By James Thorner, St.Petersburg Times Staff Writer Posted November 23rd, 2009 @ 11:29 AM
Tampa Bay home sales had their best October in four years as buyers rushed to take advantage of the $8,000 first-time home buyer tax credit.
Realtor sales in Pinellas, Pasco, Hillsborough and Hernando counties totaled 2,758 in October, up 37 percent from 2,021 sales in October 2008.
Last's month's closings were the highest since 3,735 homes changed hands in October 2005.
The data come from the Florida Association of Realtors, which noted that Tampa Bay home prices dropped 10 percent year over year, from $152,300 to $137,500.
Median home prices are 42 percent lower than they were at the peak in the summer of 2006.
Foreclosure and pre-foreclosure homes made up close to half of all sales in October. Cash buyers were everywhere, suggesting it was much more than first-time home buyers driving the market.
"We sold a half-million-dollar place on the beach to a couple from Scotland sight-unseen," said Mike Ward, a manager at Keller Williams Gulf Coast Realty in Seminole.
"We just keep plodding through and it all came to a nice culmination in October. Let's hope it continues."
Monday, November 23, 2009
Monday, October 26, 2009
Tampa Bay home sales don't match Florida's 34% boost in Sept.
By James Thorner, St. Petersburg Times Staff Writer - Saturday, October 24, 2009
Florida home sales rose 34 percent in September compared with a year earlier, but Tampa Bay didn't share in that upsurge.
Tampa Bay Realtors reported a year-over-year sales increase of only 11 percent, far below sales spurts of 41 percent in Orlando and 42 percent in Sarasota.
Tampa Bay's underperformance left Realtors scurrying for answers. Earlier in the year, economists predicted the Nov. 30 deadline to use an $8,000 first-time home buyer tax credit would rev up sales in late summer and fall.
About 2,410 homes sold in September in Pinellas, Pasco, Hillsborough and Hernando counties. A year earlier, 2,174 homes changed hands.
Pinellas single-family home sales matched the state average, but the bay area's performance was dragged down by below-average activity in the other counties. But even Pinellas buyers were growing scarcer in September.
"We've heard appraisals didn't come in, banks dragged their feet too long and buyers got tired of waiting as reasons for the decline," the Pinellas Realtor Organization's Ann Guiberson said in a statement.
She could be channeling St. Petersburg Realtor Frank Malowany.
A specialist in the sale of million-dollar homes with Smith & Associates Real Estate, he grits his teeth as banks reject seven-figure, all-cash purchase offers for waterfront mansions facing foreclosure. What's worse, banks can take three to six months to decide.
"Nothing's smooth. If you're dying in a bed with cancer maybe they'll talk to you. Even then it's hard," Malowany said. "And we're talking cash buyers."
Nationally, home sales rose 9.2 percent from a year earlier, an increase that won guarded praise from the National Association of Realtors.
"Much of the momentum is from people responding to the first-time buyer tax credit, which is freeing many sellers to make a trade and buy another home," said Lawrence Yun, economist with the national Realtor group.
Contrary to what Yun said, economists reported this week that the credit hasn't had a desired ripple effect by stimulating move-up home purchases.
Contrary to what Yun said, economists reported this week that the credit hasn't had a desired ripple effect by stimulating move-up home purchases.
Tampa Bay's median home price dipped nearly 5 percent from August to September, from $144,600 to $137,800. But prices have floated in a narrow range on both sides of $140,000 for most of this year, leading some to call a home price bottom.
A gathering of housing industry economists in Washington this week predicted that national home prices — as well as those in Tampa Bay — would drop a bit further as another wave of foreclosure homes enters the market over the next six to eight months.
Robert Denk, a forecaster with the National Association of Home Builders, rated Florida as one of the most overbuilt markets in the country and described a "long road back to normal."
Even September home prices might not tell buyers and sellers what's happening on the ground today, said Amy Crews Cutts, economist with government-backed mortgage lender Freddie Mac.
That's because people who closed on homes in September probably signed purchase contracts in July and August. That makes it hard, in a declining market, to know what a home's worth in October, she said.
If there has been one area of improvement, it has been in the number of surplus homes on the market.The inventory of homes for sale in and around Tampa — 14,433 — declined to its lowest level since spring 2006. In Pinellas, about 12,773 homes were listed for sale in September, down 36 percent from the 20,053 homes for sale a year earlier.
"We still have over 6,000 single-family listings on the market, when 3,000 to 4,000 would indicate a more balanced market as we had from 2001 through 2003," Guiberson said.
Thursday, October 8, 2009
‘Underwater’ homeowners lead Sept. foreclosures
By DUANE MARSTELLER - dmarsteller@ bradenton.com
MANATEE — Most Manatee County homeowners who fell into foreclosure last month were financially “under water,” property and court records show.
Two out of every three owed more on their property than what it is worth, according to a Bradenton Herald analysis of property tax records and September foreclosure filings. The average deficit was $72,098.
The Herald’s findings didn’t surprise foreclosure experts, who said Monday that most Florida homeowners have been financially swamped by free-falling home values.
“I would have estimated it as closer to 100 percent,” said Shari Olefson, a Fort Lauderdale foreclosure attorney and author of “Foreclosure Nation: Mortgaging the American Dream.”
The average underwater homeowner in Manatee who was hit with a foreclosure suit in September owed $282,268 on a home valued at $210,170, the Herald’s analysis showed.
In the most extreme case, a bank claims a Michigan couple owes nearly $2.05 million on a Lakewood Ranch Country Club home that’s valued at $1.45 million. And it’s not just single-family homes: The owner of a Bradenton apartment complex valued at nearly $12.1 million is nearly $18.6 million in arrears, according to the lender seeking to foreclose on the property.
Two federal foreclosure-prevention programs have done little to help Florida homeowners because of the eligibility criteria, Olefson said.
With the average underwater homeowner in Manatee owing 134 percent of their home’s value, many don’t qualify for a refinancing program because it’s limited to 125 percent. Federal officials initially estimated as many as 5 million U.S. homeowners could benefit, but only 20,000 loans have been refinanced thus far, according to the Treasury department.
“Most of our properties are more than 25 percent underwater, so refinancing is out of the question for them,” Olefson said.
Another program requires mortgage modifications to cost homeowners no more than 38 percent of their income for the mortgage, taxes and insurance. “That option’s not available for many because our taxes and insurance are so high in Florida,” Olefson said.
The Herald’s analysis was based on each foreclosure case’s “estimate sheet” — the lender or servicer’s calculation of how much the borrower owes — and the subject property’s 2008 market value as determined by the Manatee County Property Appraiser’s Office. The number of underwater homeowners likely is higher, as home prices have fallen further since the property appraiser’s office calculated those values.
Lenders and servicers filed 534 mortgage foreclosure suits in Manatee County Circuit Court in September, eight more than they did in August. They have filed 4,829 such suits through the first nine months of 2009, or 16.5 percent ahead of last year’s record-setting pace.
More than 75 percent of September filings were against homesteaded properties, the highest percentage since the foreclosure surge began in late 2006. Among neighborhoods, Bayshore Gardens had the most foreclosure filings with 11, followed by Greenbrook Village with nine and Greyhawk Landing with eight.
MANATEE — Most Manatee County homeowners who fell into foreclosure last month were financially “under water,” property and court records show.
Two out of every three owed more on their property than what it is worth, according to a Bradenton Herald analysis of property tax records and September foreclosure filings. The average deficit was $72,098.
The Herald’s findings didn’t surprise foreclosure experts, who said Monday that most Florida homeowners have been financially swamped by free-falling home values.
“I would have estimated it as closer to 100 percent,” said Shari Olefson, a Fort Lauderdale foreclosure attorney and author of “Foreclosure Nation: Mortgaging the American Dream.”
The average underwater homeowner in Manatee who was hit with a foreclosure suit in September owed $282,268 on a home valued at $210,170, the Herald’s analysis showed.
In the most extreme case, a bank claims a Michigan couple owes nearly $2.05 million on a Lakewood Ranch Country Club home that’s valued at $1.45 million. And it’s not just single-family homes: The owner of a Bradenton apartment complex valued at nearly $12.1 million is nearly $18.6 million in arrears, according to the lender seeking to foreclose on the property.
Two federal foreclosure-prevention programs have done little to help Florida homeowners because of the eligibility criteria, Olefson said.
With the average underwater homeowner in Manatee owing 134 percent of their home’s value, many don’t qualify for a refinancing program because it’s limited to 125 percent. Federal officials initially estimated as many as 5 million U.S. homeowners could benefit, but only 20,000 loans have been refinanced thus far, according to the Treasury department.
“Most of our properties are more than 25 percent underwater, so refinancing is out of the question for them,” Olefson said.
Another program requires mortgage modifications to cost homeowners no more than 38 percent of their income for the mortgage, taxes and insurance. “That option’s not available for many because our taxes and insurance are so high in Florida,” Olefson said.
The Herald’s analysis was based on each foreclosure case’s “estimate sheet” — the lender or servicer’s calculation of how much the borrower owes — and the subject property’s 2008 market value as determined by the Manatee County Property Appraiser’s Office. The number of underwater homeowners likely is higher, as home prices have fallen further since the property appraiser’s office calculated those values.
Lenders and servicers filed 534 mortgage foreclosure suits in Manatee County Circuit Court in September, eight more than they did in August. They have filed 4,829 such suits through the first nine months of 2009, or 16.5 percent ahead of last year’s record-setting pace.
More than 75 percent of September filings were against homesteaded properties, the highest percentage since the foreclosure surge began in late 2006. Among neighborhoods, Bayshore Gardens had the most foreclosure filings with 11, followed by Greenbrook Village with nine and Greyhawk Landing with eight.
Wednesday, October 7, 2009
The Case of the Missing REO Inventory
Rick Sharga - Realtytrac - October 7th, 2009
Certain things in life are simply meant to be mysteries. There are age-old philosophical questions that have kept philosophers busy for millennia: What is the sound of one hand clapping? If a tree falls in the forest and no one is there, does it still make a sound? Other mysteries hang heavy with intrigue: What really happened to Amelia Earhart? And who really kidnapped the Lindbergh baby? And still others simply defy logic: If Denny’s is open 24 hours a day, 365 days a year, why are there locks on the doors?
Now we can add another question to the list of ongoing mysteries: With foreclosure activity breaking records nearly every month, where are all the REOs?It’s a fair question. In normal market situations, a bank will repossess a home and usually process it through to a listing agent to put on the MLS within 30 days.
In a relatively short period of time, virtually every marketable REO property finds itself listed for sale on the local MLS. Today, that’s simply not the case; it’s likely that between 450,000 and 500,000 properties repossessed over the past year are still not on the market. And with buyers hungry for housing bargains, and agents and brokers champing at the bit ready to sell the properties, it begs for a reasonable answer.
Lenders and servicers admit that it’s taking longer to process REOs than it has in the past, and they offer a number of legitimate reasons:
-Many of the properties have title issues that need to be resolved
-Many of the properties are in states of utter disrepair
-A number of states have strict redemption rights periods, which prevents the lender from reselling the property
-A few states have extended the length of eviction proceedings
-The sheer volume of REO activity has created a “pig in the python” phenomena, (to put this in perspective, there will be roughly four times the number of REOs this year as in the last “normal” year, 2005)
What else could be slowing things down? A popular theory is that many banks are holding the properties off the market in order to defer losses. There is some accounting logic to this theory, as in most cases banks aren’t required to adjust asset prices until the actual resale of the property.
Another idea is that the industry is holding back the inventory to create leverage with the government in order to force the creation of a “toxic bank” or RTC-like entity that would buy the distressed assets at 50 to 60 cents on the dollar rather than the 30 to 35 cents available on the market today.
This theory suggests that, seeing the threat of a massive inventory of distressed homes being released all at once, the government would “blink” rather than risk another housing market meltdown.
Whatever the reason — process issues or conspiracies — we’re going to continue to see record-breaking numbers of REOs for at least the next year, and will all be watching to see when these sought-after homes finally make their way to the market.
Certain things in life are simply meant to be mysteries. There are age-old philosophical questions that have kept philosophers busy for millennia: What is the sound of one hand clapping? If a tree falls in the forest and no one is there, does it still make a sound? Other mysteries hang heavy with intrigue: What really happened to Amelia Earhart? And who really kidnapped the Lindbergh baby? And still others simply defy logic: If Denny’s is open 24 hours a day, 365 days a year, why are there locks on the doors?
Now we can add another question to the list of ongoing mysteries: With foreclosure activity breaking records nearly every month, where are all the REOs?It’s a fair question. In normal market situations, a bank will repossess a home and usually process it through to a listing agent to put on the MLS within 30 days.
In a relatively short period of time, virtually every marketable REO property finds itself listed for sale on the local MLS. Today, that’s simply not the case; it’s likely that between 450,000 and 500,000 properties repossessed over the past year are still not on the market. And with buyers hungry for housing bargains, and agents and brokers champing at the bit ready to sell the properties, it begs for a reasonable answer.
Lenders and servicers admit that it’s taking longer to process REOs than it has in the past, and they offer a number of legitimate reasons:
-Many of the properties have title issues that need to be resolved
-Many of the properties are in states of utter disrepair
-A number of states have strict redemption rights periods, which prevents the lender from reselling the property
-A few states have extended the length of eviction proceedings
-The sheer volume of REO activity has created a “pig in the python” phenomena, (to put this in perspective, there will be roughly four times the number of REOs this year as in the last “normal” year, 2005)
What else could be slowing things down? A popular theory is that many banks are holding the properties off the market in order to defer losses. There is some accounting logic to this theory, as in most cases banks aren’t required to adjust asset prices until the actual resale of the property.
Another idea is that the industry is holding back the inventory to create leverage with the government in order to force the creation of a “toxic bank” or RTC-like entity that would buy the distressed assets at 50 to 60 cents on the dollar rather than the 30 to 35 cents available on the market today.
This theory suggests that, seeing the threat of a massive inventory of distressed homes being released all at once, the government would “blink” rather than risk another housing market meltdown.
Whatever the reason — process issues or conspiracies — we’re going to continue to see record-breaking numbers of REOs for at least the next year, and will all be watching to see when these sought-after homes finally make their way to the market.
Monday, August 31, 2009
Owners believe homes worth more
By Aaron Kessler - Sarasota Herald Tribune - Published: Monday, August 31, 2009
SURVEY: Listing, and selling, prices continue to disappoint
A new survey by Calif.-based HomeGain shows that a disconnect still remains between what sellers in Florida think their homes are worth and what buyers are willing to pay.
The third-quarter survey of Florida real estate agents, released last week by HomeGain, found that the vast majority of sellers -- some 70 percent -- continued to believe their homes were worth more than even their own Realtors were telling them.
The percentage of buyers who believed that home prices were "fairly valued" increased in the third quarter, to 24 percent. That was up from 18 percent in the second quarter, and 15 percent in the first quarter of 2009.
But it would appear many Florida sellers have yet to come to grips with the reality of the market.
The HomeGain survey found that 35 percent of sellers thought their homes were worth 10 percent to 20 percent more than the listing price recommended by their Realtors.
Seventeen percent were even more bullish (or deluded, depending on your perspective) and thought their homes should fetch 21 percent to 30 percent more, and 6 percent thought their property should be priced 30 percent higher.
Conversely, only 1 percent of sellers thought their home was worth 10 percent to 20 percent less than their agents recommended; 3 percent of sellers, 21 percent to 30 percent less; and 4 percent, more than 30 percent less.
Only 15 percent of Florida homeowners in the third quarter agreed with the listing price their Realtors recommended. Though that number has been steadily rising all year -- up from 10 percent in the second quarter and 5 percent in the first quarter -- a possible indication that some sellers are more willing to listen to their sales agents when it comes to price.
Overall, however, an overwhelming 70 percent of Florida sellers thought their homes were worth more than their listing price.
Florida sellers were not alone in their sentiment -- the national numbers released by HomeGain found that 74 percent of sellers in the United States as a whole thought their homes were worth more than the recommended listing price.
In terms of what buyers are looking for, and getting, in the Florida market, it was almost always a discount from the asking price, the survey found. In fact, an average of only 5 percent of buyers purchased a home for its listed price in the third quarter.
Eighty-four percent of buyers paid less, in some cases considerably less. On average, half of the homes sold went for a discount of between 5 percent and 10 percent less than their listing prices, the survey found. Thirty-two percent of homes sold for between 11 percent to 20 percent off the listing price, and 2 percent went for a discount of 21 percent to 30 percent.
Florida's Realtors actually grew more pessimistic in the third quarter about where prices could be headed: Of the agents surveyed, nearly half, 46 percent, believed that home values will fall in the next six months. At the end of the second quarter, only 24 percent believed that.
In terms of how the value of their clients' home values have fared over the last year, 93 percent of the real estate agents said prices have decreased. That was up from 82 percent at the end of the second quarter.
The percentage of agents who reported their clients' home values have stayed the same in the last year shrunk to only 4 percent, down from 13 percent in the second quarter.
Only 3 percent of agents reported the values of the homes they had listed actually increased since last year.
SURVEY: Listing, and selling, prices continue to disappoint
A new survey by Calif.-based HomeGain shows that a disconnect still remains between what sellers in Florida think their homes are worth and what buyers are willing to pay.
The third-quarter survey of Florida real estate agents, released last week by HomeGain, found that the vast majority of sellers -- some 70 percent -- continued to believe their homes were worth more than even their own Realtors were telling them.
The percentage of buyers who believed that home prices were "fairly valued" increased in the third quarter, to 24 percent. That was up from 18 percent in the second quarter, and 15 percent in the first quarter of 2009.
But it would appear many Florida sellers have yet to come to grips with the reality of the market.
The HomeGain survey found that 35 percent of sellers thought their homes were worth 10 percent to 20 percent more than the listing price recommended by their Realtors.
Seventeen percent were even more bullish (or deluded, depending on your perspective) and thought their homes should fetch 21 percent to 30 percent more, and 6 percent thought their property should be priced 30 percent higher.
Conversely, only 1 percent of sellers thought their home was worth 10 percent to 20 percent less than their agents recommended; 3 percent of sellers, 21 percent to 30 percent less; and 4 percent, more than 30 percent less.
Only 15 percent of Florida homeowners in the third quarter agreed with the listing price their Realtors recommended. Though that number has been steadily rising all year -- up from 10 percent in the second quarter and 5 percent in the first quarter -- a possible indication that some sellers are more willing to listen to their sales agents when it comes to price.
Overall, however, an overwhelming 70 percent of Florida sellers thought their homes were worth more than their listing price.
Florida sellers were not alone in their sentiment -- the national numbers released by HomeGain found that 74 percent of sellers in the United States as a whole thought their homes were worth more than the recommended listing price.
In terms of what buyers are looking for, and getting, in the Florida market, it was almost always a discount from the asking price, the survey found. In fact, an average of only 5 percent of buyers purchased a home for its listed price in the third quarter.
Eighty-four percent of buyers paid less, in some cases considerably less. On average, half of the homes sold went for a discount of between 5 percent and 10 percent less than their listing prices, the survey found. Thirty-two percent of homes sold for between 11 percent to 20 percent off the listing price, and 2 percent went for a discount of 21 percent to 30 percent.
Florida's Realtors actually grew more pessimistic in the third quarter about where prices could be headed: Of the agents surveyed, nearly half, 46 percent, believed that home values will fall in the next six months. At the end of the second quarter, only 24 percent believed that.
In terms of how the value of their clients' home values have fared over the last year, 93 percent of the real estate agents said prices have decreased. That was up from 82 percent at the end of the second quarter.
The percentage of agents who reported their clients' home values have stayed the same in the last year shrunk to only 4 percent, down from 13 percent in the second quarter.
Only 3 percent of agents reported the values of the homes they had listed actually increased since last year.
Monday, August 24, 2009
New Home Valuation Code of Conduct cures some ills, creates new ones
By James Thorner, St. Petersburg Times Staff Writer, Sunday, August 23, 2009
Builder Charlie Hannah thought he was being generous when he agreed to sell a new 5,000-square-foot home for $1.15 million in the Tree Tops neighborhood near Tampa's Westchase.
But the appraiser returned an appraised value of $1 million on the lakeside house in June. Two months later, the sale remains in limbo and Hannah remains indignant.
Four other homes Hannah built in the same neighborhood recently sold for much more per square foot than the $1.15 million home. But the appraiser found a comparable home sale miles away in Odessa to justify what Hannah considers to be a low-ball valuation.
"I was floored by this. I still don't know how the appraiser could have done this," Hannah said. "I'm trying to rescue the deal now. But it's requiring 10 to 20 times the work it used to."
That message has reverberated through the Tampa Bay real estate community ever since the government's antifraud rules went into effect in May. The reform, though well intended, has inadvertently made it harder to sell and refinance homes in the Tampa Bay area. And it couldn't have come at a worse time as the housing market tries to shed the lead boots it has worn since 2006.
The new rules, called the Home Valuation Code of Conduct, forbid mortgage brokers, banks and Realtors from working directly or sharing information with appraisers. They typically work through appraisal management companies, middlemen whose job it is to hire appraisers from a pool.
Real estate professionals complain that appraisers have become discount commodities who are strangers to the neighborhoods they're evaluating. And since they're often allowed only 48 hours to complete an appraisal — about half the average time compared to before the reforms — the result can be hack work that ends up squelching a home sale.
"Appraisal management companies, with very few exceptions, select by price and turnaround times," said Frank Gregoire, a Pinellas appraiser with 30 years experience. "Rarely is their highest criteria the quality of the appraisal."
No one denies that reform was needed. Manipulation, and sometimes bribery, of appraisers helped doom the real estate market to its prolonged purgatory. By working too closely with appraisers, con artists stole billions of dollars through mortgage fraud during the years of the real estate boom. Tampa has ranked among the top 10 cities for mortgage fraud, represented by criminals such as Matthew Cox, serving a 26-year prison term for stealing $12 million from lenders.
"There was an egregious wrong perpetrated on the public," Hannah said. "The reforms were done for the right reasons. But we need a more thought-out system to do what it was intended to do.''
Residential appraisers work by tracking similar property sales — called comparisons or comps for short — to suggest the market value of a home that is for sale. Usually they use at least three comps; the more recent the sale the better. Factors weighed include age of the home, size, location and condition, but also whether the sale involved a foreclosed home or a non-distressed property.
Since the new rules took effect, the law of unintended consequences has upended real estate deals. St. Petersburg Realtor Nancy Riley blames sloppy appraisals. She had a buyer for a sixth floor Feather Sound condo overlooking the water and golf course. Both parties agreed to the $200,000 purchase price.
But the lender, using an appraisal management company, got an out-of-county appraiser. The disappointed buyer and seller learned the condo appraised at only $157,000. As two of his comps, the appraiser used a unit in a former assisted living facility and a single story condo without a view.
Riley tried to challenge the appraiser's findings — which included wrong photos attached to the wrong properties — but got a cold shoulder from the bank. She's still trying to salvage the deal.
"I sent them two pages of things wrong with the appraisal. They refused to listen," Riley said. "I got one or two snippy responses."
Mortgage refinancing — the centerpiece of the government's antiforeclosure efforts — has also suffered. Gregoire noted a case involving a house in upscale Tierra Verde. The home owner sought a reverse mortgage to pull cash from the home. Taking into account the recent depreciation, the home owner estimated the 2,000-square-foot home at $400,000. The initial quick-hit appraisal, using a $10 computer-generated valuation that isn't as good at distinguishing some of the nuances of real estate valuations like the differences between nearby neighborhoods, delivered a market price of $252,000.
When a real appraiser went to work on the house after driving up from Fort Myers, he, too, concluded the house was worth $252,000. Gregoire assumes the appraiser shoe-horned in comparable sales to make his numbers match the computer-generated price.
"That happens with appraisers who lack geographic confidence,'' Gregoire said. "I've been doing appraisals 30 years, but I don't go outside of Pinellas County. The most important thing is to know neighborhoods and submarkets.''
Safety Harbor-based appraiser Ed Walter blames part of the problem on rookie appraisers who work for peanuts. Walter charges $325 for his work. The appraiser management companies charge more, sometimes hundreds of dollars more. But they share only $150 to $200 of their fee with the appraiser from the pool. The consumer pays more but gets cut-rate work.
"The industry has lost a lot of good appraisers. There are lots of newbies willing to work for cheap and travel 50 to 100 miles," he said. "They're coming from Citrus County to do an appraisal in Hillsborough County. It's making a big difference.''
Disgruntled real estate professionals are proposing reforms to the reforms, including an 18-month moratorium on the Home Valuation Code of Conduct. Hannah would like to build a database, fed by Realtors, to ensure accuracy.
For example, some homes with dead lawns and ratty roofs sell cheaply, but by the time the appraiser uses them as comps they've been repaired. The appraiser might assume the home was pristine at the time it was sold, and that it's low price was reflective of the overall market.
One further wrinkle: To win the business of banks, some of the appraisal management companies offer clients guarantees that homes they appraise won't fall into mortgage default. That means it's sometimes better to err on the low side.
"It seems to me like the banks don't want to lend in Florida," Riley said. "We're being red-lined and boycotted.''
Friday, August 21, 2009
In Appraisal Shift, Lenders Gain Power and Critics
By David Streitfeld, New York Times, Published, August 18th, 2009
Mike Kennedy, a real estate appraiser in Monroe, N.Y., was examining a suburban house a few years ago when he discovered five feet of water in the basement. The mortgage broker arranging the owner’s refinancing asked him to pretend it was not there.
Brokers, real estate agents and banks asked appraisers to do a lot of pretending during the housing boom, pumping up values while ignoring defects. While Mr. Kennedy says he never complied, many appraisers did, some of them thinking they had no choice if they wanted work. A profession that should have been a brake on the spiral in home prices instead became a big contributor.
On May 1, a sweeping change took effect that was meant to reduce the conflicts of interest in home appraisals while safeguarding the independence of the people who do them.
Brokers and real estate agents can no longer order appraisals. Lenders now control the entire process.
The Home Valuation Code of Conduct is setting off a bitter battle. Mortgage brokers, lenders, real estate agents, regulators and appraisers are all arguing over whether an effort to fix one problem has created many new ones.
The agents, maintaining that the changes are effectively blocking home sales by encouraging the use of inexperienced appraisers, are asking Washington to suspend the code until 2011. For their part, appraisers acknowledge that the change may have been well intentioned but contend that it has no teeth and is undermining the economics of their profession.
“We’ve been begging for years for enforcement of existing state and federal laws regulating appraising,” said Mr. Kennedy, a leader in the appraisal community. “We thought we were finally going to get that. But the code is doing nothing except putting ethical appraisers out of business.”
Financial change is one of the most contentious issues in Washington, and efforts to fix even widely acknowledged problems seem stalled. The attempt to change the appraisal system is an example of how difficult it can be to adopt changes that are good in theory and also work in practice — while simultaneously winning support from warring interest groups.
“The real estate industry is incredibly complex,” said Josh Denney, a lobbyist with the Mortgage Bankers Association. “If you take one piece and tinker with it, it causes friction throughout the process.”
The Home Valuation Code of Conduct had an unusual origin. It was developed by the New York attorney general, Andrew M. Cuomo, who persuaded the big federal mortgage agencies, Fannie Mae and Freddie Mac, to adopt it. That has effectively made it national policy.
Putting appraisals completely in the hands of lenders may sound like a good idea in principle, because it is supposed to be lenders who are putting their money at risk in a home loan.
But the reality is that many companies that write home loans these days do not have much incentive to worry about the accuracy of appraisals. That is because the companies do not keep the loans on their own books, instead selling them to Fannie Mae or Freddie Mac.
“The code is a formula for continued problems with fraud,” said David Callahan, a senior fellow with the public policy group Demos who has studied appraisals. “Appraisers have been asking for a long time for a reliable firewall between themselves and lenders, and are further from it than ever.”
Appraisers Pressured
Before real estate prices went out of control, appraisal work was straightforward. The appraiser examined a property inside and out, judging it against the prices that similar properties in the neighborhood were fetching. If the appraisal value matched the sales price, the lender financed the loan.
As lending standards collapsed during the housing boom, appraisers were pressured from all sides. When the appraiser did not deliver a satisfactory price, the deal did not get done, and the broker, agent and lender did not get their fees. Homeowners also loved inflated appraisals, using them to take out as much as possible when they refinanced.
“I got daily calls from lenders and brokers saying, ‘Here’s the address. Can you get me $400,000?’ ” said Mr. Kennedy, who has been in the business since 1993.
When he responded that it was illegal for him to supply an unsupported value — or when he noted in his report defects that the client hoped he would ignore, like a flooded basement — the broker or lender dropped him for a more compliant appraiser.
Petition Notes Abuses
The honest appraisers saw that the situation was helping to drive housing prices beyond reason. A petition they started a decade ago, just as the long boom was getting under way, warned of “the potential for great financial loss” to the economy if the penalties for pressuring appraisers were not enforced. The petition also complained that honest appraisers were being blacklisted. It drew 11,000 signatures.
Regulators and lawmakers did nothing. A rising market covered all sins. Then the market turned, and the lawsuits began.
In late 2007, Mr. Cuomo filed suit in New York Supreme Court against the data company First American and its subsidiary eAppraiseIT for fraud.
EAppraiseIT is an appraisal management company, which means lenders hire it to hire appraisers. This method, First American stressed in its annual report, produced “unbiased valuations” that benefited “not only the homeowner and lender, but our nation’s economy.”
Washington Mutual, based in Seattle, was the biggest client of eAppraiseIT. (Mr. Cuomo could not sue Washington Mutual for jurisdictional reasons.) The suit, still in court, charges that eAppraiseIT let itself be pressured by Washington Mutual to revise appraisals upward to match the value of deals.
Washington Mutual collapsed last fall, the largest bank failure in the nation’s history.
Mr. Cuomo, convinced that the troubles with appraisals went far beyond a single case, began an inquiry into Fannie and Freddie’s role in the buying of fraudulent mortgages. Before that investigation could be concluded, the two finance companies agreed they would buy mortgages only from lenders that abided by a new code of conduct.
In its original draft, the code froze out brokers and agents and placed severe restrictions on lenders. They were forbidden from using their staff appraisers or an appraisal management company in which they had more than a 20 percent interest.
The American Bankers Association and the Mortgage Bankers Association fought the restrictions, saying they would increase costs to consumers. The lenders also argued that Mr. Cuomo had no jurisdiction over their federally chartered operations. Banking regulators, who saw their authority being usurped, agreed.
The final version of the code gives much greater leeway to lenders. For instance, lenders can hire their own appraisers if they “recognize” that complaints will be forwarded to regulators.
The appraisal world was stunned. Dave Biggers, the chief executive of A La Mode, a maker of software for appraisers, said, “It’s like telling me I can steal as long as I ‘recognize’ that complaints will be directed to the police.”
Benjamin Lawsky, a special assistant to Mr. Cuomo, defended the revised version. “Our goal was always for the code to eliminate the causes of appraisal inflation while minimizing any disruptive impact on the industry,” he said. “We believe we accomplished this.”
Since national lenders cannot maintain lists of appraisers in every community, they long ago began outsourcing the process to the management companies, who had claimed about 30 percent of the market before the code took effect. Now that the lenders are the ones ordering all the appraisals, the management companies are expanding their share.
Real estate groups say the management companies, with the competition from brokers and agents eliminated, are now trying to fatten their profit margins by hiring appraisers as cheaply as possible.
These inexperienced appraisers, often traveling many miles to a market they do not know well, are scuttling legitimate deals, the agents claim. This argument has resonated in Congress, where 55 legislators have sponsored a bill calling for an 18-month moratorium on the code.
Appraisal management companies and lenders say the agents’ charges are not true.
“We’re an easy scapegoat,” said Donald Blanchard, chief compliance officer of Lender Processing Services Inc., which works with 20,000 appraisers. “We’ve yet to see any quantifiable proof as to the problems that management companies are supposedly causing.”
The real source of trouble for independent appraisers, he suggested, is not the code but a changing economy.
“Appraisers want to go back to the way it used to be,” Mr. Blanchard said. “But it’s good business for us to demand more for less.”
Fees Decline
Terry and Andrea Hartlieb, longtime appraisers in Fort Collins, Colo., miss the old days.
Instead of developing relationships with brokers and agents, the Hartliebs must wait for a lender or appraisal management company to call. A year ago, they would make $350 for an appraisal that would take about five hours. Now the management companies offer as little as half that. The couple has laid off four appraisers who used to work for them.
One recent call was about a complex property that would take additional time. Mr. Hartlieb asked for a bigger fee. The response: “We can get it done faster and for less elsewhere.”
Mrs. Hartlieb said, “Buying a house is the largest expense of your life. Don’t you want the best professional advice about its value, not the cheapest?”
Appraisers might be earning less, but consumers are being asked to pay more. The cost of an appraisal is now about $500, up from $400, appraisers say, because of the management companies’ share.
Moreover, if the goal of the code is to lessen pressure on appraisers, it is not clear that is happening.
A memo from U.S. Bancorp, which is based in Minneapolis, was posted recently on Appraisers’ Forum, an online discussion group. The memo bluntly urged the lender’s appraisers to “try and get the value we need the first time.” (A U.S. Bancorp spokeswoman said the memo was “not an official document.”)
In an online poll of 2,250 appraisers by Working RE magazine, half the respondents said they sometimes felt that management companies were ordering them to come up with a value that would make the deal work.
Banks and appraisal management companies say appraisers can be hypersensitive. “To some appraisers, the fact that we call you and ask a question is pressure,” said Mr. Blanchard of Lender Processing Services.
Under the code, the role of deciding what is pressure is assigned to a new entity called the Independent Valuation Protection Institute. If appraiser complaints are deemed valid, the institute is supposed to forward them to regulators.
Seventeen months after it was announced, the institute has no staff and no appraiser complaint hotline. All that exists is a single Web page.
Mr. Callahan, who wrote about the trouble with appraisals during the boom, is dismayed that the problem cannot be fixed even during the bust.
“Appraisers play a key role in keeping real estate transactions honest,” he said. “But we as a society have done very little to support them and ensure their independence.”
Mike Kennedy, a real estate appraiser in Monroe, N.Y., was examining a suburban house a few years ago when he discovered five feet of water in the basement. The mortgage broker arranging the owner’s refinancing asked him to pretend it was not there.
Brokers, real estate agents and banks asked appraisers to do a lot of pretending during the housing boom, pumping up values while ignoring defects. While Mr. Kennedy says he never complied, many appraisers did, some of them thinking they had no choice if they wanted work. A profession that should have been a brake on the spiral in home prices instead became a big contributor.
On May 1, a sweeping change took effect that was meant to reduce the conflicts of interest in home appraisals while safeguarding the independence of the people who do them.
Brokers and real estate agents can no longer order appraisals. Lenders now control the entire process.
The Home Valuation Code of Conduct is setting off a bitter battle. Mortgage brokers, lenders, real estate agents, regulators and appraisers are all arguing over whether an effort to fix one problem has created many new ones.
The agents, maintaining that the changes are effectively blocking home sales by encouraging the use of inexperienced appraisers, are asking Washington to suspend the code until 2011. For their part, appraisers acknowledge that the change may have been well intentioned but contend that it has no teeth and is undermining the economics of their profession.
“We’ve been begging for years for enforcement of existing state and federal laws regulating appraising,” said Mr. Kennedy, a leader in the appraisal community. “We thought we were finally going to get that. But the code is doing nothing except putting ethical appraisers out of business.”
Financial change is one of the most contentious issues in Washington, and efforts to fix even widely acknowledged problems seem stalled. The attempt to change the appraisal system is an example of how difficult it can be to adopt changes that are good in theory and also work in practice — while simultaneously winning support from warring interest groups.
“The real estate industry is incredibly complex,” said Josh Denney, a lobbyist with the Mortgage Bankers Association. “If you take one piece and tinker with it, it causes friction throughout the process.”
The Home Valuation Code of Conduct had an unusual origin. It was developed by the New York attorney general, Andrew M. Cuomo, who persuaded the big federal mortgage agencies, Fannie Mae and Freddie Mac, to adopt it. That has effectively made it national policy.
Putting appraisals completely in the hands of lenders may sound like a good idea in principle, because it is supposed to be lenders who are putting their money at risk in a home loan.
But the reality is that many companies that write home loans these days do not have much incentive to worry about the accuracy of appraisals. That is because the companies do not keep the loans on their own books, instead selling them to Fannie Mae or Freddie Mac.
“The code is a formula for continued problems with fraud,” said David Callahan, a senior fellow with the public policy group Demos who has studied appraisals. “Appraisers have been asking for a long time for a reliable firewall between themselves and lenders, and are further from it than ever.”
Appraisers Pressured
Before real estate prices went out of control, appraisal work was straightforward. The appraiser examined a property inside and out, judging it against the prices that similar properties in the neighborhood were fetching. If the appraisal value matched the sales price, the lender financed the loan.
As lending standards collapsed during the housing boom, appraisers were pressured from all sides. When the appraiser did not deliver a satisfactory price, the deal did not get done, and the broker, agent and lender did not get their fees. Homeowners also loved inflated appraisals, using them to take out as much as possible when they refinanced.
“I got daily calls from lenders and brokers saying, ‘Here’s the address. Can you get me $400,000?’ ” said Mr. Kennedy, who has been in the business since 1993.
When he responded that it was illegal for him to supply an unsupported value — or when he noted in his report defects that the client hoped he would ignore, like a flooded basement — the broker or lender dropped him for a more compliant appraiser.
Petition Notes Abuses
The honest appraisers saw that the situation was helping to drive housing prices beyond reason. A petition they started a decade ago, just as the long boom was getting under way, warned of “the potential for great financial loss” to the economy if the penalties for pressuring appraisers were not enforced. The petition also complained that honest appraisers were being blacklisted. It drew 11,000 signatures.
Regulators and lawmakers did nothing. A rising market covered all sins. Then the market turned, and the lawsuits began.
In late 2007, Mr. Cuomo filed suit in New York Supreme Court against the data company First American and its subsidiary eAppraiseIT for fraud.
EAppraiseIT is an appraisal management company, which means lenders hire it to hire appraisers. This method, First American stressed in its annual report, produced “unbiased valuations” that benefited “not only the homeowner and lender, but our nation’s economy.”
Washington Mutual, based in Seattle, was the biggest client of eAppraiseIT. (Mr. Cuomo could not sue Washington Mutual for jurisdictional reasons.) The suit, still in court, charges that eAppraiseIT let itself be pressured by Washington Mutual to revise appraisals upward to match the value of deals.
Washington Mutual collapsed last fall, the largest bank failure in the nation’s history.
Mr. Cuomo, convinced that the troubles with appraisals went far beyond a single case, began an inquiry into Fannie and Freddie’s role in the buying of fraudulent mortgages. Before that investigation could be concluded, the two finance companies agreed they would buy mortgages only from lenders that abided by a new code of conduct.
In its original draft, the code froze out brokers and agents and placed severe restrictions on lenders. They were forbidden from using their staff appraisers or an appraisal management company in which they had more than a 20 percent interest.
The American Bankers Association and the Mortgage Bankers Association fought the restrictions, saying they would increase costs to consumers. The lenders also argued that Mr. Cuomo had no jurisdiction over their federally chartered operations. Banking regulators, who saw their authority being usurped, agreed.
The final version of the code gives much greater leeway to lenders. For instance, lenders can hire their own appraisers if they “recognize” that complaints will be forwarded to regulators.
The appraisal world was stunned. Dave Biggers, the chief executive of A La Mode, a maker of software for appraisers, said, “It’s like telling me I can steal as long as I ‘recognize’ that complaints will be directed to the police.”
Benjamin Lawsky, a special assistant to Mr. Cuomo, defended the revised version. “Our goal was always for the code to eliminate the causes of appraisal inflation while minimizing any disruptive impact on the industry,” he said. “We believe we accomplished this.”
Since national lenders cannot maintain lists of appraisers in every community, they long ago began outsourcing the process to the management companies, who had claimed about 30 percent of the market before the code took effect. Now that the lenders are the ones ordering all the appraisals, the management companies are expanding their share.
Real estate groups say the management companies, with the competition from brokers and agents eliminated, are now trying to fatten their profit margins by hiring appraisers as cheaply as possible.
These inexperienced appraisers, often traveling many miles to a market they do not know well, are scuttling legitimate deals, the agents claim. This argument has resonated in Congress, where 55 legislators have sponsored a bill calling for an 18-month moratorium on the code.
Appraisal management companies and lenders say the agents’ charges are not true.
“We’re an easy scapegoat,” said Donald Blanchard, chief compliance officer of Lender Processing Services Inc., which works with 20,000 appraisers. “We’ve yet to see any quantifiable proof as to the problems that management companies are supposedly causing.”
The real source of trouble for independent appraisers, he suggested, is not the code but a changing economy.
“Appraisers want to go back to the way it used to be,” Mr. Blanchard said. “But it’s good business for us to demand more for less.”
Fees Decline
Terry and Andrea Hartlieb, longtime appraisers in Fort Collins, Colo., miss the old days.
Instead of developing relationships with brokers and agents, the Hartliebs must wait for a lender or appraisal management company to call. A year ago, they would make $350 for an appraisal that would take about five hours. Now the management companies offer as little as half that. The couple has laid off four appraisers who used to work for them.
One recent call was about a complex property that would take additional time. Mr. Hartlieb asked for a bigger fee. The response: “We can get it done faster and for less elsewhere.”
Mrs. Hartlieb said, “Buying a house is the largest expense of your life. Don’t you want the best professional advice about its value, not the cheapest?”
Appraisers might be earning less, but consumers are being asked to pay more. The cost of an appraisal is now about $500, up from $400, appraisers say, because of the management companies’ share.
Moreover, if the goal of the code is to lessen pressure on appraisers, it is not clear that is happening.
A memo from U.S. Bancorp, which is based in Minneapolis, was posted recently on Appraisers’ Forum, an online discussion group. The memo bluntly urged the lender’s appraisers to “try and get the value we need the first time.” (A U.S. Bancorp spokeswoman said the memo was “not an official document.”)
In an online poll of 2,250 appraisers by Working RE magazine, half the respondents said they sometimes felt that management companies were ordering them to come up with a value that would make the deal work.
Banks and appraisal management companies say appraisers can be hypersensitive. “To some appraisers, the fact that we call you and ask a question is pressure,” said Mr. Blanchard of Lender Processing Services.
Under the code, the role of deciding what is pressure is assigned to a new entity called the Independent Valuation Protection Institute. If appraiser complaints are deemed valid, the institute is supposed to forward them to regulators.
Seventeen months after it was announced, the institute has no staff and no appraiser complaint hotline. All that exists is a single Web page.
Mr. Callahan, who wrote about the trouble with appraisals during the boom, is dismayed that the problem cannot be fixed even during the bust.
“Appraisers play a key role in keeping real estate transactions honest,” he said. “But we as a society have done very little to support them and ensure their independence.”
Florida tops again in late mortgages
By DUANE MARSTELLER, Bradenton Herald, Friday, August 21st, 2009
Florida’s mortgage-delinquency rate remains the country’s highest, a national bankers group said in a report released Thursday.
More than one in five Florida mortgages either were at least one payment behind or in foreclosure as of June 30, almost twice the U.S. rate, the Mortgage Bankers Association said in a quarterly delinquency report.
“Florida continues to establish itself as the worst state in the union for mortgage performance,” said Jay Brinkmann, the trade group’s chief economist.
“Clearly we have not seen the bottom in Florida,” he said in a later interview.
The state led the nation with 12 percent of mortgages somewhere in the foreclosure process at the end of June. Another 10.8 percent were at least 30 days behind in payments, with nearly half of those more than 90 days overdue.
In contrast, just 4.3 percent of U.S. mortgages were in foreclosure and another 8.9 percent were delinquent but not yet in foreclosure. Still, the combined U.S. foreclosure/delinquency rate is the highest since the association began tracking it in 1972.
Observers attributed Florida’s weak showing to rising unemployment, falling home values and a higher percentage of non-primary homeowners.
“It’s getting to the point where we’re deeper into the recession, and people have hung on as long as they could possibly hang on and no longer can afford to keep paying their mortgages,” said Bob Stobaugh, a senior lender at Sentinel Mortgage Co. and president of the Gulf Coast Mortgage Bankers Association.
Some can’t pay because they’ve lost their jobs: Florida’s unemployment rate was 10.6 percent in June, the latest month for which figures were available.
For others, it’s because a foreclosure-fueled drop in home values has left them “under water” on their mortgages, Stobaugh said. Nearly half of Florida homeowners owed more than their homes are worth as of June 30, tracking service First American CoreLogic said in a recent report. Florida also is seeing more delinquencies and foreclosures involving second homes and investor-owned properties because it has more of them and foreclosure-relief efforts are focusing on primary homeowners, Stobaugh said. About 27.4 percent of single-family homes in Manatee do not have homestead exemptions, according to the Manatee County Property Appraiser’s Office.
The report said the mortgage crisis, which began with subprime loans taken out by those with spotty credit, also continued to spread. One in three new foreclosures between April and June was from a prime, fixed-rate loan, up from one in five a year earlier. Last year, subprime adjustable-rate loans caused the largest share of foreclosures.
“The rise in prime delinquencies . . . is a clear indication that employment is the driver of mortgage performance, with the worst performance coming in those areas that are combining jobs losses with large drops in home values like California and Florida,” Brinkmann said. “We won’t see a turnaround in delinquencies until we see improvements in employment, most likely the middle of next year.”
Stobaugh agreed, but wasn’t sure when that would happen. “Sooner or later this downward spiral will stop,” he said. “When, no one knows.”
McClatchy and the Associated Press contributed to this report.
Florida’s mortgage-delinquency rate remains the country’s highest, a national bankers group said in a report released Thursday.
More than one in five Florida mortgages either were at least one payment behind or in foreclosure as of June 30, almost twice the U.S. rate, the Mortgage Bankers Association said in a quarterly delinquency report.
“Florida continues to establish itself as the worst state in the union for mortgage performance,” said Jay Brinkmann, the trade group’s chief economist.
“Clearly we have not seen the bottom in Florida,” he said in a later interview.
The state led the nation with 12 percent of mortgages somewhere in the foreclosure process at the end of June. Another 10.8 percent were at least 30 days behind in payments, with nearly half of those more than 90 days overdue.
In contrast, just 4.3 percent of U.S. mortgages were in foreclosure and another 8.9 percent were delinquent but not yet in foreclosure. Still, the combined U.S. foreclosure/delinquency rate is the highest since the association began tracking it in 1972.
Observers attributed Florida’s weak showing to rising unemployment, falling home values and a higher percentage of non-primary homeowners.
“It’s getting to the point where we’re deeper into the recession, and people have hung on as long as they could possibly hang on and no longer can afford to keep paying their mortgages,” said Bob Stobaugh, a senior lender at Sentinel Mortgage Co. and president of the Gulf Coast Mortgage Bankers Association.
Some can’t pay because they’ve lost their jobs: Florida’s unemployment rate was 10.6 percent in June, the latest month for which figures were available.
For others, it’s because a foreclosure-fueled drop in home values has left them “under water” on their mortgages, Stobaugh said. Nearly half of Florida homeowners owed more than their homes are worth as of June 30, tracking service First American CoreLogic said in a recent report. Florida also is seeing more delinquencies and foreclosures involving second homes and investor-owned properties because it has more of them and foreclosure-relief efforts are focusing on primary homeowners, Stobaugh said. About 27.4 percent of single-family homes in Manatee do not have homestead exemptions, according to the Manatee County Property Appraiser’s Office.
The report said the mortgage crisis, which began with subprime loans taken out by those with spotty credit, also continued to spread. One in three new foreclosures between April and June was from a prime, fixed-rate loan, up from one in five a year earlier. Last year, subprime adjustable-rate loans caused the largest share of foreclosures.
“The rise in prime delinquencies . . . is a clear indication that employment is the driver of mortgage performance, with the worst performance coming in those areas that are combining jobs losses with large drops in home values like California and Florida,” Brinkmann said. “We won’t see a turnaround in delinquencies until we see improvements in employment, most likely the middle of next year.”
Stobaugh agreed, but wasn’t sure when that would happen. “Sooner or later this downward spiral will stop,” he said. “When, no one knows.”
McClatchy and the Associated Press contributed to this report.
Thursday, August 20, 2009
House: Let foreclosed homeowners rent
By Kenneth R. Harney, Special to the St. Petersburg Times - Saturday, August 15, 2009
WASHINGTON — Here are two questions getting a lot of attention on Capitol Hill and from the Obama administration: When homeowners lose their houses to foreclosure, should they be able to stay in the property, leasing it back at fair market rent from the lender?
Should they also get an option to purchase the house from the bank at the end of the lease term, assuming they have the income to afford it?
Before leaving for their August break, Democrats and Republicans in the House took a rare, unanimous stand on both questions by passing the Neighborhood Preservation Act by voice vote. The bill was co-sponsored by Reps. Gary Miller, R-Calif., and Joe Donnelly, D-Ind.
The bill would remove legal impediments blocking federally regulated banks from entering into long-term leases — up to five years — with the former owners of foreclosed houses. It would also allow banks to negotiate option-to-purchase agreements permitting former owners to buy back their houses.
The idea, said Miller, is, "at no cost to the taxpayer," to "reduce the number of houses coming into the housing inventory and preserve the physical condition of foreclosed properties," which ultimately should help stabilize values in neighborhoods with large numbers of distressed sales and underwater real estate.
If the bill is approved by the Senate, participation by banks would be purely voluntary. But the legislation might encourage banks to calculate whether they would do better financially taking an immediate loss at foreclosure, or by collecting rents and then selling the property at a higher price in four or five years.
Though it was not opposed by banking lobbies, the bill quickly attracted critics. The Center for Economic and Policy Research, a Washington think tank, said a key flaw is to leave decisions about leasebacks solely to banks.
"If Congress does want to give homeowners the option to stay in their homes as renters," said the group, "it will be necessary to pass legislation that explicitly gives them this right."
Some private-industry proponents of short sales — where the bank negotiates a price that's typically less than the owners owe on their note — say turning banks into landlords won't work well, either for the banks or foreclosed owners who want to stay in their houses.
Al Hackman, a San Diego realty broker with extensive experience in commercial transactions, argues that leasebacks with options to buy are the way to go — but not if banks run the show.
Hackman and a partner, Troy Huerta, have recently begun putting together what they call "seamless short sales" as alternatives for banks and property owners. Their short sales and leasebacks are "seamless" because the financially distressed homeowners remain in their properties, before and after the settlement.
Here's how they work: First, the bank agrees to a short sale to a private investor, just as they often do now. In the seamless version, however, the investor is contractually bound to lease back the house on a "triple net" basis — the tenants pay taxes, insurance and utilities — for two to three years.
The former owners only qualify if they have sufficient income to afford a fair market rent and can handle the other expenses, including maintaining the property. The deal comes with a preset buyout price after the leaseback period. That price is higher than the short-sale price paid by the investor, but lower than the original price of the house paid by the foreclosed owners.
Hackman and Huerta already are doing seamless short-sale transactions. Here is one that Hackman says is "real life" and moving toward escrow: A family purchased a house for $725,000 with 20 percent down in 2005, then made substantial improvements with the help of an equity line of $72,500. The house now is valued around $500,000, but is saddled with $625,000 in mortgage debts.
Enter the seamless short sale: Hackman has brought in a private investor who is willing to buy the house at current value, all cash. As part of the deal, the investor has agreed to lease back the house at $25,000 a year, triple net. In three years, assuming they've been good tenants, the original owners have the option to buy back the property for $550,000.
Hackman says the internal rate of return to investors can be raised or lowered based on rents and the buyback price, but typically are in the 8 to 10 percent range.
"It's a win-win," he says. "The owners stay in their houses. Private investors get a moderate return on what should be a safe investment."
Plus the banks are out of the equation.
Wednesday, August 19, 2009
Housing slowdown prompted big changes
By Tom Bayles, Sarasota Herald Tribune, Monday, August,17, 2009
In North Port, it is at a complete halt: As the Herald-Tribune's John Davis found out, no new home permits were issued in North Port during July.
Things have gotten so bad that the area two builders' groups recently merged into one to swell the new organization's ranks.
In April, the Home Builders Association of Manatee County and the Sarasota Building Industry Association merged into the the Home Builders Association of Manatee-Sarasota with about 600 members.
Membership in the Florida Home Builders Association, which is included with membership in the regional groups, dropped from roughly 22,000 at the height of the housing boom in summer 2005 to about 14,000 now.
Self-billed as the "Grammys of the Home Building Industry," a pair of local builders garnered several Aurora Awards at the recent 2009 Southeast Building Conference in Orlando.
Manatee County's Neal Communities took home three awards for a pair of models in River Sound, one for company's Lake Cottage model, which ranges from 947- to 1648-square-feet, and two for the 1,200-square-foot Rose Cottage design.
"This is important recognition for our company and the many professionals who work with us," builder Pat Neal said in a statement.
Lakewood Ranch's John Cannon Homes won two awards, one for the Kaleeya, a 5,164-square-foot model home located in Rive Isle in Parrish and another for the Brisbane, a 4,287-square-foot model home in Antigua Cove in Ruskin.
The awards recognize excellence in several categories of construction by home builders, remodelers, commercial complexes and in architectural design.
"The Aurora Awards are the Grammys of the home building profession," Stephanie Henley, the chairwomen of this year's contest, said in a statement.
Builder offers money back if new home loses value
National builder Taylor Morrison has rolled out a home buyer's assurance program, which offers a refund of a down payment -- up to 10 percent of the original purchase price -- should their home decrease in value in five years.
Called "Total Assurance," the guarantee is designed to sell homes, of course, but also to let buyers who may be on the fence worrying about the direction of the housing market take advantage of today's low mortgage-interest rates.
"With Total Assurance we've made buying a new home easier than ever," Steve Kempton, division president for Taylor Morrison in South Florida, said in a statement. "We believe we have the best product out there and this program helps us demonstrate that to our customers."
The guarantee is available on new homes in Taylor Morrison's single-family home communities in Sarasota, Bradenton, Tampa, Fort Myers and Naples.
In this region, Taylor Morrison offers five new-home communities -- one of them starting in the $80,000s: Aberdeen and River Plantation in Parrish; Bradford Manor in Sarasota; Crystal Lakes in Palmetto and Palma Sola Trace (coach homes in that subdivision exempted) in Bradenton.
The fine print says a buyer must buy a Taylor Morrison home, live in it as their primary residence for five consecutive years, maintain it and stay current on any homeowners association dues to be eligible for the refund.
It is a tough time to be a home builder or subcontractor these days with new home construction in Southwest Florida at a near-standstill.
In North Port, it is at a complete halt: As the Herald-Tribune's John Davis found out, no new home permits were issued in North Port during July.
Davis also noted that construction in Sarasota County was at a 20-year low in 2008, with $318 million worth compared to $2 billion worth just before the boom went bust in 2006. In Manatee County, building for the first seven months of this year was down 36 percent compared with the same time frame last year.
Things have gotten so bad that the area two builders' groups recently merged into one to swell the new organization's ranks.
In April, the Home Builders Association of Manatee County and the Sarasota Building Industry Association merged into the the Home Builders Association of Manatee-Sarasota with about 600 members.
Membership in the Florida Home Builders Association, which is included with membership in the regional groups, dropped from roughly 22,000 at the height of the housing boom in summer 2005 to about 14,000 now.
So against that backdrop, it is nice to be able to report some positive news about some local builders and of an incentive plan to protect people who buy new homes against a decline in value.
Local builders garner industry awards
Self-billed as the "Grammys of the Home Building Industry," a pair of local builders garnered several Aurora Awards at the recent 2009 Southeast Building Conference in Orlando.
Manatee County's Neal Communities took home three awards for a pair of models in River Sound, one for company's Lake Cottage model, which ranges from 947- to 1648-square-feet, and two for the 1,200-square-foot Rose Cottage design.
"This is important recognition for our company and the many professionals who work with us," builder Pat Neal said in a statement.
Lakewood Ranch's John Cannon Homes won two awards, one for the Kaleeya, a 5,164-square-foot model home located in Rive Isle in Parrish and another for the Brisbane, a 4,287-square-foot model home in Antigua Cove in Ruskin.
The awards recognize excellence in several categories of construction by home builders, remodelers, commercial complexes and in architectural design.
"The Aurora Awards are the Grammys of the home building profession," Stephanie Henley, the chairwomen of this year's contest, said in a statement.
"The Aurora symbolizes tremendous achievement, honor and distinction among building industry professionals."
Builder offers money back if new home loses value
Called "Total Assurance," the guarantee is designed to sell homes, of course, but also to let buyers who may be on the fence worrying about the direction of the housing market take advantage of today's low mortgage-interest rates.
"With Total Assurance we've made buying a new home easier than ever," Steve Kempton, division president for Taylor Morrison in South Florida, said in a statement. "We believe we have the best product out there and this program helps us demonstrate that to our customers."
The guarantee is available on new homes in Taylor Morrison's single-family home communities in Sarasota, Bradenton, Tampa, Fort Myers and Naples.
In this region, Taylor Morrison offers five new-home communities -- one of them starting in the $80,000s: Aberdeen and River Plantation in Parrish; Bradford Manor in Sarasota; Crystal Lakes in Palmetto and Palma Sola Trace (coach homes in that subdivision exempted) in Bradenton.
The fine print says a buyer must buy a Taylor Morrison home, live in it as their primary residence for five consecutive years, maintain it and stay current on any homeowners association dues to be eligible for the refund.
Wednesday, August 12, 2009
Tips for homeowners with Taylor, Bean & Whitaker loans
By Jeff Harrington, St. Petersburg Times Staff Writer - Wednesday, August 12, 2009
Taylor, Bean & Whitaker's sudden closure last week continues to send ripples through the mortgage industry, causing its customers frustration and government regulators angst.
Freddie Mac said the collapse of the Ocala-based mortgage lender may cause it "significant" losses. Taylor Bean accounted for about 5.2 percent of Freddie Mac's single-family mortgage purchases last year, according to a regulatory filing.
Meanwhile, some who have FHA mortgage loans through Taylor Bean or were in the midst of closing have complained that they haven't been able to post their mortgage payments or reach anyone at the company.
The U.S. Department of Housing and Urban Development is urging patience. Bank of America will be taking over the servicing of Taylor Bean's loans.
"You will receive a letter from BAC Home Loans Servicing (a Bank of America subsidiary) confirming this transfer and welcoming you as a valued customer within two weeks of your loan being added to their systems," HUD said.
Other governmental advice:
• Federal loan guarantor Ginnie Mae is telling customers to make payments directly to BAC Home Loans Servicing LP, Payment Processing, P.O. Box 10334, Van Nuys, CA 91410-0334. For additional questions about loan servicing, contact Bank of America Home Loans Customer Service toll-free at 1-800-669-6607.
• If you're falling behind on payments, call HUD's National Servicing Center toll-free at 1-888-297-8685. Or you may seek help directly from a HUD-approved Housing Counseling Agency. To find one near you, call toll-free 1-800-569-4287.
• If you had a loan application in the pipeline and are unsure of its status, contact your mortgage broker or bank. You may need to seek a new FHA-approved lender.
• If you had an appraisal completed as part of an uncompleted loan application, your loan file (including the appraisal) could be transferred to another lender. FHA appraisals are valid for six months.
Thursday, August 6, 2009
Ocala mortgage lender Taylor, Bean and Whitaker shuts down
St. Petersburg Times Staff Writer - Aug 05, 2009
Ocala's Taylor, Bean and Whitaker Mortgage Corp., 12th-largest mortgage lender in the country, has shut down its lending operations after the Federal Housing Administration barred it from making loans that the agency insures.
In an e-mail — with the subject line "The saddest day of my life" — posted on the Ocala Star-Banner newspaper's Web site, Taylor Bean chairman Lee Farkas said Wednesday would be the company's last day of operations. "I have done everything possible to try to save it, but I couldn't," Farkas stated. "Since 1991, we have provided excellence in mortgage banking. We did our best for a very long time. I apologize to everyone." Farkas added that all staff except "essential employees" would be terminated Wednesday.
The closure came a day after the FHA punished Taylor Bean for failing to submit a required annual financial report, and "misrepresenting" its dealings with an auditor that had discovered "irregular transactions that raised concerns of fraud."
Ocala's Taylor, Bean and Whitaker Mortgage Corp., 12th-largest mortgage lender in the country, has shut down its lending operations after the Federal Housing Administration barred it from making loans that the agency insures.
In an e-mail — with the subject line "The saddest day of my life" — posted on the Ocala Star-Banner newspaper's Web site, Taylor Bean chairman Lee Farkas said Wednesday would be the company's last day of operations. "I have done everything possible to try to save it, but I couldn't," Farkas stated. "Since 1991, we have provided excellence in mortgage banking. We did our best for a very long time. I apologize to everyone." Farkas added that all staff except "essential employees" would be terminated Wednesday.
The closure came a day after the FHA punished Taylor Bean for failing to submit a required annual financial report, and "misrepresenting" its dealings with an auditor that had discovered "irregular transactions that raised concerns of fraud."
Wednesday, July 29, 2009
Tampa Bay home values were flat from April to May, index shows
By James Thorner, St. Petersburg Times - Wednesday, July 29, 2009
Tampa Bay area home prices were flat from April to May, easing off months of decline, according to the S&P Case-Shiller home price index.
While the region's home prices fell 20.8 percent from May 2008 to May 2009, Case-Shiller suspects the worst of the housing slump is behind us.
"The pace of descent in home price values appears to be slowing," said David M. Blitzer, chairman of the index committee at Standard & Poor's.
Case-Shiller's numbers are considered especially reliable because they measure repeat sales of individual homes. Homes sales numbers published by the Florida Association of Realtors also confirm steadier home prices since about January. Since peaking in July 2006, Tampa Bay housing prices had been on a multiyear slide.
Local home sales, measured year over year, have also improved in almost every month since September. Discounted foreclosures homes have led the way. They typically sell for half to two-thirds of the price of a nondistressed property.
The month-to-month improvement in home prices wasn't restricted to Tampa Bay. On the 20-city Case-Shiller index, only four cities showed price declines from April to May: Las Vegas, Phoenix, Miami and Seattle.
But year to year, all 20 cities recorded home price drops, with Phoenix leading the list with a plunge of 34.2 percent. Las Vegas was second-worst.
"While many indicators are showing signs of life in the U.S. housing market, we should remember that on a year-over- year basis, home prices are still down about 17 percent on average across all metro areas, so we likely do have a way to go before we see sustained home price appreciation," Blitzer said.
Most Florida economists predict home prices will stay relatively flat for at least a year and won't appreciate with any strength or consistency before 2011. Stricter lending standards, including the near-disappearance of subprime mortgages blamed for sinking the housing market, have curtailed sales.
Monday, July 27, 2009
Loan balloons coming, could trigger new foreclosure 'tsunami'
By DUANE MARSTELLER - Bradenton Herald - July 27,2009
A coming wave of mortgage adjustments threatens to prolong, and possibly worsen, the foreclosure crisis, industry analysts warn.
An estimated 2.8 million option adjustable-rate mortgages are scheduled to reset in the coming years, with the peak in mid-2011. Those resets will cause those borrowers’ monthly payments to balloon, potentially triggering a third wave of foreclosures.
“We do believe there is another wave coming, and I personally believe it will be the tsunami,” said L.R. “Chip” Waterman of Hunt Real Estate ERA in Sarasota, who specializes in foreclosed and bank-owned properties. “There’s no way we’ve begun to see the end of this.”
Others question if such dire predictions are exaggerated — but acknowledge the crisis is nowhere close to ending.
“I think we’re past the absolute tsunami of foreclosures, but we still have many more to go through,” said Ken Chapman Jr., a Sarasota attorney and president of the Sarasota-Bradenton Attorneys Real Estate Council.
Foreclosures rising
As of the close of business Friday, lenders have filed 3,602 foreclosure suits this year in Manatee County Circuit Court, court records show. There were 3.034 filed at the same point in 2008, which went on to set a local record with 5,592 in all.
The state and national pictures are not much better.
More than 1.5 million U.S. properties received a foreclosure filing or were seized by lenders in the first half of 2009, according to RealtyTrac, a data firm that tracks foreclosure filings.
One in 84 U.S. homes got a foreclosure filing, which can range from a notice of default to a bank repossession. In Florida, it was one in every 33, the firm said.
And more are on their way: More than 10 percent of Florida homeowners with a mortgage were at least 30 days behind on their payments during the first quarter of 2009, the Mortgage Bankers Association said. Another 10 percent already were in foreclosure.
The national delinquency and foreclosure rate was one in every eight, the highest in records going back to 1972, the bankers group said.
And a growing number of those are so-called “prime” borrowers, who had good credit and steady income when they got the loan.
“That’s the scary part,” Waterman said.
Many took out option adjustable-rate, or Alt-A mortgages, which allowed them to buy more house than they could have afforded using a traditional 30-year mortgage during the housing boom. Under most so-called option ARMs, initial monthly payments often covered just part of the interest, with the unpaid interest portion added to the loan’s balance. After a set amount of time, the loan resets and the borrower is required to also begin paying off the balance.
That will cause the monthly payment to balloon, something many borrowers had planned to avoid by either selling the house for a profit or doing a refinance. But housing prices slumped and credit tightened, leaving borrowers owing more than their homes were worth, unable to sell them for a profit or refinance, and struggling with higher payments.
As of April, more than half of such loans in the United States were either at least 60 days’ delinquent or in foreclosure, according to First American CoreLogic. Those numbers likely will increase, as resets are not set to peak until mid-2011.
As of April, more than half of such loans in the United States were either at least 60 days’ delinquent or in foreclosure, according to First American CoreLogic. Those numbers likely will increase, as resets are not set to peak until mid-2011.
Job loss a threat
Another threat to prolong the foreclosure crisis is growing unemployment.
“You can’t make the house payment if you don’t have a job,” Waterman said.
Manatee’s jobless rate hit 11.8 percent last month, the highest since the state began calculating it in 1975. The state and national unemployment rates also are near record highs.
Economists predict unemployment levels will continue rising in the foreseeable future, as job creation usually lags an economic recovery. That likely will help keep foreclosures at elevated levels, observers said.
“Unemployment is going to be driving it,” Chapman said.
While that could fuel new foreclosure filings, there’s still the thousands of already-filed cases that have yet to make their way through the courts.
“You’ve got a buildup out there that hasn’t even happened yet,” Waterman said.
Lenders held back in pursuing judgements and taking back homes late last year and in early 2009, the result of temporary moratoriums and the rollout of government programs designed to prevent foreclosures.
But those programs have had limited success to date, and even that might not be permanent. The rating agency Fitch recently said it expects three of every four homes that the government’s “Making Home Affordable” program saves from foreclosure will end up there eventually, largely because the homeowners have too much debt beyond their mortgage.
That has led to fears that lenders will flood the market with repossessed homes and drive down prices even more, thus delaying recovery of the housing market and the broader economy.
Chapman hopes that scenario doesn’t happen, and that the foreclosure crisis will ease.
“We’re nearing the end of the down cycle, but we’ve got a long way to go before we climb out of that hole,” he said. “We just don’t know how deep that hole is and how long it will take to climb back up.”
Another threat to prolong the foreclosure crisis is growing unemployment.
“You can’t make the house payment if you don’t have a job,” Waterman said.
Manatee’s jobless rate hit 11.8 percent last month, the highest since the state began calculating it in 1975. The state and national unemployment rates also are near record highs.
Economists predict unemployment levels will continue rising in the foreseeable future, as job creation usually lags an economic recovery. That likely will help keep foreclosures at elevated levels, observers said.
“Unemployment is going to be driving it,” Chapman said.
While that could fuel new foreclosure filings, there’s still the thousands of already-filed cases that have yet to make their way through the courts.
“You’ve got a buildup out there that hasn’t even happened yet,” Waterman said.
Lenders held back in pursuing judgements and taking back homes late last year and in early 2009, the result of temporary moratoriums and the rollout of government programs designed to prevent foreclosures.
But those programs have had limited success to date, and even that might not be permanent. The rating agency Fitch recently said it expects three of every four homes that the government’s “Making Home Affordable” program saves from foreclosure will end up there eventually, largely because the homeowners have too much debt beyond their mortgage.
That has led to fears that lenders will flood the market with repossessed homes and drive down prices even more, thus delaying recovery of the housing market and the broader economy.
Chapman hopes that scenario doesn’t happen, and that the foreclosure crisis will ease.
“We’re nearing the end of the down cycle, but we’ve got a long way to go before we climb out of that hole,” he said. “We just don’t know how deep that hole is and how long it will take to climb back up.”
Wednesday, July 22, 2009
State sues four South Florida foreclosure rescue companies
Attorney general says operations broke the law by charging thousands in up front fees
By Diane C. Lade South Florida Sun Sentinel
6:19 PM EDT, July 21, 2009
State regulators filed a lawsuit in Palm Beach Circuit Court Tuesday against four South Florida mortgage loan modification companies they say were collecting a total of up to $1 million in monthly fees, as the Attorney General's Office cracks down on the foreclosure rescue industry.
Officials said the operations, which were related, illegally used President Barack Obama's voice in telemarketing calls and charged up to $5,000 up front to modify home loans, a violation of the 2008 Foreclosure Rescue Fraud Prevention Act. The state is seeking restitution for consumers, civil penalties and the companies' dissolution.
FHA All Day.Com, Inc., Safety Financial Services, Inc., Housing Assistance Law Center PA and Housing Assistance Now, Inc. were named in the suit, as well as Jason Vitulano, the owner of FHA All Day and Safety Financial. Attorney General spokeswoman Sandi Copes said the state has received a total of 300 complaints about the four businesses, which were based in Delray Beach, Boca Raton and Deerfield Beach.
One filing came from Kim Kyzar. She decided to try to lower the 8.1 percent interest rate on her Lake Worth house after receiving an FHA All Day marketing call featuring Obama talking about low-rate mortgages under the stimulus act.
She said she and her husband, who have an air conditioning business, paid FHA All Day $2,000 up front in March for a "forensic loan document review" plus another $500 for legal costs. But Kyzar became suspicious when the company stopped returning her phone calls in the middle of April. Going to the Boca Raton office, she found it empty.
"I have no idea if they are working on my case," said Kyzar, whose lender told her they never had been contacted by FHA All Day.Owner Vitulano said the attorney general had ordered him to close down the office, although he was worried it would generate more complaints when his customers could not find him. FHA All Day still is processing existing modifications, he said, although not taking new clients.
Vitulano said he only had rented space to Housing Assistance Law Center and denied any connection with Housing Assistance Now. He and the Attorney General's Office had discussed settling for $15,000 in investigative costs and $20,000 in restitution regarding FHA earlier this year but Vitulano said negotiations broke down when he refused to also permanently abandon the mortgage modification business.
But Copes said the attorney general decided to reinstate its investigation after receiving more complaints and learning more about the affiliated companies.
By Diane C. Lade South Florida Sun Sentinel
6:19 PM EDT, July 21, 2009
State regulators filed a lawsuit in Palm Beach Circuit Court Tuesday against four South Florida mortgage loan modification companies they say were collecting a total of up to $1 million in monthly fees, as the Attorney General's Office cracks down on the foreclosure rescue industry.
Officials said the operations, which were related, illegally used President Barack Obama's voice in telemarketing calls and charged up to $5,000 up front to modify home loans, a violation of the 2008 Foreclosure Rescue Fraud Prevention Act. The state is seeking restitution for consumers, civil penalties and the companies' dissolution.
FHA All Day.Com, Inc., Safety Financial Services, Inc., Housing Assistance Law Center PA and Housing Assistance Now, Inc. were named in the suit, as well as Jason Vitulano, the owner of FHA All Day and Safety Financial. Attorney General spokeswoman Sandi Copes said the state has received a total of 300 complaints about the four businesses, which were based in Delray Beach, Boca Raton and Deerfield Beach.
One filing came from Kim Kyzar. She decided to try to lower the 8.1 percent interest rate on her Lake Worth house after receiving an FHA All Day marketing call featuring Obama talking about low-rate mortgages under the stimulus act.
She said she and her husband, who have an air conditioning business, paid FHA All Day $2,000 up front in March for a "forensic loan document review" plus another $500 for legal costs. But Kyzar became suspicious when the company stopped returning her phone calls in the middle of April. Going to the Boca Raton office, she found it empty.
"I have no idea if they are working on my case," said Kyzar, whose lender told her they never had been contacted by FHA All Day.Owner Vitulano said the attorney general had ordered him to close down the office, although he was worried it would generate more complaints when his customers could not find him. FHA All Day still is processing existing modifications, he said, although not taking new clients.
Vitulano said he only had rented space to Housing Assistance Law Center and denied any connection with Housing Assistance Now. He and the Attorney General's Office had discussed settling for $15,000 in investigative costs and $20,000 in restitution regarding FHA earlier this year but Vitulano said negotiations broke down when he refused to also permanently abandon the mortgage modification business.
But Copes said the attorney general decided to reinstate its investigation after receiving more complaints and learning more about the affiliated companies.
Friday, July 17, 2009
Rate of Tampa Bay foreclosures begins to ebb
By James Thorner, Times Staff Writer In Print: Friday, July 17, 2009
With the subtlety of a cement sack loosed from a bank skyscraper, another 7,200 foreclosure cases dropped into our courtrooms last month.
That's 7,200 houses — the residential stock of a typical small town — plunged into mortgage default in a single month in Pinellas, Hillsborough, Pasco and Hernando counties.
But after digging through charts put out by RealtyTrac, the California company that publishes market-by-market foreclosure data, June could be the month when foreclosures began beating a retreat.
As I've repeated in earlier columns, home sales and prices have already begun to right themselves in the Tampa Bay area. Sales have risen in nine of the past 10 months. Prices seem to have stabilized — and even risen a smidgen — since January.
What's been lacking is evidence that insolvent homeowners would bleed fewer of their deeds onto the foreclosure market. That evidence might have emerged from June's foreclosure report.
After a punishing sequence of months in which local foreclosure filings, measured year over year, rose by 30 to 50 percent, foreclosures in June posted a gain of only 12 percent.
The number was impressively modest for several reasons. Foreclosures across Florida rose 31 percent to reach 52,899 in June. Nationally, June's 336,173 foreclosure filings represented an increase of 33 percent from a year earlier.
On top of that, at the start of the year economists predicted a wave of summer mortgage defaults as unemployment deepened and the state's foreclosure moratorium petered out. But June came and went without any spikes on the chart.
Why the reprieve? The government's foreclosure prevention programs, for all the initial hoopla about helping millions of hard-pressed homeowners, have served a piddling number of mortgage borrowers so far. At last count, loan restructuring has benefited fewer than 100,000 across the country.
A better explanation lies with the housing market itself. According to the Greater Tampa Association of Realtors, home sales in June totaled 1,714. That's a decline of almost half since June 2005, but monthly home sales haven't been that high since December 2006. Sales of distressed properties — bargain priced and attractive to cash buyers — have led the way.
Nevertheless, national economists remain pessimistic about foreclosures. The latest prediction, which has grown to mythic stature among national reporters, is the wave of "Alt-A" foreclosures that's supposed to capsize our market anew.
These were loans made to middle-of-the-road borrowers. Strapped to the hilt in the recession, these homeowners are supposedly about to mail their house keys back to the bank all at once.
Or so the money gurus inform us.
Dub me unconvinced. At least in our neck of the woods, foreclosures have been far more than just a subprime phenomenon the past two years. They have already cut into many middle-of-the-road borrowers around here. Those not peddling their distressed homes on the cheap are lobbying their banks for easier terms.
Yes, foreclosures in the Tampa Bay area are still rising, but they're rising at a dramatically slower rate. If we're lucky, June will mark the start of the Summer When Losing Your Home Lost its Groove.
With the subtlety of a cement sack loosed from a bank skyscraper, another 7,200 foreclosure cases dropped into our courtrooms last month.
That's 7,200 houses — the residential stock of a typical small town — plunged into mortgage default in a single month in Pinellas, Hillsborough, Pasco and Hernando counties.
But after digging through charts put out by RealtyTrac, the California company that publishes market-by-market foreclosure data, June could be the month when foreclosures began beating a retreat.
As I've repeated in earlier columns, home sales and prices have already begun to right themselves in the Tampa Bay area. Sales have risen in nine of the past 10 months. Prices seem to have stabilized — and even risen a smidgen — since January.
What's been lacking is evidence that insolvent homeowners would bleed fewer of their deeds onto the foreclosure market. That evidence might have emerged from June's foreclosure report.
After a punishing sequence of months in which local foreclosure filings, measured year over year, rose by 30 to 50 percent, foreclosures in June posted a gain of only 12 percent.
The number was impressively modest for several reasons. Foreclosures across Florida rose 31 percent to reach 52,899 in June. Nationally, June's 336,173 foreclosure filings represented an increase of 33 percent from a year earlier.
On top of that, at the start of the year economists predicted a wave of summer mortgage defaults as unemployment deepened and the state's foreclosure moratorium petered out. But June came and went without any spikes on the chart.
Why the reprieve? The government's foreclosure prevention programs, for all the initial hoopla about helping millions of hard-pressed homeowners, have served a piddling number of mortgage borrowers so far. At last count, loan restructuring has benefited fewer than 100,000 across the country.
A better explanation lies with the housing market itself. According to the Greater Tampa Association of Realtors, home sales in June totaled 1,714. That's a decline of almost half since June 2005, but monthly home sales haven't been that high since December 2006. Sales of distressed properties — bargain priced and attractive to cash buyers — have led the way.
Nevertheless, national economists remain pessimistic about foreclosures. The latest prediction, which has grown to mythic stature among national reporters, is the wave of "Alt-A" foreclosures that's supposed to capsize our market anew.
These were loans made to middle-of-the-road borrowers. Strapped to the hilt in the recession, these homeowners are supposedly about to mail their house keys back to the bank all at once.
Or so the money gurus inform us.
Dub me unconvinced. At least in our neck of the woods, foreclosures have been far more than just a subprime phenomenon the past two years. They have already cut into many middle-of-the-road borrowers around here. Those not peddling their distressed homes on the cheap are lobbying their banks for easier terms.
Yes, foreclosures in the Tampa Bay area are still rising, but they're rising at a dramatically slower rate. If we're lucky, June will mark the start of the Summer When Losing Your Home Lost its Groove.
Wednesday, July 15, 2009
Bob Shiller didn't kill the housing market
He just predicted its demise. Now he's seeing some tentative signs of hope.
NEW YORK (Fortune) -- It's noon in New Haven, and Yale economist Robert Shiller and I are leaving his office to walk down the block for pizza. It was a damp morning, but now the sun is breaking through the clouds. "Do we need an umbrella?" he asks. I say I don't think so. But a few steps outside his office, he turns around to get one. "It's better to be safe," he says
That's Bob Shiller for you. He's a worrier. Well, more than that. He's obsessed with taming risk. And that means all kinds of risk -- from the chance of stray showers to a danger that's on everyone's mind these days: falling home prices. Shiller's name will forever be linked with the worst housing bust since the Great Depression and the economic slump it caused. He first warned of a housing bubble back in 2003 when bankers were merrily minting mortgage-backed securities. And it is the widely cited gauge he helped create -- the S&P/Case-Shiller home-price index -- that has heralded, in grim monthly installments, the devastating collapse of the residential real estate market.
Two years into the housing bust, Shiller finally sees some faint rays of sunshine (that's just light, not green shoots yet). When the June Case-Shiller figures were released, he said they showed "striking improvement in the rate of decline." Asked to look ahead, he says, "My guess is that prices will continue to fall for a while, but at a slower pace, and then stabilize. We've become very speculative in our attitude toward real estate, so there could be another boom. But if so, it likely won't happen for another five to 10 years."
Shiller doesn't care whether you listen to his opinion -- or anyone else's for that matter. But he does want to give you a way of protecting yourself from violent fluctuations in home values. He is a co-founder of MacroMarkets, a company that hopes to create financial vehicles for hedging a wide variety of risks.
MacroMarkets' latest offering, instruments that let you bet on the direction of home prices, just started trading on the New York Stock Exchange. Shiller hopes to make money from the venture, of course, but he also has an idealistic streak that can seem very ivory tower at times. "He cares about making the world a better place," says Karl Case, the Wellesley economics professor who helped develop the home-price index. "This is the way he has chosen to do so."
Shiller, 63, who looks like an older Hugh Grant and acts the part of the classic absent-minded professor, is much more than a real estate soothsayer. Early in his career he helped develop the field of behavioral finance. Along with University of Chicago professor Richard Thaler and others, he argued that human emotions created risks that the prevailing rational-markets dogma ignored. Many establishment economists derided those views, but today few dispute the idea that mood swings can lead to short-term price distortions. "They were really stuck on efficient markets, and now they aren't," says Shiller. "The whole profession has changed." His focus on the "irrational exuberance" (a term first uttered by Alan Greenspan and later the title of one of Shiller's six books) that can drive prices to wild extremes led him to warn that the giddy late-1990s stock market run-up was a bubble.
Intellectually, Shiller knows no fear. In everyday life, he's one of the most risk-averse people you'll ever meet. It's actually a bit extreme. He's never been drunk -- ever, he says -- and is afraid of heights, and he worries as much about other people's safety as his own. Watching his next-door neighbor and fellow Yale economist William Brainard fixing his roof, Shiller frets constantly about what he would do if his colleague got into trouble. "I know that Bob won't come up and get me," says Brainard, "but I know he'd call the right person." And Shiller is no speed demon, on-road or off. He was lapped in a go-cart race by Wharton School economist Jeremy Siegel, author of Stocks for the Long Run. (It was taped for The NewsHour With Jim Lehrer in 2002.) "I had never driven a go-cart before," he says. "What was I supposed to do -- just floor it?"
Perhaps it's Shiller's Midwestern roots -- he grew up in Michigan, where his father co-founded a company that made industrial ovens for the auto industry -- but for a guy with his forecasting track record, he is exceedingly modest. Where crash pundits like Nouriel Roubini and Nassim Nicholas Taleb trumpet their calls, Shiller disclaims any prescience. Didn't he predict the two biggest bubbles in recent years? "I only said they were possible," he says of the housing and stock market collapses. "He's very humble before his colleagues, and he's humble about how tough it is to truly understand how markets work," says Case. "Those are two different types of humility."
Whether he's talking about a theoretical inflation-adjusted currency or about the reindeer in a Medieval painting, Shiller is charming and chatty, although he rarely speaks a thoughtless word. And he clearly loves his work. He treats the world like a puzzle that is a joy to solve, preferably from the safety of his cozy academic berth. He attributes much of his success and happiness to his wife of 33 years, Virginia, a psychologist and lecturer at Yale, who has done everything from helping to edit his books to decorating his sky-blue office with dark-brown antiques. She even chose their vacation home, located on a small island just 10 miles from New Haven. No bridge connects it to shore and there is no electricity. Say, Bob, isn't that a little risky? Yes, but living just a little bit at the mercy of nature (albeit in a four-bedroom cottage) adds spice to his routine. "It's an adventure," he says. "It's like stepping back into the 19th century."
Yes, he has a playful side -- an idiosyncratic one. "I only do things because they're fun," says Shiller. "The house is fun for me, as is speaking with the Indian Parliament about the economy, as is studying data." Indeed, data mining is at the heart of everything he does. "It's considered something for lower-class economists to do -- the real leaders are the theorists -- but I like it," he says.
"What is striking about Bob is that he will consider any idea, and he takes a richer view of that thought and human nature by collecting data," says John Campbell, a former Ph.D. student of Shiller's and now chair of Harvard's economics department. "When the crash of '87 hit, he immediately surveyed people to get inside their heads. That informed his work on behavioral finance."
It was Karl Case's data, though, that formed the basis for the Case-Shiller index. In the early 1980s, while working on a paper arguing that the rapid home-price appreciation in the Boston area was unsustainable, Case constructed a rudimentary method for comparing repeat sales of the same homes. "But I knew nothing about financial bubbles," he says. A friend at Yale pointed him to Shiller, who loved the idea of applying his research on bubbles to the housing market. "We sat down at my dining room table, and he figured out how to do a repeat-sales index," says Case. "I'd done a crude version. But he added weighting and other things that made it much better."
Case and Shiller decided to look at prices in other cities to get a view of conditions around the country, and the Case-Shiller index was born. Allan Weiss, who did graduate work under Shiller, persuaded the professors to form a company to sell their research in 1991. In 2002 they sold Case Shiller Weiss to electronic data giant Fiserv (the terms were not made public, and Shiller says he is contractually bound not to disclose them). Later Fiserv (FISV, Fortune 500) struck a deal with Standard & Poor's to create tradable indexes based on the data.
Shiller serves as an unpaid adviser to S&P, but his business interests have shifted to MacroMarkets, the securities firm he founded in 1999 with Weiss (who has since left the company) and Sam Masucci, a former banker. Here's where Shiller pursues his holy grail: conquering risk. That may seem like a tainted quest. The belief that they had risk under control led a raft of storied firms -- Long-Term Capital Management, Bear Stearns, Lehman Brothers, and AIG (AIG, Fortune 500) -- to their ruin. Yet Shiller still believes in the dream. "The value of a house can fall. A hurricane might hit. An economy tied to oil prices might be very unstable. But we will create hedging markets that offset these problems," Shiller tells Fortune with surprising certitude. "We should be able to hedge everything from the rising costs of health care and education to national income risk and oil crises."
On June 30, MacroMarkets launched the first products that let investors make a pure directional bet on home prices. Called MacroShares, they trade on the New York Stock Exchange; their value is derived from changes in the Case-Shiller 10-city home-price index. If you expect home prices to rise, you'd buy the Up Metro Market (UMM); bears can buy the Down Metro Market (DMM). On the first day of trading the bears held sway: Investors bought 14,756 DMM shares, vs. only 6,204 of UMM.
"UMM and DMM will be the indicators that people will turn to when they want a snapshot of home-price sentiment," says Masucci. Shiller thinks they will have real practical value for homeowners. If you buy the DMM and the price goes down, the money you make on the investment will offset your lost home value. If prices go up, you lose money on the DMM, but your house will be worth more.
MacroMarkets has been down this road before. In 2006 it offered MacroShares that tracked the rise and fall in oil prices. But in 2008, after oil prices soared from $88 to $145 in only five months -- an event that the MacroShares were not designed to handle -- MacroMarkets wound them down. The company introduced another pair of oil MacroShares in July 2008, but they attracted few traders and were liquidated in June.
The problem, according to company executives and outside analysts, was that there are too many other ways to play oil prices -- something that's not true of real estate. Even so, some people wonder whether there will be significant demand for the housing products. You can already buy and sell futures on the Case-Shiller home index, and there has been very little interest in them. Morningstar analyst Scott Burns says that the MacroShares may do better because they are easier to trade.
WisdomTree, an investment and advisory firm founded by Shiller's go-cart rival Jeremy Siegel (the two are old friends, having met as grad students at MIT while standing in line to get chest X-rays), has a deal with MacroMarkets to publicize the products. "No other structure we know of allows the average investor to take a position in housing prices without just buying a house," says Bruce Lavine, WisdomTree's president.
Shiller and his partners believe they can create a variety of MacroShares and also other instruments to hedge a whole range of risks. What about a special currency system that makes future payments in inflation-adjusted dollars? Shiller says they're already experimenting with such a system in Chile. Or what about a GDP-linked security that would pose no inflation risk? "What the Chinese should be doing is buying shares in the U.S. economy," says Shiller. "Because if you own shares in the GDP, then inflation doesn't matter to you like it does when you buy the country's debt. But they can't right now."
Shiller's professional ambitions are so big because his fears are even larger. He worries that decades of a get-rich-quick ethos have eroded the work ethic that has been a cornerstone of U.S. economic and social stability. He is afraid that we stand at the brink of a destructive wave of populist anger, not entirely unfounded, against a financial system that has made some men centimillionaires while real income stagnated for almost everyone else. He believes that the financial industry has come to have such a big effect on the lives of all Americans that we need tools to protect ordinary people against market fluctuations. "Our sense of well-being in this country is ultimately supported by a general sense of fairness," he says. "Democracy is eroded when it's gone."
Turning to more immediate concerns, Shiller says that the economy seems to be righting itself, although his argument is, well, hedged. "People think the recession should be ending now, so the stock market is responding to that, and to some extent recovery becomes a self-fulfilling prophecy," he says. He also has what he calls a "doubt scenario" that reflects the impact of the unwinding of the greatest credit and real estate bubbles in history. "A reasonable case could be made," he says, "that even though past depression scares have proven to be unwarranted, this time it might be different."
For all his worries and warnings, he is ultimately a believer in good things happening because people want to bring them about, even in financial markets. "Financial crises are aberrations," he says. "We're learning how to create better hedging markets so that we can make finance less risky and so that we can say the triumph of capitalism was the story of our times." Considering the shambles the economy is in today, having that prediction come true would be quite an achievement. Shiller might even consider bragging about it.
Research associate Casey Feldman contributed to this article.
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