Subprime Bust Forces Families From Homes

Amid Subprime Bust, Some Families With Adjustable Rate Mortgages Lose Grip on Their Homes

The lights are still on inside Foreclosure No. A200642668 -- so while there's time, have a look around. Here's the living room, still covered in the worn blue shag Angela Sneary always intended to replace with the sheen of hardwood. And downstairs, through a curtain of plastic beads, is the basement where husband Tim was going to knock out a wall and put in a foosball table.

Step this way and the Snearys point out the places where they never could find the cash to hang a ceiling fan, install a hot tub, replace the siding ... a long list of abandoned ambitions that seem almost too big to squeeze into the modest four-bedroom tri-level.

Owning a home is all about finding humor in unfinished projects. But in the house set back from a bend at 11030 Eudora Circle, the Snearys never had the luxury.

They ran out of money first. Then, they ran out of time. Soon, they'll almost certainly be out of a home.

Buying a home is the American dream and a record number of Americans -- nearly 70 percent -- are living it.

Many families, though, likely never would have become owners if not for the tremendous growth over the past decade of a new kind of mortgage business called subprime lending. It long seemed like a winning proposition for all parties. Now the costs are becoming apparent -- and they are very unsettling.

Subprime lenders peddle new kinds of mortgages, often requiring no money down and made at "teaser" interest rates that soon rise. They target marginal borrowers with weak credit or questionable incomes who previously might not have gotten a loan at all.

By last year, subprime loans made up 20 percent of the market for new mortgages.

But as the housing market cools, thousands of subprime borrowers are struggling to keep their homes. A number of subprime lenders, saddled by failed loans and a shortage of cash, have folded or staggered. In some particularly hard-hit neighborhoods in Denver's suburbs -- one of a few metropolitan areas where the problem is especially grave -- home after home sits dark.

Clearly, this isn't how the American dream is supposed to play out, but who's to blame?

The experience of families like the Snearys show how the squeeze created by questionable lending can quickly be compounded by family economic crises, a lack of planning and knowledge, and the rapid shifts in a real estate market that once seemed unstoppable.

"You were set up to fail," one real estate agent told them.

It's a sobering thought for anybody who shares the American dream. After all, it hits so close to home.

Tim first met Angela when he was just 5. She was hours old.

Their fathers were best friends, "two old hippies who partied together." On an afternoon 33 years ago, they celebrated Angela's arrival. Tim stared at the tiny infant a nurse held up to the maternity ward window and waved.

Sixteen years later, Angela's dad died. Tim, just out of the Navy, went to pay his respects. He offered his arms to Angela -- and never let go.

In the wedding photos, Tim's rock-star hair reaches the shoulders of his white tuxedo. Angela's bridal gown does little to hide her eighth month of pregnancy.

The new family grew fast -- a year after Amanda was born, Timmy Jr. followed and three years later came Steven. Tim found work doing landscaping in Denver's mushrooming subdivisions. Angela got a job working for an insurance company. Eventually, they combined to make around $55,000 a year.

They moved from rental to rental, aspiring to buy. By 2004, their rental town house was getting tight. A neighbor complained they were noisy.

The couple set out to look at homes in Thornton, a fast-expanding, mostly working-class suburb 20 minutes outside Denver.

They loved the second house the agent showed them, tucked in a 1970s subdivision with streets curled around each other like a ball of yarn. It was painted glowing pink with a big shade tree out front. The kitchen drawer-pulls were shaped like tiny forks and spoons. It had spacious bedrooms for all three kids, plenty of space for three dogs and six cats.

Tim "walked in here and said this is perfect," Angela recalls.

It cost $204,000. "We thought we were getting a deal," Tim says.

The agent said he'd find them a mortgage, no money down. The Snearys say they never thought to shop around.

More than two years and 100-plus homes later, agent Kent Widmar says he has no memory of the couple or the deal. But he knows his customers -- and subprime loans are the only loans most can get.

"I kind of work the bottom of the market, the tough deals, the people that can't get credit anywhere," Widmar says. "You're dealing with people where nobody else (other lenders) is even going to talk to them ... It's not like you have a whole lot of choices."

The Snearys say they expected to borrow at a fixed rate of 6.5 percent. That would put monthly payments at about $1,290, a little more than rent.

But at the closing in August, all the numbers were higher. The Snearys were offered two loans, both from a Texas subprime lender, Sebring Capital Partners. The first, for 90 percent of the purchase price, was at 8.31 percent, set to adjust after two years. The second, for the remainder, was at 13.69 percent.

The house would cost $1,623.80 a month to start -- and it was almost certain to rise.

Looking back, Tim wishes they'd asked more questions or considered walking out. But everything was in boxes, and they'd given notice. So they eyed each other nervously, and agreed to work more hours. Then, they signed the papers.

The home loan business is very different from what it used to be.

"When we were children, the lender was a savings and loan -- just like in 'It's a Wonderful Life'," says Oliver Frascona, a Boulder, Colo. attorney whose firm represents many lenders in foreclosure proceedings, including the Snearys'. "The lender was loaning their own money ... so they were very careful with how they lent it."

Savings and loans had their own deeply serious flaws, and their failings opened the business to competitors.

Today, many buyers find loans through a mortgage broker. Many of those loans -- certainly subprime loans -- come not from local banks but from loan originators. These companies hold the loans briefly before reselling them, earning a profit and passing along the risk.

The mortgages are usually bought by a bank or Wall Street firm. Sometimes a loan servicing company, which pockets a fee for administering each mortgage, acts as a go-between. Then the loans are bundled and resold as securities to investors.

The new system works well in many ways, but the incentives driving the players are very different. The mortgage broker and loan originator, rather than being restrained by risk, pursue the profit that is the reward for generating new business. An enthusiastic Wall Street provides cash for yet more loans.

But the willingness to downplay the risk of subprime loans turns a business of caution into a hedged bet. Often, buyers qualify for these loans only because they can afford payments at the introductory rate, without considering how they'll make good once the rate goes up.

While home prices kept rising, it hardly seemed a gamble. Lenders and investors embraced the high returns generated by such loans. For consumers with shaky credit, it was easier to buy a home, easy to refinance and easy to sell for a gain.

Then the market turned -- and for many homeowners, the escape hatch slammed shut.

There will always be people who fall behind on loans.

But "house prices are no longer the lifesaver they were for people in good times," says Ellen Schloemer of the Center for Responsible Lending, which recently projected a sharp rise in subprime foreclosures in the next few years.

Now, owners in trouble are living in homes that may be worth substantially less than they owe. They can't sell or refinance. They are ensnared in loans whose costs keep rising.

It is a vortex that's difficult to escape. Schloemer calls it "the perfect storm."

On their first night as homeowners, the Snearys celebrated at one of the kids' favorite restaurants, Old Chicago, with a deep-dish pepperoni pizza. The next morning, Tim borrowed a trailer from work and moved them in. They set to work making the place their own, repainting the exterior themselves in a stunning night-sky shade called Suddenly Sapphire.

They stopped when they ran out of paint. Two years later, patches of pink still show through the eastern wall.

For a few months, anyway, they kept pace with the costs. But as 2004 ended, Tim's employer -- who had already laid him off and called him back -- sent him home for good.

With little saved, the Snearys immediately fell behind, missing two payments.

By now, their loan had been sold. The new loan servicer, Homecomings Financial, told them they'd need to catch up and set up a payment plan. The Snearys' monthly bill jumped to $1,920.

After three months, Tim found a new job for two-thirds of his previous pay. A tax refund helped. But the larger payments "had us strapped so tight it wasn't even funny," he says.

So Angela took on more hours.

In July 2005, she pointed her Saturn into Denver's morning rush. Trying to merge into traffic on I-25, the car was slammed from behind. It spun across traffic and smashed into the concrete divider.

Doctors said Angela would be OK. But disabling headaches kept her home for three weeks, and made work for another three all but impossible. The couple fell further behind.

The lender set up a new payment plan. Monthly costs jumped to $2,100. Angela began draining her small 401(k).

If the Snearys could make it through 2006, maybe they could refinance and dig out.

Now, though, there was another problem.

They still owed nearly all of their loan. But their home was worth much less in a real estate market slowed by economic uncertainty and bloated by new construction. The couple, convinced they'd overpaid, couldn't refinance or sell.

Instead, they neared the two-year mark, when their interest rate would jump.

The lender "said you're going to have to pay ... or we'll have to go to foreclosure," Tim says. "Well, I guess I'm going to have to go foreclosure because I've given everything I have to give and you can't squeeze blood from a turnip."

The foreclosure notice came last October. The Snearys have not made a payment since.

In theory, if they paid up, they could keep the house. But there is no money or incentive.

A few weeks ago, Homecomings sent a letter. Stay and their interest rate will leap again to 12.8 percent. Payments that were impossible to meet temporarily will become permanent.

Late last year, a form letter arrived in the Snearys' box from their original lender, Sebring Capital, inviting them to refinance.

"I thought it was crazy," Tim says. They threw the letter in the trash.

It's just as well. Weeks later, Sebring folded, a stark example of how quickly subprime lending has soured.

Sebring, a mid-sized lender, hardly wasted away. Near the end, it was initiating nearly $200 million in new loans a month, senior vice president Michael Waldron says.

But the company didn't have the cash to keep up, particularly as the market turned, and Sebring went searching for a buyer.

When subprime lenders sell mortgages, they sign contracts promising that loans will meet certain standards and performance measures. Otherwise, the lenders are obligated to take the loans back.

Sebring found a buyer -- just as Wall Street began taking notice of the spike in foreclosures and the resulting squeeze on lenders. The deal fell through and the next morning executives at what had been one of Dallas' fastest growing companies gathered their 325 employees to announce they were shutting down.

That would be no big deal if it were only the tale of a single company. But in recent months, more than two dozen subprime lenders have stumbled or failed.

The question now is just how many more bad loans like the Snearys' are still out there -- and who will be left holding the bag.

Officially, it's an auction.

But there is no machine-gun sales chatter at Adams County's weekly foreclosure sale, no gavel-banging. Bargains are doubtful, so no bidders show up. It is mostly a formality, finished minutes after it begins.

That's the scene this Wednesday morning, when the Sneary home goes up for sale. With many homes worth less than borrowers owe, the only bids are the ones submitted in advance by the banks holding the soured loans.

The lack of bids gives Tim and Angela 75 more days to move out. They hope that will be enough to find a buyer who'll satisfy their lender, and keep foreclosure from staining their record.

But even if that doesn't happen, the couple has reached an unexpected truce with failure. After two years of fighting to hold on to a house, there's soothing relief in losing. Finally, there's a chance to rest, to crawl out from under the pressure.

They can stop shouting now, the Snearys say. They can give the time they'd spent working to the kids. They'll find new jobs, a place to rent, and try to save.

The Snearys have a long-term plan, too. In a few years, they hope to buy again.

But the next time will be different, Tim and Angela say. They'll stay within their means. They'll borrow more intelligently. And they already know just where to find a deal.

They'll make an offer to another family desperate to escape foreclosure.

How to Make Really 'Big Money'

By Paul B. Farrell, MarketWatch

When Shanghai and Hong Kong nose-dived a few weeks ago, they pulled American markets down with them. Instantly the media and press turned away from Britney's bizarre behavior and began blabbering breathlessly about the hot new topic du jour, "risk." Here's one of the best metaphors:

"We view financial risk much like popcorn popping in a microwave. Until the first kernel pops, one tends to believe nothing's happening," said Merrill Lynch chief investment strategist Richard Bernstein in Time magazine. "The initial pop seems like a random event until the second occurs. A third. A fourth. Then the popping goes wild." Suddenly, an unpredictable, irrational mob takes over.

Unpredictable? Yes. Irrational? Yes. That's the nature of risk. But why? Back in the superbullish days of the late 1990s, economist Peter Bernstein wrote the definitive history of risk in "Against the Gods: The Remarkable Story of Risk." The book reflected the upbeat illusions of the time: "The revolutionary idea that defines the boundary between modern times and the past is the mastery of risk."

More specifically, Bernstein believed that the new information technology of the "this-time-it's-different" nineties was the real "boundary" line ... and that we had indeed mastered risk.

Wrong. In spite of the war, terror threats, danger of nuclear attacks, huge deficits and other problems, we're in denial about the enormous risks facing us. We're stuck in the illusion that we're safe, that we've "mastered risk."

This illusion came to mind while reading economist Gary Shilling's latest Insight newsletter. His title promises much: "How to Make Big Money: 11 Time-Tested Strategies." And it's well documented. But it made me oddly anxious. Why? Because his 11 strategies help America's 8 million millionaires (and billionaires) to get richer, but they're not much help to the other 292 million Americans.

Listen closely to the opening: "An unprecedented number of Americans have received unprecedented incomes and accumulated unprecedented net worths in recent years." But those "gains are tempered by the reality that while the top tier is gaining, the income shares of the rest are falling. Many Americans have seen no purchasing-power gains in decades."

And the gap's widening: The "lack of income didn't deter spending. In aggregate terms, spending has risen a half percentage point per year faster than after-tax incomes for 25 years, pushing the saving rate from 12% in the early 1980s to -1% today. Many financed their excess spending growth by tapping stock appreciation during the long 1982-2000 rally, and more recently, from their house appreciation."

No risk for the wealthy

Suddenly I realized why this made me anxious. There are actually two distinct kinds of risk. Risk is fundamentally different for the rich, it almost doesn't exist! They can use these strategies to their advantage, to manage risk and build equities. But the other 292 million are stuck with the leftovers, not equities but systemic liabilities, such as higher taxes, drug costs, excessive fund expenses, limited opportunities, outsourcing, etc.

So take a moment: review Shilling's 11 "time-tested" ways to make "big money." Look closely and you may see evidence of a bubble growing in these 11 quite diverse strategies for making really big money off the backs of many naïve Americans:

# 1. Government subsidies. Uncle Sam often guarantees big bucks while Main Street taxpayers pick up the tab; for example, drugs, energy and agriculture sectors.


# 2. Big fat inheritances. The super rich are the ones fighting to eliminate the so-called death tax, so they can hoard more money, pass along a bigger share, keep it in the family.


# 3. Little equity, lots of debt. Leverage works magic. It worked for condo-flippers. Now the little guys are having problems. But with $640 billion in subprime deals last year, insiders made lots of money in executive salaries, bonuses, commissions.


# 4. Nonfinancial leverage. Think of all that talent in television, movies, music and athletics. Oprah leverages Dr. Phil. Gore leverages Oscar worldwide. "American Idol" leverages millions of wannabes. Even billable time with lawyers, says Shilling, where name partners pay associates $75 an hour and charge clients $350 an hour.


# 5. 'Next big thing.' Invent something, but best not to be the first one in. My first computer was a Kaypro 25 years ago. I remember when Prodigy was bigger than AOL. Shilling says: "Who ever heard of Seattle Computer Works, Chux or Carterphone?"


# 6. Small slices of very big pies. Watch the deal-makers in investment banks, private-equity managers, mortgage lenders, CEOs, commercial banks and fast-food franchises. Imagine getting a mere 0.1% finder's fee (or better yet, a 0.1% annual "management" fee) in the $45 billion Texas Power Company deal! Or maybe the average $2.4 million salary paid today's CEOs, plus options and bonuses. And you can even do a crappy job and get fired, like the Home Depot boss, and still get severance of $240 million.


# 7. Cartels and monopolies. Easy money when they have control over price and supply. Get in cahoots with politicians and secure government protections through patents and regulation. Crude oil is the classic, also steel, utilities and cable TV.


# 8. Sell the sizzle, not the steak. P.T. Barnum was right, there is an endless supply of suckers looking for the "big money," and ripe for the pickings. We'll buy anything: Quick-buck deals from Nigerian con men, financial newsletters promising hot tips, vitamins that prevent aging, secret cancer cures and, oh yes, how-to-get-rich-quick books.


# 9. Feed the addict's habit. We're a nation of addicts, "sex, nicotine, caffeine, booze, drugs, cosmetics and lavish clothes," says Shilling, "as well as small luxuries like greeting cards and fancy coffee." Play on weaknesses. Tobacco agreed to a $206 billion settlement then jacked up the prices. Notice all the new high-caffeine drinks. Or sell $3.60 lattes that cost 60 cents to make. Addicts are easy pickings in America.


# 10. Supply picks and shovels. Who made money in the California Gold Rush? Not the prospectors. Today's new prospectors include millions of naïve investors. Today's suppliers are "stock brokers, asset managers, stock market-oriented TV and radio, real estate brokers, mortgage lenders and corn-farming equipment makers."


# 11. Get paid with "other people's money." Example: That desperate CEO who needs legitimacy hires consultants to justify the sale of his company, so he can get a huge severance package. "Winners include business consultants, corporate defense lawyers and soft commission dollar recipients." Shilling discusses one of his assignments; I saw this happen when I was at Morgan Stanley, lots of money for little risk.


Two kinds of risk folks: Rich guys take very little risk in a $45 billion private equity buy-out. Nothing to lose. But the overextended little guy with an ARM on his $450,000 home took a huge risk and may lose everything. This gap is not just an income gap as Shilling points out, it's a risk gap. The rich get the equities, the rest get the liabilities.

Warning: It's blowing a new kind of bubble, and it's getting bigger.

World's Third-Richest Man Gaining Wealth

Carlos Slim, World's Third-Richest Man, Casts Long and Controversial Shadow in Mexico

MEXICO CITY (AP) -- The world's third-richest man, Carlos Slim, is gaining rapidly on Bill Gates and Warren Buffett with a fortune that grew $19 billion last year -- the largest wealth gain in the past decade tracked by Forbes magazine.
It's also a sign of the wealth gap in Mexico's monopoly-laden economy.

Since Slim bought the telephone monopoly in a 1991 privatization, he's used Telmex as a cash cow to build an empire that includes Latin America's largest mobile phone company; provides banking, brokerage and Internet services; sells insurance and oil industry equipment; and operates retail stores and restaurants.

To many Mexicans, who make Slim richer with nearly every phone call or trip to the mall, his rise shows their businessmen can run world-class companies. He's widely praised for turning Telmex -- once notorious for taking months or years to install a phone line -- into a modern, professional operation.

But he also has kept phone rates high in a country where the minimum wage is about 50 cents an hour, and his success inspires anger among Mexicans who resent the concentration of wealth in the hands of the nation's relatively tiny elite.

"Why should we want a few people to hoard all the wealth, if the majority of Mexicans don't have enough to eat and 30 million Mexicans live on less than 22 pesos ($2) a day?" thundered former leftist presidential candidate Andres Manuel Lopez Obrador after Slim's jumped to No. 3 on Forbes' list of billionaires announced last week.

Now worth an estimated $49 billion, the 67-year-old Slim is the son of a Lebanese father who built a small family fortune from retailing.

Slim's Telefonos de Mexico SA controls more than 90 percent of the nation's fixed phone lines and made $15.9 billion in 2006; his America Movil SA controls about 70 percent of cell phone service in Mexico and made $21.6 billion.

Diners at Slim's ubiquitous Sanborns restaurants can use Slim's wireless service to connect to Slim's Internet provider and check their holdings through Slim's brokerage, part of Slim's Grupo Financiero Inbursa group. Banking online, they can pay bills to Slim's car insurance company or credit cards for Slim's retail stores, among them Sears Mexico and the Mixup record store chain.

It's an advantage that is not unusual in Mexico, where businesses from beer brewing to television to cement are concentrated in a few hands. As a result, Mexicans pay more than other, wealthier nations for services such as electricity, phones and bank fees.

New President Felipe Calderon has promised to battle monopolistic practices, but past efforts to do that have been thwarted by Mexico's entrenched elite.

Slim faces a potential challenge in the telecom sector from the Televisa network, which controls about 70 percent of Mexico's broadcast market and is looking to extend its dominance in emerging communications systems that integrate telephone, television and Internet transmissions.

"This could be a destabilizing factor. It could readjust the players on the chess board," said Celso Garrido, an economics professor at the National Autonomous University of Mexico.

But even there, Slim stands to gain -- his fortune includes shares in Televisa and one of his sons sits on Televisa's board.

Slim is on track to overtake the two leading Americans on the billionaires list, particularly since Buffett ($52 billion), who made his money running the Berkshire Hathaway Inc. investment fund, and Gates ($56 billion), who founded Microsoft Corp., are more focused these days on giving their fortunes away.

Gates, who set up the world's richest charity foundation, has said he believes "that with great wealth comes great responsibility, a responsibility to give back to society." Buffett joined in last year, promising to send about $1.5 billion every year to the Bill & Melinda Gates Foundation, which has an endowment of $33 billion.

On Monday, Slim announced he would invest in health care and launch a program to supply low-cost computers to rural residents. Telmex already sponsors a charity foundation that supports education and social programs in Mexico, and the billionaire's investments in downtown real estate have led to an urban renewal in Mexico City's center.

Slim said his charitable foundations have about $4 billion in endowments.

But at 67, he is still expanding an increasingly diversified empire that now involves his three sons, and does not appear ready to focus on philanthropy. He said Monday that businessmen should not "go around like Santa Claus."

"The businessman with his talent, experience and vocation should participate more by doing" than by donating, he told a news conference.

Latin American billionaires -- there are 10 others in Mexico -- don't have a record of charitable giving comparable to Buffett or Gates, partly for historic reasons and partly because the region's tax laws often don't encourage donations as much as in the U.S.

"It's not that there is a lack of good will, it's that it has been customary here to see social programs as the duty of the government," said Manuel Arango, a founder of the Mexican Center for Philanthropy.

Slim's critics say he could do more for Mexicans by lowering consumer prices than by making charity donations.

A 2005 report by the Organization for Economic Cooperation and Development found Mexico's phone rates among the highest in the 30-member group of developed nations, though Telmex questions the study's methodology.

"It's not so much that he's building a fortune," said Mexico City-based economist Jonathan Heath. "The thing that's bad is that he's building more on his monopolies, he's getting monopolistic rents, that's why he's become so stinking rich."

Stocks Recover As Economy Worries Ease

Stocks Climb As Signs of Stability Cross Global Markets

Wall Street extended its recovery from last week's big plunge, rising Thursday after several stable sessions helped buttress investor sentiment and allay some concerns about the economy. Thursday's advance helped investors speed past lackluster retail sales figures and focus on more promising comments about March sales. Investors also grew more confident following gains in markets in Europe and Asia. The dollar was mixed against major currencies and fought its way higher against the yen, easing some concern about whether global liquidity would tighten.

Investors eager for signals about the health of the economy bet on rising fortunes for U.S. businesses a day ahead of the Labor Department's much-anticipated February employment report. Strong employment is seen as crucial on Wall Street because robust consumer spending has kept the economy charging ahead in recent years. Larger concerns about the economy figured heavily in last week's selloff.

"I think we got a little bit too negative too fast," said Brian Levitt, corporate economist at OppenheimerFunds Inc., referring to the Feb. 27 global selloff that sent the major U.S. indexes down more than 3 percent. "They failed to see the broader picture that there still is fairly good underlying strength in the economy."

The Dow Jones industrials were up more than 100 points in afternoon trading before pulling back amid rumors a subprime lender would declare bankruptcy. According to preliminary calculations, the Dow closed up 68.25, or 0.56 percent, at 12,260.70.

Lender New Century Financial Corp. announced after the markets closed that it would no longer be accepting loan applications, and that it secured $265 million in financing to help it meet financial obligations.

Broader stock indicators also put up sizable gains Thursday. The Standard & Poor's 500 index climbed 9.92, or 0.71 percent, to 1,401.89, and the Nasdaq composite index advanced 13.09, or 0.55 percent, to 2,387.73.

Bonds fell as stocks advanced; the yield on the benchmark 10-year Treasury note rose to 4.51 percent from 4.50 percent late Wednesday. Gold prices rose.

Light, sweet crude fell 18 cents to $61.64 per barrel on the New York Mercantile Exchange.

The focus on broader market sentiment and the impending February employment report overshadowed word from the Labor Department that the number of newly laid-off workers seeking unemployment benefits fell last week to the lowest level in a month.

Unlike last week, news from overseas provided little headwind to U.S. stocks. On Thursday, the European Central Bank raised interest rates by a quarter point, as expected, and the Bank of England left rates unchanged. Turbulence in stock markets worldwide last week gave a sense that Wall Street, London and financial capitals in Asia were essentially one big trading floor -- stocks seemed to move in tandem over concerns about whether the global economy would begin to sputter.

Investors should remain vigilant, Levitt says.

"I think we are still going to see some volatility. Investors need to focus on keeping the risks in their portfolio in check. There are good opportunities around the world but certainly it is a good time to think about quality."

The major indexes did show some volatility on speculation New Century would make some kind of announcement. The stock, which dropped below a 52-week low of $3.94 to as low as $3.37 before rebounding somewhat, fell $1.20, or 23.2 percent, to $3.96.

Larry Peruzzi, senior equity trader at The Boston Company Asset Management, said there are fears in the market that mortgage lenders might face bankruptcy.

"This is one of the fears that has kind of been overhanging the market with this whole subprime real estate concern," he said.

Nonetheless, investors seemed able to look past some unpleasant news from retailers. Wal-Mart's same-store sales, or sales at stores open at least a year, rose a lower-than-expected 0.9 percent in February. Wall Street had been looking for sales at the world's largest retailer, which has lately shown some difficulty boosting its monthly numbers, to increase 1.5 percent. Wal-Mart, one of the 30 stocks that comprise the Dow industrials, fell 11 cents to $47.82.

Nordstrom rose $2.31, or 4.6 percent, to $52.73 after its February same-store sales jumped 9.1 percent, well above the 5.7 percent increase predicted by a Thomson Financial poll of analysts.

Same-store sales are a key measure of a retailer's performance and a strong report Wednesday luxury department store chain Saks Inc. fanned Wall Street's expectations for Saks' competitors. Saks, after rising Wednesday, advanced 10 cents to $19.92. March, with the Easter holiday, will likely prove to be a more important month for retailers.

Hollis-Eden Pharmaceuticals Inc. fell $1.38, or 32.2 percent, to $2.90 after the U.S. government rejected the biotech drug developer's radiation sickness treatment.

Express Scripts Inc. rose $1.20 to $75.97 after raising its hostile bid for Caremark Rx Inc., which is in the sights of retail pharmacy chain CVS Corp. Caremark advanced 48 cents to $61.78.

Advancing issues outnumbered decliners by 3 to 1 on the New York Stock Exchange, where volume came to 1.65 billion shares.

The Russell 2000 index of smaller companies rose 5.24, or 0.68 percent, to 781.14.

Overseas, the Nikkei rose 1.94 percent, Hong Kong's Hang Seng Index added 1.36 percent and the sometimes-volatile Shanghai Composite Exchange rose 1.08 percent. It was a nearly 9 percent drop in Shanghai on Feb. 27 that helped ignite a worldwide spasm of selling that led major U.S. indexes to give back their gains for the year.

In Europe, stocks added to gains after the U.S. markets advanced. Britain's FTSE 100 closed up 1.16 percent, Germany's DAX index added 1.44 percent, and France's CAC-40 advanced 1.27 percent.