Headlines – Week of October 10, 2010

October 22, 2010

The Cost of Natural Disasters

An economist at the National Association of Realtors, recently published an article in Real Estate Insights entitled, The Economics Behind Natural Disasters.

The article provides some interesting background on the recent history of natural disasters, insurance, and looks at regional information comparing the destructive tendency of different types of disasters.

The Highlights:

  • Based upon the “Inflation Adjusted U.S. Insured Catastrophe Losses (by Cause of Loss)”, data from the Insurance Information Institute (1989-2008) hurricanes rank as the most expensive natural disasters 
Hurricanes 46.9%
Tornadoes 27.0%
Winter Storms 7.6%
Acts of Terrorism 6.9%
Geologic Events 5.9%
Wind/Hail/Flood 2.9%
Wildfires 2.4%
Others 0.5%
  • Based upon the distribution of U.S. insured Catastrophe Losses (1980-2008), Florida ranked at the top of all states
Florida 19% $57.1 billion
Louisiana 11% $33.6 billion
Texas 10% $31.2 billion
All Other States 60% $176 billion
  •  Interestingly, the coastal states are not the only states on “top” lists. Indiana was the top state for insured losses in 2006, while Tennessee, Kansas, Ohio, and Minnesota also appear.
  • The states that have the largest share of owner occupied housing that are part of the National Flood Insurance Program are:
Louisiana 36.3%
Florida 35.2%
Hawaii 19.6%
South Carolina 13.7%
Texas 11.5%
New Jersey 9.9%
Delaware 8.6%
Mississippi 8.2%
North Dakota 7.2%
Rhode Island 5.3%







Fannie, Freddie bailout to cost $154B

According to an article in USA Today, tThe government bailout of mortgage giants Fannie Mae and Freddie Mac likely will cost taxpayers $154 billion.

Together, both companies have already have received $135 billion in Treasury Department funds and would  likely draw another $19 billion by 2013 to offset losses from the mortgage crisis.

Treasury’s undersecretary for domestic finance Jeffrey Goldstein was quoted as saying, “Today’s projections show that, in the most likely economic scenario, nearly 90 percent of the losses at Fannie Mae and Freddie Mac are already behind us.”

The government took over the two finance firms in September 2008 as they teetered in the mortgage crisis. Fannie and Freddie buy mortgages from banks and other lenders. They purchased 62% of all new mortgages the first half of 2010, according to trade publication Inside Mortgage Finance.

The $154 billion estimate represents the middle ground of three possible scenarios laid out by the Federal Housing Finance Agency, which regulates Fannie and Freddie. It uses Moody’s Analytics estimates showing home prices likely will fall another 8% by the third quarter of 2011.

Under Moody’s “stronger-recovery” scenario, which assumes a smaller home price decline, the bailouts would cost $142 billion. If the economy slips back into recession, costs could climb to $259 billion.

Full Article

FDIC Aims to Shed Some Real-Estate Assets

An article in the Wall Street Journal recently disclosed that  the Federal Deposit Insurance Corp. is working on a new way to sell failed banks’ hard-to-value real-estate assets back to the private sector..

Up until now, the FDIC has mostly sold soured property loans to investors in partnerships with the agency. These arrangements enticed private investors to buy distressed real-estate assets while giving taxpayers the opportunity to make money should the assets rise in value.

Now the FDIC is looking to bundle and sell some of them as commercial mortgage-backed securities, or CMBS as that market is beginning to recover. The agency is expected to launch its first CMBS deal, expected to be backed by at least $500 million of performing commercial mortgages, by the end of this year or in January.

Since the start of the financial crisis in 2007, there have been 300 bank failures, which wiped out the deposit-insurance fund in the third quarter of last year, putting it at negative $8.2 billion. The FDIC has about $34.1 billion in assets, including those tied to real estate, held by failed banks that are available for sale.

According to the research firm Foresight Analytics, bad commercial real-estate loans, including construction loans and those backed by income-producing properties, accounted for 88% of the most recent failed banks’ nonperforming debt as of the second quarter. Commercial mortgages have been rising as “a source of distress” for banks in addition to construction and land loans.

Full Article 

Posted by Scott R. Lodde


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