The Housing Bubble

Back from vacation! 9 days on the beach in Florida with no internet access. It was rough I have to say. I was down in your neck of the woods palmetto - on Anna Maria.

Wha’d I miss?

Mayors say cities need direct economic help…

NEW YORK (Reuters) - Without more direct aid to U.S. local governments, Washington may make matters worse for cities facing falling tax revenues and increased spending needs, the nation’s mayors said at their annual meeting this weekend.

Mayors said they bear the tough task of cutting services and jobs vital to U.S. cities, even with help from the $787 billion in stimulus funds Congress passed in February.

“We make these decisions because we don’t have a choice,” said Miami Mayor Manuel Diaz, current president of the U.S. Conference of Mayors, referring to layoffs and cost cuts in education and urban development. “We have to balance our budgets, and we cannot print money every week.”

Philadelphia Mayor Michael Nutter said the “toughest part is cutting back on programs and services that people really want in their communities, and having to explain to them why we can’t do certain things anymore because we just don’t have the money.”

Local governments, struggling to issue debt in a largely stalled municipal bond market, expressed worries that current federal stimulus initiatives — including development grants, infrastructure funding, and the subsidized Recovery Zone and Build America Bonds — while helpful, may not be enough in the financial crisis.

“And it’s important that metropolitan areas get money directly for recovery, and not through the states,” said Los Angeles Mayor Antonio Villaraigosa, who has voiced concerns that states may use stimulus funds to close their own budget deficits, especially in California with its massive $24.3 billion gap.

Organizers of the mayor’s annual conference had counted on President Barack Obama and others from his administration to attend, but a labor dispute between host Mayor David Cicilline of Providence, Rhode Island, and the area’s firefighters union led to the unprecedented federal absence from the meeting.

I see california has a new 90 day moratorium on foreclosures.This is a total joke.The state is so screwed up it doesn’t know what to do.

I’m looking to buy in south oc. Laguna Niguel to be exact. It seems that there is a standoff now between buyers and sellers. Sellers don’t want to lower there prices but no ones buying. I really hope prices drop another 20% from todays lowest asking prices. My plans are to buy mid 2010.

I did a search on Remax for Manassas Park and I saw an interesting graph located bottem right of the webpage.

http://allegiance26.virginia.remaxbeta.com/PropertySearch/Residential.aspx?QF1=City&QV1=manassas%20park&QC1=0&QA1=0&QI1=0&QF2=State&QV2=VA&QC2=0&QA2=0&QI2=0&OF1=&OO1=1&corp=true&ref=400&vid=504715946&CountyID=0&MetroAreaID=47&RfrSknID=321&aid=UA-30723-26

So here’s a question - given that mortgage rates have skyrocketed (relatively speaking of course) the last couple of weeks - why hasn’t the stock market been crashing? Even moderately high mortgage rates are going to *kill* any semblance of housing recovery, and by extension economic recovery.

NYT has an interesting article on the infamous Yellowstone Club bankruptcy:

http://www.nytimes.com/2009/06/14/business/14yellow.html

Among properties he bought for what he imagined as a sort of megaluxe timeshare were these: a $28 million, 14th-century chateau (complete with moat) outside Paris, a $40 million Mexican resort, a $28 million private island in the Caribbean, and a $40 million site in Scotland that was to house a golf retreat (down payment: $12 million). Court documents show that the Blixseths also pocketed $209 million in cash, as well, which they channeled into their family holding company.

California today imposed a 90-day moratorium on foreclosures. The state has the nation’s second-highest foreclosure rate.

The development is good news for those running into a stone wall at the bank despite the Obama administration’s plan to help homeowners rewrite their mortgages. CBS News correspondent Bill Whitaker heard one family’s story.

http://www.cbsnews.com/stories/2009/06/14/national/main5088036.shtml?source=RSSattr=HOME_5088036

Saw a ‘turnkey’ house that had just sold, while walking in a neighborhood here in Tampa. We took a stroll through the yard, the house was amazing with a professional looking sports bar feeling wet bar installed by the pool. No expense was spared on that house, and the place sold for 290. The guy next door was sick, as he had paid 70k more just a year ago for his place.

We were jazzed, as I had mentally put a price of 350+ on this house. The guy had to sell quick due to a move, and did the right thing by dropping the price. Seeing the prices drop to within our range, on amazing houses like that, gives great hope!

On the other hand, we stopped at a garage sale down the street where the prices were inflated for junk. The woman admitted she had bought at the wrong time, was finishing an upgrade, and she wanted out of the house. She didn’t want to rent, so she said she’d “Let the place go, as is, for 290″ It was a dump, so I became curious.

Looked up her history, she bought in 2004 for 200k, now wants 290 in this market, and the house still needs work… Flip gone bad, she must have re-fied the house and now is stuck upside down. Zillow shows the house worth about 220 max at the moment.

Down the street some more, there is a foreclosure going to auction this week. The house needed WORK! Serious WORK. Forget that!

We did find a nice house, in a nice neighborhood that was abandoned. Tell tale foreclosure signs of a messy yard, old phone books at the door. I told the misses that would offer half what we pay in rent now to them, and the rest of the ‘rent’ would be sweat to clean the place up. Good house in a good neighborhood, just needs some love. Now we have to find the owner and ask.

I imagine we will be bailing out these two Detroit institutions as well.

Detroit pension trustees take flight on funds’ tab

The trustees who oversee Detroit’s two public pensions, their lawyers and staff spent $380,000 over the past year circling the globe to attend conferences — often traveling in packs, with virtually no limitation on where they went or how often they traveled.
Advertisement

Trustee Ronald Gracia spent the most time on the road — billing the General Retirement System for $105,000 in travel, including three trips to Singapore and $18,600 on travel to Hong Kong, according to records provided by the pension funds.

http://www.freep.com/article/20090614/NEWS05/906140499/

Another 90-day foreclosure moratorium in California starts today

“But supporters acknowledge the California Foreclosure Prevention Act won’t stop thousands of foreclosures from eventually happening.”

Here’s some more REIC induced puke posted on Marketwatch.

http://tinyurl.com/ltp5gz

From The Economist, with my comments to follow:

Leaders
Public debt
The biggest bill in history

Jun 11th 2009
From The Economist print edition
The right and wrong ways to deal with the rich world’s fiscal mess

Brett Ryder

THE worst global economic storm since the 1930s may be beginning to clear, but another cloud already looms on the financial horizon: massive public debt. Across the rich world governments are borrowing vast amounts as the recession reduces tax revenue and spending mounts—on bail-outs, unemployment benefits and stimulus plans. New figures from economists at the IMF suggest that the public debt of the ten leading rich countries will rise from 78% of GDP in 2007 to 114% by 2014. These governments will then owe around $50,000 for every one of their citizens (see article).

Not since the second world war have so many governments borrowed so much so quickly or, collectively, been so heavily in hock. And today’s debt surge, unlike the wartime one, will not be temporary. Even after the recession ends few rich countries will be running budgets tight enough to stop their debt from rising further. Worse, today’s borrowing binge is taking place just before a slow-motion budget-bust caused by the pension and health-care costs of a greying population. By 2050 a third of the rich world’s population will be over 60. The demographic bill is likely to be ten times bigger than the fiscal cost of the financial crisis.

Will they default, inflate or manage their way out?
…

To answer this question, one should first consider whether it is possible for countries with massive debt burdens (relative to the real value of output) to “manage their way out.” By all appearances, the answer is no for many of the wealthy countries that went into hock to invest in high real estate (both residential and commercial) beyond the point of no return.

IMHO, the biggest problem with this article, not to mention the paradigm supported by many economists in high level policy discussions, is that they pretend that all problems are solvable. I just don’t see any solution to this one, other than to try to survive the deleveraging with the least amount of pain.

But but but I am a VICTIM! I can`t lose! LOL

Judge rules condo buyers must pay developer’s attorney’s fees
June 15th, 2009 by Eve Samples
Hundreds of boom-time buyers in Florida have tried to use the Interstate Land Sales Act to wiggle out of real estate contracts. Some have been successful, others haven’t — but a recent ruling shines light on the risk involved in pursuing such cases.

A magistrate judge ruled late last month that three buyers at St. Lucie County’s Ocean Bay Villas who were suing in an attempt to get their deposits back must repay $76,600 in attorneys fees and costs to the developer, Stuart-based Pukka Development Inc.

“The question is: Do these lawyers explain to these buyers the risk if they lose? The developers are going to go after the attorney’s fees,” said Mark Grant, a partner at Ruden McClosky in Fort Lauderdale who represented Pukka.

In the Pukka case, the plaintiffs — Saverio Pugliese, Michael Mieves, Antonio Saladino and Stephen Matalyak — claimed Pukka violated the Interstate Land Sales Act because it didn’t file specific property reports required by the U.S. Department of Housing and Urban Development.

The U.S. District Court Southern District of Florida ultimately ruled that Pukka was exempt form the reports.

Wall Street Journal

* JUNE 15, 2009

Federal Intervention Pits ‘Gets’ vs. ‘Get-Nots’

By BOB DAVIS and JON HILSENRATH

HAMBURG, Pa. — Factory worker Dennis Davis recently stopped at the Cabela’s store here to buy a $90 carrying case for the long-barreled Contender pistol he uses to shoot pesky groundhogs at his brother’s farm. He paid with a store-issued credit card.

The U.S. government helped finance the transaction. Earlier this year, it recharged the credit-card operations of the Nebraska-based retailer of hunting and camping gear with nearly $400 million of federal financing.

Mr. Davis was surprised to hear about the government’s helping hand, and hardly pleased. “Anything the federal government, or any government, sticks its nose in fails or makes things worse,” he said as he made his way across the parking lot with his son.

Comment: He was principled enough to bite the government’s helping hand, but not principled enough to not enjoy his own little slice of the bailout largess.

As part of the government’s intervention during the economic crisis, federal money has gone to a surprising number of unlikely candidates. The Journal’s Bob Davis reports.

True or not, what’s undeniable is that the federal government has burrowed its way deep into the quotidian workings of American capitalism.

Since the onset of the financial crisis nine months ago, the government has become the nation’s biggest mortgage lender, guaranteed nearly $3 trillion in money-market mutual-fund assets, commandeered and restructured two car companies, taken equity stakes in nearly 600 banks, lent more than $300 billion to blue-chip companies, supported the life-insurance industry and become a credit source for buyers of cars, tractors and even weapons for hunting.

From the figures in the sidebar, entitled Bailout Bucks:

That thar is lots of green shoots fertilizer for the financial sector!

Long after the barn door was left open, the horses ran away, and the mavens of Megabank, Inc set the barn on fire and burned it to the ground, the Obamanites are making serious rumblings about permanently shutting the barn door. I still give the man credit for trying, and wish him all the luck in the world, especially given the Fed’s dismal track record to date on banking regulation (wasn’t it the Fed that basically left the barn door wide open to begin with?).

Wall Street Journal

* JUNE 15, 2009

Details Set for Remake of Financial Regulations

By DAMIAN PALETTA

WASHINGTON — President Barack Obama is expected Wednesday to propose the most sweeping reorganization of financial-market supervision since the 1930s, a revamp that would touch almost every corner of banking from how mortgages are underwritten to the way exotic financial instruments are traded.

At the center of the plan, which administration officials are referring to as a “white paper,” is a move to remake powers of the Federal Reserve to oversee the biggest financial players, give the government the power to unwind and break up systemically important companies — much like the Federal Deposit Insurance Corp. does with failed banks — and create a new regulator for consumer-oriented financial products, according to people involved in the process.
…

International Demand for U.S. Assets Slowed in April (Update1)
By Vincent Del Giudice

June 15 (Bloomberg) — International demand for U.S. financial assets weakened in April as China, Japan and Russia trimmed holdings of Treasuries, a shift that may reinforce concern demand for American debt will wane amid record deficits.

Total net purchases of long-term equities, notes and bonds rose a net $11.2 billion, compared with buying of $55.4 billion in March, the Treasury said today in Washington. International holdings of Treasuries rose a net $41.9 billion, down from the $55.3 billion gain in March. Including bills, the holdings fell a net $2.6 billion.

Chinese, Brazilian and Russian officials have expressed an interest in developing an alternative to the dollar as the world’s main reserve currency. Treasuries have tumbled since March in part because of worries about ballooning federal deficits, according to Federal Reserve Chairman Ben S. Bernanke.

“China and Russia both indicated a desire to diversify out of dollar denominated instruments, and April seems to have emphasized their current position,” Michael Woolfolk, senior currency strategist at Bank of New York Mellon Corp. in New York, said. “That came as a surprise.”

Never heard of a hookah bar, but I don’t keep up with many trends…

Trendy hookah smokers could lose N.C. lounges
Smoking ban that takes effect Jan. 2 prohibits lit tobacco in indoor bars and restaurants.
By Lindsay Ruebens

PJ’s Coffee and Lounge buzzed Thursday night with hip twenty-somethings, ordering drinks and gathering on couches to smoke hookah.

The EpiCentre lounge is one of several businesses to join the trend among young people to smoke flavored tobacco from a hookah, or water pipe, in a communal setting.

But the growing popularity of hookah service at trendy Charlotte bars – and throughout the state – is in jeopardy with North Carolina’s recent passage of a smoking ban.

The ban, effective Jan. 2, prohibits any form of lit tobacco in indoor bars and restaurants.

“It’s a Prohibition type of thing,” said Jason Smalls, who tried hookah at PJ’s for the first time Thursday. “It’s crazy. People shouldn’t tell us what we can and can’t do with our own money.”

The hookah is a centuries-old device of Middle Eastern and African origins. Tobacco infused with honey, molasses and other flavors is placed in a bowl at the top of the pipe and heated with charcoal. As smokers inhale through a long, flexible stem, the smoke is pulled through gurgling, cooling water.

An average of 10 hookahs are smoked per night, and that number doubles and often triples on the weekends, said Bill Barker, partner of PJ’s Coffee and Lounge.

Hookah bars are varied in their fare. Some offer Middle Eastern cuisine, and others offer tea, coffee, beer and wine.

Another condominium project turned homeless shelter.

http://www.brownstoner.com/brownstoner/archives/2009/06/another_new_bui.php

“We were deceived. When they first started building it they said it was going to be apartments,” said Melissa Mona, 27, who lives across from the hulking building at 652 Park Ave., which now takes in a revolving door of homeless families.”

The city is paying the developer $100,000 per month. If they’d just let these guys default, they could buy the damn building for one-third that amount or less. Must be a connected developer.

Since the Federal Reserve z1 data came out the other day - here are updated graphs of various debt loads.

Mortgage Debt
Federal Government Debt
Debt of various sectors
Total Debt

Of note is that there has not yet been any decrease in the mortgage, business, or financial debt in this downturn, as a percentage of GDP at least. There has been some decline in the nominal debt, but that’s been matched by GDP decline, and thus debt remains on its high plateau.

Meanwhile Federal Government debt is of course on a near-vertical slope - a rate of increase matched only by our ramp ups for WW1 and WW2.

I’ve learned so much from this board and am still learning. Maybe someone can be gracious enough to do the math (PITI) for me, but I don’t think this Massachusetts for sale 2 family has exactly/will exactly cash flow as a rental. I would think one would be in the hole, but by how much?

Sunday, on the way to the vegetable stand, I did stop by to check out this place. The time I stopped was at the very end and I was only the third person to put my name on the sign in sheet. The asking price was $299,900.

The location was on a busy street (double yellow lines so no parking on it) next to a large condo complex.

Again, it was a 2 family and according to the sheet, the gross income rent was $2,300 ($12* 2,300 = 27,600, or $1,150/month for each unit). This sounded reasonable for the area. The top unit was a big 2 bedroom and the bottom unit was a 3 bedroom. The sale sheet stated the gross expenses were $0 so the Net income was $27,600. That doesn’t sound the very least realistic to me.

The taxes for the year are approximately $2,550. This town happens to make assessments that are usually (expect for really off-years of say 2002-2006) near the actual value of the house if house tends to be in ‘move-in’ condition. The assessed price on this place was $264K, so I tend to guess $264K would be the top selling price.

Plus, it was a basic rental, and there seemed to be a little work needed to be put into it, so I would say the selling price should be a little less by say $10-20K but then what do I know? For example, the closet doors were very poor and some were falling off. One closet didn’t have a door. Some rooms classified as bedrooms really weren’t because there wasn’t a closet in them. So a closet would have to be built. The rugs looked just okay. The bathtubs were re-baths.

I’ve learned from this board, a basic rule of thumb is the purchase price is about 120 times the rent so the purchase price here would be $276K.

I asked the realtor when the people purchased the house and he replied in 2005. I went home and did some checking and he was right, it was bought in the beginning of October 2005.

According to the information sheet, there was a bunch of work done to the house in October 2005, probably mostly done by the new people. Basically:
October 2005 – House deleaded
2005 – septic passed title 5 (would have to do so for the sale)
October 2005 – Installed hot water Heater (other hot water heater was 1996 so probably getting near time for a new one as over ½ life gone on this one)
Since 2005 – new ranges, new refrigerators, new washer and dryers
November 2006 – new toilet
July 2008 – new gas service (? on what that means)
October 2005 – new baths, kitchens, carpet and paint (don’t know what the sellers consider ‘new’ because it was a ‘gut job’ or even an update. I think ‘new’ for this means the new toilet, refrigerators, ranges).

It was an ‘OK’ looking place. I wouldn’t mind renting the top (2 bedroom unit) if the rental price were right and the landlord was okay. However, that’s what it looked like - an average rental.

The house’s history is:
Purchase in 9/2001 for 213K
Sold to present owners 10/2005 for 295K (at that time got 2 mortgages of 177K and 30K).
Then in 2/2008 re-mortgaged for $202K

I seem to remember this house being for sale last year – then pulled.

Again any insights are appreciated.

***
Oh, in my parent’s neighborhood, there’s a house that was bought in 2003 for $315K. Since then the owner did build a small addition on it. It went up for sale- an open house on it this past Sunday – for $435K. This house joins 3 other houses for sale in a small neighborhood of approximately 90 houses.

Question: I’ve been paying something like 30 bucks a month for an insurance plan on my home appliances. Company’s called American Home Shield, and a friend recommended them.

But, as y’all know from my recent water line tales, things can happen on one’s homestead. And they’re things that companies like AHS won’t touch because they only take care of things inside the house.

I’m also hearing that AHS likes to act like a health insurer when it comes to paying on claims. (Meaning that it’s all too quick to deny them.)

So, I’m wondering if AHS is really worth it. I did have someone from them come out to look at my stove a couple of years ago, and, quite frankly, I wasn’t impressed.

Long story short: I’m starting to think that this sort of insurance is sort of like those extended warranty plans that electronics stores try so hard to sell. It’s not necessary, but the stores make a lot of money off of it.

Your thoughts?

Setting up another to big to ‘fail’?

BlackRock announced a $13.5 billion merger with Barclays Global Investors today, making the former company the biggest money manager in the world. BlackRock will soon oversee $2.7 trillion in assets, making it roughly twice the size of State Street or Fidelity, its closest competitors. That’s $2.7 trillion under management… with a market cap of just $34 billion.

If that marriage of assets to equity wasn’t unnerving enough, BlackRock will also pick up iShares in the deal. That makes the new world’s biggest asset manager also the world’s biggest wielder of exchange-traded funds (ETFs) — the rabidly popular, complex derivatives (many of which track other complicated derivatives) that millions own, but very few truly understand.

From the Agora5

Extended Stay Hotels files for Chapter 11
Privately held Extended Stay Hotels files for Chapter 11 bankruptcy protection.
On Monday June 15, 2009, 11:41 am EDT

NEW YORK (AP) — Extended Stay Hotels LLC has filed for Chapter 11 bankruptcy protection.

The Spartanburg, S.C.-based company’s brands include Extended Stay Deluxe, Extended Stay America Efficiency Studios, Homestead Studio Suites, StudioPLUS Deluxe Studios and Crossland Economy Studios. It operates more than 650 hotels in the U.S. and Canada catering to long-term business travelers.

In Chapter 11, a company typically tries to stay in business and reorganize its finances under court supervision.

The privately held company, operated by HVM LLC, filed in the U.S. Bankruptcy Court in the Southern District of New York on Monday. A company representative did not immediately respond to a request for comment.

My new posting name:
sweeping changes.

test

New Health plan:
face lifts and boob jobs for all!

Giving it back to Mom.

http://www.alternet.org/environment/140629/intriguing_plan_in_michael_moore%27s_home_town%3A_bulldoze_the_ghost_%27burbs%2C_return_them_to_nature/

As in ‘mother earth’

As goes Flint Mi, so goes the US.
Personally I think this is the correct response and should have been implemented a long time ago. Demand destruction, meet supply destruction.

Crops under stress as temperatures fall
Sounds like food costs will be on the increase…

Our politicians haven’t noticed that the problem may be that the world is not warming but cooling.
By Christopher Booker
13 Jun 2009

For the second time in little over a year, it looks as though the world may be heading for a serious food crisis, thanks to our old friend “climate change”. In many parts of the world recently the weather has not been too brilliant for farmers. After a fearsomely cold winter, June brought heavy snowfall across large parts of western Canada and the northern states of the American Midwest. In Manitoba last week, it was -4ºC. North Dakota had its first June snow for 60 years.

There was midsummer snow not just in Norway and the Cairngorms, but even in Saudi Arabia. At least in the southern hemisphere it is winter, but snowfalls in New Zealand and Australia have been abnormal. There have been frosts in Brazil, elsewhere in South America they have had prolonged droughts, while in China they have had to cope with abnormal rain and freak hailstorms, which in one province killed 20 people.

None of this has given much cheer to farmers. In Canada and northern America summer planting of corn and soybeans has been way behind schedule, with the prospect of reduced yields and lower quality. Grain stocks are predicted to be down 15 per cent next year. US reserves of soya – used in animal feed and in many processed foods – are expected to fall to a 32-year low.

In China, the world’s largest wheat grower, they have been battling against the atrocious weather to bring in the harvest. (In one province they even fired chemical shells into the clouds to turn freezing hailstones into rain.) In north-west China drought has devastated crops with a plague of pests and blight. In countries such as Argentina and Brazil droughts have caused such havoc that a veteran US grain expert said last week: “In 43 years I’ve never seen anything like the decline we’re looking at in South America.”

Doing some field work at a local school… secretary has never seen so many returned report cards from the post office.

So let me get this straight. They have a big contested election, there are calls of voter fraud, and then their supreme court rules in the favor of the guy they are aligned with? No wait. That isn’t Iran. That was what happened here in 2000.

The Supreme Leader Ayatollah Ali Khamenei directed one of Iran’s most influential bodies, the Guardian Council, to examine the claims of voter fraud.

You have to be shitting me. Even Iran has a better democracy than we do.

BTW, pay very little attention to our worthless news media and their propaganda attacks on Iran. It’s bullshit.

Testing drumminj’s suggestion that leaving off http and www might help a link get through.

Today’s Austin American Statesman online dispels that recession gloom, a bit light on actual information and sources to be sure… What I relief. I think I’ll buy a couple condos after lunch.

statesman.com/blogs/content/shared-gen/blogs/austin/theticker/entries/2009/06/15/recovery_in_sight_for_the_aust.html

Dang - made the mistake of trying to post multiple links at once, and it’s not showing up. I’ll try again one at a time without the http thing, then follow with links.

With the new Fed Res z1 data out the other day I updated my graphs showing various debt levels….

It didn’t go through immediately, but it seems like it posted fast for a link. I didn’t pay attention to when I submitted that, but I don’t think I was away from the computer more than an hour before I came back and saw my and your comments.

Bill Ford Jr: US Government Needs Industrial Policy
Monday 06/15/2009 11:13 AM ET - Dow Jones News
By Jeff Bennett
Of DOW JONES NEWSWIRES

DETROIT -(Dow Jones)- Ford Motor Co. (F) Chairman Bill Ford Jr. said the U.S. government needs to set a national industrial policy that pulls together academia, industry and the private sector in order to boost the country’s competitiveness.
“The industrial base is eroding and prosperous nations don’t let their industries erode,” Ford said during the National Summit in Detroit Monday. “Government, industry and academia all have to be on the same page. Too many times they throw bombs at each other rather than working together.”
More than 100 executives from around the country are meeting in Detroit over the next three days to discuss policies, technologies and manufacturing. Ford, along with Dow Chemical Co. (DOW) Chief Executive Andrew Liveris plan to use the discussion to lobby President Barack Obama’s administration to forge a new energy and industrial policy that covers the entire country.
“We need a sane energy policy,” Liveris said in a speech. “For too long that has been an oxymoron. “Everyone has to contribute. We also must invest in all types of alternative energy because we just don’t know which ones will work.”
Separately, Ford backed Obama’s move to bail out Chrysler Group LLC and General Motors Corp. (GM) because it protected the supply base. Uncontrolled bankruptcies by GM and Chrysler could have shut the suppliers who provide parts to Ford. However, Ford once again defended his company’s decision not to take federal aid.
“We can make quick decisions and long-term decisions without getting distracted,” Ford said. “We can also remain focused on our customers.”
Ford also said he believes the federal government will be involved in GM for “some time” although he didn’t elaborate. The U.S. Treasury provided more than $20 billion in low-interest loans to GM to keep the company operating while it undergoes the bankruptcy process. GM filed for bankruptcy protection on June 1. Once it emerges, the federal government will own about 60% of GM. Chrysler filed for bankruptcy on April 30, underwent bankruptcy and merged its assets with Fiat SpA (FIATY). The government owns an 8% stake in Chrysler.

Effect of the recession on poor people: more doubling up. This article gets the point on page three.

http://www.nytimes.com/2009/06/14/opinion/14ehrenreich.html?em

“The most common coping strategy, though, is simply to increase the number of paying people per square foot of dwelling space — by doubling up or renting to couch-surfers. It’s hard to get firm numbers on overcrowding, because no one likes to acknowledge it to census-takers, journalists or anyone else who might be remotely connected to the authorities. At the legal level, this includes Peg taking in her daughter and two grandchildren in a trailer with barely room for two, or my nephew and his wife preparing to squeeze all four of them into what is essentially a one-bedroom apartment. But stories of Dickensian living arrangements abound.”

Sounds like what recent college grads have been living like in NYC because of the bubble before the bust, but I digress.

“People who’ve lost their jobs, or at least their second jobs, cope by doubling or tripling up in overcrowded apartments, or by paying 50 or 60 or even 70 percent of their incomes in rent.”

Boeing shut out of orders race at Paris Air Show.
No orders for Boeing, damp skies at Paris Air Show clouded by recession, Flight 447 crash.

LE BOURGET, France (AP) — Boeing didn’t score a single jet order and its competitor Airbus didn’t fare that much better on Monday’s opening day of the Paris Air Show, where the mood among the world’s aviation industry leaders was as damp as the weather.

Worries about the unexplained crash of Air France Flight 447 hung in the air as airlines and planemakers gathered at the 100th anniversary of the world’s first and largest air show. Pouring rain at the Le Bourget air field, combined with plunging revenue, layoffs and unprecedented losses in the industry, set the stage for a modest gathering.

While defiant Boeing Co. executives said the overall prospects were robust, the Chicago-based aviation giant reported no new orders Monday. Airbus announced just one, from Qatar Airways, for 24 jets from the A320 family worth $1.9 billion.

At the opening day of the industry’s last major show, in Farnborough, England, a year ago, airlines from oil-rich Middle Eastern countries booked orders for about 150 planes worth more than $25 billion.

Gulf-based carriers were among the few pulling out their checkbooks this year.

Qatar Airways’ head, Akbar al-Baker, announced firm orders for 20 single-aisle A320s and confirmed a commitment for four A321 jets announced last year at the Farnborough Air Show.

He said the deal announced Monday is worth $1.9 billion, which is about the same as the list price. Airlines, however, usually negotiate steep discounts to catalog prices, particularly during grim economic times.

Meanwhile, Rolls-Royce PLC signed a $1.5 billion order with Gulf Air to supply engines for the Bahrain-based airline’s new Airbus A330 long-haul aircraft. The British aircraft engine manufacturer will supply Trent 700EP engines to power 20 Airbus A330 aircraft, with deliveries beginning in 2012.

Curse words etc.
my health insurance just went up.
astonished and etc.

So much for the “green shoots”

Was in ICT on Friday…….Cessna is sending out another 800 WARN notices on june 19. Another 500 will go out between the first part of July, and August 19.

In addition, they had a “non-paid” furlough program for the salaried exepmts and others, requiring that they take four weeks of unpaid leave before the end of November or thereabouts…….requirement has been upped to seven weeks.

Don’t know if these are to lay off all the engineering types associated with the new “Columbus” (a crappy name, IMO) that is being delayed/terminated.

It will be interesting to see how many of these jobs come back…..Cessna was just starting to build wire harnesses in Mexico. Bombardier plans to build the complete Lear 85 there (as I recall). It would simplify the transfer of all the tooling to offshore sites if there wasn’t anyone at the factory to raise a ruckus.

Evidently, $15-20/hour (plus benefits) US labor has priced themselves out of the market. Wage deflation is real, and until someone gets a handle on it, it isn’t going to matter what happens to the housing market

“Ponzi scheme targeted Korean Americans”

http://tinyurl.com/lrwgku

A Danville man is facing civil and criminal charges in federal court for allegedly defrauding 500 investors of $80 million in a Ponzi scheme and using the money to pay the mortgage on his multimillion-dollar home, authorities said Tuesday.

Affinity fraud sucks!

Jun 15, 2009, 1:27 p.m. EST
Home builders’ sales expectations fade slightly
By Rex Nutting, MarketWatch

WASHINGTON (MarketWatch) — U.S. home builders grew more pessimistic in June about sales over the medium term, sending their monthly sentiment index down one point to 15, the National Association of Home Builders reported Monday.

It was the first decline in the index since it fell to an all-time low of 8 in January.

At 15, the index shows that about one in six home builders thinks the market is “good.” The index peaked at 72 four years ago and was at 18 a year ago.

Economists expected the index to remain at 16 in June. See Economic Calendar.

The decline in builder sentiment in June was concentrated in the sales outlook, and among builders in the South, the largest region for home construction. Builders in other regions grew more optimistic compared with May.

The sub-index measuring expected sales over the next six months fell to 26 in June from 27 in May.

“Home builders are facing a few headwinds, including the expiration of the tax credit at the end of November; a recent upturn in interest rates; and especially the continuing lack of credit for housing production loans,” said Joe Robson, a builder from Tulsa, Okla., who is president of the builders’ trade association.

The sub-index measuring builders’ attitudes about current sales remained deeply pessimistic at 14, unchanged from May. The sub-index for traffic of prospective buyers remained at 13 for the third straight month.

The index fell by three points in the South to 15. It rose by two points in the West to 14, rose one point in the Northeast to 20 and rose one point in the Midwest to 15.

The release comes a day before the Commerce Department reports on its estimates for housing starts and building permits in May. Over time, the NAHB index and housing starts are highly correlated. Starts are down 54% in the past year and down 80% from the peak. Economists surveyed by MarketWatch are forecasting a 6% increase in starts to a 485,000 seasonally adjusted annual rate from a record-low 458,000 in April.

Starts of single-family homes have been essentially flat for the past four months near a record-low level after falling 80% from the peak.

Builders are still working off a massive oversupply of new homes. It’s taking a record 10.9 months to sell a home after it is completed.

The number of unsold new-homes on the market remains high in relation to sales at 10.1 months’ worth of sales, but the total number of homes on the market - 297 in April — is close to the average that prevailed before the housing bubble grew. Builders are making slow progress in reducing unsold inventories.

Builders are also competing against a record number of foreclosures and against desperate bankers and homeowners who need to sell quickly.

FDA Regulation Brings Prescription-Strength Cigarettes
by Scott Ott

(2009-06-11) — Smokers and tobacco companies alike hailed today’s Senate approval of a landmark bill to place cigarettes under the regulatory hand of the Food and Drug Administration.

For smokers, the bill offers the promise of prescription-strength cigarettes in the near future.

“For some of us, over-the-counter cigarettes no longer deliver enough of the soothing effect we need,” said one unnamed Senate aide enjoying a break just outside the Capitol building. “I can’t wait to ask my doctor about prescription-strength mentholated Newports.”

A spokesman for Philip Morris welcomed the opportunity to have FDA regulate his company’s product.

“Until now, cigarettes were considered deadly weapons,” said the unnamed source. “Under the FDA, our smokes will have to be either a food or a drug. So, we’ll be allowed to advertise on TV again. I can see it now — a beautiful woman, smiles as she dances among the waving tobacco leaves. As the announcer says, ‘Of course, Virginia Slims are not for everyone’.”

Green shoot shot:

It’s being reported here that Chicagoland is losing another long time furniture store chain. Last year it was Wickes Furniture and now this summer the 78 year old Plunkett chain will liquidate.

IKEA furniture, BTW, is really more suitable to today’s reality anyway. Cheap and disposable it’s easier to part with when it comes time to move back home or cram into a 1 bdrm condo.

From yesterday’s last thread: I am sure sorry I missed it!

“Rob Frederiksen was deep in the pit when he got the call over his radio about 2 p.m.: ‘Tell everyone to grab their tools and come up out of the hole.’ I got on the job and I thought, ‘I’m pretty lucky to be here,’ he said. ‘I thought, ‘I’m here for another 18 months.’ Then ka-pow.’”

Reported in our local paper here in Orlando…Gated Community…..”Father kills family and then himself”. The article goes on to say the family had hit on hard fianancial times.

The community is Heathrow and the home they occupied was a mid $300’s home. He worked at Lowes and she had just lost her job.

This is a 40’s something couple with 2 young kids, now dead.

How does this happen? How can your financial situation drive you to murder your family? We hear it all the time and I just cannot fathom it. It saddens me terribly.

Things are looking good for Shiller and his ilk. I just hope they remember to include the budget constraint in their behavioral models, as you can’t normally spend money you don’t have, and you can’t squeeze blood out of a turnip. One should also never forget the role of the Fed and other high-level market manipulators in appearing to distort rational behavior through rewarding big bank stupidity with bailouts.

Crisis of faith for high priests of rational markets
By Gillian Tett
Published: June 15 2009 18:37 | Last updated: June 15 2009 18:37

A new realisation has dawned among the most fervent advocates of financial analysis and collective investor wisdom – markets are not always rational.

For the past five decades, the Chartered Financial Analyst Institute has been teaching the tenets of analysis based on efficient markets to tens of thousands of adherents around the world who work in the banks, fund mangers and investment houses that make-up the global financial system.

Now, however, the credit crisis has forced the high priests of rational market theory to question their own creed.

The British CFA recently asked its members for the first time if they trusted in “market efficiency” – and discovered that more than two-thirds of respondents no longer believed that market prices reflected all available information.

More startling still, 77 per cent of the CFA group also “strongly” or “very strongly” disagreed that investors in aggregate behaved “rationally” – in apparent defiance of the “wisdom of crowds” idea that has driven much investment theory.

The shift is significant as the assumption of efficient markets is a cornerstone of the financial calculations of valuing everything from stocks to pension fund liabilities to executive compensation.

William Goodhart, UK chief executive of the CFA, on Monday admitted that the results showed a new mood of “questioning” following the financial crisis.

However, the trend appears to reflect a wider intellectual swing. In the past three decades, the global asset management industry has been dominated by the so-called “efficient markets” hypothesis, which has given birth to ideas such as the capital asset pricing model, that portrays investing as a trade-off between risk and return.

But the extremities of the recent market swings has sparked interest among politicians and investors in the field of behavioural finance, which asserts that markets do not behave rationally, but can be driven by human emotions such as fear. “We are seeing huge demand among clients to talk about behavioural finance now,” says James Montier, a senior strategist at Société Générale, and an expert in behavioural finance.

Here’s how they think they’ll fix the system. Only problem is if I draw a pension in CA but live in Texas how can they legally tax my pension in CA and Texas. They were legally forced to stop that action over 10yrs ago.

‘TAX ON PENSION DISTRIBUTION AND HEALTH
CARE BENEFITS. INITIATIVE STATUTE. Imposes
additional annual taxes on California residents who re-
ceive income in excess of $40,000 from pension distribu-
tion, social security, and cash value of health care bene-
fits. May impose a one-time, additional tax on non-
California residents whose pension benefits exceed
$50,000 in a year, and who earned income in California.
Summary of estimate by Legislative Analyst and Director
of Finance of fiscal impact on state and local government:
Annual state revenue increases of up to $6 million to $8
million beginning in 2010 from new taxes on pension
benefits. Revenues likely would decline over time due to
changes in behavior.

The Secretary of State’s tracking number for this meas-
ure is 1360 and the Attorney General’s tracking number is
09-0006.

The proponent for the measure, Paul McCauley, must
collect signatures of 433, 971 registered voters – the
number equal to 5% of the total votes cast for governor in the 2006 gubernatorial election – in order to qualify it for the ballot. The proponent has 150 days to circulate petitions for this measure, meaning the signatures must be collected by October 15, 2009.

Lastly and for Paul McCauley’s edification - CalPERS
generated nearly 35 billion in economic activ-
ity in California from its in-state investments,
retirement benefits paid to members, and the
health payments it made on behalf of its
members in 2006.’

5,115 retired California government workers receive pensions in excess of $100,000 from CalPERS.

They’re all listed here.

The information below was obtained under the Freedom of Information Act
from the California Public Employees Retirement System (CalPERS).
This list may be be updated periodically with more pensioners as more data is obtained, our data sources will be listed at the bottom of this page:

http://www.californiapensionreform.com/c….

BRUCE MALKENHORST 499,674.84 VERNON
JOAQUIN FUSTER 296,555.88 UC LOS ANGELES
DONALD GERTH 278,054.64 CSU SACRAMENTO
JAMES STAHL 265,740.96 L A CO SANIT #2
JOHN SCHLAG 255,600.48 UC LOS ANGELES
WILLIAM GARRETT 254,745.72 EL CAJON
RAYMOND PATCHETT 239,635.80 CARLSBAD
ROBERT TOONE JR 232,947.36 PALMDALE
DIANNE OKI 231,164.16 STATE COMP INS
CARL BORONKAY 224,812.80 METROPOLITAN WT

Dumb questions of the day, with answers:

Q1. What is a long-term Treasury bond?

A1. It is a stream of future dollar payments, made in exchange for a payment in current dollars.

Q2. What happens when the Fed uses quantitative easing to purchase newly-issued l-t T-bonds?

A2. It uses dollars that it just created out of thin air to purchase a newly-created promise to make a stream of future dollar payments, thereby increasing the both the current and promised future flow of dollars into the economy.

Using the list of all 789 dealerships to be closed, WND found that owners contributed $450,000 to GOP presidential candidates; $7,970 to Sen. Hillary Clinton; $2,200 to John Edwards and $450 to Barack Obama. For the “progressives” out there, that’s a 1000-to-1 ratio of GOP-to-Obama donations for closed dealerships.

Item 2: Dealership conglomerate RLJ is owned by Democrat bigwigs Mack McLarty and Robert Johnson. RLJ magically happened to keep all six (6) of their dealerships while its competitors were shuttered. McLarty is a former Clinton chief-of-staff and Robert Johnson (founder of BET) is a major Democrat fundraiser. These politically connected, powerful Democrat supporters were completely insulated from the closings in every market in which they compete.

Item 3: Democratic donor Sidney Deboer is Chairman of Lithia Motors. He donated over $14,000 to Sen. Ron Wyden (D-OR) and Sen. Hillary Clinton (D-NY). Lithia Motors lost only two of its 29 dealerships while gaining as many as five additional ones in the resulting carnage. Deboer was also insulated from Chrysler’s closings.

Item 4: Steven B. Fader contributed the individual maximum to Hillary Clinton for her 2008 campaign: $4,600. Fader is listed as owning four dealerships. Two of those dealerships are in Virginia Beach, VA: Hall Chrysler Jeep and Hall Dodge.

In the Virginia Beach area, Fader’s competitor Grafton Dodge (in Grafton, VA) was shuttered. Grafton is owned by L. A. Julien, Jr., who does not appear to have contributed to either party. Another Fader competitor, Tysinger Motor Company was also closed. Tysinger is owned by Mark Tysinger, who also does not appear to have contributed to either party. Fader’s two dealerships in the same city remain open, while nearby competitors were shuttered.

Another Fader dealership that remains open is Heritage Chrysler in Baltimore, MD. Nearby dealers that were closed include Antwerpen Dodge of Randallstown, MD owned by Jacob Antwerpen (no contributions founds); SKS Auto-Park of Baltimore; Bel-Air Dodge of Baltimore; and Schaefer & Strohminger Dodge Towson of Baltimore. The latter three are owned by Louis M. Schaefer, who has no contributions of any kind listed. Put simply, Fader’s dealership remained whole while four area competitors were wiped out.

The final Fader dealership is Motorworld Chrysler, in Wilkes Barre, PA. It remains open while nearby Pompey Dodge of Kingston, PA and Ertley Chrysler Jeep Dodge of Moosic, PA were both closed. Charles W. Pompey and Ronald D. Ertley are the owners, respectively, and neither contributed to any candidates in 2006 or 2008. Much of Fader’s competition in this area was also wiped out.

No bubble in Madison, but the city needs to spend money to prevent foreclosures

http://www.cityofmadison.com/news/view.cfm?news_id=1522

The denialists are pinning their hopes on a revival of the currently defunct securitization market. I guess time will tell whether I am just too pessimistic and the model can be resurrected through fine tuning. At any rate, I definitely need to restock my popcorn supply soon.

Wall Street Journal
* BUSINESS
* JUNE 16, 2009

Securities Revamp Has Its Doubters on Street

By LIZ RAPPAPORT and SERENA NG

The Obama administration’s planned revamp of securitization doesn’t go much beyond what is already in the works, raising doubts on Wall Street about whether the plan will fix the market chiefly responsible for the global credit crisis.

As part of its broad financial regulatory overhaul to be unveiled Wednesday, the government would urge Congress to force lenders to share in the risk of the loans they make and package into securities. It also would tighten rules for credit-ratings agencies in an effort to prevent a recurrence of the massive bubble that grew in the subprime-mortgage debt market in recent years.

But many of the planned changes — such as creating new a ratings scale for “structured” securities and forcing lenders to have “skin in the game” — have either already been implemented or are part of existing proposals by lawmakers and regulators.

The securitization markets allow lenders to sell the loans they make to banks, which bundle them into securities and sell those to investors around the world. The securities collapsed after the underlying loans given to subprime borrowers went bad. While parts of the market have revived somewhat with federal assistance, the market for bonds backed by mortgages has continued to struggle outside of government-controlled entities Fannie Mae and Freddie Mac.
…

It sounds like the Treasury has failed to solve the too big problem, which is not whatsoever surprising, considering the players and their masters. Kudos to the Wall Street Journal for shooting from the hip and pointing out where this plan fails to address the root cause of the endless series of crises which fuel disaster capitalism. I prize my subscription and plan to keep renewing it so long as I can afford the bill.

What we really need is some Teddy Roosevelt-style trust bustin’. How about it, Mr. Turbo Tax Decider?

* The Wall Street Journal
* HEARD ON THE STREET
* JUNE 16, 2009

Banks: Too Big to Fail, Too Big to Solve

By PETER EAVIS

Never again.

Catastrophes often give rise to ambitious new organizations aimed at preventing future debacles. The Obama administration is thinking big as it sets up a new financial regulatory regime to prevent nightmares like the collapse and bailout of American International Group.

But the Treasury’s proposed reforms still appear to leave the door open to substantial taxpayer support of ailing financial behemoths. And for investors, this means the prices of bank debt and equities could remain distorted for years.

The weakest Treasury proposal is one that gives the government the power to seize large financial firms it deems systemically dangerous. The problem: The plans don’t clearly set out how creditors and other stakeholders in the firm would be treated in a seizure. That means two big risks. Instead of typical court-based bankruptcy proceedings, wind-down outcomes would be decided ad hoc by regulators. This could increase uncertainty, pushing up borrowing costs for banks.

An alternative risk is that creditors assume they will always be protected, leading to an underpricing of credit to the financial sector. That is likely the greater risk, given most policy makers seem to believe letting Lehman Brothers go bankrupt was a mistake.

The Treasury’s plans don’t deal with the size issue, either. There doesn’t appear to be any blueprint for stopping firms becoming “too big” in the first place. This could prove a mistake after recent consolidation in the financial sector. The “big four” account for an estimated 70% of all assets held by domestically chartered U.S. banks. These same banks accounted for just less than half at the end of 2000. And it isn’t clear how big a firm has to be to become considered a systemic risk. Bear Stearns, with $395 billion in assets, was hardly a global giant, and yet authorities feared its collapse could damage the wider economy.
…

Does TTT have time to listen to Volcker, or is he so preoccupied with his own grandiose vision of how to fix the too-big-to-fail problem that he willfully disregards someone who apparently understands it quite well?

And is my memory slipping, or didn’t the Fed allow the surviving remnants of Megabank, Inc instantaneously requalify themselves last fall as depository institutions in order to summarily capture the benefit of the FDIC guarantee?

Wall Street Journal
* OPINION
* JUNE 16, 2009

Moral Hazard and the Crisis
Volcker: Hedge funds don’t need to be regulated like banks.

Editor’s note: The following is from the keynote address by former Federal Reserve Chairman Paul A. Volcker to a meeting of the International Institute of Finance in Beijing, June 11:

Another important common concern is the “too big to fail” syndrome — the presumption that an institution is so large or so inter-connected with counterparties that its creditors (possibly even shareholders) must be protected. One unfortunate consequence of the massive public assistance provided both banks and nonbanks in dealing with the present crisis is that moral hazard may, I am afraid, become more deeply embedded.

We can, and we should, take steps to limit the need and possibility of official “bailouts.” One approach would be to set clear policy limits to access to the “official safety net.” Deposit insurance and central bank liquidity facilities are properly confined to deposit-taking institutions. It is, after all, those institutions that remain the backbone of the financial system. They provide basic essential services, meeting the needs of households, businesses and other institutions for credit, for a safe and liquid repository for their funds, and for both everyday and complex payment services.

Historically, the need for continuity in those functions has provided the rationale for close government supervision and protection. In my view, it is unwarranted that those same institutions, funded in substantial part by taxpayer-protected deposits, be engaged in substantial risk-prone proprietary trading and speculative activities that may also raise questions of virtually unmanageable conflicts of interest.
…

SPECIAL REPORT Road to Rescue
Big banks still not lending
Loan volume at the 21 largest recipients of government funding fell 7% during the month of April, according to a survey by the Treasury Department.

By David Ellis, CNNMoney.com staff writer
June 15, 2009: 4:21 PM ET

NEW YORK (CNNMoney.com) — Lending at the nation’s top banks slowed in April, according to a government report published Monday, driven in part by continued deterioration in the U.S. economy.

The dollar amount of new loans issued by the 21 biggest recipients of taxpayer funds under the government’s Troubled Assets Relief Program, or TARP, fell 7% to $273 billion from nearly $295 billion during the month of March.

Regulators attributed part of the decline to lower demand for new commercial and industrial loans, which fell nearly 29% during the month as U.S. businesses broadly avoided acquisitions, building plants and buying inventory.

Weakness was also notable across a wide variety of consumer loan categories, including first mortgages and credit cards. Of the 21 banks that took part in the survey, 15 reported a decline in loan originations, according to the Treasury Department.

Banks have been under pressure to increase lending since the government provided billions of dollars in aid to help prop up the industry last fall.

Kill the TARP, kill the green shoots meme.

Kill TARP, spare the taxpayer
Two members of Congress are looking to wind down the controversial bailout program sooner rather than later. But doing so may be easier said than done.
By David Ellis, CNNMoney.com staff writer
Last Updated: June 15, 2009: 11:37 AM ET

ROAD TO RESCUE

* Big banks still not lending
* Kill TARP, spare the taxpayer
* Citi, World Bank cut $1.25B trade fund deal
* Recession fears cripple stocks
* Treasury rally widens

Bailout tracker
Follow the money: Bailout tracker
The government is engaged in a far-reaching - and expensive - effort to rescue the economy. Here’s how you can keep tabs on the bailouts. More

NEW YORK (CNNMoney.com) — For some, the slow, steady demise of TARP cannot happen soon enough.

Last week, 10 of the nation’s largest financial firms won their release from the Treasury Department’s Troubled Asset Relief Program, setting the stage for them to pay back the billions of dollars the government loaned them last fall.

But this news was book-ended by legislation in the House and Senate that aims to end the controversial program sooner rather than later.

Rep. Jeb Hensarling, R-Texas, whose proposal would effectively shutter TARP by year’s end, would prevent the Treasury Department from using any of the TARP money returned by banks to lend back out to other struggling firms.

A much bolder approach unveiled Thursday by Sen. John Thune, R-S.D., would require the government to sell its ownership interests by July 2010. It would also prevent the government from owning a piece of any U.S. company in the future.

“I can’t tell you how many people in my state, as I traveled, are now coming up unsolicited, very concerned about the increasing intervention of the federal government into the private marketplace and the implications that that has for our economy,” Thune said at a press conference Thursday.

When Treasury first unveiled TARP last October, the belief was that the government would maintain its stake in banks and other financial firms through 2012, or at least until the banks were healthy enough to return taxpayer funds.

But TARP’s enemies have multiplied as the program has morphed from a vehicle for purchasing toxic loans and securities from banks into a lifeline for all types of ailing companies, including automakers and insurers.

Members of Congress, who begrudgingly approved the program last fall at the behest of regulators, have howled incessantly at its cost and scope.

Little relief in new California foreclosure law
By Eve Mitchell
Bay Area News Group
Posted: 06/15/2009 09:17:07 PM PDT
Updated: 06/15/2009 09:19:27 PM PDT

Lenders in California must put off foreclosure proceedings for 90 days in situations in which they have not made an effort to work with borrowers to modify the terms of their mortgages, under a state law that took effect Monday.

But don’t expect automatic or immediate relief under the law, written by state Sen. Ellen Corbett, D-San Leandro.

Lenders and loan services that already have a comprehensive loan modification program in place are exempt from the law. Such programs call for loans to be modified by lowering interest rates for at least five years, deferring or reducing part of the principal, or providing for up to 40 years to repay the loan.

“The vast majority of them are already in compliance with some regulation or requirement, either through federal laws or voluntary efforts,” said Chris George, president of San Ramon-based CMG Mortgage Services and a board member of the California Mortgage Bankers Association.

By applying for an exemption, lenders will automatically receive a 30-day stay during which state officials will determine whether the company has a proper loan modification program in place.

“If they do not have a plan in effect, they will be (subject) to that 90-day moratorium,” George said.

Sean O’Toole of ForeclosureRadar, a service that tracks California foreclosures, said he doesn’t think the law will make a real difference in the number of foreclosures. “It’s a law you could drive a truck through,”
he said. “All you have to do is put in a loan modification program.”
…