FHFA Sends Congress Strategic Plan for Fannie and Freddie

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Nation's Building News

From: www.nbnnews.com The Official Online Weekly Newspaper of NAHB
January 16, 2012

On the long road back to normal from the most devastating recession since the Great Depression, the nation’s beleaguered housing industry should see modest improvement in 2012 and stronger conditions in 2013, although housing has yet to be adequately recognized by the political leadership in Washington for its potential to accelerate the disappointing pace of job creation and economic growth, according to participants in a Jan. 11 NAHB webinar on the outlook for the new year.

The webinar coincided with new polling by NAHB showing that politicians may be out of step with the voting public on policies supporting homeownership.

Majorities of the Democratic, Republican and Independent voters responding to the survey agreed that dealing with the mortgage and foreclosure crisis is key to stabilizing the economy. In the meantime, a majority felt that the condition of the housing market has been staying about the same — neither improving nor getting worse.

(A related story in this issue of Nation’s Building News covers the complete findings from the NAHB survey.)

Making it tougher to address the housing concerns of the electorate, the standoff between Democrats and Republicans is likely to continue when Congress reconvenes this month, and as the year progresses attention will increasingly turn to the November elections.

“The economic downturn will be the central issue in this presidential election year, and the political divide over how best to improve the economy will shape the political process in Washington,” said NAHB CEO Jerry Howard.

A Polarized Environment

“We are operating obviously in a very polarized environment on Capitol Hill,” said NAHB’s chief lobbyist, Jim Tobin.

“One issue where there does seem to be bipartisanship is over homeownership,” he said, referring to the latest NAHB poll of voters.

However, Congress has largely been ignoring the situation — with many arguing that now is the time for the federal government to disengage from long-standing policies in support of homeownership — but “they will do it at their own political peril if they continue down this road,” Tobin said.

NAHB's top legislative issue for 2012, he said, will be to end the “absolute dearth of credit for the construction of new homes.”

Many local markets now need new residential construction, “but community banks are not being allowed to lend to builders who can show a viable project.”

“This has been a frustrating issue for us,” he said, but progress was made with the introduction in the House last year of H.R. 1755, which “would let the regulators untie the hands of America’s banks to work with builders to get viable projects started again to get the country building again and creating jobs.”

A companion bill is being developed in the Senate, he said, and the House bill now has 85 cosponsors.

(To read H.R. 1755, go to http://thomas.loc.gov and enter the bill number in the box at the center of the page.)

Among other legislative priorities for NAHB:

• Housing finance reform
  “Preserving a federal role for housing finance is vital for the continuation of 30-year, fixed-rate mortgages,” he said.
  “At the end of the day, the conversation has to come back to whether lawmakers see a role for the federal government in the housing finance system,” he said.
  Some bills are likely to be introduced in the House this year — perhaps direct attacks on Fannie Mae and Freddie Mac or proposals to create a private-sector mortgage market — but movement is not expected in the Senate, which will be laying the groundwork for legislation after the elections.
• Tax reform
  “There is an impetus to do this,” he said, and broad support for making the tax system simpler and reducing the tax burden, “but when you layer in that this might mean the elimination or reduction of the mortgage interest deduction, that support shifts significantly.”
  In the NAHB polling, two-thirds of voters started out favoring the idea of lowering federal income tax rates for individuals, by a difference of 38 percentage points over those who opposed it.
  But if lowering tax rates meant that deductions — including for the home mortgage interest deduction — would be reduced or eliminated, 52% were in opposition to the idea, 12 percentage points higher than those who still favored it.
  The Super Committee that was charged by Congress to find ways to cut the deficit over the next 10 years indicated that housing was on the table, Tobin said, putting housing for the first time “squarely in the crosshairs of deficit cutters.”
• Regulatory oversight
  Tobin said that NAHB would continue to work with regulatory oversight agencies to reduce the costly and burdensome regulations that are stifling a housing recovery.
  “Housing is one of the most heavily regulated industries,” he said. Even today, when it is not building as many homes as in the past — it must contend with regulations from the Environmental Protection Agency, the U.S. Army Corps of Engineers, the Occupational Safety and Health Administration and other agencies.
• Other critical issues
  These include reforming the home appraisal system, removing the 20% downpayment requirement from the Qualified Residential Mortgage, finding innovative ways to get foreclosed homes off the market and improving housing to stimulate job growth and the economy. “We need to see good, strong job creation numbers and get people feeling good about the economy again,” Tobin said.

Favorable Economic Signs

Looking at just where housing is headed this year, NAHB Chief Economist David Crowe said that, “We are starting 2012 with the same amount of optimism we started in 2011.”

Unfortunately, he said, 2011 turned out to be significantly weaker than projected — buffeted by a range of factors, including a run-up in energy prices, slumping employment growth, a big dive in consumer confidence, an unusually harsh winter at home and a disastrous tsunami in Japan, and the unsettling spectacle of Congress coming to a standstill over raising the deficit ceiling.

This year has begun on a more auspicious note, with economic growth, job creation, unemployment claims, consumer confidence, home foreclosures and home sales all showing favorable signs by the end of 2011, he said.

“While this won’t be a roaring year, there will be an improvement,” Crowe said.

Household Formations

Perhaps most reassuring is that the economy has begun to emerge from its demographic doldrums, he said, with more growth in the number of households.

From a traditional average growth rate of a little over 1%, annual household formations faltered during the recession and its weak aftermath, even declining into negative territory during a few quarters.

Most recently, in the third quarter of 2011, household formations rose above the traditional historical rate of increase, suggesting a return to a normal pace of household formations, particularly among young people.

Crowe calculated that there is a backlog of as many as 2 million households that have yet to be formed because of the downturn. Those households are now beginning to materialize as young adults who resided with parents or friends when the economy was bad now find themselves on the threshold of moving out and renting or buying a home.

Trends in the annual percentage change in home owners and renters point to a significant share of new households moving into rental housing.

Crowe added that housing fundamentals remain favorable.

Mortgage interest rates are low, and even as they creep up a bit as the economic recovery gains strength and there is more demand for credit, rates should be relatively low through the end of 2012.

House prices have returned to their normal ratio of about 3.2 times income, down from 4.7 at the peak of the housing boom in 2005.

Improving Local Markets

The current housing recovery is deriving its strength from local housing markets that are added to the NAHB/First American Improving Markets Index (IMI) when they have shown six months of improvement in employment, single-family housing permits and home prices.

(A story on the January IMI appears in this issue of Nation’s Building News.)

“A lot of places are doing better than the national average and we need to focus on that,” said Crowe.

The most recent IMI, he said, shows that the recovery is “quite diverse, and it is happening in a lot of places, not just the middle of the country where it started."

Twelve metropolitan areas were on the index when it was initiated in September; the number has now grown to 76.

As the recovery continues to unfold, and employment and consumer confidence show further improvement, home purchases will start picking up again, Crowe said, which will lead to more construction.

He forecasted that growth of the gross domestic product, falling back some from a “pretty good” pace for the final quarter of 2011, will be in the 2.2%-2.3% range during 2012 and climb above 3% in 2013.

Single-family home starts are projected to climb to 501,000 in 2012, up 17% from 2011, which could turn out to be the worst year on record.

Reflecting healthy growth in the number of renters, about 178,000 multifamily starts are expected for 2011, which would represent a 56% jump.

Multifamily production is forecasted to climb another 17% in 2012, reaching the 208,000-unit level.

And residential remodeling of owner-occupied properties is “doing nicely,” Crowe said, and poised to register a 12% gain from the fourth quarter of 2011 to the fourth quarter of 2012.

Has The Housing Market Hit Its Bottom?

 Morgan Brennan, Forbes Staff

From Forbes.com  -  1/10/2012

Has the U.S. housing market hit a bottom? Do we have further to go? When will a recovery start? These are the questions every homeowner and real estate investor are currently asking themselves — or should be.

Wall Street firms have optimistically been betting that the bottom’s here. Research firms like Zelman & Associates predict the sector will pick up this year and hedge funds have been jumping into real estate-related investments from brick and mortar building purchases to shares of home builders stocks. In December Goldman Sachs Group released a report stating that “The home price bottom [is] in sight,” according to my colleague Agustino Fontevecchia.

Indeed national home price data indicates that the worst of the catastrophic home price implosion is behind us.  Clear Capital, a Truckee, Calif.-based real estate research firm, reports that 2011 saw a national decrease of 2.1% in home prices when compared to 2010. While still a loss, it’s measly drop compared to the double-digit plunges felt in the years before. For 2012, the firm’s Home Data Index (HDI) Market Report also predicts a humble 0.2% gain across all markets. “Overall, 2011 was a relatively quiet year for U.S. home prices compared to the last five years,” said Dr. Alex Villacorta, Clear Capital’s director of research and analytics, in the report. He further notes that “the current balance the market has found will continue through 2012.”

What does all of this mean? Housing from a national standpoint is flattening out; the macro level data suggests we could possibly be at the bottom or near to it.

A Tuesday report from Zillow, a  publicly-listed Seattle, Wash.-based real estate data and listing site, shows that November home values “remained essentially flat” from October of 2011 through November, falling only 0.1%. The Zillow Real Estate Market Report, which analyzes home values in 165 metro areas, notes that the addition of 200,000 jobs in December, improving consumer confidence and stronger retail sales indicate that  home sales may be more consistent and more frequent in 2012. “With stronger home sales, we’ll see a reduction in the amount of vacant housing inventory and an improved ability to absorb foreclosed homes. This increased demand will eventually start to put a floor under home values later this year,” the report says.

It sounds rather promising, doesn’t it? For Wall Street firms snapping up stocks and/or using the market as an indicator for economic activity, it is. For homeowners, however, a different story prevails.

If you are a prospective home buyer or seller wondering if now is the time to make a play, the decision should come down to something much more tangible than a “flat” national market number. It should come down to location.

Clear Capital warns that the relatively flat national average is comprised of metro markets that have been anything but: “Individual markets reacting to their local economic conditions continued to exhibit a wide range of performance levels in 2011, with only 12 of the top 50 metro markets (24%), returning year-over-year price movement that can be considered stable,” the HDI report cautions. ‘Stable price movement’ means price swings of less than 2.5%.  The company believes only 40% of the country’s largest metro areas will be stable in 2012. Among them: Denver, Colo., San Jose, Calif., Boston, Mass., Oklahoma City, Okla., and San Francisco, Calif.

As for the areas where prices may actually appreciate the most this year, the firm expects Orlando, Fla. home prices to rise 11.7%, hard-hit Bakersfield, Calif. 11.1%, government jobs-driven Washington, D.C. 9.3%, foreclosure-riddled Phoenix, Ariz. 8.9%, and sales-heavy Miami, Fla. 8.8%.

Markets that will experience further price drops this year include Atlanta, Ga. (14.4% anticipated loss), Los Angeles, Calif. (10.3% anticipated loss), Seattle, Wash. (7.5% anticipated loss), Oxnard, Calif. (6.7% anticipated loss), and  foreclosure capital Las Vegas, Nev. (6.4% anticipated loss).

Zillow’s November data shows price fluctuations from metro area to metro area, as well. It clocks 66 markets where home values depreciated in November, 66 markets where values rose and 33 where values simply remained flat. Zillow’s economists caution that elevated foreclosure rates and negative equity will continue to impact local markets in 2012, meaning still lower values yet-to-come in some markets. For that reason, the company doesn’t expect a true stabilization in home values to occur until the end of this year or early 2013.

I think they are right. Even if the worst of the price depreciation hemorrhage is over, we still face a wave of distressed inventory undergoing the tedious foreclosure process and an estimated shadow inventory of 1.6 million bank-owned or distressed homes that have not yet hit the sale block, according to CoreLogic. I t will mean millions of discounted units flooding markets already saturated with more units than buyers, dragging overall home prices down in terms of both listing prices and property appraisals.

So whether a bottom in housing is here or not depends on the local market.  Most foreclosure-riddled markets will likely have years to go before values meaningfully move upwards. Markets where employment is plodding back and/or where overbuilding  didn’t occur in the mid-2000s will and are showing more promising, more stable prices.  ”It will be very important for consumers to draw a distinction between the end of sustained home values declines, which are maybe a year away, and the return to normal market conditions with historically normal appreciation rates,” Zillow notes.

U.S. Job Creation Unchanged in December

Gallup Job Creation Index at +14 -- same as in October and November

by Dennis Jacobe

Gallup

January 4, 2012

PRINCETON, NJ -- Job market conditions in the U.S. remain unchanged in December, with Gallup's Job Creation Index continuing at +14 for the third month in a row. While job creation has not improved during recent months, the jobs situation has not deteriorated as it typically does at this time of year. It instead remains near the high point for the year and is significantly better than the +10 of one year ago. The Job Creation Index average for 2011 is +13, about twice the 2010 average of +7.

Hiring and Firing Also Unchanged

The Job Creation Index of +14 is based on 32% of workers nationwide saying their employer is hiring workers and expanding its workforce and 18% saying their employer is letting workers go and reducing its workforce -- the same as November. Hiring was at 29% and firing at 19% in December 2010.

Job Market Conditions Essentially Flat in all Regions

Job market conditions remain best in the Midwest with a Job Creation Index of +17 and nearly as good in the South, at +15. The Index is at +12 in the East and +11 in the West.

The largest year-over-year improvement has been in the West with the Index increasing by six points followed by a five-point increase in the East and a four-point increase in the South. The Midwest remains at its same relatively high level of one year ago.

Implications

The lack of change in Gallup's Job Creation Index in December provides some mildly good news about U.S. job market conditions. The Index is not seasonally adjusted and the job situation usually deteriorates at this time of year, meaning this lack of change is a mild positive. The same is true for the fact that the Index closed out 2011 near its high for the year.

The improvement in the West is a positive since the West has frequently trailed the other regions -- and now essentially matches the East. While job conditions in both the East and West continue to lag other regions, the slight improvement this December compared with this time in 2010 may indicate that housing market difficulties in the West and the struggles of financial institutions in the East are moderating.

Overall, the level of Gallup's Job Creation Index suggests a modestly improving job environment in December, but not one strong enough to produce substantial job growth. In turn, this implies the government will provide a relatively stable unemployment report on Friday.

Gallup.com reports results from these indexes in daily, weekly, and monthly averages and in Gallup.com stories. Complete trend data are always available to view and export in the following charts:

Daily: Employment, Economic Confidence and Job Creation, Consumer Spending
Weekly: Employment, Economic Confidence, Job Creation, Consumer Spending

Read more about Gallup's economic measures.

View our economic release schedule.

Survey Methods

For Gallup Daily tracking, Gallup interviews approximately 1,000 national adults, aged 18 and older, each day. The Gallup Job Creation Index results are based on a random sample of approximately 500 current full- and part-time employees each day.

National results for August are based on Gallup Daily tracking interviews with 14,649 employees conducted Dec. 1-29, 2011. For this sample, one can say with 95% confidence that the maximum margin of sampling error is ±1 percentage point. Regional results for November are based on interviews totaling more than 3,000 in each region. For each total regional sample, the maximum margin of sampling error is ±3 percentage points.

Interviews are conducted with respondents on landline telephones and cellular phones, with interviews conducted in Spanish for respondents who are primarily Spanish-speaking. Each daily sample includes a minimum quota of 150 cell phone respondents and 850 landline respondents, with additional minimum quotas among landline respondents for gender within region. Landline respondents are chosen at random within each household on the basis of which member had the most recent birthday.

Samples are weighted by gender, age, race, Hispanic ethnicity, education, region, adults in the household, cell-phone-only status, cell-phone-mostly status, and phone lines. Demographic weighting targets are based on the March 2009 Current Population Survey figures for the aged 18 and older non-institutionalized population living in U.S. telephone households. All reported margins of sampling error include the computed design effects for weighting and sample design.

In addition to sampling error, question wording and practical difficulties in conducting surveys can introduce error or bias into the findings of public opinion polls.

For more details on Gallup's polling methodology, visit http://www.gallup.com/.

From Wall Street Journal – December 22, 2011

By Mia Lamar and Nathalie Tadena

Mortgage rates in the U.S. again touched record lows over the past week, according to Freddie Mac’s weekly survey of mortgage rates.

“Rates on 30-year fixed mortgages have been at or below 4% for the last eight weeks and now are almost 0.9 percentage point below where they were at the beginning of the year, which means that today’s home buyers are paying over $1,200 less per year on a $200,000 loan,” Freddie Mac Chief Economist Frank Nothaft said.

The 30-year fixed-rate mortgage averaged a new record low at 3.91% for the week ended Thursday, down from 3.94% the previous week and 4.81% a year ago. Rates on 15-year fixed-rate mortgages matched the prior week’s record low at 3.21%. A year ago, the 15-year fixed-rate mortgage rate averaged 4.15%.

Five-year Treasury-indexed hybrid adjustable-rate mortgages, or ARM, averaged 2.85%, down from 2.86% last week and 3.75% a year ago. One-year Treasury-indexed ARM rates averaged 2.77%, down from 2.81% in the prior week and 3.4% last year.

To obtain the rates, 30-year and 15-year fixed-rate mortgages required an 0.7-point and 0.8-point payment, respectively. Five-year and one-year adjustable rate mortgages required an average 0.6-point payment. A point is 1% of the mortgage amount, charged as prepaid interest.

The low rates could be helping to boost sales of existing homes, although falling prices are also pulling in buyers. Home sales in November hit the second-highest level of the year, rising 4% from October.

               

Home Building Spikes Higher

From CNN Money - December 20, 2011: 10:12 AM ET

By Chris Isidore @CNNMoney

Home building rose to its strongest level since spring of 2010 in November.

NEW YORK (CNNMoney) -- Home building spiked up in November to the strongest level in almost two years, as record-low mortgage rates and a surge in apartment and condo construction lifted activity.

Housing starts shot up to an annual rate of 685,000 in the month, up 9.3% from October and 24.3% higher than a year earlier. Building activity easily topped predictions of 627,000 starts economists surveyed by Briefing.com were expecting.

Building permits, a closely-watched reading that is less affected by weather than actual starts, also shot up, rising 5.7% from October and 20.7% from the year before to 681,000 homes annually.

"By historical standards, homebuilding activity is still very depressed, but at least it appears to be on an established upward trend," said Paul Diggle, property economist at Capital Economics.

Helping to lift building was the fact that the average rate for 30-year and 15-year fixed rate mortgages hit record lows last week, according to Freddie Mac. And the latest National Association of Home Builders' survey released Monday also showed a pick-up in activity, with the best level of customer traffic since early 2008.

Both permits and starts were the strongest readings since the spring of 2010, the original deadline for a homebuyer tax credit that sparked a temporary rebound in building and home sales.

Joseph LaVorgna, chief U.S. economist for Deutsche Bank, said it's important not to get too excited about a single month of strong building, particularly so far ahead of the spring selling season -- a key period for the market. But he said the latest readings are encouraging.

"There has been a noticeable uptrend in several key housing metrics in the back half of this year, so even though we are downplaying the November data to some degree, it does appear that residential construction is finally beginning to rise from its post-recession lows," he said in a note to clients Tuesday.

The gains in single-family home starts and permits were more modest than those for multi-family homes.

Starts of buildings with five or more housing units nearly tripled from a year ago, to an annual level of 230,000.

It was the greatest number of starts of units of that size since September 2008, the month the Lehman Brothers bankruptcy sparked a meltdown in financial markets. 

From Bloomberg.com  -  By Alex Kowalski - Nov 30, 2011 7:00 AM PT

The number of Americans signing contracts to buy previously owned homes rose more than forecast in October as buyers took advantage of falling prices and low borrowing costs.

The index of pending home sales increased 10.4 percent, the biggest gain since November 2010, after falling 4.6 percent the prior month, figures from the National Association of Realtors showed today in Washington. Economists forecast a 2.0 percent increase, according to the median estimate in a Bloomberg News survey.

While mortgage rates near record lows are helping some buyers purchase housing that’s growing more affordable as prices drop, 9 percent joblessness and tight lending standards are keeping others out of the market. A new wave of foreclosures may augment the property oversupply, triggering further slides in value and delaying an industry recovery.

“Any improvement in sales and building activity in the housing market is welcome,” Ellen Zentner, senior U.S. economist at Nomura Securities International Inc. in New York, said before the report. “While there has been no impetus for a renewed downturn in housing, there’s been no impetus as of yet for a turn upward.”

Bloomberg Survey

Estimates for pending home sales ranged from a drop of 2 percent to an increase of 5.6 percent, according to the median of 37 forecasts in the Bloomberg survey.

Pending home sales were up 7.3 percent from October 2010.

Three of four regions showed an increase in contract signings from a month earlier, led by the Midwest. Only the West showed a decrease, with a 0.3 percent decline.

“Home sales have been plodding along at a sub-par level while interest rates are hovering at record lows,” NAR chief economist Lawrence Yun said in a statement accompanying the release. “There is a pent-up demand from buyers who normally would have entered the market in recent years.”

Today’s report showed an index level for pending home sales of 93.3 on a seasonally adjusted basis. A reading of 100 is consistent with the average level of contract activity in 2001 and coincides with “historically healthy” home-buying traffic, according to the NAR.

Because they track contract signings, pending home sales are considered a leading indicator. Existing homes sales are tabulated when a contract closes, typically a month or two later.

Attracting Buyers

A report from the NAR last week showed sales of previously owned homes unexpectedly rose in October, suggesting that falling prices may be attracting buyers. Purchases increased 1.4 percent to a 4.97 million annual rate. The median price fell 4.7 percent from a year earlier.

As cheaper properties may make purchasing a home more appealing to some, the threat of continued declines could keep potential buyers waiting until they believe the market has bottomed.

A temporary halt on foreclosures stemming from faulty seizures that is coming to an end threatens to unleash more seized properties, further weighing on prices. In the third quarter, U.S. lenders started foreclosures on more homes, the first increase in a year.

“We’re in a market that’s quite fragile,” Ara Hovnanian, chairman and chief executive officer of Hovnanian Enterprises Inc. (HOV), said during a Nov. 9 investor conference. “While delinquency rates have taken a little dip, on the whole, there is nothing that says that foreclosures are going to change dramatically over the near term, however you define that.”

The S&P/Case-Shiller index of home values in 20 cities slid 3.6 percent in September, capping 12 straight months of declines, the group said yesterday. Nationally, prices decreased 3.9 percent in the third quarter from the same time in 2010.

To contact the reporter on this story: Alex Kowalski in Washington at akowalski13@bloomberg.net

To contact the editor responsible for this story: Christopher Wellisz at cwellisz@bloomberg.net

By Margaret Chadbourn

WASHINGTON, Nov 17 (Reuters) - The U.S. Congress on Thursday approved a bill to raise the maximum size of mortgages the Federal Housing Administration can insure and sent it to President Barack Obama to sign into law.

The measure would push the so-called FHA conforming loan limit in the highest-priced real estate markets back up to $729,750 through 2013, from $625,500, a sign of lawmaker concern over the still-depressed state of the housing sector.

The limits, which vary from market to market, were temporarily raised for FHA and Fannie Mae and Freddie Mac during the financial crisis when banks became reluctant to lend. They automatically dropped back on Oct. 1.

Lawmakers decided not to raise the loan level for Fannie Mae and Freddie Mac , which have soaked up about $169 billion in taxpayer aid, as they sought to strike a balance between supporting the market and starting to shrink the government's housing footprint.

Seeking to avoid a polarizing debate, members of the House and Senate decided to link the mortgage measure to must-pass legislation that includes funding for a large swath of federal programs, from food inspection to law enforcement.

The bill passed the Republican-controlled House of Representatives on a 298 to 121 vote, and passed the Senate by a vote of 70 to 30.

FHA, which does not make loans, provides mortgage insurance to borrowers without enough of a down payment to qualify for prime loans. With an FHA loan, home buyers can put down as little as 3.5 percent.

The agency, which is mainly funded through insurance premiums it brings in, backed about one-third of loans used to purchase homes last year.

FHA, Fannie Mae and Freddie Mac have seen their share of the mortgage market swell as private lenders retrenched; they now back about 90 percent of all new residential loans.

The measure to raise the FHA loan limits still has to pass the Senate before becoming law; Senate approval could come as early as Thursday night with lawmakers laboring against a Nov. 18 deadline, when current government funding expires.

The Obama administration and many lawmakers of both parties want to reduce the government's role in supporting the housing finance system, and the White House sees expiration of the higher loans limits as a first step.

Some Republicans splintered from their party's general consensus that the government should no longer risk the cost of subsidizing home loans on a grand scale. Lawmakers from states with pricey real estate markets, such as California and New York, argued that withdrawing support could hurt the market.

The housing industry and consumer advocates mounted an intense lobbying effort to convince officials the time was not yet ripe to reduce government support.

Some conservative groups fought raising the loan limits, with the influential Club for Growth warning that the government was distorting the market and impeding a recovery.

FHA, which traditionally has supported low-to-moderate income households, said on Tuesday that its capital reserves had dwindled over the past year. But it rebutted the contention of some analysts that it will likely need to turn to the U.S. Treasury for a bailout.