in November

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WASHINGTON (12/13/13)--Talk about industry "driven" data. Retail sales rose by 0.7% in November with about half that increase, 0.3%, attributed to car purchases, according to the Commerce Department.
Core sales, which don't account for automobiles, food services, gasoline or building materials, rose by 0.5% after a 0.7% increase in October.
The data, released on Thursday, revealed the strongest growth for retailers in months. The monthly increase was the strongest since June. Annual growth last month, at 4.7%, was the strongest it has been since July.
Economists polled by Reuters expected sales to increase by 0.6% after a 0.4% increase in October--a data point revised up to 0.6% in Thursday's report (Reuters Dec. 12).
Car sales and auto parts were up by 1.8% in November. Building materials and garden equipment purchases also increased by the same amount. Rounding out the strongest performing sectors were electronics and appliance retailers, who saw receipts gain by 1.1%, and furniture merchants, who saw a 1.2% increase in sales.
A report released earlier this month by AutoData Corp. showed that the annualized rate of car sales in November, at 16.4 million units, shattered expectations (MarketNews Dec. 5).
The strength of non-store retailers and electronics also indicates that the release of the iPhone 5 impacted nationwide sales figures ( Dec. 12).
The report comes on the heels of a recent trend of good news for the economy. A preliminary measure of the Thomson-Reuters/University of Michigan consumer index was up to 82.5 in December from a final November reading of 75.1 (The Wall Street Journal Dec. 12). If the early analysis holds up, the reading would reveal consumer confidence at its highest level in over a year.
The Wall Street Journal said that higher spending and confidence is bolstered by stronger net job growth, stock market gains and appreciating home values, despite unemployment being historically high and post-recession wage gains being unimpressive.
The Journal also said steps taken in Congress this week toward a two-year budget that eases some of the sequestration cuts could boost economic growth in 2014.

The positive news could cause the Federal Reserve to claw back its monthly $85 billion quantitative easing program when its policymaking group, the Federal Open Market Committee, meets Dec. 17-18, according to the Journal. Reuters analysts said that the Fed could start reining in the program by March.

Moody's analysts, however, said that volatility in home equity, gasoline and weather could lead to inconsistent consumer behavior over the coming months. They also pointed out that food sales were down in November due to the reduction in federal spending on food stamps, but said that the damage of federal cuts is past its peak.

The holiday season is a significant time of year for consumer spending, which accounts for about 70% of the U.S. economy. A joint Credit Union National Association and Consumer Federation of America survey conducted in November found that more Americans planned on spending more this holiday season, while fewer planned on spending less (News Now Dec. 2).

Mortgage Applications Advance for First Time in Six Weeks

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WASHINGTON (12/12/13)--Mortgage market activity was up slightly last week despite increasing interest rates.
The Mortgage Bankers Association Market Composite Index was 1% higher for the week ending Dec. 6. The measure's two components, its refinance and purchase applications indexes, both increased by 2.1% and 0.9% respectively.
The increase--the first in six weeks--occurred despite interest rates across the board ending the week at their highest level since September. Two key MBA rate measures were up by 10 basis points. The 30-year fixed-rate mortgages increased to 4.61%, and the 30-year jumbo interest rate measure increased to 4.59%. The five-year adjustable-mortgage rate was up two basis points, to 3.11%.

Refinancing increased as a percentage of all market activity--to 65% from 63%.

The adjustable-rate mortgage share of activity also increased to 8.1%, its highest level since July of 2008.

A four-week moving average shows that refinance activity fell 15.7% over the past month and 63% the past year. The gauge is at its lowest level since the middle of 2009. A similar measure of purchase applications was up by 3.5% over the past month, but down 8% on an annual basis ( Dec. 11).

The refinance and purchase indexes were lower than they were the week before Thanksgiving--by 16% and 3% respectively. For the week ending Nov. 29--a time frame that included an adjustment for the Thanksgiving holiday--the composite index fell 12.8%.

The MBA composite index is based on a survey conducted since 1990 that covers over three-quarters of retail residential mortgage applications in the U.S.  

American Airlines Switches from Amex to Citi Card Perks

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NEW YORK (12/11/13)--American Express informed Platinum and Centurion cardholders last week that they would be stripped of travelers' benefits ahead of the merger between US Airways and American Airlines.

The two carriers told the credit card company that they would withdraw Amex cardholders' access to their travelers lounges. American Airlines will only offer Admirals Club access in the U.S. to customers of the Citibank-issued Executive AAdvantage World Elite MasterCard (American Banker Dec. 6).
American Express customers signed up for its Priority Pass Club will also lose access to the American Airlines travelers' lounges.
The card company said that it is working toward establishing its own network of clubs, branded Centurion Lounges, at high-traffic airports. One opened in Dallas in October, and American Express plans to open more in San Francisco and New York in 2014.
Cardholders of the Citibank-issued MasterCard product had previously been granted entrance to the Admirals Club.
In May, Citibank petitioned a federal judge to force American Airlines to decide whether it would honor the companies' prior contracts in the wake of the airline's decision to file for bankruptcy.
American Banker described frequent flier cards as important to banks because lounge access and frequent flier miles are seen by cardholders as important perks.
In early January, American Airlines and U.S. Airways customers can earn and redeem frequent flier miles when traveling with either company. American Admirals Club and US Airways Club Lounges will be available to customers of both companies early next year, too (L.A. Times Dec 9).

Court Approves $500M Settlement by BofA/Countrywide in MBS Lawsuit

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LOS ANGELES (12/11/13)--A $500 million settlement between Bank of America and investors who claimed its Countrywide unit misrepresented mortgage-backed securities has been finalized by a federal judge in Los Angeles.
U.S. District Judge Mariana Pfaelzer denied investors the chance to recoup losses from Countrywide's parent company. Pfaelzer followed prior rulings and agreed with the Charlotte, N.C.-based multinational bank that allowing investors to seek additional damages could bankrupt Countrywide ( Dec. 10).
The class-action lawsuit was based on allegations that Countrywide misled investors about the quality of home loans at the heart of mortgage-backed securities. Countrywide was taken over by Bank of America in 2008, a few months before the subprime mortgage contributed to the global financial system collapse.
Bank of America is also on the verge of settling an $8.5 billion lawsuit over mortgage-backed securities in New York state court. That deal seeks to resolve a dispute over Countrywide's alleged breach of contract for failing to replace delinquent loans aggregated for the financial instruments.
Bank of America still faces litigation from investors who opted out of the class-action lawsuit finalized Tuesday. They're seeking claims on securities excluded by Pfaelzer after the first case was filed in 2007.
The National Credit Union Administration has sued a number of Wall Street banks in similar cases. In November, JP Morgan agreed to pay the NCUA $1.4 billion in a settlement over mortgage-backed securities issued, underwrote and sold to now-defunct corporate credit unions in 2006 and 2007 (News Now Nov. 20). The wholesale lenders collapsed in 2009 due, in part, to the faulty instruments.

The federal regulator has also settled claims of more than $170 million with Citigroup, Deutsche Bank Securities and HSBC. It is still involved in suits against RBS Securities, Wachovia Capital Markets and Wells Fargo, Barclay's Capital Inc., Goldman Sachs, and UBS Securities.

Business Confidence, Expectations Improve

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WEST CHESTER, Pa. (12/10/13)--A measure of worldwide business confidence was at a post-recession high for the week ending Dec. 6.
Firms in the U.S. had even higher morale, with the week's Business Confidence poll showing 39% with a net-positive outlook, said a survey conducted by Moody's Analytics. Moody's also showed the percentage of businesses with a net-positive view on the economy was up to 37.2, from 33.7 for the week ending Nov. 29 ( Dec. 9).

A major factor behind the survey's result was the 70% of respondents who said they believe economic conditions will improve in the coming months. With a spate of good economic news, businesses are reporting an increasingly rosy outlook. Many of those who took the survey said they're planning to invest in equipment and software, despite recently published data revealing relatively weak business capital expenditures, said
The measure of business climate has not been this positive since the housing boom in the middle of last decade, with around 45% of survey questions receiving positive answers last week.
The four-week moving average of the Moody's measure was also up for the fifth week in a row, at 32.9%. The same measure for U.S. business confidence finished the week ending Dec. 6 at 35%.
Businesses reported regulatory and legal issues as being among their top concern, with one-third of respondents listing it as their top worry.
Moody's claims that an economy expands at potential when its business confidence measure is at a net-positive of between 20% and 30%, and that an economy is in recession when less than 10% of responses are net-positive. The all-time low was at -30% in December 2008, and the last high was just more than 40% in March 2011.

Don't Declare Victory on 'Too Big to Fail' Yet

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CAMBRIDGE, Mass. (12/10/13)--The U.S. government has a long way to go before it can declare victory over "Too Big to Fail," according to Massachusetts Institute of Technology business professor Simon Johnson.
Johnson claimed that the Federal Reserve still has the ability to bail out moribund Wall Street banks, and that banks' "living wills"--plans for bankruptcy with minimal disruption to the global financial system--lack significance. He also said that institutions with assets in multiple countries cannot be unilaterally wound down by the U.S. government.
The Sloan School of Management professor and Federal Deposit Insurance Corp. Systemic Resolution Advisory Committee member made the observations in a Bloomberg column after a speech made last week by Treasury Secretary Jack Lew ( Dec. 8). Lew said that "Too Big to Fail" has not ended yet, but is on its way to soon becoming a thing of the past.
Johnson said that the New York Fed, however, can bypass language in the Dodd-Frank Act--which prohibits the government from discriminatory bailouts like those that saved American International Group Inc. in September 2008.
"As long as support is available to a broad class of assets or to a set of companies, almost anything remains possible," he wrote, adding that reforms that sought to rein in the Federal Reserve's ability to bail out banks after 2008 are "formalities."
"The next bailout won't come from Congress," he said. "It will come from, or at least via, the Fed."
Johnson also contradicted Lew's assessment of big banks' "living wills," opining that the plans are not "credible" and that to "suggest regulators are really going to use this power is hardly plausible." Lew said regulators will force firms to revise plans if they lack credibility.
Johnson concluded with an argument that cross-border resolution would lead to "another destabilizing scramble for assets" in the absence of multilateral collaboration between regulators. He said that non-discriminatory policies that fully protect foreign creditors would leave taxpayers holding the bag "if a large financial institution fails."
The professor also said he doesn't have confidence that the impending finalization of the Volcker rule--mandating, in theory, the segregation of retail and investment banking--will stabilize the banking system.

Auto, Student Loan Volume Buoys Consumer Credit

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WASHINGTON (12/9/13)--Consumer credit issued by credit unions was up on a non-seasonally adjusted basis by $1.3 billion in October, according to Federal Reserve data released Friday.
The rise was part of a larger increase that saw consumer credit across the nation go up by $18.2 billion in October--the biggest increase recorded by the Fed in five months.
Driving the gains were increases in student loans and car loans. Households still appear reluctant to accumulate credit card debt, comparatively speaking ( Dec 6). However, revolving debt, which includes purchases made with credit cards, was up by $4.3 billion in October after declining by $218 million in September. Non-revolving credit rose $13.9 billion in October after rising $16.5 billion in September ( Dec. 6).
Consumers borrowing increased by $16.3 in September, with an average increase of $16.7 billion over the past three months.

Unemployment Reaches Post-Recession Low of 7% in November

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WASHINGTON (12/9/13)--The unemployment rate fell to a post-recession low of 7%, according to labor market data released Friday. The economy added 203,000 jobs in November after a downwardly revised gain of 200,000 jobs in October.

The average monthly rate of net jobs gains over the past three months is 193,000, increasing the odds, according to Moody's analysts, that the Federal Reserve will scale back Quantitative Easing later this month. The relative labor market strength comes from a drop in layoffs ( Dec 6).

Observers who spoke to MarketWatch, however, said that the labor market has not shown enough sustained improvement for the Fed to slow its bond purchasing program. Up to a quarter of jobs created last month could reflect seasonal hiring. The number of long-term job-seekers who can't find work, 4.1 million, was unchanged last month, and the steady decline in unemployment can be attributed to people dropping out of the labor force (MarketWatch Dec. 6).

The labor force added 455,000 jobs in November, bringing the participation rate up to 63%. In September, however, it was 63.2% and in November 2012 it was 63.3%.

The length of the work week and average hourly earnings also increased slightly last month, with the former increasing to 34.4 hours to 34.5 hours and the former up by 0.2% from 0.1%.

Payroll gains were recorded in 63.5% of private industries, with the largest increases reported in retail, transportation, warehousing, business services, healthcare and manufacturing.

Revised Q3 GDP Growth at 3.6%, Tough Q4 Expected

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WASHINGTON (12/6/13)--Third quarter Gross Domestic Product (GDP) growth was revised upwards Thursday by the U.S. Commerce Department to a seasonally adjusted annualized rate of 3.6%.
The estimated advance reading, 2.8%, was changed after the department's Bureau of Economic Analysis received a more complete dataset. The new numbers revealed strong growth in inventory investment that contributed 1.7% to overall growth, making up the entire revision.
Overall economic growth last quarter was also boosted by a deceleration of imports, and a faster pace of state and local public spending.
Third-quarter inflation rose by 2%. Core inflation--subtracting fuel and food--increased by 1.5%.
The sharp rise in inventory growth, however, casts a shadow over the fourth quarter, according to Moody's ( Dec. 5). Bolstering anxiety is the fact that real final sales of domestic product--GPD growth which doesn't account for inventory investment--fell to. 1.6% from 1.7% on an annual basis, the weakest reading in three years. The measure's growth contracted to 1.9%, from 2.1% on a quarterly basis.
Gross domestic income growth also fell to 1.4%, a year-low, and corporate profits grew by just 1.8%--down from 3.3% in the second quarter.
The effect of October's partial government shutdown will also be felt in the fourth quarter. It is expected to shave a half percentage point off GDP growth.
Another round of budget and debt-ceiling negotiations coming in the new year could shock consumer confidence and bring a new round of austerity measures, which were at their most intense this year since the end of World War II ( Dec. 5).
Moody's analysts did say that expectations for increased consumer spending and residential investment should see GDP growth accelerate gradually next year, despite the current inventory glut.

Consumer Comfort At Post-Shutdown High

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WASHINGTON (12/6/13)--Consumers reported being in a better mood last week amid a slate of good, and with memories of October's partial government shutdown fading. The Bloomberg Consumer Comfort Index was up 2.4 points to -31.3 for the week ending Dec. 1.
The three components of the measure all increased. A reading of consumers' views on the state of the economy was up 2.1 points to -60.4, the personal finance index was up 2.5 points to 2.6, and the buying climate measure was up 2.7 points to -36.

The overall index was at its highest since dysfunction in Washington led to anxiety among consumers that caused the measure to drop.

The most dramatic gains were found in the Northeast, where consumer comfort rose by 6.1 points. The measure in the Midwest was down 1 point. The South and West added 0.6 points and 5.3 points respectively.

Analysts at Bloomberg credited the gains with an improving labor market and holiday discounts, despite relatively weak post-recession wage growth in the lower part of the income distribution. The Consumer Comfort Index--based on weekly polling since 1985--was 10.3 higher during Thanksgiving week in 2007 ( Dec. 5). But underlying the short-term across-the-board gains reflected in the index's increase last week was the fact that comfort was higher among all income cohorts except for those making more than $100,000 ( Dec. 5).

The Bloomberg Consumer Comfort Index is based on a telephone survey of 1,000 consumers age 18 and older. It's based on 250 respondents who are queried about their views on the economy, their own personal finances, and the general buying climate.

Beige Book: Growth Pace Modest to Moderate

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WASHINGTON (12/5/13)--The national economy continued to expand at a modest to moderate pace from early October through mid-November, according to the Federal Reserve's Beige Book for October, released Wednesday.
Reports from seven of the 12 Federal Reserve Districts indicated the economy grew at a moderate pace. Four districts reported modest growth. One district, Boston, reported expanding economic activity.
Consumer spending increased at a modest to moderate pace in almost all districts, with retailers offering tempered optimism for the holiday season. Sales of new motor vehicles continued at a moderate to strong pace across most districts, while used-car sales were mixed. Reports on tourism varied, with some locations experiencing lower traffic due to the government shutdown.
Residential real estate activity improved across many districts, with moderate to strong growth in multifamily construction. Some slowing in single-family home sales was attributed to seasonal factors. Five districts reported historically low inventories of unsold homes. Activity in nonresidential real estate was stable or improved slightly across many districts.
In banking and finance, lower residential mortgage activity was reported in many districts. Some financial institutions attributed the decline in part to higher interest rates than earlier in the year. Several districts reported increased credit quality, as delinquencies have continued to decline and fewer problem loans have been reported. An increase in business-credit activity was seen in a number of districts.
In the Philadelphia, Richmond, Atlanta, Chicago, and San Francisco districts, some bankers eased lending standards in response to aggressive competition for quality loans," the book said. "Lending standards remained unchanged across loan categories in New York, Cleveland, St. Louis and Kansas City. Consumer borrowing weakened in a few districts, including New York, Richmond, and St. Louis. In Cleveland, Kansas City, and Dallas, demand for consumer loans was little changed, while it increased in Chicago."
A modest increase in hiring was reflected in the Philadelphia, Richmond, St. Louis, Minneapolis and Dallas districts, while hiring in the remaining districts was largely unchanged. Industries that reported moderate employment growth included construction, software and IT services, manufacturing, and healthcare.
To access the full report, use the link.

Chain Stores' Weekly Sales Down, But Cyber Monday Hits Record Sales

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NEW YORK and SAN JOSE, Calif. (12/4/13)--Online retail is diminishing crowds at malls and stores during the holiday season, according to two reports released Tuesday.
Black Friday weekend sales were higher than they were last year, but lower than they were the week before, according to an index compiled by the International Council of Shopping Centers and Goldman Sachs. The seasonally adjusted measure fell by 2.8% on the week ending Nov. 30, but rose by 2.5% on an annual basis (The Wall Street Journal Dec. 3).
But "Cyber Monday" sales set new records. Digital transactions on Monday clocked in at $2.29 billion--a 16% annual increase, according to the New Adobe Digital Index. IBM data gauged online sales Monday as being up by 19% from last year ( Dec. 3).
Moody's analysts said that this trends is good for consumers but "physical stores" will suffer as a result.
Driving online sales were transactions conducted from mobile devices, which increased by 80% on an annual basis to $419 million--18.3% of all Cyber Monday sales.

Social media referrals led to $148 million in sales between Thanksgiving and Cyber Monday--a 2% share that equaled last year's proportions. But Twitter's share of sales referrals ballooned to 9%, a 24% increase, while Pinterest saw its referral traffic grow by 17%. Facebook accounted for almost two-thirds of referrals--its share increased by 12% to 64% ( Dec. 3).
Moody's analysts said that inclement weather in the Northeast and South did not deter sales by much. They also pointed out that gas prices appeared to be little disincentive, with prices at the pump falling last week.
Since August, there has been a 0.06% weekly decline in sales at retail chain stores, according to the ICSC-Goldman survey, apart from the 2.6% weekly gain for the week ending Nov. 23.

FDIC: Fewer Banks Now Than During The Great Depression

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WASHINGTON (12/4/13)--The quantity of banking institutions has fallen to its lowest level since the Great Depression, according to a report published by the Federal Deposit Insurance Corp.

The number of federally insured financial institutions in the U.S. shrank to 6,891 in the third quarter, falling below 7,000 for the first time since the federal government started keeping track of the data in 1934.
Smaller institutions are bearing the brunt of the woes, with banks holding less than $100 million in assets constituting most of the industry's exits between 1984 and 2011. Mergers, consolidations and failures caused the closure of 10,000 banks, with about 17% of closures attributed to collapse, said the FDIC.
SNL Financial, a bank data-tracking firm, said that banks with less than $100 million in assets saw a median loan-growth of 2% for the year ending Sept. 30. Banks with higher assets up to $10 billion are seeing growth in that area between 3.4% and 7% (The Wall Street Journal Dec. 3).
FDIC researchers found in December 2012 that the decreasing difference between interest charged on loans and interest paid on deposits particularly hurt community banks, which are dependent on conventional forms of retail banking.
New banks aren't taking the place of the old ones either. A bank that opened in Bird-in-Hand, Pa. on Monday was the first bank start-up in the U.S. since December 2010, the FDIC said.
The federal regulatory body's data also showed the number of branches dropped by 3.2% between the end of 2009 and June 30 of this year, despite an upward trend in bank deposits and assets.
Bankers and industry consultants who spoke to The Wall Street Journal attributed the decline to meager profit margins and regulatory costs imposed after the 2008 financial crisis. The newspaper reported FDIC officials saying that the application has always been "rigorous," and that the agency expects the volume of applications to pick up in step with nationwide economic expansion.

New Fannie, Freddie Guidelines Pending States' Approval

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 WASHINGTON (12/3/13)--The Federal Housing Finance Agency is hoping that Fannie Mae and Freddie Mac will be able to follow a new harmonized set of rules in 2014.
The agency announced Monday that it and the government-sponsored enterprises have updated standard guidelines on loss mitigation, claims, assurance of coverage and information sharing.
Rule changes are subject to state insurance regulators' review and approval. The FHFA said that it expects the new rules to go into effect sometime next year.
The new rule alignment, which was advocated by the FHFA 2013 Conservatorship Scorecard, seeks to bridge gaps in existing master policy regulations, the agency said in a release.
The agency described the changes as resulting from the housing crisis. It says loss mitigation strategies were developed to help distressed homeowners during the wave of foreclosures that followed the 2008 financial collapse, and that claims-rules changes establish a schedule for processing--including requests for documentation.

The agency described assurance-of-coverage rule changes as clarifying when mortgage insurance can be withdrawn, and said that the new guidelines will promote communication between mortgage insurers, servicers, and Fannie and Freddie.
The FHFA said that the government-sponsored enterprises worked with the agency and the mortgage industry to formulate the rule changes.

Holiday Sales in Line with CUNA/CFA Findings

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CHICAGO, Ill. (12/3/13)--Data released on Saturday shows increased consumer holiday spending, in line with the results of a November holiday spending survey conducted by the Credit Union National Association and the Consumer Federation of America.
Sales on Thanksgiving and Black Friday totaled $12.3 billion, 2.3% higher than the total at the same time last year according to Chicago-based market researcher ShopperTrak LLC ( Nov. 30). The CUNA-CFA survey, which was conducted between Nov. 7 and Nov. 10, found that 13% of 1,002 respondents planned on spending more this year--up from 12% last year--while 32% planned on spending less--down from 38% (News Now Dec. 2).
ShopperTrak found that foot traffic and sales were down on Black Friday itself--by 11% and 13.2% respectively--but that consumers spent more on Thanksgiving. A survey conducted by the National Retail Federation in early November had also found that 53.8% of shoppers had already started making holiday-related purchases (The New York Times Nov. 30) 
Data from the ShopperTrak report showed strong Thanksgiving weekend consumer activity in the Western and Southern U.S., while unfavorable weather conditions in the Northeast may have discouraged some people from going on shopping excursions, according to the Wall Street Journal.
Over all, ShopperTrak predicted that holiday sales will increase by 2.4% this year--the smallest annual increase since 2009 ( Nov. 30).
But Saturday's report did not include online shopping figures. The New York Times reported that online sales on Thanksgiving and Black Friday rose by 20% and 19% respectively, according to IBM Digital Analytics Benchmark--a monitor of 800 retail websites in the U.S. Target also said that its Thanksgiving morning online orders had doubled in volume from a year ago, according to Bloomberg.
According to the CUNA-CFA survey, the number of consumers who planned on spending more or the same amount has gradually increased since 2011, when only 8% said that they would spend more while 41% said they would spend less. The proportion of those who said that their financial situation was worse this year was 29%--the smallest number since CFA and CUNA began asking the question in 2009--while 24% said that their financial situation had improved in 2013.

Mixed Signals On Consumer Confidence

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ANN ARBOR, Mich., and NEW YORK (11/27/13)--Three different indexes of consumer confidence revealed mixed feelings about the U.S. economy on the day before Thanksgiving.
The University of Michigan Consumer Confidence Index and Bloomberg Consumer Comfort Index both revealed that consumers have a rosier outlook. The University of Michigan measure increased by 1.9 points in November to 75.1, while the Bloomberg gauge rose by 0.9 points to -33.7 for the week ending Nov. 24.
Meanwhile, the Confidence Index released by the Conference Board, a New York-based research firm, unexpectedly fell in November to a seven-month low of 70.4, down from 72.4. Economists surveyed by Bloomberg forecast an overall reading of 72.6 ( Nov. 27) while economists polled by Dow Jones Newswires predicted the measure to rise to 73 ( Nov. 27).
The reports reveal clashing views on expectations. The expectation index boosted the overall University of Michigan numbers. It rose by 4.3 points in November to 66.8, while the university's present conditions reading fell 1.9 points to 88. The Conference Board found survey respondents to be more pessimistic, however, with its expectations monitor falling to 69.3 from 72.2. Its gauge of present conditions fell only slightly--to 72.0 from 72.6 in October.
The University of Michigan indicated that consumers are buoyed by a steady labor market, rising home values, and fading memories of October's partial government shutdown ( Nov. 27), but the measure's overall confidence levels are still well below what they were in the summer, when they ranged from 82.1 to 85.1 between June and August.
The Bloomberg report indicates that consumers are feeling most confident about the state of their own personal finances, which gained 2.2 points, with real income rising due to holiday sales ( Nov. 27). Underpinning this was the fact that, broken down into income brackets, people making between $40,000 and $50,000 saw their confidence increase the most--by 6.9 points. A measure of the overall state of the economy also increased by 1.2 points to -62.5, while the buying climate component of the index fell by 0.5 points to -38.7.
Underlying the Conference Board survey's pessimism were low expectations for the labor market. The number of Americans who said jobs would be more abundant in the next half-year declined by 3.3 percentage points to 12.7%--the lowest that the number has been since November 2011. The proportion of respondents who expected a raise in their incomes in the next six months declined to 14.9% from 15.7%, reaching an eight-month low.
The report did reveal, however, that Americans are feeling more confident about the current state of the labor market--11.8% of respondents said jobs are plentiful, an increase of 0.2 percentage points, while 34% of respondents said jobs are harder to find, a decrease of 0.9 percentage points.
Bloomberg analysts said that more employment opportunities and wage gains would boost the Conference Board's confidence measures, given that household purchases make up 70% of the U.S. economy ( Nov. 27). Moody's analysts, assessing the report, also pointed out that there are nearly three unemployed workers for every vacancy, leaving employers with little incentive to boost consumer spending through wage increases ( Nov. 27).

Mortgage Market Activity Drops

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WASHINGTON (12/2/13)--The home finance market was slightly less active for the week ending Nov. 22, a mortgage trade association reported Wednesday.

The Mortgage Bankers Association's Market Composite Index receded by 0.3% on a seasonally adjusted basis, following a 2.3% decline for the week ending Nov. 15.

The measure's refinance index component increased by 0.1%, ending a three-week slide, while its seasonally adjusted purchase index, reflecting initial mortgage applications, fell--for the fourth week in a row--by 0.2%.

A four-week moving average of the refinance index fell by 2.6% over the past month, and is approximately 55.7% below what it was last year. A four-week moving average of the purchase index rose by 2.6% over the past month, but is 3.7% below its level at the same time last year ( Nov. 27).

Refinance applications accounted for 65.5% of all market activity for the week ending Nov. 22.

Moody's analysts said that consumer demand is weak among traditional homebuyers, who are dependent on credit and not expecting interest rates to fall anytime soon. They added that purchase application activity could pick up next year, with rising home values making ownership more lucrative.