Reverse Mortgage Lenders Exiting: Will They Come Back?

-Zillow Blog

It is no secret that America’s population isn’t getting any younger. In fact, according to a recent Harvard study, the number of people who will be considered “seniors” will increase 35% within the next ten years.

Will these newly-minted seniors be able to take advantage of an FHA reverse mortgage to leverage the equity they have built up in their homes so they can enjoy retirement?

Maybe. Maybe not.

According to at least one HUD official, the FHA insured reverse mortgage is here to stay and has a future as an option for seniors.

But many large lenders who have helped seniors with FHA reverse mortgages in the past, are no longer offering this mortgage product. One large lender who is pulling out even stated in their press release that the FHA reverse mortgage program was designed in a “different economic time” (the reverse mortgage program was originally designed by HUD in 1987).

Reverse Mortgages: What Is Different?

As with the “normal” mortgage market, there have been a substantial number of changes to the FHA reverse mortgage program in the last few years. More recently, at least three of the largest FHA reverse mortgage lenders have decided to discontinue helping seniors get FHA reverse mortgages in part due to reputation risk that a recent HUD opinion may cause.

Why are lenders exiting the reverse mortgage market?

1. The unpredictability of home values
2. The difficulty of determining a senior’s abilities to make payments on property taxes and homeowners insurance.

Not many people predicted the dramatic decline in home values – and the new uncertainty of future home values combined with a recent change by HUD in essentially requiring a lender to foreclose on a homeowner with an FHA reverse mortgage should they become delinquent on their property taxes or insurance.

In a recent email after deciding to exit the reverse mortgage business, one Wells Fargo executive articulated the reputation risk lenders hold when property values decline and seniors are having trouble keeping up with even their property taxes and insurance:

“The last straw in our decision was the recent HUD decision to require servicers to initiate foreclosure on the Senior Reverse Mortgage customers [who] could not pay their taxes and insurance,” the email says. “When a product or program creates more reputation risk than value … well … you get the picture.”

Falling property values.  Seniors’ budgets being stretched to the point where they can’t afford to keep up on property taxes and insurance. HUD encouraging foreclosure for homeowners with a FHA insured reverse mortgage if they can’t keep their taxes and insurance current.

It all adds up to lenders exiting the reverse mortgage business.

But probably not forever.

They can always get back in should the environment, trend of property values or HUD guidelines change.

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See Homes That Will Float Your Boat

-Zillow Blog

Living close to a body of water has its share of real estate perks — water views, waterfront properties, private beaches, and personal boat launches are a few top-of-mind examples. One type of real estate that ultimately takes advantage of water, however, is the floating home.

Perhaps the most popular floating home was the one used in the hit movie, “Sleepless in Seattle,” starring Tom Hanks and Meg Ryan.  Not to be confused with a house boat — which is mobile and can move around — a floating home is permanently attached to a dock, is connected to a sewer system and does not have its own means of propulsion. But, like a house boat, it has incredible water views.

Ranging in size from small (800 sq ft) to large (5,000 sq ft), floating homes aren’t for individuals who are claustrophobic, or easily irritated by disturbances from otters, rowers, and people who poke and nose around in their kayaks. But space isn’t the selling point.

“We’re selling the lifestyle more than anything else because it is so rare and special,” says Rick Miner, a Seattle real estate agent and floating home owner for nearly 16 years.

Miner estimates there are less than 500 floating homes in Seattle and “less than 20 a year go on the market each year.”

Seattle has an abundance of floating homes, as do other locations along the West Coast, such as select areas of California and Oregon.

See Floating Homes for Sale in U.S.:

2369 Fairview Ave E, Slip 6, Seattle, WA 98102 (above)
For Sale: $3,450,000

While mortgages and home insurance differ with these floating homes, price tiers exist just like the standard land-based single-family homes. Depending on the size and location, floating homes range in price from $150,000 to several million. This modern, 3-bedroom, 3.5-bathroom, 3-story home (pictured above) represents the luxury category of floating homes. This “floating penthouse” is priced at $3.45 million and offers 850-sq ft of terraces, a rooftop deck, boat lift and deed parking.

2764 Westlake Ave N, Apt G, Seattle, WA 98109 (above)
For Sale: $825,000

A downside to floating communities is the fact that the homes don’t come with a driveway or garage close to your house. However, shops, grocery stores, and restaurants are usually a short walk away as is the case for this 1-bedroom floating home (pictured above) for sale on Seattle’s Westlake real estate market.

2321 Fairview Ave E, Slip 3, Seattle, WA 98102 (above)
For Sale: $549,000

Another one of the joys of living on the water is the opportunity to take your own boat to waterfront restaurants, an option for the new homeowners of this 2-bedroom home (pictured above), which is located on Lake Union, in the heart of Seattle. Like most floating home communities, this home has close neighbors and close proximity to city destinations.

2394 Mariner Square Dr, B-12, Alameda, CA 94501 (above)
For Sale: $485,000

Some are even close to public transportation, as is noted in the property listing for a floating home on the Alameda real estate market for $485,000 (pictured above). The 1,000-sq ft home is right across from Jack London Square with 2 bedrooms, 1.5 bathrooms, and spacious upper deck.

11666 N Island Cove Ln, Portland, OR 97217 (above)
For Sale: $169,000

Located in Hayden Island near Portland, OR, this 2-bedroom, 1-bathroom home (pictured above) was built in 2007 and features hardwood and radiant-heat floors, surround sound, walk-in closets and a den all for $169,000. In price and structure, this is a rare find on both the Hayden Island real estate and Portland real estate markets.

2023 N Jantzen Ave, Portland, OR 97217 (above)
For Sale: $433,000

This 3,000-sq ft Portland home on Hayden Island (above) has a gas fireplace in the living room, a slip for a 50-foot boat, sweeping river views and an upper master suite that offers 735 sq ft of space, including a sunroom.

17809 NE Marine Dr, Portland, OR 97230
For Sale: $895,000

Who says floating homes are small? The listing description for this humongous, 4,200-sq ft floating home on Portland’s Columbia River claims it is “completely still, no movement” since it is built on a concrete slab that can “hold up 2 million pounds.” Containing 5 bedrooms and 4.5 baths, this floating home also has a 17-foot swim spa off the master deck.

18525 NE Marine Dr, SLIP D2, Portland, OR 97230
For Sale: $599,900

Gorgeous, modern floating home with green features, including Energy Star appliances. Smartly designed with three levels of decks to enjoy the Columbia River. The home features hardwood floors, has 2,436 sq ft, with 4 bedrooms and 3 bathrooms. Home comes with ownership of both sides of the dock and has room (12′x40′) for a boat.

2394 Mariner Square Dr, #b-16, Alameda, CA 94501 (above)
For Sale: $520,000

As previously mentioned, mortgage loans and home insurance for floating homes are different than your standard Fannie Mae-type mortgages. Floating home communities, especially those of a “higher-end” nature — like this home on the Alameda real estate market for $520,000 — “are going to require people to have 20 percent down minimum,” Miner explained.

But, many floating home owners — like Miner — believe the different insurance and mortgage requirements to buy a floating home are worth it.

“Once you have it [a floating home], you may never leave it,” Miner said.

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Dome Homes Dot the Landscape

-Yahoo! Real Estate

While dome homes may be odd-looking to some people, to a growing set of home buyers, they are now the only way to go.

According to Dennis Johnson of Natural Space Domes in Minnesota, the housing crisis and recent devastating tornadoes have increased awareness and interest in building, or buying dome homes.

“We’ve had domes go through hurricanes,” Johnson said. “The three domes by New Orleans, had no damage around them at all even though the trees were decimated. [A] fourth one had shingles torn off, but no structural damage to the dome.”

Missouri’s Romain Morgan is a believer. In 2004, Morgan’s Halfway, MO, dome home withstood a tornado that swept over her home and left nary a trace of destruction. “I had no damage,” Morgan reported. “Just one piece of trim on a side window was torn off. I had a realtor ask me how much I would take for my house. I said ‘nothing.’ I won’t sell it. The feeling of security is incredible.”

Because dome homes are energy-efficient, easy to build and are able to better withstand hurricanes and tornadoes due to its round, aerodynamic shape, the dome home is becoming more popular — especially in areas that are prone to tornadoes and hurricanes.

The geodesic dome was first made popular by inventor Buckminster Fuller who wanted to revolutionize housing in the 1940s. Lightweight, cost-effective, easy to assemble, and built to withstand even the harshest of weather conditions, domes can be found across the U.S. and a number of companies sell dome kits.

“A bathroom would be a bathroom, and the kitchen would be a kitchen but the dome shell part of it is going to be less cost than a traditional box house,” Johnson said. “The safety factor is a big concern and I think this year a lot of people have been asking questions in regards to tornadoes."

Dome home kits range in cost; the basic frame starts at around $5,000 and the full kit, including siding, ranges more toward $75,000.

Interested in buying a dome home? Here are some for sale in the U.S.:

211 Camino De Lovato, Taos, NM
For Sale: $74,000

A 20-foot diameter dome home in Taos, NM.
Photo: Zillow

This teeny-tiny dome — measuring 20 feet in diameter — sits on a whopping ten acres in Taos, New Mexico. Like many other dome homes, it was built with a kit and an additional kit is also available for sale with the property. Located twenty minutes outside of town, this dome is better suited as a little getaway home rather than a primary residence.

9950 S Warhawk Rd, Conifer, CO
For Sale: $915,000

Interior of dome home in Conifer, CO.
Photo: Zillow

Like the Taos dome, this Conifer home for sale is a monolithic dome. Completely off the grid, this built-green 3-bedroom, 2.5-bath home relies on solar power for utilities. The property includes a little over 38 acres and is surrounded by mountain and forest views.

9157 Hwy 42 S, Coquille, OR
For Sale: $350,000

A three-bedroom dome home in Coquille, OR.
Photo: Zillow

Located on the southern portion of the Oregon Coast, this geodesic dome home sits on over seven acres of land with pasture, nut and fruit trees. The 2,060-square-foot home has 3 bedrooms, 2 bathrooms and includes a private dock and river views. The home is a few minutes from the small town of Bandon, OR as well as nearby parks and beaches.

35 Aprils Way, El Prado, NM
For Sale: $225,000

A two-bedroom dome home in El Prado, NM.
Photo: Zillow

This piece of Taos real estate is a monolithic dome. Like a geodesic dome, monolithic domes are built using kits and can withstand extreme weather. While a geodesic dome is made up of several triangles to craft a dome shape, a monolithic dome is made from a one-piece form — most often concrete. This 2-bed, 2-bath home has 1,017 square feet of living area and sits on nearly one acre of land with views of the surrounding mountains.

29365 Henry White Rd, Albany, LA
For Sale: $265,000

A four-bedroom dome home in Albany, LA.
Photo: Zillow

The only geodesic dome home on the Albany real estate market, this home sits on over two acres and has a wide open floor plan typical of most dome homes with soaring ceilings and large rooms. The 4-bedroom, 2.5 bath home has 3,144 square feet of living space.

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Two Big Banks Exit Reverse-Mortgage Business

-The New York Times

The nation’s two biggest providers of reverse mortgages are no longer offering the loans, as the economics of the business have come under pressure.

Wells Fargo, the largest provider, said on Thursday that it was leaving the business, following the departure in February of Bank of America [BAC 11.1494 0.3294 (+3.04%) ], the second-largest lender. With the two biggest players gone — together, they accounted for 43 percent of the business, according to Reverse Market Insight — prospective borrowers may find it more difficult to access the mortgages.

Reverse mortgages allow people age 62 and older to tap what may be their biggest asset, their home equity, without having to make any payments. Instead, the bank pays the borrowers, though they continue to be responsible for paying property taxes and homeowner’s insurance.

But the loans have increasingly become a riskier proposition. Banks are not allowed to assess borrowers’ ability to keep up with all their payments, and more borrowers do not have the wherewithal to stay current on their homeowners’ insurance and property taxes, both of which have risen in many parts of the country. At the same time, borrowers have been taking the maximum amount of money available, often using it to pay off any remaining money owed on the home. Yet home prices continue to slide.

“We are on new ground here,” said Franklin Codel, head of national consumer lending at Wells Fargo [WFC 27.80 0.31 (+1.13%) ]. “With house prices falling, you reach a crossover point where they owe more than the house is worth and it creates risk for us as mortgage servicers and for HUD.” He was referring to the Department of Housing and Urban Development, whose Federal Housing Administration arm insures the vast majority of these loans through its Home Equity Conversion Mortgage program.

As a result, banks are seeing a rise in what are known as technical defaults, when homeowners fall behind on their taxes or homeowner’s insurance, both of which are required to avoid foreclosure. According to Reverse Market Insight, about 4 to 5 percent of active reverse mortgages, or 25,000 to 30,000 borrowers, are in default on at least one of those items.

Bank of America, meanwhile, said that declining home values made fewer people eligible for reverse mortgages. So it decided to redeploy at least half of those working on the mortgages to its loan modification division, which has been criticized for failing to help enough homeowners on the brink of foreclosure.

For Wells Fargo, however, the inability to assess borrowers’ financial health was the biggest factor for exiting the business. Anyone over the age of 62 with enough home equity can take out a reverse mortgage, regardless of their other income. The amount of money received is determined by the borrower’s age, the amount of equity in the home and prevailing interest rates.

“We are not allowed, as an originator, to decline anyone,” added Mr. Codel of Wells Fargo. We “worked closely with HUD to find an alternative solution and we were unable to find one with them, which led to this outcome.”

Reverse mortgage borrowers are required to pay premiums for mortgage insurance, which protects the lender if the homes are ultimately sold for less than the mortgage value, since the government is required to pay the difference to the lender. The premium rates were increased last October to account for declining home values (though one sizable upfront mortgage premium was eliminated to make the loans more attractive to certain borrowers).

But lenders are responsible for making tax and insurance payments on behalf of delinquent borrowers until they submit an insurance claim to HUD, at which point the agency would be responsible since it provided the insurance against default.

In January, HUD sent a letter to lenders and reverse mortgage counselors that provided guidance on how to report delinquent loans to the agency, and what steps the lenders could take to get borrowers back on track, like establishing a realistic repayment plan that could be completed in two years or less, or getting a HUD-approved mortgage counselor involved to help come up with a solution. If one cannot be reached, the lenders must begin foreclosure proceedings.

Both Wells Fargo and Bank of America have said they have not foreclosed on any borrowers to date.

The National Reverse Mortgage Lenders Association, the industry group, said it has been working with HUD to come up with procedures that would allow lenders to assess a prospective borrower’s income and expenses, or at least require homeowners to set aside money to pay for taxes and insurance. A spokeswoman for HUD said the guidance is still being drafted.

As it stands now, borrowers are required to see a HUD-approved lender before they can apply for a reverse mortgage. As part of that process, consumers are educated on the nuts and bolts of how the loans work and what their responsibilities are, including that they need to be able to continue to pay taxes, insurance and keep the property in good repair.

“We don’t tell consumers what decision to make, but we do try to give them the tools to make a decision,” said Sue Hunt, director of reverse mortgage counseling at CredAbility, a nonprofit consumer credit counseling agency. She added that their sessions last about an hour and 15 minutes, on average. The counselors also look at the consumer’s budget to see if it is sustainable with the mortgage, as well as what circumstances might arise that could throw the borrower off track.

“Outside factors are affecting people who thought five or six years ago that they were in pretty good shape,” she added. “The world has changed a bit around them.”

In days past, the borrower would get the reverse mortgage, and equity would continue to build, experts said, which would provide borrowers with more options — like refinancing — should they fall on hard times. Declining home values have changed that calculus for both bankers and consumers. Borrowers have not been able to pull out as much money. At the same time, the government has also tightened its withdrawal limits.

There were a total of more than 50,000 reverse mortgages, totaling $12.66 billion, made industry wide since last October, according to HUD.

Both Wells Fargo and Bank of America will continue to service their existing reverse mortgages. And the reverse mortgage association has said it will work with its members to ensure that senior citizens who need the loans can get them, though some experts said that less competition could increase certain fees.

“There is a certain amount of the business done by Wells and Bank of America that happens because of their bank branches, brand names and large sales forces,” said John K. Lunde, president of Reverse Market Insight. “We would expect something more than half of their volume to be absorbed by the rest of the industry, with something less than half not happening.”

Wells Fargo, which said that reverse mortgages represented 2.2 percent of its retail mortgage business, employs about 1,000 reverse mortgage workers. They are being given a chance to find other positions at the bank. Bank of America said that about half of its 600 workers have been reassigned within the bank. MetLife, the third-largest provider of reverse mortgages, declined to comment on its business.

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The Anatomy of An Appraisal Fee

-Appraisal Buzz

As the song goes, “…Should I stay or Should I Go?” Many appraisers are thinking about leaving the profession and many have already moved on. How much time does it take to complete a residential appraisal, what are the costs to produce an appraisal and what is an appraiser’s net take-home pay after all those costs? Attached is a spreadsheet that can be used as a tool by residential appraisers to evaluate the Anatomy of an Appraisal, the performance of their business and their net take home pay.

Typically, an appraiser would compare their net take-home pay with the gross salary they could receive in an alternative salaried position (appraisal or non-appraisal) when determining whether to leave their appraisal business. As a result, the spreadsheet provided is a pre-tax estimate of the appraiser’s net take-home pay. Some appraisers could opt to hire a staff appraiser to author appraisals for their business and when doing so, would be required to pay that appraiser an acceptable wage which we estimate as a national average gross wage of $40,000. The fees, salaries and expenses in your local area may vary but the model can be adjusted to reflect your actual expenses, revenues and salaries. Our use of an average $40,000 gross salary is for illustration purposes only and immaterial since we add then deduct the salary with business profits or losses to arrive at net take-home pay. Thus, increasing or decreasing of the $40,000 salary we used has no effect on the net take home pay. Some appraisers for example, despite seeing a decline in fees and revenues continue to pay themselves the same salary so they can keep paying their bills. However, this requires increased capital contributions to their business from savings, draw down their IRA or 401K or increased debt. If fees ultimately fail to recover, then appraisers with unsustainable gross salaries would be required to reduce their salaries and the model can help appraisers evaluate their production costs.

We calculate the average appraisal takes about 12.5 hours to produce, factoring in both actual production time plus the appraiser’s non-productive overhead time. Our model also estimates that a typical USA residential fee appraiser produces a mix of fee work with some at Customary & Reasonable Rates and some AMC fee work well below Customary and Reasonable rates resulting in average annual gross revenues of $70,000, representing a gross hourly rate of $23.40. Sounds great right?

However, after accounting for all expenses and cost of producing the appraisal, we calculate the typical residential appraiser has a net take-home pay of just over $29,000, which after accounting for a typical 60 hour appraiser work week represents effective net take home pay of about $9.70 per hour.

Wow. A few weeks ago I offered a comment on the Buzz (in jest) that I was thinking about a full-time 40 hour job at McDonalds or Wal Mart – but I wouldn’t know what to do with the raise or the extra time off. Although it was joke at the time, having now calculated all the operational costs, I find the joke was on me and other appraisers because those alternative jobs would in fact appear to be a raise.

Hold on, it gets worse.

If the appraiser decided to do exclusively AMC work in my market, taking into account the notably lower AMC fees in my area, the appraiser’s annual gross revenues would decline to $45,000 and after accounting for all expenses, their net take home pay would be negative $3.82 per hour! That’s right, after accounting for business losses, an appraiser who relies exclusively on AMC work would have a negative net take home pay. That means there are likely appraisers out there who are funding their business losses and trying to survive by drawing down IRA, 401k, selling off assets, making capital contributions, going further into debt and taking other drastic steps to survive. Taking into account those business losses, a typical AMC dependent appraiser is in fact suffering an annual economic loss and would certainly seek alternative employment.

Appraisers have commonly shared with me two primary reasons for the decision to close their business or leave the profession: 1) Economic considerations and 2) Battle wary and tired of fighting after 17 years of “war”. The war they refer to is the constant battle since 1994 federal policy allowed and required (for the first time since the Great Depression) that Independent and Objective Appraised Value reports be required to compete with advocated values of Broker Price Opinions. Appraisers are also fighting a second War of fees with AMC’s who commonly take 40% to 60% of the overall appraisal fee, reducing fees paid by many (but not all) AMC’s to appraisers well below “Customary & Reasonable” Levels. The third War has always existed (but worsened considerably in 1994 and since) which involves the constant War by clients, borrowers, agent and others constantly wanting to negotiate the appraised value.

Is it any surprise that the huge increase in volume of advocated BPO valuations along with the huge increase in market share of AMC’s since 1994 resulted in a bubble (over valuation of assets) – and an environment where appraisers were forced to compete on the basis of their willingness to hit advocated values and forced to compete with unregulated, agent advocated BPO products? Its been estimated that since 1994, the market share of BPOs in lending transactions has increased from near zero to an approximate 60% market share today compared with a 40% market share for appraisals.

Appraisers are losing the war and as a result, fleeing the profession. An appraisal of the appraisal profession and economic review of the numbers suggests it may be time to get out.

Comments About the Model:

Why include a salary? Most businesses that run a P&L include a market supported salary. Increasing or decreasing the salary for your local market is easy and has no effect on the net take-home pay, as increasing your salary will reduce your net profits while reducing your salary will increase your net profits.

Why such an expensive SUV? That model had lower operating costs and higher re-sale value. Thus, if you use a lower priced car, the maintenance costs may rise and your resale value may decline having the effect of increasing rather than decreasing your annual fully loaded auto costs.

Why loan expense? Above the SUV cost, we needed to account for the car loan interest expense.

Don’t AMC’s have the effect of reducing marketing costs and/or allowing appraisers to produce higher volumes of reports? Maybe. However, in light of the huge difference in fees in my market between AMCs vs Customary and Reasonable, it would be economically advantageous for an appraiser to seek non-AMC work at higher fees and thus they still incur marketing expenses. Also, certainly some appraisers can attain higher rates of production but my experience managing large volumes of appraisers is that these represent valid, sustainable production numbers while maintaining high levels of quality. My sense is that AMCs spend a considerable amount of increased cost and time asking for and chasing down corrections because of their reliance on the lowest fee provider. Conversely, my experience in awarding hundreds of million in appraisal fees that higher fees when coupled with higher quality appraisers, leads to lower overall operating costs and lower loan losses.

My Health Care Costs are higher and I don’t belong to an appraisal organization? Also, the fees are different in my market. Great, adjust the model accordingly to reflect your actual revenues and expenses and find out how much you really are earning on an effective net take-home basis.

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Big four top contenders to replace Fannie, Freddie

-Housingwire

As the government-sponsored enterprises slowly wind down their massive domination of the mortgage finance markets, the most likely parties to fill the capital hole left behind are the big four banks.

However, how well or how much the big four can cover remain up for discussion.

On Tuesday, speakers tossed ideas back and forth at a panel titled: "Housing Finance Reform Proposals." They gathered in Washington at the annual meeting of the American Securitization Forum, a trade group representing secondary market players.

One speaker wryly referred to the unofficial title of the panel as "life without the GSEs." The future may be murky, and the present is unlikely to change in the near-term, one panelist said.

The evolution of the mortgage finance markets away from government support will become clearer as financial reform under Dodd-Frank begins to take hold. Until then, according to Alfred Pollard, general counsel Federal Housing Finance Agency, the government will continue support Fannie Mae, Freddie Mac and the dozen Federal Home Loan Banks.

"If the enterprises are in conservatorship we are supposed to conserve their assets," Pollard said. "We made a decision that Fannie and Freddie, and home loan banks should stick to their core businesses."

Moderator Christopher DiAngelo, partner at Katten Muchin Rosenman, said Bank of America (BAC: 10.78-0.65%), Citigroup(C: 39.91 -0.20%), JPMorgan Chase(JPM: 39.45 -1.08%) and Wells Fargo(WFC: 27.40-0.18%) hold 70% of the private mortgage origination market. Therefore, they seem the likely option to take market share from the GSEs.

Others financing options, such as developing a covered bond market or a greater presence of private investor bases, such as from real estate investment trusts, are only going to handle a small portion of the financing, the panel said.

"A covered bond market does not solve a lot of problems," said Nancy Mueller Handal of MetLife Investments, a $45 billion investor in mortgage-backed securities, 80% of which are GSE bonds.

"There is not the investor base to fill the gap that people think. We would have very little room for covered bonds," she added.

Furthermore, investors want a stronger foundation for investments in private-label MBS. Those investors will want vertical risk retention, adequate access to representations and warranties and a third-party arbitrator assigned to deals.

"The pipes are not in place yet," Handal added.

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Upside Down Houses

-CrookedBrains

This Upside Down House is build by Daniel Czapiewski, Polish businessman in tiny Polish village of Szymbark. Usually, his company builds homes in 3 weeks but this one took 114 days because the workers were confused with structural design. Its an artistic statement about current state of the world. Apart from this the builders lavished attention on every last detail & after the construction of the house they decorated & fitted it out to the highest specifications.

 

 

Norman Johnson's Upside-Down House

It's Norman Johnson's Upside-Down House, a way to drive traffic to Sunrise Golf Village. This is one way to get people to walk through your model home. That's a real car upside-down in the carport, real standard size furniture was fixed from the "floor" inside.

Japanese Upside-Down House

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Banks stand to benefit from higher interest rates: S&P

-Housingwire

Investors may fret rising interest rates when the government tightens its monetary policies, but Standard & Poor's said higher rates should help the nation's banks.

"Financial institutions are exposed to interest-rate risk because of mismatches in the maturity structure and re-pricing terms of their assets and liabilities," S&P said.

"Despite marketplace concerns, we believe interest-rate risk is unlikely to be a problem for most of the U.S. financial institutions we rate, including commercial banks, asset managers and money markets," S&P credit analyst Rodrigo Quintanilla said. He also said the added benefits of increasing rates depends on the speed of the recovery and the strength of the overall economy.

The Federal Open Market Committee voted last week to keep the federal funds rate near zero, citing an economic recovery that is slower than officials expected due to a sagging housing market. While long-term inflation estimates remain stable, the FOMC said the economy is experiencing some inflation tied to higher commodities and import prices.

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The Post-Foreclosure Wait

-New York Times

Mortgage troubles won’t necessarily shut you out of the housing market forever.

As the economy and real estate market continue to struggle, millions of Americans have lost their homes through foreclosure, short sale (when a property is sold for less than is owed) or a deed in lieu of foreclosure (when the bank takes ownership without foreclosure).

Even if you think you never want to own a home again, clean credit is important. Bad credit can make it more expensive to rent. In some fields, especially financial services, it can make it difficult to find or keep a job.

How quickly your credit score improves depends in part on how the problem is reported, said Sarah Davies, a senior vice president of VantageScore in Stamford, Conn., a credit-scoring company that competes with FICO, the dominant scoring system.

In a short sale where the balance is forgiven and no deficiency is recorded in public records, recovery can be quick. “Simply paying all your debts on time could bring your score up to a reasonable range in nine months,” Ms. Davies said. “Reasonable” may not qualify you for a mortgage, but it will help in other situations.

A foreclosure or bankruptcy can weigh you down for years. FICO has found that it takes three years for a borrower to pull a score back up to a fair-to-middling 680 after a foreclosure, according to Joanne Gaskin, a company director. A borrower who started out with a near-perfect 780 score would take about seven years to climb all the way back.

But if someone has gone through foreclosure and still has a mountain of debt and not enough income, bankruptcy is worth considering, said Tracy Becker, the founder of North Shore Advisory, a credit-restoration company based in Tarrytown, N.Y. Sure, it will be another hard blow to your credit rating — but your credit most likely is already “wrecked,” at least for now, she said.

Bankruptcy can wipe out some debt. “The choices you make for the future about your financial options should be based on how bad your credit is,” Ms. Becker said. With one 30-day-late payment, for instance, “don’t assume your credit is ruined forever,” she said. It’s easier to recover from that than it would be to pull back from a string of late payments.

And what about a future mortgage? Fannie Mae, Freddie Mac and the Federal Housing Administration set guidelines for how long a borrower must wait after a “significant derogatory event.”

There are plenty of asterisks and conditions. But to generalize, the wait is longest after a foreclosure. Extenuating circumstances like a job loss, illness or divorce reduce the wait.

With such circumstances, Fannie and Freddie specify a two-year wait after a short sale, deed in lieu, or discharge or dismissal of bankruptcy, and three years after foreclosure. Without extenuating circumstances, waits can extend to four years after bankruptcy and seven years after foreclosure.

“The key is to avoid the foreclosure,” said Andrew Wilson, a spokesman for Fannie Mae. “That is what will help you be eligible for the shorter period.”

As for F.H.A.-insured loans, they are available three years after a foreclosure, assuming perfect credit afterward, and two years after a bankruptcy is discharged. After a short sale, there’s a three-year wait if the borrower is in default at the time of the sale and there are no extenuating circumstances. If the borrower was on time with all payments for 12 months before the sale, there is no wait specified, meaning that an F.H.A. loan might be available immediately. Among the conditions: A loan isn’t available if the short sale was to “take advantage of declining market conditions,” according to the F.H.A. Home Loan Handbook for lenders.

One caveat: All of this assumes you have income to pay off debts and stay afloat. It’s likely to be a long time before the mortgage market returns to an anyone-can-borrow-anything way of thinking.

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Freddie Mac settles with TBW to clean up mortgage mess

-Housingwire

Freddie Mac settled with bankrupt mortgage lender Taylor, Bean & Whitaker but will see only a fraction of what it sought, according to a Securities and Exchange Commission filing this week.

TBW, once the 12th largest mortgage lender in the U.S., originated, serviced and sold pools of mortgages to Freddie Mac. It relied on financing vehicles from Colonial Bank and Ocala Funding.

But in 2002, then TBW Chairman Lee Farkas organized a scheme to defraud investors, regulators and Freddie by covering up holes in its financing for the loans.

To do this, Farkas and a group of six other co-conspirators at Colonial and Ocala sold phantom mortgages that were either packed into other securities, already foreclosed on or didn't exist. TBW, Colonial and Ocala all eventually closed in 2009. Farkas faces a possible life sentence after being convicted in April.

According to the SEC filing, the proposed settlement amounts to roughly $1 billion but would only pay out $45 million to Freddie.

"This estimate is based on the plan of liquidation and disclosure statement filed with the court by TBW, which indicates that general unsecured creditors are likely to receive a distribution of 3.3 to 4.4 cents on the dollar," according to the filing.

Freddie did say it would be entitled to roughly $203 million on deposit in certain TBW bank accounts relating to its mortgages. It already received $150 million of it from the Federal Deposit Insurance Corp. as part of the Colonial Bank failure.

As part of the settlement, Freddie will also be able to sell TBW mortgage servicing rights, subject to a $185 million minimum net sales price. Some of the proceeds will go to other parties with interests in the MSRs.

But the settlement also requires Freddie to pay $61 million to TBW creditors to satisfy their "potential claims" against the government-sponsored enterprise.

Freddie estimates its uncompensated loss exposure to TBW to be roughly $690 million, and the ultimate losses could exceed this amount. Most of the exposure stems from outstanding repurchase claims, which Freddie already adjusted for in its financial statements.

"If the settlement is approved by the court, we will recognize the difference between amounts we would pay to TBW and other creditors and the liability recorded on our balance sheet as a gain," Freddie said.

Freddie expects this gain to come in at less than $250 million.

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Bernanke says home price stabilization necessary to woo buyers

-Housingwire

Federal Reserve Chairman Ben Bernanke said home price stabilization and a faster foreclosure process are needed to restore confidence in housing, unleashing a recovery in the sector.

He also said the central bank expects the unemployment rate to slip to 8.6% by the latter part of 2011 and decrease to 7.5% by 2013.

High unemployment continues to weigh down the economy and remains a significant contributor to the stalled housing recovery, Bernanke said Wednesday in the Fed's second press conference following a committee meeting.

Despite projecting the economic recovery will pick up in coming quarters, Bernanke told reporters the economy is expected to grow at a slower pace than the Fed originally projected.

He is advocating for congressional budget cuts that will occur over a longer, 10-year period as opposed to rapid budget reductions currently in play that could derail attempts to achieve maximum employment growth before a full recovery is reached.

Bernanke, who continues to balance inflationary concerns against unemployment gains, said the inflation rate, which picked up in recent months, is expected to eventually fall back to a level of 2% or lower by 2012.

He told reporters the Fed has not taken any action as far as additional asset purchases, but said that would be a committee decision at a later date.

When asked about the risk Greece poses to the overall financial system, Bernanke said the banks that U.S. regulators oversee are not significantly exposed to the European countries facing debt crises. While he did note a direct tie to other European countries, Bernanke said, "We have asked the banks to do a stress test, looking at their positions and hedges and the effect on their capital if Greece defaults, and the answer is the effects would be very small."

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Appraisal District Packed On Protest Deadline Day

-MSNBC

Lines of people are waiting and hoping that they can fight to get their property appraisals lowered at the downtown Appraisal District.

Today was the deadline to protest your appraisal.

Norma Holder said, "You can't triple like that you know, nobody can come up with money like that."

Once a year the Appraisal District sets the value of your property.

The higher the value, the more you pay in taxes.

So most of the folks in line today are trying to get their property values lowered because they claim the dollar amount unfairly went up.

Holder said, "I think more people need to come down here because if everyone comes, we can bombard them and we can lower those taxes."

The reporter asked, "How much did you get yours lowered?"

Holder said, "About $20,000."

This year more than 4,000 people formally protested.

That's about 3% of county homeowners.

Some people waited in line for a couple of hours to protest their property values today but others decided to take a free pass and come back later so they didn't have to wait.

Appraisers only gave passes to people in line who couldn't stick around Monday so, they'll come back later this week armed with anything that helps to prove their case.

Jenny Walter said, "So I brought my pictures. I did my homework and I'm here to protest and I have a hearing on Friday if I don't get satisfaction today."

Unfortunately, if you didn't meet Monday's deadline, you're stuck with the property value the Appraisal District set for you.

Nueces County officials say each appraisal review is done fairly and as accurately as possible.

However, appraisers say they do rely on homeowners to speak out about any problems since they know their property best.

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Dollar Weakens as Stocks Advance Before Federal Reserve Meeting

-Bloomberg

The dollar fell against the majority of its most-traded counterparts as stocks and commodities rose, reducing demand for a refuge as the Federal Reserve begins a two-day policy meeting.

The greenback weakened to the lowest versus the euro in almost a week. The shared currency rose as European leaders said a Greek default can be avoided amid speculation Prime Minister George Papandreou will win a confidence vote today. China’s yuan traded at almost a 17-year high on speculation policy makers will tolerate appreciation to tame inflation.

“Some of the fears of broader global, economic and financial disruption as a result of a Greek default are priced out a little bit, and market participants are tiptoeing back into risk,” said Stephen Gallo, head of market analysis at Schneider Foreign Exchange in London. “Bond yields are up, equities are doing relatively well and commodities are generally higher, so that has been weighing on the dollar broadly.”

The dollar depreciated 0.5 percent to $1.4380 per euro at 10:54 a.m. in New York after reaching $1.4389, the weakest since June 15. The U.S. currency slipped 0.2 percent to 80.12 yen, from 80.25 yesterday. The euro was 0.4 percent stronger at 115.22 yen.

“The play leading into the confidence vote has been to buy euros; the yes vote is priced in now,” Gallo said.

Home Sales Fall

The greenback remained weaker versus most peers as National Association of Realtors data showed sales of existing homes in the U.S. decreased in May to the lowest level in six months. Treasuries fell, sending the benchmark 10-year note yield up four basis points, or 0.04 percentage point, to 2.99 percent.

All 87 economists in a Bloomberg News survey forecast the Federal Open Market Committee will keep the benchmark interest rate at zero to 0.25 percent tomorrow, where it’s been since December 2008. Futures show the likelihood the central bank will increase its target rate by March 2012 dropped to 21 percent from 30 percent a month ago.

The Dollar Index, which IntercontinentalExchange Inc. uses to track the greenback against the currencies of six major U.S. trading partners, fell 0.5 percent to 74.679 and touched 74.652, the lowest level since June 15, from 75.029.

Purchases of existing U.S. homes fell 3.8 percent to a 4.81 million annual pace last month, in line with estimates, according to the realtors association.

Fed Vice Chairman Janet Yellen said June 9 that a “long, drawn-out recovery” was likely for the U.S. housing market. “For its part, the Federal Reserve will continue to use its policy tools to support the economic recovery,” she said.

Stocks, Commodities

The Standard & Poor’s 500 Index gained 1 percent, and the MSCI World Index climbed 1.4 percent. The S&P GSCI Index of commodities increased for the first time in five days, gaining 0.6 percent.

Investors expect the Fed to add 13 basis points to its benchmark rate in the next 12 months according to a Credit Suisse Group AG index based on overnight swaps. A separate survey shows an expected six basis-point cut to the 4.75 percent rate in Australia.

Australia’s dollar declined after the nation’s central bank said domestic data had not added “any urgency” to the need for policy adjustment and it may be “prudent” to keep rates unchanged, according to minutes released today of a June 7 policy meeting.

The Aussie fell 0.3 percent against the euro to A$1.3552. It gained 0.2 percent versus the greenback to $1.0605.

Papandreou Vote

The euro rose versus most major currencies as Greece’s Papandreou seeks to secure multiparty support for his government’s austerity measures, a condition for receiving aid needed to avoid a default. He called for the confidence vote last week after opposition parties rejected pleas for national consensus and the prime minister’s handling of the crisis led to defections from his party.

Greece needs parliamentary approval of a 78 billion-euro ($112 billion) package of budget cuts and asset sales to ensure the payment of a fifth loan under last year’s 110 billion-euro bailout.

The Swiss franc slipped versus the shared currency, losing 0.1 percent to 1.2121, from 1.2106 yesterday. It touched a record high of 1.1947 on June 16.

The euro’s gains were capped after a report today showed investor confidence in Germany, data that aims to predict developments six months in advance, slumped to the lowest in 2 1/2 years this month.

Pound Declines

The pound weakened 0.4 percent to 88.61 pence per euro and rose 0.1 percent to $1.6220 as Bank of England Markets Director Paul Fisher said further bond purchases to stimulate the economy are possible.

The People’s Bank of China set the yuan’s reference rate stronger for a third day, and the currency gained as much as 0.2 percent to 6.4649 per dollar, compared with 6.4636 on June 17. China is likely to continue to raise its banks’ reserve- requirement ratios to curb inflation, Market News International reported yesterday, citing an unidentified person closer to the National Development and Reform Commission.

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Fed Holds Economy Hostage

-GoldSeek

The Fed is holding the US economy hostage. And it’s time for a prisoner snatch.

It was 32 years ago that President Reagan freed the hostages from Iran. He did within hours of his inauguration what Jimmy Carter had failed to do in 444 days--he freed 52 US embassy employees taken hostage and imprisoned by Iran’s Islamic theocracy.

It is not that President Carter did not try to free the hostages held in the Tehran prison since November 4, 1979. One valiant rescue attempt ended in tragedy when two US rescue aircraft collided and burned in the Iranian desert. Jimmy Carter was just not effective at negotiation or, as it turned out, at leading covert military operations.

The US economy was failing during the Carter years. The 1970’s were characterized by “stagflation”, that debilitating mix of high inflation and slow growth. Double digit inflation, single digit growth and lack of leadership forced Carter out after a single term as president.

Many see similarities to the 1970’s in the today’s economic conditions. Oil prices are high, prices for food and other necessities are high, unemployment is high and the economy is limping along, barely growing. The misery index, coined in the 1970’s, has returned as a measure of popular dissatisfaction with the nation’s economic policies.

Studies of the causes of stagflation point to the confluence of economic shock and monetary expansion as the primary cause. In 1974 the economic shock was the OPEC oil embargo; in 2009 it was the financial meltdown. In both cases, the Fed printed more money. In fact, stagflation can arise from monetary policy alone. Barksy and Kilian show in their 2000 work,

A Monetary Explanation of the Great Stagflation of the 1970s, “… the 1986 fall in oil price (which was not accompanied by major shifts in monetary policy stance or similarly drastic movements in other commodity prices), provides a natural experiment, the outcome of which casts doubts on the view that oil price shocks were important sources of inflation in the GDP deflator in the 1970s. In contrast, the monetary explanation…is capable of explaining both the recessionary and the inflationary aspect of stagflation.”

Chairman Bernanke’s Fed policies are similar to Fed policies in the 1970’s. In both periods, the Fed responded to recession by expanding the money supply, although the scale of monetary expansion in the recent case is unprecedented. Under Fed Chairman Burns, monthly money growth, which had averaged 3.2 percent in the first quarter of 1971, jumped to 11 percent in the same period of 1972. The money supply grew 25 percent faster in 1972 compared to 1971.

Money supply growth under Chairman Bernanke has been nothing short of remarkable.

The other significant event affecting the economy in the 1970’s was Nixon’s 1971 decision to abolish the gold standard. Since then, the US Dollar has declined in value with every new paper dollar. Debasement of the Dollar has made many eager to shift out of money bank deposits into hard, commoditized assets precisely because dollars are losing value. Gold prices tripled in 1980-1981; gold has double in price since 2009.

President Reagan recognized the importance of sound money. In 1981, he established the Gold Commission to evaluate returning to the gold standard. Although the Commission’s findings were not accepted at the time, variants of the basic structure have evolved that may be useful today. The advantages of a modern gold billion standard include long term price stability, lower inflation and effective fiscal control.

Former Fed Chairman Alan Greenspan and macro-economist Robert Barro have written in favor of a return to the gold standard. In Gold and Economic Freedom, Greenspan described supporters of fiat currencies as "welfare statists" intent on using monetary policies to finance deficit spending. He has argued that the fiat money system of his day had retained the favorable properties of the gold standard because central bankers had pursued monetary policy as if a gold standard were still in place. Barro puts forward the concept of a "monetary constitution" that would provide stability derived from monetary policy rather than politics, and suggests that the constitution could take the form of a gold standard or some other commodity-base standard equally as well and serve much better than a system based on fiat currency.

So how has the Fed imprisoned the US economy? The Fed has shackled growth by debasing the currency and destroying wealth of individuals and businesses. Ultra-easy monetary policies have driven up prices and fostered malinvestment, which has stalled economic recovery. In its response to the Great Recession, Congress expanded the role of the Federal Reserve, providing it, under the Dodd-Frank Act, sweeping powers over all financial institutions in the economy, and concentrating economic power in one individual, the Chairman of Federal Reserve. It is now within the Chairman’s power to decide the fate of any financial institution, and to step in at his sole discretion to either seize or dismantle any financial institution deemed a “systemic threat” to the economy or the markets. At the same time, the private Federal Reserve is not accountable to anyone, not even to Congress. Congress can enforce no oversight of the Fed, whose internal operations remain secret. The Fed has never allowed its books to be audited.

The consequence of unchecked Federal Reserve power is economic slavery. The Fed is holding the economy hostage to its power-driven need to control every aspect of the economy, from interest rates and reserve deposits to mortgage down payments and debit card fees; and now, from dividend payouts and stock buybacks, to executive compensation and bonuses.

In no other period in the history of the United States has the economy been subject to such broad- reaching regulation and control. It is truly remarkable.

Despite the weight of oppressive and intrusive government policies, there is hope for individuals who recognize the path to freedom and prosperity. It is individual human action, based on the dignity of self-worth and self-interest that creates wealth. Wealth is not created by government or central economic planning.

Scaling back the Fed’s over-reaching authority is not the only step needed to rescue the US economy. As you have read in these pages before, pro-growth tax reform and spending reforms need to be implemented to achieve robust GDP growth and full employment. These are major departures from current Washington policies. Necessary changes may not come until 2012.

We may see then, as we saw in 1981, on inauguration day a bold rescue, of our economy this time, by those with conviction and courage.

By the way, in 1981, as part of the Algiers Accord which ended the hostage crisis, the Iranians insisted on payment in gold rather than US dollars so the US transferred 50 tons of gold to Iran while simultaneously taking ownership of an equivalent quantity of Iranian gold that had been frozen at the New York Federal Reserve Bank.

To guard against unchecked debasement of the currency, the prudent investor can buy and own gold. While the US Dollar has declined in value, gold continues to be a store of value. Since 1979, gold prices have increased 670%

Gold is also a proven hedge against economic instability, seen now in Greece, Italy, Spain Portugal and Ireland, which threatens the Euro.

Investors from around the world benefit from timely market analysis on gold and silver and portfolio recommendations contained in The Gold Speculatorinvestment newsletter, which is based on the principles of free markets, private property, sound money and Austrian School economics.

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Dodd-Frank Failing On Volcker Rule, Derivatives, Credit Rating Agencies

-Forbes

It is no secret that it has become a nightmare for regulators to implement many aspects of the 2,000-page document that has become Dodd-Frank, the most ambitious piece of legislation aimed at the financial system since the Great Depression.  A recent investigation by ProPublica, authored by a Pulitzer-winning duo, shows just how behind implementation on the Volcker Rule, the regulation of derivatives, and the regulation of credit rating agencies, really is.

Ten months since President Barack Obama signed Dodd-Frank into law, regulators have missed all 26 deadlines supposed to be met by April.  According to ProPublica’s Jesse Eisinger and Jake Bernstein, “Dodd-Frank requires 387 different rules from 20 different regulatory agencies. The Byzantine, tedious rulemaking process has occasionally pitted regulator against regulator and proved a bonanza for lobbyists.”

While regulators, responsible for designing rules to implement laws “laid out in principle” only, struggle with insufficient budgets and political pressure from both sides of the aisle, lobbying has exploded.  According to the Center for Responsive Politics, the CFTC, the Fed, the FDIC, and the Office of the Comptroller of the Currency (OCC) have seen more lobbying activity in the first quarter of 2011 than at any other moment since Obama became president.  The SEC saw it’s second most active month. (Read Shiller On Dodd-Frank: ‘A Financial Crisis Is A Thing Not To Be Missed’).

Pertaining to the implementation of the law, Eisinger and Bernstein signal out three major areas for concern: the Volcker Rule, Derivatives regulation, and Credit Rating Agency regulation.

The Volcker-Rule, which bars federally insured banks from trading on their own account, or proprietary trading, has been delayed by “haggling about complicated, but vitally important definitions.”  Specifically, the OCC has been pushing for banks to have “wider latitude in making trades to balance and manage their assets and liabilities.”  Julie Williams, OCC agency counsel, has been pin-pointed Paul Volcker himself as trying to weaken the rule, a concern echoed by Barney Frank and others.

While the law stipulated that banks should invest in Treasury securities in order to manage their books, the OCC has pushed for banks to be allowed to be able to trade other securities as well. “Critics fear that adding the provisions sought by the OCC would mean banks could make almost any trade and claim an exemption, rendering the rule meaningless,” read the report.

In terms of derivatives, Dodd-Frank stipulates exchanges should be used to render markets more transparent and regulated.  Yet, opposition from even previously supported legislators has surfaced.

The Department of the Treasury, headed by Tim Geithner, has proposed that some foreign exchange derivatives “be exempted from the requirement that derivatives trade on exchanges.”  From the report: Critics fear that adding the provisions sought by the OCC would mean banks could make almost any trade and claim an exemption, rendering the rule meaningless

Other opposition came from New York lawmakers, including Senators Chuck Schumer and Kristen Gillibrand, who warned the law could impose “significant competitive disadvantages “ on U.S. financial institutions.  Even the SEC, suggesting that derivatives be traded on “swap execution facilities,” is pushing for less regulation.

On credit rating agencies, it’s the SEC, again, which is backtracking.  Because of “budget uncertainty,” the SEC has delayed staffing a new office to oversee credit rating agencies, and instead added “personnel to existing offices to perform examinations on the rating agencies.”

More importantly, the SEC has gone back on previous attempts to make credit agencies legally liable for their ratings.  While credit ratings have become an integral part of the financial system, making their way to valuation formulas and even legislation regulating pension fund investments, agencies have been off the hook for massive blunders, including their substantial responsibility in the 2007-2008 global financial crisis.  The SEC has “indefinitely tabled provisions” to hold them accountable.

No one expected Dodd-Frank to be an easy law to implement.  At the same time, attempting to regulate the whole financial industry through one piece of legislation appears as an impossible task. In the words of Eisinger and Bernstein, “emerging roadblocks reinforce a fear that Dodd-Frank, which was intended to touch on almost every aspect of the American financial system, may never provide the sweeping reform it promised.”

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Dodd-Frank Swaps Rules to Create ‘Black Hole’ Because of Unresolved Issues

-Bloomberg

Swaps users may face a “black hole” when Dodd-Frank Act rules take effect next month because too much remains unresolved for markets to operate properly, the Senate Agriculture Committee’s top Republican said.

“We don’t even know what a swap is” under the financial overhaul, Senator Pat Roberts said in an interview today at Bloomberg’s office in Washington. The Kansas Republican said the Commodity Futures Trading Commission needs to outline what provisions will apply when Dodd-Frank takes effect, and which will require rule-making that will delay implementation.

The CFTC and the Securities and Exchange Commission are writing new regulations required by the legislation enacted last July, after largely unregulated swaps helped fuel the 2008 credit crisis. Dodd-Frank seeks to reduce risk and boost transparency in the $601 trillion global swaps market by having most swaps guaranteed by central clearinghouses and traded on exchanges or other venues.

A swap is an agreement between two parties to exchange the difference between two price payments, one fixed and one floating, for a specific commodity over a period of time. The instruments, a form of derivative, are used to hedge against swings in prices for commodities such as energy and crops.

Roberts joined Republican Senators Saxby Chambliss of Georgia and Richard Lugar of Indiana in a letter to CFTC Chairman Gary Gensler on May 27 asking for a list of Dodd-Frank provisions that would become effective on July 16. They also asked the CFTC’s view of how swaps transitions would be governed while new regulations are put in place and how the commission would provide greater legal certainty for the transactions during the transition.

‘Swaps Purgatory’

“We’re getting into swaps purgatory,” Roberts said today. “You have Dodd-Frank going into effect, and you say, ‘What are the regulations?’ And the CFTC says, ‘We don’t know.’”

Gensler was traveling in New York, and CFTC spokesman Steven Adamske didn’t immediately respond to an e-mail and phone call seeking comment.

The CFTC is holding a meeting on June 14 to discuss effective dates for Dodd-Frank provisions. Gensler said in an interview June 2 that “we have ample latitude in the statute to address anything on the 16th,” and that congressional action wouldn’t be needed to deal with any gaps in rules.

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Looking Glass

-Luxury Insider

The Lotus Villa in Bali gives new meaning to 'living in a glass house'. The property fuses contemporary aesthetics with traditional finesse

A private lane lined with a stone-carved wall and lush foliage leads to this modern villa near Ubud. The 600 sqm glass-rich structure is framed by overlapping reflection pools and blends contemporary materials with traditional Balinese thatched roofing. The layout features a total of six pavilions, including separate master and guest room gazebos, and a main building that steps down the hillside in terraces and three inverted pyramid-shaped steel structures to form the living, dining and bar / kitchen levels. The 5-meter long dining area is perched on five different levels, each positioned with a sweeping view over the ceremonial kitchen and the botanical oasis outside. The property includes six bedrooms, four bathrooms, separate staff facilities and a two-car garage.

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Accountability needed

-Centredaily.com

The recent release of documents showing that the Federal Reserve lent tens and possibly hundreds of billions of dollars to foreign banks in 2008 and 2009 has raised more questions about Ben Bernanke’s chairmanship of the Federal Reserve

The lending may or may not have been the right thing to do at the time, given the financial crisis. But it was done in secret, and the only reason that we have the information now is because Bloomberg News and Fox Business News won a two-year court battle, using the Freedom of Information Act, to get the documents released.

The official excuse for such secrecy at the time of lending is that the borrowing institutions could suffer “bank runs” if their loans were made public. That is debatable, but there is no excuse for keeping the information secret for years after the crisis has passed.

This kind of secrecy is maintained to avoid political accountability, not for reasons of financial stability. Such practices are what we would expect from authoritarian governments, not the government of a democratic republic.

Accountability is really the main problem at the Fed. If there were any significant accountability, Ben Bernanke would never have become chairman of the Fed in 2006 and certainly wouldn’t have kept his job after the economy collapsed.

Bernanke was a governor of the Federal Reserve in 2002, when the housing bubble was already identified by my colleague Dean Baker. Bernanke was oblivious to the bubble as it continued to expand to $8 trillion in 2006, before bursting and causing our worst recession since the Great Depression.

Bernanke should have been aware of Baker’s analysis, which looked at home prices during the post-World-War II era, and especially the record run-up of 70 percent —after adjusting for inflation — from 1996 to 2006.

Before the bubble burst, Baker became the most cited source on the housing market for The New York Times. Economist Robert Schiller followed with an analysis of a century of home price data and came to the same conclusion — that this was a bubble that would inevitably burst. He was also frequently cited in the major media.

Baker showed clearly that this price run-up could only be explained by an asset bubble — that other explanations attributing it to demographics, building restrictions, or other changes in demand or supply were not consistent with the data. This was not rocket science for an economist of Bernanke’s skill level. He is well-versed in economic history, including that of the Great Depression.

Yet as late as July 2005 Bernanke was asked directly if there was a housing bubble, and he replied: “I don’t know whether prices are exactly where they should be, but I think it’s fair to say that much of what’s happened is supported by the strength of the economy.”

In May 2007, just seven months before the Great Recession began, Bernanke stated: “We do not expect significant spillovers from the subprime market to the rest of the economy or to the financial system. The vast majority of mortgages, including even subprime mortgages, continue to perform well.”

Bernanke therefore missed the biggest asset bubble in U.S. history, and then failed to anticipate the inevitable destruction that its bursting would cause in the overall economy. This is analogous to Japan’s nuclear regulators’ determination that the Fukushima Daiichi nuclear power plant was safe from any tsunami.

The problem with rewarding incompetence and failure in high places is that even a well-regulated financial system — which we are still very far from achieving — cannot serve the public interest if the chief regulators don’t do their jobs. Secrecy, lack of accountability and incompetence — these are weapons of mass destruction for America’s economy.

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This housing crisis is not the Great Depression

-Housingwire

The latest housing report from Capital Economics garnered a lot of attention this week for comparing the last few years to the 1930s.

The subject line of one email HousingWire received Tuesday from the Toronto-based firm read: "US Housing Market Monthly – Worse than the Great Depression."

Coverage on CNBC, later aggregated by the Drudge Report, stated "the housing crisis that began in 2006 and has recently entered a double dip is now worse than the Great Depression."

The economist who wrote the note, Paul Dales, said the level of press coverage surprised him. He said the actual eight-page, 24-chart report focused little on the generational comparison, which happened unintentionally, despite taking prominence in the email subject line.

"During the course of my research, I realized that the fall in house prices has been larger and quicker than during the Great Depression," he said. Dales added that the comparison is not a a publicity stunt nor does he believe his research can be extended beyond commentary on housing price volatility.

"Granted data around the Great Depression are sketchy, but in no way am I comparing the macroeconomic conditions of that time to the current recovery," he said. "I don't think unemployment will reach 25%, for example, or that another recession is guaranteed."

According to Capital Economics analysis of the recent Standard & Poor's/Case-Shiller index, housing prices recently fell by 33%, eclipsing the 31% fall in the late 1920s and early 1930s.

Dales believes prices are likely to fall another 3% this year, resulting in a 5% drop for 2011.

Robert Shiller also provided the possibility a doomsday pricing decline of another 10% to 25% fall.

But this is for house prices, and not the housing market as a whole. It is not to say that things are rosy in other aspects of housing, home affordability is reaching new highs, but access to credit remains constricted. For every foreclosure currently on the market, RealtyTrac estimates, there are another three in the pipeline.

It was a different situation, particularly in regard to foreclosures, in the early 1930s.

About half of all mortgage debt was in default during the Great Depression, according to HousingWire research. By 1932, national unemployment reached 25% according to the Kansas Department of Labor.

The Federal Deposit Insurance Corp. estimates about 9,000 banks suspended operations back in the '30s, resulting in losses to depositors of about $1.3 billion. Annual mortgage lending fell 80% and new residential construction dropped by 80% as well.

What's more the types of mortgages common in the Great Depression were phased out, potentially because of the relative ease in which lenders could foreclose.

According to a research report last year from PMI, in the period before the establishment of the Federal Housing Administration, the Federal National Mortgage Association (the government agency that was the precursor to Fannie Mae), and other government housing agencies, virtually all mortgages were shorter-term (less than 10 years), balloon loans that were callable at any time by the lender.

"With depository institutions needing liquidity during the Great Depression, many loans were called — and with prices having fallen sharply, unemployment having skyrocketed, or both, many homeowners could not pay back the principal amounts of their loans or refinance," the PMI note states. "Therefore, many lost their homes even though they could continue to make their payments."

This scenario does not exist today.

Mark Fleming, chief economist at CoreLogic (CLGX: 16.65-0.30%), said accurate housing price record keeping did not start until the 1970s, and he supports Dales assertion that Great Depression comparisons are speculative.

"Based on the work of Robert Shiller, in real terms, prices fell prior to the Great Depression between 1916 and 1920 and were relatively stable during the Great Depression," Fleming said. "In more broad economic terms, some have estimated the unemployment rate to have been as high as 25% during the Depression, which is significantly higher than in this or any other recent recessionary period."

"By that economic benchmark, this recession is not comparable to the Great Depression," Fleming said.

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Fannie Mae lowers growth estimate as home prices continue to search for bottom

-Housingwire

Fannie Mae economists predict slower economic growth for 2011 as home sales and consumer spending lag, and home prices search for a bottom that's unlikely to appear before the fourth quarter.

The overall economy is now expected to grow at a pace of 2.5% this year, down from a prior forecast of 2.9%, economists with the government-sponsored enterprise's economics and mortgage market analysis group said Monday.

A lackluster housing market is one of the key drivers of the slowdown, the report concluded. The housing slowdown became even more pronounced this year with the home-buyer tax credit long gone and unemployment still soaring above normal levels.

With more housing inventory and higher levels of unemployed citizens, supply currently outweighs demand, according to Fannie, resulting in a projection of steeper price declines in the third quarter before a leveling off in the final three months of the year.

"Ultimately, the labor market holds the key to a housing recovery, but job growth is needed in order to activate housing demand," said Fannie Mae Chief Economist Doug Duncan. "Hiring delays will continue to push out timing for the housing rebound."

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Monster, Billionaire Mansions

-Yahoo! Real Estate

Facebook billionaire Mark Zuckerberg, 26, may have recently shelled out $7 million for a Palo Alto home, but when it comes to billionaire real estate, that purchase is downright thrifty. Many of the world’s richest people spare no expense when it comes to home sweet home, throwing down tens and hundreds of millions of dollars on mega mansions designed to suit every possible fancy.

Take industrial billionaire Ira Rennert’s 43,031 square-foot Fair Field estate in Sagaponack, New York. Valued at $200 million according to tax assessments, the sprawling 29 bedroom, 39 bath manse is one of America’s largest single-family homes — and arguably the most expensive. Amenities include not one but three dining rooms, three swimming pools sitting side by side, two courtyards, an orangery, a 164-seat screening theater and a pavilion housing a basketball court, a gym, and a 2-lane bowling alley. There’s even an on-premise power plant to keep everything running.

On the opposite coast, Russian venture capital billionaire Yuri Milner recently forked over $100 million for a 25,000-square foot, French chateau-inspired mansion in Silicon Valley. The Palo Alto estate touts indoor and outdoor pools, tennis courts, a ballroom and a wine cellar. If Rennert’s Fair Field estate could be the most expensive home in the country, Milner’s is its direct competition for that title. The Facebook and Groupon investor, who calls Moscow, Russia home, bought the place as a secondary property.

Many billionaire homeowners don’t move into their new digs right away. Once they’ve closed, which usually occurs through a third party LLC to keep the sale as private as possible, it’s time to retrofit the property for their lavish lifestyles, remodeling or in some cases, tearing down and rebuilding a brand new mansion altogether. This is a common occurrence in the ritzy Long Island, New York zip codes that make up the Hamptons, where billionaire investor Ron Baron dropped $103 million on 40 acres of beachfront land sans a house. In the most recent and extreme example, hedge fund billionaire David Tepper just knocked down the $43.5 million Sagaponack home he bought last year; he reportedly plans to build a house that’s twice as large on the empty site.

“A lot of people will buy a $30 million ocean front mansion, tear it down, and start all over again,” explains Alan Fiocchi, founder of AlchemyRED, a company that project manages the ground-up construction or intensive remodeling of multi-million dollar estates around the world. Fiocchi, who works on properties averaging $25 million with a typical renovation budget of $10 million, acts as Owner’s Representation for many billionaire clients, including many of Wall Street’s high profile finance gurus, one non-American Head of State and members of royal families.

Billionaires like their privacy. Fiocchi, who must sign non-disclosure agreements to take on a job, says it is common for clients to shell out money for technology that ensures safety. “We’ve done full security in terms of bullet-proof glass on all the windows,” says Fiocchi. “We’ve even had clients who were extremely paranoid about air quality, so we engaged engineers from Germany to make sure they had the highest air quality known to man circulating through their residences.”

The world’s richest spend millions on the finish work, especially stonework and millwork. Take the Maison de L’Amitie estate in Palm Beach, Florida that real estate mogul-turned-reality show star Donald Trump sold to Russian fertilizer kingpin, Dmitry Rybolovlev in 2008 for a discounted $95 million (originally listed for $125 million). The Donald snatched up the 60,000 square foot, oceanfront estate for just over $40 million in 2004 and set to work sprucing it up, adding gold and diamond fixtures and a 50-car garage.

Some billionaires collect pricey plots of land the way others might collect wine or art. Tech titan Larry Ellison is perhaps most famously known for his Woodside, Calif. compound, fashioned after a Japanese imperial palace with man-made lake, teahouse and moon pavilion. But the Oracle founder has also dished out hundreds of millions of dollars on more than a dozen Malibu and San Francisco estates in recent years. Earlier this year, he scooped up former billionaire Edra Blixseth’s 240-acre Porcupine Creek estate in Rancho Mirage, Calif. for a deeply discounted $42.9 million.

“When I think of a trophy property selling or something unusual entering the market that gets a lot of attention it…actually pulls more inventory out onto the market…and other properties that may be considered competing in this price point come out of the woodwork because the selling of them is optional,” explains Jonathan Miller, chief executive of Miller Samuel Inc, a New York City-based real estate appraisal company. He notes that while high-end aspiring homeowners have the money to shell out on uber expensive estates, many still tend to abstain from buying property that is wildly overpriced – just as their home-buying peers in the lower ends of the market do.

Here are five monster billionaire mansions worth visiting:

Maison de L'Amitie, a $95 million property in Palm Beach, FL.
Photo: ZUMA Press/Newscom

Maison de L'Amitie, Palm Beach, Fla.
Owner: Dmitry Rybolovlev, worth $9.5 billion
List Price: $125 million
Final Purchase Price: $95 million

The sprawling oceanfront 60,000-square foot compound, bought from Donald Trump in 2008, includes diamond and gold fixtures and a nearly 50 car garage.

Xanadu 2.0, worth an estimated $121 million, is in Medina, Wash.
Photo: CelebrityHomePhotos/Newscom

Xanadu 2.0, Medina, Wash.
Owner: Bill Gates, worth $56 billion
Home Value: $121 million, according to tax assessments

The high-tech Lake Washington complex owned by the world's second-richest man boasts a pool with an underwater music system, a 2,500- square foot gym and a library with domed reading room.

Promised Land, purchased for $50 million, is in Montecito, CA
Photo: Splash News/Newscom

Promised Land, Montecito, Calif.
Owner: Oprah Winfrey, worth $2.7 billion
Purchase Price: $50 million in 2001

The media queen's 23,000-square-foot Georgian-style manse sits on more than 40 acres, boasting a tea house, more than 600 rose bushes and an upscale outhouse.

Casa Sin Nombre in Palm Beach, Fla. is for sale for $59 million.
Photo: Corcoran

Casa Sin Nombre, Palm Beach, Fla.
Owner: Columbia University, bequeathed by the late media mogul John Kluge
For Sale: $59 million

Reflecting pools, statues and six houses adorn the oceanfront grounds of the late Metromedia founder's property, which recently hit the market after being willed to his alma mater.

Fair Field Estate in Sagaponack, N.Y. is valued at $200 million.
Photo: DALLAL/SIPA/DALLAL/SIPA/Newscom

Fair Field Estate, Sagaponack, N.Y.
Owner: Ira Rennert, worth $5.2 billion
Property value: $200 million, according to tax assessments

The industrial billionaire's hulking 29-bedroom, 39-bath Hamptons compound has not one, but three swimming pools, plus its own power plant on premises.

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