Obsolete Certainty

It seems that AIG isn’t the only financial giant that is paying large executive bonuses after being bailed out by the U.S. Taxpayer.  Both Fannie Mae and Freddie Mac, the giant mortgage agencies, are reportedly set to pay over $210 million in bonuses over the next 18 months.

However, absent this time are the steady stream of the usual suspects denouncing the “obscene payments”. Apparently absent this time are the protests outside the homes of employees of Fan and Fred.  Interesting.

Apparently at least one Washington insider is upset.  Iowa Senator Charles Grassley is quoted as saying “It’s an insult that the bonuses were made with an infusion of cash from taxpayers. The elite in Washington and New York need to realize that bonuses for poor performance and at taxpayer expense do a lot of damage to public confidence.”

At least this time Grassley didn’t suggest that Fannie and Freddie executives go Japanese.

The John Hancock Tower is heading towards foreclosure. No, not the iconic tower in Chicago. The one in Boston.

It seems that the gleaming glass tower, once famous for showering the sidewalk with falling window panes, will be sold to the highest bidder next month.

If you have some spare cash I am sure you can pick up the place for a relative bargain compared to the $1.3 billion the current owners paid in 2006.

Ticor Title, a mortgage title insurance company, has sued Countrywide over the title claim to a Chicago home that was reportedly bought and sold THREE TIMES during a period where the previous owner, Randy Johnson, sat mummified in a chair next to his dead dog.

The 2007 loan in question is a $360,000 first mortgage loan on a Victorian on the south side of Chi-town in which Tricor insured title. However, Ticor argues Countrywide was “reckless and grossly negligent in its underwriting of the mortgage.”

It seems that the owner Johnson had grown up in the house but seemingly dropped off the face of the earth in 2005. Cook County officials then discovered that a fraudulent deed had been backdated to 1996, which improperly transferred the property from Johnson’s deceased mother to a woman named Rhonda Evans. Evans then “sold” the house to a Donald Franklin who borrowed the money from Countrywide. The loan reportedly soon went into foreclosure and was then sold to another owner who discovered the bodies of Mr. Johnson and his loyal pet.

The mortgage meltdown continues as Freddie Mac reported a worse than expected loss in the second quarter driven by a $2.5 billion dollar provision for loan losses.  The second quarter loss of $821 million or $1.63 a share was significantly worse than analyst expectations.  Freddie will now cut the third quarter dividend and continue to seek new ways to improve the mortgage giant’s capital position.

Bill Gross, who manages the world’s biggest bond fund, estimates that the total write-downs related to the current mortgage mess will hit a trillion dollars.  Gross, manager of the Pacific Investment Management Company (often referred to as PIMCO) states that the total investment in “risky assets”, such as subprime and Alt-A mortgages, total $5 trillion. He estimates that 25 million U.S. homes are at risk for negative borrower equity.

Gross wrote that “The problem with writing off $1 trillion from the finance industry’s cumulative balance sheet is that if not matched by capital raising, it necessitates a sale of assets, a reduction in lending or both that in turn begins to affect economic growth.”

Here is an interesting twist on things. Because of the growing foreclosure problem in Texas, Mexican citizens are finding the opportunity to take back Texas. Or at least little pieces of it.  As detailed in a Bloomberg exclusive article written by Thomas Black, the rising peso and the slumping U.S. real estate market have created an a rising interest in the acquisition of Texas foreclosures.

As one American wag has predicted elsewhere, “If things in the U.S. real estate and debt markets don’t improve soon, it will be Mexico that erects the fence…to keep us out.”

Former Citigroup CEO Charles Prince, whose unemployment status is at least partially the result of the real estate crisis, is having trouble unloading a modest little home.  Prince has a five bedroom Tudor style home in Greenwich, Connecticut that has been on the market for six months. Unfortunately for Chuck, the mortgage crisis has put a bit of a chill on the housing market, even in the wealthy areas of the New York City metro area.

According to an article by Sharon Lynch in Bloomberg, Prince paid $4.48 million for the home in 2003 and currently has the property listed for $5.85 million (after a $300,000 price reduction). Of course something tells me that the paltry reduction will not be the last. According to the article, a Bloomberg survey indicates that home prices in Greenwich fell over 8% since the first quarter of last year and declines of as much as 25% are noted in the majority of upscale New York suburbs.

Welcome to our world Mr. Prince.

“Surprising” news today from the Los Angeles Times. Conducting short sale real estate transactions is not easy. Short sales, in which an underwater borrower sells the home for less than the loan balance to prevent a foreclosure, can be complicated, time consuming and sometimes impossible to complete.

“The waiting is torture,” said Mark Shandrow, a Keller Williams Realty agent in Long Beach who specializes in such transactions. “The banks are overwhelmed with short-sale requests, and some make sellers wait five months for an answer.” That answer, in many cases, he added, is “no.”

Of course sometimes the answer should be no. For the lender it is an economic decision. A short sale that will easily result in more money than a foreclosure is a no brainer. If the proposed short sale will result in significantly less that what will be realized from a foreclosure, then the answer will probably be no. If the difference is not significant, then the decision becomes more difficult.

Banks aren’t happy about short sales,” said Sherri Frost, a senior loan officer with Sherman Oaks-based Metrocities Mortgage, “but they have few options.”