KeNo's Housing and Economic Portal: Wednesday July 8 Housing and Economic stories

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Cramer: Bernanke Charges Bad for Stocks - (ww4w.cnbc.com) As usual, Cramer thinks it is ok for the Fed and other financial execs to break the law, and uses the “fragile financial system” as his argument for not getting to the bottom of illegal financial activities. Cramer continued his defense of Federal Reserve Chairman Ben Bernanke, which started Wednesday afternoon during Stop Trading!, and railed against the congressman who questioned his integrity. The charges are “preposterous,” he said, and the economy is in too tenuous a position for this political theater. Rep. Darrell Issa, R-Calif., of the House Oversight and Government Reform Committee claims that Bernanke not only forced a shotgun wedding of Bank of America and Merrill Lynch but also that he “deliberately hid concerns and pertinent details” of the merger, Issa said in statement. But Cramer called this all but impossible and described the Fed chief as “completely and utterly incapable of doing what Issa described.” “Ben Bernanke’s the single most honest and independent man I’ve come across in 30 years on Wall Street,” Cramer said. Certainly, no one has been a bigger critic of Ben Bernanke than Cramer has. Does the phrase “They know nothing!” ring a bell? Whether it was the delay in cutting interest rates back in August 2007 or the need to buy mortgage bonds, the Mad Money host was never short on criticisms of the central bank. But Bernanke eventually came around, cutting rates and buying those mortgage-backed bonds in hopes of propping up the economy. He’s done such a good job that Cramer wants him reinstated when the chairman’s term is up in January. But that’s possibility is in danger as a result of Issa’s charges. Unless the congressman retracts his statement, “the man who rescued this market is going to be tarnished.” “And we need this guy,” Cramer said.

Dodd's Irish Luck: The Senator Sure Knows How to Pick an Investment - (online.wsj.com) Irish property prices have plummeted since 2002. But a "cottage" in County Galway owned by Connecticut Senator Chris Dodd has tripled in value during the same period, according to a financial disclosure form filed by the Senator this month. There are two possible explanations for this remarkable turn of fortune. Maybe Mr. Dodd is luckier than a leprechaun. Or could it be that he paid well below the market price when he bought out a co-owner in 2002 and had undervalued the property accordingly? If it's the latter, then Mr. Dodd received a "gift," in IRS parlance, and should have declared it on his financial disclosure form that year. He did not. Oh, and by the way, the seller at that low, low price has been the business partner of a man for whom Mr. Dodd lobbied to receive a Presidential pardon. It's also been nearly a year since a former loan officer at Countrywide Financial charged that the mortgage lender had classified Mr. Dodd as a "very important person" (a.k.a., a "friend of Angelo" Mozilo, Countrywide's then-CEO). As such, Robert Feinberg said, Mr. Dodd received -- and knew he'd received -- preferential rates and fees on two mortgages he and his wife refinanced in 2003. As a power on the Senate Banking Committee, he also knew this was a conflict of interest. This was the era when Countrywide originated and then sold to Fannie Mae high volumes of subprime loans. The SEC charged Mr. Mozilo with fraud and insider trading earlier this month, and the Los Angeles Times reported in May that there is an FBI investigation which "includes a probe of [Countrywide's] role in an influence-peddling scandal involving" Mr. Dodd. The Senate Ethics Committee won't comment on its own investigation of almost a year. Mr. Dodd denies receiving any special treatment, and nearly a year ago he promised to release the Countrywide mortgage documents and clear up the matter. We are still waiting, though he did attempt to placate the Connecticut press with a peek-a-boo release of a few select documents and a review by his own lawyers in February. Now the Irish cottage on 10 scenic acres is bringing more trouble. At the start of the Irish real estate boom in 1994, Mr. Dodd bought the property with William Kessinger for $160,000. Mr. Kessinger has been a business partner of Edward Downe, who is a longtime friend of Mr. Dodd's. In 1986 Messrs. Dodd and Downe owned a condominium together in Washington. In 1993 Mr. Downe pleaded guilty to insider trading and securities fraud and in 2001, as Bill Clinton was preparing to leave the White House, Mr. Dodd successfully lobbied to get his friend a pardon. The following year, 2002, Mr. Dodd bought out Mr. Kessinger's two-thirds share in the house and became the full owner. Mr. Dodd reported to the Irish government that he paid Mr. Kessinger $122,351, and Mr. Dodd says that a bank appraisal that same year valued the property at $190,000. From 2002 to 2007 Mr. Dodd reported its worth at between $100,001 and $250,000 on his annual Senate financial disclosure form. But Hartford Courant columnist Kevin Rennie began digging this year into the mismatch between what Mr. Dodd paid to Mr. Downe's business partner to become a full owner and what the property in Ireland was likely worth in 2002 amid the Irish land boom. Last week, when Mr. Dodd filed his annual financial disclosure form, it included a new appraisal from the same appraiser putting the current value of the house at $658,000.

Barney Frank, Fannie Mae, Freddie Mac planting seeds of future foreclosures again, what’s new - (www.reuters.com) Two U.S. Democratic lawmakers want Fannie Mae and Freddie Mac to relax recently tightened standards for mortgages on new condominiums, saying they could threaten the viability of some developments and slow the housing-market recovery, the Wall Street Journal said. In March, Fannie Mae said it would no longer guarantee mortgages on condos in buildings where fewer than 70 percent of the units have been sold, up from 51 percent, the paper said. Freddie Mac is due to implement similar policies next month, the paper said. In a letter to the CEO's of both companies, Representatives Barney Frank, the chairman of the House Financial Services Committee, and Anthony Weiner warned that a 70 percent sales threshold "may be too onerous" and could lead condo buyers to shun new developments, according to the paper. The legislators asked the companies to "make appropriate adjustments" to their underwriting standards for condos, the paper added. In an interview with the paper, Weiner said the rules have "had a real chill on the ability to get these condos sold," at a time when prices of condos have fallen enough to attract potential buyers. In addition to the 70 percent sales threshold, Fannie Mae will also not purchase mortgages in buildings where 15 percent of owners are delinquent on condo association dues or where one owner has more than 10 percent of units, as the firm sees these as signals that a building could run into financial trouble, the paper added. Both Fannie and Freddie are preparing a response to the lawmakers, according to the paper.

Citi Unit Halts Mortgage Applications on Missing Data - (www.bloomberg.com) Citigroup Inc.suspended loan applications at a unit that produced half of its $115 billion in mortgages last year after a review found that some property appraisals and income-verification documents were missing. The correspondent division, which buys loans from banks and independent mortgage firms, stopped accepting new loans at 5 p.m. yesterday and will restart July 6, Citigroup said in a June 22 letter to clients. The New York-based company said it will use the time to change procedures and fix the omissions. “There remain key areas that fall short of our quality- control process,” according to the letter, signed by Brad Brunts, a managing director at the bank’s CitiMortgage division. “We ask you to review your processes and join us in this effort to collectively address these areas of concern.” Citigroup has been overhauling its mortgage business since January, when Chief Executive Officer Vikram Pandit shifted it into a “non-core” group called Citi Holdings along with other businesses tagged for sale, wind-down or restructuring. The bank lost a record $28 billion in 2008, much of it tied to mortgage- bond writedowns and costs to cover soured home loans amid the global credit crunch. The bank accepted $45 billion of bailout funds from the U.S. Treasury and has increased employees’ pay to keep them from leaving. Citigroup will raise base salaries by as much as 50 percent to help compensate for a reduction in annual bonuses, a person familiar with the plan said yesterday. Home Sales: The bank climbed 1.7 percent to $3.06 as of 10:32 a.m. in New York Stock Exchange composite trading today; the shares have tumbled more than 90 percent since the end of 2006. New-home purchases dropped 0.6 percent in May and the median sales price declined 3.4 percent, the Commerce Department said today. The new procedures in the correspondent unit follow a series of steps Citigroup’s mortgage business took over the past two years to address lapses in documentation or underwriting standards. The business is run by Sanjiv Das, who reports to Citi Holdings CEO Mike Corbat. In October, Citigroup cut off all but 1,000 of the 9,500 mortgage brokers in its network for selling the bank loans of poor quality, or in insufficient volume to be profitable. The company also stopped making second-lien mortgages through third parties. Regulators blamed practices at independent lenders last year for driving mortgage default rates to record highs.

Millionaires' club shrank at record rate in 2008, Merrill says - (www.latimes.com) The ranks of the world's millionaires shrank at the fastest rate in 2008, with North America suffering the biggest wealth loss worldwide, according to a survey by Capgemini and Merrill Lynch & Co. The global slump in property and equity markets last year cut the number of millionaires by 15 percent to 8.6 million, wiping out two years of increases, the firms said in their 13th annual World Wealth Report published today. The value of the world's millionaires' assets slid 20 percent to $32.8 trillion, after a 9.4 percent increase the previous year, the survey said. The credit crisis sent stock indexes to their worst annual losses since the Great Depression and slashed the value of real- estate holdings, hedge-fund and private-equity investments in 2008. The benchmark Standard & Poor's 500 Index dropped 38 percent, its steepest annual decline since 1937. "No country was left untouched by the financial crisis and there was nowhere to hide as an investor," Daniel Sontag, president of Merrill Lynch's global wealth management unit, said in New York today. The financial wealth of Asia-Pacific millionaires will surpass those of North Americans by 2013, driven by economic growth in China and U.S. consumer spending, Merrill and Capgemini said. The value of millionaires' assets globally will resume rising by 2013 and climb to $48.5 trillion, the report said. "Signs of stabilization are emerging, resulting in a shift in high net-worth activity as well as priorities," Sontag said. Millionaire investors will move away from capital preservation and increase equity allocation in 2010, according to Sontag.

Wall Street Begins Campaign to Thwart ‘Populist Overreaction’ - (www.bloomberg.com) Wall Street’s largest trade group has started a campaign to counter the “populist” backlash against bankers, enlisting two former aides to Treasury Secretary Henry Paulson to spearhead the effort. In memos of confidential meetings with top financial executives, the SecuritiesIndustry and Financial Markets Association

said it began this month the “execution phase” of the operation, which pledges to “embrace change” and accountability. The plan targets policy makers and the media in New York, London, Washington and Brussels and calls for a “city-by-city, grass roots” approach. The securities industry “must be perceived as part of the solution, which will allow it to better defend against populist overreaction,” the documents, prepared for a June 17 meeting of SIFMA’s board, said. The board meeting minutes and staff-written papers, obtained by Bloomberg News, outline the program crafted by polling, lobbying and public relations companies paid at least $85,000 a month. The memos provide a glimpse, in often candid language, into how Wall Street is grappling with its pariah status. “It is imperative that in this historic period of reform, the industry be recognized as playing a positive role in seeking change and providing solutions to the problems we face,” one of the documents said. “There is currently widespread skepticism about the industry’s commitment to this needed change.” Lobbying Congress: The internal papers call for using regional securities firms, many of which have escaped notoriety in the financial crisis, to push the industry’s message with their local members of Congress. The plan notes that brokers across the country can also be used. “The foot power of the private client group has proven to be effective in blunting populist messages in the past,” said board member Paul Purcell, chief executive officer of Milwaukee investment firm Robert W. Baird & Co., according to the minutes of one meeting.

Ireland’s Banks Face EU35 Billion of Losses, IMF Says - (www.bloomberg.com) Ireland’s banksface losses of as much as 35 billion euros ($49 billion) through next year as the economy shrinks at an “unprecedented” pace, the International Monetary Fund said. Gross domestic product will shrink a cumulative 13.5 percent in the three years through 2010 as the bursting of a decade-long property boom ripples through the economy, the Washington-based lender said in a report late yesterday. The losses envisaged are bigger than those forecast by the biggest Irish securities firms. Bank of Ireland Plc and Allied Irish Banks Plc have the biggest share of bad debts and will probably account for more than half of loans due to go into a proposed bad bank, known as the National Asset Management Agency. Finance Minister Brian Lenihan has said the agency will purchase as much as 90 billion euros in souring property loans. “The assessment of the bad debt outlook is at the top end of estimates for cumulative losses,” Kevin McConnell, head of research at Bloxham Stockbrokers in Dublin, said in a note today. “Much will depend on the working of NAMA, the haircut applied to the bad assets and the level of international recovery seen over the next 18 months.” ‘Economic Distress’: The IMF also forecast that Ireland’s budget deficit may widen to 12 percent of GDP this year, four times the European Union limit and above the government’s 10.75 percent projection. The state will only bring the deficit back to the EU limit in 2014, a year behind target, it said. “The stress exceeds that being faced currently by any other advanced economy and matches episodes of the most severe economic distress in post-World War II history,” the IMF said.