KeNo's Housing and Economic Portal: Tuesday August 4 Housing and Economic stories

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TOP STORIES:

Two Biggest US Pension Funds Suffer Huge Losses - (www.cnbc.com) Calpers, the largest U.S. pension fund, said on Tuesday it suffered a record 23.4 percent drop in the value of its assets in the last year. Assets fell to $180.9 billion on June 30 from $237.1 billion a year earlier, the California Public Employees' Retirement System, or Calpers, said. "This result is not a surprise; it is about what we expected given the collapse of markets across the globe," Joe Dear, the fund's chief
investment officer, said in a statement. The fund's assets dipped as low as $160 billion in March of this year. Calpers said it wanted flexibility to invest in private equity, real estate and infrastructure and planned a fuller asset allocation and liability review in 2010.Last week Calpers sued the three largest credit rating agencies for giving perfect grades to securities that later suffered huge subprime mortgage losses. Separately, the California State Teachers' Retirement System, or Calstrs, said it posted a 25.0 percent loss in the fiscal year ended June 30. Calstrs, the second-largest U.S. public pension fund, said its initial estimate is that its assets totaled $118.8 billion for the fiscal year. "In addition to the severe downturn in the global stock markets, the return results were affected by how Calstrs recorded the unprecedented drop in real estate values," the fund said in a statement. "Calstrs recorded or 'wrote down' the value of its worldwide real estate holdings in a single year, rather than spreading out the expected losses over several years," the fund said. Moody's Investors Service said on Friday the top AAA credit ratings of California's two main public pension funds— Calpers and Calstrs— were placed on review for a possible downgrade in the latest fallout from the state's budget crisis, which was finally resolved late on Monday. Lawmakers may vote on the agreement between Governor Arnold Schwarzenegger and lawmakers by Thursday.

California spending cuts spark fury - (www.ft.com) California erupted in protest on Tuesday as teachers, local governments and public sector workers attacked the billions of dollars of spending cuts that form the basis of the state’s controversial budget deal. The agreement to close California’s record $26.3bn (€18.5bn, £16bn) deficit was reached after Arnold Schwarzenegger, the state’s governor, agreed swingeing cuts, including $6bn off education spending. It comes as the state has been forced to write IOUs to creditors after running out of money. Public employees have had to take unpaid leave and the state’s credit rating has been slashed to near junk status, giving it the worst rating in the US. Our interactive graphic shows which may be the next to follow California’s unenviable example of issuing IOUs to students and cancer patients. The budget deal should alleviate some pressure. But opponents of Mr Schwarzenegger’s plan are likely to resist the billions of spending cuts he has identified. “We used to have the best schools in the country but education in California is taking 60 per cent of the cuts,” said David Sanchez, president of the California Teachers’ Association. Education spending is protected under California law so the state has agreed to reimburse the $6bn over a 12-year period from 2012. But that will not prevent the cuts from having a startling effect in the next school year, Mr Sanchez said. “This is going to mean higher class sizes, approximately 20,000 teachers losing their jobs and no music, arts or physical education.” As much as $4.7bn will be taken from cities and municipalities, heaping more pressure on local efforts to fight the slump. Antonio Villaraigosa, mayor of Los Angeles, said it was a “moment of shame” for California, adding the state had “abdicated and abrogated its commitment to cities, school districts and counties”. CalWorks, the state’s welfare-to-work programme – the butt of much criticism from Mr Schwarzenegger – will have its funding cut by $528m, while Healthy Families, a programme that provides health insurance for 930,000 low-income children, will be cut by $124m. “We think this is grave,” said Frank Mecca, executive director of the County Welfare Directors Association of California. “Cuts of this magnitude undo what we think is 70 years of successful policy. We’re talking about 100,000 children whose parents aren’t going to work. Tens of thousands of kids are going to go on waiting lists to get healthcare....large numbers of people will end up in nursing homes.” The budget deal also cuts close to $3bn from the state’s university system, although Mr Schwarzenegger said education cuts would be fully “refunded”. An additional $1.3bn will be cut from Medi-Cal, the health programme for low earners and the poor. Another contentious part of the agreement will clear the way for oil drilling to resume off the coast of Santa Barbara. The prospect of drilling has attracted criticism and is likely to be fiercely contested by local residents and campaigners. Bonnie Castillo from the California Nurses Association said the budget deal would hurt “the most vulnerable and least politically connected people”. “This deal takes a meat axe to county budgets, which are the safety net for the most vulnerable people.”

L.A. supervisors to sue to block state budget cuts; other local governments expected to join – (www.latimes.com) - The Los Angeles County Board of Supervisors voted to sue state lawmakers if they pursue plans to seize local redevelopment and highway taxes to cover the state budget deficit. Other local governments are expected to take similar actions to prevent major cuts proposed in the budget deal reached last night. This morning, Supervisors Don Knabe and Zev Yaroslavsky proposed that county counsel sue to block any effort by the state to illegally withhold gas taxes or extend redevelopment projects, effectively redirecting taxes from the county to the state. All of the supervisors approved the proposal except Supervisor Mark Ridley-Thomas, who was absent. “You’d think they’d be making better decisions than this,” Supervisor Gloria Molina said. If the county sues to block the state from extending redevelopment projects, it will likely trigger a provision in the proposed legislation that allows the state to take $301 million in county Proposition 1A funds. Knabe, who chairs the board, said state legislators inserted the “poison pill” provision so that they will not be on record as taking county funds outright. “It’s their cover so they don’t have to deal with the issue,” Knabe said. Under the budget agreement state leaders reached Monday, Los Angeles County stands to lose $109 million in gas taxes and $313.4 million in redevelopment project funds next year. If redevelopment projects were extended 30 years, as some have proposed, the county could lose more than $8.2 billion. The state budget proposal would also cut millions in county health and social service funding, including $53.3 million from CalWorks, the welfare program for families, $22.1 million in substance abuse crime prevention, $21 million for mental health managed care and $5.7 million in AIDS/HIV treatment and prevention, county leaders have said. “For the State to balance its budget on the backs of the state residents most in need of help, and the counties that serve them, is fiscally reckless and morally bankrupt,” the supervisors wrote in their proposal, set to be introduced at their weekly meeting this morning. “State spending and significant tax giveaways, among other things, have brought us to this precipice. Transferring local funds into the State treasury does nothing to address these policy failures. Taking advantage of counties that serve the elderly, ill, mentally ill, disabled and the impoverished is wrong on its face, and it is illegal,” they wrote. The county chief executive's staff has been researching the legality of the proposals, which could hurt county fire district funding. “We’re told that it’s likely not legal,” said Ryan Alsop, assistant to the county’s chief executive. “There are very specific criteria on making decisions on extending redevelopment outlined in statutes.” It has been difficult for even high-ranking county officials to get details of the state budget plan. “The information has been essentially embargoed,” said the county’s chief executive, William T. Fujioka. “We’ve been trying every possible resource we have to get that information.” Fujioka told supervisors he expects to learn more about the state budget plan’s impact on county funding by tonight.

Housing sales data contaminated in Miami-Dade county - (eyeonmiami.blogspot.com) M iami-Dade County's online property information has a cult-like following in some circles. There are the professionals who rely on the information for business matters, and home buyers who use it to help measure property values. And then there are the just plain curious, who'll enter the site to snoop at how much their neighbor's house cost or to compare tax bills. In fact, since January the website has had almost three-quarters of a million visitors, who visited a total of about two million times. Among them was Grisel Lopez. Today, however, she no longer gives the information the credibility she once did. The reason? She recently learned that if a property was bought out of foreclosure the sales date and price won't be reflected. Instead, the site shows the date and price of the previous sale. With foreclosures accounting for a large percentage of sales today, that means that potentially thousands of properties have or will have misleading information on the site. OUT OF DATE: Last September, Lopez purchased a home out of foreclosure for just over $292,000. The house had previously sold during the real estate frenzy for $495,000. Curious, she went online a few weeks ago to look up the county's information about her new house. ''It had my name,'' she says, ``but it had the old sales date and price.'' Assuming it was a simple data-entry mistake, she called the county Property Appraiser's Office. It wasn't an error, she was told. Because the sale was a foreclosure, and the Property Appraiser's Office isn't recognizing foreclosure sales, the new sales price wasn't listed and the old, previous price and date remained -- with her name attached to it. 'I told them, `That's misleading information; you're falsifying records,' '' recalled Lopez, exasperated. Certainly, she thought, someone higher in the command chain would correct the problem. So she made more calls, to no avail. Then her father visited the site, www.miamidade.gov, to look at information on other properties he knew had been purchased out of foreclosure. Sure enough, she says, the new owners were listed but the old sales prices remained. That the Property Appraiser's Office is knowingly putting out misleading property information is disturbing on many levels, particularly when many of the site's users deem its content to be official and reliable. It is one more consequence of the office's decision to ignore foreclosure sales when assessing values, a move that is helping to prop up property taxes. `NOT QUALIFIED': Patrick Smikle, a spokesman for the Property Appraiser's Office, confirms that sales dates and prices of foreclosed properties are not being updated online. ''We do not list sales information for sales we consider as not qualified,'' he said. Understood. But, I emphasized, the information being given to the public is not correct. Lopez, for example, did not buy her house on the date nor for the price the county shows online. Why not simply list the sales date and price as ''unqualified'' or, perhaps leave it blank? Smikle wasn't sure of the answer. But he said the office is planning to revamp the site so that more information about a property's sales history can be included. Among the changes, he said, would be to include the prices of foreclosed homes and have a way to indicate that those are unqualified sales. When will that happen? There's no telling, he says; no deadline or time frame has been established.

Subprime brokers mutate into loan fixers - (www.msnbc.msn.com) From the ninth floor of a downtown office building on Wilshire Boulevard, Jack Soussana delivered staggering numbers of mortgages to homeowners during the real estate boom, amassing a fortune. By Mr. Soussana’s own account, his customers fared less happily. He specialized in the exotic mortgages that have proved most prone to sliding into foreclosure, leaving many now scrambling to save their homes. Yet the dangers assailing Mr. Soussana’s clients have yielded fresh business for him: Late last year, he and his team — ensconced in the same office where they used to broker mortgages — began working for a loan modification company. For fees reaching $3,495, with most of the money collected upfront, they promised to negotiate with lenders to lower payments on the now-delinquent mortgages they and their counterparts had sprinkled liberally across Southern California. “We just changed the script and changed the product we were selling,” said Mr. Soussana, who ran the Los Angeles sales office of Federal Loan Modification Law Center. The new script: You got a raw deal, and “Now, we’re able to help you out because we understand your lender.” Mr. Soussana’s partners at FedMod, as the company is known, were also products of the formerly lucrative world of high-risk lending. The managing partner, Nabile Anz, known as Bill, previously co-owned Mortgage Link, a California subprime lender, now defunct, that once sold $30 million worth of loans a month. Jeffrey Broughton, one of FedMod’s initial partners, served as director of business development at Pacific First Mortgage, a lender that extended so-called Alt-A mortgages for borrowers with tarnished credit for Countrywide Financial, which lost billions of dollars on bad mortgages before being rescued in an acquisition.FedMod is but one example of how many of the same people who dispensed risky mortgages during the real estate bubble have reconstituted themselves into a new industry focused on selling loan modifications. Despite making promises of relief to homeowners desperate to keep their homes, FedMod and other profit making loan modification firms often fail to deliver, according to a New York Times investigation based on interviews with scores of former employees and customers, more than 650 complaints filed with the Better Business Bureau, and documents filed by the Federal Trade Commission in a lawsuit against the company.

White House declines to disclose visits by health industry executives - (www.latimes.com) Invoking an argument used by President George W. Bush, the Obama administration has turned down a request from a watchdog group for a list of health industry executives who have visited the White House to discuss the massive healthcare overhaul. Citizens for Responsibility and Ethics in Washington sent a letter to the Secret Service asking about visits from 18 executives representing health insurers, drug makers, doctors and other players in the debate. The group wants the material in order to gauge the influence of those executives in crafting a new healthcare policy. The Secret Service sent a reply stating that documents revealing the frequency of such visits were considered presidential records exempt from public disclosure laws. The agency also said it was advised by the Justice Department that the Secret Service was within its rights to withhold the information because of the "presidential communications privilege." Citizens for Responsibility and Ethics said it would file suit against the Obama administration as early as today. The group already has sued the administration over its failure to release details about visits from coal industry executives. A White House spokesman, Ben LaBolt, said, "We are reviewing our policy on access to visitor logs and related litigation." As a candidate, President Obama vowed that in devising a healthcare bill he would invite in TV cameras -- specifically C-SPAN -- so that Americans could have a window into negotiations that normally play out behind closed doors. Having promised transparency, the administration should be willing to disclose who it is consulting in shaping healthcare policy, said an attorney for the citizens' group. In its letter requesting the records, Citizens for Responsibility and Ethics asked about visits from Billy Tauzin, president of the Pharmaceutical Research and Manufacturers of America; Karen Ignagni, president of America's Health Insurance Plans; William Weldon, chairman and CEO of Johnson & Johnson; and J. James Rohack, president of the American Medical Assn., among others. "It's extremely disappointing," said Anne Weismann, the group's chief counsel. Obama is relying on a legal argument that "continues one of the bad, anti-transparency, pro-secrecy approaches that the Bush administration had taken. And it seems completely at odds with the president's commitment . . . to bring a new level of transparency to his government."

California hotels flood the market - (www.latimes.com) The slump in the hospitality business -- made worse by the real estate crash -- has led to dramatic increases in the number of hotels that can't pay their bills. About 250 hotels are in default or foreclosure in California, according to the Irvine consulting firm Atlas Hospitality Group. Los Angeles County has the highest number of troubled hotels: 27, including the 469-room Marriott in downtown L.A., according to a new Atlas report. With the trend expected to continue throughout 2009, as many as 500 properties could be in default by year's end, Atlas President Alan X. Reay said. Hotels are facing a double-whammy: a slowdown in the hospitality business and the devastation in the real estate market. As a result, owners can't easily sell their properties if they run into trouble. Only 49 California hotels changed hands during the first six months of this year, down from 100 a year earlier, according to Reay, who wrote the report. At the same time, the number of hotels on the market jumped 53%. That's a record low number of sales and a record high number of hotels that are on the block. "It's really a perfect storm for California hotels right now," Reay said. "If we continue at this pace, it will take 10 years to sell all the hotels on the market. And that is if there aren't more hotels that become available for sale." There were 941 hotels still on the market in late June, meaning that in the first half of the year more than 19 hotels were left unsold for every one that was sold. The typical ratio is closer to 2 to 1, Reay said. To move forward, he said, there needs to be a complete re-pricing of the market. In Los Angeles County, the number of hotels sold plummeted 91% in the first half of 2009. "If there's any silver lining in this report," Reay said, "it's that this is going to be the best buyer's market in the last 20 to 25 years."

OTHER STORIES:

Australia Inflation Slows to Decade Low - (www.cnbc.com)

AMD Posts Wider-Than-Expected Loss; Shares Tank - (www.cnbc.com)

Wall Street Analysts Are Wrong, But Is the Market Right? - (www.cnbc.com)

Earnings on Crash Diet of Cost-Cutting, Weak Revenue - (www.cnbc.com)

Happy Days Are Here Again, Or Are They? - (www.cnbc.com)

States Handing Out the Most Welfare Checks - (www.cnbc.com)

Another way realtors lie - (www.bloomberg.com)

Overdevelopment Leaves Hundreds Of Apartments Vacant In Brooklyn - (www.ny1.com)

Flippers' toll: On Gulf Coast, half a billion in defaults - (www.heraldtribune.com)

The commercial real estate time bomb - (moneyfeatures.blogsmoney.cnn.com)

Economist Shiller Sees "Bad Recession," Stock Danger - (moneynews.newsmax.com)