OREGON REAL ESTATE ROUND TABLE

Author: Fred Stewart

  • Chris Dudley’s Tax Cut: Capitol Gains


    People are upset that Chris Dudley wants to cut the Capitol gains tax by 73%.   In this down economy who is going to be paying any capitol gains in Oregon over the next 4 or more years?  We might as well get rid of Capitol gains for businesses that pay living wage jobs and hire Oregonians and increase taxes on businesses that hire people from out of state.  The tax cut should only count if the job goes to someone that lives in Oregon.  We could also tier a deferment for the tax over the next 10 years to ensure businesses are motivated to grow through this down cycle and advance employment.   Just saying….LOL

    http://www.chrisdudley.com/issues/plan-to-create-private-sector-jobs.html

  • Home Prices Drop in 36 States; Beazer Warns on Orders; 8 Million Foreclosure-Bound Homes to Hit the Market; Prices to Stagnate for a Decade, by Mike Shedlock,


    The small upward correction in home prices from multiple tax credit offerings died in July. Worse yet, inventory of homes for sale as well as shadow inventory both soared. 8 million foreclosure-bound homes have yet to hit the market according to Morgan Stanley.

    Home Prices Drop in 36 States

    CoreLogic reports Growing Number of Declining Markets Underscore Weakness in the Housing Market without Tax-Credit Support

    CoreLogic Home Price Index Remained Flat in July

    SANTA ANA, Calif., September 15, 2010 – CoreLogic (NYSE: CLGX), a leading provider of information, analytics and business services, today released its Home Price Index (HPI) that showed that home prices in the U.S. remained flat in July as transaction volumes continue to decline. This was the first time in five months that no year-over-year gains were reported. According to the CoreLogic HPI, national home prices, including distressed sales showed no change in July 2010 compared to July 2009. June 2010 HPI showed a 2.4 percent* year-over-year gain compared to June 2009.

    “Although home prices were flat nationally, the majority of states experienced price declines and price declines are spreading across more geographies relative to a few months ago. Home prices fell in 36 states in July, nearly twice the number in May and the highest since last November when national home prices were declining,” said Mark Fleming, chief economist for CoreLogic.

    Methodology

    The CoreLogic HPI incorporates more than 30 years worth of repeat sales transactions, representing more than 55 million observations sourced from CoreLogic industry-leading property information and its securities and servicing databases. The CoreLogic HPI provides a multi-tier market evaluation based on price, time between sales, property type, loan type (conforming vs. nonconforming), and distressed sales. The CoreLogic HPI is a repeat-sales index that tracks increases and decreases in sales prices for the same homes over time, which provides a more accurate “constant-quality” view of pricing trends than basing analysis on all home sales. The CoreLogic HPI provides the most comprehensive set of monthly home price indices and median sales prices available covering 6,208 ZIP codes (58 percent of total U.S. population), 572 Core Based Statistical Areas (85 percent of total U.S. population) and 1,027 counties (82 percent of total U.S. population) located in all 50 states and the District of Columbia.

     

     

    See the above article for additional charts

    Beazer Homes Warns on Orders

    The Wall Street Journal reports Beazer Homes Warns of Order Miss

    Beazer Homes USA Inc. said Wednesday it might miss order expectations for its fiscal-fourth quarter, as it also cut estimates for the year’s land and development spending, reflecting the sector’s weakness following the expiration of home-buyer tax credits.

    Last month, Beazer reported that its fiscal third-quarter loss was little changed because of a prior-year gain, while it reported a 73% surge in closings as buyers raced to qualify for the tax credit. Orders fell 33%.

    Inventory Soars

    Bloomberg reports U.S. Home Prices Face Three-Year Drop as Supply Gains

    The slide in U.S. home prices may have another three years to go as sellers add as many as 12 million more properties to the market.

    Shadow inventory — the supply of homes in default or foreclosure that may be offered for sale — is preventing prices from bottoming after a 28 percent plunge from 2006, according to analysts from Moody’s Analytics Inc., Fannie Mae, Morgan Stanley and Barclays Plc. Those properties are in addition to houses that are vacant or that may soon be put on the market by owners.

    “Whether it’s the sidelined, shadow or current inventory, the issue is there’s more supply than demand,” said Oliver Chang, a U.S. housing strategist with Morgan Stanley in San Francisco. “Once you reach a bottom, it will take three or four years for prices to begin to rise 1 or 2 percent a year.”

    Sales of new and existing homes fell to the lowest levels on record in July as a federal tax credit for buyers expired and U.S.

    Rising supply threatens to undermine government efforts to boost the housing market as homebuyers wait for better deals. Further price declines are necessary for a sustainable rebound as a stimulus-driven recovery falters, said Joshua Shapiro, chief U.S. economist of Maria Fiorini Ramirez Inc., a New York economic forecasting firm

    There were 4 million homes listed with brokers for sale as of July. It would take a record 12.5 months for those properties to be sold at that month’s sales pace, according to the Chicago-based Realtors group [National Association of Realtors].

    “The best thing that could happen is for prices to get to a level that clears the market,” said Shapiro, who predicts prices may fall another 10 percent to 15 percent. “Right now, buyers know it hasn’t hit bottom, so they’re sitting on the sidelines.”

    About 2 million houses will be seized by lenders by the end of next year, according to Mark Zandi, chief economist of Moody’s Analytics in West Chester, Pennsylvania. He estimates prices will drop 5 percent by 2013.

    Douglas Duncan, chief economist for Washington-based Fannie Mae, said in a Bloomberg Radio interview last week that 7 million U.S. homes are vacant or in the foreclosure process. Morgan Stanley’s Chang said the number of bank-owned and foreclosure-bound homes that have yet to hit the market is closer to 8 million.

    Defaulted mortgages as of July took an average 469 days to reach foreclosure, up from 319 days in January 2009. That’s an indication lenders — with the help of the government loan modification programs — are delaying resolutions and preventing the market from flooding with distressed properties, said Herb Blecher, senior vice president for analytics at LPS.“The efforts to date have been worthwhile,” Blecher said in a telephone interview from Denver. “They both helped borrowers stay in their homes and kept that supply of distressed properties on the market somewhat limited.”

    I disagree with Herb Blecher. I see little advantage stretching this mess out for a decade, and that is what the government seems hell-bent on doing. Everyone wants the government to “do something”. Unfortunately tax credits stimulated the production of new homes, ultimately adding to inventory. Prices need to fall to levels where there is genuine demand.

    The short-term rise in the Case-Shiller home price index and the CoreLogic HPI was a mirage that will soon vanish in the reality of an inventory of 8 million homes that must eventually hit the market.

    Lost Decade

    About 2 million houses will be seized by lenders by the end of next year, according to Mark Zandi, chief economist of Moody’s Analytics in West Chester, Pennsylvania. He estimates prices will drop 5 percent by 2013.

    After reaching bottom, prices will gain at the historic annual pace of 3 percent, requiring more than 10 years to return to their peak, he said.

    Home Price Pressures

    Last Bubble Not Reblown

    After the bottom is found, remember the axiom: the last bubble is not reblown for decades. Look at the Nasdaq, still off more than 50% from a decade ago.

    The odds home prices return to their peak in 10 years is close to zero. Houses in bubble areas may never return to peak levels in existing owner’s lifetimes. Zandi is way overoptimistic in his assessment of 3% annual appreciation after the bottom is found.

    Price Stagnation 

    I expect small nominal increases after housing bottoms, but negative appreciation in real terms as inflation picks up in the second half of the decade. Yes, deflation will eventually end. Alternatively the US goes in and out of deflation for a decade (depending on how much the Fed and Congress acts to prevent a much needed bottom). Either way, look for price stagnation in one form or another.

    Thus, if you have come to the conclusion there is no good reason to hold on to a deeply underwater home, nor any reason to rush into a home purchase at this time, you have reached the right conclusions.

    Hyperinflation? Please be serious.

    When Will Housing Bottom?

    Flashback October 25, 2007: When Will Housing Bottom?

    On the basis of mortgage rate resets and a consumer led recession I mentioned a possible bottom in the 2011-2012 timeframe. See Housing – The Worst Is Yet To Come for more details.

    Let’s take a look at housing from another perspective: new home sales historic averages and housing from 1963 to present.

    New Home Sales 1963 – Present

    New home sales reached a cyclical high in 2004-2005 approximately 50-60% higher than previous peaks.This happened in spite of a slowdown in population growth and household formation as compared to the 1960-1980 timeframe.

    From 1997-1998 and 2001-2002 to the recent peak, the average sales level was 1.1 million units, or 45-50% higher than the 40 year average. This translates to an average of 300,000-400,000 excess homes for nearly a decade, and arguably as many as 3-4 million excess homes.

    Such excess inventory may require as many as 5-7 years at recessionary average sales to absorb this inventory.

    Cycle Excesses Greatest In History

    The excesses of the current cycle have never been greater in history. The odds are strong that we have seen secular as opposed to cyclical peaks in housing starts and new single family home construction. With that in mind it is highly unlikely we merely return to the trend. If history repeats, and there is every reason it will, we are going to undercut those long term trendlines.

    There will be additional pressures a few years down the road when empty nesters and retired boomers start looking to downsize. Who will be buying those McMansions? Immigration also comes into play. If immigration policies and protectionism get excessively restrictive, that can also lengthen the decline.

    Finally, note that the current boom has lasted well over twice as long as any other. If the bust lasts twice as long as any other, 2012 just might be a rather optimist target for a bottom.

    When I wrote that in 2007, most thought I was off my rocker. Now, based on inventory, I may have been far too optimistic.

    Mike “Mish” Shedlock
    http://globaleconomicanalysis.blogspot.com See the above article for additional charts

    Beazer Homes Warns on Orders

    The Wall Street Journal reports Beazer Homes Warns of Order Miss

    Beazer Homes USA Inc. said Wednesday it might miss order expectations for its fiscal-fourth quarter, as it also cut estimates for the year’s land and development spending, reflecting the sector’s weakness following the expiration of home-buyer tax credits.

    Last month, Beazer reported that its fiscal third-quarter loss was little changed because of a prior-year gain, while it reported a 73% surge in closings as buyers raced to qualify for the tax credit. Orders fell 33%.

    Inventory Soars

    Bloomberg reports U.S. Home Prices Face Three-Year Drop as Supply Gains

    The slide in U.S. home prices may have another three years to go as sellers add as many as 12 million more properties to the market.

    Shadow inventory — the supply of homes in default or foreclosure that may be offered for sale — is preventing prices from bottoming after a 28 percent plunge from 2006, according to analysts from Moody’s Analytics Inc., Fannie Mae, Morgan Stanley and Barclays Plc. Those properties are in addition to houses that are vacant or that may soon be put on the market by owners.

    “Whether it’s the sidelined, shadow or current inventory, the issue is there’s more supply than demand,” said Oliver Chang, a U.S. housing strategist with Morgan Stanley in San Francisco. “Once you reach a bottom, it will take three or four years for prices to begin to rise 1 or 2 percent a year.”

    Sales of new and existing homes fell to the lowest levels on record in July as a federal tax credit for buyers expired and U.S.

    Rising supply threatens to undermine government efforts to boost the housing market as homebuyers wait for better deals. Further price declines are necessary for a sustainable rebound as a stimulus-driven recovery falters, said Joshua Shapiro, chief U.S. economist of Maria Fiorini Ramirez Inc., a New York economic forecasting firm

    There were 4 million homes listed with brokers for sale as of July. It would take a record 12.5 months for those properties to be sold at that month’s sales pace, according to the Chicago-based Realtors group [National Association of Realtors].

    “The best thing that could happen is for prices to get to a level that clears the market,” said Shapiro, who predicts prices may fall another 10 percent to 15 percent. “Right now, buyers know it hasn’t hit bottom, so they’re sitting on the sidelines.”

    About 2 million houses will be seized by lenders by the end of next year, according to Mark Zandi, chief economist of Moody’s Analytics in West Chester, Pennsylvania. He estimates prices will drop 5 percent by 2013.

    Douglas Duncan, chief economist for Washington-based Fannie Mae, said in a Bloomberg Radio interview last week that 7 million U.S. homes are vacant or in the foreclosure process. Morgan Stanley’s Chang said the number of bank-owned and foreclosure-bound homes that have yet to hit the market is closer to 8 million.

    Defaulted mortgages as of July took an average 469 days to reach foreclosure, up from 319 days in January 2009. That’s an indication lenders — with the help of the government loan modification programs — are delaying resolutions and preventing the market from flooding with distressed properties, said Herb Blecher, senior vice president for analytics at LPS.

    “The efforts to date have been worthwhile,” Blecher said in a telephone interview from Denver. “They both helped borrowers stay in their homes and kept that supply of distressed properties on the market somewhat limited.”

    I disagree with Herb Blecher. I see little advantage stretching this mess out for a decade, and that is what the government seems hell-bent on doing. Everyone wants the government to “do something”. Unfortunately tax credits stimulated the production of new homes, ultimately adding to inventory. Prices need to fall to levels where there is genuine demand.

    The short-term rise in the Case-Shiller home price index and the CoreLogic HPI was a mirage that will soon vanish in the reality of an inventory of 8 million homes that must eventually hit the market.

    Lost Decade

    About 2 million houses will be seized by lenders by the end of next year, according to Mark Zandi, chief economist of Moody’s Analytics in West Chester, Pennsylvania. He estimates prices will drop 5 percent by 2013.

    After reaching bottom, prices will gain at the historic annual pace of 3 percent, requiring more than 10 years to return to their peak, he said.

     Home Price Pressures

    Last Bubble Not Reblown

    After the bottom is found, remember the axiom: the last bubble is not reblown for decades. Look at the Nasdaq, still off more than 50% from a decade ago.

    The odds home prices return to their peak in 10 years is close to zero. Houses in bubble areas may never return to peak levels in existing owner’s lifetimes. Zandi is way overoptimistic in his assessment of 3% annual appreciation after the bottom is found.

    Price Stagnation 

    I expect small nominal increases after housing bottoms, but negative appreciation in real terms as inflation picks up in the second half of the decade. Yes, deflation will eventually end. Alternatively the US goes in and out of deflation for a decade (depending on how much the Fed and Congress acts to prevent a much needed bottom). Either way, look for price stagnation in one form or another.

    Thus, if you have come to the conclusion there is no good reason to hold on to a deeply underwater home, nor any reason to rush into a home purchase at this time, you have reached the right conclusions.

    Hyperinflation? Please be serious.

    When Will Housing Bottom?

    Flashback October 25, 2007: When Will Housing Bottom?

    On the basis of mortgage rate resets and a consumer led recession I mentioned a possible bottom in the 2011-2012 timeframe. See Housing – The Worst Is Yet To Come for more details.

    Let’s take a look at housing from another perspective: new home sales historic averages and housing from 1963 to present.

    New Home Sales 1963 – Present

    New home sales reached a cyclical high in 2004-2005 approximately 50-60% higher than previous peaks.This happened in spite of a slowdown in population growth and household formation as compared to the 1960-1980 timeframe.

    From 1997-1998 and 2001-2002 to the recent peak, the average sales level was 1.1 million units, or 45-50% higher than the 40 year average. This translates to an average of 300,000-400,000 excess homes for nearly a decade, and arguably as many as 3-4 million excess homes.

    Such excess inventory may require as many as 5-7 years at recessionary average sales to absorb this inventory.

    Cycle Excesses Greatest In History

    The excesses of the current cycle have never been greater in history. The odds are strong that we have seen secular as opposed to cyclical peaks in housing starts and new single family home construction. With that in mind it is highly unlikely we merely return to the trend. If history repeats, and there is every reason it will, we are going to undercut those long term trendlines.

    There will be additional pressures a few years down the road when empty nesters and retired boomers start looking to downsize. Who will be buying those McMansions? Immigration also comes into play. If immigration policies and protectionism get excessively restrictive, that can also lengthen the decline.

    Finally, note that the current boom has lasted well over twice as long as any other. If the bust lasts twice as long as any other, 2012 just might be a rather optimist target for a bottom.

    When I wrote that in 2007, most thought I was off my rocker. Now, based on inventory, I may have been far too optimistic.

    Mike “Mish” Shedlock
    http://globaleconomicanalysis.blogspot.com

  • Risks of walking away from mortgage debt, by Michele Lerner, Bankrate.com


    Some homeowners underwater on their home loan — meaning they owe more on the mortgage than the home’s current value — are turning to “strategic defaults” in which they simply walk away from mortgage debt.

    But financial experts warn the cost of skipping out on mortgage debt can be high.

    The American Bankers Association recently warned homeowners about the consequences of strategic default, including the possibility of the bank obtaining a judgment to pursue the homeowner’s assets, such as bank accounts, cars and investments.

    Wrecked credit

    A foreclosure — regardless of whether it is because of a strategic default or other circumstances — also has a negative impact on a consumer’s credit score.

    “A foreclosure is one of the stronger predictors of future credit risk,” says Craig Watts, public affairs director of FICO.

    Foreclosures remain on a credit report for seven years, with the impact gradually lessening over time.

    “For someone who has a foreclosure on (his or) her credit report, (his or) her FICO score can generally begin to recover after a couple of years, assuming the consumer stays current with (his or) her payments on all (his or) her other credit accounts,” Watts says.

    Watts says the impact of a foreclosure on a credit score depends on other factors in the borrower’s credit history. The ABA says a foreclosure drops a FICO score by 100 to 400 points.

    Difficulty getting new mortgage

    In addition, a voluntary foreclosure can impact a homeowner’s ability to qualify for a new mortgage for years to come.

    Peter Fredman, a Berkeley, Calif., consumer attorney, says Fannie Mae and Freddie Mac will not approve a mortgage within four years after foreclosure, while the ABA says it can take three to seven years to qualify for a new mortgage.

    In addition, mortgage giant Fannie Mae recently announced a tough new sanction on people who deliberately default on their mortgages. Such borrowers will be ineligible for a new Fannie-backed mortgage for seven years after the date of foreclosure.

    Other consequences

    Tax liability is another potential danger of defaulting. Although the Mortgage Forgiveness Debt Relief Act of 2007 (extended through 2012) offers widespread protection from federal taxes following a foreclosure, state taxes still may be due on unpaid debt.

    A lender can also pursue the remaining debt from an unpaid loan by obtaining a deficiency judgment against the delinquent borrower, or may work with a collection agency to recoup losses.

    And of course, ethical questions surround strategic defaults. A survey by Trulia.com and RealtyTrac found that 59 percent of homeowners would not consider defaulting no matter how much their mortgage was underwater, although another 41 percent of homeowners said they would consider a default.

    Less risky in some states

    Despite the potential negative consequences of a strategic default, the move is less risky in some states than others.

    “The first question for anyone considering a strategic default is whether the homeowners will be liable for the debt anyway,” says Fredman. “Each state has different rules.”

    Non-recourse laws protect homeowners in some states. When a borrower defaults in one of these states, the lender can take the home through a foreclosure but has no right to any other borrower assets. (Home equity loans are not eligible for this protection unless they were used as part of the home purchase.)

    According to research from the Federal Reserve Bank of Atlanta, 11 states are “non-recourse” states: Alaska, Arizona, California, Iowa, Minnesota, Montana, North Carolina, North Dakota, Oregon, Washington and Wisconsin.

    “In California, we have some of the best anti-deficiency rules around, so banks can foreclose on the home but cannot get any other judgment to claim additional assets,” Fredman says.

    In some areas, lenders are so overwhelmed with defaulting customers that homeowners can live in their homes for free for months or even a year or more before the foreclosure is complete.

    The average length of time from default to eviction is 400 days in California, Fredman says.

    Price of freedom

    The potential consequences of strategic default cannot deter some homeowners from taking the plunge, says Frank Pallotta, executive vice president and managing director of the Loan Value Group in Rumson, N.J.

    “While everyone understands the credit score impact of a strategic default, most borrowers don’t seem to care,” Pallotta says. “They think a 200-point hit on their credit score cannot offset the benefit of living for as long as 18 months rent- and mortgage-free. They see strategic default as a form of financial freedom, especially if they live in a non-recourse state and know someone who has done this.”

    Fredman — who developed the “Should I Pay or Should I Go” Web calculator to help consumers evaluate the wisdom of a strategic default — says homeowners considering a strategic default should research state regulations about loan defaults and tax laws. Even non-recourse states have various laws that can impact defaulting borrowers, he says.

    “I also think everyone should consult an attorney and probably an accountant, too, because the relative cost of these professionals is not nearly as high as the potential cost of making a mistake,” he says

  • The U.S. Needs a New and Improved New Deal, by MARK THOMA, The Fiscal Times


     

    This recession has been particularly unkind to labor markets, and indications are that a full recovery of employment is still years away. But even after the recession finally ends, worrisome structural trends that were present before the recession began will continue to cause considerable uncertainty for working class households.

    The rapid pace of structural change in recent years due to technological innovation and globalization has increased the risk of worker displacement in a wide variety of industries.  Additional factors such as the decline in employer support for health care, the decline in employer-provided pensions, threats to Social Security, stagnant wages, and highly flexible labor markets compound the uncertainty.

     

    The social contract of bygone days has faded
    in the face of globalization and other pressures.
    There was a time when employers provided employment, health and retirement security in return for employee loyalty, but the social contract of bygone days has faded in the face of globalization and other pressures.

    President Obama, Congress and most Americans are very focused on the problems arising from the current recession, and that’s understandable. But the structural issues that are generating so much additional uncertainty for working-class households should not be ignored. 

    A New New Deal
    What the country needs is a “new and improved new deal” that reduces the risks associated with structural change, and does a better job of preventing and easing cyclical downturns. The original New Deal,  shaped by the experience of the Great Depression, was designed to overcome problems associated with large cyclical fluctuations in the economy. The “three Rs”  that served as its guiding principles – relief, recovery and reform – reflected this emphasis. We also see the focus on cyclical problems in the development of monetary and fiscal policy tools as countercyclical stabilization devices, and in the automatic stabilizers that have been built into the economy.

    Both monetary and fiscal policy have helped to ease the cyclical downturn we are experiencing, but as our present experience makes all too clear, we can do better. Part of a new and improved new deal should focus on doing more to prevent problems before they occur and limiting the damage when cyclical downturns do occur despite our efforts. There’s little doubt that inadequate regulation by monetary authorities before the most recent financial crisis allowed problems to occur, and fiscal policy in particular could have been used more effectively to offset the downturn.

    But the core of a new and improved new deal should be to ease the uncertainties associated with structural change. On average, technology and globalization make us all better off, but the distribution of the costs and benefits from this type of change does not guarantee that every individual will be a net beneficiary.

    If you are one of the people who loses a job or has skills made obsolete because oftechnology or globalization, the change does not work in your favor. We often rely upon the idea that the winners could fully compensate the losers and still have something left over, and then use this to justify support for these kinds of policies. But it’s rare for this compensation to actually take place. Hence, it’s understandable why some groups are not so supportive of unbridled structural change.

    “Flexicurity”
    Maintaining flexibility is the key to responding to shocks that hit the economy – the faster we can adjust efficiently the better – but this flexibility is also a big source of uncertainty for labor markets. So how do we balance the desire for flexibility with the desire for security? That is, how do we achieve “flexicurity?” 

    Taking steps to reduce the costs of changing jobs is a start. More government help matching workers and jobs along the lines that have been so successful in Denmark would be beneficial, as would enhanced portability for health insurance, tax credits for workers willing to relocate, effective job retraining programs, wage insurance, and unemployment compensation linked to industry or region-specific conditions. Anything that reduces the cost of changing jobs without unduly inhibiting the desire to look for employment would help.

    More generally, the insecurity that working class households face could be reduced by enhancing Social Security to compensate for the loss of employer-based retirement programs, by making health care truly universal, by improving support for childcare – expanding preschool has multiple benefits – and through other social programs recognizing that workers have responsibilities that go beyond the workplace. Implementation of international labor and environmental standards wouldn’t hurt either. The fact that multinational corporations have rendered traditional national borders obsolete makes country-by-country approaches to many problems, including this one, difficult, if not impossible. Coordinated responses across countries are needed, but those types of policies are unlikely in the immediate future.

    The various shades of populist revolt we are seeing are due, at least in part, to worries about the future. Working class households want and need more security. If we want to maintain a flexible and dynamic economy that can make the transitions necessary to remain competitive in a world economy, but still be compassionate toward those who end up paying the costs of that flexibility, we need to enhance our social protections so that the adjustment costs are more equitably distributed.

    As members of Congress reconvene, I would like to see them address our present problems through another round of stimulus directed specifically at job creation. Unfortunately, I don’t hold out much hope that Congress will do much along these lines. But it’s still possible for Congress to do something important for workers by beginning work on reducing the uncertainty associated with structural change. Concerns about how to pay for new initiatives will make progress difficult, but workers will benefit greatly if Congress and the administration somehow manage to ease the uncertainties that arise from our need to remain competitive in an ever-changing global environment.

  • What changes are coming for FHA lending?, by Charlene Crowell, NNPA Financial Writer


     When the Federal Housing Administration (FHA) was created in 1934, its main focus was to change the difficulty that people seeking mortgage loans faced during the Great Depression. By the end of World War II, many returning service men and women took advantage of FHA programs to help finance home purchases. Today, FHA insures 4.8 million single-family home mortgages.

    Now in 2010, the still-unfolding foreclosure tsunami that began in 2007 has forced FHA to alter how it can continue operating independent of taxpayer funds. Unlike many federal agencies, FHA’s only operating revenues are derived from fees paid for mortgage insurance. In mid-July FHA announced a number of policy changes that included an increase in mortgage insurance premiums. FHA is also considering other changes such as requiring new mortgage applicants to have higher down payments and/or higher credit scores.  

    For many policymakers, increasing required down payments and high credit scores are the opposite of what the country needs right now. Instead, these voices are urging FHA to preserve its traditional role of extending affordable access to homeownership. In their view, that access would be a valued complement to the many reforms sets forth and regulations yet to come from the Dodd-Frank Wall Street Reform Act.

    Among the organizations choosing to file comments on these changes and their likely effects was the Center for Responsible Lending (CRL), an affiliate of Self-Help. With 30 years of service as a community development financial institution operating a credit union and nonprofit loan fund, Self-Help has provided over $5.65 billion of financing to 64,000 low-wealth families, small businesses and nonprofit organizations in North Carolina and across America.  

    Like FHA, Self-Help has been a partner in expanding affordable and sustainable homeownership for many families that otherwise would have remained renters. As Self-Help’s research and policy arm, CRL has authored research reports and provided insightful analyses of nagging housing issues.  

    CRL also recently advised FHA in part, “The foreclosure crisis and the resulting economic crisis were caused by reckless and predatory lending practices and toxic financial products not by any policy goal aimed at increasing homeownership.”

    “The predatory lending practices and toxic products characteristic of the past decade,” continued CRL, “occurred for one reason and one reason only: For mortgage brokers, lenders and investors to make money. . .And communities of color were disproportionately targeted by non-bank subprime mortgage lenders who provided them with higher-cost, risk-layered, less sustainable loans than they qualify for.”

    Statistics from other independent organizations tracking African-American consumer trends support CRL’s own findings.  

    The 2010 annual survey published by the National Urban League, The State of Black America, determined that although nearly three quarters of white families own their own homes, less than half of African-American or Latino families are homeowners. Blacks and Latinos are also more than three times as likely to live in poverty as compared to Whites.

    Earlier this year, and as reported in this column, the Institute for Assets and Social Policy (IASP) at Brandeis University found that only one in four African-American middle-class families in America are financially secure.

    The 15th annual Buying Power of Black America report published by Target Market News determined that the $166.3 billion spent on housing each year is more than double and sometimes triple any other household cost. This fact suggests that housing affordability in the Black community remains a challenge. Moreover, on a range of services and products, Black households were found to spend more than their white counterparts.   

    These facts and other economic measures contributed to CRL’s call for a number of specific FHA reforms. Among them:

    An immediate ban on yield-spread premiums, the broker kickback paid by lenders for pushing high-cost loans onto buyers;

    Safeguards against abusive pricing and fees – including rigorous oversight and enforcement; and

    Stronger, more aggressive limits on points and fees identified in regulation that will complement those outlined in the Dodd-Frank bill.   

    Hopefully the regulations yet to be crafted by FHA will begin to close the affordability gap that now exists for many communities of color. Whatever rules go into effect, will become either the opportunity or an obstacle for people hoping to have their own American dream.

    This article was originally published in the September 13, 2010 print edition of The Louisiana Weekly newspaper

  • Could 62 Million Homes be Foreclosure Proof?, Fox News


     

    Homeowners’ Rebellion: Could 62 Million Homes Be Foreclosure-Proof?

     

    In fear of losing your home? Good news … there is a loophole in the system that could keep you right where you are! So what’s the secret? Watch Attorney Bob Massi’s solution below, and may we suggest a paper and pen to jot down all the details.

    Over 62 million mortgages are now held in the name of MERS, an electronic recording system devised by and for the convenience of the mortgage industry. A California bankruptcy court, following landmark cases in other jurisdictions, recently held that this electronic shortcut makes it impossible for banks to establish their ownership of property titles—and therefore to foreclose on mortgaged properties. The logical result could be 62 million homes that are foreclosure-proof.

    Mortgages bundled into securities were a favorite investment of speculators at the height of the financial bubble leading up to the crash of 2008. The securities changed hands frequently, and the companies profiting from mortgage payments were often not the same parties that negotiated the loans. At the heart of this disconnect was the Mortgage Electronic Registration System, or MERS, a company that serves as the mortgagee of record for lenders, allowing properties to change hands without the necessity of recording each transfer.

    MERS was convenient for the mortgage industry, but courts are now questioning the impact of all of this financial juggling when it comes to mortgage ownership. To foreclose on real property, the plaintiff must be able to establish the chain of title entitling it to relief. But MERS has acknowledged, and recent cases have held, that MERS is a mere “nominee”—an entity appointed by the true owner simply for the purpose of holding property in order to facilitate transactions. Recent court opinions stress that this defect is not just a procedural but is a substantive failure, one that is fatal to the plaintiff’s legal ability to foreclose.

    That means hordes of victims of predatory lending could end up owning their homes free and clear—while the financial industry could end up skewered on its own sword.

    California Precedent

    The latest of these court decisions came down in California on May 20, 2010, in a bankruptcy case called In re Walker, Case no. 10-21656-E–11. The court held that MERS could not foreclose because it was a mere nominee; and that as a result, plaintiff Citibank could not collect on its claim. The judge opined:

    Since no evidence of MERS’ ownership of the underlying note has been offered, and other courts have concluded that MERS does not own the underlying notes, this court is convinced that MERS had no interest it could transfer to Citibank. Since MERS did not own the underlying note, it could not transfer the beneficial interest of the Deed of Trust to another. Any attempt to transfer the beneficial interest of a trust deed without ownership of the underlying note is void under California law.

    In support, the judge cited In Re Vargas (California Bankruptcy Court); Landmark v. Kesler (Kansas Supreme Court); LaSalle Bank v. Lamy (a New York case); and In Re Foreclosure Cases (the “Boyko” decision from Ohio Federal Court). (For more on these earlier cases, see here, here and here.) The court concluded:

    Since the claimant, Citibank, has not established that it is the owner of the promissory note secured by the trust deed, Citibank is unable to assert a claim for payment in this case.

    The broad impact the case could have on California foreclosures is suggested by attorney Jeff Barnes, who writes:

    This opinion . . . serves as a legal basis to challenge any foreclosure in California based on a MERS assignment; to seek to void any MERS assignment of the Deed of Trust or the note to a third party for purposes of foreclosure; and should be sufficient for a borrower to not only obtain a TRO [temporary restraining order] against a Trustee’s Sale, but also a Preliminary Injunction barring any sale pending any litigation filed by the borrower challenging a foreclosure based on a MERS assignment.

    While not binding on courts in other jurisdictions, the ruling could serve as persuasive precedent there as well, because the court cited non-bankruptcy cases related to the lack of authority of MERS, and because the opinion is consistent with prior rulings in Idaho and Nevada Bankruptcy courts on the same issue.

    What Could This Mean for Homeowners?

    Earlier cases focused on the inability of MERS to produce a promissory note or assignment establishing that it was entitled to relief, but most courts have considered this a mere procedural defect and continue to look the other way on MERS’ technical lack of standing to sue. The more recent cases, however, are looking at something more serious. If MERS is not the title holder of properties held in its name, the chain of title has been broken, and no one may have standing to sue. In MERS v. Nebraska Department of Banking and Finance, MERS insisted that it had no actionable interest in title, and the court agreed.

    An August 2010 article in Mother Jones titled “Fannie and Freddie’s Foreclosure Barons” exposes a widespread practice of “foreclosure mills” in backdating assignments after foreclosures have been filed. Not only is this perjury, a prosecutable offense, but if MERS was never the title holder, there is nothing to assign. The defaulting homeowners could wind up with free and clear title.

    In Jacksonville, Florida, legal aid attorney April Charney has been using the missing-note argument ever since she first identified that weakness in the lenders’ case in 2004. Five years later, she says, some of the homeowners she’s helped are still in their homes. According to a Huffington Post article titled “‘Produce the Note’ Movement Helps Stall Foreclosures”:

    Because of the missing ownership documentation, Charney is now starting to file quiet title actions, hoping to get her homeowner clients full title to their homes (a quiet title action ‘quiets’ all other claims). Charney says she’s helped thousands of homeowners delay or prevent foreclosure, and trained thousands of lawyers across the country on how to protect homeowners and battle in court.

    Criminal Charges?

    Other suits go beyond merely challenging title to alleging criminal activity. On July 26, 2010, a class action was filed in Florida seeking relief against MERS and an associated legal firm for racketeering and mail fraud. It alleges that the defendants used “the artifice of MERS to sabotage the judicial process to the detriment of borrowers;” that “to perpetuate the scheme, MERS was and is used in a way so that the average consumer, or even legal professional, can never determine who or what was or is ultimately receiving the benefits of any mortgage payments;” that the scheme depended on “the MERS artifice and the ability to generate any necessary ‘assignment’ which flowed from it;” and that “by engaging in a pattern of racketeering activity, specifically ‘mail or wire fraud,’ the Defendants . . . participated in a criminal enterprise affecting interstate commerce.”

    Local governments deprived of filing fees may also be getting into the act, at least through representatives suing on their behalf. Qui tam actions allow for a private party or “whistle blower” to bring suit on behalf of the government for a past or present fraud on it. In State of California ex rel. Barrett R. Bates, filed May 10, 2010, the plaintiff qui tam sued on behalf of a long list of local governments in California against MERS and a number of lenders, including Bank of America, JPMorgan Chase and Wells Fargo, for “wrongfully bypass[ing] the counties’ recording requirements; divest[ing] the borrowers of the right to know who owned the promissory note . . .; and record[ing] false documents to initiate and pursue non-judicial foreclosures, and to otherwise decrease or avoid payment of fees to the Counties and the Cities where the real estate is located.” The complaint notes that “MERS claims to have ‘saved’ at least $2.4 billion dollars in recording costs,” meaning it has helped avoid billions of dollars in fees otherwise accruing to local governments. The plaintiff sues for treble damages for all recording fees not paid during the past ten years, and for civil penalties of between $5,000 and $10,000 for each unpaid or underpaid recording fee and each false document recorded during that period, potentially a hefty sum. Similar suits have been filed by the same plaintiff qui tam in Nevada and Tennessee.

    By Their Own Sword: MERS’ Role in the Financial Crisis

    MERS is, according to its website, “an innovative process that simplifies the way mortgage ownership and servicing rights are originated, sold and tracked. Created by the real estate finance industry, MERS eliminates the need to prepare and record assignments when trading residential and commercial mortgage loans.” Or as Karl Denninger puts it, “MERS’ own website claims that it exists for the purpose of circumventing assignments and documenting ownership!”

    MERS was developed in the early 1990s by a number of financial entities, including Bank of America, Countrywide, Fannie Mae, and Freddie Mac, allegedly to allow consumers to pay less for mortgage loans. That did not actually happen, but what MERS did allow was the securitization and shuffling around of mortgages behind a veil of anonymity. The result was not only to cheat local governments out of their recording fees but to defeat the purpose of the recording laws, which was to guarantee purchasers clean title. Worse, MERS facilitated an explosion of predatory lending in which lenders could not be held to account because they could not be identified, either by the preyed-upon borrowers or by the investors seduced into buying bundles of worthless mortgages. As alleged in a Nevada class action called Lopez vs. Executive Trustee Services, et al.:

    Before MERS, it would not have been possible for mortgages with no market value . . . to be sold at a profit or collateralized and sold as mortgage-backed securities. Before MERS, it would not have been possible for the Defendant banks and AIG to conceal from government regulators the extent of risk of financial losses those entities faced from the predatory origination of residential loans and the fraudulent re-sale and securitization of those otherwise non-marketable loans. Before MERS, the actual beneficiary of every Deed of Trust on every parcel in the United States and the State of Nevada could be readily ascertained by merely reviewing the public records at the local recorder’s office where documents reflecting any ownership interest in real property are kept….

    After MERS, . . . the servicing rights were transferred after the origination of the loan to an entity so large that communication with the servicer became difficult if not impossible …. The servicer was interested in only one thing – making a profit from the foreclosure of the borrower’s residence – so that the entire predatory cycle of fraudulent origination, resale, and securitization of yet another predatory loan could occur again. This is the legacy of MERS, and the entire scheme was predicated upon the fraudulent designation of MERS as the ‘beneficiary’ under millions of deeds of trust in Nevada and other states.

    Axing the Bankers’ Money Tree

    If courts overwhelmed with foreclosures decide to take up the cause, the result could be millions of struggling homeowners with the banks off their backs, and millions of homes no longer on the books of some too-big-to-fail banks. Without those assets, the banks could again be looking at bankruptcy. As was pointed out in a San Francisco Chronicle article by attorney Sean Olender following the October 2007 Boyko [pdf] decision:

    The ticking time bomb in the U.S. banking system is not resetting subprime mortgage rates. The real problem is the contractual ability of investors in mortgage bonds to require banks to buy back the loans at face value if there was fraud in the origination process.

    . . . The loans at issue dwarf the capital available at the largest U.S. banks combined, and investor lawsuits would raise stunning liability sufficient to cause even the largest U.S. banks to fail . . . .

    Nationalization of these giant banks might be the next logical step—a step that some commentators said should have been taken in the first place. When the banking system of Sweden collapsed following a housing bubble in the 1990s, nationalization of the banks worked out very well for that country.

    The Swedish banks were largely privatized again when they got back on their feet, but it might be a good idea to keep some banks as publicly-owned entities, on the model of the Commonwealth Bank of Australia. For most of the 20th century it served as a “people’s bank,” making low interest loans to consumers and businesses through branches all over the country.

    With the strengthened position of Wall Street following the 2008 bailout and the tepid 2010 banking reform bill, the U.S. is far from nationalizing its mega-banks now. But a committed homeowner movement to tear off the predatory mask called MERS could yet turn the tide. While courts are not likely to let 62 million homeowners off scot free, the defect in title created by MERS could give them significant new leverage at the bargaining table.

    Ellen Brown wrote this article for YES! Magazine, a national, nonprofit media organization that fuses powerful ideas with practical actions. Ellen developed her research skills as an attorney practicing civil litigation in Los Angeles. In Web of Debt, her latest of eleven books, she shows how the Federal Reserve and “the money trust” have usurped the power to create money from the people themselves, and how we the people can get it back. Her websites are webofdebt.com, ellenbrown.com, and public-banking.com.

  • Facing Foreclosure? What To Do Right Now, by Jerry DeMuth, HouseLogic.com


    If you’re facing foreclosure, don’t panic: Take steps right now to save your home or at least lessen the blow of its loss.

    A record high 2.8 million properties were hit with foreclosure notices (http://www.realtytrac.com/contentmanagement/pressrelease.aspx?channelid=9&accnt=0&itemid=8333) in 2009. That’s the bad news. The good news: About two-thirds of notices don’t result in actual foreclosures, says Doug Robinson of NeighborWorks, a nonprofit group that offers foreclosure counseling.

    Many homeowners find alternatives to foreclosure by negotiating with lenders, often with the help of foreclosure counselors. If you’re facing foreclosure, call your lender right now to determine your options, which can include loan modification, forbearance, or a short sale.

    Foreclosure process takes time

    The entire foreclosure process (http://portal.hud.gov/portal/page/portal/HUD/topics/avoiding_foreclosure/foreclosureprocess) can take anywhere from two to 12 months, depending on how fast your lender acts and where you live. Some states allow a nonjudicial process that’s speedier, while others require time-consuming judicial proceedings.

    Once you miss at least one mortgage payment, the steps leading up to an actual foreclosure sale can include demand letters, notices of default, a recorded notice of foreclosure, publication of the debt, and the scheduling of a foreclosure auction. Even when an auction is scheduled, however, it may never occur, or it may occur but a qualified buyer doesn’t materialize.

    Bottom line: Foreclosure can be a long slog, which gives you enough time to come up with an alternative. Meantime, if your goal is to salvage your home, think about keeping up with payments for homeowners insurance and property taxes. Otherwise, you could compound your problems by getting hit with an uncovered casualty loss or liability suit, or tax liens.

    Read the fine print

    Start by reviewing all correspondence you’ve received from your lender. The letters–and phone calls–probably began once you were 30 days past due. Also review your mortgage documents, which should outline what steps your lender can take. For instance, is there a “power of sale” clause that authorizes the sale of your home to pay off a mortgage after you miss payments?

    Determine the specific foreclosure laws (http://www.foreclosurelaw.org) for your state. What’s the timeline? Do you have “right of redemption,” essentially a grace period in which you can reverse a foreclosure? Are deficiency judgments that hold you responsible for the difference between what your home sells for and your loan’s outstanding balance allowed? Get answers.

    Pick up the phone

    Don’t give up because you missed a mortgage payment or two and received a notice of default. Foreclosure isn’t a foregone conclusion, but it’s heading in that direction if you don’t call your lender. Dial the number on your mortgage statement, and ask for the Loss Mitigation Department. You might stay on hold for a while, but don’t hang up. Once you do get someone on the line, take notes and record names.

    The next call should be to a foreclosure avoidance counselor (http://www.hud.gov/offices/hsg/sfh/hcc/fc/) approved by the U.S. Department of Housing and Urban Development. One of these counselors can, free of charge, explain your state’s foreclosure laws, discuss alternatives to foreclosure, help you organize financial documents, and even represent you in negotiations with your lender. Be wary of unsolicited offers of help, since foreclosure rescue scams (http://www.houselogic.com/articles/avoid-foreclosure-rescue-scams/) are common.

    Be sure to let your lender know that you’re working with a counselor. Not only does it demonstrate your resolve, but according to NeighborWorks, homeowners who receive foreclosure counseling are 1.6 times more likely to avoid losing their homes than those who don’t. Homeowners who receive loan modifications with the help of a counselor also reduce monthly mortgage payments (http://www.nw.org/newsroom/pressReleases/2009/netNews111809.asp) by $454 more than homeowners who receive a modification without the aid of a counselor.

    Lender alternatives to foreclosure

    Hope Now (http://www.hopenow.com), an alliance of mortgage companies and housing counselors, can aid homeowners facing foreclosure. A self-assessment tool will give you an idea whether you might be eligible for help from your lender, and there are direct links to HUD-approved counseling agencies and lenders’ foreclosure-prevention programs.

    There are alternatives to foreclosure that your lender might accept. The most attractive option that’ll allow you to keep your home is a loan modification that reduces your monthly payment. A modification can entail lowering the interest rate, changing a loan from an adjustable rate to a fixed rate, extending the term of a loan, or eliminating past-due balances. Another option, forbearance, can temporarily suspend payments, though the amount will likely be tacked on to the end of the loan.

    If you’re unable to make even reduced payments, and assuming a conventional sale isn’t possible, then it may be best to turn your home over to your lender before a foreclosure is completed. A completed foreclosure can decimate a credit score, which will make it hard not only to purchase another home someday, but also to rent a home in the immediate future.

    Your lender can approve a short sale, in which the proceeds are less than what’s still owed on your mortgage. A deed-in-lieu of foreclosure, which amounts to handing over your keys to your lender, is another possibility. The earlier you begin talks with your lender, the more likelihood of success.

    Explore government programs

    The federal government’s Making Home Affordable (http://www.makinghomeaffordable.gov/) program offers two options: loan modification (http://www.houselogic.com/articles/making-home-affordable-modification-option/) and refinancing (http://www.houselogic.com/articles/making-home-affordable-refinance-option/). A self-assessment will indicate which option might be right for you, but you need to apply for the program through your lender. A Making Home Affordable loan modification requires a three-month trial period before it can become permanent.

    Fannie Mae and Freddie Mac have their own foreclosure-prevention programs as well. Check to determine if either Fannie (http://www.fanniemae.com/loanlookup) or Freddie (http://www.freddiemac.com/mymortgage) owns your mortgage. Present this information to your lender and your counselor. Fannie and Freddie also have rental programs under which former owners can remain in recently foreclosed homes on a month-to-month basis.

    The federal Home Affordable Foreclosure Alternatives (https://www.hmpadmin.com/portal/programs/foreclosure_alternatives.html) program, which takes full effect in April 2010, offers lenders financial incentives to approve short sales and deeds-in-lieu of foreclosure. It also provides $3,000 in relocation assistance to borrowers. Again, talk to your lender and counselor.

  • Multnomahforeclosures.com: Bank Owned Property List Update for August 2010


    August REO list for bank owned property has been added to Multnomahforeclosures.com . REO lists for Clackamas, Multnomah and Washington County has been addd to the site. The homes listed in these files were deeded back or returned to the investor or lender due to the finalizing of the foreclosure process. Many of these homes may already be on the market or will soon will be. It would not be a bad idea to contact the new owner of these properties and find out what their plans are when it comes to their future ownership of the property.

    Multnomah County Foreclosures
    http://multnomahforeclosures.com

  • Is this the Right Time for the Fed to go Negative?, by Willem Buiter, Wsj.com


    Ben Bernanke, chairman of the Federal Reserve Bank, has a lot more tools for supporting U.S. economic activity through expansionary monetary policy than he discussed in his Jackson Hole speech, which alluded only to more quantitative easing and credit easing—increasing the size and changing the liquidity composition of the Fed’s balance sheet.

    Perhaps out of fear of resurrecting the moniker “Helicopter Ben,” Mr. Bernanke did not refer to the combined fiscal-monetary stimulus that (almost) always works: a fiat money-financed increase in public spending or tax cut. Treasury Secretary Tim Geithner can always send a sufficiently large check to each U.S. resident to ensure that household spending rises. By borrowing the funds from the Fed, there is no addition to the interest-bearing, redeemable debt of the state. As long as households are confident that these transfers will not be reversed later, “helicopter money drops” will, if pushed far enough, always boost consumption.

    However, stronger consumer expenditure, while appropriate from a cyclical perspective—any additional demand is welcome—is not what the U.S. needs for long-term sustainability and structural adjustment: to raise the national saving rate, boost fixed investment in plant, equipment and infrastructure, achieve a trade surplus and shift resources from the non-tradable to the tradable sectors.

    By way of illustration, an eight percentage point reduction in public and private consumption as a share of GDP could be compensated for by an increase in the trade surplus of five per cent of GDP and in non-housing U.S. fixed capital formation of three per cent of GDP. To achieve this, a much weaker real exchange rate and lower real interest rates are necessary. To pursue these objectives speedily a Federal Funds target rate of around minus three or minus four per cent may well be required right now, in our view. This brings monetary policy up against the zero lower bound (zlb) on nominal interest rates.

    The zlb results from the existence of currency (dollar bills and coins) with a zero nominal interest rate. Even allowing for “carry costs” of currency (storage, safekeeping, insurance etc.), this makes it impossible for competing assets like government bills, to offer interest rates much below zero. Stimulating demand in the U.S. economy, while rebalancing the composition of demand and production in the desired directions, requires a much lower Federal Funds target rate than is feasible with the zlb in place.

    To restore monetary policy effectiveness in a low interest rate environment when confronted with deflationary or contractionary shocks, it is necessary to get rid of the zlb completely. This can be done in three ways: abolishing currency, taxing currency and ending the fixed exchange rate between currency and bank reserves with the Fed. All three are unorthodox. The third is unorthodox and innovative. All three are conceptually simple. The first and third are administratively easy to implement.

    The first method does away with currency completely. This has the additional benefit of inconveniencing the main users of currency—operators in the grey, black and outright criminal economies. Adequate substitutes for the legitimate uses of currency, on which positive or negative interest could be paid, are available.

    The second approach, proposed by Gesell, is to tax currency by making it subject to an expiration date. Currency would have to be “stamped” periodically by the Fed to keep it current. When done so, interest (positive or negative) is received or paid.

    The third method ends the fixed exchange rate (set at one) between dollar deposits with the Fed (reserves) and dollar bills. There could be a currency reform first. All existing dollar bills and coin would be converted by a certain date and at a fixed exchange rate into a new currency called, say, the rallod. Reserves at the Fed would continue to be denominated in dollars. As long as the Federal Funds target rate is positive or zero, the Fed would maintain the fixed exchange rate between the dollar and the rallod.

    When the Fed wants to set the Federal Funds target rate at minus five per cent, say, it would set the forward exchange rate between the dollar and the rallod, the number of dollars that have to be paid today to receive one rallod tomorrow, at five per cent below the spot exchange rate—the number of dollars paid today for one rallod delivered today. That way, the rate of return, expressed in a common unit, on dollar reserves is the same as on rallod currency.

    For the dollar interest rate to remain the relevant one, the dollar has to remain the unit of account for setting prices and wages. This can be encouraged by the government continuing to denominate all of its contracts in dollars, including the invoicing and payment of taxes and benefits. Imposing the legal restriction that checkable deposits and other private means of payment cannot be denominated in rallod would help.

    In the other major industrial countries too (the euro area, Japan and the U.K.), monetary policy is constrained by the zlb. Conventional fiscal expansion with government debt-financed deficit increases would be ineffective or infeasible because of fiscal unsustainability. Like the Fed, the ECB, the Bank of Japan and the Bank of England therefore should lobby for the legislation necessary to eliminate the zlb. The euro area and Japan, which don’t suffer from deficient saving rates or undesirable current account deficits, could in addition stimulate consumption through helicopter drops of money—base money-financed fiscal stimuli.

    All three methods for eliminating the zlb, although administratively feasible and conceptually simple, are innovative and unorthodox. Central banks are conservative. The mere fact that something has not been done before often is sufficient grounds for not doing it now. The cost of rejecting institutional innovation to remove the zlb could, however, be high: a material risk of continued deficient aggregate demand, persistent deflation and, in the U.S. and the U.K., unnecessary conflict between short-term stabilization and long-term sustainability and rebalancing.

    —Willem Buiter is chief economist for Citi.

  • Obama Administration Awards Additional $1 Billion to Stabilize Neighborhoods Hard-Hit by Foreclosure, RisMedia


    RISMEDIA, September 13, 2010—U.S. Housing and Urban Development Secretary Shaun Donovan awarded an additional $1 billion in funding to all states along with a number of counties and local communities struggling to reverse the effects of the foreclosure crisis. The grants announced today represent a third round of funding through HUD’s Neighborhood Stabilization Program (NSP) and will provide targeted emergency assistance to state and local governments to acquire, redevelop or demolish foreclosed properties.

    “These grants will support local efforts to reverse the effects these foreclosed properties have on their surrounding neighborhoods,” said Donovan. “We want to make certain that we target these funds to those places with especially high foreclosure activity so we can help turn the tide in our battle against abandonment and blight. As a direct result of the leadership provided by Senator Chris Dodd and Congressman Barney Frank, who played key roles in winning approval for these funds, we will be able to make investments that will reduce blight, bolster neighboring home values, create jobs and produce affordable housing.”

    The funding announced today is provided under the Dodd-Frank Wall Street Reform and Consumer Protection Act. To date, there have been two other rounds of NSP funding: the Housing and Economic Recovery Act of 2008 (HERA) provided $3.92 billion and the American Recovery and Reinvestment Act of 2009 (Recovery Act) appropriated an additional $2 billion. Like those earlier rounds of NSP grants, these targeted funds will be used to purchase foreclosed homes at a discount and to rehabilitate or redevelop them in order to respond to rising foreclosures and falling home values. Today, 95 cents of every dollar from the first round of NSP funding is obligated—and is in use by communities, buying up and renovating homes, and creating jobs.

    State and local governments can use their neighborhood stabilization grants to acquire land and property; to demolish or rehabilitate abandoned properties; and/or to offer downpayment and closing cost assistance to low- to moderate-income home buyers (household incomes do not exceed 120% of area median income). In addition, these grantees can create “land banks” to assemble, temporarily manage, and dispose of vacant land for the purpose of stabilizing neighborhoods and encouraging re-use or redevelopment of urban property. HUD will issue an NSP3 guidance notice in the next few weeks to assist grantees in designing their programs and applying for funds.

    NSP 3 will take full advantage of the historic First Look partnership Secretary Donovan announced with the National Community Stabilization Trust last week. First Look gives NSP grantees an exclusive 12-14 day window to evaluate and bid on properties before others can do so. By giving every NSP grantee the first crack at buying foreclosed and abandoned properties in these targeted neighborhoods, First Look will maximize the impact of NSP dollars in the hardest-hit neighborhoods—making it more likely the properties that communities want to buy are strategically chosen and cutting in half the traditional 75-to-85 day process it takes to re-sell foreclosed properties .

    NSP also seeks to prevent future foreclosures by requiring housing counseling for families receiving home buyer assistance. HUD seeks to protect future home buyers by requiring states and local grantees to ensure that new home buyers under NSP receive homeownership counseling and obtain a mortgage loan from a lender who agrees to comply with sound lending practices.

    In determining the allocations announced today, HUD, as it did with NSP1, followed key indicators for the distribution formula outlined by Congress. HUD is using the latest data to implement the Congressional formula. The formula weighs several factors to match funding to need in the 20% most distressed neighborhoods as determined based on the number and percentage of home foreclosures, the number and percentage of homes financed by a subprime mortgage related loan, and the number and percentage of homes in delinquency. To estimate the level of need down to the neighborhood level, HUD uses a model that takes into account causes of foreclosures and delinquencies, which include housing price declines from peak levels, and increases in unemployment, and rate of high cost and highly leveraged loans. HUD also considers vacancy problems in neighborhoods with severe foreclosure related problems.

    In addition to a third round of NSP funding, the Dodd-Frank Wall Street Reform and Consumer Protection Act creates a $1 billion Emergency Homeowners Loan Program to be administered by HUD. This loan program will provide up to 24 months in mortgage assistance to homeowners who are at risk of foreclosure and have experienced a substantial reduction in income due to involuntary unemployment, underemployment, or a medical condition. HUD will announce additional details, including the targeted areas and other program specifics when the program is officially launched in the coming weeks.

    For more information, visit www.hud.gov.

    RISMedia welcomes your questions and comments. Send your e-mail to:realestatemagazinefeedback@rismedia.com.

    http://rismedia.com

  • Housing Doesn’t Need a Crash. It Needs Bold Ideas, Gretchen Morgenson, Nytimes.com


    WE all know that most of us don’t tackle problems until they’ve morphed into full-blown crises. Think of all those intersections that get stop signs only after a bunch of accidents have occurred.

    Better yet, think about the housing market.

    Only now, after it has become all too clear that the government’s feeble efforts to “help” troubled homeowners have failed, are people considering more substantive approaches to tackling the mortgage and real estate mess. Unfortunately, it’s taken the ugly specter of a free fall or deep freeze in many real estate markets to get people talking about bolder alternatives.

    One reason the Treasury’s housing programs have caused so much frustration among borrowers — and yielded so few results — is that they seemed intended to safeguard the financial viability of big banks and big lenders at homeowners’ expense.

    For example, the government — in order, it believed, to protect the financial system from crumbling — has never forced banks to put a realistic valuation on some of the sketchy mortgage loans they still have on their books (like the $400 billion in second mortgages they hold).

    All those loans have been accounted for at artificially lofty levels, and have thereby provided bogus padding on balance sheets of banks that own them. Banks’ refusal to write down these loans has made it harder for average borrowers to reduce their mortgage obligations, leaving them in financial distress or limbo and dinging their ability to be the reliable consumers everyone wants them to be.

    Various proposals are being batted around to address the mortgage morass; one is to do nothing and let real estate markets crash. That way, the argument goes, buyers would snap up bargains and housing prices would stabilize.

    Yet little about this trillion-dollar problem is so simple. While letting things crash may seem a good idea, there are serious potential complications. Here’s just one: Many lenders and some government agencies bar borrowers who sold their homes for less than the outstanding loan balance — known as a “short sale” — from receiving a new mortgage within a certain period, sometimes a few years.

    For example, delinquent borrowers who conducted a short sale are ineligible for a new mortgage insured by the Federal Housing Administration for three years; Fannie Maeblocks such borrowers for at least two years. Private lenders have similar guidelines.

    Such rules made sense in normal times, but their current effect is to keep many people out of the market for years. And as home prices have plunged, leaving legions of borrowers underwater on loans, short sales have exploded. CoreLogic, an analytic research firm, estimates that 400,000 short sales are taking place each year.

    More can be expected: 68 percent of properties in Nevada are worth less than the outstanding mortgage, CoreLogic said, while half in Arizona and 46 percent in Florida are underwater.

    “There is this perception that maybe we should let the market crash and then prices will level off and people will come out and buy,” said Pam Marron, a senior mortgage adviser at the Waterstone Mortgage Corporation near Tampa, Fla. “But where are the buyers going to come from? So many borrowers are underwater and they’re stuck; they can’t buy another home.”

    There is no doubt that real estate and mortgage markets remain deeply dysfunctional in many places. Given that the mess was caused by years of poisonous lending, regulatory inaction and outright fraud — and yes, irresponsible borrowing — this is no surprise. Throw in the complexity of working out loans in mortgage pools whose ownership may be unclear, and the problem seems intractable.

    The moral hazard associated with helping troubled borrowers while penalizing responsible ones who didn’t take on outsize risks adds to the difficulties.

    STILL, there are real, broad economic gains to be had by helping people who are paying their mortgages to remain in their homes. Figuring out how to reduce their payments can reward responsible borrowers while slowing the vicious spiral of foreclosures, falling home prices and more foreclosures. And it just might help restore people’s confidence in the economy and get them buying again.

    With that in mind, let’s recall an idea described in this space on Nov. 16, 2008. As conceived by two Wall Street veterans, Thomas H. Patrick, a co-founder of New Vernon Capital, and Macauley Taylor, principal at Verum Capital, the plan calls for refinancing all the nonprime, performing loans held in privately issued mortgage pools (except for Fannie’s and Freddie’s) at a lower rate.

    The mass refinancing could have helped borrowers, while retiring mortgage securities at par and thus helping pension funds, banks and other investors in those pools recover paper losses created when prices plummeted. Fannie Mae and Freddie Mac could have financed the deal with debt.

    In the fall of 2008, when Mr. Patrick and Mr. Taylor tried to get traction with their proposal, roughly $1.5 trillion in mortgages sat in these pools. Of that, $1.1 trillion was still performing.

    Instead of refinancing those mortgages, however, the Washington powers-that-be hurled $750 billion of taxpayer money into the Troubled Asset Relief Program, which bailed out banks instead. Though one goal was to get banks lending again, it hasn’t happened.

    Now, almost two years later, $1.065 trillion of nonprime loans is sloshing around in private mortgage pools, according to CoreLogic’s securities database. While CoreLogic doesn’t report the dollar amount of loans that are performing, it said that as of last June, two-thirds of the 1.6 million loans in those pools were 60 days or more delinquent.

    That means one-third of the borrowers in these pools are paying their mortgages. But it is likely that many of these people owe more on their loans than their homes are worth and would benefit greatly from an interest-rate cut.

    If Fannie and Freddie bought these loans out of the pools at par and reduced their interest rates, additional foreclosures might be avoided. The only downside to the government would be if some loans it purchased went bad.

    The benefits of the plan could easily outweigh the risks. Institutions holding these loans would be fully repaid, a lot of borrowers would be helped and additional foreclosures that are so damaging to neighborhoods might be averted.

    “Every program that the government has announced was focused on bad credits, but they were trying to fix a hole that is too big,” Mr. Patrick said. “The idea is to try to preserve the decent risks and not let them go bad.”

    At the very least, this is a sophisticated and realistic idea that’s still worth considering.

  • Executives With Criminal Records Slip Through FHA Crackdown, Documents Show, By Brian Grow, Publicintegrity.org


    A crackdown on reckless mortgage lenders by the Federal Housing Administration has failed to root out several executives with criminal records whose firms continue to do business with the agency in violation of federal law, according to government documents, court records and interviews.

    The get-tough campaign has also been hamstrung because, even when the FHA can ban mortgage companies for wrongdoing or an excessive default rate, the agency does not have the legal power to stop their executives from landing jobs at other lenders, or open new firms.

    After the collapse of the home loan market, the FHA launched an effort aimed at reducing losses on mortgages it insures by weeding reckless lenders out of the program.

    But documents and interviews reveal that more than 34,000 home loans have been issued over the past two years by a dozen FHA-approved lenders that have employed people who were convicted of felonies, banned from the securities industry or previously worked for firms barred by the agency.

    More than 3,000 of those loans, about 9 percent, were seriously delinquent or already a claim on the FHA insurance fund as of June 30. That’s nearly triple the rate for all loans made by FHA lenders over the past two years, about 3.4 million.

    Compared with other regulators, critics of the FHA say it rarely cracks down on company executives. “In the securities industry, you bar people for life. You don’t see that a lot with the FHA,” says Mark Calabria, director for financial regulation studies at the Cato Institute.

    Policing the cubicles and corner suites of FHA lenders is crucial because the agency, which encourages home ownership by insuring mortgages made by qualified lenders, has become a cornerstone of the U.S. housing market. Its portfolio of guaranteed loans has grown to $800 billion in March from $466 billion in fiscal 2008. The agency’s insurance program is financed by premiums paid by FHA borrowers, but taxpayers would be on the line if those funds are depleted.

    The agency has long struggled to stop companies from slipping risky loans under its protective umbrella. It has done this in part by barring lenders if too many of their borrowers default. 
    FHA Commissioner David Stevens has vigorously defended the agency’s bid to drop lenders with higher than average default rates or evidence of fraudulent loans. “No one can feign that we’re not all over fraud now, in this administration,” Stevens says. Since January, the agency has fined or withdrawn the approval of more than 1,100 lenders to issue federally-insured mortgages, according to records provided by the FHA.

    But he added, “By no means do I think are we are out of the woods, yet. …There are going to be some of these guys who slip through.”

    The internal watchdog at the Department of Housing and Urban Development, which oversees the FHA, says the agency has failed to systematically monitor the people making home loans. In recent Congressional testimony, he called for “a new mind-set at the FHA to know your participants and not just the entity.”

    Legislation passed by Congress last year bars any individual from working for an FHA lender in a range of positions if convicted of a felony that “involved an act of fraud, dishonesty, or a breach of trust, or money laundering.” The law, which broadly addressed foreclosure prevention efforts and housing policies, also rendered an FHA lender ineligible if it employs a person convicted of an offense “that reflects adversely” upon the company.

    According to HUD and FHA documents, court records and interviews, at least five convicted felons are now working for FHA lenders or worked for them in recent years.

    Gregg S. Marcus, for example, was co-owner of a mortgage company called Gettysburg Funding Corp. when he pled guilty in 1998 to federal tax evasion in New York following an investigation of false loan applications at that company, according to court records. Marcus was sentenced to five years probation and fined $50,000. His business partner at Gettysburg Funding pled guilty to bank fraud.

    Marcus went on to become executive director at another mortgage lender, Somerset Investors Corp. A HUD database shows Somerset remains an FHA-approved lender. The company’s status as an FHA lender did not change after a March 2010 audit by HUD’s Inspector General recommended Somerset return $2.8 million in insurance payments to the agency because of “significant underwriting deficiencies” in the firm’s loans. The government auditors, who had not set out to examine individual executives, didn’t identify Marcus as a convicted felon.

    HUD officials declined to comment on Gregg Marcus and his criminal conviction. In a statement, HUD said that the president of Somerset recently certified that none of company’s employees “were currently in, or had been involved in, an investigation that could result or has resulted in a criminal conviction. If the information was false, the certification would be inaccurate and may warrant administrative action by HUD.”

    Marcus and his wife, Randi, who is the president of Somerset, did not respond to certified letters requesting comment for this article. Phone calls and e-mails sent to Somerset were not returned.

    While HUD says it tries to keep felons out of the FHA program, housing officials say they cannot bar other individuals just because they had previously worked for a banned lender.

    “Termination of a lender does not specifically prohibit its principals and senior executives from seeking employment with approved lenders or forming a new company that may seek approval,” HUD said in a statement.

    HUD’s own inspector general, Kenneth Donohue, warned at a Senate subcommittee hearing in May that FHA suffers from a “systemic weakness” by allowing these individuals to continue doing business with the agency.

    “Without specific citations against individuals (FHA) could not link principals of a defunct company to those same individuals who would go on to form new entities,” Donohue said. “We see this type of maneuver too often and it makes the FHA program too easy a target for those intent on abusing the program.”

    At least four FHA lenders employ executives who previously worked at companies banned from doing business with the agency, according to documents and interviews.

    Lend America was banned by HUD last December after the Justice Department accused the company it of originating fraudulent loans insured by the FHA. Lend America’s chief business strategist, Michael Ashley, was barred from the FHA for life in March. But at least one of the firm’s other senior executives now works as a sales manager at a company currently approved to make FHA loans.

    In another instance, a former senior executive with BSM Financial, an FHA lender based in Allen, Texas, has worked for two other FHA lenders since that company was barred from the program in 2009. The executive is currently a top official at another FHA lender in Texas, according to documents and interviews.

    BSM had run into trouble in 2006 with auditors from HUD’s Office of Inspector General, who reported that “the lender approved mortgages on overvalued properties for borrowers that were less than creditworthy.” The auditors recommended BSM reimburse $2 million in losses on foreclosed homes, along with other penalties. In April 2009, BSM was banned from the FHA program because the firm never made the first payment required by a settlement agreement following the audit.

    In a statement responding to questions about why the executives have been able to move between various FHA lenders, HUD says, “misconduct or poor performance by a company does not necessarily extend to its officers or employees absent evidence that the officers or employees participated in, directed, knew about or had reason to know about specific violations or misconduct.”

    Stevens, the FHA commissioner, said his agency follows the principle of due process when deciding which individuals to bar.

    “You can’t just throw someone out because you don’t like them,” he said. “They have to violate a law; they have to commit a crime.”

    HUD officials acknowledge that most background checks on lender employees are generally limited to “principals” – individuals identified by FHA firms as senior executives or owners of the company.

    Because HUD allows lenders to identify their own principals, firms sometimes do not disclose the senior role played by convicted felons.

    According to the Justice Department lawsuit filed against Lend America, for example, its chief business strategist, Michael Ashley, had a 10-year history of state sanctions and a federal conviction related to a mortgage fraud scheme. The Justice Department alleged that he directly controlled sales at the firm. Yet Lend America never identified Ashley as one of its principals.

  • New Features on the Stewart Group Realty Web Site


    Just added a search engine for the local real estate multiple listing service to the web site.    http://www.sgrealty.us/

  • Home & Voices In This Corner FHA Chief Risk Officer expects better performance from newer mortgages, by Jon Prior, Housingwire.com


    Bob Ryan is the first chief risk officer of the Federal Housing Administration. He was hired in October 2009. A recent increase in the FHA insurance premiums is stirring some controversy in the market as to when the policy changes will help the insurance fund.

    Sheila Bair, chairman of theFederal Deposit Insurance Corp. said tighter, common-sense controls for mortgage lenders will help the housing market going forward.

    For this edition of In This Corner, Ryan says the models for the policy were built on the forecast that recent FHA mortgages will stay current longer.

    The FHA adjustments to its insurance premiums take effect Oct. 4. But is the increase in the monthly yield offset by the cuts in the upfront premiums?

    No I don’t think it is. There is a net incremental increase embedded in there. People may have a different view of what the expected life of the new loan is, just as every investor has a potential view of what the prepayments are going to be of a particular loan is when they make an investment decision.

    So there is some range of possibilities as far as how long that loan will go out. We use models to help us estimate. It’s a process we go through with the Office of Management and Budget (OMB) and its embedded in the budget process, so it’s pretty well vetted.

    It would take three years to make up unless the increase could go into effect on post-closed loans, which it can’t. But the issue is that we would expect, on average, those loans would last a good bit more than three years. In fact, it would be a little bit more than double, to the seven to eight-year range. So if you were to do the arithmetic on that you’d see it would more than offset the decline in the upfront fee.

    So, you’re expecting borrowers who receive mortgages written Oct. 4 and beyond to be paying premiums for at least seven years.

    These loans will be current longer. There’s a lot of things that play into that, such as the mortgage rate environment. This is all embedded in future forecasting of interest rates, but that the general conventional wisdom is that rates will be more likely to rise than to fall. I’m not making a prediction, I’m just saying that’s what’s embedded in the yield curve.

    And all these things conspire to mean that these loans will probably be out there for a long time.

    With the rise in insurance premiums, how long will it take to get the FHA insurance fund back to a healthy level?

    That’s an involved calculation. You would have to run through and make a bunch of other assumptions. This per rate increase has a large impact on accelerating the return to the 2% capital ratio.

    All the other credit policy changes that we’ve announced, some of which have started to go into effect, all of those enforcement actions, have made lenders more aggressive at how they monitor the credit risk and the underwriting processes that they go through. That means that we’re getting higher credit scores and better quality loans. Those activities in combination are also going to contribute to the return to the capital ratio of above 2%.

    The biggest contributor in the near term is going to be this premium increase.

    Some have said that the FHA’s greatest strength has been its larger upfront fee and the lower monthly premiums. With the latest adjustments, is the FHA moving away from that?

    There’s pros and cons to both the upfront and over-time fee. The biggest con to the over-time fee is right now we allow it to be financed into the balance of the loan. You’re taking that upfront premium, and you’re actually increasing the loan-to-value (LTV) ratio because you’re rolling it into the unpaid principal balance of the loan, and that defeats some of the purpose of it.

    So I think we get a double benefit from lowering that upfront and increasing it over time. It’s also a little bit more borrower friendly, in that they would have to come out of pocket for more cash if they had to pay the full upfront amount out of cash.

     

  • purchase apps rise as refinance demand falls, by Thetruthaboutmortgage.com


    Applications to purchase a home increased during the week ending September 3 as refinanceapps slid, according to the latest survey from the Mortgage Bankers Association.

    That bucked an ongoing trend seen over the past few months in which refinance apps were surging and purchase apps were falling flat.

    Overall, home loan demand decreased 1.5 percent from one week earlier, thanks to a 3.1 percent dip in refinance activity, offset by a 6.3 percent rise in purchase apps.

    “Purchase applications increased last week, reaching the highest level since the end of May.  However, purchase activity remains well below levels seen prior to the expiration of the homebuyer tax credit, and is almost 40 percent below the level recorded one year ago,” said Michael Fratantoni, MBA’s Vice President of Research and Economics, in a release.

    “On the other hand, refinance volume dropped last week for the first time in six weeks, but the level of applications to refinance remains close to recent highs, as historically low mortgage rates continue to draw borrowers into the market.”

    The refinance share of mortgage activity fell to 81.9 percent of total apps from 82.9 percent one week earlier as mortgage rates inched off record lows.

    The popular 30-year fixed averaged 4.50 percent, up from 4.43 percent, while the 15-year fixed rose to 4.00 percent from 3.88 percent.

    Finally, the one-year adjustable-rate mortgage ticked up to 7.00 percent from 6.95 percent, and remains quite unattractive.

  • Short Sale Lease-Backs Make Total Sense – Fannie, Freddie and Servicers Are the Problem, Mandelman Matters


    Attention Taxpayers:

    There is a solution to the foreclosure crisis that is destroying our country.  It keeps people in their homes, doesn’t cost taxpayers a dime, and actually makes the banks more money than were they to foreclose on the property.

    It’s called a “short sale lease-back” and here is how it works:

    1. The homeowner applies for a loan modification and is turned down, or just applies for permission to short sell the property.

    2. The options are foreclosure or short sale, as the homeowner is at risk of immanent default.

    3. An unrelated third party investor organization negotiates the short sale with the lender or servicer, and buys the property at the short sale price.

    4. That company also, at that time, agrees to lease the home back to the homeowner for five years at an agreed to price, and with specified terms.

    5. At the end of five years the homeowner can exercise their lease option and repurchase the home for a previously agreed to price.

    There are other relatively minor details, but that covers the broad strokes.  It keeps the homeowner in the house, doesn’t cost taxpayers a dime, and makes the bank more money than would be the case if sold after foreclosure as an REO.

    So, what’s not to love?  Banks win by getting more for the property than would otherwise be the case. Investors win through earning a return that averages 15% on their investment.  Banks win by getting more for the sale of the properties than would result from foreclosure.  Our society, our economy and other homeowners win from a reduced the number of foreclosures.  So, why do Fannie Mae and Freddie Mac both say no.  Neither will approve a short sale under such circumstances.

    By the way, I’ve spoken with one of the principals in the company that does just what I’ve described for homeowners all over the country, and they’re the real deal.  It’s not theory, they’ve done it and it’s fact.  Personally, I found Jorge Newbery, one of the company’s principals, to be one of the brightest, most ethical, caring and candid business executives I’ve ever encountered… and that’s really saying something when you consider that I’ve had more than a couple of decades experience meeting with and speaking with business executives from all over the country and around the world.

    The company’s name is American Homeowner Preservation (“AHP”), and it’s located in Ohio, one of the hardest hit states in terms of foreclosures, and on top of that they’ve got both Dennis Kucinich and John Boehner.  (Kidding, I’m just kidding… sort of… no, I am kidding… sort of… no, really… I am for sure… sort of.)

    So, if you’re anything like me, you’re thinking… okay, so what’s the problem here?  Who wouldn’t like this?  Why in the world wouldn’t Fannie and Freddie, two totally failed mortgage companies whose stocks are listed over-the-counter, right next to Blockbuster video stores, be opposed to a way for them to make more money than foreclosing, something they’re doing far too frequently these days anyway?  You’d think they’d like it just for the change of pace, if for no other reason.

    Because their opposition to approving short sales when the current owner is going to be renting the house from its new owner, well… it feels like they want to punish the homeowner for losing the house to foreclosure, but that can’t be the reason, right?  Tell me I’m right about that… they don’t want to punish the homeowner for anything here, do they?  No, they couldn’t… they wouldn’t… talk to me industry people… what’s going on here.

    Because if I found out that it did have something to do with punishing the homeowner who is losing the home, I would likely find myself compelled to write all sorts of unpleasant things about the relative intelligence of whomever the overpaid clown is currently running the two failed GSEs into the ground.  Why, I might even call him names I haven’t even considered yet.  Nah, it couldn’t have anything to do with punishment, right?  I so want to be right about that… tell me I’m right.

    Well, I did place a call to Fannie Mae and to Freddie Mac inquiring about the rationale behind the policy, so let’s just go on and we’ll all hope for their sake that they say something in response to my inquiries.  If they don’t, then all I can say is that if you’re one of those that felt that I was a little too harsh with the Freddie and Fannie executives when writing about the whole “strategic-default-is-bad-thing, then you won’t like what I’m likely to do to them next time, were I to believe that they actually are attempting to punish a homeowner.

    Like, here’s one of my questions: I realize that you won’t approve a short sale in which the homeowner agrees to live in the home after the sale, renting it from its new owner, but what about if the homeowner agrees to sleep in the home’s back yard… and not go inside except to use the facilities?  Would that be okay, or would the same policy apply?  Well readers, what’s your guess?

    How about if the old owners park their car in the driveway and sleep in it overnight, but then they leave during the day… and the new owner doesn’t even own a car, so he agrees to the deal?  Would you approve the short sale then?  You wouldn’t, would you heartless halfwits?  I didn’t think so.

    Here’s how AHP figures out the monthly lease payments:

    It’s $375 for the first $10,000, $12 per thousand up to $50k.  After that it’s $10 per thousand.  On average, investors make 12% return on the lease.  On a $50,000 purchase price, monthly lease is $855.  The investor pays the taxes and insurance.

    The original homeowner can buy back the house in year one or two for 15% over the short sale sales price.  In year 3 it’s 20% over the short sale price, and year four it’s 25% and in year five it’s 30%.  Throughout the lease the company provides training and education to help ensure that the original homeowner is financially Also they provide counseling to help homeowner be ready to obtain financing by the fifth year, which I think is terrific.

    And, if the homeowner wasn’t able to buy the home in the future, or if they decided not to buy the home, and the house were to sell for more than the pre-agreed to price, the homeowner participates in the profits at 50%.  Amazing, if you ask me.

    Newbery says that PIMCO, the world’s largest bond holder, has said what AHP does should not present a problem for investors or servicers, but when PIMCO contacted several servicers, they found it to be quite the problem.  I want to know why?

    One of the problems could involve establishing the short sale price at which the servicer approves the home to be sold.  Currently, servicers obtain a BPO, which stands for Broker Price Opinion.  It’s sort of an appraisal-lite.  A real estate broker is paid to provide his or her opinion as to the value of the home if sold as a short sale.  One would think that such an opinion would be based on the comparable sales in the neighborhood, but come to find out… it’s not always the case.

    Apparently, servicers that ask for such BPOs from brokers who do broker price opinions are paid an average $35 – $75 for rendering their opinion as to price of home, BUT many of the servicers provide the brokers with something called BRACKETS within which the servicer wants the BPO to come in.  As in… give us your opinion as to the price of this home as long as it comes in within $60,000 and $80,000.  Yeah, there’s a comp that sold for $40,000 last week, but we’re not interested in that one.  We want an opinion between $60,000 and $80,000.

    And isn’t that nice?

    On the other hand, some servicers actually refer clients to AHP.  Default servicers, in particular, that get the charge-off loans from the larger servicers, mostly on low value homes, such that are found in Michigan and Ohio, although there are some in Arizona, Nevada, and even California and Florida, often do so.  In these highly devalued markes, principal reductions are commonplace, the homes are generally worth less than $100,000, with loans that can be $200,000 and up… and the original servicer has decided that it’s just not worth going after anymore.  Clearly, AHP is the best answer for investors in these properties

    Newbery says that the problems his company faces are the same as what everyone else is facing today when negotiating with a lender or servicer.  “Our deals take as long as loan modifications.  We’ve had them take 12 months and one or two have taken 18 months.  If the servicer doesn’t approve it the first time, we resubmit and resubmit, and often times they will accept the fifth offer.”

    I think Newbery’s company is the real deal… a truly win-win-win operation.  “Transparency means sustainability.  Our program is easy to understand, totally transparent and presents a solid value proposition for everyone involved,” explains Newbery.

    So, let’s see what I can find out about this from Fannie and Freddie or other servicers.  Let’s see if there’s some reason we’re not embracing this as an answer that makes sense… or if we’re just intent on punishing those that find themselves in financial trouble… you know… the old fashioned way.

    Personally, I think there should be more companies like Newbery’s, and I hope the idea catches on.  I know there have been several that have had a similar idea, but I haven’t seen any getting actual deals done like AHP definitely has.  So.., investors… come on… start your engines and let’s get this economy moving in the right direction again, or at least let’s stop it from falling through the floor.

    For more information, visit AHPHelp.com.  And for the record, I was not paid a nickel for writing this article, nor do I receive anything when you click or decide to do business with this company.  It may have sounded like an infomercial or commercial, but it was nothing of the kind.  I just think whet they’re doing is great, especially in light of the fact that the government hasn’t the foggiest idea of what to do to change things for the better… obviously.

    If you disagree, I’m open to listening to whatever you have to say.  Either leave a comment or email me at mandelman@mac.com.

  • Multnomahforeclosures.com: Updated Notice Of Default Lists and Books


    Multnomahforeclosures.com was updated with the largest list of Notice Defaults to date. With Notice of Default records dating back over 2 years. Multnomahforeclosures.com documents the fall of the great real estate bust of the 21st centry. The lists are of the raw data taken from county records.

    It is not a bad idea for investors and people that are seeking a home of their own to keep an eye on the Notice of Default lists. Many of the homes listed are on the market or will be.

    All listings are in PDF and Excel Spread Sheet format.

    Multnomah County Foreclosures

    http://multnomahforeclosures.com

  • Treasury Designs New Federal Program to Help Stimulate Economy, by Mandelman, Mandelman Matters


    This week, the federal government is said to be announcing a new federal program designed to keep our economy vacillating between deflationary collapse and contrived recovery.  The program, referred to as the Special TARP Underwriting Program to Impede Development, will first tackle the challenge of bringing the government’s most inane economic stability plans together under one larger, yet infinitely more purposeless program banner.

    Initial funding for the Special TARP Underwriting Program to Impede Development will come primarily from contributions made on a voluntary basis by the nation’s largest and most insolvent financial institutions, through the sporadic unannounced printing of twenty and fifty dollar bills, and from change found in the couches left behind in foreclosed homes.

    Names floated in the press for program director included initial frontrunner, Carrot Top, followed by Dan Quail and Paris Hilton, although confirmed reports say that Treasury Secretary Tim Geithner and White House economic advisor, Larry Summers, have thrown their considerable combined clout behind Elizabeth Warren.

    “I can’t think of anymore more qualified for this job than Liz,” the Treasury Secretary said while attending a Telethon for the Boatless in Miami Beach, sponsored by the magazine, Unbridled Avarice, and through a grant made by Goldman Sachs.  (In the spirit of full disclosure, Goldman did file papers with the SEC stating that the firm does plan to short that grant in an effort to remain vigilant about it’s risk profile.)

    The Special TARP Underwriting Program to Impede Development is known by the acronym, STUPID.  The program is projected to provide assistance to responsible American homeowners who have high credit scores, equity of $200,000 in a second home, and surnames that begin with “Gh” or “Pf,” assuming they did not file a tax return in 1992, and reside primarily in a state that ends in the letter “E”. Qualified homeowners can apply for assistance under the program by calling a toll-free number at HUD; area code 212-GET-STUPID.

    Secretary Geithner explained the program to reporters while waiting for his dessert soufflé to rise.  Those in attendance said that he told the group that the program would help homeowners and get the economy back on track by removing the key obstacle to the future profitability of financial institutions.  He also mentioned that the soufflé was dry.

    “So, now that you understand what STUPID is, let’s talk about what STUPID does,” Geithner told the group.  “I think you can see why Larry and I feel so strongly that Liz Warren be asked to run the new program.  I think that she, more than anyone else I can think of, is representative of what the program is all about.  I’m hoping that within a very short period of time, the entire country will associate the name Elizabeth Warren with STUPID.  I know Larry and I both do already.”

    The good news is that almost all of the HAMP participating servicers have already signed on to participate in the new program, so most homeowners are very likely to find that they have a STUPID Servicer handling their loan.

    http://mandelman.ml-implode.com/

  • Related News:Finance Real Estate U.S. Canada Homebuilders Revive Stalled U.S. Projects as Banks Unload Lots, By Prashant Gopal and John Gittelsohn, bloomberg.com


    Construction crews are returning to the Cascades of Groveland, a gated 55-and-older community west of Orlando, Florida, almost three years after its bankrupt developer left owners of the existing 238 houses surrounded by empty lots, partially built homes, and an unfinished clubhouse.

    Shea Homes, a builder based in Walnut, California, bought the remaining 761 lots from Bank of America Corp. in June and reopened the project Aug. 25 with a new sales office, lower prices and a changed name: “Trilogy.” Residents, who had taken over the guardhouse for mahjong, bingo and poker games, will get a 38,000-square-foot (3,530-square-meter) recreational center with indoor and outdoor pools, tennis courts and a card room.

    “For the people here, the activity of construction equipment is music to their ears,” said Eric Sorkin, 61, president of the homeowners association at the development, 35 miles northwest of Walt Disney World. “There’s a future.”

    Builders are buying lots at less than half their original prices from lenders eager to move distressed construction loans off their books. Developments are being resuscitated from Florida, California, and Las Vegas to Utah and the suburbs of Washington, D.C., according to Brad Hunter, chief economist for Metrostudy, a Houston-based housing researcher.

    “This is a natural progression of the cycle,” Hunter said. “Projects fail, the price of the asset drops until it reaches a point where it’s profitable for someone else to pick it up and remarket it. They reposition the project and then what was formerly infeasible, is feasible.”

    Mothballed Projects

    Builders, facing record low demand, are trying to boost margins and revenue by pulling unfinished projects out of mothballs. They’re benefiting from cheap land and falling construction costs as they seek to adapt floor plans to today’s market and lure buyers with prices that, in some neighborhoods, are little more than the cost of a foreclosed home. The 12 largest homebuilders by market value added 16,631 lots in their past two quarters, according to data compiled by Bloomberg.

    The revived projects could contribute to a delay in the U.S. housing recovery by adding to the supply of available homes, according to Hunter. At the same time, builders are being cautious about flooding the market by limiting the numbers of houses they are constructing without having buyers lined up, he said. Many homebuyers also aren’t interested in foreclosures, which may be damaged or in inferior locations, Hunter said.

    The next few months will show whether the revived projects will inflate supply, because many builders purchased lots around the same time, and will likely market them at about the same time, said Jill Lewis, homebuilder specialist for the Land Advisors Organization, a Scottsdale, Arizona-based land broker.

    Phoenix Communities

    In the Phoenix metro area, 48 communities have reopened with about 40 more coming in the next year, according to Land Advisors. About 6 percent of finished lots for production are owned by banks, down from 20 percent a year ago, the company said. On average, new homes in Phoenix are going for half of what they sold for four years ago, Land Advisors said.

    Picking up where another builder left off can be complicated by the passing of years. Without attention, weeds grow, swimming pools go green, government permits expire, and homeowners associations turn insolvent, said Taylor B. Grant, founding principal of California Real Estate Receiverships LLC in Newport Beach, California. Grant, who works as a court- appointed receiver for properties that have gone into default, is often asked by banks to prepare developments for sale.

    It can take nine to 12 months to ready a site and construct model homes, said Tom Dallape, principal at the Hoffman Company, a land brokerage advisory firm in Irvine, California.

    Knocking Down Homes

    Shea, which had some models in place, did it in a couple months. Soon after taking over the Cascades of Groveland, the closely held company began knocking down 16 partially built homes that “were sitting out there too long, and were not protected from the conditions,” said Jeff McQueen, executive vice president for Shea Homes Active Lifestyle Communities.

    Developers also are adapting projects to include smaller, more efficient designs that cost less to build, Dallape said.

    “They’re tailoring them to the market,” he said. “The average new house used to be 3,000 square feet. Today, it’s 2,100.”

    Publicly traded homebuilders such as D.R. Horton Inc., Lennar Corp., Meritage Homes Corp., KB Home, Standard Pacific Corp. and Toll Brothers Inc. started buying about a year ago as the market seemed to be strengthening, according to Tom Reimers, president of the California division of Land Advisors Organization. They deployed cash, which they amassed during the recession by selling land and taking advantage of a change in the tax code that provided them higher refunds, said Megan McGrath, homebuilding analyst with Barclays Plc in New York.

    Weaker Market

    The housing market weakened with the expiration of a homebuyer tax incentive in April, and builder land purchases could slow as a result, McGrath said.

    Sales so far in the restarted projects are relatively strong, Metrostudy’s Hunter said.

    Meritage, which builds in Texas, Nevada, Arizona, California, Colorado and Florida, has had a monthly pace of three sales per community in new projects compared with two for older developments, said Brent Anderson, vice president of investor relations. The Scottsdale, Arizona-based company bought 100 projects with 5,400 finished lots since the first quarter of last year and has reopened about half of them, he said.

    “If these lots weren’t available, it would be damn tough for builders to make a profit,” Anderson said.

    Plunging Sales

    New home sales slid 12 percent in July to a record-low annual pace, and existing-home sales tumbled 27 percent to the lowest level in a decade of recordkeeping, according to separate reports last month from the Commerce Department and the National Association of Realtors. Single-family housing starts fell 4.2 percent from June. Foreclosure filings increased almost 4 percent in July from the previous month, RealtyTrac Inc., an Irvine, California-based research company, said Aug. 12.

    In Phoenix, where more than half the homes sold are foreclosures, demand is weak. The number of newly built houses and condos sold in July in the metro area fell to 641, down 50 percent from June and 38 percent from a year earlier, San Diego- based MDA DataQuick reported Aug. 26.

    “All of us are going to sit back and evaluate the depth of the consumer market, and whether they are going to be chasing after the same buyer,” said Lewis of Land Advisors.

    Sales offices are only just starting to reopen. Newly acquired developments make up 20 percent or less of public builders’ closings, and may reach about 50 percent for some companies by the middle of next year, McGrath said.

    Less Than Foreclosures

    Candlelight Homes, a South Jordan, Utah, homebuilder that bought lots in 20 stalled projects, recently introduced a new slogan: “Quality new homes, less than foreclosures.”

    The company, which said most of its houses are cheaper than comparable foreclosed homes, has an average profit margin of 12 percent on the transactions, said Joe Salisbury, a partner at Candlelight. He purchases lots with power, sewer, and water lines and government approvals in place for 30 percent to 50 percent of what they sold for three years ago, he said.

    “We’re buying lots for less than the cost of the improvements,” Salisbury said. “If someone offered me raw land for free next door, I wouldn’t even want it because it would cost me more to build out the lots.”

    Builder Flexibility

    Development-ready lots give builders the flexibility to construct homes as customers sign contracts, and then ramp up quickly when the economy improves, said Robert Curran, a managing director for Fitch Ratings. Rather than paying for parcels upfront, builders often are acquiring the option to buy a minimum number of lots over a period of time, which gives them the freedom to walk away and simply lose their deposit.

    “The fact that you can take a lot in and quickly build on it means you’re not tying up capital for an extended period of time and get better returns,” New York-based Curran said.

    Private-equity firms are partnering with builders, big and small, to buy projects around the country and put them back on the market. Shea, for example, entered into a $15 million joint venture with Mountain Real Estate Group LLC to revive the Cascades project, the Charlotte, North Carolina-based property investment firm said in a statement. Levitt & Sons LLC, which pioneered the planned suburban community of Levittown, New York, abandoned the Cascades project after it filed for bankruptcy protection in November 2007.

    Toll Brothers

    Many public builders can finance projects on their own. Toll Brothers, the largest U.S. luxury-home builder, spent about $340 million on new land in the first nine months of its fiscal 2010, adding 4,100 lots, its first rise since 2006. The Horsham, Pennsylvania-based company has $1.64 billion in cash for more deals, Chief Executive Officer Douglas Yearley Jr. said.

    “This is an opportunity to be investing that capital back in the market,” Yearley said in an Aug. 11 interview. “We have opportunities now that we haven’t had for some time.”

    Toll Brothers paid $23 million in February to SunTrust Banks Inc. for Hasentree, a foreclosed golf course community in Wake Forest, North Carolina, that was once appraised for $78 million, said Tom Anhut, the builder’s group president in the state. Hasentree was built around an 18-hole course designed by Tom Fazio. It featured a completed community activity center, roads, about 400 acres of dedicated green space, 100 developed home sites, 218 raw sites, 18 new homes seeking buyers and 40 occupied houses at the time of the sale.

    Lower Prices

    Buyers have put deposits on four new Toll Brothers homes, with listing prices starting at $669,995 since Hasentree’s sales office reopened in July, Anhut said. The community’s original homes sold for an average $1.5 million.

    “This is really a special golf course and piece of property,” Anhut said. “But there’s a reason that we paid about one-third of the previous appraisal. Obviously, the market is different now.”

    Builders are competing for land with investment companies, some of which are buying expansive projects and selling chunks to homebuilders.

    Starwood Land Ventures of Bradenton, Florida, paid $81 million in February for 5,499 home sites in the state, most of which were finished, from bankrupt builder Tousa Inc. Miami- based Lennar has an option contract to buy about 1,500 of them across the state, said Mike Moser, east region president for Starwood Land Ventures, which is funded by Barry Sternlicht’s Starwood Capital Group LLC.

    Independence

    Among the newly opened Tousa projects is Independence, a master planned community in Orange County, Florida, with 500 finished lots, and room for 450 more, Moser said. Builders selling lots in the development include Lennar, Meritage, Ryland Group Inc. and closely held Ashton Woods Homes, he said.

    “This product is in a very good location,” Moser said. “There is still demand for housing, and builders are eager to build homes.”

    Residents of Trilogy, who have become close in the years since construction halted, are looking forward to having new neighbors, said Sorkin, the homeowners association president. The clubhouse, which Shea plans to complete in phases over the next two years, will be central Florida’s best, he said.

    “It will attract many buyers,” he said. “And of course, it will be a wonderful retreat for people who live here.”

    To contact the reporter on this story: Prashant Gopal in New York at Pgopal2@bloomberg.net; John Gittelsohn in New York at johngitt@bloomberg.net.

  • Credit score gaps narrow for FHA loans: Quality Mortgage Services, by Jason Philyaw, Housingwire.com


    The credit score gap for 2010 loans through the Federal Housing Administration fell 43 points from 2006 levels, according to Quality Mortgage Services.

    The mortgage quality-control services firm said its data show the average credit score of FHA loans ranked as excellent in 2006 was 665 whereas the average score of a loan ranked fair was 603 for a gap of 62 points. For FHA loans originated so far this year, the firm’s data show excellent loans have average credit scores of 707 while fair loans average scores are 688 for a difference of 19 points.

    “This is good news for investors because of the increase number of loans going for securitization where the borrower has a lower probability of a historical or future 90-day late credit scenario,” Quality Mortgage Services executive vice president Tommy Duncan said.

    The Franklin, Tenn.-based company performs post-closing quality-control audits and tracks trends of mortgages.

    “The decrease in the credit score gap shows that the FHA loan product is limiting itself to home buyers and reducing the number of applicants that would have normally qualified for a FHA loan in 2006,” Duncan said. “Also, this trend may make it more difficult to associate high-risk loans with certain credit score ranges and may place more focus on ratios. This data shows that underwriting templates have adjusted to a higher credit score standard to obtain a FHA loan and may be preventing the tradition first-time homebuyer, or low to moderate income earners, from obtaining a FHA loan.”

    Write to Jason Philyaw.