KeNo's Housing and Economic Portal: Tuesday March 22 Housing and Economic stories

Monday, March 21, 2011

Tuesday March 22 Housing and Economic stories

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TOP STORIES:

Taxpayers caught in the middle of costly Fannie lawsuit - (www.washingtonpost.com) What could be worse than taxpayers paying more than $100 million to defend a shareholder-owned company and its former executives in a private lawsuit? When the government seized Fannie Mae during the financial crisis, it was clear it was taking control of a big, deeply troubled mortgage company that was hemorrhaging money on bad loans made during the housing bubble. But it wasn't as obvious at the time that the government was also becoming a key actor in a soap opera of alleged corporate mismanagement, shareholder feuds and eye-popping legal bills. Now that uncomfortable role is coming into focus. Investors who say they suffered massive losses because of an accounting fraud at Fannie are demanding billions of dollars in compensation.

A Deep Freeze Hits Muni-Bond Market - (online.wsj.com) Municipal-bond issuance is on pace for its lowest quarter in at least 11 years following a rush of borrowing late last year and as government borrowers struggle to get their budgets in order. Through March 4, issuers have sold about $31.5 billion in debt, according to Thomson Reuters. The last time so little in bonds was sold by this point in the calendar was 11 years ago. Depending on how much debt is sold this month—a figure hard to gauge since issuance calendars typically look only a week ahead—muni-bond sales in the first quarter may be the smallest amount since at least the same three-month period in 2000, which came in at $39.1 billion, according to Thomson. "The entire market has been amazed at the lack of volume," said Christopher Mier, managing director at Loop Capital Markets.

Detroit Public Schools Sells $231M Muni Deal, At A Price - (online.wsj.com) Cash-strapped Detroit Public Schools paid dearly to attract investors to buy $231 million in one-year notes in the municipal bond market Thursday. The district, which has been under supervision of a state-appointed emergency financial manager for about two years, sold its debt through the Michigan Finance Authority in two parts: $116 million of bills due in February 2012 yielded 6.45%, while $115 million of bills due in March 2012 yielded 6.65%. Those yields far exceeded those of top-rated, tax-free munis maturing in one year. The yield on a triple-A rated 2012 note is just 0.38%, according to a widely watched index from Thomson Reuters Municipal Market Data. As a result, the offering was said to be oversubscribed. "It's a good amount of yield for such a short time period," said Dan Solender, director of municipal bond management at investment firm Lord Abbett in Jersey City. He surmised high-yield funds were likely major buyers of the debt.

Brown Gets Silicon Valley Backing for Plan to Close $25.4 Billion Deficit - (www.bloomberg.com) Brown wants lawmakers to pass $12.5 billion of spending cuts and to call a statewide special election in June to ask voters to extend more than $9.3 billion of temporary taxes and fees that are set to end. Brown has courted business groups to help sway Republicans, who have sought to block his proposal. The proposed ballot measure would seek a five-year extension for fee and tax increases approved in 2009, when the state faced a $42 billion deficit. It must pass the Legislature soon in order to provide enough time to prepare ballots.

Alabama County Hires Consultant for Fiscal Fix - (online.wsj.com) Jefferson County, Ala., which for years has fought to avoid filing what would be the largest municipal bankruptcy in history, hired FTI Consulting Inc. to help get the county's finances back on track, a county official said Tuesday. With the potential loss of a crucial occupational tax, as well as the tremendous debt burden Jefferson County is tackling, County Commissioner Jimmie Stephens, who oversees the county's finances, said "it's necessary for us to seek this outside expertise." The county initially will engage FTI for three weeks to help prepare a turnaround plan before Jefferson County hires a county manager later this year, Mr. Stephens said. After that, the firm will provide an estimate for a second phase to include a comprehensive recovery plan, he said. FTI will work for no fee for the first phase, though the county will reimburse the firm's expenses, Mr. Stephens said. In the first phase, FTI will come up with three plans, one of which it will implement in the second phase, depending on what happens with the occupational tax. In the worst-case scenario, if the occupational tax does not return, a Chapter 9 municipal bankruptcy would still be an option, Mr. Stephens said. Engaging a financial turnaround firm is somewhat unusual for a local government, illustrating the depth of the troubles facing Jefferson County, home to Alabama's largest city, Birmingham.