Finance and Economic

Home foreclosure filings jumped 23 percent in the first quarter from the prior quarter, and more than doubled from a year earlier, as more overextended borrowers failed to make timely payments, real estate data firm RealtyTrac said on Tuesday.

One of every 194 households received a notice of default, auction sale or bank repossession between January and March, for the seventh straight quarter of rising foreclosure activity, RealtyTrac said.

Foreclosure filings were far-reaching, rising on an annual basis in 46 states and in 90 of the 100 largest metropolitan areas, to a total of 649,917 properties. The first quarter filings surged 112 percent from the same period last year.

“In most of the states with the highest levels of foreclosure activity, we’re still seeing the fallout from overheated home prices and people overextending themselves with risky loans to try to buy those properties,” Rick Sharga, vice president of marketing at RealtyTrac, in Irvine, California, said in an interview.

“I’m more convinced that we haven’t seen the peak of foreclosure activity yet, and the wave probably won’t crest until late third or fourth quarter of 2008,” he added.

Nevada, California, Arizona and Florida had the highest foreclosure rates among states during the quarter.

A buying frenzy by speculative investors had sharply inflated home prices in all of those states before a slide into one of the worst housing markets in a century began in 2006.

These states are now inundated with unsold homes, many valued less than the size of the mortgage. The oversupply is pressing prices down, forcing some owners to walk away and escalating pressure to foreclose. 

Read more

If you think you’re getting gouged at the pump - think again.

Like many other motorists, Daris Garnes thought she may be getting ripped off by her gas station when she filled up her Honda Accord in Brooklyn, N.Y., on Wednesday, a day that gasoline prices hit a new record.

"When I pull up, I don’t even want to look at it sometimes," said Garnes, a speech therapist, as she paid $3.59 for a gallon of unleaded. That’s more than the nationwide gas average, but it was the cheapest choice she had.

Garnes said she figured the gas stations’s take was about $1.25 per gallon. Another motorist, construction worker Thomas Anthony, guessed 65 cents. But several other drivers estimated the station’s take was less than a dime, and it turned out they were right.

Abby Razaque, manager of the BP station where Garnes filled up, said the owner’s take was 8 cents per gallon, and that the lion’s share of the proceeds go to BP.

"I get a lot of complaints," said Razaque. "I tell them I have nothing to do with the price. The [oil companies] are taking all the money that I am putting in my pocket."

For every gallon of gas, about 72% of the price goes to the producers of the crude oil from which it’s made, according to the U.S. Energy Information Administration - producers like Chevron (CVX, Fortune 500), ConocoPhillips (COP, Fortune 500) and BP (BP). Exxon Mobil (XOM, Fortune 500) recently made history by reporting the highest annual profit ever for a U.S. company when it reported 2007 results.

Of the remaining price of a gallon of gas 13% goes to taxes, 8% goes to the refiners, and another 8% goes to distribution and marketing, which includes gas stations.

"They’re not getting gouged by the gas stations," said Peter Beutel, energy analyst for Cameron Hanover. Beutel said that 90% of all pumps are privately owned, and those owners make anywhere from 7 to 15 cents per gallon, so that a relatively petty expense, like a pump-and-run theft, can throw off their earnings for a whole day.

"Just because you’re seeing the street prices go up, doesn’t mean our profit has gone up," said Tom McSweeney, a co-owner of a Shell station in Jericho, Long Island. He said his former profit margin of 12 to 14 cents has dwindled to nothing.

"I bet the average person would say we were making 40 to 50 cents a gallon," said McSweeney, adding, "I wish that were the case."

Energy experts said that price gouging at the pump is a rare occurrence, largely because there is so much competitive pressure to keep the prices low.

"I don’t think it’s occurring at all," said Sara Banaszak, senior economist at the American Petroleum Institute. "The biggest factor in the price of gasoline is the price of crude oil."

Where gas stations make their money is off retail goods like candy bars, tires and frozen burritos, as well as services, like oil changes and auto repairs.

"A lot of times, the gas stations are making more on the coffee and donuts than on the gasoline they’re selling," said Robert Sinclair, Jr., spokesman for AAA. "Sometimes the profit on a gallon of gas for the retailer is less than a penny a gallon."

Fadel Gheit, senior energy analyst for Oppenheimer, said retailers face even lower profit margins, as rising oil prices outpace gasoline. "It doesn’t matter how high prices are at the pump," said Gheit. "If oil prices rise faster, you get margin squeeze."

Under the government’s economic stimulus plan, 130 million people will receive tax rebate checks for $300 and up, starting April 28. What do you plan to do with your check? How do you think the stimulus plan will affect the economy? Send us your photos and videos, or email us and tell us what you think. 

Sourse

Financial services companies have pulled in desperately needed capital through a string of discounted stock sales to outside investors, but many existing shareholders have found the deals a bitter pill to swallow.

Shareholders, already suffering as the banks and lenders posted big losses as a result of the U.S. housing crisis, are now seeing their stakes diluted through some of these equity infusions.

But while they may be unhappy about being shut out of the discounted shares, which instead were offered to outside investors such as private equity firms or sovereign wealth funds, big mutual funds and large pension plans have not expressed much anger publicly.

The silence shows how the push for greater shareholder democracy has made only small steps, leaving many smaller investors with a sense of impotence. Legal action may offer little recourse since the courts often side with boards in challenges over stock sales.

“Shareholders are kind of stuck at this point,” said Janna Sampson, co-chief investment officer at OakBrook Investments, a suburban Chicago asset manager that oversees $1.3 billion.

“If banks don’t raise enough capital, you might not have any equity value,” she said. “I think what’s most disappointing is the failure of the risk management teams to have controlled this better.”

Shareholders have seen the value of their holdings reduced by deals in which U.S. lenders such as National City Corp (NCC.N: Quote, Profile, Research) and Washington Mutual Inc (WM.N: Quote, Profile, Research) have sold newly issued stock to private equity firms and large investors at discounted prices.

The sales come as companies rush to raise money amid regulatory pressure to increase their capital cushions. 

Read more

Toyota has taken the global automotive sales lead from General Motors, selling 2.41 million vehicles to GM’s 2.25 million during the first three months of the year.

GM (GM, Fortune 500) said Wednesday its first-quarter sales dropped across the globe by less than 1%, but Toyota said its sales were up 2.7% during the January-March period.

Toyota Motor Corp. (TM), Japan’s top automaker, said its global sales rose on the back of steady demand in Asia and strong demand in Europe.

General Motors Corp. barely won the global sales race with Toyota last year, but Toyota overtook GM as the world’s top automaker as measured by global vehicle production in 2007.

GM said it posted record sales in three of its four regions, but a 10% drop in North America pulled down the overall numbers. Sales were up 8% outside of North America, the Detroit automaker said.

A record 64% of GM’s sales in the latest quarter came from outside the United States.

"While the challenges of the U.S. economy continue to put pressure on the automotive industry there, we saw nearly 20% growth in Latin America, Africa and the Middle East, and 6% growth in the Asia Pacific region," John Middlebrook, GM vice president of global sales, said in a statement.

GM sold roughly 2.27 million vehicles worldwide in the first quarter of 2007.

Mike DiGiovanni, the company’s executive director of global markets and industry analysis, said Toyota outsold GM in the first quarter of last year, too, yet GM was able to retake the lead by the end of the year.

He said the company is more focused on turning around its North American operations and becoming profitable worldwide than it is on beating Toyota.

"We obviously want to win, and we’d like to be No. 1 in sales at the end of the year," he said. "But really our focus right now is on profitable, sustainable growth across the world."

There may not be any relief in the U.S., though, in the near-term.

DiGiovanni said the company now is thinking second-quarter sales will be worse than the first quarter, largely because of rising gasoline prices. But he said the fundamentals are in place for a recovery in the second half of the year.

"This is clearly a headwind that we didn’t anticipate to be at this level, so that’s factored into our thinking as well," he told reporters and industry analysts on a conference call.

DiGiovanni said gasoline prices can’t be predicted, but GM is preparing for increases.

"It’s affected by so many factors, both political, societal, tangible in terms of what the actual physical reserves in the ground are and the cost to get at them. It’s affected by refineries. It’s affected by pipelines. It’s affected by anything that can go wrong in the whole chain. And now it’s affected by speculation, which is driving part of it. So I do not think this is something you can forecast," he said.

But DiGiovanni said GM does not use a "lower-bound" forecast anymore, and it had raised its internal forecast aggressively.

With new cars and crossover vehicles already out or coming this year, DiGiovanni said the company is well positioned to capture the market as it continues to shift away from trucks and sport utility vehicles.

"Our portfolio is moving in the direction the market is moving," he said. "Part of that’s luck and part of that’s planning."

Global production

Toyota, meanwhile, said its worldwide production expanded 7% from a year earlier to 2.54 million vehicles.

Toyota said output of popular, fuel-efficient small cars such as the Corolla model grew strongly in China, while production of pickup trucks rose steadily in Thailand during the quarter.

Some analysts say it’s only a matter of time before Toyota - which built its business in the decades after World War II by imitating American automakers - overtakes GM in terms of annual global sales as well as production.

GM shares rose 62 cents, or 3%, to $21.13, in midday trading Wednesday while Toyota fell 56 cents, or 0.56%, to $100.

In the Japanese fiscal year through March 2008, Toyota’s global output rose 6.4% from a year earlier to 9.66 million vehicles.

Honda Motor Co. (HMC), Japan’s No. 2 automaker, said its global production rose 4.5% from a year ago to 1.02 million vehicles in the January-March quarter.

Nissan Motor Co. (NSANY) said its global output rose 9.4% from a year ago to 950,878 vehicles during the quarter. 

Sourse

Bank of America Corp. said Tuesday it will tighten its mortgage lending standards after it completes its acquisition of Countrywide Financial Corp. later this year, and it will stop making one type of loan widely blamed for foreclosures.

The Charlotte, N.C.-based bank’s plans came as part of testimony before the Federal Reserve Bank of Chicago, which held a meeting about the company’s $4 billion deal to acquire the California lender.

Bank of America (BAC, Fortune 500) said it will discontinue so-called option adjustable-rate mortgages, or loans that allow customers to make payments for less than the monthly interest due. Critics say such loans carry higher rates and can cause borrowers’ balances to increase.

The bank said it will also greatly reduce offerings of other nontraditional loans, such as those that allow for little documentation.

Bank of America plans to continue to offer traditional mortgages that fit government-sponsored enterprise guidelines, including FHA and VA loans. It also will offer interest-only fixed-rate and adjustable-rate mortgages that have long reset periods to lessen the likelihood of short-term payment spikes.

It will not originate subprime mortgages, a practice Bank of America dropped in 2001 when Ken Lewis took over as chief executive. The bank called it a business that had "become unattractive from a risk-reward standpoint."

Countrywide (CFC, Fortune 500) is among the dozens of mortgage lenders that have faced an increase in mortgage defaults and foreclosures, especially in subprime loans - those made to borrowers with weak credit. Its lending practices have been questioned, and the company faces numerous investigations and lawsuits related to them.

The acquisition is expected to close in the third quarter.

"We think it’s important to clearly explain the changes in mortgage lending practices once we operate as a combined company," Bruce Hammonds, Bank of America’s consumer credit executive, said in a statement. "We recognize this tightening, by definition, restricts the availability of credit to some borrowers."

Like many of the nation’s leading financial institutions, Bank of America has been hit hard by the widespread slump in the nation’s housing market and ongoing credit crunch.

The move will help keep the banking giant - which is set to become the nation’s biggest mortgage lender and loan servicer - away from loans that helped fuel the housing bubble.

Earlier this month, Bank of America’s crosstown rival Wachovia Corp. (WB, Fortune 500) revised the underwriting policies in its mortgage loan business. Among its changes, Wachovia said it will base loan decisions on a new system of rating home markets and will require borrowers to have a minimum qualifying FICO score, a credit rating system used by the vast majority of the nation’s banks to guide their loan decisions. 

Sourse

ClosetMaid Corp., a subsidiary of Ferguson-based Emerson, will close its Cambridge, Ontario, plant, cutting 500 jobs there.

The Canadian facility will close by June 2009. The plant’s production will be moved to ClosetMaid facilities in California, Maryland and Mexico. The facility’s employees will receive severance packages.

Sourse

Venezuela moved Tuesday to take a greater cut of windfall oil profits, approving a 50% tax on foreign oil companies when crude tops $70 a barrel.

The tax rate would rise to 60% when the average monthly price for benchmark Brent crude exceeds $100, according to the bill approved by Venezuela’s National Assembly. The legislation will take effect as soon as it is published in the official gazette.

Revenues from the tax could reach $9 billion annually, Oil Minister Rafael Ramirez said after meeting with lawmakers.

"That’s why, for the executive branch, it is urgent to create this law," Ramirez said.

The new legislation will let President Hugo Chavez further extend state control over foreign oil companies operating in Venezuela - home to the largest petroleum deposits in the Western Hemisphere - as he steers the nation toward what he calls "21st-century socialism."

Analyst Juan Carlos Sosa, editor of the Venezuelan oil industry magazine PetroleoYV, said the measure "is going to force foreign companies to think twice about making new investments" in Venezuela, "because their opportunities to turn a profit are diminishing."

Sosa also said the government’s estimates on revenue from the tax are exaggerated. Officials "shouldn’t be thinking that oil prices are going to remain above $100 a barrel forever," he said.

Light crude for May delivery jumped as high as $114 a barrel shortly after regular trading ended on the New York Mercantile Exchange on Tuesday. Venezuela’s heavy, sulfur-laden crude generally sells for less than light Brent oil from the North Sea.

Chavez nationalized all the heavy oil projects operating in Venezuela last year, but allowed foreign firms to stay on as minority partners in oil fields they once managed under contract.

In 2005, Chavez raised royalty rates to 30% from 16.6% on foreign firms operating heavy oil projects in the Orinoco region.

Foreign companies operating in Venezuela include Chevron Corp. (CVX, Fortune 500) of San Ramon, Calif., France’s Total, Britain’s BP PLC and others.

Chevron spokesman Kurt Glaubitz said the company would not have any comment for the time being, and representatives of Total and BP in Caracas could not be immediately reached late Tuesday.

Chavez says proceeds from the measure passed Tuesday will be used to fund community development projects designed by neighborhood-based assemblies. 

Sourse

There is little debate about whether the U.S. economy is in a recession. The question is how painful and long the downturn will be.

There is a growing fear among some economists that the recession will be particularly bad.

"We just can’t believe it’s going to be short. The question is how bad can it get? The situation is moving more towards severe than towards mild," said Allen Sinai, chief global economist for Decision Economics.

According to the National Bureau of Economic Research, the firm that officially determines when recessions begin and end, the last two recessions (2001 and 1990-1991) each lasted 8 months.

But Sinai and other economists cited numerous economic headwinds, including tight credit, falling home prices and mounting losses for banks, as reasons why this downturn could last longer and be more painful than seen in those last two recessions, with more job losses and a sharper drop in economic activity.

In addition to the drag on the economy from rising job losses, they also pointed to record high commodity prices and plunging confidence as factors that could cut into consumer spending.

Since consumer spending makes up nearly three-quarters of the nation’s economic activity, any decline in spending can create a downward spiral for the whole economy.

"We have a deadly combination of commodity price inflation and credit contraction," said University of Maryland economics professor Peter Morici. "It’s tough to imagine a worse combination. In a worst case scenario, the recession could last several years."

The Federal Reserve is still projecting modest growth for the U.S. economy in the second half of this year though, as are many economists. This is based on the belief that the economic stimulus package passed by Congress in February and a series of interest rate cuts by the Fed should lead to higher spending by consumers and businesses in the coming months.

But even Fed policymakers voiced worries of a worse downturn according to the minutes of their March 18 meeting released last week.

Many of the problems facing the economy will come into focus this week as many top bank and Wall Street firms report results and the government will give its latest update on inflation and housing starts.

Citibank (C, Fortune 500), Washington Mutual (WM, Fortune 500) and Merrill Lynch (MER, Fortune 500) are expected to announce additional losses.

Meanwhile, the Consumer Price Index and Producer Price Index, two of the government’s key inflation readings, are likely to show big jumps in March compared to February.

But it’s the crisis in housing that is of particular concern.

Economists forecast that the Census Bureau will report building permits hit a 17-year low in March and that housing starts were anemic.

And during a conference call with investors Monday, Don Truslow, chief risk officer of banking giant Wachovia (WB, Fortune 500), said home prices should fall through 2008 before finally hitting bottom in the middle of 2009. (Wachovia, the No. 4 U.S. bank by assets, reported an unexpected loss Monday.)

Sinai argues that until housing prices turn around, there isn’t much hope for a pick-up in the economy because housing woes will continue be a drag on consumer spending and the credit markets.

"So much borrowing and lending was leveraged to [housing], that as long as values keep going down, the exposure of consumers, of financial institutions and of investors remains extremely high," he said.

Bill Hampel, chief economist for the Credit Union National Association, said the run-up in home prices in the middle of this decade led consumers to take on much higher levels of debt than in the past.

As long as home prices continued to rise, homeowners were able to tap into home equity lines of credit. But with home prices falling and credit suddenly tight, many households have lost this extra source of income. That could create a significant and long-lasting decline in consumer spending.

"What happened in the short space of the last five years was pretty scary — household debt rose to about 125% of income. It hadn’t ever been 100% before that. It took consumers a long time to get into these conditions; it’s going to take a long time to get that fixed," Hampel said.

At the same time, consumers are also facing rising prices at the grocery store and gas station. The Fed’s rate cuts have cut into the value of the dollar, further increasing the costs of commodities, which impacts the price of food and oil. This may only get worse if the dollar keeps falling.

"It seems to me the big wild card for the economy would be a sharp decline in the dollar, which in turn would cause U.S. inflation to spike up," said Paul Kasriel, chief economist with Northern Trust.

That would be a problem since it would force the Fed to start raising interest rates again in order to make sure inflation does not get out of hand, Kasriel said.

And rate hikes at a time when the economy is trying to rebound from this slowdown could kill any chances of a quick recovery.  

Sourse

Dr. Arlyn Scherbenske, a veterinarian on the sparsely populated plains of North Dakota, is directly responsible for the health of every dog, cat, sheep, horse, cow and canary within a 45-mile radius

"The only thing we don’t work on is reptiles, like snakes," said Dr. Scherbenske, speaking by phone from his practice in Steele, a town of less than 700 people.

But that doesn’t narrow down his clientele much. Dr. Scherbenske estimates that he has some 100,000 animals under his care, most of them cows at surrounding farms. That’s a lot of work, and Dr. Scherbenske - who recently sprained his shoulder on the job - could use all the help he can get.

In the coming months, two veterinary school graduates will be joining his practice to help inspect herds for pregnant cows and treat calves with broken legs. But it isn’t easy wooing city-bred vets to move to the country, where the need is approaching critical.

"All of a sudden, the shortage is huge and we have less and less of these kids coming to rural practice," said Dr. Scherbenske. "I think those jobs could be filled if we get over the perception that it is a lower-paid job."

The U.S. lost 80,000 jobs in March - its third straight month of losses. But the job market for veterinary medicine is expected to grow dramatically in the next few years.

The Bureau of Labor Statistics projects an increase of 22,000 veterinary jobs nationwide through 2016, a 35% jump from 62,000 vets in 2006. The Bureau also expects a surge of 29,000 veterinary technician jobs, a 41% jump from 71,000 technicians in 2006. The technicians serve as assistants to vets, just as nurses assist physicians in the healthcare profession.

But it’s unclear where all these new vets will come from. The Association of American Veterinary Medical Colleges, a Washington, D.C.-based organization representing 32 schools in the U.S. and Canada, produces about 2,600 vets a year, a rate that hasn’t changed since the 1970s. That isn’t enough to replace retiring vets in the "graying" field, said Dr. Marguerite Pappaioanou, executive director of the association, which does not have an estimate for the projected exodus.

"We’ve been stuck at 2,600 [grads] a year for 30 years while our population has gone up and our number of animals has gone up," she said. "There is a critical shortage of veterinarians in the U.S. right now."

While vets are often associated with pets, they’re needed more as caretakers for food animals like cattle and sheep. Some rural counties in cattle country have more than 25,000 head of cattle but no vets. The shortages are most acute in parts of the Dakotas, Iowa, Nebraska, Kansas and Missouri.

"The role model for most kids is a vet in companion animal practice working with dogs and cats," said Dr. Gregory Hammer, president of the American Veterinary Medical Association. "What we don’t expose them to is a vet working in food safety, research, the military, public health and food animal medicine."

The health of America’s livestock, and the meat on your table, is at issue. But convincing city-bred vets to move to the Great Plains to conduct house visits on sprawling herds of cattle, or to conduct food safety inspections in meat processing plants, can be difficult.

"We have more and more people raised further and further from the farm," said Dr. Hammer. "We have people who are less comfortable working on food animals and are less comfortable going to rural areas."

Many grads prefer to care for family pets in cities and suburbs, partly because their average student debts exceed $100,000 according to the Association of American Veterinary Medical Colleges, and the city jobs are seen as more lucrative.

"When they have that kind of debt, they go to the highest bidder," said Dr. Pat Halbur, chair of the veterinary department at Iowa State University. But Dr. Halbur said many of these grads don’t realize they can make a good living in the country, noting that the average vet pay in a small Midwestern town is $75,000, compared to $65,000 in a bigger city.

"[Rural vets] do make a very good living, in many cases, a better living than being a companion animal veterinarian," said Dr. Halbur. "The quality of life is there, the income is there, and they’re usually able to own their own practices quicker."

One of the biggest turn-offs for incoming vets is the concept of being on-call 24 hours a day, and the near-impossibility of making house visits across vast areas. But this is changing, and many rural vets are finding that hospital-like settings, where the patients come to them, are more practical and profitable.

"I think that change in vet medicine is going to be in the hospital setting with multiple veterinarians," said Dr. Clark Cooper of the Cooper Veterinary Hospital in West Monroe, Louisiana. "I would hire two vets today, if I could get them in here."

Despite decent salaries, Cooper sees the high tuition of vet school as the biggest deterrent to the industry, and he said he can’t afford to pay grads the salaries that they need to pay off their student loans.

In 2007, identical bills were introduced in the House and Senate requesting grant money for vet schools to train more vets, but they’re still in the earliest stages of legislation.

"We’ve got to cut down on the amount of loans these students have," said Dr. Cooper, who, like many vets, believes the federal government should provide more funding for training. 

Sourse

30

Percentage that health insurance costs increased from 2000 to 2005 at the smallest U.S. businesses, according to a report released by the Rand Corp. and funded by the Kauffman Foundation

16 to 25

Percentage increases for health insurance costs for larger companies.
11

Percentage of payroll spent on health insurance by businesses with fewer than 25 employees

9 to 10

Percentage of payroll spent by companies with staffs ranging from 50 to more than 100

Sourse