More toxic waste bagholders found, this time its children.

The biggest unknown during this speculative mania has been who will end up with the losses from holding this toxic waste. We have so far seen counties and states with these impaired assets on this their books and the impact can be severe (see the Florida posts).

From the NY Times we find the latest bag holders, to come clean, and they turn out to be a children's charity. How nice of the guys on Wall Street to unload this crap on minors:

THE Indiana Children’s Wish Fund, which grants wishes to children and teenagers with life-threatening illnesses, got an early Christmas gift nine days ago. Morgan Keegan, a brokerage firm in Memphis, made an undisclosed payment to the charity to settle an arbitration claim; the Wish Fund said it had lost $48,000 in a mutual fund from Morgan Keegan that had invested heavily in dicey mortgage securities

Coming less than two months after the charity filed its claim, and as a reporter was inquiring about its status, the settlement is a rare consolation for an investor amid all the pain still being generated by the turmoil in the once-bustling mortgage securities market. Before the Wish Fund reached its settlement, its mortgage-related losses meant that nine children’s wishes would go ungranted.

Against the backdrop of all the gigantic numbers defining the subprime debacle, the Wish Fund’s losses look like small potatoes. The crisis has generated almost $100 billion in losses or write-offs at the world’s largest financial institutions, cost a couple of Fortune 100 chief executives their jobs, wiped out billions of dollars in stock market value and hammered the reputations of the nation’s top credit rating agencies. Reports of the devastation that foreclosures are wreaking on borrowers also bring home the effects of this remarkable financial mess.

Still, the Wish Fund’s experience is instructive because so little has emerged about the losses that investors have incurred in these securities, perhaps because few holders have wanted to disclose them. Some investors may still not know how much they have been hurt by the crisis.

As this debacle unfolds, accounts of investor losses in mortgage securities will come to light. And Wall Street’s role as the great enabler — providing capital to aggressive lenders and then selling the questionable securities to investors — will be front and center.

Crisp commercial building repossessed

Bakersfield Californian:

A Stockdale Highway office building real estate salesman David Crisp bought in April has been foreclosed on.

Earlier this year, Crisp said the $2.5 million building would serve as the sales office for a luxury condominium project he and one-time business partner, Carl Cole, had proposed to develop on the Cal State Bakersfield campus. Cal State ended project negotiations with the former Crisp & Cole Real Estate agency principals in July.

Crisp owed more than $2 million on two loans borrowed against the 10,000-square-foot space on Thursday, when it was put up for public auction on City Hall’s steps.

The property was repossessed by the lender, the Los Angeles-based Lone Oak Fund LLC, after no buyers responded to the opening bid of $1,534,000.

Here is the building when it was first listed for sale. Along with a few pictures.

City sales tax revenues dropped a sharp 13 percent this quarter

Another prediction coming true. I sure hope our city leaders are not really surprised by this, because it will probably get worse when the state starts taking more money to shore up their $14 billion dollar deficit.

From the Bakersfield Californian:

City sales tax revenues dropped a sharp 13 percent this quarter compared with last year, becoming "something we're going to have to deal with," officials reported Friday.

Those revenues are the single largest contributor to the city's general fund, said City Manager Alan Tandy.

"It's been an uncomfortable trend when it was a 1 or 2 percent decline," Tandy said. "When it accelerates to a 13 percent decline, it becomes something we're going to have to deal with."

Tandy said the declining revenues correspond to the housing market slowdown. During the recent boom, people earned more and spent more. But with the dip in real estate, consumer habits have changed.

He said it's too soon to tell what the declining revenues will mean for next year's budget. Planning for the 2008-09 fiscal year will begin in January. Budget planning for next year will be "constrained to anything that incurs new costs or expenses," Tandy said.

Troubled Crisp & Cole properties spread beyond Kern

From the Bakersfield Californian:

BY VANESSA GREGORY

The trail of troubled properties linked to the former Crisp & Cole Real Estate agency appears to extend beyond Kern County.

At least one high-priced property in Fresno County’s mountainous Shaver Lake region was shuffled between a Crisp & Cole company and two former staffers, according to the Fresno County Recorder’s office.

The $1.3 million property was foreclosed on last month, according to records reviewed by Fresno County Assistant Recorder Gilbert Carter.

One-time Crisp & Cole salesman Jeriel Salinas bought the property, one of a dozen on Shaver Lake’s Yellow Lupin Lane, last December, Carter said records show.

Salinas bought the property from Julie and Charles Farmer, and Aiden, Logan & Associates Inc., a company created by former Crisp & Cole’s principals, David Crisp, 28, and Carl Cole, 60. Julie Farmer, who was a Crisp & Cole sales agent, was also a company director, California Secretary of State filings show.

“Find a life,” Salinas said when asked about the foreclosure Friday. “Find something else to report about. Call everybody else who’s in foreclosure in Bakersfield.”

Salinas financed the purchase with a $1 million mortgage and a $325,000 second loan, both from Novato-based Kay-Co Investments Inc., Carter said.

A number of Crisp & Cole-related homes that have been foreclosed on, or are now in default, were bought and sold in a fashion similar to the Yellow Lupin Lane transaction, The Californian’s analysis of Kern County records shows.

As of the first week in December, at least 105 defaulted and foreclosed properties can be traced to associates of the former Crisp & Cole companies, according to an ongoing Californian tally.

More than $64.6 million in loans were borrowed against the homes, according to the tally.

Bakersfield prices now down 13.9% YOY

November 2007 numbers are out:

Bakersfield DOWN 13.92%

While the rest of California was DOWN 11.9%

If you add in the incentives, we are down even more. I would go back and look at the predictions made by the local experts on what prices would do this year, but we all know they were dead wrong!

DELUSION DRIVE

From the REO website for B of A: (hat tip waitingtobuy):

Property ID: 30010159
Address: 10731 DELUSION DRIVE, BAKERSFIELD, CA 93311

I think this street name sums up most of the real estate activity in this town for the last 3 years!

This home was purchased on Feb 20, 2004 for $225,503. It was foreclosed on by B of A on October 2, 2007 for $239,0000. It is now listed for sale for $288,000, at 2,025 square feet ($142.22), they are smoking something if they think that is the fair market value. Good luck, you are going to need it.

The original sale of this home occurred on October 8, 1999 for $134,712. I would not be surprised if this was closer to the true FMV.

Housing Trouble Spills Over into Commercial Real Estate

From the Voice of Sandiego: (hat tip Tyrone)

The slump that has plagued the San Diego County housing market is beginning to show on the commercial side.

The trouble defies the industry mindset, prevalent even up until a few months ago, that commercial and residential real estate share little more than a surname -- that the health of the real estate market for apartment investors, offices and industrial space would remain untouched by the housing market's troubles.

"I think we'd all like to think that the meltdown in the housing market hasn't affected the commercial side," said Kraig Kristofferson, senior vice president with CB Richard Ellis. "But the reality is people look at real estate in one big basket, often."In a direct correlation, the cutbacks in the San Diego operations of local and national homebuilders and other housing-related companies sap some demand for commercial space.

National homebuilder Lennar, for example, recently listed 50,000 square feet of its office space for lease to other tenants in order to cut costs, said Jason Hughes, principal with local firm Irving Hughes. And then there are mortgage companies, title companies, escrow companies -- going out of business or cutting back on staff, and space, he said."It goes on and on," Hughes said. "Anyone that says that residential is not affecting commercial is nuts, because it simply is. There are a ton of tenants who are in a difficult situation because of the housing market, residential real estate offices are closing their doors. ... And that's happening at the same time as the credit crunch."

Wall Street's Next Crisis - Commerical Real Estate

From Portfolio.com:

So far, the current credit crisis has zeroed in on mortgages for the less affluent. But easy credit was a sprawling millipede whose wobbly legs reached into the farthest corners of the financial markets. This is the year the other 999 shoes start to drop.

Any loan to any borrower can begin to seem subprime if there's too little down and too much debt. And that, unfortunately, brings us to the commercial-real-estate market.

For the past several years, the market for commercial property—offices, malls, apartment buildings, industrial plants, warehouses, and the like—has enjoyed the very best of times. Prices soared, and lenders lent readily. Owners had no problem meeting their payments. By early 2007, delinquencies had fallen to record lows.

In their own way, however, commercial-real-estate loans were no less foolish than those made to home buyers with speckled credit. And as with the subprime mess, the reckoning will come. Just like what happened in other sectors already hit by the credit crunch, these loans will cause problems that will probably find their way beyond the obvious players in the commercial-real-estate market. Judging by the aspects of the credit crisis we've already seen, commercial-real-estate trouble will probably emerge sooner than people expect—and will be worse than they anticipate.

The implosion is going to be a refreshingly simple and familiar story. The commercial-real-estate frenzy has none of the nagging complications found in the residential market. There aren't any targets of predatory lending. There are no huge failures by government regulators. The aftermath won't see people thrown out of their homes—an unadulterated societal ill regardless of whether they should have known better or were tricked into taking on loans they couldn't afford.

Commerical Real Estate the next local shoe to drop

I just finished reading the just released print edition of Bakersfield Life (a monthly magazine from the Bakersfield Californian); I wanted to make a note of some predictions for 2008. There are a couple of predictions for Commercial Real Estate (CRE) that are not on the above website, they are only in the print edition.

These same individuals (one in particular) were predicting, in the summer of 2005, that residential real estate would boom for 5-7 more years. As we all know now, that prediction was 100% dead wrong!

Before we look at their sales pitch, I mean predictions, please read the CRE posts by Calculated Risk and Mish's Blog. These are two excellent blogs that have been predicting that CRE would be the next shoe to drop in 2008.

I believe this will happen locally as the amount of commercial retail space that has been built far exceeds the realistic demand. In the next year several hundred thousand square feet of additional space will come onto the market and depress prices and rents. The weak hands will fold and we will see many players lose their properties to foreclosure. Those properties built in the last few years, on inflated land, will be the most vulnerable. The sales pitches made below will turn out to be false, as were the ones made about residential real estate during the boom time! What amazes me about these predictions, is the total lack of foresight into the CRE bubble. They all acknowledge residential real estate bubble bursting and yet make no connection to CRE, which usually adjusts 1-2 years later.


Bakersfield Life:

Duane Keathley, CB Richard Ellis:

"Looking forward to 2008, the sharp downturn in our residential market will undoubtedly have a cooling effect on the retail sector. Many retailers are anticipating a decline in sales volumes due to pressure on disposable income levels and consumer confidence. Fortunately for Bakersfield, we are not overbuilt as it relates to retail space."

Bruce Freeman, Castle & Cooke:

"2008 will be an extremely difficult year for residential real estate. Fortunately, at Castle & Cooke, we forecast 2008 to be a very strong year for commercial development..."

Kym Moore, Raboank:

"I see 2008 as a continuance of 2007 in the residential real estate market. I don't think the single family housing market has reached bottom...On the bright side, commercial real estate development acvitivity has increased in this area."

Ca Atty Gen Jerry Brown investigating Countrywide

From the LA Times.com:

The nation's No. 1 home lender, Countrywide Financial Corp., said today that it was being investigated by California Atty. Gen. Jerry Brown and the attorney general in Illinois.

Countrywide said it had received subpoenas from both officials but declined to elaborate, citing a company policy of not commenting on the status of investigations. The Calabasas company said it was cooperating in the two probes.

In a recent interview with The Times, Brown, who is looking into the practices of mortgage bankers and mortgage brokers, said he was interested particularly in loans that involved yield spread premiums.

In these mortgages, people who could qualify for a lower interest rate are lent money at a higher rate, with a rebate -- the yield spread premium -- being paid by the lender as a commission to brokers.

Many in the mortgage industry say the rebate can be used to offset borrowers' closing costs, making the loan more attractive to borrowers trying to hold down costs. But critics say the yield spread premium more often is simply pocketed by the brokers to make more money on loans

$900 million dollar default

Apartment owner to default on $900 million:

MBS Cos., one of the largest multifamily property owners in the country, is delinquent, in default or in danger of becoming so, on more than $900 million in loans. For Michael B. Smuck (the MBS in the company name), that means he is in danger of seeing his apartment empire dissipate for the second time in his nearly 30-year real estate career.

Based in the New Orleans area, MBS Cos. owns and operates more than 65 apartment complexes totaling about 17,000 units - all in Texas.

Smuck's debt problems have been the subject of whispered conversations among financial firms and analysts for the past month as the extent of the company's financial problems slowly came to light. Those same financial analysts fear if MBS defaults, it could spell losses for many and affect property recovery operations, potentially for years to come. It will also generate a huge spike up in CMBS delinquencies, expected to be reported this week or next.

Pacific Theatres to lay off 93 in Bakersfield?

The following is from HOZ (near the bottom):

Valley Plaza (Pacific Theatres) is laying off 93 employees at 2000 Wible Road in Bakersfield on Dec. 13.

Alliance Title RIF

From the Bakersfield Californian:

The local office of Alliance Title, a large title company, is shutting down as of 5 p.m. Thursday along with all of Alliance's California operations, an official said Wednesday.

In Kern County, 36 people will likely lose their jobs, said Brynn Powers, vice president/general manager of Bakersfield operations.

The closure is not due to local economic conditions, he said. He said the local branch is financially healthy.

He said he couldn’t speak to the company’s finances at a larger level.

From our local realtor:

What I heard was they were planning to close in January, but then they were told today to get ready to hand over files today at 5 pm to First American Title. First American Title is taking files ONLY, no escrow officers.

Foreclosures reach a new record. $2.1 billion of defaults so far this year!

Looks like the "bailout" is going to be another Bush/Clinton failure.

We have now set a new record for foreclosures. From the Bakersfield Californian:

Some 412 Kern properties foreclosed last month, by far the most in a single month since the county began tracking filings in 1995, trustee’s deeds recorded with county officials show.

Likewise, 985 default notices were sent to property owners in November, a number that also sets a new monthly record. The filings were up from October numbers, which totalled 372 and 945, respectively. October’s filings were new records at the time.

A year ago November, trustee’s deeds and default notices stood at 78 and 382, respectively.

The PDF files are here for foreclosures and here for NOD's.

BAILOUT! Open your wallets American taxpayers.

All the years of reporting the misdeeds by the REIC (by all the bloggers) have failed. We tried to let the public know exactly what was going on during the speculative mania. However, as usual, the powers that be chose to ignore the problem when it could be solved - in 2003, 2004, 2005 and 2006 - instead they are now trying to fix the un-fixable. We will follow Japan's lead of not recognizing the debt and drag this speculative mess out over the next 10 years. This will be done with taxpayers money.

Thanks George Bush and Hank Paulson for the freeze plan we are going to hear about. Open your wallets American taxpayers you get to pay for this mess. Meanwhile, The Tan Man and all of the REIC shills made out with billions and the American Taxpayer gets to clean up your mess.


From the WSJ.com:

Bush Is Set to Unveil Relief Plan for Homeowners

WASHINGTON -- President Bush is expected to unveil a broad plan Thursday afternoon aimed at helping homeowners struggling with their mortgages, two people familiar with the matter said
Wednesday.

A senior administration official confirmed that Bush planned to speak about housing Thursday.
The plan has multiple parts, including a proposal to freeze interest rates on certain subprime loans for five years, fast track other borrowers toward refinanced loans and allow state and local governments to use more tax-exempt bond programs to fund refinancings.

Add Orange County, California to the list of potential toxic waste bagholders

"They're all highly rated assets" - Until they are downgraded!


From Bloomberg:

Dec. 4 (Bloomberg) -- Orange County, California, the county that in 1994 was bankrupted by bad bets on interest rates, has about 20 percent of a fund it runs invested in structured investment vehicles that may face credit-rating cuts.

In the $2.3 billion short-term fund, the county holds $460 million under review for a possible downgrade by Moody's Investors Service, said Keith Rodenhuis, a spokesman for the treasurer.

In all of its funds, the county holds a total of $837 million of SIV debt, including $152 million in its $3.5 billion of money-market fund that isn't under ratings review, he said.

A Florida local-government investment pool lost half its $27 billion in assets to withdrawals from cities and school districts after they learned it held downgraded and defaulted commercial paper sold by SIVs. Florida officials froze the fund to prevent a further run on assets.

Finance officials with the Orange County Treasurer's office said the SIV debt it holds continues to meet its obligations and there is virtually no exposure to risky mortgages in them. All the debt still carries top ratings.

``We don't have the same kind of debt that Florida has,'' said Paul Cocking, the chief portfolio manager for the county. ``They're all highly rated assets.''

Crisp mansion repossessed after failing to sell at auction

From the Bakersfield Californian:


Crisp mansion repossessed after failing to sell at auction
By VANESSA GREGORY, Californian staff writer

After two delays, real estate agent David Crisp’s lavish Seven Oaks mansion has been repossessed by the lender.

The home was up for public auction on the steps of City Hall Monday, with an opening bid of $1.8 million.

With no bidders ready to swallow that price, the 6,666-square-foot home at 10509 New Quay Court went back to the lender, identified in county records as Irvine-based X Bancorp.

Crisp defaulted on $2 million borrowed against the home earlier this year.

Crisp could not be reached immediately for comment Monday.

The home, located in one of the city’s most exclusive gated communities, was among 13 locations searched by FBI and IRS agents in September.

Crisp and his former business partner, Carl Cole, are under investigation by the FBI. No charges have been filed.

Montana and Connecticut join Florida in local government investment mess. Will California's LAIF soon follow?

From Bloomberg:

Dec. 3 (Bloomberg) -- Montana and Connecticut state-run investment funds hold debt tainted by the subprime mortgage collapse that was cut or put under review by Moody's Investors Service, leaving local governments vulnerable to losses.

Moody's lowered its rating on commercial paper issued by the Orion Finance structured investment vehicle, or SIV, to ``Not Prime'' on Nov. 30, saying its net asset value is inconsistent with Orion's former Prime-1 rating. Montana owns $50 million of the paper. Moody's put another $105 billion of SIVs on review for a possible downgrade, of which Montana holds $80 million and Connecticut holds $300 million, records show.

``This just reinforces the fact that we have a serious issue,'' said State Senator Dave Lewis, of Helena, Montana, a member of the Legislative Audit Committee.

Schools, fire departments and towns across the U.S. that use state- and county-run funds like a bank account are seeing the far-ranging effects of the housing slump, as complex investments once sold as high-yielding, safe havens are now backed by collateral investors don't want.

Modeled after private money-market funds, the investment pools are supposed to hold safe, liquid, short-term debt.

In Florida, disclosures that a state-run pool for schools and cities held $1.5 billion of downgraded and defaulted debt prompted governments to pull out almost half of the fund's $27 billion in assets. Officials halted further withdrawals on Nov. 29 as they consider options to address the crisis.

Montana's $2.2 billion fund has already had $250 million of withdrawals since the fund's $90 million holding of Axon Financial was cut to ``D,'' or default, by Standard & Poor's last week. It was lowered to ``Not Prime'' by Moody's on Oct. 23.

Montana SIVs

The Montana pool, managed by the Montana Board of Investments, has 25 percent, or $550 million, invested in SIVs, all of which carried top investment ratings when purchased.
SIVs are typically offshore companies created by banks and other firms to sell short-term debt to buy mortgage securities and finance company bonds with higher yields. They profit on the spread between the two. Moody's last week said it may lower ratings on $105 billion of debt sold by SIVs after the average net asset values of those sponsored by firms including New York- based Citigroup Inc. declined to 55 percent from 71 percent a month ago. The assets were valued at 102 percent in June.

Connecticut Investments

Connecticut's Short-Term Investment Fund, which invests cash for state agencies and municipalities, is holding $300 million in debt issued by SIVs that may be downgraded by Moody's. The state's $5.8 billion fund held notes issued by SIVs affiliated with Citigroup as of Sept. 30: Beta Finance, Dorada Finance and Five Finance, according to its most recent quarterly report.

Connecticut also holds $100 million in defaulted SIV notes issued by Cheyne Finance.
Lewis, a member of the Legislative Audit Committee in Montana, questioned whether the state board's policy of allowing pool participants to remove their money at full value, which concentrates the risk among those with money still entrusted to the pool. The majority of the money in the pool belongs to state agencies.

``I think we may need a special session of the state Legislature,'' he said

Florida crisis not resolved. Will the California LAIF meet the same fate?

Notice two things from this story - 1) the fox guarding the hen house! 2)Taxpayer bailout!

From Bloomberg:

Dec. 3 (Bloomberg) -- Florida schools and towns with money frozen in a state-run investment account are unlikely to get their cash back tomorrow, when officials meet to discuss a crisis prompted by withdrawals that drained almost half of the fund's $27 billion in assets, a policy officer said.

``If we reopen the window without limitations on Tuesday, and we see behavior like we've seen up to now, there's simply no way to meet that demand without having a fire sale on assets,'' said James Francis, senior policy officer for the State Board of Administration, manager of the Local Government Investment Pool.

Officials raised the possibility of paying less than 100 cents on the dollar to governments seeking cash in a conference call with participants Nov. 30, a day after freezing withdrawals. The board also hired BlackRock Inc., the largest U.S. publicly traded money manager, as an adviser.

Florida counties and schools pulled out $13 billion in assets last month after learning the pool, described by state officials as a money-market fund, held $1.5 billion of downgraded and defaulted debt tainted by the subprime mortgage market collapse. The crisis shows the far-ranging effects of the housing slump, as complex investments once sold as high-yielding havens are now backed by collateral investors don't want.

The Florida fund's daily yield plunged to 2.77 on the day withdrawals were banned from 6.25 percent on Nov. 16.

Money Back

A newly formed advisory panel of school and local governments still stuck in the Florida pool told officials on the Nov. 30 call they expected to get all of their money back. The panel rejected the board's plan to survey participants to see if they would accept as little as 90 cents on the dollar as the price for getting access to their money this month.

The two-and-a-half hour call ended with a decision to poll pool investors on how much cash they absolutely need to withdraw over the next 90 days, as well as how much they plan to deposit. Governments are accustomed to drawing on the fund for routine expenditures.

``The very fact that you're out here talking to us about taking less than 100 percent is in my mind unacceptable,'' said MaryEllen Elia, superintendent of Hillsborough County Public Schools, which has $573 million tied up in the pool, more than any other school district. ``You need to figure out how to make the taxpayers in Florida whole.''

Meeting Tomorrow

The State Board of Administration's three trustees, Republican Governor Charlie Crist, state Chief Financial Officer Alex Sink and Attorney General Bill McCollum, will meet tomorrow to discuss possible solutions to the crisis. The board also manages $37 billion of additional short-term investments and Florida's $138 billion pension fund.

``We do need our political leaders to muster up some intestinal fortitude,'' said Dave Gaylor, superintendent of Charlotte County Public Schools and a member of the new 16- member advisory panel of participants, on the Nov. 30 call. ``You have leadership from the soldiers, that's who we are. It's not going to help if the generals aren't providing us with some leadership