KeNo's Housing and Economic Portal: Sunday December 27 Housing and Economic stories

KeNosHousingPortal.blogspot.com

TOP STORIES:

Former 'Monster House' owner jailed after strange court hearing - (www.nctimes.com) The former owner of an Olivenhain mansion who is accused of stealing $1 million worth of fixtures from the bank-foreclosed home repeatedly refused to identify herself at her arraignment Tuesday, prompting a Vista judge to handcuff her in the middle of the proceedings and finally order her to jail. Suzy Brown, 45, eventually pleaded not guilty to one count of grand theft and one count of felony vandalism, but not until the hearing had been postponed several times because of the unusual actions of the short-haired woman in a pantsuit who, to the amusement of many in the courtroom, wouldn't admit she was the defendant. It is not clear why Brown would not acknowledge her identity ---- which Judge Marshall Hockett eventually confirmed through a copy of her Department of Motor Vehicles photo that the court requested ---- but Brown apparently contested the legality of the complaint against her issued by the district attorney's office, according to her attorney. "Ms. Brown claims she has not seen what she calls a 'genuine charging document,'" said public defender William Matthews, who stepped in to represent Brown after Hockett declined Brown's request to represent herself. From the start of the afternoon hearing, Brown would not say who she was. She said she had no identification with her. "Are you or are you not Suzanne Meredith Brown?" Hockett asked, getting fed up. "... You're playing games with the court." "I'm genuinely not playing games," Brown said with a deferential, somewhat pleading tone. The judge rebuffed her requests to approach him. Brown had no attorney, so Hockett asked her if she wanted to represent herself. Apparently loath to agree she was Brown, she hesitated to accept a form required for self-representation. A few snickers rose from the public gallery. Brown eventually took the form and sat cross-legged on the floor at the back of the courtroom, filling it out while the court addressed other cases. Later, Hockett again called Brown, and a court employee took her form. This time, the judge asked her to approach, but she refused. She requested repeatedly to see the charging documents against her. "You're not running this court," Hockett told her. "If it pleases the court, I'd prefer to stand here if I'm not allowed to inspect the charging instrument against me," Brown said. At that point, sheriff's deputies handcuffed Brown and led her to the glass-enclosed area for defendants in custody. Hockett appointed a public defender, denying Brown's request for self-representation after noting her form was incomplete. After a long conference with her public defender, Brown pleaded not guilty to the charges, reserving the right to contest the legal document's validity. Matthews declined to detail specific faults Brown found in the district attorney's office's complaint, but he said she had inspected it. Brown was charged in November after a seven-month investigation into a $1 million theft from the 16,000-square-foot home at 3225 Fortuna Ranch Road. The theft occurred days after Brown moved out of the house and a bank took possession of it in March. While she at first said she had no idea who took imported doors, opulent fixtures and electronics, Brown recently admitted removing most of the property, saying she wanted to protect it from vandals until the bank could hire a security guard. Encinitas sheriff's detectives said Brown has since handed over many of the stolen items. Using her own money and money from investors, the retired electrical engineer built the mansion with plans to run it as a luxury recovery center. Neighbors in the posh, semirural community who dubbed the project the "Monster House" complained, and the city ruled the plans were illegal. Unable to pay her mortgage, Brown lost the home in February.

Star of Real Estate Boom Is Confronting Hard Times - (www.nytimes.com) Through the real estate boom, few new developers filled the city with luxury condominiums as fast as Shaya Boymelgreen. He turned Wall Street corner offices into minimalist bachelor lairs, built TriBeCa apartments snapped up by celebrities like Gwyneth Paltrow and crowded the edges of Park Slope, Brooklyn, with condos. But Mr. Boymelgreen, 58, has since retreated mightily from the limelight as his fortune has reversed. He is battling a bankruptcy filing against one of his companies, eviction from his Brooklyn headquarters — a judge ruled Tuesday morning that the proceedings could move forward early next year — and the seizure of a Queens theater in what the buyer calls a “friendly foreclosure.” Condo owners are filing lawsuits over his construction. He has cut his staff to 15 from 200, his spokeswoman says, and several former co-workers report that the five of his eight children who are in the family business are looking for other employment. Mr. Boymelgreen arrived in New York City from Israel in 1969 and worked in asbestos removal before getting involved in small development projects. His break came in 2001, when he met the diamond magnate Lev Leviev on a cruise, and the two became business partners. Mr. Boymelgreen went on to build more than 2,400 apartments in New York City and expanded his real estate empire into more than a dozen countries. As his star rose in the real estate world, so did his public profile. Mr. Boymelgreen regularly appeared at construction sites with his hulking driver, entertained employees at his lakefront compound upstate and hosted real estate executives at a martini-infused private concert by John Legend. “This guy was headed to be the next Robert Moses,” said Howard L. Zimmerman, an architect whose firm was hired by residents of three of Mr. Boymelgreen’s Brooklyn buildings to address construction problems. “He just flamed out. I don’t think he had the infrastructure to sustain the growth.” For his part, Mr. Boymelgreen has said little and has kept his message upbeat. “We’re dealing with the problems we have as serious and worthy of our full attention,” he said in a statement. “Setbacks are difficult and regrettable, but when you lose your confidence you’ve lost all.” Sara Mirski, managing director of development for Mr. Boymelgreen, maintains that he will develop the Queens theater site along with properties on West 23rd Street, upstate and in Texas. He is just waiting for “when financing is available,” she said. But the developer Sam Suzuki said that his lawyers were drafting a contract to buy the theater property’s mortgage from the bank, that he was doing due diligence on the property and that he planned to close early next year. Meanwhile, a recent condo project at 20 Pine Street, in the financial district, remains entangled in a dispute with Mr. Leviev’s company, Africa Israel USA, over construction responsibilities, said Richard A. Marin, the company’s chief executive. Relations between Mr. Boymelgreen and Mr. Leviev have been sour since a split in 2007. LibertyPointe Bank, which Mr. Boymelgreen founded in 2005, received a cease and desist notice from the Federal Deposit Insurance Corporation in July, ordering it to halt some of its business, like commercial real estate loans. The bank’s president, Merton Corn, said it was working to collect on the troubled loans and had not been making any new ones. On Friday, the F.D.I.C. gave the bank 30 days to raise cash. Mr. Corn said that he hoped to raise the necessary capital and that he had “a couple of prospects.” Mr. Boymelgreen is also facing criticism from residents of earlier projects. Gus Sheha of 402 Main Street, a 20-unit Boymelgreen building in Brooklyn’s Dumbo neighborhood, said residents have spent $250,000 on repairs since 2003 — including work to connect the building’s waste line to the city’s so that sewage would stop flowing into the street. Mr. Sheha said that in 2005 Mr. Boymelgreen offered the building’s residents a $250,000 settlement if they agreed to sign a waiver releasing him from liability for any new problems; they turned him down.

Silicon Valley: Abandoned - (www.businessinsider.com) Silicon Valley's booms set fire to the local real estate market and new construction followed. But after a year or so of recession, south bay is littered with ghost buildings and empty office complexes. At 20.5%, vacancy rates are the highest they've been in the Valley since 2003. Vacancy in research and developments spaces is at 18.9%, according to CB Richard Ellis. In Sunnyvale, more than half of the available offices are empty. Combined, a total of 41.7 million square feet of R&D and office space lay bare in Silicon Valley. That's twice the size of Monaco.

Dubai debt woes may hit U.S. property market - (www.reuters.com) Dubai's debt woes could further unhinge an already fragile U.S. commercial real estate, as it illustrates the importance of that tiny country to global investors in an increasingly interconnected world. A state-owned investment conglomerate Dubai World, with $59 billion of liabilities, set off a global stock market selloff this week after it said it wants to restructure its debt, including at its property subsidiary Nakheel. "This downturn has had more of a global impact," said Tony Ciochetti, chairman of Massachusetts Institute of Technology's Center for Real Estate in Cambridge, Massachusetts. "As I try to explain to my students, with a global economy, we're all attached at the hip financially in some way, shape or form," he added. The Dubai news also cast doubt over the strength of the fledgling U.S. economic recovery, and the prospects for a bottoming of property prices. On Friday alone, the Dow Jones U.S. Real Estate Index .DJUSRE fell 2.9 percent, nearly twice the decline of broader U.S. market indexes. "Dubai may have to unload some very prestigious properties at distressed prices and this will drive the price of all commercial real estate lower," wrote Richard Bove, a banking analyst at Rochdale Securities in Lutz, Florida. PRESTIGIOUS PROPERTIES: In the United States, Dubai World's portfolio includes several well-known properties, and the fallout could have a larger impact on the entire real estate market. The company is a partner with casino operator MGM Mirage (MGM.N) in the $8.5 billion CityCenter project, which would add 6,000 rooms to a Las Vegas Strip gambling corridor already saturated with unoccupied hotel rooms. Nakheel, perhaps best known as the developer of Dubai's palm-shaped islands, also carries the Mandarin Oriental and W hotels in New York in its portfolio, and has a 50 percent stake in the Fontainebleau Miami Beach resort. And, through its Istithmar affiliate, Dubai World controls the upscale retailer Barneys New York Inc DBWLDB.UL.

Sheikh attacks investors for global fallout of Dubai debt - (www.independent.co.uk) The ruler of Dubai hit out at international investors yesterday as his government's impecunious investment vehicle revealed plans to restructure $26bn of its debts. Sheikh Mohammed al-Maktoum said: "They do not understand anything." The Gulf city-state's problems began last week when the highly leveraged Dubai World requested a standstill agreement on a $3.5bn (£2.1bn) bond issued by its Nakheel real estate subsidiary which was due in mid-December. Nakheel is the developer most exposed to the collapse of Dubai's property market. After days of uncertainty that sent shudders throughout the world's stock markets, Dubai World finally unveiled plans to address the liabilities of its two property ventures – Nakheel and Limitless – after midnight on Monday night. The timing of Dubai's request for a debt standstill, on the eve of the four-day Eid holiday, drew criticism from financial communities across the globe. But in his first public comments since the crisis broke, Sheikh Mohammed had harsh words for investors and remained bullish about Dubai's economy. "We are strong and persistent," he said. "It is the fruit-bearing tree that becomes the target of [stone] throwers." Dubai World says its restructuring plans will not include the vast conglomerate's "financially stable" units, such as the DP World ports business, the Istithmar investment fund and the Jebel Ali Free Zone – an economic area offering business services, infrastructure and tax breaks. The process will cover several phases including assessment of stakeholders' long-term plans, determination of profitability and consideration of asset sales. Discussions with the banks are "proceeding on a constructive basis" and are expected to conclude swiftly. In the meantime, contrary to its performance so far, Dubai World is to "adopt a policy of regular communication and will provide further updates as this process develops". About $6bn of the $26bn total debt relates to Nakheel's three sukuks, or Islamic bonds. Bondholders have been asked to pick representatives "with whom discussions can commence". The law firm Ashurst has already been appointed by a group of creditors holding more than a quarter of the Nakheel bond that matures later this month. Clarity about the extent of Dubai's troubles led to a rally in the US markets on Monday. The FTSE 100 jumped 1.5 per cent when it opened in London yesterday and closed more than 2 per cent higher. But the Gulf's stock exchanges responded less favourably. After a torrid day on Monday – the first day of trading after Eid – Nasdaq Dubai dropped another 3.6 per cent yesterday, while Abu Dhabi's bourse lost 5.6 per cent and Qatar's more than 8 per cent. In the UK, bank stocks have largely recovered the £14bn lost when last week's revelations from Dubai raised fears of further massive writedowns. Yesterday, Fitch Ratings confirmed that the creditworthiness of the major institutions was unlikely to be affected. Early reassurances to the sector came at the weekend when the UAE Central Bank created an emergency liquidity facility for both local and international banks. In a further sign that concerns in the Gulf are easing, the UAE interbank rate fell slightly yesterday. The cost of insuring Dubai's debt is also falling, although it is still considerably higher than it was before the crisis hit.

Nearly 70 percent of LV houseowners underwater on mortgage - (www.lasvegassun.com) Homeowners in the Las Vegas area continue to be punished by dropping prices, with the number underwater in their mortgages surpassing 319,000 or 69.5 percent. That's according to First American CoreLogic, which last week issued negative equity numbers for home mortgages and home equity lines of credit. The company, based in Santa Ana, Calif., found that in September, nearly 10.7 million, or 23 percent, of residential properties nationwide with mortgages were in negative equity. First American said that negative equity, often referred to as "underwater" or "upside down," means that borrowers owe more on their mortgage than their homes are worth. Negative equity can occur because of a decline in value, an increase in mortgage debt or a combination of both. In the Las Vegas-Paradise statistical area, 319,873 residential properties with a mortgage were in negative equity as of September, First American said. First American said negative equity was concentrated in four states where housing markets boomed during the mid 2000s -- Nevada (a 65 percent rate), Arizona (48 percent), Florida (45 percent) and California (35 percent) -- and in Michigan, 37 percent, hard-hit by the recession. Among these top five states, the average negative equity share was 40 percent; compared to 14 percent for the remaining states. First American made these points in its report:

--The rise in negative equity is closely tied to increases in pre-foreclosure activity. Borrowers with equity tend to have very low default rates.

--The default rate for investors with negative equity is typically 2 to 3 percent higher than owner-occupied homes with similar degrees of negative equity.

--Upside down borrowers typically financed their properties between 2005 and 2008.

--Many purchased new homes. For homes built between 2006 and 2008, the negative equity share nationwide was 40 percent.

--Many borrowers relied on adjustable rate mortgages (ARMs)

--Many bought less-expensive properties. The average value for all properties with a mortgage is $270,200, but properties in negative equity have an average value of $210,300. The average mortgage debt for properties in negative in equity was $280,000 and borrowers that were in a negative equity position were upside down by an average of nearly $70,000.

"Negative equity continues to be pervasive and to impact almost every segment of the housing market. The recent improvement in home prices this past spring and summer has slowed the increase in negative equity, but it will take a significant rebound in home prices, which we are not expecting, to offset the dampening effects of negative equity in the most depressed states," Mark Fleming, chief economist with First American CoreLogic, said in a statement.

Junk mortgage story just gets worse - (money.cnn.com) Back two years ago when the mortgage meltdown was heating up, we wrote an article called "Junk Mortgages Under the Microscope" dissecting a particularly wretched mortgage-backed securities issue peddled by Goldman Sachs. We wanted to show how these complex securities really worked and how Moody's and S&P, the rating agencies, aided and abetted the process by giving two-thirds of an issue backed by ultra-risky second mortgages the same safety rating they gave to U.S. Treasury securities. We thought this was a cautionary tale -- but it's turned into a horror story. All the tranches of this issue, GSAMP-2006 S3, that were originally rated below AAA have defaulted. Two of the three original AAA -rated tranches (French for "slices") are facing losses of about 90%, and even the "super senior," safer-than-mere-AAA slice is facing losses of 25%. How could this happen? And what lessons can we take away from it? Let's revisit the way this security was put together, and how and why it fell apart. And for the first time, we can even estimate the value -- low -- of the mortgages backing it, thanks to a new service called ABSNet Loan HomeVal. Our tale begins in April 2006, when Goldman Sachs sold $494 million of securities to institutional investors seeking yields somewhat above those that were available on U.S. Treasuries or high-rated corporate bonds. It was an especially hinky offering, because it was backed by second mortgages rather than by traditional first mortgages. A first mortgage rarely becomes completely worthless, because a house is usually worth something. But often all it takes is a decline of 20% in a home's value to wipe out a second mortgage, which is typically piled on top of an 80% first mortgage. In our case, borrowers' stated equity in their homes averaged less than 1% -- 0.71%, to be precise. Even that was doubtless overstated because a majority of the mortgages were low-documentation and no-documentation. Despite these problems, the formulas used by Moody's and S&P allowed Goldman to market the top three slices of the security -- cleverly called A-1, A-2 and A- 3 -- as AAA rated. That meant they were supposedly as safe as U.S. Treasury securities. But of course they weren't. More than a third of the loans were on homes in California, then a superhot market, now a frigid one. Defaults and rating downgrades began almost immediately. In July 2008, the last piece of the issue originally rated below AAA defaulted -- it stopped making interest payments. Now every month's report by the issue's trustee, Deutsche Bank, shows that the old AAAs -- now rated D by S&P and Ca by Moody's -- continue to rot out. As of Oct. 26, date of the most recent available trustee's report, only $79.6 million of mortgages were left, supporting $159.9 million of bonds. In other words, each dollar of bonds had a claim on less than 50¢ of mortgages.