KeNo's Housing and Economic Portal: Tuesday June 9 Housing and Economic stories

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When Brokers Behave Badly - (www.sfgate.com) A classic case of buyer says/seller says. Ray Lin didn't expect any problems when his offer on a four-bedroom house in Palo Alto -- which sat on the market for a month -- was accepted. He dropped $875,000 as a down payment, or 58 percent of the $1.5 million purchase price -- and he figured additional financing would be relatively easy to secure. But just a couple weeks before the close, the listing agent, Anne King, called with an odd request. The sellers wanted to pawn off a bunch of old stuff, including used cleaning supplies and garden hoses, for $1,000. Also included on the list of items they wanted to sell him was the kitchen refrigerator, which Lin understood came with the house. Lin's purchase contract specified that "all attached kitchen appliances" would be included in the house, so he was naturally concerned. The listing agent, Anne King, said that since the refrigerator was only connected to the house by an electrical cord, it wasn't an "attached appliance." When Lin confronted her with the original MLS listing, which specified that the refrigerator was included, she said that it was included "at the price of $1,650,000 which was not what [Lin] offered so it changed the terms of the offer . . . Unless built in, which is rare, refrigerators are always personal property." It's pretty peculiar that a seller would try to extort a measly $1,000 out of the buyer on a $1.5 million deal, but it seems even weirder in light of the fact that the buyer went the extra mile to save the seller cash: Lin agreed with King, a broker with Keller Williams, that he would represent himself in the transaction in order to save the seller $37,500 in brokers fees. Lin suspects that King took advantage of the fact that he didn't have representation "emboldened Ms. King to behave more aggressively than she normally might." We contacted King to get a comment but haven't heard back. UPDATE: We heard from Ms. King who says part of the problem lies in the fact that Lin didn't receive proper legal counsel. "I referred him to an attorney, but he decided to write the contract himself," she told us by phone. "'Attached kitchen appliances' does not include a refrigerator . . . I think it's really important that people get professional help. Buying a house is not a trivial matter. In 33 years, I've never had a complaint. I sat on the Ethics and Professional Standards Board, and my record is pretty darned clean."

About 12% of US houseowners late paying or foreclosed - (news.yahoo.com) One of eight U.S. households with a mortgage ended the first quarter late on loan payments or in the foreclosure process in a crisis that will persist for at least another year until unemployment peaks, the Mortgage Bankers Association said on Thursday. U.S. unemployment in April reached its highest rate in more than a quarter century and is still rising, helping propel mortgage delinquencies and foreclosures to record highs. Such economic weakness drove up foreclosures of prime fixed-rate loans, which are made to the most creditworthy borrowers. The foreclosure rate on those loans doubled in the last year and represented the largest share of new foreclosures in the first three months of this year. "We clearly haven't hit the top yet in terms of delinquencies or the bottom of the housing market," Jay Brinkmann, the association's chief economist, said in an interview. The pace of defaulting mortgages jumped despite various moratoriums and government steps to cut home loan rates. Rates on 30-year mortgages averaged 5.00 percent in March, 5.13 percent in February and 5.05 percent in January, according to home funding company Freddie Mac. A year earlier, the average monthly rates were bumping up closer to 6 percent. "The housing market depends on the employment situation," Brinkmann said, "and we don't expect unemployment to bottom out until the middle of next year, so then normally housing would not recover until after employment recovers." A record 12.07 percent of loans on one-to-four unit residences were at least one payment late or in the foreclosure process, on a non-seasonally adjusted basis. Prime fixed-rate loans comprise 65 percent of the $9.9 trillion in outstanding first mortgages, according to the industry group.

Some redefault rates may reach 75% - (www.online.wsj.com) A central tenet of Washington economic policy for the past three years has been that the key to ending the recession is stopping mortgage foreclosures, whatever the cost. Well, another new study shows that mortgage-servicing companies are having a terrible time of it, not least because the mortgages are continuing to sour at a rate nearly as fast as they can be modified. Yesterday's Journal reports that Fitch Ratings looked at mortgages bundled into securities between 2005 and 2007 and managed by some 30 mortgage companies. Fitch found that a conservative projection was that between 65% and 75% of modified subprime loans will fall delinquent by 60 days or more within 12 months of having been modified to keep the borrowers in their homes. This is an even worse result than previous reports by federal regulators. Even loans whose principal was reduced by as much as 20% were still redefaulting in a range of 30% to 40% after 12 months. The reasons for the high redefault rate aren't surprising. Many of the borrowers never could afford these homes in the first place, yet the political pressure has been strong to modify loans even for these borrowers. As home prices continue to fall in some markets, borrowers remain underwater and many of them simply walk away from the home and thus redefault. This study has to come as a blow to the Federal Deposit Insurance Corporation, which has invested a great deal of political capital in the modification thesis. It also means that to the extent that public money has guaranteed any of these loan modifications, the taxpayer will be an even bigger loser. Banks don't like to foreclose on borrowers, so the best public policy was always voluntary renegotiation. As for the housing market, the quickest way to begin a recovery is to more quickly let prices find a bottom. On the evidence so far, the mortgage modification fervor has been a giant political exercise with little impact on housing prices.

FDIC Fund Running Dry - (finance.yahoo.com) As the FDIC has had to step in to take over more and more insolvent banks, the fund has dwindled to dangerously low levels. At the same time, the number of problem banks continues to grow at a rapid pace. At the end of the first quarter there were 305 'problem institutions' with a total of $220.0 billion in assets, up from 252 institutions and $159.4 billion in assets at the end of 2008. At the end of the quarter, the Deposit insurance fund was at just $13.0 billion, or 0.27% of insured deposits, a decline of 24.7% in the quarter alone. The first graph (from http://www.calculatedriskblog.com/) shows the steep drop in the coverage ratio. Just a year ago, the fund was equal to 1.01% of covered deposits. The current level is its lowest since the first quarter of 1993, when we were digging out from the S&L fiasco. However, don't worry about losing the money in your checking account if your bank goes under. Congress has already approved a $500 billion line of credit to the FDIC. Without a doubt, that line of credit is going to have to be tapped. This does emphasize the insanity of having the FDIC provide the guarantees for the PPIP [Public-Private Investment Program]. The fund simply does not have the resources available to do it. The money for the inevitable large losses that the fund will take on the program will come from that line of credit.

Financial ingenuity, otherwise known as fraud - (www.blogofsandiego.com) Why in the world would the Voice of San Diego report such a sensitive matter as a McConville settlement check as fact when one clearly never existed? The Voice's named sources, the above attorneys, both completely deny its story. Here are some real facts about the 300-unit condo project in the Kern County town of Ridgecrest. The condo complex is called La Mirada. William Ayyad (see my blog dated 4/18/09) purchased these 300 units from California Housing Corporation for $4,750,000 on February 8, 2002. That was $15,833 per unit. Here is the Grant Deed. On December 19, 2003 Ayyad signed a Grant Deed transferring ownership of these 300 units to 1402 Alta Vista Partners LLC. He did not pay any transfer tax on the Deed, which means that he owned the LLC or at least part of it. Jeff Greene (see my blog dated 4/27/09) was also an owner and a manager of that corporation. Therefore Ayyad and Greene were partners in the La Mirage condos. Now for NL Inc., formerly Najarian Loans Inc., the company McConville is supposed to have settled up with. It is owned by a real estate broker named Tracey Lee Hirt, formerly Tracey Lee Najarian. Here is her personal real estate license and here is her NL Inc. license. She seems to have quite a lot of agents working for her. She even has two branches here in San Diego, one at 3636 Nobel Drive, Suite 410, CA 92122 and another at 12275 El Camino Real, Suite 130, CA 92130. NL Inc. was sued by Suntrust Mortgage Inc. for negligence and misrepresentation in selling 18 fraudulent loans to Suntrust. They were all to McConville straw buyers. NL Inc. created all 18 as owner-occupier loans, despite the fact that most of these straw buyers bought multiple units, which is fraud on its face. Here are some examples:

Borrower	Property	Date	1st Loan	2nd Loan
Angela Spangler	240 Sahara Dr	07/26/07	$116,000	$14,500
Angela Spangler	316 Sahara Dr	07/26/07	$124,000	$15,500
Angela Spangler	513 Sahara Dr	07/27/07	$124,000	$15,500
Mariam Rasili	228 Palm Dr	08/04/06	$124,000	$15,500
Mariam Rasili	509 Oasis Dr	08/04/06	$124,000	$15,500
Alfredo Ramos	417 Oasis Dr	08/04/06	$124,000	$15,500
Alfredo Ramos	236 Palm Dr	08/04/06	$124,000	$15,500

NL Inc. tried to blame its misrepresentation on the straw borrowers. It pleaded that it didn't know for example that Angela Spangler had bought more than one unit, when NL Inc. was the lender on all three. So it had to pretend to go after McConville and the straw buyers. The American legal system has degenerated into giving color of law to illegal acts. First everybody sues everybody to put the "settlement" under a court mantle. Suncrest settled with NL Inc. and NL settled with McConville. The lawyers got paid and the Voice of San Diego got a story. The last thing lenders Suncrust and NL wanted was the whole affair aired in open court. The lawsuit was purely for show. Unfortunately the Voice, eager for a story, lent it credibility. No wonder developers/investors like William Ayyad, Ralph Giannella, Jeff Greene and Chris Lafornara are laughing at how easy the whole thing is. They have no fear of being exposed in the media, at least not in San Diego. Now rolling in cash, they are buying foreclosure properties that were the "security" for "securitized" loan bundles during the boom years. Here is such a property in San Diego. It was recently bought by the Ayadd family for $142,000 and put back on the market for $209,900. The seller was a "pass-through" (securitized bundle) created by Countrywide under an exotic name starting with CWALT, which stands for Countrywide Alternative Loan Trust. There are $billions in such CWALT bundles yet to come on the market, a veritable treasure trove for the Ayyads, the Greene's, the Giannellas and the Lafornaras, loaded down with cash from all their inflated sales to straw buyers.

Un-Broke: The Seth Green Cribs Edition (VIDEO) - (www.huffingtonpost.com) On Friday, May 29th at 9p ET, ABC is airing a special called "UN-BROKE: What You Need to Know About Money," trying to appeal to a young demographic to teach them "Money 101." ABC describes the program as "an unconventional look at the fundamentals of everyday finance with all the facts about credit cards, mortgages, stocks and bonds, investing and 401(k)'s, in a fresh new format combining information and humor." We are very skeptical of networks using the word "fresh" but the following clip is pretty darn funny. It features Seth Green showing you around his "crib" MTV style. Other celebs who appear in the special: Will Smith, Samuel L. Jackson, the Jonas Brothers, Christian Slater, Cedric the Entertainer, Sesame Workshop's Oscar the Grouch, and Rosario Dawson.