KeNo's Housing and Economic Portal: Thursday December 24 Housing and Economic stories

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Black Caucus, White House Clash: Lawmakers Skip Finance-Overhaul Vote in effort to intervene in minority-owned loans - (online.wsj.com) A clash between the Obama administration and the Congressional Black Caucus intensified Wednesday, illustrating how lawmakers' unease about the economy has the potential to derail White House priorities. Ten black lawmakers refused to appear at a House committee vote on financial regulations Wednesday, a move that nearly allowed Republicans to kill a major Democratic bill. The move was the culmination of weeks of tension, including a testy meeting two weeks ago that included Rep. Maxine Waters (D., Calif.), Treasury Secretary Timothy Geithner and White House Chief of Staff Rahm Emanuel. In the meeting, Ms. Waters berated the administration for not doing enough to help minority-owned businesses, mentioning specifically a New York broadcaster that couldn't get a loan reworked. Less than two weeks after the meeting, the company, Inner City Broadcasting Corp., said Goldman Sachs Group Inc. agreed to restructure the loan. The exchange about the company, which to some administration officials sounded like a bid to have the government intervene in a corporate matter, heightened distrust on both sides, people familiar with the matter say. Caucus members at the meeting stressed they weren't asking White House officials to do anything improper, people familiar with the matter said. It is unclear whether any government official played a role in having the loan reworked. The frustrations described by members of the caucus have less to do with the vote on the financial regulations and more to do with broader concerns about a weak economy, mounting job losses and a perception that the federal government has aided Wall Street at the expense of Main Street. At a news conference Wednesday, Ms. Waters suggested the caucus would oppose other White House priorities on the House floor. Caucus members will "use our power and our influence" to change policies on foreclosures and unemployment, as well as boost credit and federal-contracting programs for minority-owned businesses, among other things, she said. She didn't specifically address the Inner City Broadcasting matter at the news conference. Senior White House and other top Washington officials have been engaged in a round of shuttle diplomacy in recent days to placate the caucus, to little avail. Mr. Emanuel met with Ms. Waters and other caucus members Wednesday morning before the House Financial Services Committee vote. Mr. Emanuel declined to comment when he left. Caucus members decided immediately after the meeting not to support passage of the financial regulations, a vote they had already delayed once. Committee Chairman Barney Frank (D., Mass.) held the vote anyway, and the regulations passed 31-27.

Foes and Friends in Trump Bankruptcy - (online.wsj.com) What is new? Donald Trump is in bankruptcy again, like he has been every 10 years. The guy gets fooled by bubbles time and time again, yet investors keep lending him money. Texas banker and math whiz Andrew Beal honed his skills by anticipating other players' moves in multimillion-dollar poker games. But Mr. Beal got blindsided when his friend and former business partner Donald Trump switched sides in the bankruptcy-court struggle over Trump Entertainment Resorts Inc., which owns the three Trump casinos in Atlantic City, N.J. Messrs. Beal and Trump had been close allies in a fight against a group of casino bondholders who hold roughly $1.25 billion in unsecured debt. Earlier this month, Mr. Trump joined that rival camp, wrecking the strategy of Mr. Beal, whose Beal Bank of Dallas holds $486 million in first-mortgage liens on the casinos. Mr. Beal initially was furious that Mr. Trump didn't tell him about his change of heart before it was announced, according to people familiar with the matter. Under the plan favored by the bondholders and Mr. Trump, the star of TV's "The Apprentice" would maintain a 5% to 10% stake in the company. Mr. Beal's plan, proposed last week, would remove Mr. Trump from any involvement in his namesake casinos. Mr. Beal's side contends that the casinos would still have the right under their mortgages to use the Trump name for 10 years even if Mr. Trump has no involvement or ownership. The Trump side contests this view. "Who needs him," said Mr. Beal's lawyer, Thomas Lauria, head of restructuring at White & Case LLP. Mr. Trump's defection sets the stage for a poker game of titans pitting the flamboyant Mr. Trump against the 57-year-old Mr. Beal. During his Texas Hold 'Em heyday between 2001 and 2004, the banker insisted on such high stakes that a group of the best poker players in the country had to pool their resources to play against him, dubbing themselves "the Corporation." Many in the camp of Mr. Trump and the bondholders believe Mr. Beal is bluffing when he says Beal Bank is ready to take over the casinos, an unusual asset for a bank. Mr. Beal insists he isn't. "If we think taking the keys is our best option, we'll take the keys," he said in an interview. A settlement also is a possibility. The two sides are negotiating in New York this week. Messrs. Trump and Beal both say they are still friends, although Mr. Beal declines to discuss his initial reaction to Mr. Trump's decision to switch sides. Mr. Trump said that one of the reasons he reached a deal with the bondholders was because the company was bleeding money in bankruptcy-related fees. They currently exceed $2 million a week, according to one person familiar with the matter.

Home buyers will have to lay out more cash for an FHA mortgage - (www.latimes.com) They'll also need to have higher minimum credit scores under changes announced by HUD Secretary Shaun Donovan. Thousands of Southern California home buyers, and millions nationwide, will have to come up with more cash and reach higher minimum credit scores to get a government-backed mortgage under changes unveiled by the Federal Housing Administration. Some loans might require more than the current 3.5% minimum down payment, but the Obama administration is resisting calls for an across-the-board hike. Instead, it is looking at other ways to increase the amount of cash at closing, such as requiring borrowers to pay more of their mortgage insurance premiums up front. The FHA, which insures mortgages with low down payments, is scrambling to balance its increasingly important role in propping up the housing market with faltering finances of its own that could require a government bailout. The agency's share of home loans has surged from 3% in 2006 to nearly 30% this year as credit has tightened and borrowers' bank accounts have been depleted. But that increased exposure has led to more defaults, driving the FHA's reserves below their mandated levels. "We've learned from recent history that the market is fragile, and we have to plan for the unexpected," Housing and Urban Development Secretary Shaun Donovan, who oversees the agency, said at a House hearing Wednesday. In Southern California, FHA-backed loans have become a crucial source of financing for first-time home buyers, particularly those snapping up foreclosed homes. FHA loans made up 38.3% of all Southland purchase loans in October, up from 32.5% a year earlier and just 2% two years before, according to MDA DataQuick, a San Diego real estate research firm. George Ramirez, a sales manager for Citibank, and his wife, Leticia, a social worker, got an FHA-insured loan in August 2008 to buy a three-bedroom home with a swimming pool in La Puente. Without such a loan, he said, "there is no way" they could have bought it. The FHA let them put $8,250 down for the $275,000 house, or 3%, the minimum then.

Abu Dhabi's Citi Deal Turns Costly - (online.wsj.com) Abu Dhabi Investment Authority is set to pay its first bill of misery to Citigroup Inc. Because of an investment deal struck two years ago, early in the financial crisis, the United Arab Emirates' sovereign fund will soon start purchasing $7.5 billion in Citigroup shares at $31.83 apiece, even though the New York bank's stock closed at $4.10. The value of Abu Dhabi's investment will ultimately be shaped by the price of Citigroup's stock come March. But it seems very likely that "one of the world's...most sophisticated equity investors," as Citi crowed of Abu Dhabi when it inked the complex deal, will soon overpay for the stock of a bank that has fallen into the arms of the U.S. government. The news is the latest setback for the United Arab Emirates. Last week, Dubai World, a government-owned company, sought a standstill on debt payments, a move that shocked world markets. The terms of the Citigroup deal looked lucrative for Abu Dhabi back in November 2007, when it raced to Citi's rescue as the New York bank crumbled under soaring investment losses tied to the depressed U.S. mortgage and housing markets. Abu Dhabi wrote a check for $7.5 billion in exchange for an 11% annual dividend. The bad news for Abu Dhabi is it only demanded such dividend payments for a little more than two years—until March 15, 2010. Afterwards, Abu Dhabi would in essence exchange its original investment in four installments for Citigroup common stock, which was then worth nearly $31. To pull off that exchange, Citigroup on Wednesday announced a coming public bond offer that will pay a much smaller yield of slightly more than 6%. The proceeds will go to Abu Dhabi, which is required to use the cash in March for its expensive purchase of Citigroup stock. Abu Dhabi, by agreeing ahead of time to exchange cash for stock at a price of $31.83, figured to make money under the assumption that Citigroup's shares would rise modestly over more than 27 months. "This investment reflects our confidence in Citi's potential to build shareholder value," Sheikh Ahmed Bin Zayed Al Nahyan, Abu Dhabi's managing director, said at the time. But now it is Citi, not Abu Dhabi, that is seeing prospects for a winning deal. If Citi's stock price holds steady through March, the beleaguered New York bank will basically be able to raise new capital by selling stock at more than seven times its market price. The deal will also boost Citi's Tier 1 common equity and tangible common equity by $1.875 billion, according to Wednesday's statement.

Toll Net Loss Widens as Revenue Falls More Than Costs - (www.bloomberg.com) Toll Brothers Inc., the largest U.S. luxury-home builder, reported a bigger-than-expected loss in the fourth quarter after revenue fell faster than costs. The shares dropped the most in a month. The net loss for the three months ended Oct. 31 widened to $111 million, or 68 cents a share, from $79 million, or 49 cents, a year earlier, the Horsham, Pennsylvania-based company said today in a statement. Analysts surveyed by Bloomberg predicted a loss of 44 cents a share, according to the average of 11 estimates. Like other homebuilders struggling to weather the housing crash, Toll has focused on selling properties in fewer communities, building up cash reserves and writing down the value of inventory to improve liquidity. “Toll got order numbers up by slashing prices,” said Michael R. Widner, an analyst with Stifel Nicolaus & Co. Inc. in Baltimore. “The company’s not operating with a positive margin.” Toll dropped as much as 5.5 percent to $18.42 in New York Stock Exchange composite trading, the most since Oct. 28. The stock was priced at $18.57 as of 9:54 a.m. local time. Toll was down 9.1 percent in the year through yesterday, making it the third-worst performer among 12 companies on the S&P Supercomposite Homebuilders Index. Deliveries may fall by as much as 33 percent to 2,000 in the fiscal year through October 2010, Toll said. Average selling prices may fall as low as $540,000 and the cost of sales and administration will probably grow in 2010 from the current 18.3 percent of sales as the number of units sold falls, Toll said. ‘Gradual Recovery’: “We believe it may take some time for Americans to regain confidence in our economy, their job status and the benefits of home ownership,” Chief Executive Officer Robert Toll said in the statement. “Currently, we anticipate a gradual recovery in housing, similar to the one that occurred over several years coming out of the last recession in the early 1990s.”

Bernanke confirmation hits new hurdle - (www.ft.com) Ben Bernanke faces a tougher path to being reconfirmed as Federal Reserve chairman after an independent senator put a hold on his confirmation on Wednesday evening. Bernie Sanders, a senator from Vermont who usually votes with the Democrats, said he was using the procedural device because Mr Bernanke had been too supportive of Wall Street at the height of the financial crisis last year. “The American people want a new direction on Wall Street and at the Fed,” he said in a statement. “They do not want as chairman someone who has been part of the problem and who has been responsible for many of the enormous difficulties that we are now experiencing. It’s time for him to go.” Mr Bernanke, whose current term expires at the end of January, was re-nominated in August by President Barack Obama. He faces questions from the Senate banking committee on Thursday before a vote in the committee and then by the Senate expected before Christmas. Mr Sanders’ intervention will require Mr Bernanke to secure 60 votes from the 100-member Senate rather than 51. Congressional aides believe he will win over enough senators to be reconfirmed with support from both Republicans and Democrats. However, opposition is also coming from both left and right. Much of it is aimed at the institution rather than Mr Bernanke himself and more of it is targeted at the extra-monetary policy powers of the Fed than its interest rate-setting responsibilities. Leftwing politicians such as Mr Sanders criticise the Fed for propping up financial institutions with hundreds of billions of dollars while those on the right such as Ron Paul, the Texan Republican representative, bemoan a lack of accountability. Mr Paul’s book, End the Fed, became a surprise best-seller.