Friday August 8 Housing and Economic stories

Top Stories:

How Andrew Cuomo Gave Birth to Crisis at Fannie and Freddie - (www.villagevoice.com) Andrew Cuomo, the youngest Housing and Urban Development secretary in history, made a series of decisions between 1997 and 2001 that gave birth to the country's current crisis. He took actions that—in combination with many other factors—helped plunge Fannie and Freddie into the subprime markets without putting in place the means to monitor their increasingly risky investments. He turned the Federal Housing Administration mortgage program into a sweetheart lender with sky-high loan ceilings and no money down, and he legalized what a federal judge has branded "kickbacks" to brokers that have fueled the sale of overpriced and unsupportable loans. Three to four million families are now facing foreclosure, and Cuomo is one of the reasons why.

Citigroup To Pay Billions To Settle Securities Probe - (www.cnbc.com) Citigroup will buy back more than $7 billion in auction-rate securities and pay $100 million in fines as part of settlements with federal and state regulators, who said the bank marketed the investments. Citigroup will buy back the securities from tens of thousands of investors nationwide under separate accords announced Thursday with the Securities and Exchange Commission, New York Attorney General Andrew Cuomo and other state regulators. The buybacks must be completed by November. The nation's largest financial institution also will pay a $50 million civil penalty to New York state and a separate $50 million civil penalty to the North American Securities Administrators Association, which represents securities regulators in the 50 states and the District of Columbia. The SEC also will consider levying a fine on Citigroup, the agency's enforcement director Linda Thomsen, said at a news conference. In addition, New York-based Citigroup agreed to make its best efforts to liquidate by the end of next year all of the roughly $12 billion of auction-rate securities it sold to retirement plans and other institutional investors.

Citigroup May Pressure Other Firms With Deal on Auction-Rate Securities - (online.wsj.com)

US property dream in Stockton, CA has turned into a nightmare - (www.telegraph.co.uk) Just five minutes walk from the lush green lawns that surround the city hall is a street on which each of the five houses lies empty.
With boarded-up windows on two of the houses and no windows on the rest, the buildings would appear to be at odds with street signs which purport the area to be part of the "Historic Magnolia District". A crumbling sign on the first house boasts it is "For Rent" but, given that it doesn't even have a door, it seems unlikely the owner, if there is one, will be getting too many inquiries. From one of the other houses the sound of dogs barking becomes louder and, as the apparently ownerless hounds appear at the open door, I make a hasty retreat. Welcome to Stockton, California, the foreclosure capital of the United States. Here, in this city some 80 miles to the east of San Francisco, one in every 25 homes is in the process of being repossessed by mortgage lenders, more than any other city in America.

Tempest for a Bank That Bet on Risky Loans - (www.nytimes.com) - A cheerful sign outside the glistening offices of Bank United beckons consumers to tap into “Mortgage-ade.” Another promises a “59 Minute Mortgage.” But easy money, it turns out, has created enormous problems at Bank United, Florida’s biggest regional bank. By aggressively peddling a popular type of high-interest loan to risky borrowers, the bank tripled its profits in 2006 as real estate on Florida’s Gold Coast peaked, only to lose nearly $100 million in late 2007 and early 2008 as the market cratered. Now, its chief executive, Alfred R. Camner, is scrambling to raise $400 million in capital, an amount nearly eight times the bank’s shriveled value on the stock market. Analysts and a corporate governance group are monitoring the bank’s asset quality and asking why Mr. Camner was allowed, with board approval, to amass a pool of volatile loans that at one point represented 75 percent of the bank’s mortgage portfolio, despite what has since proved to be great risk.

'Accounting Games' Mask True Financial Pain, Says Housing Seer Rosner - (finance.yahoo.com) Good video. The huge loss announced last night by AIG and Citigroup's pending settlement over auction-rate securities (to be announced later today) show again the credit crunch remains very much alive. It's likely to get worse before it gets better, says Joshua Rosner, managing director at Graham Fisher & Co., an independent research firm, who predicts national home prices will fall another 13%-15% before bottoming in early 2010, "unless they overshoot." Rosner, whom Fortune dubbed a "prophet of the credit crisis" for his early warnings about problems in mortgage-backed securities, believes companies are still slow to take losses and are "still playing games" with accounting. For example, Freddie Mac's dismal results this week would have been even worse if not for $18 billion in deferred tax assets. Rosner says that $18 billion figure is questionable, based on Freddie's own admission in the appendix to its filing: "The company does not maintain a tax basis balance sheet to support deferred tax accounting under GAAP, which could result in balance sheet misclassifications and potential income statement adjustments." Rosner also noted recent agreements where Ambac paid Citigroup $850 million to cancel insurance on $1.4 billion of CDOs, and SCA paid Merrill $500 million to cancel insurance on $3.7 billion of mortgage-backed securities. In both cases, Ambac and SCA booked paper gains by marking up the value of the underlying securities, which had previously been written down. Meanwhile, Citi and Merrill were able to book the payments to cancel the insurance as income. Rosner says the slowness of management to really take losses is contributing to the market's "manic-depressive" state (heading back to "depressive" Thursday) because investors keep thinking the "worst is over" and then get hit by the next round of announced losses. (For the record, Rosner does not own or short financial services stocks and his firm does no investment banking.)

Housing values propped up by wishful thinking - (www.marketwatch.com) While there's little doubt that the economy's problems are hitting home for most Americans, there is no question that most people just don't want to admit it. The latest proof came in the second-quarter "Homeowner Confidence Survey" released by real-estate research Web site Zillow.com, which showed that consumers are inclined to believe that their neighbor's house is losing value, but that the crisis isn't happening in their own backyard. According to the Zillow survey of homeowners, conducted by Harris Interactive, nearly two-thirds of U.S. homeowners think that the value of their own home has increased or remained stable over the last 12 months.

North Dakota's real-life Jed Clampett - (www.cnn.com) "Oil," he says, "it's amazing. You don't have to work at all. You just walk to the mailbox and there it is." The 74-year-old grandfather receives whopping checks at the end of every month for the oil. He'll never forget the time the first check came in January. "Thousands, I guess you'd call it," he says. Geving chuckles when asked if it was for $2,000. Was it closer to $10,000?
"You can keep going up and up and up," he says from his home, decked out with a massive fire pit in the living room, semi-circular leather couch and bright orange shag carpet. He had worked on the home for more than 40 years. Now, he's expanding it -- just because he can. Stanley, North Dakota, might seem an unlikely boomtown located in the northwest part of the state about 50 miles from the Canadian border. But the town is teeming with activity -- all thanks to rich oil deposits sitting deep below the surface. The town has grown from 1,250 people to more than 1,600 since the start of the year, says Mayor Mike Hynek. The oil has brought better paying jobs, raised real estate values and spawned millionaires. Watch North Dakota town strikes it rich »
"Practically everyone is being affected by it," Hynek says. It's not uncommon to hear stories of 20-year-olds with no job experience getting hired to work in the oil fields with starting salaries of $70,000 a year. Gary Dazell makes more than $100,000 a year hauling water to and from the oil fields.

Media Gets Pending Home Sales Wrong (Again!) - (bigpicture.typepad.com) - There is a closer relationship between annual index changes (from the same month a year earlier) and year-ago changes in sales performance than with month-to-month comparisons. That's not my definition, that comes straight from the NAR's release. Its the annual changes that matters more.

Pimco's Gross Says U.S. Will Rescue Fannie, Freddie - (www.bloomberg.com) Bill Gross, who manages the world's biggest bond fund, said the U.S. Treasury will probably be forced to buy as much as $30 billion of preferred shares in both Fannie Mae and Freddie Mac to help shore up their capital.
``By the end of the third quarter, the preferred stock in Fannie and Freddie will be issued, the Treasury will have bought it,'' Gross, co-chief investment officer at Pacific Investment Management Co., said today in an interview on Bloomberg Television. ``We'll be on our way toward a joint Treasury-agency combination.''

Mortgages Made in 2007 Go Bad at Rapid Clip - (online.wsj.com) - Mortgages issued in the first part of 2007 are going bad at a pace that far outstrips the 2006 vintage, suggesting that the blow to the financial system from U.S. housing woes will be deeper than many people earlier estimated. An analysis prepared for The Wall Street Journal by the Federal Deposit Insurance Corp. shows that 0.91% of prime mortgages from 2007 were seriously delinquent after 12 months, meaning they were in foreclosure or at least 90 days past due. The equivalent figure for 2006 prime mortgages was just 0.33% after 12 months. The data reflect delinquencies as of April 30.
Evidence that lax lending standards were leading to higher mortgage delinquencies first emerged in late 2006. The first major casualty of the subprime credit crisis, New Century Financial Corp., imploded in early 2007. Yet the data from the FDIC and others suggest that lenders didn't substantially tighten standards until at least July or August 2007, when credit jitters hit Wall Street and financial stocks began to swoon.

Almost Half of Indiana’s Mortgage Brokers See Licenses Yanked - (www.housingwire.com) More than 40 percent of mortgage brokers in Indiana no longer have a license to do business in the state, after Indiana Secretary of State Todd Rokita said Tuesday that his office had revoked licenses for 393 of the state’s 950 mortgage brokerages for failure to comply with a new state law. To be sure, some of the firms are simply out of business — the Indianapolis Star reported Wednesday that 79 of the state’s notices to offending companies were returned as undeliverable — but the fact that so many of the brokers operating in the state literally failed to meet basic licensing criteria introduced by a 2007 law should be eye-opening. Rokita worked with leaders in the state’s General Assembly to pass a law last year requiring each licensed mortgage office doing business in the state to employ a so-called principal manager to supervise the business affairs of the office and the staff, defined as a mortgage professional with at least three years experience in the industry. Furthermore, the reforms mandate that each principal manager take and pass a practice standards examination based on Federal regulation, Indiana statute and industry best practices.


Other Stories:

Conservatives give up on personal responsibility, fund government bailouts - (finance.yahoo.com)
Builder decries elimination of seller-funded down-payment aid - (www.marketwatch.com)
Houseowners delusional on value of property - (www.sfgate.com) It could never happen to me. That's the common attitude whether the subject is shark attacks, black market organ theft or, apparently, housing price declines.
Despite plummeting values across the nation, 62 percent of homeowners believe their property's worth has actually climbed or stayed the same during the past year, according to a confidence survey commissioned by real estate Web site Zillow. In reality, the market price on 77 percent of properties has dropped and only about 24 percent have risen or held firm, the Seattle company estimates.

Pending Home Sales Number NOT Positive - Explained - (www.ml-implode.com) - "June Pending Home Sales were up! Not really. They were at the exact same level in April, took a dip in May and went back to Ap...
Mortgages Made in 2007 Go Bad at Rapid Clip - (www.ml-implode.com) - "Mortgages issued in the first part of 2007 are going bad at a pace that far outstrips the 2006 vintage, suggesting
Budget Showdown In California - (Mish at globaleconomicanalysis.blogspot.com)
Florida property values face unprecedented decline - (www.hosted.ap.org)
Hawaii median house sale prices drop 3.1 percent on Oahu - (www.honoluluadvertiser.com)

The last hurrah for the banking system - (www.onlinejournal.com)
Morgan Stanley Said to Freeze House-Equity Credit Withdrawals - (www.bloomberg.com)
Countrywide sued by Connecticut over loans, fees - (www.reuters.com)
Greenspan Almost Childlike - (www.istockanalyst.com)
Economists Plumb the Depths of the Downturn - (www.nytimes.com)
Invest In Defence In A Housing Crash - (www.anorak.co.uk)

U.S. Stocks Retreat on AIG's Loss, Wal-Mart's Sales Forecast - (www.bloomberg.com)
Crude Oil Rises as Turkey Says Pipeline Repair May Take 2 Weeks - (www.bloomberg.com)
Treasuries Gain After Unemployment Claims Reach Six-Year High - (www.bloomberg.com)

U.S. Jobless Claims Rose Last Week to Six-Year High - (www.bloomberg.com)
40% of U.S. homeowners say their houses have risen in value - (www.dallasnews.com)
Inflation fears persist as Fed holds rates - (www.ft.com)
Highest Unsold Home Supply Since '82 Seen Needing 50% Reduction - (www.bloomberg.com)
Pending Home Resales in U.S. Unexpectedly Rose 5.3% - (www.bloomberg.com)

Mortgage Failure Rate Rises - (online.wsj.com)
Wall Street Report Tries to Dissect Financial Meltdown - (www.nytimes.com)
Mortgage Delinquencies Accelerated During 2007 - (online.wsj.com)
Hedge Funds Chalk Up Losses - (online.wsj.com)
Big banks seek to limit their own risks - (www.ft.com)
Big banks prepare to scale back business - (www.ft.com)

AIG Posts Third Straight Quarterly Loss on Housing - (www.bloomberg.com)
Chrysler, Nissan May Team Up - (online.wsj.com)
Freddie Needs Equity Lift - (online.wsj.com)
Retailers slash prices in back-to-school fight - (www.chicagotribune.com)
Shoppers buying more store brands as budgets get tight - (www.dallasnews.com)
High Costs, U.S. Sales Hurt Toyota - (online.wsj.com)
Freddie Mac’s Big Loss Dims Hopes of Turnaround - (www.nytimes.com)
Freddie Mac's negative net worth raises questions - (www.reuters.com)
CarMax to slow growth after seeing sales drop - (www.signonsandiego.com)
GM Presses Ad Agencies on Costs - (online.wsj.com)
Tempest for a Bank That Bet on Risky Loans - (www.nytimes.com)

Credit crisis taking toll on European insurers - (www.iht.com)
Bank of Korea Raises Rate to 5.25% to Curb Inflation - (www.bloomberg.com)
Food price inflation spirals to 9.5 per cent - (business.timesonline.co.uk)
UK dealers cut car prices as sales fall - (www.ft.com)
Defaults to Rise in Europe a Year After Crunch Began - (www.bloomberg.com)
Barclays profits plunge on huge credit-related losses - (news.yahoo.com/s/afp)
U.K. July Home Values Fall Most Since 1983, HBOS Says - (www.bloomberg.com)
As Mexican inflation soars, President Felipe Calderon shakes up Economic Ministry - (www.latimes.com)
The Big Freeze part 4: How to build a US recovery - (www.ft.com)