Gov't on pace for $1T deficit despite January dip (AP)

By CHRISTOPHER S. RUGABER, AP Economics Writer Christopher S. Rugaber, Ap Economics Writer – Fri Feb 10, 5:21 pm ET

WASHINGTON – The federal deficit was lower through the first four months of the budget year than the same period last year. Still, the deficit is expected to top $1 trillion for the fourth year in a row, putting more pressure on Congress and President Barack Obama in an election year.

The deficit totaled $349 billion through January, the Treasury Department said Friday. That's $70 billion less than at the same point last year. January's monthly deficit was $27 billion, roughly half of the deficit in January 2011.

The White House later confirmed a report that President Obama's new budget predicts a $1.3 trillion deficit for the full fiscal year, which began on Oct. 1. The figures were first reported in The Wall St. Journal, which viewed leaked draft budget documents.

If the administration is correct, the 2012 deficit would be the same as last year's imbalance. The government ran an all-time record deficit of $1.41 trillion in fiscal 2009, and a $1.29 trillion imbalance in 2010.

This year's deficit is running lower in part because of higher corporate tax receipts, the department said. That has boosted government revenue to $790 billion from October through January.

Spending fell to $1.14 trillion in the same period, though excluding the accounting changes it was largely flat.

Still, the picture hasn't improved as much as the Congressional Budget Office had estimated it would last year. In August, the agency projected that the deficit would come in at $973 billion this year. But last week, it boosted its estimate, citing lower than expected tax revenues.

Congress has shown little ability recently to make difficult changes to tax levels or spending programs to reduce the deficit. They will face another big challenge at the end of this year, when tax cuts that were first enacted in 2001 and 2003 are set to expire. And a set of automatic spending cuts totaling about $1.2 trillion over 10 years is also scheduled to kick in.

Those changes, along with several other provisions that will automatically take effect under current law, would substantially reduce the deficit in future years.

But the CBO estimates that if Congress extends the tax cuts, as many observers expect, and if they block the spending cuts, the deficit will remain near $900 billion or higher for the next 10 years.

President Obama is set to release his annual budget proposal Monday. It will include a set of economic projections, including that unemployment will average 8.9 percent this year. White House officials dismissed the figure Thursday as outdated. The rate fell to 8.3 percent in January.

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Associated Press Writer Andrew Taylor contributed to this report.

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Mortgage demand slides despite low loan rates (Reuters)

NEW YORK (Reuters) – Demand for U.S. home loans fell for a third straight week last week although mortgage rates fell to or near record lows, an industry group said on Wednesday.

The Mortgage Bankers Association's seasonally adjusted mortgage applications index, which includes both refinancing and home purchase demand, dropped 4.9 percent in the week ending September 2.

The MBA's seasonally adjusted refinancing application index fell 6.3 percent while its gauge of loan requests for home purchases climbed 0.2 percent.

Fixed 30-year mortgage rates averaged 4.23 percent, down from 4.32 percent the prior week and the second lowest rate since the group began its survey nearly 22 years ago.

Fifteen-year loan rates averaged 3.41 percent, down from 3.49 percent a week ago to a new survey low.

"Despite these rates, refinance application volume fell for the third straight week and is more than 35 percent below levels at this time last year," Mike Fratantoni, MBA's vice president of research and economics, said in a statement.

"Purchase application volume remains relatively flat at extremely low levels, close to lows last seen in 1996," he said.

Rock-bottom borrowing costs did breathe some life into the housing market during the summer, boosting demand for purchase and refinance loans from extremely low levels.

But housing remains in a "deep freeze," and a stumbling block for the broader U.S. economy, HSBC Securities economists Kevin Logan and Ryan Wang wrote in a Tuesday report. The still-excessive inventory of unsold homes keeps depressing prices.

"The ongoing process of household debt deleveraging and balance sheet repair creates another persistent headwind on the economy that is closely related to the housing market," they wrote.

Concerns about the wealth effect, along with ongoing steep unemployment and financial market turbulence, keep many potential buyers from committing to such a large purchase.

"In my line of work, we're doing okay with rates dropping, but it doesn't mean we don't worry about the rest of our money ... whether it's going to lose its value," said Naela Sharuk, senior loan officer at Mortgage Master Inc in Walpole, Massachusetts.

The 30-year fixed rate loan hit its lowest rate of 4.21 percent, just 0.02 percentage point below the current rate, last October, the MBA said.

Many borrowers who could refinance at these low rates have already done so, several housing analysts said.

On the purchase side, consumers often purchase homes to move in time for the start of a new school year.

"Purchases boomed for me through the summer but have started to slow down," said Sharuk. "It's the end of summer, it's classic."

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Despite mortgage crisis, home ownership remains cherished American dream (Exclusive to Yahoo! News)

Last week's confirmation that the gross domestic product grew only 1.8 percent in the first quarter came when economists were already busily revising their growth forecasts downward for the rest of this year. A double-dip recession remains unlikely, but this is the weakest recovery since the Great Depression and the first one not being led by housing. The nearly moribund housing sector is, in fact, weighing down the recovery.

The conundrum is very real. On the one hand, the subprime-mortgage crisis and easy money—loans with minimal down payments and scant documentation—brought the U.S. economy to its knees just three years ago. Clearly, changes had to be made to prevent that from recurring. On the other hand, housing-industry leaders now fear that the pendulum is swinging too far the other way, potentially decimating an already battered sector and further stifling the anemic recovery. Although we hear the perennial debate over limiting the homeowners' mortgage-interest deduction, which would hurt the middle and higher end of the housing market, other proposed regulations really terrify the industry. These rules include increased down-payment requirements and loan restrictions for all but those with near-bulletproof credit ratings.

A bipartisan national poll of 2,000 likely voters to be released next week by the National Association of Home Builders makes clear the unique position that homeownership holds in Americans' minds and the delicacy required in dealing with the issue.

The May 3-9 telephone survey, conducted by Celinda Lake and Jonathan Voss of the Democratic polling firm Lake Research Partners and by Neil Newhouse and Robert Blizzard of the GOP outfit Public Opinion Strategies, found that 75 percent of voters believe "that owning a home is the best long-term investment they can make and is worth the risk of ups and downs in the housing market."

Interestingly, a high percentage of people in different financial situations felt this way, including 81 percent of those who own their homes outright, 76 percent with mortgages, 67 percent who are renters, and 65 percent with underwater mortgages. Respondents were also asked whether they would recommend buying a house to a close friend or family member just starting out. Eighty percent of all voters said yes, including 78 percent who had underwater mortgages. Seventy-three percent of the respondents who do not own a home said that their goal is to eventually buy one. Clearly, the decline in home values and economic turmoil have not diluted their dream of homeownership and the aspirational element that makes the notion a core value.

Today's Lesson: Neither Party's Economic Plan is Working

Some have suggested that the government end tax incentives for homeowners, but the survey suggests a hostile voter reaction to that plan. Told that "since the federal income tax was introduced in 1913, the federal government has used the tax code to encourage home­ownership," respondents were then asked: "In general, do you think it is appropriate and reasonable for the federal government to provide tax incentives to promote homeownership, or do you think it is not a good idea?" Seventy-three percent of all voters thought those incentives should be provided, including 71 percent of Republicans, 68 percent of independents, 79 percent of Democrats, and even 68 percent of those who support the tea party movement.

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When asked about requiring a 20 percent down payment to purchase a home, respondents split evenly, with 49 percent supporting such a threshold and 49 percent opposing it. But among those most likely to be affected, mortgage holders and renters ages 18 to 54, opposition was strong, with 58 percent of younger mortgage holders and 59 percent of younger renters opposed to adding that hurdle to buying a home.

Given this kind of visceral connection to home ownership, it's not surprising that 71 percent of respondents oppose eliminating the mortgage-interest deduction and 63 percent oppose lowering it. Moreover, 58 percent oppose eliminating the deduction for home-equity loans or limiting the deduction for those who earn more than $250,000 a year. Fifty-seven percent of voters said they would be less likely to support a candidate for Congress who wanted to eliminate the mortgage-interest deduction; only 26 percent said they would be more likely to support such a candidate.

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These numbers are pretty much across the board: Sixty-three percent of Republicans, 56 percent of independents, 55 percent of Democrats, 61 percent of tea party supporters, and 58 percent of those voters in congressional districts held by freshman Republicans would be less likely to support a candidate who favored killing the deduction. With the unusually large sample, the pollsters segmented respondents who live in congressional districts that The Cook Political Report rates in the swing category. Fifty-eight percent of that group were less likely to support such a candidate, with 56 percent of those voters in swing Senate states and 54 percent in states that The Washington Post's Chris Cillizza rates as swing presidential states.

The clear message is that owning a home is among the values that Americans most cherish—an important part of the American Dream.

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