Friday, January 1, 2010

Et tu, San Francisco, and California?

Budget strapped San Francisco, and California, bail out Lennar, an ailing subprime lender

At the close of 2008, and throughout 2009, we watched the federal government reward the reckless multinational financial sector with trillions of dollars for causing the worst hardship since the Great Depression.

San Franciscans and Californians joined in the agony but few understood that both San Francisco and California have come up with their own bailout for one of the major players in the meltdown, the South Florida based Lennar Corporation, thanks to Proposition G, followed by State Senator Mark Leno's Senate Bill 792, which legalizes the transfer of 23 acres of pristine waterfront parkland to Lennar.

Lennar is not just a big industrial homebuilder; Lennar is also a big mortgage lender.  Like D.R. Horton, Pulte, and all the rest of the big builders, Lennar has its own mortgage lending subsidiary, Universal American Mortgage Company (UAMC), which makes loans to sell its own properties.

During the years leading up to the subprime loan meltdown, home builder mortgage operations plied customers with incentives far beyond the common 1% for one month teaser rate.   On 10.13.06, Marketwatch reported, in "Home builders up ante to lure buyers," that:

"The NAHB found 55% of companies were offering home-option items such as granite countertops and landscaping at no charge, up from 37% the prior year. About 43% were offering to pay the closing costs on the buyer's previous home. . . "

Forty-four percent of builders were reducing home prices, 4% were including a new car with the home, and 5% were offering a free holiday trip."

Marketwatch also quoted Lennar CEO Stuart Miller on the increasing use of incentives and price cuts, and Lennar's need to keep cash flowing, at whatever cost, even in October 2006.
Why?  Because Lennar had overbuilt, way beyond new housing demand, and had to keep overlending to keep moving it.

Less than a year later, in "House of Cards," published in Builder Online, 08.07, John Caulfield described the pressure Lennar had put not only on borrowers, but also on UAMC managers:

Another source, who worked 2 ½ years as a manager for one of Lennar's UAMC offices in Nevada before she was laid off in October 2006, says the pressure to approve buyers for loans was “overwhelming.”  That pressure came directly from Lennar's divisional president, "who told us the relationship between the builder and the mortgage company was ‘master and slave.'”   When this source says she got tougher about qualifying buyers, Lennar removed several communities from her loan office's territory. When asked why Lennar would sanction its mortgage subsidiary to approve loans for buyers it knew would not be able to pay them, this source replies, “Lennar wasn't thinking long term; it's a publicly traded company that's judged on how many homes it closes.”

Never mind how many UAMC mortgages were bound to go bad.

Never mind that the prices of Lennar properties, even after deep discounts, were artifically inflated by UAMC's approval of buyers for more than they'd be able to pay.

Never mind that financially unsophisticated borrowers would eventually drain any and all resources that they and their families could earn or liquidate to keep up with negative amortization payments, adjustable rates, and/or balloon payments.

Never mind that these borrowers would be left trying to talk to distant "loan servicing" bureaucrats, who would have no memory or concern for the borrowers, or the negotiations that had led to the loans.

Never mind that the loan servicers would demand payment and/or threaten foreclosure, but refuse to reveal the names of the new "lenders," those who had bought their mortgages from UAMC on the secondary mortgage market, even though they, the new lenders, were the only ones who could have agreed to renegotiate loans.

Investment banks, the master subprime puppeteers

Much has been written and said about the Machiavellian machinations of investment banks like Deutschebank, Morgan Stanley, and Goldman Sachs, who bought megamillion dollar bundles of loans from Lennar's UAMC and all the other reckless builders and mortgage lenders, then turned them into securities that could be bought and sold speculatively, insured themselves against losses they well knew were coming, and sold "pass through certificates," a.k.a., income strips, on securities that they themselves were selling short.

Pension funds and municipalities that bought income strips no longer producing income are still scrambling.

The results:

-a staggering upward transfer and concentration of wealth, long before the bailouts,

-global recession far worse than capitalism's usual boom and bust cycles,

-hardship, and despair from Australia, where mortgage and credit card debt now exceeds even that of Americans, to D.R. Congo, where the crtiical mining contract review was finally abandoned under World Bank, IMF, and recession pressures, and,

-ongoing waves of foreclosures and layoffs, and new tent cities,

-falling home values, property and income tax revenues.

Reagan redux

Throughout 2009, city, county, and state legislatures, battled over what to cut next, health, schools, arts, or public transportation, as federal trillions flowed into financial industry coffers, all in the name of Reaganite trickle down economics.

And nobody knows where it went, only that that it hasn't trickled down.

Lennar and the other overbuilders and lenders stepped up for another $33 billion handout in the Worker, Homeownership and Business Assistance Act of 2009, which became law on 11.06.2009, prompting NY TImes financial columnist Gretchen Morgenson to ask "would it be so terrible if some builders that lost their heads during the housing mania ceased to exist?"

Lennar, the most aggressive overbuilder/lender, spent $240,000 lobbying for its share,
spent $240,000 lobbying for its $250,000,000 share, proving yet again that politicians offer an astounding return on investment----a 1,041.66% return for Lennar on this one.

Et tu, San Francisco?   Et tu, California?  

At the San Francisco City and County Board of Supervisors, in the San Francisco Bay View, National Black Newspaper, and on the phone to Mark Leno and other Sacramento legislators, I keep asking why cash strapped San Francisco and California are rewarding Lennar/UAMC for all this, and, urging them on, with more "public private partnerships," and "title transfers," a.k.a. land grabs, including 23 acres of pristine waterfront parkland at Candlestick Point? 

This corporation has not changed its ways.

When foreclosed properties flooded the market, competing with its new properties, it launched an ongoing ad blitz to buy new, asking, "Why take the risk and buy a used foreclosed home or a short sale when you can afford a brand new one?"

Indeed.  Especially if it's a foreclosed Lennar Home, quite likely built with toxic Chinese dry wall, or, on top of a bomb test range with live ordinance still underground, or any number of the other toxic dumpsites Lennar specializes in building on, like San Francisco's Hunters' Point Naval Shipyard, the hugely contaminated home of the now shuttered Naval Radiological Defense Laboratory.

Lennar's marketing team even produced a newly aggressive video argument for exhausting the planet's resources, "Why buy new?"

Last spring Lennar's Southeast Florida division announced a weekend sale, "THIS BAILOUT'S FOR YOU":

PR Log (Press Release) – Apr 14, 2009 – LENNAR CELEBRATES ‘THIS BAILOUT’S FOR YOU’ SALES EVENT THIS WEEKEND IN SOUTH FLORIDA   MIAMI, Fla. - Corporations should not be the only ones benefiting from bailouts. This weekend April 18 and 19, the Southeast Florida division of Lennar, one of the nation’s leading homebuilders, is bailing prospective homebuyers out with incredible prices, incentives and interest rates that make it simple to buy a new home in today’s current real estate market.

As with the war, if we can't stop it locally, I don't know where we can.

1 comment:

  1. The homebuilders' role in the housing bubble and economic bust is still not being talked about in mainstream media which is a shame. Uninformed new buyers keep going into model homes and naiively signing up for risky loans on houses they can't afford, thanks to deceptive practices by these builders. Many of the foreclosures are in new developments. Years ago complaints about shoddy construction dominated home builder gripe sites. Then loan fraud became part of the picture, e.g. Beazer Homes settled a mortgage fraud case w/the govt last year and many smaller builders have gone to jail, but the big boys just pay fines/settlements and keep doing it. Many people who are otherwise fairly smart about economics are totally unaware builders even had their own mortgage co's and were in on the risky practices and fraud. Mainstream media is protecting one of the main perpetrators of the current mess by not talking about this. Thanks.