Housing market hurts community bonds

Jeff Tyler Mar 10, 2010
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Housing market hurts community bonds

Jeff Tyler Mar 10, 2010
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Steve Chiotakis: The number of mortgage applications ticked up in the last week, about half a percent. The Mortgage Bankers Association said today there was increased demand despite an uptick in mortgage rates. Now that’s fairly good news for a housing market that continues to see a whole lot of pain. But the picture’s not completely rosy. Community development district bonds have taken a big hit in the housing market meltdown. And those pay for the installation of roads, sewers and power lines in new communities. Marketplace’s Jeff Tyler reports.


Jeff Tyler: The default rate for municipal bonds is on the rise in California, Arizona, Colorado and Nevada.

Richard Lehmman: None of them come close to what they are in Florida.

That’s Richard Lehmman, president of Income Security Advisors. In Florida, he says, $3 billion worth of community development district bonds are in default.

Lehmman: The trend is not completed yet.

Lehmann says there is roughly another $3 billion in Florida bonds that could go into default. This has consequences for the broader economy, depressing values of existing homes in the area. And it poses a pitfall for investors in the bonds.

Lehmman: Traditionally, they’ve been seen as a very safe investments for individuals, but that is no longer the case here.

He recommends scrutinizing your mutual fund statement to see if you own community development district bonds. Yesterday’s financial darling could now be seen as a pariah in your portfolio.

I’m Jeff Tyler for Marketplace.

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