Economic Update – Despite Bernanke’s Optimism, Plenty of Problems Remain

While Federal Reserve chairman Ben Bernanke’s recent comments that the economy could get back on its feet by 2010 will probably go a long way toward calming some frayed nerves, for now there remains plenty of bad news to go around.The Mortgage Asset Research Institute, an arm of LexisNexis, reported on Monday that mortgage fraud nationwide spiked 26 percent in 2008 when compared with the year before, even though the aggregate volume of mortgages originated dropped during the same period. “With fewer loan originations today, the data suggests that the economic downturn may have created more desperation, causing more people than ever before to try to commit mortgage fraud,” said Denise James, LexisNexis Risk & Information Analytics Group director of residential mortgage solutions, in a statement. She noted that fraudsters are getting creative when it comes to mortgage fraud by inventing new types. Still, most of the fraud involved the time-honored methods related to applications, while frauds related to tax returns and financial statements were also popular. Other types included frauds involving appraisals or valuations, verifications of deposit, verifications of employment, escrow or closing costs, and credit reports. Curiously, Rhode Island ranked first among the states in the amount of reported mortgage fraud compared with its origination volume, the first time the state has had the dubious honor of being in the top ten states at all. Florida, Illinois, Georgia, Maryland, New York, Michigan, California, Missouri and Colorado were next in order of mortgage fraud incidence. The problem of refinancing debt has reared its head for the amusement park giant Six Flags, which is negotiating with lenders–who hold about $287.5 million in its debt–to prevent bankruptcy. In a conference call on Monday, CEO Mark Shapiro said that the company is having trouble scheduling a meeting with a fund manager who owns a “significant amount” of that debt to discuss restructuring. “While many of our debt holders have been generally supportive of our efforts to reach a consensual out-of-court deal, one of our principal debt holders… has thus far resisted a consensual restructuring,” noted Shapiro. “The auto companies have an easier time getting a meeting with the United Autoworkers then I do of getting a meeting with this particular portfolio fund manager. It makes no sense.” The credit freeze has choked off refinancing options for the company, while at the same time the doldrums in the commercial real estate market have made it hard to raise capital by selling off excess real estate. Still, Shapiro asserted, “our balance sheet initiatives are purely back-of-house issues that deal exclusively with our holding companies and their creditors. Our park operations are on solid footing and highly profitable.” All things considered, the company had a reasonably good 2008, though the most of the amusement park season happened before the financial panic and recession got under way in earnest last fall. Six Flags’ total revenues were up 5 percent in 2008 compared with 2007, and total attendance for the year was 25.3 million, up 400,000 from the previous year. Riding a wave of official and popular outrage–up to and including President Obama–over the billions in new bonuses by American Insurance Group, New York Attorney General Andrew Cuomo demanded the particulars of who’s to get the money and how much in a letter to A.I.G. CEO Edward Liddy. If that information isn’t forthcoming, the New York AG says he will subpoena the company, and the whole thing could end up in court, like Cuomo’s efforts to pry the names of bonus-receivers from Merrill Lynch & Co. after its $15.8 billion 4Q08 loss, but before it was absorbed into Bank of America. Wall Street lost a bit of ground on Monday, the first loss since Monday last week, but it was only down 7.01 points, or 0.1 percent. The S&P 500 lost a little more, 0.35 percent, and the Nasdaq lost considerably more, 1.92 percent.