R.C. Lim, Attorney and Counselor at Law

Housing Gets Worse

The latest Case-Shiller index showed that housing fell again in October.

Evidently, banks have been in rush to get rid of some of their shadow inventory. Anyone who has been following bank behavior in California from the sidelines knows that the banks have not been in a rush to foreclose on properties. I have had clients literally wait a year without paying on their notes with nary a word from the bank.

Evidently the problem cuts far and deep. My contacts in commercial real estate tell me that the same thing is happening there. Banks are rolling-over loans and otherwise pretending that their balance sheets look better than they do. An insolvent FDIC is hardly in a position to pressure them to do otherwise.

Now comes the impending doom. The Fed will soon stop propping up the housing market as it will soon start to deleverage its balance sheet. Rates will rise. The mountain of Alt-A and option arm mortgages that are due to reset next year will have yet another reason that their owners cannot refinance. Some 50% of Alt-A mortgages that will reset next year will take place for California real estate.

Some light reading:

http://seekingalpha.com/article/177704-u-s-government-s-new-housing-bubble

http://blogs.wsj.com/economics/2009/12/18/looking-a-little-deeper-at-bernankes-floating-rate-mortgage/

http://www.istockanalyst.com/article/viewarticle/articleid/3740535

http://moneywatch.bnet.com/saving-money/blog/home-equity/4-million-foreclosures-in-2010-its-a-real-possibility/1390/

California Homestead Exemption Increases By $25,000

The California homestead exemption protects a fixed amount of the equity in a person’s home from that person’s creditors. The means that judgement creditors cannot foreclosure on a property unless the person’s equity exceeds the amount permitted by state law. Under current California law, the base exemption is $50,000. If a person or a person’s s spouse resides in the home as a homestead, the amount rises to $75,000. For those over 65 years of age, disabled, or over 55 years of age with limited income, the amount jumps to $150,000.

On January 1, 2010, California will increase these amounts across the board by $25,000. (CA Assembly Bill 1046.) A client of mine mentioned that California to me in a hazy way, and I foolishly assumed that he was accidentally referring to the currently higher limit of $150,000 for the aged.  While this news did not pass unnoticed on the blogosphere, newspaper citations on the change are scant. I guess the newspapers assume (quite rightly) that their readership does not need to be reminded in any way of how much equity they’ve lost in their houses.

Tax Policy: When Will the Obama Administration Get One?

A month ago, the Brits did the unthinkable. Parliament levied a 50% tax on banker bonuses. Since the “City” has become the center of all global finance, this was a huge step.  It also suggests to my mind that at least one path for the US to get on the road of good government might be to take the lobbyists and make them an aristocracy.

In the US, we have a pay czar. What a good joke that has been. Most of the banks that received TARP money have been in a hurry to repay the money. Worse the government has let them, even though most ratings agencies have counseled against the hurry. The rush is of course related to the fact that the bank executives want to take their enormous salaries free of the prying eyes of government. Since we know that shareholders in the US have their eyes almost completely closed, this leaves the bankers virtually free to steal from the till.

The banks say: we have to pay for talent or risk losing it to competitors. This, as it turns out, is a very good argument. “Quite right!” an Englishman might say. So is the British solution, which says, pay the bankers what you want and let us take care of the rest. Congress obviously needs to do the same!!  Bonuses are and should be subject to the law of supply and demand but that does not mean that the bankers should also be able to keep their ill-gotten bonuses.

Rather than permit all of the bankers to scurry out of the City to friendlier locales like Wall Street or Dubai, the US and other governments should harmonize their laws on banker pay with the UK. Today’s Financial Times reports that Deutsche Bank already has plans to “globalise” (sic) the plan to spread the costs of increased bonuses to other locales. They even report that they might pass the cost on to shareholders. Wouldn’t it be nice if Congress beat them to the punch?!

Bankruptcy Fraud Prosecutions Are Down

Even though a 2003 internal audit by the FBI suggested that as many as 10% of bankruptcy petitions then included some form of fraud, prosecutions are at their lowest level since 1986 even though bankruptcy filings are reaching new historic highs. The FBI it seems has chosen to focus on “other white collar crime” instead. Interesting!

Source: www.boston.com

LA’s Foreclosure Rate

It looks like LA’s foreclosure rate is still heading North.

New Estate Tax Passes House

It seems that the House has already passed a bill that taxes estates over $3.5 million at 45%.

FDIC Report on an Underbanked Poor

On the one hand, I am delighted that this report has come out. On the other hand, it would have been better had the report been issued at a time when banks realistically were in a position to do something to address the problem.

Sheila Bair, head of the FDIC, and a hero throughout the banking crisis, says that banks need to do something to address the fact that “60 million adult Americans live without a bank account or use pawn shops and other non-bank operations to handle their finances.”

2005 Bankruptcy Reform Law Partly Responsible For Mortgage Crisis

The bankruptcy law was “reformed” in 2005 under legislation known to lawyers by its acronym as BAPCPA. George Bush did a solid for his friends in the banking industry to make filing for bankruptcy more difficult. In doing so, it encouraged many, many people to file for bankruptcy before the law would go into effect. The rates of bankruptcy on the eve of the implementation of the law reached all time highs.

According this argument from economists Wenli Li and Michelle White, the bankruptcy filings discharged credit card and other unsecured debt, freeing up household income or total household debt for subprime mortgages on inflated properties. The estimate is that mortgage defaults were increased by 800,000 and foreclosures by 250,000 thanks to the legislation. Their solution is to pass legislation to reduce the number of foreclosures by making it easier to file for bankruptcy. The idea is to lower overall household debt so that there is more leftover to pay the mortgage. The reason: the social cost of foreclosure is so much greater than from charged off credit cards. Foreclosure effects families, communities, and cities.