My finance view

Homeowners seeking relief under the Obama administration’s mortgage aid program will be required to provide proof of their incomes upfront, a significant reversal for the problem-plagued effort to stem the foreclosure crisis.

Borrowers had been able to state their income verbally and provide documentation later. Mortgage companies, however, said many borrowers didn’t return the documents.

Only about 66,500 borrowers, or 7 percent of those who signed up, had completed it as of December.

Lenders will now be required to collect two recent pay stubs at the start of the process, the Treasury Department said Thursday. Borrowers will have to give the IRS permission to provide their most recent tax returns, rather than submitting the returns themselves.

The changes become mandatory for loan modifications made starting June 1.

The change in policy came after officials concluded that mortgage companies such as GMAC Mortgage and Ocwen Financial Corp. were delivering better results. They had always required documents up front.

Under the new rules, participating mortgage companies must acknowledge receipt of a borrower’s application within 10 days and approve or deny the application within 30 days. After that, borrowers will still be required to make three months of trial payments before the modification becomes permanent.

While the changes should help, the lack of penalties for companies who don’t comply disappointed some experts. "There’s no teeth to that obligation," said Andrew Jakabovics, associate director for housing at the Center for American Progress, a liberal think tank.

Many consumer groups, meanwhile, have been calling for more dramatic changes. They want to help homeowners who have lost their jobs and those who owe the bank more than their homes are worth.

Treasury officials said they are studying ways to aid unemployed homeowners but offered no details.

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General Motors Co’s board of directors, citing a need to chart a new course, dismissed Chief Executive Fritz Henderson on Tuesday, a person with direct knowledge of the proceedings said.

GM Chairman Ed Whitacre will become interim chief executive as the automaker begins an immediate search for a replacement.

Henderson, a career GM executive, became CEO eight months ago, vowing to reform the slow-moving culture that contributed to the automaker’s collapse. The announcement of his departure came after a meeting of GM’s 13-member board in Detroit.

Henderson became CEO in March after his predecessor, Rick Wagoner, was forced out by the Obama administration as part of the U.S. government-funded restructuring of GM.

“The board decided — and Fritz agreed — that given where we are, it was time to make some changes,” GM spokesman Chris Preuss said at a hastily arranged news conference.

Whitacre, a former AT&T chief executive, became chairman of GM in July as part of a new board vetted by the U.S. Treasury and intended to safeguard the government’s $50 billion investment in the automaker.

The U.S. government has a majority stake in GM, but the Obama administration has repeatedly said that it is leaving oversight of the company to Whitacre and the board.

Preuss said the White House had been notified of Henderson’s departure, but was not part of the decision.

Whitacre appeared briefly before reporters at GM’s headquarters in Detroit but did not take questions on why the board had chosen to part ways with Henderson.

Reading from a prepared statement, Whitacre said Henderson, who helped GM through its July bankruptcy, had “done a remarkable job in leading the company through an unprecedented period of challenge and change.”

“While momentum has been building over the past several months, all involved agree that changes needed to be made,” Whitacre said.

With the appointment of Whitacre, all three U.S. automakers are now headed by outsiders to Detroit.

Ford Motor Co CEO Alan Mulallly left Boeing Co in 2006. Chrysler is now headed by Fiat SpA CEO Sergio Marchionne.

(Reporting by David Bailey, writing by Kevin Krolicki; editing by Patrick Fitzgibbons and Matthew Lewis)

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Federal Reserve officials on Tuesday struck a cautious note on the U.S. economy, citing high unemployment, heavy reliance on government support and commercial real estate woes as hurdles to recovery.

Speaking less than a week after the Fed left interest rates unchanged at near zero, a trio of top officials — San Francisco Federal Reserve Bank President Janet Yellen, Atlanta Fed chief Dennis Lockhart and Boston Fed President Eric Rosengren — said the economy was still vulnerable.

“The strength and durability of the expansion is in question,” Yellen said in Phoenix, Arizona. “High unemployment, weak job growth and paltry wage increases are a recipe for sluggish consumer spending growth and a tepid recovery.”

The Fed chopped overnight interest rates to near zero in December and it has pumped more than $1 trillion into the economy to spur a recovery from the deepest downturn since the Great Depression.

Last week, it reaffirmed its commitment to keep borrowing costs ultra-low for “an extended period,” and financial markets will be listening to Fed officials closely to try to gauge when they may finally move to withdraw their economic support.

The latest remarks eased investor’s worries about higher interest rates, helping support prices for U.S. government debt.

Yellen and Lockhart are among the voters this year on the Fed’s policy panel, while Rosengren will move into a voting slot in 2010. While Yellen and Rosengren are seen as Fed “doves” on inflation, Lockhart is considered more of a hawk.

“It’s a question of timing,” Rosengren told a seminar in London when asked how the Fed planned to exit from its extraordinarily supportive policies no credit check payday loans. “We’re not there yet.”

SELF-SUSTAINING RECOVERY QUESTIONED

Yellen said it remains to be seen whether the private sector can carry the load once supportive fiscal and monetary policies fade. Meanwhile, Lockhart said that while a recovery was under way, growth would be “relatively subdued” in the medium term.

“The situation is much improved, but there are sobering aspects of the economic picture,” he told a conference in Atlanta, adding data on bank failures, foreclosures, unemployment and personal income “continue to disappoint.”

The U.S. economy grew at a 3.5 percent annual rate in the third quarter, snapping four consecutive down quarters and likely ending the recession that began in December 2007.

But labor market conditions remain dismal. The unemployment rate surged to a 26-1/2-year high of 10.2 percent in October, and a Reuters poll on Tuesday showed economists expect it to hit 10.5 percent in mid-2010 before subsiding.

High unemployment is one factor expected to keep the Fed on the sidelines. The central bank said last week that economic slack, subdued inflation trends and stable inflation expectations argued for a prolonged period of low rates.

“At this juncture, it’s hard to be encouraged about a fast rebound in job growth,” Lockhart added. 

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European Union-led plans to conclude a number of accords with Liechtenstein and other non- EU countries to fight tax fraud may stumble over resistance from two of the bloc’s smaller members, Luxembourg and Austria.

Sweden, which holds the rotating presidency of the 27- nation EU, seeks to get political backing from the region’s finance ministers meeting in Luxembourg today for several tax- cooperation deals that it says would enhance transparency. Luxembourg today said it will veto such plans because they go against agreements earlier this year that information exchange on tax matters should occur only on a case-by-case basis.

Leaders of the Group of 20 nations have agreed to clamp down on countries that don’t comply with global tax standards as part of efforts to battle the economic crisis. At the behest of the G-20, the Organization for Economic Cooperation and Development published a “gray list” that identified Austria, Luxembourg and Belgium, among others, as countries that haven’t implemented internationally agreed tax standards.

“At the G-20 meeting, it was agreed that there should be information exchange upon request in Europe,” Luxembourg Finance Minister Luc Frieden told reporters today before the ministers’ meeting. “What’s on the agenda today, however, would mean automatic information exchange for Austria, Belgium and Luxembourg. We think this is not the right way.”

Austria’s Finance Ministry said yesterday that the country would veto any deal that would force the country to join a system of automatic exchange of tax information while failing to shed light on anonymous trusts. Sweden said it seeks political agreement to sign an EU treaty with Liechtenstein and also to get backing for similar EU accords with Andorra, Monaco, San Marino and Switzerland.

‘Full Transparency’

“We need full transparency also as regards financial products to prevent individual states from hiding behind certain products — even while agreeing to information exchange — by saying there are products where we have no information about who the owner is and who is the beneficiary,” Austrian Finance Minister Josef Proell said today before the meeting.

Luxembourg is in favor of fighting tax fraud, “but we’re not in favor of having two different systems inside and outside Europe,” Frieden said in Luxembourg. “That’s why we will contribute constructively to today’s discussion, but we won’t agree to the proposed treaties with Liechtenstein and the mandates for negotiations with other countries.”

Luxembourg, Austria and Belgium have been taken off the OECD gray list after their governments signed a series of bilateral double-tax treaties in line with G-20 demands.

“We have to adhere to the conclusions of the Group of 20 nations, which concluded that information exchange should happen on request,” not automatically, Frieden said. “We can’t now say that the G-20 was wrong and we have to change the rules of the game.”

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The increasing use of dark pools, or venues where stock trades are hidden from public view, is a growing concern for regulators, the Chairman of the U.S. Securities and Exchange Commission said on Thursday.

While there were legitimate reasons for market participants to maintain anonymity and engage in trading without moving the market, dark pools may lower the quality of publicly available information, Mary Schapiro said in a speech at the IOSCO Technical Committee Conference in the Swiss city of Basel.

“The SEC is considering whether the dark pools need more light,” Schapiro said.

Dark pools allow traders, especially of large blocks of stock, to hide their intentions and avoid moving share prices. They have gained traction over the last decade as the average size of trades dramatically decreased on the transparent exchanges bad credit pay day loans.

The United States has some 40 such venues, but dark pools have also grown in Europe and elsewhere.

Schapiro said some pools were not dark to all market participants but rather transmitted electronic messages to select individuals that could convey valuable information about their available liquidity.

This could lead to significant private markets that excluded public investors, she said.

“Such a two-tiered market would be inconsistent with the fundamental principles of fairness and efficiency that guide U.S. market structure policy,” Schapiro said.

(Reporting by Sven Egenter; editing by John Stonestreet)

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Planning for retirement has never been as complicated — or as important — as it is now.

Last year’s financial meltdown was the second stock market disaster of the decade. Millions of baby boomers saw their savings wither just when they were eyeing retirement.

The collapse of the stock market had much less impact on people in their 20s and 30s. They had less to lose and have plenty of time to recover. For many others, though, the decline in 401(k)s and other investment accounts will force them to make difficult choices. Many will work longer than they expected. Others will forget about buying a second home in retirement or traveling as much as they had planned.

The crash and its effect on baby boomers highlight the risks that came with the revolution in how people finance their retirement.

For decades, a company pension was the key to the good life. With a defined-benefit pension, workers contribute nothing and receive a guaranteed monthly payment, or a lump sum at the start of retirement. Since 1980, pensions have been gradually replaced by 401(k)s. These are tax-deferred savings plans in which workers, and sometimes employers, make contributions, and the retirement payoff depends on how well the money was invested.

The number of families with only a company-provided pension fell from 40 percent to 17 percent from 1992 to 2007, according to one study. Those with a 401(k)-type plan reached nearly 80 percent from 32 percent.

"We’ve moved so much of the burden of saving onto the individual worker," says Blaine Aikin, CEO of Fiduciary360, which offers advice on retirement plans. "We also expect them to be able to manage it in a situation where even the professionals were baffled."

For years, personal finance experts have urged people to take a more active role in managing investments. The meltdown has made it even more critical. Financial planners say the rules haven’t changed. They just need to be applied.

The ultimate question is how much do you need to save? For starters, think about how you plan to live. Do you want to enjoy time with family, or dart around the globe? Either way, you’ll need to budget for it.

A general rule is that you need at least 75 percent of your gross income in the years just before retirement. There are several reasons why you need less than 100 percent:

— Income taxes are lower after retirement. There are extra deductions for those over age 65, some retirement income may be tax-free and, with less income, you’ll probably be in a lower tax bracket.

— Saving for retirement is no longer necessary.

— Social Security taxes disappear.

— Clothing and commuting costs will drop. Often, a person’s mortgage is paid off by retirement. But health care costs will climb. People over age 65 spend roughly 30 percent of their income on health care, said AARP Public Policy Institute.

One way to look at retirement spending is to separate necessities from nonessentials and save for them separately, says Jean Setzfand, AARP director of financial security.

Make sure the necessities are paid for through a guaranteed income stream, such as Social Security or a pension, if you have one, she says.

The optional expenses should be paid out of invested savings, the value of which may fluctuate. This method gives you much more security meeting your basic needs. If your investments do well, you can spend more on nonessentials.

When the market falls, however, it cuts to the bottom line for retirees and those close to retiring.

People between the ages of 55 and 64 saw 20 percent of their retirement savings evaporate during the meltdown, though a six-month market rally and continued contributions have restored much of that. Still, the average 401(k) balance for this group was down 2.6 percent on Sept. 1 from a year ago.

The volatile stock market has forced many people to pay more attention to what’s in their 401(k). In February, five months into the meltdown and a month before the market hit bottom, nearly a quarter of 401(k) participants ages 56-65 had at least 90 percent of their money in stocks, according to Employee Benefits Research Institute.

The good news is that 75 percent had less. But the first group and many in the second had ignored a basic rule: Adjust your investments the closer you get to retirement.

The question for many is how to restore some of the losses. A study by asset management firm T.Rowe Price indicates that a person with a salary of $100,000 can increase retirement income from investments by as much as 28 percent by postponing retirement from 62 to 65.

Another option to increase retirement income is to delay claiming Social Security. Each year you keep working, the monthly check would increase by about 8 percent.

Still, research suggests that you have to be prepared in case your plans get derailed. Various life situations, including an aging parent, health problems or a job loss, might prevent you from working as long as you want. Although the median retirement age was 62 in the EBRI study, nearly half said they left work sooner than they had planned.

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DuPont Co Chairman Charles Holliday will likely be added to Bank of America Corp’s board of directors at a meeting on Monday, the Wall Street Journal said, citing a person familiar with the situation.

The board will also be briefed on options if the bank’s chief executive Kenneth Lewis is charged with civil fraud, according to the paper.

Last week, New York Attorney General Andrew Cuomo subpoenaed five current or former Bank of America directors to learn what they knew about Merrill Lynch & Co’s problems as the companies prepared to merge. ID: nN16137315

Cuomo has threatened to sue Bank of America officers, perhaps including Chief Executive Kenneth Lewis, and its lawyers over a lack of disclosures about the merger, which shareholders approved last December 5 and which closed on January 1 allied insurance.

The bank’s directors were not surprised by any of the allegations made by Cuomo’s office and back Lewis, the Journal said, citing the person familiar with the matter.

Bank of America and DuPont could not be immediately reached for comment by Reuters outside regular U.S. business hours.

(Reporting by Ajay Kamalakaran in Bangalore; Editing by Muralikumar Anantharaman)

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Bank of New York Mellon may restart trade-finance lending to Russia as a part of an out-of-court settlement of a $22.5 billion lawsuit against the bank, Kommersant business daily and the Wall Street Journal reported on Monday.

For more than two years, Russia has been seeking compensation from the U.S. bank after a former vice-president, Lucy Edwards, admitted to helping to launder $7 billion from Russia in the late 1990s through Bank of New York accounts.

The settlement could come before the next hearing, slated for October 20, according to The Wall Street Journal, citing a person close to the talks.

“The bank made this proposal late August as a part of preparing amicable settlement with Russian Customs Service. It is suggested the financing will be provided through $400 million tranches every 180 days,” a source in Russia’s Finance Ministry was quoted as saying.

Bank of New York’s exposure will be no more than $400 million, renewed every six months over five years, the person familiar with the talks told the WSJ. Russian media had reported the loan would be $4 billion.

The credit line would bear an interest rate of 2.5 percent over LIBOR and the final recipients of the funds would be Russian banks selected by the government.

The state banks would use the money to help fund imports and exports, the Journal reported.

A spokesman for the bank in New York declined to comment on the case.

A Finance Ministry official told Kommersant it received the bank’s proposal for the expertise a couple of weeks ago but declined to comment further.

For more than two years, the case had been bogged down in procedural issues, mainly over jurisdiction, and had not moved into arguing the merits of the case at the time the settlement talks began.

Settlement talks began in March 2009 after the Russian government called the bank to the table. But the two sides voiced radically different opinions on how much it should cost to end the case, ranging from $1.5 million to close to $1 billion.

(Reporting by Dmitry Sergeyev, additional reporting by Elinor Comlay in New York; editing by Simon Jessop, Bernard Orr)

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Fewer Americans filed claims for jobless benefits last week, another sign the economy is pulling out of the worst recession since the 1930s.

Applications fell by 10,000 to 570,000, a higher level than forecast, in the week ended Aug. 22 from a revised 580,000 the week before, the Labor Department said Thursday. The total number of people collecting unemployment insurance fell to the lowest level since April.

Job cuts are easing as government stimulus measures help stabilize the housing and manufacturing industries. At the same time, a rebound in hiring will take longer to occur, restraining the consumer spending that accounts for 70 percent of the economy.

"We’re definitely seeing firings slowing as firms are much leaner than they were earlier," said David Semmens, an economist at Standard Chartered Bank. "Any good news in the labor market provides a floor for consumer sentiment."

Economists forecast that claims would fall to 565,000 from a previously reported 576,000.

The report showed the four-week moving average of initial applications, a less volatile measure, dropped to 566,250 last week from 571,000.

Continuing claims plunged by 119,000 in the week ended Aug. 15 to 6.13 million, the least since the week ended April 4.

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The Bank of Israel raised the benchmark interest rate by a quarter of a percentage point, the first central bank to lift rates since signs of an easing in the global recession started in the second quarter.

Governor Stanley Fischer increased the lending rate to 0.75 percent, the Jerusalem-based central bank said Monday, after keeping it at a record low since March. Two of 12 economists surveyed by Bloomberg forecast the increase, while the rest expected Fischer to hold the rate steady.

The decision "strikes a balance between the need to moderate inflation and the need to continue to support the recent recovery in economic activity," the bank said. "Setting the interest rate at the low level of 0.75 percent continues to represent an expansionary monetary policy."

Fischer has been backing away from economic stimulus measures since July 27, after the inflation rate slid into the target range for only one month before rebounding back out. The Israeli, French, German and Japanese economies all returned to growth in the second quarter, prompting Fischer to say on Friday at a meeting of bank governors at Jackson Hole, Wyo., that "the first signs of global growth have appeared."

"You can read this as the first hike in the recovery cycle," said Shahin Vallee, an emerging-markets currency strategist at BNP Paribas SA in London. "Poland could be next."

Israel posted inflation rates of 3.5 percent in July and 3.6 percent in June, above the 1 percent to 3 percent target range.

"We have a picture of economic recovery right now, which you see elsewhere in the world," said Jonathan Katz, an economist at HSBC Securities who predicted the increase. At the same time, "Israel is one of the few countries in the world where inflation is running above target at three and half percent, and Fischer’s mandate is to try and bring it down between 1 and 3 percent."

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