by Calculated Risk on 7/06/2009 06:24:00 PM

A few interesting stories. The first story (more than half off from the peak price) the buyer bought the loan, and then the current owner transferred the deed in lieu of foreclosure. The second story is a photo essay of the real estate bust, and third story is about the City Center project in Las Vegas.

From the San Francisco Business Times: Sale shows San Francisco property values in free fall (ht Steve)

A downtown San Francisco office building that sold for $400 a square foot in 2006 has traded for just $172 a square foot, a 57 percent decline ...

The sale, at a price that represents about 25 percent of replacement cost, represents the first San Francisco office building sale in a year. ... Colliers International Executive Vice President Tony Crossley said the price “gives the market a data point it has been lacking.”

From the NY Times Magazine, a photo essay: Ruins of the Second Gilded Age (ht Shawn)

And from the WSJ (condos): Buyer's Remorse Hits Vegas Project (ht ShortCourage)

One of the costliest and highest-profile condominium developments in the country -- the $8.4 billion City Center project in Las Vegas -- is facing a revolt from some early buyers. ... So far, buyers have put down $313 million in deposits on 1,500 units in the 2,440-unit complex. Those who agreed to buy early on now fear they will take possession of condos whose market values are far below what they agreed to pay. Many of the contracts were signed in 2006 and 2007 ...

by Calculated Risk on 7/06/2009 04:49:00 PM

From Reuters: S&P raises loss expectations for risky US mortgages

Standard & Poor's on Monday boosted its expectations for losses on risky loans backing U.S. mortgage securities ... [this] "significantly impact" bonds originally carrying AAA ratings, S&P said in a report.
...
S&P boosted loss projections for subprime loans made at the peak of the market in 2006 and 2007 to 32 percent and 40 percent from 25 percent and 31 percent, respectively. For 2005 loans, loss projections rose to 14 percent from 10.5 percent.

For Alt-A loans ... loss projections for 2006 and 2007 mortgages rose to 22.5 percent and 27 percent from 17.3 percent and 21 percent, respectively. S&P expects Alt-A loans from 2005 to post losses of 10 percent, up from its previous estimate of 7.75 percent.

Loss severities ... are expected to rise to 70 percent for 2006 and 2007 subprime bonds and 60 percent for Alt-A bonds issued in those years, S&P added.

According to the article, S&P noted a surge in the inventory of bank-owned properties. Here is the S&P report.

Update: From the S&P report: Standard & Poor's Chief Economist David Wyss expects "home prices will decline by an additional 5%-7% from the 2006 peak before residential real estate prices start to stabilize in the first half of 2010, marking an overall decline of approximately 37% from the July 2006 peak."

by Calculated Risk on 7/06/2009 03:57:00 PM

Fitch's analysis suggests that issuing IOUs will only work until October, at which point the cash shortfall will start impacting priority spending.

Note: "GO" General Obligation.

Press Release: Fitch Downgrades State of California GOs to 'BBB'; Maintains Rating Watch Negative

The downgrade to 'BBB' is based on the state's continued inability to achieve timely agreement on budgetary and cash flow solutions to its severe fiscal crisis. Since no agreement was reached by the June 30, 2009 fiscal year (FY) end, the state's controller has now begun issuing registered warrants (IOUs) for certain non-priority payments to preserve cash, and the budget gap to be addressed has increased to $26.3 billion from $24.3 billion. The use of IOUs for non-priority payments would offset cash shortfalls into September 2009 as now currently projected.

The Rating Watch Negative reflects the short-term risk, in Fitch's view, that institutional gridlock could persist, further aggravating the state's already severe economic, revenue and liquidity challenges and weighing on the state's credit. Resolution of the Negative Watch will depend on actions taken to address the cash flow imbalance. The 'BBB' rating indicates that expectations of default risk remain low, although the rating is well below that of most other tax supported issuers. GO debt in California has a constitutional prior claim on revenues, although after education; appropriation debt has a lesser legal claim, but the controller prioritizes payment directly after GO debt service, ahead of other mandatory payments.

With issuance of IOUs for non-priority payments, margins for meeting constitutional and court-required contractual commitments are narrowing. After September 2009, absent any proposed budget and payment adjustments, cash deficits will expand dramatically. Cash flow solutions, including the ability to access short-term borrowing, are inextricably tied to reaching timely agreement on effective and credible budget solutions.
...
The inability of the state to reach agreement has prompted the controller to begin issuing IOUs for non-priority payments, primarily disbursements to vendors, for certain social services, and for tax refunds, in order to ensure payment of priority payments, including GO and lease debt service. The controller's office estimates that $3 billion in IOUs will be issued during July 2009; priority payments of $10.8 billion will be made for education, debt service, Medicaid, payroll, pensions and other mandatory contractual obligations. Projections will be revised to reflect June revenue performance and other changes but as currently estimated, cumulative cash deficits of $3.7 billion are projected through August, offset by $4.5 billion in non-priority payments that could be covered with IOUS, excluding tax refunds. However, by the end of October, the projected cash deficit expands to $16.1 billion, well beyond non-priority spending of only $10.6 billion, excluding tax refunds.
emphasis added

Fitch downgraded California from A to A-minus just 10 days ago.

by Calculated Risk on 7/06/2009 02:02:00 PM

From Jim Wasserman at the SacBee: Repo business soars as Sacramento area home sales slump

... As the U.S. foreclosure crisis grinds on, the detailed work of processing, repairing and selling thousands of homes repossessed by banks is real estate's new gold. In the past year, repo-related business has rapidly grown to national scale, fueling job growth in Colorado, Texas, Ohio and elsewhere to service the meltdown in markets like Sacramento and the Central Valley along with Phoenix, Las Vegas and Florida.

... [Austin-based Field Asset Services], which repairs, cleans and maintains repos right down to mowing the lawns weekly, has almost tripled its hiring in the past 18 months. Austin business publications gush over the firm's "hiring spree," its 550 employees and third expansion into larger offices in a year.

Clearly, the housing distress that has overwhelmed states like California has become big business.

I've spoken with a number of real estate agents that are really busy, and conversely some agents (mostly high end) that having nothing to do but count their listings. The low-to-mid end business is tough though - many homes receive multiple offers (Jeff Collins at the O.C. Register reports on one home with 135 offers). And even if a transaction is completed, the deals are frequently 'one and done' as opposed to the chain reaction of a more normal market.

BTW, Wasserman also writes a blog (with Dale Kasler) at the SacBee, the Home Front.

by Calculated Risk on 7/06/2009 11:54:00 AM

Just a quick update on the Term Asset-Backed Securities Loan Facility (TALF) for Commercial Mortgage Backed Securities (CMBS).

At the end of last week, the NY Fed announced a TALF CMBS auction on July 16th. The details are here.

Many market participants expected the Fed to include CMBS "originally rated AAA" because S&P has recently placed a large number of CMBS on watch for downgrade. This did not happen and is apparently a shock to many participants.

The Fed updated the terms and conditions. The Fed is really restricting legacy eligibility:

TALF loans for legacy CMBS will be usedrequired to fund recent secondary market transactions between unaffiliated parties that are executed on an arm’s length basis.

One participant told me that all potential trades are being heavily scrutinized too:

"[Y]ou cannot leverage a bond you already own, and you can't sell and buyback a bond you already own to create a trade. That's an interesting twist."

Clarification: July 16 is the first operation for Legacy TALF, which provides loans against Legacy CMBS securities. Legacy securities were issued before January 1 2009.

The new issue CMBS program, for securities issued after January 1 2009, started in June.

The first TALF CMBS auction on June 16th attracted no interest.