Following are some stories from the last 7-9 days that I had been watching but never had time to write about or comment on. It seems to be an interesting medley of news.
Things are getting really desperate when proposals like these start flying.
San Mateo County Calls For Foreclosure Stoppage
San Mateo County supervisors Tuesday unanimously approved a non-binding resolution calling for subprime mortgage lenders to agree to suspend foreclosures in the county for three months.
Now exactly what is that supposed to do?
For starters it is not binding which means it is going to be ignored, so it’s just a waste of breath. But even if it was done, three months from now the houses would be worth less than they are now and the clowns calling for this will just be asking for another 3 month. A thinking person ought to realize the more foreclosures sooner rather than later, the better off everyone will be. Problems delayed are not problems solved and this economy is only going to get worse.
Much has been said about Manhattan’s perceived real estate invincibility in the aftermath of the subprime meltdown, but lawyers representing dozens of condominium boards in some of the city’s wealthiest neighborhoods say they are seeing these default cases increase as much as 25% this year.
“There has been a very substantial increase of cases involving condominiums,” a lawyer who is the president of the Council of New York Cooperatives and Condominiums, Marc Luxemburg, said.
Less than a month ago, Citigroup reported more than $1 billion is subprime-related losses. Last weekend, the bank admitted the losses could grow to more than $12 billion.
One shareholder has had enough.
Jeffrey Harris filed a lawsuit Wednesday, naming several Citigroup officials as defendants. The execs being sued include Sir Win Bischoff (acting chief executive) and Robert Rubin (the bank’s chairman). Charles Prince, who resigned as chief executive on Sunday, was also named as a defendant.
‘Citigroup, under defendants’ direction, recklessly spent billions of dollars purchasing subprime loans to be warehoused for future collateralized debt obligations,’ the lawsuit said. ‘These actions were reckless due to the impending subprime mortgage crisis and increasing delinquency rates among subprime borrowers.’
Harris also alleges the defendants possessed ‘material nonpublic information’ about Citigroup’s exposure, which prompted them to sell $36 million worth of their own shares in the company.
Citi’s Other Lawsuit
The suit mentioned above follows a separate lawsuit filed earlier this week in New York on behalf of a retirement plan participant. Alleging that the company’s stock was an ‘imprudent investment’ for the plan, the suit names Citigroup and the administrators of its retirement program as defendants.
‘Citigroup’s employees have their retirement plans in turmoil as Citigroup continued to acquire huge amounts of company stock for the plans even as it gambled with high-risk business practices,’ said Marian Rosner, who represents the plaintiff, in a statement.
To date, the plan has suffered over $1.3 billion in market losses.
HSBC Holdings Plc, the biggest U.K. bank, said it stopped sales and trading of mortgage-backed securities in the U.S. after the collapse of the subprime market forced it to close down two lending units.
“They want to minimize the risk of earnings disappointment,” said Samir Shah, a London-based analyst at Landsbanki Securities who has a “reduce” rating on the stock. “It is not meaningful in terms of profit contribution but it is in terms of brand damage.”
Credit-default swaps on bonds of Citigroup Inc., Wachovia Corp. and Morgan Stanley are trading at the highest in at least five years on speculation the nation’s biggest banks may be forced to write down more subprime assets.
Analysts began revising predictions for writedowns at the banks after Citigroup this week said losses from the assets may rise to $11 billion. Credit-default swaps tied to Citigroup more than tripled in the past three weeks, indicating the risk of default is rising. Contracts on Morgan Stanley and Wachovia Corp. and Merrill Lynch & Co. are at or near six-year highs.
Members of the House Financial Services Committee voted to approve a bill imposing sweeping changes on the mortgage industry, including minimum standards for approving loans and some new liabilities on those who securitize risky mortgages. Committee members OK’d the bill by a vote of 45 to 19. The bill would mandate licensing for mortgage brokers and bank loan officers and set a minimum standard for all mortgages stating that borrowers must have a reasonable ability to repay.
This is obviously going to slow sales of houses further. With all the lawsuits now and especially the situation between Washington Mutual, Fannie Mae, and Cuomo (See Tanta On WaMu vs. Cuomo) lenders are going to be even more cautious.
Double Squeeze for Homes
Struggling homeowners seeking mortgage relief from their lenders say they are hearing a tough message: We can’t help you unless you first fall behind on payments.
That is putting borrowers in a bind, given that defaulting on a mortgage triggers all kinds of headaches.
Elizabeth Schomburg, senior vice president of the Family Credit Counseling Service in Chicago, says about 10% to 20% of some 1,000 families who sought help from the nonprofit agency last month were current on their mortgages and thus considered by lenders as “ineligible” for loan modification.
Consider Sharon Cooper of Lynn, Mass., who wants to sell her home. The problem: She now owes more than the house is worth, so she asked her lender to allow a “short sale” — selling it for less than the amount due, and forgiving the rest — to avoid foreclosure.
She says the lender, Countrywide Financial Corp., in August told her she would first need to fall two months behind on payments. So last month, she stopped paying. “I don’t have any option but to stop paying,” she says.
I am not sure if that is sad of funny. But Countrywide is practically begging borrowers to stop payments.
Facing a market flooded with unsold homes and discount-hunting buyers, Lennar has decided to temporarily stop taking orders at one of its largest and highest-profile projects in southern California – Central Park West in Irvine. The Miami-based builder has also postponed construction of two high-rise projects in Anaheim, known as A-Town Metro and A-Town Stadium.
Emile Haddad, Lennar’s chief investment officer, who oversees both projects, also tells BUILDER that his company made its decision because the market in Orange County still has too much unsold inventory of new and existing homes, a condition that’s all but mandating significant price reductions to sell anything. “We don’t want to discount here,” he says about Central Park West, whose home prices range from $500,000 to $2.9 million. The builder has refunded earnest money to buyers who had already purchased homes there.
Anyone got their money back on this should thank their lucky stars. And every month Lennar delays, the greater the holding costs of that land. Lennar is gambling that prices are going to come back. They won’t. But it’s better to be sitting on raw land than be sitting on dozens of houses that will never make it through closing. Lennar simply has no good options here. This is yet another version of an Economic Zugzwang.
American International Group reported a 27% drop in third-quarter net income late Wednesday as the subprime mortgage crisis pushed the insurance giant’s results below Wall Street expectations.
AIG’s mortgage guaranty business reported an operating loss in the quarter amid continued deterioration in the U.S. housing market.
The company’s derivatives unit, AIG Financial Products, also reported an operating loss in the quarter due mainly to unrealized market valuation losses in its credit default swap portfolio. U.S. accounting rules require AIG to recognize such short-term changes in the value of these derivatives, but the insurer said it’s “highly unlikely” that it will have to pay out on the contracts.
Given we don’t know the exact nature of those swaps AIG is holding, it’s hard to say, but we will probably know a lot more next quarter. Expect another rough one.
The weight of defaults on real estate loans has forced the Bay Area-based Cal State 9 Credit Union into federal conservatorship.
The takeover signals yet another misfortune in the unfolding mortgage crisis in which homeowners are defaulting on their loans and losing their properties. The bulk of Cal State 9’s loans are for real estate transactions.
The state’s action “is related to the credit union’s defaults on mortgages,” California Department of Financial Institutions spokeswoman Alana Golden said today.
This is the second banking failure in a week. Expect to see more of these.
Even Realtors can lose faith in the housing market.
Speaking to a gathering of industry professionals Friday, longtime California real estate titan Fred C. Sands called the housing market “pathetic” and said some agents needed to start looking for other work.
“If you’ve been in it for five or six years and are barely making a living, you might want to think about what you were doing before and get back into it — you can come back in a couple of years,” Sands told members of the California Assn. of Realtors meeting in Universal City.
In the short term, the local real estate market “is not going to get better,” Sands said.
He added that he could speak with candor because he was no longer in the home-selling business.
It’s pretty sad when you cannot speak with candor. Especially when that job is selling something can make or break a person financially.
There are now 540,000 licensed real estate agents and brokers in California, up 50% from 2003, according to the state Department of Real Estate. But more than half of those agents haven’t been involved in a transaction in the last 12 months, a Realtors association board member said.
“We saw 25-year-old guys buying $3-million houses,” he said of the questionable mortgage practices of recent years. “Someone who makes $100,000 a year can’t afford a $2-million house, but that’s what’s been going on,” Sands said.
“The idea that everyone is supposed to own a home is baloney,” he added.
Sands counseled agents that property prices must be cut drastically to “get in front of the crisis.” Otherwise, agents will “follow it down like a dope” and get even less for the properties, if they can sell them at all, he said.
That’s good advice but what was he saying before he left residential for commercial?
Levitt & Sons (LEV), the U.S. residential builder that created a template for the modern American suburb, said on Friday that it had filed for bankruptcy protection.
The company said the voluntary filing, made under Chapter 11 in U.S. Bankruptcy Court in the Southern District of Florida, was made “in response to unprecedented conditions in the homebuilding industry, which have severely impacted the company.”
Levitt, which built “Levittown,” a subdivision in Long Island, New York that is widely regarded as the first master-planned community, said the downturn was especially pronounced in Florida and the Southeastern United States — the markets in which it now operates.
Many more homebuilder bankruptcies are coming. For a list of likely candidates as to who is next please see Homebuilder Credit Default Swaps November Update.
Mike Shedlock / Mish
Click Here To Scroll Thru My Five Most Recent Posts