KeNo's Housing and Economic Portal: Wednesday July 29 Housing and Economic stories

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TOP STORIES:

The Mystery of the Missing Unemployed Man - (www.huffingtonpost.com) For the book I'm writing about unemployed Americans, I had no trouble findingaccountants, brokers, cashiers, or die casters. Admittedly, I had to go out of town to interview the die casters. But when I arrived, alphabetically, at unemployed editors, I had only to look in my address book. Financiers were further from my life experience than either die casters or editors. Yet the "do you know anyone who...?" method still proved an effective way of turning up unemployed hedge-fund analysts and bank loan officers -- and within a week at that. It was only when I refined my search to ferret out unemployed financiers who had actually handled those infamous "toxic assets" that I hit the proverbial brick wall. Since mortgage-backed securities and the swaps that insure them had been the downfall of Lehman Brothers, Bear Stearns, Merrill Lynch, and the giant insurance company AIG, packs of bankers who worked on them must, I assumed, be roaming free on the streets of Manhattan. Yet I couldn't find a single one. Finally, I phoned a law firm representing Lehman Brothers employees in a suit for the pay they were owed when the company shut down without notice. I asked the lawyer if he could possibly inquire among his unemployed clients for someone, anyone, who used to work with mortgage-backed securities and might be willing to talk about how he or she was getting by today. "I don't have to use real names," I assured him. Many of the unemployed people I'd already interviewed felt so lost and ashamed that I had decided not to use their real names. Unemployed bankers deserve anonymity, too. But the lawyer made it clear that that wasn't the problem. "Most of them were snapped up immediately by Barclays," he said. He represents other financial plaintiffs as well, and he seemed to think that the kind of person I was looking for hadn't remained unemployed very long.

Obama Considers New Mortgage Solution: Own-To-Rent - (www.businessinsider.com) Is The Atlantic now the most influential magazine in America? The most recent issue is pretentiously self-styled as “The Ideas Issue: How To Fix The World.” It contains a brief piece by Felix Salmon making the clever argument that the mortgage defaulters should be turned into renters. The idea does have an attractive symmetry: if one of our problems is that too many people who should be renters wound up taking out mortgages they couldn’t afford to become ersatz homeowners, why not just make them renters? It's a brilliant reversal of the old idea of rent-to-own homes. But just because it's brilliant doesn't mean it would work. Now Reuters reports that U.S. government officials are weighing a plan to do just that. The plan would let borrowers who have fallen behind on their mortgage payments avoid eviction by renting their homes. They’d give up all their equity—if they have any—and future claims on the equity, in exchange for getting to keep their homes. There are lots of problems with this idea, including havoc it would create in securitized mortgages, that it would make the housing market even more illiquid than it is, and that it would create a huge incentive on the part of even more borrowers to default. Think about it: now you don’t even have to walk away. Reuters also reports that officials are creating a “housing stipend” that would attach to unemployment, hoping to reduce the role in job losses in driving mortgage defaults. This would be either hugely costly or ineffective. (And it would really anger unemployed renters.)

California foreclosure sales increase 24.7 percent - (www.centralvalleybusinesstimes.com) Foreclosure sales jumped significantly in June for the third consecutive month as lenders came off a foreclosure moratorium, according to ForeclosureRadar Inc., of Discovery Bay, a firm that tracks foreclosures in California on a daily basis. Foreclosure sales increased by 24.7 percent year-over-year following a 31.9 percent increase in May, and a 35 percent April increase. But “Notices of Trustee Sale” dropped by an unexpected 28.7 percent, with the timing of the drop indicating that it was in response to the California Foreclosure Prevention Act, the report says. This law was widely believed to have little or no impact on foreclosure filings, as it exempted the majority of large lenders that operate in the state, says ForeclosureRadar’s CEO, Sean O’Toole. In terms of foreclosure sales per population, counties in the Central Valley lead the state and make up six of the “top ten.” They are: • (1st) Merced County, 422 sales in June or one for every 605 residents; • (2nd) Stanislaus County, 748 sales or one per 702 residents; • (3rd) Yuba County, 99 sales or one for every 727 residents; • (4th) San Joaquin County, 934 sales or one for every 734 residents; • (7th) Madera County, 179 sales or one per 843; • (10th) Kern County, 887 sales or one for every 922 residents.

FHA/Ginnie Mae mortgage bonds enjoy boom at taxpayer risk - (www.latimes.com) The Government National Mortgage Assn., which unlike Fannie Mae and Freddie Mac was never publicly traded, says it issued a record amount in mortgage-backed securities in June -- $43.5 billion. Want to buy some nice mortgage-backed securities? Probably not, these days, unless you're a speculator bottom-fishing for discount deals. But what if the mortgage bonds were backed by the government, as U.S. Treasury bonds are? What if Uncle Sam stepped in to pay the principal and interest to investors if one of the home loans backing the security went into default? That would create -- and has created -- a boom time at the Government National Mortgage Assn. The agency, better known as Ginnie Mae, generates mortgage-backed securities from loans insured or guaranteed by the Federal Housing Administration and the Department of Veterans Affairs. Ginnie Mae said Monday that it issued $43.5 billion in mortgage-backed securities in June, the first time the $40-billion barrier was broken. For the first six months of 2009, Ginnie Mae securities topped $206 billion, nearly double the amount in the same period last year. In a news release, Ginnie Mae President Joseph Murin said: "Ginnie Mae's ability to provide a safe security for investors and critical liquidity for issuers is why the corporation was created more than 40 years ago." The Mortgage Bankers Assn. reported last week that FHA and VA loans represented 35.9% of new mortgage applications in June, the highest level since November 1990. In August 2005, just 6.8% of mortgage applications were for these federally backed loans. Ginnie Mae, which is part of the Department of Housing and Urban Development, was set up to bolster the housing market. That role is similar to the ones played by Freddie Mac and Fannie Mae -- except, unlike those wobbly mortgage giants, which have been taken over by the government, Ginnie Mae was never publicly traded.

Talks fail to break California budget impasse - (www.reuters.com) California Governor Arnold Schwarzenegger and lawmakers failed on Wednesday night to agree to balance the state's budget by closing a $26.3 billion deficit, but officials said talks would continue. The budget talks, which have lasted weeks, have stalled over a part of the governor's plan to suspend a law on school funding, Karen Bass, the speaker of the state assembly, and California Senate President Darrell Steinberg told reporters. The legislature's two top Democrats said budget talks would resume on Thursday. Schwarzenegger, a Republican, had said earlier on Wednesday he was hopeful a deal to resolve the lengthy budget crisis was near and might be reached by the end of the day. "There's no nastiness in the discussions, no blowups," he said at a press conference. "There's none of that, so I think we have a good shot of getting the budget done today." The state government began its fiscal year on July 1 facing a historic budget gap and a severe cash crisis. California, which would be the world's eighth largest economy if it were an independent nation, has issued IOUs to vendors as well as taxpayers owed refunds to save cash for servicing of state bonds and other priorities payments. Among sticking points in negotiations are Schwarzenegger's demands for a budget deal including

changes to rules he says will prevent fraud in welfare programs. He has also proposed paring education spending by suspending a voter-approved measure that locks in funding levels for public schools. Democrats oppose both ideas and are especially concerned about education spending cuts. The size of a budget reserve also is being discussed. A cash cushion may help the state sell short-term debt after a budget agreement is reached. "It's all about being able to go out to the market after this is done," Steinberg said.

CIT Group May Need $6 Billion to Avoid Bankruptcy, Analysts Say - (www.bloomberg.com) CIT Group Inc., the 101-year-old lender running short of cash, may need as much as $6 billion to avoid seeking bankruptcy protection after the U.S. wouldn’t give the firm another bailout, CreditSights Inc. analysts said. “CIT indicated that it needs at least $2 billion of rescue financing in the next 24 hours or it would likely file,” said CreditSights analysts including Adam Steer. “We believe the figure is in the range of $4 to $6 billion plus, making outside capital sources shy away.” CIT’s debt tumbled, the shares plunged and the risk of default soared to a record today. The lender is trying to raise $2 billion from debt holders and gave them 24 hours to put up the money, the Wall Street Journal reported today, citing unidentified people familiar with the matter. New York-based CIT told investors that without the cash, it will probably file for bankruptcy, the Journal said. CIT Chief Executive Officer Jeffrey Peek failed to convince regulators that fallout from a collapse would threaten the rest of the financial system. Officials at the Treasury, Federal Reserve and Federal Deposit Insurance Corp. have resisted putting additional taxpayer funds at risk, on top of $2.33 billion granted to CIT in December, to keep the lender afloat. “While it is possible that CIT could receive rescue financing, we believe the prudent course for bondholders is to brace for bankruptcy,” CreditSights wrote.