Freedom fails!

Freedom has failed in America:

On October 31, 2008, Freedom Bank, Bradenton, FL was closed by the Florida Office of Financial Regulation and the Federal Deposit Insurance Corporation (FDIC) was named Receiver. No advance notice is given to the public when a financial institution is closed.

The FDIC has assembled useful information regarding your relationship with this institution. Besides a checking account, you may have Certificates of Deposit, a car loan, a business checking account, a commercial loan, a Social Security direct deposit, and other relationships with the institution. The FDIC has compiled the following information which should answer many of your questions

Stop paying your mortgage?

It looks like George and Hank are trying to spread the wealth around to the average Joe's. They, along with the FDIC, are trying to bailout troubled homeowners by strong arming the banks they bailed out with our tax dollars.

Why should any pay their mortgage now? Why not just ask your lender for a reduction in the balance due or threaten them to walk away? What if ten million home-debtors did it, then what are they going to do? Why should only the most reckless financially among us get a bailout? Why should a home-debtor who refinanced every six months and pissed away the money on junk get to wipe the slate clean?

Below are a few of the latest stories:


Treasury plan irks many:

As the Treasury Department prepares a $40 billion program to help delinquent homeowners avoid foreclosure, it confronts a difficult challenge: not making the plan too tempting to people like Todd Lawrence.

An airline pilot who lives outside Norwich, Conn., Mr. Lawrence has a traditional 30-year mortgage that he has no trouble paying every month. But, thanks to the plunging real estate market, he owes more on his house than it is worth, like millions of other people.

If the banks, which frequently lent irresponsibly, and many homeowners, who often borrowed irresponsibly, are getting government assistance, Mr. Lawrence says he believes sober souls like himself are also due a break.

“Why am I being punished for having bought a house I could afford?” he asked. “I am beginning to think I would have rocks in my head if I keep paying my mortgage.”

“If the lunch truly is free, the demand for free lunches will be large,” said Paul McCulley, a managing director with the investment firm Pimco

“This is not about trying to create fairness,” said Michael H. Krimminger, special adviser for policy at the Federal Deposit Insurance Corporation, which is working with Treasury on the latest plan. “The goal is to keep people in their houses.”

Still, he acknowledged, “a lot of people are angry because they feel some people are getting something they don’t deserve.”

Peter Schiff, the president of Euro Pacific Capital in Darien, Conn., who prophesied doom before it became fashionable, says he thinks just about everyone who is underwater and has few other assets should stop paying.

“If the government says, ‘Prove that you can’t afford your house and we’ll redo your mortgage,’ then people are going to try to qualify,” Mr. Schiff said.

FDIC trying to give free ponies to homedebtors:

The Federal Deposit Insurance Corp.'s program to lower loan payments for truggling borrowers with mortgages from IndyMac Bank has been lauded by consumer advocates and government leaders as a model of foreclosure prevention.

But when the FDIC, which is running IndyMac, mailed out 35,000 letters offering homeowners a chance to rework the terms of their mortgages, more than half the borrowers were apparently so discouraged, scared or stressed out that they didn't bother to respond.

The intent wasn't charity, the FDIC's Bair said; instead, she reasoned, it would be easier to find a buyer for the thrift if more borrowers were current on their loans.

Stop paying your mortgage?:

Seriously.

Assuming your home is worth equal or less on the market today than your outstanding mortgage balance, of course.

You deserve to live free for a year, and you deserve to have your home price come way down so you can buy it back in a few years for much less.

You've already been taxed to the tune of $700 billion for a bailout for the bankers, even though you told Congress "no".

Now the FDIC and Treasury are "working on a plan to curb foreclosures."

In return I recommend that every American with a mortgage immediately stop paying.

Today.

Whether you can afford it or not.

Consult with an attorney and CPA, in the same room before you act to make sure your specific mortgage (and the state in which you live) is a "non-recourse" loan and to understand exactly what impact this will have on you (it will come with a significant impact, most specifically to your credit rating!

Hear me out - you may find that this course of action makes perfectly good sense.)
See, in many states purchase-money first mortgages are "non-recourse", meaning that all they can do is ruin your credit and foreclose on your house.

That's it.

They cannot force you into bankruptcy, they cannot garnish your wages. And from the time you stop paying until the time you get evicted, you get to live there for free.

Finally, after you have been foreclosed upon, your house (and lots like it if your friends and neighbors do likewise) will drop dramatically in price. Presto! In a year or two you will be able to buy it back at half what you paid for it in 2004 or 2005.

Now that's a bargain.

So give the government and the banks back what they're trying to give to you - a royal screw job.

After all, they intend to give your neighbor who behaved imprudently a bailout, and if you were prudent, unless you suddenly become imprudent, you're going to get screwed in the form of being taxed to buy his home for him:

"The program, which might help several million homeowners refinance into affordable loans, would require lenders to restructure mortgages based on a borrower's ability to repay. Under one option, the industry would keep lower monthly payments for five years before raising interest rates, the people said. "

September numbers out - Prices down 46% from the peak

DQ Numbers for September:

Bakersfield Median - $176,500

Down 28.8% YOY and Down 46% from the peak...knife catchers beware, as the economy continues to crater prices will continue to fall. Buyer beware!

The good news, a lot of other areas are crumbling faster than we are.


What were the predictions by the local real estate community for 2008:

I don't think it's as lousy as everyone puts on," said Ray Karpe, the immediate past president of the Bakersfield Association of Realtors, a local trade group....

And, he predicted, home prices will reverse direction, and start an incremental climb. "I think home prices, home values, will creep up," Karpe said.

-----------------

“By mid-2008 the housing industry will show signs of growth,” says Mr. Nevin. “Continued population growth, a reduction of existing inventory and a return to normalcy in the credit markets are a recipe for a more positive 2008. As a result, we are projecting a slight increase in new home sales over last year.”

Real estate "mogul" defaults grow

Real estate only goes up?:

Bakersfield developer Terry Moreland has had two more residential developments default, including one in northeast Bakersfield near City in the Hills, county records show. Four of his projects have now defaulted since August.

Two construction loans totaling more than $25 million taken out by Moreland’s Barcelona LLC defaulted last week. The loans, both from First Bank, were borrowed against property on Paladino Drive, east of Vineland Road, immediately north of the City in the Hills community. The tract’s two recorded phases show 96 lots are planned on 55 acres.

More than $18.7 million was in arrears on the loans as of Oct. 10, the default filings show. The loans were made in 2005 and 2007.

What will the bankers do with the money and Suncal Update

Bailout Update:

What will the trillion dollar bailout do for America- so far nothing. What will it do for the large national bankers - allow them to pay billions of dollars in bonuses and dividend payments.

I have had several intersting conversations lately on this subject. One of them came from a mid-size California bank. This bank was offered a $50 millon from Hank Paulson and George Bush.

The offer is similar to the offer received by the nine large banks a few weeks ago. What will the bank do with the money? Will they stimulate the economy by lending the money to businesses (which is the intended purpose)? NO! They are planning on using the money to buy out other small California banks - this will only DECREASE the level of competition and allow them to raise their fees and rates! Nice plan Hank and George!


Suncal Update:

McAllister Ranch could become part of a liquidation bankruptcy case Thursday, court papers filed late Wednesday afternoon indicate.

Lawyers for SunCal Cos., the Irvine-based developer behind the troubled project, will ask a federal bankruptcy judge to convert an existing involuntary bankruptcy proceeding to a Chapter 7 case at a previously scheduled hearing Thursday afternoon in Santa Ana, the document shows.

Recent filings also show companies owed money by SunCal want to know what happened to a $144 million “dividend” payment to SunCal subsidiaries and/or its president in 2006. One lawyer says the money was probably used for cruises, charter flights and other extravagances during the real estate boom.

Local shopping center about to become a ghost town

It looks like the shopping center that held the Mervyn's store on California is going to have another large vacancy. Shoe pavillion announced they are too tired to continue selling crappy shoes. Within one mile of this shopping center is an additional 300,000 square feet of empty commercial real estate space...what were those experts saying about CRE again?

By the way this shopping center is owned by the large Australian group that has had many CRE problems lately...more pain for them...good day mate.


Shoe Pavillion going bust:

Shoe Pavilion going out of business

Last update: 5:02 p.m. EDT Oct. 20, 2008

SAN FRANCISCO (MarketWatch) -- Shoe Pavilion Inc. said late Monday it will close all of its 64 stores after 29 years in business. Shoe Pavilion was once the largest independent discount footwear retailer on the West Coast.

Bailout money to be used to pay Wall Street Bonuses

The massive government bailout given to Wall Street bankers will be used to pay billions of dollars in bonuses.

Looks like George and Hank got what they wanted - a failed bailout with Taxpayer dollars that will help the wealthy Wall Street bankers and do NOTHING for the other 99.9% of America. What a great country!

Wall Street banks in $70bn staff payout:

Financial workers at Wall Street's top banks are to receive pay deals worth more than $70bn (£40bn), a substantial proportion of which is expected to be paid in discretionary bonuses, for their work so far this year - despite plunging the global financial system into its worst crisis since the 1929 stock market crash, the Guardian has learned.

Staff at six banks including Goldman Sachs and Citigroup are in line to pick up the payouts despite being the beneficiaries of a $700bn bail-out from the US government that has already prompted criticism. The government's cash has been poured in on the condition that excessive executive pay would be curbed.

Pay plans for bankers have been disclosed in recent corporate statements. Pressure on the US firms to review preparations for annual bonuses increased yesterday when Germany's Deutsche Bank said many of its leading traders would join Josef Ackermann, its chief executive, in waiving millions of euros in annual payouts.

The sums that continue to be spent by Wall Street firms on payroll, payoffs and, most controversially, bonuses appear to bear no relation to the losses incurred by investors in the banks. Shares in Citigroup and Goldman Sachs have declined by more than 45% since the start of the year. Merrill Lynch and Morgan Stanley have
fallen by more than 60%. JP MorganChase fell 6.4% and Lehman Brothers has collapsed.

At one point last week the Morgan Stanley $10.7bn pay pot for the year to date was greater than the entire stock market value of the business. In effect, staff, on receiving their remuneration, could club together and buy the bank.

In the first nine months of the year Citigroup, which employs thousands of staff in the UK, accrued $25.9bn for salaries and bonuses, an increase on the previous year of 4%. Earlier this week the bank accepted a $25bn investment by the US government as part of its bail-out plan.

At Goldman Sachs the figure was $11.4bn, Morgan Stanley $10.73bn, JP Morgan $6.53bn and Merrill Lynch $11.7bn. At Merrill, which was on the point of going bust last month before being taken over by Bank of America, the total accrued in the last quarter grew 76% to $3.49bn. At Morgan Stanley, the amount put aside for staff compensation also grew in the last quarter to the end of August by 3% to $3.7bn.

Commercial Real Estate about to get much worse

Mervyn's is DONE and they are Filing Chapter 7:

HAYWARD (CBS 5) ― Department store chain Mervyns LLC will announce Friday that it is filing for chapter 7 bankruptcy protection — which means the Hayward-based retailer must shut its doors and liquidate its inventory, sources told CBS 5.

Over the summer, Mervyns had filed for chapter 11 protection from its creditors in U.S. bankruptcy court for the District of Delaware. The company said at the time that it planned to continue business as usual while it reorganized.

The privately-held retailer, which has languished for several years, operates about 175 locations in seven states - but primarily in California

Office vacancies rise and rents fall:

In some parts of the region, office buildings that once housed mortgage lenders and other housing-related businesses stand 20% empty, according to brokerage Cushman & Wakefield. Even in desirable Santa Monica, vacancies have almost doubled as companies have shunned the coastal area's still-pricey digs in favor of cheaper rents elsewhere in the region.

Altogether, Los Angeles County had a vacancy rate of 11.6% including sublease space at the end of the third quarter, up slightly from 9.5% a year ago."We are certainly going to see vacancy rates go up as we go into this economy," said Joe Vargas, regional manager of Cushman & Wakefield. "Rental rates will be slow to adjust down, but we are going to see it happen."

The situation is worse in Orange County, where office vacancy rates rose to 16.2% in the third quarter from 11% a year ago, spurred in large part by the closing of several lenders that specialized in subprime mortgage loans. In the buildings around John Wayne Airport, however, vacancy has surpassed 20%.

End of office party is coming:

The next shoe? After years of plunging residential property valuations, commercial real estate is heading into the danger zone as office vacancies rise, stores close and hotel bookings fall.

This could mean another body blow to already struggling financial institutions. Alan Todd, head of research on commercial-mortgage-backed bonds at J.P. Morgan Securities, projects commercial-property losses of as much as $250 billion over the next 10 years, or about 7% of the $3.4 trillion outstanding debt. That would rival the roughly 9% cumulative loss rate during the real-estate carnage of the early 1990s.

Something positive

From cnbc.com: (hat tip sm_landlord)

Bakersfield, California is known for three things: Buck Owens, Merle Haggard, and oil. All three were always pretty good at sad songs. But oil's boom over the last year has helped rejuvenate Bakersfield's fortunes.

It is one of the few places in America where the economy is growing, according to Moody's Economy.com. And even as oil prices come back down, they remain at levels elevated enough to unleash billions of dollars in new drilling in Bakersfield's Kern County, the largest oil-producing county in the lower 48.

This is helping offset an awful foreclosure problem in the area. The video clip has some interviews I did with a couple of local oilmen, Chad Hathaway, who runs his own operation, and Steve Black, the VP of Operations for Bonanza Creek Energy. These guys are not spending money based on $100 oil. As Chad Hathaway told me, "I base it on $30 oil."

3 posh projects go bust as Valley dreams bite the dust

Sacramento Bee has a story on the golf course community bust in the Valley

Sacbee.com:

In the Central Valley these days, the bankruptcies and foreclosures don't just affect individual homeowners.

They swallow entire developments – and the people who conceive them.

Winchester Country Club in rural Placer County, which went into foreclosure and sent legendary Sacramento highway contractor C.C. Myers into bankruptcy protection, isn't the only lavish golf-course housing development to fall on hard times. Three massive high-end projects in the San Joaquin Valley have fallen into bankruptcy proceedings in the past two years.

The three insolvencies symbolize the California housing bubble at its most extreme. Combined, they have cost lenders and investors tens of millions of dollars – and offer clues about the roots of the financial crisis that has gripped Wall Street and the world's economies.

President Bush in 2004

From the Idiot in charge: (hat tip bigpicture.com)

"One other thing I've done, is I've called on private sector mortgage banks and banks to be more aggressive about lending money to first-time home buyers. And the response has been really good. There's a lot of people in this -- our communities around the country that deeply care about the issue of homeownership, and they've been responsive."

- George W. Bush, U.S. President, March 26, 2004.

Halloween 2008

What was this "insider" saying during the bubble years?

Before we look at today's article, I mean sales pitch from the long ago dis-credited REIC, lets discuss what this insider was saying during the bubble years.

I listened to Stan and Susan Ferguson's show during the bubble years and was absolutely disgusted with their mind numbing drivel. Every show started off with "its a great time to buy", "prices are not going any lower" and all of the other crap Realtors spew. Now we get another story from the local newspaper about how "now is the time to buy" (no really, this time).

Why doesn't the newspaper call these people out for what they said in the past? How about some real reporting instead of just parroting what they said? How many thousands of people have been foreclosed in our are because they listened to the horrible advice of a realtor?


Bakersfield.com:

Right time to buy a home? For some, definitely

Realtor Susan Ferguson of Coldwell Banker counsels clients to make sure they want to live in the home they would buy for five to 10 years. Gone are the days of buying a house and flipping it to make a quick profit.

The home you buy needs to be affordable, with payments you can comfortably manage.

“Prices right now are the best that they’ve been,” Ferguson said.

Instead of paying rent to somebody else, people with good credit and the resources for a down payment can “make that investment in yourself,” she said.

Latest bailout plan is to suspend fair-value accounting

Bloomberg:

Representative Todd Tiahrt, a Kansas Republican, said the House probably would have approved a $700 billion bailout of financial companies yesterday had the legislation included a suspension of fair-value accounting. The House rejected the measure 228-205.

It would have passed ``easily'' if the rules had been suspended, Tiahrt, who opposed the legislation, said today in a Bloomberg Television interview.

It looks like the Wall Street crooks are trying to change the accounting rules and they are using this bailout as an excuse. Unfortunately, it appears Congress is buying their bs hook, line and sinker!

Where were these crooks when the value of their assets was going up year after year? They were booking these increases in fair value to their bottom lines and paying out big bonuses based on these fair-value increases. Now that the assets are declining they want to stop this rule; so they don't miss out on another big bonus!

What is fair-value accounting?

For many years, standard setters have grappled with the issues associated with accounting for financial instruments. Decisions with regard to what valuation method should be applied have been difficult and in some cases controversial.

In 1994, FAS 115 was introduced into US GAAP as a partial solution. It required fair value accounting for many investments. In 2000, FAS 133 was introduced to improve the accounting model for derivatives by requiring fair value measurement. FAS 157, issued in 2007, established a common definition of fair value. Then FAS 159 expanded the ability of companies to elect fair value as their measurement basis for certain financial assets and liabilities.

Recently the US markets began experiencing significant illiquidity and volatility, creating conditions that made fair value assessments more controversial. The value of today’s innovative and complex financial instruments, such as derivatives, mortgage-backed securities and other structured financial products is subject to market illiquidity and volatility. Although fair value accounting could apply to other assets and liabilities, the focus of this piece is on financial instruments (particularly financial assets).

Implications of fair value accounting

While many agree that fair value yields a more relevant measure than historical cost, it is not perfect. Two controversies surround fair value measurements today: (1) the application of fair value accounting in illiquid markets, and (2) how and when modeling should be used as the method to determine fair value.

Fair value measurements in illiquid markets

Recent credit market conditions have resulted in large write-downs through the application of fair value measurements. Most of the charges have occurred within the banking and broker-dealer industries. Companies providing credit protection through credit default swaps on the under­lying asset, as opposed to insurance contracts, have been impacted by fair value measurements. Even though the default that would trigger protection may not have occurred, companies are required to recognize unrealized losses on the contract when the fair value of the underlying assets has significantly decreased. Also affected have been some corporations with investments in auction rate securities which suffered declines.

The requirements to use fair value measurements have been criticized for producing inaccurate results in the unusual market conditions recently experienced. Such results, it is argued, hurt the company in the long run. If a company must record losses in such an environment, critics claim, it signals bad news to investors that may ultimately be misleading. Therefore, they say, it is preferable to record only realized gains and losses.

In considering this controversy, it is important to recognize that accounting principles such as fair value are developed with the objective of providing information that will best serve the interests of investors, businesses and policy makers over the long term.

Summary

Balancing the factors, fair value still represents the most effective method to reflect the economic realities of market conditions. If fair value were suspended or replaced with some method based on historical cost, investors would be left to their own devices to determine the current value of these instruments—which would be less reliable and could delay any market recovery.

Although it has generated controversy, fair value continues to represent the best available methodology for determining and reporting the value of financial instruments. Markets naturally respond to financial information that fair value provides. The impacts of such measurements—whether positive or negative on a given company—are the results of market forces, not accounting methodologies. When market conditions result in volatility in values and earnings, investors benefit when companies transparently report on these circumstances and their impact on financial reporting.