Beat And Battered

From the Star Ledger:

INSTEAD OF FORECLOSED: SOLD!

A dozen chatty women and children stepped off a yellow school bus Saturday morning and into a vacant condo on 5th Street in Elizabeth. Armed with notepads, digital cameras and binders, they sounded optimistic about finding their dream home in the Union County city.

They peppered tour guides with questions about taxes, schools, unfinished basements and the number of bedrooms in each of the dozen properties the group would see. But this wasn’t an ordinary real estate tour.

It was a foreclosure bus tour hosted by the city — the first in the state to offer such tours as a public service, according to the New Jersey League of Municipalities.

In Florida, California and Michigan, where the housing foreclosure crisis has hit residents especially hard, these tours are becoming the rage among real estate agents. In New Jersey, which according to RealtyTrac, a firm that monitors foreclosures, saw a 140 percent jump in foreclosure filings over the last three months, real estate agents are catching on.

Tours are being organized in Sussex, Morris, Union and Warren counties and along the Shore. But this one was different: It was designed not only to help first-time buyers get an affordable home, but to keep troubled homeowners above water.

“Maybe it’s better to call it a ‘pre-foreclosure tour,’” said the city’s housing program director, Susan Ucci. “We want to prevent people from going into foreclosure.”
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Only one of the homes on the tour had been repossessed by the lender; the rest were nearing foreclosure. Tour guides — carrying binders of information to match prospective buyers with sellers — were members of the city’s Home Improvement Program and the nonprofit housing group Brand New Day. The nine prospective buyers on the tour, all women, were pre-qualified for mortgages by Brand New Day, and all took and passed classes for first-time home-buyers.

Elizabeth’s program stands out, Ucci said, with benefits for all involved. Homeowners don’t go through the painful and credit-ruining foreclosure process. First-time buyers get a bargain on a home and “we get an occupied house instead of a foreclosed house in the neighborhood.”

Bill Dressel, executive director of the New Jersey League of Municipalities, said this is the first he’s heard of a city working with a nonprofit group to show off nearly foreclosed homes.

“I think it’s absolutely brilliant,” Dressel said, adding he wants to promote the program across the state. “It cuts through a lot of bureaucracy, and it literally matches people in homes where they want to be.”
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Sandra Johnson, from Edison, said she was hesitant to look at homes that are near foreclosure but came on the tour because she was curious about what the market has to offer. “The tour is beautiful,” she said. “Everybody’s reminding you about what you can afford. A Realtor’s not reminding you.”

Organizers are planning another tour in September. And cities across the state may soon follow suit. Jacques Howard, economic director of Plainfield, said the tours “make perfect sense.” He plans on rolling out a comprehensive package of programs to battle foreclosure in his Union County city. He hopes to include home foreclosure tours.

When homes are vacant, “the city’s losing, the bank’s losing, everyone’s losing,” Howard said.

Time for another get together. Mark your calendars, cancel your trips, and tell the inlaws to buzz off.

This Saturday, August 2nd at 5pm
Shannon Rose - http://www.theshannonrose.com/
98 Kingsland Road, Clifton NJ

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From Bloomberg:

Hamptons Home Prices Fall on Wall Street Jobs, Economic Outlook

Home prices in the Hamptons, the summer haven of New York financiers and socialites, fell almost 12 percent in the second quarter from a year earlier as Wall Street firms cut jobs and the economy teetered near a recession.

Sales dropped 26 percent and the median price slid to $970,000 in the resort towns on the East End of Long Island, New York-based broker Prudential Douglas Elliman Real Estate and appraiser Miller Samuel Inc. said in a report today.

“We used to think of the Hamptons as insulated and that’s not the case,” said real estate developer Arthur Rauscher, who is trying to sell his four-bedroom custom-built East Hampton house for the second time in three years. He’s asking $1.3 million and hasn’t received any offers. “It’s not what it used to be.”

The housing slump is hitting the Hamptons as financial firms have announced more than 76,000 U.S. job cuts sparked by mortgage- related losses and writedowns. The nation’s economic expansion may slow to the weakest pace in six years in the fourth quarter, according to a Bloomberg News survey, and New York Governor David Paterson has said a 20 percent drop in securities industry bonuses this year will cut state revenue by $700 million.

Homes in the Hamptons — where billionaire Ronald Perelman, director Steven Spielberg and “Sex and the City” star Sarah Jessica Parker own — took an average of 143 days to sell in the quarter, up 18 percent from a year earlier, said closely held Miller Samuel. The company appraised more than $5 billion in property in the past year. Sellers in towns including Southampton, Quogue and Amagansett got an average of 9 percent less than their final asking price.

Time for another get together. Mark your calendars, cancel your trips, and tell the inlaws to buzz off.

This Saturday, August 2nd at 5pm
Shannon Rose - http://www.theshannonrose.com/
98 Kingsland Road, Clifton NJ

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From the WSJ:

Amid Housing Slump, Glut Eases Slightly
Rising Foreclosures, Tighter Credit Still Pushing Down Prices; Economists Don’t Expect Big Boost From Congressional Package
By JAMES R. HAGERTY
July 29, 2008; Page D1

The number of homes on the market is finally falling in much of the U.S., but tight credit and a flood of foreclosures are still pushing home prices down.

Making things worse, a sputtering economy is destroying jobs. That means even more foreclosures and fewer potential home buyers.

Mark Zandi, chief economist at Moody’s Corp. Economy.com, says he doesn’t expect a major rebound in home sales and prices before the spring of 2010. “The recovery will vary considerably across the country, with California recovering quickly and Florida much more slowly,” Mr. Zandi says.

“We have the added weight of a recessionary economy” on what was already the weakest housing market since the 1930s, says Jeffrey Otteau, president of Otteau Valuation Group, an East Brunswick, N.J., appraisal firm. He says the market won’t recover fully until employment starts growing again and credit becomes more readily available.

The Wall Street Journal’s quarterly survey of housing data in 28 major metropolitan areas showed that the supply of homes listed for sale declined from a year earlier in 19 of them. (See table on the back page.) If that trend continues, it will signal an eventual rebound. For now, though, supplies remain so ample that potential buyers generally can take their time.
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Perhaps the biggest factor pushing down home prices is the growing glut of foreclosed homes that banks and mortgage investors must sell. In May, such homes accounted for nearly 22% of all sales nationwide, Barclays Capital estimates in a report released last week. In California, Arizona and Nevada, the share was around 40%.

There are about 721,000 foreclosed homes on the market nationwide, up from 112,000 two years ago, Barclays Capital estimates. Analysts at Barclays expect the total to rise 60% before peaking in late 2009.
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Many potential buyers are on the sidelines because they no longer qualify for a mortgage under today’s tougher standards. “They’re having to clean their credit up” and save for a down payment, says John Wood, who owns Re/Max Partners, which operates in the Raleigh, N.C., area. “That is certainly hurting our market.”

Those who can get a loan are finding it more expensive. Rates for 30-year fixed loans that conform with the standards of Fannie and Freddie last week averaged 6.69%, up from 6.55% a month before and about even with the year-earlier level, according to surveys by HSH Associates, a financial publisher. For “jumbo” mortgages, those too large to be purchased by Fannie or Freddie, rates last week averaged 7.70%, up from 7.65% a month earlier and 7.02% a year before, HSH says.

As always, the market varies considerably from city to city and even block to block. The most attractive neighborhoods with short commutes and excellent schools are holding up well.
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Manhattan, a market that until recently seemed immune to the housing slump, is suffering from the loss of Wall Street jobs and expected cuts in bonuses. A modest price fall in 2009 is “a distinct possibility” for Manhattan, says Jonathan Miller, chief executive officer of Miller Samuel, an appraisal firm based in New York. Jeffrey Jackson, chief economist at the appraisal firm Mitchell, Maxwell & Jackson, says prices already have fallen on mediocre Manhattan apartments — such as those that have little natural light or need repairs — and are likely to fall further. “Demand is very weak right now,” he says.

From the WSJ:

Housing Bill Relies on Banks To Take Loan Losses
Lawmakers Pressure Lenders to Pitch In To Curb Foreclosures
By DAMIAN PALETTA
July 28, 2008; Page A3

WASHINGTON — The housing rescue bill passed by the Senate Saturday hasn’t been signed into law, but top Democrats already are putting pressure on regulators and bankers to make sure a major program to prevent foreclosures doesn’t fall flat.

For struggling U.S. homeowners, the success or failure of the program — which would let roughly 400,000 owners refinance into affordable, government-backed loans — depends largely on bankers’ willingness to take a partial loss on the loans and to reduce the amount of money borrowers owe.

Bankers say they will do it, but it isn’t clear how many loans they might be willing to restructure.

“I absolutely do believe that there will be more principal reductions,” Michael Gross, Bank of America Corp.’s managing director for loss mitigation, mortgage, home-equity and insurance services, told a congressional panel Friday.
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Experts say the program’s eventual participation could rise dramatically if home prices continue to drop — which could put more pressure on lenders to offer borrowers more assistance. Lawmakers are already pressing regulators and lenders to prepare now so the program can begin without delay when it goes into effect Oct. 1.
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Taking a loss on a loan by writing down the principal owed is one of the least desirable options for loan servicers. They typically prefer to either lower the interest rate or extend the life of the loan — from 30 years, for example, to 40 years.

“The real problem is going to be, just like with every program out there, are the banks going to take this seriously?” said Rebecca Case-Grammatico, a staff attorney at the Empire Justice Center in Rochester, N.Y., who advises clients facing foreclosure. “And if they don’t, we’re in the same position we’ve been in all along.”
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The program will be run by the Federal Housing Administration, a division of HUD, and will insure up to $300 billion in refinanced 30-year, fixed-rate loans. The mortgages can’t be for more than 90% of a home’s newly appraised value. For mortgages that exceed the value of the home, the lender would have to voluntarily write down the principal to the qualifying level. If the home goes up in value, the borrower must share newly created equity with the FHA.

The program will begin Oct. 1 and end Sept. 30, 2011. Borrowers won’t be able to qualify if they have intentionally defaulted on their loans or if they had a debt-to-income ratio of less than 31% as of March 1.

From the WSJ:

FDIC Faces Mortgage Mess After Running Failed Bank
Subprime Lender Made Problem Loans On Regulators’ Watch
By MARK MAREMONT
July 21, 2008; Page A1

Federal officials heap much of the blame for the subprime mortgage mess on lenders, claiming they recklessly made too many high-cost home loans to borrowers who couldn’t afford them.

It turns out that the U.S. government itself was one of the lenders giving out high-interest, subprime mortgages, some of them predatory, according to government documents filed in federal court.

The unusual situation, which is still bedeviling bank regulators, stems from the 2001 seizure by federal officials of Superior Bank FSB, then a national subprime lender based in Hinsdale, Ill. Rather than immediately shuttering or selling Superior, as it normally does with failed banks, the Federal Deposit Insurance Corp. continued to run the bank’s subprime-mortgage business for months as it looked for a buyer. With FDIC people supervising day-to-day operations, Superior funded more than 6,700 new subprime loans worth more than $550 million, according to federal mortgage data.

The FDIC then sold a big chunk of the loans to another bank. That loan pool was afflicted by the same problems for which regulators have faulted the industry: lending to unqualified borrowers, inflated appraisals and poor verification of borrowers’ incomes, according to a written report from a government-hired expert. The report said that many of the loans never should have been made in the first place.
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At the time the FDIC was running Superior, subprime lending hadn’t yet emerged as the national disaster it since has become. But some lending experts already were faulting industry practices and warning about rising delinquencies. The FDIC’s problems with Superior could fuel criticism that bank regulators were slow to heed warning signs.
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In a recent court filing, the FDIC estimated that about 1,500 of the 5,315 loans it sold to Beal either have defaulted or are nonperforming. The FDIC already has bought back another 247 of the mortgages, most of them for violations of federal anti-predatory-lending laws intended to protect borrowers from unreasonably high fees or deceptive practices. Beal Bank has said in court filings that 73 of the repurchased loans were originated while the FDIC was running Superior.
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The FDIC says that was a draft report. Last month, the agency filed a final version in court, which estimated that about 19% of the loans sold to Beal contained “material” breaches of the warranties — meaning there were significant problems with close to 1,000 mortgages. This version of the report blames Beal Bank for some of the portfolio’s lost value, saying it serviced the loans in an “inferior” manner.

From the NY Times:

Given a Shovel, Americans Dig Deeper Into Debt

For decades, America’s shift from thrift could be summed up in this familiar phrase: When the going gets tough, the tough go shopping. Whether for a car, home, vacation or college degree, the nation’s lenders stood ready to assist.

Companies offered first and second mortgages and home equity lines, marketed credit cards for teenagers and helped college students to amass upward of $100,000 in debt by graduation.

Every age group up to the elderly was the target of sophisticated ad campaigns and direct mail programs. “Live Richly” was a Citibank message. “Life Takes Visa,” proclaims the nation’s largest credit card issuer.

Eliminating negative feelings about indebtedness was the idea behind MasterCard’s “Priceless” campaign, the work of McCann-Erickson Worldwide Advertising, which came out in 1997.

“One of the tricks in the credit card business is that people have an inherent guilt with spending,” Jonathan B. Cranin, executive vice president and deputy creative director at the agency, said when the commercials began. “What you want is to have people feel good about their purchases.”

Mortgage lenders took to cold-calling homeowners to persuade them to refinance. Done to reduce borrowers’ monthly payments, serial refinancings allowed lenders to charge thousands of dollars in loan processing fees, including appraisals, credit checks, title searches and document preparation fees.

Not surprisingly, such practices generated dazzling profits for the nation’s financial companies. And since 2005, when the bankruptcy law was changed, the credit card industry has increased its earnings 25 percent, according to a new study by Michael Simkovic, a former James M. Olin fellow in Law and Economics at Harvard Law School.

The “2005 bankruptcy reform benefited credit card companies and hurt their customers,” Mr. Simkovic concluded in his study. He said that even though sponsors of the bankruptcy bill promised that consumers would benefit from lower borrowing costs as delinquent borrowers were held more accountable, the cost of borrowing from credit card companies has actually increased anywhere from 5 percent to 17 percent.
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Just two generations ago, America was a nation of mostly thrifty people living within their means, even setting money aside for unforeseen expenses.

Today, Americans carry $2.56 trillion in consumer debt, up 22 percent since 2000 alone, according to the Federal Reserve Board. The average household’s credit card debt is $8,565, up almost 15 percent from 2000.

College debt has more than doubled since 1995. The average student emerges from college carrying $20,000 in educational debt.

Household debt, including mortgages and credit cards, represents 19 percent of household assets, according to the Fed, compared with 13 percent in 1980.

Even as this debt was mounting, incomes stagnated for many Americans. As a result, the percentage of disposable income that consumers must set aside to service their debt — a figure that includes monthly credit card payments, car loans, mortgage interest and principal — has risen to 14.5 percent from 11 percent just 15 years ago.

By contrast, the nation’s savings rate, which exceeded 8 percent of disposable income in 1968, stood at 0.4 percent at the end of the first quarter of this year, according to the Bureau of Economic Analysis.

More ominous, as Americans have dug themselves deeper into debt, the value of their assets has started to fall. Mortgage debt stood at $10.5 trillion at the end of last year, more than double the $4.8 trillion just seven years earlier, but home prices that were rising to support increasing levels of debt, like home equity lines of credit, are now dropping.

From Bloomberg:

New 20% Down Payment Makes Savers From Profligate U.S. Spenders

The U.S. housing crisis may accomplish what years of parental hectoring couldn’t: Turn Americans from spenders into savers.

Spending will fall because homeowners can no longer use rising real estate values to borrow cash — $837.5 billion in 2006, according to a report by former Federal Reserve Chairman Alan Greenspan and James Kennedy. With mortgage lenders requiring down payments of 20 percent, the average household, which puts away less than 1 percent of after-tax pay, will have to save 10 percent for 10 years to buy a home.

The housing market shaved almost 1.6 percent off gross domestic product growth in the first quarter and cut in half the growth rate of consumer spending, which accounts for more than two-thirds of the economy, said Mark Zandi, chief economist at Moody’s Economy.com in West Chester, Pennsylvania.

“The loss of housing wealth is the difference between a recessionary economy and a growing economy,” said Zandi, an adviser to presumptive Republican presidential nominee Senator John McCain. “Consumers have powered the global economy for the past 25 years. For the foreseeable future, maybe the next 25 years, the savings rate will move higher.”

The worst housing crisis in at least a quarter century still has a long way to go, Zandi said. It will take until 2015 for the median home price to return to its July 2006 peak of $230,200, while home sales and residential construction will never again reach the record highs of 2005 and 2006, he said.
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The residential housing decline will “change the structure” of the U.S. economy by forcing Americans to save, said Neal Soss, chief economist at Credit Suisse Group in New York.

“The days of wine and roses are over,” said Soss, who worked at the Federal Reserve for former Chairman Paul Volcker in the 1980s. “We were drunk on money. Getting sober is a painful process.”

From the LA Times:

Fed slaps new rules on mortgage lenders

The Federal Reserve clamped down hard on mortgage lenders Monday, issuing rules designed to curb the sorts of risky and deceptive lending practices that helped trigger the subprime mortgage crisis.

The Fed’s action, although criticized by some for not going far enough, was widely seen as a crucial step in reasserting control over a financial market that had been allowed to run wild.

“There’s lots more to come,” said Thomas Lawler, a former Fed official who is now a housing market consultant. “The pendulum is clearly swinging toward more regulation and more government involvement.”

The central thrust of the new rules is to restore sound underwriting practices, such as requiring lenders to verify that borrowers actually have the income and assets to make their loan payments.

The regulations adopted Monday were significantly stiffer than draft proposals issued six months ago, reflecting regulators’ intensifying concern over the fallout from the free-for-all lending that helped create the bubble in home values and led to the mortgage meltdown.
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In adopting the new rules on mortgage lending, Fed Chairman Ben S. Bernanke traced the lenders’ woes back to their own practices.

“Although the high rate of delinquency has a number of causes, it seems clear that unfair or deceptive acts and practices by lenders resulted in the extension of many loans, particularly high-cost loans, that were inappropriate for or misled the borrower,” Bernanke said in a statement.

The new rules take effect Oct. 1 and will apply to all mortgage lenders, brokers, servicers and banks, not just those already regulated by the central bank.

“These rules are a step forward in returning common-sense business practices to the subprime lending market,” said Paul Leonard, director of the California office of the Center for Responsible Lending, a nonprofit advocacy group.
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The Fed’s final version of the regulations were much more stringent than draft proposals issued late last year. The new rules include four measures aimed at targeting abuses in the subprime mortgage market, which has been largely unregulated because the loans are securitized and held by private investors.
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Reinhart of the American Enterprise Institute said the rules also reflected an about-face from the relaxed attitude toward mortgage lending that prevailed under former Fed Chairman Alan Greenspan.

“Alan Greenspan believed in the light hand of regulation. How he put that in place was in not moving at all, and that turns out not to be desirable,” Reinhart said. “So now the government is taking an active role.”

From the Press of Atlantic City:

Short sales saving more locals from foreclosure

An alternative to foreclosure for some homeowners called a short sale is becoming more common in southern New Jersey, according to attorneys who handle such transactions.

Short sales are for homeowners who owe more on their mortgage than the property is worth and need to sell the house to get their finances in order.

For it to work, the lender must agree to accept as payment for the loan what the property is currently worth rather than the higher amount borrowed to buy it.

Lenders such as banks are free to insist on getting full repayment of the loan and many do, said attorney Jeffrey P. Barnes, of Stefankiewicz and Barnes in North Wildwood.

“But it sometimes makes sense to take the market value because the bank will be putting the property up for sale anyway if it goes through foreclosure after paying thousands in attorney’s fees,” Barnes said Friday.

As an example, Barnes told of a Pennsylvania couple who bought a second home in the Wildwoods. As a result of falling real estate values, they wound up owing $50,000 more for the condo than it was worth.

The couple had hoped to rent it out but couldn’t at a price that would cover their mortgage costs, he said. And they had taken out a home equity loan for the down payment on the second home and now couldn’t keep up with all the payments.

“They got quite emotional about it. They had always paid their bills, and they didn’t know what to do. They tried whatever they could to keep it going,” Barnes said.

When their savings were depleted, they looked for a solution and pursued a short sale. Their bank allowed it and in a couple of months, they got out of the second home, he said.