Euro Pacific Capital
By: John Browne
Monday, July 25, 2011
President Obama has continued and increased the reckless spending of the previous Administration. Now, as the federal debt reaches its statutory limit, he is spreading fear and panic in the hopes of having it raised.
Many of the key people responsible for America’s historic mess, including the President, Treasury Secretary Geithner, former NEC Director Summers, and Fed Chairman Bernanke, have pronounced publicly that a failure to lift the debt ceiling will cause a catastrophic Treasury debt default.
This is simply not true. The US Treasury has tax revenues that cover the service of its current (staggering) debt of some $14.3 trillion.
Yet, that doesn't mean the US government won't be forced to default in other ways. Failure to pay the nominal interest and principal on bonds is only the narrowest definition of “default.” When a broader definition is used – which includes the use of inflation to erode the real value of US debt – the US government has in fact been in a state of continuous default for almost a century.
A 2011 dollar is worth just four cents in terms of a 1914 dollar. As that new money circulates, your dollar will lose some 53% of its purchasing power, productivity increases notwithstanding. That's just in the last three years!
However, despite this continued stealth default and the constant underfunding of government obligations, hitting the debt ceiling would represent a very serious escalation of the United States' insolvency. For, while Treasury bonds would continue to be honored, many other obligations would not. This is the time when seniors and soldiers should being paying attention.
If the debt limit were not raised, the Administration would be forced to literally choose which checks to send and which to cancel. On the chopping block could be Social Security checks, Medicare reimbursements, military salaries, federal pensions, and myriad boondoggles that the federal government has taken upon itself to fund. Perhaps the President would cancel his next campaign stop to save the expense of fueling Air Force One? Not likely!
While President Obama would find himself walking through a minefield of special interest groups as he chose where to cut, I expect the overall effort to be broadly popular. This is, after all, what the boisterous American Tea Party has been demanding all along. And the ultimate result would be a renewed faith in the US dollar and Treasuries.
In fact, the Republicans have in their hands the opportunity of a lifetime, the chance to force the Administration into good sense, while avoiding the political fallout.
Unfortunately for them and for the country, President Obama and his key Democrat allies appear to have terrified the Republican establishment into believing that if they stand up for prudent finance, default will result and conservatives will be blamed for it.
Already, key Republicans have stated publicly that they are unwilling to risk triggering the debt ceiling, thus handing Obama their trump card. In doing so, they are forgoing any chance that Obama would be forced to re-prioritize the government's reckless spending. Therefore, they are actually raising the risk of a true default – in which not even Treasuries will be honored – in the coming years.
Increasingly, it appears likely that the Republicans will buckle. If they do, Americans will be faced with a package that both sides will claim as a victory. The losers will be hard working, patriotic Americans and those around the world who believed the United States was good for its word.
Showing posts with label Defaults. Show all posts
Showing posts with label Defaults. Show all posts
Tuesday, July 26, 2011
Saturday, May 14, 2011
Debt Ceiling...? We Are Already Defaulting (Jacob Hornberger)
By: Jacob Hornberger
The Future of Freedom Foundation
May 11, 2011
The doomsday crowd claims that the sky will fall in if Congress fails to raise the debt ceiling. If the ceiling isn't raised, they say, the federal government will be forced to default on its debt payments, which apparently will then cause the sky to fall in.
But let's assume there is a default. Will the sky fall in, as the doomsayers claim?
Not likely. After all, thanks to the Federal Reserve, the federal government is already defaulting on its debts – and has been for decades.
While the ostensible purpose of the Federal Reserve is to “stabilize” the money supply, its real purpose is to enable public officials to spend as much money as they want by borrowing it and then letting the Federal Reserve pay off its creditors with newly printed, debased, cheapened, devalued dollars.
That's precisely what the Fed is doing now, has been doing recently, and has been doing ever since it was established in 1913. It “monetizes” the government's debt by printing the money to pay it off. The inflated supply of money cheapens the value of the money in circulation, which means that bondholders are being repaid in currency that is worth less than it was when they loaned it.
That's a default.
Let's assume I loan the government $1,000 at 10 percent interest, with the note payable one year from now. The year passes. The government owes me $1,100. The government doesn't have the money to pay me because all of its tax revenues are devoted to welfare and warfare, which the big spenders in Congress are dead-set on continuing.
The members of Congress are reluctant to raise taxes to pay me back for two reasons: one, they know that overtaxed people get upset over more taxes, and, two, they're concerned that more taxes will kill the private sector that funds the welfare-warfare state
No problem. The big spenders simply turn to the Fed to do the dirty work for them. The Fed cranks up the printing presses and starts printing large quantities of new money to pay me and the other creditors whose debts are now due.
The government sends me its newly printed $1,100 to pay off my debt. But there is one big problem: That $1,100 now only buys 90 percent of what it used to. Due to the Fed's expansion of the money supply, the dollar has been debased or devalued by, say, 10 percent.
That's a default because the government isn't paying me what I am owed.
That's what the Fed has been doing for decades. That's why the dollar is worth about 5 percent of what it was worth in 1913, when the Fed was established. Decade after decade, the Fed has expanded the money supply to accommodate the big spenders in Congress (and the big-spending President), thereby debasing and devaluing the currency. Throughout most of that time, the government's creditors have been paid off in cheapened, debased, devalued dollars.
While decades of continuous default have brought monetary chaos, the sky has never fallen in.
Needless to say, the big spenders in Congress love the Fed. They know that they can keep spending and borrowing to their hearts' content and not have to incur voter wrath by raising taxes. They know that the Fed will always come to their rescue by printing the money to pay for their big spending and big borrowing.
The citizens, of course, have no idea what is occurring. All they see is soaring prices (initially gold, silver, oil, gasoline, and other commodities, and, later, retail prices in general). Unaware that the government itself – through the Fed – is the culprit, the citizens blame the rising prices on greed, speculation, the banksters, the profiteers, the capitalists, the middle men, the entrepreneurs, and perhaps even the illegal aliens.
Jacob G. Hornberger is founder and president of The Future of Freedom Foundation. He is a regular writer for the Foundation's publication, Freedom Daily, and is a co-editor or contributor to the eight books that have been published by the Foundation.
Originally published on April 29, 2011 at CampaignForLiberty.com. Jacob G. Hornberger, the Future of Freedom Foundation, and Campaign for Liberty are not affiliated with Euro Pacific Capital, Inc. Euro Pacific Capital does not guarantee the accuracy and completeness of third-party authored content.
The commentary above is for the benefit of our readers from opinion makers and writers not associated with Euro Pacific. Opinions expressed are those of the writer, and may or may not reflect those held by Euro Pacific, or its president, Peter Schiff.
The Future of Freedom Foundation
May 11, 2011
The doomsday crowd claims that the sky will fall in if Congress fails to raise the debt ceiling. If the ceiling isn't raised, they say, the federal government will be forced to default on its debt payments, which apparently will then cause the sky to fall in.
That's, of course, ridiculous. For one thing, just because the federal government isn't permitted to add to its ever-soaring mountain of debt doesn't mean that it will be forced to default on debt payments. With the $2.2 trillion it collects in tax revenues, it can give first priority to debt payments.But let's assume there is a default. Will the sky fall in, as the doomsayers claim?
Not likely. After all, thanks to the Federal Reserve, the federal government is already defaulting on its debts – and has been for decades.
While the ostensible purpose of the Federal Reserve is to “stabilize” the money supply, its real purpose is to enable public officials to spend as much money as they want by borrowing it and then letting the Federal Reserve pay off its creditors with newly printed, debased, cheapened, devalued dollars.
That's precisely what the Fed is doing now, has been doing recently, and has been doing ever since it was established in 1913. It “monetizes” the government's debt by printing the money to pay it off. The inflated supply of money cheapens the value of the money in circulation, which means that bondholders are being repaid in currency that is worth less than it was when they loaned it.
That's a default.
Let's assume I loan the government $1,000 at 10 percent interest, with the note payable one year from now. The year passes. The government owes me $1,100. The government doesn't have the money to pay me because all of its tax revenues are devoted to welfare and warfare, which the big spenders in Congress are dead-set on continuing.
The members of Congress are reluctant to raise taxes to pay me back for two reasons: one, they know that overtaxed people get upset over more taxes, and, two, they're concerned that more taxes will kill the private sector that funds the welfare-warfare state
No problem. The big spenders simply turn to the Fed to do the dirty work for them. The Fed cranks up the printing presses and starts printing large quantities of new money to pay me and the other creditors whose debts are now due.
The government sends me its newly printed $1,100 to pay off my debt. But there is one big problem: That $1,100 now only buys 90 percent of what it used to. Due to the Fed's expansion of the money supply, the dollar has been debased or devalued by, say, 10 percent.
The government has not complied with its promise to pay me $1,100. It has instead paid me in money now worth $990.That's a default because the government isn't paying me what I am owed.
That's what the Fed has been doing for decades. That's why the dollar is worth about 5 percent of what it was worth in 1913, when the Fed was established. Decade after decade, the Fed has expanded the money supply to accommodate the big spenders in Congress (and the big-spending President), thereby debasing and devaluing the currency. Throughout most of that time, the government's creditors have been paid off in cheapened, debased, devalued dollars.
While decades of continuous default have brought monetary chaos, the sky has never fallen in.
Needless to say, the big spenders in Congress love the Fed. They know that they can keep spending and borrowing to their hearts' content and not have to incur voter wrath by raising taxes. They know that the Fed will always come to their rescue by printing the money to pay for their big spending and big borrowing.
The citizens, of course, have no idea what is occurring. All they see is soaring prices (initially gold, silver, oil, gasoline, and other commodities, and, later, retail prices in general). Unaware that the government itself – through the Fed – is the culprit, the citizens blame the rising prices on greed, speculation, the banksters, the profiteers, the capitalists, the middle men, the entrepreneurs, and perhaps even the illegal aliens.
Our American ancestors had it right. That's why they lived for more than 100 years with no Federal Reserve and no welfare-warfare state and a way of life based on economic liberty, sound money, private property, the free market, and a limited-government, constitutional republic.Jacob G. Hornberger is founder and president of The Future of Freedom Foundation. He is a regular writer for the Foundation's publication, Freedom Daily, and is a co-editor or contributor to the eight books that have been published by the Foundation.
Originally published on April 29, 2011 at CampaignForLiberty.com. Jacob G. Hornberger, the Future of Freedom Foundation, and Campaign for Liberty are not affiliated with Euro Pacific Capital, Inc. Euro Pacific Capital does not guarantee the accuracy and completeness of third-party authored content.
The commentary above is for the benefit of our readers from opinion makers and writers not associated with Euro Pacific. Opinions expressed are those of the writer, and may or may not reflect those held by Euro Pacific, or its president, Peter Schiff.
Thursday, March 17, 2011
Senator Jon Kyl thinks cutting .00625 of the deficit is a good day's work
from this year's spending," said Mr. Kyl.
"All in all, a good day's work."
Jon's idea of a good day's work equates to .00625 of
our $1.6 trillion deficit. Jon would likely deem running
330 feet of a 10 mile run a good days work.
Can you imagine golfing with Senator Kyl,
given he would deem a 7.5 foot tee shot
a good days work on a 400 yard Par 4 hole?
It was such a good day's work, the Senate will
be in recess from March 21st through March 27th
and again from APril 18th through May 1st.
The Wall Street Journal
March 17, 2011
WASHINGTON—The Senate on Thursday approved legislation to fund the government for three additional weeks, amid bipartisan hopes that it would be the last short-term spending bill approved by Congress for the current fiscal year.
The measure, approved 87-13, extends funding until April 8. It now goes to President Barack Obama for his signature.
Congress will have to pass a new funding mechanism by April 8 to avert a partial government shutdown.
The legislation approved Thursday cuts $6 billion from current spending levels but, to blunt Democratic opposition, draws the cuts mostly from programs targeted by both parties. They include earmarks for individual lawmakers' pet projects.
Other cuts in the bill include $200 million from wildfire-suppression efforts and $200 million in technology funds for the Social Security Administration.
Democrats and Republicans now have another three weeks to negotiate a funding plan for the remaining months of the fiscal year. The two parties are $50 billion apart on the amount they want to cut from the $1.08 trillion spent last year on discretionary programs.
Congress is in recess next week, but private talks are expected to continue among White House and congressional officials who are working to reach agreement on funding levels and on how to handle GOP-backed policy proposals. Those proposals include measures to block implementation of the health-care law, clean-air regulations and other Obama administration priorities.
The proposals, known as riders, are important to many GOP conservatives but are likely to provoke a presidential veto. They weren't included in the short-term bill that cleared the Senate.
The stopgap spending bill is needed because Congress still hasn't approved appropriations for the full 2011 fiscal year, which ends Sept. 30. The House has approved a bill to set 2011 spending at $61 billion less than 2010 levels. Between the bill passed by the Senate and an earlier short-term bill, Congress already has cut $10.5 billion.
Despite conservatives' complaints that the spending reductions weren't sufficient, Sen. Jon Kyl (R., Ariz.) said the cuts so far were a significant accomplishment.
"`In just five weeks, we will have cut $10 billion from this year's spending," said Mr. Kyl. "All in all, a good day's work."
Conservatives derided the cuts as paling in the shadow of a $1.6 trillion deficit.
"We need to do more than just trim a little bit around the edges," said Rep. Mike Lee (R., Utah), who voted against the stopgap bill, along with eight other Republicans and four Democrats.
But Senate Appropriations Committee Chairman Daniel K. Inouye (D, Hawaii) warned that federal agencies will be hard-pressed to absorb such cuts halfway through their budget year. "Agreeing to a cut of this size this late in the fiscal year will be challenging for our agencies to manage," he said.
Thursday, February 10, 2011
RealtyTrac: Janaury REO Activity Up 12 Percent
“Unfortunately this is less a sign of a robust housing recovery and more a sign that lenders have become bogged down in reviewing procedures, resubmitting paperwork and formulating legal arguments related to accusations of improper foreclosure processing.”
Foreclosure Activity Down 17 Percent from Year Ago
REO Activity Increases 12 Percent From December
IRVINE, Calif. – Feb. 10, 2011 — RealtyTrac® (www.realtytrac.com), the leading online marketplace for foreclosure properties, today released its U.S. Foreclosure Market Report™ for January 2011, which shows foreclosure filings — default notices, scheduled auctions and bank repossessions — were reported on 261,333 U.S. properties in January, a 1 percent increase from the previous month but a 17 percent decrease from January 2010. The report also shows one in every 497 housing units received a foreclosure filing during the month.
“We’ve now seen three straight months with fewer than 300,000 properties receiving foreclosure filings, following 20 straight months where the total exceeded 300,000,” said James J. Saccacio, chief executive officer of RealtyTrac. “Unfortunately this is less a sign of a robust housing recovery and more a sign that lenders have become bogged down in reviewing procedures, resubmitting paperwork and formulating legal arguments related to accusations of improper foreclosure processing.”
Foreclosure Activity by Type
A total of 75,198 U.S. properties received default notices (NOD, LIS) in January, a 1 percent decrease from the previous month and a 27 percent decrease from January 2010 — the 12th straight month where default notices decreased on a year-over-year basis. January was also the fourth straight month where default notices decreased on a month-over-month basis, giving it the lowest monthly total for default notices since July 2007. Default notices in states with a non-judicial foreclosure process (NOD) increased less than 1 percent from the previous month but were down 8 percent from January 2010, while default notices in states with a judicial foreclosure process (LIS) decreased 2 percent from December and were down 39 percent from January 2010.
Foreclosure auctions (NTS, NFS) were scheduled for the first time on a total of 108,002 U.S. properties in January, a 4 percent decrease from the previous month and a 13 percent decrease from January 2010. It was the lowest monthly total for scheduled foreclosure auctions since February 2009.
Scheduled non-judicial foreclosure auctions (NFS) decreased 1 percent from December and were down 3 percent from January 2010, while scheduled judicial foreclosure auctions (NTS) decreased 14 percent from the previous month and were down 39 percent from January 2010.
Lenders foreclosed on 78,133 U.S. properties in January, up 12 percent from the previous month but still down 11 percent from January 2010. Bank repossessions (REO) in non-judicial foreclosure states increased 23 percent from December but were still down 9 percent from January 2010, while bank repossessions in judicial foreclosure states decreased 7 percent from the previous month and were down 16 percent from January 2010. Complete RealtyTrac Report
Thursday, January 27, 2011
Debt and the Fed (Michael Pento)
Wednesday, January 26, 2011
By: Michael Pento
The salient news of today is undoubtedly the new estimate for the 2011 deficit. The Dow Jones Industrial average has crossed above the 12k mark once again and the MSM is busy clamoring over that. However, the real news of the day is that the Congressional Budget Office (CBO) raised its deficit projection for this year’s shortfall to $1.48 trillion from $1.07 trillion. That’s an increase of over $400 billion!
Maybe not so coincidentally, President Obama vowed to cut spending by $400 billion over 10 years during last night’s State of the Union Speech. I say big deal! Even if he was successful in cutting red ink by that entire amount immediately, the deficit would still be over $1 trillion. It is only a matter of time before the bond vigilantes turn their eyes away from Europe and over to America.
The CBO’s update also indicated that the U.S. economy will expand 3.1 percent this year and 2.8 percent in 2012, with real gross domestic product growing an average of 3.4 percent in 2013-2016. CBO Director Douglas Elmendorf also indicated that "…debt held by the public will probably jump from 40 percent of GDP at the end of fiscal year 2008 to nearly 70 percent at the end of fiscal year 2011."
But the really bad news here is that their estimate for growth is most likely way too high. The Fed has now kept interest rates at near 0% for 25 months. And government debt is growing at well over a trillion dollars per year. The process of returning to a market based economy instead of one based on inflation and debt is very painful in the beginning. The end of debt monetization—if such a strategy is ever implemented—will bring asset prices much lower. And balancing the budget will temporarily bring down GDP growth and government revenue in a significant manner. Therefore, the CBO has most likely overestimated GDP or grossly underestimated inflation and deficits.
The Fed’s decision to keep interest rates unchanged didn’t surprise anyone. However, what was a surprise is that Messrs Plosser and Fischer didn’t dissent from the Fed’s zero interest rate policy. In addition, the Fed continues to concentrate on the core rate of inflation and ignore rising commodity prices and a falling dollar. Their statement indicated that they will complete the $600 billion in bond purchases even though it is causing long term yields to rise. And that the central bank will keep rates “exceptionally low for an extended period of time.”
It’s should now be clear to everyone by now that their intention is to facilitate government deficit spending by monetizing the debt.
Michael Pento, Senior Economist at Euro Pacific Capital is a well-established specialist in the “Austrian School” of economics. He is a regular guest on CNBC, Bloomberg, Fox Business, and other national media outlets and his market analysis can be read in most major financial publications, including the Wall Street Journal. Prior to joining Euro Pacific, Michael worked for a boutique investment advisory firm to create ETFs and UITs that were sold throughout Wall Street. Earlier in his career, he worked on the floor of the NYSE.
By: Michael Pento
The salient news of today is undoubtedly the new estimate for the 2011 deficit. The Dow Jones Industrial average has crossed above the 12k mark once again and the MSM is busy clamoring over that. However, the real news of the day is that the Congressional Budget Office (CBO) raised its deficit projection for this year’s shortfall to $1.48 trillion from $1.07 trillion. That’s an increase of over $400 billion!
Maybe not so coincidentally, President Obama vowed to cut spending by $400 billion over 10 years during last night’s State of the Union Speech. I say big deal! Even if he was successful in cutting red ink by that entire amount immediately, the deficit would still be over $1 trillion. It is only a matter of time before the bond vigilantes turn their eyes away from Europe and over to America.
The CBO’s update also indicated that the U.S. economy will expand 3.1 percent this year and 2.8 percent in 2012, with real gross domestic product growing an average of 3.4 percent in 2013-2016. CBO Director Douglas Elmendorf also indicated that "…debt held by the public will probably jump from 40 percent of GDP at the end of fiscal year 2008 to nearly 70 percent at the end of fiscal year 2011."
But the really bad news here is that their estimate for growth is most likely way too high. The Fed has now kept interest rates at near 0% for 25 months. And government debt is growing at well over a trillion dollars per year. The process of returning to a market based economy instead of one based on inflation and debt is very painful in the beginning. The end of debt monetization—if such a strategy is ever implemented—will bring asset prices much lower. And balancing the budget will temporarily bring down GDP growth and government revenue in a significant manner. Therefore, the CBO has most likely overestimated GDP or grossly underestimated inflation and deficits.
The Fed’s decision to keep interest rates unchanged didn’t surprise anyone. However, what was a surprise is that Messrs Plosser and Fischer didn’t dissent from the Fed’s zero interest rate policy. In addition, the Fed continues to concentrate on the core rate of inflation and ignore rising commodity prices and a falling dollar. Their statement indicated that they will complete the $600 billion in bond purchases even though it is causing long term yields to rise. And that the central bank will keep rates “exceptionally low for an extended period of time.”
It’s should now be clear to everyone by now that their intention is to facilitate government deficit spending by monetizing the debt.
Michael Pento, Senior Economist at Euro Pacific Capital is a well-established specialist in the “Austrian School” of economics. He is a regular guest on CNBC, Bloomberg, Fox Business, and other national media outlets and his market analysis can be read in most major financial publications, including the Wall Street Journal. Prior to joining Euro Pacific, Michael worked for a boutique investment advisory firm to create ETFs and UITs that were sold throughout Wall Street. Earlier in his career, he worked on the floor of the NYSE.
Monday, January 10, 2011
Hey State and Local Governments, Don't Count on Bernanke as a Lifeline
The Wall Street Journal
By Jon Hilsenrath and
Neil King Jr.
1/8/2011
Federal Reserve Chairman Ben Bernanke on Friday ruled out a central bank bailout of state and local governments strapped with big municipal debt burdens, saying the Fed had limited legal authority to help and little will to use that authority.
"We have no expectation or intention to get involved in state and local finance," Mr. Bernanke said in testimony before the Senate Budget Committee. The states, he said later, "should not expect loans from the Fed."
The $2.9 trillion municipal-bond market has been stung recently by worries that some cash-strapped cities or states won't be able to pay off or roll over debt. Costs have risen broadly for municipal borrowers. The market also faces challenges from the expiration of the Build America Bonds program, which helped cities and states borrow $165 billion at interest rates held down by federal subsidies.
Some analysts speculate the Fed could jump into the market by purchasing muni debt or lending to struggling borrowers.
The Fed only has legal authority to buy muni debt with maturities of six months or less that is directly backed by tax or other assured revenue, which makes up less than 2% of the overall market. The Dodd-Frank financial-regulation law enacted last year further tied the Fed's hands, Mr. Bernanke noted, by barring the central bank from lending to insolvent borrowers or pursuing bailouts of individual borrowers.
Mr. Bernanke played down the risk of a major municipal-bond crisis, noting that muni markets have been functioning normally, with healthy trading volumes and lots of issuance. But he said that if municipal defaults did become a problem, it would be in Congress's hands, not his.
"This is really a political, fiscal issue," he said.
Lawmakers also are drawing a line in the sand. Senior House Republicans say they will oppose any state requests for money. "If we bail out one state, then all of the debt of all of the states is almost explicitly put on the books of the federal government," House Budget Committee Chairman Paul Ryan said Thursday.
At least three House committees are planning hearings on local budget woes. Rep. Devin Nunes (R., Calif.) plans to introduce a bill to require states to disclose the size of their public-pension obligations in order to keep their federal tax-exempt bonding authority.
The bill, the Public Employee Pension Transparency Act, will explicitly bar state and local governments from receiving help from the federal government to cover their pension obligations.
"There are 242 Republicans, and I can't imagine one that would be in favor of a bailout," Mr. Nunes said.
Many Democrats are wary as well. "We need to be prepared with a plan in case we are approached by one or more states," said Sen. Kent Conrad, (D., N.D.), chairman of the Budget Committee. Neither the House nor the Senate would be "very interested in bailouts to states," he added.
In 2010, there were five municipal bankruptcy filings, down from 10 filings in 2009, according to a recent report from Bank of America Merrill Lynch. Through Dec. 1, there was $4.25 billion of municipal debt in default, which represents 0.15% of the total market, the report said.
On a recent broadcast of CBS's "60 Minutes," Meredith Whitney, a banking analyst who recently turned to analyzing state and local finances, said the U.S. could see "50 to 100 sizable defaults," in 2011 amounting to "hundreds of billions of dollars."
Mr. Bernanke described that as a "pessimistic view" that he didn't entirely agree with.
By Jon Hilsenrath and
Neil King Jr.
1/8/2011
Federal Reserve Chairman Ben Bernanke on Friday ruled out a central bank bailout of state and local governments strapped with big municipal debt burdens, saying the Fed had limited legal authority to help and little will to use that authority.
"We have no expectation or intention to get involved in state and local finance," Mr. Bernanke said in testimony before the Senate Budget Committee. The states, he said later, "should not expect loans from the Fed."
The $2.9 trillion municipal-bond market has been stung recently by worries that some cash-strapped cities or states won't be able to pay off or roll over debt. Costs have risen broadly for municipal borrowers. The market also faces challenges from the expiration of the Build America Bonds program, which helped cities and states borrow $165 billion at interest rates held down by federal subsidies.
Some analysts speculate the Fed could jump into the market by purchasing muni debt or lending to struggling borrowers.
The Fed only has legal authority to buy muni debt with maturities of six months or less that is directly backed by tax or other assured revenue, which makes up less than 2% of the overall market. The Dodd-Frank financial-regulation law enacted last year further tied the Fed's hands, Mr. Bernanke noted, by barring the central bank from lending to insolvent borrowers or pursuing bailouts of individual borrowers.
Mr. Bernanke played down the risk of a major municipal-bond crisis, noting that muni markets have been functioning normally, with healthy trading volumes and lots of issuance. But he said that if municipal defaults did become a problem, it would be in Congress's hands, not his.
"This is really a political, fiscal issue," he said.
Lawmakers also are drawing a line in the sand. Senior House Republicans say they will oppose any state requests for money. "If we bail out one state, then all of the debt of all of the states is almost explicitly put on the books of the federal government," House Budget Committee Chairman Paul Ryan said Thursday.
At least three House committees are planning hearings on local budget woes. Rep. Devin Nunes (R., Calif.) plans to introduce a bill to require states to disclose the size of their public-pension obligations in order to keep their federal tax-exempt bonding authority.
The bill, the Public Employee Pension Transparency Act, will explicitly bar state and local governments from receiving help from the federal government to cover their pension obligations.
"There are 242 Republicans, and I can't imagine one that would be in favor of a bailout," Mr. Nunes said.
Many Democrats are wary as well. "We need to be prepared with a plan in case we are approached by one or more states," said Sen. Kent Conrad, (D., N.D.), chairman of the Budget Committee. Neither the House nor the Senate would be "very interested in bailouts to states," he added.
In 2010, there were five municipal bankruptcy filings, down from 10 filings in 2009, according to a recent report from Bank of America Merrill Lynch. Through Dec. 1, there was $4.25 billion of municipal debt in default, which represents 0.15% of the total market, the report said.
On a recent broadcast of CBS's "60 Minutes," Meredith Whitney, a banking analyst who recently turned to analyzing state and local finances, said the U.S. could see "50 to 100 sizable defaults," in 2011 amounting to "hundreds of billions of dollars."
Mr. Bernanke described that as a "pessimistic view" that he didn't entirely agree with.
Thursday, January 6, 2011
No states rated by Moody’s will default this year...Promise, cross my heart and...
Moody's, the very same rating agency that continued to rate residential CDO's AAA even though they were infested with subprime toxic waste. Let's travel back to April 2010, when a couple of Moody's best and brightest testified before a Congressional subcommittee regarding their role in our overall mortgage mess:
Eric Kolchinsky, who was in charge of the Moody's unit that rated subprime collateralized debt obligations (CDO’s):
Eric Kolchinsky, who was in charge of the Moody's unit that rated subprime collateralized debt obligations (CDO’s):
- “people across the financial food chain, from the mortgage broker to the CDO banker, were compensated based on quantity rather than quality".
- "The situation was no different at the rating agencies."“I believed that to assign new ratings based on assumptions which I knew to be wrong would constitute securities fraud”
- "We, like many others, did not anticipate the unprecedented confluence of forces that drove the unusually poor performance of subprime mortgages in the past several years".
- Moody's "is certainly not satisfied with the performance of our ratings during the unprecedented market downturn of the past two years."
No states rated by Moody’s will default this year
(sleep well)
By Martin Z. Braun
Jan. 6 (Bloomberg) -- U.S. municipal governments, facing more than $100 billion in budget deficits this year and the expiration of federal stimulus funds, will be able to weather lower demand for debt and increased borrowing costs, Moody’s Investors Service said.
No states rated by Moody’s will default this year, although a few local governments may miss payments, the company said in a report. Few U.S. municipal governments borrow to fund short-term operating needs, the rating company said.
“Most municipal debt is used to finance capital projects, and governments have the ability to defer projects if they cannot finance them at rates that make sense,” said Moody’s analyst Naomi Richman. “Even many issuers of short-term cash- flow notes could draw down their available cash reserves.”
The $2.8 trillion municipal bond market has been buffeted in the past three months by predictions of mass defaults and a rush to issue federally subsidized Build America Bonds before it expired on Dec. 31. Banking analyst Meredith Whitney said she expected 50 to 100 “significant” municipal bond defaults in 2011 totaling “hundreds of billions.”
Whitney, who correctly predicted Citigroup Inc.’s dividend cut in 2008, has written a 600-page report on the financial health of the 15 largest states, which hasn’t been released publicly. She is applying to the U.S. Securities and Exchange Commission to start a ratings firm to compete with Moody’s and Standard & Poor’s, saying the companies lost credibility when billions of mortgage-backed securities they rated AAA were later downgraded to junk.
In a default study published last year, Moody’s found 54 defaults in municipal issuers it rated from 1970 to 2009. Only three were general governmental defaults. In 2010, $2.52 billion of municipal bonds defaulted, compared with $14.5 billion of corporate bonds, according to Distressed Debt Securities Newsletter. There were no defaults in 2010 by state or local governments rated by Moody’s. More Martin B. Braun Articles
Monday, January 3, 2011
Best leave defaulting to the real esate professionals (do not try this at home)
While a homeowner who lost a house to
foreclosure would find it difficult to
borrow for years, developers who defaulted
on enormous loans have still
been able to attract money.
(do not try this at home as these are trained professionals)
The New York Times
1/1/2011
Larry Gluck, the apartment building king whose company defaulted on loans in New York, San Francisco, Los Angeles and Washington, recently bought the Windermere Hotel in Manhattan and Tivoli Towers, a subsidized housing complex in Brooklyn.
Ian Bruce Eichner, who lost two major New York skyscrapers to foreclosure in the early 1990s and defaulted on a $760 million loan for a Las Vegas casino resort in 2008, is working on a plan to rescue One Madison Park, a troubled 50-story condominium project.
Even Harry Macklowe, whose $7 billion gamble on seven Midtown skyscrapers at the top of the market almost cost him his entire empire, is out looking for new deals.
Industry lore has it that New York is one of the toughest, most unforgiving real estate markets in the world. The costs are so high, the unions so ornery, the politicians so demanding and the rivalries so fierce, that one false move invites financial disaster.
But the truth is that there have been surprisingly few career fatalities among New York developers, even though they have lost billions of investor dollars on overpriced real estate and have littered the city with unfinished apartment buildings. While a homeowner who lost a house to foreclosure would find it difficult to borrow for years, developers who defaulted on enormous loans have still been able to attract money.
The reasons, experts say, are that there is still plenty of money floating around and that the market has a very short memory.
“You can always find an investor who’ll put up equity with a guy, unless he’s Attila the Hun,” said Daniel Alpert, managing partner at Westwood Capital, a real estate investment bank.
For some of these developers, however, putting together a deal is not as easy as it used to be. Large banks and pension funds that endured huge losses have become very picky. Scott Lawlor, the founder of Broadway Partners, bought 28 office buildings in 2006 and 2007 and is now stuck with heavy debts on what is left of a portfolio whose value has dropped by at least a third. He is trying to come back with a focus on distressed residential real estate but has been unable to attract institutional money, according to lawyers and real estate executives who know him. He is now trying to line up wealthy investors.
Hedge funds and private equity funds are still offering backing for deals, believing that the real estate market will warm up again this year. There are also new investors looking to get into real estate, including funds based in China, and Norwegian pension funds.
And there have been casualties. Shaya Boymelgreen, the once-ubiquitous developer who built more than 2,400 apartments during the boom, broke with his money partner, was peppered with lawsuits from condominium buyers and was evicted from his offices in Brooklyn.
The $3 billion real estate portfolio that Kent Swig, a scion of a West Coast real estate family, put together over the past two decades is slowly slipping through his hands, and he warned last year that personal bankruptcy could be in the offing.
But while a homeowner who is foreclosed upon is often on the brink of financial ruin, many developers who defaulted emerged relatively unscathed themselves. Most of them invested relatively little of their own money in the deals, preferring “O.P.M.,” or “other people’s money.” One of the best-known examples is Tishman Speyer Properties, which lost $56 million on Stuyvesant Town and Peter Cooper Village, while lenders and other investors lost over $2.4 billion. Read On Garth
Tuesday, November 16, 2010
Chris Whalen: California Will Default On Its Debt (makes Ireland look incidental)
Tech Ticker
11/16/10
Municipal bonds have plummeted in recent days, as investors have suddenly focused on huge state and city budget deficits that there's no easy way to fix.
Nowhere has this collapse been more visible than California, which faces a massive $25 billion shortfall and red ink for as far as the eye can see.
After years in which every looming financial crisis has been met with a government bailout, you might think that the same solution awaits California, as well as all the other states that have huge obligations that they can't afford to meet.
But this time that may not happen, says Chris Whalen, a financial industry analyst and Managing Director of Institutional Risk Analytics.
In fact, Whalen thinks that California will default on its debt--hammering all the pension funds and other investors who have loaded up on apparently safe state bonds.
The state won't immediately default, Whalen says. It will start by issuing the same sort of IOUs that it issued to by itself time during its budget crisis last year. But, eventually, the debts will have to be restructured, and this will result in those who own California's bonds receiving less than 100 cents on the dollar.
Why won't California just get a bailout?
Because the Republicans now control Congress, Whalen says. And also because, if California gets bailed out, dozens of other states will immediately line up with their hands out. The public is fed up with bailouts, Whalen says--and eventually, the country will be forced to face up to its bad debts and write them off.
Of course, if Whalen is right, the country could have a major crisis on its hands. California is hardly the only state in trouble (click here to see the worst ones), and pension funds and other "safe" investments that Americans depend on will get hammered if states begin to default.
Fixing state and local obligations will also require the renegotiation of pensions and salaries that government workers have long since taken for granted. And they certainly won't give those up without a fight.
11/16/10
Municipal bonds have plummeted in recent days, as investors have suddenly focused on huge state and city budget deficits that there's no easy way to fix.
Nowhere has this collapse been more visible than California, which faces a massive $25 billion shortfall and red ink for as far as the eye can see.
After years in which every looming financial crisis has been met with a government bailout, you might think that the same solution awaits California, as well as all the other states that have huge obligations that they can't afford to meet.
But this time that may not happen, says Chris Whalen, a financial industry analyst and Managing Director of Institutional Risk Analytics.
In fact, Whalen thinks that California will default on its debt--hammering all the pension funds and other investors who have loaded up on apparently safe state bonds.
The state won't immediately default, Whalen says. It will start by issuing the same sort of IOUs that it issued to by itself time during its budget crisis last year. But, eventually, the debts will have to be restructured, and this will result in those who own California's bonds receiving less than 100 cents on the dollar.
Why won't California just get a bailout?
Because the Republicans now control Congress, Whalen says. And also because, if California gets bailed out, dozens of other states will immediately line up with their hands out. The public is fed up with bailouts, Whalen says--and eventually, the country will be forced to face up to its bad debts and write them off.
Of course, if Whalen is right, the country could have a major crisis on its hands. California is hardly the only state in trouble (click here to see the worst ones), and pension funds and other "safe" investments that Americans depend on will get hammered if states begin to default.
Fixing state and local obligations will also require the renegotiation of pensions and salaries that government workers have long since taken for granted. And they certainly won't give those up without a fight.
Expect a continuation of commercial property defaults nationwide
"Probably another 12 to 24 more months
of rent declines, we can expect a continuation
of commercial property defaults nationwide"
Clearwater, FL (Vocus/PRWEB)
November 16, 2010
Guardian Solutions
Last month, investment group Paulson and Co., Blackstone Group, and Centerbridge Partners purchased bankrupt hotel corporation Extended Stay Inc. (which operates more than 600 hotels), for $3.93 billion, less than half what previous owner Lightstone Group paid for it at the height of the real estate boom in 2007.
While this is the largest commercial real estate sale so far this year, it happens to be a distressed based transaction, according to Guardian Solutions. Distressed asset sales are alarmingly becoming more commonplace in today’s economic climate as struggling commercial property owners are forced to sell at a loss.
“Because there’s still an estimated $3.5 trillion of loans outstanding and probably another 12 to 24 more months of rent declines, we can expect a continuation of commercial property defaults nationwide," says Ira J. Friedman, President of Guardian Solutions, a Florida based commercial loan restructuring firm.
The latest release of the Moody’s/REAL Commercial Property Index showed a notable monthly decline of 3.3% since July suggesting that the nation’s commercial property markets are continuing to slump through a tremendous downturn that has seen prices down some 45.31% since the peak set in October 2007.
Major challenges still lay ahead for commercial real estate, including the uncertainty related to the use of valuations such as cap rates and comps; the manner in which these metrics are employed, directly affect the outcome of proposed sales as well as alternative solutions like loan restructures for distressed properties.
One group of commercial property owners who were able to successfully renegotiate mortgage restructures for two of their hotel properties through Guardian Solutions was AllStar Investments, LLC.
“Guardian Solutions took what appeared to be a hopeless situation for two of our hotels and turned them both around. They negotiated a discounted buy-out of the notes at approximately .60 cents on the dollar,” said an AllStar Representative.
In August 2010 more than one in four commercial property sales involved distressed real estate, according to Moody's. During that month, U.S. commercial property prices also fell to their lowest level since June 2002, according to the Moody's/REAL Commercial Property Price Index.
Shrewd investors with substantial cash on hand who can afford to sit out an uncertain market are banking on the economy to rebound and see appreciable gains on their investment down the road. But how long they will have to wait is anyone’s guess.
“In order for these types of buyout deals to work, investors are buying properties at deep discounts from the market highs of previous years; the intent is to turn them into performing assets at today's market price," added Friedman. "Some of what you are seeing is investors seizing the opportunity to buy established commercial properties for less than what it would cost to build. It is a potentially faster path to profitability than with a start-up."
Guardian Solutions Link
Monday, October 25, 2010
U.S. CMBS defaults rising, losses approaching all time highs
Perfect Conditions Justifying the Meteoric
Launch of REITS
Oct 25 (Reuters)
By Karen Brettell
Defaults by U.S. commercial mortgage debt that is bundled in securitizations are likely to climb at least until 2011, while losses from the deals are approaching an all-time high, Standard and Poor's said on Monday.
Issuers defaulted on 1200 loans in the first half of this year and if the current pace continues defaults could eclipse 2009's total of 2,138 defaults, S and P said.
S and P conducted a study of more than 69,000 commercial mortgage loans that were originated for securitizations between 1993 and 2008 and found that more than half of the defaults occurred in the 18 months between January 2009 and June 2010.
Meanwhile losses from the defaulted deals have been steadily rising since 2008 and are approaching a record high, S and P said.
The loss severity rate increased in the first half of 2010 to 43.58 percent from 41.57 percent for loans resolved with a loss in 2009, and from 18.49 percent in 2008.
Defaults are likely to continue to climb until at least 2011 as the effects of the recent recession continue, S and P said.
"It took two years for the number of annual loan defaults to peak after the 2001 recession ended, and if the recent recession's impact on loan performance follows suit, annual loan defaults would not crest until 2011," the rating agency said.
"Given the severity and length of the recent recession, coupled with historically high vacancy rates and unemployment, Standard and Poor's believes the lag may be even more pronounced this time around -- and could push the annual loan default peak out even further," it said.
Friday, October 22, 2010
Fitch: US CMBS continue to default at a record pace (10.6% In 3Q ) "Trick or REIT"
"Trick or Treat REIT
'Loans continue to default at a record
pace, with large loans driving the trend,'
said Fitch Managing Director Mary MacNeill.
'Hotel and office properties were the largest
contributors to defaults this past quarter.'
(Q3 2010 default rate up 61% since Q4 2009)
By Matt Jarzemsky (Dow Jones Newswires)
The Wall Street Journal10/22/10
The default rate for loans in U.S. commercial mortgage-backed securities increased to 10.6% in the third quarter as debt continued to sour, Fitch Ratings said Friday.
The rate at the end of the third quarter was up from the second quarter's 9.48% and 6.59% at the end of last year, the rating agency said.
Commercial real estate has been pummelled as occupancy rates and rents languish, pressuring property owners. The sharp drop in property values has left landlords often reluctant or unable to sell their properties to repay loans.
So far this year, $21.66 billion in such loans have defaulted, up from $17.75 billion for all of 2009, the rating agency said Friday. The number of loan defaults, 1,452, was nearly equal to last year's 1,464.
Loans originated in 2000 and 2005 each saw third-quarter default rates increase more than 1 percentage point from the spring--commercial property debt often has a five- or 10-year term--as did loans made in 2007, the height of the market's frenzy.
Hotel and office properties had the biggest increases in defaults, rising 2.86 and 1.15 percentage points, respectively.
Fitch currently has $26.9 billion of its fixed-rate commercial mortgage-backed securities on watch for downgrade and has a negative outlook on an additional $42 billion.
Thursday, October 14, 2010
RealtyTrac: “Lenders foreclosed on a record number of properties in September and in the third quarter"
Five states account for more than 50 percent
of nation’s third quarter foreclosure total
IRVINE, Calif. – Oct. 14, 2010 — RealtyTrac® (realtytrac.com), the leading online marketplace for foreclosure properties, today released its U.S. Foreclosure Market Report™ for the third quarter of 2010, which shows that foreclosure filings — default notices, scheduled auctions and bank repossessions — were reported on 930,437 properties in the third quarter, a nearly 4 percent increase from the previous quarter but a 1 percent decrease from the third quarter of 2009. One in every 139 U.S. housing units received a foreclosure filing during the quarter.
Foreclosure filings were reported on 347,420 U.S. properties in September, an increase of nearly 3 percent from the previous month and an increase of 1 percent from September 2009. A record total of 102,134 bank repossessions were reported in September, the first time bank repossessions have surpassed the 100,000 mark in a single month.
“Lenders foreclosed on a record number of properties in September and in the third quarter, taking a bite out of the backlog of distressed properties where the foreclosure process was delayed by foreclosure prevention efforts over the past 20 months,” said James J. Saccacio, chief executive officer of RealtyTrac. “We expect to see a dip in those bank repossessions — and possibly earlier stages of the foreclosure process — in the fourth quarter as several major lenders have halted foreclosure sales in some states while they review irregularities in foreclosure-processing documentation that has been called into question in recent weeks.”
Impact of lender foreclosure halts
Foreclosure activity in the 24 judicial foreclosure states most affected by the foreclosure documentation issue accounted for 40 percent of all foreclosure activity in the third quarter and 36 percent of bank repossessions, or REOs.“If the lenders can resolve the documentation issue quickly, then we would expect the temporary lull in foreclosure activity to be followed by a parallel spike in activity as many of the delayed foreclosures move forward in the foreclosure process,” Saccacio said. “However, if the documentation issue cannot be quickly resolved and expands to more lenders we could see a chilling effect on the overall housing market as sales of pre-foreclosure and foreclosed properties, which account for nearly one-third of all sales, dry up and the shadow inventory of distressed properties grows — causing more uncertainty about home prices.”
Preliminary RealtyTrac foreclosure sales numbers for September show that overall foreclosure sales — including pre-foreclosure sales and REO sales — accounted for 31 percent of all sales during the month. REO sales alone accounted for 18 percent of all sales. Foreclosure sales in the 24 states most affected by the foreclosure documentation issue accounted for 32 percent of all foreclosure sales nationwide, based on the preliminary September data.
Five states account for more than 50 percent of nation’s third quarter total
California alone accounted for 21 percent of the nation’s total foreclosure activity in the third quarter, with 191,016 properties receiving a foreclosure notice — the nation’s largest foreclosure activity total. California foreclosure activity decreased nearly 1 percent from the previous quarter and was down nearly 24 percent from the third quarter of 2009.Florida foreclosure activity increased 12 percent from the previous quarter and was flat from a year ago, giving the state the second largest foreclosure activity total, with 157,026 properties receiving a foreclosure filing.
With 49,103 properties receiving a foreclosure filing in the third quarter, Arizona posted the nation’s third largest state foreclosure activity total. Arizona foreclosure activity increased nearly 8 percent from the previous quarter but was down 2 percent from the third quarter of 2009.
Illinois posted the nation’s fourth largest foreclosure activity total, with 47,802 properties receiving foreclosure filings, and Michigan posted the nation’s fifth largest foreclosure activity total, with 46,100 properties receiving foreclosure filings. Foreclosure activity in both Illinois and Michigan increased on a quarterly and annual basis in the third quarter.
Other states with foreclosure activity totals among the nation’s 10 highest were Georgia (41,231), Nevada (38,429), Ohio (36,677), Texas (34,187) and Washington (17,670).
RealtyTrac Report
Wednesday, September 22, 2010
Another 53,000 borrowers dropped out of the Home Affordable Modification Program (HAMP)
What do you mean $50 billion did not include specifications?
Corbett Daly
9/22/10
(Reuters) - More than half of the 1.3 million homeowners initially helped by the Obama administration's marquee foreclosure prevention program have since dropped out, the Treasury Department said on Wednesday.
About 53,000 borrowers dropped out of the Home Affordable Modification Program, or HAMP, in August, putting the total number of dropouts at roughly 683,000.
That is about 51 percent of the roughly 1.3 million borrowers who started in the program since its March 2009 inception.
The dropout rate was also up from a 48.1 percent rate through July and underlined the continuing distress felt by homeowners facing falling prices and rising foreclosure rates.
A record number of U.S. homeowners lost houses to their banks in August as lenders worked through the backlog of distressed mortgages, real estate data company RealtyTrac said last week.
New default notices decreased at the same time, suggesting that lenders managed the flow of troubled loans and foreclosed properties hitting the market to limit price declines, the company said.
High unemployment, wage cuts, negative home equity and restrictive lending practices persist, however, pointing to ongoing housing market pain.
The Obama administration has set aside $50 billion of the $700 billion bank rescue plan for HAMP. The program has been widely criticized as ineffective, as less than $300 million has been spent so far on loan modifications.
"We understand that the foreclosure crisis can be highly localized and some regions have seen severe home price declines and faced severe unemployment," said Treasury Assistant Secretary for Financial Stability Herb Allison.
"As a result, we have announced more than $4 billion for states hit hardest by this crisis," said Allison, who announced earlier Wednesday that he was stepping down.
Thursday, September 16, 2010
Lenders foreclosed on 95,364 U.S. properties in August
June 16, 2009
"I am frantically trying to buy multiple properties right now."
Cramer definitively declares a bottom to the housing market.
"This is patently obvious."
IRVINE, Calif. – Sep. 16, 2010 — RealtyTrac® the leading online marketplace for foreclosure properties, today released its U.S. Foreclosure Market Report™ for August 2010, which shows foreclosure filings — default notices, scheduled auctions and bank repossessions — were reported on 338,836 properties in August, a 4 percent increase from the previous month but a 5 percent decrease from August 2009. One in every 381 U.S. housing units received a foreclosure filing during the month.
“The trend lines of decreasing default notices and increasing bank repossessions converged in August, with virtually the same number of new default notices and bank repossessions for the month — a clear indication that the clogged foreclosure pipeline is being carefully managed on both ends by lenders and servicers,” said James J. Saccacio, chief executive officer of RealtyTrac. “On the front end, seriously delinquent loans are rolling into foreclosure at an unusually slow rate, while on the back end the dammed-up inventory of properties already in foreclosure is moving to REO in steady stream rather than a flood — presumably to prevent further erosion of home prices.”
Foreclosure Activity by Type
A total of 96,469 U.S. properties received default notices (NOD, LIS) in August, a 1 percent decrease from the previous month and a 30 percent decrease from August 2009 — the seventh straight month where default notices have decreased on a year-over-year basis. Default notices peaked in April 2009, when 142,064 were reported nationwide.Default notices increased on a monthly basis in some states, counter to the national trend. Default notices in California increased on a month-over-month basis for the third month in a row, and New York, Indiana, Ohio and Florida also registered month-over-month increases in default notices.
Lenders foreclosed on 95,364 U.S. properties in August, the highest monthly total in the history of the report and about 2 percent higher than the previous peak of 93,777 bank repossessions (REOs) in May 2010. August REO activity increased 3 percent from the previous month and was up 25 percent from August 2009 — the ninth straight month where REOs have increased on a year-over-year basis.
Five states account for more than 50 percent of national total
California alone accounted for 20 percent of the national total in August, with 69,143 properties receiving a foreclosure filing during the month — a 3 percent increase from the previous month but a 25 percent decrease from August 2009.Florida accounted for nearly 17 percent of the national total, with 56,877 properties receiving a foreclosure filing — a 10 percent increase from the previous month but a 9 percent decrease from August 2009. Florida default notices were down 46 percent from August 2009 but increased 2 percent from the previous month, ending five straight months of month-over-month decreases in Florida default notices.
Michigan, Illinois and Arizona each accounted for about 5 percent of the national total in August, with 17,764 Michigan properties receiving foreclosure filings, 16,808 Illinois properties receiving foreclosure filings, and 16,510 Arizona properties receiving foreclosure filings.
Other states with foreclosure activity totals among the nation’s 10 highest in August were Georgia (16,366), Texas (14,290), Ohio (13,479), Nevada (13,385), and Washington (6,760). Complete report
Monday, September 6, 2010
Another homeowner gift to be announced and yes, grandchildren will again be stuck with the bill
The U.S. Government continues to promote next to nada down payment mortgages and when conditions go awry for the homeowners with no skin in the game, they propose transferring the risk to future taxpayers (a.k.a. children and grandchildren).
By Nick Timiraos
Wall Street Journal
The Obama administration on Tuesday will launch its most ambitious effort at reducing mortgage balances for homeowners who owe more than their homes are worth.
Under the new "short refinance" program, banks and other creditors that write down mortgages to less than the value of the property can essentially hand off the reduced loan to the government. The process involves refinancing borrowers into loans backed by the Federal Housing Administration.
The new program, which was announced in March, is starting as the housing market shows signs of renewed trouble and as the Obama administration's signature Home Affordable Modification Program, or HAMP, falls short of its goals of helping three million homeowners. Half of the 1.3 million borrowers that enrolled in temporary loan modifications have fallen out of HAMP because they didn't qualify. Only one-third has received permanent modifications.
She is worried about what happens in five years, when her "interest-only" loan begins requiring much larger payments. "If things don't improve between now and 2015, I'm going to have to let this house go," said Ms. Gerloff, a secretary.
The administration's plan doesn't target loans held by Fannie Mae and Freddie Mac, which own or guarantee half of the $10 trillion in U.S. first-mortgage debt, to avoid inflicting big upfront losses.
Instead, officials hope to reach more loans that were bundled by Wall Street firms and sold to investors as mortgage-backed securities. For more than a year, many of those investors, which include hedge funds and pension funds, have been clamoring for such a program because they have already had to mark down the value of their holdings.
But that could be hard to do because mortgage servicers, which handle loan payments and decide which loans should be modified, are overwhelmed. And some borrowers might be discouraged from taking part because receiving a principal reduction will show up on their credit score.
Moreover, investors may not be able to participate as hoped because certain contracts that govern mortgage securitizations say modifications can only proceed if there is an "imminent" risk that the borrower would default.
Reducing balances for borrowers who are current could open mortgage servicers to lawsuits from investors that hold the riskiest slices of bonds. Those investors would be wiped out if balances are greatly reduced. For that reason, "lenders are going to be especially reluctant to do short refinances on folks who are current," says Alan White, an assistant professor at Valparaiso University in Indiana.
"We've heard a lot of positive feedback from servicers and from investment groups to be able to write down" loans, said Vicki Bott, a senior FHA official.
Analysts say that the program is most likely to succeed on loans that banks already own in their portfolios. It could also provide investors with a vehicle for getting rid of loans that have been modified and are current again. "It's going to be a 'take out' for modified loans," said Laurie Goodman, a senior managing director at mortgage-bond trader Amherst Securities Group LP in New York.
The program must resolve a stubborn problem that has hindered every other modification program: how to deal with second mortgages. The program says second liens must be reduced so that the total mortgage debt is less than 115% of the home's current value. The government will make partial payments for banks to reduce those loans, but banks have been very reluctant to write down seconds that are current.
He said the program could work for loans without seconds, though he says it's possible many borrowers will still have too much debt to qualify for an FHA-backed loan.
The initiative also comes as mortgage rates fall to their lowest levels in more than 50 years. Average rates on 30-year fixed-rate loans dropped to 4.43% last week, down from 4.55% during the previous week, according to a survey published Wednesday by the Mortgage Bankers Association.
By Nick Timiraos
Wall Street Journal
The Obama administration on Tuesday will launch its most ambitious effort at reducing mortgage balances for homeowners who owe more than their homes are worth.
The Gift that Keeps on Giving and our
grandchildren must pay for homeowners with no skin in the game!
Officials say between 500,000 and 1.5 million so-called underwater loans could be modified through the program, the first initiative to target homeowners who are current on their mortgage payments but are at risk of default because they have no equity in their homes. Some experts are warning, however, that the same knots that tied up prior initiatives could do so again. Under the new "short refinance" program, banks and other creditors that write down mortgages to less than the value of the property can essentially hand off the reduced loan to the government. The process involves refinancing borrowers into loans backed by the Federal Housing Administration.
1 in 5 loans could default
While the program puts taxpayers at risk—officials estimate one in five loans in the program could default—the government has set aside $14 billion previously earmarked for housing aid from the Troubled Asset Relief Program to cover losses.The new program, which was announced in March, is starting as the housing market shows signs of renewed trouble and as the Obama administration's signature Home Affordable Modification Program, or HAMP, falls short of its goals of helping three million homeowners. Half of the 1.3 million borrowers that enrolled in temporary loan modifications have fallen out of HAMP because they didn't qualify. Only one-third has received permanent modifications.
How many snorkelers if the down payment was 10 to 20%?
One of the biggest dangers facing the housing market is the glut of underwater homeowners who could default if their personal finances or home prices worsen. About 11 million borrowers, or 23% households with a mortgage, were underwater as of June 30, according to CoreLogic Inc. My baseball collection is worth less than I paid so how about me...??
The White House hopes to reach borrowers like Irene Gerloff, 62 years old, who was turned down for a loan modification because she can afford her payments. While she owes $292,000 on her two-bedroom condominium in La Habra, Calif., the property is probably worth less than $200,000. She is worried about what happens in five years, when her "interest-only" loan begins requiring much larger payments. "If things don't improve between now and 2015, I'm going to have to let this house go," said Ms. Gerloff, a secretary.
Bank or investor must agree...that screws up mark-to-model
But not every homeowner who is underwater can participate. The bank or investors that own the loan must be willing to write down its value.The administration's plan doesn't target loans held by Fannie Mae and Freddie Mac, which own or guarantee half of the $10 trillion in U.S. first-mortgage debt, to avoid inflicting big upfront losses.
Instead, officials hope to reach more loans that were bundled by Wall Street firms and sold to investors as mortgage-backed securities. For more than a year, many of those investors, which include hedge funds and pension funds, have been clamoring for such a program because they have already had to mark down the value of their holdings.
PIMCO weighs in...surprise
"It'll take some really crappy loans out of the marketplace…and replace them with much higher-quality" mortgages, said Scott Simon, a managing director at Pacific Investment Management Co. But that could be hard to do because mortgage servicers, which handle loan payments and decide which loans should be modified, are overwhelmed. And some borrowers might be discouraged from taking part because receiving a principal reduction will show up on their credit score.
Moreover, investors may not be able to participate as hoped because certain contracts that govern mortgage securitizations say modifications can only proceed if there is an "imminent" risk that the borrower would default.
Reducing balances for borrowers who are current could open mortgage servicers to lawsuits from investors that hold the riskiest slices of bonds. Those investors would be wiped out if balances are greatly reduced. For that reason, "lenders are going to be especially reluctant to do short refinances on folks who are current," says Alan White, an assistant professor at Valparaiso University in Indiana.
Not a panacea and cautiously optimistic...
let's stick it to the grandkids anyway
Officials stress the new program isn't going to be a panacea. But they say that it should give servicers flexibility to modify current loans, and that they are "cautiously optimistic." "We've heard a lot of positive feedback from servicers and from investment groups to be able to write down" loans, said Vicki Bott, a senior FHA official.
Analysts say that the program is most likely to succeed on loans that banks already own in their portfolios. It could also provide investors with a vehicle for getting rid of loans that have been modified and are current again. "It's going to be a 'take out' for modified loans," said Laurie Goodman, a senior managing director at mortgage-bond trader Amherst Securities Group LP in New York.
The program must resolve a stubborn problem that has hindered every other modification program: how to deal with second mortgages. The program says second liens must be reduced so that the total mortgage debt is less than 115% of the home's current value. The government will make partial payments for banks to reduce those loans, but banks have been very reluctant to write down seconds that are current.
Let's not foget our banking buddies in 2nd position
Investors that hold first mortgages are leery of writing down their loans without extinguishing the second because junior-liens are in a first-loss position. On a loan that has a second behind it and is heavily upside-down, "do I take the write-down and effectively pay off the second? I don't think so. That second is worthless," said Vincent Fiorillo, portfolio manager at Doubleline Capital, a Los Angeles-based fixed-income manager. He said the program could work for loans without seconds, though he says it's possible many borrowers will still have too much debt to qualify for an FHA-backed loan.
The initiative also comes as mortgage rates fall to their lowest levels in more than 50 years. Average rates on 30-year fixed-rate loans dropped to 4.43% last week, down from 4.55% during the previous week, according to a survey published Wednesday by the Mortgage Bankers Association.
Wednesday, August 25, 2010
Morgan Stanley Says Government Defaults Inevitable
By Matthew Brown
Aug. 25 (Bloomberg) -- Investors will face defaults on government bonds given the burden of aging populations and the difficulty of securing more tax revenue, according to Morgan Stanley.
“Governments will impose a loss on some of their stakeholders,” Arnaud Mares, an executive director at Morgan Stanley in London, wrote in a research report today. “The question is not whether they will renege on their promises, but rather upon which of their promises they will renege, and what form this default will take.” The sovereign-debt crisis is global “and it is not over,” the report said.
Borrowing costs for so-called peripheral euro-region nations such as Greece and Ireland surged today, resuming their ascent on concern that governments won’t be able to narrow their budget deficits. Standard and Poor’s downgraded Ireland’s credit rating yesterday on concern about the rising costs to support nationalized banks.
Mares said debt as a percentage of gross domestic product is a false indicator of an economy’s health given it doesn’t reflect governments’ available revenue and is “backward- looking.” While the U.S. government’s debt is 53 percent of GDP, one of the lowest ratios among developed nations, its debt as a percentage of revenue is 358 percent, one of the highest, the report said. Conversely, Italy has one of the highest debt- to-GDP ratios, at 116 percent, yet has a debt-to-revenue ratio of 188, Mares said.
Mares once worked at the U.K.’s Debt Management Office and is a former senior vice-president at credit-rating company Moody’s Investors Service.
“Note that a double-dip recession would not invalidate this conclusion,” Mares’ report said. “It would cause yet further damage to the governments’ power to tax, pushing them further in negative equity and therefore increasing the risks that debt holders suffer a larger loss eventually.”
Investors’ concern that the U.S. may fall back into recession has grown in recent weeks as U.S. economic data missed economists’ estimates. A Citigroup Inc. index of U.S. economic data surprises fell to minus 59 last week, the least since January 2009.
Dec. 17 (Bloomberg) -- Morgan Stanley, the securities firm that spent more than $8 billion on commercial property in 2007, plans to relinquish five San Francisco office buildings to its lender two years after purchasing them from Blackstone Group LP near the top of the market.
The bank has been negotiating an “orderly transfer” of the towers since earlier this year, Alyson Barnes, a Morgan Stanley spokeswoman, said yesterday in a telephone interview. AREA Property Partners will take over the buildings. Barnes declined to say when the transfer will occur.
“This isn’t a default or foreclosure situation,” Barnes said. “We are going to give them the properties to get out of the loan obligation.” Link to Bloomberg Article
Aug. 25 (Bloomberg) -- Investors will face defaults on government bonds given the burden of aging populations and the difficulty of securing more tax revenue, according to Morgan Stanley.
“Governments will impose a loss on some of their stakeholders,” Arnaud Mares, an executive director at Morgan Stanley in London, wrote in a research report today. “The question is not whether they will renege on their promises, but rather upon which of their promises they will renege, and what form this default will take.” The sovereign-debt crisis is global “and it is not over,” the report said.
Borrowing costs for so-called peripheral euro-region nations such as Greece and Ireland surged today, resuming their ascent on concern that governments won’t be able to narrow their budget deficits. Standard and Poor’s downgraded Ireland’s credit rating yesterday on concern about the rising costs to support nationalized banks.
Mares said debt as a percentage of gross domestic product is a false indicator of an economy’s health given it doesn’t reflect governments’ available revenue and is “backward- looking.” While the U.S. government’s debt is 53 percent of GDP, one of the lowest ratios among developed nations, its debt as a percentage of revenue is 358 percent, one of the highest, the report said. Conversely, Italy has one of the highest debt- to-GDP ratios, at 116 percent, yet has a debt-to-revenue ratio of 188, Mares said.
Double Dip
“Outright sovereign default in large advanced economies remains an extremely unlikely outcome, in our view,” the report said. “But current yields and break-even inflation rates provide very little protection against the credible threat of financial oppression in any form it might take.”Mares once worked at the U.K.’s Debt Management Office and is a former senior vice-president at credit-rating company Moody’s Investors Service.
“Note that a double-dip recession would not invalidate this conclusion,” Mares’ report said. “It would cause yet further damage to the governments’ power to tax, pushing them further in negative equity and therefore increasing the risks that debt holders suffer a larger loss eventually.”
Investors’ concern that the U.S. may fall back into recession has grown in recent weeks as U.S. economic data missed economists’ estimates. A Citigroup Inc. index of U.S. economic data surprises fell to minus 59 last week, the least since January 2009.
Grandpa
Morgan Stanley knows a thing or two about walking away from an obligation.Dec. 17 (Bloomberg) -- Morgan Stanley, the securities firm that spent more than $8 billion on commercial property in 2007, plans to relinquish five San Francisco office buildings to its lender two years after purchasing them from Blackstone Group LP near the top of the market.
The bank has been negotiating an “orderly transfer” of the towers since earlier this year, Alyson Barnes, a Morgan Stanley spokeswoman, said yesterday in a telephone interview. AREA Property Partners will take over the buildings. Barnes declined to say when the transfer will occur.
“This isn’t a default or foreclosure situation,” Barnes said. “We are going to give them the properties to get out of the loan obligation.” Link to Bloomberg Article
Sunday, August 22, 2010
Three popular structures in the Twin Cities have defaulted on their loans (MN Center, One Financial Plaza and Hotel Sofitel)
RE Journal Online
Three Twin Cities Structures Default On Their Loans,
Face Imminent Foreclosures
Three popular structures in the Twin Cities have defaulted on their loans as later reports indicated that owners of the three properties, the Minnesota Center, One Financial Plaza and the Hotel Sofitel, were currently engaged in negotiations to restructure the loans totaling to $88 million.
Industry experts said that the latest defaults were among the biggest incidence of non-payments that could lead to eventual foreclosure, which also involved securitized commercial property debt.
Commercial real estate researcher Trepp LLC said on its report that a total of 42 commercial buildings were either facing the prospect of or already were in the process of foreclosures by August 1 as their owners amassed a total default loans of $434 million.
The New York-based commercial property think-tank said that the properties involved ranged from commercial properties to office towers as it clarified that the total count only covered securitized loans but already accounted for some eight percent of delinquency rate form the 3.5 percent seen last year.
According to Trepp, their report was a substantial mirror-image of the national situation where discussions for loan restructurings have become the norm since the commercial segment started succumbing to the property market crisis, with the hotel sector specifically taking some serious beating.
The 14 floors glass tower of the Minnesota Tower and Minneapolis’ 27 floors One Financial Plaza were two commercial buildings owned by a real estate investment trust (REIT), Behringer Harvard, which defaulted with a total of $70.4 million on both properties.
Behringer Harvard’s Jason Mattox said that the company is currently holding talks with lenders on the two properties for restructuring efforts of the total amount owed or allow the company some leeway by accepting payment with some reductions.
The company admitted that if negotiations failed to come up with some form of acceptable settlements for all parties, the possibility of foreclosure could not be far-fetched.
Trepp said that both structures in question were more than 50 percent occupied though it noted that financial difficulties for entities such as Behringer Harvard REIT were not surprising as investors for their projects were effectively flirting with substantial risks since they don’t trade in any exchange.
On its last report, the company disclosed that it suffered losses of $89.7 million from its revenue of $138 million in the second quarter of 2010, adding that annual losses have been incurred by Behringer beginning in 2005.
Meanwhile, the Hotel Sofitel has already entered the process of foreclosure since its registered owner, the Ownerco LLC, already defaulted on the $18 million interest only loan provided by Eurohypo, a subsidiary of Commerzbank Group of Germany.
On its report, Trepp said that records showed that Sofitel’s actual owner could be Accor Business & Leisure North America, which is a division of France’s Accor SA and one of the world’s biggest hotel owners.
Trepp said that Sofitel is Accor’s luxury lines for its hotel operations and the company currently maintains six Sofitel hotels in the US mainland though when reached for comments, the Accor management simply stated that they were the hotel’s long term manager and could not comment “about the business of the property owner.”
Also, Hotel Sofitel Bloomington city manager Mark Bernhardson admitted that the hotel chain has been encountering problems on its maturing debts across the country but he discounted any possibility of major overhauls once foreclosure gets underway.
Bernhardson said that the usual practice on such cases is “it’s generally in the lender’s best interest to continue that operation.”
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