Signs Point to Extending All Tax Cuts Temporarily - Wall Street Journal

Congressional aides from both parties have begun discussing a temporary extension of tax cuts enacted under former President George W. Bush, including those for higher earners, laying the groundwork for a possible deal this month.

The conversations, described as preliminary, have been separate from the formal negotiation among lawmakers and Obama administration officials that began on Wednesday. Those negotiations were described as "productive" by people with knowledge of the situation, although Republicans and Democrats publicly remain far apart.

Most Democrats favor permanently extending the Bush-era tax cuts for families making less than $250,000; Republicans want to extend them for everyone, including higher earners. The tax cuts are due to expire at year's end.

A growing number of observers from both parties believe all the talks ultimately are headed toward the same result—a temporary extension of cuts for all the tax levels.

The talks among congressional aides, which have taken place over the past few weeks, have considered short-term extensions of a number of business and individual tax provisions that are expired or expiring, such as a popular research credit and middle-class protection from the alternative minimum tax.

The most likely scenario includes a one-to-three-year extension of the Bush-era income-tax rates and a two-year extension of the business provisions, according to aides. That is likely to be combined with Democratic priorities such as extension of tax breaks that benefit the working poor, as well as further extension of unemployment benefits for the long-term jobless.

Despite the discussions, stalemate still looms as a possibility. The path to an agreement promises to be rocky, with congressional votes on partisan alternatives being planned as soon as Thursday in an effort to reassure party loyalists.

Still, White House officials expressed optimism about a bipartisan compromise, following an initial meeting in the more formal negotiations that began Wednesday among congressional leaders, Treasury Secretary Timothy Geithner and White House budget director Jacob Lew.

"We're in the midst of productive discussions and negotiations around what I think everybody agrees is an issue that has to get done in taxes," said White House spokesman Robert Gibbs. "I think we can get some substantive agreements."

An agreement on temporary extension of all the current rates and breaks would represent a breakthrough after months of infighting. It would signal lawmakers' intent to avoid the economic harm, and public outrage, that could result if the two sides failed to reach a tax deal this month.

Unless Congress acts before Dec. 31, tens of millions of people could see the taxes withheld from their paychecks go up almost immediately. Many retailers and economists worry that this, in turn, could tamp down household spending and further weaken employment and the fragile recovery.

Underscoring that risk, the commissioner of the Internal Revenue Service, Douglas Shulman, sent a letter to lawmakers on Wednesday, warning that postponing extension of some breaks, such as a measure to diminish the bite of the alternative minimum tax, could be "extremely detrimental" and risk significantly delaying refunds.

Rather than take that chance, both parties appear resolved to make a serious effort to reach a deal in the next few weeks.

But even as negotiators began meeting in search of a compromise, both sides were digging in for a public fight. Senate Republican Leader Mitch McConnell (R., Ky.) sent a letter to Majority Leader Harry Reid (D., Nev.) that essentially threatened to filibuster any legislation that doesn't address the GOP's two top priorities for the lame-duck Congress: extending the Bush tax cuts and keeping the government funded after the current continuing resolution expires Friday.

"While there are other items that might ultimately be worthy of the Senate's attention, we cannot agree to prioritize any matters above the critical issues of funding the government and preventing a job-killing tax hike," said the letter, signed by all 42 Republican senators—one more than the 41 votes needed to sustain a filibuster.

That throws up a roadblock before an array of other issues that Mr. Reid has proposed to bring forward in the Senate, among them bills to liberalize immigration law, repeal the Pentagon's "don't ask, don't tell" policy on gays serving openly in the military and extend unemployment benefits that expired Tuesday.

Some Democrats took umbrage at the Republicans' unified move. "It's obstruction," said Sen. Dianne Feinstein (D., Calif.). "It's obfuscation. It brings this body to a halt."Sen. Tom Harkin (D., Iowa) accused Republicans of trying to hold a pending nuclear-weapons treaty hostage to win tax cuts for the upper brackets. He said the year-end settlement might have to include more issues, such as the weapons treaty, for Democrats to support the upper-income tax cuts.

Write to John D. McKinnon at john.mckinnon@wsj.com

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Obama Signs NASA Bill, Could Add Extra Shuttle Flight - PC Magazine

President Barack Obama signed the National Aeronautics and Space Administration Authorization Act of 2010 on Monday, giving an additional flight to the space shuttle fleet before it is retired.

"It is important bipartisan legislation that charts a new course for space exploration, science, technology development, and aeronautics," NASA administrator Charles Bolden said in a statement.

On top of the extra trip, the act extends the life of the international space station until at least 2020. It authorizes $58.4 billion for NASA programs over the next three years, although the specifics of how and where the funds will be used have yet to be determined. The allocation will also speed up the development of a heavy-lift rocket, expected in 2011,it will go toward commercial space programs, and it will help earth science education programs.

The bill was passed by the Senate in August and by the House last week. President Obama's signature on it signifies the end of months of debate over the future of NASA.

"We have been given a new path in space that will enable our country to develop greater capabilities, transforming the state of the art in aerospace technologies," Bolden continued. "We will continue to maintain and expand vital partnerships around the world. It will help us retool for the industries and jobs of the future that will be vital for long-term economic growth and national security."

According to a CNN blog post, the two remaining space shuttle missions are slated for this November and February, and the extra launch would likely lift off in June of 2011.

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Bankers Ignored Signs of Trouble on Foreclosures - New York Times

At Citigroup and GMAC, dotting the i’s and crossing the t’s on home foreclosures was outsourced to frazzled workers who sometimes tossed the paperwork into the garbage.

And at Litton Loan Servicing, an arm of Goldman Sachs, employees processed foreclosure documents so quickly that they barely had time to see what they were signing.

“I don’t know the ins and outs of the loan,” a Litton employee said in a deposition last year. “I’m not a loan officer.”

As the furor grows over lenders’ efforts to sidestep legal rules in their zeal to reclaim homes from delinquent borrowers, these and other banks insist that they have been overwhelmed by the housing collapse.

But interviews with bank employees, executives and federal regulators suggest that this mess was years in the making and came as little surprise to industry insiders and government officials. The issue gained new urgency on Wednesday, when all 50 state attorneys general announced that they would investigate foreclosure practices. That news came on the same day that JPMorgan Chase acknowledged that it had not used the nation’s largest electronic mortgage tracking system, MERS, since 2008.

That system has been faulted for losing documents and other sloppy practices.

The root of today’s problems goes back to the boom years, when home prices were soaring and banks pursued profit while paying less attention to the business of mortgage servicing, or collecting and processing monthly payments from homeowners.

Banks spent billions of dollars in the good times to build vast mortgage machines that made new loans, bundled them into securities and sold those investments worldwide. Lowly servicing became an afterthought. Even after the housing bubble began to burst, many of these operations languished with inadequate staffing and outmoded technology, despite warnings from regulators.

When borrowers began to default in droves, banks found themselves in a never-ending game of catch-up, unable to devote enough manpower to modify, or ease the terms of, loans to millions of customers on the verge of losing their homes. Now banks are ill-equipped to deal the foreclosure process.

“We waited and waited and waited for wide-scale loan modifications,” said Sheila C. Bair, the chairwoman of the Federal Deposit Insurance Corporation, one of the first government officials to call on the industry to take action. “They never owned up to all the problems leading to the mortgage crisis. They have always downplayed it.”

In recent weeks, revelations that mortgage servicers failed to accurately document the seizure and sale of tens of thousands of homes have caused a public uproar and prompted lenders like Bank of America, JPMorgan Chase and Ally Bank, which is owned by GMAC, to halt foreclosures in many states.

Even before the political outcry, many of the banks shifted employees into their mortgage servicing units and beefed up hiring. Wells Fargo, for instance, has nearly doubled the number of workers in its mortgage modification unit over the last year, to about 17,000, while Citigroup added some 2,000 employees since 2007, bringing the total to 5,000.

“We believe we responded appropriately to staff up to meet the increased volume,” said Mark Rodgers, a spokesman for Citigroup.

Some industry executives add that they’re committed to helping homeowners but concede they were slow to ramp up. “In hindsight, we were all slow to jump on the issue,” said Michael J. Heid, co-president of at Wells Fargo Home Mortgage. “When you think about what it costs to add 10,000 people, that is a substantial investment in time and money along with the computers, training and system changes involved.”

Other officials say as foreclosures were beginning to spike as early as 2007, no one could have imagined how rapidly they would reach their current level. About 11.5 percent of borrowers are in default today, up from 5.7 percent from two years earlier.

“The systems were not ever that great to begin with, but you didn’t have that much strain on them,” said Jim Miller, who previously oversaw the mortgage servicing units for troubled borrowers at Citigroup, Chase and Capitol One. “I don’t think anybody anticipated this thing getting as bad as it did.”

Almost overnight, what had been a factorylike business that relied on workers with high school educations to process monthly payments needed to come up with a custom-made operation that could solve the problems of individual homeowners. Gregory Hebner, the president of the MOS Group, a California loan modification company that works closely with service companies, likened it to transforming McDonald’s into a gourmet eatery. “You are already in chase mode, and you never catch up,” he said.

To make matters worse, the banks had few financial incentives to invest in their servicing operations, several former executives said. A mortgage generates an annual fee equal to only about 0.25 percent of the loan’s total value, or about $500 a year on a typical $200,000 mortgage. That revenue evaporates once a loan becomes delinquent, while the cost of a foreclosure can easily reach $2,500 and devour the meager profits generated from handling healthy loans.

“Investment in people, training, and technology — all that costs them a lot of money, and they have no incentive to staff up,” said Taj Bindra, who oversaw Washington Mutual’s large mortgage servicing unit from 2004 to 2006.

And even when banks did begin hiring to deal with the avalanche of defaults, they often turned to workers with minimal qualifications or work experience, employees a former JPMorgan executive characterized as the “Burger King kids.” In many cases, the banks outsourced their foreclosure operations to law firms like that of David J. Stern, of Florida, which served clients like Citigroup, GMAC and others. Mr. Stern hired outsourcing firms in Guam and the Philippines to help.

The result was chaos, said Tammie Lou Kapusta, a former employee of Mr. Stern’s who was deposed by the Florida attorney general’s office last month. “The girls would come out on the floor not knowing what they were doing,” she said. “Mortgages would get placed in different files. They would get thrown out. There was just no real organization when it came to the original documents.”

Citigroup and GMAC say they are no longer giving any new work to Mr. Stern’s firm.

In some cases, even steps that were supposed to ease the situation, like the federal program aimed at helping homeowners modify their mortgages to reduce what they owed, had actually contributed to the mess. Loan servicing companies complain that bureaucratic requirements are constantly changed by Washington, forcing them to overhaul an already byzantine process that involves nearly 250 steps.

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