Friday July 4 Housing and Economic stories

Top Stories:

California senators upset by limit in foreclosure bailout bill - (www.mcclatchydc.com) Earlier this year, Congress temporarily set the loan limits at $729,750. But the Senate is now proposing to reduce it to $625,000, which would make it harder for struggling homeowners to refinance loans in California, Florida, Hawaii and other states with high property values. "These provisions are a serious blow to California," said California Democratic Sen. Barbara Boxer. The limits will determine who can cash in on a $300 billion program aimed at paying for new mortgages for homeowners facing foreclosure. It would allow the Federal Housing Administration to help an estimated 400,000 borrowers who would otherwise not qualify for new and cheaper 30-year fixed-rate mortgages that would be guaranteed by the U.S. government.

Analyst sees 'ghost town' in Inland Empire - (www.latimes.com) A financial analyst fresh from a tour of construction sites in the Inland Empire is warning Wall Street of a "ghost town" where finished homes sit vacant and additional homes are still under construction.
"At several properties, there were a significant number of fully built homes sitting vacant along with a large number of additional homes still under construction," Sandler O'Neill & Partners analyst Aaron Deer wrote today after touring developments in Corona and Ontario. "At one master plan community, the entire development appeared to be vacant -- with the exception of crews working on new construction, it was a ghost town."

Ghost Towns In California - (globaleconomicanalysis.blogspot.com) More from Deer's note: "The homes all appeared to be empty, and there were no prospective buyers anywhere to be found. Surprisingly, the sales office was open ... but the woman working there had questionable English fluency. When asked how many homes had been sold in the past month she simply responded, 'Uh huh. Thank you. Yes!' and handed us some additional literature on the property." More: "Perhaps the most interesting aspect to the development was what it revealed about the nature of the housing boom: that at the peak even the most undesirable and remote locations were worthy of expensive, high-end homes."
The bank financing this project will own the entire subdivision when it is complete.

Santa Cruz prices breaking down - (patrick.net) Zillow shows house is worth $1.55M but it is listed at $650K

Regulators to Schumer on IndyMac: Please shut up - (www.latimes.com) Sen. Charles E. Schumer publicly taunted bank regulators last week about IndyMac Bancorp's financial condition, which helped trigger a sudden outflow of deposits from the Pasadena thrift. Now the New York Democrat is getting some harsh blowback from one current and one former regulator. "Leaking his IndyMac letter to the press was reckless and grossly irresponsible. I don't see how he can be trusted with confidential information in the future. What this incredibly stupid conduct does is put at risk the willingness of regulators to share any information with the [congressional] oversight committees. After this, you'd be crazy to share information with Schumer."
Regulators to Schumer: We’ve got a Whole Bag of Shhh With Your Name on It - (www.housingwire.com) Our industry sources have gone so far as to suggest that Schumer was paid off to leak the letter to the press, although it’s unclear if the suggestion is anything more than idle speculation. The conspiracy theory goes like this: IndyMac has been privately negotiating for new capital for at least the last few months, and a Large Investor offered a deal that CEO Michael Perry balked at; Large Investor decided to pay a few bucks to a Senator in New York to force the issue

Spain, Ireland `Thrown to the Wolves' After ECB Move - (www.bloomberg.com) - For homeowners in Spain and in Ireland, struggling to stay afloat amid the wreckage of a decade-long real-estate boom, those prayers are going unanswered. The European Central Bank yesterday increased its benchmark rate to 4.25 percent to fight inflation, pushing both economies a step closer to recession

States face dwindling unemployment insurance funds - (www.sfgate.com) Thirty-three states have funds below recommended levels, meaning they're at risk of running out in less than a year unless they're replenished as required under federal law. Nearly half the states could run out in less than six months. The funds, totaling about $38 billion today, are in worse shape than before the last recession, when the total was about $54 billion. States can't skip paying unemployment insurance benefits to out-of-work employees, meaning they must borrow money if the funds get too low.

Live bombs haunt Orlando neighborhood - (www.cnn.com) Multiple lawsuits have been filed, accusing builders of gross negligence and seeking unspecified monetary damages. John K. Overchuck, a lawyer representing homeowners, is suing one builder, Lennar. "They're the ones who made the money off this property. They're the ones who bought this for dirt, and built these houses for up to a half a million dollars," he says. "They're the ones who made the profit, they're the ones who are responsible because they've got these people suckered into these houses." Lennar would not consent to an interview to CNN, but did provide a written statement. Lennar says it relied on studies that "made no mention of ... a military range," and claims the military did not show up in property ownership records because, "it had leased the land." But at the same time, it was no secret that the military once used the property. Nearly two decades ago, the 1989 development order, in which the county granted the permission to develop the land, shows that builders and developers knew "of the site's history of military use."

Never Let Them See You Sweat - (bigpicture.typepad.com) – Funny video. Dana Milbank is a Washington Post reporter, and is very funny. Think you're worried about the economy? Phillip Swagel is a wreck. The assistant Treasury secretary for economic policy, Swagel came out for his monthly economic briefing yesterday, 90 minutes after the Labor Department reported that the country had shed jobs in June for the sixth straight month.

Merrill says GM bankruptcy possible – (news.yahoo.com) - General Motors Corp (GM.N) will need to raise as much as $15 billion in cash to shore up liquidity and bankruptcy is "not impossible" if the U.S. auto market continues to slump, Merrill Lynch said. Other analysts
have suggested GM, whose shares fell to a new 54-year low on Wednesday, needs to raise funds to ride out the downturn in the U.S. auto market through 2009. But Merrill's estimate of GM's financing needs is the highest yet. It also carried the most stark warning of the bankruptcy risk for the largest U.S. automaker. If conditions continue to deteriorate, we would consider other operating measures," GM spokeswoman Renee Rashid-Merem told Reuters.

Barclays warns of a financial storm - (www.telegraph.co.uk) - Barclays Capital has advised clients to batten down the hatches for a worldwide financial storm, warning that the US Federal Reserve has allowed the inflation genie out of the bottle and let its credibility fall "below zero". "We're in a nasty environment," said Tim Bond, the bank's chief equity strategist. "There is an inflation shock underway. This is going to be very negative for financial assets. We are going into tortoise mood and are retreating into our shell. Investors will do well if they can preserve their wealth."

India Bans Corn Exports to Control Domestic Prices - (www.bloomberg.com)

American workers brace for thousands of job cuts - (www.ap.com) Many more job cuts, likely totaling more than 6,000, are likely at American Airlines as the nation's biggest airline hunkers down and tries to survive record high fuel costs. American notified its flight attendants union on Wednesday that it will cut up to 900 jobs starting Aug. 31, but that appears to be the tip of the iceberg. Although American has not given a total figure, the airline says it expects to shed 8 percent of its work force. With about 85,500 workers, including those at sister airline American Eagle, that would represent more than 6,800 jobs. "The mood is fairly glum," said Karl Schricker, an American pilot and union spokesman. "They brought back 30 furloughed pilots in June. Those guys quit other jobs to come back ... and now they wonder if they'll be out the door."
Employers Cut Workers for a Sixth Month - (www.nytimes.com)
New Jobs Magically Vanish - (www.minyanville.com) - The birth-death "adjustment" added 177,000 jobs to the latest report, which put the total adjustment for the year at 600,000 new jobs - or so the government claims.
Of course, they arrived at this number through a completely flawed methodology: At the end of the year, these numbers will quietly be backed out - just as they were last year.


Other Stories:

Big Builders At Odds with NAHB - (www.bigbuilderonline.com) A rift between the nation's largest home building companies and the National Association of Home Builders regarding lobbying strategy is threatening to grow into a schism that could greatly weaken the organization. The rift is evident on both sides. Earlier this year, an ad hoc group of financial executives from big builders, including Beazer, Centex, Hovnanian, KB, Lennar, M.D.C., M/I, Meritage, Orleans, Pulte, Shea, Standard Pacific, Toll and TOUSA hired an independent lobbying firm, C2 Group in Washington, to represent them, a move which angered NAHB CEO Jerry Howard.
Mortgage ruling could shock U.S. banking industry - (www.reuters.com)
Resets Peaking on Subprime Loans - (www.washingtonpost.com)
Struggling with the mortgage? Get out now - (www.news.com.au)
Pick-A-Pay Goes Away - (www.businessweek.com)
When Will Housing Market Bottom? - (www.istockanalyst.com)
Housing fuels bankruptcies in Hawaii - (www.starbulletin.com)
Freddie Mac shares fall as housing troubles worsen - (biz.yahoo.com)
IndyMac bank denies that it's close to collapse - (www.latimes.com)

Foreclosure mix-up means new buyer's possessions given away - (www.statesman.com)

Paramax vs. UBS: "CDO Insurance Was Just A Joke Anyway" - (www.ml-implode.com)
Goldilocks is dead, CSI looking for the body, says Wells economis - (www.ml-implode.com)
Lehman Deleveraging Smoke-and-Mirrors? - (www.nakedcapitalism.com) Readers may recall that this humble blog, thanks to the information provided by a former senior person at Lehman, reported that some of the investment bank's wondrous deleveraging (it was well distributed across products, geographies, and credit quality) was due to asset sales to newly formed hedge funds, R3 Capital Partner and One Williams Street, which had former Lehman MDs at the helm and in which the firm was a significant investor.
That of course begged many questions: were the sales really arm's length? Were there any financed? And if either of these funds got into difficulty, would Lehman wind up rescuing them?
Mr Mortgage on Mortgage Modifications: You May Qualify! - (www.ml-implode.com)
Deutsche Bank’s Jain: Crisis is Solvency, Not Liquidity - (www.ml-implode.com)
Servicers Not Doing Enough for Troubled Borrowers, Consumer Group Says - (www.ml-implode.com)
HOPE NOW on Pace For Record; So, Too, Are Foreclosures - (www.ml-implode.com)

Oil prices fall more than $1 a barrel - (www.ap.com)
European Stocks Fall, Led by Banks, B&B; British Airways Drops - (www.bloomberg.com)
Canada Stocks Drop, Led by EnCana, Goldcorp; BCE Soars - (www.bloomberg.com)
Most Asian Stocks Drop on Record Oil; Kansai, Bumiputra Decline - (www.bloomberg.com)
China's Stocks Fall for Seventh Week as Oil Climbs to Record - (www.bloomberg.com)
Gold Falls in London on Reduced Hedge Demand; Silver Also Drops - (www.bloomberg.com)

Fed Cuts Bear Stearns Asset Estimate to $28.9 Billion - (www.bloomberg.com)
Gas prices hit another high for holiday weekend - (www.ap.com)
Service Sector Data Adds to Inflation Anxiety - (www.nytimes.com)
Payrolls Shrank Again in June; Jobless Rate Steady at 5.5% - (online.wsj.com)

LBO Defaults May Rise as About $500 Billion Comes Due, BIS Says - (www.bloomberg.com)
S&P, Moody's Must Be Clearer on Asset-Backed Ratings, BIS Says - (www.bloomberg.com)
Bearish battalions - (www.economist.com)
Housing market seen getting worse - (www.reuters.com)

Lax Real Estate Decisions Hurt Starbucks - (www.nytimes.com) Starbucks would not comment for this article. But it appears that the company strayed from the exacting real estate science that it had perfected and guided it through its first expansion wave. Though the flagging economy and soaring gas prices are responsible for at least some of Starbucks’s woes, interviews with commercial real estate brokers nationwide who work with the chain suggest another aspect of the story. These people say that the company was so determined to meet its growth promises to Wall Street that it relaxed its standards for selecting new store locations. In some cases, brokers say, Starbucks misjudged the risks of putting stores close to each other, leading to the decline in same-store sales that the company started reporting for the first time in its history this year.

Merrill Lynch in talks to sell Bloomberg stake: report - (www.marketwatch.com)
Lehman's Hedge-Fund Deals Leave Public in Dark: Jonathan Weil - (www.bloomberg.com)
A window to a new world - (www.economist.com)

European Banks May Need EU90 Billion, Goldman Says - (www.bloomberg.com)
Yuan Falls Most in a Month as China Seeks to Curb `Hot Money' - (www.bloomberg.com)
British economy falling into American-style slump - (www.iht.com)
Weak dollar is global concern: EU's Barroso - (www.reuters.com)
Inflation could hit 12% on costlier edible oil, food & steel - (economictimes.indiatimes.com)
Eyes on Inflation, European Bank Raises Rate - (www.nytimes.com)
Philippines inflation highest in 14 years - (www.ft.com)

To Find a Bubble, Follow the Young - (www.nytimes.com)
Settling scores - (www.economist.com)
Whip Inflation Now, Before It Whips You - (www.washingtonpost.com)
The Economy? Words Fail Me. - (www.washingtonpost.com)