Wednesday July 23 Housing and Economic stories

Top Stories:

Desperate times, desperate measures for condo associations - (www.dailybusinessrevue.com) Interesting as condo associations are trying to accelerate foreclosures. Facing a spike in delinquencies and the need to pay the bills, the Bentley’s condo association opted to take a hard line with lenders that took over units there — many from investors who went into foreclosure. In one instance, the condo association took legal action against a lender that it said was dragging out the foreclosure process to avoid paying maintenance fees. Condos like Bentley Bay are increasingly resorting to such desperate measures to collect enough money to keep their buildings operating. It’s also proof that even upscale condos in areas considered insulated to a market downturn are feeling the pinch. As more units go into foreclosure, communities — especially newly built or converted projects — are struggling with rising nonpayment of association fees. Beleaguered board members are ratcheting up legal pressure on lenders who’ve launched foreclosure action against units but are slow to take title to the properties — a move that helps lenders delay taking on responsibility for condo fees. Unit 212 at the Bentley was mired in a drawn-out foreclosure process, and fees were mounting. The cash-strapped condo association finally asked Miami-Dade Circuit Judge Daryl Trawick, who was overseeing the foreclosure case, to force U.S. Bank to take title to the unit or immediately start paying maintenance fees.

Mervyns may file for bankruptcy, sources say - (www.latimes.com) - The Hayward, Calif.-based retailer stopped providing its financial information to at least two credit-monitoring firms -- prompting some vendors to halt merchandise shipments and triggering speculation that the chain might file for bankruptcy. "I'm advising my clients to hold all shipments at this time due to a lack of communication from Mervyns management," said Bob Carbonell, chief credit officer at Bernard Sands, a credit monitoring company. "To the best of my knowledge, virtually all of my clients have stopped shipping goods." Mervyns declined to comment on its current troubles, first reported Monday by the Wall Street Journal, which quoted anonymous sources saying the chain could ultimately be forced to seek bankruptcy protection.

Ed McMahon sues hospital, two doctors, investment tycoon over neck injury – (ap.google.com) – I have lost all respect for Ed. Not that I had any previously, but at least his character was funny in the SNL skit. He lived way above his means for years and now is suing everyone for his problems. Previously, he accepted responsibility for his problems but has more recently changed his tune. He previously said: "If you spend more money than you make, you know what happens. You know, a couple of divorces thrown in, a few things like that. And, you know, things happen." Moe recently, Ed McMahon has sued a hospital, two doctors and an investment tycoon Friday over a neck injury he has said has left him unable to work, a circumstance he has blamed for his recent money woes. The lawsuit seeks an unspecified amount, claiming negligence, battery, elder abuse and intentional infliction of emotional distress. It was filed in Los Angeles Superior Court against Cedars-Sinai Medical Center, two doctors, and the owner of a home where he says he fell in March 2007.

Freddie Mac May Slow Mortgage Buys to Prop Up Capital - (www.bloomberg.com) - Freddie Mac, the second-largest U.S. mortgage-finance company, may cut purchases of home loans from banks and bonds backed by housing debt to shore up its capital amid record delinquencies. The government-sponsored company is also considering selling securities and reducing its dividend while it prepares to issue $5.5 billion of stock, McLean, Virginia-based Freddie Mac said in a July 18 filing with the U.S. Securities and Exchange Commission. JPMorgan Chase & Co. analyst Matthew Jozoff said in a report last week that growth in mortgage holdings of Freddie Mac and the larger Fannie Mae will be ``weak.'' ``This just means much less credit availability for mortgage borrowers,'' said Paul Colonna, who manages more than $100 billion as chief investment officer for fixed income at GE Asset Management in Stamford, Connecticut. ``They were teed up to be saviors of the mortgage crisis, but now they've got their own capital issues.''

Angelo's Many "Friends" - (www.portfolio.com) In January 2004, Richard Aldrich, a California state appeals court judge, decided to refinance his 8,200-square-foot house next to a Jack Nicklaus-designed golf course at the Sherwood Country Club in Westlake Village. He turned to a prominent Sherwood member: Countrywide Financial chief executive Angelo Mozilo. Aldrich’s application was assigned to a loan officer named Robert Feinberg; the judge was seeking a $1 million loan and a $900,000 line of credit. By email, Feinberg alerted Mozilo that the credit line was “above what guidelines allow.” Mozilo responded, “Go ahead and approve the loan, and close it as soon as possible. Don’t worry about this deal, it’s golden.” Countrywide further waived half a point, or $5,000 on the million-dollar loan. (Homebuyers can reduce their interest rates by paying points, which are equal to 1 percent of the value of a loan.) That wasn’t Aldrich’s only contact with Countrywide. At the time he refinanced, a class action lawsuit against Countrywide was pending before the appellate court, brought by borrowers contending that the company offered an inadequate payment to settle allegations that it charged excessive fees for credit reports. That August, Aldrich was part of a three-judge panel that unanimously rejected the borrowers’ appeal. According to a person familiar with the case, Aldrich did not disclose his relationship with Countrywide to the plaintiffs or offer to recuse himself. California’s judicial code of ethics states that judges cannot accept gifts or favors from donors “whose interests have come or are reasonably likely” to come before them, nor can they take out a loan at better terms than are available to other borrowers. Reached by phone, Aldrich denied receiving a below-market loan and hung up.

Bailout means poor states pay for rich states' mortgages - (www.tomahjournal.com) Yes, it’s a win-win situation for big-fat bankers and citizens of Manhattan, etc. When times are good, the investment bankers and lenders are making a good $200-500K a year. When things go south, they look to the rest of the country to bail them out. Another financial crisis, and another bailout that sends money from the Frost Belt to the Sun Belt. Twenty years ago, it was the savings & loan crisis. Today, it’s the mortgage meltdown. While both are long-term financial disasters triggered by faith-based deregulation, they are also stories of demographic and regional redistribution. If a mortgage bailout bill that’s winding through Congress becomes law, Wisconsin will, broadly speaking, bail out Las Vegas. The causes of the mortgage meltdown are clear: Lenders and borrowers made bad bets on whether real estate in several “hot” markets -- Las Vegas, Southern California, South Florida, exurban Atlanta, etc. -- would continue to rapidly escalate in price. The lending triggered an orgy of development -- too many subdivisions with too many houses that had too much square footage. Was it something these areas could sustain? Of course not. But the bailout legislation allows a Las Vegas family to stay in a $600,000 home it never should have bought, and it bails out the lending institution and its investors for a mortgage loan that never should have been made.

Sales of Southern California companies drop sharply - (www.latimes.com) - Sales of retail shops, restaurants, beauty salons and other small and medium-size businesses in Los Angeles County are down by almost a third in the first six months of the year compared with the same period last year, according to BizBen.com, a San Ramon, Calif.-based clearinghouse that lists small, private California businesses for sale and reports statewide sales data. The 30.2% decline, to 2,968 L.A. businesses sold in January through June, is more than double the statewide drop of 13.7% in the same period. Some 11,654 California businesses have sold this year. In Orange County, 1,274 businesses sold in the first six months, down 22.6% from the year-earlier period. San Bernardino County experienced an 11.9% drop, to 651, and Riverside County sales declined to 391, a 47.3% plunge, according to BizBen.com. (San Diego was a Southern California exception: Sales jumped by more than 50%, to 1,275.). Business brokers blame the sharp drops on the credit crunch. Banks began to tighten credit standards last summer for the government-backed loans that fuel the purchase of many small businesses.

Critical financial problems spreading – (www.ft.com) - The number of companies facing "critical problems" surged by more than a quarter between the first and second quarter of the year as tightening credit conditions continued to bite, according to Begbies Traynor, the corporate insolvency and restructuring specialist. Year-on-year comparisons in the company's Red Flag Alert survey show a near eightfold rise in financially troubled companies in the second quarter. The survey showed 4,258 companies facing winding-up petitions from creditors or county court judgments in excess of £5,000, compared with just 542 in the same period a year ago. Quarter-on-quarter, the number of companies facing critical problems increased by 29 per cent.

New Regulator in Rescue Plan Spurs Debate - (www.nytimes.com) When the Treasury secretary, Henry M. Paulson Jr., orchestrated a rescue effort for the nation’s two largest mortgage finance companies last week, most of the attention was focused on the infusion of cash and credit that the government would provide. But his plan also relies on the creation of a new regulatory agency to control the companies more tightly over the long term and to limit the risk they pose to the country’s financial system. Skip to next paragraphUnder the measure, Congress would lose some of its authority to oversee the companies, Fannie Mae and Freddie Mac, including the right to determine how much capital they must keep as a cushion against losses. That role would shift to the new regulator, which would be called the Federal Housing Finance Agency; the director of the agency would be appointed by the president and confirmed by the Senate.

Economy hobbles Calif. town - (www.usatoday.com) The mortgage crisis, the limping economy and a recent bankruptcy filing by Vallejo — the first municipality to do so since Desert Hot Springs, Calif., in 2001 — have hobbled this town of 120,000. Golovich's business is hurting. Jobs and phone calls from customers have dried up. He's cut his staff and fleet of trucks in half, to six employees and four vehicles. Golovich also could lose his home. When the interest rate on his $500,000 adjustable-rate mortgage rose to 10% from 7%, his monthly payment shot up to $4,000, and he could not afford it. Hoping to ward off foreclosure, he and counselors at the non-profit Vallejo Neighborhood Housing Services are working with his lender on a new payment plan.

Huge oil trading loss sinks energy trader SemGroup - (www.reuters.com) SemGroup LP declared bankruptcy on Tuesday after $3.2 billion in oil trading losses torpedoed the formerly 12th-largest private U.S. company. The Tulsa-based company racked up the massive losses as oil prices ran up record gains, undercutting short crude futures positions SemGroup bought to hedge against its 500,000 barrel-per-day trading business. To meet obligations, SemGroup plans to sell off oil and natural gas gathering, transportation, and storage assets worth an estimated $6.14 billion that were purchased in a whirlwind of acquisitions since it was founded in 2000.

More socialism and stupidity from the Republic of California:
Beer-tax debate isn't going stale – (www.insidebayarea.com) – Another method of raising taxes on CA residents. It is getting close to 70% for high income individuals and these taxes (called levies by these morons) will help put it over 80%. Also, notice the socialistic aspect to only tax big brewers and not the small guys. Beall proposed to raise the current 2-cents-per-can-or-bottle levy by 30 cents, but he has since scaled it back to 15 cents per can. Put differently, a six-pack would cost nearly a dollar more.
Additionally, the assemblyman now says the tax should apply only to brewers that produce more than 60,000 barrels annually, thus excluding small craft brewers. He estimates it would generate $500 million annually for programs
to curb alcoholism and underage drinking, causes to which Beall has devoted years of work. The money would be set aside in a "lockbox" and could not be spent for other purposes.

Public service employees get free gas - (www.sfgate.com) Even as gas prices go through the roof, hundreds of public employees who work for San Francisco and Oakland are commuting in city vehicles, complete with free fill-ups. Some are coming from as far away as the Central Valley. San Francisco city records show that no fewer than 246 workers, including police brass, airport employees and Muni managers, have take-home car privileges. A district attorney's investigator commutes in his city-issued 2004 Ford Taurus from Manteca in San Joaquin County - a round trip of about 150 miles - with the city picking up the gas tab. Still another investigator is averaging 133 miles a day commuting from Tracy, and another 88 miles from Antioch. One D.A.'s investigator, commuting some 70 miles round trip from his home north of Petaluma, rang up $1,900 in annual fuel costs when the city officials first tracked his mileage back in 2003. Today, the bill has more than doubled, to $4,000-plus a year.

Supes readying tax hikes for November ballot - (www.sfgate.com). Another socialistic tax in downtown SF. Downtown businesses, law firms and wealthy property owners in San Francisco could be forced to pay more in taxes - in some case tens of thousands of dollars more - under proposals being debated today at City Hall. But the measure could give a break to small businesses, exempting them from city payroll taxes if they pay employees a total of $250,000 or less each year. Board of Supervisors President Aaron Peskin wants voters to decide this fall whether the city should double its real estate transfer tax on properties valued at more than $5 million. Under the measure, someone selling a $5.1 million property, for example, would pay $76,500 in transfer taxes, or 1.5 percent of the sale price. Peskin also hopes to get a second measure on the November ballot that would force law, accounting and other firms to pay taxes on the compensation of the partners in their offices, something most limited-liability partnerships operating in the city do not do.


Other Stories:

After Massive Financials-Led Rally, WAMU Drops Bomb - (www.ml-implode.com) - After a mega-rally led by the financials that left the XLF up 8.4%, WAMU drops the bomb: WAMU 2Q Non-GAAP EPS ($3.34) vs ($1.05)...
MBA's Kempner Out; Courson To Step Up - (www.ml-implode.com) - On the heels of Option ARMegeddon's recent article about MBA's financial difficulties, we learn today that President and CEO Jon...
Wachovia Update: 10,750 Jobs Cut - (www.ml-implode.com) - Wachovia acknowledged it is "exiting the General Bank wholesale mortgage origination channel" in a press release today...
Dubious Assumptions in CBO's Fannie, Freddie $25 Billion Rescue Cost Estimate - (www.ml-implode.com) - "I am curious: what expertise does the CBO have in developing an independent view of the two GSE's exposures? The CBO was no dou...
Fannie, Freddie Pare Losses on CBO Bailout Report - (www.ml-implode.com) - "- Fannie Mae and Freddie Mac pared losses after the non-partisan Congressional Budget Office said there's a better than 50 perc...
When retail therapy fails - (www.ml-implode.com)
Phoenix Foreclosures: They’re Not Just For Outlying Areas Anymore - (www.ml-implode.com)
Option ARMageddon: Kempner doubling-down on MBA’s future? - (www.ml-implode.com)
Pimco's Gross: Fannie, Freddie Mortgages 'Excellent Video' - (www.ml-implode.com)
Regulators check Fannie, Freddie books - (www.ml-implode.com)
The FHA Delinquency Crisis: 1 in 6 Borrowers in Default - (www.ml-implode.com)
Wachovia Swings To 2Q Loss; Dividend Cut To 5 Cents/Share - (www.ml-implode.com)
Thousands with criminal records work unlicensed as loan originators - (www.ml-implode.com)
Update: Wachovia's Wholesale Shutdown Confirmed - (www.ml-implode.com)

Icelandic CDS costs surge again - (www.ft.com) - The cost of insuring Icelandic bank debt against default climbed to near-record levels on Monday, as traders again targeted the embattled island economy. Credit default swaps, contracts between two parties to insure debt against default, hit 1,000 basis points on the major Icelandic banks Glitnir and Kaupthing. This means traders were paying €1m per year to insure €10m of each bank's debt over five years, more than double the price two months ago. A year ago, they paid €30,000.
Troubled economy has Texans recalling banking collapse of the '80s – (www.dallasnews.com) The economy collapsed after years of growth. Can't-miss investments turned to dust. And banks, gorged on years of aggressive lending, careened toward the breach.
A portrait of today's U.S. economy? Time will tell. But with analysts predicting as many as 300 U.S. bank failures in the next few years, many Texans will recall another banking crash. In the state's 1980s collapse, an energy bust and a subsequent real-estate wreck leveled hundreds of Texas banks, including longtime pillars of the economy.

Replace the word "oil" with "housing" - (patrick.net)
GSEs: Toxic fudge - (www.economist.com)
All US Senator Email Addresses - (patrick.net)
Little foreclosure relief seen from housing bill - (msnbc.msn.com)
Nothing Sacrosanct About U.S. AAA Rating - (www.bloomberg.com)
America, Too Big to Fail . . . Probably - (www.city-journal.org)
Derivatives, banks, and bailouts - (www.guildinvestment.com)
Market still far from bottom - (www.marketwatch.com)
House equity continued to deteriorate - (calculatedrisk.blogspot.com)
California's median house price plummets in June - (www.latimes.com)
Southern California Half-Off Sale - (www.mybudget360.com)
San Diego County House Sales Fall - (realestate.signonsandiego.com)
The Meltdown Lowdown - (www.prospect.org)
The death-knell of Bernankeism - (www.prudentbear.com)
Global economy at point of maximum danger - (www.telegraph.co.uk)
Blame U.S. housing finance - (www.economist.com)
Fed seems focused on inflation over growth - (www.ft.com)
California foreclosures soar to 20-year high - (www.businessweek.com)
On Economy, Bush Faults 'Drunk' Wall Street - (online.wsj.com)

How free market ideology backfired - (www.marketwatch.com)
Job Market Idles Many Teens - (online.wsj.com)

Cost of Loan Bailout, if Needed, Could Be $25 Billion - (www.nytimes.com)
Problems at Loan Giants Push Mortgage Rates Higher - (www.nytimes.com)
Why the oil crunch may grow worse - (www.latimes.com)
Oil trading company files for bankruptcy - (www.ft.com)
Junk bond hiatus shows the depth of credit squeeze - (www.ft.com)

Former SEC head wants broader short-selling rules - (www.boston.com)
CLO managers under pressure - (www.ft.com)

Two Troubled Banks Each Post Billions in Losses - (www.nytimes.com)
Fannie, Freddie bailout may have $25 billion tag – (www.reuters.com)
U.S. combing books of mortgage finance companies - (www.iht.com)
Wachovia Has Record $8.9 Billion Loss, Cuts Dividend - (www.bloomberg.com)
U.S. Lawmakers Reach Deal on Fannie, Freddie Bill - (www.bloomberg.com)
Fannie, Freddie May Record More Losses, Ofheo Says - (www.bloomberg.com)
SunTrust Profit Declines as Borrowers Fall Behind - (www.bloomberg.com)
Losses Mount, and Airlines Plan Steeper Spending Cuts - (www.nytimes.com)

Food and Gas Prices Taking a Toll in Asia - (www.nytimes.com)
Italian Consumer Confidence Plunges to 15-Year Low - (www.bloomberg.com)
Global credit crisis takes hold in Japan - (www.telegraph.co.uk)