Can Housing Lead the Recovery? - CNBC.com

Quintin E. Primo III

By: Errol Mars

Born: March 14, 1955, in Rochester, New York

Company: Capri Capital Partners, LLC

Position: Chairman, CEO

Industry: Financial Services

Country: United States


Quintin Primo is the Chairman and CEO of Capri, a major equity and debt investor in U.S. property markets he co-founded with partner Daryl J. Carter in 1992. The company has more than $2.7 billion in real-estate assets under management.

Mr.Primo has over 28 years of real estate experience including serving as Vice President for Citicorp's Chicago lending team, completing over $2.5 billion in office, retail, industrial, hotel and residential financings.

"One of the most important reasons to make money is that it gives one the ability to give more," Primo says.

Mr.Primo has an M.B.A. from the Harvard Business School and B.S. degree in Finance with Honors from Indiana University.

Mr.Primo is also on the board of the Chicago Community Trust and the University of Chicago Hospitals.

Airtime: Fri. Jul. 30 2010 | 11:08 AM ET

Discussing whether housing will indicate a recovery, with Quintin Primo, Capri Capital Partners LLC.

Can Housing Lead the Recovery? - CNBC.com

Goldman Sachs sent federal bailout billions overseas

by Karen Mracek and Thomas Beaumont Des Moines Register and Tribune Co. July 25, 2010 12:00 AM

Goldman Sachs sent $4.3 billion in federal taxpayer money to 32 entities, including many overseas banks, hedge funds and pensions, according to records.

Goldman Sachs revealed the list of companies to the Senate Finance Committee after a threat of subpoena from Sen. Chuck Grassley of Iowa, the committee's ranking Republican. The records were released Friday night.

Asked the significance of the list of companies, Grassley said, "I hope it's as simple as taxpayers deserve to know what happened to their money.

"We thought originally we were bailing out AIG. Then later on . . . we learned that the money flowed through AIG to a few big banks, and now we know that the money went from these few big banks to dozens of financial institutions all around the world."

Grassley said he was reserving judgment on the appropriateness of U.S. taxpayer money ending up overseas until he learns more about the 32 entities.

Goldman Sachs received $5.55 billion from the government in the fall of 2008 as payment for then-worthless securities it held in AIG. Goldman had already hedged its risk that the securities would go bad. It had entered in agreements to spread the risk with the 32 entities named in Friday's report.

Overall, Goldman Sachs received a $12.9 billion payout from the government's bailout of AIG, which was at one time the world's largest insurance company.

Goldman Sachs also revealed to the Senate Finance Committee that it would have received $2.3 billion if AIG had gone under. Other large financial institutions, such as Citibank, JPMorgan Chase and Morgan Stanley, sold Goldman Sachs protection in the case of AIG's collapse. Those institutions did not have to pay Goldman Sachs after the government stepped in with taxpayer money.

Shouldn't Goldman Sachs be expected to collect from those institutions "before they collect the taxpayers' dollars?" Grassley asked. "It's a little bit like a farmer, if you got crop insurance, you shouldn't be getting disaster aid."

Goldman had not revealed the names of the counterparties it paid in late 2008 until Friday, despite repeated requests from Elizabeth Warren, chairwoman of the Congressional Oversight Panel.

Grassley said, "I think we didn't get the information because they consider it very embarrassing, and they ought to consider it very embarrassing."

The initial $85 billion to bail out AIG was supplemented by an additional $49.1 billion from the Troubled Asset Relief Program, as well as additional funds from the Federal Reserve. AIG's debt to U.S. taxpayers totals $133.3 billion outstanding.

"The only thing I can tell you is that people have the right to know, and the Fed and the public's business ought to be more public," Grassley said.

The list of companies receiving money includes a few familiar foreign banks, such as the Royal Bank of Scotland and Barclays. DZ AG Deutsche Zantrake Genossenschaftz Bank, a German cooperative banking group, received $1.2 billion, more than a quarter of the money Goldman paid out.

Warren, in testimony Wednesday, said that the rescue of AIG "distorted the marketplace by turning AIG's risky bets into fully guaranteed transactions. Instead of forcing AIG and its counterparties to bear the costs of the company's failure, the government shifted those costs in full onto taxpayers."

Grassley stressed the importance of transparency in the marketplace, as well as in the government's actions.

AIG received the bailout of $85 billion at the discretion of the Federal Reserve Bank of New York, which was led by Timothy Geithner, now head of the U.S. Treasury.

"I think it proves that he knew a lot more at the time than he told. And he surely knew where this money was going to go," Grassley said. "If he didn't, he should have known before they let the money out of their bank up there."

An attempt to reach Geithner through the White House public-information office was unsuccessful.



Goldman Sachs sent federal bailout billions overseas

Slow recovery may signal weak stocks

by Russ Wiles The Arizona Republic Jul. 25, 2010 12:00 AM

The current economic recovery has been weaker than normal coming out of a recession. Which raises the question: Are stock-market investors facing subpar returns for the next several years?

The headwinds from the debt overhang, real estate and banking woes, an aging population, possible tax hikes and other obstacles present some stiff challenges.

While viewpoints vary, the general mood indeed seems to be one of reduced expectations.

"If we're paying off all that debt from before and not taking on as much debt now, our economic growth will be slower," said Steve Puhr, an investment consultant and former portfolio manager and analyst who lives in Anthem.

"Retail investors, who are now less willing to take risks, will be slow coming back to stocks."

Puhr sees stocks posting average annual returns of 5 to 7 percent or so over the next decade. While not disastrous, that would be well below long-term average of around 10 percent.

With performance likely to be on the weak side, Puhr suggests investors make sure they're not paying too much in the way of shareholder-borne costs that can trim returns.

Many others also see subpar returns in a lackluster economic climate.

"Returns might be less than the normal historic average around 10 percent a year," said Keith Wibel at Foothills Asset Management in Scottsdale.

He sees stocks generating returns of 6 to 7 percent, including dividends. "That's not great but not horrible, either," he said.

Jeremy Grantham, chief investment strategist at asset-management firm GMO, expects "high quality" large stocks - those with low debt, strong franchises and other admirable qualities - to return about 7.3 percent a year above the inflation rate over the next seven years and stocks in emerging markets to perform almost as well, at 6.6 percent above inflation.

Given his inflation forecast of 2.5 percent a year on average, that implies nominal returns of 9 to 10 percent - not bad.

But Grantham expects other equity groups to lag considerably, including large stocks at 2.9 percent above inflation and small stocks at just 1.1 percent above inflation, which would equate to nominal returns in the range of 3 to 5 percent a year.

Grantham is even more uninspired about bonds, expecting certain categories, such as U.S. Treasuries, to post slightly negative results ahead.

"Fixed income is desperately unappealing," he wrote recently.

But not everyone agrees that slow economic growth, if it indeed persists, will translate into low stock-market returns.

For example, the Vanguard Group sees returns coming in at fairly normal levels in coming years.

"In light of the secular economic headwinds . . . this expectation for stock returns may come as a surprise," Vanguard said in a new report. "However, investors must recognize that low (economic) growth expectations for the U.S. and developed markets do not necessarily correlate with low stock returns going forward."

Rather than the economy, Vanguard cites market valuations such as dividend yields as more critical in predicting returns.

Consensus expectations for the economy already tend to be reflected in stock prices and thus have little impact on future returns, Vanguard argues.

The company sees a better than a 60 percent chance that U.S. stocks will post average returns between 4 and 16 percent annually over the next decade and a better than a 50-50 chance that equities in developed foreign markets will do the same.

Vanguard warns against betting the farm on stocks in emerging nations, even though their economies could be relatively robust, since prices already reflect this.

Vanguard also expects bond returns to be subdued, likely averaging between 2 and 5 percent annually in coming years, including interest.

Speaking of bonds and stocks, researchers at Ibbotson Associates last year issued a report expressing their belief that stocks will outperform fixed-income investments in the years ahead, even though bonds had just beaten stocks over the prior decade.

The firm still clings to that view.

"Long term, we continue to think that, with yields where they are, it's unlikely bonds will outperform stocks over a 10-year horizon," said Tom Idzorek, Ibbotson's chief investment officer.

While he cited concerns about the impact a dull economic recovery might have on stock returns, Idzorek discourages investors from trying to time the market for this or other reasons.

"People should be more concerned about whether they have an appropriate mix of stocks, bonds and cash," he said.

And that means a portfolio they can live with, even when the economy is just limping along.



Slow recovery may signal weak stocks

Land near stadium near foreclosure

by Rebekah L. Sanders The Arizona Republic July 24, 2010 12:00 AM

The family that owns the Arizona Cardinals is fending off foreclosure on land next to University of Phoenix Stadium where they had planned to build a skyscraper office tower, an organic farm, a hotel and townhomes.

The Bidwill family's project was dubbed cbd101, which stood for "central business district" and the Glendale location at Loop 101 and Bethany Home Road.

A notice of trustee sale, the first step in the foreclosure process, was issued July 14. The sale is scheduled for Oct. 13 by Western Regional Foreclosures.

Steve Roman, spokesman for the Bidwill company handling the project, Bethany Land Partners LLC, said Friday that the foreclosure does not indicate financial problems for the NFL team or any other Bidwill venture.

"The outcome of this specific project is completely isolated from, and has no effect on, any other Bidwill company," he said.

The original term of the loan for cbd101 has expired. "We are diligently working with our lender to arrive at a mutually agreeable solution for the cbd101 project. We made all our payments and were in full compliance up to the maturity date," he said. "Given the current economic conditions, the discussions with the lender are focused on restructuring the loan on commercially reasonable terms."

Many developers have faced similar problems. Most commercial-real-estate loans are due in full on maturity. Lenders can extend commercial loans after the term of the loan is reached or demand full payment from developers. The original principal balance of the Bethany Land Partners loan was $46.2 million.

The lender for cbd101 is a real-estate investment fund from the Maryland-based investment firm of Walker & Dunlop.

The family bought the 77 acres for $55 million in 2007.

The plans were grand: a $1.2 billion "urban community" with 2.7 million square feet of office space, a 40-story tower, 850 residential units, a public market, a working farm and solar panels above parking garages.

The first phase was planned to break ground as early as 2009, but the land remains vacant.



Land near stadium near foreclosure

Feds won't go after exec pay

by Daniel Wagner Associated Press July 24, 2010 12:00 AM

WASHINGTON - For all his tough talk about excessive pay for bankers, the Obama administration's pay czar let the executives go without a fight.

Kenneth Feinberg announced Friday that he will not try to recoup $1.6 billion in compensation given to top executives at bailed-out banks because he thinks shaming them is punishment enough.

His decision to go easy on 17 banks that made "ill-advised" payments to their executives is likely to fuel concerns about how he will oversee the $20 billion oil-spill compensation fund created by BP.

"I'm not suggesting we should blink or turn the other cheek," Feinberg said later in an interview. "These 17 companies were singled out for obviously bad behavior. The question is: At what point are you piling on and going beyond what is warranted?"

He could not force the banks to repay the money, but the law instructed him to negotiate with banks to return money if he determined that the pay packages were "contrary to the public interest" - language that he opted not to use.

Still, his leniency is a far cry from the bravado he displayed in the months leading up to his final act as pay czar. In February, he spoke with confidence about his ability to get companies that received taxpayer help to accept less.

In an interview with the Hill newspaper, Feinberg said he had been "fairly successful in convincing the companies that it is in their best interests to seek an accommodation on compensation."

Among the companies Feinberg did not pursue were two whose bailouts are expected to cost taxpayers more than $38 billion: American International Group Inc. and CIT Group Inc. He also ignored excessive pay at Wall Street powerhouses such as Goldman Sachs Group Inc. and JPMorgan Chase & Co., which reaped massive profits from government efforts to stabilize the financial system. They had no trouble repaying their bailouts.

He said a fight with those banks could have exposed them to lawsuits from shareholders trying to recapture the executives' money, and he did not think that would be fair.

Sen. Bernie Sanders, a Vermont independent, said he was disappointed that Feinberg decided there was no way to force the banks to return the bonus payments. "These people's jobs were saved by the taxpayers of this country, and their response was to give themselves these huge bonuses," Sanders said. "Many Americans lost their jobs because of this Wall Street greed. It is one of the reasons the American people are as angry as they are."

Many Gulf Coast fishermen are angry, too, at the way BP and the government have handled the legal claims of those whose earnings have been hurt by the oil spill.

Paul Nelson, a fisherman in Coden, Ala., who leads the South Bay Communities Alliance on the Alabama coast, said the fishermen he represents feel they have no voice in the claims process. "Where is the citizen input?" he asked.

It's not the first time Feinberg has talked tough but taken a light touch with bankers.

He clashed publicly with AIG Chief Executive Robert Benmosche - while quietly approving a pay package worth more than $10 million.

He announced in October 2009 that he had cut cash pay by 90 percent at the handful of companies that got the biggest bailouts. Yet the changes were not retroactive - they only applied to the final six weeks of that year.

That track record concerns some Gulf state officials.

Alabama Attorney General Troy King announced Thursday that he will file suit against BP to recover tax revenue lost because of the oil spill and to recoup cleanup costs. At the news conference, he said Feinberg seems to be working more for BP than for the people harmed.

Feinberg strongly defended his independence from BP, saying his actions "speak for themselves."

"I think both the administration and BP will acknowledge my absolute independence," Feinberg said. He added that anyone who believes he "went easy on the banks hasn't carefully read what I did over the past 16 months and what I did today regarding these 17."

Rather than demanding they return the money, Feinberg invited the 17 banks that overpaid workers to give their boards of directors more power to withhold pay during future crises. The request was voluntary.

Feinberg reviewed 419 companies that received bailout money before pay curbs were enacted by Congress in February 2009. The review covered the period from October 2008 to February 2009. The starting point was when banks began receiving bailout money under the Troubled Asset Relief Program. The ending point was when Congress enacted pay curbs on institutions receiving government support.

Feinberg determined that a total of $1.7 billion in payments were made during that period that would have violated the guidelines adopted later. And $1.6 billion of that amount was paid out by 17 of the country's largest financial institutions.


Feds won't go after exec pay

Foreclosure-relief effort failing many

by Alan Zibel Associated Press Jul. 21, 2010 12:00 AM

WASHINGTON - The Obama administration's effort to help those at risk of losing their homes is failing to aid many and could spur a rise in foreclosures that would further depress the housing industry.

More foreclosures would force down home prices and that would deter already-ailing homebuilders from starting new projects.

As a result, the economic rebound could suffer. Each new home built creates, on average, the equivalent of three jobs for a year and generates about $90,000 in taxes paid to local and federal authorities, according to the National Association of Home Builders.

Home construction plunged in June to the lowest level since October, the Commerce Department said Tuesday. Driving the decline was a more than 20 percent drop in condominium and apartment construction, a small but volatile portion of the housing market. Construction of single-family homes, the largest part of the market, was essentially flat.

Applications for building permits, a sign of future activity, were up slightly.

The home-construction report was released one day after the National Association of Home Builders said its monthly reading of builders' sentiment about the housing market sank to the lowest level since March 2009.

"We're going to see very minimal new construction until the stream of foreclosures has ended," said Jack McCabe, a real-estate consultant in Deerfield Beach, Fla.

More than 40 percent of the 1.3 million homeowners enrolled in the Obama administration's mortgage-relief effort have fallen out of the program, the Treasury Department said Tuesday.

Mark Zandi, chief economist at Moody's Analytics, predicts that about 2 million homes are likely to be sold over the next 12 to 18 months as foreclosures or short sales.

Builders are adjusting by adopting a new sales pitch. Many are emphasizing the simplicity of buying a new home, compared with the bureaucracy involved with purchasing a short sale or the expense of repairing a foreclosed property.

Yet even as they discourage buyers from looking at distressed properties, some builders see financial opportunity in that market. Luxury homebuilder Toll Brothers Inc. said this week it would form a new subsidiary that will invest in distressed real estate, buying up distressed loans or unfinished developments and possibly selling them to other builders.

The rate of home building is up about 15 percent from the bottom in April 2009, though it's down 76 percent from the last decade's peak in January 2006.

New home sales in May dropped 33 percent to the slowest pace in the 47 years records have been kept.

The drop-off came immediately after the tax incentives to sign a contract on a home ended on April 30.



Foreclosure-relief effort failing many

Plans for luxury apartments spark downtown height debate

by Peter Corbett The Arizona Republic July 9, 2010 12:30 PM

Business owners divided over proposed apartments

A Valley developer's plan to build up to 1,100 luxury apartments at Scottsdale and Camelback has resurrected a debate over the height of buildings in the downtown area.

Gray Development Group was scheduled to submit plans Friday for Scottsdale Riverwalk, a two-building apartment complex just east of Scottsdale Fashion Square. It would occupy a 4.3-acre site originally planned for phase two of the Safari Drive condominiums.

The 1,100 apartments planned for the $200 million project would be in addition to nearly 500 condominiums the Scottsdale City Council approved this week for Optima Sonoran Village at 68th Street and Camelback.

Scottsdale also has approved 165 condos for the Solis Scottsdale Resort and Residences east of the apartment site.

That project and Scottsdale Riverwalk are adjacent to the Arizona Canal that cuts across downtown.

Brian Kearney, Gray chief operating officer, said there is strong demand downtown for luxury apartments, which is distinct from the for-sale condo market.

"This is the best apartment site in Arizona, no doubt," Kearney said.

Apartment-industry officials say there is demand for luxury units in Scottsdale. But the project is likely to encounter opposition from citizen groups that have been battling height and density issues downtown for at least a decade.

The taller of Gray's two buildings could be anywhere from 50 to 148 feet tall, Gray spokesman Jason Rose said.

"We want to do a little more listening to the council and the community" before a decision is made on the height of the project, he said.

The City Council on Wednesday approved an infill incentive district downtown that would allow buildings of up to 150 feet.

Scottsdale Riverwalk at 148 feet would be roughly as tall as the Scottsdale Waterfront condominium towers to the southwest and the AmTrust Bank building at 69th Street and Camelback Road.

The Waterfront towers drew strong opposition before they were approved in 2003.

Scottsdale citizens also filed a referendum in 2008 with nearly 2,700 signatures to halt the five-story, 230-unit Hanover luxury apartment project northwest of Indian School Road and Goldwater Boulevard.

A Maricopa County Superior Court judge tossed out the referendum because it did not follow the proper filing procedures and the issue did not make it onto the ballot. But the project stalled, another victim of the depressed real-estate market and restricted investment capital.

Fear of heights persists

Sonnie Kirtley, Coalition of Greater Scottsdale chairwoman, said the height and density of the Scottsdale Riverwalk might not be compatible with what exists downtown. She had not yet seen details of Gray's proposal.

"Good luck on getting them rented," said Kirtley, adding there already are too many residential vacancies downtown.

Coalition member John Washington said he is concerned about increases in traffic congestion from Optima Sonoran Village and Scottsdale Riverwalk.

Kearney of Gray Development said the housing market is likely to recover by 2013 when the luxury apartments would be finished.

Gray hopes the City Council will approve its project by this fall; construction would start by early 2011.

Gray has a purchase option with Mid First Bank for the property.

Development of Safari Drive stalled after the first phase and the lender foreclosed on the undeveloped portion of the property, which was to include more condos and retail space.

Scottsdale Riverwalk would include restaurants and retail in a shaded five-story outdoor atrium fronting Scottsdale Road, said architect John Kane of Architekton.

Other amenities would include underground parking, rooftop tennis courts and swimming pools, and a fitness center with public memberships.

Rents would range from $1,000 to $2,000 per month for units starting at about 800 square feet, Kearney said.

Gray has developed about 8,000 apartment units in the Valley over the past 20 years, including Grigio at Tempe Town Lake.

Gray filed for a Chapter 11 bankruptcy protection for Grigio in May.

Apartment sector improving

The apartment sector has suffered in the real-estate downturn but is starting to improve, according to multihousing analyst Peter TeKampe.

Scottsdale is one of the Valley's strongest apartment submarkets with no new supply added in several years, said TeKampe, Marcus and Millichap vice president of investment.

North Scottsdale and Fountain Hills had the Valley's highest average rents in the first quarter at $923 and the lowest vacancy rate at 5.5 percent.

The Valley average rent is $745 per month with a vacancy rate of 13.5 percent.

Rents will start to increase by the end of the year if vacancies stay low but a lot depends on the economy, he said.

"We have to get back into a job-growth mode," said TeKampe, an Arizona Multihousing Association board member.

TeKampe added that Gray's apartment project downtown would be almost a whole new niche that would be unaffected by the so-called shadow market. That refers to investor-owned condos that have become part of the Valley's rental supply.

Gray said its highest rents would be up to $6,000 for the largest, top-floor apartments in Scottsdale Riverwalk.

Plans for luxury apartments spark downtown height debate

Sunbelt buys up SunCor holdings

by J. Craig Anderson and Ryan Randazzo The Arizona Republic July 16, 2010 03:56 PM
Sunbelt Holdings, a local developer involved in some of metro Phoenix's largest master-planned communities, has been buying up commercial real estate from the Pinnacle West Capital Corp. subsidiary SunCor Development Co., which is in the process of selling off its assets.

Sunbelt President John Graham said Friday that the Scottsdale company had just finalized a deal to purchase about 1,900 acres of northwest Valley commercial and industrial property from SunCor, whose parent Pinnacle West also owns utility Arizona Public Service Co.

The latest Sunbelt Holdings purchase included more than 1,650 acres of commercially zoned land in the Palm Valley area of Goodyear, Avondale and Litchfield Park, more than 200 acres of commercial land along Interstate 10 and a 440,000-square-foot industrial building, Graham said. He would not disclose the sale price.

It was the latest in a series of Sunbelt Holdings acquisitions of former SunCor projects, which include a planned Hyatt Regency hotel site at Hayden Ferry Lakeside on the south side of Tempe Town Lake; the Sanctuary Golf Course in Scottsdale; and the SunRidge Canyon Golf Course in Fountain Hills.

Sunbelt said it also has purchased a 2,500-space parking garage, an office/retail building and some office condominiums from SunCor.

"SunCor has been an outstanding, well-respected peer in our industry," Graham said. "They have done an excellent job of developing and managing a strong portfolio of quality assets. We believe these newly acquired assets will enhance and strengthen our market position."

Sunbelt Holdings is best known for its involvement in developing large master-planned communities, including the 5,400-lot Power Ranch in Gilbert and the 10,500-lot Vistancia in Peoria.

While Graham said the company's shift in focus to commercial real-estate projects is something of a departure, he noted that the company has developed a number of commercial projects in the past, including Arizona State University Research Park in Tempe and the 80-acre Phoenix Gateway Center development in Phoenix.

Pinnacle West announced in 2009 it would try to sell many of its real-estate holdings to focus on its core business, providing electricity through subsidiary Arizona Public Service Co.

SunCor Development Co. officials at the time said they would keep about $70 million in commercial real-estate holdings and sell about $400 million in housing assets, but spokesman Alan Bunnell said in late May that all SunCor property had been placed on the market for sale, including its remaining Hayden Ferry Lakeside assets.

On Friday, Bunnell said SunCor was nearing completion of its total divestiture.

"I think it's fair to say that the vast majority of the assets have been sold," he said.

As of March 31, SunCor still had $96 million in debt, compared with $175 million when the sell-off was announced in early 2009, Bunnell said.

Pinnacle West earnings have been hurt by SunCor. It has taken $334 million in annual pretax write-downs because of the company's operations: $53 million in 2008, $266 million in 2009 and $15 million in the first quarter of this year.


Sunbelt buys up SunCor holdings

Sense of unease gripping Wall Street

by Tom Petruno Los Angeles Times July 17, 2010 12:00 AM

Investors in stock mutual funds couldn't have asked for a smoother ride higher in the 12 months through March. But that just made the second-quarter market sell-off all the more jarring.

Most equity funds lost 9 to 14 percent in the three months that ended June 30, halting a winning streak that had lifted the average U.S. stock fund nearly 50 percent over the previous four quarters.

It wasn't that investors were unprepared for a pullback. Everyone knew the stock market would "correct" at some point. But many thought the catalyst would be rising interest rates triggered by a V-shaped economic recovery.

Instead, the mood turned grim as a rapid pileup of bad news - the government-debt crisis in Europe, a shocking lack of job growth in the U.S., the Gulf of Mexico oil-spill catastrophe and more - fueled fresh doubts about the global economy's ability to sustain its recovery.

A report released Friday showed that consumer confidence fell in July to its lowest point in nearly a year. American consumers appear to be having second thoughts about the recovery, clamping down on their spending in May and June.

Equity investors now have to contend with a chorus of well-known economists asserting that deflation and depression are becoming real risks again.

Princeton University economist Paul Krugman became one of the loudest voices, warning in June about a depression. He contends that Europe, Japan and the U.S. should roll out more stimulus money to fill the void left by still-weak private-sector and local-government spending.

Instead, Europe and Japan are pledging to cut government outlays to pare their budget deficits, and pressure is rising on Congress to do the same. Policy makers, Krugman says, are repeating the mistakes of the 1930s.

In the Treasury bond market, a stampede of buying during the quarter showed that some people were taking the deflation/depression talk to heart, much as they did in late 2008.

Painting a dire picture of investors' fears, the benchmark 10-year T-note yield dived to 2.93 percent by the end of June, from nearly 4 percent in early April, as investors rushed for the perceived safety of U.S. bonds.

Given all that, the surprise may be that stocks didn't fare worse. Losses in most of the world's stock markets have stayed within the limits of a classic short-term correction, meaning a 10 to 20 percent drop from the highs reached in early spring.

By Wall Street's traditional yardstick, it takes a decline of more than 20 percent to mark a new bear market.

The Standard & Poor's 500 index of big-name stocks dropped 16 percent from its second-quarter peak of 1,217.28 on April 23 to its recent low of 1,022.58 on July 2.

In July, the selling has abated and indexes have risen. The S&P 500 is still up more than 60 percent from the 12-year low reached in March 2009.

Foreign-stock funds, which on average fell more sharply than domestic funds in the second quarter because of Europe's government-debt woes and the dollar's strength, have been outperforming domestic funds over the past few weeks, partly because of a reversal in the dollar.

With the stock market's losses modest so far - certainly compared with the crash of 2008-09 - investors who fear the economy will crumble have time to rethink their tolerance for risk.

The good news is that basic portfolio diversification worked well in the first half. Bond mutual funds, which saw record inflows of cash in 2009 as many Americans sought to play it safer with their nest eggs, mostly scored total returns of 2.5 to 5 percent in the first six months, according to Morningstar Inc.


Sense of unease gripping Wall Street

Goldman Sachs to Pay Record $550 Million to Settle SEC Charges Related to Subprime Mortgage CDO; 2010-123

US Securities and Exchange Commission July 15, 2010

“This settlement is a stark lesson to Wall Street firms that no product is too complex, and no investor too sophisticated, to avoid a heavy price if a firm violates the fundamental principles of honest treatment and fair dealing.”

Robert Khuzami
Director
SEC Enforcement

---

Video of News Conference

Text of News Conference Remarks

Washington, D.C., July 15, 2010 — The Securities and Exchange Commission today announced that Goldman, Sachs & Co. will pay $550 million and reform its business practices to settle SEC charges that Goldman misled investors in a subprime mortgage product just as the U.S. housing market was starting to collapse.

In agreeing to the SEC's largest-ever penalty paid by a Wall Street firm, Goldman also acknowledged that its marketing materials for the subprime product contained incomplete information.

---

Additional Materials

• Goldman Consent
• Proposed Judgment
• Litigation Release No. 21592

---

In its April 16 complaint, the SEC alleged that Goldman misstated and omitted key facts regarding a synthetic collateralized debt obligation (CDO) it marketed that hinged on the performance of subprime residential mortgage-backed securities. Goldman failed to disclose to investors vital information about the CDO, known as ABACUS 2007-AC1, particularly the role that hedge fund Paulson & Co. Inc. played in the portfolio selection process and the fact that Paulson had taken a short position against the CDO.

In settlement papers submitted to the U.S. District Court for the Southern District of New York, Goldman made the following acknowledgement:

Goldman acknowledges that the marketing materials for the ABACUS 2007-AC1 transaction contained incomplete information. In particular, it was a mistake for the Goldman marketing materials to state that the reference portfolio was "selected by" ACA Management LLC without disclosing the role of Paulson & Co. Inc. in the portfolio selection process and that Paulson's economic interests were adverse to CDO investors. Goldman regrets that the marketing materials did not contain that disclosure.

"Half a billion dollars is the largest penalty ever assessed against a financial services firm in the history of the SEC," said Robert Khuzami, Director of the SEC's Division of Enforcement. "This settlement is a stark lesson to Wall Street firms that no product is too complex, and no investor too sophisticated, to avoid a heavy price if a firm violates the fundamental principles of honest treatment and fair dealing."

Lorin L. Reisner, Deputy Director of the SEC's Division of Enforcement, added, "The unmistakable message of this lawsuit and today's settlement is that half-truths and deception cannot be tolerated and that the integrity of the securities markets depends on all market participants acting with uncompromising adherence to the requirements of truthfulness and honesty."

Goldman agreed to settle the SEC's charges without admitting or denying the allegations by consenting to the entry of a final judgment that provides for a permanent injunction from violations of the antifraud provisions of the Securities Act of 1933. Of the $550 million to be paid by Goldman in the settlement, $250 million would be returned to harmed investors through a Fair Fund distribution and $300 million would be paid to the U.S. Treasury.

The landmark settlement also requires remedial action by Goldman in its review and approval of offerings of certain mortgage securities. This includes the role and responsibilities of internal legal counsel, compliance personnel, and outside counsel in the review of written marketing materials for such offerings. The settlement also requires additional education and training of Goldman employees in this area of the firm's business. In the settlement, Goldman acknowledged that it is presently conducting a comprehensive, firm-wide review of its business standards, which the SEC has taken into account in connection with the settlement of this matter.

The settlement is subject to approval by the Honorable Barbara S. Jones, United Sates District Judge for the Southern District of New York.

Today's settlement, if approved by Judge Jones, resolves the SEC's enforcement action against Goldman related to the ABACUS 2007-AC1 CDO. It does not settle any other past, current or future SEC investigations against the firm. Meanwhile, the SEC's litigation continues against Fabrice Tourre, a vice president at Goldman.

The SEC investigation that led to the filing and settlement of this enforcement action was conducted by the Enforcement Division's Structured and New Products Unit, led by Kenneth Lench and Reid Muoio, and including Jason Anthony, N. Creola Kelly, Melissa Lamb, and Jeffrey Leasure. Additionally, together with Deputy Director Reisner, Richard Simpson, David Gottesman, and Jeffrey Tao have been handling the litigation.

# # #

For more information about this enforcement action, contact:

Robert S. Khuzami
Director, SEC Enforcement Division
(202) 551-4500

Lorin L. Reisner
Deputy Director, SEC Enforcement Division
(202) 551-4787

Kenneth R. Lench
Chief of Structured and New Products Unit, SEC Enforcement Division
(202) 551-4938

Press Release: Goldman Sachs to Pay Record $550 Million to Settle SEC Charges Related to Subprime Mortgage CDO; 2010-123; Jul. 15, 2010

Senate Passes Sweeping Finance Overhaul - WSJ.com

By DAMIAN PALETTA And AARON LUCCHETTI The Wall Street Journal July 16, 2010

WASHINGTON—Congress approved a rewrite of rules touching every corner of finance, from ATM cards to Wall Street traders, in the biggest expansion of government power over banking and markets since the Depression.

The bill, to be signed into law soon by President Barack Obama, marks a potential sea change for the financial-services industry. Financial titans such as J.P. Morgan Chase & Co., Goldman Sachs Group Inc. and Bank of America Corp. may be forced to make changes in most parts of their business, from debit cards to the ability to invest in hedge funds.

The Senate passed the bill 60-39 Thursday, following House passage last month. Earlier in the day, three northeastern Republicans joined with Democrats to block a filibuster, allowing the bill to squeak through.

Now, the legislation hands off to 10 regulatory agencies the discretion to write hundreds of new rules governing finance. Rather than the bill itself, it will be this process—accompanied by a lobbying blitz from banks—that will determine the precise contours of this new landscape, how strict the new regulations will be and whether they succeed in their purpose. The decisions will be made by officials from new agencies, obscure agencies and, in some cases, agencies like the Federal Reserve that faced criticism in the run-up to the crisis.

The Commodity Futures Trading Commission has designated 30 "team leaders" to begin implementing its expansive new authority over derivatives, and has asked for $45 million for new staff. The Federal Reserve, Federal Deposit Insurance Corp. and Securities and Exchange Commission are also in the thick of the implementation.


The U.S. needs a jobs-recovery plan, Richard Trumka tells WSJ's John Bussey. The AFL-CIO president also says he stands by the Obama administration and called the U.S. financial-reform bill a "step in the right direction."

J.P. Morgan Chase, one of the biggest U.S. banks by assets, has assigned more than 100 teams to examine the legislation.

Democrats say the bill will cut the odds of another crisis and better handle one when it arrives. They also contend it will restore confidence in U.S. financial markets, protect consumers and spur growth. White House officials said it will put an end to taxpayer-funded bailouts of banks, addressing the scars of the financial crisis of 2008.

The legislation creates a council of regulators to monitor economic risks; establishes a new agency to police consumer financial products; and sets new standards for the way derivatives are traded. "These reforms will benefit the prudent and constrain the imprudent," Treasury Secretary Timothy Geithner said in a press conference. "Strong banks, the well-managed financial innovators, will adapt and thrive under the new rules of the road."

Republicans said the bill could jeopardize the recovery by constraining credit and crimping the banking industry, and chided the expansion of government power it envisions.

The bill "is a 2,300-page legislative monster…that expands the scope and the powers of ineffective bureaucracies," said Sen. Richard Shelby (R., Ala.).

The measure is the latest sweeping law to emerge from the 111th Congress. But the financial revamp, the 2009 stimulus act and this year's health-care overhaul—by any measure significant legislative achievements—haven't translated into support for the White House. Mr. Obama's approval ratings have sunk to some of their lowest levels in some polls amid a gloomy economic picture and rising doubts that his economic policies are working.

Once this bill is signed into law, lawmakers and the Obama administration are expected to pivot to another contentious issue: the future of government-run mortgage-finance giants Fannie Mae and Freddie Mac. Republicans like Sen. Mitch McConnell (R., Ky.) complain that the failure to tackle these companies in the finance bill was a glaring omission. The administration has begun work on a proposal to redesign the mortgage-finance system, and Congress could take up the issue in 2011.

The finance overhaul will be implemented in a volatile environment. Profits on Wall Street are soaring, with J.P. Morgan reporting $4.8 billion in net profit in the second quarter. But the banking sector is contracting, with close to 300 banks failing since January 2008. Many businesses and borrowers are struggling to obtain loans.

Supporters and critics agree the impact of the bill will be determined over several years.

The law's passing "is the beginning of the process and not the end," says Satish Kini, co-chair of the banking group at law firm Debevoise & Plimpton LLP. "The shape of the reform won't be known until the regulators have spoken."

Treasury Department officials have taken initial steps to prepare the new consumer agency, called the Bureau of Consumer Financial Protection and housed within the Federal Reserve. Regulators are in the process of creating a system so that large, complex and failing financial companies can be broken up and liquidated without disrupting markets.

Despite creating the new consumer watchdog, the bill leaves America's patchwork regulatory framework largely intact, and most of the players will be familiar. That has irked critics on the left and right who say one of the bill's key flaws is that it relies on the judgment of officials rather than hard rules.

Conservatives worry regulators will throttle the industry. Liberals worry they'll be co-opted by banking lobbyists.

"The same regulators who ignored consumer advocates' warnings about predatory lending have veto power over the consumer agency," said John Taylor, chief executive of the National Community Reinvestment Coalition. "That club of regulators is very insular, and usually in agreement."

In a sign of the challenge, at a congressional hearing Thursday to approve her nomination as Fed vice chairman, Janet Yellen acknowledged that the Fed's regulatory approach was insufficient for years.

"We failed completely to understand the complexity of what the impact of the national decline in housing prices would be in the financial system," said Ms. Yellen, currently president of the Federal Reserve Bank of San Francisco. "We saw a number of different things, and we failed to connect the dots."

Regulators will have multiple questions to answer. What types of trades can banks conduct, and what types will be illegal? At what level should regulators cap the fees that retailers pay to banks to process debit-card transactions? On which companies will the Fed apply stricter regulations? What will be the new standards for mortgages, credit cards and ATM fees?

By next summer, regulators could have many answers. The new consumer agency should be established, with its own staff and director. A new council of regulators will be monitoring emerging risks to the economy. There will be new rules on golden parachutes for employees at public companies, policies for ATM cards, the abolishment of the Office of Thrift Supervision, new derivatives rules and hedge-fund registration.

Administration officials and lawmakers have been talking about who should head the new consumer agency, as well as whom to appoint as chief regulator for national banks.

Bank outreach to regulators began in earnest months ago. French bank BNP Paribas hosted a dinner at Manhattan's Le Bernadin at which representatives from U.S. hedge funds and investment firms grilled a Federal Reserve Bank of New York official about how the derivatives rules would be applied.

Over striped-bass tartare, some participants told Patricia Mosser, the Fed official attending, that they didn't want much to change in the current model of derivatives trading.

Ms. Mosser said pushing more derivatives onto exchanges, as the law demands, would make the market more transparent and safer, people familiar with the matter said. Still, it was clear the rules wouldn't be put in place overnight. The law would take months, maybe years, to implement, Ms. Mosser told the group.
Grading the Bill

Economists and other prominent members of the financial community gave the overhaul legislation mixed reviews, with some saying it would do nothing to stop another financial crisis from occurring and others saying it was a good first step toward a new financial system.

All eyes will be watching how the regulatory agencies charged with putting the law into practice determine critical issues like the definition of "too big to fail."


Senate Passes Sweeping Finance Overhaul - WSJ.com

Federal housing program complicates short sales

by J. Craig Anderson The Arizona Republic July 15, 2010 12:00 AM

A recently implemented federal housing-market stimulus program designed to encourage short sales appears to be doing just the opposite, according to Phoenix-area real-estate agents, title companies and mortgage lenders.

Home Affordable Foreclosure Alternatives, the fourth initiative to be launched under the banner of the Obama administration's Making Home Affordable program, offers a cash incentive of up to $3,000 to homeowners on the brink of foreclosure who stick around to complete a short sale or deed in lieu of foreclosure, rather than just walking away.

It also provides a bonus of up to $6,000 to loan servicers for every short sale or deed in lieu they approve.

A short sale is one in which the home's seller owes more on the mortgage than the home's sale price would cover. The lender must agree to remove its lien from the property despite the unpaid loan balance.

A deed in lieu of foreclosure involves the delinquent homeowners signing the deed to their home over to their primary lender and walking away from the mortgage. The exchange occurs by mutual agreement, rather than by default.

While deeds in lieu are relatively rare, short sales have become foreclosure's twin engine in driving the housing market through its current readjustment period following an unprecedented real-estate bubble that burst in 2007.

Short sales are better for the housing market than foreclosures, because short sales generally do not lead to long periods of home vacancy, as foreclosures often do.

With that in mind, real-estate agents and others said they had been eagerly anticipating the April's implementation of the federal short-sale program, nicknamed HAFA.

That excitement quickly turned into disappointment as the effects of HAFA started to become clear, they said.

First of all, HAFA short sales require double the paperwork of other short sales, said Tempe real-estate agent Steve Trang of Occasio Realty.

"The most irritating thing is going from a document that was 50 pages to one that's 100 pages," Trang said.

HAFA short sales also can take twice as long to complete, said Steve DeLaveaga, vice president of sales and marketing at Fidelity National Title in Tempe.

A typical short sale takes longer than regular home sales because there are extra steps and more people involved. However, DeLaveaga said most lenders had done a good job of streamlining the process in the six months leading up to April.

Before HAFA, the typical escrow period was 35 to 50 days, DeLaveaga said. Now it's taking 75 to 100 days.

Most big consumer-mortgage lenders now require HAFA applications for all short sales, he added, even when the sellers have little chance of qualifying for the $3,000 relocation allowance.

Only about 10 percent to 20 percent of Phoenix-area short sellers actually qualify for the money, according to DeLaveaga and others.

Over the past three months, HAFA short sales have developed a reputation for being more time-consuming, labor-intensive and unreliable than comparable short sales occurring outside the federal program, Trang said.

For instance, a HAFA applicant's lender must send a letter of approval to the program's administrators in Washington, who then must review the application themselves.

Delays on the part of lenders and the government have dragged out the sale process, he said. In some instances, the buyers have gotten impatient and walked away from the deal.

"We have a government that is well-intentioned, but they're adding more obstacles," he said.

HAFA is the fourth program to be implemented under the Obama administration's $75 billion mortgage-relief effort, known as Making Home Affordable.

Its two key components, the Home Affordable Mortgage Program and Home Affordable Refinance Program, have undergone a number of revisions, primarily to reduce eligibility standards in response to lower-than-expected participation.

HAFA is likely to be subjected to a similar tweaking process, said Jay Butler, associate professor of real estate at Arizona State University's W.P. Carey School of Business.

"Basically, they're trying different things to see if they work," he said.

Dan Noma Jr., branch manager at Arizona Best Real Estate in Chandler, said he is optimistic about HAFA's potential for helping the local housing market.

The biggest problems are that too few consumers know about the program, he said, and too few real-estate agents know how to effectively push through a HAFA deal.

Chad Melin, branch manager at Academy Mortgage in Mesa, said real-estate agents should warn their clients to start putting together the documents required under HAFA, which include proof of income and evidence of financial hardship.

Noma said he still believes the program ultimately will help people once it has been broken in. HAFA eligibility lasts until Dec. 31, 2012.

Gilbert HomeSmart real-estate agent Maria Hass said she was not optimistic.

"The HAFA program, just like the other programs, has not really helped," she said. "It's been a disaster."




Federal housing program complicates short sales

FDIC gains expanded power to conduct bank reviews | tennessean.com | The Tennessean

By Marcy Gordon ASSOCIATED PRESS July 13, 2010

WASHINGTON — Federal bank regulators have agreed to give the Federal Deposit Insurance Corp. unlimited authority to investigate banks, clarifying an aspect of the agency's power that was in question during the financial crisis.

The FDIC's board on Monday approved, by a 5-0 vote, the agreement between the insurance agency and regulators at the Federal Reserve and the Treasury Department. It clearly spells out the FDIC's authority to make special examinations of banks.

Federal bank regulators were widely criticized during the financial crisis for failing to signal high-risk practices before the institutions failed.

The FDIC, which takes over failed banks, has said it lacked access to needed information to evaluate banks' risk.

The FDIC is the "backup" regulator for banks, empowered to examine banks' condition and operations. That is in addition to the authority held by their primary federal regulators: the Fed and two Treasury Department agencies, the Office of the Comptroller of the Currency and the Office of Thrift Supervision.

The agreement, a so-called memorandum of understanding, was signed by the FDIC, the Fed and the two Treasury Department agencies. It updates a similar accord that took effect in 2002.
Agency cited limited ability

The FDIC has said that during the financial crisis, the 2002 agreement limited its ability to effectively assess risks at weakening banks and to put together strategies for resolving them after they failed. The 2002 agreement required the FDIC to conduct its special examinations of banks at the same time as the periodic reviews by their primary regulator. The FDIC was blocked from examining banks that primary regulators deemed financially healthy.

"The past financial crisis provided us with a strong and sober reminder that the activities of large banks are often very complex and opaque," FDIC Chairman Sheila Bair said before the vote by the agency board at a public meeting. "The FDIC needs to have a more active on-site presence and greater direct access to information and bank personnel in order to fully evaluate the risks to the deposit insurance fund on an ongoing basis and to be prepared for all contingencies."

Since the start of last year, 230 U.S. banks have failed amid mounting losses on loans and the toughest economic climate since the 1930s. The failures have sapped billions of dollars out of the deposit insurance fund, which fell into the red last year. Its deficit stood at $20.7 billion as of March 31.


FDIC gains expanded power to conduct bank reviews | tennessean.com | The Tennessean

Fed to banks: Lend more to smaller firms

by Jeannine Aversa Associated Press July 13, 2010 12:00 AM


WASHINGTON - Big companies are building up cash and are expected to report strong earnings starting this week. Not so for small businesses that can't get loans - or hire freely until they do.

The gap helps explain why the economic rebound isn't stronger and could even stall. Federal Reserve Chairman Ben Bernanke stepped up pressure Monday on banks to break the logjam and lend more to smaller firms, which employ at least half of American workers.

Small-business owners are relying on personal credit cards or raiding retirement accounts to stay afloat, the Fed chairman said.

Bernanke and other regulators have urged banks for months to lend more to smaller companies. Lawmakers have complained that small businesses that want loans are having trouble getting them. Banks have countered by saying demand remains weak.

The Fed does have authority to create programs to increase lending, such as providing low-cost loans to banks. But economic conditions would probably have to weaken considerably before the Fed would propose such a move. One such program set up during the 2008 financial crisis was recently closed.

The Fed chief's latest comments came as legislative efforts to spur small-business lending have languished and as the recovery has lost momentum. Bernanke spoke at a Fed conference held to explore ways to loosen lending to small companies.

"Making credit accessible to sound small businesses is crucial to our economic recovery," Bernanke said. "More must be done."

Some small-business leaders say they would hire more if only they had easier access to loans. One of them is Marilyn Landis of Basic Business Concepts Inc. of Pittsburgh, which compiles financial documents for other small businesses.

Landis says she would like to hire one or two more people for her 10-person firm and wants to expand into New England. Yet even though she says she's never missed a payment, Landis says her line of credit was cut about 18 months ago.

She relies on credit cards to pay for everything from supplies to payrolls. Without additional credit, she says, "It is impossible to expand, and I can't hire."

Nearly one-third of small-business borrowers report difficulty arranging credit, the National Federation of Independent Business said.

By contrast, big businesses, which start reporting their second-quarter earnings this week, have enjoyed easier access to loans and low interest rates.

Analysts expect companies in the Standard & Poor's 500 to report a 42 percent jump in profit by one measure, S&P says. For the current quarter, which ends Sept. 30, they expect a 31 percent rise.

The big companies also benefit from something available to fairly few small businesses: plenty of cash.

In March, cash at S&P 500 companies hit a record $837 billion - about a year and a half's worth of profits. And S&P senior analyst Howard Silverblatt says he expects cash to rise to a new record for the April-to-June quarter when figures are released later this summer.

Yet even as the economy has improved, lending to small businesses has declined. It's dropped from around $710 billion in the second quarter of 2008 to less than $670 billion in the first quarter of this year.

The Fed and other regulators have urged banks to step up lending to creditworthy small businesses. Despite the push, such lending is still tight.

The impact on the economy is severe because small businesses tend to drive job growth during recoveries. They employ roughly half of all Americans and account for about 60 percent of job creation, Bernanke said.

And newer small businesses - those less than 2 years old - are especially vital. Over the past 20 years, these startups accounted for roughly a quarter of all job creation, even though they employed less than 10 percent of the work force, he added.

The Obama administration in early May sent Congress a proposal to create a $30 billion program to unfreeze credit for small businesses. The fund would provide money to small- and medium-sized banks to encourage them to lend to small businesses. The legislation has yet to pass the Senate.

Bernanke said it's hard to tell whether the problem is banks refusing to lend to small businesses or a lack of demand from those companies.

Some lenders say they have restored more traditional standards after a period of lax lending that contributed to the financial crisis.

Several big banks say they're already lending more to small businesses. Bank of America lent $19.4 billion to small- and medium-sized businesses in the first three months of 2010, an increase of nearly $3 billion from last year. JPMorgan Chase and Citigroup have pledged to lend more, too.

Combined, though, the dollar amounts are relatively tiny compared with how much banks would lend in a healthy economy, said Robert DeYoung, a finance professor at the University of Kansas.

"These numbers would be dwarfed by the increase in lending after the economy starts recovering, and the economy hasn't really started to recover," DeYoung said.


Fed to banks: Lend more to smaller firms

Credit scores falling for millions of consumers

by Eileen A.J. Connelly Associated Press July 12, 2010 12:00 AM

NEW YORK - The credit scores of millions more Americans are sinking to new lows.

Figures provided by FICO Inc. show that 25.5 percent of consumers - nearly 43.4 million people - now have a credit score of 599 or below, marking them as poor risks for lenders. It's unlikely they will be able to get credit cards, auto loans or mortgages under the tighter lending standards banks now use. Because consumers relied so heavily on debt to fuel their spending in recent years, their restricted access to credit is one reason for the slow economic recovery.

FICO's latest analysis is based on consumer credit reports as of April. Its findings represent an increase of about 2.4 million people in the lowest credit-score categories in the past two years. Before the Great Recession, scores on FICO's 300-to-850 scale weren't as volatile, said Andrew Jennings, chief research officer for FICO in Minneapolis. Historically, just 15 percent of the 170 million consumers with active credit accounts, or 25.5 million people, fell below 599, according to data posted on myfico.com.

More are likely to join their ranks. It can take several months before payment missteps actually drive down a credit score. The Labor Department says about 26 million people are out of work or underemployed, and millions more face foreclosure, which alone can chop 150 points off an individual's score. Once the damage is done, it could be years before this group can restore their scores, even if they had strong credit histories in the past.

On the positive side, the number of consumers who have a top score of 800 or above has increased in recent years. At least in part, this reflects that more individuals have cut spending and paid down debt in response to the recession. Their ranks now stand at 17.9 percent, which is notably above the historical average of 13 percent, though down from 18.7 percent in April 2008 before the market meltdown.

There has also been a notable shift in the important range of people with moderate credit, those with scores between 650 and 699. The new data shows that this group comprised 11.9 percent of scores. This is down only marginally from 12 percent in 2008, but reflects a drop of roughly 5.3 million people from its historical average of 15 percent.

This group is significant because it may feel the effects of lenders' tighter credit standards the most, Jennings said. Consumers on the lowest end are less likely to try to borrow. People with mid-range scores that had been eligible for credit before the meltdown are looking to buy homes or cars but finding it hard to qualify for affordable loans.

In the past too much credit was handed out based on scores alone, without considering how much debt consumers could pay back, said Edmund Tribue, a senior vice president in the credit-risk practice at MasterCard Advisors. Now, the ability to repay the debt is a critical part of the lending decision.

Ritch Workman, a Melbourne, Fla., mortgage broker, thinks credit scores alone play too big a role. "The pendulum has swung too far," he said.



Credit scores falling for millions of consumers

Last big Queen Creek farm yields to homebuilders

by D.S. Woodfill The Arizona Republic July 11, 2010 12:00 AM

Newell Barney may not be well known outside Queen Creek, but the 85-year-old farmer looms large in the tiny town at the southeastern fringe of the Valley.

The great-grandfather to 70 children, whose name graces a local school and a sports complex, rises at 5 a.m to work the land as he has since 1949.

But that long chapter of Barney's life will soon end, giving way to the same encroaching development that has slowly been swallowing up what remains of the small rustic community known for its farms and horse culture.

The Barney family's land is the last of the major local holdings to surrender to urbanization, said Dave Salge, president of the San Tan Historical Society. There's a sense with some residents that with it, Queen Creek is losing part of its identity.

"We're just blending in with everybody else," Salge said.

A planned 257-acre housing development called Barney Farms, at Meridian and Queen Creek roads, will eventually occupy a significant chunk of the family's 700 acres of farmland.

"Eventually, it's probably all going to be gone," giving way to some form of commercial development, said Barney, who remembers when cotton gins and potato sheds dotted the land, not retail centers and housing developments. "The whole area is just going to be out of agriculture, basically."

The change is inevitable, said Jason Barney, Newell's second cousin and a partner with Landmark Property Holdings.

"It's going to happen one way or another," he said. "That's something that really nobody can control because it really becomes a function of market economics. But one thing that people can participate in is the quality and style of that growth.

"Our family name will be on this development long after we're done building it. Even though it's not economically feasible to keep farming it for the next 200 years, we can make sure that we leave something behind that's sustainable - something our family will be proud of for generations."

That legacy is still in the planning stages.

Jason Barney said he's been meeting with builders to gain a sense of what kind of homes are currently in demand, adding that he intends to hold all of the work to a high standard of quality on everything from the landscaping to the building materials.

The next step is to apply for zoning and preliminary plat approval, he said. That approval process can take one to two years.

Ken Barney, 53, Newell's son, said economic forces have made it difficult for families to keep their farms going.

"I can't complain about the living that I've had the last 50 years, but the costs have increased so much in the last four or five years - fuel costs, fertilizer costs - those have all tripled (and) quadrupled," he said.

He said he's likely the last generation of his family to farm.

"I have a son that's 31 years old and he originally probably would have wanted to farm, but I just said it's not in the cards," he said. "Get your education; find something else that you want to do."

Julie Murphree of the Arizona Farm Bureau said other challenges facing farming families are the sometimes overwhelming regulations from federal agencies, such as the Environmental Protection Agency, the United States Department of Agriculture and the Food and Drug Administration.

She said the paperwork alone can be burdensome.

Newell said the regulations have made the work more difficult.

"It kind of takes the fun out of farming when you have so many regulations and so many things that you have to report on and so many involvements," he said.

Until the real-estate market took a tumble, pressure from developers was another major force that led many farmers to sell their land, Murphree said.

Land before the market's peak that may have gone for $2,500 an acre had suddenly ballooned, Murphree said.

"Some places, it was going for $50,000 and $75,000 dollars an acre," she said.

"When their 401(k) or their retirement was basically their land and you had someone coming up and offering you - at the peak of the market - $75,000 an acre, just do the math on that one. That's a lot of dollars."



Last big Queen Creek farm yields to homebuilders

Tax credit’s end slicing housing demand - Phoenix Business Journal

by Mike Sunucks Phoenix Business Journal July 2, 2010

Greg Swann fears that expiration of federal home buyer tax credits will deal another blow to Phoenix’s already staggering housing market.

Swann, a principal with Bloodhound Realty in Phoenix, said ending the $8,000 credit could push down already low prices, and cut into demand impacting the housing food chain of agents, lenders, title companies, appraisers and contractors.

“I could see a huge drop in demand in our vendors’ markets — inspectors, handymen, etc.,” Swann said.

The credits — $8,000 for first-time buyers and $6,500 repeat buyers were extended from Dec. 30 to May 1, but pending sales had until June 30 to close in order to qualify for the breaks.

The credits helped propel home sales nationally and in underwater markets, such as Phoenix. There are efforts in Congress to extend the tax credit closing deadline until Sept. 30. But even if the closing deadline is extended, new sales won’t qualify for the tax break.

Swann said he expects inventory to increase once the tax credit fully expires and has been advising investors to stay on the sidelines.

“I personally do a lot of work with

investors, and I advised them to stand down until the tax credit lapsed, both times. For the homes I’m most interested in for investors, inventories are going up and prices are going down,” Swann said.

Eric Wright, a senior loan officer with CNN Mortgage in Scottsdale, said home buyer tax credits account for about 20 percent of his business and that the extra money encouraged home sales.

“I didn’t see that the tax credit actually created any buyers,” he said. “However, it did give would-be buyers motivation to purchase sooner.”

Wright hopes low interest rates and bargain prices will keep buyers in the Phoenix marketplace.

“I have seen very little drop-off in loan applications. The exceptionally low interest rates have many people still in the market, tax credit or not,” he said.

But national home sales figures aren’t optimistic.

New home sales slumped in May, both in the West and nationwide with the expiration of the tax credits. Sales of new houses in 13 Western states, including Arizona, fell 53 percent in May from the previous month, according to the U.S. Census Bureau and the U.S. Department of Housing and Urban Development.

Nationally, the decline was 33 percent. May’s numbers were the worst since the U.S. government began tracking sales data in 1963.

Swann said he doesn’t expect to see much improvement on Phoenix home prices pulled down by foreclosures, short sales and oversupplies of homes.

“We are overbuilt, and the population is essentially static. Until metropolitan Phoenix starts growing again, nothing else that happens will make much difference. In the meantime, there are excellent opportunities available for all-cash or well-qualified buyers,” Swann said.

Some brokerages are trying to boost demand in the post-tax credit marketplace. Coldwell Banker is offering an $8,000 credit to all home buyers for purchases through July 31.

Wright said other agents and loan officers are trying to stay in touch with clients, new and old.

“Both real estate agents and loan officers are continuing to network and are maintaining relationships with past clients. I have also seen an increase in the use of social networking sites to stay top of mind with potential clients,” Wright said.




Tax credit’s end slicing housing demand - Phoenix Business Journal

2 development projects OK'd

by Edward Gately The Arizona Republic Jul. 10, 2010 12:00 AM

Future expansion and improvement at Scottsdale Healthcare Osborn Medical Center and a multilevel luxury-condominium project on the southeastern corner of Camelback Road and 68th Street were given the green light by the Scottsdale City Council.

Both requests originally were among items on the council's Tuesday consent agenda, which required a single vote for approval. The Scottsdale Healthcare request remained on the consent agenda, and the council unanimously supported it.

The condominium request, however, was moved to the regular agenda, and Councilwoman Marg Nelssen cast the only vote against it. She questioned the effect of the project on the adjacent residential area.

Scottsdale Healthcare's long-term plans include the construction of two patient towers. The expansion could add more than 240 beds to the Osborn Medical Center, bringing the total to more than 630.

The medical campus, on the northwestern corner of Osborn Road and Drinkwater Boulevard, was established in the mid-1960s.

The council's approval allows Scottsdale Healthcare to move forward with development plans over the next 20 to 25 years. Plans call for expanded inpatient and outpatient surgical services, more private patient rooms and additional intensive-care beds.

Plans also include developing a new main entry, more parking, a neurosciences center and a conference center.

"Scottsdale Healthcare can now move forward planning for the future . . . with a campus that is well planned, well thought out and will hopefully serve the future needs of the community for decades to come," said John Berry, a zoning attorney for Scottsdale Healthcare.

It also operates two other hospital campuses and is the city's largest employer.




2 development projects OK'd

Stimulus used to rehab homes

by Eddi Trevizo The Arizona Republic Jul. 10, 2010 12:00 AM

Foreclosed homes, often an eyesore to their communities, can compromise the stability and value of an entire neighborhood due to overgrown weeds, damaged property and stripped amenities.

Homes 2 Owners, a new housing program funded through federal grants, is purchasing foreclosed homes in Buckeye, Goodyear, Tolleson, Youngtown and El Mirage to rehabilitate and resell them to low- and moderate-income buyers. The program uses energy-efficient materials and utilities. The homes will consume at least 30 percent less energy and water than they did before the rehabilitation.

The Housing Authority of Maricopa County was awarded a $6.2 million grant to purchase and revamp foreclosed homes in the West Valley.

Last week, potential buyers, neighbors and Buckeye and county leaders walked through a newly rehabilitated home near Roeser and Apache roads to mark the program's achievements in Buckeye.

The house has non-toxic paint, low-flow bath fixtures and a satellite irrigation system.

"We came to see the house because we're interested in living in the area. It's a tranquil place," said Emmanuel Lopez, 31, a Phoenix resident who hopes to purchase a home in Buckeye or Goodyear.

The program focuses on West Valley communities hit hardest by the real-estate downfall.

"In Buckeye, the program has purchased five homes and two have already sold," Homes 2 Owners director Ben Chao said.

Chao said the average price of the five Buckeye homes is about $89,200.

As part of the Housing and Economic Recovery Act of 2008, Maricopa County has received $9.9 million from the U.S. Housing and Urban Development Department.

The county hopes to acquire and rehabilitate about 50 homes.

Details: www.homes2owners.org.




Stimulus used to rehab homes

Phoenix bankruptcy rates improved in June

by Russ Wiles The Arizona Republic July 9, 2010 12:00 AM

The Valley's bankruptcy situation improved for a third straight month in June, with filings now showing their lowest year-over-year increase since the recession began.

Metro Phoenix recorded 2,656 consumer and business filings, down 3.9 percent from May, according to the U.S. Bankruptcy Court in Phoenix.

Perhaps more significant, the June figure was up just 15.7 percent compared with June 2009. That's the lowest year-over-year rise since October 2006, one year after a filing spike related to a change in bankruptcy law.

Some local attorneys have sensed a filing slowdown but aren't sure how long it will last.

"June was quieter than, say, March, but July so far has been pretty busy," said Dean Dinner, a bankruptcy attorney at Nussbaum & Gillis in Scottsdale. "It's hard to say whether we've just gotten through one wave with another wave to come."

Dinner cited job losses and real-estate woes as two main catalysts forcing people to seek protection from creditors.

"What we're seeing is broad-based," he said.

"It's not just developers and construction companies but a lot of other businesses, too, including restaurants, gas stations, convenience stores and clothing stores."

Nor are filings focused among those in lower economic groups.

"People are coming in who had fairly high incomes, and now, their incomes have dropped or disappeared entirely, yet they still have large homes and business obligations," Dinner said.

The improvement has come despite several recent indicators pointing to a slowing economy. These include drops in consumer confidence, new-home sales and job creation.

As in the Valley, bankruptcy filings throughout Arizona dipped for a third straight month, to 3,585 in June, down from 3,731 in May and a recent peak of 4,135 in March. Statewide filings in June were up 15.5 percent from June 2010.

Nationally, bankruptcy filings have been slowing for several months.

The June total of 126,270 was up nearly 9 percent from a year earlier but down 8 percent from May of this year, according to the American Bankruptcy Institute and National Bankruptcy Research Center.

The job backdrop will almost certainly continue to exert a major influence on bankruptcies. Although the picture has stabilized, economists aren't expecting a quick recovery.

"We expect the unemployment rate (in Arizona) to remain high for the foreseeable future," Eugenio J. Aleman, a senior economist at Wells Fargo, wrote in a report.

The state lost nearly 300,000 jobs from the peak a few years ago, he said. Plus, personal incomes here run about 16 percent below the U.S. average.

"The Arizona economy is coming back from the brink this year after suffering the worst slump in decades," Aleman wrote.

"However, this recovery will not be strong, nor will the Arizona economy come out unscathed."



Phoenix bankruptcy rates improved in June

Mesa may focus on abandoned homes with property ordinance

by Gary Nelson The Arizona Republic Jul. 9, 2010 12:00 AM

The neighbors were there one day, gone the next, and never said a word about leaving.

What they left was a mess, one more abandoned property in a city that saw nearly 1,000 foreclosures in May alone, according to the website RealtyTrac.

The house on Barkley Street is a perfect illustration of what Mesa faces when it tries to do code enforcement on abandoned properties. Mesa put a sign on the window several months ago notifying that the property had been abandoned - but that's all the city can do right now.

The house is still listed by the county assessor as being owned by the couple who bought it in early 2007. That means most likely it's in that twilight zone between abandonment and foreclosure - a time when Mesa can't pin down whom to hold responsible for maintenance.

Mesa is hoping to fix that by joining about 300 other cities that have adopted abandoned-property registration ordinances.

"The real goal of that program is to try to find a responsible party between when a person walks and it actually goes into foreclosure," said Tammy Albright, Mesa's code-compliance supervisor.

Here's how it would work:

When a mortgage company determines a loan is in default, it would be required to inspect the property immediately to determine whether it's vacant.

If so, the company would be required to register the property with the city, make sure the place is secured and begin maintaining it. Maintenance would continue until the property is reoccupied.

The company would have to inspect the property monthly to ensure compliance. It also would have to provide contact information - a local property-management company, for example, if the lender is from out of state.

One issue not addressed in the staff report: what mechanisms and penalties would be in place to force compliance from lenders that often are large national corporations.

With the council now on the cusp of a six-week break, Councilwoman Dina Higgins said there won't be any public discussions on the idea at least until late summer.

Mesa may focus on abandoned homes with property ordinance

Late loan payments fall, scene improving

by Russ Wiles The Arizona Republic July 7, 2010 04:52 PM

Consumer-loan delinquencies declined broadly from January through March, marking the third straight quarter of improvement. But some credit watchers wonder whether the trend is for real.

The American Bankers Association, which released the report, called the latest numbers a sign that more people nationally are getting their hands around debt problems.

The association reported that delinquencies for eight consumer-loan categories averaged 2.98 percent of all accounts in the first quarter. By contrast, 3.19 percent of all accounts were 30 days or more past due in 2009's fourth quarter.

Credit-card delinquencies fell noticeably to 3.88 percent of all accounts from 4.39 percent. That pushed the new credit-card figure below its 15-year delinquency average of 3.93 percent.

The association's chief economist, James Chessen, said the improvements reflect efforts by consumers to shore up their finances.

"It's clear that consumer balance sheets are improving," he said in a statement. "People are borrowing less, saving more and building wealth."

Tanya Wheeless, president and CEO of the Arizona Bankers Association, said she has noticed a similar trend here.

"As I talk to local bankers on housing and other types of loans, we are seeing a bottoming out, some improvements," she said.

But others aren't sure whether the improvements reflect consumers managing their money better, or banks taking the initiative by closing accounts and slashing lines of credit.

"Debts are dropping, but are institutions closing accounts, or are consumers doing it?" asked Adam Levin, chairman of Credit.com in San Francisco and Scottsdale-based IdentityTheft 911.com.

Although Levin said that many people are more conscious about paring debts, avoiding credit-related fees and spending less, he is not convinced most Americans have yet embraced this "new frugality."

Ericka Young, a financial coach at Tailor-Made Budgets in Gilbert, said she has noticed some people keeping current on credit cards and other relatively small loans while falling behind on their mortgages. This tendency, she said, partly reflects higher and rising interest rates on credit cards. Plus, some homeowners are resigned to leaving their properties because of declining values.

Still, the American Bankers Association's delinquency numbers are in the right direction, and the lower problems on home-equity loans and lines of credit point to firming in housing prices.

"This is the first inkling that stability is taking hold in the housing market," Chessen said, "but the pace of recovery will still be long and drawn out."



Late loan payments fall, scene improving

Housing market is mixed bag

by Catherine Reagor The Arizona Republic July 7, 2010 12:00 AM

The Phoenix-area housing market continues to settle. The impact of the federal homebuyer tax credit on sales and the loan-modification program on foreclosures is still difficult to fully determine.

Indicators from the region's housing market are mixed.

The number of foreclosures climbed, but the number of foreclosure homes resold by lenders didn't. New-home sales sagged, but the median price of all home sales ticked up above expectations.

Here are the latest key housing numbers for the Phoenix area:

• Foreclosures climbed about 20 percent, to 4,894, last month, according to the Information Market. But pre-foreclosures, or notice of trustee sales, fell 5 percent, to 6,170.

The number of foreclosures canceled by lenders climbed by nearly 1,000 in June. Overall, pending foreclosures in metro Phoenix dropped 6 percent, to 42,324, last month.

• Homebuilding slowed a bit, after increasing earlier this year. There were 571 permits for new homes issued in metro Phoenix during May, down from 604 in April, reports RL Brown's "Phoenix Housing Market Letter." Still, homebuilding is up more than 50 percent so far this year from last year's pace.

New-home sales dipped to 811 in May, compared with 823 in April. New-home sales through May were down 15 percent from 2009's level. Builders reported a boost in sales through April due to the homebuyer tax credit. Brown expects the homebuilding market to continue to slow during the next few months.

• Metro Phoenix's median home price inched up to $130,000 in May, according to the Arizona Regional Multiple Listing Service's monthly report STAT. The median was $127,500 in April and was expected to top $128,000 in May. Based on pending sales, ARMLS projects the area's home prices will dip in the next few months and then climb again in September.

Phoenix-area foreclosure-home sales, houses taken back by lenders and resold, accounted for about 38 percent of all sales last month, ARMLS reported. The percentage of homes selling that are foreclosures has been below 50 percent for the past few months, which is helping home prices. A year ago, foreclosure homes accounted for about 62 percent of all Phoenix-area home sales.

Housing-market watchers are at odds over why foreclosure sales are dropping and foreclosures are again climbing.

Short sales, done by homeowners to avoid foreclosures, are up in metro Phoenix. But there is still concern lenders are holding on to foreclosure homes and could put too many on the market at once, again driving down home prices.

Housing market is mixed bag

Seattle firm sees potential in Valley

by Derek Quizon The Arizona Republic July 6, 2010 12:00 AM

The company that recently purchased the Gateway building in downtown Tempe says it's looking to make more investments in the Valley's depressed real-estate market.

The $35 million purchase of the eight-story building at Mill Avenue and Third Street is the first acquisition by Vulcan Real Estate outside its home city of Seattle. Lori Mason Curran, a spokeswoman for Vulcan, said the company is interested in buying more property in the Phoenix area.

"We see Phoenix as an area that has good growth prospects going forward," Curran said. "We see that it's poised for growth and a rebound, and we think it's a good time to get into the market."

Vulcan, headed by Microsoft co-founder Paul Allen, is not alone in its interest in Valley real estate.

Brent Moser, executive vice president of real-estate firm Cassidy Turley BRE, said the wave of foreclosures in metro Phoenix could lead to opportunity for real-estate developers. Developers expect banks to sell foreclosure properties for bargain-basement prices, he said, which provides ample opportunity to make a profit by restoring the properties and leasing them out.

"A lot of these banks are going to want these bad assets off the books by the end of the year," he said. "In fact, that cleansing is going on right now."

Cassidy Turley and other real-estate firms are banking on projections for population growth.

Economic forecasts from the University of Arizona's Eller College of Management's Economic and Business Research Center, which were cited in a report published by the firm last month, predict population in the Valley will climb at an increasing rate over the next four years.

The growth could bring property values back up as demand grows, Moser said.

"There's an opportunity to make money in short order," he said. "The growth in value is going to be staggering over the next 10-20 years."

Vulcan was a key part of the redevelopment of a Seattle neighborhood known as South Lake Union, an old industrial neighborhood that is the site of many of the company's properties.

Although Vulcan isn't planning to give such a face-lift to any Phoenix-area communities, Tempe Mayor Hugh Hallman said its interest in Tempe is a good sign and could attract more investment in the area.

"It's a bellwether for the investment market to take note of that we have one of the most well-heeled real-estate investment groups making an investment in Tempe," Hallman said.

Tempe Gateway was developed by Opus West, a Phoenix-based real-estate developer that filed for Chapter 11 bankruptcy in 2009, the same year the building was opened.

Vulcan purchased the property from a banking syndicate through CB Richard Ellis.

Hallman has taken a special interest in the sale of the building, which he sees as a link between two of Tempe's biggest attractions: Mill Avenue and Town Lake.

"Getting it activated is important to our efforts to bring those two geographic elements together and link them closely," he said.

Curran said filling the vacant building with tenants wouldn't be a problem for Vulcan, which is looking to rent out the building's office space before exploring the possibility of adding retail shops on the first floor.

"We've got a track record of leasing space here in Seattle," she said. "We've got good relationships, and we're looking forward to using those relationships to get that building leased in the coming months."



Seattle firm sees potential in Valley