Archive for the “General Investor Information” Category

When fears of a recession started in 2007, investors jumped into ultra-conservative investments such as certificates of deposit (CDs), savings deposits, and money-market funds. Now, after numerous rounds of interest-rate cuts, investors in these ultra-conservative funds face ultra-low yields.

Assets in the most conservative investments rose since last October. At the same time, the Federal Reserve tried to jump-start the economy by dropping the benchmark interest rate for banks lending money to each other from 5.25 percent in September to the current 2 percent rate.

For investors, that translates into plenty of safety but little return. As an example, Bankrate.com estimates the average yield on six-month CDs at 1.8 percent and iMoney.net calculates the average return on taxable retail money-market funds at 2 percent.

Where can investors find higher yields while keeping their money safe? The options remain extremely limited. Many investments, such as ultra-short mutual funds and auction-rate securities, proved riskier than expected. Ultra-short funds that hold large amounts of subprime, asset-backed securities shed their value over the last year. For instance, Schwab Yield Plus plummeted 28 percent. Meanwhile, the auction-rate market imploded last February when investors sold off those securities in mass.

With these low returns on safe options, investors may look at high-yield (“junk”) bonds, where the extra risk comes with much better interest rates—the average yield currently sits at 7.9 percent. But investors need to remember that firms with unstable credit issue junk bonds and defaults often come out of the woodwork in times of recession. Buyer beware.

Our affiliation of lawyers is actively involved in advising individual and institutional investors in evaluating their legal options when confronted with subprime and other mortgage-related investment losses.Â

With the rate of foreclosures rapidly rising, the drop in home prices escalating, and the crisis extending to nearly every major city, the most critical real estate recession in decades remains far from over, says an April 29 USA Today article by Stephanie Armour. Investors beware.

Logging the biggest decline since its creation in 2001, the Standard & Poor’s/Case Shiller home composite index covering 20 cities dropped by 12.7 percent in February compared with last year. Every one of the 20 cities (except Charlotte) registered price declines; 17 suffered record drops for the year. According to David Blitzer, chair of S&P’s index committee, “There is no sign of a bottom in the numbers.”

Foreclosure activity rose a shocking 112 percent year-over-year and 23 percent quarter-to-quarter, according to CNBC.com. Foreclosure activity includes auction sale notices, bank repossessions, and default notices.

One significant concern is the unprecedented rise in bank-owned properties. “Typically you’ll see about 20 percent of the foreclosure filings being bank-owned,” said Rick Sharga of RealtyTrac in California. “We’re getting to a point now where it’s well over 1/3 and aiming at 40 percent, so that suggests that a lot of these homes can’t even be sold to investors at auctions—because there’s just no equity in the properties.”

More than a million bank-owned homes may flood the market by the end of the year, Sharga predicts. With approximately four million properties in the Multiple Listing Service (MLS), that means 25% will be owned by banks. Despite lenders’ assertions about offering work-outs or refinancing, as well as programs to assist borrowers in default, the rising number of homes now owned by banks points to significant problems with the effectiveness of these workouts and programs.

According to a RealtyTrac report, Nevada suffered the worst foreclosure rate at 3.6 times the national average, just ahead of California and Arizona. In the first quarter of this year, one in 54 Nevada homeowners received a foreclosure notice.

Through the coming months, analysts predict even more foreclosures, causing greater problems with prices. In order to clear their balance sheets of home inventory, banks continue to slash prices, compelling sellers who owe more than their homes are worth to further cut prices.

According to Mark Zandi, chief economist at Moody’s Economy.com, “There’s no sense of stabilization. The foreclosures are causing a vicious cycle, and the job market is weakening. This doesn’t feel therapeutic anymore. This is undermining the economy.” The results raise a multitude of red flags for investors, who may want to examine their options.

Only when foreclosure filings diminish can the real estate market recover, experts say. Therefore, the faster home prices hit bottom, the quicker buyers can resuscitate home sales, said Naroff Economic Advisors’ Joel Naroff. “We’re beginning to get massive price declines, and we need that to clear this market,” he concluded.

Our affiliation of lawyers is actively involved in advising individual and institutional investors in evaluating their legal options when confronted with subprime and other mortgage-related investment losses.Â

“This is going to be one of the worst economic downturns since the Great Depression,” said Columbia University’s Nobel Prize laureate Professor Joseph Stiglitz in an April 25 CNBC interview. Stiglitz’s comments contradict Wall Street executives who recently claimed the worst was over. Those same Wall Street executives made similar statements last October when they suffered losses in the billions of dollars. What will Stiglitz’s bleak forecast mean for investors?

Stiglitz contends that because the main cause of the current recession is historically unique, solutions are harder to uncover. Past recessions resulted from inflation or over-abundant inventories. According to Stiglitz, this downturn came about because of “badly impaired” financial institutions and banks unable to lend capital. Now, the borrowers who historically lead the country out of recession face uncertainty about the best course of action.

Even though inflation didn’t play a primary role in starting this recession, it remains a huge concern, Stiglitz said, with skyrocketing oil prices and increasing food prices potentially hurting businesses and alarming consumers. “Oil is particularly bad,” he said, with additional dollars “going abroad.”

In addition, the housing crisis contributes to a drawn-out recession. Â Previously, Americans withdrew billions of dollars through home equity loans. Unfortunately, they often consumed that money instead of investing it. Now plummeting home values compromised an important spending source, leaving homeowners with little, if any, equity to draw upon.

Prior to the current recession, the savings rate was zero. According to Stiglitz, savings will now “go up,” leading to reduced consumer spending and deteriorating retail sales.

Stiglitz concluded that, “The Bush Administration’s [economic stimulus package] is too little, too late, and very badly designed.” The tax rebate checks are a “drop in the bucket” compared to cash held back or siphoned out.“

If you really wanted to stimulate the economy, increase unemployment insurance,” he said. “The President is telling people to go out and get jobs—and there are no jobs for them.” Unfortunately, the longer the recession drags on, the more consequences for investors.

Our affiliation of lawyers is actively involved in advising individual and institutional investors in evaluating their legal options when confronted with subprime and other mortgage-related investment losses.Â

A 15-member task force composed of local, state, and federal investigators is scrutinizing mortgage lenders and Wall Street firms involved in the subprime mortgage crisis. The probe, initiated by federal prosecutors from New York’s Eastern District, will look for potential crimes like insider trading, mortgage fraud by brokers, and securities and accounting fraud.

Prosecutors will examine questions affecting investors such as:

• Did lenders change credit histories or other facts about borrowers before issuing loans and selling the loans to Wall Street firms or banks, who packaged them into securities to sell to investors?

• Did mortgage lenders misrepresent their firms’ quality of mortgage loans, growing number of loan defaults, or financial position in securities filings? Did they use questionable accounting methods to cover up losses?

• Did Wall Street brokers mislead investors about their collateralized-debt obligations? Did some say their obligations were backed by corporate debt instead of shaky subprime mortgage loans?

• How did lenders originating loans potentially deceive or violate agreements with the Wall Street banks that funded them? For instance, investigators will examine whether selected lenders lied about the status of their loans, neglecting to repay Wall Street firms after selling their loans directly to companies like Freddie Mac and Fannie Mae.

This task force is just one of many investigations taking place, including one looking at the circumstances that led to the collapse of two of Bear Stearns’ hedge funds last summer after losses linked to mortgage-backed securities. In addition, prosecutors are examining whether the country’s tenth-largest mortgage lender, American Home Mortgage Investment, filed false statements and committed accounting fraud prior to its 2007 collapse and whether UBS AG inappropriately valued its mortgage-securities holdings. These findings may affect investors’ ability to recover lost assets.

Our affiliation of lawyers is actively involved in advising individual and institutional investors in evaluating their legal options when confronted with subprime and other mortgage-related investment losses.Â

The financial woes haunting the nation’s financial markets are far from over, predict Morgan Stanley analysts. On Monday, the company advised clients to “sell the rally” in financial stocks, as it slashed forecasts for big bank earnings and warned that the credit crunch is just beginning.

In aggregate, Morgan Stanley reduced its estimates for 2008 large bank earnings by $17 billion, or 26 percent, and reduced 2009 forecasts by $13 billion.

The investment bank forecast higher loan losses and expenses, saying profits could fall even further if the Federal Reserve stops lowering interest rates. Analysts led by Betsy Graseck wrote in a report that “more capital hikes and dividend cuts (are) coming as our credit deteriorates and forward earnings decline.

“We think we are only in the third inning of the credit cycle and expect this credit cycle will be worse than (the slump in) 1990-91.”

Many on Wall Street have believed that the markets are closer to the end of the current mortgage and corporate credit crisis than to the beginning. The latest forecast by New York-based Morgan Stanley, the second-biggest securities firm behind Goldman in terms of market value, means the light at the end of the credit-crisis tunnel may not be as bright as we first thought. The turmoil of the markets is here to stay for now.

Our affiliation of lawyers is actively involved in advising individual and institutional investors in evaluating their legal options when confronted with subprime and other mortgage-related investment losses.Â

The Federal Bureau of Investigation’s ongoing probe into the institutional players connected to the nation’s subprime mortgage crisis has netted 19 companies - and that may be just the tip of the iceberg.

The focus of the 19 criminal probes concerns accounting fraud, insider trading by investment managers and possible deceptive marketing practices. During testimony before Congress on April 16, FBI director Robert Mueller said there was no end in sight to the individual and corporate fraud cases that may materialize, and that the bureau intended to reassign agents from other areas to deal with the surge.

While Mueller didn’t disclose information on the companies named in the FBI investigation, several reports say Countrywide Financial Corp., the country’s largest mortgage lender, is one of those involved for alleged accounting fraud.

Earlier this year, three of Wall Street’s biggest investment firms - Goldman Sachs, Morgan Stanley, and Bear Stearns - confirmed that government investigators had requested information regarding their subprime activities. To date, the FBI has refused to comment on whether any of the three are targeted in its probe.

What the FBI does say is that its investigation into the subprime crisis could take years to officially close. Regardless, the fact that the main investigative arm of the U.S. Department of Justice is involved in the first place underscores the seriousness of what may lie ahead for countless companies across the financial industry.

And for the thousands of investors facing monumental monetary losses as a result of deceptive marketing practices by investment banks or brokers, justice can’t come soon enough.

Our affiliation of lawyers is actively involved in advising individual and institutional investors in evaluating their legal options when confronted with subprime and other mortgage-related investment losses.

If the current state of the housing market were a book, its title might be something like, ‘There Goes the Neighborhood.’

Every day, the headlines proclaim the sorry state of the housing crisis. More troubling is it could be far worse that what’s already being revealed by government and industry statistics.Â

Mark Zandi, chief economist for Economy.com, contends many lenders may be distorting foreclosure rates by allowing delinquent homeowners to remain in their homes long after they have defaulted on their mortgages.

According to Zandi, some lenders are reluctant to initiate foreclosure procedures on homeowners because of cost and time factors. Legal fees and maintaining a vacant property while paying insurance and taxes can be expensive. The legal process itself can take months, during which time the lender is responsible for the home’s upkeep.

“Some people stay in their houses until someone comes to kick them out,” said Angel Gutierrez, owner of Dallas-based Metro Lending. “Sometimes no one comes to kick them out.”

At some point, however, the inevitable must happen. And prolonging the process may only make matters worse, creating a flood of foreclosed homes in an already debilitated housing market.

Our affiliation of lawyers is actively involved in advising individual and institutional investors in evaluating their legal options when confronted with subprime and other mortgage-related investment losses.

With the nation’s current housing slump compared to the Great Depression, the question on everyone’s minds is how much worse can it get?

As reported in a March 17, 2008, article in Fortune magazine, noted Princeton economist Paul Krugman predicts that by the end of 2008, more than 20 million Americans could be sitting with mortgages worth more than the value of their homes. That’s almost a quarter of all homes in the United States.

The negative equity will cause many homeowners to face foreclosure, according to Krugman, who says the country could be looking at up to $7 trillion in capital losses in housing, and $1 trillion of losses on mortgage-backed securities.

Even if Krugman’s forecast is only partially on target, the consequences are nonetheless dire. A further drop in housing prices will prolong a recession, with people unwilling - and unable - to spend money. A domino effect could then ensue, with more unemployment, sagging retail sales and negative projections from Wall Street.

To no surprise, Krugman reserves his most foreboding comments for mortgage-backed securities. Despite the Federal Reserve’s $200 billion temporary bailout, Krugman says it is too little, too late.

“I look at the prices on subprime-backed securities. Even the AAA-rated tranche is selling for barely over 50 cents on the dollar, and the rest is essentially worthless, which amounts to a prediction that you’re going to get really very little on this stuff. Even if every subprime borrower walks away from his house and a lot of money is lost in foreclosure, it’s hard to get numbers that bad,” Krugman said in the Fortune article.

Indeed, the country’s housing crisis and the resulting turmoil in the financial markets have become both monumental and unprecedented. Exactly when the economy will stabilize and return to “normal” is anyone’s guess. As Bette Davis said in the movie, All About Eve, “fasten your seatbelts; it’s going to be a bumpy night.”

Our affiliation of lawyers is actively involved in advising individual and institutional investors in evaluating their legal options when confronted with subprime and other mortgage-related investment losses.

The housing market, which has been in a cool down mode for more than a year, is becoming downright cold.

Across the country, home prices have dropped to record lows. Compared to a year ago in January, single-family home prices in 10 major U.S. cities fell 11.4 percent.

Data released by the S&P/Case-Shiller composite index shows that no city is exempt from the national housing crisis. Las Vegas, Miami and Phoenix reported the biggest drops, with home prices falling by an average of 19 percent.

This is the first time since home price data were first collected in 1987 that both housing indexes have shown double-digit percentage decreases. All 20 cities tracked by the index have seen price drops for five months consecutively. Thirteen of the 20 cities reported their single largest monthly decline in January.

The housing slump spells bad news for the economy. As homeowners watch the equity in their homes vanish into thin air, they are less likely to spend money elsewhere. Â Mortgage delinquencies and foreclosures are increasing daily. Banks, still reeling from the subprime mortgage mess, have stepped back from mortgage lending as a whole.

The problems facing the housing industry are still being felt on Wall Street. When mortgage defaults and delinquencies on subprime mortgages began to skyrocket, it created a host of problems for the securities backed by subprime loans and similar derivative products. For investors, it means they are likely to see even more losses in the months ahead.

In late March, U.S. consumer confidence hit a five-year low, according to the Conference Board index, which gauges consumer spending.

Looking ahead, there appears to be little light at the end of the housing tunnel, as analysts predict that the plunge in home values - the worst since the Great Depression - could get even worse.

Says David Blitzer, chairman of the S&P’s index committee: “Unfortunately, it does not look like early 2008 is making any turnaround in the housing market after the declining year recorded throughout 2007. Home prices continue to fall, decelerate and reach record lows across the nation.”

Our affiliation of lawyers is actively involved in advising individual and institutional investors in evaluating their legal options when confronted with subprime and other mortgage-related investment losses.

JP Morgan’s recent filing of detailed information on the valuations of specific structured credit securities held by itself and other banks with a court in Canada caught many off guard. Perhaps the biggest surprise to come out of the filings was that some subprime mortgage-linked securities issued by groups like UBS have lost almost 95 percent of their value.

The financial community has typically kept this kind of information under wraps. It became public only now because JP Morgan is spearheading an effort to restructure a group of 20 Canadian structured investment vehicles that issued $32 billion of asset-backed commercial paper.Â

The filings revealed bad news for other securities, as well, showing that some lost almost a third of their value, despite the fact that many were considered low risk and carried top ratings from the credit ratings agencies.

According to a March 23 article in Financial Times, the price estimates will no doubt garner the attention of auditors and regulators alike, particularly since they come at a time when the issue of security pricing is under fire. Banks are feeling the heat from regulators to book the losses they’ve incurred on the instruments. But because trading has dried up in many corners of the credit markets, it’s difficult, if not impossible, to compare prices for these instruments between banks.

For their part, regulators and investors are afraid that the banks are still varying in the degree to which they have recorded losses on their credit instruments in recent months, not to mention how hard it is for auditors to compare internal estimates with external benchmarks, according to the Financial Times story.

The worst of this storm is far from over. And, the ultimate implications for the broader economy continue to change by the day.

Our affiliation of lawyers is actively involved in advising individual and institutional investors in evaluating their legal options when confronted with subprime and other mortgage related investment losses.