KeNo's Housing and Economic Portal: Tuesday October 20 Housing and Economic stories

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TOP STORIES:

Goldman Owed $1 Billion if CIT Goes Bankrupt: Report - (www.cnbc.com) Investment firm Goldman Sachs would be due a $1 billion payment if troubled commercial lender CIT Group were to file for Chapter 11 bankruptcy, the Financial Times reported. Goldman Sachs would be due a $1 billion payment if troubled commercial lender CIT were to file for Chapter 11 bankruptcy, the Financial Times reported on Sunday, citing people familiar with the matter. The report said Goldman would be owed the payment under a $3 billion rescue finance package it gave to CIT in June 2008, before the U.S. government bought $2.33 billion of CIT preferred shares in December. According to the FT, CIT "would be required to pay a make-whole amount" that totals $1 billion under that agreement. Goldman is likely to agree to allow CIT to delay payment on some of the amount, according to the report. Beyond the $1 billion payment from its rescue package, Goldman would also receive payment from credit insurance it holds if CIT were to go bankrupt. Goldman and CIT could not be reached for comment.

Firm that runs Hercules' affordable housing program has family ties to city manager - (www.contracostatimes.com) The executive team of the private company that runs Hercules' affordable housing program consists of three daughters of City Manager Nelson Oliva, whose administrative assistant is one of the company's directors, public records show. NEO Consulting Inc., which also does business as Affordable Housing Solutions Group and Hercules Affordable Housing Department, has come under scrutiny recently; public records show the company guided the city into bailing out some owners of "underwater" houses by paying off their mortgages and stepping in as first lender with low-interest, 40-year mortgages. In some instances, the debt was double or more than double the market value of the property. In June 2008, the Hercules Redevelopment Agency put $295,000, on top of an earlier $50,000 loan, into a two-bedroom Foxboro condominium owned by affordable housing project manager Rachael Redford. Four virtually identical condominiums in the same subdivision were listed for sale from $108,000 to $120,000 on a popular real estate Web site last week. A Statement of Information from NEO Consulting Inc. filed with the California Secretary of State on July 29 lists Taylor Oliva as chief executive officer, Gabrielle Oliva as secretary and Adrianna Oliva as chief financial officer; all three list the same Hercules address. Nelson Oliva said the three are his daughters and all are adults. The directors of NEO Consulting Inc. are Eguzki Olano, an administrative specialist for the city, and Walter McKinney, a former police chief of Hawaiian Gardens in Los Angeles County and more recently Desert Hot Springs in Riverside County; McKinney, who is based in Valencia, also is general manager of Hercules' affordable housing program. NEO Consulting Inc. lists its principal executive office in Apple Valley and its principal business office in California at 2192-A Railroad Ave. in Hercules. Oliva said his daughters' business relationship with a contractor to the city poses no conflict of interest because his daughters are adults and he has no financial interest in the company. Oliva said there is no conflict in Olano's simultaneous roles with the city and its contractor because Olano has "no discretion, no responsibility" in affordable housing matters in her city job. As far as Olano's duties with NEO, "you'll have to ask them," Oliva said. Olano, McKinney and Taylor Oliva did not respond to requests for comment. The state Fair Political Practices Commission, in an Overview of Conflicts Laws, says, "You have an economic interest in a business entity in which you, your spouse, your registered domestic partner, or your dependent children or anyone acting on your behalf has invested $2,000 or more." The overview singles out spouses and dependent children but not emancipated children. NEO Consulting — the initials are Nelson E. Oliva's — was founded by Oliva, but he divested himself of his interest in the company in early 2007 before he became Hercules city manager that April, he said.

Iceland exposed: How a whole nation went down the toilet - (women.timesonline.co.uk) A year ago this month, Iceland went bankrupt. We explain how it went from being the world’s happiest nation to one with a bleak future. Along a narrow strip between downtown Reykjavik and the northern coastline lies a jumble of half-built high-rise buildings that was to be the new Manhattan of the north. By Spring this year, the place had become an urban graveyard. Someone has scrawled "CAPITALISM R.I.P." on the side of one of the buildings. Squatters have moved in, converting an abandoned house into a cosy café. The Reykjavikers cheerfully welcomed the presence of some kind of life to this ghost town. The developers, however, did not approve. So, just after Easter, the riot police were sent in with a chainsaw to hack through barricaded doors and pepper spray to disable the young squatters. The clean-up was nasty, brutal and short: it was the official end of Niceland. The Icelandic sense of live-and-let-live was the first casualty of the meltdown. For centuries, island society had functioned on family lines. Yes, there were feuds and friction between family members, but there was tolerance too. The financial collapse, though, brought a rawness to everyday life. While the Nordic rules still applied, no one was hustled out of the office on the day that the banks went under; no one stuffed the clutter of their desks into a cardboard box. But by November, dismissal letters were in the mail. Unemployment rose from under 2 per cent in September 2008 to 10 per cent by the spring of 2009. Although for a decade or so Iceland had imagined itself to be at the centre of the prosperous world, the crash propelled it back into the remote North Atlantic. Its pride was hurt. Icelanders were conscious that they had been steered incompetently and corruptly into the abyss. Yet the political class showed no remorse. David Oddsson — the head of the central bank, who as prime minister had presided over the privatisation of Iceland’s state-owned banks — was quick to blame the magnate Jon Asgeir and the oligarchs; Jon Asgeir blamed both the US for letting Lehman collapse and Oddsson for not responding intelligently; the Icelandic Government blamed the British Government. “There is no culture of ministerial responsibility here,” says a senior official. “The prime minister will say, ‘I didn’t order this, I didn’t cause that, so why should I step down?’ And since the prime minister says that, so do the ministers and department chiefs.” As a result, no one has an interest in discovering why mistakes were made. The main threads of Icelandic rule were too intertwined, matted together: remove any one of these components — say, by an ill-judged confession of incompetence — and the whole edifice was likely to collapse.

The Truth About Jobs That No One Wants to Tell You - (www.huffingtonpost.com) Unemployment will almost certainly hit double-digits next year -- and may remain there for some time. And for every person who shows up as unemployed in the Bureau of Labor Statistics' household survey, you can bet there's another either too discouraged to look for work, or working part-time who'd rather have a full-time job or else taking home less pay than before (I'm in the last category, now that the University of California has instituted pay cuts). And there's yet another person who's more fearful that he or she will be next to lose a job. In other words, ten percent unemployment really means twenty percent underemployment or anxious employment. All of which translates directly into late payments on mortgages, credit cards, auto and student loans, and loss of health insurance. It also means sleeplessness for tens of millions of Americans. And, of course, fewer purchases (more on this in a moment). Unemployment of this magnitude and duration also translates into ugly politics, because fear and anxiety are fertile grounds for demagogues weilding the politics of resentment against immigrants, blacks, the poor, government leaders, business leaders, Jews, and other easy targets. It's already started. Next year is a mid-term election. Be prepared for worse. So why is unemployment and underemployment so high, and why is it likely to remain high for some time? Because, as noted, people who are worried about their jobs or have no jobs, and who are also trying to get out from under a pile of debt, are not going do a lot of shopping. And businesses that don't have customers aren't going do a lot of new investing. And foreign nations also suffering high unemployment aren't going to buy a lot of our goods and services. And without customers, companies won't hire. They'll cut payrolls instead. Which brings us to the obvious question: Who's going to buy the stuff we make or the services we provide, and therefore bring jobs back? There's only one buyer left: The government. Let me say this as clearly and forcefully as I can: The federal government should be spending even more than it already is on roads and bridges and schools and parks and everything else we need. It should make up for cutbacks at the state level, and then some. This is the only way to put Americans back to work. We did it during the Depression. It was called the WPA. Yes, I know. Our government is already deep in debt. But let me tell you something: When one out of six Americans is unemployed or underemployed, this is no time to worry about the debt. When I was a small boy my father told me that I and my kids and my grand-kids would be paying down the debt created by Franklin D. Roosevelt during the Depression and World War II. I didn't even know what a debt was, but it kept me up at night. My father was right about a lot of things, but he was wrong about this. America paid down FDR's debt in the 1950s, when Americans went back to work, when the economy was growing again, and when our incomes grew, too. We paid taxes, and in a few years that FDR debt had shrunk to almost nothing. You see? The most important thing right now is getting the jobs back, and getting the economy growing again.

Wachovia pursuing foreclosure of massive Sunnyvale Town Center - (www.squarefeetblog.com) Wachovia will be pursuing foreclosure of the massive Sunnyvale Town Center project. Meanwhile, contractors and subs have lined up and filed liens against the massive Sunnyvale project – and DevCon, the general also has filed to force a sale. Wachovia has about $120M into the deal, while RREEF and Sand Hill have about $200M into it. Sand Hill Property Co. is 5% of the deal, while RREEF is 95%. The project is about 45% complete. I’ve discussed this project and the developers numerous times in the past, but what Wells is doing is pretty interesting. According to a Business Journal article, the bank notified Sand Hill of its intention to foreclose after putting off a meeting with him for 6-7 months. Aside from his desire to finish up the project despite a significant loss, what’s also interesting is this line from the article: Pau said he has tried to meet with the bank since February, after RREEF stopped funding the development and halted construction, but he was “shut out” of the negotiations. Regardless, the way Wells is going about this is a bit odd. My guess is they probably wouldn’t pursue foreclosure, at least in this manner, unless they have lined up some sort of savior, and both Wells and the “savior” are both betting nobody is going to show up to the court house steps with a $120M cashier’s check.

Ruling Rattles Mortgage Industry - (www.lasvegassun.com) A bankruptcy judge here, joining judges across the country, is throwing a bit of sand in the gears of the mortgage machine and its ruthless foreclosure blade. She has raised this issue: In many home foreclosures springing out of bankruptcy proceedings, the foreclosure is being triggered by a representative of the lender — a surrogate that may not have a legal, equity stake in the proceedings. As a result, it is conceivable — though still something of a legal long shot — that the homeowner who is filing for bankruptcy protection could end up saving his house. The argument that a lender’s surrogate can’t trigger foreclosure has drawn notice of Nevada homeowners, who are preparing a class action lawsuit. They are seeking a preliminary injunction this month to stop their foreclosures. First, some background: Law and custom have long required that property transactions be recorded with a county clerk or “recorder of deeds,” along with information about the person who holds the mortgage, and, if there are multiple mortgages, the place in line of each creditor. For big lenders, tracking that information in hundreds of jurisdictions across the country was an onerous process, so the biggest, including Fannie Mae and Freddie Mac, set up a company that would do it all electronically. It is called Mortgage Electronic Registration Systems and is recognized by its acronym. The MERS name wound up on millions of mortgages, including more than 987,000 in Nevada alone, according to the company. Once people started defaulting on loans, MERS would announce the default on behalf of its bank clients. Consumer activists and attorneys for homeowners began questioning whether MERS, which represents banks but has no direct financial interest in the loans, could legally trigger foreclosure, but judges were generally not sympathetic to the argument. Christopher Peterson, a law professor at the University of Utah’s S.J. Quinney College of Law and a former consumer rights attorney, called the emergence of MERS a somewhat dubious development and said it called into question the legitimacy of mortgages recorded in its name: “MERS has no ownership interest, but they put MERS’ name there instead of the lenders’ name. No legislature said they could do that.” Peterson has been hired by the Reno law firm Hager & Hearne as an expert witness in a class action lawsuit that will seek to invalidate the right of MERS to trigger foreclosure. Their case will rely heavily on a recent Kansas Supreme Court ruling. In that complicated foreclosure case, the court decided this month that MERS had “no right to the underlying debt repayment secured by the mortgage ...” Paul Habibi, a real estate expert at UCLA’s Anderson School of Management, said the decision, though not binding on other states, is a potentially important precedent that “renders MERS somewhat ineffective to proceed with foreclosure.”

Australian realtors face $1m fines for fake bids - (www.theage.com.au) THE Australian consumer watchdog says real estate agencies involved in under-quoting and dummy bidding will be hit with fines of up to $1.1 million from January 1. Australian Competition and Consumer Commission chairman Graeme Samuel said a new Australian Consumer Law is aimed at any businesses involved in misleading and deceptive conduct, including real estate agents. Maximum penalties will be fines of up to $1.1 million for businesses and $220,000 for individuals convicted of dishonest behaviour under the bill, which is now before the Senate. "It's a generic law that applies to all misleading and deceptive conduct — false labelling, false pricing on goods, everything," Mr Samuel told The Sunday Age. "It will cover under-quoting by real estate agents, dummy bidding, the airbrushing of photos." he said. "It's a substantial improvement on where we've been for the last 30 years." Mr Samuel said the law would give the ACCC and all state consumer bodies significant powers to deal with dishonest conduct by businesses. "If someone was engaged in deceptive conduct in the past, the worst they got was a rap over the knuckles," he said. "Offenders were slipping through the cracks in the law — now there'll no longer be any cracks. It's a big step forward. Being hit with penalties in excess of $1 million is going to hurt, as it should." Mr Samuel said businesses could be issued with a substantiation notice where they would have to back up their claims. If they can't, they face being charged with misleading and deceptive conduct. "It's been virtually impossible for us to get compensation or damages or restitution for consumers who suffer loss if a business misleads or deceives them. This new law will give us the capacity to go to court on behalf of consumers."

OTHER STORIES:

US Led Group Joins Race to Buy Volvo from Ford: Report - (www.cnbc.com)

China Calls for Automatic IMF Voting Adjustments - (www.cnbc.com)

Oh, give me a home without a subsidized loan! - (news.yahoo.com)

A Look Ahead To the Great Mortgage Resetting - (www.washingtonpost.com)

Property Websites Could Replace Realtors - (news.sky.com)

Manhattan Apartment Prices Drop for Second Quarter - (www.bloomberg.com)

Short Sales: A Fraying Lifeline for Houseowners - (www.businessweek.com)

Declining house values squeeze reverse mortgages - (www.sfgate.com)

3 More Firms Get OK to Buy Toxic Assets - (www.cnbc.com)

BofA Board Feels Pressure to Tap Replacement CEO - (www.cnbc.com)

The Impact of the Declining Houseownership Rate - (www.calculatedriskblog.com)