You consider yourself a law abiding citizen, and you are not starting a nonprofit organization with conservative ties.
Even so, you may be a candidate for a tax audit—and you may have no clue what you have done to warrant the attention of the IRS.
The nation's tax collectors have long made it a practice to look for discrepancies, omissions and suspicious activity to uncover tax evasion and fraud. And lately, the IRS has expanded its monitoring to include social media.
The agency now keeps an eye out for online discussions about nonpayment or underpayment of taxes, and even sale prices of goods on sites like eBay that don't match what taxpayers report.
In a world where companies like Amazon can keep tabs on consumers' online activities, the shift by the IRS is reasonable, says Edward Zelinsky, a law professor at Cardozo Law School. "This was always known to people in the tax community that the IRS, like everybody else in the 21st century, was monitoring online."
But Zelinsky is just one expert concerned about the lack of transparency around the IRS' practices. The agency "is so secretive about what is going on that that really erodes public confidence," he said.
(Read More: IRS Mess Could Yield Tax Reform: Baucus)
The American Civil Liberties Union has also expressed qualms about IRS secrecy. That group filed a Freedom of Information Act request for documents explaining whether the IRS always obtains search warrants to read email and other electronic communications. "Unfortunately, while the documents we have obtained do not answer this question point blank, they suggest otherwise," wrote Nathan Freed Wessler, a staff attorney at the ACLU.
So how can you know if you are under scrutiny? You can't know exactly, but some moves are more likely than others to attract attention.
Noncash deductions are a prime example, according to several tax experts. If you donate a car to the American Lung Association, or a large quantity of clothing to the Salvation Army, make sure that the deduction you take is reasonable, and that you can document how you came to that amount.
(Read More: Obama: Miller Out as Acting Commissioner of IRS)
Taxpayers who are self employed often appear to face more scrutiny as well. "If you are in business for yourself, or you work for someone who is, know that the IRS is watching," Frederick W. Dailey III, a tax lawyer and the author of "Stand Up to the IRS," said on his website.
The IRS also keeps an eye out for cash-based businesses, and for mismatches between what others file about you and what you file. For example, if you neglect to include a payment for some freelance work during the year, and the payer reports that as a business expense, you are likely to get some scrutiny. This would also hold true if you neglect to report gains from an investment account, and the investment firm reports them.
(Read More: Daniel Werfel Acting IRS Commissioner)
Wealthier taxpayers seem to be more likely to get chosen for audit, perhaps because that gives the IRS a greater chance to recover significant sums. (Every year the government collects only about 83 percent of what it is owed, a gap of several hundred billion dollars at a time when the budget deficit is a flashpoint.)
According to IRS data, taxpayers making $1 million or more are more than 12 times more likely than the rest of the population to be examined. In 2010, about one in 100 Americans were audited. The IRS audited 3.8 percent of returns for those making $200,000 or higher, versus 12.5 percent of returns for those making $1 million or more.
As for the online monitoring, Zelinsky says it may be simply the application of new tools to old agency search standards. So while he is deeply frustrated by the IRS' lack of transparency, he added, "If they are using social media to find cash based businesses, or looking for phony medical deductions or the other hot buttons, then I would applaud that."
There is no surefire way to prevent an audit. But experts say one practice definitely improves your odds: Don't do what the IRS does. Be open. About everything.
By Ed Crooks
The growing role of the U.S. in world energy markets was underlined on Friday as the Obama administration approved wider exports of liquefied natural gas and international companies committed billions of dollars for new infrastructure.
The developments were both consequences of the shale revolution in the U.S., in which improvements in the techniques of horizontal drilling and hydraulic fracturing, or "fracking," have unlocked new supplies of oil and gas, and raised the prospect that the US will be an increasingly important supplier of energy to the rest of the world.
The Department of Energy on Friday authorized the Freeport LNG project in Texas to export to countries that do not have a trade agreement with the US, including Japan and the members of the EU. It was the first such approval to be granted for two years and only the second ever.
President Barack Obama had been expected to approve worldwide sales from the Freeport project, as the administration sees rising energy exports as providing economic benefits and strengthening the global influence of the U.S.
However, a vocal lobby of companies in industries such as chemicals and steel has urged restrictions on gas exports to ensure U.S. manufacturers continue to derive a competitive advantage from cheap energy.
Freeport has signed deals to sell its gas to Osaka Gas and Chubu Electric of Japan, and BP of the U.K. The export project is owned by a consortium including Osaka Gas and Michael Smith, Freeport's founder and chief executive.
Separately, Japanese and European companies said they would invest billions of dollars in another proposed gas export project, the $10 billion Cameron LNG plant in Louisiana.
Mitsui, Mitsubishi and Nippon Yusen of Japan, and GDF Suez of France, which had already agreed to buy LNG from Cameron, will provide construction financing in return for equity stakes totaling 49.8 percent.
Mark Snell, president of Sempra Energy, the project developer, said the deal "promotes a favorable balance of trade for the national economy, and supports national and international energy security by assuring reliable long-term gas supplies to U.S. allies and trading partners."
He estimated the contribution of the Japanese and French groups at between $6 billion and $7 billion of the facility's $9 billion-$10 billion construction cost.
Shale gas production has soared in the US in recent years, creating a supply glut that has driven prices down to about $4 per million British thermal units from a peak above $13 in 2008.
Cargoes of LNG, super cooled to minus 160 degrees so it can be transported on tankers, are selling in Asia for the equivalent of about $15 per mBTU, creating an attractive opportunity for exports from the U.S.
Twenty-six proposed US LNG plants have applied to the Department of Energy for export permits, but before Friday, only one – Cheniere Energy's Sabine Pass development in Louisiana – had been granted permission to sell to countries that do not have a trade agreement with the U.S.
The U.S. energy department said it would work through the remaining applications in order. The Cameron project is towards the top of the list and analysts believe it is likely to win approval for global exports this year.
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However, the department added that at the end of this year it would "assess the impact of any market developments" on future decisions, a concession to fears that the cumulative impact of allowing a series of LNG export developments might push U.S. gas prices higher.
Japanese utilities have been particularly interested in projects such as Sabine Pass because its gas is priced off Henry Hub, the US benchmark, which is much cheaper than the oil-indexed price in many of the world's long-term LNG supply contracts.
Japan is already the world's largest importer of LNG, and the crippling of its nuclear industry by the 2011 meltdown at Fukushima Daiichi atomic power station has only increased its demand. Tokyo Electric Power, owner of the Fukushima plant, signed a deal to buy Cameron gas in February.
Mitsui and Mitsubishi are the largest of Japan's huge trading and investment houses. Mitsui is to take a 16.6 per cent stake in Cameron, while Mitsubishi and Nippon Yusen, a shipping company, will together take 16.6 per cent through a joint venture. GDF Suez, the French utility, will also take 16.6 per cent.
Jun Nishizawa, vice-president of the global gas business department for Mitsubishi, said: "By participating in this LNG export project, we are proud to be able to contribute not only to the development of stable energy trade between the U.S. and countries around the world, including Japan, but also to the growth of the US economy."
Jean-Marie Dauger, head of GDF Suez's global gas and LNG business, said the project would serve to "expand and diversify the group's LNG portfolio and increase its flexibility for supplying existing or future markets in high-growth areas".
GDF Suez is Europe's largest LNG importer and the world's third-largest seller of LNG with a portfolio of 16 million tonnes a year.
By Prashant Gopal & Kathleen M. Howley
Just a year since the U.S. housing market hit bottom after the biggest plunge in eight decades, signs of excess are re-emerging.
An open house for a five-bedroom brownstone in Brooklyn, New York, priced at $949,000 drew 300 visitors and brought in 50 offers. Three thousand miles away in Menlo Park, California, a one-story home listed for $2 million got six offers last month, including four from builders planning to tear it down to construct a bigger house. In south Florida, ground zero for the last building boom and bust, 3,300 new condominium units are under way, the most since 2007.
The U.S. spring homebuying season has been marked by a frenzy of demand fueled by the Federal Reserve’s drive to push down borrowing costs, a scarcity of listings and Wall Street’s new appetite for foreclosed homes. While values remain well below their peak, economists including Stan Humphries of Zillow Inc. (Z) and Mark Vitner of Wells Fargo & Co. assert prices in some areas are rising at an unsustainable pace -- a dramatic shift from early 2012, when billionaire Warren Buffett said housing “remains in a depression.”
Slideshow: The Top 12 American Boomtowns
“It’s a big change from a year ago,” said Paul Willen, a senior economist at the Federal Reserve Bank of Boston. “You’ve gone from hearing horror stories about people losing money to hearing stories of frenzy -- lots of traffic and multiple offers.”
U.S. home prices jumped almost 11 percent in March from a year earlier, the biggest gain since the height of the real estate boom in 2006, CoreLogic Inc. reported last week. Values are rising faster than incomes, an indication that prices may fall in some cities once higher mortgage rates erode affordability, Humphries said. Investor purchases will inevitably cool, adding another potential hit to the market, according to Vitner.
The gains in some U.S. areas aren’t sustainable for a healthy market, said Dean Baker, co-director of the Center for Economic and Policy Research in Washington.
“If prices keep going up at this rate for another six months, we will have a bubble, and people will get hurt,” he said in a telephone interview.
U.S. buyers spent three times their annual incomes on homes at the end of last year, and those properties were 15 percent pricier relative to incomes than before the housing bubble of the mid-2000s, according to data from Seattle-based Zillow (Z). Markets such as Silicon Valley, Southern California, Boston and New York will look expensive relative to incomes when mortgage rates rise, Humphries said.
“The Fed has put every home on sale because of its actions,” Humphries said in a telephone interview. “We’re not saying you should ignore the sale sign and not pay a cheaper price. We want people to be aware of the fact that this is unusual and not bake these expectations of high appreciation into their long-term calculus.”
The average rate for a 30-year fixed mortgage was 3.51 percent this week, and reached a record low of 3.31 percent in November, according to Freddie Mac. That compares with an average rate of 6.24 percent from 2001 to 2006.
It’s too early to say another bubble is emerging. So far, the biggest gains are limited to hard-hit markets such as Phoenix and Las Vegas and thriving job centers such as San Francisco, while prices are falling in cities such as Chicago and Indianapolis, according to CoreLogic. Nationally, existing-home sales are about a third off a 2005 peak and home construction is down by 66 percent. Also, in contrast to the easy lending of the boom years, mortgage standards are strict.
In areas such as Long Island, New York, and Omaha, Nebraska, price gains are within moderate growth levels of 3 percent to 5 percent, according to the National Association of Realtors. In other cities, demand remains stagnant and the market is far from overheated.
Homebuyers in Erie, Pennsylvania, a port on Lake Erie in the northwest part of the state, are still finding plenty to choose from, said Debra Fries, a local agent with Coldwell Banker Select. The median home price in the area fell 5 percent to $105,000 in the first quarter from a year earlier, according the Realtor group.
“We don’t have any bubbles,” Fries said. “We’re steady as a stream.”
U.S. home prices fell 35 percent from their July 2006 peak to the bottom in March 2012, and are still 29 percent off their high, according to the S&P/Case-Shiller index measuring 20 U.S. cities. Nationally, prices dropped so much during the crash that they remain about 7 percent undervalued, based on comparisons with historical prices, incomes and rents, Trulia Inc. said this week, introducing a feature on its website called “Bubble Watch.”
Still, the recent price surge has made eight U.S. markets - - including Orange County, California; Houston; and Portland, Oregon -- overvalued, the San Francisco-based real estate data company said.
The housing market has defied predictions of a tepid recovery by many economists. A year ago, Moody’s Analytics Inc. said prices in 2013 would climb 1.6 percent. The company revised its projections upward for each of the last six months and now expects an increase of 7.5 percent this year. Gains probably will moderate in 2014, said Celia Chen, a Moody’s housing economist who predicts a 4 percent rise as homebuilding ramps up and underwater homeowners regain enough equity to sell.
CoreLogic said today that it projects prices will rise at an annualized rate of 3.9 percent through 2017 after climbing 7.3 percent in 2012.
Of the 150 metropolitan areas tracked by the National Association of Realtors, 9 out of 10 showed price increases in the first quarter from a year earlier and areas such as Silicon Valley, California; Phoenix; Atlanta; and Reno, Nevada, saw gains of more than 30 percent, the group said. Prices declined in 17 markets, including Edison, New Jersey; Champaign-Urbana, Illinois; and Allentown, Pennsylvania.
“This is a good spring for sellers in a hurry,” Jed Kolko, chief economist for Trulia, said in a telephone interview. “Buyer demand is stronger than we’ve seen it in years and it’s been strong enough to lift sales despite tighter inventory.”
The buying frenzy was on display at a March open house in Brooklyn, a borough of New York City where the median price rose 14 percent to $515,000 in the first quarter from the prior year as the number of listings plunged 45 percent, according to Douglas Elliman Real Estate and appraiser Miller Samuel Inc. Over two hours, 300 visitors streamed into a three-story brownstone in Crown Heights and it went under contract for more than the asking price less than a week later, said Barbara Brown-Allen, a Douglas Elliman agent who represents the seller.
The fear of losing out on mortgage rates that are close to the lowest on record is spurring the rush, Brown-Allen said. The up-and-coming Brooklyn neighborhoods of Crown Heights, Bushwick and Bedford-Stuyvesant have surged in popularity during the past year because buyers have been priced out of Manhattan and more exclusive Brooklyn neighborhoods, such as Park Slope and Cobble Hill, she said.
“It was a zoo -- sometimes there were over 100 people in the house at a time,” Brown-Allen said. “Once the inventory is this short, you have a lot of people vying for the same properties.”
Even in markets like Boston, where CoreLogic put home-price gains at a moderate 8 percent in March, demand is high. Often, homes spend only one day on the market, said Cliff London, a broker with the RE/MAX Home Team in the suburban town of Needham, Massachusetts.
“By the time the first open house is over the offers are coming in, sometimes above asking price,” London said. “There’s a lack of quality inventory -- that’s fueling it.”
In much of the country, inventory has been drained by institutional investors such as Blackstone Group LP and Colony Capital LLC buying single-family homes, often foreclosures, to turn into rentals, said CoreLogic Chief Economist Sam Khater.
Blackstone, the largest buyer in the U.S., spent more than $4 billion on 24,000 rental properties last year. The company recently bought 1,400 residences in Atlanta, the biggest bulk deal for the fledgling homes-for-lease industry. Such purchases helped to drive prices up 12 percent in March from a year earlier in Georgia, where values only rose 1.2 percent six months earlier, Khater said.
Appreciation in Arizona (SPCSPHX) is moderating as investors look in other markets for better yields, Khater said. Prices in the state rose 17 percent in March from a year earlier compared with a 20 percent increase in September 2012, he said.
Vitner of Wells Fargo said investors are buying properties as quickly as they can and when they leave, housing will take a hit. Investors accounted for 19 percent of sales in the U.S. in March and even more in some former bubble markets, according to the National Association of Realtors.
“The problem is if they don’t earn a high enough return, they all walk away,” Vitner said. “Investors accounted for a larger proportion of the housing recovery than people realize.”
While the tightness in the existing-home market is driving up sales for new homes, homebuilders can’t increase production fast enough because of labor shortages and rising competition for lots in the best locations. There were 153,000 new homes available for purchase in March, just 10,000 more than a five-decade low in mid-2012.
In Menlo Park, builders are selling houses long before they’re completed, said Keri Nicholas, a Realtor with Coldwell Banker in the affluent Silicon Valley town. Land is in such short supply that they’re buying million-dollar homes to knock down and put up mansions, she said.
A three-bedroom house Nicholas listed for $2 million last month received four offers from builders. It sold to an owner-occupant who paid all cash, she said.
In south Florida, 20 condominium towers with more than 3,300 units are under construction, according to Peter Zalewski, owner of Condo Vultures LLC, a brokerage and consulting firm based in Miami. Another 14,600 units are planned, about three-quarters of them for Miami-Dade County, where the crash left dozens of unfinished and failed condo projects, now mostly filled with renters, he said.
“I don’t think there’s any question that we’re in the early stages of the next great south Florida construction boom,” Zalewski said.
The conditions that have propelled prices up for the past year won’t last, said Joel Naroff, president of Naroff Economic Advisors Inc. in Holland, Pennsylvania.
“We’re eventually going to see mortgage rates increase, supply increase, and affordability decline, so you probably cut price gains at least by half,” Naroff said. “It will be a slowdown, not a crash.”
Google's YouTube could be a $20 billion business within seven years, according to a research note from Morgan Stanley.
Based on the site's current share of the video advertising market, analysts at the firm estimated Wednesday that YouTube will do $4 billion in gross revenue and $711 million in operating income this year alone.
With YouTube's continuing expansion into the video advertising space, the firm predicts that by 2020 revenue will hit $20 billion and operating income will come in at as much as $5 billion.
But the site, which boasts an average of 1 billion users per month, isn't just relying on advertising to drive its revenue up.The company is experimenting with NEW ways to cash in on content and compete with more premium streaming sites like Netflix and Amazon.
YouTube revealed earlier this month a subscription service that allows 30 of its partners to charge for content on YouTube's site.
Subscriptions start at 99 cents per month, but most of the pilot channels that have launched cost $2.99.
By Amy Langfield
Does this job make me look fat? If you are a bus driver, the answer is probably yes. The news is also bad for manufacturing and production workers, as well as installation or repair workers, according to a survey for the Gallup-Healthways Well-Being Index.
Transportation workers have a 36-percent obesity rate, the highest rate among 14 occupation groups measured by Gallup based on interviews with more than 139,000 American workers from Jan. 2 to Sept. 10, 2012. For manufacturing and production workers, 30 percent are obese, followed by 28 percent of installation or repair workers and 26 percent of office workers.
On the lighter end of the scale, 14 percent of physicians were obese, followed by 20 percent of business owners and 21 percent of teachers.
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The study found several factors for worker obesity, including exercising fewer than three days a week, not eating healthy, limited access to a safe place to exercise, a history of depression and skipping annual dentist visits.
The bad news for transit workers is no surprise to Ed Watt, who drove a bus in Brooklyn and Manhattan for 20 years and now serves as the Director of Health and Safety for the Transport Workers Union of America AFL-CIO. It's a job that leads to higher rates of medical issues for a number of conditions, including diabetes, high blood pressure, carpal tunnel syndrome and chronic obstructive lung disease, according to information from the National Institute for Occupational Safety and Health.
"First the sedentary nature of the work, sitting much of the day with the inability to move around, even for bathroom breaks," Watt said via email. "The second is the mobile nature of the job leaves poor food choices. So fast food rules."
"The other factor is that these jobs are highly stressful," he said. "The stress of the jobs results from high demand and low control over the work. Traffic, people and schedule are all big items that are beyond your control as a driver. As a result of the stress, many are inclined to mal-adaptive coping mechanism."
The good news, Watt said, is that part of his job is working to make it easier for the transportation workers to lose the top spot on the Gallup list.
Production workers, the game is on.
U.S. President Barack Obama said on Thursday that he did not know about the Internal Revenue Service Inspector General's report on the agency's targeting of conservative groups for extra scrutiny before it was leaked to the press.
Obama said in a news conference in the White House Rose Garden that he was committed to fully fixing problems at the IRS, saying any employees involved in targeting conservative groups would be held accountable for their "outrageous'' actions.
Obama also addressed the crisis in Syria.
He said he reserves the right to resort to a range of both diplomatic and military options if he receives conclusive proof that the government of Syrian President Bashar al-Assad had used chemical weapons in the country's civil war.
Obama, at a joint news conference with Turkish Prime Minister Tayyip Erdogan, said there was evidence of chemical weapons use in Syria but that it is important to get "more specific information'' to confirm that before deciding how to respond.
Small business owners were a little more optimistic during April but are generally still cautious.
That's the finding of a survey released Tuesday by the National Federation of Independent Business.
The NFIB's Index of Small Business Optimism rose 2.6 points to 92.1 last month, erasing a drop of 1.3 during March. The index was compiled from the survey of 1,873 NFIB members.
The index has averaged 90.7 since the recession, reflecting concerns about the economy and the potential impact the health care law will have on small businesses when it's fully implemented Jan. 1. So the April gain doesn't reflect a big rebound in owners' sentiment.
Many owners are pessimistic because their sales are weak. More owners said sales fell during the first quarter than those who reported sales gains.
And many owners still expect business conditions in six months to be weaker than they are today—a sign that the pace of expansion and hiring at small businesses will remain slow. Four percent say this is a good time to expand, but that's unchanged from March.
The NFIB reported last week that owners picked up their hiring pace slightly during April, the fifth-straight gain. The number planning to add jobs rose 6 points, but that gain brought it only to a break-even point.
By Peter Morici
College is too expensive, graduates can't find decent jobs and pay off their loans, and students, parents and educators all share in the blame. Now, President Barack Obama's is proposing a plan that would forgive more student loan debt -- but that will only make a bad situation worse.
More than half of recent graduates are working as waiters, taxi drivers or some other occupation that does not require a college education. The number in minimum wage jobs has doubled since 2007.
Slow growth and a tough jobs market is one reason, of course. But just as important: Too few college students choose tough majors like nursing, engineering and accounting that enjoy a robust demand for graduates. Instead, many still opt for liberal arts subjects, such as politics and history, and emerge with few practical skills subjects such as politics, history and other liberal arts, and emerge with few practical skills for the working world.
Good jobs abound for technicians in health care, computers and other fields, and the Labor Department finds most rapidly growing occupations don't require a bachelor's degree. However, parents fear their children, without a four-year diploma, will lack the flexibility to navigate a lifetime of changing conditions.
If students are lazy and parents are risk adverse, university professors and presidents are far worse. Professors simply teach less and do more research of questionable value than they did in the past. In the 1950s and 1960s, a significant track record of publications was not required for tenure at most undergraduate faculties—advancing the frontiers of science and the arts was mostly the work of professors in post-graduate departments.
Nowadays, professors at all levels must publish to win tenure, but much of what they do adds little value to either the practical world or the advancement of knowledge in a purer sense. But it does require teachers to carry lighter teaching loads. Once tenured, many professors don't publish much, but still keep their light teaching schedules.
University bureaucracies are even worse—presidents and deans often have staffs bigger than CEOs and managers running much larger businesses. And faculties, which make virtually all decisions by consensus, spend endless hours in committees advising presidents and deans, and are supported by mind-numbing bureaucracies, too.
University presidents are politicians, not business managers. They understand who makes the choices (students), who pays the bills (parents) and who they must please in the Alice-in-Wonderland world of university governance—faculty.
They are rational: Instead of encouraging students to study useful subjects and containing sky-rocketing costs, they focus on fund raising and lobbying government officials to facilitate more student loans. Tuition jets into the stratosphere, students amass huge debt, and universities produce a lot of high-quality unemployment.
President Obama is rational, too. Parents, students and former students all vote. Instead of radically refocusing national policy to expand vocational education in high schools and community colleges, he promises to increase the percentage of Americans with four-year diplomas.
His proposed "Pay as You Earn," which came late last year, would forgive billions in student debt with federal dollars. Borrowers in the program would make payments equal to 10 percent of their monthly income, after rent and basic living expenses, and after 20-years of on-time payments would be forgiven of all debt—regardless of how much they had borrowed.
What the program fails to account for is that debt forgiveness simply encourages young people and parents to make poor choices, including borrowing too much. It will also embolden colleges to keep pushing up tuition—things the nation can't afford. It certainly won't help graduates find jobs.
To compete in the global economy and create good jobs at home, America needs workers with the right skills. That means limiting access to college to those who can genuinely profit from a university education, requiring professors to teach more and in on subjects that are truly useful in the workplace, and redirecting more of what the nation spends on education into other channels of vocational training.
By Joshua Zumbrun
U.S. households reduced debt during the first quarter by 1 percent to the lowest level since 2006, resuming a deleveraging trend in the wake of the financial crisis, according to the Federal Reserve Bank of New York.
Household debt fell to $11.2 trillion in the first quarter compared with a peak burden of $12.7 trillion in the third quarter of 2008. Consumers reduced debt by $110 billion after increasing their borrowing by $31 billion in the fourth quarter of 2012, while delinquency rates fell “across the board,” the Fed district bank said in a statement. Student debt bucked the trend, rising to a record $986 billion.
“Household deleveraging has resumed its previous trajectory,” Wilbert van der Klaauw, a senior vice president and economist at the New York Fed, said today in a statement. “We’ll look to see if this pace of debt reduction and delinquency improvements will persist.”
Consumers are repairing their post-crisis balance sheets as the Fed tries to spur the expansion and enliven the job market by holding the main interest rate at zero and buying $85 billion in bonds every month. More than four years of record stimulus have yet to reignite household borrowing, and the unemployment rate has exceeded 7 percent since December 2008.
Households in the first quarter improved their debt payment patterns as delinquency rates on mortgages fell to 5.4 percent from 5.6 percent, on home equity loans to 3.2 percent from 3.5 percent, on credit cards to 10.2 percent from 10.6 percent and on student loans to 11.2 percent from 11.7 percent, according to the New York Fed.
“We’re much closer to the end of the deleveraging cycle than the beginning,” said Gennadiy Goldberg, U.S. strategist at TD Securities Inc. in New York. “If the housing recovery continues at the current pace, deleveraging could end very soon.”
Falling delinquencies have helped bolster bank shares. The KBW Bank Index of 24 financial institutions has risen 32 percent during the past year compared with a 23 percent gain for the Standard & Poor’s 500 Index. The S&P 500 rose 1 percent to 1,647.72 at 12:10 p.m. in New York trading.
Mortgage debt led the decline, falling to $7.93 trillion from $8.03 trillion, along with credit card balances, which decreased $19 billion to $660 billion, according to the Fed regional bank.
The largest increase in lending occurred in student loans, according to the New York Fed survey. Total student debt rose to $986 billion in the first quarter from $966 billion in the fourth quarter of last year.
The statistics are based on figures from a nationally representative random sample provided by the Equifax Inc. credit bureau.
A panel of bankers that advise the Fed warned last year that patterns in student lending resemble the mortgage crisis that helped lead to the worst recession since the Great Depression.
“Recent growth in student-loan debt, to nearly $1 trillion, now exceeds credit-card outstandings and has parallels to the housing crisis,” the Federal Advisory Council said in minutes of a Feb. 3, 2012 meeting, that were obtained by Bloomberg News through a Freedom of Information Act request.
The bankers said student lending shares features of the housing crisis including, “significant growth of subsidized lending in pursuit of a social good.” In this case, the focus is on higher education rather than expanded home ownership.
The deleveraging coincided with bank easing on the standards and terms for many types of loans, according to a separate quarterly Fed survey of senior loan officers. Demand for business loans increased, while “on the household side, the survey results were more mixed,” the Fed said last week in a description of the April 2-16 survey.
Banks in the U.S. have boosted lending as the economy gains strength. The total value of loans at U.S. banks climbed 3.7 percent in the past year to $7.3 trillion in April, according to a separate Fed report on the assets and liabilities of commercial banks. Lending to businesses has led the way, with commercial and industrial loans climbing to $1.55 trillion in April, an increase of 10 percent from a year earlier.
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