Archive for March, 2012

09
Mar
12

Postal service could pay off its debt

The U.S. Postal Service has a loan from Treasury, but Congress would pay that back.

The U.S. Postal Service has a loan from Treasury, but Congress would pay that back.

WASHINGTON (CNNMoney) — The Postal Service is facing such a cash crunch that it has a $12.1 billion loan outstanding from Treasury.

But taxpayers will be paid back, especially after Congress acts to help save the Postal Service, according to most experts.

While progress on a measure has been slow-going in Congress, both House and Senate legislation would dramatically reduce or eliminate debt by tapping overpayments made in retirement accounts.

The plans would also cut costs at the agency by closing plants and post offices, ending Saturday service, and delaying first-class mail, all of which would help put the agency back on the road to profitability.

“We’re deeply concerned about the restoration of the Postal Service to solvency,” said Ali Ahmad, spokesman for Rep. Darrell Issa, a California Republican who has sponsored a postal bill in the House.

The Postal Service had no debt in 2005. But a recession, declining first-class mail volume and a congressional mandate to prefund retirement health care benefits have put the service in a hold, according to Postal Service spokesman David Partenheimer. The service reported a $5.1 billion loss for the year ended Sept. 30.

Postal chief’s $384,000 pay sparks call for cut

If Congress signs off on the Postal Service’s cost-cutting five-year plan, “we will be able to pay down our debt and we’ll have a cash surplus of $7 billion by the end of fiscal year 2016,” Partenheimer said.

The Senate’s bill would tap most of estimated $10.9 billion overpayment in the Federal Employees Retirement System to pay down postal service debt — although it would also use between $1 to $2 billion for incentives to get some long-time employees to retire.

The House bill would also give the Postal Service the ability to access its retirement overpayment. In addition, it would give access to another $10 billion loan backed up by Postal Service property, which would have to be sold a decade later to pay off that loan.

“With USPS property values estimated to be well into the tens of billions of dollars, there should be significant additional excess property that can be sold to pay off large portions of the base debt,” Ahmad said.

The U.S. Postal Service is, by law, an “independent establishment” of the executive branch. The agency doesn’t normally use tax dollars for operations, but it has a $12.1 billion loan from Treasury, as of Jan. 31.

Without help from Congress, the U.S. Postal Service will hit its $15 billion legal cap on the amount it can borrow from Treasury in coming months, postal service officials have warned.

But Postal Service officials don’t want their cap raised without more meaningful reforms.

“The last thing we want is a short-term fix such as raising our debt limit,” Partenheimer said.

To cut costs, the Postal Service is moving forward with the plan to close more than 200 postal plants that may cost 32,000 jobs. The Postal Service is also trying to cut Saturday service,delay delivery of some first-class mail, and close post offices. It is also considering a hike in the price of a first-class stamp by a nickel to 50 cents.

Congressional aides couldn’t say Monday when Congress would officially take up and pass Postal Service legislation.

But they have a self-imposed deadline of May 15, when a moratorium on postal service facility closures expires. And individual Democrats and Republicans are united in their effort to prevent their own neighborhood post office or postal plant from closingTo top of page

07
Mar
12

Could student loans be next financial ailment?

Soaring student debt won’t likely start another banking crisis, but the problem could slowly drag down future economic growth.

Flickr

FORTUNE – Ever since U.S. consumers began owing more on their student loans than their credit cards a couple of years ago, economists have kept a closer watch over whether soaring education debt could be America’s next bubble to pop.

For Federal Reserve Chairman Ben Bernanke, the issue apparently strikes close to home. At a Congressional hearing recently, the central banker told lawmakers that his son, who’s in medical school, will likely rack up $400,000 of student debt upon graduation. The rapid growth of education loans requires “careful oversight” from regulators, he added.

There’s reason to worry. After all, the latest outstanding student loan balance has risen to $870 billion – more than the total credit card debt (at $693 billion) and what people owe in car loans (at $730 billion), according to a report released Monday by the Federal Reserve Bank of New York.

More importantly, the rate of delinquencies may be higher than previously thought, the Fed’s economists noted. That’s because calculations that the central bank usually follows don’t take into account the proportion of federally guaranteed loans that typically don’t require repayment while borrowers are still in school. It also doesn’t consider those loans that can be deferred for up to six months upon graduation. If such groups were excluded from the tally, the percentage of borrowers with past-due balances as of last summer would jump to 27% – about double the 14.4% (or 5.4 million borrowers) under the Fed’s more conventional measure. And as many as 47% of student-loan borrowers appear to be in deferral or forbearance – a temporary option that many unemployed, underemployed or those facing financial hardships often chose.

MORE: What should we teach our kids about money?

Some have compared the problem to U.S. subprime mortgages and the banking crisis that followed, but this isn’t to say student debt will necessarily threaten the U.S. financial system. If you believe most economists, the problems are entirely different. For one, the student loan market is only one-tenth the size of the residential mortgage market, says Moody’s Analytics economist Christian deRitis. Secondly, more than 90% of student loans are federal guaranteed. And while private student lending surged from 2002 to 2007 amid alarmingly loose lending standards, those standards tightened abruptly amid the Great Recession. This leads deRitis to think the quality of private loans has since improved. Nevertheless, of particular concern is the default rate on loans for students attending for-profit schools, which has risen higher than loans for students attending public, not-for-profit institutions and private schools.

It’s not entirely clear what the implications of this ballooning debt will be, as outstanding student loans approach the $1 trillion mark this year. However, economists have suggested that high student debt combined with a weak job market, particularly for younger workers just starting out, has already added pressure onto the broader economy. And it will likely have an impact on future growth.

“Even if borrowers could service their debt, it means they might not start as many businesses, buy as many homes or buy as many automobiles,” deRitis says.

Take for instance the housing market. In a study sent to Congress in January, the Fed pointed out that tighter lending standards have disproportionately weighed on first-time homebuyers — typically an important segment of housing demand that broadly affects house prices and construction. In recent years, between 2009 and 2011, the proportion of 29- to 34- year olds with a first-time mortgage was 9%, compared with 17% a decade ago.

MORE: Gen-Y looks to developing economies for biz training

The Fed doesn’t go as far as explicitly blaming student loans, but it would make sense that heavy education debt would contribute to the marked drop in first-time homebuyers. Going back to the Fed’s Monday report, borrowers between 30 to 35 years old (typically the age of first-time buyers) had the he highest average outstanding student loan balance at $28,500.

And because many younger people have put off buying homes, that potentially deprives the economy of faster growth. As The New York Times noted, under normal economic times, $145,000 is injected into the economy each time a new household is formed. But with the weak job market, hundreds of thousands of young people have delayed their moves, choosing instead to move back in with mom and dad. About 950,000 new households were formed in 2010, down from 1.3 million in 2007.

This would suggest a log of pent-up demand for new homes, but it’s hard not to wonder how long it will actually take for it to show up in the housing market.

The Obama administration has responded to the student debt problem in piecemeal. In the president’s State of the Union address in January, he proposed overhauling the federal financial aid system by linking colleges’ eligibility for campus-based aid programs, such as Perkins loans, to their successes in reducing costs for students. Administration officials say the current system gives colleges incentive to keep costs high.

Obama also wants to give families clearer information about the costs and quality of their education. The administration has proposed that colleges and universities be required to provide students with a “shopping sheet,” which would make it easier to compare financial aid packages, as well as provide post-graduate earning information and employment information.

It will certainly take time for such proposals to get anywhere. Luckily, with a doctor’s salary, Bernanke’s son might be in a position to pay off his student loans. Not everyone will be so fortunate.

06
Mar
12

Super Tuesday: What to Watch For

It’s not as super as it has been in previous elections with more states involved, but 10 states have their say Tuesday in one of the most volatile Republican presidential races in generations.

Here are three things to watch for:

Romney’s big day. He’s been the off-and-on frontrunner throughout the race, but a big Super Tuesday could begin an end game toward a sometimes hesitant base coalescing behind former Massachusetts Gov. Mitt Romney.

Romney should win his home state of Massachusetts, neighboring Vermont and Virginia, where he and Ron Paul are the only two candidates on the ballot. His campaign thinks he can win in Idaho with its heavy Mormon population and possibly in North Dakota. That leaves Ohio and Tennessee, where polls show former Pennsylvania Sen. Rick Santorum leading just a week ago.

If Romney can win in Ohio, a bellwether for the general election, and Tennessee, which would help dispel the notion that he can’t win in the South, it would be a big boost in overcoming a balky base and propel him to a huge lead in the delegate race.

What’s at stake on Super Tuesday?

Could Paul get his first win on Tuesday?

DeWine:Santorum appeals to average voter

Turnout. It’s the biggest dance yet for Republicans, so the number of people who show up at the polls could be an indication of how energized Republicans are now and what that might mean for the fall.

While there have been spikes in turnout in some states — South Carolina was energized to turn out a win for Newt Gingrich in January that helped blunt Romney’s early momentum — overall it’s down nearly 10% from 2008.

There are many factors that influence turnout — local races on the same ballot, weather, polling that suggests the outcome is a foregone conclusion. Watch states such as Ohio and Tennessee for a better indication of how energized Republicans are.

How is your Super Tuesday? What issues are you voting on?

Anyone leaving the race? No.

Even if Romney doesn’t win in Ohio and/or Tennessee, he’ll be able to take the podium tonight and point to wins in other states. Expect Santorum to also declare victory and emphasize that he was outspent by Romney in the states he lost to him.

Newt Gingrich will get a big win in Georgia, which he represented in the House of Representatives, and is already looking ahead to next week’s contests in Alabama and Mississippi to keep his campaign going.

“All indications are that Gingrich will win big in Georgia,” Dr. Robert Sanders, University of West Georgia political science professor, told the Associated Press. “It will give him a boost, but he has to win several primaries in the South for his campaign to still go on. If he only wins Georgia, he’s pretty much out of it at this point.”

Sanders believes former Sen. Rick Santorum could make some major gains today in the more conservative states.

“I think (former Gov. Mitt) Romney will take Ohio, but Santorum will do well in some parts of the state,” he said.

He said Tennessee is probably the state where Gingrich stands the best chance for another win, but it will likely go to Santorum.

Sanders told the AP that Georgia’s open primary will probably affect the vote a little, as Democrats choose to cast Republican ballots for what they perceive as a weaker candidate. However, he thinks the effect will be minimal.

Sanders said he favors a closed primary where voters register for the party of their choice and are limited to voting in their own party.

And Ron Paul could finally win his first contest of the 2012 battle for the Republican nomination in one of the caucus states. Even if he doesn’t score a victory, he’ll pick up some delegates, and his passionate core following and low-budget campaign will keep him in the race as long as he wants.

01
Mar
12

Foreclosure sales rise

Foreclosure sales are on the rise, even in states where banks need court approval to foreclose on a home.

Sales rose to 91,000 in January, up 29% from the month before, according to LPS Mortgage Monitor.

Foreclosure sales are when a bank completes the foreclosure process and takes possession of the home.

Experts have been closely monitoring foreclosure activity for signs of a resurgence.

Foreclosure sales had dropped in the fall of 2010 after major problems in banks’ documentation practices came to light. Foreclosure sales had peaked at 124,000 in Sept. 2010 and then flatlined most of last year.

The most notable jump in sales came in the 24 so-called judicial states, where banks must get a judge’s permission before foreclosing on a home. There were more than 33,000 sales in these states in January, up 51% from the month before. Sales had peaked at 45,000 in September 2010 and then averaged around 20,000 through the end of last year.

Though it’s too early to say whether it’s the start of a trend, the increase is notable, said LPS’ Herb Blecher.

“It’s the sign we’ve been looking for,” said Blecher, a senior vice president at LPS Applied Analytics. “It’s what has to happen for the pipeline to start clearing.”