Wednesday August 5 Housing and Economic stories

KeNosHousingPortal.blogspot.com

TOP STORIES:

Overpriced DC's Watergate Hotel draws no bids at foreclosure auction - (www.mcclatchydc.com) The Watergate Hotel, the iconic property synonymous with the downfall of President Richard Nixon, failed to attract any bids when it was auctioned Tuesday. Joseph Cooper, who wielded the gavel, seemed surprised when there was silence after the auction opened at $25 million. "It's a Washington landmark," said Cooper, the president of Alex Cooper Auctioneers, after calling the bid a few times. Still, no one called out a higher amount. "It's a national landmark, really," he told the crowd. The June 17, 1972, burglary of Democratic National Committee headquarters at the complex was at the center of the scandal that would lead to Nixon's resignation two years later. In the end, New York-based PB Capital Corp., which had lent previous owner Monument Realty $40 million for the property, agreed to take the hotel for $25 million. That means that Monument Realty still owes PB Capital $15 million, said Paul Cooper, the vice president of Alex Cooper Auctioneers, which conducted the auction. "Something good will come out of this," said Michael Darby, the owner of Monument Realty. "This puts it in the hands of a group that can move it forward. It should be a first-class hotel." Darby said the lender will likely look for a private buyer for the hotel, which is estimated to need tens of millions of dollars in renovations to reopen. The city foreclosed on the property Thursday after Monument Realty defaulted on its loan, hurt by a partnership with the failed Wall Street bank Lehman Brothers. It's been closed since 2007, when Monument Realty planned a $170 million renovation. The 251-room, 12-story hotel, built in 1967, is part of a complex of offices and condominiums made famous not only by the scandal, but also as one of the city's most fashionable addresses. Big-name Washingtonians such as Justice Ruth Bader Ginsburg, former Senate leader Bob Dole and former Secretary of State Condoleezza Rice have been residents of the complex. So was Monica Lewinsky, the other woman in the Bill Clinton impeachment scandal, who lived with her mother next door to Dole. About 10 mostly local bidders put down deposits of $1 million to participate in the auction, which also attracted dozens of reporters, spectators and those in the real estate industry. After no one bid, Charles Welch Tiedemann, a lawyer representing Monument Realty, said he wasn't surprised with the outcome, saying it was typical for real estate auctions. "Most everyone in the room was either media or curiosity-seekers," he said.

Realtors cry foul over low-ball appraisals - (money.cnn.com) Ken comment: The realtor and builder industry associations are howling again. If I were lending my own money, I would definitely not trust these two industry groups to provide their own appraisers or appraisals. If I were lending the money, I would demand that my own appraiser be used before lending my money……..Realtors and builders do not care about the quality of the appraisal because they are not providing the financial backing for the deal!!!! Real estate appraisers are the latest villains in the continuing saga of the bursting of the real estate bubble. Industry groups including the National Association of Realtors and the National Association of Home Builders (who were happy using fraudulent and inflated appraisals in previous years) are howling that new appraisal guidelines that went into effect on May 1 are producing below-market appraisals that are killing sales and adding yet another tough hurdle to refinancing. The NAR reports that 17% of its members say they have recently lost one sale due to an appraisal coming in way below a purchase price, and 20% of members say they have lost more than one deal because of low appraisals. NAR’s chief economist Lawrence Yun blamed “faulty valuations that keep buyers from getting a loan” as the reason May home sales data weren’t stronger. The dust-up is a reaction to the new Home Valuation Code of Conduct (HVCC) for mortgages securitized or held by Fannie Mae or Freddie Mac. The new rules prohibit real estate agents and mortgage brokers from hiring the appraiser. The mortgage lender is now in charge of that part of the loan process; the lender can use an in-house appraiser to handle the evaluation or farm it out to an appraisal management company. New York Attorney General Andrew Cuomo pushed through the new regulation as settlement of a 2007 lawsuit that accused mortgage lender Washington Mutual (now subsumed by Chase) of a far-too-cozy relationship with an appraisal management company that used appraisers who were happy to sign off on inflated valuations. Realtors, builders and mortgage brokers insist this corrective measure has swung the pendulum to the other extreme, threatening any chance of a meaningful real estate rebound. Their main gripe seems to be that lenders are relying more on appraisal management companies as middlemen to handle the assignment and execution of appraisals, and the companies — according to the howlers — are assigning appraisers to neighborhoods and entire regions they are wholly unfamiliar with. That then leads to lower appraisals, they say, since only a local would be able to understand the nuances of that particular market.

US financial market bailout tab hits $4.7 trillion - (news.yahoo.com/s/ap) The federal government has devoted $4.7 trillion to help the financial sector through its crisis, a level of assistance equal to about one-third of the overall U.S. economy, a watchdog report said Monday. Under the worst of circumstances, the report said, the government's maximum exposure could total nearly $24 trillion, or $80,000 for every American. The figures are part of a tough new quarterly report to Congress from special inspector general Neil Barofsky, who accuses the Treasury Department of repeatedly failing to adopt recommendations aimed at making one component of the government financial rescue effort more accountable and transparent. The $4.7 trillion commitment to the industry takes into account about 50 initiatives and programs set up since 2007 by the Bush and Obama administrations as well as by the Federal Reserve. Barofsky oversees one of the initiatives — the $700 billion Troubled Asset Relief Program. Much of the government assistance is backed by collateral and Barofsky's $23.7 trillion estimate represents the gross, not net, exposure that the government could face. Because of declining participation in short-term loan programs and because some infusions of money have been repaid, the maximum amount actually spent has declined to a current outstanding balance of $3 trillion, Barofsky said. Treasury spokesman Andrew Williams said the actual cash outlay to date of all the programs cited by Barofsky is actually less than $2 trillion and said the maximum exposure estimate "is inflated in a number of ways."

Regional Banks Wave Red Flag On Economy - (www.forbes.com) With smaller institutions reporting falling consumer and business loan demand, the foundation doesn't seem solid for a recovery. In stark contrast to the second-quarter gains logged by the biggest U.S. banks last week, regional banks that don't have big in-house bond trading desks and depend more heavily on traditional lending are demonstrating what conditions are really like for bankers out there. Not good. Comerica and Regions Financial posted second-quarter losses on deteriorating loan books and a lackluster business climate. Provisions for loan losses about doubled at each bank, which have big real estate exposures in Florida and other parts of the recession-scarred South and Midwest. The banks said loan demand from consumer and business borrowers was down, a sign that revenue growth from lending activities--one of the things politicians in Washington hope will lift the economy to recovery--will be blunted until that turnaround comes. Other large regional lenders, including KeyCorp, SunTrust Huntington Bancshares and Fifth Third, are expected to post losses in the quarter, as is CIT Group, a troubled lender to small and medium-size business. It scrambled over the weekend to arrange a $3 billion rescue deal with its bondholders but acknowledged in a regulatory filing Tuesday that the deal might not keep it out of bankruptcy court after all. Wells Fargo, which inherited a big brokerage division when it bought Wachovia (and inherited a lot of troubled mortgage loans, to boot) is expected to report a profit Wednesday.

Argentina: Winter Meltdown – (www.safehaven.com) It's the beginning of winter in Argentina and the only thing that's hot right now is the capital outflows. To give some idea of how hot, outflows increased by 150% in Q1 to $5.7 billion. If the $6 billion estimate for the second quarter proves correct, that would mean a total of $43 billion has left the financial system since Q3 2007. Individuals and corporations alone accounted for $3.6 billion of net outflow in the first quarter (see Chart 5). At present, the only thing catching on more quickly is Twitter. So what is causing Argentineans to stash their money away in foreign banks and mattresses? President Cristina Fernandez. Since taking office in 2007, the president has been plagued by a messy debt situation left over from the default in 2002 and a slew of heterodox policies implemented by her husband when he was president - not her fault. However, it's the manner in which she has been handling these challenges that has caused the capital flight. To name a few - drastically increased taxation on soy farmers has stoked a farming crisis since 2007, the nationalization of private pension assets in 2008, and a constant stream of dubious inflation statistics to keep the country's inflation-indexed bond payments artificially low. These are not exactly confidence boosters, and if there's anything we have learned over the past year it is that a basis of confidence, trust, and predictability in policymaking is the foundation of stable markets. Just ask Tim Geithner. While these heavy outflows have troubling implications for consumer spending and domestic investment (and thus will exacerbate the current downturn), the real threat is to central bank reserves and the feed-through effects on the currency. Capital inflows normally cover shortfalls on the current account ledger, and the threat stems from the possibility that the central bank may be forced to liquidate some reserves for payment purposes should the outflows continue to accelerate. Reserves are currently stagnating as the central bank fans peso demand by selling dollars and could decrease significantly should a deficit need covering, thus reserve backing would wane for the Argentine peso and a sharp depreciation could be witnessed. Understandably, investors are scared. How will the government cover its interest payments while adding to the mountain of debt this year as it records its first fiscal deficit since 2002? Will it nationalize more assets? Will it slap on capital controls to halt the exodus? Will it...(gulp)... default? What the government needs to do is engineer a swift and transparent structural reform of the public finances. Cut spending, raise taxes a tiny bit, throw out stimulus packages, etc. because the economic pain that the country could potentially face should profligate spending continue will be far worse than tightening the belt right now. Restoring government finances to a sustainable trajectory, using legal and transparent measures, will greatly boost confidence and likely solve the capital flight problem. The question is however, whether the government has the will to do this. Going forward, expect a tumultuous few months as the government grapples with inevitability. Buenos Aires can either change its ways or deal with the consequences. Whatever the path chosen, it shall certainly be a long winter for Mrs. Fernandez and her legislature.

Bernanke Terrified Over Commercial Real Estate, Seeks Still More Power Over Consumers - (Mish at globaleconomicanalysis.blogspot.com) When a member of the Fed admits a problem, especially chairman Bernanke, you can rest assured the problem is far worse than what they admit. Such is case today as Bernanke Says Commercial Property May Pose Risk for Economy. Federal Reserve Chairman Ben S. Bernanke said a potential wave of defaults in commercial real estate may present a “difficult” challenge for the economy, without committing to additional steps to aid the market. Bernanke, testifying before the Senate Banking Committee today, urged lenders to modify “problem” mortgages to avert defaults. Christopher Dodd, the Connecticut Democrat who chairs the panel, told Bernanke that “some have suggested” the commercial market “may even dwarf the residential mortgage problems” in the U.S. It “may be appropriate” for the government and Congress to consider “fiscal” steps to support the industry, Bernanke said today. Ideas for fresh support for the market could include government guarantees for commercial mortgages, Bernanke also said today, while noting no proposal on the subject has emerged. U.S. commercial property prices fell 7.6 percent in May from a month earlier, bringing the total decline to 35 percent since the market’s peak, Moody’s Investors Service said in a report this week. Commercial properties in the U.S. valued at more than $108 billion are now in default, foreclosure or bankruptcy, almost double than at the start of the year, Real Capital Analytics Inc. said earlier this month. “As the recession’s gotten worse in the last six months or so, we’re seeing increased vacancy, declining rents, falling prices -- and so, more pressure on commercial real estate,” Bernanke said yesterday. “We are somewhat concerned about that sector and are paying very close attention to it. We’re taking the steps that we can through the banking system and through the securitization markets to try to address it.” One of the main issues for the industry is that the market for debt backed by commercial mortgages “has completely shut down,” the Fed chief said yesterday. Bernanke Terrified Over Commercial Real Estate: Given the commercial mortgages have "completely shut down", does anyone buy Bernanke's line that he is "somewhat concerned"? Here is the real deal: Bernanke is terrified and so is the rest of the Fed.

OTHER STORIES:

Rich Harvard, Poor Harvard - (www.vanityfair.com)

Goldman owes Paulson a $1 billion bonus - (www.marketwatch.com)

Bernanke: Economy better, but ... - (money.cnn.com)

Key forecaster sees ‘grim' second quarter- (www.globalinvestor.com)

Subprime Brokers Resurface as Dubious Loan Fixers - (www.nytimes.com)

Out of work, out of benefits, out of luck - (money.cnn.com)

US banks warn on commercial property - (www.ft.com)

Ginnie Mae Market May Swell to $1 Trillion on Low Down Payments - (www.bloomberg.com)

Money struggles to pass through banking pipe - (www.ft.com)

US rating agencies escape overhaul - (www.ft.com)

California's biggest government pension funds lose almost $100 billion - (www.latimes.com)

Hedge Funds Had Record Rally in April-June, Eurekahedge Says - (www.bloomberg.com)

China to deploy forex reserves - (www.ft.com)

Spain Housing Collapse Cuts Rents in Worst Glut Since 1950s - (www.bloomberg.com)

China’s New Stock Accounts Advance to 18-Month High - (www.bloomberg.com)

U.S. Home Prices Drop 5.6% in May From Year Ago on Job Losses - (www.bloomberg.com)

Fed Aims to Hold Down Interest Rates - (www.nytimes.com)

Week-to-week mortgage filings up 2.8% as rates rise: MBA - (www.marketwatch.com)

Bernanke dragged into stimulus debate - (www.ft.com)

Bernanke Jabs Back at Fed's Critics In Congress - (www.washingtonpost.com)

Cities spike parking fines to boost revenue - (www.usatoday.com)

Wells Fargo Says Bad Loans Rise in Second Quarter; Shares Drop - (www.bloomberg.com)

Morgan Stanley posts 2Q loss of more than $1.2B - (finance.yahoo.com)

CIT Hit With Interest Rate More Than 25 Times Libor - (www.bloomberg.com)

Goldman Sachs Pays $1.1 Billion for Treasury Warrants - (www.bloomberg.com)

Challenge to Health Bill: Selling Reform - (www.nytimes.com)

CIT Tremors Force Sleeping-Bag Maker to Seek Cover - (www.bloomberg.com)

Endowment Losses From Harvard to Yale Leave Universities Poorer - (www.bloomberg.com)

Too big to fail? Wall Street, we have a problem - (www.ft.com)