KeNo's Housing and Economic Portal: Monday May 3 Housing and Economic stories

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Foreclosures Hit Rich and Famous - (online.wsj.com) The rich and famous now have something in common with hundreds of thousands of middle and lower-class Americans: The bank is about to take their homes. Houses with loans of $5 million or more will likely see a sharp rise in foreclosures this year, according to a RealtyTrac study for The Wall Street Journal. Just this week, a Tudor mansion in Bel-Air belonging to film star Nicolas Cage was in foreclosure auction and reverted to the lender. On Wednesday, Richard Fuscone, a former top Wall Street executive, declared personal bankruptcy, forestalling a foreclosure auction that had been scheduled this week on his 14-acre Westchester mansion. Last month a Manhattan condominium owned by Italian film producer Vittorio Cecchi Gori was sold in a foreclosure auction for $33.2 million. In February alone, 352 homes nationwide in this category were scheduled for foreclosure auction, the final step before a bank acquisition. That is the largest monthly number of these so-called notices of sale since the financial crisis began. By comparison, in all of 2009, there were 1,312 such notices. Economists say the super-wealthy are among the last to lose their homes in a mortgage crisis because they usually have high savings, better access to credit and other means for staving off foreclosure. But many of them work in financial services and other industries hit especially hard by the crisis, and have seen their wealth shrink in the market crash.

The Magnetar Trade: How One Hedge Fund Helped Keep the Bubble Going - (www.propublica.org) In late 2005, the booming U.S. housing market seemed to be slowing. The Federal Reserve had begun raising interest rates. Subprime mortgage company shares were falling. Investors began to balk at buying complex mortgage securities. The housing bubble, which had propelled a historic growth in home prices, seemed poised to deflate. And if it had, the great financial crisis of 2008, which produced the Great Recession of 2008-09, might have come sooner and been less severe. At just that moment, a few savvy financial engineers at a suburban Chicago hedge fund helped revive the Wall Street money machine, spawning billions of dollars of securities ultimately backed by home mortgages. When the crash came, nearly all of these securities became worthless, a loss of an estimated $40 billion paid by investors, the investment banks who helped bring them into the world, and, eventually, American taxpayers. Yet the hedge fund, named Magnetar for the super-magnetic field created by the last moments of a dying star, earned outsized returns in the year the financial crisis began. How Magnetar pulled this off is one of the untold stories of the meltdown. Only a small group of Wall Street insiders was privy to what became known as the Magnetar Trade. Nearly all of those approached by ProPublica declined to talk on the record, fearing their careers would be hurt if they spoke publicly. But interviews with participants, e-mails, thousands of pages of documents and details about the securities that until now have not been publicly disclosed shed light on an arcane, secretive corner of Wall Street. While the numbers are modest compared with foreclosures at other income levels, they suggest the possibility of a sudden spike in bank takeovers of the wealthiest Americans' property. Typically half the notices of sale result in homes being turned over to creditors, though the figure could be slightly lower for the richest Americans who have more financial options, according to Daren Blomquist at RealtyTrac. Big borrowers are more likely to default than ordinary people, according to data from First American CoreLogic. Its loan database, reflecting more than 80% of the overall home-loan market, includes 1,700 loans with balances of $4 million or more. About 14.8% of those loans were 90 days or more overdue at the end of January, compared with 8.7% for all home loans tracked by First American. Sam Khater, a senior economist at First American, said the bigger borrowers may be more prone to stop making payments when they have lost all their home equity. Mr. Fuscone, Merrill Lynch's one-time head of Latin America, put his mansion up for sale in November, asking $13.9 million. But he couldn't find a buyer. The court had scheduled a foreclosure auction for Thursday for the 18,471-square-foot mansion—with two swimming pools, two elevators, six fireplaces, 11 bathrooms and a seven-car garage. The personal bankruptcy filed in U.S. Bankruptcy Court Wednesday temporarily freezes the foreclosure process. Reached by phone, Mr. Fuscone declined to comment. Brokers and real estate tracking companies say that his home is one of the most expensive properties to face foreclosure proceedings yet.

Investigating Fannie Mae and the Housing Bubble - (www.pbs.org) Former executives of mortgage giant Fannie Mae testified about their role in the collapse of the housing market and the ensuing economic crisis before the Financial Crisis Inquiry Commission. Jeffrey Brown talks to two housing experts for more. Transcript:

JEFFREY BROWN: Yesterday, Citigroup executives were on the hot seat. Today, top officials from housing finance giant Fannie Mae got their turn before the Financial Crisis Inquiry Commission, the panel looking into the causes of the financial meltdown.

How did things go so wrong? Former Fannie Mae vice president Robert Levin:

ROBERT LEVIN, former vice president, Fannie Mae: We, like everyone else, were surprised by the unprecedented extent of the economic crisis.

JEFFREY BROWN: His colleague former chairman Daniel Mudd, who was ousted after Fannie fell, said he was ultimately responsible.

DANIEL MUDD, former CEO, Fannie Mae: I was the CEO of the compa

Small Business Optimism Declines in March - (www.nfib.com) The National Federation of Independent Business Index of Small Business Optimism lost 1.2 points in March, falling to 86.8. The persistence of index readings below 90 is unprecedented in survey history. “The March reading is very low and headed in the wrong direction,” said Bill Dunkelberg, NFIB chief economist. “Something isn’t sitting well with small business owners. Poor sales and uncertainty continue to overwhelm any other good news about the economy.” The index has posted 18 consecutive monthly readings below 90. In March, nine of the 10 Index components fell or were unchanged from February’s not-so-great readings.

More than 42 percent of small rental buildings in Cook County are ‘underwater’ - (www.chicagotribune.com) Owners of 96,000 two- to six-unit rental buildings in Cook County are upside-down on $12.6 billion of mortgage debt, potentially putting 42 percent of small rental buildings in the county at risk of default, new data show. A study by DePaul University's Institute for Housing Studies, released Wednesday, also found that $3 billion in multifamily building mortgages already are in foreclosure, affecting more than 32,000 rental units in Cook County, or 6.8 percent of multifamily mortgages. That compares with about 38,000 single-family homes in foreclosure in Cook County. A mortgage is considered "underwater" if more is owed on the loan than the property is worth. There's no way to gauge how many additional rental buildings will fall into foreclosure, and being underwater does not automatically precipitate a foreclosure. Although there are loan modification programs for single-family, owner-occupied homes, there are no such efforts to help owner-occupants of small rental buildings, researchers noted.