Realtors pour another $1.3 million into Measure 79 anti-tax campaign; is it a …

pendingsale.jpgThe real estate industry has so far put more than $4.6 million into a ballot measure this fall to ban new fees and taxes on real estate sales in Oregon.The National Association of Realtors reported over the weekend that it has put another $1.3 million into the campaign in favor of Oregon’s Measure 79, which would ban new taxes and fees on real estate sales.

The state and national Realtors have now put in more than $4.6 million for their fall campaign to amend the state Constitution to ban such taxes.  That’s a lot of money for a ballot measure that faces only low-dollar opposition.

Jon Coney, the spokesman for the Yes on 79 campaign, says proponents always envisioned a “robust” campaign in favor of it.

But there are also signs that the the Realtors put the extra money in because Measure 79 is a difficult sell with voters.  The most intriguing bit of information comes from Our Oregon, a labor-backed group opposed to the measure.

Scott Moore, the group’s communications director, said an August poll conducted for Our Oregon read voters the ballot title and asked for their opinion.  Only 22 percent said yes and a whopping 57 percent said they were against.

“They know they have a significant problem with voters,” said Moore, “and that’s why they have to dump millions of dollars into their campaign.”

Coney said the Our Oregon polling “seem significantly lower than what we have seen.”  But he conceded that his group’s surveys show that “voters need to be educated” to get them into the yes category.

“We’re in a position of saying vote yes to vote no on real estate taxes,” said Coney, “so there are tricky dynamics there.”

Whatever the case, opponents are enjoying the possibility that Realtors may be struggling.   “You don’t dump another $1 million in at this point when you’ve got no opposition unless something is up,” said Ryan Deckert, president of the Oregon Business Association.

His group also opposes the measure but doesn’t plan to spend any money fighting it.  Our Oregon criticizes the measure in its direct mail pieces but also doesn’t plan an expensive opposition campaign.

Moore, Deckert and other critics say there is no need for the constitutional ban.   The Oregon Legislature has already banned localities from imposing new real estate transfer fees and there has been no serious move to do so at the state level.

But officials from the Oregon Association of Realtors have argued that they want to foreclose the possibility of turning to real estate fees, which some states have used to raise significant revenue.

–Jeff Mapes

NAR Talks Directly to America’s Property Owners

As “The Voice for Real Estate” for more than 100 years, the National Association of REALTORS® (NAR) has turned up the volume on its consumer-facing communications, and consumers are listening. The stakes couldn’t be higher. Policymakers are considering sweeping changes to federal government programs and incentives that could dramatically change the nature of homeownership for years to come.

NAR is vitally aware of the importance of preserving the American Dream of homeownership—for its members as well as for consumers. In fact, research shows the significant positive effect homeownership has on individual net worth, civic participation, educational achievement and overall quality of life in communities across America.

REALTORS® and Consumers Working Together

Ultimately, NAR wants to establish a marriage of common interest with REALTORS® and consumers—enlisting them to take action and become advocates for real estate issues—with the goal of working together to preserve access to homeownership, and making NAR the voice for real estate consumers as well.

Regularly leveraging a variety of channels, including national print and electronic media campaigns, a website and a national real estate-themed radio show to reach consumers, NAR recently introduced a comprehensive direct-to-consumer communications plan. The plan is designed to reach every homeowner and potential homeowner in the United States—a prospective 80 million households over the next three years.

NAR’s direct-to-consumer outreach will ensure that REALTORS® go beyond the transaction and are involved in the entire lifecycle of homeownership. Through a powerful combination of bought, owned, leveraged and earned media, NAR will reach the average homeowner more than 40 times per year over the next three years for a total of more than 509 million impressions per month with clear, concise, consistent and repetitive messaging.

Public Awareness/Public Advocacy Campaign

For more than a decade, NAR’s Public Awareness Campaign has been effective in establishing the professionalism of REALTORS® as trusted experts to help consumers in the process of buying and selling a home. Key issues highlighted nationally to consumers and public policymakers include access to affordable mortgage financing, tax incentives for homeownership, overly stringent credit requirements and cumbersome short sales and foreclosures.

Now the focus of the campaign has shifted to advocacy, with its newest TV and radio spot, “Moving Pictures,” highlighting positive messages about the benefits of homeownership to children, families and communities.

Real Estate Today Radio Program

On radio stations nationwide, satellite, podcasts and mobile phones, NAR’s “Real Estate Today” radio program opens doors for buyers and sellers with critical, credible information on the real estate market. This fast-paced and fact-packed program with experts, interviews, call-ins, field reports, and timely market conditions is heard on over 185 stations in all 50 states and has over five million listeners per month.

HouseLogic

NAR’s HouseLogic website is a free source of information and tools that help homeowners make smart decisions and take responsible actions to maintain, protect and enhance the value of their home. With nearly one million unique visitors per month, homeowners are depending on HouseLogic to plan and organize their home projects. HouseLogic provides timely articles and news, home improvement advice, and how-tos and information about taxes, home finances and insurance.

In addition, through the REALTOR® Content Resource, NAR members can repurpose articles from HouseLogic for their consumer communications. These articles, which cover all aspects of homeownership, including home buying and selling, are ready when and how brokers choose to use them—Facebook, Twitter, email, website, blog or handouts.

An Ongoing Commitment as the Voice for Real Estate

By fostering consumer advocacy, and an ongoing relationship between real estate professionals and consumers, NAR will continue to be the trusted voice for real estate, and ensure that the American Dream of homeownership is preserved for generations to come.

Sources: www.realtor.org/pac.nsf/pages/pachome, www.retradio.comm, www.houselogic.com

Special master: Mortgage crisis a ‘Gordian knot’

PPROVIDENCE, R.I. (AP) — A former bank executive working to hasten a resolution to hundreds of foreclosure disputes in Rhode Island’s federal courts calls the mortgage crisis a “Gordian knot” and says debt forgiveness needs to be part of the solution.

Former Bank Rhode Island CEO Merrill Sherman said in her special master’s report to U.S. District Judge John McConnell last week that the best approach to fixing the mortgage crisis is reducing struggling homeowners’ loan amounts — an approach that has garnered significant resistance from mortgage giants Fannie Mae and Freddie Mac despite pressure from the Obama administration.

Sherman called it “economic folly” for defaulting homeowners to stay in homes that are underwater — or worth less than the amount owed — by means of other loan modifications, including stretching out payments over a longer period of time and reducing interest rates.

Rhode Island has the highest foreclosure rate in New England and one of the highest in the country. Hundreds of homeowners in the state have sued, saying their mortgage foreclosure proceedings were fraudulent or flawed.

McConnell appointed Sherman special master in January to bring together homeowners and lenders to negotiate settlements and keep people in their homes.

As of Sept. 28, 215 of the cases Sherman is overseeing involved homes already foreclosed on, with more than three-quarters of the plaintiffs still living in the properties. In 288 cases, the homes had not yet been foreclosed on. The median mortgage size was $226,000.

Sherman said she could not yet report on how productive the settlement process has been because so many requests to modify loans are pending and she doesn’t yet know the outcomes.

Of the 131 settlement conferences Sherman held between Aug. 7 and Sept. 13, the report said, 81 led to requests for loan modifications and 33 led to “cash for keys” negotiations, a program in which homeowners are effectively offered money to leave. Nine cases have been resolved, and one dismissed.

Rhode Island was also one of 49 states to sign on to a $25 billion settlement with the nation’s five largest mortgage services. Some 5,500 Rhode Islanders who lost their homes because of improper foreclosures are eligible to claim funds under that agreement.

Sherman said “nothing could be worse” for Fannie Mae and Freddie Mac than if homeowners stopped fighting their foreclosures and handed over the deeds to the homes. In that case, she wrote, Fannie and Freddie “would be TOAST.”

“All they would have is the present (reduced) value of the property, marketing and maintenance expenses and a worthless claim against the borrower(s),” she wrote. “That would mean immediate and worse losses.”

Sherman said Fannie Mae and Freddie Mac have already cost taxpayers billions of dollars in part because their lawyers “have the capacity to litigate indefinitely.”

“So our taxpayer dollars are being utilized to fund a significant amount of lawyering that may not be productive from a business standpoint,” she wrote.

The financially troubled mortgage agencies were taken over in 2008 by the U.S. government. Edward DeMarco, head of the agency that oversees them, has insisted that writing down mortgage amounts isn’t in taxpayers’ best interests. He said some homeowners could abuse the process and fall delinquent to reap the benefits of principal forgiveness.

How I Misread the Risks at Fannie and Freddie



Agence France-Presse/Getty Images

I recently wrote four blog posts about people who, in my estimation, misread some of the risks building up at Fannie Mae and Freddie Mac before the two government-chartered mortgage companies had to be rescued by the U.S. Treasury in September 2008.

After I completed this series, which was based on my newly published book, “The Fateful History of Fannie Mae,” it occurred to me that I had left out someone else whose foresight had been faulty: me.

So here is my belated confession. I began covering housing, including Fannie and Freddie, for The Wall Street Journal at the beginning of 2004. Much of my reporting that year focused on a regulatory investigation of accounting practices at Fannie Mae, which followed disclosures that Freddie had violated accounting rules. In September 2004, my colleague John D. McKinnon and I were the first to report that the regulator was about to accuse Fannie of manipulating its accounting to make earnings growth look smoother than it really was. (See article.)

The ensuing scandal emboldened critics of Fannie. It seemed likely to increase chances that Congress would crack down on both Fannie and Freddie, perhaps limiting their ability to keep growing by borrowing ever larger amounts of money. White House economic advisers, the Treasury and even the revered Fed Chairman Alan Greenspan were all baying for much tougher regulation.

But the two companies remained highly effective in their lobbying and thwarted efforts in Congress to enact such regulation. They and their allies, including home builders and Realtors, warned that a much stricter regulatory regime could prevent Fannie and Freddie from funneling enough money into mortgages to keep the housing market healthy.

After watching Fannie and Freddie elude a regulatory crackdown—as they had evaded so many past efforts to constrain them—I began to believe they possessed a cockroach-like ability to survive almost any calamity.

One of the biggest worries at Fannie and Freddie at the peak of the housing bubble in 2004 and 2005 was that Wall Street was taking away much of their business in packaging mortgages into securities. By mid-2007, though, a surge in mortgage defaults was forcing Wall Street to retreat in disarray from that once-lucrative market. This retreat allowed Fannie and Freddie to begin regaining market share. It also bolstered their political clout because suddenly the housing market was much more reliant on them: They were the last remaining pillars in the mortgage world, the only hope of avoiding a total collapse of housing.

In early August 2007, I wrote an article noting this trend. I opened boldly with these lines:

The mortgage-market meltdown isn’t over, but it already has produced two clear winners: Fannie Mae and Freddie Mac, the nation’s biggest investors in home loans.

Until recently, politicians in Washington were arguing about how best to rein in the two giant government-sponsored companies, both recovering from accounting scandals and lapses in financial controls. Now, as worry about the housing market trumps accounting scruples, the political debate has shifted to whether Fannie and Freddie need to grow even bigger to buy more loans and calm mortgage investors.


History Press
Book cover of ‘The Fateful History of Fannie Mae’

That was true—but only for the short term. I included a skeptical comment from Joshua Rosner, a securities analyst in New York, who said it was a “mass delusion” to believe that Fannie and Freddie could save the mortgage market. But I failed to elaborate on what might go wrong with the thesis stated at the top of my story. Over the following year it became clear that Fannie and Freddie had bought so many high-risk loans that foreclosure losses would wipe out their meager capital as housing prices plunged.

One problem was that I had been too willing to believe Fannie and Freddie when they insisted they were being prudent in their purchases of subprime and other high-risk mortgage loans. (I thought the accounting scandals had chastened them into more cautious behavior.) Another was that I fell into the common trap of believing that a mouse that outruns the cat for nine days in a row is likely to keep repeating that trick.

Prior:

How Paul Volcker Misread Fannie Mae
How Greenspan Misread the Risks at Fannie and Freddie
How Nixon Expanded Fannie Mae’s Footprint
How Joseph Stiglitz Misread the Risks at Fannie Mae

ETHICS: President-Elect of Real EstateTrade Association Declares Bankruptcy …

By David M. Kinchen

After writing the story about Orange County, California Realtor Gary Thomas, who has declared personal and corporate bankruptcy, stepping up to be president of the National Association of Realtors in November 2012 I decided to turn the story into an ethics column.

 

If everything goes as planned, Thomas, 68, of Mission Viejo (Orange County) California, NAR president-elect, will be sworn in as president of one of the nation’s largest trade associations at the NAR convention in Orlando, FL. Nov. 9-12.

According to the Orange County Register, Thomas formed his first RE/MAX franchise in 1985 and eventually ran 14 RE/MAX offices in Orange County. But financial problems forced Thomas to quit RE/MAX and form his own chain, Altera Real Estate, in 2008. The only problem to some NAR members is that veteran Realtor Thomas has filed for personal and corporate bankruptcy, with combined debts of $13.2 million and assets of $1.7 million.

 

In January 2011, Thomas’ corporation filed for bankruptcy. He filed for personal bankruptcy this past June.

On Friday, Oct. 5, Stephanie Singer of NAR’s Washington DC office confirmed to me that Thomas will be the 2013 president of NAR. She said there will be no change in the succession to the top spot in the Chicago-based Realtors.

Former Los Angeles Times reporter Mark Lacter, writing for the LA Observed site said on Oct. 4:

“Next month a fellow named Gary Thomas becomes president of the National Association of Realtors, which is a big deal because it makes him a spokesman for the nation’s real estate industry. But as reported by the OC Register, Thomas had to file for personal and corporate bankruptcy because of the housing crash. His debt totals $13 million. Is this the sort of guy who should be leading NAR?

“‘The real truth is hundreds of thousands of Realtors didn’t file bankruptcy and managed their businesses – and honored their commitments,’ said RE/MAX President Vinnie Tracey. NAR President Moe Veissi said a long and arduous vetting process took place over years before Thomas was picked for president and that an additional inquiry was launched in response to Tracey’s concerns. Thomas answered questions to the board’s satisfaction. ‘It’s at least a five- to seven-year process to get into a position to be considered as president,’ Veissi said. ‘He’s been vetted and is qualified to lead the National Association of Realtors.'”

OK, so what he’s doing is perfectly legal, but what about the ethics in the matter?

 

I sent the story to a friend who has spent decades covering real estate, as I did at The Milwaukee Sentinel and the Los Angeles Times. Here is his response:

 

“The solution seems like Thomas should withdraw gracefully, saying he needs to focus on pressing business and cannot serve at this time. I woul like to know if this is Ch 7 (meltdown/closedown) or Chaper 11 (reorganization) on these two filings. Not an easy issue though. The PR person at NAR is earning her keep on this one.”

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Realtors pour another $1.3 million into Measure 79 anti-tax campaign; is it a sign of trouble?

pendingsale.jpgThe real estate industry has so far put more than $4.6 million into a ballot measure this fall to ban new fees and taxes on real estate sales in Oregon.The National Association of Realtors reported over the weekend that it has put another $1.3 million into the campaign in favor of Oregon’s Measure 79, which would ban new taxes and fees on real estate sales.

The state and national Realtors have now put in more than $4.6 million for their fall campaign to amend the state Constitution to ban such taxes.  That’s a lot of money for a ballot measure that faces only low-dollar opposition.

Jon Coney, the spokesman for the Yes on 79 campaign, says proponents always envisioned a “robust” campaign in favor of it.

But there are also signs that the the Realtors put the extra money in because Measure 79 is a difficult sell with voters.  The most intriguing bit of information comes from Our Oregon, a labor-backed group opposed to the measure.

Scott Moore, the group’s communications director, said an August poll conducted for Our Oregon read voters the ballot title and asked for their opinion.  Only 22 percent said yes and a whopping 57 percent said they were against.

“They know they have a significant problem with voters,” said Moore, “and that’s why they have to dump millions of dollars into their campaign.”

Coney said the Our Oregon polling “seem significantly lower than what we have seen.”  But he conceded that his group’s surveys show that “voters need to be educated” to get them into the yes category.

“We’re in a position of saying vote yes to vote no on real estate taxes,” said Coney, “so there are tricky dynamics there.”

Whatever the case, opponents are enjoying the possibility that Realtors may be struggling.   “You don’t dump another $1 million in at this point when you’ve got no opposition unless something is up,” said Ryan Deckert, president of the Oregon Business Association.

His group also opposes the measure but doesn’t plan to spend any money fighting it.  Our Oregon criticizes the measure in its direct mail pieces but also doesn’t plan an expensive opposition campaign.

Moore, Deckert and other critics say there is no need for the constitutional ban.   The Oregon Legislature has already banned localities from imposing new real estate transfer fees and there has been no serious move to do so at the state level.

But officials from the Oregon Association of Realtors have argued that they want to foreclose the possibility of turning to real estate fees, which some states have used to raise significant revenue.

–Jeff Mapes

Pakistan Sukuk Rules, Nifty Index Rout, SEC: Compliance

Pakistan has drafted rules to
develop the Islamic capital market as the central bank seeks to
increase assets that comply with religious tenets to 15 percent
of the total in five years.

The “Issuance of Sukuk Regulations 2012” allows companies
to sell Shariah-compliant notes so long as they have no overdue
loans, the Securities Exchange Commission of Pakistan, said in
an e-mailed statement Oct. 4. The issuer and the underlying
assets should also not be rated lower than BBB-, it said.

Each company must appoint a Shariah scholar to ascertain
that the sukuk meets Islamic principles and assign a fatwa, or
legal ruling, according to the statement. Proceeds should also
be used in accordance with Shariah law, it said. Businesses
involved in activities such as gambling, prostitution, alcohol
and some entertainment establishments are deemed unethical in
the Islamic world.

Pakistan is amending rules as it seeks to boost Shariah
deposits to finance a budget deficit that is 7.4 percent of
gross domestic product, the highest since 2009. The nation aims
to increase Islamic banking assets from the current 8 percent in
five years, the central bank said in a statement on Sept. 4,
citing Deputy Governor Kazi Abdul Muktadir.

Compliance Policy

U.S. Regulator Proposes Uniform System for Mortgage Securities

The U.S. overseer of Fannie Mae (FNMA) and Freddie Mac, planning
for when the companies are eliminated or their role diminished,
is seeking input on a system to standardize the packaging of
home loans into securities.

The plan would create a common method of issuing bonds,
overseeing servicers, making payments to investors, and tracking
loan performance, among other things, the Federal Housing
Finance Administration said in a white paper released last week.
It would also standardize pooling and servicing contracts
underlying the securities.

The system could be used either by Fannie Mae and Freddie
Mac or by issuers of private-label securities, FHFA said.

The proposal is part of the regulator’s effort to lay the
groundwork for the two government-sponsored enterprises to
shrink or be wound down entirely. Fannie Mae and Freddie Mac (FMCC)
have operated under U.S. conservatorship since 2008. About 75
percent of mortgage securities are created by the two
enterprises.

Neither Congress nor President Barack Obama have moved
forward with plans to overhaul the housing-finance system and
determine the companies’ fate. Washington-based Fannie Mae and
McLean, Virginia-based Freddie Mac dominate the U.S. mortgage
market.

FHFA has been pushing Fannie Mae and Freddie Mac to
standardize their operations to reduce taxpayers’ costs and make
it easier for sellers, servicers and investors to work with the
two companies.

For more, click here.

Compliance Action

India Eight-Second Stock Rout Brings Trading Paranoia to Mumbai

The plunge and rebound in Indian stocks that pushed the SP
CNX Nifty (NIFTY) Index down 16 percent over eight seconds underscored
concern about financial markets.

Trading in the Nifty and some companies stopped Oct. 4 in
Mumbai for 15 minutes after the 50-stock gauge tumbled as much
as 16 percent. A brokerage that mishandled trades for an
institutional client was to blame, according to the National
Stock Exchange of India.

Regulators around the world are probing market structure
and electronic trading after a series of malfunctions. In May
2010, high-frequency orders worsened the so-called flash crash,
which briefly wiped $862 billion from U.S. stocks. The Nasdaq
Stock Market in May this year was overwhelmed by order
cancellations and trade confirmations were delayed in the public
debut of Facebook Inc. (FB), 2012’s largest initial public offering.

Orders entered by Emkay Global Financial Services Ltd. that
led to trades valued at 6.5 billion rupees ($126 million) caused
the drop, NSE spokeswoman Divya Malik Lahiri said from New
Delhi.

The NSE’s systems weren’t at fault, according to the
exchange’s Ravi Varanasi, head of business development at the
exchange in Mumbai. He said the exchange would investigate “an
erroneous quantity in the orders,” of a broker-dealer.

For more, click here.

Pfizer’s U.S. Losses Questioned as International Profit Surges

Pfizer Inc. (PFE), the world’s biggest drugmaker, was asked by
U.S. regulators how it recorded high profit overseas and losses
at home when 40 percent of its sales were inside the U.S.

In a May 9 letter filed Oct. 5, Securities and Exchange
Commission staff asked New York-based Pfizer to explain why
earnings before taxes outside the U.S. were $15 billion in 2011
while losses within the country were $2.2 billion. By piling up
profit in low-tax jurisdictions overseas, Pfizer has been able
to cut its tax rate reported to investors and boost results.

Pfizer is one of the most aggressive U.S. companies
reporting income in countries with lower tax rates than the U.S.
as a way of reducing their effective tax rate, according to data
compiled by Bloomberg. The drugmaker had the second-highest
amount of profit kept overseas, $63 billion, behind only General
Electric Co., according to securities filings as of March.

Pfizer is among the companies that have lobbied U.S.
lawmakers for a tax holiday that would allow it to bring some of
the overseas profit back to the country at a lower tax rate. In
its response to regulators, Pfizer wrote that giving more
information about how it distributed its earnings among various
locations wouldn’t be helpful to investors.

“We conduct business in more than 150 countries and face
significant competition from companies located outside the
United States, including many competitors located in lower tax
jurisdictions,” Joan Campion, a company spokeswoman, said in an
e-mail. “At all times and wherever we operate, Pfizer complies
with the appropriate tax law.”

Pfizer said in an Aug. 27 letter that it would add more
disclosure.

The company is not alone in getting these questions from
the SEC. In December, the commission questioned Google about its
earnings in other countries.

Florence Harmon, a spokeswoman for the SEC, declined to
comment.

IOSCO Oil Probe Asks Price Agencies to Adopt Robust Methods

Companies involved in setting price levels used in the oil
market should adopt “robust” controls to protect the
reliability of the benchmarks, according to a commission
appointed by the Group of 20 nations to investigate possible
market manipulation.

The report, which was published Oct. 5 by the International
Organization of Securities Commissions, called on price
reporting agencies, including Platts, a unit of McGraw-Hill
Cos. (MHP)
, and Argus Media Ltd., to introduce conflict of interest
policies, provide audit trails to regulators and establish a
formal complaints process.

IOSCO was appointed by the G-20 in November to investigate
the role played by the agencies in oil markets. Platts and Argus
publish so-called assessments that are used in pricing shipments
of crude and refined products such as diesel.

Masamichi Kono, chairman of the IOSCO Board, said he
expects the agencies to adopt the principles globally.

Platts, Argus and ICIS, which is part of Reed Business
Information, issued a draft self-regulatory code in April in
response to a previous report from IOSCO. The Oct. 5
recommendations are “well aligned with Platts’ current
practices,” the company said in an e-mailed statement. Argus
didn’t immediately respond to an e-mail seeking comment.

Bloomberg LP, the parent of Bloomberg News, competes with
Platts, Argus and ICIS in providing energy markets news and
information.

Courts

Ex-LinkBrokers Employees Are Charged With Conspiracy, Fraud

U.S. prosecutors charged three brokers with making millions
of dollars by lying about the prices of securities they bought
and sold for clients.

Marek Leszczynski and Benjamin Chouchane were arrested and
were scheduled to appear in federal court Oct. 5, according to a
statement from the office of U.S. Attorney Preet Bharara in
Manhattan. A third man, Henry Condron, pleaded guilty in the
scheme earlier last week, the government said.

All three men are former employees of the same brokerage
firm, which prosecutors didn’t identify. Finra records show the
men all worked for LinkBrokers Derivatives Corp., a unit of
London-based ICAP Plc. (IAP)

Separately, the U.S. Securities and Exchange Commission
Oct. 5 filed a suit and claimed the three men and a fourth
former LinkBrokers employee, Gregory Reyftmann, illegally took
$18.7 million from customers by reporting fake execution prices
on more than 36,000 transactions over four years.

Guy Taylor, an ICAP spokesman, had no immediate comment on
the cases.

The criminal cases are U.S. v. Chouchane, 12-mj-2615; U.S.
v. Leszczynski, 12-mj-2614; and U.S. v. Condron; and the SEC
case is SEC v. Leszczynski, 12-cv-7488, U.S. District Court,
Southern District of New York (Manhattan).

Interviews

Mendon’s Schutz Says Dodd-Frank ‘Politically Charged’

Anton Schutz, president of Mendon Capital Advisors,
discussed banking regulation. Schutz talked with Bloomberg’s
Pimm Fox and Courtney Donohoe on Bloomberg Radio’s “Taking
Stock.”

For the video, click here.

Comings and Goings

JPMorgan’s Zubrow to Retire After Getting New Boss Zames

JPMorgan Chase Co. (JPM)’s Barry Zubrow will retire at the end
of this year.

“Now is the right time in my life” to retire, Zubrow, 59,
wrote to colleagues in a note Oct. 5. “We have learned from the
mistakes of our recent trading losses.” The note was confirmed
by Joe Evangelisti, a spokesman for the New York-based bank.

Zubrow was chief risk officer from November 2007 until
January, when he became head of corporate and regulatory
affairs. In that role, he lobbied the Federal Reserve and other
regulators for looser controls on proprietary traders in the
chief investment office.

In a management shuffle in July, JPMorgan Chief Executive
Officer Jamie Dimon moved Zubrow from reporting directly to him
to reporting to 41-year-old Matt Zames, who was promoted to co-
chief operating officer.

Dimon said in a separate memo to staff Oct. 5 that he had
benefited from Zubrow’s “thoughtful counsel and analysis.”

To contact the reporter on this story:
Carla Main in New Jersey at
cmain2@bloomberg.net.

To contact the editor responsible for this report:
Michael Hytha at mhytha@bloomberg.net.

Could Fannie and Freddie Add $5 Trillion to US Debt?

In 2003, Rep. Barney Frank (D-MA) famously denied that “the Federal Government is obligated to bail out people who lose money in connection” with Fannie Mae and Freddie Mac:  “There is no guarantee, there is no explicit guarantee, there is no implicit guarantee, there is no wink-and-nod guarantee.  Invest, and you are on your own.”

We now know that Rep. Frank was either ignorant or lying, but are most Americans aware that the U.S. government is now responsible for all of Fannie and Freddie’s financial obligations, and that these obligations amount to nearly $7 trillion worth of debt and guarantees?

The mainstream media typically represents the bailout of Fannie and Freddie as a relative bargain, costing the Federal government “$130 billion and counting” as of 2011 (NPR) and a decade from now perhaps only “$28 billion” (The Economist).  Yet these figures only represent the amount of money the Treasury has invested to keep Fannie and Freddie solvent, minus the profits the GSEs have paid back to the Treasury. They do not include the financial obligations of the GSEs, for which the U.S. government is now entirely responsible.

As the Associated Press reported in 2008, “with the government takeover of Fannie Mae and Freddie Mac, U.S. taxpayers now essentially own the bulk of the nation’s mortgage market.” In other words, when Fannie and Freddie went into conservatorship in September 2008, the two GSEs became (in the words of the Congressional Budget Office) “governmental,” and this “effectively made the government’s backing of their debt securities and [mortgage-backed security] guarantees explicit” (see p. 3 and p. vii of the 2010 CBO report).

So what is the potential damage?

As of September 2008, Fannie and Freddie guaranteed roughly $3.5 trillion worth of mortgage-backed securities.  The present figure must be significantly higher, because the GSEs, along with Ginnie Mae and the Federal Housing Administration, have purchased or guaranteed nearly every mortgage issued in the United States since late 2008 when the GSEs went into conservatorship.  These agencies backed “nearly 97% of U.S. mortgages in 2009,” “96.5% of all newly originated mortgages” in the first quarter of 2010, and “nine out of every ten home loans” in 2012

This amount does not include the current debt obligations of the two GSEs, which are now also the responsibility of the U.S. government. As of 2012, Fannie Mae’s debt securities amount to $652 billion and Freddie Mac’s amount to $586 billion, for a total of more than $1.2 trillion in outstanding debt.  Taking together the size of the GSE’s outstanding guarantees and current debt obligations, $5 trillion is a reasonable estimate of the amount for which Fannie and Freddie (and thus American taxpayers) are now responsible.

To make matters worse, the Housing and Recovery Act of 2008 only permits the Treasury to provide Fannie and Freddie with unlimited capital for operating expenses through December 2012.  After December 31,” as NBC News recently reported, “Fannie Mae’s bailout will be capped at $125 billion and Freddie Mac will have a limit of $149 billion.” The GSEs owed the Treasury a combined $143 billion as of August 2012, so that should leave them a $131 billion line of credit starting in 2013 (they generated modest profits in the first half of 2012). Once this cap is reached, the GSEs will have to rely on investors who are willing to purchase their debt securities. It is not certain that the amount to be had from these sources will be enough to keep Fannie and Freddie operational, but neither the Obama administration nor Congress has been willing to touch this issue before the election.

So what does the future hold for Fannie and Freddie, and for us taxpayers? The 2010 CBO report on Fannie and Freddie considers three possibilities for the future of the secondary mortgage market: “a hybrid public/private model … a fully public model … [and] a fully private model.” The hybrid/public model, as embodied by Fannie and Freddie, has already been tried, and with disastrous results. It is highly unlikely that Democrats in Congress will ever accept a fully private model, as anyone who is familiar with the transcripts of congressional committee hearings involving the GSEs will attest. That leaves the fully public model, involving a complete federal takeover of the role of purchasing mortgages from banks and other mortgage lenders.

It is in this light, I would suggest, that one must understand the Federal Reserve’s purchase of mortgage securities from Fannie and Freddie.  Whatever other apparent benefits may flow from these purchases, they effectively pave the way for eliminating the GSEs and nationalizing the secondary mortgage market. In a 2011 opinion piece for CNN Money, William M. Isaac and Richard M. Kovacevich propose to eliminate Fannie and Freddie and replace them with a fully private model. The first step of their plan is “Fannie’s and Freddie’s existing portfolio of mortgages should be sold at a rate of about $75 billion a year until it reaches zero.” This could just as easily be a first step toward replacing the GSEs with a fully public model.  As I pointed out in a recent blog post at American Thinker, the Federal Reserve’s decision in September to purchase $40 billion worth of mortgage securities per month from Fannie and Freddie would make it possible to purchase Fannie Mae’s and Freddie Mac’s entire portfolios in less than three yearsIn addition, the Federal Reserve’s purchase of $1.25 trillion of mortgage securities in 2008-2010 should have been sufficient to place all risky mortgages guaranteed by Fannie and Freddie into the hands of the Federal Reserve, where restitution can be indefinitely postponed if borrowers stop making payments.  With the GSE’s portfolios eliminated and its toxic mortgage guarantees in the hands of the Federal Reserve, it will be possible to argue that there is little present risk involved in transforming the GSEs into permanent agencies of the federal government. 

This transformation will make it possible for the federal government to continue its policy of affordable housing for low-income home buyers and will keep demand high for new homes … until the next time the housing market collapses, and American taxpayers once again find themselves holding the bill.

Freddie Mac Wins Dismissal of Securities Fraud Lawsuit

Freddie Mac won’t have to face a
lawsuit filed by investors accusing it of misrepresenting the
state of its finances in 2007 and 2008, a federal judge ruled.

The investors failed to supply enough evidence that the
McLean, Virginia-based mortgage-finance company and some of its
senior managers intended to defraud them, U.S. District Judge
John F. Keenan said in a ruling filed yesterday in Manhattan
federal court.

The judge rejected contentions by the plaintiffs including
the Central States, Southeast and Southwest Areas Pension Fund
and the National Elevator Industry Pension Plan that Freddie
Mac (FMCC)
’s disclosures were misleading. The information Freddie Mac
provided was detailed, not opaque, the judge said.

“It defies logic to conclude that executives who are
seeking to perpetrate fraudulent information upon the market
would make such fulsome disclosures,” Keenan said in his
opinion. He dismissed the case with prejudice, meaning the
plaintiffs are barred from filing again.

Freddie Mac and its fellow housing-finance entity Fannie
Mae were placed under U.S. conservatorship in September 2008
following financial losses and have since received more than
$187 billion in taxpayer support, according to the Federal
Housing Finance Agency.

FHFA Memo

In the most recent version of their complaint, the
plaintiffs alleged that a memo from the FHFA revealed that
Freddie Mac was in financial trouble at the time of the alleged
misstatements. The judge found the memo insufficient to bolster
the plaintiffs’ case.

“The court will not intervene in a business and accounting
judgment simply because the FHFA accountants reached different
conclusions than Freddie Mac accountants,” he said.

A lawyer for the plaintiffs, Samuel H. Rudman, didn’t
immediately return a call seeking comment on the ruling.

The case is Kuriakose v. Federal Home Loan Mortgage Corp.,
08-cv-7281, U.S. District Court, Southern District of New York
(Manhattan).

To contact the reporter on this story:
Christie Smythe in New York at
csmythe1@bloomberg.net

To contact the editor responsible for this story:
Michael Hytha at mhytha@bloomberg.net

Realtors concur, market is improving


Posted: Sunday, October 7, 2012 12:00 am
|


Updated: 1:25 am, Sun Oct 7, 2012.


Realtors concur, market is improving

By KIM COOPER/Special to The Press

The Coeur d’ Alene Press

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0 comments

Last week at The Coeur d’Alene Resort more than 220 Realtors converged to conduct the business of the Idaho Association of Realtors, participate in continuing education and network with peers from across the state. In conversations with these Realtors we gained a “boots on the ground” perspective from all corners of the state and communities of all sizes. The consensus? “The market is improving.” Many lamented their decreasing inventory and told stories of multiple offers on well priced listings, much the same as we have seen locally.


It is easy sometimes to be engulfed by local conditions so it is great, at least once a year, to get a broader perspective, especially when the perspective from geographically distant areas is the same as here at home. We all experience the same challenges with delays in transactions as discussed last week yet we share the optimism that the real estate market is beginning to take on characteristics more like a “normal” market.

Locally we are seeing inventory shrink as properties are sold. At September’s end we see our year over year comparison of available residential listings is nearly 13 percent below last year at the same time and our inventory of all types of real estate is off by nearly 12 percent. As available listings decrease, we see prices begin to rise.

In Kootenai County, our average price for a site built home on its own lot reflects a 10 percent increase over September 2011 while our median price is up by 12 percent. As inventory absorption continues to escalate in our outlying areas we anticipate price appreciation there as well. Most parts of our Multiple Listing Service area reflect a higher number of sales with the exception of South Kootenai County where sales are 43 percent fewer than last year, yet their average price is up by 6 percent.

Post Falls has remained steady and although we have seen three less home sales there this year, their average price has increased by a healthy 5 percent. Reporting agents in Bonner and Boundary counties and in the Silver Valley are reporting double digit increases in sales activity but the persistently deflated values continue to provide buyers with lots of opportunity to save – at least in the short term.

Distressed properties which at one time were half our sales have declined to 35 percent in our most recent statistical report. As you recall, “distressed” includes those properties that are selling for less than is owed, or “short sales,” and properties that are lender owned due to foreclosure or surrender of deeds to lenders by the homeowner. This year we have seen 25 percent fewer lender owned properties sell and our short sales have increased by 20 percent. This indicates that lenders are more willing to help debtors avoid costly foreclosure proceedings by settling their loans at a discount which arguably is less damaging to the borrower’s credit.

We have also seen a significant increase in the percentage of homes sold in the $200-300,000 range, a sign that lower mortgage interest rates are allowing people to afford more home. That price range last year represented 15.5 percent of our sales whereas this year more than 19 percent of our home sales are in that range.

Waterfront home sales increased a whopping 60 percent over last year’s total number but at an average price that was still 9 percent below last year indicating that buyers are still finding bargain priced vacation homes. At the current pace however, it is more than likely those prices will soon begin to escalate.

Our investment property sales are spot on with last year although their accumulated value is nearly half of the total dollar volume the previous year. History tells us that commercial property recoveries lag behind residential so we look for those properties to gain value too in the coming months.

The National Association of Realtors has told us for years that, “All real estate is local.” It is encouraging then to note that local real estate in all locales – at least in Idaho – is improving.

Trust an expert…call a Realtor. Call your Realtor or visit www.cdarealtors.com to search properties on the Multiple Listing Service or to find a Realtor member who will represent your best interests.

Kim Cooper is a real estate broker and the spokesman for the Coeur d’Alene Association of Realtors. Kim and the association invite your feedback and input for this column. You may contact them by writing to the Coeur d’Alene Association of Realtors, 409 W. Neider, Coeur d’Alene, ID 83815 or by calling (208) 667-0664.

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Updated: 1:25 am.


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