Car bomb causes terror scare, forces evacuation in Times Square: New York Post

Nothing to do with Foreclosures, but this is a wake up call for all us to watch our backs!

By LARRY CELONA, FRANK ROSARIO and TIM PERONE

Last Updated: 10:32 AM, May 2, 2010

Posted: 9:28 PM, May 1, 2010

A car bomb nearly caused a bloodbath in the heart of Times Square yesterday as a homemade explosive device in an SUV parked outside the doors of “The Lion King” fizzled out.

The bomb caused a terror scare that forced thousands of people to evacuate the Crossroads of the World and turned Times Square into a ghost town for hours.

 Bomb squad members wearing protective suits examine the suspicious vehicle.
Christopher Sadowski
Bomb squad members wearing protective suits examine the suspicious vehicle.

Photos: Times Square bomb scare

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Photos: Times Square bomb scare

 Police Officer Wayne Rhatigan, the mounted patrol cop who first investigated the smoking Nissan Pathfinder at around 6:30 p.m. last night.
SETh GOTTFRIED
Police Officer Wayne Rhatigan, the mounted patrol cop who first investigated the smoking Nissan Pathfinder at around 6:30 p.m. last night.

Photos: Times Square bomb scare

An unidentified T-shirt vendor, who is a Vietnam veteran, saw smoke billowing from a Nissan Pathfinder and alerted Police Officer Wayne Rhatigan, a mounted patrol cop, who looked inside the smoldering vehicle at around 6:30 p.m. on West 45th Street near Seventh Avenue in front of an entrance to the Minskoff Theatre, which houses the hugely popular Disney musical, Mayor Bloomberg said early this morning.

Rhatigan, who has been on the force for 19 years, the last four in the Mounted Unit, smelled gunpowder and called in the Fire Department, which put out the car fire as he and two patrol officers cleared the area of civilians.

Bomb Squad members then searched the SUV, which bore Connecticut license plates that were actually registered to a Ford F-150, and found two gasoline cans, three propane tanks, electrical wires, black powder, consumer grade fireworks and two clocks, Police Commissioner Ray Kelly said.

PHOTOS: TIMES SQUARE BOMB SCARE

VIDEO: TIMES SCARE

“I think the intent was to cause a significant ball of fire,” Kelly said.

A Bomb Squad robot was used to handle the suspicious package in the back of the vehicle, officials said.

Bloomberg called the device “amateurish” but said that the city was “very lucky” because of the quick-thinking actions of the hero T-shirt vendor and Rhatigan.

There was a “box within a box” in the car, a 2X2X4 black gun locker, Kelly said.

Officials dismantled the first device and were in the process of rendering the second box safe this morning at the department’s firing range in the Bronx.

An NYPD security camera caught the Pathfinder travelling west on West 45th Street at 6:28 p.m. and at 6:34 p.m. the 911 call came in, Kelly said.

The Mayor added that the cameras, “couldn’t detect who was in the vehicle, how many were in the vehicle and what was in the vehicle.”

Cops were looking at other security videos from various cameras in the area that may have captured images of the suspect.

Authorities searched the immediate area for any possible secondary devices, but no other areas were evacuated. Also an NYPD and federal manhunt for the suspect began.

Investigators interviewed the person who had the license plates before they were put on the Pathfinder. That person is not a suspect and told officials that he dropped the plates off at a junkyard. Police are trying to track down the owner of that junkyard.

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Honey, I Lost the House. Now It’s Time to Party

 
Caroline Baum

Honey, I Lost the House. Now It’s Time to Party: Caroline Baum

Commentary by Caroline Baum

April 22 (Bloomberg) — “What a relief, Marge, not to have that huge mortgage payment hanging over our head anymore.”

“You can say that again, Harry. Let’s celebrate. Maybe take a nice vacation. Or buy a new car.”

“What if the bank forecloses on our house? We could be living on the street next year.”

“Exactly. Which is why we need a new car. Maybe something roomy like a Chevy Suburban.”

By now you’ve probably seen the analysis, if you can call it that, on how mortgage defaults are driving consumer spending.

Yes, you read that correctly. Those deadbeat homeowners, facing possible eviction and in some cases unemployed, are throwing caution to the wind — and money at retailers.

In an attempt to explain strong retail sales in the face of high unemployment, depressed consumer confidence and declining real incomes, Paul Jackson, publisher of HousingWire, alit on an idea that he conceded might sound far-fetched: “People are spending their mortgages,” he opined in an April 5 column.

Because the consequences of missing a mortgage payment are so far in the future, thanks to the multitude of government assistance programs, consumers are behaving as if they’ve just been handed a free lunch, he said.

Other economists jumped on the bandwagon. Mark Zandi, chief economist at Moody’s Economy.com, told the Wall Street Journal this week that 5 million households aren’t making payments on their mortgages, giving them “as much as $60 billion to spend.”

Nonsense Exposed

Economists at Goldman Sachs Group Inc. came at it differently. In an attempt to explain how consumer spending exceeded their forecast, they acknowledged their “standard net worth model overstated savings” if households treated residential investment as just another form of consumer spending. Uh-huh.

Blogger Barry Ritholtz called the proponents of the defaults-are-good theory on the carpet, saying in an April 16 post that the analysis got it backward. “Those people voluntarily not paying their mortgages are not buying luxury goods, for the simple reason they cannot afford them,” Ritholtz wrote.

Maybe it’s my age or my upbringing, but I can’t imagine frittering away the interest payments on a delinquent mortgage when the sheriff might show up any day with an eviction notice.

Not everyone lives that way or acts rationally all of the time, the housing bubble being a case in point. After biting off more home than they could afford, consumers are more likely to compensate by being overly cautious. Once bitten, twice shy.

Just ask the banks, which, after an extended period of lax lending and big loan losses, tend to tighten credit standards to an extreme.

Double-Entry Bookkeeping

There’s an even bigger problem with the idea that mortgage defaults are driving consumer spending. When a homeowner misses a mortgage payment, “somebody’s not getting a payment” on the other side, said Thomas Lawler, founder and president of Lawler Housing and Economic Consulting in Leesburg, Virginia.

A mortgage lender or bank experiences reduced cash flow, which means less money flowing to shareholders who, the last time I checked, were consumers in their own right.

Sure, one can argue that the borrower has a greater propensity to consume than the lender, but this is a case of what Lawler calls “single-entry analysis for double-entry bookkeeping” and what I view as an example of Bastiat’s broken window. (See Bastiat, Frederic, “That Which is Seen and That Which is Unseen.”)

It’s like robbing Peter to pay Paul or, more applicable to the current situation, borrowing or taxing the public and calling it “fiscal stimulus.” There is no net gain from transferring spending power from one entity to the next.

Reductio Ad Absurdum

Lawler, a man after my own heart when it comes to carrying an idea to its logical conclusion, offered the following advice to President Barack Obama:

If you believe what the economy needs is a boost to spending, “forget the stupid stimulus,” he said. “Let’s get everyone to stop paying their mortgage.”

Why stop there? Instead of sticking it to renters, who tend to be less well-off than homeowners, Obama should make the plan fairer by spreading some of the wealth around. “Nobody has to pay,” Lawler said. “Let’s have a rent moratorium as well.”

Now there’s a stimulus plan that won’t cost the taxpayer a dime!

(Caroline Baum, author of “Just What I Said,” is a Bloomberg News columnist. The opinions expressed are her own.)

Click on “Send Comment” in sidebar display to send a letter to the editor.

To contact the writer of this column: Caroline Baum in New York at cabaum@bloomberg.net.

Last Updated: April 21, 2010 21:00 EDT

Merrill Lynch Accused of Same Fraud as Goldman Sachs; House of Cards are beginning to fall: Bloomberg

This is going to unleash a domino effect! Come one, Come all! Anyone buying these CDO’s from these fraudsters need to get examined!

Interested to see their stock this week??

 

 

Merrill Used Same Alleged Fraud as Goldman, Bank Says (Update1)

By William McQuillen

April 17 (Bloomberg) — Merrill Lynch & Co. engaged in the same investor fraud that the U.S. Securities and Exchange Commission accused Goldman Sachs Group Inc. of committing, according to a bank that sued the firm in New York last year.

Cooperatieve Centrale Raiffeisen-Boerenleenbank BA, known as Rabobank, claims Merrill, now a unit of Bank of America Corp., failed to tell it a key fact in advising on a synthetic collateralized debt obligation. Omitted was Merrill’s relationship with another client betting against the investment, which resulted in a loss of $45 million, Rabobank claims.

Merrill’s handling of the CDO, a security tied to the performance of subprime residential mortgage-backed securities, mirrors Goldman Sachs conduct that the SEC details in the civil complaint the agency filed yesterday. It claimed Goldman omitted the same key fact about a financial product tied to subprime mortgages as the U.S. housing market was starting to falter.

“This is the tip of the iceberg in regard to Goldman Sachs and certain other banks who were stacking the deck against CDO investors,” said Jon Pickhardt, an attorney with Quinn Emanuel Urquhart Oliver & Hedges, who is representing Netherlands-based Rabobank.

“The two matters are unrelated and the claims today are not only unfounded but weren’t included in the Rabobank lawsuit filed nearly a year ago,” Bill Halldin, a Merrill spokesman, said yesterday of the Dutch bank’s claims.

Kenneth Lench, head of the SEC’s Structured and New Products unit, said yesterday that the agency “continues to investigate the practices of investment banks and others involved in the securitization of complex financial products tied to the U.S. housing market as it was beginning to show signs of distress.”

Failed to Disclose

In its complaint, the SEC said New York-based Goldman Sachs, which had a record $13.4 billion profit last year, failed to disclose to investors that hedge fund Paulson & Co. was betting against the CDO, known as Abacus, and influenced the selection of securities for the portfolio. Paulson, which oversees $32 billion and didn’t market the CDO, wasn’t accused of wrongdoing by the SEC.

Goldman Sachs, the most profitable securities firm in Wall Street history, created and sold CDOs tied to subprime mortgages in early 2007, as the U.S. housing market faltered, without disclosing that Paulson helped pick the underlying securities and bet against them, the SEC said in a statement yesterday.

The SEC allegations are “unfounded in law and fact, and we will vigorously contest them,” Goldman said in a statement.

Merrill Lynch’s arrangement involved Magnetar, a hedge fund that bet against a CDO known as Norma, Rabobank claimed.

Effort to Replicate

“When one major firm becomes aware of the creative instrument of others, there is historically an effort to replicate them,” said Jacob Frenkel, a former SEC lawyer now in private practice in Potomac, Maryland.

SEC spokesman John Heine declined to comment on whether it is investigating Merrill’s actions.

Norma’s largest investor was investment bank Cohen & Co, with more than $100 million in notes, according to Rabobank’s complaint.

Merrill loaded the Norma CDO with bad assets, Rabobank claims. Rabobank seeks $45 million in damages, according to a complaint filed in state court in June 2009. Rabobank initially provided a secured loan of almost $60 million to Merrill, according to its complaint.

Risks Disclosed

Merrill countered in court papers that Rabobank was aware of the risks, which were disclosed in the transaction documents. The bank should have been responsible for conducting its own due diligence, and shouldn’t have relied on Merrill, it said in a court filing last year seeking to dismiss the case.

Steve Lipin, an outside spokesman for Magnetar, didn’t immediately comment.

The case is Cooperatieve Centrale Raiffeisen- Boerenleenbank, B.A. v. Merrill Lynch & Co, 09-601832, New York State Supreme Court (New York County).

To contact the reporter on this story: William McQuillen in Washington at bmcquillen@bloomberg.net.

Last Updated: April 16, 2010 23:03 EDT

BOY WERE WE SCREWED! Bailout Tally $4.6 TRILLION

To think we all lost and keep losing our homes!

Comprehensive Bailout Tally: $4.6 Trillion Spent on the Bailout to Date

Submitted by Mary Bottari on April 1, 2010 – 7:05am. PRWATCH.org

Today, the Real Economy Project of the Center for Media and Democracy (CMD) released an assessment of the total cost to taxpayers of the Wall Street bailout. CMD concludes that multiple federal agencies have disbursed $4.6 trillion dollars in supporting the financial sector since the meltdown in 2007-2008. Of that, $2 trillion is still outstanding. Our tally shows that the Federal Reserve is the real source of the bailout funds.

CMD’s assessment demonstrates that while the press has focused its attention on the $700 billion TARP bill passed by Congress, the Federal Reserve has provided by far the bulk of the funding for the bailout in the form of loans amounting to $3.8 trillion. Little information has been disclosed about what collateral taxpayers have received in return for these loans, sparking the Bloomberg News lawsuit covered earlier. CMD also concludes that the bailout is far from over as the government has active programs authorized to cost up to $2.9 trillion and still has $2 trillion in outstanding investments and loans.

Learn more about the 35 programs included in the CMD tally by visiting our Total Wall Street Bailout Cost Table, which contains links to pages on each bailout program with details including the current balance sheet for each program.

Treasury Department Self-Congratulations Premature

While the Treasury Department has been patting itself on the back for recouping some of the Troubled Asset Relief Program (TARP) funds and allegedly making money off of its aid to Citigroup, the CMD accounting shows that TARP is only a small fraction of the federal funds that have gone out the door in support of the financial sector. Far more has been done to aid Wall Street through the back door of the Federal Reserve than through the front door of Congressional appropriations.

The tally shows that more scrutiny needs to be given by policymakers and the media to the role of the Federal Reserve especially as the Fed has accounted for the vast majority of the bailout funds, yet provides far less disclosure and is far less directly accountable than the Treasury.

Download the Financial Crisis Tracker

In addition to a comprehensive here Wall Street Bailout Table which will be updated monthly as a resource for press and the public, CMD is also making available a Financial Crisis Tracker, a widget that links to the table that can be downloaded to websites and provides up–to-date numbers on the financial crisis and the bailout. The Financial Crisis Tracker shows unemployment rates, housing foreclosure rates and the bailout total on a monthly basis. It is a more accurate measure of how we are doing as a nation than any Wall Street ticker.

* Key Findings

* Wall Street Bailout Table

* Financial Crisis Tracker

Among the Key Findings:

1) $4.6 Trillion in Taxpayer Funds Have Been Disbursed

All together, $4.6 trillion of taxpayer funds have been disbursed in the form of direct loans to Wall Street companies and banks, purchases of toxic assets, and support for the mortgage and mortgage-backed securities markets through federal housing agencies. This is an astonishing 32% of our GDP (2008) 130% of the federal budget (FY 2009).

2) TARP vs. Non-TARP Funding

Most accountings of the financial bailout focus on the Troubled Asset Relief Program (TARP), enacted by Congress with the Emergency Economic Stabilization Act of 2008. However, a complete analysis of the activities of all the agencies involved in the bailout including the FDIC, Federal Reserve and the Treasury reveals that TARP, which ended up disbursing about $410 billion was less than a tenth of the total U.S. government effort to contain the financial crisis. TARP funds only account for about 20% of the maximum commitments made through the bailout and less than 10% of the actual funds disbursed.

3) The Federal Reserve has Played the Primary Role in the Bailout

The Federal Reserve has provided by far the bulk of the funding for the bailout in the form of loans — $3.8 trillion in total. Little information has been disclosed about what collateral taxpayers have received in return for many of these loans. Bloomberg News is suing the Federal Reserve to make this information public. On March 19, 2010 Bloomberg won its suit in the Second Circuit Court of Appeals, but it is not clear if this case will continue to be litigated to the Supreme Court.

4) Federal Support for the Housing Market is on the Rise

A key component of the bailout has been the federal support for mortgages and mortgage-backed securities, primarily through the Federal Reserve. All together, the government has disbursed more than $1.5 trillion in non-TARP funds to directly support the mortgage and housing market since 2007.

Move Over Fannie Mae…Revealing the “TRIPLETS” Maiden Lane, Maiden Lane II and Maiden Lane III

Fed Reveals Bear Stearns Assets It Swallowed in Firm’s Rescue (Bloomberg)

By Craig Torres, Bob Ivry and Scott Lanman

April 1 (Bloomberg) — After months of litigation and political scrutiny, the Federal Reserve yesterday ended a policy of secrecy over its Bear Stearns Cos. bailout.

In a 4:30 p.m. announcement in a week of congressional recess and religious holidays, the central bank released details of securities bought to aid Bear Stearns’s takeover by JPMorgan Chase & Co. Bloomberg News sued the Fed for that information.

The Fed’s vehicle known as Maiden Lane LLC has securities backed by mortgages from lenders including Washington Mutual Inc. and Countrywide Financial Corp., loans that were made with limited borrower documentation. More than $1 billion of them are backed by “jumbo” mortgages written by Thornburg Mortgage Inc., which now carry the lowest investment-grade rating. Jumbo loans were larger than government-sponsored mortgage buyers such as Fannie Mae could finance — $417,000 at the time.

“The Fed absorbed that risk on its balance sheet and is now seen to be holding problematic, legacy assets,” said Vincent Reinhart, a resident scholar at the American Enterprise Institute in Washington who was the central bank’s monetary- affairs director from 2001 to 2007. “There is both an impairment to its balance sheet and its reputation.”

The Bear Stearns deal marked a turning point in the financial crisis for the Fed. By putting taxpayers at risk in financing the rescue, the central bank was engaging in fiscal policy, normally the domain of Congress and the U.S. Treasury, said Marvin Goodfriend, a former Richmond Fed policy adviser who is now an economist at Carnegie Mellon University in Pittsburgh.

‘Panic’ Cause

“Lack of clarity on the boundary between responsibilities of the Fed and of the Congress as much as anything else created panic in the fall of 2008,” Goodfriend said. “That created a situation in which what had been a serious recession became something near a Great Depression.”

Central bankers also created moral hazard, or a perception for investors that any financial firm bigger than Bear Stearns wouldn’t be allowed to fail, said David Kotok, chief investment officer at Cumberland Advisors Inc. in Vineland, New Jersey.

Policy makers’ resolve was tested months later by runs against the largest financial companies. Lehman Brothers Holdings Inc. collapsed into bankruptcy in September 2008. The ensuing panic caused the Fed to take even more emergency measures to push liquidity into markets and institutions. It rescued American International Group Inc. from collapse and allowed Goldman Sachs Group Inc. and Morgan Stanley to convert into bank holding companies, putting them under greater oversight by the central bank.

Early Failure

“Letting somebody fail early would have been a better choice,” Kotok said. “You would have ratcheted moral hazard lower and Lehman wouldn’t have been so severe.”

The Bear Stearns assets include bets against the credit of bond insurers such as MBIA Inc., Financial Security Assurance Holdings Ltd. and a unit of Ambac Financial Group, putting the Fed in the position of wagering companies will stop paying their debts.

The Fed disclosed that some of Maiden Lane’s assets were portions of commercial loans for hotels, including Short Hills Hilton LLC in New Jersey, Hilton Hawaiian Village LLC in Hawaii, and Hilton of Malaysia LLC, in addition to securities backed by residential mortgages.

More than a year after Washington Mutual, the largest U.S. savings and loan, was purchased by JPMorgan Chase in a distressed sale arranged by the Federal Deposit Insurance Corp., the home loans that helped bring down the Seattle-based thrift live on in the Maiden Lane portfolio.

Lending Standards

For example, 94 percent of the mortgages in one security, called WAMU 06-A13 2XPPP, required limited documentation from borrowers, meaning the lender often didn’t ask customers for proof of their incomes. Almost 10 percent of the borrowers whose mortgages make up the security have been foreclosed on, and almost a quarter are more than two months late with payments, according to data compiled by Bloomberg.

The portfolio also includes $618.9 million of securities backed by Countrywide, mortgages now rated CCC, eight levels below investment grade. All the underlying loans are adjustable- rate mortgages, with about 88 percent requiring only limited borrower documentation, according to Bloomberg data. About 33.6 percent of the borrowers are at least 60 days late. Countrywide is now part of Charlotte, North Carolina-based Bank of America Corp.

CDO Holdings

Maiden Lane has $19.5 million of securities from a series of collateralized debt obligations called Tropic CDO that are backed by trust preferred securities of community banks and thrifts. CDOs are investment pools made up of a variety of assets that provide a flow of cash.

Trust preferred securities, or TruPS, have characteristics of debt and equity and their interest payments are tax- deductible.

The securities created by Bear Stearns are rated C, one level above default, by Moody’s Investors Service and Fitch Ratings.

CDO securities have tumbled in value as banks are failing at the fastest rate in 17 years, according to data compiled by Bloomberg. The average price of TruPS CDO debt of this rating is pennies on the dollar, according to Citigroup Inc.

“The trust of the taxpayer was abused,” said Janet Tavakoli, president of Chicago-based financial consulting firm Tavakoli Structured Finance Inc. CDOs rated CCC and lower “have a high likelihood of default,” she said.

Bernanke Defense

Chairman Ben S. Bernanke defended the Bear Stearns deal as a rescue of the financial system. He said in a speech at the Kansas City Fed’s annual Jackson Hole, Wyoming conference in August 2008 that a sudden Bear Stearns failure would have caused a “vicious circle of forced selling” and increased volatility.

“The broader economy could hardly have remained immune from such severe financial disruptions,” Bernanke said in the speech. The Fed chief, who took office in 2006 and began his second term as chairman this year, also has repeatedly called for an overhaul of financial regulations that would allow authorities to take over a failing financial institution and oversee an orderly unwinding of its positions.

Bernanke said last year that nothing made him “more angry” than the AIG case, blaming the insurer for making “irresponsible bets” and a lack of regulatory oversight for the debacle. Officials “had no choice but to try and stabilize the system” by aiding the firm in September 2008, he said.

Yesterday’s release by the Fed, through its New York regional bank, also identified securities acquired in the bailout of AIG held in vehicles known as Maiden Lane II and III.

Market Value

Assets in Maiden Lane II totaled $34.8 billion, according to the Fed, which set their current market value in its weekly balance sheet at $15.3 billion. That means Maiden Lane II assets are worth 44 cents on the dollar, or 44 percent of their face value, according to the Fed.

Maiden Lane III, which has $56 billion of assets at face value, is worth $22.1 billion, or 39 cents on the dollar, according to the Fed’s weekly balance sheet. A similar calculation for the Bear Stearns portfolio couldn’t be made because of outstanding derivatives trades.

“The Federal Reserve recognizes the importance of transparency to its financial stability efforts and will continue to review disclosure practices with the goal of making additional information publicly available when possible,” the New York Fed said in yesterday’s statement.

Deal With Chase

The central bank said it reached agreement on “issues of confidentiality” for the assets with JPMorgan Chase, which bought Bear Stearns in 2008, and AIG. New York-based JPMorgan and AIG would incur the first losses on the portfolios.

Joe Evangelisti, a spokesman for JPMorgan, and Mark Herr, a spokesman for AIG, declined to comment.

In April 2008, Bloomberg News requested records under the federal Freedom of Information Act from the Fed’s Board of Governors related to JPMorgan’s acquisition of Bear Stearns. The central bank responded that records retained by the New York Fed “were proprietary records of the Reserve Bank, and not Board records subject” to the request, court records show.

Bloomberg filed suit in November 2008 in U.S. District Court in New York, challenging the Fed’s denial, as well as the denial of a separate request made in May 2008, seeking records of four other emergency lending programs.

The district court held that the Fed should release documents related to those four programs, and should search documents held by the New York regional bank to determine whether any of them should be considered records of the board of governors.

The U.S. Court of Appeals on March 19 upheld the district court’s ruling on the lending programs.

Representative Darrell Issa of California said in a statement that yesterday’s disclosure may “signal a new willingness to cooperate with Congress as we investigate how these bailout deals were structured and what the decision making process entailed.”

To contact the reporter on this story: Craig Torres in Washington at ctorres3@bloomberg.net

Last Updated: April 1, 2010 01:34 EDT

Greenspan, Rubin, Prince to Testify for Financial Crisis Panel: Bloomberg

I wonder if wifey Andrea Mitchell will report? NBC?

March 31, 2010, 9:29 PM EDT

By Jesse Westbrook

March 31 (Bloomberg) — Former Federal Reserve Chairman Alan Greenspan, ex-U.S. Treasury Secretary Robert Rubin and Charles Prince, who stepped down as Citigroup Inc. chief executive officer in 2007, will testify next week before the panel probing the financial crisis.

The Financial Crisis Inquiry Commission will hear from Greenspan on April 7, the panel said in a statement today. Rubin and Prince will testify the following day.

The FCIC, charged with determining what caused the worst U.S. economic slump since the Great Depression, is investigating the roles banks and regulators played in spurring or failing to prevent a crisis that led to more than $1.7 trillion in writedowns and credit losses at financial companies worldwide.

Testimony from Greenspan, Rubin and Prince shows the panel is shifting its focus to the Fed, where Greenspan served until 2006, and Citigroup, where Rubin became a senior adviser after serving in the Treasury post under President Bill Clinton. Citigroup got $45 billion in U.S. government bailout funds in 2008 after the collapse of the mortgage market froze credit.

U.S. Comptroller of the Currency John Dugan, whose agency oversees national banks, will also testify on April 8. Former Fannie Mae Chief Executive officer Daniel Mudd will appear April 9 along with former directors of the Office of the Federal Housing Enterprise Oversight.

The U.S. government rescued Fannie Mae in August 2008 after the housing slump threatened the survival of the government- sponsored company.

The FCIC, whose members were appointed by Congress, has been investigating the financial crisis since last year. It is supposed to deliver its findings to lawmakers in December.

–Editors: Gregory Mott, William Ahearn

To contact the reporter on this story: Jesse Westbrook in Washington at jwestbrook1@bloomberg.net.

To contact the editor responsible for this story: Alec McCabe at amccabe@bloomberg.net.

House Flippers in U.S. Crowd Courthouse Steps in Hunt for Deals: Bloomberg

March 31, 2010, 12:16 AM EDT

By Prashant Gopal

March 31 (Bloomberg) — During the U.S. housing boom, even amateur investors could buy and sell a property within a couple of months and turn a profit. Today there’s nothing amateur about house flipping.

Homes with punctured walls and missing appliances draw multiple offers from professional investors at auctions in foreclosure-ridden states such as Arizona, California, Florida and Nevada. Competition is so stiff that experienced flippers such as Sergio Rodriguez and Brian Bogenn look back with nostalgia at last year, when they turned over 48 residences in the Phoenix area.

“A year ago, bums outnumbered bidders at the courthouse steps,” where many foreclosure auctions take place, Rodriguez said. “Now the bums are way outnumbered.”

In Phoenix, 4,661 foreclosed homes changed hands within six months of being purchased in 2009, an increase of 81 percent from the year earlier, according to RealtyTrac Inc., which sells foreclosure data. Flips in the California counties of Riverside and San Bernardino rose 45 percent to 17,203. In Las Vegas, which has the highest foreclosure rate in the country, they climbed 38 percent to 8,042.

Nationally, flipped homes gained 19 percent to 197,784 in 2009. Final figures may rise because some homes bought in the fourth quarter may get flipped this year, said Daren Blomquist, a spokesman at Irvine, California-based RealtyTrac.

FHA Waiver

Sales could get a lift from the Federal Housing Authority’s one-year waiver of anti-flipping rules that took effect Feb. 1, allowing FHA borrowers to acquire foreclosed homes from owners who have held title for less than 90 days. That gives first-time buyers a shot at investor-renovated homes, said Vicki Bott, a deputy assistant secretary at the Department of Housing and Urban Development in Washington.

The change also may help clear properties from markets such as Phoenix, where one in 124 homes in the metropolitan area received a foreclosure notice in February, the ninth-highest rate in the nation, according to RealtyTrac. Real estate values usually fall in neighborhoods littered with vacant homes.

The steps in front of the Maricopa County courthouse in downtown Phoenix are crowded most afternoons as dozens of people wearing sunglasses and ear buds plugged into their cell phones gather around auctioneers. The bidders speak in hushed voices by phone to the investors they represent — both flippers and those who plan to rent out the properties — as they work out their “number,” or maximum offer.

High-Stakes Poker

“It’s like a high-stakes poker game out here,” said Frank Gerola, 34, who represents buyers for PostedProperties.com, one of many companies that have sprouted up in Phoenix to serve flippers. “They want to know what you’re bidding on. You’ll have one guy bidding and another guy around him seeing if he can peek at his number,” said Gerola, who competes against representatives of companies such InvestAZHouses.com and TopPriorityInvestments.com.

Some investors try to cheat.

Hours before the foreclosure auction for 7848 East Pampa Avenue in Mesa, Arizona, visitors were greeted with a handwritten sign pasted to the inside of the front window:

“OCCUPIED. NO TRESPASSING,” read the note on the 12-year- old beige stucco house. “Needs carpet, paint. Tile is cracked.” It also warned of missing appliances and fissures in the pool and foundation.

New Paint, Carpet

It was a ruse, said Rodriguez and Bogenn, who checked out the house on March 18, the day after their $181,200 offer beat out a handful of bidders. An investor probably was trying to ward off competitors, Bogenn said. The house, which was vacant for months, only needed new paint, carpet, fixtures and a pool cleaning, they said. They planned to put it on the market this week for about $230,000.

Rodriguez, 31, and Bogenn, 47, didn’t see the house before making an offer. Like many investors, they subscribe to a service that checks titles and sends drivers to properties before the auction to relay photos and descriptions by mobile phone.

As the median existing price of U.S. homes climbed an average of 8.1 percent a year from 2000 to 2005, amateurs by the thousands jumped into flipping. Buying and selling homes with the aim of a quick profit was such an American obsession that it spawned two cable-television series — “Flip This House” on A&E and “Flip That House” on TLC — that debuted in 2005 as the market peaked.

The reality shows, now in re-runs, tracked people as they tried to flip a home.

Back to Flipping

“Amateur hour is over,” said Richard C. Davis, who created “Flip This House” and appeared in its first season.

Davis, now chief executive officer of Charleston, South Carolina-based Trademark Properties, said he has fixed and sold 25 properties since returning to the business in October and is filming a new series about multimillion-dollar homes built during the boom that he is buying, repairing and selling for half their original price.

“The professionals will make more money in a down market than they ever made during the boom,” Davis said.

In job markets decimated by the housing crash, flipping is also putting carpenters, construction workers and home inspectors back to work and attracting a new generation of real estate professionals.

Josip Eljuga, 25, left a $9-an-hour job as a lot attendant at a car dealership nine months ago to work as a driver, or runner, as he is sometimes called. The pay is better — about $14 per house — and the days are unpredictable.

Tell-Tale Signs

Sometimes occupants scream at him, other times he comforts them, he said. Most often, his knocks go unanswered, and it’s his job to find signs of occupancy — water flowing from the hose bib, a car in the garage, a container of coffee creamer left on the kitchen table. A rotting pumpkin mixed in with scattered toys in the backyard of a house on South 30th Avenue in Phoenix one recent afternoon suggested the four-year-old home had been vacant since some time after Halloween.

Eljuga wants to get into the flipping business and has already discussed pooling money with friends.

“It seems like there can be good money if you do it right,” he said. “Based on what I have seen, I think I have enough knowledge to do fairly well.”

Brandon Hunt, 28, said he and his business partner flipped 46 homes in the Phoenix area last year and made $1 million in profits. Hunt, who became a real estate agent during the housing boom, said he doesn’t have much in common with many of the flippers who jumped in at the top of the market. For one thing, he said, he buys low.

“There was no buying at the courthouse steps in 2005 and 2004, because there was no foreclosure,” Hunt said.

Helping Home Values

Another important difference, said 42-year-old Phoenix investor Harry D’Elia, is that flippers in 2010 are stabilizing neighborhoods.

“We’re the good guys because what’s happening is that the government doesn’t have enough money to fix these homes up,” said D’Elia, who also flipped properties during the boom.

The FHA has given investors such as D’Elia a new stream of potential customers with the flipping waiver.

“We do believe investors will play an important role in today’s marketplace because they tend to be more liquid than first-time homebuyers,” said Bott of Housing and Urban Development.

Hunt said the FHA waiver might take time to have an impact because cash buyers are easy to find. Selling to an FHA borrower requires added paperwork and two appraisals when a property is sold for more than 20 percent of the seller’s acquisition cost.

International Buyers

Investors expect to be busy for years to come as continued weakness in home sales fuels foreclosures, which will climb to more than 4.5 million this year from 3.96 million in 2009, according to an estimate by RealtyTrac. In February, sales of new homes in the U.S. fell 2.2 percent to a record low annual pace of 308,000, the Commerce Department reported March 24. Sales of existing homes dropped 0.6 percent last month to a 5.02 million annual level, the lowest in eight months, the National Association of Realtors said March 23.

U.S. median home prices dropped 28 percent to $165,100 in February from the peak in July 2006, according to the Washington-based trade group.

In Florida, which along with Arizona has the second-highest foreclosure rate in the U.S. after Nevada, international buyers are scooping up blocks of rehabbed houses, said real estate agent Brad Cozza.

Foreign Connections

“The investors are re-emerging,” said Cozza, who flips foreclosed homes in the Cape Coral area on the west coast of Florida to Israeli, German and Spanish investors and vacation- home buyers. “These are wealthy people who have considerable amounts of savings.”

In Lee County, Florida, which includes Cape Coral, flips almost tripled to 2,617 last year.

Cozza said his business got a boost after he gave a presentation to 925 Israeli investors last month in Tel Aviv. The conference was organized by America Israel Investments LLC, which buys foreclosed homes in Lee County and sells them to Israeli buyers. Edmon Mamane, the company’s owner, said he pays $48,000 to $60,000 for residences, some of which have never been lived in, and flips them for about $80,000.

Israeli real estate investor Dror Shlomi, 50, bought a 2,200-square-foot duplex from America Israel Investments a few weeks ago for $79,000; the two families occupying the four-year- old property pay a combined $1,300 a month in rent. Shlomi said he’s in the process of selling his 10 investment properties in Israel and shifting his focus to Florida.

“Last year, prices in Israel went up and in the states they went down, so we decided this is the right timing to try to find interesting things in the U.S.,” he said.

Grind It Out

Robert Fahn, 50, who along with a partner has bought and sold 10 homes in the Sacramento area since last February, said he’s pleased with his 10 percent to 15 percent profit margin. But the window for house flipping is closing as newcomers are bidding up prices, he said.

“If someone is thinking about quitting their day job, they should think twice because the market is going to go away at some point and margins are getting squeezed,” said Fahn, who is investigating opportunities in Florida and Phoenix.

“This is not a get-rich-quick business,” he said. “This is a grind-it-out business. But once you know how to do it, you only have to commit resources when the price is right.”

–Editors: Larry Edelman, Rob Urban

To contact the reporter on this story: Prashant Gopal in New York at pgopal2@bloomberg.net.

To contact the editor responsible for this story: Kara Wetzel at kwetzel@bloomberg.net.