Friday October 30 Housing and Economic stories

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Hercules housing loans bump up assessments, resident finds ... - (www.insidebayarea.com) Inflated prices on condominiums underwritten or purchased outright by the Hercules Redevelopment Agency can affect the property taxes of neighbors, one Foxboro condo owner found. Karen Kahn bought her two-bedroom, two-bath, 954-square-foot condo on Chelsea in June 2004 for $270,000. Last fall, she sent a form to the Contra Costa County Assessor's Office requesting a reduction in her property tax assessment, in light of the regional crash in real estate values. On March 23, Kahn received a letter from the assessor's office: "We regret that we are unable to justify a reduction ... of your (assessed) value of $292,256." When she called in May to protest, an assessor's official told her a somewhat smaller condo on the same street had sold for $350,000 a few months earlier, Kahn said. Recent sales of "comparable" properties factor into property tax assessments. That 869-square-foot condo, on the 1500 block of Chelsea, once belonged to Rachael Redford, project manager for the Hercules Affordable Housing Department, run under contract by NEO Consulting Inc./Affordable Housing Solutions Group. In December 2008, Redford sold the condo -- thanks to no-cash-down, 100-percent financing of $351,606 from the Hercules Redevelopment Agency -- to someone who, according to City Manager Nelson Oliva, would not have qualified for a conventional bank loan, not even at the condo's market value, which last week stood at about a third of the recorded sale price. The Web site href='http://Realtor.com'>Realtor.com listed four condos identical in size to Redford's in the same subdivision for sale last week from $108,000 to $120,000. Redford bought the condo in 2006 for $345,000 with the help of a $50,000 First Time Homebuyer Loan from the redevelopment agency and a $295,000 bank loan for the balance. In June 2008, the agency bailed out Redford under the Homeownership Retention and Loss Mitigation Program, paying off the bank for the full $295,000 mortgage principal and stepping in as first lender. The HRLMP program, approved by the Hercules City Council in May 2007, is supposed to "provide a system of support" to borrowers of the Hercules affordable housing program "to avoid foreclosure and loss of their home as a result of financial difficulties." The program also protects the agency's initial investment in a property, such as a first-time homebuyer loan, Oliva has said. Six months after the agency bailed her out, Redford sold her condo. Oliva said Redford had gotten married; she was out of the office on maternity leave last month and has not responded to several recent e-mails. City spokeswoman Doreen Mathews described the sale as a "paper money" transaction. "She (the new buyer) essentially took over both loans, which covered the principal amount of the primary loan, the $50,000 FTHB deferred loan, and escrow fees," Mathews said. HRLMP loans typically are for 40 years at 4 percent a year interest, Oliva has said. Asked about the high sale price in relation to nearby similar condos, the new buyer told the Times that the price did not bother her and that she agreed to it for "personal reasons." She declined to comment further. Kahn, meanwhile, has asked the assessor's office to reconsider her assessment for this year in light of the anomaly of the $350,000 sales price of Redford's condo. She said an official there appeared sympathetic to her argument. She has not received a new tax bill but expects to get it any day. She said she cares not only about her tax assessment but how Hercules is spending public funds. "That's my taxpaying dollars," she said.Hercules Redevelopment Agency records show several other investments in recent years that appear to exceed the market value of the properties.

· $389,942 in September 2007 to buy a duplex on Cottage Lane;

· $270,662 in March 2008 to buy a two-bedroom, 1,126-square-foot condo in the Village Park section; the agency previously had put $50,000 into the property;

· A $396,488 HRLMP loan in October 2007 on a 1,220-square-foot Village Park condo co-owned by a Hercules city employee;

· A $297,589 HRLMP loan in October 2007 on a 930-square-foot condo in the Bravo section owned by a city employee; real estate industry records show two earlier redevelopment agency loans of $35,000 and $35,500.

Agency records also show investments during the 2008-2009 fiscal year of $212,472 in a 778-square-foot Village Park condo and $219,826 in another 869-square-foot condo on Chelsea. NEO Consulting Chief Executive Officer Taylor Oliva and Affordable Housing program general manager Walter McKinney have not responded to recent e-mails seeking comment.

Obama Sides with Republicans on "Patriot" Act Renewal Bill - (www.eff.org) Well, it looks like most of the Senators on the Senate Judiciary Committee weren't swayed by this morning's New York Times editorial, which cited this morning's Committee meeting to consider USA PATRIOT Act renewal as a "critical chance to add missing civil liberties and privacy protections, address known abuses and trim excesses that contribute nothing to making America safer." Instead, the Committee just passed a bill to renew all of the PATRIOT powers that were set to expire at the end of the year, with only a handful of the original reforms that were first proposed by Senators Feingold and Durbin's JUSTICE Act and Committee Chairman Leahy's original PATRIOT renewal bill. Instead of adding more protections to the bill, as EFF and the Times have been urging (along with many other Americans who have been organizing Facebook and Twitter activism around PATRIOT reform), the Committee this morning voted to accept seven Republican amendments to the USA PATRIOT Act Sunset Extension Act to remove the few civil liberties protections left in the bill after it was already watered down at last Thursday's Committee meeting. Surprisingly and disappointingly, most of those amendments were recommended to their Republican sponsors by the Obama Administration. After voting on amendments (vote counts and text of the amendments are now available on the Committee's web site), the Committee voted to pass the PATRIOT bill itself, 11 to 8. Some Democrats voted against it, agreeing with us that it didn't protect civil liberties enough, while some Republicans voted against it because of the few meager privacy improvements it did include:

· Those who voted AYE: Leahy, D-Vermont; Kohl, D-Wisconsin; Feinstein, D-California; Schumer, D-New York; Cardin, D-Maryland; Whitehouse, D-Rhode Island; Klobuchar, D-Minnesota; Kaufman, D-Delaware; Franken, D-Minnesota; Kyl, R-Arizona; Cornyn, R-Texas;

· Those who voted NAY: Feingold, D-Wisconsin; Durbin, D-Illinois; Specter, D-Pennsylvania; Sessions, R-Alabama; Hatch, R-Utah; Grassley, R-Iowa; Graham, R-South Carolina; Coburn, R-Oklahoma

EFF extends its heartfelt gratitude to the only three Democrats who continually stood up for civil liberties throughout this process and ultimately voted no on the final bill: Senators Feingold, Durbin and Specter. We particularly thank Senator Durbin for doing his best to pass an amendment to reform the government's authority to issue National Security Letters (NSLs) for Americans' records without having to show any connection between the records sought to a suspected terrorist or spy, and Senator Specter for cosponsoring Senator Feingold's ultimately unsuccessful attempt to pass an amendment to let the so-called "lone wolf" wiretapping authority expire. We especially thank Senator Feingold for offering an amendment to stop the government from using last summer's FISA Amendments Act to conduct "bulk collection" of Americans' phone calls and Internet communications, even though that amendment was ultimately withdrawn and not voted on after procedural objections from Chairman Leahy. Finally, we congratulate Senator Feingold on the success of his amendment to require that the government "minimize" the records that it obtains with NSLs.

Businesses follow real estate from boom to bust - (www.oregonlive.com) When private equity giant Wasserstein & Co. bought Harry & David in 2004, the future seemed as sweet as one of the Medford company's baskets of juicy Rogue Valley pears. Harry & David's 75-year history of quality and Wasserstein's Wall Street savvy appeared to be a potent blend. Almost immediately, Harry & David took the requisite first steps toward a public stock offering, which held the promise of a hefty payday. But after five years with the private equity sharpies in charge, Harry & David faces bushels of problems. The stock offering never happened. The company lost more than $20 million in its 2009 fiscal year. Sales fell to the lowest level this decade. Moody's downgraded the company's bonds in March, declaring it likely to default on its debt payments. What happened? The economy, of course. There are few more discretionary buys than one of Harry & David's spendy mail-order gifts. For customers nationwide, the company's $29.95 5-pound box of Royal Riviera pears became dispensable after the economy tanked. But it was more than that. Harry & David also illustrates the downside of big debt. After Wasserstein took control, Harry & David's long-term debt soared from zero to $245 million. The debt itself did not drive these companies to the precipice. But it did put additional pressure on their balance sheet and removed much of the cushion they had when the economy soured. For much of this decade, debt was to the economy as meth is to the inveterate tweaker. Consumers and businesses borrowed trillions of dollars at a rate unprecedented in modern economic history and blew through that money in a wild binge of spending. Now, that binge is over and the economy is suffering a nasty case of withdrawal. Some are now talking about "peak debt," the way that energy watchers talk about "peak oil." The inference is that the end of the debt bubble could change U.S. society in nearly as profound a way as the waning of the petroleum-based economy. Companies, investors and governments alike, the thinking goes, must adjust to a new reality of significantly lower consumer spending and lower tax revenue that could last a generation or more. "The thing that has shocked economists and business owners worldwide is how fast and deep consumer demand has declined," said Portland money manager Michael Elfers in a July missive to his investors. "We have reached "peak debt," the point where additional credit is no longer available and interest payments on outstanding debt forces a reduction in spending.

Credit Vise Tightens for Small Businesses - (www.nytimes.com) Many small and midsize American businesses are still struggling to secure bank loans, impeding their expansion plans and constraining overall economic growth, even as the country tentatively rises from its recessionary depths. Most banks expect their lending standards to remain tighter than the levels of the last decade until at least the middle of 2010, according to a survey of senior loan officers conducted by the Federal Reserve Board. The enduring credit squeeze appears to reflect an aversion to risk among lenders confronting great uncertainty about the economy rather than any lingering effects of the panic that gripped financial markets last fall, after the collapse of the investment banking giant Lehman Brothers. Bankers worry about the extent of losses on credit card businesses as high unemployment sends cardholders into trouble. They are also reckoning with anticipated failures in commercial real estate. Until the scope of these losses is known, many lenders are inclined to hang on to their dollars rather than risk them on loans to businesses in a weak economy, say economists and financial industry executives. “The banks are just deathly afraid,” said Sam Thacker, a partner at Business Finance Solutions in Austin, Tex., which helps small businesses line up financing. “I don’t see commercial banks coming back to the market anytime soon.” In the long view, tighter loan standards seem healthy after a terrible crisis attributed in part to years of recklessly lenient lending. But some economists worry that bankers have overshot the boundaries of a healthy reaction, as even strong companies are finding it difficult to borrow. “The banks are still very risk averse,” said Robert J. Barbera, chief economist of the research and trading firm I.T.G. “Regional banks are in a particularly tough spot, because they’re choking on commercial and residential real estate.” Bankers acknowledge that loans are harder to secure than in years past, but they say this attests to the weakness of many borrowers rather than a reluctance to lend. “Banks want to lend money,” said Raymond P. Davis, chief executive of Umpqua Bank, a regional lender based in Portland, Ore. “The problem is the effect that the recession is still having on us. Some of these businesses are still trying to come out of it. For them to go to a bank, if they are showing weak performance, it is harder to borrow.”

Ailing Commercial Mortgage Securities Deepen Commercial RE Woes - (industry.bnet.com) Hawaii’s Maui Prince Resort offers white sand beaches, acres of lush tropical forest, two golf courses and even a hotel featuring cascading waterfalls. What it doesn’t provide is a return on investment. The property, which Morgan Stanley Real Estate and local developers bought only two years ago for $575 million, is in foreclosure after defaulting on a $192.5 million loan. Its investors, which also includes Swiss banking giant UBS, may be wiped out on the deal. The loans behind Maui Prince were financed by commercial mortgage-backed securities, or CMBS. The resort’s failure reflects the troubled market for these bonds, which are backed by a pool of mortgages on commercial properties. The market for CMBS is one leg of the stool supporting the commercial real estate sector, providing a vital source of funding for mortgages on hotels, offices, shopping malls and other business properties. And as we’ve been saying a lot of late, that stool is collapsing. The CMBS market has yet to revive after seizing up last year. In 2007, sales of commercial mortgage-backed debt rose to roughly $240 billion and accounted for nearly half of all commercial lending. Today, sales of CMBS have sunk to just over $12 billion. Loans underpinning CMBS are deteriorating fast. As of August, delinquency rates were seven times their level of a year ago, and 12 times the rate shortly before the real estate bubble burst in 2007. Unpaid balances on CMBS investments, which are typically held by banks, insurance companies, pension funds and other large investors, exceed $28 billion, up a startling 592 percent from 2008 (click on chart to expand).

OTHER STORIES:

Foreclosures Grow in Housing Market's Top Tiers - (www.online.wsj.com)

A Case Study of Distress California Housing: Sacramento County - (www.financemymoney.com)

CA renters enjoy biggest U.S. rent cuts - (lansner.freedomblogging.com)

Rising U.S. Vacancies: Real Estate Is Headed Down - (www.seekingalpha.com)

Tenants and Foreclosure: New Legislation Signed - (tenantsforeclosure.blogspot.com)

Why Higher Asking Prices are a Bad Sign - (www.reallyf'dedhomeowner.com)

All that has been achieved is to put off real pain until later on - (www.reuters.com)

Low Earners Have More Mortgage Trouble - (s.wsj.net)

Stiglitz Says Banks Should Be Banned From CDS Trading - (www.bloomberg.com)

Who Needs Big Banks? - (www.baselinescenario.com)

Writedowns on Mortgage Servicing Make Even JPMorgan Vulnerable - (www.bloomberg.com)

Go to Middle America, Young Men & Women! - (www.newgeography.com)