Category: San Diego
WSJ's Latest Lerach Attack
Even though he has been driven from the practice of law, Bill Lerach, whom I recently profiled for Voice of San Diego, remains one of the conservative movement’s leading bogeymen.
Until he was sentenced to prison, Lerach struck fear in the heart of corporate America by extracting costly settlements from the nation’s biggest companies. He recently completed his sentenced and retired to his La Jolla mansion.
Today’s editorial “A Bill Lerach Tax Cut” finds the Journal in a lather over a report that the U.S. Treasury Department planned to give lawyers a tax break over contingency fee lawsuits.
Such a tax break would effectively subsidize the up-front costs of litigation for the the “zillionaire likes of felons Dickie Scruggs, Mel Weiss, and Bill Lerach,” the Journal writes.
These include San Diego firms such as Robbins Geller Rudman & Dowd, Lerach’s old firm, and Robbins Umeda that file shareholder derivative lawsuits and securities class actions. Firms that do this work on contingency, which means they are paid out of a settlement at the conclusion of the case.
The report Wednesday in LegalNewsline.com cited unnamed sources at a meeting of the trial lawyer’s association in Vancouver, Canada.
The Treasury Department declined comment “on speculation about any potential administrative rulings.”
Vantage Pointe: Who Holds the Note?
For San Diego, the troubled Vantage Pointe project is a huge deal. The 40-story tower is San Diego’s biggest condo. Construction was financed at a cost of $210 million — the biggest loan of its kind in city history.
Vantage Pointe now sits on the brink of foreclosure. Its loan is in default and most of its nearly 700 units sit empty.
For the lender, Caisse de Depot et Placement Quebec, Canada’s biggest pension fund, Vantage Pointe amounts to about 2 percent of its holdings of foreign real estate. If you include Canadian real estate, Vantage Pointe is 1 percent of the $19 billion portfolio.
Caisse has reorganized its real estate division in the wake of devastating losses and a $5 billion writedown last year. That has led to a confusing picture about who actually holds the note.
The Vantage Pointe notice of default identifies the lender as CDPQ Mortgage Corp. (since renamed CDPQ Mortgage Investment Corp.)
CDPQ Mortgage is the official name for Otera Capital Inc., Caisse’s commercial real estate lender with $22 billion in assets. (Canadian records list CDPQ’s mailing address as Otera Capital. CDPQ’s directors are Ross Brennan, Michel Deslauriers, and Marie Giguere are all managers of Otera Capital.)
Caisse’s agent on the deal was MCAP Inc., which manages the pension’s real estate debt.
Caisse has financed other major projects in San Diego. According to its 2009 annual report, the Canadian pension financed 820 W. Ash St. and Caisse holds a stake in a real estate investment trust with properties in San Diego. At one time it co-owned the First National Bank Center at at 4th & A streets, which sold in 2003 for $112 million.
Fannie Mae Has It Right on PACE
A decision by Fannie Mae and Freddie Mac to say no to a White House-backed solar energy program has a lot of people in California pretty upset. As much as I like solar power, I have to agree the regulators got this one right.
San Diego County Supervisors Pam Slater-Price and Dianne Jacob pleaded with President Obama and the region’s congressional delegation to save the program and called the Federal Housing Finance Agency’s statement on the matter “insulting.” Gov. Schwarzenegger was disappointed. California Sen. Barbara Boxer, NYC Mayor Mike Bloomberg and many others deluged the administration with letters.
The solar-financing program, known as “property assessed clean energy program” or PACE would have allowed homeowners in 13 San Diego County cities and unincorporated areas to write off the high up-front cost of solar panels — typically $25,000 or more — over 20 years.
The nascent program was dealt a major setback last week when the federal regulator overseeing Freddie Mac and Fannie Mae said that the federal mortgage giants will not buy or sell mortgages on homes enrolled in the program.
The Federal Housing Finance Agency said in a statement Tuesday that the liens created by the PACE program were senior to existing mortgages. FHFA said first liens “present significant risk to lenders .. and are not essential for successful programs to spur energy conservation.”
The second part of the statement is the one Jacob and Slater-Price found insulting. The first part of the statement — that first liens present significant risks — happens to be true.
San Diego County’s program was administered through the CaliforniaFIRST program. Here’s a sample Pace Agreement.
Homeowners who sign up for CaliforniaFIRST have a “contractual assessment lien” placed on each participating property covering the cost of installation plus interest.
A $25,000 solar panel retrofit would wind up costing $40,000 at 5% over 20 years. Assuming you pay $100 a month in electricity like I do, you wouldn’t save enough power to make it worthwhile.
The lien would be paid through property taxes, and liens would be bundled together and sold to investors as bonds. Communities often issue special tax assessments to cover the cost of infrastructure repairs or improvements, but PACE assessments uniquely cover improvements to a single residence.
For would-be buyers, a problem is that the lien follows the house, not the owner. It would have remained on the property even if the owner sold it.
But the real problem lies in the liens’ “super senior” status, which means it takes precedence over all other debts, including mortgages. So you could lose your house if you can’t or won’t pay. Take a look at this clause in the CaliforniaFIRST agreement.
The Property Owner acknowledges that if any Assessment installment is not paid when due, the Authority has the right to have the delinquent installment and its associated penalties and interest stripped off the secured property tax roll and immediately enforced through a judicial foreclosure action that could result in a sale of the Property for the payment of the delinquent installments, associated penalties and interest, and all costs of suit, including attorneys’ fees. The Property Owner acknowledges that, if bonds are sold to finance the Improvements, the Authority may obligate itself, through a covenant with the owners of the bonds, to exercise its foreclosure rights with respect to delinquent Assessment installments under specified circumstances.
Another of the FHLA’s concerns that hasn’t gotten much attention bears noting. Homeowners who can’t afford solar panel will now become targets for shady lenders in a repeat of the whole interest-only mortgage debacle that helped fuel the housing bubble. I’m not saying that PACE will create another housing bubble, but do we really need to be adding to personal debt levels right now, especially for people struggling at the margins?
I’d love to end the burning of fossil fuels and dependence on foreign oil too. Increasing debt burdens to pay for it isn’t the way to go about it.
CalPERS: A Legal Ponzi Scheme
California’s lame-duck Gov. Arnold Schwarzenegger likes to remind us, as he did last week, that California is facing an “unsustainable path that has taxpayers on the hook for $500 billion.”
Exhibit A is SB 400 of 1999, which increased benefits for California state government employees between 20% and 50% — without the money to pay for them.
This is in essence a legal version of a Ponzi scheme where new investors pay old ones until the whole thing collapses.
Schwarzenegger aide David Crane has called SB 400 “the largest non-voter approved debt issuance in California history.”
The bill was signed during the dot-com boom and the legislature relied on vague promises that the investment wizards at California’s giant pension system would generate the money out of thin air.
Needless to say, that hasn’t exactly worked out.
On June 16th, Schwarzenegger struck a deal with four unions representing 23,000 of the state’s 170,00 unionized workers to roll back the benefits that were given away in SB 400. If similar agreements are reached with the state’s eight other employee unions, state savings in FY 2010-11 would total $2.2 billion, $1.2 billion General Fund.
Even with the cuts, Calpensions’ Ed Mendel notes, pension benefits for CHP officers are still more generous than the days before SB 400.
Democrats led by Gov. Gray Davis signed SB 400 as a thank-you to the unions that helped end 16 years of Republican rule in California the previous November.
Even though the legislature is controlled by Democrats. It needs to be said that the bill was supported by both parties. It passed unanimously in the Senate. Only seven members of the 80-member California Assembly voted against it.
The most notorious passage in the bill provided highway patrolmen with 3 percent of final pay for each year served at age 50, a significant improvement of the pre-SB 400 formula of “two at 50″ — 2 percent of final pay for each year served at age 50.
This is much, much more than 1 percent increase.
Before SB 400, a highway patrolman had to work 45 years before he could retire with 90 percent of pay. The bill shaved 15 years off that time, allowing them to retire with 90 percent of pay after 30 years on the job.
In 2008-2009, a full third of the payroll for all highway patrolman now goes into their retirement accounts.
CalPERS believed they could cover the additional costs through “continued excess returns” and said it expected that contributions from the state would hold steady at $350 million.
Instead, the compound annual growth rate of CalPERS investments grew a pathetic 1.6 percent from 1999 to the end of 2009. On June 16th, the same Schwarzenegger announced his deal with the unions, CalPERS announced that it was raising the state’s contribution to $3.9 billion.
CalPERS unfunded liability, the percentage of benefits promised that can be covered by the fund’s assets, has risen from $158 billion in 1999 to $238 billion last year.
With its myriad accounting trips, CalPERS can “smooth” (hide) losses for generations. Some day the bill will come due.
It’s looking increasingly doubtful that there will be anybody left to pay it.
The Scam Known as Title Insurance
“Ever feel like you’ve been cheated?” singer Johnny Rotten famously asked at the end of the Sex Pistols tour of America.
I sure did when I refinanced my home last year and I had to fork out $625 to Chicago Title for title insurance.
Title insurance for a refinanced home loan? This makes no sense.
I paid title insurance to ensure there were no issues when I first bought my home in 2002, so why was I paying for it again?
The answer is simple: Title insurance is a swindle. A scam. A shakedown, a hustle.
When Title Companies Compete, You Lose
Title insurance is less than 1 percent of the price of the home, so we tend to overlook it.
In economics, this is “inelastic” demand, meaning it is not sensitive to price.
Title insurers can virtually charge whatever they wants — even, as in my case, for doing nothing at all.
The result is an industry devoid of competition.
A 2005 report to California Insurance Commissioner John Garamendi found that competition for title insurance and escrow services in California “does not exist.”
A total of four companies control virtually the entire market for title insurance. Chicago Title is owned by Fidelity National Financial Inc., which is the nation’s biggest title company with more than 45 percent of the market.
In California — the big money maker for the industry — title insurance is marked by “reverse competition.” The title insurers don’t compete for business from homebuyers like me, the ones who actually pay for the service. Instead they pay illegal rebates and kickbacks to a real estate agent, a lender or homebuilder in exchange for business referrals.
The California Land Title Assocation’s Title Wizard service lets you compare prices for title insurers. Here is what the big four would have charged for my home refinance:
| Chicago Title | $625 |
| Old Republic | $645 |
| Stewart Title | $625 |
| First American | $605 |
This is a pretty clear cut picture of what collusion looks like.
A toll on the road to home ownership
Title insurers would do quite well in Afghanistan and Iraq or any place where nothing gets done unless certain people are paid.
You don’t get a mortgage without title insurance. It’s that simple. My title insurance “expired” when my first mortgage was paid off. If I wanted to refinance, I had to have title insurance.
Title insurers have managed to set up a toll booth at the entrance to the U.S. housing market, which at its peak was worth more than $20 trillion.
All those tolls add up: During the housing bubble, operating income for title insurers grew 270 percent, soaring $4.8 billion in 1995 to $17.8 billion in 2005.
The money pours in, but it doesn’t come back out. Do you know anyone who actually filed a title insurance claim?
Chicago Title paid out a meager 5 percent on nearly $4 billion worth of title premiums, according to the company’s SEC filing.
In the insurance world, this percentage is known as the “loss ratio.” The loss ratio for title insurance is among the very lowest in the insurance industry. Auto and home insurers pay 80 percent of premiums.
What is Chicago Title doing with my money? The biggest expense on Chicago Title’s 2009 income statement isn’t personnel costs. It’s the whopping $1.9 billion in commissions paid to agents who drum up business.
What you can do.
Title insurance is not required by law in California. However, it’s standard operating procedures as most lenders won’t fund a mortgage without it. But you can shop around.
One alternative is Entitle Direct, which sells title insurance direct to the consumer. Entitle Direct doesn’t pay agents so it is able to charge a third less than most of the big title firms.
I could have saved $268 if I had gone with Entitle Direct. If you don’t feel that it’s worth the trouble, well, I guess then Johnny Rotten had it right.
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