KeNo's Housing and Economic Portal: Friday July 30 Housing and Economic stories

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U.S. homes repossessed by banks set to hit record 1 million this year - (www.washingtonpost.com) The number of American homes repossessed by banks hit a record high in the second quarter of the year, putting the number of foreclosures on track to hit a record 1 million by the end of 2010. Bank repossessions increased 5 percent from the previous quarter and 38 percent from the second quarter of 2009 to 268,962, according to data released early Thursday by RealtyTrac, an Irvine, Calif., firm that tracks the foreclosure market. But while the number of homes in the final stage of the foreclosure process increased, the number of new filings fell. Both default and auction notices were down on a month-over-month and year-over-year basis. The combination of bad news and good news can be explained by two seemingly contradictory trends that are the result of Obama administration efforts to encourage with lenders to help homeowners in distress. Over the past few months, lenders have been clearing out a backlog of homes that had been temporarily saved from foreclosure thanks to prevention efforts in 2009. And at the same time, they have been delaying foreclosure proceedings on homeowners with delinquent payments and instead trying to work with more aggressive loan modification strategies or to accept a short sale.

Signs of Risky Lending Emerge - (online.wsj.com) Shirley Davis, a 66-year-old retired phone-company administrator who lives in Brooklyn, N.Y., is more than $33,000 in debt, earns just $2,414 a month and filed for bankruptcy in June. Shortly before that, she ripped open an envelope from Capital One Financial Corp., which pitched her a credit card even though it sued her in 2006 to recover $4,470 she owed on a different card from the bank. "At some point we lost you as a customer and we'd like to have you back," the letter said. Ms. Davis said she was stunned. "Even I wouldn't give me a credit card at this point," she said. Even as lenders struggle to pull themselves out of the credit crisis, signs of a new and potentially dangerous infatuation with risky borrowers are emerging. From credit cards to auto loans to mortgages, the hunger for new business as the crisis ebbs is causing some financial institutions to weaken lending standards and woo borrowers who mightn't be able to pay. A spokeswoman for Capital One said customers who "fully settled" their old debts might get a credit-card solicitation "with appropriately conservative spending limits." The spokeswoman said, however, that doesn't mean "that a consumer will receive a card." Capital One won a court judgment against Ms. Davis for the money owed and she repaid it. Fannie Mae, seized by the U.S. government in 2008 to avert the mortgage company's failure, launched an initiative in January that allows some first-time home buyers to get a loan with a down payment of as little as $1,000. Securities firm Morgan Stanley Smith Barney, a brokerage operation jointly owned by Morgan Stanley and Citigroup Inc., is offering some clients home-equity credit lines of as much as $2.5 million.

Penny-Pinching Towns Put Police Out to Pasture - (www.aolnews.com) The sheriff will be walking the streets again in San Luis -- the oldest community in Colorado. But it's not a return to the Wild West; the town fired its entire police force to save money. Around the country other towns -- large and small -- are also eliminating their police departments. The Los Angeles suburb of Maywood, Calif., fired its officers, as did rural Bethel, Maine. Near Pittsburgh, Fallowfield, Pa., also voted to disband its police department. San Luis, established in southern Colorado in 1851, is facing a $750,000 budget deficit. The town of 740 residents has a median income is $20,875. It's about 225 miles from Denver. "We just did not have the money to pay these people," San Luis Mayor Theresa S. Medina said by telephone. She said firing the police chief and three part-time officers was expected to save about $10,000 a month in salaries, gas and car maintenance. The unanimous decision by the San Luis City Council on July 2 also saw the town's sole maintenance worker fired, leaving the town clerk as the only employee. At the monthly town meeting, the only opposition came from the police chief, Medina said. Discussions about a volunteer force didn't make sense because the town would have liability problems, she said.

US states widen the search in bond sales - (www.ft.com) California usually runs local newspaper and radio advertisements when it drums up interest in a bond sale. This year, though, the cash-strapped US state has been looking farther afield for investors. At least one of its offerings has involved telephone calls and flights to potential buyers as far away as Norway and Saudi Arabia. It is not the only state widening its search. Officials from Illinois and their underwriters, Citigroup, have also done a fair amount of globetrotting to woo investors in Europe and Asia to buy nearly $1bn of bonds, the price of which was due to be set on Wednesday. “Illinois has not done any offshore marketing since 2003,” said John Sinsheimer, director of capital markets for Illinois. The reason for all this foreign travel is that the states are marketing a type of debt – so-called Build America Bonds, subsidised by the government to finance construction projects – and hope to attract buyers who might be looking to diversify their bond portfolios. But they are doing this at a difficult time. After the worst recession for decades, the collapse of America’s housing market and a sharp jump in unemployment, state and local governments throughout the US have been struggling with ballooning budget deficits. Those deficits amounted to $89bn for the 2011 fiscal year, says the National Conference of State Legislatures.

Record Build-America Risk Premium Boosts L.A. College Costs - (www.bloomberg.com) Los Angeles Community College District, the largest two-year system in the U.S., plans to sell $900 million in Build America Bonds as the yield premium that investors demand on the debt rose to a record. The taxable offering include maturities of 32 and 39 years that may be priced to yield 255 and 270 basis points respectively above the benchmark 30-year Treasury, according to a person with direct knowledge of the sale. A basis point is 0.01 percentage point. The so-called spread rose to 207 basis points on average yesterday from about 150 three months ago, according to a Wells Fargo index that began last August. The reading comes as Treasury yields have fallen about 50 basis points since May 3 amid signs of a slowing economy. “Of all the ‘L.A.’ names, the community college district is the best name right now,” said Bud Byrnes, chief executive officer of Encino, California-based RH Investment Corp., which specializes in the state’s securities. “It’s really well regarded and trades well, but it’s getting tainted by the fact it has ‘L.A.’ in it.” The City of Los Angeles had its debt rating cut one level to Aa3, fourth-highest, by Moody’s Investors Service and one step lower, to A+, by Fitch Ratings in April on difficulties in balancing the budget of the nation’s second-largest city by population. The district, with 141,000 enrolled students on nine campuses, plans to use today’s federally subsidized issue for construction and renovation, including a so-called green- technology student union at Los Angeles City College and a performing-arts center at Los Angeles Valley College.

Oakland talks break down; layoffs for 80 cops - (www.sfgate.com) Oakland laid off 80 police officers Tuesday after negotiations between city officials and union leaders failed on one simple matter: job security. The police union demanded that the city guarantee that its officers would not be laid off for three years in exchange for giving up some pension benefits that would have eased the city's budget problems. City leaders, however, said it would have been irresponsible of them to agree to protect police jobs for more than one year because the city's budget problems are likely to worsen. "Every time you lay us off, there's a gun to the citizen's head as well," said Sgt. Dom Arotzarena, president of the Oakland Police Officers Association.