KeNo's Housing and Economic Portal: Wednesday February 17 Housing and Economic stories

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TOP STORIES:

Tishman Corp. Ditched Gigantic Mortgage, Why Can't You? - (www.huffingtonpost.com) Tishman Speyer Properties walks away from 11,232 Manhattan apartments because it can't pay its mortgage. That's good business. Rick Gilson, a college custodial supervisor in South Dakota, wants to walk away from the mortgage on his mobile home. If he does, he'll be a deadbeat. Those two borrowers face the same financial dilemma: Their mortgages far exceed the values of their properties. Yet one gets to walk away without guilt, while the other can't. Gilson is too scared to dump the mortgage on his mobile home. He owes $31,973, but the home is only worth about $14,000. "I have 12 years of money put into this property that I will never get out," said the 50-year-old Gilson, from Rapid City, S.D. "But I am still paying because this is what I have been told to do. That's what I think is right." Until now, the focus of the real estate crisis has been on individuals. One in four U.S. homeowners, or nearly 11 million Americans, are underwater on their mortgages. In some parts of the country – Florida, Nevada, Michigan, California and Arizona – the share tops 40 percent. Some experts say it makes sense for some people to walk away if they're deeply underwater, even if doing so could wreck their credit score for seven years. It may not be worth it to keep paying a mortgage when they can find comparable rental housing for considerably less money.

Option ARMs Surpass Subprime Mortgages in Loss Severity - (www.housingwire.com) Higher delinquency levels and loan loss severities characterized private-label mortgage credit performance in 2009, Moody’s Investors Service said in a 2010 outlook report this week. The slipping performance was pronounced in pay-option adjustable-rate mortgages (option ARMs), pushing revised loan loss severities in this sector higher than that of subprime. The growing pain in option ARM performance is the cover of a HousingWire magazine issue out now, which studies the effect of $134bn of option ARMs expected to recast into higher monthly payments over the next two years. During the weak performance seen in 2009, Moody’s took rating actions on nearly 45,000 (residential mortgage-backed securities) RMBS transactions related to the 2000 to 2009 vintages. As delinquencies rise and home values decline, Moody’s continues to revise its loss projections in the RMBS. Moody’s does not expect a bottoming of house prices before Q310, with another 11% national decline likely before the worst is over. These price declines, taken with rising unemployment, housing inventory oversupply and weak demand, are pressuring performance.

In Packaging of Loans, a Bust With a Pedigree - (dealbook.blogs.nytimes.com) Real estate securitization was one of the great innovations in finance in the last quarter-century. In an unprecedented way, it allowed vast sums of money to go into the real estate market from people who traditionally did not take part in it. But the people making the loans did not need to worry if they would be repaid, and in the end the entire edifice collapsed. Now, with the securitization market nearly dead, getting that market going again is vital to providing Americans with mortgage loans. Securitization may need to be reformed a little, but it remains critically important to a well-functioning economy. That is the conventional wisdom, at least among many bankers and economists. Most of it is right, except that “unprecedented” part. Although few people remember it, another wave of private securitizations once altered the real estate landscape, particularly in New York, but also in Chicago and other American cities, Floyd Norris writes in his latest column in The New York Times. That wave ended pretty much like this one did.

House selling for $744,500 but Neighbor House Renting for $2,250 - (www.doctorhousingbubble.com) California is in a split market. In some areas, buying a home makes economic sense and the numbers actually workout even with a conservative financial budget. But in other markets, you have people delusional about prices and thinking that somehow prices will remain high even though many areas are mired with foreclosures and toxic Alt-A and option ARM products. Yet somehow bubble prices will remain. We always hear that California home prices are more expensive than the overall U.S. market and are somehow expected to take this at face value. They mention the sun. Arizona has sun. They mention the good weather. Florida has good weather. They talk about beach front property. South America has gorgeous beaches too. So there has to be other reasons. This current bust should tell you that in fact California prices can crash significantly. For example, the national median home price is now at $173,500. Two counties in Southern California in the Inland Empire, Riverside and San Bernardino, are near or below that mark. So in many cases, California homes are even cheaper than the national median price.

Poverty stalks the middle class - (www.nationalpost.com) The politics behind Barack Obama's State of the Union speech this week carefully disguised a frightening new development in U.S. society -- poverty is stalking the American middle class. The "Yes We Can" optimism that drew its strength from the middle-class dream of a nice house in the suburbs, two cars, good schools and a comfortable retirement has been replaced by an alarming new uncertainty. A year after a world-wide economic meltdown, triggered by a U.S.-based banking and mortgage crisis, one in five Americans is unemployed or underemployed; one in nine can't make their minimum credit card payments; one in eight have defaulted on mortgages or are facing foreclosure; and 120,000 families a month are filing for bankruptcy. The U.S. economy remains in a perilous state. Fifty million Americans have no health insurance; 32 million are receiving food stamps; and 15.2 million are out of work. While the global financial crisis and subsequent stock market crash wiped more than $5-trillion off U.S. middle-class savings and pension plans, an unprecedented string of multibillion-dollar government bailouts and an explosion in government spending to stimulate the imploding economy have wreaked havoc with the deficit and raised fears of increased taxes.

Who helped corporate rich get richer? You did. - (www.latimes.com) In the banking industry in 2009, the rich got richer -- which has, of course, infuriated much of the nation. But that same basic idea, mostly minus the public infuriation factor, is playing out across the business world. The Great Recession has killed untold numbers of small firms, many of which were unable to line up financing to keep their operations afloat. But money is no problem at all for corporate America. And the biggest businesses don't need banks, at least not for loans. As the credit crisis has eased, they've been able to turn to the welcoming arms of the bond market. Recessions always are about the weak falling away while the strong survive. But this time around, the credit crunch has remained so severe for smaller firms that the advantage has been magnified for the major companies that have unfettered access to cash via bond sales. Issuance of high-quality (i.e., investment-grade) bonds reached a record $2.83 trillion worldwide last year, a stunning 38% jump from 2008, according to data tracker Dealogic. Although governments were heavy borrowers, about half of that total raised was by big-name companies.

Bank bailout program had fantastic results -- but only for banks! - (www.marketwatch.com) The government's $700 billion bank bailout bill has met its goal of helping bring the financial markets back from the brink, but has so far failed to increase lending from the banks who received the taxpayer assistance, a key government overseer reported Sunday in a generally critical review of the program. "On the positive side, there are clear signs that aspects of the financial system are far more stable than they were at the height of the crisis in the fall of 2008," according to a quarterly report to Congress submitted by the office of the Special Inspector General for the government's $700 billion Troubled Asset Relief Program. The report, which was authored by TARP's Special Inspector General, Neil Barofsky, also warned that the Obama administration's and the Federal Reserve's policies to support the mortgage market could in fact be creating another dangerous housing bubble. "Stated another way, even if TARP saved our financial system from driving off a cliff back in 2008, absent meaningful reform, we are still driving on the same winding mountain road, but this time in a faster car," said the report. The review argues that the TARP program, so far, has failed in many other goals. For example, participating banks' lending to businesses and consumers, has decreased, the report said. The report points out other problems for the TARP program, including continued high unemployment and expanding home foreclosures for the foreseeable future.