Bo McCarver’s weekly housing news compilation – 11/3/2009

Disclosures about Wall Street’s bottom-feeders continue to surface: two stories about Goldman-Sachs were published this week describing the firm’s shady dealings. Foreseeing an end to the housing bubble, the company bundled its subprime mortgages into junk bonds and escaped the downturn – but now returns to foreclose on hapless homeowners.

Meanwhile, Texas Appleseed has levied a suit against the state’s handling of federal hurricane relief funds.

For a pdf version of the full stories, plus contextual articles on environmental, social and legal issues, contact Bo McCarver at bmccarver@austin.rr.com

 

Business Outlook: A Housing Recovery with a Solid Foundation

Even if policy supports are ended, home affordability and shrinking inventory point to a sector on the mend. But don’t expect recent price increases to continue apace

By James C. Cooper   Business Week October 29, 2009

The broad improvement in the housing indicators in recent months leaves no doubt that the long-awaited housing recovery is finally under way. In fact, homebuilding added solidly to third-quarter economic growth, its first positive contribution in 3 1/2 years. The question now is: Will it last?

Unlike past housing rebounds, this one has received an extraordinary amount of policy support. Tax credits, programs to aid refinancing and loan modifications, and direct Federal Reserve involvement in the secondary mortgage market have all played roles in reversing the mother of all housing slumps. As this assistance ebbs, the recovery will surely feel the loss, but the upturn is built on a solid foundation of improving economic fundamentals that will keep the rebound going.

Policy alone cannot explain the 24% gain in existing home sales since January, nor the 22% increase in new-home purchases, the 40% rise in single-family housing starts, and the recent upturn in home prices. The primary driver is historically high affordability. Fixed 30-year mortgage rates are at 5%, a multi-decade low, and prices have plunged a total of 30% since May 2006, based on the Standard & Poor’s Case-Shiller Home Price Index. By that price gauge, homes are well undervalued relative to both rents and aftertax income.

 

Senators eye extending home credit to end of April

By Andy Sullivan and Corbett B. Daly   Reuters October 28, 2009

WASHINGTON – The U.S. Senate’s top Democrat and top Republican each voiced support on Wednesday for extension of a soon-to-expire $8,000 tax credit for home buyers, but left unclear when the chamber would act.

“There has been general agreement by a significant number of senators, Democrats and Republicans, to get this done,” Senate Majority Leader Harry Reid, a Democrat, said on the Senate floor.

The chamber’s top Republican, Senator Mitch McConnell, also said most senators support the measure. “I certainly share his view,” McConnell said.

 

U.S. Economy: New-Home Sales Drop as Credit Nears End

By Bob Wills and Shobhana Chandra   Bloomberg October 28, 2009

Sales of new U.S. homes unexpectedly fell in September as the end of a tax credit for first-time homebuyers approached, highlighting the importance of government aid to the emerging economic recovery.

Purchases dropped 3.6 percent to a 402,000 annual pace that was lower than the most pessimistic economist’s forecast, according to Commerce Department figures issued today in Washington. Other data showed orders for durable goods climbed 1 percent in September, the fourth gain in the last six months.

Stocks fell as the home-sales report reinforced concerns a recovery from the worst recession since the 1930s may cool after programs such as the $8,000 tax credit and Federal Reserve purchases of mortgage-backed securities expire. Economists say a recovery in housing is a key to rebuilding the confidence and finances of American consumers, whose spending makes up 70 percent of the world’s largest economy.

 

Goldman takes on new role: taking away people’s homes

By Greg Gordon   McClatchy Newspapers November 2, 2009

SAN JOSE, Calif. — When California wildfires ruined their jewelry business, Tony Becker and his wife fell months behind on their mortgage payments and experienced firsthand the perils of subprime mortgages.

The couple wound up in a desperate, six-year fight to keep their modest, 1,500-square-foot San Jose home, a struggle that pushed them into bankruptcy.

The lender with whom they sparred, however, wasn’t the one that had written their loans. It was an obscure subsidiary of Wall Street colossus Goldman Sachs Group.

Goldman spent years buying hundreds of thousands of subprime mortgages, many of them from some of the more unsavory lenders in the business, and packaging them into high-yield bonds. Now that the bottom has fallen out of that market, Goldman finds itself in a different role: as the big banker that takes homes away from folks such as the Beckers.

 

How Goldman Sachs secretly bet on housing crash

Some experts ask if bank’s failure to disclose its wagers on imminent mortgage crisis violated securities laws

By Greg Gordon   McClatchy Newspapers October 31, 2009

WASHINGTON — In 2006 and 2007, Goldman Sachs Group peddled more than $40 billion in securities backed by at least 200,000 risky home mortgages, but never told the buyers it was secretly betting that a sharp drop in U.S. housing prices would send the value of those securities plummeting.

Goldman’s sales and its clandestine wagers on falling home prices, completed at the brink of the housing market meltdown, enabled one of the nation’s premier investment banks to pass most of its potential losses to others before a flood of mortgage loan defaults staggered the U.S. and global economies.

Only later did investors discover that what Goldman promoted as triple-A investments were closer to junk.

 

They want ‘profits’ of Ike

Homeowners say they deserve insurance payments as contractors

By Purva Patel   Houston Chronicle October 31, 2009

Some homeowners who organized their own home repairs after Hurricane Ike say they’re missing out on an insurance benefit a general contractor would receive for the same work.

According to four separate lawsuits, insurers typically include “overhead and profits” in estimating payments for damage that requires repairs by three or more specialists overseen by a general contractor.

The lawsuits, seeking class-action status, allege that Farmers, Texas Windstorm Insurance Association, Loya and Travelers failed to pay that money to homeowners who effectively acted as general contractors, overseeing their own Ike-related repairs.

 

Housing focus of Ike spending complaint

By Rhiannon Meyers   Galveston County Daily News November 1, 2009

The state is not allocating enough money to poor- to moderate-income families to repair their hurricane-damaged houses, an Austin-based social justice advocacy group told the U.S. Department of Housing and Urban Development this week.

In a formal complaint, Texas Appleseed claimed that Texas’ plan to spend the second round of money allocated for Hurricane Ike recovery does not meet federal requirements, specifically because it allows regional councils of government to decide how federal disaster recovery dollars are spent. Those regional councils, including the Houston-Galveston Area Council, are not spending enough money on housing for low- to moderate-income families, staff attorney Madison Sloan said.

 

Racial tensions talk dominates housing meeting

By Leigh Jones   Galveston County Daily News October 30, 2009

GALVESTON — Proponents of public housing applauded the Galveston Housing Authority’s plans to rebuild and defended former residents against accusations of rampant drug use and criminal behavior during a public meeting Thursday.

Housing authority officials hosted the meeting to get input on their redevelopment plan, but almost everyone who spoke wanted to talk about the racial tensions starting to simmer in the community.

The shrill and loud voices of opposition to public housing want to make Galveston a gated community, Harris L. “Shrub” Kempner said.

 

L.A. homeless population drops despite recession, county study finds

Los Angeles Times October 28, 2009

Los Angeles County’s homeless population has dropped 38% since 2007, according to a survey conducted this year by the Los Angeles Homeless Services Authority.

The count, which was conducted over three days in January, pegs the region’s homeless population at 42,694, down from 68,808 in 2007.

The population is still centered in central and downtown Los Angeles, according to the survey, but those numbers have dropped even more significantly.