Saturday March 7 Housing and Economic stories

KeNosHousingPortal.blogspot.com

TOP STORIES:

FHA Downpayment Fraud Is Widespread - (www.ml-implode.com) This practice has been criticized or ruled against by the FHA, the GAO, the IRS, the FBI, and even US Congress itself, which outlawed it (for the time being) in the 2008 Housing Bill. Yet those who profit off the practice are trying to revive it. So What is it?? The contentious practice is called "seller-funded downpayment assistance" (SFDPA). It is used to allow home buyers getting Federally-backed mortgages to bypass the need for a downpayment, supposedly for charitable reasons. On the surface, it sounds benign, but it is actually fraud and money laundering inflicted on the Federal Housing Administration (that is, taxpayers), the housing market in general, and in a sense, even the buyers! One of these companies, Global Direct Sales (which runs the "Grant America Program") has sued us in an attempt to stop us from revealing the existence of SFDPA and discussing it frankly. SO FAR A FEDERAL JUDGE HAS BLOCKED THEIR ATTEMPTS TO SILENCE US. (Read More about our battle here. Help us to fight this NUISANCE lawsuit which is a blatant attack on free speech!) How SFDPA works: Someone wants badly to sell a home. FHA has subsidized programs to help home buyers. The "problem" is that even with FHA's programs, a 3.5% down payment is still required (to show committment on the part of the buyer). Sellers realize if they could cut the downpayment to zero, they can make home buyers out of virtually anyone, and hence unload homes easier. Intermediaries like Realtors, as well as home builders, realize this would have the potential to increase their sales and transactions. Even some in Congress are in on the scheme, as they can appear to provide constituents with "free homes". After all, home ownership is a right, isn't it?? Enter SFDPA. Third party, private companies have established programs that allow sellers to cover the downpayment FOR the borrowers, by promising to repay the money after the sale. While initially the downpayment is covered by the SFDPA company, the seller's money is then channeled through one or more entities which have a nonprofit or otherwise "exempt" status (like an Indian tribe) to repay them. The buyer has already presented the LENT money to the FHA as if it were their own, covering the required downpayment. Effectively, the seller has paid the buyer's downpayment, with the FHA being none the wiser. The FHA has no reliable way of knowing which loans were made this way. The GAO has found that transactions using SFDPA usually have been marked up by about 3%... in other words, USUALLY THE SFDPA DOWNPAYMENT MONEY COMES FROM SIMPLY MARKING UP THE HOME VALUE!!!

Stanford Had Links to Fund Run by Bidens: Report - (www.cnbc.com) The $50 million fund was jointly branded between the Bidens' Paradigm Global Advisors and a Stanford Financial Group entity, and was known as the Paradigm Stanford Capital Management Core Alternative Fund, the paper said. Stanford-related companies marketed the fund to investors and also invested about $2.7 million of their own money in the fund, the paper said, citing a lawyer for Paradigm. Paradigm Global Advisors is owned through a holding company by the vice president's son, Hunter, and Joe Biden's brother, James, according to the paper. Paradigm's attorney, Marc LoPresti, who represents Hunter Biden and James Biden, as well as Paradigm, told the paper he did not know which Stanford entity invested the roughly $2.7 million. He told the paper the Bidens never met or communicated with Stanford.

Housing Prices Tumble 18.5% to Another New Low - (www.cnbc.com) Prices of U.S. single-family homes plunged 18.5 percent in December from a year earlier as the monthly pace accelerated, according to a Standard & Poor's/Case-Shiller home price index released Tuesday. The S&P/Case Shiller composite index of 20 metropolitan areas fell 2.5 percent in December from November, compared with a 2.3 percent decline in the previous period, S&P said in a statement. "There are very few, if any, pockets of turnaround that one can see in the data," David Blitzer, chairman of S&P's index committee, said in the statement. "Most of the nation appears to remain on a downward path." In a separate index, home prices depreciated at an 18.2 percent pace in the fourth quarter from a year earlier, for the largest drop since the series began 21 years ago, it said. From the housing market peak in the second quarter of 2006, home prices have plummeted 26.7 percent, it said.

The Great Real Estate Bubble of the 1920's - (www.dollarsandsense.org) Economists conventionally attribute the Great Depression to blunders by the then-new Federal Reserve Bank. According to this story, promoted by Milton Friedman and the Chicago School, after the stock market crash of 1929, the Fed kept interest rates too high, strangling the economy. This story made most economists confident that it couldn't happen again. But there's a different story: the story of the giant 1920's real estate bubble. It began with cars. Starting in 1899, the auto industry took off exponentially, dipped for two years during World War I, then took off exponentially again during the 1920's. Production reached a peak of over 4 million vehicles in 1929, before collapsing. It did not again pass 4 million until 1949! The auto suddenly opened up vast suburban and rural areas to housing. Developers--legitimate and bogus--leapt at the opportunity. Banks jumped in too, creating so-called "shoestring mortgages"--effectively allowing property purchases on margin. Within a few years, tens of thousands of acres around major cities had been subdivided and sold. In rural areas, developers bought up farms, dug a pond, built a "club house" and sold cheap "vacation" lots. As reported in Homer Hoyt's classic One Hundred Years of Land Values in Chicago, from 1918 to 1926 Chicago population increased 35% and land values rose 150%, or about 12% a year. In 1926, land values stagnated, then fell. By 1933, Chicago land values had fallen some 70% overall; peripheral areas fell even more dramatically. After 1929, home construction collapsed, and--paralleling the auto industry--did not again pass the 1926 level until 1950. Around Detroit, over 95% of recorded lots were vacant as of 1938. Nationally, there were an estimated 20 to 30 million vacant lots, compared to about 30 million occupied housing units. According to economic historian Alex Field, the barren subdivisions ringing the cities hindered the recovery of construction: Missing titles of defaulted owners and poor physical layout created de facto brownfields. The real estate bubble helped set off and then worsen the Depression. Collapsing land values left people suddenly much poorer, so they cut spending. They also defaulted on mortgages, sticking the banks with "toxic" assets: liens on near-worthless property. The struggling banks in turn cut off lending even to good customers. Bank runs--panicky depositors withdrawing cash--further crippled the banking system. Between drops in spending and lending, businesses failed, unemployment soared, and prices fell.

In Arizona, a Paradise Found and Lost - (online.wsj.com) Builders rushed into Maricopa, Ariz., during the housing boom, luring young people who couldn't afford homes in Phoenix. Now, it's become a dead end for some of those people. Builders rushed into this one-time agricultural crossroads during the housing boom. They put up beige stucco houses on winding streets, with names like Heavenly Place and Good Vibrations Lane. They lured young people who couldn't afford homes in nearby Phoenix or its costly suburbs. The population soared to 37,000 last year from 1,400 a decade ago, making Maricopa one of the nation's fastest-growing towns. Now, it's become a dead end for some of those people."We're trapped," says Tracy Campbell, as she watches her 2-year-old daughter romp on a playground. In 2005, her husband, Zachary Campbell, accepted a transfer from San Diego to Phoenix to manage a recreational-vehicle store. For the first time, the Campbells figured, they could afford their own home, though that meant moving to Maricopa, about 20 miles from Mr. Campbell's store. They scraped together a $50,000 down payment to buy a new four-bedroom home in Maricopa, for $250,000. It came with black granite countertops, cherry kitchen cabinets and a pool in back. Today, Ms. Campbell figures, the home is worth perhaps half what they paid in 2005. Even that might be optimistic. Along a nearby highway, young men hired by a local real estate brokerage wave red signs touting "Homes From $69.9 K." The Campbells planned to sell their house for a profit after a few years and move back to San Diego before their daughter starts kindergarten. Today, they couldn't hope to sell the house for enough to pay off the mortgage. They fear the down payment they made on the house is money they won't see again. Some people in the neighborhood are simply walking away from their houses, leaving them for the lenders to foreclose. "We're surrounded by empty houses on three sides," Ms. Campbell says. But she and her husband have kept up on their payments, and want to keep their credit record clean.

Citi Execs Takes Care Of Their Own - (www.dollarsandsense.org) Citigroup, Inc (parent of Citibank) lost $18.7 billion last year, laid off 39,000 employees, and took $52 billion in government bailout money, but that hasn't stopped them from honoring their commitments to their former directors. Bloomberg reports that Roberto Hernandez Ramirez (incidentally, the 7th richest Mexican) will continue to be reimbursed for private air travel, an executive secretary, a private office, and personal security (which all told cost about $2.6 million in 2007) after he steps down as a company director. Hernandez joins other former Citi CEOs Sanford "Sandy" Weill, John Reed, and Charles "Chuck" Prince who also continue to receive similar perks. -- Citigroup Inc., the U.S. bank that got a $52 billion government bailout, said director Roberto Hernandez Ramirez will keep getting reimbursed for his use of private aircraft after he steps down from the board in April. Hernandez, 66, will keep the perk because he remains non- executive chairman of Citigroup subsidiary Banco Nacional de Mexico, Mike Hanretta, a spokesman for the New York-based bank, said in an interview. His benefits also include an office and secretary and personal security and cost $2.61 million in 2007, according to a March 2008 regulatory filing. His duties at the Mexico City-based unit, known as Banamex, include “governmental and client relations and strategic development,” the filing said. Hernandez kept his non-executive role after stepping down from full-time management in 2001, when Citigroup bought Banamex’s parent company for $12.5 billion. Hernandez’s benefits add to Citigroup’s costs of providing free offices, secretaries and car service to former Chief Executive Officers Sanford “Sandy” Weill, John Reed and Charles “Chuck” Prince under negotiated retirement packages. The bank eliminated almost 39,000 jobs following a record $18.7 billion loss last year. Vikram Pandit, who took over as CEO in December 2007 following Prince’s ouster, canceled delivery of a corporate jet in January and vowed last week to reduce his own salary to $1 a year until the bank returns to profitability.

Budget Spurs Move to Amend Calif. Law - (online.wsj.com) Some California lawmakers and business lobbyists are trying to change a law that requires a two-thirds majority vote to approve budgets and tax increases, which they say contributed to the state's recent 15-week budget impasse. California is one of just a few states that require a supermajority to approve a spending plan or raise taxes. The rule enables legislators in the minority to delay a vote to win concessions from the party in control. Since California enacted the two-thirds requirements for the budget and tax increases in 1933 and 1978, respectively, it has passed only a handful of budgets on time in the past 30 years. In Sacramento's latest budget drama, Gov. Arnold Schwarzenegger and legislative leaders struggled for nearly a week to find a single Republican vote to pass the proposal they negotiated. The governor had declared a fiscal emergency in November to close a budget shortfall that ballooned to $42 billion. On Tuesday, the San Francisco-based Bay Area Council plans to launch a campaign with lawmakers and other state groups aimed at amending the law within two years. The business-lobbying group is holding a summit to discuss reducing the two-thirds-vote requirement only for the budget to a 55%-majority vote, while capping any annual increase at 5%; increasing the number of signatures needed to qualify ballot initiatives; and making it easier for the state to eliminate state boards and commissions. The council is sponsored by 275 businesses. State Sen. Mark DeSaulnier, a Democrat, said he wants to lower the vote requirement for both the budget and tax increases. He believes doing so will save California money because the state has had to borrow, instead of raise taxes, to balance budgets in past years. He contends it would also boost the state's credit rating, currently the lowest of all 50 states.

Consumer confidence plummets to new low in February - (www.mercurynews.com) Americans' already battered confidence in the economy went into free fall in February, sinking to new lows as consumers grew more fearful over massive job cuts and shrinking retirement accounts. The New York-based Conference Board said today that its Consumer Confidence Index, which was down slightly in January, plummeted more than 12 points in February to 25, from the revised 37.4 last month. That was well below the 35.5 level that economists surveyed by Thomson Reuters expected. The index, which had hovered in the high 30s over the past few months, broke new lows since it began in 1967. A year ago, the consumer confidence reading stood at 76.4. The Present Situation index, which is consumers' assessment of current economic conditions, fell to 21.2 from 29.7 last month. The Expectations' Index, which is consumers' outlook over the next six months, sank to 27.5 from 42.5. "The decline in the Present Situation Index, driven by worsening business conditions and a rapidly deteriorating job market, suggests that overall economic conditions have weakened even further this quarter," Lynn Franco, director of The Conference Board Consumer Research Center, said in a statement. "Looking ahead, increasing concerns about business conditions, employment and earnings have further sapped confidence and driven expectations to their lowest level ever."




OTHER STORIES:

US Tries to Quell Worries About Bank Nationalization - (www.cnbc.com)
BofA: No Bigger US Stake - (www.cnbc.com)
Is 40% Stake in Citi Enough? - (www.cnbc.com)
Dr. Doom: Nationalizing Banks is 'Market Friendly' - (www.cnbc.com)
Consumer Confidence Hits Record Low in February - (www.cnbc.com)
The Abyss Stares Back - (jameshowardkunstler.typepad.com)
Heated discussion with Santelli and Liesman - (www.dailybail.com)

70% Of All Foreclosures Are Not Shown On MLS! - (rocktrueblood.blogspot.com)
Don't Fight Foreclosures - (www.seekingalpha.com)
Don't forget about the quiet hard workers who did not buy! - (patrick.net)
Let's Not Forget The Real Problem: DEBT - (www.businessinsider.com)
Mortgage Plan Aids Liars About Income - (www.bloomberg.com)
AIG seeking another hit of that sweet bailout cash - (msnbc.msn.com)
Bailout rescues five states at expense of all others - (www.nypost.com)
Bailout-enraged citizens spray paint Congressman's car and house - (www.dailynewscaster)
Stop the Bailouts - (www.right.org)

The Advantages Of Renting - (www.npr.org)
Luxury Manhattan Real Estate Could Fall Another 50% - (www.seekingalpha.com)
Chicago rent falls by most in 7 years - (www.chicagobusiness.com)
Few in SF Bay Area qualify in housing rescue plan - (sfgate.com)
Canadian real estate is next - (blog.macleans.ca)
Who wants stimulus cash? - (stimuluswatch.org)
The Bailout Mascot - (farm4.static.flickr.com)