KeNo's Housing and Economic Portal: Tuesday August 24 Housing and Economic stories

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TOP STORIES:

US banks get securities buy-back window‎ - (www.ft.com) The Dodd-Frank financial reform bill has opened a 90-day window for banks to buy back $118bn (€92bn) in high-cost securities, a move that would enable them to replace the instruments with cheaper capital but is likely to cause tensions with regulators and investors. Wall Street executives and lawyers say several banks are considering redeeming “trust preferred securities” (Trups) – a hybrid of debt and equity – by taking advantage of a clause triggered by the new rules. Trups – equity instruments that pay interest like bonds – became popular in the financial crisis when banks sold more than $40bn-worth to investors ranging from Warren Buffett to small savers. Financial groups are interested in buying back the securities because Trups are an expensive form of capital. Banks needed to offer high interest rates to entice investors. Banks have an extra incentive to redeem Trups because the new law states that they will no longer count as tier one capital – a key gauge of financial strength – from 2013. The banks can buy back the securities now because most Trups’ contracts state that a legal change gives issuers three months to redeem them at face value. The removal of Trups from tier one capital amounts to such an event, lawyers say. “It is a big issue,” said a top US lawyer. “The question for banks is: do you want to keep paying high interest rates knowing that Trups are going to lose their status as tier one?” However, some executives counter that redeeming Trups could upset regulators, who are against reductions in bank capital, and investors, who bought them to hold for the long term.

Tracy, CA pair charged in $4.5 million.real estate scam - (www.contracostatimes.com) Authorities have capped a three-year investigation into the defunct Ward Real Estate Brokerage & Foreclosure Services Inc. in Tracy, arresting its chief executive and another woman on charges they stole $4.5 million through a house-flipping scheme promising big returns. The pair is accused of stealing from 34 victims throughout Northern California, including San Joaquin, Stanislaus and Alameda counties. Prosecutors say the fraudulent business plan paid investors for a while, but the payments stopped in 2006 after about three years. The firm's namesake, Leesa Marie Ward, 45, of Lodi, appeared in a Stockton courtroom Monday for arraignment on a 46-count felony indictment by a criminal grand jury charging her with tax evasion, grand theft and securities fraud. Investigators arrested her Friday. About the same time Ward was in court, Alison Ann Jensen, 45, of Pleasanton, turned herself in at the County Jail in French Camp to be booked on the same list of charges. Bail for each licensed real estate broker is set at $3 million. A third woman, 56-year-old Sharon Lee Graham, of Oakdale, who kept the books for Ward Real Estate, is expected to surrender by next Tuesday. She faces 10 related charges. Prosecutors accuse Graham of taking more than $840,000 from seven investors, the indictment says.

Squatting Becoming Way of Life for Delinquent Borrowers - (www.irvinehousingblog.com) As lenders delay the foreclosure process, many delinquent borrowers are settling in to their new way of life -- a life where they don't have any housing expenses. Tens of thousands of Bay Area homeowners are trapped in a bizarre real estate limbo, living in houses but no longer paying for them, waiting and wondering if someone will help them — or throw them out. Yes. It's called squatting. Of course, this doesn't meet the technical definition of squatting which is possession of real estate without the owner's permission. In this instance, the squatters are technically still the owners of property, so there is nothing illegal going on, but these owners are generally hopelessly underwater and failing to make their mortgage payments. They are in possession of real estate that can be called to auction at the discretion of their lender at any time. Ultimately, they will lose their homes. Some are victims of their own economic circumstances, unable to afford their mortgage and expecting to lose their homes if they can't get a break from their bank. Others are opportunists, choosing not to spend on a house worth less than they owe. Instead, they can live rent-free until their lender makes a move. The limbo phenomenon is a radical departure from previous real estate crashes, when there were far fewer troubled loans and banks moved speedily on those who fell behind on payments. Now many lenders simply can't keep up, and others appear reluctant to flood a weakened market with foreclosed homes. As I have stated on many occasions, I am shocked by the banks policy toward delinquent homeowners. There is no real reason for the squatting. Lenders would be far better served by forcing the deadbeats out and taking the property back in foreclosure. If they didn't want to flood the market with foreclosed homes, they could simply rent them out and at least get some income from the property. As it stands, they obtain no return on their invested capital. It sits there along with a squatter who is happy to enjoy the free ride.

Short sale gridlock is 'dizzying' - (mortgage.ocregister.com) The backlog of pending short sales in Orange County is “dizzying,” Altera Real Estate broker Steve Thomas says in his latest bi-weekly report on the local housing market. “The lenders are in control of the real estate market and they are taking their sweet ol’ time,” he says. Highlights:

· There are 6,268 total pending sales in Orange County. In the first 7 months of 2010, an average of 600 short sales closed every month. But there are some 3,639 short sales currently pending.

· You can see the difference if you look at equity sellers, with an average of 2,302 closed sales for the first 7 months and 2,133 now pending.

Thomas says: “It is not a secret that many homeowners in Orange County and across the United States have stopped making their mortgage payments and have been sitting in limbo for a very long time. This has often been referred to as the ‘Shadow Inventory.’ Many are seeking loan modifications in hopes of lowering their monthly mortgage payments and, if they are lucky, reduce their loan balances. Others are attempting to sell their homes as short sales where their outstanding loan balance is more than their home is worth. “The problem lies in the fact that even though short sales have a buyer willing to buy and a seller willing to sell, they cannot close the pending sale until the lender, or often lenders, agree to accept less than a full payoff. On average, this process takes months to complete. When there are multiple lenders, homeowner associations that have not been paid, unpaid property taxes, collection companies and attorneys involved, the process becomes even more complex. The length of time to close increases with a more complicated short sale. But, not all short sales are complicated and no short sale, regardless of its complexity, should take six months or more to close, if it closes at all.

Man Who Fought FBI Spying Freed From "National Security Letter" After 6 Years - (www.wired.com) The owner of an internet service provider who mounted a high-profile court challenge to a secret FBI records demand has finally been partially released from a 6-year-old gag order that forced him to keep his role in the case a secret from even his closest friends and family. He can now identify himself and discuss the case, although he still can’t reveal what information the FBI sought. Nicholas Merrill, 37, was president of New York-based Calyx Internet Access when he received a so-called “national security letter” from the FBI in February 2004 demanding records of one of his customers and filed a lawsuit to challenge it. His company was a combination ISP and security consultancy business that was launched in the mid-90s and had about 200 customers, Merrill said, many of them advertising agencies and non-profit groups. Despite the fact that the FBI later dropped its demand for the records, Merrill was prohibited from telling his fiancée, friends or family members that he had received the letter or that he was embroiled in a lawsuit challenging its legitimacy. He occasionally showed up for court hearings about the case, but sat silently in the audience with other court observers. In 2007, he was prevented from publicly accepting an award for his courage from the American Civil Liberties Union, because he was not allowed to identify himself as the plaintiff in the case.

America Is 'Bankrupt Mickey Mouse Economy': CIO - (www.cnbc.com) America is a "Mickey Mouse economy" that is technically bankrupt, according to Jochen Wermuth, the Chief Investment Officer (CIO) and managing partner at Wermuth Asset Management. "America today looks like Russia in 1998. Consumers, companies and the government are all highly indebted. America as a result is a bankrupt Mickey Mouse economy," Wermuth told CNBC. The comments followed news that the Fed was extending its quantitative easing program following what the Federal Open Market Committee (FOMC) described as a fall in the pace of growth in output and employment. The Fed has spent the past three years on a route of aggressive rate cuts and purchases of trillions in various securities but it is running out of measures it can take, Pimco's co-CEO Mohamed El-Erian told CNBC. Wermuth is a fund manager heavily invested in Russia and says if the same International Monetary Fund (IMF) team that managed the financial crisis in the former super power in 1998 now turned up at the US Treasury, they would withdraw support for current US policy immediately.