Tuesday December 16 Housing and Economic stories

TOP STORIES:

The Downturn Hits Dubai - www.businessweek.com) With the Persian Gulf economy shriveling from the oil price drop, Dubai's push to become a global financial hub is in jeopardy. For a year or so, the movers and shakers of the small but oil-rich United Arab Emirates have watched the unfolding of the credit crisis in the West with a mixture of dismay and denial. It won't happen here, was their view. And for a long time it didn't. But now it is. The price of oil, the lifeblood of the Persian Gulf economy, has fallen more than 60% since its mid-July peak. Real estate, the other mainstay, especially in oil-poor Dubai, has been quick to follow. An industry source in Dubai estimates that prices, which rose about 14.4% in the first eight months of this year, have suddenly dropped by 20% to 30%, with some developments seeing 50% declines. With prices for villas and apartments falling and sales grinding to a halt, big developers such as Nakheel, which is building the iconic palm frond-shaped projects on fill dredged from the sea bottom, are halting construction and laying off staff. Jobs, though on a lesser scale, also are being lost at investment banks such as Morgan Stanley (MS) and Goldman Sachs (GS), which have seen the Gulf as one place business was not drying up. They are now trimming staff, to the alarm of the local authorities, who have staked their future on the Gulf's becoming a global financial center. A chill wind is blowing through the Gulf. Credit has dried up; stock exchanges have crashed; and the region's once-vaunted Sovereign Wealth Funds, set up to save for a future when oil reserves are exhausted, have instead sustained huge losses, potentially in the hundreds of billions of dollars. It has long been assumed that if Dubai got into trouble, it would be bailed out by its neighbor, Abu Dhabi, one of the great oil powers and the deep pockets behind the UAE. Already there are signs of a rescue process beginning. It's being handled at the UAE federal level, with Abu Dhabi likely providing whatever funding is needed. Trading in the shares of two publicly traded but partly state-owned mortgage finance companies, Tamweel and Amlak Finance (AMLK), was suspended on Nov. 20. The two companies, which account for about 50% of the mortgage market, with $5.5 billion in assets, are to be merged into a little known federal government entity called the Real Estate Bank of the UAE. In addition, the UAE has guaranteed all bank deposits for three years and has earmarked about $33 billion for support of the banking system. Nominally, the capital is coming from the central bank and the UAE Ministry of Finance, but, as one analyst put it, "All money in the UAE comes from Abu Dhabi."

GSE's May Waive Appraisals For Refinances - (www.bloomberg.com) Fannie Mae and Freddie Mac, the mortgage-finance companies seized by the U.S. government, are considering forgoing new appraisals on refinanced loans to help struggling homeowners, their regulator said. “If they refinance someone, rather than doing a loan mod, do they need a new appraisal if they already have the credit?” Federal Housing Finance Agency Director James Lockhart told reporters after a speech in Washington today. “That’s an issue that’s being discussed. They’re looking at it.” Fannie and Freddie, which own or guarantee $5.3 trillion of the $12 trillion U.S. home loan market, must consider that some homeowners who need to refinance owe more than their property is worth and wouldn’t qualify for the necessary mortgage insurance, Lockhart said. Another consideration is the issue surrounding the valuation of refinanced loans on the companies’ balance sheets. “It sounds like a disaster,” said Paul Miller, an analyst at FBR Capital Markets in Arlington, Virginia. “What you’re doing is postponing the problem into the future and not giving the system time to fix itself,” he said, adding that regulators are bowing to political pressure.

Realtors propose plan to rejuvenate housing market - (www.akron.com) - Sorry, but letting these fucking morons propose anything is ridiculous. Lawrence Yun, NAR’s chief economist, who predicted last year the turnaround would begin in late 2008, stated pending home sales slipped 4.6 percent nationwide in September from August but remained 1.6 percent higher than a year earlier. He also stated some of the areas hardest hit by the slowdown, including Florida and California, showed “consistent, solid gains” and that NAR’s housing affordability index is averaging 19 percentage points higher this year than in 2007. Based on a recent NAR survey, 35 percent to 40 percent of all recent home sales across the country were “distress sales,” such as bank-owned foreclosures or “short” sales in which the lender agrees to take less than the amount owed. In Florida, distress sales could be as high as 50 percent or 60 percent of all recent closings. NAR recently presented Congress with a Four-Point Housing Stimulus Plan to help stabilize the housing and mortgage markets. The package suggests using $130 billion of the $700 federal billion bailout funds on housing, specifically earmarked for an interest-rate buy-down and more tax credits.

More CRA Idiocy - (www.ritholtz.com) - Howard Husock has an exercise in cognitive dissonance in today’s NYT Op-Ed pages titled Housing Goals We Can’t Afford, and it begins: “The national wave of home foreclosures, many concentrated in lower-income and minority neighborhoods, has created a strong temptation to find the villains responsible.” What can you say about an Op-Ed whose very first sentence is a giant pile of steaming bullshit? That statement is demonstrably false. As the prior post on foreclosures shows, the concentration is mostly middle class and upper middle class white suburban neighborhoods. California leads the nation in foreclosures. The state’s foreclosure activity was up 51% from a year ago. These are not CRA communities, they are what were hoped to be surburban bedroom communities east of the major cities (San Diego and L.A.) Next up is Florida; The state’s foreclosure activity was still up 68 percent from November 2007. The enormous overbuilding of Condos, and not CRA, is to blame. These weren’t inner city loans to minorities, as Dan Gross pointed out, they were “WCI Communities — builder of highly amenitized condos in Florida (no subprime purchasers welcome there)” WCI filed for bankruptcy in August. “Very few of the tens of thousands of now-surplus condominiums in Miami were conceived to be marketed to subprime borrowers, or minorities—unless you count rich Venezuelans and Colombians as minorities.”

GMAC at the brink - (money.cnn.com) Is it possible GMAC was counting on the government load to GM for $19B before it was cut significantly? General Motors' finance unit is falling short of capital requirements it needs to become a bank holding company and access needed cash from the government. GMAC Financial Services, the finance unit tied to automaker General Motors, said Wednesday it is coming up well short in its efforts to raise the capital it needs to become a bank holding company, a move the unit is counting on to gain access to needed funds from the Treasury Department and Federal Reserve.
The unit, which is 49% owned by General Motors and 51% owned by private equity firm Cerberus Capital Management, had applied to become a bank holding company last month but warned Wednesday that it may have to pull the application.

BIS warns of collapse in global lending - (www.telegraph.co.uk) The City of London has suffered a dramatic collapse in its core business as global lending falls at the steepest rate since records began, according to new figures from the Bank for International Settlements (BIS). In its quarterly report, the BIS warned the US Federal Reserve, the Bank of England and other central banks that near-zero interest rates and emergency monetary stimulus may come at a cost. By opening the cash spigot, the authorities risk displacing the money markets and may "discourage banks from lending to other banks". The money markets are a crucial lubricant for the financial system, but they cannot function if rates fall too low. The sector can wither away, as Japan discovered during its "Lost Decade". The BIS also hinted that the European Central Bank and Sweden's Riksbank may have blundered by raising rates this year to contain the oil shock. It said short-term energy spikes have no lasting effect on inflation or wage deals.

Zell's Tribune: The Canary in a Scary Mine - (www.businessweek.com) Sam Zell's folly will be the first in a wave of newspaper restructuring and consolidation. When I wrote a column of predictions last week, I expected some of my guesses for 2009 would never happen. Leave it to Tribune's Sam Zell, though, to make one of them wrong by filing Chapter 11 while the calendar still reads 2008. Zell's $8.2 billion deal, which went from "we did it" to "we're bankrupt" in less than a year, illustrates the folly of buying declining businesses with billions of dollars of borrowed money. That seems an obvious and fatuous statement now, but apparently it didn't occur to Zell. (A Tribune spokesman did not respond to several calls and e-mails.) The Tribune deal left a company that generates revenue mainly from newspapers with around nine times more debt than annual cash flow, or at least what had been its annual cash flow, since that figure is declining by the month. It was extreme enough to warrant "whoas" even from media executives accustomed to doing deals involving lots of debt. Things being what they are, those executives are now too busy going fetal under their desks and licking their wounds to be playing "I told you so."

Bank of America to shed up to 35,000 jobs - (money.cnn.com) Bank of America said Thursday it plans to slash up to 35,000 jobs over the next three years as it absorbs Merrill Lynch and contends with the deepening recession. The Charlotte, N.C.-based bank, which will be the nation's largest financial services firm when the Merrill Lynch (MER, Fortune 500) deal closes in coming weeks, said it will announce a final job reduction plan in early 2009. The cuts will come from both companies and will affect all lines of business.




OTHER STORIES:

Stocks slump on auto bailout worries Oil jumps $4.50 - (money.cnn.com)
Detroit bailout faces Senate fight - (money.cnn.com)
Help near for seniors slammed by stocks - (money.cnn.com)
Get ready for the final rate cut - will it matter? - (money.cnn.com)
Mad about the economy - (money.cnn.com)
U.S. sellers to world: Please buy our leftovers - (money.cnn.com)

Dire Forecast for Global Economy and Trade - (www.nytimes.com)
Half of 'rescued' borrowers still default - (money.cnn.com)
CFOs: Recession to last another year - (money.cnn.com)
Jobless Claims at 26-Year High; Import Prices Fall - (www.cnbc.com)
Procter & Gamble Trims Second-Quarter Sales Outlook - (www.cnbc.com)
Eli Lilly's Lechleiter: "Ludicrous" Stock Price - (www.cnbc.com)
Foreclosure Activity Drops to June Levels - (www.cnbc.com)
Boeing Delays Dreamliner Flight, Deliveries - (www.cnbc.com)
Costco's Profit Rises as Gas Stations Fuel Growth - (www.cnbc.com)
US Bancorp Sees $1 Billion in Writedowns Ahead - (www.cnbc.com)
AIG Asset Sales Plan May Be Delayed: CEO - (www.cnbc.com)

Update: Fidelity Home Mortgage Corp. Is No Longer - (www.ml-implode.com) - After a tipster wrote in to inquire about the current status of Fidelity Home Mortgage Corp., we did some looking...
UPDATE: Deutsche Bank closes MortgageIT? - (www.ml-implode.com)
Ex-Officer Faults Mortgage Giants for ‘Orgy’ of Nonprime Loans - (www.ml-implode.com)