House of Representatives Committee on Appropriations chairman Dave Obey, D-Wis., on Thursday unveiled the House version of the $825 billion stimulus package that resulted from extensive discussions among Congressional Democrats rushing to accommodate President-elect Barack Obama's vision of an economic stimulus based on both tax cuts and spending programs. The House version of the package targets creating clean energy, "modernizing" roads, bridges and waterways, focusing on education, providing tax cuts, lowering health care costs, protecting public sector jobs and "helping workers hurt by the economy," according to Obey.

"High unemployment and rising costs have outpaced Americans’ paychecks," a summary of the bill reads, in part. "We will help workers train and find jobs, and help struggling families make ends meet." The bill's authors intend to do so through $102 billion put toward increased unemployment benefits and job training, assistance for the cost of retained healthcare benefits and increased benefits — by more than 13 percent — under food stamps. Among other programs outlined in the package are a $4 billion reserve for state and local law enforcement funding, $30 billion for highway construction and $6 billion to expand broadband internet access to rural and "underserved" areas in the basis that "the economy sees a tenfold return" on every dollar invested in broadband.

"In the next two weeks, the Congress will be considering the American Recovery and Reinvestment Bill of 2009," Obey wrote in a media statement posted on his Web site. "This package is the first crucial step in a concerted effort to create and save 3 to 4 million jobs, jumpstart our economy and begin the process of transforming it for the 21st century with $275 billion in economic recovery tax cuts and $550 billion in thoughtful and carefully targeted priority investments with unprecedented accountability measures built in." He acknowledged the package will bring the nation into a deeper deficit, but warned the lack of passage will cause the economy to shed even more jobs and risk "economic chaos" that would follow an increased deficit without the additional jobs created.

Read a summary of the package.

Stimulus for banks, too?
The Federal Reserve Bank of San Francisco president and CEO Janet Yellen spoke Thursday in support of diverting some funds within an economic stimulus package to support banks. In a speech given to the Financial Women's Association, Yellen argued that a crucial role of fiscal policy, "which is important in the current crisis, is to address the maladies that now afflict the financial sector."

"…[We] are in extraordinary circumstances, and the case for substantial fiscal stimulus over the next few years is very strong," she said. "First…it is time to 'pull out all the stops' — that is, to deploy both monetary and fiscal policy — to avoid a deep and lingering recession. Second, the case for fiscal stimulus is strengthened by the fact that monetary policy has already moved its short-term interest rate essentially to zero."

With the federal funds rate zero-bound at a target range of zero to 0.25 percent, the Federal Open Market Committee cannot push rates any lower to stimulate the economy, Yellen argued. "The market for commercial mortgage-backed securities, a mainstay for financing large projects, has all but dried up," she said. "Banks and other traditional lenders have also become less willing to extend funding," making the argument for a bank stimulus all the more relevant, according to Yellen.

Read Yellen's speech.

Write to Diana Golobay at diana.golobay@housingwire.com.

Whispers Thursday afternoon of a possible second-round injection of federal funds into Bank of America Corp. (BAC: 7.29 -0.14%) were confirmed late Thursday night when the U.S. Treasury and Federal Deposit Insurance Corp. announced in a press release the government had agreed to invest an additional $20 billion into the banking giant. The $20 billion in TARP funds will be exchanged for preferred stock with an 8 percent dividend to the Treasury.

The Treasury and FDIC have also agreed to share losses on $118 billion of the company's assets. The large majority of these assets were assumed by Bank of America as a result of its acquisition of Merrill Lynch & Co., finalized as of Jan. 1, the press release said.

The announcement came soon after a Senate vote gave President-elect Barack Obama access to the second half of the government's $700 billion bailout fund, which passed in a 275 to 152 vote, despite a bill by Sen. David Vitter (R – La.) to block the release of the remaining funds.

Bank of America reportedly began discussions with Treasury regarding the extra aid back in mid-December, as a means to absorb growing credit losses at brokerage giant Merrill Lynch & Co.

The Treasury Department already holds $25 billion in Bank of America preferred stock as a result of capital infusions. The first stock purchase of $15 billion occurred on Oct. 28 and the second purchase of $10 billion — originally slated as a purchase of Merrill Lynch stock — was deferred pending the merger and later logged as a purchase of BofA stock on Jan. 9.

The additional assistance for Bank of America resembles follow-up aid given to Citigroup Inc. (C: 30.87 +1.61%) in November, after it too received $25 billion in the first round of infusions. In that transaction, the government agreed to guarantee most of a $306 billion pool of troubled assets if losses surpassed $29 billion.

Under the agreement announced Thursday night, Bank of America must cut its quarterly dividend to holders of its common stock to one cent a share from the current 32 cents a share — a dividend that can't be raised for three years without government permission. Additionally, Bank of America has agreed to comply with enhanced executive compensation restrictions and implement a mortgage loan modification program.

The U.S. government agreed to the second-round injection just hours before Bank of America reported that its fourth-quarter profit tumbled 95 percent. See Full Story.

Write to Kelly Curran at kelly.curran@housingwire.com.

Disclosure: The author held no relevant investment positions when this story was published. Indirect holdings may exist via mutual fund investments. HW reporters and writers follow a strict disclosure policy, the first in the mortgage trade.

(Update 1 reflects breaking action by the Senate. Update 2 clarifies the 'Frank Legislation' is still pending consideration.)

The House of Representatives voted 275 to 152 in approval of a measure that would set conditions on the release of the remaining $350 billion reserved for the Troubled Asset Relief Program, including a minimum $50 billion reserved for modifying mortgages. The provision was part of a bill sponsored by Barney Frank, D-Mass., which calls for increased oversight on the distribution and use of TARP funds as well as limits on executive compensation and a detailed explanation of the Treasury Department's authority to intercede for automakers.

The House has also proposed a number of amendments to tweak the so-called 'Frank legislation.' An amendment introduced by Doris Matsui, D-Calif., would require that the mortgage industry enforce a temporary "time out" on foreclosure, according to a MarketWatch bulletin. Scott Garrett, R-N.J., spoke out in opposition to the amendment, saying it would put upward pressure on the recently-lowered mortgage rates. No precedent exists for the effect such a nation-wide foreclosure moratorium would have on the industry — not to mention the national economy. The amendment was approved by a voice vote, according to MarketWatch. Other amendments discussed included a requirement that the Federal Reserve Bank of New York publicly disclose details surrounding the use of Federal funds to buy $500 billion in illiquid mortgage-backed securities, and a separate legislation seeking to modify the Hope for Homeowners program, which Michele Bachman, R-Minn., called "an enormous waste of time, money and resources."

As the Senate considers the Frank-sponsored legislation, it also voted 52 to 42 late Thursday against the disapproval legislation proposed Tuesday by Senator David Vitter, R-La. The proposed bill would have barred the release of the remaining TARP funds. It was authored by Vitter in a motion that appeared to be the culmination of a vocal history on the subject of TARP. “When I publicly opposed the first bailout back in September, I did so because I was concerned that it would lead us down a slippery slope and encourage further bailouts. By now, it is clear that it has,” Vitter said in a media statement on his Web site Monday. The Senate's decision to vote against this legislation effectively paves the road for the passage of the Frank legislation.

The only force that might attempt to hinder the passing the TARP revision legislation are the few vocal consumer groups left speaking out against it — and against even the release of the remaining $350 billion — although they have little bearing on whether the funds will reach Treasury hands. The Council for Citizens Against Government Waste (CCAGW) Thursday afternoon expressed “strong opposition” to the release of the second $350 billion, in a press release asking Congress to “shut your TARP.” CCAGW president Tom Schatz, speaking on behalf of the CCAGW, said regardless of the allegedly tougher oversight measures, the group opposes the release of additional TARP money, as they said the nation already faces a $1.2 trillion deficit. “TARP was an atrocious gamble in the first place and the taxpayers ended up on the wrong side of that bet,” Schatz said. “Taxpayers were promised clear results and tough oversight of that money. Instead, Treasury and the recipient banks have been allowed to keep taxpayers in the dark…and now Congress wants more.”

Kelly Curran contributed to this report.

Write to Diana Golobay at diana.golobay@housingwire.com and write to Kelly Curran at kelly.curran@housingwire.com.

Unnamed sources out of Bank of America Corp. (BAC: 7.29 -0.14%) spoke Wednesday to the Wall Street Journal regarding the banking giant's possible need of a multi-billion-dollar infusion from the government to bolster it after absorbing Merrill Lynch & Co. on Jan. 1 when the merger officially kicked off. BofA was reportedly in discussions with the Treasury Department as early as mid-December 2008 regarding the aid, which — if finalized — would arrive on the heels of the last infusion of some $25 billion in TARP funds through the capital purchase program. The first stock purchase of $15 billion occurred on Oct. 28 and the second purchase of $10 billion — originally slated as a purchase of Merrill Lynch stock — was deferred pending the merger and later logged as a purchase of BofA stock on Jan. 9.

The additional funds now being discussed would be a cushion for Merrill's fourth-quarter losses, which exceeded expectations, sources told the Journal. People close to the issue also said had gone so far as to tell the government it wished to walk away from the Merrill deal as soon as the breadth of losses was apparent. In response to the reports, BofA stock fell 27 percent in early trading, according to a MarketWatch bulletin. It rebounded slightly and stood at less than 21 percent down for the day when this story was published in mid-day. BofA officials had no comment on the issue at the time this story was published.

The news that BofA might be in trouble comes as increasing doubts regarding the future of Citigroup Inc. (C: 30.87 +1.61%), which confirmed Tuesday it reached an agreement with Morgan Stanley (MS: 18.56 +2.26%) about the joint venture of its retail brokerage business, Smith Barney, and the wealth management business operated by Morgan Stanley. But people close to the issue told the Journal that Citi's restructuring plans go further than the joint venture, which is expected to close in the third quarter. The bank may soon downsize and shift the focus of its business to two key areas — possibly corporate wholesale banking and retail banking in select markets worldwide. The expected bloodletting may involve eliminating a third of Citi’s assets, is rumored to shutter consumer-finance operations and is expected to be announced Jan. 22 as Citi reports larger-than-expected losses in its fourth-quarter results, according to the Journal’s sources.

Write to Diana Golobay at diana.golobay@housingwire.com.

Disclosure: The author held no relevant investment positions when this story was published. Indirect holdings may exist via mutual fund investments. HW reporters and writers follow a strict disclosure policy, the first in the mortgage trade.

JP Morgan Chase & Co. (JPM: 37.21 -0.75%) announced Thursday a 77.6 percent plunge in fourth-quarter profits, driven by a loss in investment banking largely attributed to continued markdowns and poor trading results, according to a statement by the company.

Nonetheless, JP Morgan still managed to post a $702 million, or 7 cents per share, fourth-quarter profit — largely due to a $1.1 billion boost from its acquisition of Washington Mutual — compared to a profit of $3 billion, or 86 cents a share, in the same period last year. Without WaMu, JP Morgan told the Wall Street Journal it would have lost 28 cents a share.

Chase's total net revenue eased to $17.23 billion in the quarter, from $17.38 billion last year.

CEO Jamie Dimon called the results "very disappointing" in a press release Thursday morning, a tone he has taken for the better part of a year now. In addition to $2.9 billion in markdowns, Dimon noted that JPM boosted loan loss reserves by $4.1 billion during the quarter. Provision for credit losses jumped to $7.31 billion, a 26 percent rise from the third quarter.

Benefits from hedging its mortgage servicing business, as well as gains from the WaMu acquisition, helped keep the company's retail financial services business in the black. The retail financial unit's net income fell to $624 million from the prior year, due to a $3.6 billion credit provision tied to rising estimated losses — much of which sits in the company's home equity portfolio. Home equity losses rose sharply in the quarter, with charge-offs of $770 million in Q4 2008, compared to $248 million a year ago.

Retail banking remained strong, however, as net income and revenue jumped a monstrous 85 percent and 78 percent, respectively (almost entirely due to a boost in deposits via WaMu).

Straight-shooting Dimon warned of a "terrible" November and December in an interview with CNBC last month, thanks to what he called "normal culprits" of mortgages and credit. He did point out that the company continues to grow, despite industry headwinds. It bought the Canadian energy and global agricultural arms of UBS AG in Q4. "Earnings themselves may go up or down, but if you continue to grow the franchise, you'll do in the long run a very good job," Dimon told CNBC.

Looking ahead to 2009, Dimon said Thursday that “if the economic environment deteriorates further, which is a distinct possibility, it is reasonable to expect additional negative impact on our market-related businesses, continued higher loan losses and increases to our credit reserves."

JP Morgan had originally planned to release earnings next week, but pushed that date up, making it the first of the major banks and to post fourth-quarter earnings.

Write to Kelly Curran at kelly.curran@housingwire.com.

Disclosure: The author held no relevant investment positions when this story was published. Indirect holdings may exist via mutual fund investments. HW reporters and writers follow a strict disclosure policy, the first in the mortgage trade.