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In The Pipeline: CoStar Development and Construction News for Nov. 29-Dec. 5

November 30, 2009 by · Leave a Comment 

In this week’s issue, a Virginia developer will build a $47 million regional testing lab for the U.S. Drug Enforcement Administration in Miami; a decision by New York’s highest court clears the way for the $5 billion Atlantic Yards project to move forward…

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CMBS Delinquencies Grow 504% since ‘08: Realpoint

November 30, 2009 by · Leave a Comment 

In October, the delinquent unpaid balance for commercial mortgage-backed securities (CMBS) grew 504% from last year, according to research from Realpoint, which tracks monthly CMBS delinquency trends.
The delinquent balance increased to $32.5bn in October from $31.7bn the month before. In October 2008, the delinquent unpaid balance for CMBS was only $5.3bn. At its low in […]

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Investors Eye Another Helping of Property: Barclays

November 30, 2009 by · Leave a Comment 

With the average high net worth investor already holding 28% of investments in various types of property, the long-term advantages of this investment type may make wealthy investors reach for another helping of property investments, according to a survey by Barclays Wealth.
The survey of 2,000 high net worth individuals with assets eligible for investment ranging […]

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Loan Modifications In California May Get A Brand New Bill

November 30, 2009 by · Leave a Comment 


California has been one of the hardest hit states by the mortgage crisis. California has the second highest foreclosure rate in October with 85,420 California properties receiving a foreclosure notice which represents a 1 per cent improvement from September.

Nationwide foreclosure filings have dropped by 3 percent in October, a slight improvement but still 19 percent higher than last year.

This has caused a financial crisis devastating families and whole communities. The thousands of troubled homeowners could have some extra help going their way. New legislation is being proposed by a Democratic candidate for state attorney general.

The plan is backed by Assemblyman Pedro Nava, who wants to allow homeowners who have been served a foreclosure notice the chance of employing a state appointed monitor to help them lower their monthly payments.

When preparing for the bill, the Assembly Banking and Finance Committee headed by Nava heard testimony about loan modifications and the housing crisis as a whole. The results indicated that loan modifications have been ineffective and the families benefiting from them are very few.

One of the principle features of the Assembly Bill 1588, the loan modification under study, is that lenders would not be able to foreclose on homes that were undergoing loan modification procedures.

Nevada, which has the highest rate of foreclosure notices in the U.S, worked through a similar program to that proposed in California and the bill was enacted in May.

Barabara Buckley, Nevada Assembly Speaker gave her testimony in Sacramento, California when providing information on the results reaped by the program in Nevada: “Our program in Nevada has shown initial success in stemming foreclosures. While I understand the obstacles California faces as a non-judicial foreclosure state, I look forward to working with the California Legislature to find ways that a similar program could be implemented”, she commented.

Nevada’s results although far from a quick fix are encouraging. In just one month 3,330 homeowners have requested mediation, 1514 were processed, 888 cases assigned to mediators and 106 completed in that same month.

It is hard to see how this bill will help with the larger problem of homeowners that have good loans but are unemployed so any mortgage payment is too expensive. However if the only feature that is kept of this bill is that lenders can’t continue with foreclosure measures during the loan modification it will provide a much needed respite to troubled homeowners who just want a chance to pay their mortgage at an affordable rate.

Related posts:

  1. California Foreclosure Prevention Act goes into effect tomorrow
  2. Loan Modifications Scrutinized, 1340 Loan Modifications Investigated in California
  3. California trys to deter loan modification and foreclosure rescue scams

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  1. California Foreclosure Prevention Act goes into effect tomorrow
  2. Loan Modifications Scrutinized, 1340 Loan Modifications Investigated in California
  3. California trys to deter loan modification and foreclosure rescue scams

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Only Thing Rising Faster than Demand for Government Debt is Supply of It

November 30, 2009 by · Leave a Comment 

The Daily Reckoning

Governments benefit from ‘teaser’ rates. Wait ’til they come to an end…

There are so many breathtaking things going on around us we practically suffocate. Last week, three-month US Treasury-bills yielded all of 0.015% interest. Some yields were below zero. In effect, investors gave the government money. The government thanked them and promised to give them back less money three months later. How do you explain this strange transaction? Was there a full moon?

Moonlight on the week of November 6 must have been especially intense. Bids totaled a record $361 billion for just $86 billion worth of T- bills. This was $100 billion more than the peak set during the credit crisis a year ago. What? A third of a trillion dollars, per week, gives itself up to the hard labor of government service and asks for nothing in return?

Even lending to the government for much longer period yields little to the investor. The 10-year yield is only 3.32%. Thirty-year lenders get only 100 basis points more. And this in a currency that is melting faster than polar ice. Gold, the traditional bank reserve, is soaring in comparison. Not surprising; the US dollar money supply – measured by the US monetary base – rose 147% over the past 24 months.

The only thing rising faster than the demand for government debt is the supply of it. All major governments of the West – and Japan – are now borrowing as if their lives depended on it. The IMF predicts that Britain’s ratio of public debt to GDP will rise 50% between 2007 and 2014. In America, the increase is forecast to take taxpayers nearly to the debt levels of WWII. Those estimates are probably far too low, since they depend on an economic ‘recovery’ that will almost certainly prove to be a disappointment. The purpose of a depression is to get rid of bad debts and correct bad investment decisions. But an economy cannot correct itself unless it is allowed to enter a correction. When you try to prevent it, you get a zombie economy in constant need of freshly borrowed blood. Debts rise, but with no recovery. As reported on this back page, former US Office of Management and Budget director David Stockman expects a zombie economy in the US, with deficits twice as great as those now projected…that is, of $2 trillion per year, not $1 trillion. This will send US debt beyond WWII levels…up to Japan- like heights.

Other governments, too, are likely to see similar swelling in their public debt limbs. All right-thinking economists and commentators have come to the same conclusion – that fiscal and monetary stimulus must continue until the ‘recovery’ is more manifest. Worse, they’ve been trapped by the logic of Keynesianism itself. Now, everything is ‘stimulus.’ Nothing can be cut. The boils cannot be lanced.

When you come to the end of a war, spending is naturally reduced.

Deficits can go home with the troops. Debts can be paid down. But there is no end in sight for these deficits. Because only a small part of them is the direct consequence of the war against depression. Instead, they are merely the inevitable result of governments that spend too much money. In the US this “structural deficit” is estimated by the IMF at 3.7% of GDP. In Japan and Britain it is twice that amount.

Whatever else can be said of it, this freak show cannot go on forever. The US has $2 trillion worth of short-term bills that must be refinanced in the next 12 months. It must also refinance about $1 trillion more of notes and bonds. That’s without adding any additional debt! So put a deficit of $1.5 trillion on top of that and you have $4.5 trillion of financing for the US alone.

But the US is not the only one fishing in this pond. Japan’s national debt already measures 200% of its GDP and is increasing rapidly. So far, Japan’s deficits have been financed internally. The Japanese saved 20% of their household incomes in 1980. But the Japanese are aging. When they retire, people cease saving and begin drawing on savings to cover living expenses. At the current pace, the household savings rate should fall to zero in 5 years. Then, who will buy Japan’s bonds? Who will cover Japan’s deficits? The same people who are supposed to cover America’s deficits?

Taken all together, the world’s governments will need $1 trillion per month, in financing, over the next 12 months, according to an estimate in the Financial Times. Who has that kind of money? Total US savings are only $700 billion. Even the Chinese, if they put their entire cash pile to it, could only fund the deficits for about 67 days’ worth. Warren Buffett? Less than 48 hours.

There is also the problem of paying the interest on rising debt loads. Thanks to the forgetfulness or credulity of the world’s lenders, borrowers now benefit from exceptionally low rates – just like the ‘teaser’ rates once accorded to sub-prime lenders. But the tease will come to an end soon. Even the Obama Administration forecasts interest payments to rise from $200 billion at present to $700 billion by 2019. This assumes interest rates only regress to ‘normal.’ But “hot money” from the feds has acted like spent nuclear fuel; every fish in the financial pond now seems to have two heads and a bag over both of them. The freaks of November 2009 may be replaced by things perhaps no less strange, but in a different way. The last time gold was over $800 lenders to the US government demanded yields in excess of 18% in order to part with their money. That was odd too. But it had very different consequences for investors.

Until next time,

Bill Bonner
for The Daily Reckoning Australia

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Gold in the Next Stage of a Bull Market

November 30, 2009 by · Leave a Comment 

The Daily Reckoning

Here’s Addison Wiggin, checking in from Baltimore with the one chart every gold investor wants to see his reflection in…

Gold is on track for its best monthly performance in a decade. The money metal reached $1,180 earlier this week, another all-time high. There’s buzz that India, which bought 200 metric tons of gold from the International Monetary Fund earlier this month, might well buy the rest of the 203.3 metric tons the IMF has put up for sale.

Gold Price Rally

A gold run-up like this perks up the ears of the mainstream…and that often gets our contrarian impulses tingling. MarketWatch took note this week of the interest in gold among big-name hedge fund managers. Good for them. MarketWatch is only 10 months behind us in noting David Einhorn’s interest, and seven months late catching onto John Paulson’s stake in South African miners and the gold ETF.

All of this is fueling talk of a “bubble” in gold. To our friend James Turk, this signals that gold has begun only stage two of a three-stage bull market. “Don’t be misled by what you may hear or read in the mainstream media, and even much of the alternative media,” he writes. “After all, how many commentators have correctly identified gold’s bull market, now a decade old?” Or for that matter, how many correctly identified the tech bubble in the ’90s or the housing bubble this decade?

“Gold has moved from apathy and neglect – stage-one characteristics – to growing attention. But importantly, instead of embracing gold and analyzing it to determine relative value, today’s attention is one of widespread disbelief and skepticism that gold can climb higher. These are exactly the responses one should expect to emanate from stage two.”

“As gold climbs higher, we will eventually enter stage three. The timing of its arrival cannot be predicted, but we will know it has arrived when commentators who have been consistently wrong about gold will be telling everyone willing to listen to buy gold.”

Addison Wiggin
for The Daily Reckoning Australia

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Dubai Debt Story More Like Bear Stearns Less Like Lehman Brothers

November 30, 2009 by · Leave a Comment 

The Daily Reckoning

The task of today’s Daily Reckoning is to show that the Dubai debt story is more like Bear Stearns and less like Lehman Brothers. A second task is to show that the news from Dubai could be the catalyst for fund managers and traders to take profits on all of their 2009 winners. This could lead to steep falls in emerging market stocks, including Australia.

But first things first. Dubai World is not nearly large, leveraged, or systemically important as either Bear Stearns or Lehman Brothers when both those firms failed. For those reasons, it’s unlikely that the failure of Dubai World (and we’re not saying it will fail) would, by itself, cause a global deleveraging.

Dubai World has $59 billion in debt. That makes up the majority of the $80 billion in debt of Dubai itself. According to Reuters, international banks are exposed to $12 billion in debt. Incidentally, the Commonwealth Bank of Australia said it has exposure to Dubai but doesn’t expect to make a loss.

There is some risk to CBA, no doubt, just as there is risk Dubai’s other lenders. But it’s nothing like the risk posed to the entire financial industry by Bear Stearns and Lehman Brothers. For starters, the Bear Stearns High-Grade Structured Credit, and High-Grade Structured Credit Strategies Enhanced Leverage Fund were both massively leveraged. The first fund began with $600 million in assets but quickly borrowed on that to increase its asset portfolio to over $6 billion.

The trouble with that is Bear geared up to buy collateralised debt obligations (CDOs). It may not have known it at the time, but the CDO quality sucked. The CDOs were chock-full of subprime mortgages. In 2006 alone, $503 billion worth of CDOs were issued. It was a $2 trillion market by 2008. A fall in the value of Bear’s assets – a big chunk of which were CDOs – was enough to wipe it out.

Dubai World is likely to be backstopped – at some point – by Abu Dhabi. And although we’re sure it has its fair sure of property assets falling in value, Dubai World owns assets all over the world which it can sell. And, importantly, Dubai world is probably not a counterparty to many other financial arrangements in the same way Lehman Brothers was, at least as far as we know.

But still. You wouldn’t be alone if you had an odd sense of déjà vu this morning. We’d say the Dubai affair is more like Bear and less like Lehman because it’s a warning. Dubai may not be as systemically important as Lehman, but it is a reminder to all the world’s investors that global financial markets remain highly leveraged. And we know what can happen next.

There are other, much bigger, and much more leveraged markets that pose far bigger risks to the global economy. For example, in the U.S., there is over $3.4 trillion in debt backed by commercial real estate owned by U.S. banks. A presentation by a Federal Reserve analyst in late September suggests that the U.S. banks have failed to set aside adequate capital to cover losses in commercial real estate. It’s safe to say the U.S. banking system – and by extension Australia’s – would not survive another real estate collapse without major casualties.

And that is just one debt bubble. The other large debt bubbles are in China – which hedge fund manager Jim Chanos calls “Dubai times 1,000” and in government debt. The China bubble and the U.S. Treasury bond bubble ARE systemically important. And that’s what we should be worried about now.

But what’s happening in the short-term is not quite what you’d expect. Emerging market stocks are selling off. In fact, don’t be surprised if Dubai is just the excuse fund managers use to take profits on a lot of 2009 positions. It will make this year’s performance statistics look great by crystallising a profit now. And who can blame a manager for being cautious?

Already the cost of insuring sovereign debt from default – as measured by credit default swap rates – is rising. Yes, it does seem a bit absurd that debt crisis in emerging markets is driving investors into U.S. Treasury debt. But that’s what’s happening in the short-term. You may get a dollar rally and lower short-term U.S.rates.

How will Australian share markets fair, then? Good question…

It depends on how the rest of the world views Australia. If it’s viewed as essentially an emerging-market, commodity-related, high-yield risk asset play, stocks are going to get sold off. The Aussie dollar will give some ground against the greenback. And the market will wait to see how exposed Aussie banks are to any of the bourgeoning debt bubbles.

The bigger issue is the exposure of the Australian economy to the Chinese economy. According to the government and the media, that is the difference maker for the Aussie economy. It’s what guarantees future surpluses, growth, and prosperity. But if the Aussie economy is hitched to China on the upside, surely it’s hitched to China on the downside too.

Not that any of this potentially catastrophic news should stop Aussie houses from getting bigger or more expensive!

CommSec released a report yesterday showing Aussie houses are now the biggest in the world. The floor area of the average Aussie home is now 215 square metres. That’s a ten percent increase in the last ten years. Maybe Australians just need more living room!

The world’s growth is built on a debt bubble. The bubble is popping. Dubai is a tiny bubble by comparison. The bigger pops are coming.

Here’s a question. What if there was a serious debate about the integrity and objectivity of scientists who are pushing climate change, and the Australian media decided to bury the story? You would hardly know a big debate is raging about how honest the scientific establishment has been with its…er…science in support of anthropogenic global warming.

If you’re just catching up to the story, try this.

In the meantime, we returned from New Zealand to find the political establishment in an uproar. The Labor party and the media are having a field day at the disarray in the Liberal party over its climate change policy. It’s all quite entertaining.

But it’s also all quite a huge charade. How can you have a serious debate about an emissions trading scheme and carbon dioxide emissions in Australia without acknowledging the fact that a major global debate is now swirling about the science itself. Does it make any sense at all to make policy when the problem itself is in dispute?

Dan Denning
for The Daily Reckoning Australia

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How to Tell if Your Mortgage Broker is Legitimate

November 30, 2009 by · 1 Comment 


Over the past few years the real estate industry has gotten a somewhat unsavory reputation.  Being in the industry myself, I’m biased to tell you that most real estate professionals are high quality, upstanding “business citizens.”  However, as with any big purchase or transaction, smart consumers do research independent of people who stand to benefit in some way.  Here’s some tips on ways to protect yourself and identify some potential problems from the start as opposed to looking back after getting shafted and thinking “If only I would have checked that!”

Check to be sure the company you’re working with is in the Better Business Bureau.

Visit the Better Business Bureau’s website and go with a company that is listed.  This really should be standard practice when you’re considering making any larger purchase.  The BBB is a clearinghouse of any negative feedback and in my experience it’s generally extremely accurate.  The only warning here is not to let a single, irate complaint hold too much value as it could be a competitor or crazy-ish person but definitely take repeated negative feedback into account.

Call your state Real Estate Commission or Department of Real Estate.

Mortgage companies and the loan officer you were work with generally are required to have a license to broker your mortgage.  It would take a pretty brash person to do so without such a license but stranger things have surely happened.  I’d recommend taking a moment to Google “Your State” Real Estate Commission and calling to inquire about any possible violations or complaints filed against the company you’re planning to work with.

Ask the company if they’re properly bonded and insured.

You probably here the phrase “bonded and insured” all of the time but do you really know what it means?  Bonded refers to the fact that the business holds a surety bond.  In the case of a mortgage broker, ask if they have a mortgage broker surety bond.  If your broker looks at you puzzled and can’t answer the question, it’s probably best to head down the road to your second choice.  Insurance refers to the fact that the broker has errors and omissions insurance that will protect you should they make some sort of error (kind of self explanatory!).

The moral of the story is to be a smart consumer and don’t take anyone’s claims at face value.  That’s what got us into this mess!  At every point in the mortgage process, take a step back and spend a few moments verifying what you’re doing and doing a bit of quick research online.  Good luck and happy home buying!

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  1. Even if you’re an honest mortgage broker, you’re still a mortgage broker
  2. The Mortgage Broker vs. Mortgage Banker Argument
  3. The Big Squeeze – Countrywide Limits Broker Compensation

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NY Fed Announces More Reverse Repos Coming, Spooks Stocks

November 30, 2009 by · Leave a Comment 

Zero Hedge


After the first repo test was a complete failure, the FRBNY has decided to try one more time. However, unlike the large test conducted before, this time the Liberty 33 (in the words of Jeffrey Lebowski “That was me… and 32 other guys”) “plan to conduct a series of small-scale, real-value transactions with primary dealers.” Anything coming from the New York Fed that has the “real value” stigmata attached to it makes one wonder if April 1 came late this year. We can not wait to report on the near-certain failure that this particular round of repo tests will once again be proven to be, as banks simply can not wait to onboard the toxic filth they so graciously have handed to US taxpayers over the past six months.

 


 

As noted in the October 19, 2009 Statement Regarding Reverse Repurchase Agreements, the Federal Reserve Bank of New York has been working internally and with market participants on operational aspects of triparty reverse repurchase agreements to ensure that this tool will be ready if the Federal Open Market Committee decides it should be used. In the coming weeks, as an extension of this work, the Federal Reserve Bank of New York plans to conduct a series of small-scale, real-value transactions with primary dealers. Like the earlier rounds of testing, this work is a matter of prudent advance planning by the Federal Reserve. It does not represent any change in the stance of monetary policy, and no inference should be drawn about the timing of any change in the stance of monetary policy in the future.

These forthcoming operations are being conducted to ensure operational readiness at the Federal Reserve, the triparty repo clearing banks, and the primary dealers. The operations have been designed to have no material impact on the availability of reserves or on market rates. Specifically, the aggregate amount of outstanding transactions will be very small relative to the level of excess reserves, and the transactions will be conducted at current market rates.

The results of these operations will be both posted on the Federal Reserve Bank of New York’s public website where all temporary open market operation results are posted and reflected as a liability in tables 1 and 9 in the Federal Reserve System’s consolidated balance sheet statements.

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Goldman Believes Two-Thirds Of Financial Losses Realized, Completely Ignores Derivatives And FAS 166/167

November 30, 2009 by · Leave a Comment 

Zero Hedge


“Bad loans = big losses” Golaman’s most recent quantification of bank losses begins objectively enough, yet promptly devolves into yet another cheer fest for the financial system. GS promptly rehashes its estimate of “only” $2.1-2.6 trillion in bank losses, slighty adjusting the composition of loans it believes will go bad, while completely ignoring the onboarding of off-balance sheet liabilities (FAS 166-167) as well as any and all potential losses in the derivative realm, where Goldman itself is on the hook for tens of trillions in gross notional. The only thing missing from this fluff piece is a Conviction Buy rating on Goldman itself (but the Conviction Buy on toxic credit card and real estate debt laden BAC, JPM and COF is certainly present).

The highlights from the report:

We are entering the final third of loss recognition with $1.6 tn of losses realized to date. Key points:
(1) Stable estimate, changing composition: We have estimated $2.1-$2.6 tn of total losses from US credit since March of 2009. We still believe this is the right range but update the composition with more for prime mortgage and commercial real estate and less for consumer and C&I.
(2) Two-thirds through recognition: $1.6 tn of losses have been recognized, putting us about 2/3 through the cycle. Bank NPA and reserve levels are also about 2/3 of the way to the peak in prior regional home price depressions, which have exhibited similar cumulative loss rates.
(3) Remember the cause- bad lending: The core cause of the crisis – bad lending, particularly in real estate. 98% of losses can be traced to bad loans in general, and 70% of losses can be traced back to bad real estate loans. Regulators will likely re-focus on this. Consider that almost every bank that has failed cycle to date has either been overweight Option ARMs or construction loans.
(4) Prime problems: Prime mortgage credit trends continue to disappoint while commercial
real estate will be increasingly evident as well. Conversely, consumer and C&I losses seem likely to come in below our original expectations given recent improvement in the data and outlook.
(5) Q: Was the stress test enough? A: Yes: With unemployment at 10.2% vs. a 10.3% stress test peak, it is reasonable to ask if the stress test was enough. 2009 loan losses, trading results, and pre-provision earnings have all tracked better than the stress test forecast. Moreover, banks raised $10 bn more capital than the stress test required.

Continue to favor consumer credit.

A lower consumer cumulative loss outlook simply formalizes what we have been saying for some time – rate of change of unemployment matters more than the level. If  unemployment flattens out at a high level, consumer credit will improve. Thus we remain positive on big banks and credit card stocks with JPMorgan Chase, Bank of America and Capital One rated CL-Buy.

If the last sentence is not enough to force you to projectile vomit all over your monitor, here are some of the pretty charts that accompany what is in the narrowest definition of the term, a fluff piece, which as we pointed out completely ignores any discussion on critical derivative reform (shhh, keep quiet – any problems will just go away… and those trillions in IR swaps GS is on the hook for will behave very nicely once (when, not if) the US can not sell its tens of billions in 0% yielding bonds at any one given time in the near or more distant future).

Estimates of total expected losses and current losses versus prior cycles:

Cumulative estimates by loan category:

Recognized losses to date and future estimates:

Here are the main culprits:

Any mention of derivative is strictly verboten. So the underlying has caused trillions of losses yet derivatives thereto are all hunky-dory? Tell that to Barney Frank. Instead, here is what GS does tell: “Despite the current attention being paid to derivatives and other trading activities, such activities accounted for less than 2% of total losses to date. 98% of losses to date began with loan decisions and consequently, we believe that regulators will likely re-focus on the topic of lending standards.” We, on the other hand, believe Goldman is very wrong.

And somehow Goldman wants us to believe lending standards are sound… With the FHA giving virtually no money down loans to any semi-self aware bundle of protoplasm that can sign above the dotted line, we would have to feverishly agree.

And here is why banks have been selling every last MBS exposure on their books to the Federal Reserve. Ever wonder why that dollar in your pocket has lost so much value since Goldman started planning its bonus parties? Wonder no more.

If in need of more emetic content, full report attached.

Attachment Size
Goldman On Losses.pdf 220.17 KB

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