The housing crisis in 1933, and today

Original Post: http://www.marketwatch.com/story/the-housing-crisis-in-1933-and-today-2010-10-15

The real-estate market is suffering now, but it was worse then

By Lew Sichelman

Realty Q&A is a weekly column in which Lew Sichelman, a nationally syndicated columnist who has been covering the housing market for more than 35 years, responds to readers’ questions on real estate.

WASHINGTON (MarketWatch) — Question: I know that the New Deal created the Home Owners’ Loan Corp. I have been eager to read an article by someone who has looked at the way that mortgage crisis was handled ... and compared it to government efforts in our present crisis. If you are familiar with anything written on this subject I would appreciate your informing me where to find it. If you are not aware of anything, I might suggest that you would be an excellent person to explore it. —M.N.



Answer: Actually, you’re in luck. I do know of one such study; it was done a few years ago by Alex Pollock, a resident fellow at the American Enterprise Institute in Washington and the former president of the Federal Home Loan Bank of Chicago.

Pollock looked back to 1933, when Congress created the Home Owners’ Loan Corp. as a temporary fix “to relieve the mortgage strain and then liquidate.”


While the current mortgage meltdown and resulting — or corresponding, depending on your point of view — housing bust has been described as the worst since the Great Depression, it is nothing when compared to what happened in ‘33, when a financial and economic collapse occurred that is all but impossible to imagine today.

Back then, about half of all mortgage debt was in default. Unemployment reached 25%, thousands of banks and savings and loans had failed and annual mortgage lending had fallen by some 80%. New residential construction had dropped by 80% as well.

The prelude to the crisis might sound familiar. It was a period of grand economic growth and overconfident lending and borrowing. The 1920s featured interest-only loans, balloon payments, an assumption of ever-rising prices and the firm belief in the easy availability of a string of refinancings.

And then came the crash, the defaults, and the markets froze.

By comparison, only 2.95% of mortgages as of Oct.1, 2007, when Pollock wrote his paper, were labeled seriously delinquent, meaning roughly 1.5 million loans 90 days past due or in foreclosure. That’s risen to 9.11%, as of the second quarter this year, according to the latest figures from the Mortgage Bankers Association. Read more on foreclosures drop, but delinquencies rise, in MBA's second-quarter report.

In sheer numbers, that’s a lot of troubled borrowers. But as a percentage of a much, much larger base than in the early ‘30s, their number is relatively small.

How to fix the problem

Of course, if you are one of those who is unable to make mortgage payments, or are facing the prospect of an unaffordable house payment, you don’t want to hear about percentages. You want help, if not from your lender, then from your government.

Lenders claim they are doing their damnedest to work with delinquent borrowers. But consumer groups say they need to do more, and the public discussion is full of proposals at both the state and federal levels for some sort of government intervention.

The current debate about what to do is a common theme that follows almost all housing busts, Pollock said. “This is a recurring phase,” he wrote in his paper. “There is a political imperative to do something. History is clear that government actions are always taken. It is only a question of which ones.”

While there is certainly no dearth of ideas on how to fix the mortgage markets, Pollock suggested that it is well worth taking a look at what was done to clean up the 1933 bust and save millions of homeowners from catastrophe.

Historical perspective


Since AEI is a private, nonpartisan, not-for-profit public policy research institute, and since neither AEI nor Pollock have a dog in this fight, it seems to me to be a good idea to peer backwards before trudging forwards, if only because it is always good to bring some historical perspective to any issue of such magnitude.

Seventy-seven years ago, with a law that took only 3½ pages of text, Congress created the Home Owners’ Loan Corp. to acquire defaulted residential mortgages from lenders and investors and then refinance them at more favorable and sustainable terms.

In exchange for the loans, lenders would receive HOLC bonds. While the bonds would earn a market rate, the rate was lower than that of the original mortgage, But since the bond took the place of what had become a non-earning asset, and one with little prospect for ever turning a profit, banks eagerly agreed to the trade.

In addition, lenders often would take a loss on the principal value of the original mortgage. This, according to Pollock, was “an essential element of the reliquification program, just as it will be in our current mortgage bust.”

The Home Owners’ Loan Act called for the directors of the government-sponsored corporation to liquidate the company when it’s “purpose had been accomplished” and pay any surplus or accumulated funds to the U.S. Treasury. In 1951, during the height of another housing boom, they did just that, closing the pages on a period of history that has long been forgotten.

Eighteen years was probably a little longer than lawmakers originally expected. But during its life, the Home Owners’ Loan Corp. made more than a million loans to refinance troubled mortgages, according to Pollock, who had spent 35 years in banking when he left the Chicago Fed in 2004. That’s about 20% of all mortgages in the country at that time.

By 1937 alone, in what the AEI scholar calls a “remarkable scale of operations,” the Home Owners’ Loan Corp. owned almost 14% of the dollar value of all the nation’s outstanding home loans.

HOLC’s investment in any mortgage was limited by law to 80% of the underlying property’s appraised value, with a maximum of $14,000. With an 80% loan-to-value ratio, then, the maximum house price that could be refinanced would be $17,500.

A mere pittance, by today’s standards. But that was in 1933 dollars. After adjusting the $17,500 ceiling by the Consumer Price Index, the maximum today would be about $270,000, Pollock said. And based on changes in the Census Bureau’s median house price since 1940, the limit would be something on the order of $1 million.

Therefore, Pollock contends in his paper, a modern HOLC could very well operate all over the country, even in high-cost markets like California and New England.

The 1933 law also set an interest rate ceiling of 5% on the new loans HOLC could make to refinance the old ones it acquired. The spread between this rate and the cost of the bonds the HOLC Corp. issued averaged about 2.5%, according to Pollock. And with long-term Treasury rates now at about 4%, an equivalent spread would lead to a loan rate of about 6.5%.

That may be a tad higher than some borrowers would like. But at least it would be a fixed rate, never to change over the loan’s life. Read more on mortgage rates fall to new record low.

According to Pollock, HOLC tried to accommodate as many borrowers as possible. But there were some borrowers that could not be rescued, no matter what. Eventually, it foreclosed on about 200,000, or 20%, of its loans. In other words, for every four borrowers who were saved, another family lost its home.

An acceptable outcome? Maybe, maybe not. But since each and every home owner who refinanced through this program started in default and was close to foreclosure anyway, Pollock, for one, says the result was “quite respectable.”

“We don’t need something of the same scale” this time around, Pollock said of the HOLC, which had as many as 20,000 employees. “But I think the concept offers a pretty intriguing historical perspective. What I especially like about it is that it set up to do a job, and when it was done, it closed down.”

Nationally syndicated columnist Lew Sichelman has been covering the housing market for more than 35 years. Because of the volume of mail he receives, he cannot answer individual questions, nor can all questions be answered in this space. Email lsichelman@aol.com

New Disaster Lab Destroys House With High Winds

10/21/2010 2:22:08 PM

A test conducted at the Institute for Business and Home Safety's newly opened disaster lab subjects houses to 96 mph winds -- simulating a Category 3 hurricane.

Cronkite’s Summer Home Under Contract

Original Post: http://www.nytimes.com/2010/10/24/realestate/24Deal2.html?ref=realestate

By SARAH KERSHAW


Published: October 21, 2010

Picture Courtesy of Sotheby's

Walter Cronkite’s six-bedroom home in Edgartown, Mass.

WALTER CRONKITE was a summer fixture in Edgartown on Martha’s Vineyard, often spotted taking the Clintons and other political bigwigs out sailing in his 60-foot yacht Wyntje. Now the summer home of Mr. Cronkite, the CBS news anchor known as “the most trusted man in America,” who died last year at the age of 92, has gone into contract, according to brokers on both sides of the deal.

Jason Szenes/European Pressphoto Agency

Walter Cronkite in 2006.

Because the listing, with an asking price of $12.25 million, is in contract, the broker representing Mr. Cronkite’s estate, Ann Heron of Wallace & Company Sotheby’s International Realty in Edgartown, said she could not identify the interested parties. But she did dispel one rumor that’s been flying around the island lately: that Lady Gaga was the buyer.

“The buyer sure didn’t look like Lady Gaga to me,” Ms. Heron said.

The six-bedroom four-and-a-half-bath waterfront colonial has its own pier — where Mr. Cronkite docked his yacht — as well as 4,330 square feet of space. Built in 1929, the house is set on a hill, with a towering white chimney and flagpole that became integral features of the harbor’s landscape. Sharon Smith Purdy of Sandpiper Realty in Edgartown is representing the buyers.

E-mail: bigdeal@nytimes.com

Tab for Fannie, Freddie Could Soar to $259 Billion

Published: Thursday, 21 Oct 2010 12:57 PM ET By: Associated Press

The government spelled out Thursday just how much the most expensive rescue of the financial crisis will end up costing taxpayers — as much as $259 billion for mortgage buyers Fannie Mae and Freddie Mac.

Peter Gridley

Photographer's Choice

Getty Images

That figure would be nearly twice the amount Fannie [FNMA 0.39 0.009 (+2.36%) ] and Freddie [FMCC 0.401 0.008 (+2.04%) ] have received so far.

By contrast, the combined bailouts of financial companies and the auto industry have cost taxpayers roughly $50 billion, according to the Treasury Department's latest projections. And the bailouts of Wall Street banks alone, which sparked public fury, have so far brought taxpayers a $16 billion return.

Fannie and Freddie could end up costing taxpayers between $142 billion and $259 billion through 2013, the Federal Housing Finance Agency projected Thursday. Those figures take into account dividends that the agency estimates the two companies will end up paying the government: Between $80 billion and $104 billion over the next three years.

The two mortgage finance companies have been operating under federal control for more than two years after nearly collapsing because of the housing bust.

When the government stepped in to take them over in September 2008, their rescue was expected to cost only a combined $200 billion. Fannie and Freddie have already received $148 billion from the government. But they have paid back $13 billion in dividends so far. The terms of their rescue require them to pay a 10 percent annual dividend to the Treasury Department.

Thursday's estimate was the first time the housing agency has released a public estimate of the taxpayer tab. The combined bailout of the two mortgage companies is on track to be the largest of the financial crisis.

Compare that with what was once the most expensive single bailout — American International Group [AIG 41.88 0.27 (+0.65%) ]. That is now projected to cost taxpayers only $5 billion. Even that bailout could turn a profit, Treasury said this month, if its sale of AIG shares succeeds.

The Obama administration's rescue of the U.S. auto industry is projected to cost $17 billion, Treasury has said.

© 2010 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

Banks Restart Foreclosures

Original Post: http://online.wsj.com/article/SB10001424052702304410504575560634267416838.html?mod=WSJ_RealEstate_LeftTopNews

BofA and GMAC Lift Their Freeze in a Counterattack Against Allegations of Fraud

By JESSICA SILVER-GREENBERG, ROBBIE WHELAN and DAN FITZPATRICK

Two major lenders at the center of the foreclosure crisis took steps Monday to put the mess behind them by restarting home seizures that were frozen by documentation concerns.

Bank of America Corp. reopened more than 100,000 foreclosure actions, declaring that it had found no significant problems in its procedures for seizing homes. GMAC Mortgage, a lender and loan servicer, said that it also is pushing ahead with an unspecified number of foreclosures that came under intense pressure.

Bank of America prepared to restart 102,000 pending foreclosure actions where court approval is required, applying new signatures to documents in 23 states. Rick Brooks discusses. Also, Elizabeth Bernstein discusses the various ways men, women, strangers and family members apologize.

Monday's moves are part of a growing counterattack by lenders scrambling to stem a financial and political threat over allegations that certain employees signed hundreds of documents a day without carefully reviewing their contents when foreclosing on homes.

Bank of America, the nation's largest bank in assets, which imposed on Oct. 8 a nationwide moratorium on the sale of foreclosed homes, said it has begun preparing new affidavits for pending foreclosures in 23 states where a judge's approval is required. The paperwork will be submitted to courts by next Monday, and foreclosure sales will resume in those states starting in November, according to the bank.

"This is an important first step in debunking speculation that the mortgage market is severely flawed," said Bank of America spokesman James Mahoney. More details will be disclosed when the company reports quarterly results Tuesday.

Citigroup Inc. Chief Financial Officer John Gerspach said the bank has found no reason to halt foreclosures, calling its internal procedures "sound." "We have not identified any system issues," he said Monday.

Restarting the nation's foreclosure machine puts the lenders on a collision course with state attorneys general, who announced last week a nationwide investigation of foreclosure practices. Some state officials have been pushing for a wider halt to foreclosure sales, but Bank of America's moves show determination by at least some lenders to get back to business while the investigation proceeds.

A Bank of America spokesman said the bank has found "no cases" thus far of foreclosures that should not have "gone through." Last week, James Dimon, J.P. Morgan Chase & Co. chairman and chief executive, said that no one has been "evicted out of a home who shouldn't have been."

Some attorneys general said they have little confidence that problems with foreclosures have been fixed. "We've been in discussions with some of the major servicers, and as part of that they've assured us that they are fixing this problem, but we're not just going to take their word for it," said Patrick Madigan, a spokesman for Iowa Attorney General Tom Miller.

It will be hard for lenders to declare the foreclosure crisis over and get back to business as usual. Bondholders are escalating efforts to recover losses on soured mortgage-bond deals containing loans with flawed paperwork. Meanwhile, federal banking regulators are assigning additional employees to an ongoing review of large mortgage-servicing operations, according to people familiar with the situation. Officials want to make sure that documentation procedures are being followed and companies are meeting all legal foreclosure requirements.

Bank stocks surged Monday as investors reassessed last week's outlook for the cost of the foreclosure mess. Citigroup shares jumped 23 cents, or 5.8%, to $4.18 a share in New York Stock Exchange composite trading at 4 p.m., on better-than-expected earnings. Bank of America rose 36 cents, or 3%, to $12.34, while J.P. Morgan was up $1.05, or 2.8%, to $38.20.

Bank of America is the only major U.S. bank that announced a halt to all foreclosure sales while it reviewed documents for errors. Bank officials say they're readying new affidavits for 102,000 pending foreclosure actions.

A company spokesman said the largest investors in mortgages serviced by Bank of America have signed off on the new timetable. The bank will continue delaying foreclosure sales in the 27 states where court approval isn't required until a review is completed "on a state by state basis." The bank expects delays on fewer than 30,000 foreclosure sales nationwide.

"Now it may be legal, but I am not sure it's ethical," said Robert Quigley, a 68-year-old retired commercial fisherman, who received a legal notice last week that Bank of America is proceeding with foreclosure on his home in Lake City, Fla. A bank spokesman said the bank never said it would stop all foreclosure proceedings, just final sales.

GMAC, a unit of Ally Financial Inc., declined to comment on the number of foreclosures it has reviewed so far, but said they included loans with affidavits signed by employee Jeffrey Stephan. His testimony in a deposition that he signed 10,000 foreclosure affidavits a month without reviewing the underlying documentation led GMAC to halt evictions in 23 states last month while it scrutinized its procedures.

Several lawyers representing borrowers facing foreclosure by GMAC said affidavits signed by Mr. Stephan were replaced by similar filings with the signature of a different employee.

AFP/Getty Images

Bank of America and GMAC reopened more than 100,000 foreclosure actions.

Michael Holmes, an antiques dealer in Belfast, Maine, thought he would get a chance to save his home because the affidavit used by GMAC to substantiate his loan amount was signed by Mr. Stephan. Instead, GMAC replaced Mr. Stephan's document in the courthouse file for the foreclosure proceeding with an affidavit signed by employee Davida Harriott. Her name also appears on substitute paperwork in pending foreclosure cases in Florida, according to court documents and lawyers representing the borrowers.

Gina Proia, a spokeswoman for Ally, said on Monday: "As each case is reviewed and remediated, it moves on." None of the revised foreclosure documents being filed by the company will bear the signature of Mr. Stephan, though he still works for GMAC, she said. Mr. Stephan and Ms. Harriott couldn't be reached for comment.

Ohio Attorney General Richard Cordray, who last week filed a lawsuit against GMAC alleging hundreds of counts of fraud related to foreclosure documents, said he is suspicious of efforts to replace paperwork. "Substituting new evidence in [cases] where there's been fraud won't help prevent the court from sanctioning them for the fraud that has already been committed," he said. "It doesn't unring the bell."

Write to Dan Fitzpatrick at dan.fitzpatrick@wsj.com

The Short Sale Alternative

Original Post: http://online.wsj.com/article/SB10001424052748703794104575546312207379980.html?mod=WSJ_RealEstate_LEADTopNews

By SARAH MAX

OCTOBER 13, 2010, 1:45 P.M. ET

Barbara P. Fernandez for The Wall Street Journal

Justin and Rebecca Rakitin are finally moving into their townhome after nearly a year of wrangling.

When newlyweds Justin and Rebecca Rakitin starting shopping for their first home in the Fort Lauderdale, Fla., area last year they assumed the process would be quick and easy, with a $8,000 first-time buyer tax credit at their disposal and 'For Sale' signs littering every block.

In fact, most of the listings in the Rakitins' price range were either foreclosures or short sales, where sellers were asking for less than they owed on their mortgage. After seeing some "really nasty" foreclosures, says Ms. Rakitin, age 27, the couple decided to stick with short sales.

In November 2009 they found what they wanted–a three-bedroom, two-story townhome that sold for about $300,000 in 2007, listed for half the price. Worried that other buyers would pounce, they offered $165,000. The sellers quickly accepted.

Then the waiting game began.

Once relatively obscure transactions, short sales have become the norm in many hard-hit markets, representing roughly a third of properties for sale in Nevada, California and Florida, according to estimates from the National Association of Realtors. Though most buyers don't actively seek short sales, they're an opportunity to buy property that's generally in good shape and priced 10% to 20% below market value.

While foreclosed properties typically see bigger discounts, short sales have one distinct advantage: "They have the cooperation of the owner," says Lance Churchill, an attorney and president of Boise, Idaho-based Frontline Real Estate Education Group, which offers training to real-estate agents and investors, in Boise, Id. That's particularly germane now. In recent weeks, four major mortgage servicers have halted foreclosures, as questions over improper documentation have arisen. Sales of foreclosed property are also being put on hold and buyers are wary of getting into the market. (More: Evicted Family Breaks Into Their Former House)

Of course, short sales have problems of their own. Because a short sale results in a loss to the seller's lender, the deal can't go through without a blessing from the bank. Typically that doesn't happen until after an offer is made, says Rick Sharga, a senior vice president at RealtyTrac, which tracks foreclosure and home sales data and sells it to investors. "The bank may not even know that the seller is attempting to short sale the house," he says.

The government's new Home Affordable Foreclosure Alternative program promises to streamline the process with preapproved short sales. Still, it's not uncommon for buyers to spend three to six months, or longer, in real estate limbo. "As a buyer, you're stepping into quicksand," says Lawrence Duffin, a partner with Taza Systems, an online portal that banks, agents and investors use to track distressed property. For a short sale to make sense, he says, the house "has to be aggressively priced or exactly what the homeowner wants."

Last year, Nikolai and Jeanny Vinogradov set their sights on a luxury condo development in downtown Seattle when prices began falling within their reach. Mr. Vinogradov found a 900-square-foot one-bedroom that sold for $497,000 in March 2007 and was initially listed as a short sale at $430,000. In no rush to buy, the couple kept tabs on the listing–getting preapproved for a loan with 20% down in the meantime. When the price was reduced below $400,000 last September they offered $350,000 and then waited seven months for the seller's lender to sign off. "It was long and painful, but we were patient," says Mr. Vinogradov, an investment management associate. "In the end it worked out amazing for us."

Because there are any number of factors that can influence the timeline, "knowing the dynamics of the situation is key," says Kirk Russell, a broker with John L. Scott in Seattle. For example, things can get complicated when one bank services a loan and another one owns it, if mortgage insurance is part of the picture or if more than one lender has skin in the game. "Second liens are notorious for screwing up short sales," says Mr. Churchill.

Such was the case for Rakitins. While the seller's two lenders wrangled behind the scenes, the couple waited nearly a year, renting month to month. Just this month, the couple finally closed on their townhome–hours before the home buyer tax credit expired. "Our [agent] kept us on alert about what came in the market," says Ms. Rakitin, who works in public relations for the travel industry. "But they were all short sales and we didn't want to start the process over again."

Given all the nuances of these deals, buyers considering short sales should work with agents who have experience navigating this murky territory. If time is of essence, avoid short sales altogether or at least stick with listings whose prices have already been preapproved by the bank. "If you're fortunate to follow up on a deal that fell apart, you might be able to come in and close in 30 days," says Mr. Russell.

When making an offer, do your own homework. Just because a short sale is priced at a steep discount relative to where it last sold doesn't mean it's a great deal relative to the current market. Conversely, some agents will underprice a listing in the hopes of sparking a bidding war, says Mr. Sharga.

Of course, the highest bidder doesn't always win. "Banks want to see a clean offer with solid financing and no contingencies," says Mr. Churchill. Buyers who've been preapproved and bring hefty down payments to the table or can pay cash tend to get first consideration. And don't expect the bank to bend over backwards making repairs; most sales are as is.

After moving to Sante Fe from Colorado in 2008, Scott and Margaret Newman put an offer on a three-bedroom, two-bathroom short sale. "They acknowledged the offer and then it went dark," says Mr. Newman, a fixed-income portfolio manager, who after two months found another home and pulled out of the deal. "The whole process was so nontransparent; I don't think I'd go through that again."

Write to Sarah Max at Sarahvonmax@gmail.com

From a Mysterious Mansion to a Ralph Lauren Store

Original Post: http://www.nytimes.com/2010/10/10/realestate/10scapes.html?_r=1

Streetscapes Madison Avenue and 72nd Street

Picture: Frances Roberts for The New York Times

The building, shown in 2005, became a Ralph Lauren store; another has just gone up across the street.



By CHRISTOPHER GRAY


Published: October 7, 2010
 
THE super-luxe new Ralph Lauren palazzo, at the southwest corner of Madison Avenue and 72nd Street, is scheduled to open in mid-October. But across the street, hidden for months behind a veil of netting, is the old store, a limestone mansion with a mournful past, built in 1898 by an heiress who never lived in it.

Office for Metropolitan History

The Gertrude Rhinelander Waldo house, as it looked in 1899. By most accounts, Mrs. Waldo never lived there.

Gertrude Rhinelander was born about 1837 into a family that had lived in New York since the 17th century, and in 1876 she married Francis Waldo, a stockbroker who had been ruined in the Panic of 1873. Her lifestyle, however, was never less than genteel; at her death in 1914, The New York Sun said she had inherited $2 million.

Mr. Waldo died in 1878, and in 1882 Mrs. Waldo bought the southeast corner of 72nd Street and Madison Avenue, which despite its horsecar line was dotted with the mansions of those who eschewed the show of Fifth. The Real Estate Record and Guide reported that Mrs. Waldo was going to erect a mansion “quite unique in design.” She did not go ahead, but five years later bought the inside lot on the side street.

Mrs. Waldo still did not build, and lived with her sister, Laura, in a row house across 72nd from the site. According to The Oswego Daily Palladium in 1889, Mrs. Waldo was “a very pretty woman,” and by some accounts she was keeping company with Charles Schieffelin, a lawyer.

But in 1889 she sued him for stealing $12,000 she had given him to invest. Mr. Schieffelin, a Union Club member separated from his wife, counterclaimed that he and Mrs. Waldo were to be married, and that he had invested the money as directed. She protested that marrying a divorced man would have been “too dreadful” to contemplate. The disposition of the case is not clear.

It was not until 1894 that Mrs. Waldo, then living at the old Hotel Savoy, began to build an impressive limestone mansion, along with a smaller house on the inside lot. In the French Renaissance style, it would have fit in just fine with those on Fifth. In any event, it had elegant company on Madison Avenue, which north of 59th attracted perhaps a dozen mansions. Consuelo Vanderbilt was living in one on the southwest corner of 72nd when she married the Duke of Marlborough in 1895.

Kimball & Thompson received design credit in architectural periodicals, but a photograph of the mansion published at or near the end of construction included the notation that it was designed by Alexander Mackintosh, an obscure local practitioner. With delicate, lacy Loire Valley trim, it has so many windows, it looks as if somebody had taken a shotgun to it. There was said to be a top-floor ballroom and 2,000 electric lights, but only two bedrooms for servants. The New York Times opined that such a house would require a staff of at least a dozen.

Mrs. Waldo’s overwrought dwelling was completed by 1898. One directory lists her as residing there, but that is probably an error. All other period sources say she remained in her sister’s much more modest row house across the street, and never moved in.

At her death in 1914, The New York Sun described Mrs. Waldo as “of forceful manner and some unusual views” on art, dress and society, and said that she had vowed to leave the United States several times. Mrs. Waldo was often in court, and not just with Mr. Schieffelin. In 1901 a subcontractor on the house filed a claim against her for $2,600. In 1909, she began an extensive legal battle with a servant, Mary Madden, who complained she was owed $5; there were suits and cross-suits for $250, $15,000 and a claim of false arrest.

Mrs. Waldo resigned from a club in indignation in 1909 when another member criticized her dress. And in 1912 The Sun reported that she was sued for illegally transferring assets to her sister to avoid payment of a debt. The outcome of most of these complaints is hazy.

At the same time, Mrs. Waldo personally collected rents in her twin apartment buildings, the Kaiser and the Rhine, at Second Avenue and 89th Street; in 1904, when a fire broke out, she tried to get through police lines to rescue her tenants; no one was killed.

In 1909 The Times reported that her remarkable house, built and furnished at a cost of $1 million, was in foreclosure, its limestone badly discolored, its great glass dome cracked.

By the 1920s the house was the headquarters of Olivotti & Company decorators, with apartments upstairs. Polo Ralph Lauren arrived in the late 1980s, and the building is still a Ralph Lauren store. The company has just treated it to an extensive exterior restoration, simultaneous with the completion of a second store across the street on the site of Consuelo Vanderbilt’s mansion. For the new building, Weddle Gilmore Architects has produced an assured and demure neo-Classic design, French in character. At the time of proposal it was challenged by some preservationists as a fake, but as it stands, it is magnificent.

The peculiar story of Mrs. Waldo is not unusual; New York has other private houses that for unexplained reasons were never occupied by their rich owners. But Mrs. Waldo’s case is a particularly sorry one; although she had inherited millions, in 1915 The Times reported that she died in debt for $135,000.

E-mail: streetscapes@nytimes.com

A version of this article appeared in print on October 10, 2010, on page RE9 of the New York edition.

Banks face fresh crisis: How to be a REIT

Original Post: http://finance.fortune.cnn.com/2010/10/07/banks-face-fresh-crisis-how-to-be-a-reit/

Posted by Katie Benner


October 7, 2010 1:13 pm

The biggest banks are now large property owners, thanks to for the foreclosure crisis. Clearing those assets off the balance sheet won't be an easy task.

The White House said on Thursday that President Obama will veto legislation that some say would make it easier for banks to process foreclosures. The threat of what would be the President's first veto comes as several of the largest banks are being investigated for improperly processing thousands of foreclosures.

This also comes as some of the nation's largest financial institutions are already strapped with real estate assets and in many cases must now foreclose, take physical possession, and sell property – the sort of labor intensive activity that banks were never meant to handle, Chris Whalen, co-founder of Institutional Risk Analytics, told a packed room at the American Enterprise Institute on Wednesday. "They are not designed to be REITs, but that's what our banks are becoming," he said. "We are turning all of our banks, [Fannie Mae] and [Freddie Mac] into owners and operators of real estate, and this stress is going to overwhelm them."

Whalen demonstrated that banks are already under the same operational stress they were after the last two major recessions, but in this case they're far from out of the woods. Citing research by Laurie Goodman of Amherst Securities, he said that only 25% of the total number of foreclosures and sales of foreclosed properties have been accomplished. Another presenter at the event, UBS managing director Thomas Zimmerman, said there could be 11.5 million more foreclosures in the next few years, a situation he called "really bad."

Bank of America (BAC) and Wells Fargo (WFC) were mentioned as institutions to watch, since they face a "mind boggling" flow of property and claims related to securitization activity that will raise the cost of doing business far beyond what these institutions can handle.

In response, Bank of America reiterated points made in September by chief executive Brian Moynihan, who said that the bank was among the few to give detailed liability disclosures. "Just because a loan's put back doesn't mean there's loss in it… they're manageable numbers, not pleasant numbers but manageable numbers," Moynihan said during a presentation to analysts. He added that the situation would settle sometime in 2012.

Wells Fargo did not respond to a request for comment.

Pessimism prevails

Whalen delivered his remarks during a particularly grim AEI event titled, "Living in the Post-Bubble World: What's Next," where panelists including NYU professor Nouriel Roubini and Mark Fogarty, of National Mortgage News, competed for the title of most pessimistic prognosticator.

Roubini said that even without a double dip recession the global economy will continue to feel like it's in recession, and that a double dip recession could be triggered by problems in Europe. Desmond Lachman, an AEI resident fellow, agreed that we're not far away from a major European banking crisis, and said that the euro is going to have to unwind.

Whalen also said that the Federal Reserve is keeping a lid on consumption by keeping interest rates ultra low. While this increases the amount of money banks make on loans, it has effectively transferred about $750 billion in money from consumers and corporations to the banking industry to subsidize losses. You won't see a pick-up in consumer demand until it ends, he said. "If you take grandma's money away and she just has enough left to buy food, then obviously the grandkids aren't going to get nice gifts at Christmas," said Whalen.
Even so, John Makin, an AEI resident scholar and principal at Caxton Associates, said that the downturn will compel the Federal Reserve to expand its purchase of Treasuries and mortgage securities.

Whalen provided the panel's tarnished silver lining, saying that the government's many modification and forbearance programs did not fix problems, but bought us time to figure out the next step. "We have to start restructuring," he said. "Whoever does that first in the global marketplace is going to be ahead of the game, and I think the United States can do that."

Tags: Wall Street, banks, Federal Reserve, banking, real estate, Chris Whalen, Nouriel Roubini

'The Social Network' mystery: Where are the lawsuits?

Jesse Eisenberg as Mark Zuckerberg

By David A. Kaplan, contributorSeptember 27, 2010: 12:02 PM ET

FORTUNE -- If you believe what the folks at Facebook have been telling the press, there's a lot in the new movie, "The Social Network" that's just plain fiction -- especially about the company's co-creator and chief executive, Mark Zuckerberg. Aaron Sorkin, the screenwriter, has acknowledged he aimed for "fidelity." But the fidelity was to "storytelling," not to truth.The movie itself ends with a disclaimer that some material in it is invented -- as in "not true." There clearly are specific scenes that didn't happen in real life and some of them -- like Zuckerberg having sex in a bathroom with an underage woman -- are not kind. Overall, by most accounts, he comes across as a jerk.

So in our litigious society, just how can a studio make a film like the "The Social Network" and not get sued?

An obvious part of the answer lies in the creative license that American law gives to writers. A novelist can pen a roman à clef, journalists can play with quotes, Oliver Stone can do a wicked screed like W. -all are protected under the First Amendment as long as the material isn't outright libelous. The fact the works play with the truth is legally beside the point unless the fiction is so over the line that it harms somebody and does so recklessly. [Read Jessi Hempel's take on squaring the Zuckerberg she knows with the one in the movie: "The incredibly untrue adventures of Mark Zuckerberg."]

For some "based on true events" films -- especially on TV -- studios get waivers or releases from the living real-life individuals who will be portrayed on screen. The price of cooperation is a big fat check, with the transaction sometimes being couched in the notion the individuals will be "consultants" or "advisers" on the movie. HBO has become the model for doing it differently, preferring to rely on the public record, as well as its own research. It will buy the rights to books from authors, but HBO typically does not pay for the rights to anyone's "life story."

So, when "Too Big to Fail" starts shooting in a month, no participant in the great financial meltdown of 2008 will have gotten a dime from HBO (which, like Fortune, is owned by Time Warner). Similarly, HBO will not have any waivers or releases when it films docudramas on the 2008 presidential race and 2006 Duke lacrosse scandal. The studio does aspire to verisimilitude: It will interview real-life participants and show them scripts and early film cuts -- and make changes if HBO is convinced they're warranted.

"The Social Network," which Sony Pictures releases this week, followed the HBO example, sort of.

Producer Scott Rudin had ongoing discussions with a Facebook executive, Elliot Schrage, who saw a script and an advance cut. Although Zuckerberg and the company declined to collaborate, Schrage was able to get some scenes and a few details changed. And the moviemakers satisfied their own agenda: they went for accuracy (when it suited them) and were apparently able to defuse any potential Facebook thoughts of litigation, while at the same time being able to focus on "storytelling" rather than "truth."

The quiet negotiations between Facebook and producers might be relevant if there ever were defamation litigation. Facebook would argue it provided ample warning that the movie contained falsehoods-and the producers' failure to fix them would help Facebook prove the kind of abject carelessness that libel law requires. But the moviemakers would argue by showing Facebook a script and a cut the moviemakers were going out of their way to be cautious.

"The Social Network" also relied in part on "The Accidental Billionaires: The Founding of Facebook -- A Tale of Sex, Money, Genius, and Betrayal," a book by Ben Mezrich that itself skates between truth and fiction; an author's note explains the book is "a dramatic, narrative account" that "re-creates" scenes and dialogue, and uses "details" that have been "imagined." In other words, Mezrich made some stuff up, which in turn is used by the movie, which bills itself as "based on true events." Pretty neat trick.

Zuckerberg could well decide that any errors in "The Social Network" are trivial and that the movie actually winds up making him a sympathetic figure. After all, Facebook was founded when he was in college; everybody behaves badly in adolescence; and at the end of the day Zuckerberg is the $6 billion boy king of a Silicon Valley corporate icon. Then again, he might still be looking to avenge his honor, but conclude he needs to suck it up. It's possible that a judge and jury could rule the movie does defame Zuckerberg or cast him in a false light. Zuckerberg could file a lawsuit and -- after embarrassing depositions and years of waiting for a trial date -- win some damages and paper vindication.

In the end, though, he'd just wind up generating more publicity for the movie. And no matter how unhappy he may be, that's the last outcome he wants.

David A. Kaplan, a contributing editor at Fortune, used to practice law on Wall Street and also teaches media law at NYU.