For the first time since metro Phoenix home values crashed, most of the region's homeowners can expect a noticeable drop in their property taxes.
Maricopa County property-tax bills are being mailed this week, and the average homeowner bill is expected to decline more than $60 from last year's bill.
The bills reflect taxes from a variety of cities, school districts and other taxation districts, which take a percentage of a property's assessed value each year.
Most of those districts raised tax rates this year, but the overall amount of taxes those districts plan to collect is down almost 6 percent.
And although tax bills are tied to a property's assessed value, the decline is also partly because of budget cuts by public agencies across the state, which set their budgets, then adjust tax rates to match.
For example, the Maricopa County Board of Supervisors decided two weeks ago to raise the county's property-tax rate from $1.05 in 2010 to $1.24 per $100 of net assessed valuation.
At the same time, the amount the county will collect from property taxes will fall by $21.7 million because of decreased assessed home values. To deal with the revenue shortfall, the county has spread budget cuts across its approximately 50 agencies and departments.
"I think that this is rather telling about the insignificance of tax rates," said Charles Hoskins, county treasurer. "Rates have increased because values have dropped more than spending, but the reduced spending is what ultimately determines what property owners pay."
This year's tax bills are based on 2009's valuations, when Valley home prices dropped a median of 15.2 percent. That was the third consecutive drop for home valuations in Maricopa County. Next year's property taxes will be based on 2010 valuations, which showed home values fell 11 percent.
Last year, county property-tax assessments were down 3.7 percent from 2009. But not every homeowner saw a decrease in his tax bills during 2010 because several municipalities and special districts had to raise their tax rates to offset budget shortfalls.
This year, Hoskins expects most homeowners to see a decrease.
Although tax bills are declining, the drop isn't nearly as much as the plunge in home prices, which have tumbled about 60 percent since 2006.
And Kevin McCarthy, president of the Arizona Tax Research Association, cautioned that not all homeowners' tax bills will drop. It will depend on how much their respective school districts and cities raise tax rates. School districts are expected to raise taxes this year, he said. On average, property taxes from school districts make up 61 percent of a homeowner's tax bill.
A homeowner living in Glendale Elementary School District whose property was assessed at the median value of $140,000 for last year's taxes and $124,500 for this year's may pay $76 more this tax year.
But the owner of an equivalent home in the Isaac School District in Phoenix may pay $99 less.
Both cities kept their tax rates flat, and both school districts increased their rates, but because the increase was smaller in Isaac, the total tax bill decreases.
"A blanket statement about everybody's taxes in the county going down will be problematic on that level," McCarthy said. "The things that might be driving some softening of the tax bill at the county level are not going to occur at the school-district level and, to a lesser extent, at a city level."
Tax system
Property values are assessed annually, and county tax bills based on those assessments arrive 18 months later.
The bills are based on a formula based on two factors: property valuations set by the assessor and tax rates set by nearly 1,500 municipalities and other tax jurisdictions.
Those jurisdictions - counties, cities, school districts, community-college districts and other special districts - determine the actual tax load for any given home.
A tax bill is a composite of the taxes assessed by those many different districts. A home that is inside a certain parks district, for example, may pay higher taxes than an identical home nearby that lies outside district lines.
To set rates, the taxing jurisdictions must first figure out how much money they need to fund their budgets.
Then, the district and municipalities work backward to set their tax rate. Under this system, a decline in value without an equal drop in a jurisdiction's budget will cause tax rates and taxes to go up.
All jurisdictions have a legal cap on how much they can raise tax rates, which is mandated when they are formed.
But districts can take a larger amount through local bond issues or voter-approved school-funding increases called budget overrides. This year, Hoskins said $1 out of every $5 assessed for property taxes will go toward voter-approved budget overrides and debt payments.
Homeowners' tax bills show which taxing jurisdictions are contributing to their total assessment.
The total assessed tax for all Maricopa County homeowners from all taxing districts is $3.9 billion this year. That compares with $4.2 billion last year and $4.3 billion in 2009.
Tax trends
Tax consultants believe Maricopa County has one of the most complicated property-taxing systems in the country. However, property-tax reform doesn't draw as much support in Arizona as other parts of the nation because the state has one of the lowest tax rates.
Arizona has the 39th-lowest property-tax rate in America, according to the Tax Foundation, a Washington, D.C.-based non-profit.
McCarthy said although that may be the case for residential homes, Arizona ranks about 16th-highest state in commercial- and industrial-tax rates.
The residential-home market may have bottomed out, but the commercial market still has room to decline, and business taxpayers are still seeing tax increases, he said.
"We have low homeowner property taxes, and we have high business-property taxes because we don't generate property taxes from homeowners on an even basis like most states," McCarthy said.
by Catherine Reagor and Michelle Ye Hee Lee The Arizona Republic Aug. 30, 2011 12:00 AM
Most Maricopa County homeowners to receive property-tax cut
Tuesday, August 30, 2011
Mortgage rates are low, but no rush
Low interest rates are opening up refinancing opportunities, but you shouldn't feel any need to rush into a loan application.
With a sluggish economy and an accommodating Federal Reserve, mortgage rates could remain low for at least another couple of years, said Greg McBride, a senior financial analyst at Bankrate.com.
Still, refinancing could make sense if you can shave your interest rate by at least 0.5 to 0.75 of a percentage point, he said.
"About 80 percent of mortgage applications now are for refinancings," he said. "Activity really picked up earlier this month, when rates (for 30-year fixed loans) dropped below 4 percent."
Even as low rates beckon, not everyone can take advantage of them.
"The biggest problem that people are running into are (low) appraised values," said Amy Swaney, a senior loan officer at Citywide Home Loans in Phoenix. Before starting the application process, she suggests checking to see what your home is worth by contacting a real-estate agent, rather than relying on an online site whose estimates could be way off base.
One rule of thumb is to consider refinancing if you can recoup your expenses within two or three years, McBride suggests. You can calculate that by dividing closing costs by the annual savings, in decreased payments, from a new loan.
Swaney said she believed refinancing only made sense if you could shave at least 5 percent from your monthly payment - for example, going from a $1,000 payment to $950 or less. This assumes you're staying with the same type of loan.
But she also suggests that borrowers consider moving into a shorter loan, such as one with a 15- or 20-year term, for people who can afford to do so since they stand to save so much interest over time.
McBride sees three main groups of homeowners who can benefit from refinancing: those obtaining a lower rate, those moving from an adjustable-rate mortgage to a fixed loan and those converting from a jumbo mortgage to a conforming loan, which carry lower rates anyway.
If you want to refinance but have suffered an equity loss due to falling home prices, the Home Affordable Refinancing Program (HARP) might help.
"It's geared to people who have been making their payments on time," McBride said. Through HARP, homeowners can qualify for refinancing even on loans that are up to 25 percent higher than a home's value.
Swaney also likes HARP but cautions that some borrowers will have trouble qualifying.
- With mortgage rates so low, you would think they'd all be clustering together. But in fact, that's not the case, according to LendingTree.com.
Lenders on the company's network are quoting interest rates that vary noticeably. On Tuesday, for example, average 30-year fixed home-loan rates carried an average annual percentage rate (APR) of 4.58 percent and 3.97 percent for 15-year loans. But the lowest quoted rates were 3.88 percent for 30-year mortgages and 3.22 percent for the 15-year variety.
"We're seeing an increase not only in interest rates, but also in pricing disparity between lenders, which means it's more important than ever to shop around for your loan," said Mona Marimow, a company senior vice president.
Money notes
- American companies don't rate too highly on a new list of the world's 50 safest banks from Global Finance magazine.
Only six U.S. banks make the list, and just one is in the top half - No. 24 BNY Mellon. Those further down include JPMorgan Chase (34), Wells Fargo (36), U.S. Bancorp (40), Northern Trust (44) and CoBank (45).
The study analyzed banks based on assets and long-term credit ratings from Standard & Poor's, Moody's Investors Service and Fitch. Successful banks also tended to have improving balance sheets and declining volumes of non-performing loans.
Germany's KfW is the top-ranked bank in the study, followed by France's Caisse des Depots et Consignations and Holland's Bank Nederlandse Gemeenten. Despite European government debt woes, European banks occupy the top nine places. Some foreign banks cited in the study operate in Arizona, such as Spain's BBVA, No. 17 overall, parent of BBVA Compass Bank.
- Most small-business owners are trying to run things efficiently, but many are overlooking certain money-saving tips. Among them: using direct deposits for payroll.
Companies face costs of up to $2 to write and process each paper check, compared with 35 cents or less for direct deposits, according to NACHA, the Electronic Payments Association. That can equate to savings of around $40 per employee annually, assuming biweekly pay.
A recent NACHA survey of small-business owners revealed that 66 percent don't use direct deposit for payroll. It's especially rare for many companies operating in fields such as repair/maintenance, food service, retail and construction.
Of companies that offer direct deposit, only one in three can point to 100 percent employee participation. Direct deposit also can help by sparing business owners the need to visit their banks as much and by reducing the volume of paper checks to vendors.
by Russ Wiles The Arizona Republic Aug. 28, 2011 12:00 AM
Mortgage rates are low, but no rush
With a sluggish economy and an accommodating Federal Reserve, mortgage rates could remain low for at least another couple of years, said Greg McBride, a senior financial analyst at Bankrate.com.
Still, refinancing could make sense if you can shave your interest rate by at least 0.5 to 0.75 of a percentage point, he said.
"About 80 percent of mortgage applications now are for refinancings," he said. "Activity really picked up earlier this month, when rates (for 30-year fixed loans) dropped below 4 percent."
Even as low rates beckon, not everyone can take advantage of them.
"The biggest problem that people are running into are (low) appraised values," said Amy Swaney, a senior loan officer at Citywide Home Loans in Phoenix. Before starting the application process, she suggests checking to see what your home is worth by contacting a real-estate agent, rather than relying on an online site whose estimates could be way off base.
One rule of thumb is to consider refinancing if you can recoup your expenses within two or three years, McBride suggests. You can calculate that by dividing closing costs by the annual savings, in decreased payments, from a new loan.
Swaney said she believed refinancing only made sense if you could shave at least 5 percent from your monthly payment - for example, going from a $1,000 payment to $950 or less. This assumes you're staying with the same type of loan.
But she also suggests that borrowers consider moving into a shorter loan, such as one with a 15- or 20-year term, for people who can afford to do so since they stand to save so much interest over time.
McBride sees three main groups of homeowners who can benefit from refinancing: those obtaining a lower rate, those moving from an adjustable-rate mortgage to a fixed loan and those converting from a jumbo mortgage to a conforming loan, which carry lower rates anyway.
If you want to refinance but have suffered an equity loss due to falling home prices, the Home Affordable Refinancing Program (HARP) might help.
"It's geared to people who have been making their payments on time," McBride said. Through HARP, homeowners can qualify for refinancing even on loans that are up to 25 percent higher than a home's value.
Swaney also likes HARP but cautions that some borrowers will have trouble qualifying.
- With mortgage rates so low, you would think they'd all be clustering together. But in fact, that's not the case, according to LendingTree.com.
Lenders on the company's network are quoting interest rates that vary noticeably. On Tuesday, for example, average 30-year fixed home-loan rates carried an average annual percentage rate (APR) of 4.58 percent and 3.97 percent for 15-year loans. But the lowest quoted rates were 3.88 percent for 30-year mortgages and 3.22 percent for the 15-year variety.
"We're seeing an increase not only in interest rates, but also in pricing disparity between lenders, which means it's more important than ever to shop around for your loan," said Mona Marimow, a company senior vice president.
Money notes
- American companies don't rate too highly on a new list of the world's 50 safest banks from Global Finance magazine.
Only six U.S. banks make the list, and just one is in the top half - No. 24 BNY Mellon. Those further down include JPMorgan Chase (34), Wells Fargo (36), U.S. Bancorp (40), Northern Trust (44) and CoBank (45).
The study analyzed banks based on assets and long-term credit ratings from Standard & Poor's, Moody's Investors Service and Fitch. Successful banks also tended to have improving balance sheets and declining volumes of non-performing loans.
Germany's KfW is the top-ranked bank in the study, followed by France's Caisse des Depots et Consignations and Holland's Bank Nederlandse Gemeenten. Despite European government debt woes, European banks occupy the top nine places. Some foreign banks cited in the study operate in Arizona, such as Spain's BBVA, No. 17 overall, parent of BBVA Compass Bank.
- Most small-business owners are trying to run things efficiently, but many are overlooking certain money-saving tips. Among them: using direct deposits for payroll.
Companies face costs of up to $2 to write and process each paper check, compared with 35 cents or less for direct deposits, according to NACHA, the Electronic Payments Association. That can equate to savings of around $40 per employee annually, assuming biweekly pay.
A recent NACHA survey of small-business owners revealed that 66 percent don't use direct deposit for payroll. It's especially rare for many companies operating in fields such as repair/maintenance, food service, retail and construction.
Of companies that offer direct deposit, only one in three can point to 100 percent employee participation. Direct deposit also can help by sparing business owners the need to visit their banks as much and by reducing the volume of paper checks to vendors.
by Russ Wiles The Arizona Republic Aug. 28, 2011 12:00 AM
Mortgage rates are low, but no rush
Phoenix real-estate market a confusing environment
Recent reports say foreclosures are declining in metro Phoenix and large numbers of homes are selling.
But many homeowners feel trapped in houses they can't sell.
Some real-estate agents can't find enough new listings to keep up with demand from buyers.
But others say there aren't enough buyers, and homes are selling too slowly.
The housing market in metro Phoenix may never have been as confusing as it is today.
Nearly five years after the beginning of the housing crash, the region's market has fractured into countless different niches.
Each niche is defined by who's selling, what kind of home is for sale and where the home is located.
And each niche has become a market of its own.
Some - such as the market for small central Phoenix foreclosure homes being sold at auction - are booming, with prices rising and a huge demand from buyers.
Others - for example, traditional resales of newer large family homes in some neighborhoods in the far west or southeast Valley - have ground to a halt, where homes seemingly won't sell at any price.
Location is one traditional factor in a home's value that still holds true. But in this market, its effect can be extreme. A seller in one neighborhood might receive 10 offers, while the owner of a similar house 5 miles away won't receive any.
In a market this splintered, once-reliable measurements just don't provide enough information for buyers or sellers.
One reliable measure of real-estate activity was the number of homes for sale. Traditionally, 20,000 to 25,000 homes on the market at any given time was considered normal. More than that meant an oversupply, and sellers might have trouble attracting buyers. Fewer meant a limited supply, a seller's market with rising prices.
As the housing market crashed, too many homes had been built. The region's inventory soared to more than 60,000 homes for sale in 2007, and prices plunged.
Today, according to the online real- estate publication the Cromford Report, listings in metro Phoenix are at 27,400 and falling - traditionally, a sure sign of rising demand and rising prices to follow.
But agents and analysts see the same thing many homeowners feel. While some homes are selling easily, others simply won't.
"Phoenix's housing market is a mixed bag now," said Marcus Fleming, manager with the real-estate brokerage Redfin Phoenix. "There's a new normal for the market, but it's a weird one."
Who's selling
One factor that has a big effect on home sales is the nature of the seller.
To understand, consider just how much things have changed in the past decade.
In June 2001, there were about 10,000 home sales, according to the Information Market, a Phoenix firm that analyzes real-estate data. Of that total:
- 7,300 were regular resales between a homeowner and a buyer.
- 2,700 were new-home purchases.
- 82 houses sold at foreclosure auctions.
- One home was sold by Fannie Mae, the federal mortgage giant that backs lenders and takes over those homes when borrowers default.
Ten years later, during June 2011, there were just over 11,000 home sales in metro Phoenix. But the variety of sales was far wider:
- 3,684 were regular resales between a homeowner and a buyer.
- 540 were new-home purchases.
- 1,350 homes sold at foreclosure auctions on the Maricopa County courthouse steps.
- 1,255 houses were sold by lenders that foreclosed on them.
- 2,183 houses were sold by Fannie Mae and Freddie Mac.
- 1,822 homes were sold in short sales, in which lenders agree to let a homeowner sell for less than what is owed on the loan.
- 401 homes were sold by the federal departments of Veterans Affairs and Housing and Urban Development.
Because all of these kinds of home sales work in different ways, the market overall becomes more complicated.
Different categories
The different splinters in the market have each begun to work in their own ways, real-estate market watchers say. Some parts see a lot of sales but low prices; others, the opposite.
- Traditional resales: Fewer of these happen because of competition from cheaper foreclosures and short sales. The ones that sell best are in popular neighborhoods with good schools, near freeways and shopping centers. But the percentage of foreclosure homes listed for sale in metro Phoenix has dropped by 5 percent in the past year, so regular sellers have less competition and might soon find it more easy to sell.
- New-home sales: Homebuilding has slowed to a crawl in metro Phoenix as the market continues to sell the many houses built on speculation during the boom years. Even with low land prices, it's still hard for homebuilders to compete with the prices of foreclosure houses that were built less than five years ago.
- Foreclosure auctions: These have become very popular, and a large volume of homes sell at metro Phoenix trustee auction each month. But homes sell at auction for lower prices, and that makes the market's overall average sales price lower.
- Fannie Mae and Freddie Mac: Homes owned by these entities now dominate the metro area's market. But the agencies often change their policies on appraising, maintaining, renting and selling their houses, so some buyers and real-estate agents steer clear of the hassles of these deals.
"The government's role in the housing market is making things more confusing and bringing down prices," said Mary Gomez, a real-estate agent with RE/MAX Renaissance Realty.
- Short sales: This type of sale was rare a decade ago. Banks were reluctant to agree to them in the early part of the crash, but they have now become common. Because they're not a foreclosure sale, but also are not a traditional sale, the value of a short-sale transaction skews the overall market in ways that are hard to measure.
The bottom line: Today's market is complicated and can't be summed up as simply as in years past.
"Everyone is trying to figure out Phoenix's housing market now, but there's no one set of data that truly tells the story. All the regular models for tracking the market are broken now," said Tom Ruff of the Information Market. "There is not just one market in metro Phoenix anymore."
The effects
That confusion makes it especially hard for homeowners and homesellers to know what their houses are worth.
Traditionally, a home's value could be estimated from its "comps," comparable sales of nearby homes. Those offered an idea of the going price in a neighborhood and the price per square foot.
Today, a regular home sells for $112 a square foot. A house sold through short sale goes for an average of $72 a square foot. A bank-owned, Freddie Mac or Fannie Mae home sells for $61.50 a square foot. And foreclosure homes selling at auction are averaging $57 a square foot.
"Comps for properties are inconsistent and can be confusing," said Jennifer Hillier, an agent with the Scottsdale office of West USA Realty. "People just don't know what to believe anymore."
Measures of the overall market are harder to trust, too. Currently, metro Phoenix's overall median sales price is $124,000. But because many of the homes sold are foreclosure auctions - in which low-priced homes are common - that number could be seen as low. Other homes may be worth far more. But few of those homes are selling, so they're not represented in the median price.
"Home sales activity is still very concentrated at the bottom end of the market," said housing analyst Mike Orr, who publishes the Cromford Report.
What's selling now
"Homes in central Phoenix area priced under $100,000 are moving like gangbusters with very few homes remaining on the market for long," Hillier said. "I believe this is because of the location to jobs and public transportation" and because the low prices mean investors get a reasonable return, in the form of rent, on their cash investment.
Market watchers also say three- to four-bedroom homes in suburban neighborhoods with good schools are also selling fast to both regular homeowners and investors who want to rent them out, often to families who have lost similar homes to foreclosure.
The region's less-expensive neighborhoods experienced the crash first, and now high-end housing areas are feeling more pain because there are fewer buyers who can afford those houses.
Sales of homes in the million-dollar range have definitely slowed, said Walt Danley of the Phoenix office of Christies' International Real Estate. He said there are cash buyers looking for deals in Paradise Valley and north Scottsdale, but those deals bring prices down.
Some million-dollar homes also go to foreclosure auctions. Recently, a house in Paradise Valley that sold for $3.5 million in 2005 sold at auction for about $1 million.
But there are still homes in Paradise Valley and other high-end neighborhoods selling for prices just 20 percent lower than they sold during the market's peak. Other neighborhoods are also beginning to see homes sell for pre-boom prices from 2003-04, despite the fact the metro area's median home price is back to 1999's level.
"The one indicator we can still count on is location," Ruff said. "Homes in the right areas will continue to sell for the highest prices."
by Catherine Reagor The Arizona Republic Aug. 28, 2011 12:00 AM
Phoenix real-estate market a confusing environment
But many homeowners feel trapped in houses they can't sell.
Some real-estate agents can't find enough new listings to keep up with demand from buyers.
But others say there aren't enough buyers, and homes are selling too slowly.
The housing market in metro Phoenix may never have been as confusing as it is today.
Nearly five years after the beginning of the housing crash, the region's market has fractured into countless different niches.
Each niche is defined by who's selling, what kind of home is for sale and where the home is located.
And each niche has become a market of its own.
Some - such as the market for small central Phoenix foreclosure homes being sold at auction - are booming, with prices rising and a huge demand from buyers.
Others - for example, traditional resales of newer large family homes in some neighborhoods in the far west or southeast Valley - have ground to a halt, where homes seemingly won't sell at any price.
Location is one traditional factor in a home's value that still holds true. But in this market, its effect can be extreme. A seller in one neighborhood might receive 10 offers, while the owner of a similar house 5 miles away won't receive any.
In a market this splintered, once-reliable measurements just don't provide enough information for buyers or sellers.
One reliable measure of real-estate activity was the number of homes for sale. Traditionally, 20,000 to 25,000 homes on the market at any given time was considered normal. More than that meant an oversupply, and sellers might have trouble attracting buyers. Fewer meant a limited supply, a seller's market with rising prices.
As the housing market crashed, too many homes had been built. The region's inventory soared to more than 60,000 homes for sale in 2007, and prices plunged.
Today, according to the online real- estate publication the Cromford Report, listings in metro Phoenix are at 27,400 and falling - traditionally, a sure sign of rising demand and rising prices to follow.
But agents and analysts see the same thing many homeowners feel. While some homes are selling easily, others simply won't.
"Phoenix's housing market is a mixed bag now," said Marcus Fleming, manager with the real-estate brokerage Redfin Phoenix. "There's a new normal for the market, but it's a weird one."
Who's selling
One factor that has a big effect on home sales is the nature of the seller.
To understand, consider just how much things have changed in the past decade.
In June 2001, there were about 10,000 home sales, according to the Information Market, a Phoenix firm that analyzes real-estate data. Of that total:
- 7,300 were regular resales between a homeowner and a buyer.
- 2,700 were new-home purchases.
- 82 houses sold at foreclosure auctions.
- One home was sold by Fannie Mae, the federal mortgage giant that backs lenders and takes over those homes when borrowers default.
Ten years later, during June 2011, there were just over 11,000 home sales in metro Phoenix. But the variety of sales was far wider:
- 3,684 were regular resales between a homeowner and a buyer.
- 540 were new-home purchases.
- 1,350 homes sold at foreclosure auctions on the Maricopa County courthouse steps.
- 1,255 houses were sold by lenders that foreclosed on them.
- 2,183 houses were sold by Fannie Mae and Freddie Mac.
- 1,822 homes were sold in short sales, in which lenders agree to let a homeowner sell for less than what is owed on the loan.
- 401 homes were sold by the federal departments of Veterans Affairs and Housing and Urban Development.
Because all of these kinds of home sales work in different ways, the market overall becomes more complicated.
Different categories
The different splinters in the market have each begun to work in their own ways, real-estate market watchers say. Some parts see a lot of sales but low prices; others, the opposite.
- Traditional resales: Fewer of these happen because of competition from cheaper foreclosures and short sales. The ones that sell best are in popular neighborhoods with good schools, near freeways and shopping centers. But the percentage of foreclosure homes listed for sale in metro Phoenix has dropped by 5 percent in the past year, so regular sellers have less competition and might soon find it more easy to sell.
- New-home sales: Homebuilding has slowed to a crawl in metro Phoenix as the market continues to sell the many houses built on speculation during the boom years. Even with low land prices, it's still hard for homebuilders to compete with the prices of foreclosure houses that were built less than five years ago.
- Foreclosure auctions: These have become very popular, and a large volume of homes sell at metro Phoenix trustee auction each month. But homes sell at auction for lower prices, and that makes the market's overall average sales price lower.
- Fannie Mae and Freddie Mac: Homes owned by these entities now dominate the metro area's market. But the agencies often change their policies on appraising, maintaining, renting and selling their houses, so some buyers and real-estate agents steer clear of the hassles of these deals.
"The government's role in the housing market is making things more confusing and bringing down prices," said Mary Gomez, a real-estate agent with RE/MAX Renaissance Realty.
- Short sales: This type of sale was rare a decade ago. Banks were reluctant to agree to them in the early part of the crash, but they have now become common. Because they're not a foreclosure sale, but also are not a traditional sale, the value of a short-sale transaction skews the overall market in ways that are hard to measure.
The bottom line: Today's market is complicated and can't be summed up as simply as in years past.
"Everyone is trying to figure out Phoenix's housing market now, but there's no one set of data that truly tells the story. All the regular models for tracking the market are broken now," said Tom Ruff of the Information Market. "There is not just one market in metro Phoenix anymore."
The effects
That confusion makes it especially hard for homeowners and homesellers to know what their houses are worth.
Traditionally, a home's value could be estimated from its "comps," comparable sales of nearby homes. Those offered an idea of the going price in a neighborhood and the price per square foot.
Today, a regular home sells for $112 a square foot. A house sold through short sale goes for an average of $72 a square foot. A bank-owned, Freddie Mac or Fannie Mae home sells for $61.50 a square foot. And foreclosure homes selling at auction are averaging $57 a square foot.
"Comps for properties are inconsistent and can be confusing," said Jennifer Hillier, an agent with the Scottsdale office of West USA Realty. "People just don't know what to believe anymore."
Measures of the overall market are harder to trust, too. Currently, metro Phoenix's overall median sales price is $124,000. But because many of the homes sold are foreclosure auctions - in which low-priced homes are common - that number could be seen as low. Other homes may be worth far more. But few of those homes are selling, so they're not represented in the median price.
"Home sales activity is still very concentrated at the bottom end of the market," said housing analyst Mike Orr, who publishes the Cromford Report.
What's selling now
"Homes in central Phoenix area priced under $100,000 are moving like gangbusters with very few homes remaining on the market for long," Hillier said. "I believe this is because of the location to jobs and public transportation" and because the low prices mean investors get a reasonable return, in the form of rent, on their cash investment.
Market watchers also say three- to four-bedroom homes in suburban neighborhoods with good schools are also selling fast to both regular homeowners and investors who want to rent them out, often to families who have lost similar homes to foreclosure.
The region's less-expensive neighborhoods experienced the crash first, and now high-end housing areas are feeling more pain because there are fewer buyers who can afford those houses.
Sales of homes in the million-dollar range have definitely slowed, said Walt Danley of the Phoenix office of Christies' International Real Estate. He said there are cash buyers looking for deals in Paradise Valley and north Scottsdale, but those deals bring prices down.
Some million-dollar homes also go to foreclosure auctions. Recently, a house in Paradise Valley that sold for $3.5 million in 2005 sold at auction for about $1 million.
But there are still homes in Paradise Valley and other high-end neighborhoods selling for prices just 20 percent lower than they sold during the market's peak. Other neighborhoods are also beginning to see homes sell for pre-boom prices from 2003-04, despite the fact the metro area's median home price is back to 1999's level.
"The one indicator we can still count on is location," Ruff said. "Homes in the right areas will continue to sell for the highest prices."
by Catherine Reagor The Arizona Republic Aug. 28, 2011 12:00 AM
Phoenix real-estate market a confusing environment
Consumers, credit cards grow more comfortable with each other
Credit cards are making a modest comeback. Consumers are inquiring more about opening accounts, bankers have raised their limits slightly, delinquency rates are easing and the number of open accounts is on an upward path, reports the Federal Reserve Bank of New York.
The credit-card landscape is changing in other ways, too. Here are some current themes:
- Russ Wiles
INTEREST RATES
Heightened card use comes despite a higher level of interest rates. The average advertised rate on cards is 14.2 percent, reports LowCards.com. That's up from 11.6 percent in May 2009, when the federal CARD Act took effect, though it's unchanged from early 2011.
CUSTOMER SERVICE
After a sharp drop in 2009, customer satisfaction with credit cards has increased two years in a row, says J.D. Power and Associates. Satisfaction has risen to 731 from 714 last year on a 1,000-point scale that examined terms, rewards, problem resolution and more. American Express got the top score, followed by Discover Card, Barclaycard and Chase.
BELLS AND WHISTLES
Card companies offer various perks that consumers often aren't familiar with. Common benefits include rental-car insurance, protection against unauthorized charges, travel-accident and trip-cancellation insurance, lost-luggage insurance and roadside assistance. There are also extended warranties and, typically, some protection if an item that you buy gets lost, damaged or stolen.
MORE ON TRAVEL
Airline cards, in particular, are offering more special rewards such as bonus miles, free checked bags and free passes to airport lounges, says LowCards.com, which cites the Mileage Plus Explorer Card from United Airlines/Chase and the Executive AAdvantage World Elite MasterCard from Citi/American Airlines as examples (though the latter charges a $450 annual fee).
A CardHub.com study found travelers save money when making purchases in other nations using credit cards. On average, cards were 7.9 percent cheaper compared with what banks charge to change money and 14.7 percent less costly than airport currency services.
WHAT'S NEXT?
In the J.D. Power study, satisfaction improved partly because consumers said they noticed fewer recent rate hikes and had a better understanding of terms - both likely consequences of the CARD Act.
But another result is that most credit cards have switched from charging fixed to variable interest that, typically, is pegged to bank prime lending rates. If interest rates in general start to rise, card borrowing costs will increase, too, and quickly.
by Russ Wiles The Arizona Republic Aug 26, 2011
Consumers, credit cards grow more comfortable with each other
The credit-card landscape is changing in other ways, too. Here are some current themes:
- Russ Wiles
INTEREST RATES
Heightened card use comes despite a higher level of interest rates. The average advertised rate on cards is 14.2 percent, reports LowCards.com. That's up from 11.6 percent in May 2009, when the federal CARD Act took effect, though it's unchanged from early 2011.
CUSTOMER SERVICE
After a sharp drop in 2009, customer satisfaction with credit cards has increased two years in a row, says J.D. Power and Associates. Satisfaction has risen to 731 from 714 last year on a 1,000-point scale that examined terms, rewards, problem resolution and more. American Express got the top score, followed by Discover Card, Barclaycard and Chase.
BELLS AND WHISTLES
Card companies offer various perks that consumers often aren't familiar with. Common benefits include rental-car insurance, protection against unauthorized charges, travel-accident and trip-cancellation insurance, lost-luggage insurance and roadside assistance. There are also extended warranties and, typically, some protection if an item that you buy gets lost, damaged or stolen.
MORE ON TRAVEL
Airline cards, in particular, are offering more special rewards such as bonus miles, free checked bags and free passes to airport lounges, says LowCards.com, which cites the Mileage Plus Explorer Card from United Airlines/Chase and the Executive AAdvantage World Elite MasterCard from Citi/American Airlines as examples (though the latter charges a $450 annual fee).
A CardHub.com study found travelers save money when making purchases in other nations using credit cards. On average, cards were 7.9 percent cheaper compared with what banks charge to change money and 14.7 percent less costly than airport currency services.
WHAT'S NEXT?
In the J.D. Power study, satisfaction improved partly because consumers said they noticed fewer recent rate hikes and had a better understanding of terms - both likely consequences of the CARD Act.
But another result is that most credit cards have switched from charging fixed to variable interest that, typically, is pegged to bank prime lending rates. If interest rates in general start to rise, card borrowing costs will increase, too, and quickly.
by Russ Wiles The Arizona Republic Aug 26, 2011
Consumers, credit cards grow more comfortable with each other
'MERS morass' hanging up foreclosures
State and federal officials negotiating a settlement with the nation's biggest banks over shoddy foreclosure practices are hung up on how they should deal with a Reston, Va.-based company that has acted as a proxy for financial firms throughout the country for more than a decade.
Some officials refer to the dilemma as the "MERS morass," referring to Mortgage Electronic Registration Systems, whose vast but controversial registry contains roughly 65 million mortgages.
The pending multibillion-dollar settlement with banks centers on "robosigned" documents and court filings and other problems related to mortgage servicing that caused a national uproar last fall. Much of that flawed paperwork flowed through MERS.
Meanwhile, the same system helped make possible the boom in mortgage-backed securities that fueled the housing crisis by allowing banks to quickly and cheaply transfer the ownership of loans. Questionable securitization practices have sparked other state and federal investigations, but they are not the focus of the current settlement talks.
Given the broad reach that MERS has into every aspect of the mortgage and foreclosure process, officials have been grappling with whether they can address one element of the MERS business model in the current settlement while leaving other aspects open to future investigation.
In part, they say, the patchwork of conflicting laws and court decisions in different states makes a one-size-fits-all solution difficult.
In addition, they are facing pressure from banks that already stand to pay billions of dollars in penalties and would prefer to steer clear of the MERS problem altogether in the current negotiations.
Several people familiar with the negotiations said that officials leading the talks have no intention of releasing MERSCORP, the parent company of MERS, from liability claims. The trickier question is how to address MERS-related foreclosure cases that involve the banks under scrutiny.
"We're really wrestling with MERS. Does it need to be part of this?" said one official who spoke on condition of anonymity because the talks are ongoing. "MERS is a bit of a swamp."
Illinois Attorney General Lisa Madigan acknowledged in an interview that the issue remains unresolved. She said there are "differing opinions" about how to deal with it.
The MERS quandary is one in a long line of thorny topics that state and federal officials have spent much of the past year wrestling with as they seek to reach a settlement with five of the nation's largest banks, including Bank of America.
Other dicey issues have included how much they should demand in penalties -- the current estimate stands at about $20 billion -- as well as how the banks should overhaul their mortgage-servicing procedures and whether they should be forced to write down loan balances for some troubled borrowers.
Just this week, a rift over how broad a release the banks should receive from future liability claims in exchange for agreeing to settle boiled over when Iowa Attorney General Tom Miller removed New York Attorney General Eric Schneiderman from the committee overseeing the talks on behalf of all 50 states, saying Schneiderman had actively undermined the group's efforts to reach a deal.
Schneiderman and several others have resisted a quick settlement on servicing problems alone, arguing that all aspects of the mortgage crisis should face a full investigation before moving forward.
That personal tug-of-war and the other high-profile issues have kept the MERS problem under the radar. But a final settlement is unlikely to materialize until it is resolved.
Some attorneys general have said they would not support a settlement that grants immunity on issues related to MERS and securitization. Massachusetts Attorney General Martha Coakley has been among the most vocal and has undertaken an inquiry into MERS.
"We will make sure, at least here in Massachusetts, that we do not reach an agreement that, for instance, gives relief for securitization issues that still need investigation or for fraudulent servicing around the use of MERS," Coakley said at a news conference this month. "We will not settle an issue until we know all of the facts."
The Washington Post Aug. 26, 2011 12:00 AM
'MERS morass' hanging up foreclosures
Some officials refer to the dilemma as the "MERS morass," referring to Mortgage Electronic Registration Systems, whose vast but controversial registry contains roughly 65 million mortgages.
The pending multibillion-dollar settlement with banks centers on "robosigned" documents and court filings and other problems related to mortgage servicing that caused a national uproar last fall. Much of that flawed paperwork flowed through MERS.
Meanwhile, the same system helped make possible the boom in mortgage-backed securities that fueled the housing crisis by allowing banks to quickly and cheaply transfer the ownership of loans. Questionable securitization practices have sparked other state and federal investigations, but they are not the focus of the current settlement talks.
Given the broad reach that MERS has into every aspect of the mortgage and foreclosure process, officials have been grappling with whether they can address one element of the MERS business model in the current settlement while leaving other aspects open to future investigation.
In part, they say, the patchwork of conflicting laws and court decisions in different states makes a one-size-fits-all solution difficult.
In addition, they are facing pressure from banks that already stand to pay billions of dollars in penalties and would prefer to steer clear of the MERS problem altogether in the current negotiations.
Several people familiar with the negotiations said that officials leading the talks have no intention of releasing MERSCORP, the parent company of MERS, from liability claims. The trickier question is how to address MERS-related foreclosure cases that involve the banks under scrutiny.
"We're really wrestling with MERS. Does it need to be part of this?" said one official who spoke on condition of anonymity because the talks are ongoing. "MERS is a bit of a swamp."
Illinois Attorney General Lisa Madigan acknowledged in an interview that the issue remains unresolved. She said there are "differing opinions" about how to deal with it.
The MERS quandary is one in a long line of thorny topics that state and federal officials have spent much of the past year wrestling with as they seek to reach a settlement with five of the nation's largest banks, including Bank of America.
Other dicey issues have included how much they should demand in penalties -- the current estimate stands at about $20 billion -- as well as how the banks should overhaul their mortgage-servicing procedures and whether they should be forced to write down loan balances for some troubled borrowers.
Just this week, a rift over how broad a release the banks should receive from future liability claims in exchange for agreeing to settle boiled over when Iowa Attorney General Tom Miller removed New York Attorney General Eric Schneiderman from the committee overseeing the talks on behalf of all 50 states, saying Schneiderman had actively undermined the group's efforts to reach a deal.
Schneiderman and several others have resisted a quick settlement on servicing problems alone, arguing that all aspects of the mortgage crisis should face a full investigation before moving forward.
That personal tug-of-war and the other high-profile issues have kept the MERS problem under the radar. But a final settlement is unlikely to materialize until it is resolved.
Some attorneys general have said they would not support a settlement that grants immunity on issues related to MERS and securitization. Massachusetts Attorney General Martha Coakley has been among the most vocal and has undertaken an inquiry into MERS.
"We will make sure, at least here in Massachusetts, that we do not reach an agreement that, for instance, gives relief for securitization issues that still need investigation or for fraudulent servicing around the use of MERS," Coakley said at a news conference this month. "We will not settle an issue until we know all of the facts."
The Washington Post Aug. 26, 2011 12:00 AM
'MERS morass' hanging up foreclosures
Scottsdale council OKs taller buildings for Safari Drive project
A divided Scottsdale City Council has approved the second phase of a condominium complex along the Arizona Canal north of Camelback Road that could include buildings more that 1 1/2 times taller than originally allowed.
In a 4-3 vote, the council approved ST Residential's proposal for the second phase of its Safari Drive condominiums. It includes amended development standards under the city's downtown infill-incentive district and plan, including:
- An increase in maximum building height to 105 feet from 65 feet.
- An increase in overall density to 55 units per acre from 50.
- An increase in the floor area of the buildings.
The divided vote reflected the ongoing split on the council over the impact of the infill-incentive district rules adopted last year, which has resulted in several proposals coming forward seeking greater height.
Mayor Jim Lane and council members Suzanne Klapp, Linda Milhaven and Dennis Robbins voted for approval, while Vice Mayor Bob Littlefield and council members Lisa Borowsky and Ron McCullagh voted against it.
Dan Symer, senior city planner, said ST Residential's proposal calls for "fairly minor changes" and includes such public benefits as a $100,000 contribution to public art, and additional landscaping and improvements along the canal.
The proposal was on the council's consent agenda, which requires a single vote for approval of several items without discussion. Littlefield requested that it be moved to the regular agenda so he could renew his objection to the infill-incentive district, which he said provides no real requirement for public benefits and instead is used for "blanket rezoning."
The infill-incentive district is just a "way to bypass all that has made Scottsdale special," he said.
The proposed height increase would make Phase 2 substantially higher than the first phase, which is approximately 60 feet. However, it would be hidden from Scottsdale Road behind Gray Development Group's Blue Sky apartment complex, which will have a maximum building height of 128 feet. Blue Sky was the first proposal to come forward seeking to take advantage of the district after it was adopted a year ago. The second phase of Safari would include 160 units in two buildings on 1.87 acres. The first phase includes 89 units in seven buildings on about 3 acres. The entire complex would include 515 parking spaces.
Geoffrey Edmunds, president of Geoffrey Edmunds & Associates, spoke on behalf of ST Residential. His firm is asset manager of Safari Drive for ST Residential.
"We think it's a great transition between the existing Safari Drive project and the Blue Sky project," he said. "We didn't try to push the envelope on the zoning. We kept the buildings pretty low and the density much lower because we thought that was the right thing to do."
John Washington, a Scottsdale resident, said the project would lead to traffic, water and sewer problems in the area.
McCullagh saidhe has concerns about whether the area has the infrastructure to support such a large project.
Borowsky said the infill-incentive district has been a disappointment and that modifications will be needed to ensure projects are geared more toward benefiting the public.
Milhaven, who moved for approval, said the public benefit will be no more "vacant lot across from Scottsdale Fashion Square" and that the current zoning is too restrictive for successful development of the property in the current economic climate. Klapp seconded the motion and said the public benefits offered are sufficient and that "there's no reason for me to want to delay the project."
However, Littlefield said the vacant-lot argument doesn't hold water.
"If you have a vacant lot and you can't develop it under the current zoning, that's a bad investment," he said.
Lane said that although he agrees with some of the concerns raised, the project is a "benefit to the city."
by Edward Gately The Arizona Republic Aug. 25, 2011 12:18 PM
Scottsdale council OKs taller buildings for Safari Drive project
In a 4-3 vote, the council approved ST Residential's proposal for the second phase of its Safari Drive condominiums. It includes amended development standards under the city's downtown infill-incentive district and plan, including:
- An increase in maximum building height to 105 feet from 65 feet.
- An increase in overall density to 55 units per acre from 50.
- An increase in the floor area of the buildings.
The divided vote reflected the ongoing split on the council over the impact of the infill-incentive district rules adopted last year, which has resulted in several proposals coming forward seeking greater height.
Mayor Jim Lane and council members Suzanne Klapp, Linda Milhaven and Dennis Robbins voted for approval, while Vice Mayor Bob Littlefield and council members Lisa Borowsky and Ron McCullagh voted against it.
Dan Symer, senior city planner, said ST Residential's proposal calls for "fairly minor changes" and includes such public benefits as a $100,000 contribution to public art, and additional landscaping and improvements along the canal.
The proposal was on the council's consent agenda, which requires a single vote for approval of several items without discussion. Littlefield requested that it be moved to the regular agenda so he could renew his objection to the infill-incentive district, which he said provides no real requirement for public benefits and instead is used for "blanket rezoning."
The infill-incentive district is just a "way to bypass all that has made Scottsdale special," he said.
The proposed height increase would make Phase 2 substantially higher than the first phase, which is approximately 60 feet. However, it would be hidden from Scottsdale Road behind Gray Development Group's Blue Sky apartment complex, which will have a maximum building height of 128 feet. Blue Sky was the first proposal to come forward seeking to take advantage of the district after it was adopted a year ago. The second phase of Safari would include 160 units in two buildings on 1.87 acres. The first phase includes 89 units in seven buildings on about 3 acres. The entire complex would include 515 parking spaces.
Geoffrey Edmunds, president of Geoffrey Edmunds & Associates, spoke on behalf of ST Residential. His firm is asset manager of Safari Drive for ST Residential.
"We think it's a great transition between the existing Safari Drive project and the Blue Sky project," he said. "We didn't try to push the envelope on the zoning. We kept the buildings pretty low and the density much lower because we thought that was the right thing to do."
John Washington, a Scottsdale resident, said the project would lead to traffic, water and sewer problems in the area.
McCullagh saidhe has concerns about whether the area has the infrastructure to support such a large project.
Borowsky said the infill-incentive district has been a disappointment and that modifications will be needed to ensure projects are geared more toward benefiting the public.
Milhaven, who moved for approval, said the public benefit will be no more "vacant lot across from Scottsdale Fashion Square" and that the current zoning is too restrictive for successful development of the property in the current economic climate. Klapp seconded the motion and said the public benefits offered are sufficient and that "there's no reason for me to want to delay the project."
However, Littlefield said the vacant-lot argument doesn't hold water.
"If you have a vacant lot and you can't develop it under the current zoning, that's a bad investment," he said.
Lane said that although he agrees with some of the concerns raised, the project is a "benefit to the city."
by Edward Gately The Arizona Republic Aug. 25, 2011 12:18 PM
Scottsdale council OKs taller buildings for Safari Drive project
2 former execs of bank hit with suit
Two former Arizona banking executives face a lawsuit brought by the Federal Deposit Insurance Corp. over their role in the 2008 collapse of Scottsdale-based First National Bank, from which the government agency is seeking to recover $193 million.
Gary A. Dorris, former president, CEO and vice chairman of Scottsdale-based First National Bank Holding, and Philip A. Lamb, executive vice president and director, are accused of sacrificing the company's safety and soundness by promoting shaky Alt-A loans.
These mortgages were typified by a lack of proper underwriting, no verification of borrower income or assets and terms that guaranteed high default rates, the lawsuit says.
"The directors and officers promoted this practice at the outset and continued to support the mortgage division's growth long after they should have known that the loans being made created a substantial risk of harm to the bank," according to the FDIC's complaint, filed Tuesday in U.S. District Court in Phoenix.
Although profitable initially, this unsustainable business model depended on real-estate values rising indefinitely with default rates remaining low, according to the FDIC.
When real-estate prices collapsed, the Scottsdale entity was left holding "millions of dollars of bad loans it could not sell," the suit says.
First National Bank, with operations in Arizona, Nevada and California and nearly 1,000 workers, mostly in Arizona, was closed by the Office of the Comptroller of the Currency in July 2008 at a loss of nearly $900 million.
It was the first and largest of 14 Arizona bank failures during the current down cycle.
It also was the first Arizona bank failure since 2002.
Mutual of Omaha Bank took over some First National operations.
Dorris, a Scottsdale resident, declined to comment on the lawsuit. So did Ronald Glancz, a Washington, D.C., attorney representing Dorris and Lamb.
Lamb, also of Scottsdale, couldn't be located for comment.
by Russ Wiles The Arizona Republic Aug. 25, 2011 12:00 AM
2 former execs of bank hit with suit
Gary A. Dorris, former president, CEO and vice chairman of Scottsdale-based First National Bank Holding, and Philip A. Lamb, executive vice president and director, are accused of sacrificing the company's safety and soundness by promoting shaky Alt-A loans.
These mortgages were typified by a lack of proper underwriting, no verification of borrower income or assets and terms that guaranteed high default rates, the lawsuit says.
"The directors and officers promoted this practice at the outset and continued to support the mortgage division's growth long after they should have known that the loans being made created a substantial risk of harm to the bank," according to the FDIC's complaint, filed Tuesday in U.S. District Court in Phoenix.
Although profitable initially, this unsustainable business model depended on real-estate values rising indefinitely with default rates remaining low, according to the FDIC.
When real-estate prices collapsed, the Scottsdale entity was left holding "millions of dollars of bad loans it could not sell," the suit says.
First National Bank, with operations in Arizona, Nevada and California and nearly 1,000 workers, mostly in Arizona, was closed by the Office of the Comptroller of the Currency in July 2008 at a loss of nearly $900 million.
It was the first and largest of 14 Arizona bank failures during the current down cycle.
It also was the first Arizona bank failure since 2002.
Mutual of Omaha Bank took over some First National operations.
Dorris, a Scottsdale resident, declined to comment on the lawsuit. So did Ronald Glancz, a Washington, D.C., attorney representing Dorris and Lamb.
Lamb, also of Scottsdale, couldn't be located for comment.
by Russ Wiles The Arizona Republic Aug. 25, 2011 12:00 AM
2 former execs of bank hit with suit
Red ink gone for banks
Arizona banks registered so-so results in the second quarter while profits surged 38 percent for banks across the U.S.
Nationally, banks and savings institutions insured by the Federal Deposit Insurance Corp. generated cumulative profits of $28.8 billion in the quarter, up from $20.9 billion one year earlier, with the number of "problem" banks falling for the first time since 2006.
The 20 mostly small banks chartered in Arizona also showed various signs of improvement, though on balance they neither made money nor lost it. But capital increased, net-interest spreads improved, loan charge-offs dropped and credit-loss provisions fell for Arizona's home-based banks - all good signs.
"We're seeing significant strength regarding a turn in the local economy," said Dale Gibbons, chief financial officer at Western Alliance Bancorporation.
Its Arizona subsidiary, Alliance Bank of Arizona, has been one of the stronger local performers, with a 76 percent rise in net income over the first half of 2011. "Credit demand has picked up, and asset quality has improved," Gibbons said.
Results for Arizona banks exclude those for Chase, Wells Fargo, Bank of America and other companies that operate here but are headquartered elsewhere.
Nationally, banks logged an eighth-straight quarter of rising earnings on a year-over-year basis, helped by lower provisions or charges for loan losses.
Across the U.S., 60 percent of banking institutions reported higher income compared with a year earlier.
Also, the percentage of money-losing banks fell, while the average return on assets rose.
But net operating revenue slid from a year earlier, indicating sluggish banking activity, and the amount of gains on securities sold by banks declined.
"Banks have continued to make gradual but steady progress in recovering from the financial-market turmoil and severe recession that unfolded from 2007 through 2009," the FDIC's acting chairman, Martin Gruenberg, said in a statement.
Asset quality showed improvement, with loans and leases at least 90 days past due falling for a fifth consecutive quarter.
Banks and thrifts charged off $28.8 billion in uncollectible loans during the quarter, down from $49.7 billion a year earlier.
The number of institutions on the FDIC's "problem list" fell to 865 from 888, and the assets held by these troubled banks dipped. It was the first drop in the number of problem banks, which the FDIC doesn't identify by name, in 19 quarters.
Twenty-two banks failed during the second quarter, down from 26 in the first quarter and the fewest since early 2009. The government's Deposit Insurance Fund now has a positive balance for the first time in two years.
Summit Bank of Prescott failed in July, and Legacy Bank of Scottsdale went under in January, but neither of those showed up in the second-quarter statistics.
Nationally, lending activity picked up in the second quarter, with loan portfolios growing for the first time in three years, the FDIC said. Lending was led by loans to commercial and industrial borrowers, to other banks and to car and truck buyers. Lending activity among Arizona-based banks generally was flat.
Customers parked more deposit money with banks, especially large ones.
Domestic deposits rose 2.9 percent during the quarter, and deposits in accounts with balances greater than $250,000 spiked 8.8 percent.
Large non-interest-bearing transaction accounts currently have temporarily unlimited deposit-insurance coverage, the FDIC said.
MORE ON THIS TOPIC
Behind the curve
Indicators for Arizona-based banks continue to lag those for U.S. banks overall. In part, this is because big banks are leading the recovery, and Arizona's banks tend to be small. Here are selected results for the second quarter:
Aggregate profit
U.S. banks: $28.8 billion.
Ariz. banks: $0.
Second-quarter failures
U.S. banks: 22.
Ariz. banks: 0.
Unprofitable banks
U.S. banks: 15.2 percent.
Ariz. banks: 40 percent.
Lending
U.S. banks: +0.9 percent.
Ariz. banks: +0 percent.
Deposits
U.S. banks: +2.9 percent.
Ariz. banks: -2.3 percent.
Return on assets
U.S. banks: 0.85 percent.
Ariz. banks: 0.03 percent.
Source: FDIC
by Russ Wiles The Arizona Republic Aug. 25, 2011 12:00 AM
Red ink gone for banks
Nationally, banks and savings institutions insured by the Federal Deposit Insurance Corp. generated cumulative profits of $28.8 billion in the quarter, up from $20.9 billion one year earlier, with the number of "problem" banks falling for the first time since 2006.
The 20 mostly small banks chartered in Arizona also showed various signs of improvement, though on balance they neither made money nor lost it. But capital increased, net-interest spreads improved, loan charge-offs dropped and credit-loss provisions fell for Arizona's home-based banks - all good signs.
"We're seeing significant strength regarding a turn in the local economy," said Dale Gibbons, chief financial officer at Western Alliance Bancorporation.
Its Arizona subsidiary, Alliance Bank of Arizona, has been one of the stronger local performers, with a 76 percent rise in net income over the first half of 2011. "Credit demand has picked up, and asset quality has improved," Gibbons said.
Results for Arizona banks exclude those for Chase, Wells Fargo, Bank of America and other companies that operate here but are headquartered elsewhere.
Nationally, banks logged an eighth-straight quarter of rising earnings on a year-over-year basis, helped by lower provisions or charges for loan losses.
Across the U.S., 60 percent of banking institutions reported higher income compared with a year earlier.
Also, the percentage of money-losing banks fell, while the average return on assets rose.
But net operating revenue slid from a year earlier, indicating sluggish banking activity, and the amount of gains on securities sold by banks declined.
"Banks have continued to make gradual but steady progress in recovering from the financial-market turmoil and severe recession that unfolded from 2007 through 2009," the FDIC's acting chairman, Martin Gruenberg, said in a statement.
Asset quality showed improvement, with loans and leases at least 90 days past due falling for a fifth consecutive quarter.
Banks and thrifts charged off $28.8 billion in uncollectible loans during the quarter, down from $49.7 billion a year earlier.
The number of institutions on the FDIC's "problem list" fell to 865 from 888, and the assets held by these troubled banks dipped. It was the first drop in the number of problem banks, which the FDIC doesn't identify by name, in 19 quarters.
Twenty-two banks failed during the second quarter, down from 26 in the first quarter and the fewest since early 2009. The government's Deposit Insurance Fund now has a positive balance for the first time in two years.
Summit Bank of Prescott failed in July, and Legacy Bank of Scottsdale went under in January, but neither of those showed up in the second-quarter statistics.
Nationally, lending activity picked up in the second quarter, with loan portfolios growing for the first time in three years, the FDIC said. Lending was led by loans to commercial and industrial borrowers, to other banks and to car and truck buyers. Lending activity among Arizona-based banks generally was flat.
Customers parked more deposit money with banks, especially large ones.
Domestic deposits rose 2.9 percent during the quarter, and deposits in accounts with balances greater than $250,000 spiked 8.8 percent.
Large non-interest-bearing transaction accounts currently have temporarily unlimited deposit-insurance coverage, the FDIC said.
Behind the curve
Indicators for Arizona-based banks continue to lag those for U.S. banks overall. In part, this is because big banks are leading the recovery, and Arizona's banks tend to be small. Here are selected results for the second quarter:
Aggregate profit
U.S. banks: $28.8 billion.
Ariz. banks: $0.
Second-quarter failures
U.S. banks: 22.
Ariz. banks: 0.
Unprofitable banks
U.S. banks: 15.2 percent.
Ariz. banks: 40 percent.
Lending
U.S. banks: +0.9 percent.
Ariz. banks: +0 percent.
Deposits
U.S. banks: +2.9 percent.
Ariz. banks: -2.3 percent.
Return on assets
U.S. banks: 0.85 percent.
Ariz. banks: 0.03 percent.
Source: FDIC
by Russ Wiles The Arizona Republic Aug. 25, 2011 12:00 AM
Red ink gone for banks
Scottsdale apartment project proposed on Barcelona nightclub site
Courtesy of Ke Thoi A Scottsdale developer wants to tear down the once-popular Barcelona nightclub and build apartments on a site north of the Scottsdale Quarter.
Scottsdale Place LLC submitted a rezoning request last week that would allow construction of a four-story, 240-unit apartment complex at 73rd Street and Greenway-Hayden Loop.
The Residences at Zocallo Plaza would replace the nightclub and a nearby office building on a 6.42-acre site.
Economic conditions have created strong demand for high-end apartments, said zoning attorney John Berry, who is representing Scottsdale Place and Jeffrey Newburg, one of its principals.
"Merchants and employers in the area are very enthusiastic about it," Berry said.
The Zocallo apartments, just east of shops along Scottsdale Road, would be among the first apartments built within the original Scottsdale Airpark area.
Development surrounding the Scottsdale Airport was heavy with office-warehouse uses starting in the late 1960s but has expanded in the past two decades to include office complexes, design centers, hotels, car dealers, retail, restaurants and entertainment.
Barcelona, a 19,000-square-foot restaurant and nightclub, opened in late 2001 and had a strong run before the economy and its fortunes turned. It closed in June 2009 and no one stepped up to reopen the flashy club that attracted a wide age range of patrons.
Car-wash owner Danny Hendon, who built Barcelona, had a ground lease for the nightclub and his offices for Danny's Family Cos. remain on the north side of the proposed apartment site. Hendon filed for bankruptcy protection last year.
Scottsdale Place is asking for a zoning change to allow residential units within an airpark mixed-use development. The apartment complex would include four 48-foot-high buildings with interior corridors and half the parking underground.
The apartments would be outside of an area surrounding the airport where noise-sensitive uses are not recommended.
"This is a true live, work, play environment," Berry said. "It's close to Scottsdale Road but far enough away from the airport."
Jim Keeley, founding partner of Colliers International's Scottsdale office, said apartments make good sense for the area and more multifamily projects are likely in the Airpark.
"The concept of mixed use has been around a long time, and it's picking up steam now," the longtime Airpark broker said.
Berry said he anticipates the zoning issues will be decided by the end of this year. If approved, construction of the apartments would likely start toward the end of 2012 and take about 18 months to complete, he said.
The two-story Barcelona Business Center northwest of Greenway-Hayden Loop and 73rd Street has a separate owner and would not be part of the Residences at Zocallo Plaza.
by Peter Corbett The Arizona Republic Aug. 24, 2011 09:03 AM
Scottsdale apartment project proposed on Barcelona nightclub site
Courtesy of Ke Thoi A Scottsdale developer wants to tear down the once-popular Barcelona nightclub and build apartments on a site north of the Scottsdale Quarter.
Scottsdale Place LLC submitted a rezoning request last week that would allow construction of a four-story, 240-unit apartment complex at 73rd Street and Greenway-Hayden Loop.
The Residences at Zocallo Plaza would replace the nightclub and a nearby office building on a 6.42-acre site.
Economic conditions have created strong demand for high-end apartments, said zoning attorney John Berry, who is representing Scottsdale Place and Jeffrey Newburg, one of its principals.
"Merchants and employers in the area are very enthusiastic about it," Berry said.
The Zocallo apartments, just east of shops along Scottsdale Road, would be among the first apartments built within the original Scottsdale Airpark area.
Development surrounding the Scottsdale Airport was heavy with office-warehouse uses starting in the late 1960s but has expanded in the past two decades to include office complexes, design centers, hotels, car dealers, retail, restaurants and entertainment.
Barcelona, a 19,000-square-foot restaurant and nightclub, opened in late 2001 and had a strong run before the economy and its fortunes turned. It closed in June 2009 and no one stepped up to reopen the flashy club that attracted a wide age range of patrons.
Car-wash owner Danny Hendon, who built Barcelona, had a ground lease for the nightclub and his offices for Danny's Family Cos. remain on the north side of the proposed apartment site. Hendon filed for bankruptcy protection last year.
Scottsdale Place is asking for a zoning change to allow residential units within an airpark mixed-use development. The apartment complex would include four 48-foot-high buildings with interior corridors and half the parking underground.
The apartments would be outside of an area surrounding the airport where noise-sensitive uses are not recommended.
"This is a true live, work, play environment," Berry said. "It's close to Scottsdale Road but far enough away from the airport."
Jim Keeley, founding partner of Colliers International's Scottsdale office, said apartments make good sense for the area and more multifamily projects are likely in the Airpark.
"The concept of mixed use has been around a long time, and it's picking up steam now," the longtime Airpark broker said.
Berry said he anticipates the zoning issues will be decided by the end of this year. If approved, construction of the apartments would likely start toward the end of 2012 and take about 18 months to complete, he said.
The two-story Barcelona Business Center northwest of Greenway-Hayden Loop and 73rd Street has a separate owner and would not be part of the Residences at Zocallo Plaza.
by Peter Corbett The Arizona Republic Aug. 24, 2011 09:03 AM
Scottsdale apartment project proposed on Barcelona nightclub site
Reagor: Feds want foreclosures sold in bulk to be rentals
The federal government would like to sell some of its huge portfolio of foreclosure homes to investors who will rent them out.
These are houses with loans backed by Fannie Mae, Freddie Mac and the Federal Housing Administration that lenders and investors have foreclosed on and handed back to these federally owned agencies to take the losses on.
Last week, the U.S. Treasury Department and U.S. Department of Housing and Urban Development requested proposals from groups to buy the homes and turn them into rentals. The federal agencies didn't mention a discount for buying the houses in bulk, but most investors will expect one.
The federal agencies say they want to pool the homes in portfolios, because the houses are selling too slowly on an individual basis.
What happened to the federal housing plan to help people modify their mortgages and keep their homes instead of losing them to foreclosure? An investor renting out the property likely will pay much less than what was owed on the mortgage.
Arizona is one of several states that received federal money last year to help homeowners modify their loans and keep their houses. Part of the deal with the $268 million Arizona received is that lenders have to match principal reductions for a loan modification to work. For example, homeowners eligible for a loan modification from the Arizona Housing Department can receive up to $50,000 in federal funds to reduce their principal. But the lender must agree to provide matching funds. So a metro Phoenix homeowner facing foreclosure who owes $250,000 on a house valued at $175,000 could have the mortgage knocked down to $150,000 and not only be able to afford the monthly payment but be enticed to stay in the house because the homeowner owes less.
But here's the big glitch in the program: Neither Fannie Mae or Freddie Mac, which were taken over by the government during the housing crash, will agree to loan modifications that include principal reductions.
The Arizona Housing Department has been working with Bank of America and other lenders trying to spend its money to help homeowners with loan modifications. But Fannie Mae and Freddie Mac, which own a lot of the state's mortgages in foreclosure, have refused to participate in the principal-reduction program approved by the Treasury Department.
Reginald Givens of the Arizona Housing Department said the recent creative response by Fannie Mae and Freddie Mac to excessive foreclosures "gives us hope that in time, similar creativity will be applied to the handling of their delinquent loans leading to principal-reduction mortgage modifications."
The Housing Department started taking applications for its federally backed loan-modification program that involves principal reductions in September 2010. So far, the state agency has completed five modifications. BofA, which earlier this year committed to working more closely with Arizona on its principal-reduction loan program, hasn't completed one of the deals in Arizona.
by Catherine Reagor The Arizona Republic Aug. 24, 2011 12:00 AM
Reagor: Feds want foreclosures sold in bulk to be rentals
These are houses with loans backed by Fannie Mae, Freddie Mac and the Federal Housing Administration that lenders and investors have foreclosed on and handed back to these federally owned agencies to take the losses on.
Last week, the U.S. Treasury Department and U.S. Department of Housing and Urban Development requested proposals from groups to buy the homes and turn them into rentals. The federal agencies didn't mention a discount for buying the houses in bulk, but most investors will expect one.
The federal agencies say they want to pool the homes in portfolios, because the houses are selling too slowly on an individual basis.
What happened to the federal housing plan to help people modify their mortgages and keep their homes instead of losing them to foreclosure? An investor renting out the property likely will pay much less than what was owed on the mortgage.
Arizona is one of several states that received federal money last year to help homeowners modify their loans and keep their houses. Part of the deal with the $268 million Arizona received is that lenders have to match principal reductions for a loan modification to work. For example, homeowners eligible for a loan modification from the Arizona Housing Department can receive up to $50,000 in federal funds to reduce their principal. But the lender must agree to provide matching funds. So a metro Phoenix homeowner facing foreclosure who owes $250,000 on a house valued at $175,000 could have the mortgage knocked down to $150,000 and not only be able to afford the monthly payment but be enticed to stay in the house because the homeowner owes less.
But here's the big glitch in the program: Neither Fannie Mae or Freddie Mac, which were taken over by the government during the housing crash, will agree to loan modifications that include principal reductions.
The Arizona Housing Department has been working with Bank of America and other lenders trying to spend its money to help homeowners with loan modifications. But Fannie Mae and Freddie Mac, which own a lot of the state's mortgages in foreclosure, have refused to participate in the principal-reduction program approved by the Treasury Department.
Reginald Givens of the Arizona Housing Department said the recent creative response by Fannie Mae and Freddie Mac to excessive foreclosures "gives us hope that in time, similar creativity will be applied to the handling of their delinquent loans leading to principal-reduction mortgage modifications."
The Housing Department started taking applications for its federally backed loan-modification program that involves principal reductions in September 2010. So far, the state agency has completed five modifications. BofA, which earlier this year committed to working more closely with Arizona on its principal-reduction loan program, hasn't completed one of the deals in Arizona.
by Catherine Reagor The Arizona Republic Aug. 24, 2011 12:00 AM
Reagor: Feds want foreclosures sold in bulk to be rentals
US Real Estate: The Housing Market is Shrinking - CNBC
The foreclosure headlines today are that one third of all home sales in Q2 were of distressed properties (foreclosures and short sales), according to a new report from online foreclosure sale and data site RealtyTrac.
The discount on those homes from comparable non-distressed properties was 32 percent.
What the headlines don't say is that while the percentage of the market that's distressed rose from a year ago, from 26 to 31 percent, the actual number of distressed sales fell. The share only went up because the number of non-distressed sales fell, leaving the total pool smaller.
And there's the biggest problem in housing today.
The granular, organic, whatever you want to call it…non-distressed market is withering away. Sellers are afraid to put their homes on the market for fear of losing too much equity, which means there are fewer potential move-up buyers. First time buyers are choosing to rent in droves, as unemployment and the wider economy recover far more slowly than expected. This, despite the fact that, nationally at least, it now costs about the same to rent as it does to own. Just look at where the mortgage payment-to-rent ratio has gone over the past few years.
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Rent, as a percentage of income, is rising and household formation is slowing at an alarming rate, eating into that much-needed first time home buyer demand. The good news is that distressed sales are clearing faster, with streamlined short sales now making up a greater share of all distressed sales. Banks are getting rid of troubled loans/properties before having to go the more costly route to foreclosure.
Great, so all that inventory will go away soon, right, and regular housing demand will come running back! Not so fast. The pipeline of troubled loans is still huge, 4-5 million homes, and unfortunately new delinquencies are on the rise again. And then there's this problem: Households are getting bigger, as the current tough mortgage market spurs more multi-generational living.
Households had been getting smaller over the past decades, despite population growth. That was great for housing, because it meant more demand. "A one tenth of a percent increase in people per household would wipe out three years worth of population- and immigration-driven household growth," according to Green Street Advisors. That appears where we're headed.
by Diana Olick CNBC Aug 25, 2011 |
Fed lent $1.2 trillion during economic crisis
NEW YORK - Citigroup and Bank of America were the reigning champions of finance in 2006 as home prices peaked, leading the 10 biggest U.S. banks and brokerage firms to their best year ever with $104 billion of profits.
By 2008, the housing market's collapse forced those 10 biggest banks and brokerages to take more than six times as much, $669 billion, in emergency loans from the Federal Reserve. The loans dwarfed the $160 billion in public bailouts the top 10 got from the U.S. Treasury, yet until now the full amounts have remained secret.
Fed Chairman Ben Bernanke's unprecedented effort to keep the economy from plunging into depression included lending banks and other companies as much as $1.2 trillion of public money, about the same amount U.S. homeowners currently owe on 6.5 million delinquent and foreclosed mortgages. The largest borrower, Morgan Stanley, got as much as $107.3 billion, while Citigroup took $99.5 billion and Bank of America $91.4 billion, according to a Bloomberg News compilation of data obtained through Freedom of Information Act requests, months of litigation and an act of Congress.
"These are all whopping numbers," said Robert Litan, a former Justice Department official who in the 1990s served on a commission probing the causes of the savings-and-loan crisis. "You're talking about the aristocracy of American finance going down the tubes without the federal money."
It wasn't just American finance. Almost half of the Fed's top 30 borrowers, measured by peak balances, were European firms. They included Edinburgh-based Royal Bank of Scotland, which took $84.5 billion, the most of any non-U.S. lender, and Zurich-based UBS, which got $77.2 billion. Germany's Hypo Real Estate Holding borrowed $28.7 billion, an average of $21 million for each of its 1,366 employees.
The largest borrowers also included Dexia, Belgium's biggest bank by assets, and Societe Generale, based in Paris, whose bond-insurance prices have surged in the past month as investors speculated that the spreading sovereign debt crisis in Europe might increase their chances of default.
The $1.2 trillion peak on Dec. 5, 2008 - the combined outstanding balance under the seven programs tallied by Bloomberg - was almost three times the size of the U.S. federal budget deficit that year and more than the total earnings of all federally insured banks in the U.S. for the decade through 2010, according to data compiled by Bloomberg.
The balance was more than 25 times the Fed's pre-crisis lending peak of $46 billion on Sept. 12, 2001, the day after terrorists attacked the World Trade Center in New York and the Pentagon.
The Fed has said it had "no credit losses" on any of the emergency programs, and a report by Federal Reserve Bank of New York staffers in February said the central bank netted $13 billion in interest and fee income from the programs from August 2007 through December 2009.
"We designed our broad-based emergency programs to both effectively stem the crisis and minimize the financial risks to the U.S. taxpayer," said James Clouse, deputy director of the Fed's division of monetary affairs in Washington. "Nearly all of our emergency-lending programs have been closed. We have incurred no losses and expect no losses."
While the 18-month U.S. recession that ended in June 2009 after a 5.1 percent contraction in gross domestic product was nowhere near the four-year, 27 percent decline between August 1929 and March 1933, banks and the economy remain stressed.
The odds of another recession have climbed during the past six months, according to five of nine economists on the Business Cycle Dating Committee of the National Bureau of Economic Research, an academic panel that dates recessions.
Bank of America's bond-insurance prices last week surged to a rate of $342,040 a year for coverage on $10 million of debt, above where Lehman Brothers Holdings' bond insurance was priced at the start of the week before the firm collapsed. Citigroup's shares are trading below the split-adjusted price of $28 that they hit on the day the bank's Fed loans peaked in January 2009. The U.S. unemployment rate was at 9.1 percent in July, compared with 4.7 percent in November 2007, before the recession began.
Homeowners are more than 30 days past due on their mortgage payments on 4.38 million properties in the United States, and 2.16 million more properties are in foreclosure, representing a combined $1.27 trillion of unpaid principal, estimates Jacksonville, Fla.-based Lender Processing Services Inc.
"Why in hell does the Federal Reserve seem to be able to find the way to help these entities that are gigantic?" Rep. Walter Jones, R-N.C., said at a June 1 congressional hearing in Washington on Fed lending disclosure. "They get help when the average businessperson down in eastern North Carolina, and probably across America, they can't even go to a bank they've been banking with for 15 or 20 years and get a loan."
The sheer size of the Fed loans bolsters the case for minimum liquidity requirements that global regulators last year agreed to impose on banks for the first time, said Litan, now a vice president at the Kauffman Foundation, which supports entrepreneurship research. Liquidity refers to the daily funds a bank needs to operate, including cash to cover depositor withdrawals.
The rules, which mandate that banks keep enough cash and easily liquidated assets on hand to survive a 30-day crisis, don't take effect until 2015. Another proposed requirement for lenders to keep "stable funding" for a one-year horizon was postponed until at least 2018 after banks showed they'd have to raise as much as $6 trillion in new long-term debt to comply.
Regulators are "not going to go far enough to prevent this from happening again," said Kenneth Rogoff, a former chief economist at the International Monetary Fund and now an economics professor at Harvard.
Reforms undertaken since the crisis might not insulate U.S. markets and financial institutions from the sovereign budget and debt crises facing Greece, Ireland and Portugal, according to the U.S. Financial Stability Oversight Council, a 10-member body created by the Dodd-Frank Act and led by Treasury Secretary Timothy Geithner.
"The recent financial crisis provides a stark illustration of how quickly confidence can erode and financial contagion can spread," the council said in its July 26 report.
Any new rescues by the U.S. central bank would be governed by transparency laws adopted in 2010 that require the Fed to disclose borrowers after two years.
Fed officials argued for more than two years, saying that releasing the identities of borrowers and the terms of their loans would stigmatize banks, damaging stock prices or leading to depositor runs. A group of the biggest commercial banks last year asked the Supreme Court to keep at least some Fed borrowings secret. In March, the high court declined to hear that appeal, and the central bank made an unprecedented release of records.
Data gleaned from 29,346 pages of documents obtained under the Freedom of Information Act and from other Fed databases of more than 21,000 transactions make clear for the first time how deeply the world's largest banks depended on the central bank to stave off cash shortfalls. Even as the firms asserted in news releases or earnings calls that they had ample cash, they drew Fed funding in secret, avoiding the stigma of weakness.
Two weeks after Lehman's bankruptcy in September 2008, Morgan Stanley countered concerns that it might be next to go by announcing it had "strong capital and liquidity positions." The statement, in a Sept. 29, 2008, news release about a $9 billion investment from Tokyo-based Mitsubishi UFJ Financial Group, said nothing about Morgan Stanley's Fed loans.
That was the same day as the firm's $107.3 billion peak in borrowing from the central bank, which was the source of almost all of Morgan Stanley's available cash, according to the lending data and documents released more than two years later by the Financial Crisis Inquiry Commission. The amount was almost three times the company's total profits over the past decade, data compiled by Bloomberg show.
Mark Lake, a spokesman for New York-based Morgan Stanley, said the crisis caused the industry to "fundamentally re-evaluate" the way it manages its cash.
"We have taken the lessons we learned from that period and applied them to our liquidity-management program to protect both our franchise and our clients going forward," Lake said. He declined to say what changes the bank had made.
In most cases, the Fed demanded collateral for its loans - Treasuries or corporate bonds and mortgage bonds that could be seized and sold if the money wasn't repaid. That meant the central bank's main risk was that collateral pledged by banks that collapsed would be worth less than the amount borrowed.
As the crisis deepened, the Fed relaxed its standards for acceptable collateral. Typically, it accepts only bonds with the highest credit grades, such as U.S. Treasuries. By late 2008, it was accepting "junk" bonds, those rated below investment grade. It even took stocks, which are first to get wiped out in a liquidation.
"What you're looking at is a willingness to lend against just about anything," said Robert Eisenbeis, a former research director at the Federal Reserve Bank of Atlanta.
by Bradley Keoun and Phil Kuntz Bloomberg News Aug. 23, 2011 12:00 AM
Fed lent $1.2 trillion during economic crisis
By 2008, the housing market's collapse forced those 10 biggest banks and brokerages to take more than six times as much, $669 billion, in emergency loans from the Federal Reserve. The loans dwarfed the $160 billion in public bailouts the top 10 got from the U.S. Treasury, yet until now the full amounts have remained secret.
Fed Chairman Ben Bernanke's unprecedented effort to keep the economy from plunging into depression included lending banks and other companies as much as $1.2 trillion of public money, about the same amount U.S. homeowners currently owe on 6.5 million delinquent and foreclosed mortgages. The largest borrower, Morgan Stanley, got as much as $107.3 billion, while Citigroup took $99.5 billion and Bank of America $91.4 billion, according to a Bloomberg News compilation of data obtained through Freedom of Information Act requests, months of litigation and an act of Congress.
"These are all whopping numbers," said Robert Litan, a former Justice Department official who in the 1990s served on a commission probing the causes of the savings-and-loan crisis. "You're talking about the aristocracy of American finance going down the tubes without the federal money."
It wasn't just American finance. Almost half of the Fed's top 30 borrowers, measured by peak balances, were European firms. They included Edinburgh-based Royal Bank of Scotland, which took $84.5 billion, the most of any non-U.S. lender, and Zurich-based UBS, which got $77.2 billion. Germany's Hypo Real Estate Holding borrowed $28.7 billion, an average of $21 million for each of its 1,366 employees.
The largest borrowers also included Dexia, Belgium's biggest bank by assets, and Societe Generale, based in Paris, whose bond-insurance prices have surged in the past month as investors speculated that the spreading sovereign debt crisis in Europe might increase their chances of default.
The $1.2 trillion peak on Dec. 5, 2008 - the combined outstanding balance under the seven programs tallied by Bloomberg - was almost three times the size of the U.S. federal budget deficit that year and more than the total earnings of all federally insured banks in the U.S. for the decade through 2010, according to data compiled by Bloomberg.
The balance was more than 25 times the Fed's pre-crisis lending peak of $46 billion on Sept. 12, 2001, the day after terrorists attacked the World Trade Center in New York and the Pentagon.
The Fed has said it had "no credit losses" on any of the emergency programs, and a report by Federal Reserve Bank of New York staffers in February said the central bank netted $13 billion in interest and fee income from the programs from August 2007 through December 2009.
"We designed our broad-based emergency programs to both effectively stem the crisis and minimize the financial risks to the U.S. taxpayer," said James Clouse, deputy director of the Fed's division of monetary affairs in Washington. "Nearly all of our emergency-lending programs have been closed. We have incurred no losses and expect no losses."
While the 18-month U.S. recession that ended in June 2009 after a 5.1 percent contraction in gross domestic product was nowhere near the four-year, 27 percent decline between August 1929 and March 1933, banks and the economy remain stressed.
The odds of another recession have climbed during the past six months, according to five of nine economists on the Business Cycle Dating Committee of the National Bureau of Economic Research, an academic panel that dates recessions.
Bank of America's bond-insurance prices last week surged to a rate of $342,040 a year for coverage on $10 million of debt, above where Lehman Brothers Holdings' bond insurance was priced at the start of the week before the firm collapsed. Citigroup's shares are trading below the split-adjusted price of $28 that they hit on the day the bank's Fed loans peaked in January 2009. The U.S. unemployment rate was at 9.1 percent in July, compared with 4.7 percent in November 2007, before the recession began.
Homeowners are more than 30 days past due on their mortgage payments on 4.38 million properties in the United States, and 2.16 million more properties are in foreclosure, representing a combined $1.27 trillion of unpaid principal, estimates Jacksonville, Fla.-based Lender Processing Services Inc.
"Why in hell does the Federal Reserve seem to be able to find the way to help these entities that are gigantic?" Rep. Walter Jones, R-N.C., said at a June 1 congressional hearing in Washington on Fed lending disclosure. "They get help when the average businessperson down in eastern North Carolina, and probably across America, they can't even go to a bank they've been banking with for 15 or 20 years and get a loan."
The sheer size of the Fed loans bolsters the case for minimum liquidity requirements that global regulators last year agreed to impose on banks for the first time, said Litan, now a vice president at the Kauffman Foundation, which supports entrepreneurship research. Liquidity refers to the daily funds a bank needs to operate, including cash to cover depositor withdrawals.
The rules, which mandate that banks keep enough cash and easily liquidated assets on hand to survive a 30-day crisis, don't take effect until 2015. Another proposed requirement for lenders to keep "stable funding" for a one-year horizon was postponed until at least 2018 after banks showed they'd have to raise as much as $6 trillion in new long-term debt to comply.
Regulators are "not going to go far enough to prevent this from happening again," said Kenneth Rogoff, a former chief economist at the International Monetary Fund and now an economics professor at Harvard.
Reforms undertaken since the crisis might not insulate U.S. markets and financial institutions from the sovereign budget and debt crises facing Greece, Ireland and Portugal, according to the U.S. Financial Stability Oversight Council, a 10-member body created by the Dodd-Frank Act and led by Treasury Secretary Timothy Geithner.
"The recent financial crisis provides a stark illustration of how quickly confidence can erode and financial contagion can spread," the council said in its July 26 report.
Any new rescues by the U.S. central bank would be governed by transparency laws adopted in 2010 that require the Fed to disclose borrowers after two years.
Fed officials argued for more than two years, saying that releasing the identities of borrowers and the terms of their loans would stigmatize banks, damaging stock prices or leading to depositor runs. A group of the biggest commercial banks last year asked the Supreme Court to keep at least some Fed borrowings secret. In March, the high court declined to hear that appeal, and the central bank made an unprecedented release of records.
Data gleaned from 29,346 pages of documents obtained under the Freedom of Information Act and from other Fed databases of more than 21,000 transactions make clear for the first time how deeply the world's largest banks depended on the central bank to stave off cash shortfalls. Even as the firms asserted in news releases or earnings calls that they had ample cash, they drew Fed funding in secret, avoiding the stigma of weakness.
Two weeks after Lehman's bankruptcy in September 2008, Morgan Stanley countered concerns that it might be next to go by announcing it had "strong capital and liquidity positions." The statement, in a Sept. 29, 2008, news release about a $9 billion investment from Tokyo-based Mitsubishi UFJ Financial Group, said nothing about Morgan Stanley's Fed loans.
That was the same day as the firm's $107.3 billion peak in borrowing from the central bank, which was the source of almost all of Morgan Stanley's available cash, according to the lending data and documents released more than two years later by the Financial Crisis Inquiry Commission. The amount was almost three times the company's total profits over the past decade, data compiled by Bloomberg show.
Mark Lake, a spokesman for New York-based Morgan Stanley, said the crisis caused the industry to "fundamentally re-evaluate" the way it manages its cash.
"We have taken the lessons we learned from that period and applied them to our liquidity-management program to protect both our franchise and our clients going forward," Lake said. He declined to say what changes the bank had made.
In most cases, the Fed demanded collateral for its loans - Treasuries or corporate bonds and mortgage bonds that could be seized and sold if the money wasn't repaid. That meant the central bank's main risk was that collateral pledged by banks that collapsed would be worth less than the amount borrowed.
As the crisis deepened, the Fed relaxed its standards for acceptable collateral. Typically, it accepts only bonds with the highest credit grades, such as U.S. Treasuries. By late 2008, it was accepting "junk" bonds, those rated below investment grade. It even took stocks, which are first to get wiped out in a liquidation.
"What you're looking at is a willingness to lend against just about anything," said Robert Eisenbeis, a former research director at the Federal Reserve Bank of Atlanta.
by Bradley Keoun and Phil Kuntz Bloomberg News Aug. 23, 2011 12:00 AM
Fed lent $1.2 trillion during economic crisis
Sunday, August 21, 2011
Pavilions at Talking Stick shopping center update adds more zip to Loop 101 corridor
Courtesy of Rick Brazil Pavilions at Talking Stick shopping center.
Buffalo Wild Wings Grill and Bar plans to open by this spring at the Pavilions, which has signed or renewed leases for 475,000 square feet of retail space in the last 13 months, said Marty DeRito, chief executive of DeRito Partners Development Co.
"We've really turned our ship around," said DeRito, who felt like he had acquired the Titanic when he bought the 128-acre Pavilions in January 2008 for $88 million.
Within 90 days, Circuit City and Mervyns filed for bankruptcy and the occupancy rate fell to 47 percent for the shopping center at Loop 101 and Indian Bend Road.
But the tide started to turn in 2010 when the Salt River Pima-Maricopa Indian Community opened its Talking Stick Resort and casino a mile to the east and followed that this year with the Salt River Fields at Talking Stick. The spring-training complex for the Arizona Diamondbacks and Colorado Rockies attracted huge Cactus League crowds and a total of 359,308 fans in March.
That has spawned tremendous interest in the area centered at Indian Bend and the freeway.
Hampton Inn keys up for spring
HCW Development Scottsdale LLC is building a $9 million Hampton Inn and Suites northwest of Indian Bend and Dobson roads. It will have 101 rooms.
Salt River Devco, the tribe's development arm, is further along on a four-story, 156-room Courtyard by Marriott northeast of Pima and Chaparral roads.
Both hotels are scheduled to open in February in time for spring training.
Tanger Factory Outlets Centers Inc. has signed a sublease for a 42-acre site northeast of Loop 101 and Indian Bend, said Kent Moe, a senior vice president at Alter Group, which has the master lease for the 176-acre Riverwalk Arizona project on the Salt River Reservation.
Tanger, based in Greensboro, N.C., has not announced its timing for building the outlet mall.
At the Pavilions, Buffalo Wild Wings' 6,004-square-foot restaurant will add a new dimension to the center with a true sports bar.
A new Chipotle Mexican Grill serves beer and Barro's Pizza has beer and wine, but the shopping center on leased tribal land has been hampered on restaurant leases because it was dry. Tribal members in 2009 narrowly approved allowing liquor sales in restaurants along the community's western boundary with Scottsdale.
More nighttime traffic
"It adds a new component to the center," DeRito said. "We've never had much nighttime traffic and Buffalo Wild Wings adds that."
The Pavilions also is adding:
- Mountainside Fitness in a 35,000-square-foot space formerly occupied by Circuit City.
- Hobby Lobby, a 55,000-square-foot crafts superstore in the former Mervyns building.
- A remodeled Target selling groceries. The retailer renewed its lease through 2030.
The Pavilions has spent about $16 million over the past three years on renovations, including a makeover of its food court and reviving the closed theater, which opened last fall as the UltraStar Cinemas.
DeRito Partners still has some challenges to fill the many vacant spaces at the Pavilions, including the former Best Buy store and a bookstore next to Mountainside Fitness, which is pegged to open by the end of the year.
But DeRito is optimistic about filling the center with new tenants since the Talking Stick Resort and Salt River Fields have created so much momentum.
In addition to spring baseball, Salt River Fields is hosting youth sports, concerts, a balloon festival Oct. 28-29 and the Salt River Rafters of the Arizona Fall League.
by Peter Corbett The Arizona Republic Aug. 19, 2011 12:15 PM
Pavilions at Talking Stick shopping center update adds more zip to Loop 101 corridor
Bank of America to cut thousands of jobs
NEW YORK - Bank of America Corp., the nation's largest bank, said Friday that it plans to cut 3,500 jobs by the end of September.
The cuts amount to a little more than 1 percent of the bank's workforce of roughly 288,000. But they follow a string of other layoffs, including 2,500 already announced this year.
A bank spokesman declined to say if the cuts would be concentrated in a particular part of the country but said they would be spread across most of the business units.
"The company regularly assesses the efficiency of its businesses and at times is going to make adjustments to meet the opportunities that are in the marketplace," spokesman Scott Silvestri said. The bank has previously cut jobs in mortgage lending and investment banking, for example, after demand for those services slowed.
Silvestri said the layoffs were not part of "New BAC," a cost-cutting program announced in May.
After this round of layoffs, the bank should have about 284,000 employees. Its roster peaked in early 2009, right after it absorbed investment bank Merrill Lynch and mortgage lender Countrywide Financial, at about 302,000.
The entire banking industry is shrinking, as new regulations and the fallout of the financial crisis force it to become smaller, simpler and less profitable. Many of the complicated investment vehicles that fueled the industry before 2008 are gone after being blamed for causing the financial crisis.
U.S. banks employ about 2.09 million people, down from 2.21 million people in early 2008, according to data compiled by the Federal Deposit Insurance Corp.
The finance and insurance industry made up about 8 percent of the country's gross domestic product last year, according to the federal Bureau of Economic Analysis. That's in line with where it was in 2007, before the financial crisis took hold.
Like other industries, banking has always ebbed and flowed with the markets. It started laying off investment bankers as the economy began to sputter in 2007. It laid off workers again in 2008 and 2009 as the financial crisis sent many banks into the red and forced them to take government bailouts. But 2010 provided some relief, with shares bouncing back and banks making profits, and banks even hired back some workers.
But now banks are cutting jobs again. Bank of New York Mellon Corp., Goldman Sachs Group Inc. and State Street Corp., among others, have recently announced layoffs.
This latest round is different because it's coming at a time when many banks are actually posting improved profits. Analysts say the latest cuts point to permanent structural changes, not temporary market problems.
The KBW Bank Index has fallen 22 percent this month as of Friday morning, compared with a 12 percent fall in the S&P 500. Bank of America shares have fallen 28 percent.
Investors are worried about banks' exposure to continued problems over soured mortgages and mortgage-backed securities. Though the banks' capital cushions are higher and many are turning profits, it's not known how much they could have to pay to investors who claim they were misled into buying the securities.
Bank of America is especially vulnerable, partly because of its fast expansion during the height of the financial crisis: It's still cleaning up the exotic mortgages of Countrywide, a California-based lender it bought in summer 2008. The move propelled the Charlotte bank into the country's biggest mortgage lender, but it has also brought it lawsuits, regulatory probes and quarterly losses.
Some analysts say the bank rushed into buying Countrywide and should have tried to get the government to protect it from Countrywide's worst assets.
Brian Moynihan, Bank of America's CEO for a year and a half, is slimming down the bank after his predecessors' years of empire building. He has been cutting expenses, closing branches and selling off assets to build capital. The bank's announcement Monday that it would sell international credit-card units sent the shares soaring 8 percent.
by Christina Rexrode Associated Press Aug. 20, 2011 12:00 AM
Bank of America to cut thousands of jobs
The cuts amount to a little more than 1 percent of the bank's workforce of roughly 288,000. But they follow a string of other layoffs, including 2,500 already announced this year.
A bank spokesman declined to say if the cuts would be concentrated in a particular part of the country but said they would be spread across most of the business units.
"The company regularly assesses the efficiency of its businesses and at times is going to make adjustments to meet the opportunities that are in the marketplace," spokesman Scott Silvestri said. The bank has previously cut jobs in mortgage lending and investment banking, for example, after demand for those services slowed.
Silvestri said the layoffs were not part of "New BAC," a cost-cutting program announced in May.
After this round of layoffs, the bank should have about 284,000 employees. Its roster peaked in early 2009, right after it absorbed investment bank Merrill Lynch and mortgage lender Countrywide Financial, at about 302,000.
The entire banking industry is shrinking, as new regulations and the fallout of the financial crisis force it to become smaller, simpler and less profitable. Many of the complicated investment vehicles that fueled the industry before 2008 are gone after being blamed for causing the financial crisis.
U.S. banks employ about 2.09 million people, down from 2.21 million people in early 2008, according to data compiled by the Federal Deposit Insurance Corp.
The finance and insurance industry made up about 8 percent of the country's gross domestic product last year, according to the federal Bureau of Economic Analysis. That's in line with where it was in 2007, before the financial crisis took hold.
Like other industries, banking has always ebbed and flowed with the markets. It started laying off investment bankers as the economy began to sputter in 2007. It laid off workers again in 2008 and 2009 as the financial crisis sent many banks into the red and forced them to take government bailouts. But 2010 provided some relief, with shares bouncing back and banks making profits, and banks even hired back some workers.
But now banks are cutting jobs again. Bank of New York Mellon Corp., Goldman Sachs Group Inc. and State Street Corp., among others, have recently announced layoffs.
This latest round is different because it's coming at a time when many banks are actually posting improved profits. Analysts say the latest cuts point to permanent structural changes, not temporary market problems.
The KBW Bank Index has fallen 22 percent this month as of Friday morning, compared with a 12 percent fall in the S&P 500. Bank of America shares have fallen 28 percent.
Investors are worried about banks' exposure to continued problems over soured mortgages and mortgage-backed securities. Though the banks' capital cushions are higher and many are turning profits, it's not known how much they could have to pay to investors who claim they were misled into buying the securities.
Bank of America is especially vulnerable, partly because of its fast expansion during the height of the financial crisis: It's still cleaning up the exotic mortgages of Countrywide, a California-based lender it bought in summer 2008. The move propelled the Charlotte bank into the country's biggest mortgage lender, but it has also brought it lawsuits, regulatory probes and quarterly losses.
Some analysts say the bank rushed into buying Countrywide and should have tried to get the government to protect it from Countrywide's worst assets.
Brian Moynihan, Bank of America's CEO for a year and a half, is slimming down the bank after his predecessors' years of empire building. He has been cutting expenses, closing branches and selling off assets to build capital. The bank's announcement Monday that it would sell international credit-card units sent the shares soaring 8 percent.
by Christina Rexrode Associated Press Aug. 20, 2011 12:00 AM
Bank of America to cut thousands of jobs
Economists see growing risk of global recession
WASHINGTON - Discouraging economic data from around the globe have heightened fears that another recession is on the way.
Fresh evidence emerged Thursday that U.S. home sales and manufacturing are weakening. Signs also surfaced that European banks are increasingly burdened by the region's debt crisis and sputtering economy.
The rising anxiety ignited a huge sell-off in stocks that led many investors to seek the safety of U.S. Treasurys.
Economists say the economic weakness and the stock markets' wild swings have begun to feed on themselves. Persistent drops in stock prices erode consumer and business confidence. Individuals and companies typically then spend and invest less. And when they do, stock prices tend to fall further.
"A negative feedback loop ... now appears to be in the making" in both the United States and Europe, Joachim Fels and Manoj Pradhan, economists at Morgan Stanley, said in a report Thursday. Both economies are "dangerously close to a recession. ... It won't take much in the form of additional shocks to tip the balance."
The risk of a recession is now about one in three, according to Morgan Stanley and Bank of America Merrill Lynch.
Among the worrisome economic signs:
- A survey by the Federal Reserve Bank of Philadelphia shows that manufacturing in the mid-Atlantic region contracted in August by the most in more than two years. The steep drop, on top of a smaller decline in a New York Fed survey this week, means U.S. manufacturing probably contracted in August, economists said.
It would be the first decline since July 2009 - a worrisome sign because manufacturing has been a key source of U.S. growth in the two years since economists say the Great Recession ended.
- U.S. home sales fell in July for the third time in four months, the National Association of Realtors said. Sales dropped 3.5 percent to a seasonally adjusted annual rate of 4.67 million homes. That's far below the 6 million homes that economists say must be sold to sustain a healthy housing market.
Sales are lagging behind last year's pace - the weakest since 1997. "There seems to be a correlation between the stock market and home prices," said Andrew Davidson, a New York-based mortgage industry consultant.
- In Asia, Japan's exports fell for a fifth straight month. The world's No. 3 economy has fallen into a recession since its earthquake and tsunami in March. Its weakness is contributing to the global slowdown.
- Consumer prices rose 0.5 percent in July, mostly due to more expensive gas and food. The "core" price index, which excludes volatile food and energy prices, rose 0.2 percent. The higher prices add to the burdens for Americans already squeezed by stagnant pay, though economists don't expect prices to rise much further. And gasoline has fallen this month.
Investors are also growing more anxious about Europe's sputtering economy and its leaders' ability to resolve the debt crisis. European bank stocks accelerated their fall Thursday.
After all the volatility of the past month, the Dow Jones industrial average has lost more than 14 percent since July 21. That includes Thursday's drop of more than 419 points.
Some sectors of the U.S. economy still show strength. Retail sales are up. Gas prices have fallen. And job growth has been consistent, though below what's needed to reduce the unemployment rate.
Yet a consumer survey taken this month showed confidence in the economy fell to the lowest level in 31 years.
Morgan Stanley's calculation of a one-in-three risk of a new recession hinges, in part, on its expectation that Congress will let a Social Security tax cut, a business tax credit and extended unemployment benefits expire at year's end. It calculates that the expiration of those measures would reduce U.S. growth by 0.5 to 1 percentage point in 2012.
Jitters over the economy and financial markets may also reduce auto sales. That would be a blow to an industry that reported strong profits and healthy hiring earlier this year. J.D. Power and Associates has cut its 2011 sales forecast last week by 2 percent and its 2012 forecast by 3 percent.
Still, Neil Dutta, an economist at Bank of America Merrill Lynch, said that most of the negative indicators, including the Philadelphia Fed index, reflect sentiment, rather than actual economic activity. Measures of the actual economy, like the number of people seeking unemployment benefits, haven't declined nearly as much.
The number applying for benefits rose 9,000 last week to a seasonally adjusted 408,000. The four-week average, a more reliable gauge of the job market, dropped for a seventh straight week to 402,500, the lowest level since April. The report suggests that the economy is creating jobs but not nearly enough to lower the high unemployment rate.
"We are not ready to say this is the death knell for the U.S. economy," Dutta said. Still, recession risks are rising, he added.
by Christopher S. Rugaber and Derek Kravitz Associated Press Aug. 19, 2011 12:00 AM
Economists see growing risk of global recession
Fresh evidence emerged Thursday that U.S. home sales and manufacturing are weakening. Signs also surfaced that European banks are increasingly burdened by the region's debt crisis and sputtering economy.
The rising anxiety ignited a huge sell-off in stocks that led many investors to seek the safety of U.S. Treasurys.
Economists say the economic weakness and the stock markets' wild swings have begun to feed on themselves. Persistent drops in stock prices erode consumer and business confidence. Individuals and companies typically then spend and invest less. And when they do, stock prices tend to fall further.
"A negative feedback loop ... now appears to be in the making" in both the United States and Europe, Joachim Fels and Manoj Pradhan, economists at Morgan Stanley, said in a report Thursday. Both economies are "dangerously close to a recession. ... It won't take much in the form of additional shocks to tip the balance."
The risk of a recession is now about one in three, according to Morgan Stanley and Bank of America Merrill Lynch.
Among the worrisome economic signs:
- A survey by the Federal Reserve Bank of Philadelphia shows that manufacturing in the mid-Atlantic region contracted in August by the most in more than two years. The steep drop, on top of a smaller decline in a New York Fed survey this week, means U.S. manufacturing probably contracted in August, economists said.
It would be the first decline since July 2009 - a worrisome sign because manufacturing has been a key source of U.S. growth in the two years since economists say the Great Recession ended.
- U.S. home sales fell in July for the third time in four months, the National Association of Realtors said. Sales dropped 3.5 percent to a seasonally adjusted annual rate of 4.67 million homes. That's far below the 6 million homes that economists say must be sold to sustain a healthy housing market.
Sales are lagging behind last year's pace - the weakest since 1997. "There seems to be a correlation between the stock market and home prices," said Andrew Davidson, a New York-based mortgage industry consultant.
- In Asia, Japan's exports fell for a fifth straight month. The world's No. 3 economy has fallen into a recession since its earthquake and tsunami in March. Its weakness is contributing to the global slowdown.
- Consumer prices rose 0.5 percent in July, mostly due to more expensive gas and food. The "core" price index, which excludes volatile food and energy prices, rose 0.2 percent. The higher prices add to the burdens for Americans already squeezed by stagnant pay, though economists don't expect prices to rise much further. And gasoline has fallen this month.
Investors are also growing more anxious about Europe's sputtering economy and its leaders' ability to resolve the debt crisis. European bank stocks accelerated their fall Thursday.
After all the volatility of the past month, the Dow Jones industrial average has lost more than 14 percent since July 21. That includes Thursday's drop of more than 419 points.
Some sectors of the U.S. economy still show strength. Retail sales are up. Gas prices have fallen. And job growth has been consistent, though below what's needed to reduce the unemployment rate.
Yet a consumer survey taken this month showed confidence in the economy fell to the lowest level in 31 years.
Morgan Stanley's calculation of a one-in-three risk of a new recession hinges, in part, on its expectation that Congress will let a Social Security tax cut, a business tax credit and extended unemployment benefits expire at year's end. It calculates that the expiration of those measures would reduce U.S. growth by 0.5 to 1 percentage point in 2012.
Jitters over the economy and financial markets may also reduce auto sales. That would be a blow to an industry that reported strong profits and healthy hiring earlier this year. J.D. Power and Associates has cut its 2011 sales forecast last week by 2 percent and its 2012 forecast by 3 percent.
Still, Neil Dutta, an economist at Bank of America Merrill Lynch, said that most of the negative indicators, including the Philadelphia Fed index, reflect sentiment, rather than actual economic activity. Measures of the actual economy, like the number of people seeking unemployment benefits, haven't declined nearly as much.
The number applying for benefits rose 9,000 last week to a seasonally adjusted 408,000. The four-week average, a more reliable gauge of the job market, dropped for a seventh straight week to 402,500, the lowest level since April. The report suggests that the economy is creating jobs but not nearly enough to lower the high unemployment rate.
"We are not ready to say this is the death knell for the U.S. economy," Dutta said. Still, recession risks are rising, he added.
by Christopher S. Rugaber and Derek Kravitz Associated Press Aug. 19, 2011 12:00 AM
Economists see growing risk of global recession
Report: S&P under investigation
WASHINGTON - The Justice Department is investigating whether the Standard & Poor's credit-ratings agency improperly rated dozens of mortgage securities in the years leading up to the financial crisis, according to a report in the New York Times.
The investigation began before Standard & Poor's cut the United States' AAA credit rating this month, but it's likely to add to the political firestorm created by the downgrade, the newspaper said. Some government officials have since questioned the agency's secretive process, its credibility and the competence of its analysts, claiming to have found an error in its debt calculations.
In its report on Wednesday, the Times cited two people interviewed by the government and another briefed on such interviews as its sources. According to people with knowledge of the interviews, the Justice Department has been asking about instances in which the company's analysts wanted to award lower ratings on mortgage bonds but may have been overruled by other S&P business managers.
If the government finds enough evidence to support a case, it could undercut S&P's long-standing claim that its analysts act independently from business concerns.
S&P and other ratings agencies reaped record profits as they bestowed their highest ratings on bundles of troubled mortgage loans, which made the mortgages appear less risky and thus more valuable. They failed to anticipate the deterioration that would come in the housing market.
Companies and some countries - but not the United States - pay the credit-ratings agencies to receive a rating, the financial market's version of a seal of approval.
Before the financial crisis, banks shopped around to make sure agencies would award favorable ratings before agreeing to work with them. These banks paid as much as $100,000 for ratings on mortgage-bond deals, according to the Financial Crisis Inquiry Commission, the Times said.
Critics say this business model is riddled with conflicts of interest since ratings agencies might make their grades more positive to please their customers.
The Times said the Securities and Exchange Commission also has been investigating possible wrongdoing at S&P, citing a person interviewed on the matter.
by Associated PressAug. 19, 2011 12:00 AM
Report: S&P under investigation
The investigation began before Standard & Poor's cut the United States' AAA credit rating this month, but it's likely to add to the political firestorm created by the downgrade, the newspaper said. Some government officials have since questioned the agency's secretive process, its credibility and the competence of its analysts, claiming to have found an error in its debt calculations.
In its report on Wednesday, the Times cited two people interviewed by the government and another briefed on such interviews as its sources. According to people with knowledge of the interviews, the Justice Department has been asking about instances in which the company's analysts wanted to award lower ratings on mortgage bonds but may have been overruled by other S&P business managers.
If the government finds enough evidence to support a case, it could undercut S&P's long-standing claim that its analysts act independently from business concerns.
S&P and other ratings agencies reaped record profits as they bestowed their highest ratings on bundles of troubled mortgage loans, which made the mortgages appear less risky and thus more valuable. They failed to anticipate the deterioration that would come in the housing market.
Companies and some countries - but not the United States - pay the credit-ratings agencies to receive a rating, the financial market's version of a seal of approval.
Before the financial crisis, banks shopped around to make sure agencies would award favorable ratings before agreeing to work with them. These banks paid as much as $100,000 for ratings on mortgage-bond deals, according to the Financial Crisis Inquiry Commission, the Times said.
Critics say this business model is riddled with conflicts of interest since ratings agencies might make their grades more positive to please their customers.
The Times said the Securities and Exchange Commission also has been investigating possible wrongdoing at S&P, citing a person interviewed on the matter.
by Associated PressAug. 19, 2011 12:00 AM
Report: S&P under investigation
Gloomy housing data offsets July gains in output
WASHINGTON - U.S. automakers rebounded in July to boost factory production by the most since the Japan crisis. But builders broke ground on fewer single-family houses, leaving home construction at depressed levels.
The mixed data suggest that the economy remains fragile but is not on the cusp of another recession.
Overall industrial production, which includes output by utilities, mines and factories, rose 0.9 percent last month, the Federal Reserve said Tuesday. That's the largest gain this year.
Factory output, the biggest component of industrial production, climbed 0.6 percent. It was the greatest increase since the March 11 earthquake and tsunami in Japan disrupted supply chains and slowed production at some U.S. auto plants.
The auto industry accounted for nearly all of the factory-production gains. Motor vehicles and parts jumped 5.2 percent. Excluding that category, factory output grew only 0.2 percent.
Also driving industrial production higher was an unusually hot summer. That led more people to leave their air-conditioners running. Utility output jumped 2.8 percent, the most since December. Mining output also increased.
The strong rise in output "suggests that the U.S. economy is not in a recession now, and it's a fairly encouraging sign that it won't slip into one, either," said Paul Dales, senior U.S. economist with Capital Economics.
Still, growth is likely to stay weak in the second half of the year. High unemployment and a dismal housing market will weigh on consumer spending, Dales said.
The Commerce Department said builders began work on a seasonally adjusted 604,000 homes last month, a 1.5 percent decrease from June. That's half the 1.2 million homes per year that economists say must be built to sustain a healthy housing market.
The number of single-family homes, which represent 70 percent of home construction, fell 5 percent. Apartment-building rose more than 6 percent.
The industrial-production report confirmed other data that show the U.S. economy strengthened at the start of the July-September quarter, after growing at a feeble annual rate of just 0.8 percent in the first half of the year.
Employers added more than twice the number of jobs in July than in the previous two months. The number of people applying for unemployment benefits earlier this month fell below 400,000 for the first time since early April. And consumers spent more on retail goods in July than in any month since March.
Manufacturing had been one of the strongest sectors of the U.S. economy in the two years since the recession officially ended. It has weakened in recent months.
Economists had blamed the decline in part on temporary factors. The crisis in Japan caused a parts shortage for some U.S. automakers and other manufacturers. High fuel prices left consumers with less money to spend on discretionary goods, such as appliances and furniture.
"The increase in manufacturing production suggests the economy is finally emerging from distortions posed by the Japanese production shutdowns, which wreaked havoc on the global manufacturing supply chain," said Joseph LaVorgna, chief U.S. economist with Deutsche Bank Securities.
Auto production will likely stay high this year. Manufacturers are racing to replace inventories depleted by the Japan disruptions.
That should also contribute to overall economic growth, said Michael Robinet, an auto-industry analyst with IHS Automotive.
But housing is likely to keep dragging on the economy.
The number of homes under construction in July was the fewest in 40 years. Just 413,000 homes are under construction, after accounting for seasonal factors. A decade ago, roughly 1.6 million homes were built.
by Daniel Wagner and Derek Kravitz Associated Press Aug. 17, 2011 12:00 AM
Gloomy housing data offsets July gains in output
The mixed data suggest that the economy remains fragile but is not on the cusp of another recession.
Overall industrial production, which includes output by utilities, mines and factories, rose 0.9 percent last month, the Federal Reserve said Tuesday. That's the largest gain this year.
Factory output, the biggest component of industrial production, climbed 0.6 percent. It was the greatest increase since the March 11 earthquake and tsunami in Japan disrupted supply chains and slowed production at some U.S. auto plants.
The auto industry accounted for nearly all of the factory-production gains. Motor vehicles and parts jumped 5.2 percent. Excluding that category, factory output grew only 0.2 percent.
Also driving industrial production higher was an unusually hot summer. That led more people to leave their air-conditioners running. Utility output jumped 2.8 percent, the most since December. Mining output also increased.
The strong rise in output "suggests that the U.S. economy is not in a recession now, and it's a fairly encouraging sign that it won't slip into one, either," said Paul Dales, senior U.S. economist with Capital Economics.
Still, growth is likely to stay weak in the second half of the year. High unemployment and a dismal housing market will weigh on consumer spending, Dales said.
The Commerce Department said builders began work on a seasonally adjusted 604,000 homes last month, a 1.5 percent decrease from June. That's half the 1.2 million homes per year that economists say must be built to sustain a healthy housing market.
The number of single-family homes, which represent 70 percent of home construction, fell 5 percent. Apartment-building rose more than 6 percent.
The industrial-production report confirmed other data that show the U.S. economy strengthened at the start of the July-September quarter, after growing at a feeble annual rate of just 0.8 percent in the first half of the year.
Employers added more than twice the number of jobs in July than in the previous two months. The number of people applying for unemployment benefits earlier this month fell below 400,000 for the first time since early April. And consumers spent more on retail goods in July than in any month since March.
Manufacturing had been one of the strongest sectors of the U.S. economy in the two years since the recession officially ended. It has weakened in recent months.
Economists had blamed the decline in part on temporary factors. The crisis in Japan caused a parts shortage for some U.S. automakers and other manufacturers. High fuel prices left consumers with less money to spend on discretionary goods, such as appliances and furniture.
"The increase in manufacturing production suggests the economy is finally emerging from distortions posed by the Japanese production shutdowns, which wreaked havoc on the global manufacturing supply chain," said Joseph LaVorgna, chief U.S. economist with Deutsche Bank Securities.
Auto production will likely stay high this year. Manufacturers are racing to replace inventories depleted by the Japan disruptions.
That should also contribute to overall economic growth, said Michael Robinet, an auto-industry analyst with IHS Automotive.
But housing is likely to keep dragging on the economy.
The number of homes under construction in July was the fewest in 40 years. Just 413,000 homes are under construction, after accounting for seasonal factors. A decade ago, roughly 1.6 million homes were built.
by Daniel Wagner and Derek Kravitz Associated Press Aug. 17, 2011 12:00 AM
Gloomy housing data offsets July gains in output
White House aims to keep federal role in mortgages
President Barack Obama has directed a small team of advisers to develop a proposal that would keep the government playing a major role in the nation's mortgage market, extending a federal loan subsidy for most homebuyers, according to people familiar with the matter.
The decision follows the advice of his senior economic and housing advisers, who favor maintaining the government's role as an insurer of mortgages for most borrowers. The approach could even preserve Fannie Mae and Freddie Mac, the mortgage-finance giants owned by the government, although under different names and with significant new constraints, people knowledgeable about the discussions said.
The president's decision to preserve a major role for the government marks a big milestone in the effort to craft a new housing policy from the wreckage of the mortgage meltdown and could mean a larger part for Fannie and Freddie than administration officials had signaled.
In a statement, the White House said it is premature to say that senior officials have agreed on any of the three main options outlined earlier this year in an administration white paper on reforming the housing-finance system.
"It is simply false that there has been a decision to move forward with any particular option," said Matt Vogel, a White House spokesman. "All three options remain under active consideration, and we are deepening our analysis around how each would potentially be implemented. No recommendation has been made to the president by his economic advisers."
The proposal is likely to draw criticism from many Republicans, who blame the financial crisis on policies that they say overly encouraged the housing market. And many economists, including some who have worked in the White House under Obama, consider the federal role harmful to the free market.
But if this approach became law, it probably would keep in place the kind of popular home loans that have been around for decades: 30-year fixed-rate mortgages with relatively low interest rates.
Officials have not determined whether to advance a final proposal before the 2012 presidential election. Officials from the White House, the Treasury Department and the Department of Housing and Urban Development are working out the details.
The government could maintain a substantial role in various ways. These include restructuring Fannie and Freddie as public utilities overseen by a government regulator.
The government would no longer guarantee their financial health, as in the past, but would continue to backstop the mortgage-backed securities they issue using loans made by private banks.
Or the two companies could be shut down and replaced with several successors that, likewise, would have their mortgage-backed securities guaranteed by the government in exchange for a fee. A federal guarantee, by reducing the risk to investors, can make it cheaper for firms to raise money for making home loans, in turn reducing mortgage rates.
For years, Fannie and Freddie, shareholder-owned companies chartered by Congress to support the housing market, owned or insured trillions of dollars in home loans. When the housing market crashed, the government seized the companies, and it has spent more than $150 billion propping them up.
Since then, Fannie and Freddie have played a key role in ensuring the availability of mortgages amid the market upheaval. But the Obama administration has said it wants to scale back the federal role.
In weighing whether to preserve Fannie and Freddie, administration officials have several concerns, said people familiar with the discussions who spoke on condition of anonymity because the talks are still preliminary.
The companies spent decades developing a market in which investors worldwide can buy and sell securities backed by U.S. home loans, and administration officials don't want to jeopardize that.
Officials don't want to punish the thousands of Fannie and Freddie employees who have specialized knowledge about the mortgage market and had nothing to do with the poor business decisions top executives made in the run-up to the financial crisis.
But some critics warn that nearly any government role could leave taxpayers on the hook.
"The long-term consequence is that the taxpayers ultimately have to bail out the government's losses," said Peter Wallison, a fellow at the American Enterprise Institute. "There is only one legitimate role for government in guaranteeing mortgages. That is mortgages for low-income people, to enable them to buy homes."
Under the approach Obama endorsed, the government would seek to limit the exposure of taxpayers.
Fannie, Freddie or other successor companies would charge a fee to mortgage lenders and banks and use the money to create an insurance pool to cover losses on mortgage securities caused by defaults on the underlying loans.
The government would be the last line of defense in case of another housing-market meltdown, using taxpayer money to cover losses only if the insurance pool ran dry.
Some special advantages awarded to Fannie and Freddie would be eliminated, according to people familiar with the matter.
For example, the two companies were allowed for decades to do business while holding a fraction of the reserves - essentially, rainy-day money - that banks and other financial firms were required to hold. This advantage allowed Fannie and Freddie to grow large.
The companies, or the firms that replace them, would have to start holding much more in reserve.
by Zachary A. Goldfarb Washington Post Aug. 16, 2011 12:00 AM
White House aims to keep federal role in mortgages
The decision follows the advice of his senior economic and housing advisers, who favor maintaining the government's role as an insurer of mortgages for most borrowers. The approach could even preserve Fannie Mae and Freddie Mac, the mortgage-finance giants owned by the government, although under different names and with significant new constraints, people knowledgeable about the discussions said.
The president's decision to preserve a major role for the government marks a big milestone in the effort to craft a new housing policy from the wreckage of the mortgage meltdown and could mean a larger part for Fannie and Freddie than administration officials had signaled.
In a statement, the White House said it is premature to say that senior officials have agreed on any of the three main options outlined earlier this year in an administration white paper on reforming the housing-finance system.
"It is simply false that there has been a decision to move forward with any particular option," said Matt Vogel, a White House spokesman. "All three options remain under active consideration, and we are deepening our analysis around how each would potentially be implemented. No recommendation has been made to the president by his economic advisers."
The proposal is likely to draw criticism from many Republicans, who blame the financial crisis on policies that they say overly encouraged the housing market. And many economists, including some who have worked in the White House under Obama, consider the federal role harmful to the free market.
But if this approach became law, it probably would keep in place the kind of popular home loans that have been around for decades: 30-year fixed-rate mortgages with relatively low interest rates.
Officials have not determined whether to advance a final proposal before the 2012 presidential election. Officials from the White House, the Treasury Department and the Department of Housing and Urban Development are working out the details.
The government could maintain a substantial role in various ways. These include restructuring Fannie and Freddie as public utilities overseen by a government regulator.
The government would no longer guarantee their financial health, as in the past, but would continue to backstop the mortgage-backed securities they issue using loans made by private banks.
Or the two companies could be shut down and replaced with several successors that, likewise, would have their mortgage-backed securities guaranteed by the government in exchange for a fee. A federal guarantee, by reducing the risk to investors, can make it cheaper for firms to raise money for making home loans, in turn reducing mortgage rates.
For years, Fannie and Freddie, shareholder-owned companies chartered by Congress to support the housing market, owned or insured trillions of dollars in home loans. When the housing market crashed, the government seized the companies, and it has spent more than $150 billion propping them up.
Since then, Fannie and Freddie have played a key role in ensuring the availability of mortgages amid the market upheaval. But the Obama administration has said it wants to scale back the federal role.
In weighing whether to preserve Fannie and Freddie, administration officials have several concerns, said people familiar with the discussions who spoke on condition of anonymity because the talks are still preliminary.
The companies spent decades developing a market in which investors worldwide can buy and sell securities backed by U.S. home loans, and administration officials don't want to jeopardize that.
Officials don't want to punish the thousands of Fannie and Freddie employees who have specialized knowledge about the mortgage market and had nothing to do with the poor business decisions top executives made in the run-up to the financial crisis.
But some critics warn that nearly any government role could leave taxpayers on the hook.
"The long-term consequence is that the taxpayers ultimately have to bail out the government's losses," said Peter Wallison, a fellow at the American Enterprise Institute. "There is only one legitimate role for government in guaranteeing mortgages. That is mortgages for low-income people, to enable them to buy homes."
Under the approach Obama endorsed, the government would seek to limit the exposure of taxpayers.
Fannie, Freddie or other successor companies would charge a fee to mortgage lenders and banks and use the money to create an insurance pool to cover losses on mortgage securities caused by defaults on the underlying loans.
The government would be the last line of defense in case of another housing-market meltdown, using taxpayer money to cover losses only if the insurance pool ran dry.
Some special advantages awarded to Fannie and Freddie would be eliminated, according to people familiar with the matter.
For example, the two companies were allowed for decades to do business while holding a fraction of the reserves - essentially, rainy-day money - that banks and other financial firms were required to hold. This advantage allowed Fannie and Freddie to grow large.
The companies, or the firms that replace them, would have to start holding much more in reserve.
by Zachary A. Goldfarb Washington Post Aug. 16, 2011 12:00 AM
White House aims to keep federal role in mortgages
Maracay Homes taps social media
When Maracay Homes executives decided to use themes such as Disney and Valentine's Day to increase their company's visibility, they didn't settle for someone in a Mickey Mouse costume waving at drivers whizzing past their housing communities or pass out roses to visitors.
Instead, this 20-year-old Scottsdale-based homebuilder used social-media tools to create a hunt for Mickey Mouse in its model homes that culminated in a drawing for a family trip to Disneyland.
In February, Maracay's Love Thy Neighbor photo contest gave its Facebook fans the opportunity to share fun moments captured digitally.
In a time when the housing market is lethargic, Maracay is using the combination of social media and real-life interaction as a way to generate some spark.
"We've all noticed a huge impact from the economy. Everybody does business different now," said Laurie Tarver, vice president of sales and marketing for Maracay. "We have to in order to survive."
Maracay initiated its social-media promotion program this year. Three promotions have tripled its number of Facebook fans. Although it's unlikely that many fans will purchase a Maracay home, it is likely it will amount to sales that otherwise would not take place, Tarver said.
"If people remember you, they'll think of you when they need you," she said.
Chandler homeowner Wrae Duncan-McCabe entered but did not win the trip to Disneyland, but her efforts did garner four free movie tickets. Because that contest utilized Facebook, contest posts that linked her page and Maracay's p
rovided exposure for the company to Duncan-McCabe's Facebook friends.
"Depending on how many people looked on my page, I could have advertised Maracay 30 times or 150 times," said Duncan-McCabe, who owns a home in the Chandler community of Whispering Heights. "Social media is getting so big. . . . I think it's a good way to get their name out there."
Since 1991, Maracay has built more than 7,000 homes in 13 Arizona communities. But the increasing popularity of tools such as LinkedIn and Twitter was a signal that adjustments in marketing strategies were needed.
It started with a Facebook page and escalated from there to include iPhone applications. Some, like Tarver, were already very tech-savvy while others learned how to poke, tweet and like through their children.
Tarver said some homebuyers have purchased homes strictly based on the information they received online through the company's website and via e-mail or social-media interactions.
After studying the options on Maracay's website, Shane Roe was pretty sure he wanted to purchase a home in the Morada at Palm Valley community in Goodyear. Being prepared before taking a look at the model made the final decision easy for Roe and his wife, Mireya.
"We went online and saw this house and knew if it looked anything like (that) in person, it was going to be a slam dunk," said Roe, who recently retired from the military and purchased his home about a month ago. "We walked through and knew in the first 10 minutes."
Technology gives potential buyers flexibility and freedom that traditional home selling experiences lack. Instead of feeling the pressure of dealing with a real estate agent who's on the phone, or getting interrupted during an inopportune time, social media puts the customer in control, Tarver explained.
"Traditionally, you call the person and it's at the sales person's convenience. If I call, I'm interfering with their day. But if I e-mail or post on Twitter, they're choosing when to have me in their life," Tarver said. "When the customer is interested, they're reading more and with social media, it's at the customer's convenience. You can accept it and at anytime you can reject it."
The key to utilizing the benefits of social media and achieving results is balancing virtual interaction with real-life contact, Tarver said. This is why the company will continue to develop promotions that incorporate both and emphasize Maracay's local feel.
"There are a lot of builders who tweet or Facebook. But we're a small builder, and we're homegrown," she said. "We want Phoenix to flourish. We're local, and everything we do focuses on the local economy."
by Georgann Yara Special for the ABG Aug. 14, 2011 03:09 PM
Maracay Homes taps social media
Instead, this 20-year-old Scottsdale-based homebuilder used social-media tools to create a hunt for Mickey Mouse in its model homes that culminated in a drawing for a family trip to Disneyland.
In February, Maracay's Love Thy Neighbor photo contest gave its Facebook fans the opportunity to share fun moments captured digitally.
In a time when the housing market is lethargic, Maracay is using the combination of social media and real-life interaction as a way to generate some spark.
"We've all noticed a huge impact from the economy. Everybody does business different now," said Laurie Tarver, vice president of sales and marketing for Maracay. "We have to in order to survive."
Maracay initiated its social-media promotion program this year. Three promotions have tripled its number of Facebook fans. Although it's unlikely that many fans will purchase a Maracay home, it is likely it will amount to sales that otherwise would not take place, Tarver said.
"If people remember you, they'll think of you when they need you," she said.
Chandler homeowner Wrae Duncan-McCabe entered but did not win the trip to Disneyland, but her efforts did garner four free movie tickets. Because that contest utilized Facebook, contest posts that linked her page and Maracay's p
rovided exposure for the company to Duncan-McCabe's Facebook friends.
"Depending on how many people looked on my page, I could have advertised Maracay 30 times or 150 times," said Duncan-McCabe, who owns a home in the Chandler community of Whispering Heights. "Social media is getting so big. . . . I think it's a good way to get their name out there."
Since 1991, Maracay has built more than 7,000 homes in 13 Arizona communities. But the increasing popularity of tools such as LinkedIn and Twitter was a signal that adjustments in marketing strategies were needed.
It started with a Facebook page and escalated from there to include iPhone applications. Some, like Tarver, were already very tech-savvy while others learned how to poke, tweet and like through their children.
Tarver said some homebuyers have purchased homes strictly based on the information they received online through the company's website and via e-mail or social-media interactions.
After studying the options on Maracay's website, Shane Roe was pretty sure he wanted to purchase a home in the Morada at Palm Valley community in Goodyear. Being prepared before taking a look at the model made the final decision easy for Roe and his wife, Mireya.
"We went online and saw this house and knew if it looked anything like (that) in person, it was going to be a slam dunk," said Roe, who recently retired from the military and purchased his home about a month ago. "We walked through and knew in the first 10 minutes."
Technology gives potential buyers flexibility and freedom that traditional home selling experiences lack. Instead of feeling the pressure of dealing with a real estate agent who's on the phone, or getting interrupted during an inopportune time, social media puts the customer in control, Tarver explained.
"Traditionally, you call the person and it's at the sales person's convenience. If I call, I'm interfering with their day. But if I e-mail or post on Twitter, they're choosing when to have me in their life," Tarver said. "When the customer is interested, they're reading more and with social media, it's at the customer's convenience. You can accept it and at anytime you can reject it."
The key to utilizing the benefits of social media and achieving results is balancing virtual interaction with real-life contact, Tarver said. This is why the company will continue to develop promotions that incorporate both and emphasize Maracay's local feel.
"There are a lot of builders who tweet or Facebook. But we're a small builder, and we're homegrown," she said. "We want Phoenix to flourish. We're local, and everything we do focuses on the local economy."
by Georgann Yara Special for the ABG Aug. 14, 2011 03:09 PM
Maracay Homes taps social media
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