Kiplinger Connection
Housing Woes • Banking Industry • Retail

Housing Woes: Plans for improvement are in the works, with many challenges.
Banking Industry: Small solace: things have been worse.
Retail: Some trends could spell design opportunities.

Housing Woes
Fed action to ease credit markets will help the housing market. But not by much. The move to lend $200 billion to 20 big banks in exchange for debt backed by mortgage securities is mostly intended to thaw vital secondary credit markets and restore investor confidence.
The Federal Reserve wanted to halt the rise in mortgage rates prompted by crumbling faith in even top-rated bonds sold by Fannie Mae and Freddie Mac. It's a big move and a step in the right direction. But by itself, it won't turn the tide of the housing market or the economy as a whole. What's needed is some news that the economy is responding.

Congress will lend Fannie Mae and Freddie Mac a helping hand. Lawmakers want to make permanent the temporary higher loan limits granted to the mortgage giants in the stimulus bill. Until Jan. 1, that law allows them to buy mortgages of as much as $729,750, a jump of nearly $313,000. It’s a move designed to push down interest rates and pull in home buyers. The higher limits will likely be extended.

Further steps are needed, though, to slow mortgage delinquencies and to get foreclosed homes, which drag on prices, off the market.
Democrats in Congress are eager to step into that breach ... soon.
But their efforts will be blocked by opposition from the president and other Republicans, including John McCain, who do not want to see taxpayer funds used. They prefer that lenders find remedies.
As a fallback, Democrats will push smaller but still sizable plans to give states up to $20 billion so they can help distressed homeowners with refinancing. But that’s controversial, too, because most benefits would flow to four states that hold half of all subprime mortgage debt ... Calif., Fla., N.Y., and Texas ... while all taxpayers would foot the bill.

Banking Industry
More cities, meanwhile, are taking subprime lenders to court. Cleveland is suing two dozen banks, including Bank of America and Deutsche Bank, seeking hundreds of millions of dollars in damages. Baltimore is suing Wells Fargo. Richmond, Va.; Austin, Tex.; Gary, Ind.; and Pensacola, Fla., may also sue. They want to be reimbursed for costs attributable to foreclosures, abandoned homes and lost tax revenues. The suits accuse the banks of using unfair and deceptive selling tactics.

That’ll put more pressure on institutions already in trouble.
Regulators have 76 banks on a problem list, up from 50 a year ago. But that’s only a sliver of the more than 8,000 U.S. banks and a mere 5% of the number the feds were keeping close tabs on back in 1990. Still ...
Failures will tick higher this year. Just three banks went under in 2007 ... none in 2005 and 2006. This year, 100 wouldn’t be surprising. But banks on the whole are in better financial shape to weather problems than they were two decades ago, when 300 to 500 banks a year washed out.

Retail
Supermarkets’ focus on health spells opportunities for a variety of businesses. From national and regional chains to independents, the retailers are trying to capitalize on two trends: Consumers’ interest in fitness and making shopping less a chore than an enjoyable experience. So they’re dishing up info on nutrition, meal planning, and recipes, featuring cooking demos and promoting health benefits of certain foods.
For food producers ... especially small, low visibility firms ... a big lift just from a sign spelling out a product’s health benefits.
For health care providers ... nutritionists, hospitals, etc. ... a chance to partner with retailers offering in-store wellness education.
For information industries ... business opportunities as retailers push messages via store magazines, brochures, videos, and Internet kiosks.