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Monday, February 4, 2008

BusinessWeek: Gloom & Dooming about Housing Meltdown

Items of interest:

Housing MeltdownBusinessWeek / cover story:
Housing Meltdown -- Why home prices could drop 25% more on average before the market finally hits bottom

As Washington policymakers struggle to keep the U.S. out of recession, the swirling confusion over the housing market is making their job a lot tougher. Will American consumers keep shopping or be forced to pull back? Will banks lend freely or be hamstrung by mortgage defaults? What are the best policy options right now? Those and other important questions simply can't be answered without a good idea of whether home prices will rise, flatten out, or keep dropping.

Some experts have begun to suggest that a bottom is in sight. Pali Research analyst Stephen East wrote in a research note to his firm's clients on Jan. 25 that "the sun is not shining very brightly, but at least the worst of the storm has likely passed." With optimism budding, Standard & Poor's beaten-down index of homebuilder stocks soared 49% from Jan. 15 through Jan. 29.

But it's considerably more likely that the storm is still gathering force. On Jan. 30 the government said annual economic growth slowed to just 0.6% in the fourth quarter as home construction plunged at a 24% annual rate. The Standard & Poor's/Case-Shiller 20-city home price index fell 7.7% in November from the year before, the biggest decline since the index was created in 2000.

And that could be just the start. Brace yourself: Home prices could sink an additional 25% over the next two or three years, returning values to their 2000 levels in inflation-adjusted terms. That's even with the Federal Reserve's half-percentage-point rate cut on Jan. 30 [...]

UBS targeted in US federal probe into mortgage bond pricing - report -- Federal prosecutors in New York are investigating whether UBS AG misled investors by booking inflated prices of mortgage bonds it held, people familiar with the matter told the Wall Street Journal.

The investigation by the US attorney in New York's Eastern District is preliminary and no subpoenas have been issued. UBS declined to comment, the newspaper said.

The SEC is deepening its own set of investigations into whether a number of Wall Street firms mispriced mortgage securities, the Journal sources added. [...]
NY Times:
Lenders Who Sold and Left -- According to Mortgage Lender Implode-O-Meter, a Web site that chronicles developments in the mortgage crisis, 225 United States lenders have gone bye-bye since late 2006. Nabbing even a fraction of the mortgage captains — those who jumped ship and those who didn’t — could take eons. And many of them may be guilty of only greed, not a crime.

Still, it is a worthy effort as the losers and losses pile up. Winners, including the thousands of mortgage brokers who banked big bucks steering customers into subprime loans and the hundreds of mortgage traders and bankers at investment firms, should not be allowed to slink offstage without some recognition.

Consider John A. Johnston, former president of the Western division of the American Home Mortgage Investment Corporation. American Home Mortgage, which was the nation’s 10th-largest mortgage lender, made $60 billion in loans in 2006. When it filed for bankruptcy last August, more than 6,000 employees lost their jobs. [...]

Then there is Edward F. Gotschall, a founder and vice-chairman of finance at New Century Financial, which collapsed last April. [...]

FINALLY, let’s not forget our friends at Novastar Financial, another anything-goes lender whose stock now trades at $1.12. Its home mortgage subsidiary filed for bankruptcy on Jan. 24 and it has let go all but 30 of its employees. (Novastar had 1,700 employees in 2005.)

Among those shown the door was Scott F. Hartman, Novastar’s co-founder and chief executive. [...]
Leona Helmsley's Dunnellen HallLeona Helmsley's Lair To List for $125 Million -- Representatives of the estate of Leona Helmsley have decided to list her Greenwich, Conn., mansion for $125 million, people close to the negotiations said.

That's a big price tag, even for Greenwich, an affluent New York suburb sometimes dubbed the hedge-fund capital of the world, and it would be among the highest prices ever asked for a Northeast home. The listing agent, David Ogilvy of Christie's Great Estates, is expected to begin showing the home at the end of February, a person close to the talks said.

Known as Dunnellen Hall, the estate of more than 40 acres was at the center of Mrs. Helmsley's 1989 federal tax-evasion trial, when she was accused of illegally billing her company for more than $3 million of property renovations. The former model, dubbed the "queen of mean," served 18 months in federal prison. She died in August at age 87. [...]

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