KeNo's Housing and Economic Portal: Thursday December 17 Housing and Economic stories

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Professor advises underwater homeowners to walk away from mortgages - (www.latimes.com) Brent T. White, a University of Arizona law school professor, says that it's in the homeowners' best financial interest to stiff their lenders and that it's not immoral to do so. Go ahead. Break the chains. Stop paying on your mortgage if you owe more than the house is worth. And most important: Don't feel guilty about it. Don't think you're doing something morally wrong. That's the incendiary core message of a new academic paper by Brent T. White, a University of Arizona law school professor, titled "Underwater and Not Walking Away: Shame, Fear and the Social Management of the Housing Crisis." White contends that far more of the estimated 15 million U.S. homeowners who are underwater on their mortgages should stiff their lenders and take a hike. Doing so, he suggests, could save some of them hundreds of thousands of dollars that they "have no reasonable prospect of recouping" in the years ahead. Plus the penalties are nowhere near as painful or long-lasting as they might assume, he says. "Homeowners should be walking away in droves," White said. "But they aren't. And it's not because the financial costs of foreclosure outweigh the benefits." Sure, credit scores get whacked when you walk away, he acknowledges. But as long as you stay current with other creditors, "one can have a good credit rating again -- meaning above 660 -- within two years after a foreclosure." Better yet, homeowners can default "strategically": Buy all the major items they'll need for the next couple of years -- a new car, even a new house -- just before they pull the plug on their current mortgage lender. "Most individuals should be able to plan in advance for a few years of limited credit," White said, with minimal disruptions to their lifestyles. What kind of law school professorial advice is this? Aren't mortgages legal contracts? In so-called anti-deficiency states such as California and Arizona, mortgage lenders have limited or no legal rights to pursue defaulting homeowners' assets beyond the house itself, White said. In other states, lenders may decide that it is not worth the legal expense to pursue walkaways, or consumers may be able to find flaws in the mortgage documents, disclosures or underwriting to challenge the original contract. The main point, he said, is that too often people's emotions get in the way of clear financial thinking about mortgages, turning them into what he calls "woodheads" -- "individuals who choose not to act in their own self-interest." Most owners are too worried about feelings of shame and embarrassment after a foreclosure, and ignore the powerful financial reasons for doing so.

UAE Markets Seen Limit Down on Monday Open - (www.ft.com) UAE markets will face intense selling pressure when they reopen on Monday in the first post-holiday trading after Dubai shocked global markets last week by seeking a debt standstill for two flagship firms. Banks, property and construction firms will stand in the line of fire as investors weigh up the damage caused by the surprise move to restructure government-controlled Dubai World and its property arm Nakheel . "We are probably going to see limit down, unless some sort of clarification of a plan or anything that would elevate investor concerns comes out in the morning," said Haissam Al Arabi, head of hedge fund Gulfmena Alternative Investments. "Dubai will take Abu Dhabi down with it." Moves by the UAE central bank to allay concerns by setting up an emergency liquidity facility was viewed as a necessary albeit minimal policy response. "It might support the market a little bit but I don't think it is enough," said Shawkut Raslan, head of brokerage at Prime Emirates brokerage. "This is the absolute minimum they could have done and suggests they won't be making another announcement before tomorrow morning, which is a little disappointing," said Raj Madha, banking analyst at EFG-Hermes. Equity markets came under severe pressure on Thursday after news that Dubai World, the government investment company burdened by $59 billion in liabilities, sought to delay repayment of some debt. UAE markets open at 0600 GMT on Monday after closing for the Eid al-Adha holiday on November 26. Regional investors are eager for any sort of guidance from the central bank or government ahead of the market open as rumors about the scope and origin of the crisis run rampant.

Dubai World Refused Assets Fire Sale - (www.ft.com) Dubai World has refused to offload assets at fire-sale prices to repay obligations, forcing it to seek a debt standstill, a newspaper report on Sunday quoted an unnamed source at the government-controlled firm as saying. Stocks from Tokyo to New York have been haunted by concern that banks were exposed to state companies in Dubai, though world leaders expressed confidence in the global economic recovery on Friday despite the fears. "The group absolutely refused in the last few months to sell a number of good investment and property assets at low prices," al-Ittihad newspaper said, quoting a source at Dubai World, the holding company at the center of Dubai's debt crisis. Last Wednesday, the government of Dubai asked to delay payment on billions of dollars of debt issued by conglomerate Dubai World and its main property subsidiary Nakheel, as it restructured the Dubai World group. The restructuring is expected to focus on property and foreign investments which have been worst hit by the economic crisis, the source said. "Asset sales should be commercially fair to meet the group long-term strategic goals, beyond the immediate economic pressures," the source added.

Dubai's Debt Woes Signal New Era for Creditors - (www.ft.com) The fact that Dubai has been struggling under huge debts is not a surprise to anyone who has followed the Emirate’s economy over the last 10 years. A huge property-led boom saw money pile into infrastructure and construction projects like the Palm Jumeirah or the soon-to-be-completed 810 meter Burj Dubai tower that will dwarf any building on earth. Building the world’s tallest building has always been viewed by investors as a sign that a local economy is about to head south. Dubai World, the most indebted of Dubai’s state-sponsored companies, owes $60 billion of which $22 billion must be refinanced by 2011. Dubai World and Dubai’s authorities have been able to raise this kind of money in the first place due to implicit support of its oil rich neighbor Abu Dhabi. Dubai has very few energy resources and raises little money via income tax due to its competitive tax policies. The state has consistently run deficits and the Emirate's growth has therefore been funded via the money markets. Dubai is one of 7 Emirates that make up the United Arab Emirates. Abu Dhabi, with huge energy reserves and a sovereign wealth fund thought to be worth $630 billion, is the richest of them. Its banks are major creditors of Dubai and its companies, but news that they are no longer willing to keep buying or refinancing Dubai’s major company’s debt shocked global markets. This week two of Dubai’s biggest companies, Dubai World and Nakheel asked creditors for a debt standstill that has spooked investors across the world.

UAE faces up to $184 billion total debt: BofA-Merrill Lynch - (www.reuters.com) The United Arab Emirate (UAE) has total debt amounting to $184 billion at the end of 2009, according to estimates by Bank of America-Merrill Lynch, which said the region faces a heavy redemption schedule until 2013. Dubai's shock announcement this week that it is seeking to suspend payments on debt of its state-owned conglomerate Dubai World and property subsidiary Nakheel has roiled global markets, raising fears that the emirate which funded a spectacular building boom on a mountain of debt could default. BofA-Merrill Lynch said in a report that the restructuring undertaken by Dubai would be a serious blow to the Gulf region's economic recovery prospects, adding that the scale of the region's debt was now the issue. "The lack of official debt data may add up to uncertainty and cause higher risk premiums," it said. Of the $184 billion UAE debt, Dubai holds $88 billion while Abu Dhabi accounts for $90 billion. BofA-Merrill Lynch said the debt servicing cost will be higher than these estimates as their numbers only include the principal payments. The bank said Dubai faces almost $50 billion of debt amortization in the next three years: $12 billion in 2010, $19 billion in 2011 and $18 billion in 2012. "We estimate the total debt for Dubai World as $26.5 billion, 80 percent of which needs to be paid back in the next three years," added BofA-Merrill.

Obama to announce Afghan troops plan - (www.ft.com) President faces suspicions within ranks of his party Barack Obama is seeking to win over his own Democratic party as he prepares to announce a troop increase in Afghanistan in perhaps the biggest decision of his presidency to date. In a speech to cadets and officers at the West Point academy on Tuesday evening, Mr Obama is due to authorise the dispatch of a brigade of 9,000 or more marines to the south of Afghanistan, as well as announcing the deployment of accompanying army brigades. The president will have to overcome considerable suspicions within the ranks of his own party about the new course, which could affect his re-election hopes as well as America’s standing in the world. Carl Levin, chairman of the Senate armed services committee, told CBS on Sunday: “We already have more troops in Afghanistan than there are Afghan troops being partnered in Afghanistan.” He said the ratio in Helmand province was “five Americans for each Afghan soldier” and added: “It should be reversed.” In total, the deployments Mr Obama will announce could be about 30,000 strong and take more than a year to put in place. In addition Washington is looking for its partners inside and outside Nato to provide up to 7,000 accompanying troops. US officials and analysts caution that Mr Obama may not announce a specific number and that one of the army brigades he is announcing may be held in reserve. His choice would fall short of the US military’s request for 40,000 more troops to add to the 68,000 US forces already in Afghanistan. But it would be far more in line with Republicans who have called on the president to follow his commanders’ advice than with Democrats such as Mr Levin who have expressed concern about escalating the war. The obstacles facing Mr Obama were highlighted by a Gallup poll last week indicating that while 65 per cent of Republicans supported sending 40,000 more troops, only 17 per cent of Mr Obama’s own Democrats did so, with 57 per cent of party supporters calling for a troop reduction to begin.