Wednesday March 18 Housing and Economic stories

KeNosHousingPortal.blogspot.com

TOP STORIES:

Cleveland, All Boarded Up - (www.nytimes.com) Tony Brancatelli, a Cleveland City Coucilman, yearns for signs that something like normal life still exists in his ward. Early one morning last fall, he called me from his cellphone. He sounded unusually excited. He had just visited two forlorn-looking vacant houses that had been foreclosed more than a year ago. They sat on the same lot, one in front of the other. Both had been frequented by squatters, and Brancatelli had passed by to see if they had been finally boarded up. They hadn’t. But while there he noticed with alarm what looked like a prone body in the yard next door. As he moved closer, he realized he was looking at an elderly woman who had just one leg, lying on the ground. She was leaning on one arm and, with the other, was whacking at weeds with a hatchet and stuffing the clippings into a cardboard box for garbage pickup. “Talk about fortitude,” he told me. In a place like Cleveland, hope comes in small morsels. The next day, I went with Brancatelli to visit Ada Flores, the woman who was whacking at the weeds. She is 81, and mostly gets around in a wheelchair. Flores is a native Spanish speaker, and her English was difficult to understand, especially above the incessant barking of her caged dog, Tuffy. But the story she told Brancatelli was familiar to him. Teenagers had been in and out of the two vacant houses next door, she said, and her son, who visits her regularly, at one point boarded up the windows himself. “Are they going to tear them down?” she asked. Brancatelli crossed himself. “I hope so,” he mumbled. Prayer and sheer persistence are pretty much all Brancatelli has to go on these days. Cleveland is reeling from the foreclosure crisis. There have been roughly 10,000 foreclosures in two years. For all of 2007, before it was overtaken by sky-high foreclosure rates in parts of California, Nevada and Florida, Cleveland’s rate was among the highest in the country. (It’s now 24th among metropolitan areas.) Vacant houses are not a new phenomenon to the city. Ravaged by the closing of American steel mills, Cleveland has long been in decline. With fewer manufacturing jobs to attract workers, it has lost half its population since 1960. Its poverty rate is one of the highest in the nation. But in all those years, nothing has approached the current scale of ruin.

Greenberg attacks US over AIG – (www.ft.com) Hank Greenberg, ex-CEO of AIG and known fraudster (Fraud probe of Maurice "Hank" Greenberg intensifies), wrongfully speaks out against US Government and current AIG CEO. We should really lock this crook up and this would likely shut him up. Former chief says rescue was bungled. Hank Greenberg, the former chief executive of AIG, has accused the US government of bungling the insurer’s rescue by imposing a high-interest loan and forcing the repayment of $30bn-plus to banks and partners. In a video interview with the Financial Times, Mr Greenberg, who led AIG for 38 years before being ousted in 2005 during a probe of its accounting practices, suggested the US authorities’ actions made the company’s break-up inevitable.

Taxpayers subsidizing cash-out refinancing: Are You Kidding Me? - (www.cnbc.com) Amid the dozens of pages of details of the Obama mortgage modification plan, one new element will likely not make it into the headlines because it’s something of an afterthought. It has to do with second liens, that is piggy back loans or home equity lines of credit. Deep deep in the pages of the plan, is paragraph vi. Second Liens: While eligibly loan modifications will not require any participation by second lien holders, the program will include additional incentives to extinguish second liens on loans modified under the program in order to reduce the overall indebtedness of the borrower and improve loan performance. Servicers will be eligible to receive compensation when they contact second lien holders and extinguish valid junior liens. Servicers will be reimbursed for the release according to the specified schedule, and will also receive an extra $250 for obtaining a release of a valid second lien. So in an effort to help borrowers stay current on their newly modified loan, which is at a nice new 31% debt to income ratio, the government is also going to pay cash money to get servicers to totally wipe out second liens. When I heard this I thought there might have been something funky in my morning muffin.

Silicon Valley 'underwater' owners starting to walk away - (www.mercurynews.com) Marie, a San Jose homeowner, owes about $560,000 on her house in the city's east foothills and figures it's now worth about $460,000. She tried to sell it in 2007 when she got married and moved to her husband's home, with no luck. Now she's renting out the house, but the income is not enough to cover the loan and property taxes. As she scrimps to pay two mortgages, Marie is considering ditching the mortgage on her first house and walking away. "Right now I have excellent credit. I take paying my bills very seriously," said Marie, who did not want her last name published for privacy reasons. But sheer stress, she said, might spur her to cease paying the mortgage, which would probably bring about a foreclosure. "I can't make myself sick," she said. "I'm at the point where I'm losing sleep over it. I can't afford that. I have children to care for, and a job to do." Stories of "walk away" homeowners and real estate investors became commonplace last year in California's inland valley, where home prices fell earlier and in some cases harder than in Silicon Valley. But over the past several months, local attorneys and mortgage brokers have been hearing increasingly from "underwater" South Bay homeowners, those who owe more than their homes are worth, who want to know: Should I quit paying my mortgage? And if I do, what happens?

US Financial System Is Effectively Insolvent - (www.forbes.com) For those who argue that the rate of growth of economic activity is turning positive--that economies are contracting but at a slower rate than in the fourth quarter of 2008--the latest data don't confirm this relative optimism. In 2008's fourth quarter, gross domestic product fell by about 6% in the U.S., 6% in the euro zone, 8% in Germany, 12% in Japan, 16% in Singapore and 20% in South Korea. So things are even more awful in Europe and Asia than in the U.S. There is, in fact, a rising risk of a global L-shaped depression that would be even worse than the current, painful U-shaped global recession. Here's why: First, note that most indicators suggest that the second derivative of economic activity is still sharply negative in Europe and Japan and close to negative in the U.S. and China. Some signals that the second derivative was turning positive for the U.S. and China turned out to be fake starts. For the U.S., the Empire State and Philly Fed indexes of manufacturing are still in free fall; initial claims for unemployment benefits are up to scary levels, suggesting accelerating job losses; and January's sales increase is a fluke--more of a rebound from a very depressed December, after aggressive post-holiday sales, than a sustainable recovery.

GE Capital to Sell U.S. Guaranteed Bonds, Report Says - (www.nytimes.com) GE Capital, the finance arm of U.S. conglomerate General Electric, plans to sell bonds under the U.S. Temporary Liquidity Guarantee program, Reuters reported, citing a source with direct knowledge of the deal. The benchmark-sized offering is expected to price early this week, the news service said. GE Capital has mandated Citigroup, Credit Suisse, Goldman Sachs, JPMorgan Chase and Morgan Stanley as underwriters for the sale, the source told Reuters. Deutsche Bank, HSBC and Royal Bank of Scotland will also play roles, according to the report.

Latvia Faces June Bankruptcy If IMF Loan Halted, Premier Says - (www.bloomberg.com) Latvia faces bankruptcy in three months if it fails to deliver budget cuts required by the International Monetary Fund and the next installment of its bailout is delayed, Premier-designate Valdis Dombrovskis said. “If we do not continue to receive this international loan, then we go bankrupt in June,” Dombrovskis, 37, said in an interview on March 6. Latvia, in the grip of the severest crisis since independence in 1991, was granted a 7.5 billion-euro ($9.5 billion) bailout last quarter after the economy shrank 10.5 percent and the state seized its second biggest bank. The government fell on Feb. 20 after agreeing to budget cuts needed to keep the deficit below 5 percent of gross domestic product. “This is a desperate plea to the IMF that the package agreed on isn’t viable,” said Lars Christensen, head of emerging markets research at Danske Bank A/S in Copenhagen. The warning of a June bankruptcy if the loan isn’t continued is “realistic.”

Hedge fund headache - (www.ft.com) The beleaguered hedge fund industry faces a fresh headache in the coming weeks as many prime brokers step back from bundling up funds’ over-the-counter derivative trades.A host of prime brokers have told their hedge fund clients they intend to scrap their so-called “give-up” arrangements as of April, potentially creating a “massive operational burden” for funds, according to Hans Hufschmid, chief executive of GlobeOp Financial Services, a hedge fund administrator. The move comes at an awkward time for the $1,400bn (£993bn, €1,116bn) industry, which is grappling with record redemptions and investment losses and demands from investors for improved infrastructure and administrative oversight in the wake of the Madoff affair.

AIG Told U.S. Failure Would Cripple World’s Banks, Money Funds - (www.bloomberg.com) American International Group Inc. appealed for its fourth U.S. rescue by telling regulators the company’s collapse could cripple money-market funds, force European banks to raise capital, cause competing life insurers to fail and wipe out the taxpayers’ stake in the firm. AIG needed immediate help from the Federal Reserve and Treasury to prevent a “catastrophic” collapse that would be worse for markets than the demise last year of Lehman Brothers Holdings Inc., according to a 21-page draft AIG presentation dated Feb. 26, labeled as “strictly confidential” and circulated among federal and state regulators. “What happens to AIG has the potential to trigger a cascading set of further failures which cannot be stopped except by extraordinary means,” said the presentation by New York-based AIG. “Insurance is the oxygen of the free enterprise system. Without the promise of protection against life’s adversities, the fundamentals of capitalism are undermined.”

Hidden Pension Fiasco May Foment Another $1 Trillion Bailout - (www.bloomberg.com) The Chicago Transit Authority retirement plan had a $1.5 billion hole in its stash of assets in 2007. At the height of a four-year bull market, it didn’t have enough cash on hand to pay its retirees through 2013, meaning it was underfunded to the tune of 62 percent. The CTA, which manages the second-largest public transit system in the U.S., had to hope for a huge contribution from the Illinois state legislature. That wasn’t going to happen. Then the authority found an answer. “We’ve identified the problem and a solution,” said CTA Chairman Carole Brown on April 16, 2007. The agency decided to raise money from a bond sale. A year later, it asked Illinois Auditor General William Holland to research its plan. The state hired an actuary, did a study and, on July 17, concluded that the sale of bonds would most likely result in a loss of taxpayers’ money. Thirteen days after that, the CTA ignored the warning and issued $1.9 billion in bonds. Before the year ended, the pension fund was paying out more to bondholders than it was earning on its new influx of money. Instead of closing its funding gap, the CTA was falling further behind. Public pension funds across the U.S. are hiding the size of a crisis that’s been looming for years. Retirement plans play accounting games with numbers, giving the illusion that the funds are healthy. The paper alchemy gives governors and legislators the easy choice to contribute too little or nothing to the funds, year after year.

Bank Charges May Surge as Mortgages Marked to Market – (www.bloomberg.com) Patricia Greenberg’s townhouse in Irvine, California, was losing about $10,000 a month in value when she received a letter in February 2008 that looked too good to be true: An investor was offering to cut her $472,000mortgage by 26 percent and her monthly payment by a third. “I didn’t want to get involved in a scam,” says Greenberg, a cosmetics saleswoman for Orlane Inc., who had bought the house with no money down eight months earlier. It was no ruse. New York hedge fund manager Ralph DellaCamera Jr. says he’d purchased the mortgage for 60 cents on the dollar and forced the originator, MLSG Home Loans of Reno, Nevada, to eat the loss. Protecting his investment, DellaCamera lowered Greenberg’s debt to keep her in the home. She now pays $2,400 a month instead of $3,800 and plows some of her savings into upgrading the Cape Cod-style residence. One in five borrowers in the $10.5 trillion U.S. mortgage market owes more than their property is worth, according to First American CoreLogic Inc., a real estate data company based in Santa Ana, California. Just one in 10 have received the principal reductions that research demonstrates is more effective at preventing defaults than the temporary payment reductions promoted by banks and the federal government.



OTHER STORIES:

Republicans Mock Obama's Bailout - (www.tngop.org)
Middle-class values -- Righting the Reagan tilt - (www.marketwatch.com)
Why the Fed's TALF Is Bad for America - (www.seekingalpha.com)
USA Credit Rating Will Plummet - (usacreditdefault.blogspot.com)
Causes of the Meltdown - (www.patrick.net)
Appraisal Fraud Is Only A Misdemeanor - (www.ocregister.com)
Crash Course In Bubbles - (www.youtube.com)
Stocks set to open lower after Merck deal - (finance.yahoo.com)
World stocks sink amid anxiety over world economy - (finance.yahoo.com)
Crude Oil Trades Near a Five-Week High on OPEC Cut Speculation - (www.bloomberg.com)
Dollar higher as equities slip - (www.marketwatch.com)

Mortgage Delinquencies Rise to Record on Job Losses - (www.bloomberg.com)
Fed says housing is dead - (moribund) in West - (lansner.freedomblogging.com)
Majority say Obama mortgage plan is unfair - (politicalticker.blogs.cnn.com)

Emerging market deals fall to six-year low - (www.ft.com)
Other States Paying For California's Excesses - (www.seekingalpha.com)
More Americans Drowning in Mortgage Debt - (blogs.wsj.com)
Vacancy Rates Show Housing Nowhere Close to Recovery - (www.seekingalpha.com)

A Rising Dollar Lifts the U.S. but Adds to the Crisis Abroad - (www.nytimes.com)
Depression Dynamic Takes Hold as Markets, Banks Revisit 1930s - (www.bloomberg.com)
Geithner, With Few Aides, Faces Challenges - (www.nytimes.com)
Global Economy to Shrink First Time Since WWII, World Bank Says - (www.bloomberg.com)

HSBC Plunges Record 24% in Hong Kong, Punished by Late Trades - (www.bloomberg.com)
Capital One slashes dividend by 87 percent - (finance.yahoo.com)
Oversight of Bank Bailouts Criticized - (www.washingtonpost.com)