President Bush Signs Housing Bill in Near Secret Without Ceremony or Photo Ops

We don’t understand why President Bush took such an under-the-radar approach to his eventual support for the new housing bill that he signed into law on Wednesday.

For months, Bush said that he opposed the bill and would veto it if it passed Congress.

Then he changed his mind.

We suspect that political polls trumped Bush’s conservative principles and that he was convinced by senior members of his party that if he followed through with his veto threat, Republicans would face an even bleaker November.

But why, then, did he appear to want to sign the bill in secret?

Instead of orchestrating a high-visibility signing ceremony, in which he could assert Republican Party leadership in dealing with the three-headed monster of the housing-mortgage-and-credit crisis, Bush opted for a muted 7 a.m. affair with only his Treasury Secretary and a few aides present. 

No members of Congress — either Republican or Democrat — were there to get a pen and a photo opportunity.

If he could, before the signing he probably would have borrowed an invisibility cloak from Harry Potter.

This seems to us to have been the worst possible outcome for Republicans and John McCain. 

First, President Bush signed a bill that he had repeatedly insisted he would veto — appearing to capitulate to political pressure and to be following the Democrats rather than leading the country on the central issues in the economy. 

Then, by signing the bill in near secret, he deprived Senator McCain and the Republican Party of an opportunity to stage their concern for beleaguered homeowners and their command of the country’s economic problems, complete with photo ops of presidential handshakes and congratulations to the Republican leadership, taking credit (however undeserved) for the government’s response to the housing crisis.

Whether the housing bill will actually help homeowners remains to be seen.

But it is clear that President Bush seems intent on it not helping Senator McCain or his struggling Republican Party.

Home Prices Fall Again — Down 15.8% From Last Year

According to the Standard & Poor’s/Case-Shiller Index, which measures the sale price of existing single family homes in 20 major metropolitan areas, prices fell another 0.9 percent in May 2008,  and were down 15.8 percent from May 2007.

File this information under ”Tell Us Something We Didn’t Know.”

Actually, we knew it was bad, but we didn’t know it was this bad.

The Standard and Poors Report states that “For the second straight month, all 20 MSAs posted annual declines, nine of which are posting record lows and 10 of which are in double-digits. Both the 10-City Composite and the 20-City Composite are reporting record low annual declines.”

“Since August 2006, there has not been one month where we have seen overall price increases . . . For the month of May, markets that experienced large gains in the recent real estate boom continue to be the biggest decliners. Miami and Las Vegas were the worst performers returning -3.6% and -2.9%, respectively. On a brighter note, Charlotte and Dallas have recorded three consecutive months of positive returns. These two markets are also showing the smallest annual declines, with Charlotte own 0.2% and Dallas down 3.1% versus May of 2007. From a longer-term perspective, since January 2000, the best performing markets are Washington, Los Angeles, New York and Miami. The value of housing in Detroit is lower than it was in January 2000. Over the month, no region reported gains in excess of 1%. But for those that reported monthly declines, three were in excess of 2%.”

And with the credit market frozen, there is no end in sight to falling home prices and the housing crisis, now rapidly becoming the housing disaster.

Credit Markets are Frozen as Economy Stalls — The Fed’s Efforts to Increase Lending Fail Despite Billions to Banks

Federal Reserve Chair Ben Bernanke and his fellow monetary watchdogs have taken unprecedented steps in the past year to increase liquidity in the credit market.  They’ve cut the short-term interest rate seven times since September 2007.  They’ve committeded billions of public dollars to prevent the bankruptcy of Bear Stearns and other major financial institutions, and billions more to prop-up mortgage giants Fannie Mae and Freddie Mac.  The goal has been to stabilize the financial markets and increase liquidity — that is, to make more money available to more people and businesses.

What has been the result of the Fed’s efforts?

The answer is: Not much.

Despite the Fed’s efforts — and the billions of public dollars invested over the past year in the financial industry — the banking business has just about shut down.

In fact, it is harder now for most business to borrow money than it was before the Fed started its rating-cutting.

As the New York Times reports, “Banks struggling to recover from multibillion-dollar losses on real estate are curtailing loans to American businesses, depriving even healthy companies of money for expansion and hiring.  Two vital forms of credit used by companies — commercial and industrial loans from banks, and short-term “commercial paper” not backed by collateral — collectively dropped almost 3 percent over the last year, to $3.27 trillion from $3.36 trillion, according to Federal Reserve data. That is the largest annual decline since the credit tightening that began with the last recession, in 2001.”

The effect of the banks’ tight money policy could be devastating to the economy. 

Mortgage rates will continue to climb, further increasing foreclosures and heightening the housing crisis.  Those industries closely allied with real estate, such as construction, will continue to collapse.  Even successful businesses will be unable to expand, further increasing the jobless rate.  Smaller businesses, which provide a large percentage of American jobs, will be particularly hard hit, since they will be entirely frozen out of the credit market.  Bankruptcies, both large and small, will continue to spiral upward. 

What is the answer?

The Fed’s rate-cutting hasn’t worked, and the piece-meal approach being taken by Congress and the administration (including the new mortgage relief legislation) won’t work either.

What is needed is a comprehensive overhaul of the entire banking and financial system and the credit markets, including the securities laws.

And for that, we’ll have to wait at least until a new Congress and a new administration take over in January 2008.  Even then, comprehensive and systemic change is unlikely.

We need a 21st Century Franklin Roosevelt. 

Unfortunately, that’s probably impossible until we’re in the midst of a 21st Century Great Depression.

Here’s a New Foreclosure Scam that might be Socially Useful

Here’s a new twist on foreclosure scams, and proof that every crisis creates opportunities for those with initiative and imagination. 

With foreclosures rising, many neighborhoods have vacant houses with absentee landlords — that is, banks and lending institutions — who don’t visit their properties very often.  

In fact, the number of vacant homes in the United States is now at a record 2.28 million — up from 2.18 million in the same quarter last year — and still on the rise.

At the same time, the foreclosure crisis has greatly increased the number of people who are looking for housing to rent.

The banks usually don’t want to bother with rental issues, so desirable housing goes unused even as the demand increases.

Two enterprising men from Orange County, California — Anthony Marshall Friday and Alexander Braslavsky — apparently came up with an ingenious solution to this problem — and a potentially profitable one.

Here’s the idea:

Why not rent out vacant foreclosed houses as if they belonged to you?

Then you would be providing people with places to live, cutting down on eyesores and the crime that often afflicts foreclosed properties, and make a handsome profit for yourself.

Of course, you could get caught…

The Orange County Register reports that:

“Two men have been arrested for allegedly posing as landlords of homes that they don’t own and collecting thousands of dollars from unsuspecting renters. Police Sgt. Keith Blackburn says officers found 34-year-old Alexander Braslavsky and 38-year-old Anthony Marshall Friday at a vacant foreclosed home in the city of Carlsbad. The two Orange County men are accused of breaking into the house and listing it for rent on the Web site Craigslist.”

“Police found paperwork at the house that showed the men had collected several thousand dollars in rent and security deposits from people who thought they were renting the home.  Blackburn says police learned that the men pulled the same scam days earlier at another vacant house.”

The report didn’t say what will happen to the people who “rented” the houses — or whether the banks will let them stay so long as they pay the rent.

New Office Construction Down 91% in Orange County – Dozens of High-Rise Projects Stalled

An ominous sign for the Southern California commercial real estate market – and for the economy in general – is the report this week that office construction in Orange County, California, plunged 90.8 percent in the second quarter of 2008 from last year’s figures.

According to a report from Voit Commercial Brokerage, “The first half of 2008 has been characterized by a significant reduction in office development in Orange County.” 

“The total space under construction in Orange County at the end of the second quarter is 325,276 square feet,” said Jerry Holdner, vice president of market research for Voit Commercial Brokerage. “The total amount of construction is 90 percent lower than what was under construction at the same time last year.”

A drive down the 405 Freeway in Irvine shows dozens of stalled high-rise office construction projects.

Perhaps another indicator of the bust in office construction are the recent closings of several high-end restaurants in the Irvine Spectrum, which had relied substantially on business lunches. 

The slowdown in new office construction in Orange County means that more jobs will be lost in the building sector, and indicates that few companies plan to expand, or move to, this affluent and still high-priced Southern California county, which had served as the epicenter of the subprime mortgage industry.

On the other hand, the lack of new construction will likely mean that the vacancy rate for Orange County offices, which has been climbing steadily, will come down.

The vacancy rate is at 14.46 percent this quarter, which is significantly higher than the 8.95 percent vacancy rate recorded in the second quarter of 2007.

Ed Okun and Co-Conspirators Lara Coleman and Richard Simring Charged in New Indictments

Edward H. Okun of Miami, Fla., and Lara Coleman, of Richmond, Va., were charged in superseding indictments on July 11, 2008, with conspiracy, fraud and money laundering charges.

The indictments stem from a scheme to defraud and obtain millions of dollars in client funds held by The 1031 Tax Group LLP (1031TG), a 1031 exchange qualified intermediary scam operated by Okun.

On July 10, 2008, a federal grand jury in Richmond, Va., returned a 27 count superseding indictment charging Okun and Coleman with one count of conspiracy to commit mail and wire fraud, one count of conspiracy to commit money laundering, 13 counts of wire fraud, three counts of mail fraud, seven counts of money laundering, one count of bulk cash smuggling and forfeiture. Okun is also charged with one count of making false statements.

The original indictment, returned on March 17, 2008, charged only Okun with mail fraud, bulk cash smuggling and making false statements. Okun’s initial appearance was held March 18, 2008, in the U.S. District Court for the Southern District of Florida, and Coleman’s initial appearance was held Monday, July 14, in the U.S. District Court for the Eastern District of Virginia.

According to the indictment, from August 2005 through April 2007, Okun and Coleman used 1031TG and its subsidiaries, all owned by Okun, in a scheme to defraud clients of millions of dollars through false pretenses. Section 1031 of the Internal Revenue Code allows investment property owners to defer the capital gains tax that would otherwise be due on properties sold, if the proceeds are used to purchase new property in a specified time frame. To facilitate such exchanges, investment property owners deposit the proceeds from the sale of their property with qualified intermediaries and sign exchange agreements, which include various promises by the qualified intermediaries to clients regarding the safekeeping and use of exchange funds.

Specifically, the indictment alleges that 1031TG obtained funds by promising clients that their money would be used solely for 1031 exchanges as outlined in the exchange agreements. After making such promises, Okun and Coleman allegedly misappropriated approximately $132 million in client funds to support Okun’s lavish lifestyle, pay operating expenses for his various companies, invest in commercial real estate, and purchase additional qualified intermediary companies to obtain access to additional client funds.

The indictment also alleges that Okun and Coleman instructed employees to withdraw $15,000 in cash from Investment Properties of America’s (IPofA) bank account, a company owned by Okun, and smuggle the cash to Okun’s personal yacht on Paradise Island in the Bahamas to avoid federal currency reporting requirements.

The indictment further alleges that Okun made material false statements under oath before the U.S. District Court for the Eastern District of Virginia relating to conversations he had with the chief legal officer of IPofA.

The charges of conspiracy to commit mail and wire fraud, conspiracy to commit money laundering, wire fraud, and mail fraud each carry a maximum prison sentence of 20 years. The charges of money laundering, bulk cash smuggling, and false declaration carry a five-year maximum prison sentence. The indictment also seeks forfeiture of all funds and assets owned by Okun and Coleman that were derived from or connected to the misappropriation of approximately $132 million in funds held by 1031TG and all funds and assets traceable to the $15,000 in cash Okun instructed to be smuggled to his yacht in the Bahamas.

This case is being prosecuted by Assistant U.S. Attorney for the Eastern District of Virginia Michael S. Dry and Trial Attorney Brigham Q. Cannon of the Criminal Division’s Fraud Section.  The continuing investigation is being conducted by the U.S. Postal Inspection Service, Internal Revenue Service and the FBI.

You can read the indictment at United States vs. Edward Okun and Lara Coleman (PDF)

In addition, Okun’s former attorney, Richard B. Simring, who had been the Chief Legal Officer for Okun  Holdings, Inc., was indicted in the Eastern District of Virginia on charges of conspiracy to committ mail fraud and money laundering as part of Okun’s schemes.

You can read the indictment here at United States vs. Richard B. Simring. (PDF)

Are Our Economic Problems Just in Our Minds? John McCain’s Chief Economic Advisor Thinks So

Are the nation’s economic problems – the financial crisis, the mortgage meltdown, the tidal wave of foreclosures, soaring gas prices, increasing job losses, and a tumbling dollar — only in our minds?

It appears that Phil Gramm, John McCain’s chief economic advisor and co-chair of his presidential campaign, thinks so.

He also thinks that those of us who are seriously troubled by the state of the economy are “whiners.”

In an interview in yesterday’s Washington Times, Gramm said that “this is a mental recession. We may have a recession; we haven’t had one yet.”

Gramm says that Americans have “become a nation of whiners.” 

Americans, according to Gramm, are constantly “complaining about a loss of competitiveness, America in decline.”

“You just hear this constant whining,” he said.  “Misery sells newspapers,” Gramm said.  ”Thank God the economy is not as bad as you read in the newspaper every day.”

What also sells newspapers are bone-head comments from key advisors to presidential campaigns.

We said last month that Gramm was on thin ice in the McCain campaign because of his ties to the mortgage meltdown and financial crisis. 

As a U.S. Senator from Texas, Gramm spearheaded sweeping changes in federal banking law, including the Gramm-Leach-Bliley Act in 1999, which repealed previous rules separating banking, insurance and brokerage activities, and which some analysts blame for creating the legal framework for the current mortgage meltdown and credit crisis.  For that effort, Gramm has been called “the father of the mortgage meltdown and financial crisis.”

In addition, Gramm is currently vice chairman of UBS, the giant Swiss bank that has been a major player in the U.S. subprime mortgage crisis.  While advising the McCain campaign, Gramm was paid by UBS to lobby Congress to roll back strong state rules that sought to stem the rise of predatory tactics used by lenders and brokers to place homeowners in high-cost mortgages.

Gramm’s leadership role in UBS – whose stock has fallen 70 percent from last year — also raises questions about his economic, and not just his political, judgment. 

As a recent article in Slate.com observes, “UBS’s investment banking unit made disastrous forays into subprime lending. Last December, having already announced a third-quarter loss, UBS raised about $13 billion to replenish its balance sheets, mostly from the Government of Singapore Investment Corp.  In the fourth quarter of 2007 and the first quarter of 2008, it racked up Mont Blanc-sized losses on subprime debt of nearly $32 billion. In May, it sold about $15 billion worth of mortgage-related assets to the investment firm BlackRock — but only after it agreed to finance most of the purchase price. In June, UBS raised another $15.5 billion in a rights offering. The credit losses — some $38 billion so far, according to UBS — caused the bank to replace its chairman and install new leadership at its investment bank.”

In addition, Massachusetts has charged UBS with defrauding customers who had purchased auction-rate securities. UBS is accused of “selling retail brokerage customers products that turned out to be profitable for the bank’s investment banking unit but caused the customers to suffer significant losses.”

UBS is also the subject of an ongoing federal investigation, in which Bradley Birkenfeld, an American UBS private banker who was busted on tax evasion charges, has plead guilty and is cooperating. 

UBS has also recently paid millions of dollars to settle a lawsuit with the victims of a 1031 exchange scam.  UBS was one of several defendants who were alleged to have participated with Donald Kay McGahn and and others in a scheme to steal the money that had been entrusted to them to facilitate tax deferred 1031 exchanges.

And most recently, the Financial Times, which called UBS “Europe’s biggest casualty of the US subprime crisis,” reported that UBS’s write-downs could total another $7.5 billion.  UBS’s stock fell 7 percent in trading on Monday.

With that resume, we think it would be best for everyone, not least John McCain, if Phil Gramm was no longer introduced to voters as “John McCain’s chief economic advisor.”

UPDATE:

As of July 18, Gramm has resigned as co-chair of McCain;s presidential campaign.

Foreclosure Activity Up 53% Over June 2007

Default notices, auction sale notices and bank repossessions were reported on 252,363 U.S. properties during June 2008, a 3 percent decrease from the previous month but still a 53 percent increase from June 2007, according to the latest RealtyTrac Foreclosure Market Report.

The report also shows that one in every 501 U.S. households received a foreclosure filing during the month.

“June was the second straight month with more than a quarter million properties nationwide receiving foreclosure filings,” said James J. Saccacio, chief executive officer of RealtyTrac. “Foreclosure activity slipped 3 percent lower from the previous month, but the year-over-year increase of more than 50 percent indicates we have not yet reached the top of this foreclosure cycle. Bank repossessions, or REOs, continue to increase at a much faster pace than default notices or auction notices. REOs in June were up 171 percent from a year ago, while default notices were up 38 percent and auction notices were up 22 percent over the same time period.”

Nevada, California and Arizona continued to document the three highest state foreclosure rates in June.  Florida, Michigan, Ohio, Colorado, Georgia, Indiana and Utah were other states that made the top ten.

For the third month in a row, California and Florida cities accounted for nine out of the top 10 metropolitan foreclosure rates among the 230 metropolitan areas tracked in the report.

RealtyTrac noted that “Foreclosure filings were reported on 8,713 Nevada properties during the month, up nearly 85 percent from June 2007, and one in every 122 Nevada households received a foreclosure filing — more than four times the national average.”

“One in every 192 California properties received a foreclosure filing in June, the nation’s second highest state foreclosure rate and 2.6 times the national average.”

“One in every 201 Arizona properties received a foreclosure filing during the month, the nation’s third highest state foreclosure rate and nearly 2.5 times the national average. Foreclosure filings were reported on 12,950 Arizona properties, down less than 1 percent from the previous month but still up nearly 127 percent from June 2007.”

“Foreclosure filings were reported on 68,666 California properties in June, down nearly 5 percent from the previous month but still up nearly 77 percent from June 2007. California’s total was highest among the states for the 18th consecutive month.”

“Florida continued to register the nation’s second highest foreclosure total, with foreclosure filings reported on 40,351 properties in June — an increase of nearly 8 percent from the previous month and an increase of nearly 92 percent from June 2007. One in every 211 Florida properties received a foreclosure filing during the month, the nation’s fourth highest state foreclosure rate and 2.4 times the national average.”

“Foreclosure filings were reported on 13,194 Ohio properties in June, the nation’s third highest state foreclosure total. Ohio’s foreclosure activity increased 7 percent from the previous month and 11 percent from June 2007. The state’s foreclosure rate ranked No. 6 among the 50 states. Other states in the top 10 for total properties with filings were Arizona, Michigan, Texas, Georgia, Nevada, Illinois and New York.”

“Seven California metro areas were in the top 10, and the top three rates were in California: Stockton, with one in every 72 households receiving a foreclosure filing; Merced, withone in every 77 households receiving a foreclosure filing; and Modesto, with one in every 86 households receiving a foreclosure filing. Other California metro areas in the top 10 were Riverside-San Bernardino at No. 5; Vallejo-Fairfield at No. 7; Bakersfield at No. 8; and Salinas-Monterey at No. 10.”

“The top metro foreclosure rate in Florida was once again posted by Cape Coral-Fort Myers, where one in every 91 households received a foreclosure filing — fourth highest among the nation’s metro foreclosure rates. The foreclosure rate in Fort Lauderdale, Fla., ranked No. 9. LasVegas continued to be the only city outside of California and Florida with a foreclosure rate ranking among the top 10. One in every 99 Las Vegas households received a foreclosure filing in June, more than five times the national average and No. 6 among the metro areas.”

“Metro areas with foreclosure rates among the top 20 included Phoenix at No. 12, Detroit at No. 13, Miami at No. 15 and San Diego at No. 17″

RealtyTrac does not expect foreclosure activity to ease up until 2009.

Real Estate Values Per Square Foot Down More than 20% in Six Major Markets

Real estate prices continue to fall in most markets, according to Radar Logic Incorporated, a real estate data and analytics company that calculates per-square-foot valuations.

Among the key findings of the latest report from Radar Logic:

• The broad housing slump continued as consumers showed persistent lack of confidence and difficulty in financing home purchases.
• April 2008 continued to exhibit price per square foot (PPSF) weakness compared to last year in almost all markets. One MSA showed net year-over-year PPSF appreciation, one was neutral, and 23 declined.
• The Manhattan Condo market showed a 3.6% increase in PPSF year-over-year coupled with an increase in recent transactions despite a modest decline of 0.7% in month-over-month prices.
• Charlotte’s increase of 1.5% in year-over-year PPSF moved its rank among the 25 MSAs to number 1. This represents an increase over the 0.1% year-over-year PPSF appreciation last month.
• Columbus showed year-over-year PPSF appreciation of 0.2% for April 2008, which is an increase from last month’s year-over-year decline of 4.3%.
• New York declined 3.0% year-over-year in April 2008, its second decline in Radar Logic’s published history (beginning in 2000).
• Sacramento, the lowest-ranking MSA, showed a 31.7% decline from April 2007, which is consistent with last month’s decline of 30.6%.

 The ten biggest declines in per-square-foot values from last year were in these markets:

Sacramento (-31.7%)

Las Vegas (-29.9%),

San Diego (-28.1%)

Phoenix (-25.6%).

Los Angeles/Orange County (-23.4%).

Miami (-22.4%).

St. Louis (-19.8%).

San Francisco (-19.7%).

Tampa (-16.6%).

Detroit (-16.1%).

You can read the full Radar Logic report here.

Major Law Firm Creates “Distressed Real Estate” Section as Crisis Deepens

In what could be a new and significant trend in American legal practice – and a sign that the real estate crisis is expanding – the prestigious Philadelphia-based law firm Ballard Spahr Andrews & Ingersoll LLP has announced that it is establishing a “distressed real estate” section. 

The firm’s ”Distressed Real Estate Initiative” will involve at least 16 core lawyers in ten offices throughout the country, including those in Mid-Atlantic and Western locations hardest hit by the housing bust and the mortgage crisis, including Los Angeles and Las Vegas.

The purpose of the section, according to the firm, will be “to provide representation in acquisition, restructuring and bankruptcy matters.”

 ”In this period of turmoil in the financial markets and economic uncertainty, new real estate opportunities and challenges present themselves,” said Michael Sklaroff, chair of Ballard’s Real Estate Department. “We stand ready to serve clients with respect to existing positions and also in assisting them in acquisitions and debt and equity investments in troubled projects.”

Ballard Spahr Andrews & Ingersoll was founded in 1886 and now employs more than 550 lawyers in twelve offices located throughout the mid-Atlantic corridor and the western United States.

When there is blood in the water, the sharks will appear.