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Diana Olick - Big Banks Move to Short Sales

Will It Help Housing?

“Earlier this week a top executive at Bank of America told an REO conference in Dallas that the lender would be focusing more on short sales than ever before. At first hearing this, I assumed it was because of the government's Home Affordable Foreclosure Alternative Program, which provides cash incentives to servicers and borrowers for short sales and also streamlines the process, but of course there's way more to it than that.  Said Bank of America exec, Matt Vernon, whose official title is National REO, Short Sale and Deed in Lieu Executive (his childhood dream title I'm sure), granted me an interview this morning, and was pretty clear as to why B of A is pushing these alternatives. The big difference, he says, is that B of A, as well as some other big banks, are changing the model from reactive to proactive. In other words, instead of waiting for a borrower or real estate agent to approach the bank with an offer for a short sale, they are using a "cooperative approach, with homeowner, Realtor and servicer on behalf of Investor, working to move that property through the process. “All three of the interested parties holding everything together”, “ Vernon explains”.

Olick continues: “So the servicer sets a minimum value for a short sale and then the borrower and Realtor go out and find a buyer. When they do, the process then moves far more quickly because it's already approved. Of course there's always the financial incentive as well. With so many borrowers either falling out of or not qualifying for the modifications, a huge flood of properties are moving to REO (bank owned). A report from Clayton Holdings finds short sales cut risk severity by 13 percent more than REO sales. And in some states where the foreclosure process is lengthier, short sale loss severities can be as much as 26 percent lower than REO loss severities.  "I would say that's generally accurate in what we see," agrees Vernon . "It really comes down to time. The quicker you can facilitate the property moving." The good news is that will cut down on foreclosures. The bad news is short sales, like it or not, are comps. They sell for less, and consequently bring down the values of properties around them."

More Commercial Mortgage Backed Securities Sold

On the heels of Friday's news that JPMorgan  sold $716.3M of commercial mortgage-backed securities (CMBS) bonds this week — the second such deal of 2010 — comes more optimism regarding appraisal subordinate entitlement reduction, or ASER, reimbursements.  According to analysts at Barclays Capital (BarCap), an emerging trend is growing and a sizable increase in ASER reimbursements are coming to the bottom branches of CMBS, the result of increasing liquidation volumes. During the past three months, investors in the bottom branches of CMBS deals were reimbursed an average of $10.5M of interest that was accrued but not paid to them in the prior remittance periods, BarCap said, including reimbursements of $11.2M in May, $12.6M in April and $7.8M in March. The Mortgage Insurance Companies of America spent more than $1M lobbying the federal government on its role in housing finance during Q1-‘10. That's up nearly 400% from Q1-‘09, when the group spent $215,000 on its efforts, as well as above its Q4-‘09 reported expenses of $850,000, according to a disclosure with the House of Representatives clerk's office.

Retail Sales 1st Drop In 8 Months

Retail sales fell for the first time in eight months in May, the government said Friday, widely missing analyst expectations. Total retail sales fell 1.2% to $362.5 billion last month, compared with April's upwardly revised 0.6% increase, the Commerce Department said. It was first decline since last September, when retail sales fell 2.3%. Economists surveyed by Briefing.com expected sales would increase by 0.2% in May.  "The trend as of late has been modest growth, and around the trend of modest growth, you're going to get some ups and downs," said Scott Hoyt, a retail economist with Moody's Economy.com. "That's clearly what we're seeing here." Sales declines were led by a 9.3% drop in building materials and supplies. Consumer spending accounts for two-thirds of U.S. economic activity, so related reports such as retail sales are closely watched to gauge whether a recovery is underway.  "The pace of consumer spending growth we saw in the first quarter was too fast and couldn't be sustained," Hoyt said. "But if you put this [report] in the context of the last few months, where growth was quite strong, and smooth it all out a bit, we are still consistent with the story of modest spending growth, and this is where we should be."

Shadow Inventory Variants Could Trigger Regional Price Declines

Regional variations in the shadow inventories of distressed U.S. mortgages could be an indicator of the direction home prices will take, according to a new report published by Standard & Poor’s Ratings Services. The company’s analysts say differences in the backlog of distressed properties point to which markets will see home prices stabilize or even increase, and where additional declines may still be in store. The volume of troubled residential properties has been growing in nearly every U.S. state since 2005, S&P said, and borrowers nationwide are now defaulting on their mortgages faster than existing defaults are being resolved through liquidation. These trends have given rise to a large “shadow inventory” of distressed properties. S&P estimates that the shadow inventory backing just private-label residential mortgage-backed securities (RMBS) will take nearly three years to clear at the current resolution rate. The ratings agency defines shadow inventory as properties that are 90 or more days delinquent, in foreclosure, or REO, but that haven’t yet hit the market. S&P concludes that the original principal balance of this inventory overhang amounts to roughly $480 billion, or 30 percent of the entire private-label, non-GSE market.  Standard & Poor’s review of the 20 major metropolitan statistical areas (MSAs) included in the S&P/Case-Shiller Home Price Indices revealed that inventories appear to be falling from recent peaks in some areas while remaining stagnant at historical highs or continuing to rise in others.

While we may not agree with everything he states in this video, Mr. Salbuchi does raise a few good points, namely that we are all going to need cashflowing hard assets in the very near future.  Income producing commercial real estate is a key element to a healthy and balanced portfolio.  As rents increase so does the overall value of the asset.  For those accredited investors searching for such an opportunity, we invite you to register and consider the Private Placement Memorandums available today.  A consultant is available and happy to answer any questions or concerns you may have in the ever important decision towards your very near future.   

RISE IN RATES THREATENS HOUSING MARKET

Mortgage rates have risen to their highest level in the last 3 months. The average rate for a 30-year fixed mortgage jumped to 5.44% yesterday. This is in line with the steep increase in the yields of long-term treasury bonds. The 30-year rate was at a record low of 4.78% in April. The decision of the Federal Reserve to buy $1.25 trillion of mortgage securities and $300 billion in Treasury Notes this year led to a drop in mortgage rates early this year. Lower rates, in turn, led to an increase in mortgage applications.

Analysts are now worried that the surge in mortgage rates could impact the economy adversely by curbing consumer spending. Mahesh Swaminathan, a mortgage strategist at Credit Suisse Group, says, "The spike in rates has the potential to derail a lot of things." According to Credit Suisse, a rise of 0.1% in mortgage rates translates into a 1% increase in home prices. Higher rates will hit home prices and sales. Ben Bernanke, Chairman of the Federal Reserve, referred to early signs of economic recovery as "green shoots" in an interview recently. T.J. Marta, a financial analyst, says, "If the Fed does not step in, you are going to see the 'green shoots' get frost bite."

RECESSION HITS SHOPPING MALLS

Shopping malls in the U.S. are turning into ghost towns. A number of demographic factors along with the pressures of economic downturn are affecting the sector. General Properties, one of the largest shopping mall companies in the country, filed for bankruptcy last month. Department stores which occupy malls have been badly hit. Rating agencies have downgraded debt securities of leading retailers such as Macy's and J.C. Penny to "junk" grade. Sears Holdings, a large consumer of mall space, is likely to close 23 stores in the next couple of months. According to Green Street Advisors, a real estate research firm, in the 12 months ended March 31, shopping malls in the U.S. posted a 6.5% decline in tenants' sales.

Industry experts believe that a mall is in danger of failure if its annual sales per square foot figure falls below $250. By that rule of thumb, over 84 malls are already in the "dead" list. If the retail sector does not show signs of revival, Green Street estimates that over 100 properties will find a place in the dead-mall list by the end of this year. Burt P. Flickinger III, managing director of Strategic Resource Group, a research firm, says, "The shopping center bankruptcies and the REIT bankruptcies are the ticking time bomb that people aren't talking about."

RECEIVABLES SLOW TO CASH

CASH IS KING, particularly in times of recession. According to The Hackett Group, an advisory firm, the 1,000 largest companies in the U.S. took 39.7 days to collect on sales in the fourth quarter of last year, as against 36.4 days a year earlier. In the first quarter of this year, the figure rose to 39.5 days. Inventory on hand rose to 31 days worth of sales in the first quarter of this year as against 28.2 days in the last quarter of last year.

As companies look to conserve cash by delaying payments to vendors, they cause ripples of pain across the supply chain. Mark Tennant of The Hackett Group said, "If you make the wrong thing and sales reduce, you sit on it for a long time." Companies are looking at cash flow management as an important management objective and some companies are tying executive bonus to cash flow.

IS RECESSION ABATING?

Economists have predicted that the recession in the economy will end in the last quarter of this year. Chris Varvares, president of the National Association of Business Economists (NABE), says, "While the overall tone remains soft, there are emerging signs that the economy is stabilizing." New data from different agencies seem to support NABE's prognosis. According to the Commerce Department, new orders for durable goods rose 1.9% in April, the biggest increase in the last 16 months.

A recent report from the Labor Department shows a drop in initial claims for state unemployment insurance by 13,000 to 623,000 in the week ended May 23. James Masi, chief fixed income strategist at the investment banking firm Stifel Nicolaus, said, "The data is consistent with the view that the rate of contraction is slowing, but we are still working our way through a recession. We haven't hit a bottom yet."

OIL PRICE RISE MAY IMPEDE ECONOMIC RECOVERY

Oil prices have risen 48% to $65 per barrel in the last five weeks. Oil, being an essential commodity in any economy, becomes dearer as its demand grows on account of recovery in the global economy. In addition, the U.S. dollar has depreciated against a basket of currencies in the last 5 weeks. A weak dollar leads to an increase in cost of imports including oil. Oil hit a record high of $147 per barrel last summer. While the current level is nowhere near $147, analysts are worried that the prospects of economic recovery may get hampered if oil prices continue to rise.

With unemployment at a high, consumers are not in a position to absorb raising costs. Gasoline prices go up by 2.4 cents for every one dollar rise in crude. James Hamilton, an economics professor at the University of California, San Diego, says if the gasoline price increases, it could "postpone some of the recovery we'd been hoping for."

ZOMBIFICATION OF BANKS

A large majority of the 8000 odd small banks in the U.S. are still functional. The question is how healthy they actually are. With non-performing assets (bad loans) at over 10% of the total assets in many of the banks, one wonders if such banks are actually dead banks posing as living ones. The Federal Deposit Insurance Corporation (FDIC) will be publishing a report in which it will provide an assessment of the banking industry, next week. The report is expected to throw some light on the problem. As of 2008, the number of "problem" banks, published by FDIC, stood at 252. The number is expected to be higher in 2009. Experts believe FDIC should have been a lot more proactive in closing down troubled banks.

Recent reports published by the Office of Inspector General attached to FDIC have charged that FDIC was "not timely and effective" in addressing problems affecting some of the banks that failed last year. FDIC has initiated a number of steps to strengthen its internal mechanisms to tackle the banking crisis. However, the job of FDIC is not likely to get any easier in the months to come, given the dwindling interest of buyers in the assets of failed banks.

FORECLOSURES ON THE RISE

As the unemployment rate threatens get into double digits from the current rate of about 9%, analysts expect foreclosures to go up significantly in the future. The new wave of foreclosures will include not only sub-prime borrowers, but also borrowers who were once financially healthy but are falling into bad times as a result of job loss. Mark Zandi, chief economist at Economy.com, a provider of economic analysis, has said that "loss of jobs and loss of overtime hours and being forced from a full-time to part-time job is resulting in defaults. They're coast to coast."

According to Economy.com, unemployment will account for 60% of mortgage defaults this year. The Obama administration announced a $75 billion incentive program for mortgage companies that reduce payments for troubled homeowners in February.  The program was estimated to help at least 4 million homeowners facing foreclosure. With the employment situation not showing any signs of improvement, experts are now wondering how effective the plan will be. Alan Ruskin, chief international strategist at RBS Greenwich Capital says he doesn't "think there's any chance of government measures making more than a small dent."

HOME PRICE BS CONTINUES

Home prices continue to decline on account of record foreclosures, tighter lending standards, and a significant supply of unsold properties. According to Standard & Poor's/Case-Shiller Home Price Indices released today, home prices in the U.S. fell by 18.7% in March from a year earlier. On a month-over-month basis, home prices, as measured by an index of 20 metropolitan cities, fell 2.2% in March from February. David M. Blitzer, chairman of the Index Committee at Standard & Poor's, said, "Declines in residential real estate continued at a steady pace into March." Over the past 3 months, the index has declined at an annual rate of 25%. According to Adam York, an economist at Wachovia, "Home price declines will likely continue into 2010, considering the weakness in both the housing market and the broader economy, but hopefully the pace of decline will moderate over the next few quarters."

FDIC: A ONE-TIME FEE

With the increase in bank failures, the deposit insurance fund of the Federal Deposit Insurance Corporation (FDIC) has been taking a hit. FDIC has announced that it will be charging banks a one-time fee this year, in order to replenish its insurance fund. The charge will be calculated on the basis of a bank's asset size minus its Tier 1 capital. John Dugan, the Comptroller of the Currency, voted against the proposal and called it "perverse." Dugan argued that the deposit insurance fund has been largely drained by the failure of smaller banks and it would not be correct to penalize larger banks by imposing a charge on the basis of their asset size. Sheila Bair, the Chairman of FDIC, has defended the fee. "A lot of large banks haven't failed because of massive government assistance," said Bair. "If it weren't for those, some big banks would have failed and there would have been costs." The special fee, which will bring in $5.6 billion, will serve FDIC well. The expected loss for FDIC's insurance fund is estimated to be $70 billion over the next 5 years.

MORE FUNNY MONEY?

When banks acquire troubled assets, the bad loans acquired seem to become income. Bizarre as it may sound, banks, by using the so-called "accretable yield" concept, can book revenues after they acquire bad debts. Accretable yield refers to the difference between the value of the loans on the banks' balance sheets and the cash flow they are expected to produce. The practice is what is commonly called Purchase Accounting. JP Morgan bought Washington Mutual for $1.9 billion last September, and by using purchase accounting, it marked down $118.2 billion of assets by 25 percent.

As borrowers repay their debts, the bank expects to make $29.1 billion in pretax income, over the life of the loans. "One of the beauties of purchase accounting is after you mark down your assets, you accrete them back in," says Gerard Cassidy, an analyst at RBC Capital Markets. "Those transactions should be favorable over the long run." Some analysts are worried about banks stretching purchase accounting to smooth out earnings. Chris Armbruster, an analyst at Al Frank Asset Management Inc., says, "There's definitely going to be some marks that were taken that were too extreme."

Unemployment Claims Hit New Record

The US Labor Department released figures showing that 637,000 people filed new claims for jobless benefits in the week ended May 9, up 32,000 from an upwardly revised 605,000 in the previous week.  The number of people filing claims on an ongoing basis rose to a record high for the 15th straight week.  The 4-week moving average of initial claims, which smoothes out volatility in the measure, rose 6,000 to 630,500.  The most recent data available shows 6,560,000 claims filed on a continuing basis ?the highest number since the Labor Department started tracking the data in 1967 and an increase of 202,000 from the previous week.  Most of the increase was due to auto industry layoffs.  Chrysler has laid-off 27,000 workers in the wake of its April 30 bankruptcy filing and General Motors has said it will temporarily shut 13 factories beginning later this month, potentially affecting 25,000 workers.

Banks Forced to Take TARP

Documents obtained by the conservative legal watchdog group Judicial Watch, through the Freedom of Information Act, show that the CEOs of nine major banks were given no choice but to take TARP funds.  According to a document marked "CEO Talking Points" prepared for then-Treasury Secretary Henry Paulson, "if a capital infusion is not appealing, you should be aware your regulator will require it in any circumstance ..." and warned, "We don't believe it's tenable to opt out because doing so would leave you vulnerable and exposed ? We plan to announce the program tomorrow and that your nine firms will be the initial participants.  We will state clearly that you are healthy institutions, participating in order to support the U.S. economy."  The Treasury Department had no comment. 

Mortgage Loan Originations Down

The Mortgage Bankers Association's (MBA) Quarterly Survey of Commercial/Multi-family Mortgage Bankers Originations shows that commercial and multi-family mortgage loan originations continued to drop in the first quarter of 2009 to the point that they're 70 percent lower than during the same period last year and 26 percent lower than during the fourth quarter of 2008.  According to Jamie Woodwell, Vice President of Commercial Real Estate Research at the Mortgage Bankers Association, "In the first quarter of 2009, we saw the effects of the continued recession coupled with little demand from borrowers and a constrained supply from lenders as a result of the credit crunch.  The net result was low levels of new originations." 

The 70 percent overall decrease in commercial/multi-family lending activity during the first quarter was driven by decreases in originations for all property types.  When compared to the first quarter of 2008, the decrease included an 88 percent decrease in loans for hotel properties, an 80 percent decrease in loans for health care properties,

a 76 percent decrease in loans for retail properties, a 66 percent decrease in loans for office properties, a 61 percent decrease in multifamily property loans, and a 50 decrease in industrial property loans.

Producer Price Index up

According to a report by the US Labor department, the Producer Price Index climbed 0.3 percent after declining 1.2 percent in March, driven by the biggest increase in food prices since January 2008.  I know it may seem that your average grocery store product is ?bargain? priced slightly lower than before, however, what you don?t see is the change in actual volume of product is also slightly less than before.  Hmm ? how do you feel about paying more for less sugar, flour, cereal, etc?  Excluding food, the headline PPI would have increased 0.1 percent.  However, compared to the same period last year, prices received by producers tumbled 3.7 percent, the biggest decline since January 1950, keeping the risk of deflation alive.  Core producer prices, excluding food and energy costs, rose 0.1 percent in April.  The core PPI was unchanged in March.

Economy Bad But Getting Better

- do you believe the government yet?

The U.S. services sector contracted for the seventh straight month in April but at a slower pace.  The services index from the Institute for Supply Management came in at 43.7 in April compared with 40.8 in March.  Any reading below 50 indicates the service sector, where most Americans work, is contracting.  Still, the reading was higher than economists expected and supposedly provides another sign the economy could be bottoming out.  Where have we heard that before?  Oh yeah, from every government spokesman since this whole mess started.  And again today -- Federal Reserve Chairman Ben Bernanke just told Congress that the economy should pull out of a recession and start growing again later this year.  "But," Bernanke warned that even after a recovery gets under way, economic activity is likely to be sub-par, with businesses cautious about hiring, driving up the nation's unemployment rate, and causing "further sizable job losses" in the coming months.  

So how exactly is this an improvement again?  Bernanke continued in this vein:  In the months ahead, consumer spending should be lifted by tax cuts contained in President Barack Obama's giant humongous multi-bazillion stimulus package, "But" rising unemployment, sinking home values, and cracked nest eggs will still weigh on consumers willingness to spend freely.  Well, I feel like dancing for joy, how about you?  And behind door number two comes: inflation ...

Libor Falls to Lowest Since 1986

The 3-month Libor fell to 0.99%, below 1% for the first time since 1986, when the British Bankers Association started keeping records.  Libor, the London Interbank Offered Rate, is a daily average of rates that 16 different banks charge each other to lend money in London.  It is a closely watched benchmark and it is used to calculate adjustable-rate mortgages.  

"This is good news," said Gus Faucher, director of macroeconomics, at Moody's Economy.com.  "It means that banks are trusting one another again and that we're getting to the bottom of the problems in the financial system."  The 3-month Libor soared to 4.8% in October after the collapse of brokerage Lehman Brothers, and the resulting market volatility caused banks and investors to hoard capital.  Oddly enough, this actually IS good news.

Stress Test Stress

Banks are expected to be briefed on the official results today, but according to CNBC, U.S. regulators have deemed that about ten of the 19 U.S. banks being stress tested will need to raise more capital.  The institutions undergoing stress tests include Citigroup, Bank of America, Goldman Sachs Group, JP Morgan, Chase, Morgan Stanley, MetLife, Wells Fargo, PNC Financial Services Group, US Bancorp, Bank of NY Mellon, SunTrust Banks, State Street, Capital One Financial, BB&T, Regions Financial, American Express, Fifth Third Bancorp, KeyCorp, and GMAC.  Fred Dickson, chief market strategist at D.A. Davidson & Co, said on Friday that Citigroup, Bank of America, JP Morgan, and Wells Fargo are expected to be among the companies needing to boost their reserves.  

Oddly enough, AIG, the insurer we all love to hate isn't on the list.  According to CNBC's source, Fed Chairman Ben Bernanke and Treasury Secretary Timothy Geithner will release the findings of the regulatory stress tests to the public on Thursday.  Not everyone is thrilled about the stress tests; Wayne Abernathy, an executive at the American Bankers Association and a former Treasury official says, "I think the great risk there is that you create some new uncertainty and concerns at the very time the financial condition of the banking industry is turning for the better."

Tax Crackdowns A Very Bad Idea

The first of many criticisms to come of Obama's tax "crackdowns" comes from Wilbur Ross, Chairman & CEO WL Ross & Co.  The changes have been described in glowing terms as ways to, "... cut taxes for American families, increase incentives for businesses to create jobs in America, and reduce the deficit."  According to Ross, "It almost sounded as though he was intending to be punitive on corporations that had extensive overseas operations.  To the degree that that's true I think it would be a huge mistake, because one of the reasons that many of the U.S. corporations are prospering is in fact their participation in the more rapidly growing markets overseas.  

And I think that's a very dangerous slope."  David Roche, global strategist at Independent Strategy, thinks the reason Obama is scrambling to drum up tax revenue is obvious; he needs money - fistfuls of money - to replace at least some of the astronomical debt he's creating.  "First of all, the Obama administration is going to see government debt-to-GDP in the U.S. go to 80 percent.  He's running almost unfinanciable budget deficits close to 12 percent this year, probably 8 percent in the long term.  Its (U.S. government) going to go after anything that is money in order to try to limit the damage its doing through its fiscal policies, and that includes the rich and corporations," Roche said.

And Then There Was More ...

Even if corporate profits revert to trend, the extra revenue from tax crackdowns won't lower U.S. deficits much, but if, as is far more probable, profits revert to somewhere around their 1994 share of GDP, government tax revenues will decline by far more than Obama's plans are expected to raise.  

On the revenue side, the long-term trend in corporate taxes as a percentage of GDP is approximately flat.  They accounted for 2.05% of GDP in 1993-94 and 2.13% in 2007-08 - similar economic years, albeit with the economy heading in opposite directions.  But corporate profits were a far higher percentage of GDP in 2007-08, so the net effective tax rate declined from about 24.1% in 1993-94 to 19.4% in 2007-08.  So who is next on the "tax crackdown" block?  

Chrysler Filing for Bankruptcy

Chrysler officials had no comment on the bankruptcy report, but the filing came after some of the company's smaller lenders, including some hedge funds, refused a Treasury Department demand to reduce the amount of money Chrysler owed them.  Bankruptcy doesn't mean the company will stop working –the administration plans, with the agreement of the UAW, to merge it with Fiat.  "The agreement of all other key stakeholders ensured that no hedge fund could have a veto over Chrysler's future success," said an administration official.  Imagine the gall of loaning shareholder money and wanting it back again!  Let's hope there's a limit to arbitrary government interference before companies stop doing business with each other altogether.

Record Unemployment

- Slowed Jobless Claims

The US Labor Department said the number of initial jobless claims fell again last week, but the number of people collecting benefits overall hitting a new record high of 6.27 million.  In the week ended April 25, there were 631,000 initial jobless claims filed, down 14,000 from a revised-up 645,000 the previous week.  The decline in initial claims may be nothing more than a correction from the jump due to Lehman Bros collapse, but of course there's always someone around waiting to say nice things about it.  "The past few weeks' claims data are beginning to look increasingly like a peak," wrote Ian Shepherdson, an economist at High Frequency Economics, adding that it may not mean all that much in the grand scheme of things.  Meanwhile, 6,271,000 people continued filing for unemployment insurance in the week ended April 18.  That's a record high, and an increase of 133,000 from the previous week!

Rule Changes Have NAR Fighting

The National Association of Realtors (NAR) is trying to delay new Fannie Mae and Freddie Mac rules governing real estate appraisals from going into effect on May 1st.   The goal of the change is to eliminate alleged collusion between mortgage lenders and appraisers by stopping brokers from ordering appraisals directly, but it will also mean that mortgage brokers will be required to go through lenders to get appraisals.  Mortgage brokers say this will make it hard for them to compete with lenders, because borrowers looking for the best rate may have to pay for multiple appraisals. 

Cram-downs Due to FAIL

Senate Majority Whip Richard J. Durbin's (D-Illinois) legislation hits the Senate today as an amendment to the "Helping Families Save Their Homes Act of 2009," and is not expected to pass.  Not surprisingly, mortgage industry opposition to the cramdown proposal, which essentially lets financially-strapped homeowners file for bankruptcy protection to restructure their debt, has been strong, because it makes a mockery of contract law by letting judges arbitrarily rewrite contracts, ultimately raising the cost of borrowing as lenders factor in the possibility of bankruptcy proceedings. If the Durbin amendment fails to get 60 votes Thursday, as is expected, it will be withdrawn altogether and no further cram-down amendments will be allowed.

Consumer Spending Down, Income Growth Down

The US Commerce Department reported that consumer spending dropped by 0.2 percent in March, worse than the 0.1 percent decline that economists had expected, and incomes dropped by 0.3 percent, worse than the 0.2 percent dip that had been expected.  Personal savings edged up to 4.2 percent, compared to 4 percent in February and near zero a year ago.  Consumer spending accounts for 70 percent of total economic activity, so a drop in spending is not a good sign, but certainly understandable in view of the massive layoffs across the country.  The Federal Reserve, which slashed a key interest rate to near zero last December in an effort to fight the downturn, announced it would keep rates low for the foreseeable future.

Consumer Confidence Up

Housing prices being down-but-not-too-far-down is not the only indication of a bottom to the economy either.  The Conference Board's consumer confidence index climbed to 39.2 this month from an upwardly revised 26.9 in March - the highest since November 2008.  Consumers' assessment of present-day conditions improved moderately, with those claiming business conditions are "bad" easing to 45.7 percent from 51.0 percent, while those claiming business conditions are "good" rose to 7.6 percent from 6.9 percent.  Consumers expecting business conditions to worsen over the next six months declined to 25.3 percent from 37.8 percent, while those expecting conditions to improve rose to 15.6 percent from 9.6 percent in March.  "The sharp increase in the expectations index suggests that consumers believe the economy is nearing a bottom, however this index remains well below levels associated with strong economic growth," said Lynn Franco, director of the industry group's Consumer Research Center.  Notice the caveat there?  Confidence is still in the pit without a handhold, but at least it's leaping for the edge. 

Mortgage Bailout Redux

According to the Wall Street Journal, the government will start paying mortgage servicers $500 upfront and $250 a year for three years for successfully modifying a second mortgage.  The announcements, which will come from both the Department of Housing and Urban Development, and Treasury, are expected updates on the administration's plan to right the housing market. Some of the largest U.S. banks, including Bank of America, Wells Fargo, and J.P. Morgan Chase, have already agreed to sign on to the program, a senior administration official said. The rest of the industry will be encouraged to participate. 

Under the program, servicers must agree to modify all second mortgages where the first mortgage has already been modified. "We are tackling one of the challenges we recognized," the official said.  The issue of second mortgages has been dogging policymakers ever since the onset of the foreclosure crisis. A large portion of troubled borrowers also have a second mortgage on their home, which is typically owned by a different investor than the first mortgage. Those borrowers may not be able to afford their monthly payments if only the first mortgage is modified.  The administration will also announce a set of incentives for servicers and lenders participating in the Hope for Homeowners program, which aims to restore homeowners' lost equity by encouraging lenders to write down loan principal. 

Swine Flu Still Moving the Market

The World Health Organization moved a step closer to declaring a pandemic by raising its alert level from three to four on its six-level scale.  So far, the swine flu outbreak in Mexico was suspected in 152 deaths and more than 1,600 illnesses, its health minister said. At least 90 cases have been confirmed worldwide, including 50 in the United States, six in Canada, three in New Zealand, two each in Spain and the United Kingdom, and one in Israel. Economists say the outbreak could derail a global economic recovery if it isn't contained.  "The flu is going to continue to be a market story," said Art Hogan, chief market strategist at Jefferies & Co. "In 2003, SARS cost us tremendous amounts in terms of market capitalization because of the travel restrictions.  We haven't heard about any of those yet, but investors worry that we might."  Besides, some countries are using swine flu as an excuse to institute trade restrictions, like Russia's ban on imports of meat products from Mexico, California and Texas.  "It's a very bad time for [the outbreak] to be happening when you want to remove trade restrictions to help economies recover," said James Auger, senior analyst, North America, with IHS Global Insight, a global economic research and forecasting firm.

$1 Billion a Day for 10 Weeks

Handing out nearly $800 billion in a responsible manner is not easy.  "You can only spend so much money really fast," said Michael Ettlinger, vice president for economic policy at the left-leaning Center for American Progress.  But the government is trying hard anyway, having already dumped $14.5 billion into Medicaid costs.  If you're wondering what that has to do with stimulus, you're not alone - so am I.  The Obama administration says it's satisfied with the pace of spending and should meet its goal of making 70% of the funds available by September 2010, but so far, only about 15% has been committed.  "We're ahead of schedule and making steady progress," said Liz Oxhorn, a press secretary for Vice President Joe Biden, who is heading the recovery effort.  "We're pleased."  I'm sure we're all thrilled too, but will our kids be as happy when they have to pay for it all?

How to Deal with Your Escrow Shortage & Increase Your Cash Flow

Property taxes and insurance are increasing every year.  If your mortgage requires an escrow account to cover taxes and insurance, this will increase the payment.  Often it results not only in an increase in mortgage payments but an additional payment due for a shortage in the current mortgage escrow account.   This quickly decreases cash flow; however, there is a way to get some relief!  

Typically, mortgage companies will allow two options when there is an escrow shortage.  

• One option is to pay the escrow shortage in full with one payment.  

• Increase in the mortgage payment spreading the escrow shortage over a twelve month period ?your statements will have the option of paying your self-financing amount.

It is not unusual to receive several of these increases each year on multiple properties.  Even if you only own one property, your primary residence, the additional monthly expense is no fun.   However, for investors owning multiple properties, these payment increases can really hurt cash flow.  Even if the increase is only $20 - $40 per property, it adds up fast when you multiply the increase by 5, 10 properties or more.

Most mortgage companies are willing to spread the escrow shortage over a longer period than twelve months ?you won?t know unless you ask.   Some mortgage companies will spread the escrow shortage over a 36 month period, which can really lighten the burden and increase your cash flow if you have multiple properties.  All you have to do is send in a written request asking them to spread your escrow shortage over a longer period of time.  It is helpful to explain that the increase in payments is creating a hardship.  After all, it is always hard when your cash flow goes down, right?  You may want to call the escrow department ahead of time and negotiate.  A good rule of thumb is to have a target threshold already in mind.

Mortgage Applications Up

Weekly Mortgage Applications Survey released by the Mortgage Bankers Association (MBA), showed an increase of 5.3 percent in the Market Composite Index on a seasonally adjusted basis from 1113.2 one week earlier, with most of the increase attributable to refinancing.  On an unadjusted basis, the Index increased 5.3 percent compared with the previous week and increased 76.9 percent compared with the same week one year earlier.  

The Refinance Index increased 7.7 percent to 6540.7 from 6071.7 the previous week, while the seasonally adjusted Purchase Index decreased 4.2 percent to 253.0 from 264.1 one week earlier.  The seasonally adjusted Conventional Purchase Index decreased 4.6 percent while the seasonally adjusted Government Purchase Index (largely FHA) decreased 3.6 percent.  The refinance share of mortgage activity increased to 79.7 percent of total applications from 77.8 percent the previous week.

Real Estate Sentiment Up

Recently released Real Estate Roundtable Survey indicates that senior real estate executives believe market conditions are getting better, despite constricted credit conditions in the commercial market.  About 60 percent of the 120 survey respondents say they expect conditions in the real estate market will get better within a year.  This view is reflected by a slight up tick in the Overall Q2 2009 Sentiment Index, which is at 41, up from last quarter's score of 38 and its low point of 33 six months ago.  

Most see the major hurdle as a lack of access to capital, with 88% of respondents saying it's harder to get a loan compared to a year ago.  86 percent of respondents think equity financing has deteriorated from a year ago, but most respondents predict it will improve in the next year.

Morgan Stanley Posts Big Loss

Unlike the "profitable" banks which have already reported, Morgan Stanley sharply missed market expectations on Wednesday by posting a net loss of 57 cents per share in the first quarter - far above the 8 cents per share expected by analysts.  The bank said in a statement it had net losses of $1 billion on investments in real estate and a $1.5 billion decrease in net revenue related to the tightening of its credit spreads on certain of its long-term debt.  Colm Kelleher, Morgan Stanley CEO, said the company will "remain cautious" and that the first-quarter results were delivered with less risk compared to the rivals.  This may actually be good news, since the rivals in question have, if not exactly cooked the books, certainly been quite creative in manufacturing a profit.  Morgan is one of the largest commercial real estate investors in the world, recorded $1 billion of net losses on real estate and a $1.5 billion accounting loss on its own debt.  Kelleher said the real estate sector was the bank's "single biggest worry."

Mortgage Default Feedback Loop

Diana Olick, reporting on CNBC, points out that the recently released FHFA report shows that prime loan delinquencies increased by 70 percent, and that the majority of those loans are due to job losses, not the housing crash itself.  The report listed the top five reasons for default: Curtailment of income (34.1 percent), Excessive obligations (19.8 percent), Unemployment (8.1 percent), Illness (6.5 percent), and Marital difficulties (3.5 percent).  She quite rightly draws the conclusion that we've entered a feedback loop in which defaulting mortgages caused the economic downturn, but now the economic downturn is causing defaulting mortgages.

IMF Pessimism: World Economy Will Shrink

According to the International Monetary Fund (IMF), the world economy is likely to shrink this year for the first time in six decades.  But brace yourself for the bad news ...  the IMF's outlook for the U.S. predicts the U.S. economy will shrink 2.8 percent this year in the biggest such decline since 1946.  Japan is expected to suffer the sharpest contraction this year: 6.2 percent.  Russia's economy would shrink 6 percent, Germany 5.6 percent and Britain 4.1 percent.  Mexico's economic activity would contract 3.7 percent and Canada's 2.5 percent China is expected to see its growth slow to 6.5 percent this year, and India's growth is likely to slow to 4.5 percent.

Freddie Mac Says Housing Sales Are Near Bottom
 

Frank Nothaft, chief economist of Freddie Mac, said on Saturday that housing sales are nearing a bottom, with foreclosures accounting for a third of all sales.  But ?you knew there's a "but" coming, right?  Yup, like a swift humiliating kick ... Nothaft added that unemployment and house price declines will trigger foreclosures as prime borrowers become delinquent and add to foreclosure risk.  However, he did point out that Federal Housing Administration lending is up sharply, with FHA loans at the largest share of the U.S. housing market since 1942, and mortgage rates at a 50-year low.
 
B of A Reports Profit Sort-Of, Maybe
 

Bank of America joined the parade of sort-of-profitable banks, reporting a first quarter profit of $4.2 billion ?well ahead of expectations.  But like the others, it warned of "deteriorating credit quality," which drove the stock sharply lower in early trading.  Lewis cited growing credit problems at the bank, specifically the firm's consumer-related loan portfolios, as more and more Americans found themselves out of work or filing for bankruptcy.  Bank of America's credit card division, for example, swung to a net loss of $1.8 billion during the quarter, hurt by rising credit costs.  The bank also added $6.4 billion to its loan loss reserves in the quarter.  No one knows the extent of the credit card meltdown - the next wave of trouble to hit the economy, and even printing bundles of money won't help that.  Ken Lewis, Bank of America's chairman and CEO, while twisting you a balloon animal, said in a statement: "We understand that we continue to face extremely difficult challenges primarily from deteriorating credit quality driven by weakness in the economy and growing unemployment."
 
Key Survey: Recession Slowing
 

The National Association of Business Economics' (NABE) April Industry Survey "provides fresh evidence that the U.S. economy's recession is abating," said Sara Johnson, an analyst on the survey and an economist at IHS Global Insight.  "Declines still out number gains, but fewer firms are reporting declines and more are reporting gains," Johnson said in a statement.  "This suggests that the economy is at an inflection point but has not yet reached a turning point."  Employment also remained depressed in the first quarter, with 39% of firms reducing payrolls, and only 14% adding workers.  But the outlook for jobs in the near future is slightly better: 33% of companies plan to reduce payrolls over the next six months, while 16% plan to increase employment.  More telling is that income levels were dismal in the first quarter.  For the first time in the history of the survey, more firms were reducing wages and salaries than raising pay.  The survey is based on data from 109 businesses and industry groups from the first quarter of 2009. 

Paul Volcker: Recession Will Slow
 

Adding to NABE's prognosis, Paul Volcker, senior economic adviser to President Barack Obama, said that the U.S. economic recovery will be a "long slog" but that the rate of decline "is going to slow."  Speaking at a financial markets conference at Vanderbilt University in Nashville, Tennessee, Volcker called it a "great recession," as opposed to a Great Depression.  "The lack of a good strong recovery works against a strong financial system," he said.  The financial system "is not quite comatose, but it's on life support."  Volcker warned against a rush by Congress to act too hastily on financial reforms and an overhaul of the financial system.  "The temptation is to act quickly, but we have to act comprehensively," he said.  

Loan Modification Program Starts

The Treasury Department announced that the first six participants to sign up for President Obama's loan modification program are JP Morgan Chase, which will get up to $3.6 billion in subsidy and incentive payments; Wells Fargo, $2.9 billion; and Citigroup, $2 billion.  The others are GMAC Mortgage, $633 million; Saxon Mortgage Services, $407 million; and Select Portfolio Servicing, $376 million.  A statement issued by Wells Fargo said, "We view this modification program as yet another incremental opportunity for thousands of homeowners to preserve and maintain the dream of homeownership."  Left unsaid is the fact that now the second wave of foreclosures will begin, as banks decide which loans are worth trying to save and which are not.

Details of the Loan Modification Program

Only loans where the cost of the foreclosure would be higher than the cost of modification will qualify.  The modification plan calls for the bank to reduce interest rates so that the monthly obligation is no more than 38% of a borrower's pre-tax income, and the government would then kick in money to bring payments down to 31% of income.  Mortgage servicers (banks and mortgage companies) can also reduce the loan balance to achieve these affordability levels, and the government will share in the cost of the reduction, up to the amount the servicer would have received if it had reduced the interest rates.  

Treasury will not provide subsidies to reduce rates to levels below 2%.  In addition to subsidizing the interest rates, servicers will use Treasury funding to pay for incentives for themselves, homeowners, and investors.  The program gives servicers $1,000 for each modification and another $1,000 a year for three years if the borrower stays current.  It will also give $500 to servicers and $1,500 to mortgage holders if they modify at-risk loans before the borrower falls behind.  Homeowners will even get up to $1,000 a year for five years if they keep up with payments.  The funds will be used to reduce their loan principals.  "We're confident we'll have enough money," said Treasury spokesman Andrew Williams.  Of course you will ... if you run out, you'll just print more, right?

Housing Starts Down

The US Commerce Department said housing starts fell 10.8 percent to a seasonally adjusted annual rate of 510,000 units, the second lowest on records dating back to 1959, from February's 572,000 units.  Matthew Strauss, senior currency strategist at RBC Capital Markets in Toronto, said, "While the situation in housing and in the labor markets is not necessarily deteriorating, it's clear that there is no real sign of recovery whatsoever; taken together, both releases will put a damp on the nascent optimism we've seen in the markets in the past couple of weeks."  Analysts had expected an annual rate of 540,000 units for March.  
 
JP Morgan Beats Expectations

JP Morgan Chase said its net income for the first quarter was $2.1 billion, or 40 cents a share.  This was down 10% from a year ago, but still beat expectations.  According to Thomson Reuters, analysts were only anticipating a profit of $1.38 billion, or 32 cents a share.  The strong investment banking performance was driven by a revenue surge in its fixed income division, but Chase's credit card division reported a net loss of $547 million, down from a profit of $609 million a year ago.  The bank cited a sizable increase in allowances for loan losses and higher charge-offs, or loans the company doesn't think are collectable.  CEO Jamie Dimon expressed interest in paying back TARP funds, and unlike Goldman Sachs, says Morgan can pay them back without issuing stock.  After what some call Goldman Sach's accounting sleight of hand, and KBW's downgrading of Wells Fargo, it will pay to watch the details in this reporting.  

Initial Jobless Claims Slow - Joblessness @ Record High

The U.S. Department of Labor says initial jobless claims dropped to 610,000 in the week ended April 11, but a record 6 million-plus continued to file unemployment claims during the week ended April 4, the most recent week for which data are available.  That's up 172,000 from the prior week's revised tally of 5.85 million.  John Lonski, chief economist for Moody's Investors Service, said he puts more of his focus on the continuing claims number:  "That tells you that things are getting worse and we're going to see another rise in the unemployment rate, and that's not good news."  He's right of course; a sinking ship doesn't stop sinking just because its rate of descent slows down.  The job market is one of the most important foundations of the economy, and one of the greatest causes for concern.

Buying REOs in Bulk: How to Know What to do BEFORE You Buy

Any great investor will tell you that before you even make an acquisition, you need to know what you're going to do with it. So why do so many buyers looking for bulk REOs think that all you have to do is "buy low"? What happens when you acquire your package only to find out that you need twice the capital you used to purchase just to make those homes in market sellable condition? What happens if you overpaid and can't sell for even the prices that you paid? Do you even know if you've overpaid? What happens when you don't have the resources to deal with all those homes in all those places? What happens when your holding costs soar because the package isn't moving? While you may have deep pockets to withstand this, it just isn't sound business. For a lot of bulk REO buyers or potential buyers, these are overlooked questions. Don't be one of those buyers.

The truth is that if you don't have the end in mind before buying, you can be in for a world of hurt after you do buy. EXIT STRATEGY ... very important, my friend! If you don't know how to minimize risk, you can end up with a lot of capital in a lot of the wrong places and even lose money.

So what are some of the ways you can minimize risk and maximize profitability BEFORE you actually buy?

Find a Specialized REO Resale Company

Your company must be nationwide so that it can handle nationwide packages. Make sure they have a proven track record to liquidate packages. This may sound counterintuitive but make sure they are not cheap to employ. If you are selling your cheap properties at still cheaper than market value prices to ensure they sell quickly, this represents lower than average commissions for selling agents. If the company is not rewarded well, why would they sell your homes for lower commissions in the time you need? The answer is they won't. If it is financially viable for them to move your properties first, you have a better chance of success. Pay for performance.

Generate a Wholesale List of Buyers

If you buy with the right pricing and know where to get good real honest deals from true exit/holding companies, cash out your equity as soon as possible. If you buy for 30 cents on the dollar and can resell for 50 cents in the same week, take the money and run. Let the retail level investors have their "tapes" (a made up broker word). Leaving some money on the table for the retail investors is ok if you make a great return in a short period of time, and opens you up for repeat business.

Double Close Where Possible

This is the logical next step to generating wholesale buyers. Don't even finish the acquisition before you are already marketing your deals. Sell the homes you can for good profits immediately, no exceptions. Cashflow is king, but you knew that.

Leverage Your Portfolio

Get your capital out as soon as possible. There are still a few very select lenders who will give you hard money on blanket acquisitions while admittedly, they are extremely hard to find. This means you can buy your package and recuperate your capital with no additional collateral or capital required and no inquiry is made on your credit. Literally make sure you have nothing to lose. Get this agreement in place before you even acquire the properties.

Contact Us

Lucky for you I have the system in place to help you sleep at night. Don't waste your time with the broker chains and endless middlemen -all looking for a piece of that ever-shrinking pie. Do a joint venture with steps A through Z already lined up. With a JV, I have no reason to shop you like everyone else. If you win, I win. That is the only real way to do long-lasting business. Through leveraging, you can make 100% of one (1) portfolio on your own with risky resale programs or 50% of twelve (12) portfolios (same capital reinvested after leveraging) with no risk. The choice is yours. Good luck.

Three Year Housing Recovery

The U.S. Census Bureau says one in every nine homes in the United States is sitting vacant, and economists predict that it won't change nationwide for at least three years.  The number of housing units in the United States increased by 8.65 million from 2002 to 2007, but during that period the number of U.S. households rose by only 6.7 million.  Subtract a half-million homes that will be torn down or lost to fire, and that leaves 1.3 million units.  

Arthur C. Nelson, director of the University of Utah's Metropolitan Research Center identifies three factors that ensure a slow recovery:  the recession and a slowdown in immigration, the relatively small Gen X numbers (most of who are within the age range when people tend to have the most children), and the number of new homes being built--about 700,000 this year.  Nelson predicts that hard-hit housing markets in the West and South will start to bounce back later this year, but that the Northeast and Midwest will have the slowest comeback, possibly extending beyond 2012.

Goldman Sachs to Pay Back TARP?

The Wall Street Journal reported Friday that Goldman Sachs may announce a multibillion-dollar stock offering along with its first-quarter numbers later today, in an effort to pay back the TARP.  A sale would be Goldman's first capital raise since it got $10 billion from Treasury in October in the first round of Henry Paulson's Troubled Asset Relief Program (TARP).  

A TARP payoff could save the firm some $500 million in annual preferred stock dividends, and free Goldman from federal oversight of its pay practices and various government intrusions like the probe being considered over credit charges.  Wall Street's desire to pay off TARP loans has intensified as complaints about federal involvement in the banking sector have risen.  Jamie Dimon, the CEO of JP Morgan Chase, warned in a speech last month of the dangers of the "vilification of corporate America."  Less than a week later, Dick Kovacevich, chairman of Wells Fargo, said the government's plans to test the balance sheets of big banks are "asinine."

Wells Fargo Gets a Reality Check

Remember how Wells Fargo was the golden boy of Wall Street a couple of days ago after its shares soared 31.7 % on news of a $3 Billion profit?  How fleeting good news is these days.  Keefe, Bruyette & Woods (KBW) just downgraded the stock to "under perform" from "market perform" on valuation, claiming its stress test indicated that Wells Fargo will have to raise about $50 billion in capital in the next two years.  Frederick Cannon of KBW said:  "In the current environment, we expect earnings and capital to be under pressure due to continued economic weakness."  Not surprisingly, the stock fell in early trading on the New York Stock Exchange.

GM Getting Ready For Bankruptcy

It's not looking good for General Motors (GM) these days.  Fritz Henderson, the new chief executive of GM, says the company may still be able to reorganize without bankruptcy, but according to CNBC the Treasury Department has directed it to lay the groundwork for a bankruptcy filing by June 1.  It's not a sure thing yet, but the preparations are aimed at assuring a GM bankruptcy filing is ready if the company can't reach agreement with bondholders and the United Automobile Workers union, which doesn't want to grant concessions without sacrifices from bondholders.  

One plan under consideration would create a new company that would buy the "good" assets of GM almost immediately after the carmaker files for bankruptcy, and leave the bad assets, including unwanted brands, factories and health care obligations, in the old company.

Mortgage Refinances Up

Fannie Mae said on Friday that its mortgage refinancing volume nearly doubled in March from the prior month to $77 billion.  Tom Lund, executive vice president of Fannie Mae's single-family mortgage business, said "A majority of our business volume in March was in refinanced loans, and we anticipate that volumes will increase even more as millions of additional homeowners become eligible to refinance under the President's Making Home Affordable plan."  Under the program, Fannie Mae can refinance loans up to 105 percent of a home's value, allowing borrowers, some of whom owe more than their home is worth, to refinance.
 
Treasury Department Extends Deadline for PPIP

The Treasury Department says it will extend the deadline by two weeks, until April 24, for private fund managers to participate in the administration's Public-Private Investment Program (PPIP), to purchase distressed assets from banks.  Department officials also say fund managers will not have to satisfy all three criteria released last month to participate in the program, which provides government capital and guarantees to spur purchases of the toxic assets.
 
Bailout Goes Surreal

Ok, this is getting weird.  Now several U.S. banks that have already been bailed out by the government because of toxic assets, including Citigroup, Goldman Sachs, Morgan Stanley and JPMorgan Chase, are thinking about buying more toxic assets -- the assets about to be sold by rivals under the Treasury's $1 trillion plan.  John Mack, Morgan Stanley's chief executive, told staff his bank was considering how to become "one of the firms that can buy these assets and package them where your clients will have access to them," according to the Financial Times.  Spencer Bachus, the top Republican on the House financial services committee, said it would mark "a new level of absurdity" if financial institutions were "colluding to swap assets at inflated prices using taxpayers' dollars."  For some reason the banks have declined to comment.
 
GM

Speaking of gaming the system, GM's new CEO Fritz Henderson keeps changing his mind about bankruptcy, depending on the day of the week, or the weather, or whether he needs taxpayer money or not.  Last week it was bankruptcy, this week it's not.  Henderson said on CNN's State of the Union that there would be more job cuts and plant closings, but that bankruptcy was not inevitable.  GM has already received $13.4 billion and requested an additional $16 billion.  Says Henderson:  "We are planning to get the job done.  Our preference would be to do it outside of the bankruptcy process, [but] if it cannot be done outside a bankruptcy process, it will be done within it."  Thanks Fritz -- good to know you have a plan.
 
Chrysler and Ford

Chrysler has also asked for a new round of aid.  David Axelrod, a senior adviser to President Barack Obama, said, "We want these to be going concerns -- not wards of the state."  Is it just me or is decorating the nursery and offering billions of dollars worth of baby food NOT the best way to encourage independence in potential wards of the state?  The only bright spot in all of this is that Ford says it completed a tender offer and reduced its debt by $9.9 billion.  The auto maker says an offer to purchase notes from its financing arm produced $3.4 billion in securities tendered.  Ford Motor Credit will use $1.1 billion to purchase that debt.  But don't start jumping up and down quite yet -- U.S. auto sales fell by 37 percent in March, the 17th month in a row of declines.