11-14-08

 11-14-08Merced Sun-StarNeighbors, group file lawsuit over Atwater's sewer plansThey say environmental report was not thorough...JONAH OWEN LAMBhttp://www.mercedsunstar.com/167/story/546449.htmlATWATER -- Atwater's unused wastewater sludge reuse area -- the future home of the city's new wastewater treatment plant -- is nothing more than an empty field today. Some want it to stay that way.The city of Atwater is being sued by a local farmer and a nonprofit advocacy group over the possible negative impacts of its proposed plant.The plant, slated to be online by spring 2010, will be situated on an unused waste-water dumping site south of Highway 140, just west of Merced. The plant was mandated by state law. The suit against Atwater, according to court filings, alleges that the city didn't take proper steps required by law on the project's eventual effects. The suit alleges that the plant will affect air quality, aesthetics, biological resources and water quality, among others. For some residents in the area, that means property values."With that coming in next door, we won't be able to sell this land," said Sylvia Brigham whose family owns a crop-dusting company near the proposed site. She said other landowners in the area feel the same.Despite local concerns and the lawsuit's claims, city officials say the process examining potential environmental impacts was thorough and fair. Atwater City Manager Greg Wellman said the city did what it was supposed to -- and more -- when it came to the project's Environmental Impact Report and planning. "We think the excellent job done by EDAW and Associates [the city's consultants on the project] speaks for itself. The environmental issues received extremely close scrutiny, including field testing and any potential impacts were thoroughly studied," said Wellman.The lawsuit was filed Oct. 23, and an arbitration process between the city and the plaintiffs is under way, said Richard Harriman, the plaintiffs' attorney in the case against Atwater."My clients and I are engaged in negotiations with the city regarding the suit right now. And it would be inappropriate to comment at this time," said Harriman.In the meantime, locals look across their property at a field that will soon be a sewer plant.For Brigham and her family the plant isn't a desirable thing, but it's not the end of the world either. In the end she is resigned to it: "We're not happy that it's coming in but we can live with it."Capital Corp, parent of Merced's County Bank, seeking help from federal bailout fundThe banking company also needs more time for quarterly report...SCOTT JASONhttp://www.mercedsunstar.com/167/story/546464.htmlCapital Corp of the West, parent of County Bank, expects to post a $2.7 million loss for its third quarter and plans to apply for help under the $700 billion federal bailout plan, CEO Richard Cupp said Thursday.The Merced-based publicly traded firm will delay filing the report while it tackles complex accounting issues, including further evaluating troubled loans.It expects to file the report by Monday and blames troubled loans on property and development projects as the driving force behind the losses. "It's a continued weakness in property values across all sectors in the Valley," Cupp said.Capital Corp is expecting the loans to cost it $7.5 million in the third quarter, which ended Sept. 30, and $22.8 million for the past nine months.County Bank never carried any subprime mortgages that have plagued some of the nation's top lenders. However, it lent money to construction companies and developers, two sectors hit hard by the housing crash.County Bank's parent company projects a net loss of $12.4 million since the beginning of the year. That contrasts with the first nine months of 2007, when it posted a net income of $10.6 million.However, as the housing market crashed and economic climate worsened, it posted a $3.6 million loss, its first ever, for all of 2007.The company's stock, closing Thursday at $1.98 a share, hit an all-time low earlier in the afternoon of $1.86. Its peak within the last 52 weeks was $20.Despite repeated phone calls, none of the outside industry analysts who follow the firm was available for comment.Besides looking for private investment, the company applied to sell up to $46 million in stock to the U.S. Treasury under the Troubled Asset Relief Program.Applying for the aid had been in the company's plan to boost its on-hand cash. The bank is "adequately capitalized," Cupp said, though its goal is to be well capitalized. "We had planned this for some time," he said. "It's not a last-minute approach."Today is the application deadline for bailout funds. Cupp is unsure when banks will learn whether they'll be able to sell stock to the government.Another major Valley financial institution, Sierra Bancorp, decided against applying for any of the bailout money, though it could have been eligible for $32 million.The holding company runs Bank of the Sierra, which has 22 branches from Fresno to Bakersfield.The Sierra board decided it didn't need the money and noted it would face federal restrictions if it tried to declare dividends or repurchase stock if it was part of the bailout. "This has been described as 'cheap capital' if needed, but in reality equates to expensive debt if it cannot be quickly utilized," Sierra officials said in a statement.As with any business in tough times, Cupp said Capital Corp of the West is running carefully and efficiently, focusing on its customers and 39 branches across the Valley and Bay Area."We're going through a tremendous upheaval in property values in the Valley," Cupp said. "I'm still bullish (about the area) -- always have been."Loose Lips: Don't send out the next act yethttp://www.mercedsunstar.com/167/story/546456.htmlAndy Warhol missed the mark.Some may be famous for 15 minutes. For others, the clock runs longer.In Merced, for example, it's "60 Minutes."The TV newsmagazine is trying to line up an interview with Mayor Ellie Wooten for a story about You Know What. Reporters with The Wall Street Journal were also blowing up her cell phone for a story. Wooten's been e-mailing two reps with the show, even e-mailing the map of Merced that shows the 1,000 houses that are empty because of You Know What.Once the stopwatch stops ticking in Merced, we're not sure where else the city can go. It's been highlighted (or lowlighted) in about every other major news outlet.New York Times? Done.Financial Times? Check.Dire times? Stay tuned.You've got mailGuess what top government leader doesn't know much about the Internet, has served in the United States military and who hopped aboard the Straight Talk Express.No, not Sen. John McCain, R-History.It's county head honcho, Dee Tatum, who stopped by the Sun-Star earlier this week. It had something to do with a raise and his wife. Pork-barrel spending, one might say.Anyway, Lips learned that Tatum doesn't know his work e-mail address off the top of his head. Nor did he bring any business cards. How long has he been with the county?The Upper Lip, who has his own technical difficulties, coined a term for this in the mid-'90s -- trogluddite.Most of the time Tatum seems to use mhendrickson@co.merced.ca.us as the main way to communicate. (That's Mark Hendrickson, the main county spokesman.)But, after some sleuthing, Lips also learned you can reach him by sending e-mails to power.broker@third.floor.tatum and dee@boss.gov.Modesto BeeElected officials plan more of same...Editorialhttp://www.modbee.com/opinion/story/498546.htmlHere's what we wrote in this space two years ago this month:"The local councils of governments in the eight counties of the San Joaquin Valley have begun an ambitious, yet promising, effort to map a better future for valley residents. The goal is to draw up a San Joaquin Valley Blueprint that would be adopted -- and followed -- by all of the valley's counties: San Joaquin, Stanislaus, Merced, Madera, Fresno, Kings, Tulare and Kern."Ah, we were so naive. We thought elected officials -- we hesitate, in this instance, to call them leaders -- in Stanislaus County would want to think regionally and wisely on where to put the 3 million additional people the valley is expected to have over the next 40 years.But when it comes to land-use planning, Stanislaus officials don't like being told what to do, especially by the state. They say they want to protect farmland and reduce traffic congestion, and they frequently blame their predecessors for poor planning.But when decision time came, county supervisors and representatives from each of the nine cities -- who comprise the Stanislaus Council of Governments policy board -- would not agree on a goal for more housing units per acre, even a moderate goal of having 27 percent of new housing be multifamily. Instead, they unanimously agreed Wednesday that their "preferred conceptual growth scenario" for the county is what is contained in their existing General Plans. That's what they'll submit to a valleywide summit in late January.The Blueprint Process offered an opportunity to move beyond provincial thinking. The plan was for widespread community input in identifying the values and the visions shared by valley residents. In some counties that happened, but not in Stanislaus County, largely because most elected leaders have no passion for it. Stanislaus officials spent -- or, as one might conclude, wasted -- nearly $300,000 of the state's money on this exercise. They also wasted the time of residents who attended workshops and meetings believing that their input might lead to change.Ironically, immediately after approving a growth concept that calls for the status quo, the same officials voted to participate in the fourth year of the Blueprint Process, meaning they're signing on to the application for more money. You don't need money to plan for changes you don't intend to make.Stanislaus' conclusion will be disappointing to the valley counties that have taken the Blueprint Process seriously and have set aggressive goals for increasing housing densities. And, Stanislaus' status quo goal may not be acceptable to the state, which has in the past two years passed laws requiring better planning to reduce air pollution and traffic congestion.Under the guise of maintaining local control, Stanislaus officials brushed aside the opportunity to exhibit vision, instead opting for narrow and short-term thinking. Not only is that disappointing, it also is a huge disservice to our county and the entire valley.Sacramento BeeHome Front: Building industry looks hard for a bright spot...Jim Wassermanhttp://www.sacbee.com/736/story/1396556.htmlEveryone knows that things are bad in real estate. But the inner details and endless speculation are still as fascinating as a good movie.When the industry gathers it asks: How many publicly traded home builders will go under? Are we born again now after the presidential election? How bad is all this compared with the Great Depression?Home Front listened in this week when area building industry reps gathered to hear what their consultants think. San Diego-based Sullivan Group Real Estate Advisors held the floor and tried hard not to scare a paying, vulnerable audience half to death. Beyond, the statistics – fairly bad, such as a 14-year supply of new home lots in Yuba and Sutter counties – here's what's really going on in real estate:• The next generation of home builders will probably not learn a lesson from today's housing meltdown.The Sullivan Group's Tim Sullivan and Dean Wehrli said builders next time must not go crazy. They must focus on the income levels of regions where they build. Be prudent. Go easy on the $500,000 homes.But Tom Jacobs, Western region chief of Kimball Hill Homes (which filed for bankruptcy protection last April), said, "I think the next generation of home builders will make the same mistake."• Half the nation's big publicly traded home builders may yet fall.David Butler, vice president for JPMorgan Real Estate, repeated what he heard at a similar gathering in Hawaii: "Three out of four believed that half the Wall Street home builders will not be around in three or four years."Jacobs added, "If you look at the public companies, you can see debt coming up and not enough revenue to meet it."• Maybe Barack Obama can save the day with all that stuff about "hope.""A new year and a new president who ran on hope and change could be the beginnings of a confidence rebuilder," said Sullivan. "The fact that there's something new could be a positive for us."• But if that doesn't work, place all hope in Generation Y.That's the many children of fertile baby boomers. The forward edge is approaching its 30s – prime buying years – and most of these kids are renting."This generation is even bigger than the baby boom," said Sullivan. "The pig in the python is coming."• Real estate is bad, sure. But it could be so much worse.In 1933, the U.S. jobless rate was 25 percent. Today it's 6.5 percent, said Sullivan.In the 1930s, the gross domestic product fell 25 percent. It's just starting to fall now, he said.In the 1930s, 40 percent of mortgages were delinquent. Now it's less than 5 percent.Bank failures? The 1930s had 9,000. So far this time, it's fewer than 40.Always leave them smiling.3 capital-area banks apply for federal assistance...Jim Downinghttp://www.sacbee.com/103/story/1396559.htmlAt least three Sacramento-area banks have applied for a shot of capital as part of the government's plan to spur lending.If the Treasury approves the request, Community Business Bank, Granite Community Bank and Community 1st Bank stand to receive more than $11 million collectively, increasing their lending capacity by roughly $120 million.Whether that money can be shuttled quickly to borrowers to revive the economy, however, is another matter. To a man, local bankers interviewed this week said they already have plenty of money to lend. But they don't intend to relax their standards, and most said the downturn is drying up the pool of qualified borrowers, particularly among small businesses.The result: fewer loans going out the door."Banks are saying, 'How are we going to get repaid?'" said John DiMichele, president and CEO of Community Business Bank, based in West Sacramento.Publicly traded banks regulated by the Securities and Exchange Commission must decide today whether to apply for the Treasury's Capital Purchase Program, part of the $700 billion financial rescue plan passed by Congress.Banks approved for the program still may choose to decline the investment, which comes with several strings.Among banks headquartered in the four-county Sacramento region, only American River Bank faces today's deadline. President and CEO David Taber had no comment Thursday on whether his bank would apply.Banks are deciding carefully whether to apply partly out of concern for their reputation, several local bankers said.The Treasury has indicated it won't invest in troubled banks, so it would look bad for a bank to apply and not get approved. On the other hand, not applying for the investment could be seen as a sign that a bank expects to be rejected.The Chico-based parent of Tri Counties Bank went so far as to issue a news release Thursday saying that it is strong and will not be participating in the program."It's a very sensitive issue," said Tom Meuser, chief executive of Placerville-based El Dorado Savings Bank.Since last month, when the Treasury program was announced, Meuser has said his bank isn't interested. El Dorado Savings is already heavily capitalized and has enjoyed a surge in both deposits and loans – primarily 15-year mortgages – in recent months, according to federal filings.All three of the local banks that have announced they are applying for the Treasury program are relatively young institutions. New banks generally must raise money after a few years of growth in order to keep expanding. The government's terms are more attractive than what they are likely to get from private investors.Mark Lund, president and CEO of Roseville-based Community 1st Bank, said the government investment would allow his bank to keep growing but wouldn't necessarily increase the pace at which it lends money.Community 1st does most of its business with small local firms. Lund said his loan applications have dropped 30 to 40 percent in the last several months. And while his underwriting standards haven't changed, the bad economy means he has to turn down more prospective borrowers."People that qualified a year ago don't qualify today," he said.At least a few sectors of the economy are generating brisk lending, bankers said. Many farmers, for instance, are flush from two years of relatively high crop prices and able to borrow to buy new equipment, said Kent Steinwert, president and CEO of Lodi's Farmers & Merchants Bank of Central California. Stockton RecordSpanos plan advancesDevelopment would add 1,500 homes in northwest Stockton...David Sidershttp://www.recordnet.com/apps/pbcs.dll/article?AID=/20081114/A_NEWS/811140324/-1/A_NEWSSTOCKTON - A.G. Spanos Cos.' bid to build about 1,500 homes in a subdivision in northwest Stockton was forwarded to the City Council by planning officials Thursday, the last of four major housing proposals this year to come through City Hall.The projects - two of them approved by the City Council last month and two others, including Spanos', likely to be approved by year's end - call for the construction of more than 20,000 homes over 25 years in south and northwest Stockton.Spanos Cos.' The Preserve, a 360-acre project on Atlas Tract, south of Bear Creek, is the smallest of the four projects and one of the least controversial. Atlas Tract was annexed into the city in the late 1980s and has long been planned for development.The Planning Commission voted 5-1 Thursday after little discussion to forward the project to the City Council for approval. Commissioner Christina Fugazi dissented. Commissioner Christopher Kontos, who lives in the Twin Creeks neighborhood, just east of the planned development, recused himself.The Preserve, unlike Spanos' more controversial plans to build homes north of Eight Mile Road, has had little opposition, and no member of the public spoke against it Thursday.However, slow-growth activists have broadly questioned the wisdom of approving massive development in the current economic climate. The Sierra Club's Eric Parfrey said it makes little sense for the city to approve such growth while it is in a foreclosure crisis.Mayor Ed Chavez said developers of the four projects have done all that the city has asked them to do to ensure their projects are sound. He said it is wise to plan now for development that eventually will be necessary to house the city's growing population."What is the purpose of delaying?" Chavez said. "The fact of the matter is that the market is going to drive the projects. It's not what a particular council member or mayor wishes or desires. The market will drive them. And if the market is ready for them, they will start their development."The council last month approved plans by John Verner and Arnaiz Development Co. to build about 13,000 homes in two subdivisions in south Stockton, and it is expected next week to approve The Grupe Co.'s plan to build 7,000 homes on Shima Tract, a Delta island south and west of Atlas Tract.The Preserve is to include houses, condominiums, parks and an elementary school. The council is likely to approve the project next month.Like other projects considered since the council's adoption of a new General Plan last year, The Preserve is to pay - through special taxes and fees on the developer and the development's residents, if necessary - the full cost of its burden on police and other city services, if not generate a surplus.San Francisco ChronicleStep taken toward removing Klamath River dams...Peter Fimritehttp://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2008/11/14/MNA21441S7.DTL&type=printableThe most powerful opponents of efforts to remove four dams that have blocked salmon migration on the Klamath River for the past century did an about-face Thursday and agreed in principle to a dam-removal plan along the California and Oregon border.The proposal by Bush administration officials and PacifiCorp, the hydroelectric power company that distributes the water, would not remove the dams for 12 more years. It was nevertheless hailed by fishing groups, tribal representatives and environmentalists as the first big step in the largest dam-removal project in U.S. history."This is a huge milestone toward what would be the largest river-restoration effort ever undertaken," said Steve Rothert, California director of American Rivers, a national nonprofit river conservation group. "There's still a lot of work to be done, but PacifiCorp went on record in front of the world and said this is a good deal and good policy."It has taken several years for the stakeholders to reach an agreement. Talks of removing the dams began in 2002 after a federally ordered change in water flow led to the die-off of 33,000 salmon. But negotiations between PacifiCorp, California, Oregon, the federal government, fishermen and various Indian tribes became more serious as the problems with the salmon fisheries came to a head this year. There have been devastating declines in the number of spawning salmon in both the Klamath and Sacramento river basins. The paltry numbers forced regulators for the first time to ban all ocean fishing of chinook salmon this year in California and Oregon.Dams have been blamed for much of the historic decline, but until now PacifiCorp and the federal government have fought efforts to remove the Iron Gate, Copco I, Copco II and J.C. Boyle dams on the Klamath.The agreement announced Thursday does not commit to the removal of the dams. Instead, it provides a framework for the various interest groups, government agencies and businesses to collaborate on environmental and economic studies. The plan, as it stands, is to finalize the agreement in June and then conduct studies until 2012, when the secretary of the interior would make a final decision. 2020 dam removal target"If the data collected in the next four years shows that removing the four dams is environmentally and economically prudent, then the target date for removal is 2020," said Secretary of the Interior Dirk Kempthorne, who admitted during a news conference that he is normally opposed to the removal of hydroelectric power plants. "We had a directive from the president to have a collaborative solution, to do all we can to have an agreement that is visionary. ... But it takes time."Zeke Grader, executive director of the Pacific Coast Federation of Fishermen's Associations, said the fish may not have that much time. "Frankly, I think we are giving them too much time," Grader said. "And this isn't even an agreement. PacifiCorp says it will consider taking these dams down. Well, under the Clean Water Act, they may have to take them down anyway."The four mid-size dams were built along the Klamath's main stem starting in 1909, blocking off about 300 miles of salmon spawning habitat. Chinook once swam all the way up to Klamath Lake in Oregon, providing crucial sustenance to American Indians, including the Yurok, Karuk and Klamath tribes.The hydroelectric dams warmed the river water, allowing destructive parasites and blooms of toxic, blue-green algae to contaminate the water even below the dams. Water diversions to cities and for agriculture exacerbated the problem, according to fishery biologists.The number of salmon now in the river is less than 10 percent of the historic population, and the fish are continuing to disappear, according to biologists and fishery experts.The Yurok and other tribes with rights to the river have been battling for years to get the dams removed. Fishermen and environmentalists rallied to their side, but the dam operator and farmers along the Upper Klamath Basin have fought the effort and even sought to extend the hydropower lease.In 2001, increased downriver flows by the U.S. Bureau of Reclamation to sustain salmon were resisted by farmers, who seized irrigation canal head gates in protest. The Bush administration sided with the farmers and slashed releases to the river, setting the stage for the 2002 die-off of 33,000 fish, a disaster that apparently kick-started settlement talks. "We all have those images of what happened in the Klamath," Kempthorne said. "Nobody wants to see those images again, so we were motivated to find a solution." Surcharge on customersAs part of the agreement, Paci-fiCorp has pledged to raise $200 million of the cost of removing of the dams by implementing a surcharge on its customers in California and Oregon. The offer is seen by many as an acknowledgement by Greg Abel, the chairman and CEO, that tearing down the dams would be likely to cost less than making the improvements necessary to comply with the federal Clean Water Act and Fish and Wildlife Agency regulations, which would require, among other things, the construction of fish ladders and screens.The utility would have to get certification from both states under the Clean Water Act to continue operating the dams, a potentially difficult proposition given the algae problems.California would raise an additional $250 million from voter-approved general obligation bonds, bringing the total removal fund to $450 million. The Klamath Basin Restoration Agreement proposed in January calls for $1 billion worth of river restoration, the majority of which would be paid by the federal government. The tentative agreement would provide enough water for the salmon yet still provide irrigation water to Oregon farmers. The dammed-off river would be restored and the upper reaches would be repopulated with long-absent chinook. Solar and wind power would be considered for the 70,000 customers who would be effected by the loss of hydroelectric power from the dams that straddle the California-Oregon border. "This is a tremendous milestone for the Klamath and our goal of working toward a healthy river," said Troy Fletcher, policy analyst with the Yurok Tribe. "We're looking forward to working with the company and with federal and state officials to get a final agreement." Grader urged people to save the superlatives for the momentous occasion when something is actually done."Let's save the champagne for when the dams come down," he said, "not for when we agree to negotiate further and study this."Los Angeles TimesFederal and state officials sign nonbinding deal to remove Klamath River damsThe agreement has PacifiCorp spending $200 million, California $250 million to uproot four dams that have blocked the migration of salmon. Critics say the deal favors farmers over fish...Eric Baileyhttp://www.latimes.com/news/science/environment/la-me-klamath14-2008nov14,0,1911171,print.storyReporting from Sacramento — The Bush administration announced a nonbinding agreement Thursday to uproot four hydropower dams that have blocked the migration of imperiled salmon up the troubled Klamath River, a project that could amount to the biggest dam removal in history.But the deal, which could require fiscally strapped California to finance $250 million of the demolition costs, came under immediate attack from foes who called it a scheme riddled with loopholes that favor farmers and other allies of the outgoing president.The agreement in principal was signed by officials from the Department of the Interior, the states of California and Oregon, and PacifiCorp, the Portland, Ore., utility that owns the dams. It commits all sides to work toward dam removal by 2020.Interior Secretary Dirk Kempthorne said the deal represents a "path forward" that he hopes will bring "a vision of peace, finally, in the Klamath Basin."The river has been the focus of a long and volatile water war pitting the needs of farmers against the survival of endangered fish. Howls of protest erupted when authorities shut off irrigation deliveries during the drought of 2001. Restoration of those diversions in 2002 was blamed for the deaths of 70,000 adult salmon returning to spawn.In the years since, conditions on the Klamath River have been implicated in a steep salmon decline that has undercut the West Coast commercial fishing industry.Under the deal, PacifiCorp would contribute as much as $200 million toward dam removal and river restoration, with the money coming from boosted electricity rates for customers in the Pacific Northwest. California would be on the hook for any cost overrun, and would finance the additional expenses through a $250-million bond measure it would have to put before voters, according to the plan.Greg Abel, PacifiCorp chairman, said rates could rise as much as 2%. Meanwhile, the agreement gives the company protection from liability and allows time to find replacement power.Backers of the deal expressed optimism, but noted that a number of tricky steps remain."We have not popped the champagne cork yet, but we have put a bottle on ice," said Rebecca Wodder, president of the nonprofit group American Rivers.A final agreement is to be signed by June 30. That would launch an intense scientific and economic analysis to determine if dam removal is feasible and cost-effective, a process to be concluded with a decision by the Interior secretary in March 2012.The deal also calls on Congress to approve a $1-billion restoration package for the river basin that won broad support in the region earlier this year. Some environmental groups say that accord bends too far to deliver abundant water and cheap power to farmers.PacifiCorp, which is owned by billionaire Warren Buffett's Berkshire Hathaway Inc., has been under mounting pressure to demolish the dams. West Coast lawmakers, among them Gov. Arnold Schwarzenegger, called for dam removal after the Klamath's salmon runs slumped deeply in 2006.Last year, federal biologists required PacifiCorp to install fish ladders -- a tricky engineering feat expected to cost at least $300 million -- before the company could get a new license to continue operating the dams.California has been conducting an ongoing review of water quality problems caused by the dams, which are blamed for a toxic stew of blue-green algae bedeviling the river.Foes of the agreement said it makes no sense to strike a deal weeks before Barack Obama becomes president."It's just nutty to commit to this with Bush heading out the door," said Tom Schlosser, an attorney for the Hoopa tribe of Northern California.He and other foes say PacifiCorp might exploit the agreement as a delaying tactic, arguing that the deal has loopholes that allow the company to back out as late as 2012.In the meantime, they said, the agreement will essentially shut down California's water quality hearings on the Klamath dams.Steve Pedery of Oregon Wild said the deal also links dam removal to the $1-billion restoration package he believes favors farmers over fish."This has been a well-orchestrated campaign by the Bush administration taking advantage of a desire for dam removal to sell another package that's actually bad for salmon and wildlife," he said.UC and Cal State warn that fees may increaseUC plans a 9.4% hike, not including books and housing. Cal State seeks to avoid a 10% increase by obtaining more public funding...Larry Gordonhttp://www.latimes.com/news/local/la-me-fees14-2008nov14,0,7869020,print.storyCalifornia's two public university systems are warning that student fees could increase about 10% next year, and maybe more, if the state's dire budget situation does not improve.The 10-campus University of California released a report Thursday that projects a 9.4% hike for most in-state student fees. That would mean $662 more for undergraduates who are California residents, bringing their average bill to $8,670. That figure includes campus-specific charges but not housing, books and other expenses, which can add $12,000 to $14,000. Graduate and professional school fees would rise more steeply.The 23-campus Cal State system recently said it would seek enough state funding to avoid a 10% student fee increase for the 2009-10 school year. If that does not succeed, average undergraduate fees for Cal State would rise by about $300 to $4,150, including campus charges but not housing and books.The governing boards of UC and Cal State are scheduled to meet next week to discuss their budgets amid news of mounting state deficits and Gov. Arnold Schwarzenegger's calls for new taxes and midyear spending cuts. The boards are likely to put off voting on fees until spring, however, and much will be in flux until then, officials said.UC spokesman Brad Hayward said its proposed 9.4% increase met the university systems' agreement with the governor four years ago that annual fee hikes would be capped at 10% if the state provided enough funding each year for enrollment growth and basic needs. If the state continues to reduce UC's funding, Hayward warned, fees might rise more than 10%."It's possible but it's certainly not what we are looking for," he said."We recognize the national economic crisis has strained budgets for all families and that now is a difficult time for students to contemplate fee increases," Hayward said. "At the same time, students enroll at UC with an expectation for access to certain levels of academic quality and student services." Quality will decline without enough funding, he added.Cal State spokeswoman Clara Potes-Fellow said the chances were "probably slim" that the state would provide enough funds to avoid a 10% fee increase. But she said Cal State would still ask Sacramento for the money.Asked whether fees might go higher than 10%, Potes-Fellow said Cal State trustees "can't rule out anything in this difficult budget environment."For the current school year, UC raised undergraduate fees by 7.4% and Cal State by 10%, triggering protests from students.Lucero Chavez, president of the systemwide UC Student Assn., predicted more protests ahead because students are angry about fees growing so much year after year. "I think we saw in the voter turnout [in the presidential election] that students are ready to be mobilized," she said.Officials for both universities also warned Thursday about possible enrollment problems next fall.UC said it might have to limit admission to its most popular campuses and send more students to those with extra space, typically Riverside and Merced.Cal State said it might have to raise high school grade-point requirements at some campuses and put more students on waiting lists.UC and Cal State officials say they try to soften the effect of fee increases by setting aside about one-third of the extra revenues for larger grants for eligible students.Additionally national surveys show that fees at Cal State are much lower than at comparable state schools nationwide and that UC's are about the average for research-oriented institutions.With state budgets and college endowments around the country reeling, education experts are predicting substantial tuition and fee increases across the board next year. According to a recent College Board study, in-state fees at four-year public colleges nationwide averaged $6,585 this year, up 6.4% from the previous year.The average total including room and board was $14,333; California housing costs tend to be higher than other states'.SunCal files for Chapter 11 for two projectsThe Irvine builder seeks bankruptcy protection for a proposed Westside skyscraper and a planned community in San Clemente...Roger Vincenthttp://www.latimes.com/business/la-fi-suncal14-2008nov14,0,1682237,print.storyVenerable Irvine builder SunCal Cos. said Thursday that it would seek federal bankruptcy protection for two of its premier planned residential developments in Southern California -- including a 45-story luxury Westside tower on one of the region's most valuable pieces of land.Faced with the loss of a major investor and a collapse in the demand for new homes, the company plans to file today for Chapter 11 protection for its proposed skyscraper at 10000 Santa Monica Blvd. -- designed by renowned French architect Jean Nouvel and the subject of a battle over the land two years ago that involved Donald Trump.SunCal on Thursday also filed for protection for Marblehead, a 313-home planned community on a coastal plateau in San Clemente that has been the subject of controversy for decades. The bankruptcies come against a backdrop of trouble for the privately held SunCal, which along with other builders is facing crushing financial difficulties. LandSource Communities Development, the parent company of the developer building the 21,000-home Newhall Ranch community near Santa Clarita, filed for Chapter 11 bankruptcy protection in June. Utah-based Woodside Homes Inc. filed for bankruptcy protection in September.Both the Westside and the San Clemente projects were to be funded by Wall Street investment banker Lehman Bros. Holdings Inc., which collapsed in September. Lehman Bros. had invested $2.5 billion in SunCal-sponsored developments, and its failure has prompted bankruptcy proceedings on 23 SunCal housing projects in various stages of development in California, according to SunCal.More bankruptcy proceedings on other SunCal projects are expected to follow, company spokesman David Soyka said."The bankruptcy of Lehman Bros. forced SunCal's legal action," he said. "Lehman is unable to fulfill its financing obligations."The bankruptcy filings, including one last week for a planned 2,000-home project in the Sierra foothills of Placer County called Bickford Ranch, have involved partnerships set up by SunCal to do the developments. SunCal itself has not filed for bankruptcy protection.The 70-year-old company is facing a struggle, though, said housing industry consultant Tara Bleakley, vice president of John Burns Real Estate Consulting in Irvine.SunCal needs to make quick decisions about which projects in bankruptcy proceedings to sell off and which ones to try to hang on to, she said."Trying to continue doing business," Bleakley said, SunCal "is making strategic judgments about its assets."Selling some projects might raise enough capital for the company to ride out the steep downward trend in the real estate cycle and allow it to develop other projects when times get better, Bleakley said.SunCal has not identified which properties it is willing to give up, but it said Thursday that Marblehead and 10000 Santa Monica Blvd. were not among them. It hopes to find new investors for both projects."The bankruptcy action can lead to the development of new sources of capital," SunCal's Soyka said.In the meantime, the company has what he called "an alternate funding source" of as much as $75 million to cover such expenses as maintaining wetlands at Marblehead and dust control at the Santa Monica Boulevard site.Considered one of the most desirable locations for development in the country, the vacant 2.4-acre lot between Beverly Hills and Century City once housed the office tower that contained Jimmy's restaurant, a celebrity watering hole popular in the 1980s.The land was the object of a high-profile bidding war in 2006. SunCal finally topped New York developer Donald Trump with a $110.2-million offer.Earlier this year SunCal announced ambitious plans to build a $400-million tower with 177 condos aimed at wealthy buyers in the top end of the market.The proposed building, designed by Paris architect Nouvel, would be a narrow glass structure with sweeping views through the building and extensive greenery ringing each floor.SunCal had aimed the project at European and Asian globe-trotters as well as local empty nesters ready to move from sprawling Westside mansions to roomy condominiums complete with concierge services, a private club, first-run movie screenings and valet parking.SunCal had hoped to break ground next year. The project is still in the planning stages and city approvals have yet to be secured.The Marblehead project is also in the planning stages. The housing and commercial community would rise on 243 oceanfront acres formerly used for agriculture and sewage treatment that would be turned into an environmentally sensitive development with 125 acres of open space, SunCal said.The company has weathered many previous real estate downturns. SunCal was founded more than 70 years ago by European immigrant Boris Elieff, who died in 1990. Its finances are private, but financial information company Dun & Bradstreet estimated that SunCal had sales of $68.7 million and made a profit of almost $2 million in 2006.But like its competitors, SunCal is facing difficult times. After good runs in the late 1990s and mid-2000s, many home builders have hit a wall."With more than 2 million vacant homes in the U.S., we are overbuilt," consultant Bleakley said.Washington PostEPA Advisers Seek Perchlorate ReviewScientists Hope Agency Rethinks Decision Not to Issue Standard...Juliet Eilperinhttp://www.washingtonpost.com/wp-dyn/content/article/2008/11/13/AR2008111303906_pf.htmlThe Environmental Protection Agency's scientific advisers have warned the agency that it should delay final action on its decision not to set a federal drinking-water standard for perchlorate, a chemical in rocket fuel, because the computer model underlying the decision may have flaws.In a letter last week, the heads of EPA's Science Advisory Board and its drinking water committee urged EPA Administrator Stephen L. Johnson to extend the public comment period on its preliminary determination to not regulate perchlorate. That decision is set to become final next month.Perchlorate, which is present in the water systems of 35 states, accumulates in the body from consuming water, milk, lettuce and other common products and has been linked in scientific studies to thyroid problems in pregnant women, newborns and infants."Given perchlorate's wide occurrence and well-documented toxicity to humans, the [Science Advisory Board] strongly believes that there must be a compelling scientific basis to support a scientific determination not to regulate perchlorate as a national drinking water contaminant," Advisory Board Chairwoman Deborah L. Swackhamer and Joan B. Rose, chairwoman of the board's drinking water committee, wrote Nov. 5.In drafting its Oct. 3 decision not to limit perchlorate, the EPA relied heavily on a computer model created by the Chemical Industry Institute of Toxicology, which has yet to be fully vetted by other scientists. Swackhamer and Rose asked Johnson to extend the Nov. 10 deadline for public comment for three months, but the agency has decided to close it Nov. 28.Benjamin H. Grumbles, the EPA's assistant administrator for water, said the agency had commissioned an independent peer review of what he called "the novel application of the model" used to draft the perchlorate policy. Members of that panel have "just submitted their recommendations on the model," Grumbles said, adding that he anticipated the agency would issue a final determination "sometime in December."In an interview yesterday, Swackhamer said that the EPA's decision to press ahead with the rule does not make sense when the model has yet to be fully vetted."It seemed premature to go ahead and make a decision on perchlorate when they didn't have all the science in," Swackhamer said, adding that extending the comment period for 18 days still does not give the scientific panel an opportunity to meet and pass judgment on the model. "Eighteen days doesn't buy us any time."Environmentalists have accused the agency of deliberately ignored human studies of perchlorate's effects conducted by the U.S. Centers for Disease Control and Prevention in favor of an industry-funded computer model.The computer model determined that pregnant women would not experience harmful effects from perchlorate at levels below 15 parts per billion, but a 2006 CDC study of 1,000 women found that one third had experienced significant changes in thyroid hormone levels at an exposure rate of 7 parts per billion.In a submission to GOP members of the House Energy and Commerce Committee last year, James L. Pirkle -- deputy director for science in the laboratory sciences division of CDC's National Center for Environmental Health -- wrote that the findings of the 2006 study "are consistent with causality. That is, we think that there is sufficient evidence from clinical studies that perchlorate directly causes decreases in [the thyroid hormone] thyroxine at high levels."Richard Wiles, executive director of the Environmental Working Group, an advocacy organization, said that the EPA "went out of their way to do the polluters' business" by relying on a computer model rather than other studies."We've really reached a low in terms of scientific standards when we're ignoring large studies from the CDC that the CDC says are consistent with causality," he added.Grumbles said that he did not "know the origins of the model" that the EPA used but that he knew "it had a valid basis to be part of our decision making. The agency's committed to sound science."The EPA is drafting a health advisory on perchlorate, to circulate to state and local officials, that Grumbles said was also undergoing peer review. According to the agency's most recent analysis, more than 16 million Americans are exposed to the chemical at a level that is unsafe.Only two states, Massachusetts and California, have set limits on the allowable amount of perchlorate in drinking water, both at levels far below what the EPA deemed permissible.Congress has fast-track power to kill Bush rules...RITA BEAMISH, The Associated Presshttp://www.washingtonpost.com/wp-dyn/content/article/2008/11/14/AR2008111401848_pf.html-- President-elect Barack Obama will have limited authority to overturn federal regulations approved in the waning months of the Bush administration. But a little-used power offers the new Democratic Congress an early test of how aggressively lawmakers might unravel such rules pushed through by Republicans.Under a special fast-track authority, Congress could repeal current rules from as far back as May. Many are related to the environment and health. Aside from congressional action, such changes involve a laborious rule-making process that can take years.The Congressional Review Act of 1996, used just once in the past 12 years, could become a sweeping tool for Democrats against late regulations from the Bush presidency. Environmental activists are compiling lists of regulations they believe Congress should target, including ones covering water pollution at huge farms, pollution control equipment at older power plants and hazardous waste restrictions."One of the things to watch is whether there are actions in Congress that reflect a new philosophy that is a different direction than the Bush administration, which has been a pro-industry approach to governing," said Rick Melberth, an expert at the Washington-based OMB Watch, a nonprofit watchdog organization.Bristling over suggestions the Bush administration was too cozy with industry, the White House has defended its new regulations and cites requirements for increased auto fuel efficiency as "maybe not particularly welcomed by members of the business community.""We're trying to do them in the best way that protects the interests of the nation," White House spokesman Tony Fratto said at a news briefing.For pending rules, Obama could freeze them as soon as he takes office in January. Separately, Obama could use his presidential authority to reverse executive orders by Bush on policies such as stem cell research and the gag rule on overseas family planning groups that might advise women on abortion."There's a lot that the president can do using his executive authority without waiting for congressional action, and I think we'll see the president do that," Obama's transition chief, John Podesta, said on "Fox News Sunday" last weekend. "I think that he feels like he has a real mandate for change. We need to get off the course that the Bush administration has set."But once regulations are in effect, only Congress could overturn them, outside the cumbersome rule-making process.The 1996 law gives Congress expedited authority to shortcut the legislative process. Once a regulation is repealed, Congress would have to approve any substantially similar new rule. The law allows 60 congressional working days to repeal a finalized regulation once it comes to Congress for review. If the House or Senate session ends before a full 60-day review period, a new 60-day clock starts 15 working days after the new Congress begins.The review period is elongated because Congress takes off August and members adjourn for long holidays or other breaks. That means that depending on when the lawmakers wrap up this year, regulations going back to May could be subject to expedited repeal by the new Congress that will convene in January, said Curtis Copeland, an expert at the Congressional Research Service who has studied the issue.Lawmakers have asked Copeland to testify at a House Judiciary subcommittee hearing on Tuesday to explain their options under the law.Major new regulations typically take effect 60 days after they are finalized, meaning those completed before Nov. 20 would be in effect when Obama takes office Jan. 20 and could not be blocked by the White House. Bush's chief of staff, Joshua Bolten, previously directed all federal agencies to issue their final rules by Nov. 1 except in extraordinary cases.Congress is a different matter. The repeal law makes sense only when one party controls both the Congress and White House, eliminating the prospect of presidential veto. Congress has used it just once, in 2001 when Republicans overturned a Clinton-era rule on workplace ergonomics. The law was enacted by a Republican Congress wary of an over-regulatory bureaucracy.The chairman of the House committee studying global warming, Rep. Edward Markey, D-Mass., will consider repealing Bush's rules that he considers egregious, said Markey's spokesman, Eben Burnham-Snyder. Markey has criticized Bush's approach on air pollution, greenhouse gases and endangered species protection."Congress has been doing battle with the Bush administration on a lot of these rules," Burnham-Snyder said. "There's both the political will and now the mechanism to assist an incoming administration and expedite the reversal of some of these rules."House Speaker Nancy Pelosi, D-Calif., will consult congressional leaders and the incoming Obama administration on the best approach toward Bush's regulations, her aides said.Targets could include regulations such as one easing hazardous waste restrictions on 1.5 million tons of waste, said Ben Dunham, a lawyer for the organization Earthjustice.Other candidates could include exemption rules for water pollution permits and regulations on oil refinery emissions, said John Walke, a lawyer for the Natural Resources Defense Council.New York TimesGroup Set to Sue Over Clean Water Act...Andrew C. Revkin http://www.nytimes.com/2008/11/14/science/earth/14brfs-GROUPSETTOSU_BRF.html?sq=wetlands&st=cse&scp=2&pagewanted=printThe Center for Biological Diversity said it was prepared to sue the Environmental Protection Agency for failing to use the Clean Water Act to respond to the threat of ocean acidification as the oceans absorb an estimated 22 million tons of carbon dioxide from the 80 million tons emitted each day by human activities. The result is a buildup of carbonic acid, which is lowering the pH of seawater. That trend toward acid conditions could threaten corals and plankton with shells containing calcium, biologists have warned.The Bush administration has strongly opposed legal maneuvers intended to limit heat-trapping gases with existing environmental laws. The environmental group cited a paper in the journal Science in July that emphasized the need for the agency to update its water-quality standards for pH, which have not been updated since 1976. Worst May Be Yet to Come for Citigroup...Eric Dash  http://www.nytimes.com/2008/11/14/business/14place.html?adxnnl=1&ref=business&pagewanted=print&adxnnlx=1226689412-kEx7ciNxK0YeyxIvyA0mowAfter a year of red ink, a months-long plunge in its share price and a $25 billion government rescue, you might think the worst was over for Citigroup. It is probably not. Citigroup, which a decade ago set out to rewrite the rules of American finance, is bracing for still more pain now that a recession is at hand. Loans that the financial giant made to consumers in good times are going bad in growing numbers. For the moment, profits seem as elusive as ever, analysts say.Once the most valuable financial company in America, Citigroup is withering along with its share price, which this week sank into single digits for the first time in a dozen years. The company is also shrinking in another painful way: by cutting, and cutting, and cutting jobs. Another round of pink slips is expected next week. As Vikram S. Pandit completes his first year as chief executive, many analysts say Citigroup has lost its way. Insiders say the company is racked by office politics at a critical moment in its history. Mr. Pandit is struggling to regain his grip on the company, which operates in scores of countries, after his attempt to buy Wachovia was upended by Wells Fargo. That misstep left Citigroup grasping for a new strategy to lure deposits and build up its branch network in the United States.“Citi doesn’t have a credible management team, they don’t have a credible board,” said Christopher Whalen, managing partner at Institutional Risk Analytics. “If you look at their loss rate, it is almost inevitable that Citi is going to be asking the government for more money next year.”Worries about Citigroup’s future were apparent in the stock market on Thursday. While the share prices of many of its rivals soared along with the broader market in a stunning afternoon rally, Citigroup’s stock fell nearly 2 percent by the end of regular trading. At its closing price of $9.45, the stock has lost almost 68 percent this year, making it the third-biggest loser in the Dow Jones industrial average, behind Alcoa and General Motors. Many Citigroup employees know their jobs are on the line. Executives said that as of the third quarter, the bank had announced plans to eliminate 40,100 jobs. That includes reductions resulting from the divestitures of the company’s German retail banking operations and its Indian outsourcing franchise. But Citigroup still needs to hand out pink slips to 9,100 workers to meet its goals, and bankers are bracing for much of the bad news to arrive early next week, according to executives briefed on the situation.Investment bankers are expected to bear the brunt of the cuts because senior managers have been asked to reduce expenses significantly. But back-office functions, like the bank’s legal and human resources divisions, are also expected to be hard hit. The ax could keep falling. While there are no formal plans for further job cuts, executives say it is possible that Citigroup could shed an additional 25 percent of its work force by the end of next year. Such a reduction would include layoffs, a hiring freeze and work force reductions related to businesses that the company is considering selling. Such a move would reduce the total number of employees to 264,000, from about 352,000 today.Christina Pretto, a Citigroup spokeswoman, said that the bank was carefully managing its employee levels as it revamps the company to operate more efficiently in the current downturn. “Nothing has changed,” Ms. Pretto said. Citigroup is also grappling with how to position its domestic consumer business, which faces rising loan losses and, analysts say, lacks the leadership and strategy it needs. Having lost Wachovia, Citigroup must now try to stitch together a group of small regional banks to catch up with Bank of America, JPMorgan Chase and Wells Fargo. Executives are looking at Chevy Chase Bank, a small lender in Maryland with $14 billion in assets, among several other institutions, according to people close to the situation.But assembling a large franchise could take years, and digesting deals has never been one of Citigroup’s strengths. Even with all these problems, Citigroup’s board has been bickering over seemingly small issues, including which white-shoe law firm will represent it, according to a person close to the situation. Wachtell, Lipton Rosen & Katz had been representing the board, but that firm is representing Well Fargo in litigation over the Wachovia deal. Cravath, Swain & Moore is now being considered to represent Citigroup’s directors, but no decision has been made, according to a person close to the situation.Citigroup has tried to put on a united front amid the turmoil. Richard D. Parsons, one of the company’s most outspoken directors, said on Thursday that the board was fully behind Mr. Pandit and Winfried F. W. Bischoff, its executive chairman, as it braced for a difficult 2009.Mr. Pandit, for his part, led a group of Citigroup executives in buying 1.3 million Citigroup shares as the stock tumbled on Thursday. It was the first time that Mr. Pandit, who had collected $165.2 million from selling his hedge fund to Citigroup before becoming chief executive, publicly disclosed using his own money to buy Citigroup stock. Ms. Pretto, the Citigroup spokeswoman, said the “purchases reflect their belief in the long-term strength and growth opportunities of the company.”CNN MoneyFreddie: $25B loss, taps tax dollarsMortgage finance firm reports huge quarterly loss - Treasury pumps in $14 billion backstop...Chris Isidorehttp://money.cnn.com/2008/11/14/news/companies/freddie_mac/index.htm?postversion=2008111410NEW YORK (CNNMoney.com) -- Freddie Mac reported a $25 billion quarterly loss Friday that forced the mortgage finance giant to tap $100 billion in bailout money set aside by the government.The loss triggered a $13.8 billion Treasury Department investment in Freddie (FRE, Fortune 500). The firm is likely to get the money by the end of the month; Treasury will receive preferred shares in return. A Treasury spokeswoman did not have any immediate comment.Treasury and regulator Federal Home Finance Authority announced on Sept. 7 that they had taken control of Freddie and Fannie Mae, the other giant mortgage finance company, when it became clear that mounting losses on bad mortgages would cause them to run out money.At the time, the Treasury committed $100 billion apiece to back up the two firms. Friday's announcement is the first major investment of taxpayer cash into the firms during the current crisis.Freddie's third-quarter loss came to $19.44 a share, far larger than the $1.2 billion, or $2.07 a share it lost in the year-earlier period. Much of that loss came from a $14 billion non-cash charge to write down the value of tax credits it had built up. Doubts about the ability of the company to make money in the future and utilize those tax credits caused that charge.It also took a $9 billion charge to write down the value of securities it held on its books.But even without those charges, the company's performance was significantly worse than in previous quarters. Freddie's losses from credit-related expenses, essentially those on the loans that it backs or owns, soared to $6 billion, compared to $2.8 billion in the second quarter and $1.4 billion in the year-earlier period. Losses from non-interest expense also soared to $1.4 billion.The total number of loans that are either 90 days or more past due or in foreclosure soared to 167,807 as of Sept. 30, up 46% from three months earlier. It set aside an additional $5.7 billion during the quarter to deal with the rising loan losses.2 firms, $54 billion in lossesThe stunning hit to Freddie Mac comes four days after the much larger Fannie Mae reported a $29 billion loss. Fannie has yet to start drawing on its $100 billion Treasury backstop, although it said it may have to tap into the money soon if losses continue at the current pace in the fourth quarter.Freddie and Fannie Mae (FNM, Fortune 500) were set up by Congress to help spur mortgage lending. While they operated under government charter, they were owned by taxpayers and paid their profits to investors. The assumption that the federal government would stand behind their debt allowed them to borrow money cheaply. They used that money to buy huge blocks of private mortgages, which were packaged into securities and held by the firms or sold to other investors with guarantees that the mortgage loans would be paid by home owners.Together the two firms own or back about $5 trillion in home loans, about half of all loans outstanding. But as house prices started to fall, the rates of defaults started to soar. The two firms lost a combined $12 billion in the four quarters leading up to the most recent quarter.Jaret Seiberg, a financial services analyst at the Stanford Group, said the losses for Fannie and Freddie weren't really much of a surprise, given that the federal government has continued to depend on the firms to keep money flowing to the battered home loan market."Fannie and Freddie have become creatures of the federal government, and they're being used to achieve policy aims, not profit aims," said Seiberg. "You could have run them much more conservatively, put them in run-off mode. You could have allowed them to conserve capital rather than put it to work. But that would have been far worse for the economy."On Tuesday, Treasury and the FHFA announced a new loan modification program aimed at home owners behind in their mortgage payments by three months or more whose home loans are either owned or guaranteed by Fannie or Freddie. Under the program, interest rates on the loans could be reduced or payment schedules stretched out so that homeowners could better afford their loans.FDIC's Bair pushes aggressive mortgage planThe FDIC chairwoman unveils plan that would streamline modifications to put delinquent borrowers in affordable mortgages...Tami Luhbyhttp://money.cnn.com/2008/11/14/news/economy/fdic_bair/index.htm?postversion=2008111413 NEW YORK (CNNMoney.com) -- In a surprise move, FDIC Chairwoman Sheila Bair Friday unveiled details of her plan to have the government help delinquent homeowners.There are two key elements to the proposal. First, housing payments for delinquent borrowers would be reduced to 31% of gross monthly income. To get there, mortgage rates could be set as low as 3% for five years, before increasing at an annual rate of 1 percentage point until they hit the prevailing market rate. Loan terms could be extended as long as 40 years.Second, to encourage servicers and investors to participate, the government would share up to 50% of the losses if a borrower who had been helped ended up in default anyway. The risk of re-default had been one obstacle to getting lenders on board with systematic modification plans. In addition, the FDIC would pay servicers who process mortgages $1,000 for each re-worked loan.The plan is expected to initially help 2.2 million borrowers get new loans; after some borrowers re-default, 1.5 million would ultimately keep their homes, the FDIC estimated.The plan would cost an estimated $24.4 billion, which Bair has said could come from the $700 billion bailout Congress approved last month."It is imperative to provide incentives to achieve a sufficient scale in loan modifications to stem the reductions in housing prices and rising foreclosures," the Federal Deposit Insurance Corp. said in a statement Friday. Bair's move Friday sets up a public power struggle not often seen within an administration. Unless her proposal gets the Treasury Department's blessing, it would have to be approved by Congress or wait for review by the Obama administration.The FDIC continues to discuss the plan with Treasury Secretary Henry Paulson, who Wednesday said it was one of several under discussion. Supporters took that to mean it had little chance of moving forward.Bair, however, is more optimistic."I don't think it's dead," Bair told National Public Radio this morning. "I think we're still talking. He didn't close the door completely. It's just where the money comes from is really the issue we're debating."The FDIC chairwoman has long wanted the government to take a more active role in helping troubled homeowners. She initiated a similar plan at IndyMac, one of the largest mortgage lenders, after the agency took it over in mid-July.Bush administration officials, however, have resisted her efforts, instead unveiling a plan Tuesday to streamline modifications of loans held or guaranteed by Fannie Mae (FNM, Fortune 500) and Freddie Mac (FRE, Fortune 500).Though he praised Bair's proposal, Paulson backed away from supporting it this week. A Treasury spokeswoman Friday referred questions to Paulson's comments from Wednesday."As we evaluate the merits of any new proposal, we also will have to identify and justify the means to finance it," Paulson said. "We must be careful to distinguish this type of assistance, which essentially involves direct spending, from the type of investments that are intended to promote financial stability, protect the taxpayer, and be recovered under the TARP legislation."Congressional Democrats, however, have continued to press for increased assistance to homeowners. They have publicly backed Bair, which could give her proposal the support needed for adoption."[The Fannie/Freddie plan] should not be considered a replacement for the guarantee program authorized by the recently-enacted financial rescue law which the FDIC has agreed to operate," Sen. Christopher Dodd, D-Conn. said Tuesday, after the mortgage finance plan was announced.Acknowledging that many Americans who are paying their mortgages may be angry that their neighbors are getting help, Bair said that foreclosure hurts everyone in a neighborhood by bringing down home values."These escalating foreclosures are creating more and more downward pressure on home prices, which is having a very negative impact on our economy," Bair said on National Public Radio Friday. Americans should realize "it's in [their] economic self-interest to get this situation stabilized. This relentless procession of foreclosures is creating havoc with our housing market and we need to get it stabilized."No principal reductionBorrowers who are at least 60 days late on payments would qualify for this program.Servicers would have to systematically review all the loans in their portfolios to determine whether they would recover more value by modifying the mortgage rather than foreclosing on the home.But unlike some other government programs, the FDIC proposal would not reduce the principal to bring it in line with the home's current value. Instead it would allow part of the principal to be deferred free of interest to the end of the loan. Borrowers who sell or refinance before paying off the debt would have to pay the principal at that time or work out a short-sale with the bank, where the servicer agrees to forgive the outstanding balance.Some consumer advocates consider principal reduction key to assisting borrowers in areas where property values have plummeted, leaving many with mortgages greater than their home's worth.Under the Hope for Homeowners program implemented last month, mortgages would be written down to 90% of the home's current market value and borrowers would be refinanced into 30-year fixed-rate mortgages insured by the Federal Housing Administration.The FDIC's program, on the other hand, would not be as beneficial for so-called underwater homeowners. For situations where the mortgage is worth more than the home, the government's loss-sharing arrangement would gradually decline to 20% before ending for homes where the loan-to-value exceeds 150%. The loss-sharing arrangement would last for eight years. Only mortgages below the conforming loan limits for Fannie Mae and Freddie Mac - up to $625,500 depending on location - qualify.The agency is not pursuing principal reductions because it can achieve affordable monthly payments without them, Gray said. Also, it's easier to convince investors to agree to a workout if the loan balance is not changed. When the principal is lowered, the value of loan modification over foreclosure is reduced.IndyMac as a modelAt IndyMac, agency officials have already modified 5,000 troubled mortgages, achieving affordable payments through interest rate modifications in 70% of the cases. Another 20,000 delinquent borrowers are in the process of having their income verified.Taking over IndyMac allowed the FDIC to put into practice its call for a streamlined system to mortgage modifications, a move other servicers have since followed. Until then, loans were being adjusted on a case-by-case basis, which overwhelmed servicers and increased the flood of foreclosures.Payments on the modified IndyMac loans, which are being adjusted to between 31% and 38% of income, are lowered by $380 on average, Bair told lawmakers last month.A total of 65,000 borrowers, or 10% of IndyMac's loan portfolio, were delinquent when the government took over. The agency is reaching out to another 20,000 delinquent borrowers, while the remaining 20,000 borrowers are not eligible for help for a variety of reasons, including that they no longer live in the home, have turned in the keys or are already in the foreclosure process.The agency is adjusting both loans that IndyMac owns and those it services that have been bundled into securities and sold to investors. According to the FDIC, officials are not having trouble convincing investors - who are often accused of blocking modifications - that they'll recover more if the loan is adjusted rather than if it goes into foreclosure."You demonstrate to investors that modifications are the better alternative," Gray said.Consumer advocates support BairConsumer advocates have repeatedly said the economy and housing market won't recover until more is done to help stem the tide of foreclosures. They don't feel the current foreclosure mitigation efforts undertaken by the Bush administration and by banks are sufficient.The FDIC plan, however, will do more to help troubled homeowners and do it more quickly, they said."Chairman Bair's proposal has the potential to have an impact of the size and scope necessary to get ahead of the foreclosure crisis and put the economy back on its moorings," said John Taylor, head of the National Community Reinvestment Coalition, an association of more than 600 community-based organizations.