KeNo's Housing and Economic Portal: Monday April 19 Housing and Economic stories

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Irish bank declares Wisconsin school trusts in default - (www.google.com) An Irish bank that loaned $165 million to five Wisconsin school districts for investments that went bust said Wednesday it is moving to reclaim what is left in the accounts and speed up repayment.

Bill Broydrick, a lobbyist for Dublin-based DEPFA Bank, said the bank declared the districts' trusts in default and was seizing the $5.6 million left in them. He told an Assembly panel the bank took the action "after it became clear that they were unwilling to meet their obligations." "We're basically saying 'We've asked you to pay, you've violated the covenants of the bond issue, and therefore we're accelerating the payments'," he said in an interview. "All of the assets of the trusts have been scooped up by DEPFA." The Kenosha, Kimberly, Waukesha, West Allis-West Milwaukee and Whitefish Bay districts set up the investments known as collateralized debt obligations, or CDOs, to help pay for health and pension benefits promised to retirees. They used the $165 million loan from DEPFA and $35 million in tax dollars for the investments, which lost nearly all their value during the global economic crisis. The districts are suing Stifel, Nicolaus & Co. and the Royal Bank of Canada, which put the deals together, claiming they were fraudulently sold as safe investments.

CDOs are securities backed by pools of mortgages or other assets. They plummeted in value after the credit crisis erupted in 2008 as investors fled all but the safest forms of debt. A Milwaukee County judge in January allowed the case to proceed by denying motions to dismiss by the defendants, which argued the districts were informed of the risks and hadn't proved fraud. In the meantime, DEPFA, a subsidiary of Germany-based Hypo Real Estate Holding AG, has been pressuring the districts to pay the loan back.

Downtown NYC Towers Empty as Best Market Falters - (www.bloomberg.com) DowntownManhattan, where demand for office space began to surge three years after the 9/11 terrorist attacks, is about to lose its spot as the best- performing U.S. market. Vacancies may exceed 14 percent of the area’s 87 million square feet by late 2011, empty space that’s equivalent to four Empire State Buildings and the highest rate since 1997, according to property broker Cushman & Wakefield Inc. That doesn’t include the 4.4 million square feet of offices in two towers now under construction at the World Trade Center site. Those are scheduled for completion in 2013. “The amount of space that’s potentially going to come to the market will increase availabilities and put pressure on pricing,” said Kenneth McCarthy, Cushman’s head of New York- area research. “It will be quite awhile before it can be absorbed.”

Best Protection Against Another Housing Bubble May be Painful Lessons - (www.housingwatch.com) The market value of your house is down 20 to 30 percent from its peak and could have further still to go. Jobs are scarce and the idea that home values will rise again seems remote. But this, too, shall pass (yes, your home value will eventually recover). And I can tell you exactly why -- psychology. The good news is that for all the economic pain and suffering, we've probably just bought ourselves, as a people, 50 years of immunity to economic depression. The bad news is that this immunity has nothing at all to do with house prices, public policy, Bernanke, Dodd, Geithner, or Obama, much less Paulson or Bush. It would have happened anyway. I'm reminded of a story about Sid Richardson. Back in the 1950s, Richardson, a Texas oilman, was arguably the richest man in the world -- the bachelor uncle of today's ultra-rich Bass Brothers. (You though they made that money all by themselves?) Richardson made his fortune from West Texas crude and he owned a refinery in Midland, Texas. One day, a crane operator working on construction at the refinery swung the boom of his crane around and smashed into one of the catalytic cracking towers, knocking the tower clean over. There was a massive oil spill, the kind we'd really worry about today. But this was back in the days when DDT was good and oil spills didn't matter so much. Still, the accident did cause more than $1 million in damage, and since the refinery was self-insured, that million came straight from Sid Richardson's pocket. When the catalytic cracking tower was knocked over, everyone had to come have a look, including Richardson. And when they had all shaken their heads and pointed at the destruction, Richardson finally said it was time to get back to work and he sent the crane operator back up to the cab of his crane.

Bank of America to Increase Foreclosure Rate by 600% in 2010 - (www.irvinehousingblog.com) Bank of America made headlines with its principal forgiveness program. The real news is that they are preparing to blast debtors out of their bunkers of entitlement. Today's featured property is another epic HELOC abuser. Should these people qualify for principal reduction? A 600% increase in foreclosures: I attended a local Building Industry Association conference on Friday 26 March 2010. The west coast manager of real estate owned, Senior Vice President Ken Gaitan, stated that Bank of America, which currently forecloses on 7,500 homes a month nationally, will increase that number to 45,000 homes per month by December of 2010. After his surprising statement, two questioners from the audience asked questions to verify the numbers. Bank of America is projecting a 600% increase in its already large number of monthly foreclosures. This isn't unsubstantiated rumor; this comes straight from one of the most powerful men in Bank of America's OREO department (yes, that really is what they call it). It appears they have too many properties already. Perhaps this is a good time to start a Trustee Sale service.... One of the panelists who works for a building company said he was flipping houses with his personal money. He noted that in some markets, he can buy a house at auction for less money than builders are paying for finished lots. That is a bit crazy.

Obama's mortgage plan won't bring relief - (www.guardian.co.uk) The Obama administration's latest proposal to help 'underwater' homeowners shows how little has been learned from the crisis. Alan Greenspan, Ben Bernanke, and the rest of the crew running economic policy somehow could not see the housing bubble as it grew to more than $8tn. It really should have been hard to miss. Nationwide house prices had just tracked overall inflation for 100 years from 1895 to 1995. Suddenly in 1995, coinciding with the stock bubble, house prices began to hugely outpace the overall rate of inflation. There was no explanation for this run-up in house prices on either the supply or demand side of the housing market. Furthermore, there was no unusual increase in rents, providing further confirmation that fundamentals were not behind the increase in house prices. Finally, in contrast to a story of housing shortages driving up house prices, vacancy rates were at record levels. But the super-sleuths at the Fed, Treasury and other centres of decision-making just could not see the bubble. They couldn't even see the flood of bogus mortgages being spit out by the millions and packaged into mortgage-backed securities and more complex instruments.

California lawmakers are the highest paid in the nation - (latimesblogs.latimes.com) California state lawmakers remain the highest paid in the nation by far, according to a survey by a state panel that is considering a 10% reduction in their salary. Despite an 18% pay cut last year, the $95,291 salary of California lawmakers is still higher than the $79,650 paid to their counterparts in Michigan, the $79,500 that goes to legislators in New York and the $78,315 salary in Pennsylvania, according to the survey conducted by the California Citizens Compensation Commission. Federal statistics show that the cost of living is higher in California than all those other states. The panel meets April 22 to consider reducing the pay of state lawmakers to $85,762, which would still be the highest legislative salary in the country, said Charles Murray, the Los Angeles businessman who chairs the state panel. "We're broke and we just don’t have the money,’" Murray said, explaining why a 10% pay cut was being considered. "This survey gives us a new baseline."