Good news for Greenwich home sellers, maybe not so good for the public mood. BOA was just one of the banks – Goldman was another – who were secretly made good, 100 cents on the dollar, for their failed bets with AIG. No wonder Geithner wanted to keep the news from us.
Daily Archives: January 7, 2010
The Fed’s vow to get out of the mortgage market (in fact, the Fed is the mortgage market) come March has a lot of the usual suspects concerned.
The recent rise in mortgage rates could be a prelude to even bigger increases in coming months as the Fed steps away from support for the market. That prospect has some in the markets counting on the Fed to change course and keep buying past March, which many officials are reluctant to do.
When such a big investor stops buying, “that could lead to material increases in [interest] rates across the board,” said Ronald Temple, portfolio manager at Lazard Asset Management. He sees mortgage rates rising by a percentage point when the Fed stops buying. A withdrawal of government support, combined with high unemployment and rising mortgage foreclosures, could push home prices down 20%, he said.
Many Fed insiders expect the end to their mortgage buying to have a mild effect on rates, a half-percentage-point increase or possibly much less. Mortgage rates didn’t move up much when the Fed initially signaled in September that it intended to end the $1.25 trillion mortgage program by March.
One theory inside the Fed is that what matters for mortgage rates isn’t the central bank’s day-to-day purchases, but the magnitude of mortgages that it has taken from the private sector. According to this view, the impact of removing more than a trillion dollars of supply should help to keep rates low even after the Fed stops buying.
Fed officials take comfort that yields on Treasury bonds remained little changed during a stretch between August and November when the Fed was completing its $300 billion of Treasury purchases, meaning the Fed’s exit from that program didn’t severely disrupt that market.
The Fed’s heavy buying last year drove yields on mortgage bonds to within 0.65 percentage point of comparable Treasury bonds, much lower than the traditional spread of 1.15 percentage points. Lower mortgage rates helped sustain the housing market, and housing prices recently appear to have stabilized. But a looming wave of foreclosures, still-high unemployment and other factors are clouding the housing outlook for this year.
Not very often, but Bloomberg suggests that they may be getting ready to do so. Courtesy of us taxpayers, no doubt.
By John Gittelsohn and Prashant Gopal
Jan. 7 (Bloomberg) — Efforts by U.S. banks to help distressed homeowners have focused mainly on temporary fixes such as interest-rate reductions that may only put off the day of reckoning, despite policy makers wanting them to do more.
Banks may be forced to resort to a remedy they’ve been trying to avoid — principal reductions — as another wave of foreclosures looms and payments on risky loans rise, Bloomberg BusinessWeek magazine reports in the Jan. 18 issue.
While interest-rate reductions or extending loan terms reduce homeowners’ monthly payments, they don’t give much comfort to borrowers who owe more on their homes than their properties are worth. Borrowers who don’t have equity in their homes are more likely to hand over the keys when they run into trouble. “The evidence is irrefutable,” Laurie Goodman, senior managing director of Amherst Securities Group in New York, testified before the U.S. House Financial Services Committee on Dec. 8. “Negative equity is the most important predictor of default.”
The foreclosure crisis is likely to deepen this year in part because payments on many adjustable-rate mortgages are set to balloon. Unless there’s a sharp recovery in property values or a change in lenders’ willingness to cut principal, at least 7 million borrowers currently behind on their payments will lose their homes, Goodman estimates.
The conflicting interests of mortgage lenders and home- equity lenders is a roadblock to doing principal reductions. Banks, credit unions and thrifts held $951.6 billion in home- equity loans as of Sept. 30, according to Federal Reserve data.
Mortgage lenders don’t want to cut principal unless the home-equity lenders agree to take a hit. Typically, though, the home-equity lenders are reluctant; much of the value of their loans would be wiped out.
The threat of lawsuits is also hampering principal reductions. In December 2008 money manager Greenwich Financial Services sued lender Countrywide Financial in New York State Supreme Court. Greenwich, which owns mortgage-backed securities, demanded 100 cents on the dollar for some Countrywide investments. The securities included loans on which Countrywide had agreed to cut $8.4 billion in principal and interest to settle allegations of predatory lending.
With no real estate news to report and comment on, perhaps you’d be interested in an extensive article in Bloomberg’s on electric cars and Carlos Ghosn’s bet on them. Nissan goes down if he’s wrong, and plenty of people interviewed in the article say he is, but Ghosn himself is convinced he can grab 10% of the world’s market. Well written article that explores the issues like coal-generated electricity, the sky-high prices of batteries and limited range. Personally, I side with Toyota guy who thinks the fad dies when the subsidies die, but Ghosn’s worked miracles before and maybe he’s got one more left.
It is far from clear that the gas-efficient or gas-free cars the auto makers are promoting will lure consumers away from their large rides. The electric and hybrid models cost much more than similar gas-powered versions, and many consumers have moved back to larger vehicles after flocking to small cars during the brief period when gas hovered around $4 a gallon in 2008.
Last year, hybrid vehicles, which have been sold in the U.S. for 10 years, accounted for just 2.7% of all vehicles sold in this country, according to Autodata Corp. And sales of small cars fell last year from 2008, while sport-utility vehicles gained just under four percentage points of market share, according to Autodata.
“We are really seeing more and more vehicles available in smaller sizes,” said Rebecca Lindland, an analyst at IHS Global Insight. The risk for car makers is that they aren’t seeing “significant changes in consumer demand for those vehicles.”
A report released Thursday by Boston Consulting Group cast doubt on the mass appeal of electric vehicles unless there is a major breakthrough in battery technology, which still costs too much to make such vehicles widely affordable.
The consulting firm estimates that fully electric vehicles will make up just 2.8% of the global market in 2020, while hybrids and range-extended vehicles—which use a small gasoline engine to recharge the batteries—will account for 23%.
Even so, car makers are charging ahead with electric-vehicle plans. GM on Thursday started production of the lithium-ion battery pack for its range-extended Chevrolet Volt, and the company’s board is weighing an earlier launch of the long-awaited vehicle, said people familiar with the discussions.
Others that are joining the electric-vehicle movement recognize their mass-market potential may be limited. “It is popular at the moment to think battery-powered cars hold the solution. We have a long way to go before it is a reality,” said Johan de Nysschen, head of Audi’s North American operations.
Mr. de Nysschen expects the electric-vehicle market to be bifurcated. At one extreme will be compact, light commuter vehicles with short driving ranges. At the other end will be high performance cars that command a high price to help recoup their investment costs.
Audi’s first electric vehicle will fall in the latter category, according to a person familiar with the plans.
In 2007, Jeffrey Gundlach was being touted as the king on mortgage backed securities, if you care to believe this bit of fluff:
Jeff Gundlach is undoubtedly ‘The Mortgage Man’. He and his team at TCW Galileo concentrate solely on mortgage-backed securities – AAA rated securities, nothing less – which is why we’ve dubbed them The AAA-team.
While some might see this focus as a liability, Jeff sees it as giving them an edge over more diversified funds. And he ought to know – he’s been on the team since 1993. His unusual style has produced a fund offering a rare combination of low costs and top-notch management.
His is the only fixed-income fund to win the S&P500/BusinessWeek award for Excellence in Fund Management three years in a row.
Now comes er, this:
The owner of this house paid $1.130 for it back in 2006 and wisely, I think it, priced it at $997,500 when he put it back up for sale this fall. He sold it today for $1.025, so at least two people wanted it. There isn’t much that’s decent in this price range so I can understand how a bidding war can break out. 9 Roosevelt Avenue saw the same phenomenon.
One house that didn’t see a rush of buyers was 48 Valleywood, which started at $1.249 in 2008 and slowly dropped down to $795. It has a contract as of today.
Awful situation, but somewhat ironic that the family lived on Whackme Road.
Lennar, which operates in 17 states, made a profit last quarter and its CEO is optimistic about the future. That can only be good news, regardless of what markets they’re in. We need more construction jobs.
Why not? This New York Times writer sees nothing immoral about it and I suppose he’s right. Feels wrong, though.
[T] he housing collapse left 10.7 million families owing more than their homes are worth. So some of them are making a calculated decision to hang onto their money and let their homes go. Is this irresponsible?
Businesses — in particular Wall Street banks — make such calculations routinely. Morgan Stanley recently decided to stop making payments on five San Francisco office buildings. A Morgan Stanley fund purchased the buildings at the height of the boom, and their value has plunged. Nobody has said Morgan Stanley is immoral — perhaps because no one assumed it was moral to begin with. But the average American, as if sprung from some Franklinesque mythology, is supposed to honor his debts, or so says the mortgage industry as well as government officials. Former Treasury Secretary Henry M. Paulson Jr. declared that “any homeowner who can afford his mortgage payment but chooses to walk away from an underwater property is simply a speculator — and one who is not honoring his obligation.” (Paulson presumably was not so censorious of speculation during his 32-year career atGoldman Sachs.)
The moral suasion has continued under President Obama, who has urged that homeowners follow the “responsible” course. Indeed, HUD-approved housing counselors are supposed to counsel people against foreclosure. In many cases, this means counseling people to throw away money. Brent White, a University of Arizona law professor, notes that a family who bought a three-bedroom home in Salinas, Calif., at the market top in 2006, with no down payment (then a common-enough occurrence), could theoretically have to wait 60 years to recover their equity. On the other hand, if they walked, they could rent a similar house for a pittance of their monthly mortgage.
There are two reasons why so-called strategic defaults have been considered antisocial and perhaps amoral. One is that foreclosures depress the neighborhood and drive down prices. But in a market society, since when are people responsible for the economic effects of their actions? Every oil speculator helps to drive up gasoline prices. Every hedge fund that speculated against a bank by purchasing credit-default swaps on its bonds signaled skepticism about the bank’s creditworthiness and helped to make it more costly for the bank to borrow, and thus to issue loans. We are all economic pinballs, insensibly colliding for better or worse.
The other reason is that default (supposedly) debases the character of the borrower. Once, perhaps, when bankers held onto mortgages for 30 years, they occupied a moral high ground. These days, lenders typically unload mortgages within days (or minutes). And not just in mortgage finance, but in virtually every realm of our transaction-obsessed society, the message is that enduring relationships count for less than the value put on assets for sale.
Think of private-equity firms that close a factory — essentially deciding that the company is worth more dead than alive. Or the New York Yankees and their World Series M.V.P.Hideki Matsui, who parted company as soon as the cheering stopped. Or money-losing hedge-fund managers: rather than try to earn back their investors’ lost capital, they start new funds so they can rake in fresh incentives. Sam Zell, a billionaire, let the Tribune Company, which he had previously acquired, file for bankruptcy. Indeed, the owners of any company that defaults on bonds and chooses to let the company fail rather than invest more capital in it are practicing “strategic default.” Banks signal their complicity with this ethos when they send new credit cards to people who failed to stay current on old ones.
Mortgage holders do sign a promissory note, which is a promise to pay. But the contract explicitly details the penalty for nonpayment — surrender of the property. The borrower isn’t escaping the consequences; he is suffering them.
228 Round Hill Road, 4 1/2 acres of really nice land with an older contemporary on it, has gone to contract. Asking price dropped over 18 months from $5.1 million to $4.5 and presumably it’s selling for less than that. The existing house is in fine shape, but I’d be surprised if the buyer keeps it. Whether she does or not, the value here is the land.
The EPA is out with new, stricter standards for air pollution that will result in many more states being declared in violation of air standards. This is just a preliminary to the agency’s coming CO2 rules, which should shut down industry quite neatly. The enforcement of EPA rules, and just about everything else Congress imposes on us citizens, is tied to federal funding: refuse to be regulated, and your highway money, for instance, gets cut off. So tell Washington to pound sand. In Connecticut, as well as most of New England, taxpayers pay far more to the feds than they get back so this would save us money, rather than cost anything.
This home on Lauder Way may hold the title of longest resident on our MLS – 15 years, but its owner may finally be getting serious, because he dropped its price today from $6.5 million to $5.2. Mind you, its price was just $4.5 million back in 1995 when this whole process started, but adjusted for inflation, maybe ….
Just because I like her (I’ve never met her actually – Teri, can we have coffee?) doesn’t mean I’m her flack, but this woman is going to make Greenwich Time a must read for anyone interested in the financial world’s Greenwich roots. Check out her blog today on who lost their money when Dodd quit. Great stuff.