KeNo's Housing and Economic Portal: Wednesday January 26 Housing and Economic stories

KeNosHousingPortal.blogspot.com

TOP STORIES:

Wasting thousands per month paying mortgage, and credit rating falls too - (www.huffingtonpost.com) Steven Marks knew he was wasting thousands of dollars every month paying the mortgage on a home he bought during the housing bubble that will never be worth that much again. But he'd read plenty of horror stories about people having serious trouble modifying their mortgages due to bank confusion and misbehavior, so before he started looking for debt relief on his Reno, Nev. home, Marks sent a simple request to Bank of America: Could they tell him who owned his mortgage? And could they document it? Marks didn't get the type of response he was expecting. After initially declining to tell him who owned his loan, Bank of America provided a form letter with the name of the current investor a few weeks later. But they also appear to have lowered his credit score, the preeminent measure of creditworthiness that will principally determine his ability to obtain loans in the future. "I just asked to see my note, and they dinged my credit score. My insurance premiums have already gone up," Marks told HuffPost. "I went to see a lawyer, we're trying to figure out what my options are. After this, we're thinking about some forced mediation. Why keep paying if my credit score gets battered anyway?"

When States Default: 2011, Meet 1841 - (online.wsj.com) Land values soared. States splurged on new programs. Then it all went bust, bringing down banks and state governments with them. This wasn't America in 2011, it was America in 1841, when a now-forgotten depression pushed eight states and a desolate territory called Florida into the unthinkable: They defaulted on debts. This was an incredible step, even then. Fledgling U.S. states like Indiana and Illinois were still building credibility on global debt markets. They rightly feared "a prejudice so deep and wide" that they could never sell bonds in Europe again, said one banker. Their paranoia would be familiar to the shell-shocked California and Illinois of 2011. Each is beset by budget problems so great that some have begun debating default or bankruptcy. These worriers may draw comfort from the state crises that raged and retreated long ago. Most of the states eventually paid off their debts, and changed their laws to safeguard their finances, helping make U.S. states some of the world's best credits. Congress, meanwhile, helped set a precedent that still holds: In 1843, it rejected an elaborate plan for a bailout, with one critic later observing it would "cause recklessness and extravagance" among the states. Surely, someone will dust off those ideas in 2011. Yet for all their similarities, there was an ominous difference from now: Leaders and citizens of the 1840s were more willing to accept new taxes to pay for the infrastructure and to defend, in the earnest words of the time, their "moral duty" of meeting debts. In Indiana and Ohio, property taxes went up eightfold in the early 1840s. New York, Pennsylvania, Maryland, and Massachusetts all installed state property taxes, the first in 40 years for Pennsylvania.

Seattle's Bellevue Towers developer turns project over to lenders - (seattletimes.nwsource.com) The developer of Bellevue Towers, the region's biggest condo project ever, has turned over the development to lenders to avoid foreclosure. Portland-based Gerding Edlen transferred the downtown Bellevue project's unsold units on Thursday to an entity led by investment bank Morgan Stanley, according to county records. The new owners announced price cuts to help spur sales at the 539-unit development, where just 118 sales have closed since the two towers were completed nearly two years ago. "This is an acknowledgment that prices today aren't what they were," Ira Glasser, an adviser to Morgan Stanley, said Monday. At 43 and 42 stories, the project's two towers are the Eastside's tallest buildings. Gerding Edlen built them in large part with $275 million borrowed in January 2007 from a consortium of lenders led by Morgan Stanley. That loan matured a year ago, Glasser said, and the lenders have been paying the project's bills since then. The ownership transition was "an amicable and consensual agreement" to put the towers on new financial footing with minimal disruption, he added. The Bellevue Towers takeover is the latest sign of how far the high-rise, high-end condo market has fallen since the real-estate bubble popped.

B of A Settlement, Another Taxpayer Rip-off - (www.usawatchdog.com) In case you have not heard, Fannie and Freddie (also known as Government-Sponsored Enterprises or GSE’s) settled a big lawsuit with Bank of America Monday. The case was settled for cents on the dollar, even though the GSE’s had had a strong case to force B of A to buy back billions in sour mortgage-backed securities (MBS.) I wrote about some of this in a December 1 post called “Foreclosure Bombshell.” The post was about some of the legal trouble Bank of America was having with the mortgage debacle and the possibility of the banks being forced to buy back billions in sour MBS. Here’s part of what I wrote back then, “Mortgage-backed securities have to meet what is called “contractual representation and warranties.” That basically means the MBS are required to be free of fraud and be exactly what the seller says they are. Do you think mortgage-backed securities are free of fraud? Do you think these securities are the triple-A rated risk free investment the big Wall Street banks claim?—NO WAY! The banks are going to be forced to buy back all the toxic mortgage junk they sold.

Ratings Agencies Struggle With Mortgage Bonds - (www.dealbook.nytimes.com) Two weeks ago, Standard & Poor’s put out a news release warning that it was poised to lower its ratings on almost 1,200 complex mortgage securities. So what? Isn’t that dog-bites-man at this point? Well, two-thirds of these mortgage bonds were rated only last year, long after the financial crisis. And S.&P. was supposed to have taken the distress of the housing crash and credit crisis into account when it assessed them. But in December, the ratings agency acknowledged that it had made methodological mistakes, including not understanding who would get interest payments when. As everyone knows by now, the credit ratings agencies played an enormous role in creating the conditions that led to the financial crisis. Their willingness to slap triple-A ratings on all manner of Wall Street-engineered mortgage rot was enormously lucrative for the raters, but a disaster for the global economy. Unfortunately, as the episode in December shows, the credit ratings agencies are still struggling to get it right.