KeNo's Housing and Economic Portal: Tuesday June 7 Housing and Economic stories

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It Teetered, It Tottered, It was Bound to Fall down - (www.nytimes.com) MARC COHODES had heard the stories. Heard how these guys would give a mortgage to anyone — even to a corpse, the joke went. How the place was run like a frat house. You wouldn’t believe the things that go on there, his brother-in-law had told him. So Mr. Cohodes, a money manager in Marin County, Calif., decided to bet against one of the big names of the subprime age: NovaStar Financial. NovaStar was part of a crop of new lenders that had sprung up in the 1990s. It had been founded by two hard-charging entrepreneurs, Scott F. Hartman and W. Lance Anderson. The two men had complementary skills. Handling the financial operations, working with Wall Street — that was Mr. Hartman’s job. Mr. Anderson, a born salesman, was the glad-hander. From the start, the pair was paid handsomely. Each man received almost $700,000 in 1997, even though their company was losing money. Like others in the subprime industry, NovaStar used aggressive accounting that obscured its increasingly precarious finances. As far back as the 1990s, it had to underwrite loads of new loans to offset losses on older mortgages.

Banks Inventory of Unsold Homes Grows, Depressing Prices Further - (www.nytimes.com) The nation’s biggest banks and mortgage lenders have steadily amassed real estate empires, acquiring a glut of foreclosed homes that threatens to deepen the housing slump and create a further drag on the economic recovery. All told, they own more than 872,000 homes as a result of the groundswell in foreclosures, almost twice as many as when the financial crisis began in 2007, according to RealtyTrac, a real estate data provider. In addition, they are in the process of foreclosing on an additional one million homes and are poised to take possession of several million more in the years ahead. Five years after the housing market started teetering, economists now worry that the rise in lender-owned homes could create another vicious circle, in which the growing inventory of distressed property further depresses home values and leads to even more distressed sales. With the spring home-selling season under way, real estate prices have been declining across the country in recent months. “It remains a heavy weight on the banking system,” said Mark Zandi, the chief economist of Moody’s Analytics. “Housing prices are falling, and they are going to fall some more.”

How Spain could rip the eurozone apart - (www.moneyweek.com) Another weekend, another problem with the eurozone. In fact, there's more than one. Greece's financial woes keep piling up. The country's bonds have just been downgraded again. Fitch Ratings has cut its view on Greek debt from BB+ to B+. In credit score-speak, this lowers Greece's rating from "non-investment grade speculative" to "highly speculative". Put more simply, Fitch reckons that people buying Greek debt are taking a huge risk they won't get their money back. That's bad enough. But meanwhile, an even bigger danger to the eurozone is developing 1,400 miles to the west – from Spain. Greece's problems are no surprise: Greece hitting the skids is no great shock. It may have already had a bail-out, but the value of its sovereign debt has still been steadily collapsing for several months (ie yields on Greek bonds have been soaring).

A Battle Over Forex - (www.online.wsj.com) Bank of New York Mellon Corp. has been fighting accusations that it took advantage of clients while trading currencies. A Wall Street Journal analysis of more than 9,400 trades the bank processed over the past decade for a large Los Angeles pension fund could provide ammunition to its critics. BNY Mellon priced 58% of the currency trades within the 10% of each day's trading range that was least favorable to the fund, the analysis shows. As a result, the trades cost the pension fund, the Los Angeles County Employees Retirement Association, $4.5 million more than if the average trade occurred at the middle of the trading range for each day, the analysis showed. A BNY Mellon spokesman confirmed the accuracy of the data and said the bank's employees "tend" to price foreign-exchange trades at one end of each day's "interbank" trading range—the rates at which major banks like BNY Mellon buy and sell foreign currencies. But the bank said there was nothing improper about the practice. It said clients like the Los Angeles pension fund knew—or should have known—that the bank doesn't act in their interests when pricing the trades. The Los Angeles fund disagrees. It said in a letter to BNY Mellon in January that the bank was its fiduciary, so it should have looked out for the fund's interests and offered it "best execution," or the best possible price. It alleged BNY Mellon had used a "hidden mark-up" in currency trades and had a duty "not to make undisclosed profits" at the fund's expense. The bank says it complied with its written agreement with its client. The fund has since ceased using the bank for certain currency trades.

Florida's Foreclosure 'Rocket Docket' Ends - (www.cnbc.com) Too many foreclosures and too little time. That was the impetus behind the so-called "rocket docket" in Florida, where judges could blow through a thousand cases a day. And they had to, given a backlog of close to 40,000 foreclosures. It was an experiment that began at the very end of December of 2008 in Lee County, Florida, the hardest hit county in the state. Retired judges came back to work, and the cases started to move. Then it went into full swing about a year ago in four other counties. Now with a backlog of "just 8000 cases," Lee County court clerk Charlie Green confirms the money for the program runs out at the end of June. I spoke with Green a few years ago, when the program started, and then again this morning. The desperation I remember in his voice is now gone. "We are absorbing a lot of the foreclosed properties, and hopefully as the job market improves, that will improve," Green tells me.