KeNo's Housing and Economic Portal: Monday February 15 Housing and Economic stories

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TOP STORIES:

Regulators shut down banks in 5 states - (news.yahoo.com/s/ap) Regulators shut down a big bank in California on Friday, along with two banks in Georgia and one each in Florida, Minnesota and Washington. That brought to 15 the number of bank failures so far in 2010 atop the 140 shuttered last year in the punishing economic climate.

The failure of Los Angeles-based First Regional Bank, with nearly $2.2 billion in assets and $1.9 billion in deposits, is expected to cost thefederal deposit insurance fund $825.5 million. The Federal Deposit Insurance Corp. took over the bank as well as the others: First National Bank of Georgia, based in Carrollton, Ga., with $832.6 million in assets and $757.9 million in deposits and Community Bank and Trust of Cornelia, Ga., with $1.2 billion in assets and $1.1 billion in deposits; Florida Community Bank of Immokalee, Fla., with $875.5 million in assets and $795.5 million in deposits; Marshall Bank of Hallock, Minn., with $59.9 million in assets and $54.7 million in deposits; and American Marine Bank of Bainbridge Island, Wash., with $373.2 million in assets and $308.5 million in deposits.

Fannie, Freddie Chase Bad Mortgages - (online.wsj.com) Lenders Like BofA, J.P. Morgan Repurchase Billions in Faulty Loans; Just a Drop in the Default Pool. It is payback time for Fannie Mae and Freddie Mac on some mortgages sold to the finance companies by lenders. Stuck with about $300 billion in loans to borrowers at least 90 days behind on payments, Fannie and Freddie have unleashed armies of auditors and other employees to sift through mortgage files for proof of underwriting flaws. The two mortgage-finance companies are flexing their muscles to force banks to repurchase loans found to contain improper documentation about a borrower's income or outright lies. The result: Freddie Mac required lenders to buy back $2.7 billion of loans in the first nine months of 2009, a 125% jump from $1.2 billion a year earlier. Fannie Mae won't disclose its figure, but trade publication Inside Mortgage Finance said Fannie made $4.3 billion in loan-repurchase requests in the first nine months of 2009. "Because taxpayers are involved, we're being very vigilant," said Maria Brewster, who oversees Fannie's repurchase team. "No taxpayer should have to pay for a business decision that caused a bad loan to be sold to Fannie Mae." The get-tough stance comes amid pressure on Fannie and Freddie to make the most out of more than $100 billion in taxpayer funds they got to stay afloat. The U.S. government took them over in September 2008. The biggest losers are likely to be Bank of America Corp., J.P. Morgan Chase & Co. and other mortgage lenders when the housing bubble burst. Such lenders also are being deluged with loans kicked back to them by holders of mortgage-backed securities who uncover deficiencies with loans bundled into the pools. One common example: a borrower who said the loan was for an owner-occupied home but used it for a second house.

Deteriorating Greece Situation Could Force EU's Hand - (online.wsj.com) European Union officials insist there won't be a bailout for Greece, but if the country's borrowing costs continue to climb, the bloc will have to do something to stave off default. Such a bailout would be unprecedented for a euro-zone country, but would nonetheless be feasible. When Greece's borrowing costs soared last spring, the German finance minister at the time, Peer Steinbrueck, said Germany would have to offer financial help if another euro-zone state faced serious trouble. European Commissioner for Economic and Monetary Affairs Joaquin Almunia, around the same time, said "there is a plan" for such situations, but never provided details. Despite claims from some policy makers that the EU treaty bars bailouts, EU states can help each other, especially if there are "exceptional occurrences" involved. This clause in the EU treaty covers earthquakes and floods and might even apply when there is severe dysfunction in government bond markets. Since the start of the financial crisis, the European Commission, the EU's executive arm, repeatedly has cited exceptional circumstances to allow bank bailouts and a new wave of state subsidies to businesses.

Sacramento RT may cut up to 30% of its jobs in spring - (www.sacbee.com) Mired in a protracted financial slump, Sacramento Regional Transit officials have answered with fare hikes, service cuts, pay freezes and furloughs. But revenue keeps spiraling down, and now agency officials say they must use a word they were trying to avoid – layoffs. RT General Manager Mike Wiley said Friday he expects that in two weeks, he'll begin issuing an undetermined number of notices. Unless finances rebound this spring, as many as 300 employees – 30 percent of the work force – could lose their jobs, Wiley said. The list would include bus drivers, maintenance workers, mechanics and managers. "All levels," Wiley said. The general manager said he also will ask the agency board for another round of service cuts in June, and will be looking at other cost-saving moves.

Sparks fly at CalPERS forum on pension costs - (www.sacbee.com) CalPERS billed it as a sober, factual discussion of pension fund costs, aimed at toning down the rhetoric over an explosive political issue. But there was no shortage of emotion during the daylong forum – particularly when a panel discussion including a prominent labor leader and a key aide to Gov. Arnold Schwarzenegger turned personal. The flare-up at the Sacramento Convention Center came when panelist Dave Low, a lobbyist for the California School Employees Association, lit into Schwarzenegger special adviser David Crane, chief spokesman for the Republican governor's proposal to curtail pension benefits for newly hired workers. Accusing Schwarzenegger of exaggerating the problem, Low said the average retiree in his union collects an annual pension that's "less than what Mr. Crane makes in a month."

All Those Little Stuyvesant Towns - (www.nytimes.com) WHEN money grew on trees during the late great credit boom, private equity firms plunged headlong into New York City real estate. Not only did these companies snag dazzling Manhattan office towers, they also paid up for thousands of mundane rental apartments across the five boroughs. Sure, they had taken on monumental debt to buy these properties, but they had a potent strategy. If they were able to jack up the apartments’ rents, even on those that had much lower, regulated rates, they’d have no trouble profiting mightily. The most famous such bet was the $6.3 billion purchase in 2006 of Stuyvesant Town and Peter Cooper Village on the East River in Manhattan. The buyer was a partnership that Tishman Speyer Properties and BlackRock Realty oversaw. But last week, the properties — now valued at less than $2 billion — went back to the banks that had financed this top-of-the-market deal. The investors in the project had defaulted. Stuyvesant Town is a high-profile deal, to be sure. But there were many others like it in the mania, struck by lesser-known companies with private equity backing. They bought rent-regulated apartments in Manhattan, Queens and the Bronx. Some of these deals are now vulnerable, too. When the transactions took place several years ago, private equity chiefs were riding high. Loading debt onto the companies they bought, managers dismissed workers, cut customer services and sold off assets to pay themselves and their investors and to meet their debt payments. The private equity firms took a similar approach to rental apartments. But instead of dumping workers, they hoped to jettison low-revenue renters so their units could be renovated and leased out at much higher prices. Private equity firms have financed the purchase of 100,000 units of rent-regulated housing across New York City since 2005, according to the Association for Neighborhood and Housing Development, a coalition of nonprofit housing groups in New York. These owners account for almost 10 percent of the city’s rent-regulated housing.

Miami Faces Financial Meltdown; SEC Investigates "Financial Shell Game" Asks For Records On All Major Bond Deals Since 2006 - (Mish at globaleconomicanalysis.blogspot.com) Inquiring minds are interested to learn Miami leaders fear a financial meltdown.

Facing a widening financial crisis, Miami leaders are already projecting a $45 million budget shortfall this year that could force the city to deplete its reserves and sell key assets to stay afloat. "We understand the gravity of the situation," said Miami Mayor Tomás Regalado. Today, a reserve that brimmed with $141 million in 2003 could plummet to less than $10 million by the time commissioners are finished with this year's budget in September, projections show. If that happens, Miami will break its own financial integrity laws -- prompting some officials to fear another painful state takeover. "Unbelievable," said County Commissioner Carlos Gimenez, who was Miami's city manager when its reserves peaked in 2003. "They forgot the lessons of the past." The financial woes come as federal investigators continue a sweeping investigation of Miami's budget practices over the past four years, including questions over whether the city disclosed problems to bond holders. The U.S. Securities and Exchange Commission has demanded all the city's records, e-mails and shreds of evidence involving more than a quarter of a billion dollars in bond deals for major projects since 2006. The SEC investigation followed a report by The Miami Herald last summer revealing how top city officials engaged in a financial shell game, moving millions from capital accounts to help the budget stay flush. William Earle Klay, the director of the Askew School of public administration and policy at Florida State University, said rating agencies closely study reserve funds. "Tapping into reserve funds, and how much you tap into those funds, is something that rating services look at," he said. "Your credit ratings can go down, and if it's a revenue bond, they may have to raise the prices." Commission Chairman Marc Sarnoff was stunned when the mayor revealed the numbers last week, prompting the commissioner to warn that if spending isn't reined in, the state could step back in and strip the city of its decision-making. The budget disclosure is the latest blow to a city reeling from financial headaches since last summer. In July, The Miami Herald investigation found skyrocketing salaries and pension obligations had strangled the city's budget. The quick fix -- transferring millions between capital accounts and the city's general fund -- only raised more questions. One of the city's major challenges continues to be lowering its worker-friendly pension obligations. Since 2001, those demands have risen by 400 percent, reaching $67 million last year. This year, that number will rise to $101 million. This year's projections had Sarnoff shaking his head last week. "How could we be so out of budget?" he asked. "We're in crisis mode." Pensions To Blame: "How could we be so out of budget?" Ask a question like that and you deserve to be fired or not reelected, whichever applies. Moreover, those who illegally hid deficits by playing shell games should face criminal investigations.

OTHER STORIES:

Emerging Markets Will Drive M&A This Year, Bankers in Davos Say - (www.bloomberg.com)

Are U.S. stocks set for a down year? - (www.reuters.com)

Deteriorating Greece Situation Could Force EU's Hand - (online.wsj.com)

Banks, Officials Find ‘Common Ground’ in Davos, Ackermann Says - (www.bloomberg.com)

Why Obama Wants Unaffordably High House Prices - (www.gregfielding.housingstorm.com)

Foreclosures inch up in SF Bay Area, Lenders Delay - (www.sfgate.com)

Burbank foreclosure rates higher than state, nation - (www.burbankleader.com)

Foreclosure plague: 2009's worst-hit cities - (www.money.cnn.com)

10% of Merced Houses Are In Foreclosure - (www.centralvalleybusinesstimes.com)

Utah House sales increase, prices fall - (www.deseretnews.com)

House Price "Experts" Give Take on Markets in Atlanta, Beyond - (www.pbs.org)