Thursday January 29 Housing and Economic stories

KeNosHousingPortal.blogspot.com

TOP STORIES:

Should We Bailout Geithner Too? - (www.newgeography.com) This morning the Senate Finance Committee approved the nomination for treasury secretary of Timothy F. Geithner, head of the Federal Reserve Bank of New York. Geithner is a Wall Street darling, but taxpayers may have a different take. Senator Jim Bunning (R-KY) reminded us at the Senate confirmation Hearing January 20 that Geithner was part of every bailout and every failed policy put forth by the current Treasury secretary. After you read this, you should begin to see why I’m so opposed to Geithner’s appointment – I don’t want the fox any closer to the hen house than he already is. For starters, look at what the Fed has admittedly been up to – this is from a recent speech by the President of the San Francisco Fed, Janet Yelin. The Federal Reserve Act authorizes the Fed to lend to “individuals, partnerships, or corporations” in extraordinary times. For the first time since the Great Depression, the Fed is invoking this authority to make direct loans to subprime borrowers – that is, those who can’t get credit from a bank. Basically, the New York Fed, under Geithner’s direction, created a couple of special companies so they could print money to get around restrictions on what the Fed can do directly. Now, be perfectly clear on this first point – this is not Treasury or TARP or Congress that’s spending this money. It’s the Federal Reserve. They don’t have to ask Congress for money, they just print it. The Fed is providing “credit to a broad range of private borrowers.” And by-and-large, they don’t have to tell you who they give the money to, either. Here’s how Yelin put it: “It is worth noting that, as the nation's central bank, the Fed can issue as much currency and bank reserves as required to finance these asset purchases and restore functioning to these markets. Indeed, the Federal Reserve's balance sheet has already ballooned from about $900 billion at the beginning of 2008 to more than $2.2 trillion currently—and is rising.”

Costs and Tighter Rules Thwart Refinancings - (www.nytimes.com) Major banks and mortgage brokers agree that the number of qualified borrowers has dropped significantly. By some brokers’ estimates, only 30 percent of applicants in certain markets are actually closing on their refinancing applications. In contrast, in the first half of last year, about 60 percent of applications were approved, according to the Mortgage Bankers Association. And only a select few borrowers with pristine credit can secure the most attractive rates: for the week that ended Jan. 15, rates on a 30-year fixed mortgage sank to 5.12 percent, the 11th consecutive weekly drop and the lowest rate since the big mortgage financer Freddie Mac began tracking them in 1971. In Arizona, California, Florida and Nevada, housing markets that are hardest hit, at least two insurers are now requiring borrowers to have at least 10 percent equity in their homes and a credit score of more than 720. About 48 percent of Americans have scores less than 699, according to Fair Isaac, the company that computes FICO credit scores. In other markets, the insurers are requiring a credit score of at least 680 — an indication of how the definition of a good credit score has changed as the economy has deteriorated. On top of that, Fannie Mae and Freddie Mac, the two big mortgage guarantors now under government control, have raised the fees they charge lenders on loans that they insure or buy. Those fees — in part the result of the two agencies’ losses in the housing market — are passed on to borrowers, with Fannie’s latest increase about to go into effect. As mortgage rates hit new lows every week, the number of homeowners seeking to refinance their homes has spiked to its highest level in five years. But many have been unable to win approval for their applications. And even some of the homeowners who do qualify have backed off, once they found out how difficult it was to get the advertised rate. So what should be a bright spot in an otherwise dismal economy — throngs of homeowners locking in low, fixed-rate mortgages that will free them up to spend elsewhere — threatens to become another example of how even the best government intentions do not always pan out. That was the case when the government, through its Troubled Asset Relief Program, started pumping money into banks with the goal of shoring up their balance sheets and spurring lending. And it appears to be happening again as the Federal Reserve buys up mortgage securities. The Fed is pushing down interest rates, but that has not been enough to bring the housing market back to life. While rates are falling, borrowers face higher costs every step of the way, from rising fees for mortgage insurance to added costs that drive up the mortgage rate. At the same time, lenders have become more cautious about whom they will lend to, as more people lose their jobs, watch their incomes decline and fall behind on their bills. One of the biggest stumbling blocks for many people is their plunging property values, which have erased all or most of the equity in their homes. Others cannot meet the increasingly stringent credit requirements, which either disqualify them or increase their costs. “Refinancing is a very difficult proposition right now,” said Mike Stoffer, president of Stoffer Mortgage in North Canton, Ohio. “The loss of equity and tighter credit standards are making it difficult for a lot of people to refinance.”

Freddie asks for another $35 billion - (www.ml-implode.com) In a filing with the SEC yesterday, Freddie laid out its second request for taxpayer funds: Based on preliminary unaudited information concerning [Q4] results…[Freddie Mac] management currently estimates that [its Conservator] will submit a request to…[Treasury] to draw an additional amount of approximately $30 billion to $35 billion under the $100 billion Senior Preferred Stock Purchase Agreement (Purchase Agreement) between Freddie Mac and Treasury. The Purchase Agreement requires Treasury, upon the request of the Conservator, to provide funds to the Company after any quarter in which the Company reports a negative net worth (that is, the Company’s total liabilities exceed its total assets, as reported in accordance with generally accepted accounting principles)… “Negative net worth” is an important formula to keep in mind because it’s the same one that demonstrates why the private banking system needs so much money. By virtue of its implicit government guarantee, Fannie and Freddie borrowed $4.5 trillion to create $4.5 trillion worth of loans. Assets = Liabilities + Equity. For Fan and Fred, Assets equaled Liabilities, so Equity was zero. With no equity in the equation, they had no cushion to protect against the declining value of their assets. By virtue of its implicit government guarantee, Fannie and Freddie borrowed $4.5 trillion to create $4.5 trillion worth of loans. Assets = Liabilities + Equity. For Fan and Fred, Assets equaled Liabilities, so Equity was zero. With no equity in the equation, they had no cushion to protect against the declining value of their assets

California-based 1st Centennial Bank fails - (www.marketwatch.com) 1st Centennial Bank of Redlands, Calif. was seized by the Federal Deposit Insurance Corp. and state regulators on Friday. It was the third bank failure this year, and brings to 28 the number of banks that have closed since the beginning of the current credit crisis.

Goldman Sachs stars lose their luster amid crisis - (www.reuters.com) NEW YORK (Reuters) - John Thain, Bank of America's just ousted head of investment banking, securities and wealth management, is only the latest alumnus from Wall Street powerhouse Goldman Sachs to fall abruptly from grace as the legendary bank loses its aura of invincibility. Thain -- the former chief operating officer at Merrill Lynch -- masterminded that bank's sale to Bank of America Corp (BAC.N). But he was forced to leave BofA under the shadow of a $15.31 billion fourth-quarter loss at Merrill, as well as allegations he was a lavish spender. Thain was among the many former executives from what once was Wall Street's most profitable investment bank who went on to other top companies, as well as the upper echelons of government. Once they were the brightest stars in the investment universe, but Goldman alumni -- including Thain, former Treasury Secretary Hank Paulson and former Citigroup Chairman Robert Rubin -- look much less brilliant now. "The Goldman feet of clay is the way I look at it," said Nancy Bush, an analyst at NAB Research, referring to the one-time "masters of the universe."

Grim UK data spark political spat - (www.ft.com) Britain’s economy contracted by 1.5 per cent in the last quarter of 2008, official data show, much more than economists had expected and the fastest decline in any quarter since spring 1980. It was the second consecutive quarter of shrinking output, bringing the decline over the past six months to 2.1 per cent. In the last recession in the early 1990s, the economy contracted by 2.5 per cent over five consecutive quarters. For 2008 growth was just 0.7 per cent, the weakest since 1992. The grim economic news prompted sharp political clashes over who was to blame for the downturn. Gordon Brown, prime minister, insisted the problem stemmed from a “global banking crisis” and “lax standards” of US regulation, as he claimed that “Britain can win through this difficult recession”. The opposition Conservatives said Mr Brown’s “endless announcements” were “commanding neither public confidence at home nor confidence abroad”. George Osborne, shadow chancellor, said: “It’s difficult to see how we’ll get that confidence with a prime minister who blames everyone else for the mess we’re in and refuses to acknowledge any mistakes.”

Six O.C. men charged in $52-million investment scam - (www.latimes.com) Six Orange County men face criminal fraud charges in an alleged $52-million investment scam that was said to promise big profits from luxury developments next to golf courses designed by Arnold Palmer, Jack Nicklaus and Greg Norman. The criminal cases, filed Thursday in Orange County Superior Court by the office of California Atty. Gen. Jerry Brown, follow civil charges brought by the Securities and Exchange Commission against the operators of Irvine-based Carolina Development Co. “This is a very serious case, an unusually large fraud," Brown said in an interview. The defendants "callously conned" more than 1,000 people, including retirees, he said. The SEC in 2007 won a $29.2-million judgment against Carolina's president, Lambert Vander Tuig, and a $2.1-million judgment against the vice president, Jonathan Carman. Vander Tuig, 50, of Rancho Santa Margarita, and Carman, 45, of Laguna Hills, were arrested Thursday along with two other defendants in the case. They were being held in Orange County jail with bail set at $52 million each for Vander Tuig and Carman. The four defendants appeared Friday in Superior Court in Santa Ana. They agreed to postpone their arraignments until Feb. 11 and will have lawyers appointed for them by the public defender, Brown's office said. No one could be reached for comment at the public defender's office.

Special zones urged for people who sleep in RVs, cars in Venice - (www.latimes.com) Tough economic times have spilled onto the streets of Venice, which has become a favorite place to park for scores of otherwise homeless people living in cars and campers. The practice has ignited a mini-uprising among residents living in the pricey coastal community. The number of cars and recreational vehicles has swelled so much over the last year that Councilman Bill Rosendahl, who represents the city's coastal areas, has proposed creating special zones away from neighborhoods where people can sleep in their vehicles. "The community has been going ballistic," Rosendahl said. "They can't park their own cars. Some of the folks who live in their cars and in campers defecate and urinate outside and create other issues of quality of life and health." His proposal, similar to programs in Santa Barbara and Eugene, Ore., would allow the cars and recreational vehicles to park in select "municipal properties, parking lots of churches or community-based organizations, industrial areas and other areas that would have minimal impact on residential communities." Current city laws prohibit sleeping in a car or RV on the street. "Let's stop kidding ourselves," Rosendahl said. "People are living in their cars. . . . So let's deal with the reality. In this economic downturn, it's even increasing."


OTHER STORIES:

Gold Tops $900 on Haven Demand as Equities Drop in Europe, Asia - (www.bloomberg.com)
U.S. Treasury 30-Year Bonds Post Biggest Weekly Loss Since 1987 - (www.bloomberg.com)
Crude Oil Rises on Speculation OPEC Cuts Will Reduce Supplies - (www.bloomberg.com)
Yen Rises to Record as Economic Concern Spurs Demand for Haven - (www.bloomberg.com)
Venture Capital Fell 33% Last Quarter to Lowest Level Since ’05 - (www.bloomberg.com)
More companies offer to reprice, exchange 'underwater' options - (www.latimes.com)
Once a Boon, Euro Now Burdens Some Nations - (www.nytimes.com)
Builder Confidence Edges Down Further In January - (www.nahb.org)
Good luck. It's going to be a tough couple of years - (www.nashuatelegraph.com)
What Really Lies Behind the Financial Crisis? - (knowledge.wharton.upenn.edu)
Funding the Bailouts by Printing Money and Issuing Debt - (www.savingtoinvest.com)
China Rebuts Geithner, Denies Currency Manipulation - (www.bloomberg.com)
House prices in sharp turn down - (money.cnn.com)
California's median house price falls 38 percent - (news.yahoo.com)
Jobless claims surge and housing starts tumble - (finance.yahoo.com)
Deflation 101 slide deck - (msurkan.podbean.com)
Is this another Great Depression? - (msnbc.msn.com)

Obama Signals Tough Restrictions on Banks in Rescue Package - (www.bloomberg.com)
Obama to Decide Soon Whether to Add to Bailout - (www.washingtonpost.com)
Freddie Will Ask For More U.S. Funds - (www.washingtonpost.com)
SF Bay Area apartment rents fall - (www.sfgate.com)
Apartment Rents, Occupancies Drop in U.S. as Job Losses Mount - (www.bloomberg.com)
Finally, Renters Have Some Pull - (online.wsj.com)
Bright Spot in the Housing Crash: Cheaper Rents - (www.time.com)
Banks no longer hide foreclosed properties - (www.dailybusinessreview.com)
Housing Starts, Permits in U.S. Slump to Record Low - (www.bloomberg.com)
John Thain's $87,000 Rug - (www.thedailybeast.com)