The Housing Bubble

Up early, gotta drive the GF to her job in manhattan no traffic at this time of the morning and it’s just something nice i do for her

Since summer 2009, investors and traders enjoyed a huge rally in the residential mortgage bond market. Seeing significant Institutional Investor demand for mortgage-backed-securities, IBs are expecting all these assets to continue to rise through 2010, and are planning to revive ABS issuance in response to investor demand.

We’ve all heard about some pockets of the housing market getting red hot… Apparently, it’s the same story at the institutional side. Not sure which side is the dog and which side is the tail… But we’ve seen this movie before, no?

States shed government jobs as revenue plummets (Wave II of job losses coming)

AP | 03/25/10 | CHRISTOPHER S. RUGABER

WASHINGTON – Pennsylvania, Michigan and Washington shed government jobs last month, a result of shrinking state tax revenue that economists fear could weaken the recovery.

State and local government jobs have traditionally provided a haven during economic downturns. But as states have struggled to close growing budget gaps, job cuts have spread.

That trend emerges from data on a dozen states that have released their employment figures in advance of a federal report Friday on state joblessness for February.

In Michigan, where the unemployment rate is 14.1 percent, the nation’s highest, government jobs at all levels fell by 5,000. They accounted for one-third of the state’s job losses.

Pennsylvania lost 2,200 government jobs. Minnesota lost 1,900 and Massachusetts 1,500.

Washington state shed 900 government jobs in February. And Wisconsin lost 2,100 government jobs, including 1,600 at the local level.

This morning I am seeing that a 1,700 square foot duplex just came onto the market in my hometown. It is a foreclosure. The inside looks to have some damage but nothing excessive. I have seen much worse. The exterior seems to be in pretty good shape. Back in 2006 this house sold for $265,000. That number would have seemed insane to me but what do I know. I’m sure the locals thought it was awesome.

The price of the new listing is $35,000. This must be priced to try to get a bidding war going. Its current Zestimate is $176,000. It’s amazing that the REIC is still playing games.

Democrats threaten companies hit hard by health care bill (Consequences??? Dems never heard of it)

Washington Examiner | March 27, 2010 | Byron York

Rep. Henry Waxman, chairman of the House Committee on Energy and Commerce, has summoned some of the nation’s top executives to Capitol Hill to defend their assessment that the new national health care reform law will cost their companies hundreds of millions of dollars in health insurance expenses. Waxman is also demanding that the executives give lawmakers internal company documents related to health care finances — a move one committee Republicans describes as “an attempt to intimidate and silence opponents of the Democrats’ flawed health care reform legislation.”

In filings with the Securities and Exchange Commission, the companies — so far, they include AT&T, Verizon, Caterpillar, Deere, Valero Energy, AK Steel and 3M — say a tax provision in the new health care law will make it far more expensive to provide prescription drug coverage to their retired employees. In turn, employees of those companies are wondering whether the new law could mean reduced or canceled benefits for them in the future.

The news is an embarrassment for Democrats. As President Obama and congressional leaders tout the purported benefits of the new health care law, some of the nation’s biggest companies are saying it will mean higher costs and fewer benefits — not exactly what Democrats want to hear in the days after their historic victory.

“If the corps are going to complain about costs, they should back it up with some hard data.”

You mean in the same way the government and political parties back up their data?

I wish you guys would leave the politics out of your comments. It makes anything you say suspect because you lost all objectivity. You can’t see the truth because of your biases.

This is liars poker played by accountants and government.
Not a lot of room for truth here.
The same thing happens in real estate-seller lies about property value and
buyer lowballs.
That’s why it is sometimes so difficult to determine real value of property-
Everyone involved has been wrong for so long that the true value is no longer applicable.

Coming: A national Value Added Tax (VAT)

Charles Krauthammer has figured it out: “President Obama knows that the debt bomb is looming, that Moody’s is warning that the Treasury’s AAA rating is in jeopardy, that we are headed for a run on the dollar and/or hyperinflation if nothing is done.

“Hence his deficit reduction commission. It will report (surprise!) after the November elections.

“What will it recommend? What can it recommend? Sure, Social Security can be trimmed by raising the retirement age, introducing means testing and changing the indexing formula from wage growth to price inflation. That’s where the value-added tax comes in. For the politician, it has the virtue of expediency: People are used to sales taxes, and this one produces a river of revenue.”

The VAT Cometh

According to Moody’s Economy.com one in three home mortgages is “under water.” That is, the homeowner owes more on the house that it’s worth. Other data indicate the number may be one in four. In any case, it’s an unsettling bit of data.

But the federal government is coming to the rescue with a plan that will let people who owe more on their mortgages than their properties are worth get new loans backed by the Federal Housing Administration. The program will be funded by $14 billion from the administration’s existing $75 billion foreclosure-prevention program. Bailout

Translation….Uncle Sam has the preposterous idea that he can micromanage the unraveling of the real estate business by locking hapless homeowners into obligations they couldn’t afford in the first place by re-jiggering the terms and forcing the lender to absorb some loss. Foreclosure is a sad but natural part of the economic correction process. Government interference will prolong the depression in real estate.

Supply fears start to hit Treasuries
By Michael Mackenzie in New York and David Oakley in London
Published: March 26 2010

The bond vigilantes are finally flexing their muscles. A long period of stability for the US government bond market showed signs of cracking this week as a lack of investor appetite for new debt sent the benchmark 10-year yield to its highest level since last June.

For more than a year, analysts have been warning that record sized debt sales by the US Treasury were at odds with a 10-year yield sitting comfortably below 4 per cent. This week, the yield on 10-year notes jumped from 3.65 per cent to a peak of 3.92 per cent on Thursday. On Friday it was 3.87 per cent.

Chart: TreasuriesFalling inflation, rising unemployment, the housing market slump, the Federal Reserve’s policies of a near zero overnight borrowing rate and its purchase of up to $1,700bn in bonds have all helped keep Treasury yields near historic lows.

But this week the mood shifted as yields for $118bn of new US debt were much higher than forecast, sparking overall selling of Treasuries. Sentiment also deteriorated in the UK bond market after the government’s budget ahead of a general election expected in May failed to resolve doubts over future spending and debt reduction.

The term “bond vigilantes” was coined in the 1980s when bond investors pushed up long-term yields to force central banks into taking action to curb inflation. This time, bond investors are less worried about inflation: they are fretting about huge fiscal deficits and the looming bond supply needed to finance them.

Ending the fraud in “birthright” citizenship. I’m shocked, I tell you, shocked to see George Will advance this simple solution, I thought he was all for massive over population, in the service of the corps.

http://www.washingtonpost.com/wp-dyn/content/article/2010/03/26/AR2010032603077.html

I think the pubs are desperately casting about for ways to “energize” their base, but I agree with this, big time. Make it retroactive about 20 years, too.

Munger Says Furniture Business Takes a ‘Hammering’ (Update2)

(Bloomberg) — Berkshire Hathaway Inc. Vice Chairman Charles Munger said the furniture-rental business he oversees will post “disappointing profits” this year after a loss in 2009 driven by the U.S. economic slump.

CORT Business Services Corp. reported a $1.4 million loss last year, compared with profit of $15.7 million in 2008, Munger said today in his annual letter to shareholders of Wesco Financial Corp., which owns the furniture company. The letter by Munger, 86, was posted today on the Web site of Wesco, which is majority owned by Omaha, Nebraska-based Berkshire.

The results reflect “the hammering caused by the severe economic recession,” said Munger, Wesco’s chairman. “So far, CORT’s business has been melting away faster than CORT can fix it.” CORT, which cut its staff about 19 percent last year to 2,248, is focusing on expenses rather than expanding services, Munger said. While Munger doesn’t forecast another loss, “we expect disappointing profits” at CORT in 2010, he said.

Last year, Munger warned that the economic slump would get worse and said he was following the advice of Benjamin Franklin that “‘a penny saved is a penny earned’ as we trim expenses, albeit in higher denominations.”

Sallie Mae facing thousands of layoffs
Mar 26, 2010

Fishers - Indiana’s unemployment rate held steady in March, but with impending layoffs at Sallie Mae, the state may not be so lucky in April.

While Congress could not come to an agreement on single-payer health insurance, it did reach a consensus - or should we say reconciliation - in the correction passed on Thursday for a single-payer student loan program.

“You basically will be borrowing from the government as if it were a bank,” said Sallie Mae Senior VP Jon Kroehler.

So the private partnership version of student lending, which is the heart and soul of Sallie Mae’s business, gives way to direct government lending. Sallie Mae employs 8,500 people nationwide, with 1,700 of those working in Fishers and 700 more in Muncie.

“We estimate that we will have 2,500 who will lose their jobs as a result of this. Some of those will happen almost immediately and some this summer, as the work dies down,” Kroehler said.

I’m not sure if this is happening elsewhere or just something I’ve been noticing more in San Diego recently. I’m seeing more of the large, late model, aggressively-driven pickup trucks of construction workers. This scourge of the bubble years had dropped off considerably last year, but seems to be making a comeback more recently.

From the Park Record today:
Construction business falls sharply
Two-month total for Park City construction doesn’t reach $1.3 million

Although January and February are typically slow months in Park City’s
construction industry, the 2010 total thus far could be worrisome to City
Hall and the industry.
[ ]
Through the same period last year, the total was
$30.6 million.

Construction-related revenues have long boosted City Hall’s budget, but
officials have indicated they would not be able to rely on them as they once did.

The Park City construction industry, accustomed to the record-setting years of
the past decade, has suffered terribly during the recession. The 2009 total –
$68.5 million — was the lowest year-end figure since 2003.

I call that a crash.

Is there really a big mystery about the gap between willingness to pay and willingness to accept on privately-placed MBS?

Am I missing something important here, folks?

Securitisation
Earthbound
Large parts of the securitisation markets remain stagnant. Not all efforts to reform them are helpful

Mar 25th 2010 | NEW YORK | From The Economist print edition

FOR most capital markets, the financial crisis resembled a stomach-churning bungee jump: a precipitous fall followed by a sharp rebound, albeit not to the heights enjoyed before the turmoil. The big exception was securitisation, large parts of which are still dangling near the ground. Even as it struggles to recover, the market that brought the world the joys of collateralised-debt obligations faces two stern tests: the phasing-out of central-bank support and a raft of tougher rules.

Securitisation’s boom and bust was spectacular. The packaging of mortgages, car loans, credit-card receivables and other debt to sell to capital-markets investors began to take off in the 1980s. By 2006 it was being used to channel around two-thirds of all residential mortgages and half of all consumer credit in America. By distributing loans, banks could cut their capital needs, allowing them to lend more. Hedge funds, insurers and the like gained access to a broader range of credit risks.

As the boom reached fever pitch, however, the quality of the loans being pooled into securities dived, especially in mortgages. When losses started to mount, asset-backed issuance dried up (see chart), forcing governments to take up the slack. In some parts of the market, they are now stepping aside again. The Federal Reserve is winding down its liquidity support for credit-card and car-loan transactions. Some $5 billion of prime, private-label car deals were priced in February. Structured vehicles for risky corporate loans are making a comeback, too.

By contrast, housing markets remain almost wholly reliant on government-backed agencies to package and guarantee mortgage-backed securities (MBSs). No residential MBSs have been sold in America without such backing for more than two years. Europe has seen a few private deals, but these were structured to be highly attractive to investors and acceptable as collateral at the European Central Bank’s discount window. No wonder Ralph Daloisio, chairman of the American Securitisation Forum, talked of an “existential” crisis in his speech to the industry group’s annual conference last month. He even wondered what Jean-Paul Sartre would make of it.

The prosaic reason for the dearth of private issuance is the wide gap between what investors demand and what borrowers will pay. “Jumbo prime” mortgages, decent-quality loans above the price threshold that Fannie Mae and Freddie Mac can buy at, are likely to be the first part of the new-origination market to come back. But it is currently non-economic to securitise these loans, says Laurie Goodman of Amherst Securities. To place a new issue, given the yields demanded by investors, the interest rate payable by borrowers must be 6.85%, a full percentage point higher than current levels. This differential is “the fundamental issue” for MBS markets, argues Tim Ryan of SIFMA, a securities-industry association. Rating agencies’ belated tightening of their methodologies has made this gap even harder to close.
…

I’m seeing loft prices in Phoenix come down in value to the low $200s. Saw a 1400 square footer for around $210,000. Not sure what the HOA is. I expect to pay HOA for a loft, but when you add that with the property tax, it could be a deal breaker for me.

My buying price of any real estate is $172,000 (based on my own rule of what percent of net worth to put in real estate). So I have to wait a few years for my net worth to go up more or for the prices to come down more.

It’s eerie to be able to say that I am this close to affording a loft that I’m interested in. I did not expect to be able to say that until 2013.

China’s Geely to Buy Volvo From Ford for $1.8 Billion (Update1)

March 28 (Bloomberg) — Zhejiang Geely Holding Co. agreed to buy Volvo Cars from Ford Motor Co. for $1.8 billion in the biggest overseas acquisition by a Chinese automaker.

The deal will close in the third quarter, after which Ford and Volvo will continue to cooperate, Ford Chief Financial Officer Lewis Booth told reporters today in Gothenburg, Sweden. The Chinese company will pay $1.6 billion in cash and the rest in a “note,” Ford said in a statement.

Booming auto sales in China made the nation the largest car market last year, generating profit that’s allowing its manufacturers to reach out to Western markets and technologies. Selling Volvo will complete Ford Chief Executive Officer Alan Mulally’s strategy of divesting European luxury lines to focus on its namesake brand. Ford has sold Jaguar, Land Rover and Aston Martin since 2007.

“This could set the benchmark for more Chinese deals to come,” said Rebecca Lindland, an auto analyst at IHS Global Insight of Lexington, Massachusetts. “It potentially could allow Geely to come into the West with its own brand of vehicles.”

MUSLIMS TO BE EXCUSED FROM OBAMACARE?
Neal Boortz ~ March 26, 2010

There is one group of Americans who would not be subject to the individual mandate - the Amish. This is because an individual mandate would go against their religious beliefs. However, under this assumption, there is another group of people in America who would also be exempt from Obamacare’s individual mandate - Muslims. This is because Islam considers health insurance (or any risk insurance) to be forbidden.

Mark Tushnet a Harvard law professor points out, “Here the statute is going to say that people who are conscientiously opposed to paying for health insurance don’t have to do it where the conscientious objection arises from religion … And that’s perfectly constitutional.”

Summer Jobs Outlook: Just as Tough as Last Year
CNBC News

The summer job outlook for teens: not so sunny.

Young Americans are expected to face a tough summer job market.
This year, career experts say that teens and young adults looking for summer jobs are going to have just as rough a time finding employment as they did last year, competing with experienced and out-of-work professionals for the same jobs.

“It’s not the summer to be choosy if you’re a teen,” said Shawn Boyer, CEO of SnagAJob.com, a job search website for those seeking hourly employment.

The majority of young Americans—4.8 million of them—worked in the leisure and hospitality industry last year at establishments such as theme parks, hotels and restaurants. The other popular industries were in retail (3.9 million) and in education and health services (2.1 million), according to the Bureau of Labor Statistics.

The places that typically employ summer help are also the places where Americans hit by the recession may cut back on spending. “Lack of dollars means less need for people behind the cash register,” said Thomas Smith, labor economist and finance professor at the Goizueta Business School at Emory University.

“Cramdowns are coming.”

P.S. In case large-scale principal writedowns eventually do take hold, how will the implied reductions in housing market values be reflected in the comps?

The Nation’s Housing
Principal forgiveness program may offer relief for underwater homeowners

Real Estate Search

Search for new homes, condos, and other real estate in Washington, D.C., Maryland and Virginia.

Kenneth R. Harney
Saturday, March 27, 2010

For hundreds of thousands of homeowners who are underwater on their mortgages, it’s been a tantalizing question: Is there any way that our lender might agree to lower the amount we owe — not just the monthly payments but the principal debt itself?

Until now, the answer almost always has been a resounding no. Lenders and investors were willing to cut interest rates, reschedule payments, even write off some late fees, but they were dead-set against forgiving even a dollar of the principal balance owed. The Obama administration’s loan-modification programs have carefully sidestepped the subject as well, focusing on lowering troubled borrowers’ monthly payments to more affordable levels rather than actually wiping out debt.

But the outlook for principal reductions may be on the verge of significant change. Bank of America recently unveiled the mortgage industry’s first large-scale principal forgiveness program, potentially involving up to 45,000 underwater borrowers and $3 billion in debt write-offs.

Meanwhile, Treasury Department officials confirmed that the administration is examining debt forgiveness options as potential add-on features to its existing mortgage-modification programs. The program changes could be announced within the next few weeks and, if adopted by the industry, could ultimately affect loan modifications offered by substantial numbers of banks and mortgage companies.

Bank of America’s new program targets borrowers who are deeply underwater — those with loan-to-value [LTV] ratios of 120 percent or more. This means they owe at least 20 percent more on their mortgage balances than the current market price of their homes. There is no limit on how far underwater borrowers can be, but the program has a 30 percent maximum reduction of any principal balance.

Barbara Desoer, president of Bank of America Home Loans, said the program attempts to address the problems of the most “severely underwater mortgages with some of the highest rates of delinquency,” and it could “become an industry model for principal reductions” on a far broader scale.
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The program targets three mortgage products that were wildly popular during the housing boom: subprime loans; payment-option mortgages with negative-amortization features; and “2-1″ adjustables that offered teaser interest rates for the first two years, then converted into loans whose rates adjust annually.

As part of its ongoing loan-modification efforts, the bank will look to “earned” or phased-in principal forgiveness as the first step toward keeping an underwater borrower out of foreclosure. Previously the bank, along with the rest of the lending industry, looked first to lowering a homeowner’s interest rate and monthly payments. Under the new program, severely underwater borrowers will be evaluated for principal reduction as the first step in a modification.
…

I just heard Michael Lewis, author of The Big Short, on NPR’s “Wait, wait, don’t tell me” quiz show. He repeated his customary summary dismissal of any possibility that wrong-doing was involved in the Fall 2008 financial debacle, instead reiterating his personal opinion that it was all about the smart independents beating the dumb investment bankers at their own game. Apparently a motley collection of oddballs proved to be brighter and more financially capable than the brightest minds on Wall Street.

Considering that, by his own acknowledgment, he was not among those who “saw it coming,” not to mention that his so-called “dumb money” investment bankers were the recent recipients of the largest financial bailout in U.S. history, I believe it is highly premature for him to conclude that no wrongdoing on Wall Street presaged the financial meltdown. I am highly encouraged by the news that several major Wall Street investment banks are currently under investigation by the Department of Justice regarding their roles in what appears to have been illegal bid-rigging activities in the municipal bond market. I am staying open minded about a possible future investigation of Megabank, Inc’s subprime mortgage lending kingpins, to determine if foul play was a factor leading up to the mortgage lending debacle. I am especially interested in knowing whether illegal collusion was involved between top officials at the Fed, the Bush Treasury Department, and top Wall Street investment banking CEOs (beside Henry Paulson) to work out which investment banks would receive bailouts (e.g Goldman Sachs) and which wouldn’t (e.g Lehman Brothers, Bear Stearns).

The Japanese have developed a mobile phone that can be used as a sort of tracking device for employees.

The BBC reports that the technology comes from the phone company KDDI Corp, who have developed a way to track employee movements using accelerometers and analysis software, and then send the info directly back to the boss.

Employers using the phones to spy on their employees would be able to tell if any of them were slacking or doing anything else for that matter although that’s not quite the way the phone is being marketed.

“Technically, I think this is an incredibly important innovation” says Philip Sugai, director of the mobile consumer lab at the International University of Japan.

“For example, when applied to the issue of telemedicine, or other situations in which remotely monitoring or accessing an individual’s personal movements is vital to that service.

“But there will surely be negative consequences when applied to employee tracking or sales force optimisation.”

KDDI are already in discussions with a Japanese company that wants to make use of the technology and according to KDDI, the purpose of the phone is to allow managers to monitor employees’ performance whilst out on the job.

“It’s part of our research into a total ubiquitous technology society, and activity recognition is an important part of that” said Hiroyuki Yokoyama from KKDI.

“Because this technology will make central monitoring possible with workers at several different locations, businesses especially are very interested in using such technology to improve the efficiency of their workers.

“We are now at a stage where we can offer managers a chance to analyse more closely the behaviour of staff.”

Just another day here in Central Arizona:

..a “Got Jesus” brochure shoved under the door, twenty raised pickups roared by, and another couple listings expired.

I fail to understand, why people go along with these intrusive devices. Ar people so hooked on their cell phones, that they are willing to share their minute by minute movements with an unknown tracker.
I wouldn’t own a cell phone for any reason. taken a step further, when I’m asked for my social security number, I in return ask why. Never get a real answer. I never give it out…period.

An economic puzzle Bernanke can’t solve
Sun Mar 28, 2010

WASHINGTON (Reuters) - It’s a mystery that has puzzled even Federal Reserve Chairman Ben Bernanke: if the U.S. economy is growing rapidly, why isn’t it creating jobs?

Friday’s hotly anticipated employment report for March may muddle matters even more. Economists polled by Reuters had widely divergent views, with one looking for an increase of 400,000 jobs — which would be the strongest in a decade — while others thought it may show another small net decline.

The consensus expects a gain of 190,000 jobs, which would mark only the second month of job growth since the recession started in December 2007, and the largest increase since March of that year.

Government jobs are expected to account for the bulk of the growth, thanks to the once-a-decade Census, which requires taking on hundreds of thousands of temporary workers. While the jobs pay well ($22.00 an hour in San Francisco; $11.75 in Ames, Iowa,) they last only a few months.

Bernanke and his central bank colleagues are well aware that Census hiring will skew readings, and have cautioned that unemployment will likely remain near 10 percent all year.

Professor Bear, I’m not sure what a troll is, but I’ve been monitoring this blog since 2005, and often agree with your comments. I agree with Natalie that we are all biased to some degree, but it shouldn’t interfere with our ability to see the truth. So Palmetto, we saw the housing crash coming as early as 2005 but at that time I believe we were focused on the facts, and the craziness, and not so much on the politics. But now as I read the latest comments I feel that some people want to place blame on the left or right, when in fact the housing crash didn’t discriminate by party. Everyone was drinking the Koolade (well, not everyone). The focus should be on what will happen next. And by the way, I’m really glad for this blog because it kept me out of the trouble. I just wish someone would have mentioned that we all could have made a fortune SHORTING the toxic mortgages, but no one thought of that except the guy in Michael Lewis’ book. Too bad, that would have been brilliant.

Adventures in homeownership:

We were working outside yesterday and finally figured out what the deal is with the sideways tree. See, the main trunk is basically wrenched off and covering a large part of the backyard. We’ve been removing bits as we can– a bit delayed this winter due to the large amounts of rain for the area.

The confusing part is that it still seemed to be growing, which just seemed bizarre. But it’s not! It’s completely dead, and a creeper has been lacing itself over the framework, putting out leaves and pretty little flowers. Now I understand.

Seriously, this tree has been down over the backyard for well more than the house was unoccupied. How did the prior owners live with it? I figure they never went out in the backyard. The backyard which, as near as we can figure, has layers of landscaping. We’re digging out, but man, it’s going to take a long time to get down to where we can start planning what we want.

Ending the “birthright” citizenship is long overdue. As for legal immigration, from what I’ve seen first hand, the fraud is rampant, and the system is broken.

Greece crisis not so contained, despite what the financial media would have us believe. By May the cracks in the global credit Ponzi scheme are going to be widening so fast denial will no longer be possible.

http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/7532852/Europe-has-left-Greece-hanging-in-the-wind.html

Far from stemming contagion, the deal leaves Club Med exposed. Underlying default risk has risen for Greece, Portugal, Italy and Spain, as well as for Ireland, Slovakia and Malta even if credit markets keep missing the point. The world’s top holder of EU debt does understand. Greece is the “tip of the iceberg”, said the deputy-governor of China’s central bank. “The main concern today, obviously, is Spain and Italy.”
The ‘rescue’ resolves nothing for Greece, either short-term or long-term. The EU statement said “no decision has been taken to activate the mechanism.” Precisely. The joint EU-IMF facility can be activated only ultima ratio – as a last resort – once Greece is shut out of debt markets and not until eurozone stability is threatened.

A closely watched pot never boils over.

* REAL ESTATE
* MARCH 29, 2010

Mortgage Increases Blunted

By NICK TIMIRAOS

The struggling housing market appears as if it will sustain less damage than expected this year from a spike in the monthly payments on hundreds of thousands of exotic adjustable-rate mortgages.

The number of such loans scheduled to adjust to higher payments this year has shrunk. Lower-than-expected interest rates, coupled with efforts to aggressively modify loans, are likely to mute payment shocks for some borrowers. Many others already have defaulted on their loans even before their payments adjusted upward.

Loan-modification programs, such as this one in California, have helped to limit the number of mortgages whose payments will rise this year.

“The peaks of the reset wave are melting very quickly because the delinquency and foreclosure rates on these are loans are already very high,” says Sam Khater, senior economist at First American CoreLogic.

The housing market still faces enormous challenges, and a full recovery is likely to take years. The threat posed by resetting payments, Mr. Khater says, is “a drop in the bucket” compared to problems posed by the sheer volume of borrowers who owe more than their homes are worth, known as being “under water.”

Still, for years, housing analysts have worried about the threat of an aftershock from a big spike in mortgage defaults from so-called option adjustable-rate mortgages, which require low minimum payments before resetting to sharply higher levels, and “interest-only” loans, for which no principal payments are due for several years.

Most option-ARM borrowers made minimal payments, so their loan balances grew. That sparked worries about what would happen when those loans “recast” and begin requiring full payments on larger loan balances, usually five years from when they were originated or when the balance reached a designated cap.

Option ARMs may be among the most likely to benefit from the White House plan, announced on Friday, to force banks to consider writing down loan balances when modifying mortgages. Until now, the administration’s Home Affordable Modification Program, or HAMP, has focused on lowering monthly payments by reducing interest rates and extending loan terms to 40 years.

A separate program could benefit borrowers who are current on their loans but under water by allowing investors to refinance those borrowers into loans backed by the Federal Housing Administration. Investors are most likely to refinance the riskiest loans that qualify.

The majority of option ARMs are set to recast over the next two years. But the volume of outstanding loans has fallen sharply because many borrowers, prior to facing higher payments, received modifications, refinanced or defaulted. Option ARM volume peaked at 1.05 million active loans in March 2006. At the end of last year, there were 580,000 loans outstanding, according to First American CoreLogic.

Fitch Ratings estimates that nearly half of all option ARMs that were bundled and sold as securities were 60 days or more delinquent at the end of December, even though just 5% of option ARMs had faced recasts. Fitch estimates that another 7% have been modified.

“The default process has already hit something resembling a peak,” says Christopher Thornberg, an economist at Beacon Economics. “How much higher can it actually go?”
…

Dead people don’t collect social security; why should dead banks be allowed to collect tax refunds? Besides, $1.4 bn is chump change for J.P. Morgan.

I’m rooting for the FDIC in this battle. Hopefully if J.P. Morgan invokes the threat of withdrawing campaign contributions, it will come to light in the press.

* BUSINESS
* MARCH 29, 2010

FDIC Stands Between J.P. Morgan and a WaMu Payoff

By DAN FITZPATRICK

The Federal Deposit Insurance Corp. backed away from its support for a $1.4 billion tax break benefiting J.P. Morgan Chase & Co., setting up a battle between the regulator and the nation’s second-largest bank.

The tax benefit stems from J.P. Morgan’s acquisition of Washington Mutual and is part of the bankruptcy proceedings of the failed Seattle thrift’s parent company. Washington Mutual is eligible for $2.7 billion to $2.8 billion in refunds based on a 2009 economic stimulus bill that allowed companies to apply losses from 2008 and 2009 against taxes paid in the previous five years.

The Federal Deposit Insurance Corp. backed away from its support for a $1.4 billion tax break benefiting J.P. Morgan Chase.

The FDIC became concerned about the potential refund and other issues last week following a story in The Wall Street Journal and a meeting with Washington Mutual bondholders who oppose the deal, said people close to the talks. >b?The 2009 stimulus bill specifically excludes any companies that received bank-bailout funds from getting the tax refunds; New York-based J.P. Morgan received $25 billion in 2008.

Under the bankruptcy plan filed Friday by Washington Mutual’s holding company, J.P. Morgan was in position to claim as much as $1.4 billion from an FDIC receivership, with the holding company’s creditors getting most of the remainder of the $2.7 billion to $2.8 billion refund. Notably absent in the bankruptcy filing was the support of the FDIC. Washington Mutual’s holding company admitted in a statement that “the FDIC has not agreed to all of the provisions” but said “discussions are ongoing.”

An FDIC spokesman said Sunday the documents filed Friday night with a U.S. Bankruptcy Court “do not reflect the continuing discussions among the parties.”

The FDIC’s opposition, these people said, is a reversal from its earlier position. On March 12, FDIC lawyers didn’t object when a Washington Mutual lawyer briefed a U.S. Bankruptcy Court judge about a tentative “three-way understanding” between the holding company, J.P. Morgan and the FDIC. The tentative deal included the total of $2.6 billion in tax refunds tied to the stimulus bill.
…

* COMMERCIAL REAL ESTATE
* MARCH 29, 2010

Glitz Masks Woes For Trump SoHo

By CRAIG KARMIN

The Trump SoHo hotel and condominium has too many vacancies.

The 46-story building is scheduled to open April 9 in Manhattan. Sales were initially brisk, but only about a third of the 391 units are now in contract. What’s more, it isn’t clear how many of those will actually close, because that process won’t begin until the hotel opens.

The Trump SoHo was met with neighborhood criticism for its size.

The hotel, which was announced on a episode of Donald Trump’s hit television show, “The Apprentice,” is another of the boom-time projects that looked easy to finance until the recession hit. Recently, Bank of America dumped a mezzanine loan on the project for a fraction of its $75 million face value, according to people familiar with the matter. Now, the developer is in restructuring talks with lenders who hold some $350 million in debt.

The Trump SoHo’s disappointing sales expose a huge fault line in the condo-hotel business model. The developers’ strategy was to sell the units—at prices starting at $1.2 million for a studio—to investors who would be allowed to stay in them no more than 120 days a year. The rest of the time the units would be operated as hotel rooms under the Trump brand with the investors and the developers sharing the profit.

But sales of units in condo-hotel projects throughout the country have ground to a halt because it’s so difficult for individuals to get credit. Instead, most investors would have to pay cash, and many are reluctant to do so when the overall hotel market is so weak.

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The people with buckets of money and boxes of stupid have moved on to Hong Kong.

* COMMERCIAL REAL ESTATE
* MARCH 22, 2010

Property Novices Drive Hong Kong Prices Higher

By JONATHAN CHENG

HONG KONG—One is a Chinese state tobacco company. Another, a Japanese ramen chain. And finally, an obscure Hong Kong semiconductor manufacturer.

What they have in common: They are the latest companies to jump on the real-estate bandwagon as prices soar in Hong Kong and mainland China. For some experts, they are also troubling evidence of froth in both property markets.

Last week, a small manufacturer of diodes and transistors called Sino-Tech International Holdings Ltd. stunned investors by announcing that it was “diversifying into the property sector,” buying a luxury three-story residence in Hong Kong’s swank Peak district for more than 280 million Hong Kong dollars (US$36 million) in cash, one of the biggest sums ever for a property here.

Sino-Tech wanted to take advantage of “a good investment opportunity” and “diversify its income base,” the company said, but shareholders were unimpressed, shaving off about a quarter of the company’s market capitalization in two days.

That made Sino-Tech the latest in a string of companies large and small, state-owned and privately run, that are piling into Hong Kong and mainland China’s property market—despite no demonstrable experience in the sector.

Hong Kong’s small and open market has long made it one of the region’s most volatile, while mainland China’s relatively immature market is still prone to wild price swings and policy risks. But historically low borrowing rates and large government stimulus packages have brought a rush of relatively unsophisticated latecomers into the real-estate market in search of easy money.

Regulators and market players worry that these investors are pushing prices to irrational levels, plunking down sums of money that better reflect their ability to tap deep wells of liquidity than solid market fundamentals.
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