Wednesday June 3 Housing and Economic stories

KeNosHousingPortal.blogspot.com

TOP STORIES:

Luxe Hotels in a Battle for Control - (www.nytimes.com) Owners of luxury hotels, facing debt payments, may want their operators to raise revenue by cutting room rates — a move operators resist because it cheapens the brand.  It is not often that luxury hotel owners find themselves locked out of their own properties, but that is what the lawyers for owners say has happened at the Four Seasons Resort Aviara, north of San Diego. This month, Four Seasons added security, including personnel at checkpoints, to head off owners and their representatives. The owners have accused Four Seasons of mismanagement, tried to fire the company and named a replacement operator — who so far has not  set foot on the property. The two sides seem to agree on only one thing — that, as Elizabeth Pizzinato, vice president for brand communications at Four Seasons, put it, “this has really been unprecedented.”  But there are almost certainly going to be more such hotel wars. Owners and operators are fighting more often and more intensely as the economic downturn reduces the number of guests and forces down rates while owners struggle to cope with debt payments on their multimillion-dollar properties, say industry analysts.  The disputes have usually not become public because contracts between hotel operators and owners require arbitration, but some have grown so contentious that, like the one involving the Aviara resort, they have ended up in open court.  “There are things that brand managers do that really annoy owners,” said Bjorn Hanson, associate professor of hospitality and tourism management at Preston Robert Tisch Center for Hospitality, Tourism and Sports Management at New York University. But the dispute between Turnberry’s owners and managers has not escalated to the point of the battle over the Aviara. The owners of the Aviara resort started an arbitration proceeding against Four Seasons in March, according to court documents, and then tried to terminate Four Seasons as hotel manager. (The hotel also has time-share properties separate from the resort, but those are not part of the dispute, according to owners’ representatives.) The owners accused Four Seasons of “failing, among other things, to operate the hotel in a financially efficient and cost-effective manner.” They also claim that Four Seasons blocked access to the hotel’s books and financial records. “Four Seasons sent guards to literally blockade the doors to the offices where the books and records are maintained,” said William A. Brewer III, a lawyer at Bickel & Brewer, representing the hotel’s owners. “I’ve never seen anything like it.” According to Four Seasons, the real issue in this case is that the owners took on too much debt. Ms. Pizzinato said that the company has been properly managing the Aviara resort.  “The brand stands for a certain level of quality and service, and we don’t compromise on that,” Ms. Pizzinato said. “But we also believe we’re very prudent financial managers because we are managing on behalf of somebody else.”

Localities Want U.S. To Support Muni Bonds - (www.nytimes.com)  State and local governments are asking Washington to give them something that banks are trying to get rid of: federal bailout money. California is asking that money from the Treasury’s TARP, the Troubled Asset Relief Program, be used to help back more than $13 billion in short-term borrowings. Members of Congress and several municipalities want bailout money to be used to cover more than $1 billion in losses from investments by municipalities in debt issued by Lehman Brothers, the investment bank that went bust. And Representative Barney Frank, chairman of the House Financial Services Committee, is drafting legislation that would have the Federal Reserve, and potentially the Treasury’s bailout money as well, stand behind floating-rate municipal bonds — a $400 billion market that provides short-term financing to municipalities, but which has been largely frozen in the current credit crisis. Another measure drafted by Mr. Frank, Democrat of Massachusetts, would create a public finance office within the Treasury Department to reinsure $50 billion in municipal bonds. This proposal comes as downgrades of municipal bond insurance companies have made it more difficult and costly for state and local governments to issue bonds. All of the proposals are meant to help struggling state and local governments that are facing a cash-flow squeeze. The economic downturn has eaten into their tax bases as local businesses shut, houses are lost to foreclosure and there is a resistance to raising taxes. The risk to the federal government is that it could lose money if things get worse for municipalities and states. Although backing debt with a guarantee does not require an immediate outlay of funds, the federal government could have to cover losses if there are defaults — which could be substantial if the economy weakens or states and municipalities cannot bring their budget deficits under control. Nonetheless, these overtures by state and local officials reflect a sense — perhaps just a hope — that municipalities suffering from a downturn in revenues and creditworthiness may find some relief in Washington beyond the stimulus money the federal government already is spending.

Housing Being Hit by New Wave of Foreclosures - (www.cnbc.com)  As job losses rise, growing numbers of American homeowners with once solid credit are falling behind on their mortgages, amplifying a wave of foreclosures. In the latest phase of the nation’s real estate disaster, the locus of trouble has shifted from subprime loans — those extended to home buyers with troubled credit — to the far more numerous prime loans issued to those with decent financial histories. With many economists anticipating that the unemployment rate will rise into the double digits from its current 8.9 percent, foreclosures are expected to accelerate. That could exacerbate bank losses, adding pressure to the financial system and the broader economy. “We’re about to have a big problem,” said Morris A. Davis, a real estate expert at the University of Wisconsin. “Foreclosures were bad last year? It’s going to get worse.”  Economists refer to the current surge of foreclosures as the third wave, distinct from the initial spike when speculators gave up property because of plunging real estate prices, and the secondary shock, when borrowers’ introductory interest rates expired and were reset higher. “We’re right in the middle of this third wave, and it’s intensifying,” said Mark Zandi, chief economist at Moody’s Economy.com. “That loss of jobs and loss of overtime hours and being forced from a full-time to part-time job is resulting in defaults. They’re coast to coast.” Those sliding into foreclosure today are more likely to be modest borrowers whose loans fit their income than the consumers of exotically lenient mortgages that formerly typified the crisis. Economy.com expects that 60 percent of the mortgage defaults this year will be set off primarily by unemployment, up from 29 percent last year. Robert and Kay Richards live in the center of this trend. In 2006, they took a 30-year, fixed-rate mortgage — a prime loan — borrowing $172,000 to buy a prefabricated house. They erected the building on land they owned in the northern Minnesota town of Babbitt, clearing the terrain of pine trees with their own hands. Mr. Richards worked as a truck driver, hauling timber from a nearby mill. His wife oversaw the books. Together, they brought in about $70,000 a year — enough to make their monthly mortgage payments of $1,300 while raising their two boys, now 11 and 16. But their truck driving business collapsed last year when the mill closed. Mr. Richards has since worked occasional stints for local trucking companies. His wife has failed to find clerical work. “Every month that goes by, you get a little further behind,” Mr. Richards said. Last June, they missed their first payment, and they have since slipped $10,000 into arrears. They are trying to persuade their bank to cut their payments ahead of a foreclosure sale. From November to February, the number of prime mortgages that were delinquent at least 90 days, were in foreclosure or had deteriorated to the point that the lender took possession of the home increased more than 473,000, exceeding 1.5 million, according to a New York Times analysis of data provided by First American CoreLogic, a real estate research group. Those loans totaled more than $224 billion. During the same period, subprime mortgages in those three categories increased by fewer than 14,000, reaching 1.65 million.

Crunch Time Looms for GM, Chrysler Restructuring - (www.cnbc.com)  United Auto Workers' officials will gather on Tuesday to hear how many more U.S. factory jobs GM will cut as the embattled automaker enters what could be its last week outside bankruptcy. Union officials representing 54,000 General Motors workers are scheduled to meet in Detroit to prepare for a quick ratification vote on a cost-cutting labor deal negotiated last week. The union aims to complete those votes by Thursday. Approval of the contract, which would change payment terms on $20 billion owed to a UAW trust fund, represents one of the hurdles for GM to clear before a June 1 deadline set by the Obama administration. GM, which has received $19.4 billion in government funding since the beginning of the year, has been struggling to cut costs and reduce debts in order to continue to receive more government aid. The company on Friday said it expected to need another $7.6 billion from the U.S Treasury after June 1. Across the border in Canada, GM workers at plants in Ontario on Monday ratified concessions negotiated last week with a vote of 86 percent in favor. "This has been a grueling restructuring process, and no one has felt that more than our members and retirees," Canadian Auto Workers President Ken Lewenza said in a statement.  The new contract cuts GM's hourly labor costs in Canada by almost 30 percent, including an earlier round of concessions.  Meanwhile, GM and the U.S. autos task force worked through the weekend on a restructuring expected to send the automaker into bankruptcy.

Europe Feels the Strain of Protecting Workers and Plants - (www.nytimes.com) As Europe refuses to reduce the ranks of its auto workers, its carmakers risk falling behind in the current wave of global consolidation that is transforming the industry.  For Klaus Franz, the top union official at General Motors’ Opel unit here, the difference between how the United States and Europe confront the auto industry’s global overcapacity problem is simple. “In the U.S., you get money to close down factories,” said Mr. Franz, referring to the tens of thousands of Chrysler and G.M. workers who will lose their jobs as part of the White House’s plan to restructure the American auto industry. “In Europe, you get money to keep them open and safeguard jobs.”  It is an appealing sound bite worthy of one of the Continent’s most powerful and articulate labor leaders — but the reality may be more complicated. For even as Europe refuses to emulate the United States and reduce the ranks of its auto workers, its carmakers risk falling behind in the current wave of global consolidation that is transforming the industry. Eventually Europe may be forced to grapple with the fact that it does not need all the auto plants it has to meet demand. In the last five years, the number of auto workers in Europe has held steady at roughly 2.3 million, even as the American automotive work force dipped from 1.1 million in 2003 to 781,000 by the end of 2008. Sales have dropped sharply in both markets, however, and experts say Europe has at least 25 percent too much production capacity. In recent years, car production at new plants in central and Eastern Europe has surged, but few of the older, more expensive factories in France, Belgium or Germany have closed.  “If they don’t take the pain now the way the U.S. is accepting it, you’re just storing up a crisis in 10 years time,” Stuart Pearson, an analyst with Credit Suisse in London, said. For now, however, European workers and politicians prefer to put off any hard decisions. As G.M. lurches toward a likely bankruptcy filing by June 1 and several bidders race to make a deal for Opel and the rest of G.M. Europe, the goal of preserving jobs, not profits, could determine the winner.

Tired of the Lying: 55,000 Helped by Obama Mortgage Rescue – (www.ml-implode.com)  On May 14, 2009, CNN/Money reported the following headline: 55,000 Helped by Obama Mortgage Rescue Servicers are adjusting loans under Obama’s foreclosure prevention program. The administration is expanding the program to help those that don’t qualify for a modification. When I saw the headline my heart almost skipped a beat. Could it be true? Did I owe the administration an apology? Were 55,000 people, as a result of Obama’s plan, really keeping their homes instead of leaving them vacant indefinitely? The feeling was so great that I didn’t want it end. I felt flushed. They received offers?  I thought it said they’d been helped.  Helped… like in the past tense.  Already happened.  Like the first ghost that visited Scrooge.  Yesterday… when all our troubles seemed so far away?  Memories, like the corners of your mind.  You remember the “past,” right? Memo to the Obama Administration: At this point in the crisis, considering that all of the past government programs have been worthless to the point of being comical, I don’t think we need to know at what point homeowners are being offered help.  I know you guys are busy, so go ahead and skip the press releases on the interim steps and just let us know when you actually help someone, okay? What did they do here?  The government sent out offers to help?  Fabulous.  I’m so relieved.  And I love the way they say they’ve received “offers”.  As if they all qualify and simply need to accept the generous offers they’ve received.  If that was the case wouldn’t they have said: More than 55,000 mortgages have been modified under President Obama’s foreclosure prevention program?  Of course they would. The CNNMoney article went on: The administration also announced it was expanding the $75 billion program to assist more troubled borrowers.  The government will provide incentives for servicers and borrowers to avoid foreclosure using methods such as short sales. Alright, hold it right there.  “Expanding the $75 billion program to assist more troubled borrowers,” means paying the banks the difference should they decide to sell my home for less than I owe?  Really?  See, and when I hear something’s a “foreclosure prevention program,” I don’t immediately think about paying the bank for its losses on homes that sell under market at any given point in time.  Maybe it’s just me. Why would we, as taxpayers, want to compensate the banks for losses incurred as a result of short sales?   Let me get this straight… when a bank agrees to fund a mortgage, that bank is taking on a certain amount of risk, just as the homeowner does when he or she agrees to take on the responsibility of a mortgage.  Correct?  Thought so.   I also understand that foreclosures, at this stage of the game, benefit no one.  We subsidize the cost of loan modifications in order to keep people in their homes so they keep paying taxes, keep stimulating the economy, and keep property values from continuing to fall as a result of foreclosures flooding the markets. But why, if a bank refuses to modify a loan to the point where the borrower can remain in his or her house,  and instead chooses to sell it at some moment in time, would we possibly want to tell the bank to go ahead and the taxpayers will simply make up any losses the bank incurs as a result of the sale?  I thought the whole idea of a short sale was that the bank was agreeing to sell the property for an amount “short” of what’s owned on the mortgage.  No?  Wild.   If we do this… if we end up compensating the banks for losses resulting from short sales, I don’t think they should be allowed to call them “short sales” anymore.  They can call them what they are: “Taxpayer Assistance for Lending Incompetence.”  We can call them TALI sales, how’s that?  First there was TARP… then there was TALF, now there’s TALI.  I’ll have someone start working up logos.  Something showing a taxpayer bending over an ATM machine… No, maybe not… I’ll keep working on that.

 

 

 

OTHER STORIES:

Aerial hunter sniffs out mosquito-ridden pools - (www.ml-implode.com) - On a dazzlingly clear day last week under the high-noon sun, Bob Franklin and Dennis Vied taxied their Cessna Turbo 206 down th...

Time is running out - (www.ml-implode.com) - The Russians are aware of the imminent threat from the USA and have dumped their U.S. Dollar for Euro as Reserve Currency. Link...

Job Losses Push Safer Mortgages to Foreclosure  - (www.nytimes.com)

Saudi warns of $150 oil within three years - (www.ft.com)  

North Korea Conducts Nuclear Test, UN to Meet Today   - (www.bloomberg.com)

China stuck in ‘dollar trap’ - (www.ft.com)

Bernanke's Wager With the US Bond and Dollar - (www.ml-implode.com)  - "The US Treasury is facing an ordeal by fire this week as it tries to sell $100bn (£62bn) of bonds to a deeply sceptical market ...

Job Losses Push Safer Mortgages to Foreclosure - (www.ml-implode.com)  - "As job losses rise, growing numbers of American homeowners with once solid credit are falling behind on their mortgages, amplif...

 

A Fight to Protect Americans From British Libel Law - (www.ml-implode.com)   - The American Civil Liberties Union may not often see eye to eye with the American Center for Democracy, a research group with n...

Peter Schiff on stocks, bonds, and the dollar - (www.ml-implode.com)  

CALIFORNIA HOMEOWNERS SHOULD KNOW: Loan Modification Companies To Be Avoided - (www.ml-implode.com)  

Canada’s Flaherty Sees ‘Substantially’ Bigger Deficit  - (www.bloomberg.com)

Frustration prompts wave of China protests - (www.ft.com)

Canada says deficit larger than expected - (finance.yahoo.com)

Thailand’s GDP Contracts as Exports, Spending Slump - (www.bloomberg.com)

German Business Confidence Rises for a Second Month - (www.bloomberg.com)

 

Wall Street nervously awaits data on home sales, consumer confidence - (www.latimes.com)

G.M. Bankruptcy Would Be History’s Most Complex - (www.nytimes.com)

The Power Pendulum Swings Toward Washington - (www.washingtonpost.com)

Bank of America Says They Modified 50,000 Mortgages… Whatever That Means… - (www.ml-implode.com)  

Ladies and Gentlemen, the US Is Insolvent - (www.ml-implode.com)  

Securitization: Advanta and the Fiction of True-Sale - (www.ml-implode.com)