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What you're not being told about the current financial crisis

You can watch hours and hours of news, or read columns of print in most newspapers, and come away no wiser about the causes and prospects for the current financial turmoil.

Most journalists and TV talking heads don't really understand the subject, and those that do speak and write using so much jargon that the average person must feel he or she is trying to follow a conversation in ancient Hebrew.

We're going to try to cut through the jargon, and explain the situation as best we can, in plain English. If you find our explanation of value, please forward it to others.

The current housing crisis, and all that flows from it, comes from two main sources, both deriving from Washington. 

• First, Congress passed something called the "Community Reinvestment Act" in 1977, resulting in the creation of bureaucratic regulations designed to encourage, or even compel, financial institutions to make loans to people with lower incomes. These regulations were then amended in 1995 and 2005 to create different rules for institutions of different sizes, so that various kinds of institutions would be better able to meet the government's goals for fostering home ownership in lower income communities.
• Second, the Federal Reserve starting making loans available to the banking system at extremely low interest rates.
• Third, steps one and two combined to make cheap housing loans available to people who could not have afforded or qualified for them before. This caused an increased demand for housing that sent home prices spiralling upward.
• Fourth, mortgage lenders managed the risk involved in making these loans by selling their mortgages to other companies, which in turn thought that they were managing their own risk because they had a wide variety of mortgages, from many different types of borrowers, in their portfolio.
• Fifth, these decisions about how to manage the increased risk created by the "Community Reinvestment Act" were all in error, because the Fed's policy of easy money had falsely inflated the value of ALL homes. This meant that good mortgages could not be used to manage the risk involved in questionable mortgages, because the value of ALL homes was falsely inflated.
• Sixth, as with all inflationary booms, increases in home prices finally absorbed the increased purchasing power provided by the Fed, leading to a slow-down in home purchases. When this moment arrived everyone realized that the homes they had purchased weren't really worth what they had paid for them. The defaults and foreclosures then began, along with the collapse of the financial institutions that owned these unsound mortgages.

• People buy other currencies, causing the exchange value of the dollar to fall
• They buy gold, pushing the price up above $1,000 an ounce
• And they buy oil futures, driving up those prices too

from Downsize DC,

HUD TAKES OVER MIAMI-DADE HOUSING AGENCY,
APPOINTS RECOVERY ADMINISTRATOR
Financial irresponsibility cited as primary cause for takeover

WASHINGTON - (August 7, 2007) - The U.S. Department of Housing and Urban Development announced today that it will take possession of the Miami-Dade Housing Agency (MDHA) in 10 business days, saying the agency had demonstrated a pattern of financial irresponsibility and mismanagement of its Section 8 rental housing voucher and public housing programs.

"For several months, we at the federal level have reached out to local leaders to work in partnership to get the agency back on track," said HUD Assistant Secretary of Public and Indian Housing Orlando Cabrera. "HUD tried without success to get Miami officials to enter into what is known as a cooperative endeavor agreement that would have allowed us to work together as partners to restore the Miami community's faith in its housing agency. Local official have rebuffed us, claiming they are making progress. Notwithstanding these claims of progress, HUD has verified that the problems identified by HUD are getting worse, not better."

"Taking possession has always been our last resort," he added. "We, like the people of Miami, continue to hear about MDHA's plans to improve, but plans on paper are meaningless to families and communities waiting for decent housing and action. It would be irresponsible to wait any longer."

HUD began the takeover process today by delivering two letters of default to Miami-Dade County Mayor Carlos Alvarez and Bruno A. Barreiro, Chairman of the Board of County Commissioners. The letters inform them that the agency violated federal law has defaulted on its Section 8 Consolidated Annual Contributions Contract and its Public Housing Annual Contributions Contract - the contracts which govern the myriad of programs and HUD funding administered by MDHA.

The major findings cited by HUD in the default letters were:

• Failure to annually re-certify Section 8 tenants. Failing to do annual re-certifications can cause truly needy families not get the assistance they need because some tenants may be receiving more housing subsidy than they are eligible to receive, or there may be tenants who may no longer qualify for the program.
  
• Numerous and gross accounting errors in annual financial statements from 2002-2006 -- in the tens of millions of dollars.

The delivery of the default letters means that within 10 days HUD will begin to take possession of all MDHA assets, projects and programs of MDHA.

HUD has appointed Donald J. LaVoy, a senior public housing official, to serve as MDHA's recovery administrator overseeing the day-to-day operations of the agency. LaVoy, who is currently a senior advisor in the Office of Public Housing, has been with HUD for 10 years, focusing on creating new systems to help public housing authorities operate more efficiently. He created HUD's Office of Real Estate Assessment Center in 1997 and headed the office until 2002. He also created the Public Housing Assessment System (PHAS), which is the instrument HUD currently uses to assess the condition of housing authorities. LaVoy has also worked closely with housing authorities to help them move forward with their HOPE VI developments.

"We are confident our recovery administrator will take the necessary actions to correct deficiencies at MDHA that has led to us to the point of taking possession of it," said Cabrera. "We look forward to working with the both the agency and the county to right this ship."

There are approximately 4,100 public housing authorities nationally. With the actions taken in Miami-Dade, HUD has possession of seven public housing authorities in the United States, including two housing authorities in Florida - Riviera Beach and Sarasota. HUD is also in control of housing authorities in the following cities: Detroit, East St. Louis, Ill., New Orleans, and Wellston, Mo. HUD is also in control of the Virgin Islands Housing Authority.

HUD AND EPA ANNOUNCE LEGAL SETTLEMENT WITH L.A. LANDLORDS
Companies agree to pay $125,000 for Lead-Disclosure Violations

WASHINGTON – The U.S. Department of Housing and Urban Development and the U.S. Environmental Protection Agency today announced legal settlements with twelve Los Angeles-area property owners and one property management company, represented in negotiations by Lance J. Robbins. The government alleges these associated companies failed to inform tenants their homes might contain potentially dangerous levels of lead in violation of federal disclosure rules.

Through this settlement, Brick Investment Corporation, as general partner for eight companies, and 7th Street Associates, Inc., as a signatory itself as well as general partner for four additional companies, have agreed to pay a total civil fine of $125,000 and certify that they are now in full compliance with the Lead Disclosure Rule.

“Landlords have a legal responsibility to tell their tenants if their homes may contain hazardous lead,” said HUD Deputy Secretary Roy A. Bernardi. “This agreement should remind all landlords that the federal government will do everything it can to protect the health and safety of children.”

Wayne Nastri, administrator for the EPA's Pacific Southwest region, said, "Lead poisoning is a serious health threat for children around the country. Today's settlement illustrates that we will aggressively protect our young children, and our most sensitive populations from lead poisoning. Further, we plan to continue to enforce lead disclosure laws until childhood lead poisoning is eliminated."

Background

The Residential Lead-Based Paint Hazard Reduction Act of 1992 and the Lead Disclosure Rule implementing the Act require home sellers and landlords of housing built before 1978 to disclose to purchasers and tenants knowledge of lead-based paint or lead-based paint hazards using a disclosure form, signed by both parties, attached to the sales contract or lease containing the required lead warning statement, provide any available records or reports, and give an EPA-approved pamphlet entitled “Protect Your Family from Lead in Your Home.”

Sellers must also provide purchasers with an opportunity to conduct a lead-based paint inspection and/or risk assessment at the purchaser’s expense. Acceptable lead disclosure forms can be found at www.hud.gov/offices/lead/disclosurerule and www.epa.gov/lead/pubs/leadbase.htm.

Health Effects of Lead-Based Paint

Lead exposure causes reduced IQ, learning disabilities, developmental delays, reduced height, poorer hearing, and a host of other health problems in young children. Many of these effects are thought to be irreversible. In later years, lead-poisoned children are much more likely to drop out of school, become juvenile delinquents and engage in criminal and other anti-social behavior. As reported in the New England Journal of Medicine, researchers found that even at low levels, lead exposure in children can significantly impact IQ and even delay puberty in young girls.

At higher levels, lead can damage a child's kidneys and central nervous system and cause anemia, coma, convulsions and even death. According to the Centers for Disease Control and Prevention (CDC), about 310,000 of the nation's 20 million children under the age of six have blood lead levels high enough to impair their ability to think, concentrate and learn.

Eliminating lead-based paint hazards in older low-income housing is essential if childhood lead poisoning is to be eradicated. According to CDC estimates, the percentage of children with elevated blood lead levels has been cut by two-thirds since the early 1990's, although the prevalence of childhood lead poisoning in low-income, older housing without Federal assistance remains high. HUD estimates that the number of houses with lead paint has declined from 64 million in 1990 to 38 million in 2000. About 24 million homes have significant lead-based paint hazards.

HUD is the nation’s housing agency committed to increasing homeownership, particularly among minorities; creating affordable housing opportunities for low-income Americans; and supporting the homeless, elderly, people with disabilities and people living with AIDS. The Department also promotes economic and community development and enforces the nation's fair housing laws. More information about HUD and its programs is available on the Internet at www.hud.gov and espanol.hud.gov.

The following Los Angeles corporations are covered under today’s settlement:

* All properties are managed by 7th Street Associates, Inc.

The Sentencing of a Terrorist

While this is not "landlord news," as such, it is worth every American's time to read.

Remember the guy who got on a plane with a bomb built into his shoe and tried to light it?

Did you know his trial is over? Did you know he was sentenced? Did you see/hear any of the judge's comments on TV/Radio? Didn't think so, media at work again. Everyone should hear what the judge had to say:

The Ruling by Judge William Young U.S. District Court. Prior to sentencing, the Judge asked the defendant if he had anything to say. His response: After admitting his guilt to the court for the record, Reid also admitted his "allegiance to Osama bin Laden, to Islam, and to the religion of Allah," defiantly stated "I think I ought not apologize for my actions," and told the court, "I am at war with your country."

Judge Young then delivered the statement quoted below, a stinging condemnation of Reid in particular and terrorists in general.

January 30, 2003 United States vs. Reid.

Judge Young:
"Mr. Richard C. Reid, hearken now to the sentence the Court imposes upon you. On counts 1, 5 and 6 the Court sentences you to life in prison in the custody of the United States Attorney General.

On counts 2, 3, 4 and 7, the Court sentences you to 20 years in prison on each count, the sentence on each count to run consecutive with the other. That's 80 years.

On count 8 the Court sentences you to the mandatory 30 years consecutive to the 80 years just imposed. The Court imposes upon you each of the eight counts a fine of $250,000 for the aggregate fine of $2 million. The Court accepts the government's recommendation with respect to restitution and orders restitution in the amount of $298.17 to Andre Bousquet and $5,784 to American Airlines. The Court imposes upon you the $800 special assessment.

The Court imposes upon you five years supervised release simply because the law requires it. But the life sentences are real life sentences so I need go no further. This is the sentence that is provided for by our statutes. It is a fair and just sentence. It is a righteous sentence.

Let me explain this to you. We are not afraid of you or any of your terrorist co-conspirators, Mr. Reid. We are Americans. We have been through the fire before. There is all too much war talk here. And I say that to everyone with the utmost respect. Here in this court, we deal with individuals as individuals, and care for individuals as individuals.

As human beings, we reach out for justice. You are not an enemy combatant.

You are a terrorist. You are not a soldier in any war. You are a terrorist. To give you that reference, to call you a soldier, gives you far too much stature. Whether it is the officers of government who do it or your attorney who does it, or that happens to be your view, you are a terrorist. And we do not Negotiate with terrorists. We do not treat with terrorists. We do not sign
documents with terrorists. We hunt them down one by one and bring them to justice.

So war talk is way out of line in this court. You are a big fellow. But you are not that big. You're no warrior. I know warriors. You are a terrorist. A species of criminal guilty of multiple attempted murders.

In a very real sense, State Trooper Santiago had it right when you first were taken off that plane and into custody and you wondered where the press and where the TV crews were, and he said "you're no big deal." You're no big deal.

What your counsel, what your able counsel and what the equally able United States attorneys have grappled with and what I have as honestly as I know how tried to grapple with, is why you did something so horrific. What was it that led you here to this courtroom today?

I have listened respectfully to what you have to say. And I ask you to search your heart and ask
yourself what sort of unfathomable hate led you to do what you are guilty of, and admit you are
guilty of doing. And I have an answer for you.

It may not satisfy you.. But as I search this entire record, it comes as close to understanding as I know. It seems to me you hate the one thing that is most precious. You hate our freedom. Our
individual freedom. Our individual freedom to live as we choose, to come and go as we choose,
to believe or not believe as we individually choose.

Here, in this society, the very winds carry freedom. They carry it everywhere from sea to shining sea. It is because we prize individual freedom so much that you are here in this beautiful courtroom. So that everyone can see, truly see, that justice is administered fairly, individually, and discreetly. It is for freedom's sake that your lawyers are striving so vigorously on your behalf and have filed appeals, will go on in their representation of you before other judges. We are about it.
Because we all know that the way we treat you, Mr. Reid, is the measure of our own liberties.

Make no mistake though. It is yet true that we will bear any burden; pay any price, to preserve our freedoms. Look around this courtroom. Mark it well. The world is not going to long remember what you or I say here. Day after tomorrow it will be forgotten. But this, however,
will long endure.

Here in this courtroom and courtrooms all across America, the American people will gather to see that justice, individual justice, justice, not war, individual justice is, in fact, being done.

The very President of the United States through his officers will have to come into courtrooms
and lay out evidence on which specific matters can be judged, and juries of citizens will gather to sit and judge that evidence democratically, to mold and shape and refine our sense of justice.

See that flag, Mr Reid? That's the flag of the United States of America. That flag will fly there long after this is all forgotten. That flag stands for freedom. You know it always will.

Custody, Mr. Officer. Stand him down."

So, how much of this Judge's comments did we hear on our TV sets? We need more judges like
Judge Young, but that's another subject.

Pass this around. Everyone should and needs to hear what this fine judge had to say. Powerful words that strike home.

---

Betanix "Paint That Breaks the Mold'' Coatings Line Targets Landlords to Help Thwart Mold; CEO Eric Von Knipe Makes Appearance on Fast Focus TV ``Toxic Mold'' Segment

LOS ANGELES--(BUSINESS WIRE)--April 6, 2004--Landlords have unique concerns when it comes to mold-related issues. Based on the lack of state or federal guidelines, the one tenant they can't seem to evict is mold. Now there is good news on the horizon for beleaguered rental owners: Betanix(R) Coatings CEO Eric Von Knipe today announced that the company is launching a new Anti-Mold, Anti-Fungus, Anti-Flame product mix specifically geared toward rental property owners. It is called the "Whole House System," which includes primer, sealer and topcoat.

"Large apartment owners are often off-site and cannot always keep close tabs on their units," said Von Knipe. "Our `Whole House System' lets them rest assured that they have done everything they can to protect their tenants against mold-related illnesses, as well as protecting their property." Betanix(R) Whole House System is a combination of coatings culled from the company's 3-in-1 value added Designer and Contractor Series. The Designer Series offers a 20-year guarantee and the Contractor Series offers a 10 year guarantee.

"As of last year there were 10,000 outstanding mold-related lawsuits in this country, so somebody has to face this growing concern. We are funding continuous research and development to attack this problem that really gets us where we live." Von Knipe appeared on a Fast Focus television program about the current toxic mold problem facing homeowners today.

The Fast Focus program begins with "Headlines like `Toxic Intruder,' `Biblical Plague' and 'Killer Mold' have families, business owners, community leaders and insurance companies very nervous. In recent years the increase in claims of damage and illness attributed to `Toxic Mold' has risen at an alarming rate. New technologies may be effective in combating this health hazard."

Betanix(R) is cited as one of the companies producing innovative coatings that address the issue of mold head-on. "We identified the scope of the problem years ago," said CEO Von Knipe, "and we engineered our product line to address the needs of property owners. The `Whole House System' is one avenue that will allow apartment owners peace of mind for their piece of real estate."

This Fast Focus program will be distributed to all PBS member stations through a satellite feed scheduled for early April. PBS stations will then have an opportunity to download and record the program for later broadcast use.

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CREIA Explains How to Avoid Moisture Problems
under Your Home

PALM SPRINGS, Calif.--(BUSINESS WIRE)--April 2, 2004--Many homeowners make the mistake of closing sub-area vents around the foundation of their homes -- sometimes for cosmetic reasons or because they erroneously think it will make the house more energy efficient. The California Real Estate Inspection Association warns homeowners and home buyers to avoid this common error that can have costly consequences.

The purpose of foundation vents is not to adjust the energy efficiency of the building. It is to prevent humidity caused by ground moisture from condensing on the structure. Condensation can rot the wood framing and rust the structural hardware. Therefore, open vents should be maintained at all times (especially during the rainy season where there is an increase in ground moisture).

The building code requires that sub-areas be cross-ventilated. Minimum ventilation is defined as one square foot of vent opening for each 150 square feet of floor area. In some cases, this is not sufficient to prevent condensation and additional vents may be needed. If condensation beneath your home is occurring mainly at the corners, the addition of corner vents would be advisable. If the moisture problem persists, have a plastic membrane installed on the ground surfaces beneath the building. This will prevent evaporation, the source of humidity.

Make sure to have your home inspected to determine if excess moisture below the building is causing symptoms in the living area of the home; moisture damage to wood members could be extensive in the sub-area, especially if there is inadequate ventilation. All of these conditions warrant immediate evaluation. If any flooding has occurred beneath the home; the foundations, sub-floor framing and other building components should be carefully examined for possible moisture-related damage.

I have some warnings that you may or may not have addressed in the Rental Property Reporter up until now.

1. Section 8: I work for Section 8 and the contract states (on the certificate and voucher) that the owner MUST GET WRITTEN PERMISSION TO ASSIGN (SELL) HIS PROPERTY IN ADVANCE FROM THE LOCAL SECTION 8 ADMINISTRATION; be that the local housing authority or whoever administers the Section 8 program.

I say this because I am in the midst of a huge problem with Section 8 personally. I work for Section 8 as a clerk and I am the only landlord in the whole office of 25. It is the Section 8 of Rochester, NY (Rochester Housing Authority). Needless to say, I am despised by my co-workers who are totally pro tenant, anti landlord. I put in a purchase offer last fall to assume a mortgage on a 4-bdrm detached house. the purchase offer was signed and accepted.

A month later, the seller decided to rent the property to a Section 8 tenant. I told my boss about this situation and he immediately screamed "conflict of interest" (although the federal HUD Section 8 contracts state that a conflict of interest arises only with s8 employees who have "decision making influence on policies") my boss then said that since the tenant was in the 1st yr of the lease, she could stay for the next 6 months, renter on my dime. (This tenant is also a notorious trasher and hold-over tenant.) He said that under s8 rules, no rent whatsoever will be collected by me for this tenant and I cannot evict this tenant.

I took my employer to small claims court and won. Then he appealed with Trial De Novo and got a ruling stating that s8 cannot pay me because "THE SELLER DID NOT GET WRITTEN PERMISSION IN ADVANCE TO SELL HIS OWN PROPERTY." I have finally succeeded in getting an eviction but I fear it will be blocked in the 11th hour by my boss. the moral? BEWARE OF SECTION 8!!!!

2. I don't know if you have Chase Manhattan banking in your area but the have a crazy policy that they won't cash checks written on their own institution for non customers. this makes it impossible to immediately verify a rent check and cash it right there on the spot!!!! unless you are a customer (shameless way to get new customers???!!), you cannot cash a tenant's rent check that has an account with chase manhattan. chase says it is due to fraudulent checks. I thought that was just the "cost of doing business?"

Problem: if this bank gets away with it, all other banks will follow suit!!

We are all taking a beating from the jerks at the helm who have no idea what it is like to have rental property nowadays!

—Lorna LeBlanc