Today's Local Real Estate News: "This is the most serious housing downturn since the Great Depression."

The local newspapers provided extensive coverage of mortgage crisis and the proposed intervention in the Treasury Secretary Paulson. The Sun-Sentinel reports:

“The chief executive officer of the country's biggest mortgage lender says greater government intervention is needed to rescue the U.S. housing market as his peers warn the worst is yet to come.”

“Daniel Mudd, chief executive of government-backed mortgage finance company Fannie Mae, called intervention a "positive step," saying that many borrowers will be able to avoid foreclosure if they are given more time. "Largely, the industry is beginning to reconstruct itself," Mudd said.”

“The gloomy assessments of the housing market were made Monday at a conference sponsored by the Office of Thrift Supervision, where Treasury Secretary Henry Paulson said an agreement is imminent to temporarily freeze interest rates on thousands of mortgages at risk of default.”

“Mark Zandi, chief economist at Moody's Economy.com, predicted that, if the economy slips into recession or if efforts to modify home loans don't pick up substantially, the housing market downturn could last through the end of the decade.”

“‘This is the most serious housing downturn since the Great Depression,’ Zandi said.”

“In South Florida and across the nation, mortgage defaults are rising, and experts warn that more people will lose their homes to lenders in 2008.’

The Miami Herald reports:

“Revealing more details about a national mortgage-rescue plan that's still in the works, Treasury Secretary Henry Paulson proposed Monday to help state and local governments issue tax-exempt bonds to pay for mortgage refinancing and confirmed that he seeks to temporarily freeze the rates of tens of thousands of home loans that are about to adjust to higher rates.”

“Paulson told a national housing forum that Congress should authorize state and local governments to broaden their tax-exempt bond programs temporarily. Currently, states have authorization to issue tax-exempt bonds only to aid first-time home buyers in designated distress zones. Paulson proposed to expand this to allow state and local governments to issue tax-free bonds to help in mortgage refinancing.”

“He also confirmed that he is trying to craft a plan that would prevent massive foreclosures when roughly 1.5 million adjustable-rate mortgages, or ARMs, reset to higher monthly rates next year. The affected ARMs involve subprime loans -- those given to borrowers with weak credit histories.”

“‘'As volume increases, we will need an aggressive systematic approach to fast-track able borrowers into a refinance or mortgage modification,'' Paulson said. He stressed that there would be no government subsidy to borrowers or lenders.”

Finally, the Palm Beach Post adds:

“Until now, President Bush favored government restraint. But with investors losing millions as Wall Street banks write down billions of dollars in bad home-loan investments amid mounting concerns about economic stability, the White House is pressuring the mortgage industry to offer a sweeping fix for the problem.”

“The Bush administration is "willing to consider action that would have been inconceivable just weeks ago," mortgage industry consultant Howard Glaser wrote in a research note.”

“That doesn't mean the rate-freeze approach being promoted by Treasury Secretary Henry Paulson won't face resistance from mortgage industry executives. And some on Wall Street warn of a flood of lawsuits if the government tries to coerce the owners of loans held in complex mortgage securities to focus on long-term rather than short-term returns.”

“‘I don't think (the Treasury plan is) being very well-received at all," said Bert Ely, a banking consultant based in Alexandria, Va. ‘There are lots of legal issues here that they are not addressing that are in the minds of everybody who works on this stuff.’”

“Details of the Treasury plan, which could be formally unveiled later this week, stops short of a taxpayer-funded bailout for borrowers, an idea rejected by both Democrats and Republicans. Some specifics of the plan have trickled out, such as homeowners being given a break of two to five years if they are currently making payments on time but wouldn't be able to do so when their mortgages adjust to higher rates.”

While the following story has absolutely nothing to do with the local market, I believe that the exact same situation exists here locally. It also shows why I believe Paulson efforts will have little effect. The Nevada Appeal reports on foreclosures in Las Vegas:

“The head of an independent Southern Nevada research firm told lawmakers Monday nearly 60 percent of homes in foreclosure there are not occupied by their owners.”

“That means they are either rentals or homes purchased by speculators during the housing boom of the past couple of years.”

“Jeremy Aguero, of Applied Analysis in Las Vegas, said of the nearly 30,000 unsold homes on the market, 42 percent are vacant and another 11 percent occupied by renters.”

“Duncan said Nevada, California, Arizona and Florida are in the same situation and the cause is a mix of over-development and speculative investment.”

“‘Housing construction should be in proportion to population growth but there's been a dramatic increase in housing construction compared to population growth," he said. ‘That probably indicates over-building. There's a massive supply of houses on the market.’”

“But the market has effectively collapsed, not just in Nevada but nationwide. Homes are now on the market for months, selling sporadically when owners agree to drop prices. And with adjustable-rate mortgages beginning to trigger, many homeowners and investors are finding they can't afford their new, higher payments.”

“He said large numbers of those speculators who see their investment dropping in value and the market stalled ‘will simply turn in the keys and walk away.’ When they do that, he said, the house doesn't show as delinquent.”

“Aguero said there are more than 6,000 foreclosures in Nevada ‘in the pipe’ today. And Duncan said the situation won't turn around soon.”

“‘We expect sales will continue to fall for some time," he said.”

The International Herald Tribune reports on the run on the state-run investment account:

“Florida schools and towns with money frozen in a state-run investment account are unlikely to get their cash back Tuesday when officials are scheduled to meet to discuss a crisis prompted by withdrawals that drained almost half of the fund's $27 billion in assets, a policy officer said.”

“‘If we reopen the window without limitations on Tuesday, and we see behavior like we've seen up to now, there's simply no way to meet that demand without having a fire sale on assets,’ said the policy officer, James Francis, who works at the State Board of Administration, the manager of the Local Government Investment Pool.”

“In a conference call Friday, a day after withdrawals were frozen, officials raised the possibility of paying less than 100 cents on the dollar to governments seeking cash. The board also hired BlackRock, the largest U.S. publicly traded money manager, as an adviser.”

“Florida counties and schools pulled out $13 billion in assets last month after learning that the pool, described by state officials as a money market fund, held $1.5 billion of downgraded and defaulted debt tainted by the subprime mortgage market collapse. The crisis shows the far-ranging effects of the housing slump, as complex investments once sold as high-yielding havens are now backed by collateral that investors do not want.”


The Sun-Sentinel reports on asset liquidations by local-builder Lennar Corp.:

“Home builder Lennar Corp. formed a land investment venture with Morgan Stanley Real Estate to acquire, develop, manage and sell residential real estate, with Miami-based Lennar selling properties valued at $1.3 billion to the venture for $525 million.”

“The acquired properties include about 11,000 home sites in 32 communities throughout the country, consisting of raw land as well as partially and fully developed home sites in Florida, California, Colorado, Illinois, Maryland, Massachusetts, Nevada and New Jersey.”

“As of Sept. 30, the acquired properties had a book value of about $1.3 billion for one of the nation's largest home builders.”

“The deal generates immediate cash for Miami-based Lennar and is a continuation of the company's strategy of seeking to become a "near assetless home builder," Wachovia Capital Markets analyst Carl Reichardt wrote in a Monday report.”

“JP Morgan research analyst Michael Rehaut wrote that the $775 million loss on the deal as a "net negative" for Lennar and the home-building industry because it points to more impairment charges on assets.”

“‘We believe the loss on the sale is a major negative, as it shows charges are far from over,’ Rehaut wrote.”

The Sun-Sentinel reports on the proposed “Save our Homes” portability amendment:

“This so-called portability is one part of a new tax plan that also would increase the existing $25,000 homestead exemption to about $40,000 and cap taxes for businesses and second-home owners. The package needs the approval of at least 60 percent of voters on Jan. 29 to take effect.”

“While portability would reward longtime residents, it would do nothing for first-time home buyers or retirees from out of state and may not immediately help people who bought at the peak of the housing boom in 2005.”

“‘It's far from perfect,’ said Lori Parrish, Broward County's property appraiser. ‘But it's something. It's another tool in the toolbox for home buyers and sellers.’”

“Many South Florida homeowners are staying put to avoid those huge tax increases, and that has contributed to the housing market's malaise. Home sales across the region have declined for at least two years, in part because of the property tax implications people face when they move.”

The Sun-Sentinel reports on efforts to build affordable housing in Delray Beach:

“Improvements on a run-down apartment building in Delray Beach are progressing, and the contractor plans to finish the affordable-housing project by the end of the year.”

“Once completed, the Delray Beach Community Land Trust will administer the property. Rentals will range from $301 to $724 a month, depending on income.”

“The building is part of the city's $40 million effort to improve the West Settlers Historic District, a historically black neighborhood attracting some white residents. The building is down the street from the rear of the former LaFrance Hotel, which was reopened in November after it was made into affordable housing for low-income seniors.”