KeNo's Housing and Economic Portal: Wednesday June 30 Housing and Economic stories

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Ambac Warns of Default as Bondholders Organize - (www.cnbc.com) Ambac Financial Group, the bond insurer whose toxic assets were seized by Wisconsin state regulators in March, said it could default on its loan obligations and was still considering filing a prepackaged bankruptcy. The company, which has had trouble writing new business since losing its 'AAA' credit rating in 2008, said in a U.S. Securities and Exchange Commission filing on Tuesday that "as early as the second quarter of 2010" it may decide not to make interest payments on its debt, which could result in a default. Holders of some of Ambac Financial Group's $1.24 billion senior debt, have formed an ad hoc committee and will try to push the company into a prepackaged bankruptcy, people familiar with the matter told Reuters. Ambac shares fell as much as 16 percent in extended trading following the news. The bondholders' committee, which includes hedge funds Centerbridge Partners, Halcyon Capital Management, Mangrove Partners and Camden Asset Management, is looking to use a prepackaged bankruptcy to exchange their debt for equity in the company, the sources said.

Mortgage Mystery At The FHA - (www.dailybail.com) There's a big head-scratcher hanging over the mortgage market. Government-controlled Fannie Mae and Freddie Mac buy mortgages from banks and mortgage companies. Now, as they face the costs of huge defaults, both are scouring their books to identify loans they should never have been sold, often because borrower data weren't true. And mortgage makers are making big payments to Fannie and Freddie as reimbursement for these badly underwritten loans. Oddly, one large government player in mortgages, the Federal Housing Administration, has disclosed next to nothing about its reimbursements. And without such information, it is impossible to judge whether the FHA has taken proper steps to force mortgage makers, and not taxpayers, to bear the costs of faulty loans. Does the FHA stand to claim back large amounts? Traditionally, it has insured loans made to lower-income borrowers, often with poor credit histories. The FHA's business actually declined in the housing boom, because it required documentation that lenders were able to avoid on subprime and Alt-A mortgages, and because it stuck mainly to standard fixed-rate loans. And that higher level of documentation, and the fact that its business dipped during the boom, are possible reasons why the FHA mightn't have the right to collect large reimbursements.

Spain Small Lenders Struggling for Funding - (www.cnbc.com) Smaller Spanish banks are losing access to the European repo market due to concerns Spain could be heading for a debt crisis along the lines of EU partner Greece, a top financial source in Spain said on Wednesday. The repo market is wary of smaller Spanish lenders because of their real estate losses and because they can only offer Spanish government bonds as collateral. The sharp rise in Spain's 10-year government bond yield since mid-May, to a peak of 4.66 percent from below 4.00 percent — has brought it above the previous high of 4.50 percent hit just before the European Union agreed on a trillion-dollar financial safety net for euro zone countries in early May. "The smaller Spanish banks cannot finance their positions in (Spanish) government bonds through the repo market outside Spain. This shows just how little appetite there is for Spanish government risk outside Spain," the financial source said. "And the problem is these small lenders do not have access to the interbank market so basically they are tapping the ECB to cover short-term funding needs," the source said.

Geithner: Fannie and Freddie next for reform, someday - (www.thehill.com) Geithner said that embattled mortgage lenders Fannie Mae and Freddie Mac will be addressed once work is finished on financial reform.

Treasury Secretary Timothy Geithner said Thursday that embattled mortgage lenders Fannie Mae and Freddie Mac will be addressed once work is finished on the financial regulatory reform bill. Geithner told CNBC said that he is confident Congress and the White House will move "quickly" to reform the government-controlled firms. "We certainly welcome the broad support we've heard from Republicans and Democrats about the need to go forward on reform," he said. "And we're going to move on reform of Fannie and Freddie and the broader housing finance system as soon as we get this bill passed." One of the Republicans' main criticisms of the financial bill that passed the House and Senate over the past few months is that it did not address Fannie and Freddie, which many blame for causing the housing crisis that helped fuel the overall economic meltdown in 2008. The firms were taken into government conservatorship at the apex of the 2008 financial crisis. The firm has taken billions in government funds, but some Republicans have accused the Obama administration of using them as more of a public policy tool to support specific housing efforts.

Fannie Mae's Duncan Says Buyer-bait Tax Credit Did Not Create Demand - (www.businessweek.com) The federal homebuyer tax credit shifted demand in the U.S. housing market without having a lasting impact on prices, according to Douglas Duncan, chief economist of Fannie Mae, the largest mortgage financier. “Temporary tax credits change behavior temporarily,” Duncan said today at a National Association of Real Estate Editors conference in Austin, Texas. “It’s simply shifted demand forward.” To qualify for the tax credit, buyers were required to sign a contract by April 30 and complete the purchase by July 1. Housing data have shown demand may cool after the deadline. A Mortgage Bankers Association index of applications for loans to purchase properties fell last week to the lowest level since 1997. The number of homes on the market in April surged by the most in a decade, the National Association of Realtors said. “It actually created some price appreciation that’s not supportable long term,” Duncan said of the tax credit.

Manhattan Empty Condos May Be Rentals as Leases Reign - (www.bloomberg.com) When Richard J. Bailes and his family paid $4.1 million in March for a four-bedroom apartment in the glass and steel Georgica on Manhattan’s Upper East Side, just eight of the building’s 58 units were occupied, he said. Bailes and his family had plenty of places to choose from. About 8,700 new condos sit empty in Manhattan, with 75 percent not even listed for sale yet, said appraiser Miller Samuel Inc. Priced at levels the market no longer supports, they’re selling so slowly it would take as long as seven years to find buyers for them all, said Jonathan Miller, president of Miller Samuel. Miller teamed up with Westwood Capital LLC and developer Gerald Guterman to raise as much as $1 billion to buy empty condos and manage them as rentals. Guterman made his name in the 1980s doing just the opposite. “Things are going to run out of steam at pretty predictable times,” said Daniel Alpert, managing partner of New York-based Westwood Capital. “In the case of these condos, it’s when the reserve funds run out.” Builders can’t afford to cut prices because they borrowed too much at the height of the market, according to Miller. He and his partners are betting that lenders will seek to sell their condo units at a loss rather than foreclose on the building and assume all the developer’s liabilities until the units are sold.