Web site Foreclosures.com just released its monthly U.S. Foreclosures Index for the month of September. Foreclosures increased by nearly 7% from August to September -- making it nearly certain--the site says--that this year will see more than 1 million foreclosures in the US.

The Southwest and Southeast continue to lead the way in foreclosures, with more than 15 foreclosures for every 1,000 households this year in the Southwest and more than 10 foreclosures for every 1,000 households in the Southeast. States with the highest percentages of foreclosures are: Arizona, Nevada, Mississippi, California and Georgia.

Other highlights:

- Five of the top 10 counties with pre-foreclosure filings based on a percentage of households are in Florida. Pre-foreclosure filings are steps lenders take before actually foreclosing.

- Pre-foreclosure filings are set to top 2 million this year, foreshadowing more difficult times ahead.

The number of home sales contracts signed soared in August, the National Association of Realtors reported this morning. Pending home sales, a leading indicator because contracts are typically signed a couple months before closings, increased 7.4% compared to July’s revised number and 8.8% compared to August 2007.
Sales are largely increasing because people are picking up foreclosed homes and other distressed properties at bargain prices, especially in the worst-hit markets: California, Florida, Nevada, Rhode Island, and Arizona.
Of course, this surge in sales doesn’t reflect the worsening situation in the credit markets after the Wall Street meltdown last month. We’ll have to wait until next month to see how that might impact the market’s ability to climb out of the worst housing crisis in decades.

Could people who’ve lost their home in a foreclosure lose their chance to vote on Nov. 4?

Believe of not there are efforts to keep such people off the voting rolls. It’s not a small segment of the population with the number of homes in foreclosure approaching two million nationwide. There are 23,000 home foreclosures in Ohio and 28,000 in Michigan, two key states. Add in renters who are getting kicked out of foreclosed homes and you are talking about a lot of displaced voters.

NoVoterLeftBehind.net is a non-profit group monitoring voter registration and the actual vote on Election Day. The effort is spearheaded by Marland Lt. Governor Kathleen Kennedy Townsend, former Illinois Senator Carol Moseley Braun and others.

NoVoterLeftBehind has four tips for voters wrestling with foreclosure:

1) Voting is an inalienable right that you can’t lose due to an inability to meet mortgage payments. If anyone tries to tell you differently, don’t listen to him or her!

2) If you are in the foreclosure process – but still living in your home – you still vote where you live.

3) If you are forced to move due to foreclosure before the voting registration deadline, re-register at your new home location.

4) If you move due to foreclosure after the voting registration deadline -- but before the election -- go to vote where you were last registered. You have the right to vote by signing an affirmation (or similar form) if your right to vote is challenged for any reason. If your name isn’t on the registered voter list, you have the right to vote by provisional ballot.

I've been checking out the big bailout bill, all 400-plus pages. You can read it all here. One of the big debates was whether the bill should include limits on executive pay but they've changed the wording since I last took a look. Just a week ago Congress was talking about putting a cap on excutive pay of $500,000 at any bank that sold assets to the Treasury. Now the final version below says no golden parachutes for the top five executives at firms who sell the Treasury more than $300 million worth of assets. Big difference. That's politics.

SEC. 111. Executive compensation and corporate governance.

(a) Applicability.—Any financial institution that sells troubled assets to the Secretary under this Act shall be subject to the executive compensation requirements of subsections (b) and (c) and the provisions under the Internal Revenue Code of 1986, as provided under the amendment by section 302, as applicable.

(b) Direct purchases.—

(1) In general.—Where the Secretary determines that the purposes of this Act are best met through direct purchases of troubled assets from an individual financial institution where no bidding process or market prices are available, and the Secretary receives a meaningful equity or debt position in the financial institution as a result of the transaction, the Secretary shall require that the financial institution meet appropriate standards for executive compensation and corporate governance. The standards required under this subsection shall be effective for the duration of the period that the Secretary holds an equity or debt position in the financial institution.

(2) Criteria.—The standards required under this subsection shall include—

(A) limits on compensation that exclude incentives for senior executive officers of a financial institution to take unnecessary and excessive risks that threaten the value of the financial institution during the period that the Secretary holds an equity or debt position in the financial institution;

(B) a provision for the recovery by the financial institution of any bonus or incentive compensation paid to a senior executive officer based on statements of earnings, gains, or other criteria that are later proven to be materially inaccurate; and

(C) a prohibition on the financial institution making any golden parachute payment to its senior executive officer during the period that the Secretary holds an equity or debt position in the financial institution.

(3) Definition.—For purposes of this section, the term “senior executive officer” means an individual who is one of the top 5 highly paid executives of a public company, whose compensation is required to be disclosed pursuant to the Securities Exchange Act of 1934, and any regulations issued thereunder, and non-public company counterparts.

(c) Auction purchases.—Where the Secretary determines that the purposes of this Act are best met through auction purchases of troubled assets, and only where such purchases per financial institution in the aggregate exceed $300,000,000 (including direct purchases), the Secretary shall prohibit, for such financial institution, any new employment contract with a senior executive officer that provides a golden parachute in the event of an involuntary termination, bankruptcy filing, insolvency, or receivership. The Secretary shall issue guidance to carry out this paragraph not later than 2 months after the date of enactment of this Act, and such guidance shall be effective upon issuance.

Manhattan apartment prices, which have soared quarter after quarter, are finally flattening out, according to a report today from the Real Estate Board of New York.

“The trend from the beginning of the year forward, is flat or slightly downward,” Michael Slattery, the Real Estate Board of New York’s senior vice president, told me today. “We’re starting to feel the impact of economic conditions.”

The median price for a Manhattan apartment (condos and co-ops) rose just 2.8% to $845,000 and sales transactions dropped 20% in the third quarter compared to the same period a year ago. Median home prices -- including co-ops, condos, and houses -- dropped in every other borough (down 9% in Brooklyn, Staten Island, and the Bronx, and down 17% in Queens).

This is a dramatic change. In the first quarter of this year, the median price for a Manhattan home jumped 18%, to $872,000, compared with the same period a year ago. The housing market benefitted from the city's relatively strong economy and the weak dollar, which has attracted foreign buyers.

But the pressures on the city's home prices are likely to increase. The third-quarter report, which accounts for the three months ending September 30, doesn't fully reflect buyer sentiment in the wake of last month's investment bank meltdown.

And there's an inherent lag in real estate data. A buyer typically signs a sales contract three months before closing on a property, and as much as a year before closing on a new home. So, we’ll see the real impact of the Wall Street layoffs in the months to come.

Another thing to watch out for. Builders, rushing to meet a June 30 tax abatement deadline, applied for an astounding 17,000 new construction permits in June, more than the first five months of the year combined, Slattery said. The permits required that the builders had already poured the foundation for the buildings, meaning that most of those units will likely be built, he said.

It remains unclear how many of these permits are for condos or for rentals. And Slattery said he expects fewer permits to be issued in coming months.

But it seems to me that the flood of new supply could cause serious problems for Manhattan’s condo market. Sales for condos are already off by 37% in Manhattan compared to a year ago. Co-ops, by comparison, which are in limited supply, are actually up 4% compared to a year ago.

The deepening of the financial crisis has led to a new round of finger-pointing. The blame game can go too far, of course, but on the whole I think it's healthy for a society to pause and figure out what went wrong before it blunders ahead. As George Santayana said, those who cannot remember the past are condemned to repeat it.

With that philosophical preamble, allow me to point you to an excellent article that appeared last March in The Oregonian newspaper. It exposed a memo by someone inside JPMorgan Chase (we still don't know who) instructing lending officers how to commit fraud and get loans approved by the bank's computer, known as Zippy.

The memo’s title says it all: “Zippy Cheats & Tricks.”
It is a primer on how to get risky mortgage loans approved by Zippy, Chase’s in-house automated loan underwriting system. The secret to approval? Inflate the borrowers’ income or otherwise falsify their loan application.

Hat tip to Barry Ritholtz, who mentioned The Oregonian piece in an Oct. 2 blog post.

The latest real estate sales numbers from the Corcoran Report show that the Big Apple, long thought to be immune from the housing slump, suddenly has that sinking feeling.

Home sales were down 34% in the third quarter. The median price of a condo still climbed 10% to $975,000, but that was entirely driven by some of the fancy new properties coming on the market. Those buidlings were benefiting no doubt from the cheaper dollar and wealthy foreignors looking to invest in one of the world's greatest cities. Prices of resale property--condos that had already traded hands before--were flat at $850,000.

The national market followed a similar path last year, with transactions falling but market prices still climbing. That's unsustainable though, especailly given all the carnage on Wall Street and its impact on jobs and pay in New York City.

So just how much will that dream townhouse on the Upper East Side cost you? $10 million, up 37% from last year. And the cool loft in Soho? They are down 26% in price but will still set you back $1.3 million. Wait a few months.

Excellent piece by BusinessWeek's Aaron Pressman over at Investing Insights, another one of our blogs. I'm republishing it here in full, but I recommend checking it out in the original.

Posted by: Aaron Pressman on September 29
Fresh off the false and politicized attack on Fannie Mae and Freddie Mac, today we’re hearing the know-nothings blame the subprime crisis on the Community Reinvestment Act — a 30-year-old law that was actually weakened by the Bush administration just as the worst lending wave began. This is even more ridiculous than blaming Freddie and Fannie.

The Community Reinvestment Act, passed in 1977, requires banks to lend in the low-income neighborhoods where they take deposits. Just the idea that a lending crisis created from 2004 to 2007 was caused by a 1977 law is silly. But it’s even more ridiculous when you consider that most subprime loans were made by firms that aren’t subject to the CRA. University of Michigan law professor Michael Barr testified back in February before the House Committee on Financial Services that 50% of subprime loans were made by mortgage service companies not subject comprehensive federal supervision and another 30% were made by affiliates of banks or thrifts which are not subject to routine supervision or examinations. As former Fed Governor Ned Gramlich said in an August, 2007, speech shortly before he passed away: “In the subprime market where we badly need supervision, a majority of loans are made with very little supervision. It is like a city with a murder law, but no cops on the beat.”

Not surprisingly given the higher degree of supervision, loans made under the CRA program were made in a more responsible way than other subprime loans. CRA loans carried lower rates than other subprime loans and were less likely to end up securitized into the mortgage-backed securities that have caused so many losses, according to a recent study by the law firm Traiger & Hinckley (PDF file here).

Finally, keep in mind that the Bush administration has been weakening CRA enforcement and the law’s reach since the day it took office. The CRA was at its strongest in the 1990s, under the Clinton administration, a period when subprime loans performed quite well. It was only after the Bush administration cut back on CRA enforcement that problems arose, a timing issue which should stop those blaming the law dead in their tracks. The Federal Reserve, too, did nothing but encourage the wild west of lending in recent years. It wasn’t until the middle of 2007 that the Fed decided it was time to crack down on abusive pratices in the subprime lending market. Oops.

Better targets for blame in government circles might be the 2000 law which ensured that credit default swaps would remain unregulated, the SEC’s puzzling 2004 decision to allow the largest brokerage firms to borrow upwards of 30 times their capital and that same agency’s failure to oversee those brokerage firms in subsequent years as many gorged on subprime debt. (Barry Ritholtz had an excellent and more comprehensive survey of how Washington contributed to the crisis in this week’s Barron’s.)

There’s plenty more good reading on the CRA and the subprime crisis out in the blogosphere. Ellen Seidman, who headed the Office of Thrift Supervision in the late 90s, has written several fact-filled posts about the CRA controversey, including one just last week. University of Oregon professor and economist Mark Thoma has also defended the CRA on his blog. I also learned something from a post back in April by Robert Gordon, a senior fellow at the Center for American Progress, which ends with this ditty:

It’s telling that, amid all the recent recriminations, even lenders have not fingered CRA. That’s because CRA didn’t bring about the reckless lending at the heart of the crisis. Just as sub-prime lending was exploding, CRA was losing force and relevance. And the worst offenders, the independent mortgage companies, were never subject to CRA — or any federal regulator. Law didn’t make them lend. The profit motive did. And that is not political correctness. It is correctness.

The Phoenix mansion where John and Cindy McCain raised their family is set to be auctioned this month. But this is not one of the many McCain homes that the Presidential candidate can't seem to keep count of. According to Realstalker.com, the McCains sold the house in 2006 for $3.2 million, and the real estate developer who bought it is selling it at auction. This is a fabulous place set on 2.7 acres as you can see in this video tour on CNN. The McCain children had their own air-conditioned playhouse. The 15,000-square-foot house has a 6-car garage, an extra garage, 10 fireplaces, and 22 flat-screen televisions that, along with all the statues and art work, will be thrown in with the house.

The battle of the home price databases continues. The Standard & Poor's/Case-Shiller index out this morning shows a record 16.3% price drop in July from the year-ago period. That was the largest slide since the index was created in 2000. The index tracks resale, single family home prices in twenty large cities. An older index that follows the ten largest cities plunged 17.5%, the biggest decline in its 21-year history.

Las Vegas was hit the hardest with prices down nearly 30%, followed by Phoenix and Miami, which were down 29% and 28% respectively. To put these declines in perspective, during the last big housing bust from 1990 to 1992, the steepest year-over-year decline was 6.3%. Prices peaked in October 1989, according to the Case-Shiller numbers. They hit bottom in February of 1994 but it took until January of 1998 for prices to reach their previous high again, a cycle of nearly nine years.

There was some good news in the Case-Shiller data. While all twenty cities showed year-over-year declines, six managed to post monthly increases from June to July. Those cities were Atlanta, Boston, Dallas, Denver, Detroit and Minneapolis. Denver had the largest month-over-month increase at 1.3%. "There are signs of a slow down in the rate of decline, but no evidence of a bottom," David Blitzer, head of S&P's index unit said.

The National Association of Realtors, whose data is reported by its members and follows the entire country, not just the largest cities, reported a 7% median home price decline in July to $212,000. The association is already out with its August numbers, which show a steeper 9.5% fall to a $203,000 median price nationally.

One reason why prices have declined so sharply is many of the homes being sold are distressed situations--short sales and foreclosures. “They’re bank-owned properties with dead lawns and green swimming pools," says Rob Jensen, a RE/MAX agent in Las Vegas. "They account for 75% of the sales right now. That pushes pricing down. It's just a snowball effect."

Jensen figures prices in Las Vegas are back to 2002 levels. But there is a silver lining. "So many people were priced out for so long," he says. "The last four years you couldn’t find a home for under $300,000. Now, you can find a great home with a pool for $250,000."

Steve Wynn, the billionaire casino mogul had steam coming out of his ears when I spoke to him on the day the big bailout failed. And he wasn't even a fan of it. Here's what he said:

“I am totally disgusted as an American by the leadership shown by both parties. We have a deficit, $350 billion. This bailout would cost $700 billion. We’re going to go to a trillion. I watched the debate. Lehrer should have asked them: What do you plan to do? If either one had real leadership he would have looked over to the other and said my fellow Americans, 70% of the budget are entitlements, Congress can’t touch that. Another 30% of the budget is discretionary, but it's things like national defense. We have as much ability to afford $700 billion as we do being Mary Poppins! America can’t afford another trillion dollars in debt. Our GDP can’t afford it. All Americans are going to pay the price. We’ll have a cheaper dollar and higher oil. We are going to save our institutions, but not by buying assets and bringing them to Washington. If a bureaucracy buys those credits its tantamount to Hari Kari."

"Those assets should stay where they were created. Warren Buffet showed us the way. The government stiffens the balance sheets of the troubled companies with preferred stock. All you institutions, we’re going to save you, but you have to cut your operating expenses, pay bare minimum salaries, no bonuses, until the government gets its money back. What will happen is the bankers will say tomorrow okay, let people stay in those homes. Instead of the Ditech commercial where you had people saying forget about paperwork. They’ll ask them to show how much they afford. Loans will get renegotiated. Homes will go back to $250,000. The people that live in them will pay what they can afford. The banks will have huge tax losses. The stocks will drop, just like they’re supposed to. This phony inflation in the economy will end. Shame on both the political parties. No more, enough is enough. Shame on both of those guys. Do they both have such a low opinion of us? Obama with his tax cuts and unpaid expenditures. McCain talking about earmarks. Earmarks run for one day. We can’t pay people social security at 65, we have to pay them at 70. What is this constant procrastination of the truth. I don’t give a damn about being polite.”

It's not often we get to report breaking news on Hot Property, but I see the bailout seems to have died on the floor of Congress. The final vote was 205 for it and 228 against. A surprisingly large number of Republicans voted against it.

The Dow Jones average is down some 700 points so far today, 400 of that in the last ten minutes as vote was being tallied. It seems this bailout is toxic, much like the mortgages Treasury Secreatary Paulson hoped to buy with the money.

As my blog colleague Dean Foust lays out in an excellent story on Businessweek.com, Citigroup could end up getting quite a deal on its $1 a share purchase of Wachovia.

The acquisition quadruples the size of Citigroup’s branch network to more than 4,400 locations. Whereas before the company was really just a player in New York, California and Texas, Citibank—as its branches are known-- now has major positions in Florida, North Carolina, New Jersey and Pennsylvania. “Citigroup passed over Washington Mutual because they were focused on a bigger target: Wachovia.” says Bart Narter, senior vice president of the Banking Group at Celent, a Boston-based financial research and consulting firm. “Citigroup instantly becomes a major player in the Southeast and Mid-Atlantic regions.”

The deal could turn out to be a good one too for the F.D.I.C. which gets $12 billion in Citigroup preferred stock. The federal fund will only have to cough up money if the losses on mortgages Citigroup acquired top $42 billion, a very high number.

Unlike Washington Mutual investors, Wachovia shareholders are at least getting that $1 a share. There may be some additional assets for bondholders as Citigroup is not acquiring Wachovia’s AG Edwards brokerage firm. WaMu shareholders, by comparison, were wiped out. WaMu bondholders got more bad news. The firm, really just a shell at this point, declared bankruptcy. WaMu had some $ 6.8 billion worth of bonds outstanding, according to the research firm Gimmie Credit. On Friday they were trading at just 32 cents on the dollar.

Residential developers, during the boom, built, sold, and then built some more. Now they're taking a welcome breather.

The new home inventory is the lowest it has been since August 2004, according to a new Census Bureau report. Unfortunately, new home sales dropped 11.5% to a 17-year low in August. The supply of homes at the current feeble sales pace dropped to a 10.3 months supply in August from 10.9 months in July.

This graph from the Businomics Blog gives you a good picture of the dramatic rise and fall of new construction.

Whoo Hoo!
That’s what many Washington Mutual customers are saying as several weeks of turmoil at the nation’s largest savings and loan comes to an end. WaMu is being acquired by an even larger rival, J.P. Morgan Chase, whose name alone promises some stability.

There’s lot of sadness here of course. WaMu shareholders have gotten wiped out--lost everything. That’s not true of Alan Fishman, WaMU ceo for all of two weeks, who might be entitled to $18 million in severance and signing bonus.

Then there are the employees of both WaMu and Chase who will lose their jobs. Chase CEO Jamie Dimon say the company will close about 10% or 500 of the combined branches.

WaMu’slending practices were clearly bad. But the company’s TV advertisements provided a lot of humor in an industry not known for levity. Maybe the takeaway here is that your bank shouldn’t run funny ads depicting other bankers as fat old guys in suits, drinking champagne and soaking customers for fees. Maybe we were all suckered by WaMu’s cappuccinos and free Internet service in branches.

Or maybe we can continue to hope there are bankers out there who take their business--but not themselves--seriously.