KeNo's Housing and Economic Portal: Wednesday November 11 Housing and Economic stories

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TOP STORIES:

Capmark Financial, a Top-Tier Commercial Real Estate Lender, Seeks Bankruptcy - (Mish at globaleconomicanalysis.blogspot.com) Commercial real estate continues to show signs of extreme stress. Please consider Capmark Said Ready to File for Bankruptcy. Capmark Financial Group Inc., one of the nation's largest commercial-real-estate lenders, plans to file for bankruptcy as soon as this weekend, a person familiar with the situation said. The much-expected move underscores the deep problems in the business-property market. After suffering from the collapse in residential mortgages, U.S. banks face steep losses from commercial real-estate loans. Capmark has originated more than $10 billion in commercial real-estate loans, according to Moody's Investors Service. It also represents a blow to the company's private-equity owners. In 2006, a group led by KKR & Co., Goldman Sachs Capital Partners and Five Mile Capital Partners acquired the lender GMAC LLC's commercial-real estate business and renamed it Capmark. As of March 31, the investor group owned about 75% of the company, with GMAC and its employees owning the balance. The Horsham, Pa., company recently reported a $1.6 billion second-quarter loss and warned it might be forced to seek Chapter 11 bankruptcy protection. KKR has already written down its investment in Capmark to zero. Adding to Capmark's pressures, the Federal Deposit Insurance Corp. had notified the company that it must raise capital and boost liquidity at its Utah bank, which has roughly $10 billion in assets. Capmark Financial Pours $600 Million into its Ailing Bank: Inquiring minds are reading Bank Watch: Capmark Financial Pours $600 Million into its Ailing Bank. Capmark Bank, the wholly-owned Utah industrial bank subsidiary of Capmark Financial Group Inc., agreed to a cease and desist order with each of the Federal Deposit Insurance Corp. (FDIC) and the Utah Department of Financial Institutions. The orders require Capmark Bank to maintain a Tier 1 leverage ratio of at least 8% and a Total Risk-Based Capital ratio of at least 10%. Capmark Bank reported $11.1 billion in assets as of June 30 and net loss of $261.3 million. Capmark Bank’s nonperforming loans and foreclosed property assets increased by nearly $240 million from the first quarter to the second quarter and now totals nearly $631 million. About 78% of those assets are related to commercial real estate. State Arbitrage Game Gone Mad: Joe Weisenthal writing for the Business Insider was on top of this story back in September. Please consider Commercial Real Estate May Kill "Well-Capitalized" Capmark Bank. Capmark Financial Group, one of the largest commercial real estate lenders in the US, said this week that it was seeing huge default rates and that it could be headed for bankruptcy. It's the latest in a string of decently-sized, non-Wall Street banks that appear headed for the dustbin of history (or into Sheila Bair's loving embrace) What caught our eye in Bloomberg's report Capmark Distress May Signal Bank Failures Topping 100 was this paragraph: Capmark’s holdings include a banking unit based in Salt Lake City with $11.1 billion in assets and a “well- capitalized” ranking from its regulators, according to the bank’s Web site. Deposits stood at $8.4 billion on June 30, according to the company’s quarterly statement.

USDA Must Buy Pork ‘Immediately,’ Hog Executive - (www.bloomberg.com) he U.S. Department of Agriculture must make funds available immediately to buy pork to keep hog farmers in business, the head of the second-biggest U.S. producer told a House of Representatives subcommittee. Government pork purchases worth $100 million have won the backing of a bipartisan group of 87 lawmakers to support prices for farmers, who have lost money since 2007. Hog futures have dropped about 25 percent in Chicago since April 23, when swine flu began making headlines, depressing consumer demand and curbing exports to major markets including China and Russia. Lawmakers need “to encourage and work with the Secretary of Agriculture to immediately make available” funds for government pork purchases, said Rod Brenneman, the chief executive officer of Seaboard Foods LLC, a unit of Merriam, Kansas-based Seaboard Corp. He testified before a House Agriculture Committee panel that oversees the livestock industry. Hog futures for December settlement rose 0.05 cent, or 0.1 percent, to 53.725 cents a pound on the Chicago Board of Trade. The price has climbed 8.3 percent this month as the dollar fell and concerns eased about the safety of U.S. pork. Yesterday, Russia ended its last ban on U.S. pork and the dollar touched a 14-month low against the euro. Smithfield Foods Inc., the biggest U.S. pork producer, posted its first annual loss since 1975 in June and reported a $162.1 million deficit for its hog-production unit in the three months through Aug. 2. Chief Executive Officer C. Larry Pope cited lower prices and lost export sales stemming from the flu. Legislative Support: Lawmakers led by Senators Al Franken, Democrat of Minnesota, and Richard Burr, Republican of North Carolina, asked Agriculture Secretary Tom Vilsack to increase U.S. spending on pork in letters earlier this month. The group of 24 senators and 63 representatives asked Vilsack to buy more pork in the year that began Oct. 1 through government food programs. The U.S. Department of Agriculture bought $165 million of the meat a year earlier, including $30 million announced on Sept. 3, according to Justin DeJong, a USDA spokesman.

The Dairy Industry Milks Congress for Another Bailout ... - (www.washingtonpost.com) AT $2.87 a gallon, the average price of milk is down 27 percent from a year ago. That means cheaper groceries for recession-weary consumers and more bang for the taxpayer's buck in food stamps and other federal nutrition programs. What's not to like? Well, dairy farmers hate it: They are facing a $12 billion decline in sales this year, according to the National Milk Producers Federation. Many could shut down; some farmers are slaughtering their cows for beef. Rushing to their rescue, Congress has approved a $350 million dairy bailout -- on top of more than $1 billion in regular price-support and direct-payment programs. If you find this hard to understand, we agree with you. Just two years ago, the price of milk was approaching $5 a gallon, thanks to strong U.S. and foreign demand; dairy farmers were making money hand over fist. But no one passed a law telling them to share the windfall with grocery shoppers. Yes, this recession has been unusually harsh, for the dairy industry and everyone else; but U.S. dairy farming has been shrinking for decades, with large-scale producers replacing smaller ones. Between 1970 and 2006, the number of farms fell from 648,000 to 75,000; the average herd size rose from 19 to 120, according to the Agriculture Department. Some farms threatened with bankruptcy today would have gone out of business within a few years anyway. Federal dairy policy was born in the Great Depression, when small, family-run farms produced milk for local markets. Today, the dairy market is national, and an increasing portion of milk is processed into cheese rather than drunk. Yet New Deal-era government programs remain, and even work at cross-purposes: price supports, confusingly known as Federal Milk Marketing Orders, push prices up; Milk Income Loss Contracts (MILC, get it?) encourage production in certain regions, thus pushing prices down. Large feedlot operations in the far West have very different economic interests from mid-size Midwestern farms; both are at odds with the Northeast, where farms are smaller and more pastoral. These interests regularly squabble in Congress. Congress has left it up to President Obama's agriculture secretary, Tom Vilsack, to distribute most of the $350 million bailout. On a recent visit to South Dakota, Mr. Vilsack told an assembly of farmers that it was time for "a longer-term discussion about . . . structural changes in the way the dairy industry is currently operated so we no longer have these rather stark contrasts between boom and bust." Yes, it is. There are already relevant proposals on the table: Reps. Ron Kind (D-Wis.) and Jeff Flake (R-Ariz.) proposed a bill last year to encourage tax-free savings accounts that farmers could build up in good years and draw down in bad ones. It didn't pass. If Mr. Vilsack is serious about avoiding a repeat of this year's fiasco, he'll encourage a truly radical policy rethinking. Dairy farmers should be able to compete in the marketplace -- they have milked taxpayers and consumers long enough.

Institutions ‘haven’t learnt’ from the turmoil - (www.ft.com) Institutional investors share responsibility for the financial crisis, but have learned little from the experience, according to a survey carried out by AQ Research on behalf of the Network for Sustainable Financial Markets. Just 10 per cent of the 208 investment professionals interviewed thought institutional investors were entirely blameless for the near collapse of the financial system, although a further 20 per cent had gone into the crisis thinking they were blameless, only changing their minds as events unfolded. Asked what conclusion they drew from the silence of institutional investors on newly increased remuneration in investment banking, more than half the respondents (55.7 per cent) said it told them institutional investors “haven’t learnt anything from the crisis”. The report also found over 90 per cent of respondents agreed with FT columnist Martin Wolf when he said “the financial sector that is emerging from the crisis is even more riddled with moral hazard than the one that went into it”. While many were optimistic regulators would address this problem, nearly a third of respondents were not so sure. Opinion on whether long-term investors should be given preferential treatment was split, with more than 40 per cent disagreeing and the rest differing on what such treatment should consist of.

If Lenders Say ‘The Dog Ate Your Mortgage’ - (www.nytimes.com) OR decades, when troubled homeowners and banks battled over delinquent mortgages, it wasn’t a contest. Homes went into foreclosure, and lenders took control of the property. On top of that, courts rubber-stamped the array of foreclosure charges that lenders heaped onto borrowers and took banks at their word when the lenders said they owned the mortgage notes underlying troubled properties. In other words, with lenders in the driver’s seat, borrowers were run over, more often than not. Of course, errant borrowers hardly deserve sympathy from bankers or anyone else, and banks are well within their rights to try to protect their financial interests. But if our current financial crisis has taught us anything, it is that many borrowers entered into mortgage agreements without a clear understanding of the debt they were incurring. And banks often lacked a clear understanding of whether all those borrowers could really repay their loans. Even so, banks and borrowers still do battle over foreclosures on an unlevel playing field that exists in far too many courtrooms. But some judges are starting to scrutinize the rules-don’t-matter methods used by lenders and their lawyers in the recent foreclosure wave. On occasion, lenders are even getting slapped around a bit. One surprising smackdown occurred on Oct. 9 in federal bankruptcy court in the Southern District of New York. Ruling that a lender, PHH Mortgage, hadn’t proved its claim to a delinquent borrower’s home in White Plains, Judge Robert D. Drain wiped out a $461,263 mortgage debt on the property. That’s right: the mortgage debt disappeared, via a court order. So the ruling may put a new dynamic in play in the foreclosure mess: If the lender can’t come forward with proof of ownership, and judges don’t look kindly on that, then borrowers may have a stronger hand to play in court and, apparently, may even be able to stay in their homes mortgage-free. The reason that notes have gone missing is the huge mass of mortgage securitizations that occurred during the housing boom. Securitizations allowed for large pools of bank loans to be bundled and sold to legions of investors, but some of the nuts and bolts of the mortgage game — notes, for example — were never adequately tracked or recorded during the boom. In some cases, that means nobody truly knows who owns what.