Economy Watch: Fannie Mae Talks Tough on Defaults; Mass Layoffs Decline

Courtesy Flickr Creative Commons user futureatlas.com

Dees Stribling, Contributing Editor

Memo from Fannie Mae to those considering “strategic default” on a residential mortgage: don’t do it. But it isn’t clear that underwater householders will be deterred by the prospect of being shut out of a Fannie Mae-backed mortgage for the next seven years, which is what the government-sponsored entity says it will do.

One consideration is psychological, in that immediate relief has a lot of appeal to desperate homeowners whose thinking runs something like, “Walk away now—worry about the consequences later.”  By contrast, a seven-year punishment is something of an abstraction.
But the real problem with Fannie Mae’s approach might be practical. As it is, walking away from a loan tends to inhibit one’s ability to borrow for a good many years. For about seven years, in fact. Also, there’s some inkling that the ailing Fannie Mae won’t be around to dish out punishment for seven years, at least not in its current form.

Mass Layoffs Drop to Pre-Recession Levels

According to figures released Thursday by the Bureau of Labor Statistics, the number of U.S. mass layoffs retreated to near pre-recession levels in May. A mass layoff in BLS terms involves at least 50 employees handed pink slips at one go, and last month there were 1,412 such layoffs nationwide, down 24 percent from April.

Also, the total number of workers fired in mass layoffs in May was about 135,700, a 32 percent decline from April. Employers might not be hiring as much as everyone would like, but at least the firing has slowed down considerably.

To slice it another way, the number of large-scale layoffs in May was only slightly higher than the average monthly number between the pre-recession years of 2004-2007. It’s also the lowest tally since the summer of 2008.

The BLS report also showed the new and unexpected strength of the U.S. manufacturing sector. In May 2010, manufacturing accounted for only 16 percent of all mass layoffs. During May 2009, it accounted for 37 percent of them.

Chicago Zoning Committee OKs South Side Wal-Mart

The Chicago City Council’s Zoning Committee gave its approval on Thursday for a new Wal-Mart store on the city’s South Side, the next step in the retail giant establishing its second-only beachhead in this city of 3 million. In passing the measure, aldermen cited the retailer’s agreement to pay higher than usual wages at the new location.

Although Wal-Mart Stores Inc. has declined to specify the exact pay scale, starting wages will be $8.75 per hour, 50 cents higher than minimum wage, according to Mayor Richard Daley, a project supporter. Wal-Mart’s wages have been a sticking point for years between the retailer and Chicago-area unions, which a few years ago backed anti-Wal-Mart aldermanic candidates, several of which won. But this time, union opposition—while still in evidence—seems less vehement.

Wall Street experienced a down day on Thursday, with the Dow Jones Industrial Average declining 145.64 points, or 1.41 percent. The S&P 500 dropped 1.68 percent and the Nasdaq lost 1.68 percent.