bank run blog

The New York Times web site features a photo essay on partially constructed and otherwise abandoned residential real estate projects in California. The Times writes, “In the three years since housing peaked in Merced, the median sales price has fallen by 50 percent.”

“A sidewalk leads to nowhere in one development in Merced.”

“Mayor Wooten at the stagnant pool of a foreclosed home she listed.”

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New York Times : Where Housing Crashed the Hardest

This segment from the WXMI Fox 17 in West Michigan discusses the growing phenomenon of homeowners who owe more than their home is worth deciding to “walk away” leaving abandoned homes to be foreclosed upon by lending institutions.

“By the time they hit the wall on making their mortgage payment, it means everything else has pretty well been depleated in terms of other ways to get money; their retirement savings, their checking account, credit cards have been tapped.” Joel Rahn, Byron Center Bank

The New York Post reports that managers of a sovereign wealth fund from an unknown country have hired an American real estate firm signaling the SWF’s intention to purchase hundreds if not thousands of foreclosed bank owned homes in California, Nevada, Arizona and across the US.

The Post writes that the wealth fund has set aside $29 billion to buy bank owned foreclosed homes in the US at half their original value. In fact, the Post writes that the fund has made an offer to purchase $2.5 billion of bank seized properties at 40 cents on the dollar recently and also negotiated an offer to purchase $2 billion worth of bank owned single family homes for 31 cents on the dollar.

The company hired by the foreign investment entity to research the market of foreclosed upon family homes in the US, Field Check Group, has refused to disclose the identity of the fund.

The Post reports that sovereign wealth funds of countries such as Abu Dhabi (with $875 billion in investable reserves) and Norway (with $391 billion in investable reserves) are positioned to “scoop up” thousands of bank owned properties because, “The depressed value of the US dollar makes the homes a bargain, and the funds have deeper pockets.”

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New York Post : Lost Sovereignty

Recent data has confirmed that the housing collapse has not bottomed, and deteriorating market conditions will pressure more and more developers and construction companies into bankruptcy. Today Reuters is reporting that upscale builders WCI have thrown in the trowel :

“Home builder WCI Communities Inc filed for Chapter 11 bankruptcy protection after failing to obtain financing to stay afloat, chairman Carl Icahn said on Monday.”

Targeting the saturated high end demographic in Florida, the company couldn’t cycle its debt service this time :

“The luxury builder, whose business is concentrated in Florida, one of the states hardest-hit by the housing downturn, sought bankruptcy protection after failing to meet an August 5 deadline for restructuring $125 million in convertible bonds.

The company had offered to exchange the debt for new bonds and stock warrants, but holders rejected that offer and insisted on being paid cash in full.

WCI defaulted on its bank debt on July 29 when its liquidity levels fell below the threshold required by its lenders.”

Industry analysts are saying that the next national construction player to fall might be Beazer, the subject of an article in today’s Atlanta Journal-Constitution :

“Beazer’s share price closed Friday at $5.89. In early 2006, at the height of the housing boom, the stock cost as much as $79. Last month, the price slipped as low as $3.55.

The slumping housing market is only partly to blame for Beazer’s woes.

The federal government is investigating whether Beazer’s lending practices in North Carolina were illegal. Newspaper reports about high foreclosures rates in Beazer communities triggered the probe.

The company conducted a five-month investigation of its mortgage business and concluded employees violated down-payment assistance regulations. Beazer shut down its lending arm in February and entered into an agreement with Countrywide Financial to make loans.

During that probe, the audit committee also uncovered accounting irregularities, so the company restated earnings for several periods dating back to 1998.”

Reuters : Icahn-led WCI Communities files for bankruptcy

Atlanta Journal-Constitution : A battered Beazer holds on

Real estate statistics published today document the continuing implosion of the US housing market, which is now subject to a whole new range of external pressures from the banking crisis. Bloomberg has this morning’s NAR data :

“Sales of previously owned U.S. homes fell in June to the lowest level in a decade as tumbling real- estate prices and consumer confidence signaled no end in sight to a housing recession now in its third year.

Resales dropped 2.6 percent to a lower-than-forecast 4.86 million annual rate from a 4.99 million pace the prior month, the National Association of Realtors said today in Washington. The median home price dropped 6.1 percent from June 2007.

The housing slump may deepen further after mortgage rates climbed to the highest in a year this month and turmoil engulfed Fannie Mae and Freddie Mac, which account for more than two- thirds of new home-loan financing. A record 18.6 million houses, apartments and condominiums stood empty in the last three months as the industry’s recession reverberated through communities, separate figures showed today.”

The combination of falling prices, moribund sales, and a steady stream of foreclosures coming onto the market every month has disastrous implications for inventories. The Associated Press reports :

“The drop in sales pushed inventories of unsold single-family homes and condominiums to 4.49 million units, up by 0.2 percent. That represented a 11.1 month supply at the June sales pace, the second highest level in the past 24 years.”

Bloomberg : U.S. Economy: Home Resales Decline to 10-Year Low

Associated Press : Existing home sales fall 2.6 percent in June

Wachovia, the nation’s fourth largest bank, reported a record second quarter loss of almost $9 billion this morning, becoming the only one of the five biggest US banks to “miss Wall Street analysts’ expectations”. Reuters reports :

“Wachovia Corp on Tuesday posted an $8.86 billion second-quarter loss, slashed its dividend and announced 6,350 job cuts after losses tied to mortgages soared.

Its shares fell $1.67, or 12.7 percent, to $11.51 in premarket trading.

The net loss attributable to common stockholders equaled $4.20 per share and compared with a profit of $2.34 billion, or $1.22, a year earlier.

Results included a $6.1 billion write-down of goodwill, and reflected a $4.2 billion increase in reserves for bad loans.

The Charlotte, North Carolina-based bank slashed its quarterly dividend 87 percent to 5 cents per share from 37.5 cents, and has now lowered it 92 percent this year.”

Wachovia has been battered since its unwise acquisition of Golden West Financial Corporation, a subprime and Alt-A mortgage specialist that marketed the ill-fated ‘Pick-A-Payment’ marketing twist. According to the Associated Press :

“Wachovia recently discontinued offering the ‘Pick-A-Payment’ loan option, which allows customers to pay a less-than-full interest payment on all new home loans. The bank also had hired The Goldman Sachs Group Inc. to conduct an analysis of its loan portfolio and advise it on strategic alternatives.

Late Monday, Wachovia announced plans to leave the wholesale mortgage lending business. And beginning Friday, the company will no longer offer mortgages through brokers, joining other lenders making similar moves to exit the troubled sector.”

The article continues, noting that the bank recently turned to a consummate insider in an unsuccessful effort to right the ship :

“Earlier this month, Wachovia named former Treasury Undersecretary and Goldman Sachs Group Inc. executive Robert Steel as chief executive, replacing the ousted Ken Thompson. Within a week of being on the job, the bank’s shares tumbled to a new 17-year low.

In premarket trading Tuesday the stock shed nearly 12 percent to $11.80. That level would mark the stock’s lowest price since roughly June 1991.”

Reuters : Wachovia loses $8.86 billion, slashes jobs

Associated Press : Wachovia has $8.9B loss, cuts 6,350 jobs, dividend

Wachovia, which is scheduled to report tomorrow, released some news after the closing bell this afternoon. Reuters reports :

“Wachovia Corp, the fourth-largest U.S. bank, on Monday said its main mortgage unit will stop offering home loans through brokers this week, joining a growing number of lenders to curb wholesale lending.

‘We thought it was important to focus on customers who have relationships with the bank, and in geographies where Wachovia has branches,’ spokesman Don Vecchiarello said. ‘Based on that, we’ve decided to discontinue doing business through our wholesale mortgage channel as of July 25.’”

Reuters : Wachovia mortgage unit halting loans via brokers

CNN Money : Earnings Preview: Wachovia 2Q results

This segment from KSBW News in California reports on township initiatives in communities with high numbers of foreclosed properties that require that lenders maintain the properties they seize and set fines if banks fail to maintain and secure foreclosed properties. Residents who propose the initatives complain about “vandalism and reduced property values” caused by unmaintained repossessed homes.

“The homes are owned by banks that in many cases have no ties to the community and no real interest in the upkeep of vacant homes.” - Felix Cortez, KSBW News

“From a code enforcement prospective we want to maintain neighborhoods to the extent we can and to potentially place responsibility on those that are holding the properties.”-John Doughty, Community Development Director, Watsonville, CA

The Senate passed its version of the government’s response to the historic spike in foreclosures in the US on a vote of 63-5.

The bill creates a tempoary program that would allow homeowners who qualify to refinance their home loans at an interest rate of 4.2. The rate would last through September 30, 2001. The bill provides that lenders accept a reduction in the value of the loans, and requires borrowers to share any equity or proceeds from the eventual sale of the home with the FHA to help fund the program. The Senate approved $300 billion in loan funding through the new progaram. The loans would be guaranteed by the Federal Housing Administration.

The bill also provides tax credits for first time home buyers and block grants for areas in the US that have seen the highest rates of home foreclosures. The San Francisco Chronicle said that the program “could enable about 400,000 families stay in their homes.”

President Bush said again last week that he intends to veto the bill if it reaches his desk containing the block grant provision. The White House opposes the block grants. Bush spokesperson, Dana Perino, said, the block grants “just helps lenders who now own these properties, not people trying to stay in their homes.”

The government rescue bill may help homeowners who are currently in the foreclosure process, but, as the Chronicle points out;

“the bill has come too late for many homeowners. About 1.5 million families have lost their homes to foreclosure,” and does little for the estimated “2.7 million subprime borrowers (who) will enter foreclosure by 2012.”

Mark Zandi, chief economist for Moody’s Economy.com told CNN that he was concerned of the ability of the troubled Fannie Mae and Freddie Mac to fulfill their function under the foreclosure bill “to cover the potential cost to taxpayers.” Zandi said, “The ability of [Fannie & Freddie] to become more aggressive in extending credit, which is what the policy makers hoped and planned for, may be compromised (which) could further delay any housing recovery.”

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San Francisco Chronicle : Freddie/Fannie overhaul measure passes Senate
Reuters : White House renews veto threat on housing bill
CNN : Fannie, Freddie woes hit the nation’s homebuyers, owners

After the stock markets closed for the week, erasing much of their losses in the final two hours of trading as has become common on Friday afternoons, federal regulators announced the seizure of California-based Indymac. According to the Associated Press :

“IndyMac Bank’s assets were seized by federal regulators on Friday after succumbing to the pressures of tighter credit, tumbling home prices and rising foreclosures.

The Office of Thrift Supervision said it transferred IndyMac’s operations to the Federal Deposit Insurance Corporation because it did not think the lender could meet its depositors’ demands.”

The AP noted the historic magnitude of the failure :

“The bank is the largest regulated thrift to fail and the second largest financial institution to close in U.S. history, regulators said.”

The Los Angeles Times reports that the thrift experienced a classic bank run in its last days :

“IndyMac’s failure had been widely expected in recent days, as its stock has plummeted to mere pennies a share and some nervous depositors have been pulling their funds.”

Associated Press : Office of Thrift Supervision shuts down IndyMac

Los Angeles Times : IndyMac Bank seized by federal regulators