KeNo's Housing and Economic Portal: Monday May 17 Housing and Economic stories

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TOP STORIES:

It would take 103 Months (8.5 years) to Clear Housing Inventory - (blogs.wsj.com) 103: The number of months it would take to sell off all the foreclosed homes in banks’ possession, plus all the homes likely to end up there over the next couple years, at the current rate of sales. How much should we worry about a new leg down in the housing market? If the number of foreclosed homes piling up at banks is any indication, there’s ample reason for concern. As of March, banks had an inventory of about 1.1 million foreclosed homes, up 20% from a year earlier, according to estimates from LPS Applied Analytics. Another 4.8 million mortgage holders were at least 60 days behind on their payments or in the foreclosure process, meaning their homes were well on their way to the inventory pile. That “shadow inventory” was up 30% from a year earlier. Based on the rate at which banks have been selling those foreclosed homes over the past few months, all that inventory, real and shadow, would take 103 months to unload. That’s nearly nine years. Of course, banks could pick up the pace of sales, but the added supply of distressed homes would weigh heavily on prices — and thus boost their losses. The government is understandably worried about the situation, and its Home Affordable Modification Program has made an impact by helping people stay in their homes and avoid foreclosure. As people who enter the program catch up on their payments, the number of homeowners 60 or more days delinquent has fallen 9% over the past two months.

Bank failure Friday: 7 in Illinois, one tied to Obama - (blogs.reuters.com) FDIC may be using up all available hotel rooms in Chicago this weekend as it closes five banks in the city and two others elsewhere in Illinois.

But the big news is that one in particular has close ties to the whippersnapper Democratic candidate for IL’s U.S. Senate seat, and peripheral ones to President Obama. The Senate Candidate, Alexi Giannoulias, was an executive at Broadway Bank, owned by his family. While he was there, the bank morphed into an aggressive commercial real estate lender, funding itself primarily with high interest-rate brokered deposits. Using brokered deposits to expand quickly in CRE is a common recipe for failure ever since the S&L crisis.

Most interesting are the characters that Broadway lent to. The Chicago Tribune reported earlier this month that it had lent $20 million to two known felons … while Giannoulias was a senior loan officer.

It’s a must read story:

Shortly after Broadway began lending money to a Chicago firm the pair formed, Giorango and Stavropoulos used that company to launch their own lending business and make more than 40 short-term loans to borrowers who might not qualify for traditional bank financing, the Tribune found. Such so-called hard-money loans are typically riskier than long-term mortgages offered by banks.

Broadway officials say they were unaware of the pair’s lending operation and believe the bank’s loans were used solely to fund real estate purchases. They acknowledged they did not inspect or audit the company’s business records, though Broadway’s loan provisions allowed the bank to do so.

They were lending millions to these guys and they didn’t even know where the money was going?!?

In a two-hour interview this week with the Tribune, Giannoulias’ older brother, Demetris Giannoulias, the bank’s president and CEO, said he established Broadway’s relationship with Giorango in the mid-1990s. Giorango began investing in Chicago properties after completing two federal prison stints for running bookmaking schemes….

Funny how the SEC porn story released just after Goldman investigation - (www.latimes.com) Inquiries of 33 employees find one who was blocked more than 16,000 times in a month from visiting certain sites. He eventually found a way around the agency’s filter. Senior staffers at the Securities and Exchange Commission spent hours surfing pornographic websites on government-issued computers while they were being paid to police the financial system, an agency watchdog says. The SEC's inspector general conducted 33 inquiries of employees looking at explicit images in the last five years, according to a memo first reported Thursday evening by ABC News. It reports some shocking findings:
• A senior attorney at the SEC's Washington headquarters spent up to eight hours a day looking at and downloading pornography. When he ran out of hard drive space, he burned the files to CDs or DVDs, which he kept in boxes around his office.
• An accountant was blocked more than 16,000 times in a month from visiting websites classified as "sex" or "pornography." Yet, he still managed to amass a collection of "very graphic" material on his hard drive by using Google Images to bypass the SEC's internal filter.

Chicago back to organic house price slide - (www.csmonitor.com) Today another major metro housing market is inducted into the Re-Busting lineup of regions that have relented to the organic home price slide (as seen by the Radar Logic data) despite the generous efforts by the Feds. Chicago must have appeared too many to have surely bottomed out early last spring after dropping over 30% from its 2007 peak and facing a massive dose of government stimulation. Yet, short of a feeble spring bounce and reversion and an even more pitiful tax-credit expiration inspired blip in November, prices in Chicago have simply been sliding. Today, Chicago home prices are setting new lows some 45% below the peak set in 2007 and 17.98% below the level seen just last year. With the latest tax gimmick expiration expiring with nary squeak in prices for the area, this could be one metro market to keep an eye on for significant housing stress related macro spillover later this year.

Learning How to Fight the Debt Collector - (www.nytimes.com) Among debt collectors, Steven Katz is known as a “credit terrorist.” For years, he has run what he calls the Steven Katz School of Bill Collector Education, otherwise known as the “credit terrorist training camp.” Mr. Katz, a 58-year-old accountant in suburban Tucson, spends his free time schooling debtors on the finer points of consumer protection law to help them turn the tables on debt collectors. On occasion, he thumbs his own nose at them too. “How many times can I sue you? Let me count the ways,” he wrote under his pseudonym, Dr. Tax, in a March posting on Inside ARM, a debt collectors’ Web site. A former bill collector himself, Mr. Katz rebelled after a debt buyer damaged his credit score with what he says was a bogus bill. Mr. Katz sued, and in 2003 he collected his first damage award, a $1,000 check that he now keeps framed behind his desk.

Former Employees Criticize Culture of Rating Firms - (www.nytimes.com) Former executives at Moody’s and Standard & Poor’s offered damaging critiques on Friday of the practices at the two credit rating agencies during the run-up to the financial crisis. In testimony before a Senate panel, four former officials said that competitive pressures and conflicts of interest were allowed to undermine accurate, fair and unbiased ratings of complex securities that Wall Street sold to investors. Perhaps the most riveting testimony came from Eric Kolchinsky, a former managing director at Moody’s who for most of 2007 oversaw the ratings of collateralized debt obligations backed by subprime mortgages. “The vast majority of the analysts at Moody’s are honest individuals who try hard to do their jobs,” Mr. Kolchinsky said. “However, the incentives in the market for rating agency services favored, and still favor, short-term profits over credit quality.”