KeNo's Housing and Economic Portal: Thursday August 13 Housing and Economic stories

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Florida high-rise has 32 stories, but just 1 tenant – (www.google.com/hostednews/ap) he Vangelakos' southwest Florida condominium has marble floors, a large pool overlooking a river and modern furnishings that speak of affluence and luxury. What they don't have in the 32-story building is a single neighbor. The New Jersey family of five purchased their unit four years ago, when Fort Myers was in the midst of a housing boom and any hints of an impending financial crisis were buried in lofty dreams of expansion and development. They made a $10,000 down payment and eagerly watched as builders transformed an empty lot into an opulent high rise, one that now symbolizes the foreclosure crisis. "The future was going to be southwest Florida," said Victor Vangelakos, 45, a fire captain who planned to eventually retire and live permanently in the condo. Most of the other tenants in the 200-unit condo didn't close on their contracts, and the few that did have transferred to an adjacent building owned by the same company because more people live there. The Vangelakos' mortgage lender will not allow them to do the same. That leaves them as the sole residents of the Oasis Tower One. "It's a beautiful building," said their attorney, John Ewing, who is representing 27 others who made deposits on units. "The problem is, it's a very lonely building." When the Vangelakos' travel from Weehawken, N.J., to spend a week or a few days in their Florida home, they have exclusive use of the pool, game room and gym, but they miss having a few tenants around. "Being from the city, it's very eerie," Vangelakos said. "It's almost like a scary movie." A large, circular fountain in front of the building is dry. The automatic glass doors that lead to the front lobby are locked. On the front desk is a guest sign-in sheet. The last entry: Feb. 13, 2009. "It's like time froze here six months ago," Ewing said. Vangelakos said they closed on the apartment in the fall, unaware the other tenants had failed to follow through. When they visited around Christmas, they didn't think much of the emptiness. They were just happy to be there. "We wanted to believe," Cathy Vangelakos said. "We were looking for what we were offered." On subsequent visits, however, the building grew more deserted. The lights on the pool and palm trees were off. Their garbage shoot was sealed, a trash bin placed in front of their unit instead. Despite the empty units, they faithfully parked in their assigned spot on the second story of the parking garage. Then those lights went off, too.

Ben Bernanke Was Incredibly, Uncannily Wrong - (www.rightsidenews.com) We now have the diametrical opposite of the famous "Peter Schiff Was Right" video (a compilation of 2006 and 2007 clips in which Schiff, a financial expert who subscribes to Austrian economics, predicted the deep recession that would follow the bursting of the housing bubble). The new, opposite video is a compilation of the 2005-2007 prognostications of Federal Reserve Chairman Ben Bernanke. In it, Bernanke is shown to have been just as embarrassingly wrong as Schiff was uncannily right. Peter Schiff Was Right--This is a set of clips of Peter Schiff from 2006 and 2007: (video shown at above link). Bernanke Was Horribly Wrong (video shown at above link). Could their differences in economic understanding have anything to do with this remarkable dichotomy? I have transcribed most of the video, and offer my own comments interspersed with it. July 2005: INTERVIEWER: Ben, there's been a lot of talk about a housing bubble, particularly, you know [inaudible] from all sorts of places. Can you give us your view as to whether or not there is a housing bubble out there? BERNANKE: Well, unquestionably, housing prices are up quite a bit; I think it's important to note that fundamentals are also very strong. We've got a growing economy, jobs, incomes. We've got very low mortgage rates. We've got demographics supporting housing growth. We've got restricted supply in some places. So it's certainly understandable that prices would go up some. I don't know whether prices are exactly where they should be, but I think it's fair to say that much of what's happened is supported by the strength of the economy. This is not only wrong in hindsight; it's a complete misunderstanding of the issue. Bernanke said that the housing boom was fine because it was supported by, among other things, growth in jobs, incomes, and in the economy in general. But that very growth itself was supported by the housing boom! For example, most of the job growth was in the housing sector. Witness Bernanke's amazing levitating economy: its housing sector is held up by economic growth, which is held up by its housing sector. And it's just as ridiculous that he denied the existence of a housing bubble by pointing to low mortgage rates. The low rates were a chief cause of the housing bubble, and were a direct result of his actions as Federal Reserve chairman. July 2005: INTERVIEWER: Tell me, what is the worst-case scenario? Sir, we have so many economists coming on our air and saying, "Oh, this is a bubble, and it's going to burst, and this is going to be a real issue for the economy." Some say it could even cause a recession at some point. What is the worst-case scenario, if in fact we were to see prices come down substantially across the country? BERNANKE: Well, I guess I don't buy your premise. It's a pretty unlikely possibility. We've never had a decline in house prices on a nationwide basis. So what I think is more likely is that house prices will slow, maybe stabilize: might slow consumption spending a bit. I don't think it's going to drive the economy too far from its full employment path, though.

Mortgage Default: Landlord Edition - (www.motherjones.com) Riverton Houses, a cluster of redbrick high-rises near Harlem River in Manhattan, is the sort of development where elderly parents pass apartments along to their children. Built to shelter families of black soldiers returning from World War II, the 1,230-unit complex has long been an affordablemiddle-class bastion. Edna Hunter, an 86-year-old widow and retired school librarian, tells me she's spent most of her life there. She pays just $750 a month. So Hunter and the other tenants were understandably concerned when New York real estatetycoon Larry Gluck purchased Riverton Houses for $131 million in late 2005. Nearly all of them lived in rent-stabilized flats, paying an average of $894, while one-bedrooms in nearby areas like Central Harlem rented for $1,400 and up. Gluck reassured residents, though: He was just a regular guy from the Bronx who only hoped to upgrade their buildings. But Gluck told the Securities and Exchange Commission (SEC) the full story when he borrowed $250 million against the complex the following December. By 2011, his prospectus estimated, half the tenants would pay nearly triple the old, stabilized rates. His company, Stellar Management, did set aside millions to redo bathrooms and outfit kitchens with stainless steel and granite—but those improvements were to entice residents to accept rent increases. That was the plan, anyway. Two years later, the real estate bubble had popped and Gluck, after nearly doubling Riverton's debt load, was unable to raise rents enough to cover the payments. Soon the complex was in foreclosure; its loan, bundled with others to create a mortgage-backed security, has become the quintessential toxic asset. It all sounds like a classic tale of the bust except that, unlike ordinary people caught up in foreclosure proceedings, Gluck and his partners have made a fortune off Riverton Houses. Just as homeowners often take out some extra cash when they refinance a property, team Gluck pulled out $67 million—the high-roller version of cash at closing. A homeowner would be on the hook for that extra cash, but Gluck's group purchased Riverton through a limited liability shell company, which allows it to shelter its refinancing windfall in case of a default. Minus the down payment, the partners walk away with nearly $42 million. The Riverton deal exemplifies a strategy known as predatory equity: Backed by private equityfunds—which get their money from pension funds and wealthy investors—real estate players like Gluck were able to generate massive down payments during the boom. This allowed them to secure interest-only loans for high-risk bets on affordable housing. (Gluck considers the term "predatory equity" incendiary. "I don't think anyone wants to do anything but the right thing for tenants, and also have a profitable business venture," he says.) Also unlike flipping a house, leveraging affordable housing affects the lives of thousands. Deals by Gluck and other big players have stripped the equity from many of New York's developments; roughly 70,000 affordable units are overleveraged, says Dina Levy, a tenant organizer with the city's Urban Homesteading Assistance Board. (Levy even knows of one development where residents, many of them city employees, are being driven out by real estate companies financed by their own pension funds.) Saddled with oversize mortgages, cash-strapped buildings scrimp on basic maintenance. In December, New York Sen. Charles Schumer urged the SEC to investigate, calling the situation "subprime crisis 2.0."

Some Banks in Govt's "Healthy Bank" Bailout Are Struggling - (www.propublica.org) A growing number of small and midsize banks that received federal bailout money have stopped paying quarterly dividends to the government in order to conserve capital. The banks, reeling from bad loans, have sometimes been ordered by regulators to stop the payments as part of a rescue plan. At least 18 banks that received bailout funds are not paying dividends. They range in size from San Francisco-based UCBH Holdings, which received $299 million in taxpayer money and recently announced suspension of the government dividends as part of an “action plan” to strengthen the bank, to tiny community banks. Some have chosen to suspend dividends, while others have been prohibited from paying them by regulators. (See the full list below.) The banks aren’t paying dividends only months after being blessed by regulators and the Treasury Department as “healthy.” The money was distributed through the government’s primary bailout program. As then-Treasury Secretary Hank Paulsonexplained last October, the program was aimed at boosting the overall economy by investing in banks that “will deploy, not hoard, their capital.” The Treasury has kept secret its criteria for accepting banks, saying only that those approved should prove themselves viable without the government investment. Banks in the program are selected for their ability to keep lending levels up, Treasury officials have said, and keep taxpayer risk at a minimum. Yet shortly after receiving funds, two of the biggest recipients, Bank of America and Citigroup, which both received $25 billion through the program, were bailed out with even more taxpayer money. More recently, CIT Group, which received $2.3 billion late last year, has flirted with bankruptcy. The suspension of TARP dividends shows that some smaller banks in the program are struggling, too. It also calls into question whether all of the banks in the program really could have survived without the government investment. In the government’s haste to boost the banking sector, “there may have been decisions, where had there been more time and analysis, may have been made differently,” said Karen Dorway, president of BauerFinancial, a research firm that studies the financial health of banks. The Treasury Department declined to comment on the dividend suspensions. Regulators have intervened with a number of the troubled banks. California-based Pacific Capital Bancorp, which received $180.6 million, reached an agreement with its primary regulator in April to hatch a new plan to deal with its problem loans and boost its capital levels. The bank, which announced its intention earlier this year to lay off nearly a quarter of its employees, missed a dividend payment to the Treasury soon thereafter. In Wisconsin, Anchor Bancorp received $110 million from the Treasury in January. In June, regulators issued a cease-and-desist order requiring the bank to raise its capital levels and putting it under strict supervision. The bank has yet to make a dividend payment to the Treasury. The problems extend to small community banks such as Pacific Coast National Bancorp of San Clemente, Calif. The bank received $4.1 million in January, but regulators later clamped down, forbidding it to increase its loans above the amount on the bank’s balance sheet and ordering it to raise capital. The bank was in dire straits when it received the bailout funds in January, “significantly undercapitalized” under regulatory guidelines. But as a result of the aid, it ascended to merely “undercapitalized,” according to its annual report. It is prohibited by state regulations from paying dividends.

How Mortgage Lending Became An 'American Casino' - (www.ourfuture.org) A cabal that includes the nation's largest financial institutions, the U.S. Chamber of Commerce and some leading right-wing think tanks has succeeded in postponing congressional consideration of a consumer financial protection agency, and they are aiming to use the summer to scuttle the idea for good. (Danny Schechter today elaborates on the effort, which now counts Fed Chairman Ben Bernanke as a leader.) They are hoping that the public will forget the malfeasance committed by some of the nation's largest financial institutions that created today's financial crisis, and in particular today's mortgage foreclosure crisis. But a new documentary that will begin debuting in August will be a reminder of the urgent need for a police officer to patrol the financial corridors where homebuyers were being, in essence, mugged by lenders. "American Casino," the work of Leslie and Andrew Cockburn, lays out how the mortgage market was turned into a high-stakes gambling operation, with Wall Street's biggest players operating with the implicit encouragement of Republican lawmakers and Federal Reserve Chairman Alan Greenspan. Cockburn, in an interview, describes the mortgage crisis as a "catastrophe of predatory lending," noting that the primary victims were low-income people, African Americans and Hispanics. Simply put, instead of the old-fashioned "redlining"—the practice of denying certain neighborhoods loans that was common in inner-city, predominantly African-American neighborhoods through much of the 20th century—banks served up subprime loans at double-digit interest rates to people who more often than not, had they been white and living in different neighborhoods, would have qualified for more affordable prime loans. The documentary makes clear that many of the victims of the foreclosure crisis were neither ignorant nor careless. They were victimized by loan agents who earned their money by making as many loans as possible, regardless of how bad they were, by financial giants that bundled these loans into exotic financial instruments, and by ratings agencies that were beholden to those very financial giants who in essence paid for, and expected, inflated ratings for the ultimately toxic financial brew they were selling. Heather Booth, executive director of Americans for Financial Reform, is hoping that the documentary will be used by activists around the country to mobilize support for stronger Wall Street regulation and new consumer protections. While there have been many efforts in the past year to document how the financial collapse happened, "there hasn't been a consistent way to tell the story" from both the viewpoint of both the Wall Street machinations and the Main Street impact. "This is the first attempt I've seen to tell that story," she said.

Loan Servicers Work the Fine Print in Obama Foreclosure Plan - (www.washingtonindependent.com) Even as the Obama administration presses the lending industry to get more mortgage loans modified, the practice of forcing borrowers to sign away their legal rights in order to get their loans reworked is a tactic that some servicers just won’t give up on. Waivers requiring borrowers to give up any legal claims related to their mortgages, even in cases where borrowers may be victims of predatory lending, are showing up sporadically in loan modification agreements under the Obama administration’s Making Home Affordable plan, consumer attorneys say. They were stunned to find the legal waivers still being used, despite more than a year of efforts – including calls from lawmakers – to get rid of them. “It was shocking to see that people are still being asked to waive their legal rights,” said Bruce Dorpalen, national director of housing counseling for ACORN Housing Corp. “I mean, this should be abolished. It’s incredible that it’s still in there.” The Obama modification plan, launched five months ago as the centerpiece of the administration’s anti-foreclosure efforts, includes financial incentives for servicers to participate, with the government paying $1,000 for each loan they modify, and $1,000 per year for up to three years. The goal is to rework loans with more favorable terms and lower interest rates, and to keep delinquent borrowers or those at risk of default in their homes. The Treasury Department’s published guidelines for the $75 billion taxpayer-funded program specifically prohibit the waivers. Mortgage giants Fannie Mae and Freddie Mac removed the waivers from their standard loan modification agreements earlier this year. But Diane Thompson, an attorney with the National Consumer Law Center, said she has seen legal waivers resurface in loan modification agreements by Aurora Loan Services, Ocwen Financial Corp., and other firms. She also is getting complaints about waivers in Bank of America agreements. “The waivers continue to be an issue,” Thompson said. Complaints about the waivers come just as the Obama administration tries to ramp up loan modifications under its plan, which has gotten off to a slow start. More than 200,000 trial loan modifications have begun under the program’s Home Affordable Modification Program initiative, the Treasury Department said, well short of the initial goal of 3 to 4 million agreements. On Tuesday, top officials from the Treasury Department and the U.S. Department of Housing and Urban Developmentmet with 25 servicers to put pressure on them to complete more loan modifications – something Thompson described as a “come to Jesus” meeting. The administration will begin publicly reporting loan modification progress by individual servicers next month, HUD said in a news release. The government also will develop a “second look” program with Freddie Mac to make sure borrowers aren’t wrongly turned away.