by Calculated Risk on 7/28/2008 05:47:00 PM

From Merrill Lynch: Merrill Lynch Announces Substantial Sale of U.S. ABS CDOs, Exposure Reduction of $11.1 Billion

First, here are the write-downs:

As a result of the transactions announced today, the company expects to record a pre-tax write-down in the third quarter of 2008 of approximately $5.7 billion. This write-down is comprised of a $4.4 billion loss associated with the sale of CDOs, a $0.5 billion net loss on the termination of hedges with XL Capital Assurance and an approximately $0.8 billion maximum loss related to the potential settlement of other CDO hedges with certain monoline counterparties.

Here is the info on the CDO sale:

On July 28, 2008, Merrill Lynch agreed to sell $30.6 billion gross notional amount of U.S. super senior ABS CDOs to an affiliate of Lone Star Funds for a purchase price of $6.7 billion. At the end of the second quarter of 2008, these CDOs were carried at $11.1 billion, and in connection with this sale Merrill Lynch will record a write-down of $4.4 billion pre-tax in the third quarter of 2008.

On a pro forma basis, this sale will reduce Merrill Lynch’s aggregate U.S. super senior ABS CDO long exposures from $19.9 billion at June 27, 2008, to $8.8 billion, the majority of which comprises older vintage collateral – 2005 and earlier. The pro forma $8.8 billion super senior long exposure is hedged with an aggregate of $7.2 billion of short exposure, of which $6.0 billion are with highly-rated non-monoline counterparties, of which virtually all have strong collateral servicing agreements, and $1.1 billion are with MBIA. The remaining net exposure will be $1.6 billion. The sale will reduce Merrill Lynch’s risk-weighted assets by approximately $29 billion.

Merrill Lynch will provide financing to the purchaser for approximately 75% of the purchase price. The recourse on this loan will be limited to the assets of the purchaser. The purchaser will not own any assets other than those sold pursuant to this transaction.

There is much more in the press release.

by Calculated Risk on 7/28/2008 02:43:00 PM

From MarketWatch: Four big banks to kick-start covered bond market

Appearing alongside Treasury Secretary Henry Paulson, representatives of the four largest U.S. banks agreed Monday to kick-start a market for covered bonds - an alternative way to provide mortgage loans - in the United States.
...
Under the practice, a bank borrows funds to lend to homeowners and holds the mortgages on its books. It uses the proceeds of the mortgages to repay investors.
...
Covered bonds are considered more secure than mortgage-backed securities (MBSs) because the purchasers of the bonds have a direct claim on the issuer's balance sheet.

I'm not very familiar with covered bonds, but reports suggest they are - or were - widely used in Europe. (italics added)

by Calculated Risk on 7/28/2008 09:39:00 AM

From the DOT: Nearly 10 Billion Fewer Miles Driven in May 2008 than May 2007 Seven-Month Decline in Travel Reflected in Highway Trust Fund

Secretary Peters said that Americans drove 9.6 billion fewer vehicle-miles traveled (VMT) in May 2008 than in May 2007, according to the Federal Highway Administration data. This is the largest drop in VMT for any May ... and is the third-largest monthly drop in the 66 years such data have been recorded. Three of the largest single-month declines - each topping 9 billion miles - have occurred since December.

VMT on all public roads for May 2008 fell 3.7 percent as compared with May 2007 travel, the Secretary added, marking a decline of 29.8 billion miles traveled in the first five months of 2008 than the same period a year earlier. This continues a seven-month trend that amounts to 40.5 billion fewer miles traveled between November 2007 and May 2008 than the same period a year before, she said.

Click on graph for larger image in new window.

This graph shows the the moving 12 month total for vehicle miles driven.

The miles driven (on a rolling 12 month basis) is just starting to decrease - similar to what happened during the oil crisis of the '70s.

And from the NY Times: Fuel Subsidies Overseas Take a Toll on U.S.

The oil company BP, known for thorough statistical analysis of energy markets, estimates that countries with subsidies accounted for 96 percent of the world’s increase in oil use last year — growth that has helped drive prices to record levels.
...
China raised gasoline and diesel prices on June 21, though still keeping them below world levels. World oil prices plunged more than $4 a barrel within minutes on the expectation that Chinese demand would slow.
...
Indonesia spends more on fuel subsidies, $20 billion this year, than any country except China. Some economists estimate that fuel use in Indonesia would fall by as much as a fifth if the government were to eliminate subsidies entirely.
...
Malaysia’s government incited public anger on June 4 when it raised gasoline prices by 40 percent. ... Before adjusting the prices, Malaysia was spending 7.5 percent of its entire economic output on fuel subsidies, a greater share than any other nation. Indonesia follows with 4 percent.

Further reductions in these subsidies would reduce demand, and lower world oil prices.

by Calculated Risk on 7/28/2008 09:33:00 AM

From the USA Today: Record deficit expected in 2009

The White House has increased its estimate for next year's deficit to nearly $490 billion, a record figure ... In February, President Bush predicted the 2009 deficit would be $407 billion.

The budget update shows this year's deficit headed under $400 billion ...

First, this is the Unified Budget deficit. By these projections, the General Fund deficit (the President's responsibility) will be around $600 billion this year, and $700 billion next year.

Second, these projections are probably optimistic.

by Calculated Risk on 7/28/2008 02:05:00 AM

The WSJ has some details from the DOT report due tomorrow: Funds for Highways Plummet As Drivers Cut Gasoline Use

A report to be released Monday by the Transportation Department shows that over the past seven months, Americans have reduced their driving by more than 40 billion miles. Because of high gasoline prices, they drove 3.7% fewer miles in May than they did a year earlier, the report says, more than double the 1.8% drop-off seen in April.

More demand destruction for oil.

by Calculated Risk on 7/27/2008 08:26:00 PM

This week the Census Bureau reported the homeownership and vacancy rates for Q2 2008. Here are a few graphs and some analysis ...

Click on graph for larger image in new window.

Although the homeownership rate increased slightly (just noise), the homeownership rate is now back to the levels of the summer of 2001. Note: graph starts at 60% to better show the change.

The second graph shows the homeowner vacancy rate since 1956. The homeownership vacancy rate decreased slightly to 2.8% (from a record 2.9% in Q1).

A normal rate for recent years appears to be about 1.7%. There is some noise in the series, quarter to quarter, so perhaps the vacancy rate has stabilized in the 2.7% to 2.9% range.

This leaves the homeowner vacancy rate almost 1.1% above normal, and with approximately 75 million homeowner occupied homes; this gives about 825 thousand excess vacant homes.

The rental vacancy rate decreased slightly to 10.0% in Q1 2008, from 10.1% in Q1. The rental vacancy rate had been trending down slightly for almost 3 years (with some noise).

It's hard to define a "normal" rental vacancy rate based on the historical series, but we can probably expect the rate to trend back towards 8%. According to the Census Bureau there are 35.5 million rental units in the U.S. If the rental vacancy rate declined from 10.0% to 8%, there would be 2.0% X 35.5 million units or about 710,000 units absorbed.

This would suggest there are about 710 thousand excess rental units in the U.S.

There are also approximately 200 thousand excess new homes above the normal inventory level (for home builders) - plus some uncounted condos.

If we add this up, 710 thousand excess rental units, 825 thousand excess vacant homes, and 200 thousand excess new home inventory, this gives about 1.75 million excess housing units in the U.S. that need to be absorbed over the next few years. (Note: this data is noisy, so it's hard to compare numbers quarter to quarter, but this is probably a reasonable approximation).

These excess units will keep pressure on housing starts and prices for some time.

by Calculated Risk on 7/27/2008 04:00:00 PM

From the TimesUnion on upstate New York: An ebbing retail tide (hat tip Justin)

Consider, for a moment, some of the national chains that in recent months have closed stores, declared bankruptcy or gone out of business entirely: Linens 'n Things, Steve & Barry's, Sharper Image, Starbucks, CompUSA, The Disney Store, Wilson's Leather, Talbots, Ann Taylor, Bombay Co.
...
"It's not a very happy time to be building a new shopping center, that's for sure," said Jeffrey Pfeil, co-owner of J.W. Pfeil & Co. Inc. in Saratoga Springs, a company with a long history in retail and commercial leasing.

Justin noted that he spoke to Mr. Pfeil at the end of last year, and at that time he was still "quite optimistic on local real estate". Times have definitely changed for CRE -especially for mall owners.

by Anonymous on 7/27/2008 12:21:00 PM

Then I don't want to know what defeat would be. Even I am getting tired of writing about Gretchen Morgenson columns, but this one cries out for demystification. Anyone who wants to claim that any homeowner who stops foreclosure and keeps her home has necessarily "won" anything or received any particular financial benefit needs to read this post. This is a profoundly important issue: the whole "stop foreclosure" movement is based on the assumption that stopping a foreclosure is always and everywhere a "win" for homeowners. Morgenson appears to buy this idea so much that her reporting crosses the line from its typical tendentiousness to outright distortion in order to sustain the myth. I suggest that no actually useful and successful response to the "foreclosure crisis" will ever come about as long as this kind of distortion goes unchallenged.

*************

Here's Morgenson:

MAMIE RUTH PALMER isn’t a celebrity. People magazine doesn’t chronicle her every move. The paparazzi don’t wait for a photo op outside of the modest Atlanta home where she has lived since 1987.

But in some mortgage circles, Ms. Palmer, a 74-year-old former housekeeper, has earned her moment of fame. After enduring six years in foreclosure hell, almost losing her home twice, Ms. Palmer has escaped intact.

Last month she received a settlement from the Bank of New York, the trustee for a vast pool of mortgages that included hers. Under the terms of the deal, the bank reduced Ms. Palmer’s loan balance to $59,000 from about $100,000 and has agreed to accept the proceeds of a reverse mortgage in full satisfaction of her obligation.

The settlement also eliminated about $12,000 in foreclosure fees added to her debt and called for the installation of central air-conditioning in Ms. Palmer’s home.

Roughly $10,000 in legal fees billed over five years by Ms. Palmer’s lawyer, Howard D. Rothbloom, will be covered by payments she has made toward her mortgage while she was battling foreclosure.

“I feel good,” Ms. Palmer said last week. “It’s been a long time coming.” To celebrate, she said, she is going to Florida to fish with her nephew.

Ms. Palmer’s case is hardly unique. It’s just one of a swelling number that revolve around the thorny issue of who owns the note on a home when it’s forced into foreclosure proceedings.

This case is not "about" who owns a note. It just isn't. Certainly, among the tens of thousands of dollars worth of objections and motions made by Palmer's attorneys over the course of six years, there was some question about the standing of the mortgage servicer. It appears that the servicer produced some pretty sloppy paperwork for the court. It appears that the Debtor's attorney also filed some pretty sloppy paperwork with the court, too, which dragged out the challenge to the servicer's standing for months. (If you want to read a first-rate judicial slapdown and you have a PACER account, don't miss Judge Massey's "Order Directing Debtor's Counsel to Withdraw Objection to Claim of HomeEq Servicing Corporation or To Litigate The Objection Properly," In re Palmer, Case No. 02-81333, docketed 3-31-03, US Bankruptcy Court, Northern District of Georgia.)

At the end of it, the mortgage servicer withdrew its proof of claim and the trustee of the security owning this loan (Bank of New York) entered the case directly. I do not see from my review of the documents on PACER that there was ever any question that Bank of New York as trustee for the MBS had standing in bankruptcy or was owed money.

The final complaint that resulted in a settlement of this case alleged that Bank of New York charged inappropriate fees. There was no challenge at all to BNY as the creditor.

At no time, it seems, was there ever any question about the fact that Palmer had a mortgage loan and did not make payments either pre- or post-petition. Documents in this case indicate that the mortgage loan in question was originated in October of 1996, and that Palmer began making late payments by June of 1997. Palmer failed to pay taxes and insurance on the property. She filed prior bankruptcies in 1999, 2000, and 2002, each of which was dismissed. When this $52,000 loan was first originated on what was then a $78,000 property, the monthly payment exclusive of taxes and insurance was $554.97, and it became clear within a year that Palmer could not afford that.

By November of 2005, Palmer owed (according to her servicer) $50,611.70 in principal, $10,104.98 in escrow advances, $19,802.60 in accrued but unpaid interest, and $11,379.90 in legal fees, late charges, etc. During most of this period she does not appear to have made any mortgage payments, or any payments for taxes and insurance.

The final complaint made by Palmer's attorneys alleged that some fees were inappropriate. By this time there was no question that Bank of New York had a proof of claim; the argument was about how much the debtor owed. I have no idea whether the $10,000 Morgenson reports as being the cost of Palmer's own attorney's efforts is "appropriate" or not. It appears that BNY just got seriously tired of all of this and did, indeed, decide to settle. But Morgenson's description of that settlement leaves a lot to be desired. I quote from Judge James E. Massey's Interim Consent Order of May 5, 2008:

The parties have reached a settlement of any and all claims that were or could have been raised in this case.

Plaintiff has been approved by Financial Freedom, a subsidiary of Indymac Bank, for a reverse mortgage to be secured by her residence. Plaintiff will receive approximately $79,530.00 in a principal limit. The lender will deduct approximately $6,436.00 for the cost of closing the loan and approximately $5,946.98 for servicing the loan. Approximately $7,300.00 must be set aside for repairs to be made as a condition of the loan. After all deductions, Plaintiff will receive approximately $59,847.02.

From the proceeds of the reverse mortgage, Plaintiff will pay the sum of $57,800.00 to Defendants and Defendants shall accept the sum of $57,800.00 in settlement and as full and final satisfaction of the entire debt owed by Plaintiff to Defendants. Upon receipt of these funds, Defendants shall cause the deed to secure debt on Plaintiff’s residence to be released and will withdraw the proof of claim filed by them in this case.

The Trustee shall not disburse any additional funds whatsoever to Defendants for ongoing mortgage payments or for any proof of claim filed by Defendants in the case.

The parties shall bear their own respective costs incurred in this adversary proceeding.

So this is how Mamie Palmer came out "intact": she began her case owing $51,000 in principal and around $76,500 in total, including interest, escrow, and legal fees. She now owes $79,530. She will also have to pay $10,000 to her attorney out of payments she made to the bankruptcy trustee. She gets $7300 worth of repairs to her home. Although her new mortgage, being a reverse mortgage, will not require her to make monthly payments, she will still have to pay taxes, insurance, and maintentance out of pocket, since the initial disbursement for this loan was equal to its full principal limit. If she does not make those payments, she can face foreclosure from IndyMac. Or, well, the FDIC. If the FDIC is willing ever to foreclose on any IndyMac loans.

I guess that punishes the investors in Palmer's mortgage loans and her mortgage servicer for having made an error on a mortgage assignment: they'll be writing off most of their accrued interest and all their legal expenses.

I suppose it's just more of the crashing irony of this story that Palmer's new loan now belongs to us taxpayers, unless the FDIC can find a buyer for IndyMac. That and the fact that a homeowner left the bankruptcy system owing more, not less, than she did when she started. One of our regular commenters likes to tell me this is called "rough justice," and I should "get used to it."

I'm not sure I'd call this "rough justice." I certainly will not call this a "victory" for a homeowner in "foreclosure hell." Whatever Morgenson is smoking, she needs to give it up.
Read On ..

by Calculated Risk on 7/27/2008 09:01:00 AM

Since I was out of town on Friday, here is a somewhat belated look at the New Home sales report from the Census Bureau.

According to the Census Bureau report, New Home Sales in June were at a seasonally adjusted annual rate of 530 thousand. Sales for May were revised up to 533 thousand (from 512 thousand).

Click on graph for larger image in new window.

The first graph shows monthly new home sales (NSA - Not Seasonally Adjusted).

Notice the Red columns for 2008. This is the lowest sales for June since the recession of '91. (NSA, 49 thousand new homes were sold in June 2008, just above the '91 recession low of 47 thousand homes).

As the graph indicates, there was no spring selling season in 2008.

The second graph shows New Home Sales vs. recessions for the last 45 years. New Home sales have fallen off a cliff.

Sales of new one-family houses in June 2008 were at a seasonally adjusted annual rate of 530,000, according to estimates released jointly today by the U.S. Census Bureau and the Department of Housing and Urban Development. This is 0.6 percent below the revised May rate of 533,000 and is 33.2 percent below the June 2007 estimate of 793,000.

And one more long term graph - this one for New Home Months of Supply.

"Months of supply" is at 10.0 months.

Note that this doesn't include cancellations, but that was true for the earlier periods too. The months of supply is down from the peak of 11.2 months in March 2008.

The all time high for Months of Supply was 11.6 months in April 1980.

And on inventory:

The seasonally adjusted estimate of new houses for sale at the end of June was 426,000. This represents a supply of 10.0 months at the current sales rate.

Inventory numbers from the Census Bureau do not include cancellations - and cancellations are near record levels. Actual New Home inventories are probably much higher than reported - my estimate is around 90K higher. Note that new home inventory does not include many condos (especially high rise condos), and areas with significant condo construction will have much higher inventory levels.

Still the 426,000 units of inventory is well below the levels of the last year, and inventory is now falling fairly quickly. It appears the home builders are selling more homes than they are building, and it is very possible that months of supply has peaked for this cycle.

I now expect that 2008 will be the peak of the inventory cycle (in terms of months of supply) and could be the bottom of the sales cycle for new home sales. But the news is still grim for the home builders. Usually new home sales rebound fairly quickly following a bottom (see the 2nd graph above), but this time I expect a slow recovery because of the overhang of existing homes for sales (especially distressed properties). If the recession is more severe than I currently expect, new home sales might fall even further.

Looking forward, I'm much more pessimistic about existing home sales, and existing home prices, than new home sales.

by Calculated Risk on 7/26/2008 07:22:00 PM

UPDATE: This appears to be an up-to-date version of the bill.

by Calculated Risk on 7/26/2008 06:01:00 PM

From the NY Times: Congress Sends Housing Relief Bill to Bush

Here is the WSJ version: Congress Passes Housing Bill

First, I think the impact of the original part of the housing bill will be minimal. The provision allows the FHA to insure up to $300 billion in new mortgages for certain borrowers. The key is that the current lender has to voluntarily agree to write down the loan balance to 85% of the current appraised value before the FHA will insure the new loan.

The CBO has estimated that the FHA will only insure $68 billion in loans for about 325,000 homeowners. The number will be limited because only certain homeowners actually qualify, and also because lenders probably will not be eager to write down loans to 85% of the current appraised value.

My biggest concerns with this provision are appraisal fraud and adverse selection.

The other major provision of the housing bill is the Paulson Plan to support Fannie and Freddie. The cost to taxpayers is very uncertain, although I doubt it will be zero (the CBO's base case). The GSE support does appear to be almost unlimited (limited only by the debt ceiling that was increased to $10.6 trillion from $9.815 trillion).

The actual cost of the Paulson Plan is a huge concern.

There are many other provisions. As the NY Times mentions:

There are provisions, for example, that grant or extend Section 8 federal housing subsidy eligibility to residents of specific properties in Malden, Mass., and San Francisco. And there is a provision tailored narrowly for Chrysler to ensure that it can benefit from a corporate tax incentive even though the company is now structured as a partnership not a corporation. The bill does not name Chrysler but rather describes an unnamed automobile manufacturer “that will produce in excess of 675,000 automobiles” between Jan. 1 and June 30, 2008.

Weird.

The bill also has a tax credit for new home buyers (up to $7,500). This appears to be structured as a no interest loan that has to be repaid within 15 years.

The bill has many other provisions too, including permanently increasing the conforming loan limit to 115% of the local area median home price (with a ceiling of $625,000, from $417,000), and eliminating FHA related Downpayment Assistance Programs (DAPs). Tanta and I have been advocating eliminating DAPs for years.

Note: I could have some of the specifics wrong - I've read several stories, and the details vary.

I think the bill doesn't match the heated rhetoric on the internets (I've seen people write this is the "end of capitalism" and the "dollar is doomed"). Although I'm sure some commenters will confuse me with Pollyanna!

by Calculated Risk on 7/26/2008 02:08:00 PM

Here are some graphs (and analysis) based on the Existing Home sales report from the National Association of Realtors (NAR). (note: I was out of town this week, and couldn't post these earlier)

Click on graph for larger image in new window.

The first graph shows existing home sales, on a Seasonally Adjusted Annual Rate (SAAR) basis since 1993.

Sales in June 2008 (4.86 million SAAR) were the weakest June since 1998 (4.78 million SAAR).

It's important to note that a large percentage of these sales were foreclosure resales (banks selling foreclosed properties). The NAR suggested that "short sales and foreclosures [account] for approximately one-third of transactions". Although these are real transactions, this means that normal activity (ex-foreclosures) is running around 3.3 million SAAR.

*****************************
The second graph shows nationwide inventory for existing homes. According to NAR, inventory increased slightly to 4.49 million homes for sale in June. The typical pattern is for inventory to decline in December, and then to slowly rebound in January and February, and really start to increase from March through mid-Summer.

Some people are hoping that inventory is stabilizing at this level, however there is probably a significant "shadow inventory" waiting to come on the market.

Most REOs (bank owned properties) are including in the inventory because they are listed - but not all. Many houses in the foreclosure process are listed as short sales - so those would be counted too.

But there is some evidence lenders are holding off foreclosing, perhaps trying for workouts, or maybe the lenders are just overwhelmed - and many of these units are probably not included in inventory. And there are definitely homeowners waiting for a "better market" - and those homeowners will probably keep the supply high for a few years.

The third graph shows the 'months of supply' metric for the last six years.

Months of supply increased to 11.1 months.

This follows the highest year end months of supply since 1982 (the all time record of 11.5 months of supply). Even if inventory levels stabilize, the months of supply could continue to rise - and possibly rise significantly - if sales decline later this year. I still expect to see 12 months of supply sometime later this year.

The fourth graph shows Not Seasonally Adjusted (NSA) existing home sales for 2005 through 2008. Sales are sharply lower in June 2008 compared to the previous three years.

NSA sales were reported at 504 thousand in June, however about one-third of those were foreclosure resales. This means regular sales are less than half the level of June 2005 and 2006.

Note that June is an important month for existing home sales; existing home sales usually peak in the June through August period. This is usually about as good as it gets for sales on a NSA basis.

The next graph shows annual existing home sales and year end inventory. Note: for 2008 I used the June sales and inventory numbers. All other numbers are annual sales, and year-end inventory.

If the red columns (inventory) rises above the blue column (sales) - something that is likely to happen this summer - then the "months of supply" number will be over 12.

The final graph shows the annual sales and year end inventory since 1982 (sales since 1969), normalized by the number of owner occupied units.

The graph shows that inventory is at an all time record level by this key measure.

This also shows the annual variability in the turnover of existing homes, with a median of 6% of owner occupied units selling per year. Currently 6% of owner occupied units would be about 4.6 million existing home sales per year.

This indicates that the turnover of existing homes - June sales were at a 4.86 million Seasonally Adjusted Annual Rate (SAAR) - is still above the historical median. The reason sales are so high is because of all the foreclosure resales.

This suggests to me that sales will fall further later this year and in 2009.

Read on ... there are many more graphs.

by Calculated Risk on 7/26/2008 11:50:00 AM

From Eric G. Lewis, a freelance cartoonist living in Orange County, CA.

Click on cartoon for larger image in new window.

Thank you Eric! (note: bumped from earlier)

by Anonymous on 7/26/2008 09:43:00 AM

I checked Google news this morning to see if there were any follow-up stories on Carlene Balderrama's suicide. There wasn't anything new, except this "press release" from some illiterate do-it-yerself PR website:

(Atlanta, Georgia) - Ransom Enterprizes, LLC a national real estate consulting firm has been consistent with training foreclosure consulting businesses how to properly assist homeowners with stopping foreclosures. Today the consulting firm announced to offer a free information report to homeowners facing foreclosures, an effort to prevent suicide attempts to stop foreclosure.

According to Kyle Ransom president of Ransom Enterprizes, LLC he was extremely sadden when he learned about homeowner Carlene Balderrama actually taking her life because she was unable to resolve her foreclosure problem.

One is then directed to Ransom Enterprizes' website for this "free information report."

The Foreclosure Rescue Kit™ comes fully loaded with information that you must know before approaching the bank to stop your foreclosure! Important forms to help make your forbearance package look professionally prepared. Answers and solutions to help you save your home from foreclosure fast! Complete step-by-step guide to surefire you STOP Your Foreclosure in 72 Hours or Less!

Ransom Foreclosure Rescue Kit™ Includes:

Blank Financial Statement Forms
Account Number and Property Address Placements
Required Documents Checklist
Foreclosure Process Overview
Foreclosure Prevention Overview
Hardship Letter Overview and Samples
Mortgage Financing Overview
Credit and Budgeting Overview
Professional Fax Coversheets

Make sure that you have all of the right knowledge to save your home from being foreclosed on by the bank. Your home is an investment that you must protect and you must act fast today to prevent the bank from foreclosing on it. Time is your worst enemy and the longer you wait the closer your home remains in danger of foreclosure.

Special Offer! Get Foreclosure Rescue Kit™ Today $99 Regularly $349 (Limited Time Offer)

Apparently the "free" part involves the wise counsel on this webpage, such as this:

If you file a bankruptcy the bank will not allow you to do a special forbearance or loan workout plan! Be careful of bankruptcy attorneys who encourage you to file bankruptcy before trying to work something out with the bank first. Once you see the fees that go directly to the bankruptcy attorney you will know exactly why they want you to file a bankruptcy.

It is, of course, simply false that filing BK means the bank will never work something out with you. But the chutzpah of someone who charges $349 for some blank forms, information that is freely available on the web or at a non-profit housing counseling agency, and a fax coversheet accusing BK attorneys of looking to enrich themselves is quite stunning.

Madre de Dios. If you or someone you know is seriously depressed because of financial matters and is contemplating suicide, you need to call your local suicide prevention hotline, your doctor, your priest or rabbi or minister, or if you have no other resources, 911. Ask whoever answers the phone for an emergency referral to a qualified counselor. The first priority here is to save a life, not deal with foreclosure paperwork.

Absolutely the last thing you need to do is send $99 or 99 cents to some huckster on the Internet who is simply offering to sell you a packet of papers that puts the onus back on you to try to solve a terribly stressful and complex problem. Someone who is trying to get you to pay for "professional fax cover sheets" is not trying to help you. If you are feeling suicidal, you are no longer in a position to try to do this yourself, with or without some "kit."

And if you aren't suicidal, you don't need to spend a dime on this "kit" either. I normally try not to make absolute claims about the world, but I will make one now: no mortgage workout negotiation has ever been turned down by a lender because your fax cover sheet wasn't pretty enough. Not now, not ever, not a happening kind of thing. Anyone who says or implies different is lying to you in order to make a fast buck off of you. And even if you want to believe that a pretty fax cover sheet could make a difference, you would want to obtain one from someone who can write grammatical and correctly-spelled English. Which would not be "Ransom Enterprizes."

I am not willing to hold the media outfits who have been flogging the Balderrama story responsible for its co-optation by sleazeballs. I am, however, suggesting that the media exploiters of this story just created a narrative line that lets the "stop foreclosure" hustlers position themselves as caring folk who just want to prevent suicides. And that makes me want to throw up.

by Calculated Risk on 7/26/2008 02:57:00 AM

From the FDIC: Failed Bank Information

First National Bank of Nevada, Reno, NV

First Heritage Bank, N.A., Newport Beach, CA

As of June 30, 2008, First National of Nevada had total assets of $3.4 billion and total deposits of $3.0 billion. First Heritage Bank had total assets of $254 million and total deposits of $233 million.
...
The cost of the transactions to the Deposit Insurance Fund is estimated to be $862 million.

I go away for a few days and two banks fail!

by Calculated Risk on 7/25/2008 09:00:00 PM

Hi All. I'm returning tonight from San Francisco - and I will be post on housing over the weekend.

There will be plenty of graphs - interesting times!

Best to all.

by Calculated Risk on 7/25/2008 06:46:00 PM

From Jon Lansner at the O.C. Register: Tenant shortage plagues 25% of O.C.’s office towers

Studley Inc. reports that 25.1% of the office space in O.C.’s most prized buildings was available for rent during the second quarter — a rate not seen since the second quarter of 2002 in the last recession. A year ago, it was 18%.

The real estate services firm, which represents tenants, blamed a flood of space coming on line from “mistimed construction” and sublet supply from companies, particularly in the mortgage sector, that have closed up shop and vacated their offices.

See through buildings!

“You drive through Orange County and you see all these buildings with no people in them,” says Caitlin Zimmer, Studley’s research director. “And it has not plateaued."

The CRE slump is here - and this will significantly impact construction related employment and non-residential investment in structures.

by Anonymous on 7/25/2008 03:25:00 PM

A very interesting post today at The Big Picture.

Hopefully this means the FDIC will be monitoring Barry more closely and I can get some sleep.

by Calculated Risk on 7/25/2008 03:17:00 PM

From the WSJ: Chrysler to Stop Offering Leases Through Lending Arm

Chrysler LLC has started telling dealers it will no longer offer auto leases through its lending arm Chrysler Financial, people familiar with the matter said Friday.
...
Chrysler's announcement also comes as Chrysler Financial has been trying to persuade more than 20 banks to renew a $30 billion credit facility -- backed by car loans, leases and loans to dealers -- that was issued by the auto-finance company last year when it was carved out of the former DaimlerChrysler AG. The debt represents a sizable chunk of Chrysler Financial's $70 billion portfolio in working capital. The higher financing costs could further complicate the attempt by private-equity firm Cerberus Capital Management LP to turn around the auto maker.

Chrysler Financial is likely to see its borrowing costs rise in early August when it rolls over about $30 billion of short-term debt backed by the loans and leases it makes. That, in turn, will make it harder for the company to offer low-interest loans to buyers and for dealers to hold inventory.

More ripples ...

by Anonymous on 7/25/2008 11:50:00 AM

This is an extremely distressing story: a woman faxes a suicide note to her mortgage servicer on the day the foreclosure sale is scheduled, and is dead by the time the police arrive.

Distressing for anyone with what I take to be a normal sense of human decency, that is. To the local and now national media, it seems to be catnip. Carlene Balderrama's personal tragedy is in danger of becoming an indelible urban legend of the Great Predatory Foreclosure Crisis, uncomfortable facts be damned. The tenor of the reporting, of course, makes anyone who expresses any skepticism about the media's line on this sad event sound inhuman. I have been telling myself since I first saw this story that only a fool would try to steer a course through the rock of credulousness or the hard place of callousness. But I guess it's my job to be a fool today.

***************

The Boston Globe got the thing underway on Thursday:

TAUNTON - The housing crunch has caused anguish and anxiety for millions of Americans. For Carlene Balderrama, a 53-year-old wife and mother, the pressure was apparently too much.

Police say that Balderrama fatally shot herself Tuesday afternoon, 90 minutes before her foreclosed home was scheduled to be sold at auction. Chief Raymond O'Berg said that Balderrama faxed a letter to her mortgage company at 2:30 p.m., saying that "by the time they foreclosed on the house today she'd be dead."

The mortgage company notified police, who found her body at 3:30 p.m. The auction had been scheduled to start at 5 p.m., when bidders showed up at the house and found it surrounded by police cruisers.

But, unbeknownst to buyers and to Balderrama, the auction had been postponed by the time she grabbed her husband's high-powered rifle, O'Berg said.

Balderrama left a note for her family, saying they should "take the [life] insurance money and pay for the house," O'Berg said. The chief said he did not know, however, if the family would be able to collect on the policy in the event of a suicide.

Those appear to be facts. Then we get this:

Joe Whitney, who works with Balderrama's husband, said that she handled the bills in the household and that the husband was unaware of the foreclosure.

"John didn't even know about it; that's the surprise," Whitney said outside the home, where he had come to comfort the family. "It's just one of those awful, awful, tragic events."

John Balderrama did, however, file for Chapter 13 bankruptcy three times from 2004 to 2006, but the courts dismissed the petitions. Debtors who declare bankruptcy under Chapter 13 generally can keep their homes while paying off their debts under a court-approved reorganization plan.

Something doesn't add up here. Nonetheless, the reporter is undeterred:

As Congress rushed yesterday to help 400,000 strapped homeowners avoid foreclosure and prevent Fannie Mae and Freddie Mac from collapsing, the suicide underscored the potentially devastating toll of the housing crunch.

Bruce Marks, chief executive of the Neighborhood Assistance Corporation of America, said it is not uncommon for homeowners to contemplate suicide when they cannot keep up their mortgage payments. Marks's group counsels homeowners in crisis and responds to such crises by immediately notifying the police, he said.

"What gets us so angry is that people blame themselves," Marks said. "They can't see past their sense of responsibility to see the responsibility and the predatory nature of these lenders. The fact of the matter is, unless something dramatic happens, there's going to be more and more people like her taking their lives."

Police believe that when the Balderramas bought the house in a stronger market, the family chose an adjustable rate mortgage, confident they would be able to keep up the payments. But as the housing market plummeted and the rates rose, the family fell behind, O'Berg said.

We have Bruce Marks, who should be ashamed of himself, labelling Balderrama's mortgage lender a predator. We have a cop making claims about the terms of the mortgage loan and the sequence of events leading to the default--claims that the reporter could have verified by searching the public records. (Note: I have not examined the Balderrama's recorded mortgage documents, because the North Bristol MA Registry of Deeds requires creation of an account with an account fee and a $1.00 per page charge for the documents. I am not inclined to spend $15 to see a copy of their mortgage, but I'm inclined to wonder why the Boston Globe isn't so inclined.) But we get even more from the co-worker and the cop:

Whitney said he did not believe that Carlene Balderrama had a history of mental illness.

"It looked like a happy couple," Whitney said. "That's why John was so blown away. Nothing medically ever came up, and I've known them for 20 years."

O'Berg said he was troubled that the pressures of foreclosure had triggered suicide on a street that he described as solidly middle-class.

"That's the real sad part: This is a middle-class family, a husband working, the son is working," O'Berg said. But the housing crunch, he said, "is inflicting real pain on middle-class Americans.

"Put yourself in her shoes," he added. "You handle the finances, and you're hiding everything from family. It's a lot of pressure."

Why are two people who are neither psychologists nor economists so eager to convince us that the primary cause of this suicide was "the foreclosure crisis"? Since when do the local cops become your go-to sociologists?

The Boston Herald on the same day provided some facts that rather confound this narrative:

John Balderrama bought the three-bedroom house at 103 Duffy Drive in October 2002, using a $220,255 mortgage to cover most of the $232,000 purchase price, public records show.

But less than eight months later, PHH initiated foreclosure proceedings - usually a sign that a borrower is at least 90 days delinquent.

The Herald does not confirm that the mortgage loan in question was an ARM, but it certainly casts doubt on the idea that rising interest rates and plummeting house prices had anything to do with the Balderramas' difficulties with their mortgage.

According to the Herald, John Balderrama filed Chapter 13 bankruptcy petitions in 2004, 2005, and 2006. I did spend some time looking at these bankruptcy filings, which are available to anyone with a PACER account and the willingness to spend 8 cents a page. In all three filings, the only debts listed for Balderrama were a single mortgage on the house and a car loan. There are no unsecured debts and no undischargeable or "priority" debts. There are no catastrophic (or even modest) medical expenses or debts. In fact, in all three filings, the only debt to be paid through the Chapter 13 plan is the arrearage on the mortgage, which seems to have been around $27,000 in the first filing and around $44,000 by the last one (in April 2006). Otherwise, each plan indicated that Balderrama would pay his approximately $1700 house payment (that figure includes taxes and insurance) and $289 car loan directly to the creditors during the BK. Each plan indicated that there were no assets above exempt amounts.

The only real difference among the three filings is that Balderrama's income kept increasing substantially, meaning that in each filing the required payment to the trustee kept increasing. In the first filing, he claimed gross monthly income of $6,202, which resulted in a monthly repayment plan requirement of $527 (in addition to the regular monthly car and house payment). (The Herald story reports his net (after tax) income instead of gross.) By the third filing, the gross monthly income was $10,461 and the plan payment was $1066. As far as I can tell, Balderrama never made more than one plan payment during any of these BKs. It's hard to tell whether the mortgage payment was made post-petition, but in at least two of the BKs the post-petition car payment didn't get made. All the bankruptcies were dismissed due to either failure to make payments to the trustee or failure to attend hearings or creditors' meetings.

I have to say that these were a very strange set of BK filings. Carlene Balderrama never appears as a debtor, or even as a spousal signatory. (Did Carlene even know about the BK filings? It makes more sense that she would be in the dark about the BKs than that her husband was in the dark about the mortgage arrearage.) Although the household income keeps rising, there are no increases in bank accounts or other debts or assets that can account for where the money goes every month. In the first BK, filed just over a year and half after the purchase of the home and a year after the first foreclosure attempt, Balderrama's debt-to-income ratio as a mortgage lender would calculate it was 41%, including the Chapter 13 payment. By the last BK, the DTI was 29%. There is no indication that Balderrama's mortgage payment increased; in fact if the debtor's filing is correct it decreased (from $1740 in the first filing to $1703 in the last).

It seems quite obvious that these filings were intended solely to stay foreclosure rather than to deal with crippling debt payments and reduced income. Yet Balderrama never cooperated with the court or made an effort to make payments, resulting in serial dismissals. Even on the assumption that the household budget in a Chapter 13 is often unrealistically tight, I just can't see from the paperwork why the Balderramas couldn't pay their house and car payment and the arrearage installments.

Are these folks debt-bingers? Apparently not. They've had exactly two debts in the last six years: a house payment and a car payment. Did they buy an overpriced home with a mortgage that instantly went upside down? It doesn't look like it. If Zillow is to be believed, the mortgage has never been upside down and was probably quite close to break-even when the foreclosure was completed (including arrearages in the loan amount). Victims of job loss or serious illness? Doesn't look like it. Victims of a predatory lender squeezing them with an exploding ARM in a falling RE market? The BK paperwork suggests that that claim is ridiculous.

Nonetheless, by this morning ABC news got ahold of the story. A new detail:

But for one reason or another, it appeared that Carlene Balderrama decided to deal with the family's flagging finances on her own. O'Berg [our ubiquitous cop quote-bot] said that according to Balderrama's husband, John, Carlene handled all of the family's financial matters.

"I had no clue," John Balderrama told The Associated Press on Wednesday, adding that Carlene had hidden from him the fact that she hadn't paid the mortgage in 42 months.

Mr. Balderrama filed two bankruptcies during the last 42 months. But he had no idea his mortgage payments were in arrears? Are we supposed to believe that Carlene Balderrama forged her husband's signature on the BK filings and suborned the perjury of at least one attorney? How else do we square this claim of ignorance with the BK records?

Little details like that, however, don't stop the ABC reporter or his psychologist quote-bots:

"Suicide is certainly a response to hard economic times," noted Dr. Harold Koenig, professor of psychiatry and behavioral sciences at Duke University Medical Center in Durham, N.C. "Consider what happened when the stock market fell in 1929. There was a rash of suicides."

Well, John Kenneth Galbraith labelled that "rash of suicides" a "myth" in 1955, and if anyone has more recent hard data that says otherwise, I'd like to see it. Before we construct another myth about the Great RE Crash of 2008 with the same kind of "data."

I do not doubt for a moment that Carlene Balderrama was under severe psychological stress. Whatever kept her going through six years of an inability to make her mortgage payments, clearly the reality of the day of foreclosure sale was too much to bear. What I do object to is the transformation of this story into an urban legend about "predatory lenders" and the effects of an RE downturn based on no evidence whatsoever. I object to these reporters' unwillingness to deal with the facts available to them that surely complicate this currently popular narrative. I object to cops running off at the mouth with unsubstantiated claims and a husband and his co-worker heaping blame for the family's financial woes on a dead woman who can no longer defend herself, and I surely object to it when it gets used to slander a mortgage servicer who was, apparently, the only party involved who ever took this woman seriously enough to call 911.

If anybody can explain to me how this series of reports on Carlene Balderrama's suicide are anything other than exploitation of her tragedy in order to support an overwrought rhetoric that sees every foreclosure that has occurred in the last year or so as "predatory" and "unnecessary," then please do so in the comments. I am not seeing it.

Read more wretchedness.