KeNo's Housing and Economic Portal: Sunday July 19 Housing and Economic stories

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TOP STORIES:

Government greenlights more underwater refis - (money.cnn.com) Based on the comments about an earlier post covering a government-assisted mortgage refinancing program, I don’t think you’re going to like the latest news out of Washington. Late last week the Obama administration loosened the eligibility rules for the refinancing arm of its Home Affordable Plan, designed to help home owners who want to take advantage of lower interest rates but haven’t been able to refinance. As a result of the change, home owners whose first-mortgage balance is up to 25% higher than their house’s value can qualify for the federal refi program. When the program launched a few months ago, the upper limit was 5% under water, but that proved too stringent; the government raised the LTV ratio to 125% because not that many folks were qualifying for the program that the Administration launched with expectations — hopes? — of helping up to 4 million homeowners. In making the official 125% LTV announcement, the Federal Housing Finance Agency added that it is “incenting” these borrowers to get out of their negative-equity morass sooner rather than later. But it turns out the incentive is nothing more than suggesting that folks choose a shorter mortgage term — say, 25 years rather than 30 years — and thus qualify for a slightly lower mortgage rate. That’s not exactly a rip-roaring special incentive. It is no different than the incentive all lenders offer all borrowers who opt for a shorter term, whether part of a federal bailout program or not. The typical spread between a 30-year fixed-rate mortgage and a 15-year mortgage, for instance, is one-half a percentage point; Freddie Mac’s most recent mortgage survey reports an average rate of 5.4% on a 30-year fixed-rate and 4.87% for a 15-year. In essence, the special “incenting” held out by the FHFA seems to be nothing more than now allowing folks to take advantage of a common industry practice: Choose a 15-year, 20-year or 25-year mortgage and you will be eligible for a lower interest rate than if you choose a 30-year term. And you really have to wonder how enthusiastically home owners will jump at taking on the higher monthly payments that accompany a shorter-term loan. Are we really to expect that someone up to 25% under water is in a rush to build up equity? Or, as is more likely, are they turning to Home Affordable to get their current monthly costs as low as possible so they can stay in a home they might otherwise not be able to afford?

California: Teetering closer to junk - (money.cnn.com) itch Ratings downgrades the state's bond rating to BBB, just above junk status. Budget impasse continues to rile the state's financial standing. California's bond rating is far from golden. Citing the Golden State's ongoing budget upheaval, Fitch Ratings on Monday downgraded California's long-term debt to BBB, one category above junk bond status. The next step is BBB- before the state's bonds would be considered speculative debt. Fitch also maintained its so-called negative outlook on California. "[I]nstitutional gridlock could persist, further aggravating the state's already severe economic, revenue and liquidity challenges," Fitch wrote. The agency had downgraded the state to A- on June 25. While Gov. Arnold Schwarzenegger and lawmakers battle over closing a $26.3 billion budget gap, the state's controller last week was forced to issue IOUs for the first time in 17 years. Some county agencies, state vendors and taxpayers are getting paid in paper. The IOUs help the state controller stave off a deficit of nearly $3 billion for July. "The fact that they have to take this step shows how tight the state's cash became and how limited their options are in the absence of a budget solution," said Douglas Offerman, Fitch credit analyst. "Without a budget, [the controller's] flexibility gets more and more reduced over time." California has the lowest bond rating of any state, and therefore must pay higher interest rates than its peers when it issues debt.

Muni bonds feel US states’ fiscal stress - (www.ft.com) California’s high-profile budget crisis and the fiscal woes of states throughout the US are taking their toll on the public finance markets, sending borrowing costs higher for states, cities, counties and other municipal issuers. The Golden State and its gaping $26bn deficit have caught the headlines, but a handful of other states have also failed to agree on balanced budgets, even after federal stimulus. Even the states that have passed budgets have been forced to make dramatic cuts such as closing schools and laying off staff to compensate for plunging tax receipts. “This is the first time in 20 or 25 years that we have seen a recession affect the entire nation simultaneously,” says Robert Kurtter, a managing director in the public finance group at Moody’s Investors Service. “Most have been regional or sectoral in nature, such as manufacturing recession in the Midwest or the tech bust in California.” States, cities and other entities raise money in the $2,700bn municipal market for projects and services benefiting the public good. Interest income on the bonds is exempt from some US taxes. Yields on California’s long-term muni bonds are hovering at 6.10-6.20 per cent, up from about 5.50 per cent a few months ago and a full percentage point more than most other states. However, they are off recent highs as opportunistic buyers have moved in. But the uncertainty surrounding the California situation and the publicity that it has received is weighing on the overall market. Even yields for top-rated, or triple A muni bonds, have increased slightly to 5.16 per cent from 5 per cent in the past few months. Matt Fabian, managing director at Municipal Market Advisors, a research company specialising in muni bonds, says yields should be lower, given a popular federal stimulus plan that subsidises state and other issuers to sell taxable munis, in effect drawing supply out of the tax- exempt muni market.

The City Center sales saga continues - (themessthatgreenspanmade.blogspot.com) - Having visited Las Vegas last fall as financial markets were crashing, it was odd to see how remarkably cheery the City Center sales staff were in peddling condos for what will probably rival the construction boom in Dubai as the great White Elephant of a now bygone era. In fact, when asked about plunging real estate prices and global financial markets that were following suit back in late-September, the sales staff almost appeared to be living in some parallel universe where asset prices only go in one direction - UP. The response to this query was either a "deer-in-the-headlights" look or a brief moment of agitation before a well-honed sales instinct could wrest control back from what was clearly a more emotional (and more genuine) reaction. Well, apparently, those who signed on the bottom line for condos a couple years ago (with move in dates this fall rapidly approaching) are all too aware of what's been happening in the local real estate market and they're none-too-happy about it. According to the latest data from the Case-Shiller Home Price Index, Las Vegas property values are down some 33 percent from a year ago and a stunning 52 percent below the peak in 2006, around the time that many of the City Center sales were made. The Wall Street Journal provides the following update on the project and the plight of the soon to be none-too-proud owners of some of these condos. One of the costliest and highest-profile condominium developments in the country -- the $8.4 billion City Center project in Las Vegas -- is facing a revolt from some early buyers. Some buyers who signed contracts are demanding significant price reductions, and have hired a law firm to take their grievances to the project's principal developer, gambling company MGM Mirage. Others want their deposits back. Some are using a Web site, citycentercondodepositgroup.blogspot.com, to air their grievances. So far, buyers have put down $313 million in deposits on 1,500 units in the 2,440-unit complex. Those who agreed to buy early on now fear they will take possession of condos whose market values are far below what they agreed to pay. Many of the contracts were signed in 2006 and 2007, when Vegas was booming. "It is simply not possible by any stretch of the imagination to close on the units at the contracted price," said Mark Connot, a partner with Hutchinson & Steffen, a Las Vegas law firm hired to represent a handful of buyers demanding price reductions. "Our position is they need to adjust the price to market value. And until that's done I don't think they will find any buyers." It's funny how contract law is seemingly being ignored these days and how those who are clearly not "too big to fail" think they're entitled to be bailed out somehow. Well, maybe funny isn't the right word there. Perhaps disturbing would be a better one. While the group of disgruntled owners may be able to negotiate from a position of collective power, they seem like a rather sad lot in the process. Most people who put down $100,000 on a million dollar condo that might now be worth only about $500,000 would surely just walk away and chalk that $100K up to experience.

State of Florida aided suspect in huge swindle - (www.miamiherald.com) Florida regulators -- over objections by the state's top banking lawyer -- gave sweeping powers to banker Allen Stanford, accused of swindling investors of $7 billion. Years before his banking empire was shut down in a massive fraud case, Allen Stanford swept into Florida with a bold plan: entice Latin Americans to pour millions into his ventures -- in secrecy. From a bayfront office in Miami in 1998, he planned to sell investments to customers and send their money to Antigua. But to pull it off, he needed unprecedented help from an unlikely ally: The state of Florida would have to grant him the right to move vast amounts of money offshore -- without reporting a penny to regulators. He got it. Over objections by the state's chief banking lawyer -- including concerns that Stanford was laundering money -- regulators granted sweeping powers never given to a private company. The new company was also allowed to sell hundreds of millions in bank notes without allowing regulators to check for fraud. Over the next decade, the Miami office was among Stanford's busiest in the sale of controversial investments now at the heart of the federal government's sweeping fraud case against Stanford and his lieutenants. ''There was no lawful way that office should have been opened,'' said Richard Donelan, the state's chief banking counsel who opposed the deal. Donelan said he argued that the Stanford plan violated state law, and that there were concerns about money laundering in the Caribbean and ``whether Stanford's bank was in conformance with the law.'' TAKING ADVANTAGE: Represented by a powerful Florida law firm, Stanford got approval to create the first company of its kind: a foreign trust office that could bypass regulators, according to records obtained by The Miami Herald. The Florida banking director who signed the agreement, Art Simon, now admits he made a mistake. ``Upon reflection, would I have liked to have done it differently? Would I have liked to stop them from doing what they currently did? Yes, of course.'' The state's decision allowed Stanford to expand his banking network by offering his prize investments -- certificates of deposit -- without reporting the purchases, according to state and court records. In the first six years, the office -- known as Stanford Fiduciary Investor Services -- took in $600 million from customers, state records show.

New York City Apartment Sales Plunge - (www.cnbc.com) Manhattan apartment sales plunged more than 50 percent and the average price dropped 21.4 to 24 percent from a year ago, as the U.S. recession forced many who own a piece of the Big Apple to eat humble pie, several reports said. The average price of Manhattan apartment in the second quarter slid to $1,312,920 down from $1,669,729 a year earlier, according to a Prudential Douglas Elliman Real Estate report released Thursday. Most of the year-over-year decline occurred in the fall, when the credit crisis brought the market to an abrupt halt, said Jonathan Miller, president and chief executive of Miller Samuel Real Estate Appraisers and the author of the report. "What this is telling us is that the market continues to slide but not at the rate as it was last fall and that we're probably not done yet," Miller said. Tougher mortgage requirements, rising unemployment and the recession took its toll on the market that had for more than three years had been the notable exception to the U.S. housing market crash. But the Manhattan market dropped precipitously as Wall Street and the rest of the New York's private industries shed jobs. "We had a tremendously abrupt price correction in the short time. Now we're seeing a slow decline," Miller said. Although the shock has abated, and credit has loosened somewhat, unemployment in New York City rose to 9 percent in May, its highest level since 1997, according to the New York State Department of Labor.

OTHER STORIES:

Soft Market Takes Bigger Bite Out of Luxury Homes - (www.cnbc.com) Financing problems, falling incomes and a less-is-more attitude are making it hard to sell homes in the $1 million-$3 million range.

GM's roadmap out of bankruptcy - (money.cnn.com)

Antitrust: Apple and AT&T in DOJ's sights - (money.cnn.com)

America's fastest growing small stocks - (money.cnn.com)

Tribune Co. sells Chicago Cubs - source - (money.cnn.com)

Ben Bernanke's job review | A $1 trillion hangover - (money.cnn.com)

Garbage in, profits out - (money.cnn.com)

Netscape founder launches $300M fund - (money.cnn.com)

Washington Post digs their integrity grave a little deeper - (www.slycapital.com)

In Case You Were Insufficiently Depressed About Job Numbers - (voices.washingtonpost.com)

June Economic Summary in Graphs - (www.calculatedriskblog.com)

Chinese drywall blamed for odors and corrosion in U.S. houses - (www.latimes.com)

Glut of oil could push gasoline prices back down below $2 a gallon - (www.latimes.com)