KeNo's Housing and Economic Portal: Tuesday July 13 Housing and Economic stories

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TOP STORIES:

Public employee unions on the defensive - (www.sfgate.com) For public employee unions - those representing police, firefighters, teachers, prison guards and agency workers of all kinds at the state and local levels - these are the worst of times. Despite record high membership and dues, and years of unparalleled clout in state capitols, public-sector unions find themselves on the defensive, desperately trying to hold onto past gains in the face of a skeptical press and angry voters. So far has the zeitgeist shifted against them that on one recent weekend, government employees were the butt of a "Saturday Night Live" skit, and the next day, a New York Times Magazine cover article proclaimed "The Teachers' Unions' Last Stand." Public unions' traditional strength - the ability to finance their members' rising pay and benefits through tax increases - has become a liability. Although private-sector unions always have had to worry that consumers will resist rising prices for their goods, public sector unions have benefited from the fact that taxpayers can't choose - they are, in effect, "captive consumers."

Challenges to Foreclosure Docs Reach a Fever Pitch - (www.americanbanker.com) The backlash is intensifying against banks and mortgage servicers that try to foreclose on homes without all their ducks in a row. Because the notes were often sold and resold during the boom years, many financial companies lost track of the documents. Now, legal officials are accusing companies of forging the documents needed to reclaim the properties. On Monday, the Florida Attorney General's Office said it was investigating the use of "bogus assignment" documents by Lender Processing Services Inc. and its former parent, Fidelity National Financial Inc. And last week a state judge in Florida ordered a hearing to determine whether M&T Bank Corp. should be charged with fraud after it changed the assignment of a mortgage note for one borrower three separate times. "Mortgage assignments are being created out of whole cloth just for the purposes of showing a transfer from one entity to another," said James Kowalski Jr., an attorney in Jacksonville, Fla., who represents the borrower in the M&T case. "Banks got away from very basic banking rules because they securitized millions of loans and moved them so quickly," Kowalski said.

We are legally forced to use incompetent credit rating agencies - (www.chicagotribune.com) The credit-rating agencies that analyze the quality of debt instruments deserve their share of the blame for the financial crisis that continues to hobble our economy. As the housing bubble inflated to the bursting point, Standard & Poor's, Moody's and Fitch continued to pump in more air: They bestowed top ratings on shaky, mortgage-backed securities that deserved scorn rather than praise. The firms' ratings failed to reflect the deteriorating quality of home loans that had been bundled into many of those securities. But pension funds, mutual funds and other institutional investors continued to buy up the securities because, well, they had top ratings. You can blame the big investors for not doing their own due diligence as they scooped up securities full of junk mortgages that had been packaged and sold as if they were good as gold. But the system that has evolved over decades gives securities buyers an out: Numerous federal and state laws protect the buyers from legal liability as long as they relied on those top ratings from firms decreed "Nationally Recognized Statistical Ratings Organizations" by the Securities and Exchange Commission. The Big Three of that group are: S&P, Moody's and Fitch. Put another way, we rely on these companies — by law. Are you seeing a problem yet? It gets worse. The ratings agencies get paid by the same banks and companies whose securities they're rating. Imagine how trustworthy movie reviews might be if the most influential reviewers were being paid by the film companies. ( "Marmaduke" — "Shattering and beautiful!")

Debt Default: It Can Happen Here - (www.capitalgainsandgames.com) The main reason the U.S. cannot suffer the sort of debt problems of Greece and other eurozone countries is that all our debt is denominated in dollars, of which we essentially have an unlimited supply. Because its monetary policy is controlled by the European Central Bank, Greece can’t just print euros the way we can print dollars. And the Federal Reserve will always ensure the success of a Treasury bond auction. De facto monetization of the debt could be inflationary, but default resulting from a lack of demand for Treasury bonds is not really possible. This does not mean that default is impossible, however, because there is always a danger that Congress will not raise the debt ceiling in a timely manner, meaning that the Treasury may not have sufficient cash to make interest payments or redeem maturing securities. If that happens, there would be a technical default.

Banking charge-offs at record levels - (www.financemymoney.com) The new motto for banks should be “look at what I do, not as I say” because bank balance sheets are still worsening. If bad debt is any indicator of financial health or of the stability of a bank balance sheet, banks are extremely ill even after the enormous amounts of money pushed into their arena. Bad debt through charge-offs is at modern day record levels. If we look at data from recent recessions, we’ll see that a recession doesn’t even reach its end until charge-offs start to decline. If that is one indicator of pulling ourselves away from the abyss, then we still have miles of swimming before we reach a safe economic shore. Much of these problems stem from portfolios saddled with tremendous amounts of real estate debt.

Demanding Buyers "Hinder" the Housing Market - (www.nytimes.com) In some cases, agents say, sellers literally cannot afford to make concessions. Another $10,000 will push them underwater, which means they will have to arrange the sale through the bank. “People cashed in on their houses to get money to go on vacation, for a new roof, to send the kids to college,” said Roberta Baldwin, an agent in Montclair, N.J. “They thought it was always going to be worth more.” Even when a sale can be worked out, it is not uncommon for everyone to walk away feeling more aggrieved than celebratory. “Buyers feel they’re not appreciated for simply making an offer,” Ms. Baldwin said. “And sellers feel humiliated and even angry. They expected to do better.”