KeNo's Housing and Economic Portal: Monday December 28 Housing and Economic stories

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TOP STORIES:

What the FHA's New Criteria Mean for Housing - (www.usnews.com) After the real estate crash decimated the mortgage market, a tiny government agency has assumed an outsize role in the housing recovery. In 2006, the Federal Housing Administration—which insures home loans against default—backed just 3 percent of new home-purchase mortgages. But today, the agency insures nearly 3 out of every 10 new home loans. That's because while banks have raised their lending standards, credit requirements for FHA-backed loans have remained fairly liberal. But after a recent actuarial study concluded that the housing swoon has dragged the agency's reserves below its congressionally mandated level, the FHA is facing mounting political pressure to increase borrower requirements as well. Shaun Donovan, secretary of housing and urban development, responded to such criticism yesterday by outlining a series of steps the agency plans to take to make sure its loans are available and safe. "We want to ensure that we are able to continue to support the housing market in the short term and provide access to homeownership over the long term, while minimizing the risk to the American taxpayer," Donovan told a congressional committee in written testimony. Here are five things you need to know about the development.

1. More money down: The FHA's low down-payment requirement—of just 3.5 percent—is one of the main reasons that agency-guaranteed loans have become so popular. Home loans without FHA backing can come with down payments anywhere from 10 to 20 percent, depending on the market, borrower, and other factors. But the FHA's deteriorating balance sheet has triggered calls for the agency to force borrowers to put more cash down. Rep. Scott Garrett, a Republican from New Jersey, has introduced legislation that would boost the minimum down payment to 5 percent. In his testimony, Donovan indicated that the agency was considering higher down-payment requirements. "We have made the decision to exercise our authority to increase the upfront cash that a borrower has to bring to the table in an FHA-backed loan—to make sure that FHA borrowers have more 'skin in the game' and a stronger equity position in their loans," Donovan said. The size of the potential increase remains unclear, but Donovan said additional details would be released in January. Keith Gumbinger of HSH.com said he expected down payments to increase only slightly, to 3.75 percent or perhaps 4 percent.

2. Higher fees: The major downside to getting an FHA-backed loan is that borrowers must pay into an insurance pool through upfront and annual fees. The agency uses the cash to reimburse lenders in the event of default. But with its cash reserves dwindling as more loans go bad, Donovan said the agency is considering increasing the insurance premiums as well. Although the current 1.75 percent upfront insurance premium remains below its statuary cap, the annual fee is already as high as the law allows it to go. "To protect against future uncertainty in market conditions, we are requesting authority from Congress to raise annual premiums, as this is one of the most effective means of raising capital for the fund with the least impact per borrower," Donovan said.

Multi-Generational Housing - (www.newgeography.com) During the first ten days of October 2008, the Dow Jones dropped 2,399.47 points, losing 22.11% of its value and trillions of investor equity. The Federal Government pushed a $700 billion bail-out through Congress to rescue the beleaguered financial institutions. The collapse of the financial system in the fall of 2008 was likened to an earthquake. In reality, what happened was more like a shift of tectonic plates. The driveway tells the story. The traditional two-story 2,200 square foot suburban home has a two-car attached garage. Today’s multi-generational families fill the garage, the driveway and often also occupy the curb in front of the home. The economic crisis that is transforming America is also changing the way we live. The outcome will change the way America views its housing needs for the balance of the 21st Century. As is often the case, we can more clearly see the future by looking into our past. That is because time and time again America has reverted to its roots when confronted with a challenge. The root of the American family is the home. A century ago, America was an agrarian nation. Most Americans grew up on the farm or in a small town often tied to agriculture. A century ago, our census was 92,000,000, less than one-third of today’s population. Los Angeles was a city of 319,000. Cleveland was the fifth largest city with 560,000. The tenth largest city in 1910 was Buffalo NY with 423,000 souls. A century ago, parents, children, grown children, and grandparents lived together in America’s homes. In 1910, the vast majority of kids did not go off to college. They stayed home and worked the farm. Mom certainly did not drive and usually she did not work outside the home. Grandma – who then as now usually outlived grandpa – did not go off to an active senior housing project or nursing home at age 55. With the average life expectancy at just 49 years, there was little market for such facilities. A young Grandma lived in the family home and helped with the cooking, the sewing and the child rearing. Along the way, we fought in two world wars, America industrialized and the great Middle Class exploded. Our children went off to college and did not return. Our cities exploded. By the end of the century, Los Angeles grew to 3,700,000. The tenth largest city was Detroit with 1,000,000. Children were expected to leave the home shortly after high school and never come back, except to visit. Big changes occurred on the other end of the demographic curve. As life expectancy grew to 75. Grandma had her choice of active senior living, congregate care or a skilled nursing facility when she hit 70 and slowed down. The expectations of greater family dispersion – with young people leaving home early and grandparents on their own – drove much of real estate thinking at the end of the 20th Century. With empty-nesters and young people both heading back to the city, urban planners were focusing on high-rise apartments and condominiums in dense urban areas. Many eagerly anticipated the death of the suburbs since the number of young families declined. Across the country, and even in suburban areas like the City of Irvine, CA brilliant urban planners began rezoning industrial land into high density housing. The face of America was thought to be changing in predictable ways.

'Obama's Big Sellout': White House Caving To Wall Street - (www.huffingtonpost.com) Matt Taibbi is not finished with the financial industry. In a video by Rolling Stone (hat tip to Zero Hedge) that offers a glimpse into Taibbi's forthcoming piece, "Obama's Big Sellout", he details what he sees as the White House's nefarious connections to deregulation champion Bob Rubin. The very day Obama got elected, he brought in a Wall Street-friendly team, Taibbi says, led by former Citigroup exec Michael Froman, a Harvard classmate of the president. Froman was put in charge of running Obama's economic transition team and hired James Rubin, the son of Bob Rubin, a former Goldman Sachs chief and Treasury Secretary under President Clinton, to be his number two. Though he has never actually worked for the Obama administration, according to Taibbi, the Obama administration has long been under the sway of the elder Rubin's philosophy: "[Bob] Rubin probably more than any other person was responsible for the financial crisis by deregulating the economy [while] in the White House. And he had a major role in helping destroy one of the world's biggest company in Citigroup. He has one of the worst tack records you can find, but he was basically the guy who was the architect of the entire Obama policy. Obama put him in charge of everything. " Interestingly, Taibbi also points to Citigroup's influence on White House policy. Tim Geithner was appointed as Treasury Secretary specifically because he helped engineer Citigroup's bailout, argues Taibbi.

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Vegas vacant land prices tumble 50% - (www.lvrj.com) Vacant land prices have tumbled to a six-year low in Las Vegas and are likely to stay there as the recession lingers into 2010, a local real estate analyst said. The average price for raw land in the third quarter was $225,999 an acre, down 50.8 percent from $459,798 an acre in the same quarter a year ago and a steep drop from the peak of more than $900,000 an acre in fourth quarter of 2007, reported Applied Analysis, a Las Vegas business advisory firm. Land values will remain depressed as long as the commercial sector continues to post high vacancy rates, foreclosures persist in the housing market and access to credit remains tight, Applied Analysis principal Brian Gordon said. That doesn't mean investors will let an opportunity pass them by, Gordon said. With nearly 90 percent of land transactions involving a lender through trustee sale or deed in lieu of foreclosure, pockets of opportunity may emerge as both buyers and sellers reset their pricing expectations, he said. "The fundamentals of the market will ultimately dictate pricing," Gordon said Tuesday. "The exit strategy on land acquisition impacts the price people are willing to pay. Property acquired with the intent to develop and lease up ... that (time period) can span several years and that carrying cost factors in." FedEx Corp. found value in the southwest Las Vegas Valley, paying $4.85 million, or $519,317 an acre, for a 9.3-acre parcel at 7000 W. Post Road, near Rainbow Boulevard. That's more than twice the market average. Gordon said many owner-users need to have a specific building in a certain area. Companies such as Pepsi, Freeman Cos., International Game Technology and Creel Printing all bought land in the southwest valley, which is relatively undeveloped and offers easy access to the Strip and McCarran International Airport. Grubb & Ellis research analyst Dave Dworkin said many lenders have been forced to foreclose on property that was purchased at an inflated price, mostly from 2004 to 2006. "Banks are the new land sellers," Dworkin said. "2010 will be the year of opportunity for buyers to strike deals with banks for attractive pricing." It will be difficult to assess true land value going forward because recent appraisals were based on atypical deals, foreclosures or seller financing, he said. Jerry Ritchie, senior vice president of Wells Fargo, said Las Vegas benefited from nearly two decades of tremendous growth, leading to a run-up in prices. Wells Fargo is considering foreclosures case by case, he said.

Recession wipes out Idaho's Tamarack ski resort - (www.sfgate.com) For Dallas retiree Richard Snyder, the thrill of his central Idaho getaway is gone. Snyder built his 3,500-square-foot vacation retreat at Tamarack Resort four years ago, in an era marked by frenetic construction and new lifts whisking skiers to the 7,660-foot summit. Last week, he learned the lifts will be idle this winter - another casualty of the deepest recession since the Great Depression. "It's gone from, 'I can't wait to get out there, it's so great,' to 'Why go?' " Snyder said in a phone interview from Texas. Tamarack has come to a standstill as a Credit Suisse Group-led lending syndicate fights to recover at least a share of the $300 million the resort's owners owe from a construction loan. Tamarack's majority owner Jean-Pierre Boespflug didn't return a phone call seeking comment. Credit Suisse declined to comment. Other Western ski resorts have also been hit by the recession. Southwestern Montana's Moonlight Basin, near Big Sky, filed for Chapter 11 bankruptcy protection this month. In addition, the owners of the swanky members-only Yellowstone Club, also near Big Sky, liquidated opulent furniture in November. But Moonlight Basin and the Yellowstone Club will still fire up their lifts this month. Before Tamarack's Christmas 2004 opening, Boespflug billed the place as America's newest four-season getaway. Tennis star Andre Agassi pledged to build a luxury hotel. President George W. Bush visited in 2005, fishing on nearby Lake Cascade with then-Idaho Gov. Dirk Kempthorne, the man who would become Bush's Interior secretary. Then came 2008 and the real-estate crash. Agassi double-faulted on his hotel plans and workers laid down their hammers as Tamarack's owners ran into trouble with their bankers. A court-appointed receiver running operations shuttered the resort in March 2009, as Credit Suisse refused to cover mounting losses. Even Bank of America is fighting in court to repossess the ski lifts. In a sign of just how far it's fallen, Tamarack has become a target for bargain hunters. One chalet that sold for $900,000 in 2005 recently changed hands for just $200,000.

OTHER STORIES:

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In economic woes, firms count on temp workers - (www.sfgate.com)

Factories can reduce costs by minimizing the raw materials they keep on hand, a practice known as just-in-time inventory. Now many...

Hybrid garbage trucks hit the streets - (www.sfgate.com)

It sounded like a garbage truck and smelled like one, too. Aside from the giant pastoral scene on its side, it even looked like a...

Hotels struggling in economy - (www.sfgate.com)

Like many home owners, hotels are starting to drown in debt. They have been enticing travelers all year with sweet deals: credits for...

Federal intern plan comes to Cal State East Bay - (www.sfgate.com)

Given that the Bay Area is one of the nation's global trading hubs, what better place to bring the Obama administration's latest, and...

Mind paying your neighbor's mortgage for him? - (www.theautomaticearth.blogspot.com)

White House CEO list - (www.politico.com)

San Francisco landlord's rise and fall - (www.sanfranmag.com)

Encinitas Monster House and Extreme House - (www.theleucadiablog.com)