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As foreclosures mount in communities across the U.S. and real estate owned inventory at lending institutions grows, local communities are taking a closer look at regulations governing real estate as they attempt to shore up revenue and rein in the number of vacant properties, Fitch Ratings said in a recent report.

Banks, in turn, are faced with higher bills from growing REO stock as foreclosed properties take longer to sell and require maintenance over longer stretches. Some institutions have also become concerned about the increased cost of keeping up with real estate-related laws and ordinances, the ratings agency’s structured finance research group said.

In some areas municipalities have started to keep mandatory lists of registered vacant properties – and demand payment for registration and fines for noncompliance, Fitch said.

Foreclosures across the U.S. shot up 7% from April to May, and almost doubled on a year-over-year basis, according to the most recent monthly foreclosure report from RealtyTrac.com, a real estate information service.

Nationwide, REO volume rose more than fivefold in 2007 over levels at the end of 2005, Fitch wrote in a separate report in May.

The rate of foreclosure starts and the percentage of loans in the process of foreclosure are at levels last seen in 1979, the Mortgage Bankers Association said in a report last month.

California, where REO filings in May numbered more than 20,000 according to RealtyTrac, has been hit particularly hard by the housing crash. In Solano County lenders took back 3,269 properties between July 1 last year and the end of May this year, up from 624 the prior-year period, county assistant assessor-recorder Lance Houser said. There are some 110,000 residential properties in the county.

Meanwhile, revenue from real estate taxes continues to fall in the county, as the assessed values of homes plummet. Following a state-mandated requirement, the Solano assessor-recorder’s office recently cut property taxes on 30,000 homes purchased from 2004 to 2007, and at the beginning of next year could further trim tax bills for another 10,000 homes purchased at earlier dates, Houser said.

Real estate taxes are “a big driver” for municipalities, FBR Capital Markets managing director Scott Valentin said in an interview. In the Washington D.C. area, Fairfax County “enjoyed a nice bull run when home prices were going up,” he said. But as home values soften, counties like Fairfax are looking at counting their losses and cutting budgets.

And delinquent property taxes can add up, alongside other local taxes. When unsold homes end up with liens that require any interested buyer to take on that unpaid debt, the vacant properties become less attractive to buyers, Valentin said.

While banks offering REO properties at auction once tended to set a minimum bid that covered the loan outstanding, the sheer volume of REO inventory is now forcing some lenders to reconsider how they deal with REO properties, and bulk sales are looking more attractive, Valentin said. Auction houses that handle REO sales are saying they are seeing record levels of business, he added.

Community banks, whose holdings tend to be centered in specific geographic areas, are likely to be hit particularly hard by the tax burden of non-performing real estate assets, he said. Real estate portfolios at larger regional banks are likely to be more diversified.

But as their REO holdings swell, some banks are also reluctant – in certain markets and at certain price points – to take title to properties that are unlikely to return anything close to a profit, Valentin noted, which in turn can bring further pain to communities already hurting from a weakening real estate tax base as assessed home values continue to fall.

The FDIC reminded banks in a letter Tuesday they should make sure to comply with state and local regulations concerning REO, including maintaining properties “in a marketable condition” and paying real estate taxes “in a timely manner to avoid unnecessary penalties and interest.” The agency also reminded lenders they must record foreclosure-related losses at the time a property is foreclosed upon.

Banks have already factored in some of the losses from non-performing residential mortgage loans. But mortgage loss rates appear to be accelerating and REO liquidation and short sales – where banks, sellers and buyers negotiate a sale that lets a homeowner off the hook for some portion of outstanding mortgage debt – are increasingly contributing to loss severities at financial institutions, Banc of America analyst Jeffrey Rosenberg wrote in a research note earlier this week.

In recent months the proportion of short sales to REO liquidations in loan resolutions has also started to skew sharply to the latter, Rosenberg noted, citing data from Banc of America and Loan Performance.

Foreclosures and REO are, of course, just part of a larger mortgage finance crisis.

“If 2007 was the year of the subprime, 2008 should count as the year for everything else,” Rosenberg said.

And that suggests further trouble ahead. Outside the subprime category, mortgage loans are more likely to be held by banks rather than securitized, which increases exposure to mortgage losses at financial institutions, and implies further credit constraints ahead, he said.

Do you hear that sound? Listen closely. It’s the sound of your bank account plummeting. With gas prices climbing to an all-time high and food prices soaring, many Americans are finding themselves with a lot less money in the bank. Which is not great news for Starbucks Corp.

The coffee-giant on Tuesday said it plans to close 600 unprofitable stores in the next year as cash-strapped consumers forgo $4 lattes for cheaper alternatives and home-brewed varieties. Starbucks had previously planned for only 100 closures.

“While we expected more than the original 100 closings, we were surprised by the magnitude of this announcement,” Goldman Sachs analyst Steven Kron said in a client note. Given that the stores were unprofitable, Kron expects the closing to be incrementally positive to the company’s margins: the portfolio effect of closing unprofitable stores, and the reverse cannibalization benefit to surrounding stores’ sales. “If this benefit were 25% per store, as management indicated it may be, the benefit could be 2% to company same-store sales if each of the closed stores realized this benefit,” Kron said.

Deutsche Bank analyst Marc Greenberg agreed that the closures should provide some benefit to aggregate store-level profits and same-store sales. However, he expects the benefit to be offset by a de-leverage on fixed costs because of lost sales. Greenberg said the fact that Starbucks has taken “such aggressive action” to close additional stores suggests fundamentals remain “challenging.”

So, just how many bucks will this aggressive plan be costing Starbucks?

Given the planned closures, the coffee company expects to record pretax charges of $328 million to $348 million, including $200 million of asset write-offs to be recorded in the third quarter, $120 million to $140 million in lease termination costs in the fourth quarter and first half of 2009, and $8 million in severance costs in tandem with store closures.

William Blair & Co. analyst Sharon Zackfia said the underperforming locations are “roughly half as productive as the average store volume of about $1 million.” So, assuming roughly $500,000 in annualized per-unit sales, Zackfia said the closures would lessen overall sales by about $300 million.

Ouch. That’s got to burn.

Investors weren’t the only ones afraid to test market waters in the second quarter, as extreme volatility swings, shaky credit terms and unpredictable oil prices left venture-backed initial public offerings with their toes firmly rooted in the sand.

According to the “Exit Poll” report by the National Venture Capital Association (NVCA), the three months ended June 30 marked the first time since 1978 that there were no venture-backed IPOs brought to market. The trend has been clear: In the first quarter of 2008, five venture-backed companies went public, and in the first half of 2007, 43 companies made the leap.

Mark Heesan, president of NVCA, says this is a disconcerting sign for the capital markets, calling the IPO drought “the canary in the coal mine.” Heesan said that venture-backed companies that successfully enter the public markets represent a critical job creation engine for the U.S. economy and that the engine has completely shut down. “We need to put regulators, legislators, presidential candidates and the private sector on notice that this situation represents a serious problem that will have long-reaching economic implications if not addressed.”

Think Heesan is overreacting? “Imagine the implications if Genentech, Google or Intel decided to forgo a public offering and became acquired because the public market offering was unappealing,” said Dixon Doll, current NVCA chairman. “The ‘next Genentech or Google’ may be making that decision right now.”

A survey of NVCA members that yielded 660 plus responses showed that 81% of venture capitalists don’t see the IPO window opening in 2008 and two-thirds of venture capitalists believe that venture-backed companies are less likely to want to go public today than they were three years ago. The top two factors to which venture capitalists attribute the current drought? Skittish investors and the credit crunch/mortgage crisis.

Acquisitions of venture-backed companies are down sharply as well. The second quarter posted 50 mergers or acquisitions of venture-backed companies, down from 70 in the first quarter and compared to the 169 deals in the first half of 2007.

Fred Wilson, managing partner of Union Square Ventures and contributing writer to SeekingAlpha.com, also offered his opinion in regard to the slowing IPO and acquisition activity that is likely to effect big venture-back bets in biotech and cleantech: “We need capital markets in this country that can support the development of these industries. And the overly-regulated and cautious public market environment we have right now is clearly problematic.”

Disney-Pixar is the partnership that never seems to step wrong, and it stepped right again this past weekend as its newest release, the robotic love story “Wall-E,” settled neatly atop North America’s weekend box office.

While “Wall-E”’s results were impressive, the biggest story of the weekend may have been Universal’s “Wanted,” which burst onto screens with a debut that was incredibly and unexpectedly strong. This weekend marks the first time that two films debuted with more than $50 million, making this the box office’s best week thus far in 2008. The top 10 films made $175.9 million, 30% above the equivalent week last year.

Some have argued that the recent Disney-Pixar partnership hasn’t paid off, as each new release since 2003’s “Finding Nemo” has made less money than the one before, cratering with last year’s “Ratatouille.” “Wall-E” bucked this trend, making $62.5 million to Ratatouille’s $47 million debut. That the film would be successful was never much in doubt.

Unlike other summer releases, “Wall-E” looks to benefit heavily from repeat viewings, as families take the kids multiple times. Ecstatic reviews from critics, who have hailed the metal stud muffin as this generation’s E.T., may expand the audience to teenagers, adults and couples. The film’s environmental message may also help, as eco-groups encourage its members to check it out.

Universal’s action extravaganza “Wanted” shot up the screen in second place with $51.1 million. It’s been a while since audiences have been treated to a straight action film. And, unlike last week, there was almost no overlap among the audiences for the new releases, meaning little cannibalization. A children’s film about an adorable robot wanting to hold hand with another robot doesn’t quite appeal to the same people who want to see a comic-book movie based around Angelina Jolie bad-assing it up with the world’s best shot. In short, there was breathing room for both.

Among the holdovers, Warner Bros.’s “Get Smart” dropped two places to third place, making $20 million in its second weekend. The film has banked a solid $51.1 million so far. Meanwhile, Paramount’s “The Love Guru” continued to get no love from audiences, plunging 61% to $5.4 million in sixth place. The film has made a weak $25.3 million thus far, and probably won’t make much more.

Next weekend brings the 4th of July holiday, always one of the biggest movie going points of the year. The always-successful Will Smith is leading the way over the weekend, with his superhero satire “Hancock,” a Sony release. While people are expecting the film to open strongly (BMO sees a $110 million to $120 million debut), it should probably fall short of the $150 million debut “Transformers” recorded last year. However, given the recent strength at multiplexes, the current premium over last year should be safe.

A video sequence on Smith & Wesson’s Internet home page says that the company name stands for Safety, Security, Protection, and Sport, with the final word coupled with an image of a snarling lion. While the company is doubtlessly attacked on these claims by gun critics, a rather large ally just stepped into the iconic company’s corner: The U.S. Supreme Court.

In a 5-4 decision, the Court ruled on Thursday that Americans have the right to own guns for the purposes of self defense and hunting, a decision that overturns a 32-year-old handgun ban in Washington D.C., as well as the city’s requirement that firearms be equipped with trigger locks.

Justice Antonin Scalia, who wrote the majority opinion, said the Constitution didn’t allow for “the absolute prohibition of handguns held and used for self-defense in the home.”

In a dissenting opinion, Justice Stephen Breyer wrote that “there is simply no untouchable constitutional right guaranteed by the Second Amendment to keep loaded handguns in the house in crime-ridden urban areas.”

While it might have been a killer blow if the court had decided against gun makers, some analysts question how much of an impact the ruling will really have. “While we view this ruling as a longer-term positive for the fire-arms industry in that it could prevent other states or jurisdictions from looking to impose similar bans or gun ownership, we do not see this ruling as changing anything for the positive near-term,” Merriman Curhan Ford wrote.

The firm doesn’t expect customers will go out and purchase guns now that the court has ruled. “On the contrary, we probably would have actually seen a rush to purchase guns ahead of any law changes had the Supreme Court upheld the gun ban (similar to what happened in 1994 before the implementation of the assault rifle ban). In our opinion, this ruling really just maintains the status quo.”

Status quo or not, so far investors seem to be siding with the majority. Smith & Wesson shares shot up 11% to $5.68 in midday trades on Thursday, good news for a company whose stock is down 70% over the past 52 weeks before the ruling. Elsewhere, peer company Sturm Ruger was up 1.9% to $7.46, after falling 53% over the past year.

With the price of oil hovering around $138 a barrel and the national average for unleaded gas planted above $4 a gallon, Americans aren’t all that eager to rev up the engines and hit the road. Worse yet, many U.S. consumers shaken by credit and housing woes find themselves stashing cash in preparation for heating oil season rather than out scouring car dealerships for new wheels.

Just ask Ford and GM, both of which have seen their respective share prices plummet over the past 9 months as domestic auto slide. General Motors’ stock has plunged 70% since the beginning of October 2007 and the Detroit-based automaker has extended summer shutdowns to at least six plants - as well as delayed plans for sport-utility vehicle redesigns - to focus on smaller, more fuel-efficient rides. Ford’s shares have tumbled nearly 50% since the end of June 2007 and the car manufacturer has said it plans to cut some white-collar jobs to reduce salaried costs by 15%.

Jeff Rubin and Benjamin Tal of CIBC World Markets speculate that oil, by 2010, will cost as much as $200 per barrel, leading drivers to pay as much as $7 per gallon at the pump within the next two years. “We stand at a turning point for U.S. transport,” the analysts said. “Real gasoline prices have already surpassed the peak levels that followed the second OPEC oil shocks, and even when adjusted for potential fuel efficiency improvements, have increased to the point where they will dramatically change driving behavior in America.” Rubin and Tal estimate that by 2012, average miles driven will have shrunk by more than 15%, while SUV and other light truck sales will plummet to less than 30% of total motor vehicles.

However, if you’re Capt. Curtis Henderson of the Iowa State Patrol, the news isn’t all bad. Henderson is quoted in a USA Today article saying that fewer vehicles on the road have led to a decline in automobile accidents and deaths. “Although I have no data to clearly indicate this, I do believe part of our reduction in traffic collisions and deaths can be attributed to fewer miles being driven,” the patrolman said.

The article said deaths related to auto accidents have declined in 35 of 37 states that provided data to the newspaper for the first six months of 2008. Many of the declines were significant, with 30 states reporting a dropoff of more than 10%.

House prices are falling, and with it, Americans sense of personal wealth.

The median price of a new home fell 5.7% from a year earlier to $231,000, according to Commerce Department data Wednesday. That tells the same story as the Case-Shiller index of 20 major metro areas revealed the day before: a decline of 15.3% year-over-year, including the first-ever drop for all 20 regions at once.

Prices don’t seem to be rebounding soon - mortgage application data show a rapid fall-off, no doubt because of the rise in the 30-year rate and higher unemployment levels ahead.

In fact, all 50 states posted higher unemployment levels in May, also a first.

“So what we have is the most national deflation in residential real estate and most national downturn in the labor market in modern economic history,” said Merrill Lynch economist David Rosenberg.

The 24% annual rate of decline in house prices, and the loss of wealth for homeowners, is creating a more than $300 billion drag on consumer spending, according to Rosenberg. “That, folks, is well more than double the fiscal stimulus package - and has a much longer shelf life to boot,” Rosenberg said.

A 10% drop from housing price highs to subsequent lows translates to a 20% contraction in housing wealth, or about $1.8 trillion, according to economists at Societe Generale. Since peaking in 2006-2007, housing wealth has shrunk by about $900 billion, “so our assumptions put us about half way through the adjustment,” said SocGen’s Stephen Gallagher.

An after-tax charge of $1 billion to settle litigation with one of your biggest competitors might be seen on the surface as a bad thing, but look a little deeper and you’ll see that people are cheering.

MasterCard Wednesday said it settled a legal dispute with peer company American Express, which had alleged that MasterCard illegally blocked its card from the bank-issued card business in the U.S. The terms of the agreement involve a quarterly payment of $150 million, to be paid out over the next dozen quarters. While the payments are contingent on the performance of American Express’s global network services unit, the maximum nominal amount of the deal can’t exceed $1.8 billion.

While $1 billion is a tough tab to swallow, most analysts are simply relieved that the whole ordeal is over. “In our view, the event eliminates a material overhand on MasterCard’s stock, which has been under pressure recently on economy-related concerns,” Cowen & Co. wrote. This view was echoed by Morgan Stanley, which said the settlement made a claim for $6 billion in damages by Discover Financial less likely.

The firm added that the amount of the settlement was in-line with its expectations, as did KeyBanc, which said it expected “at least” $1.5 billion, based on a similar resolution between American Express and Visa that was settled several months ago.

MasterCard seemed happy by the results, and its stock rose 4.5% to $292.94 in midday trades. The credit card company has been a strong performer since its initial public offering two years ago, and is up 74% over the past 52 weeks.

American Express said the settlement “represents a very satisfactory resolution” to the litigation, and that the money would provide it with a multi-year source of funds that would lessen the impact of a weakening economic cycle. Commenting on the settlement, American Express’s chairman and CEO Kenneth Chenault said credit indicators had deteriorated beyond its expectations, as business conditions in the U.S. continued to weaken.

It said that when conditions improved, the money would give it the ability to step up its investments.