Distressed

HSBC Continues Freeze On Home Seizures

May 11, 2011

HSBC North America Holdings, the ninth-largest U.S. bank by assets, told investors Wednesday that the bank’s moratorium on home seizures continues in some jurisdictions and it will be “a number of months” before the bank fully resumes foreclosing on defaulted borrowers. The lender did not specify in filings with federal regulators where it continues to restrict home repossessions or how many borrowers have been affected. HSBC handles more than 892,000 home loans, making it the 12th-largest mortgage servicer in the U.S., according to the Federal Reserve. The foreclosure freeze, which started last autumn, came on the heels of months-long criminal and civil probes by federal and state regulators into lenders’ faulty mortgage practices. The nation’s largest lenders voluntarily halted home repossessions when flawed document practices — like so-called “robo-signing” — came to light and erupted into a nationwide scandal. Officials subsequently found that the nation’s largest mortgage firms illegally seized the homes of at least dozens of borrowers and engaged in shoddy practices that allegedly deceived local courts, broke numerous state laws and federal rules, and short-changed distressed borrowers. HSBC, though, did not halt home seizures until after Nov. 5 , according to its filings with the Securities and Exchange Commission. Many of its competitors froze new foreclosures a few months earlier. HSBC’s two major U.S. subsidiaries, HSBC Finance Corp. and HSBC Bank USA , disclosed that its moratoria continue in certain parts of the country due to defective foreclosure practices. “We have resumed foreclosures on a limited basis in certain geographies,” the two divisions reported to investors. “It will be a number of months before we resume foreclosures in all jurisdictions as we need to ensure we are satisfied that applicable enhanced processes have been implemented.” HSBC initiated more than 43,000 home foreclosures in 2009 and 2010, according to the Fed. HSBC’s admission underscores the difficulty firms face trying to weed out faulty practices that went on for years before they were recently discovered. By taking shortcuts in processing troubled borrowers’ home loans, the nation’s five largest mortgage firms have saved more than $20 billion since the housing crisis began in 2007, according to a confidential presentation prepared for state attorneys general by the nascent Bureau of Consumer Financial Protection and obtained by The Huffington Post in March . That estimate, which did not measure HSBC’s savings, suggests that the nation’s largest banks reaped tremendous benefits by under-serving distressed homeowners, a complaint that appeared frequently enough that federal regulators finally acknowledged the industry’s fundamental shortcomings and took action. “We have already made several key procedural improvements to enhance our foreclosure processes as a result of our own internal reviews,” HSBC’s U.S.-based units disclosed in securities filings. Spokesmen for the firm did not immediately respond to a request for comment. In April, the lender was one of 14 mortgage firms to be sanctioned for their sloppy practices by the Fed and the Office of the Comptroller of the Currency. State attorneys general, Obama administration officials and representatives from the nation’s five largest mortgage firms — Bank of America, JPMorgan Chase, Wells Fargo, Citigroup and Ally Financial — are meeting this week outside Washington, D.C. to discuss standards governing their treatment of delinquent borrowers and remedies for past abuses. Some state and Obama administration officials want to levy fines approaching $30 billion — a few officials want even larger fines. The targeted banks said Tuesday they’d collectively pay $5 billion to settle all claims . Government officials balked at the offer, according to sources involved in the discussions who spoke on the condition of anonymity.

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Government May Force Big Banks To Reduce Loan Balances For Distressed Homeowners

May 11, 2011

The nation’s five largest mortgage firms may be forced to reduce loan balances for distressed homeowners as part of an agreement with state attorneys general and the Obama administration to settle claims of faulty mortgage practices, a top state official involved in the negotiations said Tuesday. The proposal is part of a set of remedies banks would have to agree to in order to settle the state and federal probes launched last autumn, which found that the largest mortgage firms illegally seized the homes of at least dozens of borrowers and engaged in shoddy practices that short-changed troubled borrowers. Mortgage principal reductions would comprise part of a larger fine levied on Bank of America, JPMorgan Chase, Citigroup, Wells Fargo and Ally Financial. Penalties could reach $30 billion, officials said. The forced reduction of mortgage principal as a penalty against flawed past practices has proven contentious. Some Republican attorneys general have objected, as have some Republican members of Congress. On Tuesday, however, a state official told The Huffington Post on condition of anonymity that the option “very much remains on the table.” While officials have not determined how much would be exacted from the banks — and specific dollar amounts to settle the probes have not yet been discussed between the state and federal governments and the banks — the proposal to compel financial firms to cut loan balances is part of one of two documents circulated Tuesday at a hotel in northern Virginia, where bankers, state officials and policy makers from the Obama administration began a three-day meeting. The targeted banks have argued vociferously, both in private discussions and in public, that they opposed cutting distressed homeowners’ principal balances. During meetings two weeks ago, representatives from such banks conducted a presentation which they claimed illustrated that mandating principal reductions would not prevent a significant number of new foreclosures and would be harmful to the general economy. The banks said “it would trigger a stampede of strategic defaults,” an official familiar with one of the two discussions said at the time, referring to instances in which borrowers who can afford to make good on their obligations choose not to. Strategic defaults are much more common in the business world than among homeowners, according to experts who study the issue. Homeowners generally feel a moral obligation to continue making their payments, whereas corporations view the breaking of contracts as pure business decisions. Government officials questioned the banks’ assumptions and fought back against their claims. The other document circulated Tuesday outlines standards that mortgage firms would have to adhere to for current and future borrowers, like forcing banks to ensure they have the right documentation when they move to repossess homes. The document was revised from an earlier draft first circulated in early March, The Huffington Post reported last week . The standards are a response to investigations launched last fall after the nation’s largest lenders voluntarily halted home seizures when faulty document practices — like so-called “robo-signing” — came to light, erupting into a nationwide scandal. Currently, no national standards govern how mortgage firms should treat borrowers who fall behind on their payments or default on their obligations. Congress has taken up the matter, and officials generally agree on how mortgage firms should treat borrowers. Tuesday’s bipartisan meeting included the Washington Attorney General Rob McKenna (R) and Colorado Attorney General John Suthers (R), who called in remotely. Top officials from Florida’s and Texas’ attorney general offices, both led by Republicans, attended, along with the Democratic attorneys general from Delaware, Iowa, Illinois, North Carolina and Connecticut. Top officials from the Treasury Department, Department of Justice and the Department of Housing and Urban Development were also present.

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Yvette Kantrow: Connect Some Dots

May 10, 2011

It seems as if every magazine on the face of the planet is seeking to redesign itself for a digital world, which mostly means littering their pages with arrows, bullet points, swooshes and other assorted doodads, all in an attempt to appeal to readers who consume much of their media via the Internet. (See Bloomberg Businessweek ). But one publication is taking the webification of its pages to the next level: Forbes , the one-time “capitalist tool”. While other magazines develop new sections, revamp covers, choose new typefaces and call it a redesign, Forbes is altering the very way it reports and delivers its stories with an eye toward making their consumption more of a social media-like experience. Exhibit A: a piece — really, a set of pieces — in the May 9 issue about Lynn Tilton, the unconventional head of distressed investor Patriarch Partners. Forbes warns readers up front that its Tilton feature is not “a traditional profile,” though it did start out as one. We learn that a Forbes reporter began talking to Tilton as a possible subject for the mag’s “World’s Billionaires” issue, but things quickly turned difficult. The reporter couldn’t understand how Tilton made her money; Tilton ” took umbrage ” at the reporter’s questions; nasty threats of lawsuits followed. Forbes threw more staffers on the case, who accumulated a “welter of material”. But Team Tilton, we are told, didn’t know what to do with all the information it had gathered. The solution: Forget writing a profile. (That’s so last century, not to mention a lot of hard work.) Instead, “let the story unfold” mostly on Forbes.com, by allowing different members of Team Tilton to give their different points of view, complete with comments from visitors to the website and from the subject herself; then run excerpts from the posts in the magazine. “The process of getting the story became the story,” coos the intro in the magazine (emphasis Forbes ‘). The result, according to the mag ( riffing on Wallace Stevens), is “13 Ways of Looking at Lynn Tilton.” Interesting, but really: Do we want to look at her 13 different ways? Reading through the magazine’s Tilton feature feels a bit like wading through a data dump; you’re given a lot of information — she won’t disclose her wealth; she’s being sued by lots of people; her collateralized loan obligations look troubled — but no real context in which to think about it. Unlike a traditional profile, this feature doesn’t try to explain to readers why they should care about Tilton, save for her outlandish wardrobe and the fact that she gave Forbes a hard time. There’s no real attempt to construct a compelling narrative that is informative, entertaining and has a definitive point of view (though the sheer amount of reporting resources Forbes devotes to this exercise does feel vindictive). Of course, one could argue the more viewpoints, the better. Who wants some snooty, biased, know-it-all journalist to tell us what to think? Just report; we’ll decide, thank you. But is that really what we want from magazines? From the media? Even from social media? Is it enlightening to know what other visitors to Forbes.com had to say about Tilton? Should we care? I don’t know the answers. And either way, you have got to give the folks at Forbes credit for really trying to change their magazine, rather than just settling for a few randomly placed arrows and doodads. Whether it will work is another question. Interestingly, a few weeks before Forbes hit the newsstands, another magazine, New York , ran its own , more traditional profile of Tilton. While it certainly didn’t provide 13 ways of looking at her, it did manage to paint a complex, in-depth and entertaining portrait of a woman who is not easily understood. The Forbes effort, by comparison, seems disjointed and confused. Maybe that’s the point. In a world of Twitter and Facebook, we like our information fast and raw, like the tweets from the newly famous 33-year-old computer programmer in Abbottabad who unwittingly microblogged the U.S. raid on Osama Bin Laden’s compound in real time. (Sample tweet: “Helicopter hovering above Abbottabad at 1AM (is a rare event).”) By his own admission, @reallyvirtual had no idea of the import of the events he was broadcasting to the world. That’s the difference between social media and the more traditional kind; between citizen journalists and their more professional brethren. As Forbes goes about its grand experiment, it might want to keep that in mind. See the complete archive of Media Maneuvers Yvette Kantrow is executive editor of The Deal magazine.

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Reports Of Mortgage Fraud Rose To Record Level Last Year

May 10, 2011

After the housing market crashed, reports of suspected mortgage fraud soared. As lenders, homeowners and brokers rushed to close deals, the process during the boom years was tainted by fakery, according to reports later submitted to the Financial Crimes Enforcement Network, an agency of the Treasury Department. The number of reports of suspected mortgage fraud rose to its highest level on record last year, as 70,472 reports were submitted to the government agency, according to a new release from the LexisNexis Mortgage Asset Research Institute. That’s nearly double the number of cases reported in 2006 when the market was at its peak, and it’s nearly 22 times the number of cases reported in 2000. From the LexisNexis release: Fraudsters thrive on inadequacies within lengthy loan-related processes and a lack of consistency across organizations and/or industries that help them hide their true motives. Technology has enabled faster loan production through automation, ease of processing, and analytics. Industry professionals have keen knowledge of those processes, which makes it much easier to manipulate protocols in place to thwart adverse activities. The number of verified cases of mortgage fraud declined from 2009 to 2010, but that’s partially attributable to a decline in the number of new loans, the LexisNexis report says. Reports of suspected fraud increased nearly 5 percent during that period. Homeowners and investors have filed numerous lawsuits against mortgage companies, claiming that crucial mortgage documents were misplaced or even forged. Some of these suits have been successful, bolstered by testimony from bank employees. In a widely cited example, an employee of the lender now owned by Bank of America testified in a New Jersey court in 2009 that her company regularly held onto mortgage notes even as the loans were sold to investors, contradicting what contracts usually require. Without a note, a bank cannot prove it has a right to foreclose on a home; homeowners have used the absence of a note to contest foreclosures. Likewise, a missing note compromises the legal rights of an investor in a mortgage security, a situation that has prompted some investors to sue the banks that sold them the securities. But it’s not just the banks who have been accused of fraud. The Wall Street Journal describes a practice some brokers allegedly used, in which they would get artificially low valuations of distressed homes, and then help a buyer sell those homes for a profit. Homeowners, too, have been accused of misstating their income on mortgage documents. One borrower is now serving a 21-month prison sentence for mortgage fraud, the New York Times reported. The chiefs of the lenders that helped fuel this boom, meanwhile, have largely escaped punishment. Examples of alleged fraud extend to the foreclosure process as well. When it came out last fall that employees at foreclosure processing companies would sign thousands of foreclosure documents daily without even reading them, some of the county’s biggest lenders temporarily halted their foreclosures. The nation’s five biggest mortgage lenders — Bank of America, Wells Fargo, Citigroup, JPMorgan Chase and Ally Financial — have been accused of wrongfully foreclosing on homeowners and improperly handling mortgages. All 50 state attorneys general along with the Obama administration are working to reach a settlement deal. Fines could reach $30 billion , The Huffington Post reported.

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Obama Administration, State Officials Expected To Give Banks New Mortgage Terms

May 6, 2011

WASHINGTON — The Obama administration and state officials are expected to offer the nation’s five largest mortgage firms updated terms next week in ongoing negotiations over a settlement regarding the firms’ faulty treatment of borrowers , according to three people with knowledge of the government plan. As part of their discussions to settle months-long state and federal probes into shoddy mortgage practices and wrongful foreclosures, the new terms are expected to incorporate suggestions offered by the banks in response to an earlier term sheet circulated in early March by state and federal officials. Bankers said the original terms were too stiff; investors said they didn’t go far enough. Consumer advocates said they were a good start. The new term sheet will mark another attempt to get bankers and policymakers on the same page regarding the treatment of borrowers who fall behind on their mortgage payments or default on their obligations. But it is not expected to detail any fines to be meted out in response to banks’ flawed practices, which include improper home seizures and other actions that broke federal and local laws. Officials also remain undecided on a possible mandate to banks to reduce borrowers’ loan balances , according to the three sources, who were not authorized to speak publicly about the matter. Banks are reluctant to slash mortgage principal balances ; some agencies in the Obama administration want to require it, as do most of the state attorneys general leading their mortgage probe. A vocal minority — all Republicans — are opposed. On April 28, the disagreement played out during meetings held in Washington. State and federal officials held two in-person meetings with bankers, with many state officials calling in from their respective states. Representatives of the five firms — JPMorgan Chase, Bank of America, Wells Fargo, Citigroup and Ally Financial — made a presentation which they claimed showed why mandating principal reductions would not prevent a significant number of new foreclosures and would be harmful to the general economy . The banks said “it would trigger a stampede of strategic defaults,” said an official familiar with one of the two discussions, referring to instances in which borrowers who can afford to make good on their obligations choose not to. Strategic defaults are much more common in the business world than among homeowners, according to experts who study the issue. Government officials questioned the banks’ assumptions, which were partly based on data from the Obama administration’s signature foreclosure-prevention initiative, the Home Affordable Modification Program, according to people familiar with the meetings. HAMP, which seeks to reduce monthly payments, is primarily known for its lackluster results. But the bankers and government officials did not discuss the size of potential fines, nor did they address the mortgage firms’ push for release from legal liability for their unlawful actions in their treatment of borrowers and pursuit of home repossession. The nation’s largest lenders voluntarily halted home seizures last autumn after faulty document practices — like so-called “robo-signing” — came to light, erupting into a national scandal. Federal and state investigations began shortly afterward. Now, the top law enforcement officers in some states, most notably New York Attorney General Eric Schneiderman, want to make sure they are not constrained in taking legal action against mortgage firms for violations of state and local laws. Some have grown frustrated with the pace of negotiations, people familiar with the matter say, and fear a broad release from legal liability will likely be sprung on them at the last minute as a condition of their settlement with the targeted banks. Attempts to begin discussions over the liability release have thus far been thwarted, however. Also at issue are potential fines. The Department of Housing and Urban Development and the Bureau of Consumer Financial Protection are looking to impose penalties on the five firms nearing a total of $30 billion, according to people familiar with the matter. The Federal Deposit Insurance Corporation has suggested levying at least $20 billion in penalties. Other federal agencies have suggested amounts closer to $5-10 billion, with the banks open to fines just under that range. Some state officials are pushing for more than $30 billion. However, the size of possible fines was not discussed Thursday, people familiar with the discussions said. This week, Bank of America , Wells , JPMorgan and Citigroup said they collectively could shell out as much as $11.8 billion in litigation losses beyond amounts that they’ve already set aside , regulatory documents filed with the Securities and Exchange Commission show. By taking shortcuts in processing troubled borrowers’ home loans, the nation’s five largest mortgage firms have saved more than $20 billion since the housing crisis began in 2007, according to a confidential presentation prepared for state attorneys general by the nascent Bureau of Consumer Financial Protection inside the Treasury Department and obtained by The Huffington Post in March . The estimate suggests that the nation’s largest banks have reaped tremendous benefits from underserving distressed homeowners, a complaint frequent enough among borrowers that federal regulators have repeatedly acknowledged the industry’s fundamental shortcomings. The dollar figure provides a basis for regulators’ internal discussions regarding how best to penalize Bank of America, JPMorgan, Wells, Citigroup and Ally. Much of the money would go towards reducing troubled homeowners’ mortgage payments and lowering loan balances for underwater borrowers, who owe more on their home than it’s worth. This week, 33 Democratic members of Congress signed a letter sent to Attorney General Eric Holder and Iowa Attorney General Tom Miller (D), urging them to extract a meaningful settlement with the targeted banks. “In the communities we represent, and in others across the country, the flagrant disregard for the law and predatory practices by lenders and servicers have imposed substantial hardships on both homeowners and their neighbors,” the letters read. “We hope that, as these talks proceed, you will work to protect the rights of those harmed by these practices, provide meaningful immediate relief to homeowners, hold lenders and servicers accountable for any unlawful practices that they engaged in, and ensure that, in the future, the practices that brought about this crisis will not reoccur.”

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BofA Plans To Triple Its Centers For Struggling Homeowners

May 6, 2011

Bank of America announced Thursday that it will create dozens of new service centers to work with distressed homeowners in cities around the country, including in the Washington area.

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New Home Sales Inch Up From Rock Bottom

April 25, 2011

Sales of new homes rose slightly in March after reaching a record low in February, bolstering hopes among economists and home builders that the housing market’s multi-year decline has finally hit rock bottom. New home sales — tabulated when contracts are signed — grew 11.1 percent in March to a seasonally-adjusted rate of 300,000, according to estimates released Monday by the Census Bureau. Last month, only 270,000 new homes were sold, the lowest number recorded since the government started tracking the data in 1963. Housing experts say that some of the March increase reflects catch-up from February and January, when bad winter weather delayed home sales and construction projects. Although the 11 percent monthly growth is welcome, new homes sales are still down a staggering 21.9 percent from March of 2010. The median sale price for a new home was $213,800, up 2.9 percent from $207,700 in February, but down 4.9 percent from the March of last year. Analysts are awaiting a Tuesday release of the closely watched S&P/Case-Shiller index of home prices in the 20 largest US cities, which is expected to show a 0.4 percent decline since February. “With existing homes being sold at much more competitive prices, the demand for newly built properties will recover only very gradually,” Capital Economics, a London-based research firm, wrote in response to the latest data. Meanwhile, a separate report indicates that nearly half of the housing market is now made up of distressed properties. “It’s certainly a case that we’re establishing a pretty solid bottom for how low [home sales] can go,” said Michael Englund, chief economist at Action Economics. “The outlook is pretty bleak for housing, but not as bad as we thought a month ago. It does appear that without any sort of big outside shock, things are not going to get any worse.” Last month showed several mildly encouraging signs that the housing market may be on the mend: existing home sales and new home construction both increased slightly in March. Even so, President Obama said last week that housing is “probably the biggest drag on the economy right now.” Englund and others who think the housing bust has finally bottomed out argue that the general uptick in economy will eventually translate to a pick-up in home sales. “I look more to the housing market being pulled by the rest of the economy, and therefore I’m counting on the housing market moving forward because the rest of the economy is moving forward,” said David Crowe, chief economist of the National Association of Home Builders. First time home buyers, Crowe argues, will begin buying more as the job market improves. In the past year, the national unemployment rate has dropped from 9.7 to 8.8 percent — but much of that decrease has come from Americans dropping out of the labor force entirely . “We still have a sizable pool of people waiting to enter the job market, and that’s just one more factor hanging over the head of the housing market. People that quit looking for jobs are probably also not looking for a new home,” Englund said. Englund points to employment as the key to improving the housing market, saying businesses have to start hiring again. “What’s unusual in this recovery cycle is that the business community remains remarkably terrified,” Englund said. “By year three, that’s usually when the business starts to go gangbusters. I’ve never seen such a spooked economy at this state of the cycle.”

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CRE Values Characterized by Wide Regional, Property Type Variations

April 21, 2011

The latest release of CoStar’s Commercial Repeat Sales Indices (CCRSI) finds significant variations in pricing performance between different regions and property types. The pricing variations are being driven both by investor preferences and significant differences in levels of distressed sales volume. While national-level pricing data masks these critical underlying differences in pricing performance, they are readily apparent in CoStar’s Repeat…

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Mortgage Debt Relief For Distressed Homeowners Won’t Hurt Big Banks, IMF Says

April 15, 2011

NEW YORK — A broad mortgage debt-relief program for distressed homeowners would not significantly impact the nation’s four biggest banks, according to a report released this week by the International Monetary Fund. Bank of America, JPMorgan Chase, Citigroup and Wells Fargo have enough money to withstand the resulting losses, IMF economists projected in their report . The findings cast doubt on the notion that a broad-based program to reduce troubled homeowners’ mortgage debt would hurt the nation’s financial system. If the four lenders established a year-and-a-half long program to reduce debt on first mortgages by 15 percent for borrowers at risk of foreclosure, and also worked to lower loan balances by 30 percent until 2015 for seriously-delinquent borrowers and those in foreclosure, they’d face little consequence, the IMF said. “Our stress tests highlight the capital strength of U.S. banks,” the organization said in its report, noting the lenders’ ability to manage “even under a severe shock.” State attorneys general and some federal agencies are seeking to penalize the nation’s five biggest banks for abusing homeowners and breaking federal rules and state laws during the foreclosure process. Officials are pursuing as much as $30 billion in fines. Federal bank regulators at the Office of the Comptroller of the Currency object to those efforts, instead pursuing modest fines and a redesign of how mortgage firms treat borrowers to ensure abuses don’t occur going forward. Some Republicans in Congress have argued that a broad-based mortgage relief program would hurt banks’ balance sheets and impede lending. The costs associated with a widespread principal reduction effort — which would impact millions of homeowners — as forecast by the IMF is significantly greater than what is currently under discussion by state and federal officials in the foreclosure abuse probes. The nation’s five largest mortgage firms have saved more than $20 billion since the housing crisis began in 2007 by taking shortcuts in processing troubled borrowers’ home loans, according to a confidential presentation prepared for state attorneys general by the nascent consumer bureau inside the Treasury Department and obtained by The Huffington Post . The report, prepared by the Bureau of Consumer Financial Protection, suggests the $20 billion figure should be used as a starting point in settlement discussions with the targeted firms. Many more billions would likely have to be levied as penalties to discourage the firms from taking a similar approach in the future and compensate homeowners for abuses, including reducing distressed borrowers’ loan balances, some officials have argued. The IMF’s projections came as part of a report that touched on the problems afflicting the nation’s housing market. Purchases of new U.S. homes dropped in February to the slowest pace on record, according to the Commerce Department. Prices declined to the lowest level since 2003, according to the National Association of Realtors. About 6.9 million homeowners were either delinquent or in foreclosure proceedings in February, according to Lender Processing Services, a Florida-based data provider. More than 2.8 million homes received a foreclosure filing in 2009, and nearly 2.9 million residences received a foreclosure filing last year, according to RealtyTrac, a California-based data provider. Government programs designed to reduce monthly mortgage payments — like the Obama administration’s signature effort, the Home Affordable Modification Program — have had limited success. Industry programs to mitigate foreclosures have had a similarly lackluster result. “The primary shortcoming has been the inability to induce the payment reductions needed to address borrowers’ high-debt profiles and/or the principal reductions to address the large negative equity position of many homeowners,” the IMF said in its report. Nearly a quarter of homeowners with a mortgage owe more on that debt than their homes are worth, according to CoreLogic, another real estate data provider. Underwater homeowners collectively owe $751 billion more than their homes are worth. “As a result, modified loans have had high redefault rates, slowing homeowners’ efforts to de-leverage and restore their credit scores and lengthening the foreclosure process,” the IMF wrote in its report. The average borrower in foreclosure has been delinquent for 537 days before eviction, up from 319 days in January 2009, according to LPS. “These considerations suggest that more structural policies, such as renegotiation or some form of debt reduction — including writedowns of mortgage principal by banks — may be needed,” the IMF wrote in its report. The international organization said its analysis “suggests that banks in the United States have room to take such measures, which could help relieve some of the problems in residential real estate markets.” Representatives from 10 state attorneys general offices, along with officials from the Justice Department and the Department of Housing and Urban Development, met with banks again this week, the second time they’ve discussed the ongoing investigation with bank representatives, Associate U.S. Attorney General Tom Perrelli said on a conference call with reporters on Wednesday. A settlement that includes reducing distressed homeowners’ mortgage balances is still on the table, officials said, despite banks’ objections.

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Dan Solin: Investing USA Style

March 30, 2011

Ninety percent of individual investors “invest” this way: Using the Internet, discount brokers or retail brokers, you try to guess the direction of the markets. You follow the financial news. You pick stocks or mutual funds you are told will outperform. You are filled with anxiety, confused, distressed and frustrated. The returns published by top performing mutual funds far exceed your returns. You wonder who is getting those returns. How did those investors know a particular fund was going to do so well? The predictions of the talking heads on the financial media are mesmerizing. They sound so knowledgeable and intelligent. But if they really have predictive powers, how did they miss the market crash in 2008 and the rapid recovery which continues to date? If you take the time to review the data, you are troubled to learn their track record is no better than the toss of the coin. Is this an intelligent way to plan for retirement? You don’t trust the securities industry. You can’t forget it was these “investment gurus” who brought us to the brink of a worldwide depression. If they can’t manage their own money, what qualifies them to manage yours? You read about the insider trading scandals and it confirms your suspicion that the playing field is not level. What chance do you have if these guys are on the other side of your trade? It’s not just the crooks like Madoff who make you nervous. You have the niggling feeling the entire system is one giant Ponzi scheme, which is simply a pretense for the transfer of your money to those who manage it. If you have a 401(k) plan, and your employer matches, you still get little comfort. The number of investment options is bewildering. You have no idea how to put together a globally diversified portfolio in an asset allocation appropriate for you. No one at your company can help you. The web site provided by the record keeper for the fund is helpful, but you don’t get any advice tailored for you. You keep reading about conflicts of interest and excessive fees in these plans. You know something is wrong, but you have no idea how to fix it. You have lost confidence in the SEC. It is under funded and under staffed. Most of its employees are just doing their time to build up their resume so they can jump to lucrative jobs with the same industry they are “regulating.” You can’t forget the sound byte provided by Harry Markopolos in his congressional testimony into the failure of the SEC to detect the Madoff fraud, even though he laid it out for them in agonizing detail: “If you flew the entire SEC staff to Boston, and sat them in Fenway Park, they wouldn’t be able to find first base.” Can you depend on these lost souls to protect you from Wall Street? Welcome to what passes for investing in the USA. Following these simple steps would increase your returns significantly (based on historical data), eliminate your anxiety and put you in control of your finances: 1. Formulate an investing goal. Most investors don’t have one. If you don’t know how much you will need to accumulate in retirement assets so you (and your surviving spouse or partner) can maintain your quality of life and not die destitute and dependent on others, this would be a worthy goal. You can generate a very helpful report here . Full disclosure: I am affiliated with Index Funds Advisors, which created and administers this report. 2. Fire your “market beating” retail broker or advisor. They have no predictive powers. They can’t pick stocks or time the market. Most of them can’t even calculate the risk of your portfolio. Their primary goal is to generate fees or commissions, while purporting to have an expertise that doesn’t exist. 3. Determine your asset allocation . Invest in a globally diversified portfolio of low cost stock and bond index funds. 4. If you are not familiar with the research of Eugene Fama and Kenneth French, take the time to learn what the largest and most sophisticated investors in the world know about investing. You won’t find this information in the financial media or at the office of your retail broker. This is what investing should be about. It should be investor centric. At present, it’s broker centric. The securities industry is fighting hard to keep it that way. The views set forth in this blog are the opinions of the author alone and may not represent the views of any firm or entity with whom he is affiliated. The data, information, and content on this blog are for information, education, and non-commercial purposes only. Returns from index funds do not represent the performance of any investment advisory firm. The information on this blog does not involve the rendering of personalized investment advice and is limited to the dissemination of opinions on investing. No reader should construe these opinions as an offer of advisory services. Readers who require investment advice should retain the services of a competent investment professional. The information on this blog is not an offer to buy or sell, or a solicitation of any offer to buy or sell any securities or class of securities mentioned herein. Furthermore, the information on this blog should not be construed as an offer of advisory services. Please note that the author does not recommend specific securities nor is he responsible for comments made by persons posting on this blog.

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Buying A New Home Makes Less Sense After Foreclosure Crisis

March 23, 2011

WASHINGTON — A new home, the dream of many would-be buyers, makes less and less financial sense in many places. A wave of foreclosures has driven down the cost of previously occupied homes and made them even more of a comparative bargain. By contrast, new homes have become more expensive. The median price of a new home in the United States is now 48 percent higher than that of a home being resold, more than three times the gap in a healthy housing market. Such a disparity can be a drag on the economy. New homes represent a small fraction of sales, but they cause economic ripples, bringing business to construction and other industries. Sluggish new-home sales deprive the economy of strength. “A lot of people are saying, ‘If I can get a great deal on a home already on the market, why go through the headaches of getting a new home?’” says Mark Vitner, a senior economist with Wells Fargo. “There’s a relatively small group of people who have the credit, have the down payment and are secure in their jobs that can go out and buy new.” The gap is widening because prices of previously occupied homes are falling fast, pulled down by waves of foreclosures and short sales. A short sale occurs when a lender lets a homeowner sell for less than is owed on the mortgage. New homes aren’t directly affected by such sales. The median price of a new home – the price at which half the homes sell for more and half sell for less – has risen almost 6 percent in the past year to $230,600, even though last year was the worst for sales in nearly a half-century. Slowed by those higher prices, new-home sales have plummeted over the past year to the lowest level since records began being kept in 1963. The government provides fresh data on new-home sales Wednesday. By contrast, sales of previously occupied homes have fallen almost 3 percent in the past year. Prices have dropped more than 5 percent. In February, the median price for a resale was $156,100, according to the National Association of Realtors. That adds up to a price difference of $74,500, or 48 percent, the highest markup in at least a decade. In healthier markets, a new home typically runs about 15 percent more, according to government data. Home prices and sales still vary sharply among metro areas. Cities with more foreclosures tend to have more resale homes that have languished on the market and are priced at a bargain. That makes new homes in those areas comparatively expensive. In Atlanta, for instance, where foreclosures accounted for one in every 23 homes sold last year, the median price of a previously occupied single-family home was $109,900, about 12 percent lower than a year ago, according to the Georgia data firm Smart Numbers. The median price of a new home was more than twice that. “That’s as much of a difference as we’ve ever seen,” said Steve Palm, president of Smart Numbers. “New homes can’t compete, and that means jobs.” An average of three jobs and $90,000 in taxes are created for each home built, according to the National Association of Home Builders. In some areas, older homes were more expensive before the housing market bust. That was especially true in urban neighborhoods with little or no room left to build on. But now, buyers get their pick even in some of the trendiest places. That’s what Robert Rost is finding in central Phoenix. Rost doesn’t want to commute far to his job. He’s been looking for a home for about five months but can’t find new properties in the neighborhoods where he wants to live. “I don’t want to commute 45 minutes to an hour a day one-way,” the 38-year-old computer engineer says. Homebuilders have taken notice. Residential construction has all but come to a halt. Builders broke ground last month on the fewest homes in nearly two years. And building permits, a gauge of future construction, sank to their lowest in more than 50 years. Many builders are waiting for new-home sales to pick up and for the glut of foreclosures and other distressed properties to be reduced. But with 3 million foreclosures forecast this year nationwide, a turnaround isn’t expected for at least three years. Don Eyler, who has owned E and R Construction in Terre Haute, Ind., for three decades, blames the banks. He says people are still interested in having a custom-built home but can’t finance the purchase. Tighter credit has made it harder to get larger loans. Eyler typically built eight homes a year before the housing boom and bust. Now, he’s averaging just about five. And he’s making less profit on each. “We hope we can stay in business until it gets better, but the turning point is this year,” Eyler says. “If it doesn’t change, we’ll have to do something different.” Contributing to higher new-home prices is the rising cost of building materials. Fewer new homes sold means fewer jobs added to an economy struggling with 8.9 percent unemployment. About 2.2 million overall construction jobs have disappeared since the housing boom went bust. That’s nearly a third of the people the industry employed in January 2007. Workers in residential construction have fared even worse than other construction employees. Homebuilders cut nearly 1.3 million jobs in that time, or 39 percent of total payrolls. Besides generating jobs in construction and other fields, new-home purchases tend to help the economy because buyers are more likely to buy new furniture, appliances and other amenities. There’s also the psychological factor. In good times, most homes rise in value. But new homes historically have risen faster – by an additional 1.5 percent a year, according to Realtors and census data. When homes appreciate in value, people feel they have more money. So they spend more. “When you have more net worth, especially in your home, you feel richer,” says Chris G. Christopher Jr., senior principal economist at IHS Global Insight. ___ AP Business Writers Christopher S. Rugaber in Washington and Alex Veiga in Los Angeles contributed to this report.

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Tanya D. Marsh: One More Casualty of the Foreclosure Crisis: Property Tax Revenues

March 22, 2011

The Home Defenders League, a community activist organization in California, released a report last week with the provocative title of ” Home Wreckers: How Wall Street Foreclosure are Devastating Communities .” The report makes a simple but powerful point that has not been widely appreciated. Property tax revenues, which many municipalities use as a primary source of funding for education, police, fire, and other essential functions, are tied to real property values. Since the height of the market in 2007, on a national basis, it has been commonly reported that commercial real estate values have dropped at least 40% and residential real estate values have dropped at least 30%. Of course, the concept of “real estate value” is pretty fuzzy. The fair market value of a thing is normally determined by a willing buyer and willing seller. But in the current market, there are a number of complications. First, there are a large number of unwilling sellers pricing their homes in light of a pending foreclosure, or because of a loss of employment or similar crisis. Second, both the residential and commercial real estate markets continue to be hampered by the unavailability of debt. Yes, the most credit worthy commercial and residential borrowers, with sufficient money for a healthy down payment, can obtain financing. But many other borrowers cannot. As a result, the market has way too many unwilling sellers and not nearly enough willing buyers (with adequate financing). So “real estate values” are significantly depressed. But if capital begins to flow more freely and employment rates rise, the number of willing, financeable buyers will increase and push values up. That’s how markets work. If the market thinks that my house is worth 30% less today than it was three years ago, that makes me sad, but doesn’t actually hurt me until I’m forced to internalize that drop in value by selling the house at a reduced price. But one of the problems with the current crisis is that the policy response is forcing widespread internalization of depressed values, in both the commercial and residential real estate markets, by encouraging distressed sales and foreclosures. Many analysts in the commercial real estate world believe that this is a good thing, because the market can’t begin to improve until it hits bottom. But by capturing the temporarily depressed values and translating those into lower property tax assessments, this activity will have significant effects even after values begin to improve. The property tax assessment method varies by state, but changes in value for a specific property are generally captured when a property is sold. In periods where significant changes are experienced in the larger market, an assessor may also increase or decrease the assessed value of a neighborhood or entire community by applying a particular formula. For a variety of reasons, assessed values normally lag “real time” values. For example, Maryland assesses real property every three years and recently issued a reassessment reflecting a 22% drop in value since 2008, the largest decline in the history of the Maryland Department of Assessments and Taxation. Other states may reassess on an annual basis, but use a prior year’s assessment in calculating current taxes. For example, in Washington State, 2011 property tax bills reflect 2009 assessments. Many municipalities have reported that property tax assessments began to fall two years ago for the first time since the Great Depression, and have continued to fall since. These reduced assessments can have significant consequences for state and local government, particularly if there is a property tax cap in place. For example, the Home Defenders League estimates that California property tax revenues are expected to decline by $3.8 billion because of residential foreclosures. There are no easy answers here. But it is clear that we shouldn’t compound the problem by forcing more homeowners, commercial real estate borrowers, and, by extension, taxing authorities, to internalize temporarily depressed values by encouraging sales into a distressed market or completing foreclosures. The real estate bubble burst and “value” was lost. Understood. But perhaps we should focus on trying to restore some of that value and mitigating the problems that will inevitably be caused by steep drops in property tax revenue.

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Robert Kuttner: Brown Shoots

March 20, 2011

As spring dawns, the economy’s green shoots have been trampled once again, first by the economic fallout from Japan’s tsunami, and again by rising worldwide commodity prices. The disruption of Japan’s production revealed the soft underbelly of globalization — the reliance on vulnerable global supply chains only as strong as their weakest link. Rising food and energy prices produce a toxic stew of inflation and unemployment. This depressing news, of course, has political as well as economic consequences. Politically, it means that the incumbent party — Obama’s — faces even tougher going in 2012. Economically, rising inflation makes it that much harder for the Federal Reserve to keep resorting to very low interest rates to levitate a sick economy. At some point, the Fed’s natural inflation-phobia will kick in, even though higher food and energy prices have nothing to do with overheated demand (with unemployment stuck near double digits, demand is still too low, not too high.) But as in the late 1970s, stagnation could turn into stagflation. And the Republicans in Congress are compounding the crisis of prolonged recession and joblessness by slashing everything in sight — throwing more people out of work. Faced with the prospect of having to defend the administration’s performance in an economy of still high unemployment, you might think the White House would be doing everything possible to highlight the Republicans’ responsibility for the weak economy — the perverse budget cuts, the unpopular assault on unions, the direct attack on Social Security. Instead, the president has doubled down on his strategy of “more-bipartisan-than-thou.” As the New York Times ‘ Michael Shear wrote in a smart and skeptical piece last week, “As they prepare to wage political war against President Obama, the potential 2012 Republican candidates are doing everything they can to draw sharp distinctions with him. But Mr. Obama isn’t cooperating. Rather than emphasize his differences with potential Oval Office rivals or Republican adversaries on Capitol Hill, the president is taking every opportunity he can to embrace members of the other party as co-conspirators in his efforts to confront the country’s challenges. According to Mr. Obama, the two parties have cooperated — or are showing signs of being willing to work together — on education reform, tax cuts, energy security, economic growth and potential changes to an entitlement system that has become a drain on the nation’s budget.” This must be occurring in a parallel universe somewhere. Republican collaboration with Obama is certainly not happening on earth. The president and his political advisers are evidently gambling that as the Republican budgeters and GOP presidential contenders grow more reckless and more extreme, he will just look more reasonable and more presidential. Doubling down on bipartisanship did not exactly work in 2010, when the Dems lost 63 House seats, their worst off-year performance in modern times. Because of the Republicans’ sheer extremism, it may work to re-elect the president by a narrow margin in 2012 — but not to rekindle the enthusiasm of the groups that elected him in 2008 as a force for believable change. Presidential elections are won or lost state by state, and you have to wonder how this strategy will rally economically distressed voters to the Democrats in key swing states like Ohio, Pennsylvania, Michigan, Florida, or even Illinois. At best, Obama wins narrowly next year, but the Democrats suffer huge losses in the Senate, where the numbers are stacked against them (11 Republicans up, compared to 23 Dems) and gains in the House but not enough to take back control. There is latent support for a president to lead as the champion of hard-pressed regular people. But Obama keeps passing up the opportunities history deals him. The Republican assault against public employees in Wisconsin, Ohio, Indiana, and elsewhere produced the largest gain in the approval ratings for unions in decades. By margins of nearly two to one, the public rejects the conclusion that public workers should take pay or benefit cuts to solve fiscal crises. You wouldn’t have expected government employees to be the poster children for broad economic distress, but the effort to blame the recession and the budget crisis on nurses, teachers, cops and firefighters backfired. Regular people saw these workers as their neighbors and fellow members of a beleaguered middle class, not as their oppressors. You might have expected a Democratic president to seize this teachable moment to point out that the collapse of the economy and of government revenues was caused on Wall Street, not in state capitols or at union bargaining tables. But this president was too busy making amends for the hurt feelings of big business, preparing to unveil the next loophole in enforcement of the Dodd-Frank Act , and sending his fundraising associates to Wall Street with wheelbarrows to collect donations for his campaign. Maybe there is political genius in just giving the Tea Party Republicans enough rope, and waiting for them to hang themselves. But it hardly adds up to a presidential re-election with coattails for the Democrats or a shift in the direction of this nation’s economy and its suffering working people. Robert Kuttner is co-editor of The American Prospect and a senior fellow at Demos. His latest book is A Presidency in Peril .

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Les Leopold: Is Corruption on Wall Street All in the Eyes of the Beholder?

March 18, 2011

Japan’s Nikkei share average plunged 10.6 percent on Tuesday, posting the worst two-day rout since 1987, as hedge funds bailed out after reports of rising radiation near Tokyo. ~ Reuters, March 15, 2011 While it’s far too early to assess the full impact of the Japanese disaster on markets around the globe — let alone on the Japanese people — we do know that hedge funds are already busy trying to profit from the misery. They make no apologies for operating in an ethics-free zone. Their business is to rapidly move money in and out of distressed markets. That’s just what they do. But as we’re learning from the trial of billionaire Raj Rajaratnam , head of the Galleon hedge fund, an ethics-free zone can easily become a crime scene. The Raj is charged with enough counts of insider trading to spend 20 years in the hoosegow. And he’s not the only one on trial. As the case unfolds, Wall Street as a whole may find itself in the dock, facing the question it dreads most: Just how much of Wall Street’s wealth is built upon criminal activity? Of all the rich and worried people on Wall Street right now, the hedge fund managers are the richest and maybe the most worried. After all, they’ve got a lot to lose. A LOT. Just to name one example, in 2010, the top hedge fund manager, John Paulson, netted — for himself personally — $2.4 million an HOUR. Forbes reports that in 2009, Rajaratnam was the 236th richest American, with an estimated net worth of $1.8 billion. That’s more than 12,000 times the median US family’s net worth (which was $98,997 in 2009). Sebastian Mallaby, the financial author, offers a spirited defense of the hedge fund industry, arguing that, yes, there may be a few truly rotten apples, but insider trading is really no big deal. (See ” Hands Off Hedge Funds ” May 2007) An industry of around 9,000 hedge funds is indeed bound to harbor some criminals….Moreover, some of what politicians and journalists label ‘hedge-fund abuses’ involve leaks of inside information from investment banks rather than from hedge funds, making the hedge-fund managers who receive the leaks accomplices rather than the chief offenders. But federal prosecutors beg to differ: They say the Raj’s hedge fund is the prime mover of the insider conspiracy , not a lowly accomplice to the crime. “Greed and corruption — that’s what this case is all about,” said the the lead prosecutor in his opening statement. Rajaratnam “knew tomorrow’s business news today and traded on it. ….One crucial thing he didn’t know. He didn’t know the FBI was listening.” What goes on when the F.B.I. isn’t listening? The defense team, led by John Dowd, argues that the Raj is just a smart guy who made his fortune through “shoe-leather research, diligence and hard work” and who “conducted the best research in the business.” You see, says Dowd, the Raj used the “mosaic” method of investing: He collected from many sources a compendium of unconnected facts about a company to form a mosaic of its true worth. And that mosaic told him whether to go long, short, both, or stay away. Constructing these gorgeous mosaics turned the Raj into the billionaire he is today. Mosaic method? Okay, let’s give it a try. How about constructing a mosaic of hedge fund illegalities over the past decade or so? There are so many colorful tiles to choose from. Here are a few. Insider Trading : Hedge funds of all kinds rely on ” expert networks ” who link together consultants who gather information about companies. In the process, bits of illegal information find their way into and around the network and then into the bottom lines. The Raj investigation already has upended several hedge funds that benefited from this common phenomenon. Tax Evasion : Swiss banker Rudolf M. Elmer has blown the whistle on an international web of rich investors, banks and hedge funds that evade taxes by illegally shifting money to low-tax jurisdictions. There’s something extra-slimy about tax dodging by hedge funds, given that they already pay less taxes than anyone else. Due to an egregious IRS loophole , hedge fund managers pay a top tax rate of 15 percent instead of the 35 percent normal wealthy people are supposed to pay. That these under-taxed fat cats feel entitled to top it off by engaging in this blatantly illegal form of tax evasion is galling. These guys seem unable to resist piling up more money, even if it means taking the law into their own hands. Ponzi Schemes: When we think Ponzi, we think Bernie. Hedge funds like Madoff’s are ideally suited for this kind of scam since they are designed to evade so many disclosure regulations. But Bernie’s isn’t the only game in town. There’s a whole other kind of Ponzi scheme that has largely escaped media attention. You can find a description of this seriously twisted strategem buried deep in the bowels of the Financial Crisis Inquiry Commission Report . To construct and market exotic and highly profitable CDOs based on toxic subprime assets, investment banks had to be able sell the lower tranches (where a good deal of the junk assets lived). But that got harder towards the end of the housing boom. So to keep the production line going, the banks sold the junk to each other: Entity A sold to Entity B who then sold back to Entity A. This game of hot potato was even played by different departments within one large investment bank. Hedge funds were always there to suck up the lowest level, highest yield “equity” tranches — while often shorting other pieces. The potato toss had to continue or the entire game was lost. According to the Financial Crisis Inquiry Report , “heading into 2007 there was a Streetwide gentleman’s agreement: you buy my BBB tranch and I’ll buy yours.” (p. 278) This scheme would have gone nowhere without hundreds of hedge fund players lapping up the equity tranches and buying the credit default swaps that allowed the deals to be constructed in the first place. How many financial billionaires were minted in this process, I wonder? Front-running trades: With their high-speed trading computers and algorithms that sense market moves, the biggest hedge funds and banks are able to trade just a fraction of a second before the rest of us do. The SEC has been investigating this practice , known as front-running, for several years. The agency is worried that brokers leaked information about large trades by institutional investors to hedge funds so they could pull off the trade just a split second before the large trade took place thereby earning a quick, easy and illegal profit. Timing and Late Trading: When Eliot Spitzer was New York Attorney General (and earned the handle Sheriff of Wall Street), he uncovered how hedge funds were maneuvering around trading rules like a Ferrari speeding around the hapless shmoes stuck in midtown traffic. Hedge funds were allowed to jump in and out of mutual funds many more times than normal investors, enabling them to score high returns at the expense of regular mutual fund customers. They even got away with booking trades hours after the market closed for the day — a real perk, since market-moving announcements often are made right after closing. You don’t need to go to Wharton to make big bucks on this one: All you do is wait a few hours to judge the impact of the after-closing news, then book your trades at the 4 pm price. Spitzer forced the guilty parties to pay several billion dollars in fines. Accounting Irregularities: This is the catch-all biggie: Hedge funds and banks cook the books to avoid showing losses and to artificially inflate profits. Hedge funds are also deeply involved in helping other companies — like Enron and WorldCom — cook their books. According to a study by Bing Liang at the University of Massachusetts, as of 2004, 35 percent of all hedge funds cited no dates for their last audit. Hmmm. Setting up bets that can’t fail: Goldman Sachs had to pay $550 million for not telling its investors about its questionable deal with a hedge fund: The bank allowed the hedge fund to pick the most shaky underlying mortgage securities to be used in creating a synthetic CDO — so that the hedge fund could then turn around and bet against it. It was a winning bet for the hedge fund — it bagged a billion. Unfortunately, the investors lost a billion. Goldman Sachs did pretty well with its deal to pay only the $550 million SEC fine. After all, the company was bailed out by taxpayers to the tune of $12 billion: We paid them 100 cents on the dollar for credit default swap insurance that AIG could not pay. Incredibly, the hedge fund was in the clear. It couldn’t even be charged, since it neither bought nor sold the securities in question. At the moment, there’s no law against encouraging someone else to rig a bet for you — except at the racetrack. These are just a few of the many tiles for our hedge fund mosaic of cheating. As Neil Weinberg and Bernard Condon wrote in Forbes back in 2004 (” The Sleaziest Show On Earth “): Hedge funds exist in a lawless and risky realm, exempt from the rules governing mutual funds, equities and most other investments. Hedge funds aren’t even required to keep audited books — and many don’t. These risky funds often are guilty of inadequate disclosure of costs, overvaluation of holdings to goose reported performance and manager pay, and cozy ties between funds and brokers that often shortchange investors. Of course, none of this proves that any given hedge fund billionaire is a cheat or even ethically challenged. But it does offer an unflattering picture of an industry that is at this very moment trying to milk money from Japan’s roiling markets, once again profiting from the misery of others. There’s got to be a better way. Les Leopold is the author of The Looting of America: How Wall Street’s Game of Fantasy Finance destroyed our Jobs, Pensions and Prosperity, and What We Can Do About It Chelsea Green Publishing, June 2009. He is currently working on a new book, How to Earn a Million an HOUR: The Dubious Contribution of Wall Street Billionaires to the American Economy (hopefully to be published in 2011).

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Watchdog: TARP Helped Perpetuate A ‘Too Big To Fail’ System

March 16, 2011

WASHINGTON (Reuters) – The watchdog panel for the $700 billion bank bailout faulted the U.S. government for the last time on Wednesday, saying the program helped underpin the perception that federal authorities will always prevent troubled financial firms from failing. In its final report on the bank bailout, the panel attacked the government for not being transparent enough and not articulating clear goals for its foreclosure prevention program. It also said federal intervention transformed the notion of ‘too big to fail’ into a stark reality. “Very large financial institutions may now rationally decide to take inflated risks because they expect that, if their gamble fails, taxpayers will bear the loss,” said the report authored by the Congressional Oversight Panel. Stigmatized for bailing out Wall Street at the expense of ordinary Americans, the Troubled Asset Relief Program, known as TARP, used billions of dollars in taxpayer money to prop up major financial firms, including Citigroup and Bank of America. Timothy Massad, the Treasury official in charge of the bailout program, said it was “simply wrong” for companies to think that the government would provide assistance to bail them out in the future. The Dodd-Frank financial reform bill “makes it clear that we should not use taxpayer funds for that,” Massad told reporters. In recent months, TARP has enjoyed a renaissance of sorts, with some of its harshest critics admitting that the program helped save the financial system from collapsing. AUTO BAILOUT The watchdog panel concluded taxpayers would not likely recoup all of the $85 billion extended to the auto industry. Most of that went to restructure General Motors Co and Chrysler Group, now run by Italy’s Fiat SpA, in bankruptcy. The group found that government intervention in the automaker bankruptcies “raised questions about the long-term effects” of such action on credit markets, as well as sticky scenarios involving companies considered “too big to fail.” The report found that the Treasury failed to set clear goals, making it difficult to determine whether intervention in GM, Chrysler, suppliers and automaker financing arms was successful. It questioned whether the goal was only to save the auto industry from collapse or to extend rescue financing with the aim of recovering all of it when the industry got back on its feet? “It is difficult to say whether government intervention was the best option,” the report found. Congressional panel Chairman Ted Kaufman told reporters that he thought it was a good thing the government “went forward with funds” for the auto companies. MORE TRANSPARENCY NEEDED The panel admitted that TARP helped provide critical support to markets at “a moment of profound uncertainty” by showing that the country would take any action necessary to prevent the collapse of the U.S. financial system. The TARP’s final cost to taxpayers is estimated to be about $25 billion — an amount far below previous estimates of around $350 billion. Regardless, the panel chided the government for not using the full $50 billion that has been set aside to help keep distressed Americans in their homes. The Obama administration initially predicted that its Home Affordable Modification Program, or HAMP, would help up to 4 million at-risk homeowners avoid foreclosure by providing permanent loan modifications. So far, HAMP has provided loan modifications for about 600,000 homeowners, angering House Republicans, who are trying to kill the program. Congressional overseers expect the program to help up to 800,000 homeowners. The panel said the Treasury Department was not able to determine which TARP programs were succeeding because it never collected relevant data in the first place. “Without adequate data collection, Treasury has flown blind,” the report said. The panel reiterated criticisms that the Treasury has never formally announced a new target. “Absent meaningful goals, the public has no meaningful way to hold Treasury accountable, and Treasury has no clear target to strive toward in its own deliberations,” the report said. (Reporting by Rachelle Younglai and John Crawley; Editing by Dan Grebler) Copyright 2011 Thomson Reuters. Click for Restrictions .

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Congressional Republicans Set Sights On Homeowners, Elizabeth Warren As Split Emerges with State GOP Leaders

March 11, 2011

WASHINGTON — As state and federal officials near an agreement with the nation’s largest financial firms to settle allegations of abusive foreclosure practices, top Republicans in Congress are aggressively disputing their authority, decrying the possibility of expensive penalties against banks and questioning the need to help distressed homeowners. But the calls from Capitol Hill run counter to those made by Republican state attorneys general, who are involved in the 50-state investigation seeking restitution for improper foreclosures. The debate over how best to heal the nation’s troubled housing market exposes a rift between Washington legislators and local law enforcement, who are investigating potential violations of state laws. It also undercuts lawmakers’ prior demands last autumn for a full investigation into widespread allegations of wrongful foreclosures. On Wednesday, leading Republicans on the House Financial Services Committee sent a letter to Treasury Secretary Timothy Geithner expressing their concerns with any proposed settlement that would further regulate the mortgage industry or lead to large fines being levied against financial institutions. Also Wednesday, Sen. Richard Shelby of Alabama, the top Republican on the Senate Banking Committee, blasted the negotiations between banks and government officials, likening them to a “shakedown.” At least rhetorically, such attacks undermine government efforts to seek restitution for wronged borrowers. They also bode ill for attempts to reform what’s widely acknowledged to be a broken mortgage finance system. It’s a reprise of last year’s debate to reform the broader financial system, during which many Republicans sought to kill a proposed agency dedicated to protecting consumers from abusive lenders. The temporary head of that nascent agency, Elizabeth Warren, now finds herself cross-wise with the congressional GOP. So do state attorneys general, many of them Republicans, who serve as their states’ top law enforcement officials and view improper foreclosure practices as violations of state law. “We want to remedy losses that have occurred as a result of those problems,” John Suthers, Colorado’s attorney general, said of bank errors during the foreclosure process. Suthers is a Republican and one of four attorneys general leading the states’ settlement talks with the nation’s five largest mortgage firms. “Let’s go now and negotiate with the banks,” said Mark Shurtleff, the Republican attorney general of Utah. Shurtleff added that the Republican attorneys general are waiting for a proposed final settlement agreement before deciding whether they will support it. The current spate of criticism from GOP leaders contrasts with their calls for a wide-ranging investigation into foreclosure practices last fall. The current negotiations are a direct result of state and federal inquiries into the matter. In October, Shelby demanded that federal banking regulators “immediately review the mortgage servicing and foreclosure activities” at major banks to “determine exactly what occurred at these institutions.” He asked for the findings to be presented to the banking committee “without delay.” That same month, a spokesman for House Speaker John Boehner (R-Ohio), then the lower chamber’s minority leader, told The Huffington Post that “at a time when economic uncertainty and unemployment are putting great pressure on homeowners and the housing market, it is imperative that we get all of the facts about this situation, and quickly.” A spokesman for Boehner was not immediately available for comment Friday. But Rep. Randy Neugebauer, a Texas Republican who serves on the financial services committee, said Thursday that the current settlement discussions are a “terrible” move that “verges on extortion.” Still, Neugebauer emphasized that he wants a full investigation into bank practices, and for those findings to be made public. “There should be more transparency to these processes,” he said. Neugebauer declined to support the kinds of penalties regulators are now discussing. All 50 state attorneys general joined together last fall to probe bank foreclosure practices after several companies halted home repossessions when improper paperwork practices — like the so-called “robo-signing” scandal — came to light. The law enforcement officers have said they’ve found that banks violated numerous state laws. State and federal officials are considering a large-scale settlement with the largest banks that could include penalties totaling up to $30 billion and requirements to modify distressed mortgages, people involved in the discussions said. A settlement agreement and requirements to modify troubled mortgages could help calm the roiling housing market, officials said. In January, Sheila Bair, the Republican chair of the Federal Deposit Insurance Corporation, said that “chaos in mortgage servicing and foreclosure has created a dangerous new uncertainty in this fragile market.” Bair is among the officials looking for at least a $20 billion settlement, according to people familiar with the discussions. Reforming the industry is one of the primary goals of the settlement talks, according to senior Treasury Department officials. Meeting with reporters Thursday, one top Treasury official said that bank foreclosure practices remain terrible, four years after the subprime crisis erupted. Some Republican attorneys general are also looking for broader industry reforms. Suthers said that he and other law enforcement officials are looking forward to hearing mortgage firms’ ideas on “how to structure a system that isn’t the mess the system has been the past couple years.” Meanwhile, however, congressional Republicans have scored some political points by latching onto Warren’s involvement in the discussions, part of a broader GOP effort to hamstring the emerging Consumer Financial Protection Bureau before it gets off the ground. Last month, House Republicans voted to slash the bureau’s budget for this year by about half. Now, in letters to the administration and in speeches, they’re singling out Warren in questioning the bureau’s authority to even participate in efforts to protect consumers and reform the broken process by which troubled mortgages are modified and homes are repossessed. “They’re trying to scapegoat her,” said a person involved in the settlement discussions who wasn’t authorized to speak publicly. That person added that some of the Republicans who opposed the creation of the agency during last year’s debate to reform the financial system, like Shelby and Alabama Rep. Spencer Bachus, now appear to be trying to undermine Warren’s participation in the settlement discussions as a way to disrupt the government’s enforcement effort and also isolate and marginalize the still-developing consumer unit. Bachus, the Republican chairman of the House Financial Services Committee, was one of the signatories to Wednesday’s letter to Geithner. Spokespersons for Shelby and Bachus didn’t respond to calls seeking comment. Neugebauer didn’t hold back, however. “We question whether Ms. Warren has any authority to be playing a role, because she is not the head of the bureau,” he said. “I was in the homebuilding business. There’s a difference between the homebuilder and the homeowner,” Neugebauer continued. “As I look at Ms. Warren’s task, she’s supposed to be the homebuilder, not the homeowner. That agency, they have no head. The emperor has no clothes.” The settlement discussions have only just begun, people familiar with the matter said. But unlike their Republican colleagues in Washington, state attorneys general are open to significant fines. The 50-state probe is led by an executive committee of 13 attorneys general, six of whom are Republicans. During their association’s annual spring meeting in Washington this week, many Republican attorneys general said they strongly supported the settlement talks. When asked if a $20 or $30 billion penalty was too high, Shurtleff of Utah said no, pointing to numerous settlements state officials have entered into over the years with individual subprime lenders that totaled in the hundreds of millions — in the case of Countrywide Financial, more than $8 billion. “The servicers themselves acknowledge there are very serious problems in the foreclosure process,” Suthers said. “That’s a good starting point.” ************************* Zach Carter is a staff reporter in The Huffington Post’s Washington bureau. He can be reached at zach.carter@huffingtonpost.com. Shahien Nasiripour is a business reporter for The Huffington Post. You can send him an e-mail ; bookmark his page ; subscribe to his RSS feed ; follow him on Twitter ; friend him on Facebook ; become a fan ; and/or get e-mail alerts when he reports the latest news. He can be reached at 646-274-2455.

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Shopping Center Loans, Strip Mall Loans, Distressed Commercial …

March 10, 2011

Shopping Center Loans , Strip Mall Loans, Distressed Commercial Loans: Arlington Richfield. Arlington Richfield provides shopping center loans for the acquisition, refinance, or construction of shopping center properties …

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Shopping Center Loans, Strip Mall Loans, Distressed Commercial …

March 10, 2011

Shopping Center Loans , Strip Mall Loans, Distressed Commercial Loans: Arlington Richfield. Arlington Richfield provides shopping center loans for the acquisition, refinance, or construction of shopping center properties …

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Shopping Center Loans, Strip Mall Loans, Distressed Commercial …

March 10, 2011

Shopping Center Loans , Strip Mall Loans, Distressed Commercial Loans: Arlington Richfield. Arlington Richfield provides shopping center loans for the acquisition, refinance, or construction of shopping center properties …

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Greece Slams ‘Accountability’ Of Credit Rating Agenices

March 7, 2011

LONDON — Greece launched a tirade against credit ratings agencies Monday after Moody’s downgraded its debt grade further below junk status, warning the bailed-out euro country might have to default on its massive borrowings. The agency slashed its rating by three notches to B1 from Ba1 and warned it may cut again if the government’s commitment to austerity wanes or international creditors become less willing to support it – Greece was saved from bankruptcy last May after accepting a euro110 billion ($154 billion) bailout from the EU and the International Monetary Fund. The Greek government’s response was quick and critical. It said Moody’s downgrade was “completely unjustified” and “does not reflect an objective and balanced assessment” of Greece’s actual economic prospects. “Ultimately, Moody’s downgrading of Greece’s debt reveals more about the misaligned incentives and the lack of accountability of credit rating agencies than the genuine state or prospects of the Greek economy,” the finance ministry said. It said the agencies – rivals Standard & Poor’s and Fitch Ratings have also downgraded struggling countries like Greece heavily in past months – were trying to make up for failing to predict the financial crisis. “Having completely missed the build-up of risk that led to the global financial crisis in 2008, the rating agencies are now competing with each other to be the first to identify risks that will lead to the next crisis,” the ministry said. In explaining its downgrade, Moody’s warned the Greek government’s economic program may not yield the intended drop in debt and return to growth, and noted its considerable difficulties in raising revenues. It also highlighted the risk of tougher debt conditions when the bailout package ends in 2013. “The risk of a post-2013 restructuring might lead the Greek authorities and investors to participate in a voluntary distressed exchange before that time,” Moody’s Investor Services said. The Greek finance ministry queried the timing and the size of the downgrade, describing them as “incomprehensible” in the wake of the government’s success in cutting its budget deficit by 6 percentage points in 2010 to around 9 percent of the country’s national income. It has pledged to bring the deficit to the EU limit of 3 percent by 2014. Despite the progress, Greek national debt is still expected to exceed 150 percent of GDP this year, while the economy is forecast to contract 3 percent. The finance ministry said the reduction in the budget deficit was the “strongest evidence that relative to last year the risk of sovereign default has not increased but rather decreased as Greece is on a bold path towards fiscal consolidation.” It said Moody’s failed to properly take into account the positive impact from the austerity measures and structural reforms. “At a time when the global economy is fragile and market sentiment is sensitive, unbalanced and unjustified rating decisions such as Moody’s today can initiate damaging self-fulfilling prophecies and certainly strengthen the arguments for tighter regulation of the rating agencies themselves,” it added. Credit ratings agencies have been blamed for failing to properly identify risks in the global economy ahead of the financial crisis, which led to the deepest recession since World War II and a crisis of confidence in bloated government finances, particularly in Europe. Some experts argue the agencies have now gone too far the other way – playing it safe by being excessively pessimistic – and market regulators are planning reforms to better supervise them. The EU has been one of the agencies’ most vocal critics and is looking at ways of reducing market reliance on their ratings, including greater competition among agencies and alternative ways to fund ratings. On Monday, it played down the downgrade and insisted it would have no impact on its own view of Greece’s public finances, which are made regularly to verify the implementation of the international bailout deal. “We have our own assessments of what is going on,” said Amelia Torres, spokeswoman of the EU Commission. “This is the assessment, as far as we are concerned, that you should look at and we don’t react to rating agency announcements.” Standard & Poor’s and Fitch rate Greece slightly higher at BB+ though S&P has recently warned that it may lower its view soon. Whether Greece ends up restructuring its debts – effectively reducing the amount it pays to creditors – could hinge on whether it can get the support of investors in bond markets. Thanks to its bailout it doesn’t have to raise any substantial sums soon. However, Greece is trying to keep a presence in the markets and is due to auction euro1.25 billion worth of 26-week treasury bills Tuesday. At the moment, it’s effectively blocked from issuing longer-term debt because of the exorbitantly high costs involved. The interest rates markets are charging Greece to lend money for ten years is over 12 percent, nearly 9 percentage points more than what Germany has to pay even though they share a currency. Though it’s a national holiday in Greece, bonds were trading in international markets – the benchmark 10-year bond yield spiked 0.07 of a percentage point to 12.32 percent. ____ Nicholas Paphitis in Athens and Raf Casert and Gabriele Steinhauser in Brussels contributed to this report.

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CoStar's People of Note (May 29-June 3) — Industry Partners

March 3, 2011

Commercial Real Estate & Multi-Family Loans – Both Debt & Equity – California & Nationwide. Retail – Office – Industrial – Hotels – Multi-Family – Student Housing – Single Tenant SBA Loans . Distressed REO Properties – Whole Loans …

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Three Deals that Capture the Current State of Distressed Investing

March 3, 2011

While much of the recent headlines have focused on the run-up in values of trophy properties in the most desirable submarkets of handful of primary world class cities, distressed investors continue to plumb markets and properties left for dead in the last few years. As a way of exploring the current state of distressed investing, we’ll take a look here at recent deals from experienced distressed investors: Boxer Property in Houston; Mountain Real…

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A Statistical Look at Distress Levels

March 3, 2011

The rubble of distressed commercial real estate properties and loans has piled up shockingly during the Great Recession (waning though it appears to be) and has left the country littered with overvalued and overleveraged assets. The good news is that, it also means that money that has been raised and stockpiled for to pick through such properties still have opportunities to uncover prized nuggets. At the end of February, CoStar Group’s database…

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Regulators Reassure Lawmakers That Banks’ CRE Distress Has Not Hit a Tipping Point

March 3, 2011

With numbers like $185.5 billion of distressed CRE bank assets on the books at the end of 2010 and another $62 billion in delinquent CMBS loans, the Congressional Oversight Panel in Washington, DC, recently called banking officials to testify on The Current State of Commercial Real Estate Finance and Its Relationship to the Overall Stability of the Financial System. And officials were circumspect in their outlooks. Yes, the rate of deterioration…

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Veteran Investors Form State of TX Real Estate Fund

February 15, 2011

Veteran commercial real estate investors Mark Jordan and Kevin White formed the State of Texas Real Estate Fund LP. Their goal is to raise $150 million to acquire distressed office, industrial and raw land in Austin, Dallas, Houston and San Antonio. Jordan and White will serve as managing directors of the Dallas-based fund. The senior executives said they chose to focus on the Lone Star State because the local economy is growing faster than for…

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Hilco Targets Distressed Loans, REO Assets

February 11, 2011

Hilco Real Estate launched a new operating group to service lenders and investors on deeply distressed real estate loans and REO assets and hired Jerry T. Hudspeth (pictured) as its chief executive officer. The Hilco Real Estate Managed Asset Resolutions unit will initial be based in Chicago, Boston and Atlanta, and handle every property category, from raw land parcels to large commercial and residential developments. Hudspeth is a 25-year…

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Hilco Targets Distressed Loans, REO Assets

February 11, 2011

Hilco Real Estate launched a new operating group to service lenders and investors on deeply distressed real estate loans and REO assets and hired Jerry T. Hudspeth (pictured) as its chief executive officer. The Hilco Real Estate Managed Asset Resolutions unit will initial be based in Chicago, Boston and Atlanta, and handle every property category, from raw land parcels to large commercial and residential developments. Hudspeth is a 25-year…

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Dealing with Distress Head On, Lennar Turning a Healthy Profit

February 3, 2011

With the housing markets in distress, Miami-based homebuilder Lennar Corp. has proved correct the old adage that when life deals you a bunch of lemons, make lemonade. Lennar’s real estate investment management company focused on distressed real estate asset management and workouts, Rialto Capital, contributed $57.3 million in operating earnings to the company last year. That profit came on revenues of $125.3 million interest income on portfolios…

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Dr. Stan Humphries: Underwater Homeowners Unable to Swim to Warmer Waters?

February 2, 2011

Imagine this: You’re a successful professional in a small city, circa 2005. Your job is going well and the housing market is going gangbusters, so you dive in and buy a great starter home. You put down 10 percent (a lot for the times) and take out a 30-year fixed loan with monthly payments you can easily afford. You are responsible. Fast forward a few years, and the Great Recession is underway. Your company is in trouble, and you get laid off. Since you bought near the peak of the market and only put down 10 percent, you owe more on your mortgage than your home is worth. You’re underwater, like more than one in five single-family homeowners with mortgages, according to my real estate research firm Zillow. You’ve got enough in savings to get by for a few months, and you start searching for a job. Your area has been hard-hit by unemployment, so you’re thrilled when you get an offer from across the country. One problem: You’re stuck in your home. Or are you? The idea that negative equity impacts labor mobility is a notion that has likely occurred to anybody who’s thought about the matter for more than a couple minutes. Our acceptance of this notion is aided by a constellation of facts that seems to support it: 1. Long-term unemployment, measured as the percentage of unemployed people who have been out of work for more than 27 weeks, is at its highest level (44.3%) ever seen in the data series stretching back to the late 1940s. An interesting phenomenon considering that while unemployment itself is high (9.4% currently), it has been higher in the past (10.8% in November 1982). 2. Labor mobility is quite low. Only 1.4% of Americans moved between states in the year ending March 2010, the lowest interstate migration rate in the past fifty years. Moreover, interstate migration encountered a sharp decline in 2006, the year in which home values crested and started to fall. 3. The housing recession that began in 2006 and has already led to a decline of more than 26% in the value of homes (assuming they are sold in a non-distressed transaction) has created rates of negative equity that are unprecedented in the post Great Depression era. At the end of the third quarter of 2010, Zillow estimated that 23.2% of single-family homes with a mortgage were in a negative equity position. So, the data appear incontrovertible: high negative equity has led to decreased mobility which, in turn, has led to higher-than-normal long-term unemployment. The icing on the cake? A report in 2008 from the New York Fed confirming this relationship in a direct empirical test. Mobility was almost 50 percent lower for owners with negative equity than owners with positive equity. Slam dunk, right? Revised Data Throws Cold Water on Relocation Theory As with many complex economic problems, jumping to conclusions is not so simple. Late last year, the Minneapolis Fed released a couple papers that threw cold water on the whole argument. First came a paper arguing that migration between states actually didn’t suffer a precipitous decline in 2006. What happened instead is that the Census Bureau, who collects the data to compute the metric, changed their method of accounting for missing data (when respondents can’t or won’t answer a question). Once correcting for the change in methodology, it turns out that interstate migration has been on a slow, steady decline since 1996 and there was no actual blip in 2006. The reasons behind this longer term decline are the focus of active, ongoing research into whether mobility has become less necessary or simply harder and more expensive. Second came the paper taking another look at the New York Fed analysis and showing that the original authors’ treatment of missing data had biased the results. Reproducing the analysis with the change in the treatment of missing data found that homeowners with negative equity are at least as mobile as those with positive equity, and that those with high levels of negative equity are particularly mobile. Theoretically, this latter conclusion makes some sense for an underwater homeowner since the upside of moving (by defaulting and getting into a cheaper housing situation) grows relative to the downside (taking a credit hit because of foreclosure) as the level of negative equity grows. (Interesting side note: a senior economist at the Minneapolis Fed, Sam Schulhofer-Wohl, was author on both papers; Greg Kaplan at the University of Pennsylvania was co-author on the first). In conclusion, negative equity is toxic in a lot of ways. It combines with unemployment to increase the foreclosure rate which, in turn, depresses home values. It also slows the conveyor belt of homeowners selling their current homes and buying up to more expensive ones because they can’t easily sell due to negative equity. But, as markets continue to experience declines in home values towards what Zillow hopes is a bottom later this year, it is at least somewhat comforting that negative equity doesn’t appear to be leading to stasis in our labor market. We’ll take good news wherever we can find it.

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Robert Lenzner: How John Paulson Made $5 Billion Last Year

January 29, 2011

The secret to the spectacular returns Paulson and his employees reported for 2010 is due to their keeping much of their money- $14.9 billion or 42% of the total assets under management($35 billion)- in the funds. That’s called putting your money to work alongside your clients. That $14.9 billion commitment is revealed in Paulson’s yearend letter to investors. Some of Paulson’s personal share must come from the $4 billion he made going short against the subprime mortgage bubble in 2007. The Paulson funds made gross gains in 2010 of $8.4 billion before fees. So, 42% (their share) of the $8.4 billion meant $3.5 billion in gains for Paulson and his employees. Add to that a 2% fee on $35 billion of capital- $700 million- and then the 20% fee on the total profits made adds another $1.7 billion to the pot shared by Paulson and his team. By my figuring then, the total take comes to roughly $6 billion before taxes. Overall, the fund’s strategy made a transition during the year from a short equity bias with a focus on being long distressed securities to a long equity event focus, according to Paulson’s yearend letter. This growing bullishness on the stock market is due to Paulson’s careful tracking of the equity risk premium measured by J.P. Morgan; the difference between the yield on equities and the yield on bonds. Paulson is a buyer of stocks because he sees the equity risk premium in the market as “the highest it has been in over 50 years., indicating to us that equities are due to rise as the current economic environment is by no means the most challenging it has been in 50 years,” he wrote in his yearend letter which was posted Friday on the internet. Last year, for example, Paulson made a 43% return or over $1 billion on Citigroup- buying shares at $3.20 a share and selling them for $4.60 a share later in the year. The Paulson Gold Fund was up over 35% on the year, as positions in Anglo Gold, Osisko and GLD, the giant gold ETF all paid off bigtime. Paulson is optimistic that gold will outperform for the next 5 years and is “the ideal vehicle to hedge against the risk of the U.S. dollar.” The funds held $20 billion in 40 different distressed situations where most of the companies have “repaired their capital structures.” He also sold off positions in major banks like Bank of America, and went long Anadarko, the oil and natural gas producer. Paulson’s hedge fund has piled up gains of 26 billion since inception in 1994- 3rd biggest killing of all hedge funds. Quantum Endowment Fund, begun by George Soros in 1973, has racked up $32 billion in net gains. Renaissance Medallion Fund, founded in 1982 by James Simons, has delivered net gains of $28 billion. He expects all his funds “to outperform in 2011.”

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Video: Sternlicht Says Starwood `A Little Nervous’ About Rates

January 28, 2011

Jan. 28 (Bloomberg) — Barry Sternlicht, chief executive officer of Starwood Capital Group LLC, discusses the distressed real-estate market. Sternlicht talks with Erik Schatzker on Bloomberg Television’s “InsideTrack” at the World Economic Forum in Davos, Switzerland. (Source: Bloomberg)

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CoStar’s People of Note (Jan. 16-22)

January 21, 2011

This week’s People of Note includes the following markets: Dallas, Los Angeles, National and New York City. NEW YORK CITY, NATIONAL Grinis To Lead Ernst’s Global RE Investment Fund Services Mark Grinis, head of Ernst & Young’s real estate distressed services group, was named leader of the global team serving real estate investment funds. He replaces Gary Koster who now manages the company’s private equity practice. Grinis, a New York-based…

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Dean Singleton Steps Down As MediaNews President

January 19, 2011

SAN FRANCISCO — MediaNews Group Inc., the owner of the San Jose Mercury News in California, The Denver Post and more than 50 other newspapers, plans to replace William Dean Singleton as its CEO so he can focus on exploring possible combinations with other publishers while his successor tries to make more money on the Internet. The CEO search announced Tuesday is part of a shake-up that includes the departure of Singleton’s top lieutenant, Joseph Lodovic IV, who is retiring as MediaNews’ president immediately. The changes come a year after MediaNews’ parent company, Affiliated Media Inc., filed for bankruptcy protection. A reorganization plan approved 10 months ago wiped out most of the company’s debt in exchange for relinquishing ownership to dozens of lenders led by Bank of America Corp. Singleton, who co-founded and became CEO of MediaNews in 1983, emerged from the reorganization with an 11 percent stake in the company and a keen interest in buying other troubled newspapers, which might create new market opportunities for his stable of dailies. He believes newspapers will be available at steeply discounted prices because publishers’ revenue has plunged in the past four years amid a deep recession and intensifying competition for advertising dollars from the Internet. Those challenges drove more than a dozen other publishers into bankruptcy protection during 2008 and 2009, and several of those are now controlled by lenders and distressed debt specialists that aren’t expected to remain long-term owners. Freedom Communications Inc., one of the publishers now controlled by lenders after getting out of bankruptcy protection, said in November that it would mull offers for its newspapers and television stations. Its newspapers include the Orange County Register in southern California, a market where MediaNews already owns several newspapers, including the Daily News in Los Angeles. Although he hasn’t publicly mentioned any potential targets, Singleton has left little doubt that he intends to be a buyer. “Consolidation will be another key component in the new media model,” he said in an interview with The Associated Press last year. Singleton, 59, also is chairman of The Associated Press, whose revenue has declined the past two years after lowering its fees for newspapers and broadcasters. MediaNews, based in Denver, got into trouble largely because it borrowed heavily to help finance deals before the Internet and the recession combined to devour its advertising revenue, its main moneymaking source. The company’s new chief executive will be expected to be an Internet-savvy leader who can engineer changes that will enable the newspapers to make more money online. “These measures will strengthen the company’s performance in its core markets, and continue the transformation of the business from a print-oriented newspaper company to a locally focused provider of news and information across multiple platforms,” the company said in a statement. Singleton will still be CEO until a replacement is hired, after which he will remain MediaNews’ chairman. He will also remain chairman and publisher of The Denver Post and The Salt Lake Tribune. Gordon Paris, a MediaNews board member, will take over Lodovic’s responsibilities until a replacement is found. The company also is looking for a chief revenue officer, a newly created position. Michael Sileck, another director, will fill that role until the company hires someone on a permanent basis. MediaNews’ board is getting a makeover too, with the addition of three directors to replace departing members: Lodovic; Howell Begle Jr., MediaNews’ general counsel; and Jon Huntsman, founder of chemical manufacturer Huntsman Corp. Two of the new board members have ties to Alden Global Capital, a distressed debt specialist that has been acquiring stakes in newspapers during the downturn. The new directors are venture capitalist Heath Freeman, a managing director for Alden Global; Bruce Schnelwar, another Alden Global managing director who is also the firm’s chief financial officer as well as executive vice president and CFO of Smith Management LLC; and Eric Krauss, who was most recently CFO of Action Sports Inc. ___ Dana Wollman reported from New York.

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In Obama Anti-Foreclosure Program, Thousands Of Homeowners Strung Along For A Year

December 21, 2010

More than 29,000 troubled American homeowners have been stuck in mortgage modification purgatory for at least a year, with no end in sight, under the Obama administration’s anti-foreclosure program, according to a recently released report from a watchdog panel appointed by Congress. These homeowners were supposed to receive lower payments on a trial basis lasting three months and then gain so-called permanent mortgage modifications–lowered payments lasting five years. But more than a year after beginning their trial phase, they have yet to be granted the permanent relief, leaving them unsure about their ability to hang on to their homes. Meanwhile their lenders continue to report them to credit bureaus as delinquent, impairing their ability to borrow in the future. The new data, disclosed last week in a report from the Congressional Oversight Panel, added the latest sign of trouble to an anti-foreclosure program that was once supposed to help 3 to 4 million hang on to their homes. It is now on track to aid less than one-fourth that number. The homeowners stuck waiting for permanent relief now contend with a higher cost of living thanks to lower credit scores and higher mortgage debt. They’re also prevented from moving on as they try to keep a mortgage teetering on the verge of foreclosure. “It’s horrifying, but it’s not surprising,” said Diane E. Thompson, counsel to the National Consumer Law Center. “I hear about this everyday from people. When I go out to do trainings, I have people put their hands up in the room and I try to think of prizes for the person who has the oldest trial mod, and they’re routinely 18 months old.” Twenty-eight homeowners who entered the program in March 2009, or more than a year-and-a-half ago, remain in the trial phase. Some 475 have been in trial limbo for 18 months. More than 29,100 borrowers have been stuck in the trial phase for at least a year, data through October show. “After promises of hope, the fact that so many families remain in financial limbo goes to the heart of our biggest concern: some mortgage servicers on their own simply seem not to be up to the task of effective, widespread mortgage modification,” said Richard H. Neiman, New York’s top bank regulator and a member of the oversight panel. Neiman added that “Treasury has not been able to hold them fully accountable.” While the Treasury Department discloses the number of homeowners who have been in the trial program for at least six months, Treasury has never revealed the number of borrowers who have been in the trial phase for at least a year. Bank of America, the nation’s largest bank by assets, accounted for nearly half of all the aged trials, according to Treasury’s latest publicly-released scorecard. Thompson said the number of homeowners stuck in limbo is likely much higher as mortgage firms self-report their data to Treasury, and are likely to skew the numbers in their favor. The modification initiative, known as HAMP, long ago was dismissed by housing experts as a failure. More homeowners have been bounced from the program than have received permanent relief. The average borrower lucky enough to get into a five-year plan ends up owing more on their mortgage than they did prior to entering the program. Research shows that homeowners in this state, known as being underwater, are less likely to move–such as in pursuit of a job–and more likely to default. And more than a third of those in so-called permanent mortgages spend more than 80 percent of their monthly income servicing debt, raising questions about the long-term sustainability of the modifications. The oversight panel said HAMP would prevent less than 800,000 foreclosure, at a cost of about $4 billion. The administration originally allocated $50 billion in bailout funds to help homeowners. Last week, the Treasury Department official overseeing its bailout programs admitted for the first time that the mortgage modification initiative will not meet the goal laid out by President Obama when he announced the program in February 2009. Then, Obama said it would enable “as many as 3 to 4 million homeowners to modify the terms of their mortgages to avoid foreclosure.” “I think it’s apparent from our numbers that we will not have 3 to 4 million” permanent modifications, said Tim Massad, Treasury’s acting assistant secretary for financial stability. More than 2.8 homes received foreclosure notices last year, according to real estate data provider RealtyTrac. The Federal Reserve expects 7.4 million homes to enter foreclosure this year through 2012. It recently revised its projection up from 6.5 million as the crisis has worsened. Treasury officials say the program’s shortcomings are due to mortgage firms’ inability to handle the huge influx of distressed borrowers that flooded the system when the housing market soured; the changing nature of the housing crisis, which was once dominated by subprime mortgages and now remains depressed due to a lingering high unemployment rate; and borrowers’ lack of maintaining proper documentation describing their circumstances, like monthly income. To deal with the borrower issue, Treasury redesigned the program to require documentation in order to enter the trial phase, rather than the previous practice of rushing to get homeowners enrolled in the program and asking for their paperwork later. Treasury maintains that this has led to better results. But according to the oversight panel’s data, nearly 30 percent of borrowers who made their first trial payment in June–and made their payments on time in July, August and September–remain in the trial phase. A little more than half actually converted into a permanent modification, making it the only month dating to March 2009 in which the conversion rate eclipsed 50 percent, data show. Andrea Risotto, a Treasury Department spokeswoman, cautioned that there is some lag between when a decision on a permanent modification is reached and when that is entered into the system. Still, Treasury officials argue that even with homeowners remaining in limbo, they’re still benefitting from the program as they’re able to continue living in their homes, at a reduced rate, and without cost to taxpayers (the initiative only pays for permanent modifications). “The trial period provides immediate relief to struggling homeowners at no expense to taxpayers,” Risotto wrote in an e-mail. She added that Treasury data show that a majority of borrowers rejected during the trial phase end up in alternative foreclosure-prevention programs. Thompson, who works with homeowners and their advocates, completely disagreed. “The big overarching thing is, nobody wants to be in a trial mod. Everyone wants resolution in their lives,” she said. “Everyone in foreclosure is desperate to get out of foreclosure. It’s incredibly stressful, it’s humiliating, and shameful. Nobody feels good about it. People want it done, they want it over with, they want to be able to move on.” Also, even though the homeowners are making their payments, they’re still being reported as delinquent to the major credit reporting bureaus, Thompson said. “So think about what that does when they go to apply for a car, or what it does to their credit card rates, or if they’re applying for a job, or want to move, or even want to rent a place,” she said. “It affects their cost of living and their ability to manage their life in all sorts of ways. Credit is a huge issue.” Finally, when homeowners are in the trial phase their mortgage company tacks on to their mortgage principal the difference between their old monthly payment and the reduced amount. The longer the trial, the more gets added. Thompson said that for some of these homeowners, that tacked-on amount is enough to tip the scales against a permanent modification when their mortgage company finally decides to run the formula that determines whether they keep their home, or are forced out. A bigger debt load works against homeowners, she added. “This is not a good deal for homeowners.” ************************* Shahien Nasiripour is a business reporter for The Huffington Post. You can send him an e-mail ; bookmark his page ; subscribe to his RSS feed ; follow him on Twitter ; friend him on Facebook ; become a fan ; and/or get e-mail alerts when he reports the latest news. He can be reached at 646-274-2455.

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Arizona Sues Bank Of America, Alleges Loan Modification Fraud

December 17, 2010

PHOENIX — Attorneys general in Arizona and Nevada filed civil lawsuits Friday against Bank of America Corp., alleging that the lender is misleading and deceiving homeowners who have tried to modify mortgages in two of the nation’s most foreclosure-damaged states. Bank of America violated Arizona’s consumer fraud law by misleading consumers who tried to reduce their monthly payments to keep their homes, state Attorney General Terry Goddard said. The bank also violated the terms of a 2009 consent agreement requiring its Countrywide mortgage subsidiary to implement a loan modification program, the Arizona lawsuit alleges. Hundreds of homeowners kept making their mortgage payments because Bank of America repeatedly assured them that their loans were being modified, Goddard said. Instead, many lost their homes anyway. “Those people could have used that money for something else,” Goddard told The Associated Press. “They were deceived into continuing to make mortgage payments when they had no hope of saving their homes.” Nevada Attorney General Catherine Cortez Masto told the AP that the Silver State’s lawsuit was a last resort to try to get the bank to change its ways. It was filed after several discussions with bank managers led to assurances but little more. “Clearly there is a disconnect between what Bank of America tells me at the management level and what’s happening on the front line,” Masto said. Masto said separate lawsuits show the bank’s problems with consumers are widespread. “The only thing that I’m asking is that (Bank of America) give them a reasonable response in a timely manner,” she said. “It is, in my perspective, a callous disregard for what we are telling them.” Nevada and Arizona are among the states hardest hit by homeowners who have defaulted on mortgages in the last few years as adjustable payments soared, people lost their jobs, and home values collapsed. One out of every 99 households in Nevada received a foreclosure notice last month, according to RealtyTrac Inc., and Arizona’s rate wasn’t far behind. The Arizona attorney general’s office was deluged with consumer complaints and launched an investigation more than a year ago, Goddard said. Settlement talks with Bank of America began in April but ultimately collapsed Thursday. Goddard, a Democrat, is leaving office in January after an unsuccessful run for governor and will be replaced by Republican Tom Horne. A Bank of America spokesman criticized Goddard for filing the lawsuit in his last days in office while multistate negotiations on foreclosures were under way. Dan Frahm, a senior vice president for the Charlotte, N.C.-based bank, said it shares the attorneys general’s goal of helping homeowners. “We are disappointed that the suits were filed at this time, however, because we and other major servicers are currently engaged in multistate discussions led by Attorney General (Tom) Miller in Iowa to try to address foreclosure related issues more comprehensively,” Frahm said in an e-mailed statement. “Bank of America has been a cooperative partner with the attorneys general, has worked with state leaders to evolve programs and resources to broaden assistance to distressed customers, and we are already under way with further improvements to our processes and programs for Bank of America customers,” Frahm said. Bank of America has completed nearly 750,000 loan modifications and has foreclosed on fewer than half that many homes, Frahm said. Many of the foreclosures did not qualify for loan modifications. The Arizona lawsuit, filed in Maricopa County Superior Court, alleges that the bank has repeatedly violated an October 2008 consent agreement between Bank of America and 11 states requiring the bank’s Countrywide subsidiary to modify hundreds of thousands of loans. Arizona’s agreement was finalized in 2009. Countrywide was accused of engaging in widespread deceptive practices with its customers, and Bank of America agreed to reduce principal or interest payments by up to $8.4 billion on those loans. But Bank of America, which had acquired Countrywide in July 2008, failed to make timely decisions on modification requests and went ahead with foreclosures, Goddard said. Bank of America is the No. 1 loan servicer in both Arizona and Nevada. It’s also tops in complaints to Arizona regulators, and not just because of its size, Goddard said. “They’re head and shoulders above any other financial institution,” he said. “Nobody’s got a great record, but Bank of America’s is worse than any of them. Friday’s lawsuit in Arizona asks for contempt citations against the bank for violating the consent agreement. It also seeks restitution for consumers, civil penalties, legal fees, plus $25,000 for each consent agreement violation and up to $10,000 for each violation of the Arizona Consumer Fraud Act. Nevada’s complaint accuses the bank of operating its loan modification program in violation of the Nevada Deceptive Trade Practices Act. It seeks civil penalties and restitution along with other fees. Bank of America shares rose 5 cents to $12.57 Friday. ___ Associated Press writer Oskar Garcia in Las Vegas contributed to this report.

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FREE FALLIN’: Home Prices Are Plunging — And The Recovery Is At Risk

December 10, 2010

Plunging home prices hammered household finances in the third quarter, eroding homeowners’ wealth and making them more vulnerable to foreclosure. As prices are expected to continue falling, the economic recovery could face a major stall. Millions of homeowners saw their most valuable asset decay between July and September, according to recently released data from the Federal Reserve, as they lost a portion of the stake they can claim in their homes. A series of new reports reflects home prices are continuing to decline, increasing the pressure on America’s tepid housing market. Until the market finds a bottom, the foreclosure epidemic will feed upon itself, analysts say, as foreclosed properties drive home values down. With the unemployment rate hovering near 10 percent, and with companies showing historic reluctance to hire, the housing drag poses a significant impediment to an economic recovery. By the end of this year home prices will have dropped $1.7 trillion, or about 7 percent, according to Zillow.com, a real estate data provider. This decline has accelerated: Since August, home prices have fallen 7.9 percent, data from Clear Capital, a Truckee, Calif.-based real estate research firm, show. It is the steepest decline in home values since the height of the financial crisis in 2008, said Clear Capital senior statistician Alex Villacorta. Worse, home prices are forecast to drop an additional 10 percent next year, according to a recent report from Fitch Ratings, a major credit ratings agency. Americans’ grasp on their homes is weakening. Homeowners’ equity, or the stake they can claim in their homes, dropped two percentage points to 38.8 percent in the third quarter, according to the new Fed data. The drop ended five quarters of steady growth since the figure hit its all-time low of 36.3 percent in the first quarter of 2009. “There continues, of course, to be a backlog of foreclosed properties, or properties on their way to foreclosure,” said Dean Baker, co-director of the Center for Economic and Policy Research, a Washington research group. “We’re not about to see the end of foreclosures anytime soon.” The major problem, at this point, is the glut (and future glut) of distressed houses that haven’t yet hit the market. When lenders repossess properties and put them up for sale, the influx of inventory on the market tends to drive prices down further, which in turn makes other properties more vulnerable to foreclosure. With repossessed or soon-to-be repossessed properties waiting in the wings, this “shadow inventory” will continue to depress the recovery, economists and housing experts say. As home prices continue to fall, more homeowners will see the value of their home drop below the value of their mortgage, plunging them “underwater.” Making matters worse, the Federal government’s response to this crisis is widely considered to be a failure. The Obama administration’s program, designed to help struggling homeowners, has, in some cases, done the exact opposite. After 1.5 million homeowners were invited to try the program last year, 40 percent were later kicked out. Complicated rules requiring a homeowner to be in default before getting a mortgage modification can actually cause a property to enter foreclosure . “There’s just this dogmatic resistance to think seriously about it, on the part of the government,” Baker said of the foreclosure prevention program. “It’s crazy. Is the point to give money to banks, or are you trying to help homeowners?” The pain isn’t spread evenly. Some areas of the nation, such as California and Florida, have been hit especially hard. “Probably four or five states will account for more than half of the decline,” said Stuart Hoffman, chief economist at PNC Financial Services Group. “A lot of that pain or loss will be concentrated in the same states where we’ve seen the decline up till now.” Leading economists, including former Federal Reserve Chairman Alan Greenspan, say a so-called “double-dip” recession — a situation in which the economy shrinks again before resuming growth — is possible if home prices significantly slide. As the nation grapples with an unemployment rate of 9.8 percent, some homeowners simply don’t have the means to pay down their debt. Even among Americans with good credit scores going into the financial crisis, one in seven reported that they weren’t able to pay their bills, often because of a job loss. “It takes two things to cause a foreclosure or a default,” said Celia Chen, an economist at Moody’s Analytics. “It’s both the loss of a job, or not enough income, and being underwater.” The bleak jobs situation isn’t helped by cash-hoarding companies. The Federal Reserve reported that corporations increased their cash holdings 7.3 percent last quarter compared to the previous three-month period, setting a new record with $1.9 trillion in liquid assets. Their caution, experts say, is reflected in the lack of hiring: Businesses hired 50,000 workers last month, the slowest pace since June, according to Labor Department data. “They realize things could go bad relatively quickly, so they feel they have to protect themselves,” said Gregory Daco, U.S. senior economist at IHS Global Insight, an economics forecasting firm. “That’s in pair with not hiring.” Relative to their short-term liabilities, U.S. corporations haven’t been this flush since 1956. By that same measure, their balance sheets are twice as strong as they were just nine years ago. While families struggle nationwide, corporations and large banks appear to be in full-fledged recovery. Last quarter, corporate profits reached an all-time high of $1.66 trillion on an annual basis, according to the Commerce Department. Low bond yields, fat profits and flush corporate balance sheets have helped drive up the stock market, making household balance sheets appear to be on the mend. Despite the tanking housing market, household net worth rose 2.2 percent last quarter thanks to the rising value of stock portfolios. The Dow Jones Industrial Average increased 9.3 percent during that time. The Dow “is right around where it was just before the big crash in September of ’08,” said Edward Friedman, an economist at Moody’s Analytics. “Housing prices haven’t really done anything, and those are the two major contributors to household wealth.” This improvement has made Daco, of IHS, optimistic about the state of the economy. Although he acknowledged that “the housing sector is still in a relatively dire situation,” he said “the stock market gains are reflecting a general improvement in the U.S. economy.” Daco predicted a sustainable, but uneven, recovery. Corporations will likely continue to hoard cash and home prices will continue to slide, but not enough to induce another recession, he said. “I don’t think we can talk of a major risk of back-to-back recessions,” he said. “I don’t see that coming any time soon, given the sort of momentum we’ve been building up.”

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America’s Next Economic Crisis

December 5, 2010

Some of the same people who warned of the looming subprime crisis two years ago are ringing alarm bells again. Their message: Not just small towns or dying Rust Belt cities, but also large states like Illinois and California are increasingly at risk. Municipal bankruptcies or defaults have been extremely rare — no state has defaulted since the Great Depression, and only a handful of cities have declared bankruptcy or are considering doing so. But the finances of some state and local governments are so distressed that some analysts say they are reminded of the run-up to the subprime mortgage meltdown or of the debt crisis hitting nations in Europe.

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Obama Administration Will Spend Just $12 Billion Of The $50 Billion Promised To Help Homeowners Avoid Foreclosure, CBO Says

November 30, 2010

The Obama administration will spend less than a quarter of the $50 billion it promised to help homeowners facing foreclosure, the nonpartisan Congressional Budget Office said in a report Monday. The CBO projection raises fresh questions about the success of the administration’s foreclosure-prevention efforts and its commitment to helping homeowners, even as unemployment hovers near 10 percent. Corporations and large banks appear to be in full-fledged recovery — last quarter, corporate profits reached an all-time high of $1.66 trillion on an annual basis — but households and small businesses seem to have been left out. Washington policymakers talk constantly about helping “Main Street” recover from the steepest downturn since the Great Depression. Spending less than a quarter of the money promised to help residents of “Main Street” keep their homes may not seem in line with that goal. President Barack Obama and his top aides, including Treasury Secretary Timothy Geithner, have made numerous pledges to the ever-increasing number of homeowners faced with foreclosure, declines in home value and reductions in equity. The administration’s programs, announced by Obama in a Mesa, Ariz. high school just four weeks after he took office, originally aimed to “enable as many as 3 to 4 million homeowners to modify the terms of their mortgages to avoid foreclosure.” Using $50 billion from the Troubled Asset Relief Program, the bailout fund also known as TARP, the Obama Treasury Department would pay banks, investors and homeowners for every home loan modification that saved a borrower from foreclosure. To say the program has made a meaningful impact in ameliorating the housing crisis would be an overstatement. Through October, about 483,000 distressed homeowners were making reduced monthly payments thanks to the administration’s plan — barely 16 percent of Obama’s most conservative estimate. More than 755,000 borrowers have been tossed, due either to failure to keep up with the reduced payments, issues with documentation, such as proof of income, or bank blunders. The Treasury Department, which is overseeing the program, has not punished a single mortgage company for failing to comply with its directives, despite anecdotal evidence that homeowners are routinely misled or taken advantage of by their mortgage servicers. Treasury has spent just $710 million of that $50 billion through the end of last month. Meanwhile, home prices, which had stabilized, have begun to fall. The Federal Housing Finance Agency, a government watchdog, said last week that house prices have declined 3.2 percent nationwide during the past year. Moody’s Investors Service forecasts home prices to fall an additional 5 percent from their current values. FHFA predicts that home values won’t reach their June 2010 level until December 2013. The Federal Reserve expects 6.5 million home foreclosure filings this year through 2012, Fed Governor Elizabeth Duke said Nov. 18 in testimony to the House Financial Services Committee. Nearly one-quarter of homeowners with a mortgage owe more on that debt than their home is worth, putting them “underwater,” according to CoreLogic, a Santa Ana, Calif.-based data provider. The White House’s programs, while not meant to solve all of the nation’s housing woes, were supposed to make things better. Strapped homeowners would get a fresh shot at keeping their homes, the theory went, while banks and investors would face less losses from a reworked mortgage than a failed one. In turn, foreclosures would wane, putting fewer distressed homes on the market. Home prices would eventually rebound. That’s not happening. Instead, “the expected participation in the Treasury’s mortgage programs declined,” CBO wrote in its report. In March, when the budget office predicted that the administration would spend just $22 billion of the $50 billion it had allocated, or $10 billion more than it’s now predicting, it wrote that the difference stemmed “primarily from disparate outlooks on the number of eligible households and the participation rate among those households.” On Monday, CBO noted that it further “reduced its estimate of how many homeowners will receive aid under the Treasury’s mortgage initiatives. “Accordingly, CBO reduced the total expected expenditure of such programs from $22 billion to $12 billion,” it wrote. The White House’s Office of Management and Budget estimates that Treasury will spend $46 billion of TARP funds on its anti-foreclosure efforts. Last month, former Sen. Ted Kaufman, the head of the Congressional Oversight Panel — another bailout watchdog — said of Obama’s initial promise that “[a]t the time, our economy was on track to experience more than eight million foreclosures, so the goal was always modest compared to the scale of the problem. “Certainly it was modest compared to the boldness shown in rescuing AIG, Fannie Mae, Freddie Mac, Bank of America, Citigroup, and the auto companies,” added Kaufman, a Delaware Democrat. “Yet now, two years later, we can see that even this modest goal will not be met.” In its most recent quarterly report to Congress, the Office of the Special Inspector General for the Troubled Asset Relief Program wrote that “the most specific of TARP’s Main Street goals, ‘preserving homeownership,’ has so far fallen woefully short.” SIGTARP’s chief, Neil M. Barofsky, has been especially critical of the administration’s approach to helping homeowners. The bright spot in the budget office’s report was its forecast that TARP would cost the federal government just $25 billion. “Clearly, it was not apparent when the TARP was created two years ago that the cost would turn out to be this low,” the CBO report’s authors wrote. “While we are pleased that CBO recognizes that the overall costs of TARP are likely to be less than 5 percent of the original $700B authorized, we are working to ensure that our efforts to prevent foreclosures is as robust as possible,” Treasury spokesman Mark Paustenbach wrote in an e-mailed statement. The law authorizing the bailout gave the White House $700 billion to stabilize the financial system in a manner that “protects home values,” “preserves homeownership,” and “promotes jobs and economic growth,” among other responsibilities. Some may argue that the stabilization of Wall Street will be its sole accomplishment. ************************* Shahien Nasiripour is the business reporter for The Huffington Post. You can send him an e-mail ; bookmark his page ; subscribe to his RSS feed ; follow him on Twitter ; friend him on Facebook ; become a fan ; and/or get e-mail alerts when he reports the latest news. He can be reached at 646-274-2455.

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FCIC Delays Report Despite Republican Opposition, Citing ‘Very Powerful Interests’ Seeking To Undermine Investigations

November 18, 2010

The bipartisan panel created to investigate the roots of the financial crisis voted Wednesday to delay the Dec. 15 publication of their report despite Republican opposition, foreshadowing disagreements that are sure to arise when the commission attempts to reach a consensus on the causes of the worst financial crisis since the Great Depression. The Financial Crisis Inquiry Commission’s 6-to-3 vote came after the panel’s four Republicans argued privately against the decision to ignore the statutory deadline set by Congress. One of the Republicans, former Congressional Budget Office Director Douglas Holtz-Eakin, was unable to participate in the vote, though he made his dissent known. The report will now be released in January. The move comes on the heels of revelations that the nation’s biggest mortgage companies employed possibly-fraudulent tactics in trying to foreclose on distressed homeowners. The recent disclosures by the likes of Bank of America, JPMorgan Chase and Ally Financial that they used flawed documentation practices sparked inquiries by all 50 state attorneys general, as well as federal prosecutors and federal regulators, among others. Those investigations are ongoing. The crisis commission is also looking into the matter, said Phil Angelides, the panel’s Democratic chairman. The Republicans on the panel are resisting further inquiries, according to people familiar with the matter. Angelides said in an interview that “there are very powerful interests” seeking to undermine the panel’s investigation. “People who have trillions of dollars at stake who have been watching our efforts closely,” Angelides said. “There have been efforts throughout the year to undermine me and my fellow commissioners.” Among other things, Angelides’ panel is probing the documentation practices that federal watchdogs say may be emblematic of the entire mortgage securitization chain, in which lenders may have used bogus documents when originating mortgages and passed them through to other entities before they were sold to investors, ignoring basic due diligence along the way. The discovery of the use of “robo-signers” — employees whose sole job was to rubber-stamp documents without actually reading them or verifying their contents — “may have concealed much deeper problems in the mortgage market,” the Congressional Oversight Panel reported Tuesday. Large lenders and Wall Street banks may be on the hook for hundreds of billions of dollars in unexpected losses, threatening to undermine “the very financial stability that the Troubled Asset Relief Program was designed to protect,” the COP report noted. The information the crisis commission has gathered from its numerous public hearings has added fuel to that fire. During an April hearing, the panel heard from Richard Bowen, former chief underwriter for Citigroup’s consumer-lending unit, who said he discovered in mid-2006 that more than 60 percent of mortgages the bank bought from other firms and sold to investors were “defective.” Investors were not informed, however. In September, the former president of the nation’s leading home-loan due-diligence firm testified that as many as 28 percent of mortgages given to borrowers with poor credit that the firm examined for Wall Street banks failed to meet basic underwriting standards, and that nearly half of them were likely sold to investors anyway. Keith Johnson, formerly of Clayton Holdings, said he was unaware of any disclosure to unwitting investors by the banks. Together, the testimony and accompanying data could bolster pension funds and other investors in their pursuit to force Wall Street banks to buy back the bogus mortgages they peddled. Investors are trying to use the rights prescribed in the agreements from their initial purchases of the mortgage-linked securities. Analysts from Compass Point Research and Trading LLC pegged potential losses for 11 global banks to reach $179.2 billion, the Washington-based firm said in an Aug. 17 report. The crisis panel, though, was expected to be wrapping up its report on the crisis. The law that created the commission says: “On December 15, 2010, the commission shall submit to the President and to the Congress a report containing the findings and conclusions of the commission on the causes of the current financial and economic crisis in the United States.” In a statement, the four Republicans on the panel — Holtz-Eakin, Vice Chairman Bill Thomas, Keith Hennessey and Peter Wallison — said that the commission is “statutorily required to deliver the report on December 15.” They added that the panel “has had over a year to complete the report” and that the delay was due to a need to “accommodate the publication of a book-length document.” The FCIC hopes to publish a book on its findings, similar to the national best-seller that came from the work of the 9/11 Commission. The crisis panel recently switched publishers. The law allows the panel an additional 60 days “for the purpose of concluding the activities of the commission … and disseminating the final report.” It’s under that additional 60-day authority that Angelides and his fellow Democrats are using to justify their delay by up to six weeks. The panel’s authority formally ends Feb. 13. To date, the commission has interviewed more than 700 people, examined hundreds of thousands of documents and held 19 days of public hearings, Angelides wrote in a Wednesday letter to President Barack Obama. In an interview, Angelides said his team of investigators continue to pursue leads in their “ongoing investigation.” He added that they’re also interviewing new witnesses, in addition to circling back to old ones, indicating that the panel continues to push its investigation further. Congress tasked the panel to deliver its findings on 22 distinct areas, ranging from monetary policy to accounting rules and international capital flows. They also include the role of “fraud and abuse in the financial sector, including fraud and abuse towards consumers in the mortgage sector”; “lending practices and securitization”; and “the quality of due diligence undertaken by financial institutions.” All three of those areas would seem to include the current mortgage and foreclosure documentation issues roiling big banks and the financial sector. However, there may be complications in trying to advance its investigation. Because the law says that the commission’s findings must be sent to the President by Dec. 15, there are open questions regarding the validity of further investigative actions beyond that date, including issuing subpoenas, people familiar with the crisis panel’s efforts said. For example, a firm may have grounds to resist the subpoena, these people said. Hennessey wrote that a vote to delay the report “would violate the law, or at a minimum would be inconsistent with the law,” according to a post on his blog. “The FCIC is a creation of a law, and we must be governed by that law whether we commissioners like it or not,” he wrote. The crisis panel isn’t the first to unilaterally delay the release of its congressionally-mandated report. The Commission on the Prevention of Weapons of Mass Destruction Proliferation and Terrorism blew past its deadline, as did the National Bipartisan Commission on the Future of Medicare and the Commission on Affordable Housing and Health Care Facility Needs in the 21st Century. Those panels, however, didn’t have subpoena authority. And their reports were largely advisory. The FCIC can make criminal referrals to the Department of Justice. Like the FCIC, the 9/11 Commission also had substantial powers, and it, too, extended its own deadline. However, the 9/11 panel got its extension from an act of Congress. Angelides said the extra time will be critical for the panel’s investigation and subsequent report. In a statement, the spokesman for Senate Banking Committee Chairman Christopher Dodd said the Connecticut Democrat supports the panel’s investigation, and was not opposed to the report’s delay. Dodd indicated that a “brief delay to allow the commission to finalize and prepare a more thorough report was not unreasonable,” spokesman Sean Oblack wrote in an email.

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FCIC Delays Report Despite Republican Opposition, Citing ‘Very Powerful Interests’ Seeking To Undermine Investigations

November 18, 2010

The bipartisan panel created to investigate the roots of the financial crisis voted Wednesday to delay the Dec. 15 publication of their report despite Republican opposition, foreshadowing disagreements that are sure to arise when the commission attempts to reach a consensus on the causes of the worst financial crisis since the Great Depression. The Financial Crisis Inquiry Commission’s 6-to-3 vote came after the panel’s four Republicans argued privately against the decision to ignore the statutory deadline set by Congress. One of the Republicans, former Congressional Budget Office Director Douglas Holtz-Eakin, was unable to participate in the vote, though he made his dissent known. The report will now be released in January. The move comes on the heels of revelations that the nation’s biggest mortgage companies employed possibly-fraudulent tactics in trying to foreclose on distressed homeowners. The recent disclosures by the likes of Bank of America, JPMorgan Chase and Ally Financial that they used flawed documentation practices sparked inquiries by all 50 state attorneys general, as well as federal prosecutors and federal regulators, among others. Those investigations are ongoing. The crisis commission is also looking into the matter, said Phil Angelides, the panel’s Democratic chairman. The Republicans on the panel are resisting further inquiries, according to people familiar with the matter. Angelides said in an interview that “there are very powerful interests” seeking to undermine the panel’s investigation. “People who have trillions of dollars at stake who have been watching our efforts closely,” Angelides said. “There have been efforts throughout the year to undermine me and my fellow commissioners.” Among other things, Angelides’ panel is probing the documentation practices that federal watchdogs say may be emblematic of the entire mortgage securitization chain, in which lenders may have used bogus documents when originating mortgages and passed them through to other entities before they were sold to investors, ignoring basic due diligence along the way. The discovery of the use of “robo-signers” — employees whose sole job was to rubber-stamp documents without actually reading them or verifying their contents — “may have concealed much deeper problems in the mortgage market,” the Congressional Oversight Panel reported Tuesday. Large lenders and Wall Street banks may be on the hook for hundreds of billions of dollars in unexpected losses, threatening to undermine “the very financial stability that the Troubled Asset Relief Program was designed to protect,” the COP report noted. The information the crisis commission has gathered from its numerous public hearings has added fuel to that fire. During an April hearing, the panel heard from Richard Bowen, former chief underwriter for Citigroup’s consumer-lending unit, who said he discovered in mid-2006 that more than 60 percent of mortgages the bank bought from other firms and sold to investors were “defective.” Investors were not informed, however. In September, the former president of the nation’s leading home-loan due-diligence firm testified that as many as 28 percent of mortgages given to borrowers with poor credit that the firm examined for Wall Street banks failed to meet basic underwriting standards, and that nearly half of them were likely sold to investors anyway. Keith Johnson, formerly of Clayton Holdings, said he was unaware of any disclosure to unwitting investors by the banks. Together, the testimony and accompanying data could bolster pension funds and other investors in their pursuit to force Wall Street banks to buy back the bogus mortgages they peddled. Investors are trying to use the rights prescribed in the agreements from their initial purchases of the mortgage-linked securities. Analysts from Compass Point Research and Trading LLC pegged potential losses for 11 global banks to reach $179.2 billion, the Washington-based firm said in an Aug. 17 report. The crisis panel, though, was expected to be wrapping up its report on the crisis. The law that created the commission says: “On December 15, 2010, the commission shall submit to the President and to the Congress a report containing the findings and conclusions of the commission on the causes of the current financial and economic crisis in the United States.” In a statement, the four Republicans on the panel — Holtz-Eakin, Vice Chairman Bill Thomas, Keith Hennessey and Peter Wallison — said that the commission is “statutorily required to deliver the report on December 15.” They added that the panel “has had over a year to complete the report” and that the delay was due to a need to “accommodate the publication of a book-length document.” The FCIC hopes to publish a book on its findings, similar to the national best-seller that came from the work of the 9/11 Commission. The crisis panel recently switched publishers. The law allows the panel an additional 60 days “for the purpose of concluding the activities of the commission … and disseminating the final report.” It’s under that additional 60-day authority that Angelides and his fellow Democrats are using to justify their delay by up to six weeks. The panel’s authority formally ends Feb. 13. To date, the commission has interviewed more than 700 people, examined hundreds of thousands of documents and held 19 days of public hearings, Angelides wrote in a Wednesday letter to President Barack Obama. In an interview, Angelides said his team of investigators continue to pursue leads in their “ongoing investigation.” He added that they’re also interviewing new witnesses, in addition to circling back to old ones, indicating that the panel continues to push its investigation further. Congress tasked the panel to deliver its findings on 22 distinct areas, ranging from monetary policy to accounting rules and international capital flows. They also include the role of “fraud and abuse in the financial sector, including fraud and abuse towards consumers in the mortgage sector”; “lending practices and securitization”; and “the quality of due diligence undertaken by financial institutions.” All three of those areas would seem to include the current mortgage and foreclosure documentation issues roiling big banks and the financial sector. However, there may be complications in trying to advance its investigation. Because the law says that the commission’s findings must be sent to the President by Dec. 15, there are open questions regarding the validity of further investigative actions beyond that date, including issuing subpoenas, people familiar with the crisis panel’s efforts said. For example, a firm may have grounds to resist the subpoena, these people said. Hennessey wrote that a vote to delay the report “would violate the law, or at a minimum would be inconsistent with the law,” according to a post on his blog. “The FCIC is a creation of a law, and we must be governed by that law whether we commissioners like it or not,” he wrote. The crisis panel isn’t the first to unilaterally delay the release of its congressionally-mandated report. The Commission on the Prevention of Weapons of Mass Destruction Proliferation and Terrorism blew past its deadline, as did the National Bipartisan Commission on the Future of Medicare and the Commission on Affordable Housing and Health Care Facility Needs in the 21st Century. Those panels, however, didn’t have subpoena authority. And their reports were largely advisory. The FCIC can make criminal referrals to the Department of Justice. Like the FCIC, the 9/11 Commission also had substantial powers, and it, too, extended its own deadline. However, the 9/11 panel got its extension from an act of Congress. Angelides said the extra time will be critical for the panel’s investigation and subsequent report. In a statement, the spokesman for Senate Banking Committee Chairman Christopher Dodd said the Connecticut Democrat supports the panel’s investigation, and was not opposed to the report’s delay. Dodd indicated that a “brief delay to allow the commission to finalize and prepare a more thorough report was not unreasonable,” spokesman Sean Oblack wrote in an email.

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Video: Vertex’s Nusbaum Expects `Value’ in Fancy Food Industry : Video

November 12, 2010

Nov. 11 (Bloomberg) — Larry Nusbaum, managing director at Vertex Capital Management, talks about the private equity market and investment opportunities in “distressed” industries. Nusbaum talks with Carol Massar and Matt Miller on Bloomberg Television’s “Street Smart.” (Source: Bloomberg)

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Foreclosures Pushing Home Prices Down Even Further

October 26, 2010

WASHINGTON — Home prices are falling further, suggesting a bottom hasn’t been reached in many metro areas. Millions of foreclosures are expected to pour onto the market in the coming years. That’s likely to force prices down and hurt even cities that had begun to rebound. Investigations into banks’ foreclosure paperwork could further deter buyers and weigh down prices. The past few months have been the worst time in a decade for the housing market. Few people have bought homes, and among the small pool of buyers, many have purchased foreclosures and other distressed properties. The impact was apparent Tuesday when Standard & Poor’s/Case-Shiller released its latest index for home prices in 20 major U.S metro areas. The average price for all markets fell 0.2 percent in August and 15 cities posted declines. But the foreclosure problem is far from over. A “shadow inventory” of homes on the verge of foreclosure is bound to force prices lower well into next year. About 2 million loans are in foreclosure, and another 2.4 million borrowers have missed at least 90 days of mortgage payments, according to LPS Applied Analytics. “It’s like a never-ending supply” of homes, said Daniel Alpert, managing partner at the New York investment bank Westwood Capital. He expects prices to fall another 10 percent over the next year – and not improve much after that. Most troubled homeowners are concentrated in cities that have already been battered by the housing bust. One in 15 homeowners in Las Vegas received a foreclosure notice in the first half of the year, according to foreclosure listing service RealtyTrac Inc. In the Fort Myers, Fla. metro area, the ratio was one in 20; in the Phoenix metro area it was one in 23. “If you’re going down the hill, you tend to keep going down the hill,” said Mark Fleming, chief economist at real estate data firm CoreLogic. In Las Vegas, prices have fallen 57 percent from the peak four years ago. They are now at the lowest point since spring 2000. In August, they ticked up slightly – 0.1 percent – according to the Case-Shiller report. Investors buying properties to sell or lease have helped to stabilize the nation’s worst housing market. Demand is also coming from retirees, said Paul Bell, a real estate agent with Prudential Americana Group in Las Vegas, who noted that 45 percent of the city’s buyers are paying cash That’s “helping to contribute to a floor” in the city’s home prices, Bell said. Some markets are doing relatively well. Chicago, Washington and New York have been showing consistent price increases since spring, though the pace of those increases faded over the summer. In the nation’s capital, the large number of federal employees and government contract workers have kept the economy strong. New York has seen fewer foreclosures than other cities. California may offer the most complex housing picture. Even though the state’s major cities have started to show weakness, prices are well above the bottom of spring 2009. The San Francisco area’s home prices have surged more than 21 percent since then. Prices in San Diego have risen nearly 14 percent and had increased for 15 consecutive months before falling in August. In Los Angeles they have increased by more than 10 percent in that period. Home prices would have to rise by more than 50 percent in each of the markets to return to their peaks during the housing boom. It’s still unclear how the allegations of lenders using flawed documents to foreclosure on homes will affect housing markets. Bank of America and Ally Financial Inc.’s GMAC Mortgage have started processing foreclosures again, after calling a temporary halt while they reviewed mortgage documents. Some buyers are worried that the sale of a foreclosure could be contested – or even canceled – if the previous owner claims the foreclosure was invalid. In an October survey taken by the National Association of Realtors, about 23 percent of real estate agents said they have a client who is no longer interested in purchasing a foreclosed property due to the foreclosure-document mess.

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Anoop Singh: Investing in a Rebalancing of Growth in Asia

October 25, 2010

Continuing my travels through Asia for the launch of our October 2010 Regional Economic Outlook: Asia and Pacific , I am writing to you today from Singapore. In my last post , I focused on the near-term outlook and challenges for Asia. Today, I turn to the key medium-term challenge–the need to rebalance economies in the region away from heavy reliance on exports by strengthening domestic sources of growth. This is against a backdrop of the need to rebalance global growth that was emphasized over the weekend by the ministers of the Group of Twenty industrialized and emerging market countries. Heavy reliance, arguably over-reliance, on exports is a common challenge across Asia. Yet, the policies to address it will differ among the countries in the region. Much of the public discussion focuses on ways to increase consumption, and this is something the IMF has written about extensively in the past. But the role of investment in rebalancing growth is equally important and something that should not be overlooked. Current gaps in investment Across the region, investment could play a bigger role in driving growth in three respects. Overall investment appears low in some parts, but not all, of Asia. This tends to be more of an issue for the leading economies of the Association of Southeast Asian Nations (ASEAN). Elsewhere in the region, such as the newly industrialized economies (Hong Kong SAR, Korea, Singapore, and Taiwan Province of China) and Japan, aggregate investment is in line with comparable countries outside the region. But, the composition of investment is skewed toward exporters and capital-intensive firms, which crowds out domestically-oriented and labor-intensive enterprises. In addition, rapid growth across the region has stretched existing infrastructure close to the point where it severely constrains activity. Boosting investment What are the main reasons for this situation, and what can be done about it? Two important factors seem to be at play. First, investment in many regional economies has been subdued over the past decade or so. This reflects lower returns, greater uncertainty and mixed perceptions about the ease of doing business particularly since the Asian financial crisis in the late 1990s. However, financial constraints also played a role. In particular, small and medium enterprises, as well as firms operating in the services sector, appear to have limited access to financing, including in Japan and Korea. In these cases, modernizing the ways banks extend credit (including more risk-based financing) or make it easier to restructure the finances of small and medium enterprises, can help reduce the impediments to investing in the services sector. The second important factor concerns shortfalls in infrastructure, which also suppress private investment spending. This is most pronounced in the ASEAN region and low-income economies. With most infrastructure in the region provided by governments, greater private participation through public-private partnerships may help address critical bottlenecks while also reducing pressures on public coffers. Policy actions under way The good news is that several countries are already taking steps in the right direction. Japan and Korea are improving the financial infrastructure for smaller and more service-oriented firms through reforms in collateral laws and creating a market for distressed corporate assets. Indonesia and Malaysia have taken steps to improve the business environment by easing restrictions on foreign investment in the services sector and creating ‘one-stop shops’ for investors to reduce administrative delays. And many countries, including low-income ones, are making greater use of public-private partnerships to promote critical investment in infrastructure. Clearly, it will take time and steadfast implementation of reforms to boost investment and, in turn, rebalance Asia’s growth. But the strength with which shock waves from the financial crisis hit markets across Asia–from India to Japan–also remind us that Asia’s economies will be the primary beneficiaries of strengthening their domestic engines of growth. The time has come to invest in a rebalancing of growth in Asia. From iMFdirect blog

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"Emerging Trends" Survey Finds Investors, CRE Execs Adjusting to New ‘Era of Less’

October 14, 2010

Investors have tamped down their expectations for over-sized returns in 2011, adopting a back-to-basics approach as debt markets continue to thaw and value-add and distressed sales opportunities gradually build momentum next year, according to respondents…

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"Emerging Trends" Survey Finds Investors, CRE Execs Adjusting to New ‘Era of Less’

October 14, 2010

Investors have tamped down their expectations for over-sized returns in 2011, adopting a back-to-basics approach as debt markets continue to thaw and value-add and distressed sales opportunities gradually build momentum next year, according to respondents…

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10,000 Line Up To Save Homes From Foreclosure At Sacramento ‘Save The Dream’

October 9, 2010

An estimated 10,000 people were in line Friday morning when the Cal Expo Pavilion’s doors opened on a five-day event aimed at helping distressed homeowners avoid foreclosure.

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Video: Tennenbaum Says $50 Bln of Distressed Debt Could Default: Video

September 30, 2010

Sept. 30 (Bloomberg) — Michael Tennenbaum, founder of Tennenbaum Capital Partners LLC, discusses the outlook for distressed debt. Tennenbaum says $50 billion of distressed debt could default in the next two years, creating opportunities to take control of companies. (Source: Bloomberg)

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Short Sales Sweep The Nation: Troubled Homeowners Walk Away With Less

September 26, 2010

A new wave of distressed home sales is rippling, more quietly this time, through American cities and suburbs. Its unsettling effects are playing out here in Manassas, along Brewer Creek Place, a modest, horseshoe-shaped street lined with 98 brick townhouses. Several years after the U.S. foreclosure crisis erupted, the U-Hauls are back. The last time, banks seized nearly every fourth house on the street through foreclosure. This time, homeowners are going another route: a short sale.

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August New Home Sales Were The Second-Worst Month On Record

September 24, 2010

WASHINGTON — New homes sold at the second-slowest pace on record in August, signaling that the housing market will remain a drag on the economy. Last month’s new home sales were unchanged from a month earlier at a seasonally adjusted annual sales pace of 288,000, the Commerce Department said Friday. Sales were down by 29 percent from the same month a year earlier. Normally the building industry powers economic recoveries. Each new home built creates, on average, the equivalent of three jobs for a year and generates about $90,000 in taxes, according to the National Association of Home Builders. But housing has been at the center of this downturn and it shows no signs of recovering quickly. The only time new home sales were slower was in May, when the sales pace was 282,000. That’s the worst pace on records dating back to 1963. July’s results had been the worst on record, but were adjusted upward. “This is a pitiful performance but it should not come as a surprise to see sales so weak,” Ian Shepherdson, chief U.S. economist for High Frequency Economics. “We don’t expect to see any meaningful pickup in sales until next year.” High unemployment, tight credit and uncertainty about home prices have kept people from buying new and previously occupied homes. Government tax credits boosted the market earlier in the year, but those expired in April. Sales of previously occupied homes rose 7.6 percent in August from July to a seasonally adjusted annual rate of 4.13 million, the National Association of Realtors said Thursday. That was the second-worst month for that category in more than a decade. July was the worst month in 15 years. The median sales price for a new home in August was $204,700. That was down 1.2 percent from a year earlier and the lowest since December 2003. Gains in Western and Northeastern states canceled out losses in the Midwest and South. Sales grew by more than 54 percent in the West and by 17 percent in the Northeast. They fell 26 percent in the Midwest and 11 percent in the South. Builders are competing with millions of foreclosures and other distressed properties that show no signs of abating. They are unlikely to ramp up construction until those are cleared away and demand for new homes picks up. The number of unsold new homes on the market fell to 206,000, the lowest since August 1968. At the current sales pace, it would take about 8.6 months to exhaust that supply. The industry is suffering the repercussions of a massive building boom, in which many homes were sold to speculators. They then resold the homes, often to borrowers who took out risky loans and then defaulted. Those unsustainable boom times aren’t coming back. Economists at Bank of America-Merrill Lynch predict that spending on building and remodeling homes will decline in the July-September quarter and actually subtract 0.7 percentage points from overall economic activity. Home construction is up 25 percent from the bottom in April 2009, it is still 74 percent below the peak in January 2006. (This version CORRECTS headlines and first paragraph to show pace is second slowest on record, not monthly sales.)

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