From Kris Hudson at the WSJ: ... From San Diego to Dearborn, Mich., an increasing number of hotel owners in the U.S. market are simply walking away ... Distressed noncasino hotel loans now cover more than 1,000 properties with a cumulative loan value of $16.8 billion, according to Real Capital Analytics .... Delinquencies of loans on casinos that have hotels adds 31 properties and $8.6 billion in distressed loans to the mix. ... According to Trepp LLC, the delinquency rate for CMBS tied to hotels was 4.75% in the second quarter, up from 0.5% a year earlier. Debt-rating provider Fitch Ratings predicts that rate will jump to between 10% and 15% by year end. There is much more in the article. A few points on hotels: The occupancy rate has already peaked for the year (see graph below), and hotels that are struggling will be crushed in the Fall. So it is no surprise that Fitch expects the delinquency rate to soar. Many hotels were purchased with too much debt based on optimistic pro forma income projections, and the owners are now far underwater. RevPAR (Revenue per available room) is running about according to . And there is more inventory coming (). Click on graph for larger image in new window. The peak occupancy rate for 2009 was probably three weeks ago at 67%. And that is far below normal ... and it is all downhill for the rest of the year. Note: Graph doesn't start at zero to better show the change. Occupancy rates are far below historical levels, room rates are falling, there is more supply coming online - and many properties have too much debt. That spells Jingle Mail!

submits: Differences in leverage as measured by the current market value of a real estate portfolio versus its book value may lead Moody’s to consider a small number of rating downgrades among U.S. REITs. In a new report, Moody’s says it has identified a number of REITs across the major REIT sectors whose leverage based on market value exceeds their leverage based on book value by a meaningful amount. For the first time in several years, REIT portfolio book values for several issuers exceed their market values by a significant margin – Moody’s Vice President Chris Wimmer.

It’s every investor’s dream — buy into an asset class on the rise before any one else has caught on. . . ride it all the way up until it gets bubbly. . . and then sell it to suckers. Whether it was buying houses in 2004 (as we did), only to sell and go short [...]

Bank Failure Friday is in full swing. Tonight there were 5 more failures, numbers 73 through 77 on the year. In the biggest failure since WaMu, . Colonial BancGroup Inc., the Alabama lender facing a criminal probe, had its banking operations closed by regulators and taken over by BB&T Corp. in the biggest bank failure since Washington Mutual Inc. collapsed last year. Branches and deposits of Colonial, Alabama’s second-largest bank, were turned over to Winston-Salem, North Carolina-based BB&T in a deal brokered by the Federal Deposit Insurance Corp., the regulator said today. The failure of Montgomery-based Colonial followed a Florida expansion that saddled the lender with more than $1.7 billion in soured real-estate loans. Colonial’s failure will deplete the FDIC’s deposit insurance fund by $2.8 billion, the agency said. The fund, which the agency uses to pay customers of a failed bank for deposit losses up to a $250,000 limit and is generated by fees paid by banks, stood at $13 billion at the end of the first quarter, according to the FDIC. The agency has set aside an additional $25 billion for bank failures, agency spokesman David Barr said. Is There Any Money Left In The Fund? Tonight, inquiring minds are asking "Is There Any Money Left In The Fund?" For clues, please consider Saxo Bank Research . As late as in the end of April just before the release of the bank stress tests, Ms. Bair Chairman of the FDIC said they would not need any additional bailouts from the U.S Treasury within the immediate future according to The Bulletin. After three new bank failures last Friday, the FDIC’s Deposit Insurance Fund (DIF) diminished by another $185 million for a total remaining balance of $648.1 million. Below is a graph showing the DIF capital as a percentage of total bank deposits insured by the FDIC. Note that this graph is based on the old insurance limit with a maximum coverage of $100.000/account. This limit has been changed to cover up to $250.000/account...

Mortgage lenders are taking little notice of the reappearance of bonuses in the City, with many banks only willing to accept a fraction of bonus income and some tightening lending criteria further in the past few months.

(Reuters) - The Federal Deposit Insurance Corp is taking Colonial BancGroup Inc into receivership and will sell the struggling lender's branches and deposits to BB&T Corp, Dow Jones said, citing a person familiar with the situation.

New York Fed purchases $1.784 billion in agency coupons

Update: Actual statement from Chiang: " ... to stop issuing IOUs on September 4, almost one month earlier than expected. ... the Controller will ask the board to approve a redemption date of September 4, which is almost one month earlier than the October 2 maturity date printed on the IOUs." From Tom Petruno at the LA Times: California expects to begin redeeming outstanding IOUs on Sept. 4, a month earlier than expected, thanks to cash savings from budget cuts, state Controller John Chiang announced today. He said the state also will need $10.5 billion in short-term loans from investors to get through the fiscal year ending next June 30. ... The borrowing plan and the savings from the slashed state budget "should provide sufficient cash to meet all of California’s payment obligations through the fiscal year," Chiang said in a . And by popular request ... Click on graph for larger image in new window. Instead of comparing the markets from the peak (See: the ), matched up the market bottoms for four crashes (with an interim bottom for the Great Depression). Note that the Great Depression crash is based on the DOW; the three others are for the S&P 500.

Form Bloomberg: U.S. District Judge Adalberto Jordan in Miami issued the order after Bank of America sued Colonial yesterday in Miami, claiming Colonial is holding the cash and loans as a custodian for Ocala Funding Inc. The order notes that the suit relates to more than 6,000 mortgages worth more than $1 billion. “To the extent that the interests of the public are implicated in this case, they weigh in favor of requiring Colonial to honor its contractual obligations and avoiding what would amount to a $1 billion heist,” the judge said in an order posted online today. In another action, from Ocala.com: [Henley Holdings LLC] filed suit in the U.S. District Court for the Middle District of Florida, accusing Taylor Bean of breach of contract. It also sought temporary injunctive relief, asking the court to force Taylor Bean to immediately deposit the $4.7 million into an account at a separate bank. Henley was worried because Taylor Bean had essentially shut its doors, and because if Colonial failed, only $250,000 of Henley money would be covered by FDIC insurance. That same day, a federal judge granted Henley's request and ordered at least $4.4 million of the company's funds put into an interest-bearing account within the court registry. Court records show that Taylor Bean turned over that amount the next day. What is interesting about the second action is that apparently Colonial Bank disclosed a new FDIC Cease & Desist order dated Aug. 11th. I'm told the FDIC order instructs Colonial to obtain FDIC approval for most activities, requires "prompt and unrestricted access" to all bank documents and employees, and requires proceduces to prevent the destruction of any bank documents.

submits: The FASB, or Financial Accounting Standards Board, is considering expanding its mark-to-market rules with loans instead of only securities. I bet you thought this issue was dead n April when Congress forced the FASB to relax on this rule for securities, but this is an entirely new issue as they want loans priced to market instead of just securities. This is a major problem for banks, which oppose this rule. The banks blame the mark-to-market rules for the financial crisis itself, when in fact it was their own bad decisions that caused the problem, not the rule, which is absurd. However, I am not sure about this new proposed rule as it could cause a major problem within banks themselves. I am not sure what the FASB is really thinking, but it is safe to assume that they think that there is a problem with the way loans are currently valued.

WASHINGTON - U.S. Department of Housing and Urban Development Assistant Secretary for Housing-Federal Housing Commissioner David Stevens today announced the first release of frequently asked questions (FAQs) concerning implementation of the new Real Estate Settlement Procedures Act (RESPA) rule. The FAQs were compiled from questions received from industry since the publication of the Rule.

Caroline Baum sent me the following Bloomberg clips. 14:58 *TOLL BROTHERS CHIEF ROBERT TOLL MAKES COMMENTS ON CONF CALL 14:57 *CASH FOR CLUNKERS FOR HOUSING MARKET WOULD JUMPSTART ECONOMY 14:57 *CASH FOR CLUNKERS FOR HOUSING MARKET IS `NO BRAINER,' TOLL SAYS 14:57 *U.S. SHOULD DO `CASH FOR CLUNKERS' FOR HOUSING, TOLL SAYS Caroline also had this comment on the record that I heartily endorse: " Yeah, no brainer. You have to have no brains to think this is answer! " For more on the brainless nature of such proposals please see . One might wonder if Robert Toll is really as brain dead as he sounds or if he is simply speaking about what is good for Robert Toll, not the economy. A timely Exodus Inquiring minds are reading . Fifteen corporate chieftains of large home-building and financial-services firms each reaped more than $100 million in cash compensation and proceeds from stock sales during the past five years, according to a Wall Street Journal analysis. Four of those executives, including the heads of Lehman Brothers Holdings Inc. and Bear Stearns Cos., ran companies that have filed for bankruptcy protection or seen their share prices fall more than 90% from their peak. The study, which examined filings at 120 public companies in such sectors as banking, mortgage finance, student lending, stock brokerage and home building, showed that top executives and directors of the firms cashed out a total of more than $21 billion during the period. Some experts say huge paydays inevitably coincide with economic booms. In the tech bubble of the late 1990s, more than 50 individuals each made more than $100 million from selling shares just prior to the crash. Many had just founded companies that had never turned a profit. "The system tends to reward people for participating in bubbles," says Roy C. Smith, a finance professor at New York University's business school. Dwight Schar, chairman of NVR Inc., a Reston, Va., home builder best known as the parent...

submits: From the released a few minutes ago by the Fed: The Committee will maintain the target range for the federal funds rate at 0 to 1/4 percent and continues to anticipate that economic conditions are likely to warrant exceptionally low levels of the federal funds rate for an extended period. As previously announced, to provide support to mortgage lending and housing markets and to improve overall conditions in private credit markets, the Federal Reserve will purchase a total of up to $1.25 trillion of agency mortgage-backed securities and up to $200 billion of agency debt by the end of the year. In addition, the Federal Reserve is in the process of buying $300 billion of Treasury securities. To promote a smooth transition in markets as these purchases of Treasury securities are completed, the Committee has decided to gradually slow the pace of these transactions and anticipates that the full amount will be purchased by the end of October.

NEW YORK (Reuters) - U.S. home loans failed at a record pace in July despite ongoing federal and state programs to avoid foreclosures, which have severely strained housing and the economy.

Existing-home sales in the second quarter showed healthy gains from the first quarter in the vast majority of states, and price declines have increased affordability in most metro areas, according to the latest survey by the National Association of Realtors®.

From California AG Jerry Brown: (ht ) Threatening possible criminal and civil prosecution, Attorney General Edmund G. Brown Jr. today ordered 386 mortgage foreclosure consultants to post $100,000 bonds and register with his office. He also ordered more than two dozen companies to justify suspicious loan modification claims made in "slick advertising," online and through the mail. ... Brown has sent letters directing 386 mortgage foreclosure consultants to register with his office within 10 days and post $100,000 bond, or demonstrate why they are not required to. If the consultants are required to register and have failed to do so, they are subject to criminal penalties of up to a year in jail and fines ranging from $1,000 to $25,000 per violation. Eighty-five of these consultants are based in Los Angeles County, 133 in Orange County, 47 in the Inland Empire, 68 in San Diego County and seven in the Bay Area. ... The State Bar of California today announced that it has obtained resignations from two lawyers and filed charges against a third for their loan modification activities. And check out some of this advertising that Brown demanded loan consultants substantiate: · Brown directed Irsfeld, Irsfeld & Younger, LLP as corporate counsel for JL Richman, doing business as Home Retention Programs of Glendale, Calif. to substantiate its claims including: "Our team has 10 years of success in negotiating 90% of all mortgage loan modification requests to a successful outcome….For the modification requests we accept, our modification failure rate is less than 1%." · Brown directed 21st Century Real Estate Investment Corporation of Rancho Cucamonga to substantiate its written solicitations including: "[y]our proposed loan modification is a 30 year fixed/3.5% interest rate with a monthly payment of $495. Your monthly savings is $705. Total savings over a 30-year period is $253,800. . . . Your first payment will be negotiated to begin March 2009 - payable...

submits: Excerpted from Despite some hopeful signs of relief for U.S. banks in second-quarter 2009, the next several quarters likely will continue to be a struggle, especially for small regional institutions, Standard & Poor’s Ratings Services analysts said during a quarterly conference call on Aug. 6. Overall, the industry outlook remains predominantly negative, in part because of banks’ lower profit margins related to still-heavy provisioning required for increased reserve building. Asset-quality deterioration shifted to commercial lending, both commercial and industrial and commercial real estate (CRE), from consumer-related loans.

Statement Regarding Purchases of Treasury Securities

There is an urgent need to centralize important pieces of housing data. I view this on the level of employment data or even calculating GDP. Housing has become such a crucial component of our nation’s economy that I am stunned, nearly two years into this crisis that we have not spent any money in a concerted effort to bring housing data under one umbrella. We spend trillions in bailouts yet will not allocate what, a few million to create a central hub of this information? When we investigated Southern California we used three different sources to come up with our estimate that . Some argue that this issue is minor and will have a minor impact on the overall market. Others argue that shadow inventory is much larger than many would expect and this will have an effect on the overall market. In searching for for example, we have to rely on multiple sources of data including the Federal Reserve and independent studies. We have a raw number of loans and average balances yet this data is not connected in any easy format to foreclosures: I view this as an urgent need. If we are to conduct any thorough analysis it would be useful to have the multiple data providers under one central hub. Take for example California and two large data providers in RealtyTrac and DataQuick. Let us look at distress property data for Q2 of 2009: DataQuick (Q2 2009): Notice of Defaults: 124,562 Trustee Deeds Recorded: 45,667 RealtyTrac (Q2 2009): Notice of Defaults: 124,275 Notice of Trustee Sale: 45,419 At least with these two data points, we realize that both sources are nearly on the same page. Yet this is where a lot of darkness begins to emerge. We know that many banks are taking properties back as REOs. How many? To figure this out we would first need to have banks reporting to one central hub and ideally providing data on the properties they have on their books. Some would argue that this data is proprietary. I would argue that since banks are using trillions in taxpayer bailouts they really...

Doug Kass very publicly made a prescient bottom call in early March. He has now flipped Bearish, and explains why: 1. Cost cuts are a corporate lifeline and so is fiscal stimulus, but both have a defined and limited life. 2. Cost cuts (exacerbated by wage deflation) pose an enduring threat to the consumer, which is still the most significant contributor to domestic growth. 3. The consumer entered the current downcycle exposed and levered to the hilt, and net worths have been damaged and will need to be repaired through higher savings and lower consumption. 4. The credit aftershock will continue to haunt the economy. 5. The effect of the Fed’s monetarist experiment and its impact on investing and spending still remain uncertain. 6. While the housing market has stabilized, its recovery will be muted, and there are few growth drivers to replace the important role taken by the real estate markets in the prior upturn. 7. Commercial real estate has only begun to enter a cyclical downturn. 8. While the public works component of public policy is a stimulant, the impact might be more muted than is generally recognized. There may be less than meets the eye as most of the current fiscal policy initiatives represent transfer payments that have a negative multiplier and create work disincentives. 9. Municipalities have historically provided economic stability — no more. 10. Federal, state and local taxes will be rising as the deficit must eventually be funded, and high-tax health and energy bills also loom. Doug points to the animal spirits in full force, shorts scrambling to cover, and a crowded bullish sentiment as additional reasons for the tactical shift. He believes a “self-sustaining economic recovery appears doubtful” That fits in well with my 1973/74 parallel of the current market environment. > Source : Doug Kass The Street.com, 08/10/09 http://www.thestreet.com/story/10569021/1/kass-a-summary-of-my-bearishness.html