KeNo's Housing and Economic Portal: Saturday June 5 Housing and Economic stories

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ShoreBank Closer to Closure - (online.wsj.com) Poorly run bank with strong support from Corrupt Illinois politicians may soon go under. We need to let this bank fail. Despite support from high-profile politicians and several big Wall Street banks, a storied Chicago lender moved closer to closure by regulators Saturday as talks to save it remained at an impasse. ShoreBank Corp. needs a recapitalization deal financed by some of Wall Street's biggest players, or face closure by regulators within days. ShoreBank's supporters hope that investors, including Goldman Sachs Group Inc., Citigroup Inc., J.P. Morgan Chase & Co., Bank of America Corp. and Morgan Stanley, will agree to put in $125 million that will allow ShoreBank to tap an additional $75 million in government capital through Treasury's Troubled Asset Relief Program. But Treasury help is by no means certain, and if the bank is closed its private investors will likely lose their money. On Saturday, Rep. Jan Schakowsky (D., Ill.), who has been pressing for assistance for the Chicago bank, called on federal regulators, not-for-profits investors and Wall Street banks to "leave no stone unturned" to assure its survival of ShoreBank, a 1970s-era pioneer in lending to low- and middle-income neighborhoods. ShoreBank, Ms. Schakowsky said in a statement, has "demonstrated beyond question that banks can be profitable at the same time they invest in low-income neighborhoods." "The big Wall Street banks that caused this economic crisis received hundreds of billions of dollars in taxpayer bailouts. It would be a tragedy for Chicago neighborhoods if some of the chief beneficiaries with the greatest capacity to help end up riding off into the sunset while an institution that provides credit to underserved communities is allowed to collapse," Ms. Schakowsky said in the statement. ShoreBank has several high-profile supporters in Washington and Chicago. ShoreBank's lending programs for small businesses in low-income neighborhoods and its international micro-lending programs have garnered acclaim from President Obama and former President Bill Clinton.

Houseowner left with big bill, trashed credit, after rejection for federal loan modification - (www.nctimes.com) When Fallbrook homeowner Armando Robles was rejected for a permanent mortgage modification, he was disappointed ---- but that was nothing compared to how he felt when he discovered his credit rating was trashed and he was stuck with a "catch up" bill for $10,500 piled high with interest and late fees. Robles says he made every payment and filled out every form required under a federal program designed to stave off foreclosures nationwide. But after he was turned down, he found himself punished for trying. Robles is by no means alone, according to Treasury Department and bank representatives. As of the end of March, 155,000 borrowers have been rejected from the federal loan modification program, which reduces payments during a trial period. Bank policies vary, so it's not possible to determine precisely how many borrowers are in the same fix as Robles. The Department of Treasury, which runs the program, declined a request for comment from Secretary Tim Geithner, but spokeswoman Meg Reilly said in an e-mail that banks are free to assess such penalties. "If the loan is not modified, the late fees that accrued will be payable," she said. In 2008, when Robles bought his house, collapsing home values and a record-setting tide of foreclosures had triggered a market crisis. From 2006 to 2009, homes lost 40 percent of their value in San Diego County, according to the Case-Shiller Home Price Index.

Housing Begins to Fade Without Taxpayer Blood Donations - (online.barrons.com) SUBSIDIES ALWAYS ARE DUBIOUS PROPOSITIONS. In theory, they are bribes to do something that doesn't make doesn't make economic sense. But they are truly ludicrous when then they pay people to do what they would do anyway. When that happens, the government checks end up in the pockets of the sellers, who are invariably savvier than the buyers. And we taxpayers get taken yet again. This is quickly becoming apparent with the lapse of the tax credits for certain homebuyers. Until the end of April, first-time homebuyers could get $8,000 in tax credits while some non-newbies qualified for a $6,500 tax credit. Those are not deductions against income, but dollar-for-dollar credits against qualifying homebuyers' tax bill. Eight grand would have gone a long way to buying a steeply marked-down condo selling for five figures, especially if the buyers qualified for FHA-backed financing with just a few percent down. Or buyers that actually saved up a 20% down payment on a substantial house (just as I and millions of homebuyers did as a matter of course) would find that $8,000 quite handy to pay for the stuff that invariably gets bought for a new home, from new appliances or the second car that's now a necessity in the 'burbs.

Tax credit's end to hit house prices? - (www.azcentral.com) Home prices are widely expected to fall now that a tax credit for home buyers has expired. That's raising concern about a possible double dip in home prices. National housing prices stopped falling early last year and rose 0.3% over the 12 months ending in February, according to a study by real estate analytics firm CoreLogic. The firm predicts prices will fall this year before starting to rise again in late 2010. Even so, next February's prices are likely to be 4.2% lower, it forecasts. "Home prices will struggle for maybe another year," says Mark Fleming, CoreLogic's chief economist. A shrunken pool of buyers due to the tax credit's expiration is one reason. "The tax credit is the big reason home prices have been so buoyant, and sales will drop" with its expiration, says Paul Ashworth of Capital Economics. "You will see a double dip in housing prices." Another reason is the number of distressed houses — including foreclosures and short sales — that are on the market or that will be in coming months.

Banks Ignore Delinquent Borrowers - (www.cnbc.com) When I first read the report I thought, okay, we knew there was a big pipeline of loans that would not get modified and would have to come out the end at some point; now is that point. The fact that fewer loans are going into the pipeline should be our focus, and that's a positive. That's what I thought until I interviewed RealtyTrac's Rick Sharga. "People are sitting in their houses not paying their mortgages, and the banks are letting those delinquencies extend longer and longer periods of time before they put them in foreclosure," Sharga told me. That, he adds, is the main reason we're seeing lower numbers of new defaults. The borrowers are in default,but the banks aren't paying attention, so they don't show up in the numbers. He goes on - "The fact that we have six to six and a half million loans that are either seriously delinquent or in foreclosure also suggests we are not nearly out of the woods. If we just started to absorb that inventory at the pace we're currently seeing new foreclosure proceedings we have about a 50 to 55 month supply of loans that yet have yet to be processed, so we have a way to go before we are out of the mess."

The Twilight of the Welfare State? - (www.roomfordebate.blogs.nytimes.com) The debt crisis in Greece may have been temporarily eased by the European Union’s infusion of aid, but many analysts think that Europe’s debt problems and America’s are just beginning. Several analysts have noted that the welfare states in Greece, Spain and Portugal were greatly expanded in the 1990’s, leading to an extraordinary rise in the standards of living in those countries but also unsustainable spending. David Leonhardt of The Times and Robert Samuelson of The Washington Post this week compared the welfare state obligations in Europe to the entitlement burden in the United States. How much should Americans fear the national debt as an aging population demands more services? What’s to be learned from the Greek experience, if anything?