KeNo's Housing and Economic Portal: Tuesday June 22 Housing and Economic stories

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Lessons of hard times in Vallejo, CA - (www.latimes.com) First came the break-in at the combination electronics repair shop and real estate agency. Then came the burglar bars on the store's plate-glass window. But Jimmy Mozaffar, owner of Data Days, sounds less angry with the criminals than he does with the crime-stoppers here in hard-knock Vallejo, the largest city in California history to file for bankruptcy. The thieves made off with laptops, but it was the pared-down Police Department — which has lost a third of its officers — that stole Mozaffar's peace of mind. When Mozaffar called the department to report the burglary last fall, a recording directed him to a website. "Nobody came out," he said. "They said they'd deal with it." Since filing for Chapter 9 bankruptcy protection two years ago, this scrappy Bay Area bedroom community has come to symbolize the fiscal troubles — now faced by many cities — that helped push it to the brink: unrestrained spending, out-of-control pension costs and a burst housing bubble.

Bank fails and goes about its business - (www.latimes.com) They arrived one day in November as Santa Ana winds pounded downtown Redlands. The dozen or so men and women walked into the red-brick headquarters of 1st Centennial Bank on State Street, then marched up the stairs to the executive offices. Jeff Blake, a senior vice president of the bank, knew this couldn't be good. The tellers downstairs might have thought the visitors were part of the parade of potential buyers who had been kicking the tires on the troubled bank for months now. Blake knew better. They were bank examiners, showing up unannounced. "You're talking a lot of black suits," he recalled. "They're starting to line the coffin." Two months later, 1st Centennial was seized by regulators and turned over to new owners, costing the Federal Deposit Insurance Corp. $163 million. It was one of 140 banks that failed last year, sticking the FDIC with a record bill of $38.2 billion. When times were good at 1st Centennial, locals shared in the bounty. The construction loan division ordered in catered lunches for its employees from Cuca's Restaurant down the street. Roofers, electricians and drywall hangers became familiar faces as they stopped in to draw down loans. Tellers would keep their windows open five minutes past closing time if a business needed to make a deposit to meet payroll. Yet when it all came crashing down, the pain was muted, the repercussions muffled. Federal regulators moved in so swiftly and efficiently that hardly anyone noticed until it was over. The new owners cleaned out the management ranks, but tellers and new-account specialists — the public face of the institution — stayed on. There was no run on the bank. Only a handful of uninsured depositors lost money. Ruined lives and public disgrace were staples of the classic 1930s narrative of a bank failure. In the new century, the shame and suffering have been obscured by bigger forces, subsumed in abstractions: the global credit squeeze, the liquidity crisis. Tom Vessey, fired as chief executive five months before 1st Centennial failed, pointed out to those who asked that the bank's board never accused him of any wrongdoing. He continued to allow his Italianate mansion to be used for fundraisers, showing off his garage filled with Route 66 memorabilia and awards won by his half-Arabian show horse, Ring O Fyre…. Regulators first noted this risk at 1st Centennial in 2004, when the bank's rapid expansion began, according to an audit by the FDIC inspector general's office. But regulators concluded that 1st Centennial had sufficient capital and the management skill to handle the risk. In fact, 1st Centennial got the equivalent of A's and Bs on its 2004 FDIC report card, and similar grades the next year from state regulators. (The FDIC and the California Department of Financial Institutions took turns conducting the bank's annual exams.) The top marks, including the highest possible grade for the bank's management, continued in 2006 and 2007.

San Francisco gets a taste of the commercial real estate bust - (www.mybudget360.com) Most over valued region in San Francisco gets a taste of the commercial real estate bust. $3 trillion in loans starting to implode at a faster rate. Why commercial real estate will plunge FDIC insured banks into closure. Bought for $415,000 per apartment unit. The commercial real estate bust is in full swing. This $3 trillion mortgage market is standing to push hundreds of banks into failure and adding additional strain to the embattled FDIC. Commercial real estate (CRE) is a good indicator of where things are heading economically because it is a reflection of what revenues are being brought in by certain properties. For example, a strip mall owner will lease out space to clients that ideally will earn more money each month to cover their rents. That is typically how CRE deals went down. But for the past decade people invested in CRE with the implied notion that they could always sell the underlying CRE for a higher price irrespective of the actual revenue stream the real estate could produce. For CRE this is sin number one.

New $3bn Foreclosure Prevention Program Added to Wall Street Reform Bill - (www.housingwire.com) The Senate passed the Restoring American Financial Stability Act last week, approving a new program that would reduce mortgage payments for the unemployed. The program would provide $3bn from the Troubled Asset Relief Program (TARP) to lend up to $50,000 to unemployed homeowners, who could reasonably resume making payments again within two years. The program was modeled after the Homeowners’ Emergency Mortgage Assistance Program (HEMAP) in Pennsylvania. The Senate passed the bill last week but transplanted its own language into the one passed by the House of Representatives. The status of the reform is still “resolving differences.” But, lawmakers hope to have it in front of President Obama to sign by the July 4, 2010 recess. HEMAP has provided $236m to the unemployed to help with foreclosure relief. Rep. Chaka Fattah (D-PA) introduced HEMAP in Pennsylvania in 1983 and introduced it to the new federal bill before the Senate passed it. Fattah originally tried to introduce the bill to Congress in 2003, then again in 2007. “American’s need help, 8% of all mortgage holders are currently at risk of losing their homes and that is unacceptable,” Fattah said.

Mortgage Bankers Tap Industry Veteran to Lead Lobbying Efforts - (www.housingwire.com) The Mortgage Bankers Association (MBA) named Bill Killmer senior vice president of legislative and political affairs, effective July 5, 2010. "MBA is very fortunate to have someone with Bill's expertise leading MBA's legislative and political affairs efforts," said MBA president and CEO John Courson in a statement. "Bill's detailed knowledge of the issues facing our industry, coupled with his political and legislative experience, will be a tremendous asset to MBA and our members." Killmer will manage MBA's legislative and political affairs group and take responsibility for the development and implementation of legislative and political strategy. He will also serve as MBA's chief lobbyist. MBA's legislative affairs team, which oversees federal, state and local legislative and lobbying activities, will report to Killmer in his new role. MBA's political affairs team, which coordinates the group's grassroots efforts, will also report to Killmer.