In a wholesale attempt to crush the housing bust in its tracks, Obama revealed his $75 billion Homeowner Affordability & Stability Plan to allow 4-5 million so-called “responsible homeowners” to refinance their homes with lower interest rates and help a further 3-4 million lower their monthly mortgage payments.

It’s all designed to help fend off the dreaded specter of foreclosure, which engulfed two million Americans in 2008 – with the plan symbolically announced in Arizona, home to one of the highest home foreclosure rates in the nation.

It’s also well-timed in terms of beefing up support for the plan, amid more gloomy housing market figures from the Commerce Department today…

Housing Market Takes A Tea Break As Builders Down Tools

With housing demand in the dumps and prices still heading south, 2009 got off to a dubious start with the news that the pace of new home construction slumped to its lowest level since 1959.

Notwithstanding the effect that colder weather has on homebuilding, the figures were poor across the entire country still showed huge drop of almost 17% from December to an annual rate of 466,000 and was 12% lower than economists expected. To put that in perspective, homebuilders broke ground on 906,200 new properties in 2008 – and that was a record low. It means that over the past three months of double-digit declines, housing starts have sunk at an 86% annual rate over that period.

Not only that, building permit applications also slid by 4.8% to a record low of 521,000 units.

While the headline figures make for grim reading, it’s worth remembering that with the economy in recession, you wouldn’t expect them to be rising, or even flat. With demand tanking and prices falling, homebuilders have “downed tools” and are more focused on shifting excess existing inventory.

And while Obama may not be able to ride to the rescue on the construction and permits situation right away, his plan today does intend to help Americans already crippled by the real estate mess.

And it will need to, if these figures from Credit Suisse (NYSE:CS) are anything close to accurate…

“Unraveling Homeownership, The Middle Class… And The American Dream Itself”

The two million Americans who faced foreclosure proceedings in 2008 will seem like small potatoes if the Credit Suisse report, released last month, holds true.

It said the number could rise to as many as 10 million over the next few years, depending on the severity of the recession.

And even though the president puts the figure at closer to six million, it’s no wonder that Team Obama is swinging into action.

Calling it a “crisis which is unraveling homeownership, the middle class, and the American Dream itself,” Obama’s bold plan would see the government subsidize his efforts (hey, remember to leave a few more billion for the auto industry, guys).

It’s then hoped that by allowing certain homeowners to refinance and reducing monthly payments, it will help stabilize the market. In return, homeowners would give up a little of their home’s equity by way of repayment.

In short…

• Borrowers who owe more than 80% of their home’s value would be eligible to refinance and lower their monthly payments.
• Through subsidizing interest rates, at-risk borrowers could reduce their monthly payments to no more than 31% of their income. This proposal has drawn understandable criticism from sensible, solvent borrowers, who rightly ask why they don’t get a break for managing their money properly.
• The proposal expands previous rescue efforts by placing emphasis not only on those who have already defaulted on their payments, but also those who are at risk of doing so while still up-to-date. Mortgage servicers will be offered $1,000 incentives to modify agreements of defaulters and those at risk, and any institution that accepts federal funds will be required to abide by a loan modification system.
• The plan will double the financial aid for America’s two big mortgage lenders – Fannie Mae (NYSE:FNM) and Freddie Mac (NYSE:FRE), who have suffered hugely at the hands of the housing bust themselves – so they can increase the number of mortgages they offer. A restriction that doesn’t allow the two to guarantee refinancing on mortgages worth more than 80% of a home’s value will be removed under Obama’s plan and the government’s guarantee against their mortgage losses will swell to $400 billion.

The goal of this aggressive plan is simple: To arrest the housing market’s deep slump by attacking the foreclosure rate. Or in Obama’s words, allowing “millions of families stuck with loans at a higher rate to refinance” and “give millions of families resigned to financial ruin a chance to rebuild.”

Time will tell whether it ends up being the housing market’s version of “Little House On The Prairie” or “The Money Pit.”

Source: $75 Billion To Help Fix The U.S. Housing Crisis

Foreclosure activity saw a huge spike in the third quarter, as one in every 475 U.S. homes either received a default or auction sale notice, or was repossessed by a bank, according a report released yesterday (Thursday) by industry group RealtyTrac. It was a 71% jump over third quarter foreclosure activity in 2007 and a 3% increase from the second quarter of this year.

Foreclosure filings actually decreased 12% in September from August, but not due to an improving housing market.

“Much of the 12% decrease in September can be attributed to changes in state laws that have at least temporarily slowed down the pace at which lenders are moving forward with foreclosures,” said James J. Saccacio, chief executive officer of RealtyTrac, in the statement announcing the results.

A California law that requires lenders to give homeowners 30-days notice prior to filing a notice of default led to a 51% drop in that state.

The U.S. Treasury Department is working to implement a program that will modify the loan terms of struggling homeowners and guarantee those loans for banks that participate in the new program. The incentive for the government to stem the flood of foreclosures includes much more than just helping people hold onto their homes.

“We have never seen a foreclosure cycle like this one before,” Rick Sharga, RealtyTrac senior vice president, told CNNMoney.com.

A slowing economy generally precedes periods of elevated foreclosure rates. However, “in this cycle, we have foreclosure problems that have caused an economic downturn,” Sharga said.

Speaking in testimony before the Senate Banking Committee yesterday, Sheila Bair, head of the Federal Deposit Insurance Corp. (FDIC) and Neel Kashkari, head of the newly formed Office of Financial Stability, both spoke in favor of government assistance to homeowners facing foreclosure.

“We are passionate about doing everything we can to avoid preventable foreclosures,” Kashkari said.

Bair outlined how the government’s $700 billion bailout legislation includes provisions to help homeowners.

“Loan guarantees could be used as an incentive for servicers to modify loans,” Bair said in her prepared testimony, The Associated Press reported. “By doing so, unaffordable loans could be converted into loans that are sustainable over the long term.”

Bair pledged the FDIC’s support for the eventual Treasury Department plan.

Source: Treasury and FDIC Team Up to Aid Homeowners at Risk for Foreclosure

This morning, it appears the process is well underway.

Of course there’s the news that United Airlines planning to retire 20% of its mainline fleet by the end of next year (up from its original plan of 7%), and slashing routes accordingly. The details are still to be worked out but already it’s been decided that Los Angeles to Hong Kong is history.

But on top of that, USA Today has pored over all the major carriers’ schedules for this coming October, compared them to last October, and found the following:

• Significantly fewer flights to the major vacation/convention destinations — Orlando, Vegas, Honolulu. The tickets have been too cheap for too long to even begin to cover costs
• Fewer flights to big-city airports like Oakland and Chicago-Midway that exist in the shadow of hubs like SFO and O’Hare (and were huge growth stories just a few years ago)
• At least 50 smaller airports will see service levels drop by at least one-third
• 15 of the smallest airports are losing service completely with the shutdown of Air Midwest

The regional jets seating 50 or so passengers are especially cost-inefficient now. That means no more direct flights from Washington-Reagan to Columbus, Ohio; Boston to Norfolk, Virginia; or Cleveland to Chicago-Midway.

Kansas City, where 16 routes were added just last year, will see a 16% year-over-year reduction in service by this fall.

All told, the Air Transport Association says 60 communities that had air service last year have lost it this year, with another 37 to come by year’s end.

Curiously, a couple of the cities mentioned in the article happen to have some of the highest home foreclosure rates in the country. Stockton, California will lose a third of its service by this fall. Merced, California has lost all commercial service already. Coincidence?

And this is with oil in the $125-135 range. What happens at $150 or $200 (which even perma-Pollyanna Daniel Yergin allows as a possibility now)? Silent spring, that’s what.

Update: After bringing the USA Today article to Byron’s attention, he replies:

With six more months of high oil prices, you will not recognize the airline system — not just in the US but across the world.

This will play havoc with the world’s tourism industry, the largest direct or indirect employer of people on the planet.

Hawaii flights down 25%? No driving to Hawaii, eh?

And pity poor Disneyworld and Universal Studios at Orlando… Sorry guys. If I have to walk to get there, I ain’t coming.

And what happens to “ecotourism?” This is the ultimate in not disturbing the environment…. You’ve got the “eco,” but no tourists. So the locals will have to revert to cutting down the rain forest and eating the exotic animals to survive, right?

I especially like this line from the USA Today article….

Kansas City air service manager Justin Meyer says Kansas City is emblematic of changes playing out around the country. He thinks what’s happening at his airport will not be the exception.

“We might be on the leading edge,” he says.

Yep, the leading edge of what????

If the 2-hr flight from Boston to Norfolk is now going to become an 8-hour ordeal, with a transfer through JFK or whatever….

Well, we have a problem.

Should you drive instead? Turn it into a long day of driving, each way…. if you can buy gas along the Interstate.

So a one-day business trip becomes a three-day trip, in the best of circumstances.

Or, if you don’t want to drive, where is the passenger rail system to take up the slack? Whoops. No choo-choo.

Wow, the opportunities for disaster are legion in all of this.

As are the opportunities in companies with proprietary technology that won’t rescue us from Peak Oil, but can make the transition to whatever’s coming next a little easier. Byron has his eye on a company that could one day put oil refineries out of business.

Source: ‘Silent Spring’ Already Setting In

Thompson will step down after 32 years of service after having made a series of untimely – and ultimately disastrous – decisions that have cost the company nearly half its market value over the past year.

Shareholders began clamoring for Thompson’s removal in April after the company announced its first quarterly loss in seven years and cut its dividend by 41%. Issues were compounded on May 6, when Wachovia announced a first-quarter loss of $708 million, 80% more than the bank had previously reported.

The company has marked down $5 billion in mortgage and other debt-related assets, and recently announced it would cut up to 500 jobs. Wachovia stock has plummeted about 40% year-to-date.

Thompson’s most costly decision came in 2006 – the peak of the housing boom – when he agreed to spend $25.5 billion to acquire Golden West Financial Corp. Nearly half of Golden West’s lending business was based in California and Florida, which are now among the national leaders in foreclosure rates. Thompson himself acknowledged the deal as being “ill-timed.”

“No single precipitating event caused the Board to reach this decision, but a series of previously disclosed disappointments and setbacks cumulatively have negatively impacted the company and its performance,” Wachovia Chairman Lanty L. Smith, said in a statement.

Smith will takeover as CEO until a replacement for Thompson can be found. He will assume control over all of Wachovia’s staff functions, as well as head a board committee that has been charged with finding a new CEO. Vice Chairman and General Bank President Benjamin P. Jenkins III, has been appointed interim chief operating officer.

Also in the banking boardroom pipeline, Washington Mutual Inc. (WM) will shake up its management as Chief Executive Officer Kerry Killinger steps down from his duties as company chairman.

At WaMu’s annual meeting in April, shareholders voted to bounce Killinger from his post after the company posted a first-quarter loss of $1.14 billion. Independent director Stephen Frank will officially supplant Killinger July 1.

The world’s top financial institutions have reported more than $386 billion in asset write-downs and credit losses related to the housing bust, according to Bloomberg News.

Source: Wachovia CEO Thompson Shown the Door After 32 Years of Service, WaMu’s Killinger Steps Down as Chairman

• Bank of America Corp. (BAC) announced yesterday (Tuesday) that it would increase its stake in China Construction Bank Corp. to almost 11%, The Associated Press reported. The Charlotte-based bank plans to purchase 6 billion H-shares on or about June 5th, bringing Bank of America’s total investment in the Beijing-based bank to 10.75%.

• The S&P/Case-Shiller home-price index declined 14.4% from the same period the year prior, representing the biggest decline since the data began to be compiled in 2001. The home-price index has declined every month since January 2007, Bloomberg News reported. Rising foreclosure rates are adding to the oversupply of homes on the market, helping to keep home prices low.

• Vodafone Group PLC (ADR: VOD) announced yesterday (Tuesday) that Chief Executive Officer Arun Sarin plans to step down in July after five years as CEO, MarketWatch reported. The announcement came on the same day that Vodafone announced a record $13.2 billion (6.66 billion pounds) first quarter profit. Vittorio Colao, Vodafone’s deputy CEO and head of the group’s European operations will succeed Sarin.

• Homebuilder Standard Pacific Corp. (SPF) announced yesterday (Tuesday) it would receive a $530 million investment from private-equity firm MatlinPatterson Global Advisers LLC, Bloomberg News reported. Standard Pacific stock has been hard-hit by the housing recession, having lost over $1.4 billion in market value since 2005. “It’s definitely good news,” Matt Wilcox, a bond analyst at KDP Investment Advisors Inc. told Bloomberg. “It certainly gives them additional liquidity and time to weather this housing downturn.”

• Privately-held Switzerland company Landis&Gyr announced yesterday that it signed a deal to set up nearly 7 million “smart meters” in Texas that will allow consumers to manage their electrical consumption, Reuters reported, citing a source familiar with the talks that estimated the deal in the $360 million ball park. The deal comes in the face of rising energy prices around the world and heightened environmental awareness about wasted electricity.

• South Africa’s economy grew a pithy 2.1% in the first quarter, significantly below the 5.3% it moved in the previous three quarters and the slowest quarterly gain in more than six years. “The figures are grim,” Dennis Dykes, chief economist at Nedbank Group Ltd., South Africa’s fourth-largest bank, told Bloomberg. “The consumer side will remain under pressure given the higher interest rate environment and power problems are still a factor. We’re in a cyclical downturn that will extend into next year.”

• Gold futures dipped $18 an ounce to $907.90 in trading yesterday as the dollar regained strength. Another reason could be profit-taking, as gold moved 3% last week, Mark O’Byrne, a director at Gold and Silver Investments Ltd., suggested to MarketWatch.

Source: Global Investing Roundups: Wednesday, May 28th, 2008