CASA GRANDE, Ariz. — Fannie Mae and Freddie Mac took over a foreclosed home roughly every 90 seconds during the first three months of the year. They owned 163,828 houses at the end of March, a virtual city with more houses than Seattle. The mortgage finance companies, created by Congress to help Americans buy homes, have become two of the nation’s largest landlords.
Bill Bridwell, a real estate agent in the desert south of Phoenix, is among the thousands of agents hired nationwide by the companies to sell those foreclosures, recouping some of the money that borrowers failed to repay. In a good week, he sells 20 homes and Fannie sends another 20 listings his way.
“We’re all working for the government now,” said Bridwell on a recent sun-baked morning, steering a Hummer through subdivisions laid out like circuit boards on the desert floor.
For all the focus on the historic federal rescue of the banking industry, it is the government’s decision to seize Fannie Mae and Freddie Mac in September 2008 that is likely to cost taxpayers the most money. So far the tab stands at $145.9 billion, and it grows with every foreclosure of a three-bedroom home with a two-car garage one hour from Phoenix. The Congressional Budget Office has predicted that the final bill could reach $389 billion.
Fannie and Freddie increased American home ownership over the last half-century by persuading investors to provide money for mortgage loans. The sales pitch amounted to a money-back guarantee: If borrowers defaulted, the companies promised to repay the investors.
Rather than actually making loans themselves, the two companies — Fannie older and larger, Freddie created to provide competition — bought loans from banks and other originators, providing money for more lending and helping to hold down interest rates.
“Our business is the American dream of home ownership,” Fannie Mae declared in its mission statement, and in 2001 the company set a target of helping to create 6 million new homeowners by 2014. Here in Arizona, during a housing boom fueled by cheap land, cheap money and population growth, Fannie Mae executives trumpeted that the company would invest $15 billion to help families buy homes.
As it turns out, Fannie and Freddie increasingly were channeling money into loans that borrowers could not afford to repay. As defaults mounted, the companies quickly ran low on money to honor their guarantees. The federal government, fearing that investors would stop providing money for new mortgage loans, placed the companies in conservatorship and took a 79.9 percent ownership stake, adding its own guarantee that investors would be repaid.
The huge and continually rising cost of that decision has spurred national debate about federal subsidies for mortgage lending. Republicans want to sever ties with Fannie and Freddie once the crisis abates. The Obama administration and congressional Democrats have insisted on postponing the argument until after the midterm elections.
In the meantime, Fannie and Freddie are editing the results of the housing boom at public expense, removing owners who cannot afford their homes, reselling the houses at much lower prices and financing mortgage loans for the new owners.
The two companies together accounted for 17 percent of real estate sales in Arizona during the first four months of the year, almost three times their share of the market during the same period last year, according to an analysis by MDA DataQuick. The signs of their presence — small placards hung beneath the real estate agent’s standard for-sale sign — often are planted in the front yards of several homes on the same street.
Valarie Ross, who lives in the Phoenix suburb of Avondale, has watched six of the nine homes visible from her lawn chair emptied by moving trucks during the last year. Four have been resold by the government.
“One by one,” she said. “Just amazing.”
The population of Pinal County, where Bridwell lives and works, roughly doubled to 340,000 over the last decade. Developers built an entirely new city called Maricopa on land assembled from farmers. Buyers camped outside new developments, waiting to purchase homes. One builder laid out a 300-lot subdivision at the end of a three-mile dirt road and still managed to sell 30 of the homes.
Bridwell sold plenty of those houses during the boom, then cut workers as prices crashed. Now his firm, Golden Touch Realty, again employs as many people as at the height of the boom, all working exclusively for Fannie Mae. The payroll now includes a locksmith to secure foreclosed homes and two clerks devoted to federal paperwork.
Golden Touch gets more listings from Fannie Mae than any other firm in Pinal County. Bridwell said he was ready to jump because he remembered the last time the government ended up owning thousands of Arizona houses, after the late-1980s collapse of the savings and loan industry.
“The way I see it,” said Bridwell, whose glass-top desk displays membership cards from the Republican National Committee, “is that we’re getting these homes back into private hands.”
Selling a house generally costs the government about $10,000. The outsides are weeded and the insides are scrubbed. Stolen appliances are replaced, brackish pools are refilled. And until the properties are sold, they must be maintained. Fannie asks contractors to mow lawns twice a month during the summer, and pays them $80 each time. That’s a monthly grass bill of more than $10 million.
All told, the companies spent more than $1 billion on upkeep last year.
“We may be behind many loans on the same street, so we believe that it’s in everyone’s best interest to aggressively do property maintenance,” said Chris Bowden, the Freddie Mac executive in charge of foreclosure sales.
Prices have dropped significantly. So by the time a home is resold, Fannie and Freddie on average recoup less than 60 percent of the money that the borrower failed to repay, according to the companies’ financial filings. In Phoenix and other areas where prices have fallen sharply, the losses often are larger.
Foreclosures punch holes in neighborhoods, so residents, community groups and public officials are eager to see properties reoccupied. But there also is concern that investors are buying many foreclosures as rental properties, making it harder for neighborhoods to recover.
Real estate agents tend to favor investors because the sales close surely and quickly and there is the prospect of repeat business. But community advocates say that Fannie and Freddie have an obligation to sell houses to people as a place to live, creating new homeowners.
David Adame worked for Fannie Mae’s local office during the boom, on programs to make ownership more affordable. Now with prices down sharply, Adame sees a second chance to put people into homes they can afford.
“Yes, move inventory,” said Adame, now an executive focused on housing issues at Chicanos por la Causa, a Phoenix nonprofit group, “but if we just move inventory to investors, then what are we doing?”
Executives at both Fannie and Freddie say they have an overriding obligation to limit losses, but that they are taking steps to sell more homes to families.
Fannie Mae last summer announced that it would give people seeking homes a “first look” by not accepting offers from investors in the first 15 days that a property is on the market. It also offers to help buyers with closing costs, and prohibits buyers from reselling properties at a profit for 90 days, to discourage speculation. Fannie Mae said that 68.4 percent of buyers this year had certified that they would use the house as a primary residence.
Freddie Mac has adopted fewer programs, but the company said that it has sold about the same share of foreclosures to owner-occupants.
The companies also have agreed to sell foreclosed homes to nonprofits using grants from the federal government’s Neighborhood Stabilization Program. Chicanos por la Causa, which won $137 million under the program in partnership with nonprofits in eight other states, plans to buy more than 200 homes in Phoenix in the next two years. The group plans to renovate the houses, then sell to local families.
The scale of such efforts is small. The home ownership rate in Phoenix continues to fall as foreclosures pile up and renters replace owners.
But John R. Smith, chief executive of Housing Our Communities, another Phoenix-area group using federal money to buy foreclosures, said that he tried to focus on salvaging one property at a time.
“I tell them, ‘OK, you want to unload 10 houses to that guy, fine,’” he said. “‘Now give me this one. And this one. And one over here.’”
Monday, June 21, 2010
CASA GRANDE, Ariz. — Fannie Mae and Freddie Mac took over a foreclosed home roughly every 90 seconds during the first three months of the year. They owned 163,828 houses at the end of March, a virtual city with more houses than Seattle. The mortgage finance companies, created by Congress to help Americans buy homes, have become two of the nation’s largest landlords.
Bank failure is 83rd in '10; pace more than double last year's
WASHINGTON (AP) — Regulators on Friday shut down a Nevada bank, raising to 83 the number of U.S. bank failures this year.
The 83 closures so far this year is more than double the pace set in all of 2009, which was itself a brisk year for shutdowns. By this time last year, regulators had closed 40 banks. The pace has accelerated as banks' losses mount on loans made for commercial property and development.
The Federal Deposit Insurance Corp. took over Nevada Security Bank, based in Reno, with $480.3 million in assets and $479.8 million in deposits. Umpqua Bank, based in Roseburg, Ore., agreed to assume the assets and deposits of the failed bank.
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The failure of Nevada Security Bank is expected to cost the deposit insurance fund $80.9 million.
In addition, the FDIC and Umpqua Bank agreed to share losses on $368.2 million of Nevada Security Bank's loans and other assets.
The number of bank failures is expected to peak this year and be slightly higher than the 140 that fell in 2009. That was the highest annual tally since 1992, at the height of the savings and loan crisis. The 2009 failures cost the insurance fund more than $30 billion. Twenty-five banks failed in 2008, the year the financial crisis struck with force, and only three succumbed in 2007.
As losses have mounted on loans made for commercial property and development, the growing bank failures have sapped billions of dollars out of the deposit insurance fund. It fell into the red last year, and its deficit stood at $20.7 billion as of March 31.
The number of banks on the FDIC's confidential "problem" list jumped to 775 in the first quarter from 702 three months earlier, even as the industry as a whole had its best quarter in two years.
A majority of institutions posted profit gains in the January-March quarter. But many small and midsized banks are likely to continue to suffer distress in the coming months and years, especially from soured loans for office buildings and development projects.
The FDIC expects the cost of resolving failed banks to grow to about $100 billion over the next four years.
The agency mandated last year that banks prepay about $45 billion in premiums, for 2010 through 2012, to replenish the insurance fund.
Depositors' money — insured up to $250,000 per account — is not at risk, with the FDIC backed by the government.
Copyright 2010 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.China forex move could thwart U.S. hopes - Roubini
June 19 (Reuters) - China's decision to move away from its currency peg might mean the yuan weakens against the dollar instead of strengthens as Washington wants, Nouriel Roubini, one of Wall Street's most closely followed economists, said on Saturday.
China said on Saturday it would gradually make the yuan more flexible after pegging it to the dollar for nearly two years, a move that the U.S. government and others around the world have long been calling for.
"This is the first significant signal in years of a change in Chinese currency policy," Roubini, best known for having predicted the U.S. housing meltdown, told Reuters.
But it remains to be seen how China would put the new system into practice including the composition of a basket of currencies that Beijing will use as a reference point for the yuan -- also known as the renminbi -- and the base date for that basket, he said in an e-mail.
"Since they have not changed the previous range for the band -- plus or minus 0.5 percent -- most likely on Monday China will allow the renminbi vs U.S. dollar to move," said Roubini.
The yuan has risen sharply in recent months against the euro, which sank over Europe's debt problems, so a stronger yuan could not be taken for granted, he said.
If the euro were to continue to depreciate, "the renminbi would have to be allowed to depreciate relative to the dollar, a paradoxical outcome," Roubini said.
His comments echoed those of an adviser to China's central bank on Saturday.
Li Daokui, an academic adviser to the monetary policy committee of the People's Bank of China, told Reuters in Beijing that the yuan could depreciate against the dollar if the euro falls sharply against the U.S. currency.
Roubini, like other analysts, said a major strengthening of the yuan looked unlikely.
"Even if the Chinese were to allow a gradual renminbi appreciation relative to the U.S. dollar, the size of such appreciation would be modest over the next year, not more than 3 or 4 percent as the trade surplus has shrunk, growth is likely to slow down on China and labor/employment unrest remains of concern to the Chinese."
Document shows BP estimates spill up to 100,000 bpd
WASHINGTON (Reuters) – An internal BP Plc document released on Sunday by a senior U.S. congressional Democrat shows that the company estimates that a worst-case scenario rate for the Gulf of Mexico oil spill could be about 100,000 barrels of oil per day.
The estimate of 100,000 barrels (4.2 million gallons/15.9 million liters) of oil per day is far higher than the current U.S. government estimate of up to 60,000 barrels (2.5 million gallons/9.5 million liters) per day gushing from the ruptured offshore well into the sea.
The document, which is undated, was released by U.S. Representative Ed Markey, chairman of the energy and environment subcommittee of the House of Representatives Energy and Commerce Committee.
The amount of oil actually gushing from the well has been a matter of considerable controversy since the spill began on April 20, with critics saying BP has understated the flow rate.
BP spokesman Toby Odone said the document appeared to be genuine but the estimate applied only to a situation in which a key piece of equipment called a blowout preventer is removed.
"Since there are no plans to remove the blowout preventer, the number is irrelevant," BP spokesman Toby Odone said.
The document appears to estimate the highest potential flow of oil if key components of the well fail. The document does not indicate that the 100,000 barrels per day is BP's estimate of the actual amount flowing from the ruptured Gulf of Mexico well.
The document states, "If BOP (blowout preventer) and wellhead are removed and if we have incorrectly modeled the restrictions -- the rate could be as high as ~ 100,000 barrels per day up the casing or 55,000 barrels per day up the annulus (low probability worst cases)"
"This document raises very troubling questions about what BP knew and when they knew it," Markey said in a statement.
"It is clear that, from the beginning, BP has not been straightforward with the government or the American people about the true size of this spill. Now the families living and working in the Gulf are suffering from their incompetence," he added.
BP initially estimated that the spill was pouring 1,000 barrels per day into the ocean and then upped that figure to 5,000 barrels per day.
"Right from the beginning, BP was either lying or grossly incompetent," Markey told NBC's "Meet the Press" program. "First they said it was only 1,000 barrels, then they said it was 5,000 barrels."
Odone said, "I don't think there's been any underestimating. We've always said we would deal with whatever volume of oil was being spilled and that's exactly what we're doing."
The document was posted on the Internet at http://globalwarming.house.gov/files/WEB/flowrateBP.pdf
(Writing by Will Dunham, additional reporting by Bruce Nichols in Houston and Thomas Ferraro in Washington; Editing by Sandra Maler)
4,171 on Oahu have no homes
A "point-in-time" count done early this year found 5,834 homeless people statewide
Social worker Sharon Malloy, foreground, and outreach worker Cindy Gilman, both with the Waikiki Health Center’s Care-a-Van program, talked with Donald Jackson, 63, in Kakaako yesterday. Jackson, who said he went to Kaimuki High School in his senior year, has been homeless since moving from Oregon to Hawaii a decade ago.
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The number of homeless on Oahu is up by about 15 percent -- or 533 people -- from 2009, according to a new "point-in-time" count that providers say highlights the need for continued attention to one of the biggest social crises in the state.
Some 4,171 homeless people were counted on Oahu, 1,374 of whom were unsheltered, the survey showed.
The increases on Oahu were offset by big decreases on the Big Island, where the unsheltered homeless population declined by half last year to 313, and on Maui, where the sheltered population dropped by about 30.
Altogether, the count -- designed to represent a rough estimate of homeless people statewide at a given point in time -- shows there are about 5,834 unsheltered and sheltered in the islands, a 1 percent increase from last year.
Volunteers and providers fanned out across the state the night of Jan. 25 to conduct the point-in-time survey, which differs from other counts based on averages. And the study acknowledges that not all homeless people in the state were counted, since outreach workers knew of people living in "mountains, caves and bushes" but did not count them because of safety concerns.
Doran Porter, executive director of the Affordable Housing and Homeless Alliance, said he thinks the Oahu unsheltered counts missed a good number of people.
He added that new camping rules and night closing at parks mean the homeless are moving into less accessible places or are moving more often.
"It makes it harder to do our outreach services," he said, adding that many of the new homeless people he has seeing are victims of the economy, after either losing their job or seeing their hours cut.
"So many I talk to were living on the edge -- people living one or two paychecks away from being homeless," he said.
The report also shows a shift in where unsheltered people are staying.
The highest number of unsheltered homeless is still on the Waianae Coast, where 410 (including 28 families with children) were counted. That is down from 532 counted in 2007.
There were 394 unsheltered homeless counted in downtown this year (up from 312 in 2009), and 307 counted in East Honolulu (from 254 last year).
The increase on Oahu comes as lawmakers are calling for new solutions to address the problem.
Over the past several years, the state has spent upward of $40 million to open emergency and transitional homeless shelters -- especially on the Waianae Coast -- to tackle homelessness.
Russ Saito, state comptroller and the governor's special adviser on homelessness, said the state is now trying to focus on creating more affordable housing.
"We already have shelters," Saito said. "Now what we've got to focus on is just creating affordable units."
Darlene Hein, director of community services at the Waikiki Health Center, which provides outreach and medical services to homeless people islandwide, said the numbers are not surprising, given the economic downturn.
"On the whole, what I take from this is there's still a real need to ensure that we have good services," she said, adding that it is key to make sure people placed in shelters make the next step into permanent housing.
The report also counted the chronic homeless, who made up more than one-third of the unsheltered population on Oahu. Statewide there are about 705 chronically homeless people.
In Kakaako yesterday outreach worker Cindy Gilman and social worker Sharon Malloy, both with Waikiki Health Center's Care-a-Van program, offered food and services to homeless people in the area.
"Are you doing good?" Gilman asked Sharon Isadora Rose, 52, who has been homeless for nine years.
"I'm alive," Rose replied, laughing.
Nearby, Donald Jackson sat on an air mattress, eating a cheese sandwich given to him by a church group. The 63-year-old has been on the streets for a decade, ever since moving here from Oregon.
He recycles cans for money and gets food stamps. He has tried living in shelters, but it did not work out, he said.
"It's not that hard" to live on the streets, he said. "You've just got to work for it."
Slide in shipping shows global recovery running out of steam
(Globe and Mail)
E urope’s woes are showing early signs of stalling the recovery of global trade. The Baltic Dry Index, a measure of global shipping that is followed closely by economists, is suddenly raising red flags over the pace of the economic rebound. The reading ... Read Full Story
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