by Calculated Risk on 1/05/2008 09:55:00 PM

From the Economist: Dominoes on the skyline

FROM up high, London is a picture of vigorous renewal. In just about every direction, construction cranes point contemplatively to the skies. They also point to the great boom that has taken place in commercial property in recent years. The collapse of that boom, which now threatens to slash the values of these gleaming office towers and destroy the savings of millions, may pose almost as great a threat to Britain's banking system as the subprime crisis that has been roiling financial markets since late in 2007.

... with the impeccably bad timing the industry is known for, construction boomed just as the market was peaking. CB Richard Ellis, a consultancy, reckons that new offices are being built in London at their fastest rate in nearly two decades. Most of the ones going up this year have yet to find tenants (see chart), and not all will ...

The CRE slowdown was very predictable, but I doubt it will "pose almost as great a threat to Britain's banking system as the subprime crisis" because CRE wasn't as overbuilt as residential.

by Anonymous on 1/05/2008 01:41:00 PM

Via sterlingirl: AP

Subprime was chosen as 2007's word of the year.

by Anonymous on 1/05/2008 07:45:00 AM

Hat tip to Disempowered Paper Pusher (the backbone of our industry!) for this excellent BusinessWeek piece on homes abandoned by both borrower and lender, "Dirty Deeds."

An anecdote with all the right motifs:

In 1998, Elizabeth M. Manuel obtained a $34,500 mortgage on the property from IMC Mortgage (since acquired by Citibank). By 2002, the loan had been sold into a securitization trust administered by Chase Manhattan (now JPMorgan Chase) as trustee. It also went into default, and Chase began foreclosure proceedings. In a court filing, Manuel (who could not be located for comment) said she left the home while the foreclosure action was pending. More than five years later, though, the title remains in her name. The house, although still standing, has become a fire-gutted wreck.

In May 2007, Nowak issued a default judgment against Chase for $9,000. But these cases can be notoriously difficult to untangle. Thomas A. Kelly, a spokesman for the bank, notes that Chase sold its trustee business to the Bank of New York Mellon (BK) in October, 2006, and couldn't locate anyone at Chase able to comment. But he reiterates the industry view that Chase can't be held responsible for maintaining a property it never owned. He acknowledges that if a home didn't seem worth taking as collateral, the bank may have made a decision to "just walk away."

Besides amusing myself by trying to figure out just what documents I'd have to give Judge Boyko to prove standing to foreclose in this case, I am of course deeply impressed by the social acceptability of "just walking away."

My guess is that Chase never completed the foreclosure precisely because it never wanted to held accountable for taxes, insurance, and maintenance on a nearly worthless property; the "tangle" of securitization and trustee swaps and so on undoubtedly contributes to the mess but at some level that's smoke. So the city of Buffalo is working out a new process to tie those properties around the lenders' necks precisely to forestall this game. It will certainly be interesting to see whether it catches on elsewhere.

Reading things like this also always makes me think of the endless complaining you get over FHA appraisal and property inspection practices. Every time you're tempted to think those are silly and bureaucratic--delaying closing for another 30 days while an attic window pane is repaired--and in need of "modernization," remember these properties that were decrepit at the time they were first mortgaged by those modernized conventional subprime lenders, nearly worthless at the point the borrower could no longer carry the payments, and then nothing more than urban blight after years of the lender refusing to take title. FHA, for all its flaws, never walks away from title.

by Calculated Risk on 1/04/2008 10:30:00 PM

Off topic: It's hard to believe the Torino Winter Olympic games were almost two years ago!

Back then, I posted a few times about figure skater Sasha Cohen (a family friend). I still occasionally receive news clippings from readers, and questions about Sasha, so here is an update: Sasha has not skated competitively since March 2006, and she is also not competing this winter. She is currently performing in Japan, and then is touring the U.S. with Stars on Ice through April.

The following video is from the Stars on Ice tour. It is completely different and simply amazing. Sasha also skates two solo performances during the show.



I'm frequently asked: Will she try a competitive comeback? The answer - not too cryptically - is in the post title.

by Calculated Risk on 1/04/2008 05:27:00 PM

Click on graph for larger image.

Source: Cleveland Fed, Fed Funds Rate Predictions

The market expectations are now for a 50 bps rate cut on January 30th.

Meanwhile, the Fed has expanded the Term Auction Facility (TAF) in January:

The Federal Reserve will conduct two auctions of 28-day credit through its Term Auction Facility (TAF) in January. It will offer $30 billion in the auction to be held on Monday, January 14 and $30 billion in the auction to be held on Monday, January 28.
...
The Federal Reserve intends to conduct biweekly TAF auctions for as long as necessary to address elevated pressures in short-term funding markets. Decisions regarding auctions in February will be announced by Friday, February 1.