Whaddya Mean There Are Other Offers? I Thought This Was A Buyers' Market!
Elizabeth Bolton - Cambridge MA Real Estate Agent (617)844-2713 contributed from ACTIVERAIN.COM
Given the unrelenting doom and gloom in the media, it's no wonder you feel like you've got the upper hand when you're looking for a new home. Visions of lowball offers, grateful sellers, and bargain basement prices dance in your head.
But real estate is local and even today you may find yourself in a competive market where houses sell quickly and still get multiple offers.
There have been a number of multiple offers in my market recently and it can take newcomers by surprise. Some houses, clearly well priced, get half a dozen or more offers the first weekend on the market. So here's a game plan to take you through the crazy, stress-producing process of buying a home when you've got competition.
What's a savvy buyer to do when there are multiple offers?
For starters, don't be discouraged and don't be afraid. It is possible to "win" and get the house of your dreams and it doesn't necessarily mean you have to break the bank to do so. I've bought three of the four properties I've owned in multiple bid situations - including my first house. And I've been happy with every house - no regrets!
Get A Buyers' Agent
You need to be working with a buyer's agent who will represent your interests in the transaction. Sometimes buyers think that going directly to the seller's agent will give them a leg up. But the seller's agent's responsibility is to the seller, not to you as a buyer. And it's quite likely that the seller will still owe the same commission to the listing office even though only one agent is involved in the transaction. And most important - in a multiple bid situation the listing agent's responsibility is to get the best offer for the seller - regardless of whether you've submitted an offer directly to him or her. The sellers' goal is to get more money in their pockets - not the agent's.
You need somebody on your side. A buyers' agent will be able to:
Pull comparable sales info to enable you to decide on a reasonable but competitive offer price
Advise you about real estate activity in the neighborhood for similar houses
Strategize about how to put together a compelling offer that has a strong chance of prevailing in a bidding war
How Does the Seller Decide Which Offer To Accept?
When the seller looks at several offers there are only so many points to compare. You want to shine on all points:
Price - Go over the comparable sales information with your agent. Don't get stuck on the asking price - the house may be purposely priced low to generate excitement - and that strategy worked! Carefully go over the stats and decide on a price that makes sense and seems competitive. Your agent will have experience in the market and be able to offer advice but ultimately you're deciding on an offer price that is comfortable for you and reflects just how much you want the house.
Don't assume that multiple bids means the offers will go sky high - sometimes all the offers can be under the asking price. Other times it does seem the sky is the limit - we've had at least two houses in Cambridge sell for $1,000,000 over the asking price. The comparable sales info and the amount of activity for the listing should give you some sense of how the offers might go.
Dates - Your agent will find out what dates work best for the seller - do your best to meet them. Maybe you'll have to move in with your parents for a few weeks or move more quickly than you had hoped but remember - you'll be moving into the house you love. The temporary inconvenience will be quickly forgotten.
Contingencies - The typical offer contingencies are financing, inspection, and in the case of condominiums, satisfactory review of the condominium documents. You should have a letter of preapproval from your lender at the ready. Be aware that some buyers may very well drop any and all of their contingencies. You have to decide if you are comfortable eliminating any contingencies. Perhaps you have cash on hand from a previous sale or your parents will back you up and you're open to the idea of dropping a financing contingency. Or you had the chance to go through the property with an inspector prior to submitting your offer.
Everyone's situation will be different and everyone's risk tolerance varies as well. Decide what if any contingencies you're comfortable eliminating. And if you are including contingencies discuss with your agent how to minimize the impact - by tightening dates, increasing the dollar value of repairs you're willing to take on, etc.
Deposits - Expectations for deposit amounts vary in different states and regions. Talk to your agent about the norms in your area and consider increasing the deposit. Thist doesn't cost you anything since the deposit will go towards your down payment. From the sellers' perspective, however, it shows evidence of the seriousness of your offer.
Respect The Emotions Involved In Selling A Home
Don't forget that selling a home is often an emotional transaction. Honor that. The sellers want to feel good about passing on their home to its new caretakers.
Now is not the time for pointed questions or asking for repairs - though that time may come if you've allowed for an inspection. Remember - you're being compared with other buyers. Don't stand out as a pain in the neck - it's not to your advantage if you want the house.
Keep extraneous issues out of the offer. You're buying a house - not the furniture. Focus on the goal and talk about extras later.
And one no-cost but often very effective tool is a letter to the sellers. Write about who you are, why you love the house, and how you'll take good care of it. Mention any special things that stood out to you. If you can tell the sellers took good care of the house say so. If you like their decorating mention that. Sellers will often remember and remark about the letter weeks after receiving it.
Ultimately the seller wants the best price and the fewest hassles. And if they can feel good about the new caretakers of their family home all the better.
What Happens Next?
There aren't any rules for how the seller chooses an offer. You may get an opportunity to better your offer and resubmit at an agreed upon time. Or the seller may choose one of the offers on the spot. It's typically to your advantage to submit as strong an offer as possible in the first round. But it also might not a bad idea to have a small buffer so that you can increase your offer by a few thousand if given the chance. But remember - you might not get that chance. Plan accordingly and put your best foot forward.
Go For It!
Some buyers are tempted to walk away from a multiple offer situation without even making a bid. But if you've found the house you really want - give it your best shot. A multiple bid situation is not insurmountable. And you can't assume that you'll have to write a sky high offer to get your offer accepted. When I sold my first house, purchased in a bidding war during a down market, one of the first people at the open house was one of the other bidders from five years before. I never regretted buying that house and for him it was the one that got away. So - work with your agent, craft your bid, and know that you've done your best. And maybe, just maybe - you'll be the happy new owners. Good luck!
Tuesday, February 10, 2009
Monday, January 05, 2009
This is a good article from the New York Times which I think sums up the attitude of our market overall. What will happen after the election, I am optimistic. The question is what is the catalyst for moving buyers to take action and more importantly having sellers realize the real market value of their ome is the best offer they have at them moment!
I have been telling homesellers that every offer should be treated as if it were the only one the seller will receive.
January 2, 2009
Catskill Home Prices: How Low Will They Go?
By FRED A. BERNSTEIN
RANDY FLORKE, a real estate broker who specializes in weekend houses in the Catskills, ought to be distraught.
Some sellers have had to reduce prices by a third or more. (His own house in Livingston Manor, which he had hoped to sell last year for $299,000, is now listed at $199,000.) And still, he said, buyers are scarce.
But during a drive last week past some of the houses he would like to sell, as sunlight reflected off the perfectly white snowbanks, the situation seemed far from bleak. Mr. Florke said that, if anything, “part of me is thrilled about this market.”
When he started selling weekend houses in 1996, he said, prices in Sullivan County (the heart of what has traditionally been called the Catskills) were so low, he was able to help Manhattanites of modest means buy second homes.
“It was an exciting time,” he said, recalling days when young couples, with only $100,000 to spend, could find a farmhouse fixer-upper. “And I feel like we’re recapturing that moment,” he said. He recently listed a house for $85,000, a price, he said, he hasn’t seen in years.
Mr. Florke, who has several other businesses, can afford to be sanguine. But for many in the Catskills, this is a tough winter.
“Buyers think everything should be a fire sale,” said David Knudsen, a broker at the Catskills Buyer Agency in Liberty, who said the average sale prices declined more than 15 percent from November 2007 to November 2008. At the same time, by all accounts, the number of closings has declined substantially.
The tightened credit market is part of the problem. But even those buyers who can get financing are playing wait-and-see. “They don’t have one iota of motivation to do anything,” Mr. Knudsen said, because they think both prices and interest rates are going lower.
At the same time, Mr. Knudsen said, “many sellers are in la-la land,” unwilling to recognize how low buyers expect prices to go.
And that — the expectations gap — means houses aren’t selling.
In early October, in his Catskills real estate blog, blog.catskill4sale.com, he called the situation an “economic Armageddon.”
A few weeks later, Sullivan County’s largest brokerage, Yeager Realty, with 40 agents in Liberty, Bethel and Rock Hill, shuttered its offices, after a 24-year run. (The company’s owner, Paula Yeager, said she would continue to work from home.) .
Indeed, with so many fewer serious buyers, Mr. Knudsen said, he thought the best advice to some sellers was to close up their houses for the winter, rather than keep them open for the occasional — very occasional — showing.
“If they want to come up for a weekend, they can stay in a motel,” he said. It’s cheaper, he said, than heating the house all winter.
True, Ronny Murphy, a broker at Coldwell Banker Currier Lazier, in Rock Hill, said she has sold a few places recently — one, in Fremont, was reduced to $205,000 from $300,000 — and that she had a “quite a few” people looking in December. Some of them figure “real estate is a better place to put their money than the stock market,” she said.
At the same time, Ms. Murphy said, a number of sellers have taken their houses off the market, because the Multiple Listing Service reports how long they’ve been for sale, and they don’t want the listings to say “one year.” They’ll put them back on the market, as fresh listings, in the spring, she said.
Mr. Florke said that he had an offer on his own house, but the buyer needed financing, which required an appraisal. And the appraiser said he couldn’t come up with comparables, because there hadn’t been any sales nearby in several months.
Homeowners who haven’t been able to sell include Mark and Lisa Hellman, who own a large farmhouse on a spectacular site in Youngsville. After buying the place for $275,000 in 2004, they put $500,000 more into a gut renovation. “I got my dream kitchen,” said Ms. Hellman, surveying her six-burner Viking range and Sub-Zero refrigerator, amid a sea of tasteful cabinetry. The entire house is ready for the cover of a magazine, thanks to the decorating efforts of Ms. Hellman (who is an executive of the fashion house Versace).
But the Hellmans — who have two small children and are considering exchanging their city and country homes for a single suburban residence — put the house on the market in mid-2007. At the time, they were asking $1.2 million. Soon they had an offer for $1 million, which they rejected as too low.
Now their asking price is $985,000, and still no one has looked in months, said Mr. Hellman, an executive of his family’s building maintenance company, Temco Service Industries. That may reflect a particular softness at the high end of the market, Mr. Knudsen and other brokers said.
But the Hellmans have something in common with many people offering houses in the Catskills: they don’t need to sell.
“You don’t see a lot of distressed sellers up here,” said Dorothy McArdle, the owner of Apple Tree Realty, in Andes (a small town in Delaware County). People who bought second homes in the Catskills, she said, have tended to buy places they could afford, and to make large down payments. “You don’t see the high loan-to-value ratio” that is causing problems in other areas, she said.
The owner of a house on a pond in Andes recently lowered the price to $299,000 from $329,000, said Ms. McArdle, who is listing it. She said she had seen “some reductions more drastic than that, but in those cases the original asking prices were inflated to begin with.”
Having sold real estate in Andes for 30 years, Ms. McArdle said she remained “optimistic about the market.
“Right now, people are scared. We need to get through the inauguration, through the winter. At the end of March, the beginning of April, we’ll see an increase in activity.”
But at what prices? Mr. Knudsen said the Catskills were seeing “a move to moderation.” He said that in 2007 “the sweet spot in the second-home market” — where a mid-range New York City buyer would be looking — was around $325,000. “That would have bought a chalet-style house,” he said, “with wood floors, cathedral ceiling, three bedrooms, two bathrooms — a really nice getaway.”
A year later, he said, buyers expect to pay about $100,000 less. “The buyer that I’m seeing in what I call the mid-range — employed, not wealthy, the middle-class urban buyer, looking for a getaway — is looking in the mid-200s. But I don’t know that their expectations have necessarily shrunk as fast as their budgets.”
Some of the biggest bargains may be not in homes, but in homesites. In mid-2007, Redstone Properties, a national developer of subdivisions, began marketing lots in Bethel, in Sullivan County. The lots were priced at $149,900 and up. Some of those same lots, which range from 4 to 10 acres, are now available for as little as $69,900, according to Toby Potterton, the sales manager for the development, the Highlands at Bethel. He said that the company was actually bullish, and that it wanted to sell the land so it could use the money for larger projects.
Undeveloped land isn’t the only real estate available for under $100,000. When a neighbor asked Mr. Florke to list his house — a cute cabin with an unfinished interior — Mr. Florke decided to price it at $85,000, making it his least expensive listing in years. (In 2007, he would have asked almost twice as much, he said.)
“Everyone asks, ‘Are we at the bottom?’ ” Mr. Florke said. His answer: “I don’t know, but there are some great deals out there.”
Indeed, he said, “this may become one of those periods that people look back on with nostalgia, talking about the bargains they were able to pick up.”
I have been telling homesellers that every offer should be treated as if it were the only one the seller will receive.
January 2, 2009
Catskill Home Prices: How Low Will They Go?
By FRED A. BERNSTEIN
RANDY FLORKE, a real estate broker who specializes in weekend houses in the Catskills, ought to be distraught.
Some sellers have had to reduce prices by a third or more. (His own house in Livingston Manor, which he had hoped to sell last year for $299,000, is now listed at $199,000.) And still, he said, buyers are scarce.
But during a drive last week past some of the houses he would like to sell, as sunlight reflected off the perfectly white snowbanks, the situation seemed far from bleak. Mr. Florke said that, if anything, “part of me is thrilled about this market.”
When he started selling weekend houses in 1996, he said, prices in Sullivan County (the heart of what has traditionally been called the Catskills) were so low, he was able to help Manhattanites of modest means buy second homes.
“It was an exciting time,” he said, recalling days when young couples, with only $100,000 to spend, could find a farmhouse fixer-upper. “And I feel like we’re recapturing that moment,” he said. He recently listed a house for $85,000, a price, he said, he hasn’t seen in years.
Mr. Florke, who has several other businesses, can afford to be sanguine. But for many in the Catskills, this is a tough winter.
“Buyers think everything should be a fire sale,” said David Knudsen, a broker at the Catskills Buyer Agency in Liberty, who said the average sale prices declined more than 15 percent from November 2007 to November 2008. At the same time, by all accounts, the number of closings has declined substantially.
The tightened credit market is part of the problem. But even those buyers who can get financing are playing wait-and-see. “They don’t have one iota of motivation to do anything,” Mr. Knudsen said, because they think both prices and interest rates are going lower.
At the same time, Mr. Knudsen said, “many sellers are in la-la land,” unwilling to recognize how low buyers expect prices to go.
And that — the expectations gap — means houses aren’t selling.
In early October, in his Catskills real estate blog, blog.catskill4sale.com, he called the situation an “economic Armageddon.”
A few weeks later, Sullivan County’s largest brokerage, Yeager Realty, with 40 agents in Liberty, Bethel and Rock Hill, shuttered its offices, after a 24-year run. (The company’s owner, Paula Yeager, said she would continue to work from home.) .
Indeed, with so many fewer serious buyers, Mr. Knudsen said, he thought the best advice to some sellers was to close up their houses for the winter, rather than keep them open for the occasional — very occasional — showing.
“If they want to come up for a weekend, they can stay in a motel,” he said. It’s cheaper, he said, than heating the house all winter.
True, Ronny Murphy, a broker at Coldwell Banker Currier Lazier, in Rock Hill, said she has sold a few places recently — one, in Fremont, was reduced to $205,000 from $300,000 — and that she had a “quite a few” people looking in December. Some of them figure “real estate is a better place to put their money than the stock market,” she said.
At the same time, Ms. Murphy said, a number of sellers have taken their houses off the market, because the Multiple Listing Service reports how long they’ve been for sale, and they don’t want the listings to say “one year.” They’ll put them back on the market, as fresh listings, in the spring, she said.
Mr. Florke said that he had an offer on his own house, but the buyer needed financing, which required an appraisal. And the appraiser said he couldn’t come up with comparables, because there hadn’t been any sales nearby in several months.
Homeowners who haven’t been able to sell include Mark and Lisa Hellman, who own a large farmhouse on a spectacular site in Youngsville. After buying the place for $275,000 in 2004, they put $500,000 more into a gut renovation. “I got my dream kitchen,” said Ms. Hellman, surveying her six-burner Viking range and Sub-Zero refrigerator, amid a sea of tasteful cabinetry. The entire house is ready for the cover of a magazine, thanks to the decorating efforts of Ms. Hellman (who is an executive of the fashion house Versace).
But the Hellmans — who have two small children and are considering exchanging their city and country homes for a single suburban residence — put the house on the market in mid-2007. At the time, they were asking $1.2 million. Soon they had an offer for $1 million, which they rejected as too low.
Now their asking price is $985,000, and still no one has looked in months, said Mr. Hellman, an executive of his family’s building maintenance company, Temco Service Industries. That may reflect a particular softness at the high end of the market, Mr. Knudsen and other brokers said.
But the Hellmans have something in common with many people offering houses in the Catskills: they don’t need to sell.
“You don’t see a lot of distressed sellers up here,” said Dorothy McArdle, the owner of Apple Tree Realty, in Andes (a small town in Delaware County). People who bought second homes in the Catskills, she said, have tended to buy places they could afford, and to make large down payments. “You don’t see the high loan-to-value ratio” that is causing problems in other areas, she said.
The owner of a house on a pond in Andes recently lowered the price to $299,000 from $329,000, said Ms. McArdle, who is listing it. She said she had seen “some reductions more drastic than that, but in those cases the original asking prices were inflated to begin with.”
Having sold real estate in Andes for 30 years, Ms. McArdle said she remained “optimistic about the market.
“Right now, people are scared. We need to get through the inauguration, through the winter. At the end of March, the beginning of April, we’ll see an increase in activity.”
But at what prices? Mr. Knudsen said the Catskills were seeing “a move to moderation.” He said that in 2007 “the sweet spot in the second-home market” — where a mid-range New York City buyer would be looking — was around $325,000. “That would have bought a chalet-style house,” he said, “with wood floors, cathedral ceiling, three bedrooms, two bathrooms — a really nice getaway.”
A year later, he said, buyers expect to pay about $100,000 less. “The buyer that I’m seeing in what I call the mid-range — employed, not wealthy, the middle-class urban buyer, looking for a getaway — is looking in the mid-200s. But I don’t know that their expectations have necessarily shrunk as fast as their budgets.”
Some of the biggest bargains may be not in homes, but in homesites. In mid-2007, Redstone Properties, a national developer of subdivisions, began marketing lots in Bethel, in Sullivan County. The lots were priced at $149,900 and up. Some of those same lots, which range from 4 to 10 acres, are now available for as little as $69,900, according to Toby Potterton, the sales manager for the development, the Highlands at Bethel. He said that the company was actually bullish, and that it wanted to sell the land so it could use the money for larger projects.
Undeveloped land isn’t the only real estate available for under $100,000. When a neighbor asked Mr. Florke to list his house — a cute cabin with an unfinished interior — Mr. Florke decided to price it at $85,000, making it his least expensive listing in years. (In 2007, he would have asked almost twice as much, he said.)
“Everyone asks, ‘Are we at the bottom?’ ” Mr. Florke said. His answer: “I don’t know, but there are some great deals out there.”
Indeed, he said, “this may become one of those periods that people look back on with nostalgia, talking about the bargains they were able to pick up.”
Wednesday, November 19, 2008
Glitzy Greenwich feels hedge fund pain
© Thomson Reuters 2008 All rights reserved
GREENWICH, Connecticut (Reuters) - As many hedge funds suffer big losses and anxious investors yank out their money, the town synonymous with the riches of their recent glory is now hurting.
In Greenwich, Connecticut, the luxury car dealers are quiet, the prices of mansions are declining and the retailers who have made a good living serving its wealthy residents are complaining about a sudden drop in business.
"Everything is down. We started to see it in the summer, but October is when the bottom caved in," said James McArdle, whose family has run McArdle's Florist and Garden Center in Greenwich for 98 years. "Housing sales are down and so that always cuts into our market. Fewer buyers, fewer makeovers."
For as long as there's been a Wall Street, titans of finance and industry have built their palaces in this shoreline town 30 miles from New York. Later it became home to hedge funds -- lightly regulated investment pools that made rich clients richer and turned their managers into billionaires.
According to Hedge Fund Intelligence, this town of 62,000 was until recently home to 35 firms that together managed more than $200 billion of assets, greater than the annual GDP of nations such as Chile or Malaysia.
Now, two months after the bankruptcy of Lehman Brothers and the near collapse of American International Group, financial markets are still reeling and government bailouts of banks and other financial companies continue at a breathtaking pace.
After the worst back-to-back months in a decade, some expect one third of hedge funds will be forced to shut down and others will become much smaller than they were. Billionaire investor George Soros, one of the world's first hedge fund managers and among the most famous, has predicted the industry would shrink by as much as two-thirds.
Visit this town and it soon becomes clear that things aren't quite what they used to be. One recent weekday morning, the only creature strolling the showroom floor of Carriage House Motor Cars was a tiny mouse.
Richard Koppelman, owner of rival luxury dealership Miller Motorcars, did not want to discuss his sales. "We're in a cyclical business. It's obviously down right now. We'll hopefully see things get better soon," he said.
For now, there are fewer people able to splurge on cars like the 2009 Bentley Continental GTC, which Miller's website lists at more then $212,000 or a "base" 2008 Ferrari 612 Scaglietti coupe for just $263,500 and change.
The town itself is bracing for a slowdown in taxes and fees generated by property sales and new home permits. It froze hiring to hold headcount down.
"I think everybody is cautious. There's a high level of uncertainty," said Peter Tesei, the town's first selectman, an elected post akin to mayor.
For years, Greenwich benefited from hosting these funds, he said, but now these benefactors have less to spend. One tree service firm suffered a 30 percent decline, Tesei said, while local charities and cultural centers expect donations to fall.
The town's top notch Bruce Museum, which is operated by a private nonprofit organization, recently postponed a $16 million expansion in light of the market downturn, Tesei said.
Worries about the future have chilled the heady world of Greenwich real estate, where the average transaction price is $2.5 million and prices exceeding $20 million are not uncommon. Since markets were upended, real estate agents say houses are staying on the market longer and prices were down.
"There are fewer people buying $10 million, $20 million homes. We're seeing an adjustment, a correction taking place," said Roxana Bowgen, an estate agent at Engel & Volker, an international broker of high-end properties. "These things have to happen. After a while, things need to be cleaned up."
Bowgen, a former commodities trader at Phibro, stressed that houses are still being sold, but the pace has slowed. Banks demand two appraisals rather than the one or even none asked for in the past, she said. Mortgages are harder to get.
"People are in a wait-and-see mode. Buyers are not ready to jump in without asking a lot of questions. They're taking their time -- there's a lot more inventory," Bowgen said.
Realtor David Ogilvy of Ogilvy & Associates noted many managers he knows have weathered the financial storm, some by holding big piles of cash or correctly betting markets would fall, but they are being discreet about buying big homes.
Still, "We're definitely slower than we were," Ogilvy said. "Some people who have taken it on the chin, they were heavily leveraged. We don't know who they are yet."
For now, the proud citizens of Greenwich remain upbeat. The heart of the town is Greenwich Avenue, a mile-long stretch of high end shops that rivals the offerings of Beverly Hills. Besides some home grown luxe merchants and restaurants, there are elite national brands such as Coach, Saks and Tiffany's.
Even the police provide personal service. In lieu of traffic lights, officers stand watch over several intersections to usher shoppers across the street and scold jaywalkers.
Terry Bettridge, whose family has run Bettridge Jewelers on the Avenue since the 1940s, said the fall of Lehman has hurt a business where customers spend $10,000 to $50,000 at a time.
"Business was phenomenal in the first quarter. When Bear Stearns fell apart, things began to get a little wonky but were still up. But when Lehman went under, there was a precipitous fall in business," Bettridge said.
Another sign of the times is that a third of Greenwich High School's 2,700 students -- most raised in affluence -- are seeking jobs through a school-sponsored placement service and the number of new students registering for the service jumped to 230 in September from 170 last year.
In general, people are starting to keep a tighter hold on the purse strings.
"My clients are being a little more cautious. They're not doing everything at once. They're being more thoughtful," said Cindy Rinfret, who owns an interior design and decoration business that carries her name. "Before, it was 'How quickly can you get it done?'"
Rinfret, who wrote a book on style featuring Greenwich's colonial, Tudor and English country style houses, said her business has held up well. Some clients who cannot sell their house are spending to improve their surroundings, she said.
Residents have not stopped spending completely, but they're being a little more thrifty, she said. A friend planning a party for 150 people invited 20 close friends instead after a big drop in financial markets.
Luxury merchants are adapting to the environment, too, reaching out to customers.
"Given everything going on, things are good. But I wont lie to you: are we feeling it? Of course," said Scott Mitchell, a co-owner of Mitchell's. The family-owned department store sells high-end jewelry and clothing from brands such as Brunello Cucinelli and Hermes, and even Ralph Lauren sweaters costing $1,000.
Business has remained strong, though the store is adapting to the environment, he said.
"We are keeping our inventory in balance. That's our biggest expense. We're cutting expenses that don't touch the customer. We are trying to reach out to our customers, one-on-one, and thank them for their business," Mitchell said.
Greenwich merchants observed that the town was affluent long before the hedge fund boom and has weathered downturns before. Its proximity to New York City and top-notch facilities, they said, will always make it a destination for wealthy families.
"You're talking about a town that historically has housed some of the greatest wealth in the world," said Ron Cavalier, who sells artwork at Cavalier Galleries. "My guess is that, of all the towns, Greenwich is going to be affected the least."
(Reporting by Joseph A. Giannone; Editing by Eddie Evans)
© Thomson Reuters 2008 All rights reserved
GREENWICH, Connecticut (Reuters) - As many hedge funds suffer big losses and anxious investors yank out their money, the town synonymous with the riches of their recent glory is now hurting.
In Greenwich, Connecticut, the luxury car dealers are quiet, the prices of mansions are declining and the retailers who have made a good living serving its wealthy residents are complaining about a sudden drop in business.
"Everything is down. We started to see it in the summer, but October is when the bottom caved in," said James McArdle, whose family has run McArdle's Florist and Garden Center in Greenwich for 98 years. "Housing sales are down and so that always cuts into our market. Fewer buyers, fewer makeovers."
For as long as there's been a Wall Street, titans of finance and industry have built their palaces in this shoreline town 30 miles from New York. Later it became home to hedge funds -- lightly regulated investment pools that made rich clients richer and turned their managers into billionaires.
According to Hedge Fund Intelligence, this town of 62,000 was until recently home to 35 firms that together managed more than $200 billion of assets, greater than the annual GDP of nations such as Chile or Malaysia.
Now, two months after the bankruptcy of Lehman Brothers and the near collapse of American International Group, financial markets are still reeling and government bailouts of banks and other financial companies continue at a breathtaking pace.
After the worst back-to-back months in a decade, some expect one third of hedge funds will be forced to shut down and others will become much smaller than they were. Billionaire investor George Soros, one of the world's first hedge fund managers and among the most famous, has predicted the industry would shrink by as much as two-thirds.
Visit this town and it soon becomes clear that things aren't quite what they used to be. One recent weekday morning, the only creature strolling the showroom floor of Carriage House Motor Cars was a tiny mouse.
Richard Koppelman, owner of rival luxury dealership Miller Motorcars, did not want to discuss his sales. "We're in a cyclical business. It's obviously down right now. We'll hopefully see things get better soon," he said.
For now, there are fewer people able to splurge on cars like the 2009 Bentley Continental GTC, which Miller's website lists at more then $212,000 or a "base" 2008 Ferrari 612 Scaglietti coupe for just $263,500 and change.
The town itself is bracing for a slowdown in taxes and fees generated by property sales and new home permits. It froze hiring to hold headcount down.
"I think everybody is cautious. There's a high level of uncertainty," said Peter Tesei, the town's first selectman, an elected post akin to mayor.
For years, Greenwich benefited from hosting these funds, he said, but now these benefactors have less to spend. One tree service firm suffered a 30 percent decline, Tesei said, while local charities and cultural centers expect donations to fall.
The town's top notch Bruce Museum, which is operated by a private nonprofit organization, recently postponed a $16 million expansion in light of the market downturn, Tesei said.
Worries about the future have chilled the heady world of Greenwich real estate, where the average transaction price is $2.5 million and prices exceeding $20 million are not uncommon. Since markets were upended, real estate agents say houses are staying on the market longer and prices were down.
"There are fewer people buying $10 million, $20 million homes. We're seeing an adjustment, a correction taking place," said Roxana Bowgen, an estate agent at Engel & Volker, an international broker of high-end properties. "These things have to happen. After a while, things need to be cleaned up."
Bowgen, a former commodities trader at Phibro, stressed that houses are still being sold, but the pace has slowed. Banks demand two appraisals rather than the one or even none asked for in the past, she said. Mortgages are harder to get.
"People are in a wait-and-see mode. Buyers are not ready to jump in without asking a lot of questions. They're taking their time -- there's a lot more inventory," Bowgen said.
Realtor David Ogilvy of Ogilvy & Associates noted many managers he knows have weathered the financial storm, some by holding big piles of cash or correctly betting markets would fall, but they are being discreet about buying big homes.
Still, "We're definitely slower than we were," Ogilvy said. "Some people who have taken it on the chin, they were heavily leveraged. We don't know who they are yet."
For now, the proud citizens of Greenwich remain upbeat. The heart of the town is Greenwich Avenue, a mile-long stretch of high end shops that rivals the offerings of Beverly Hills. Besides some home grown luxe merchants and restaurants, there are elite national brands such as Coach, Saks and Tiffany's.
Even the police provide personal service. In lieu of traffic lights, officers stand watch over several intersections to usher shoppers across the street and scold jaywalkers.
Terry Bettridge, whose family has run Bettridge Jewelers on the Avenue since the 1940s, said the fall of Lehman has hurt a business where customers spend $10,000 to $50,000 at a time.
"Business was phenomenal in the first quarter. When Bear Stearns fell apart, things began to get a little wonky but were still up. But when Lehman went under, there was a precipitous fall in business," Bettridge said.
Another sign of the times is that a third of Greenwich High School's 2,700 students -- most raised in affluence -- are seeking jobs through a school-sponsored placement service and the number of new students registering for the service jumped to 230 in September from 170 last year.
In general, people are starting to keep a tighter hold on the purse strings.
"My clients are being a little more cautious. They're not doing everything at once. They're being more thoughtful," said Cindy Rinfret, who owns an interior design and decoration business that carries her name. "Before, it was 'How quickly can you get it done?'"
Rinfret, who wrote a book on style featuring Greenwich's colonial, Tudor and English country style houses, said her business has held up well. Some clients who cannot sell their house are spending to improve their surroundings, she said.
Residents have not stopped spending completely, but they're being a little more thrifty, she said. A friend planning a party for 150 people invited 20 close friends instead after a big drop in financial markets.
Luxury merchants are adapting to the environment, too, reaching out to customers.
"Given everything going on, things are good. But I wont lie to you: are we feeling it? Of course," said Scott Mitchell, a co-owner of Mitchell's. The family-owned department store sells high-end jewelry and clothing from brands such as Brunello Cucinelli and Hermes, and even Ralph Lauren sweaters costing $1,000.
Business has remained strong, though the store is adapting to the environment, he said.
"We are keeping our inventory in balance. That's our biggest expense. We're cutting expenses that don't touch the customer. We are trying to reach out to our customers, one-on-one, and thank them for their business," Mitchell said.
Greenwich merchants observed that the town was affluent long before the hedge fund boom and has weathered downturns before. Its proximity to New York City and top-notch facilities, they said, will always make it a destination for wealthy families.
"You're talking about a town that historically has housed some of the greatest wealth in the world," said Ron Cavalier, who sells artwork at Cavalier Galleries. "My guess is that, of all the towns, Greenwich is going to be affected the least."
(Reporting by Joseph A. Giannone; Editing by Eddie Evans)
Monday, November 17, 2008
Waiting for a Buyer:
Ok, I admit that the market has changed. But, still I wonder why I have had no offers since listing this exceptional townhouse: Staged, Never Lived In, Priced to Move!
At $699,000, there is nothing like it anywhere...Original price $785,000. For a personal appointment, email or call me at (203) 253-7653
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<
Ok, I admit that the market has changed. But, still I wonder why I have had no offers since listing this exceptional townhouse: Staged, Never Lived In, Priced to Move!
At $699,000, there is nothing like it anywhere...Original price $785,000. For a personal appointment, email or call me at (203) 253-7653
CLICK THE BLUE HOUSE TO SEE THE LEAST EXPENSIVE NEW CONSTRUCTION TOWNHOUSE IN GREENWICH, CT
<
Wednesday, April 23, 2008
Our Towns
Hints of Fear in the Land of Mansions
By PETER APPLEBOME
GREENWICH, Conn.
You could have a pretty good time checking out the merchandise if you’re looking for a place to hang your hat in Greenwich: Mel Gibson’s manse on 75 acres with the walk-in fireplace and the two-handed Scottish claymore sword hanging above the mantel (asking price $39 million); Leona Helmsley’s 40 acres, which just went on the market for $125 million; the stunning 10-acre property overlooking Long Island Sound being sold, most likely, as a $34 million teardown.
But this might not be the first place you would come to take the temperature of the real estate market, Greenwich being the typical housing market much the way Maria Sharapova is the typical eHarmony.com Internet date.
On the other hand, who knows? The rich may be different, but judging from the chatter of real estate agents touring open houses on Tuesday, maybe not all that different as the house-selling season staggers off to an uncertain start.
When the subprime bubble became a problem for the housing market, people here yawned. Who in Greenwich has a subprime loan? If they’re yawning now, though, it’s only because they’re sitting around bored as megahomes sit on the market like beached yachts.
All of which is another reminder of just how far the contagion has spread. And it is serious grist for Chris Fountain, who fills one of those niches that would have to be invented if it didn’t exist: real estate blogger of Greenwich.
There’s always real estate to talk about in Greenwich — witness a report in The Greenwich Time this week that neighbors are upset about a proposed 30,000-square-foot house (Turkish bath, Finnish bath, gym, theater, wine cellar, etc.; not everyone is hurting) deemed too big even for Greenwich.
“Real estate is to Greenwich what wheat is to Kansas,” said Mr. Fountain, a recovering lawyer and sometime author who has been selling real estate since 2002 and writing about it since 2003 (he has a column in The Greenwich Post, a local weekly, along with the blog, greenwichrealestate.blogspot.com ). “It’s a blood sport in Greenwich. When I get stopped in the supermarket, you never know if people want to say hello or punch you in the nose.”
As he said on his blog the other day, real-estate brokers do not like it when their peers pass on any bad news, but, “Our selling clients certainly can figure out what’s going on, because their houses aren’t selling, so who are we supposed to be keeping in the dark?” He cited figures showing that as of the end of February, the number of sales in Greenwich was down 39 percent compared with last year.
The Greenwich market probably peaked in the fourth quarter of 2005 and has been slowing since, but this is the first time there’s a whiff of panic in the air.
After sampling the quiche and crudités at the lunch buffet in the empty kitchen of one of the new houses in the Golden Triangle area of Greenwich’s mid-country, the brokers wandered around with the air of picky estate appraisers.
Yes, it had the basics: 6 bedrooms, 7 ½ baths (it is practically illegal in Greenwich to build houses in which the future investment bankers of America don’t have their own bathrooms), master suite in the master wing, pool, spa. But at north of $10 million, in this market, well, maybe the closets were a tad small, the fixtures kind of ordinary, the mix-and-match exterior of stone and clapboard generic enough to be best described as neo-neo.
Mr. Fountain figured it would eventually sell for $7 million. Someone else said $7.5. The high estimate was $8, but she was talked down to $7.5 as well.
“It’s going to be an interesting market,” said one.
“It is an interesting market,” said a second.
“It’s going to be a challenging market,” said a third, and the escalation stopped there.
At the very top, the market seems to be holding up, because those buyers (unless they happened to work for Bear Stearns) tend to have enough stock to make anything work. It’s more the meat-and-potatoes houses in the $2 million to $4 million level that have really been hit, as lenders demand 30 percent or more as a down payment instead of the 20 percent in days gone by.
(And, truth to tell, even in Greenwich there is public housing, modest cottages that now cost six figures, and plenty of ordinary people living in houses they could never afford to buy.)
Of course, there are already winners. Mr. Fountain cited a deal in which he represented the buyer. The house was listed for $11.5 million, fell to $8.5 and finally sold for $6.9 million. (Hint: If you’re shopping, don’t offer $125 million for the Helmsley place).
Mr. Fountain lives in a house his grandmother bought for $17,000 in 1957 that is now a $2 million or $2.5 million teardown. “Right in the dumpster,” he said.
He figures everyone got spoiled, in Greenwich like nowhere else, but people have to realize that for now, at least, the music has stopped. He figures there’s a bottom somewhere, but it’s not necessarily around the corner, and, in Greenwich, at least, that’s not necessarily the end of the world.
“I once worked on the defense of a young man wrongfully convicted of rape and sentenced to 18 years in prison,” he said. “That’s something to lose sleep over, for years. Someone doesn’t buy a house? Hey, there are plenty more out there.”
Hints of Fear in the Land of Mansions
By PETER APPLEBOME
GREENWICH, Conn.
You could have a pretty good time checking out the merchandise if you’re looking for a place to hang your hat in Greenwich: Mel Gibson’s manse on 75 acres with the walk-in fireplace and the two-handed Scottish claymore sword hanging above the mantel (asking price $39 million); Leona Helmsley’s 40 acres, which just went on the market for $125 million; the stunning 10-acre property overlooking Long Island Sound being sold, most likely, as a $34 million teardown.
But this might not be the first place you would come to take the temperature of the real estate market, Greenwich being the typical housing market much the way Maria Sharapova is the typical eHarmony.com Internet date.
On the other hand, who knows? The rich may be different, but judging from the chatter of real estate agents touring open houses on Tuesday, maybe not all that different as the house-selling season staggers off to an uncertain start.
When the subprime bubble became a problem for the housing market, people here yawned. Who in Greenwich has a subprime loan? If they’re yawning now, though, it’s only because they’re sitting around bored as megahomes sit on the market like beached yachts.
All of which is another reminder of just how far the contagion has spread. And it is serious grist for Chris Fountain, who fills one of those niches that would have to be invented if it didn’t exist: real estate blogger of Greenwich.
There’s always real estate to talk about in Greenwich — witness a report in The Greenwich Time this week that neighbors are upset about a proposed 30,000-square-foot house (Turkish bath, Finnish bath, gym, theater, wine cellar, etc.; not everyone is hurting) deemed too big even for Greenwich.
“Real estate is to Greenwich what wheat is to Kansas,” said Mr. Fountain, a recovering lawyer and sometime author who has been selling real estate since 2002 and writing about it since 2003 (he has a column in The Greenwich Post, a local weekly, along with the blog, greenwichrealestate.blogspot.com ). “It’s a blood sport in Greenwich. When I get stopped in the supermarket, you never know if people want to say hello or punch you in the nose.”
As he said on his blog the other day, real-estate brokers do not like it when their peers pass on any bad news, but, “Our selling clients certainly can figure out what’s going on, because their houses aren’t selling, so who are we supposed to be keeping in the dark?” He cited figures showing that as of the end of February, the number of sales in Greenwich was down 39 percent compared with last year.
The Greenwich market probably peaked in the fourth quarter of 2005 and has been slowing since, but this is the first time there’s a whiff of panic in the air.
After sampling the quiche and crudités at the lunch buffet in the empty kitchen of one of the new houses in the Golden Triangle area of Greenwich’s mid-country, the brokers wandered around with the air of picky estate appraisers.
Yes, it had the basics: 6 bedrooms, 7 ½ baths (it is practically illegal in Greenwich to build houses in which the future investment bankers of America don’t have their own bathrooms), master suite in the master wing, pool, spa. But at north of $10 million, in this market, well, maybe the closets were a tad small, the fixtures kind of ordinary, the mix-and-match exterior of stone and clapboard generic enough to be best described as neo-neo.
Mr. Fountain figured it would eventually sell for $7 million. Someone else said $7.5. The high estimate was $8, but she was talked down to $7.5 as well.
“It’s going to be an interesting market,” said one.
“It is an interesting market,” said a second.
“It’s going to be a challenging market,” said a third, and the escalation stopped there.
At the very top, the market seems to be holding up, because those buyers (unless they happened to work for Bear Stearns) tend to have enough stock to make anything work. It’s more the meat-and-potatoes houses in the $2 million to $4 million level that have really been hit, as lenders demand 30 percent or more as a down payment instead of the 20 percent in days gone by.
(And, truth to tell, even in Greenwich there is public housing, modest cottages that now cost six figures, and plenty of ordinary people living in houses they could never afford to buy.)
Of course, there are already winners. Mr. Fountain cited a deal in which he represented the buyer. The house was listed for $11.5 million, fell to $8.5 and finally sold for $6.9 million. (Hint: If you’re shopping, don’t offer $125 million for the Helmsley place).
Mr. Fountain lives in a house his grandmother bought for $17,000 in 1957 that is now a $2 million or $2.5 million teardown. “Right in the dumpster,” he said.
He figures everyone got spoiled, in Greenwich like nowhere else, but people have to realize that for now, at least, the music has stopped. He figures there’s a bottom somewhere, but it’s not necessarily around the corner, and, in Greenwich, at least, that’s not necessarily the end of the world.
“I once worked on the defense of a young man wrongfully convicted of rape and sentenced to 18 years in prison,” he said. “That’s something to lose sleep over, for years. Someone doesn’t buy a house? Hey, there are plenty more out there.”
Thursday, January 17, 2008
What’s Next for New York City Real Estate?
By CHRISTINE HAUGHNEY
Published: January 13, 2008
LOOKING back, 2007 was supposed to be the year that the Manhattan residential real estate market slowed down and began to look a bit more like the slumping national market.
Published: January 13, 2008
LOOKING back, 2007 was supposed to be the year that the Manhattan residential real estate market slowed down and began to look a bit more like the slumping national market.
But that didn’t happen. While there were periods when condominiums and co-ops sat unsold because buyers and sellers couldn’t agree on prices, the year ended with the average price of a Manhattan apartment rising to a record $1.4 million, though the number ballooned in part because so many wealthy buyers purchased extraordinarily expensive condos.
No one is predicting that 2008 will be a repeat of 2007. The sprawling pieds-Ã -terre may still sell for millions at the Plaza and 15 Central Park West, but in general, economists are predicting that prices will drop in some segments of the market and in some neighborhoods around the city.
“New York has had a very good run, and there are still a lot of people sitting around with cash,” said Christopher Mayer, the Paul Milstein professor of real estate at Columbia Business School. “But that doesn’t last forever.”
There are already signs of a more sober market ahead: Wall Street workers may face leaner bonuses this year and in years to come, borrowers may have a harder time getting mortgages and foreign buyers may reconsider the potential returns of investing in New York.
Mr. Mayer said that a national recession could weaken Manhattan prices even further because fewer workers could afford to buy in the borough.
Diane M. Ramirez, president of Halstead Property, is less concerned about a recession because the inventory of property on the market is currently low. She said that in the recession of the late ’80s, Manhattan dropped sharply because the city had an oversupply of apartments. “We had a deeper, longer recession than most cities,” she said. “We lost 20 to 50 percent value.”
When trying to gauge the real estate market — or, for that matter, the city’s economic outlook — the first stop is always Wall Street.
Wall Street jobs make up 5 percent of the total jobs in New York City but 23 percent of the city’s total wages, according to data tracked by the New York State DepartmenticesLabor. Annual bonuses are also tracked by real estate brokers with a fanatical devotion.
History shows that a great deal of the bonus money is used to buy real estate. Financial workers are typically the first buyers to show up with the cash in the spring buying market, and this helps shape demand for apartments.
“That energy of the bonus money really does get the spring market percolating,” Ms. Ramirez said. “The bonus tends to be the starting gate for them.”
While it may seem counterintuitive, considering how much havoc the subprime crisis has brought to the financial industry, one analyst is predicting that 2007 bonuses, which workers will receive over the next couple of months, will be about the same as last year’s record bonus year for some bankers.
These workers are compensated based on their performance for the whole year, and most banks did well leading up to the credit crisis last summer. So, while workers may not earn more than they did in 2006, they could still have plenty of money to put toward real estate.
Alan Johnson, the managing director of Johnson Associates, a firm that tracks compensation data, said that over all, bonuses should remain flat for a broad spectrum of the financial industry. “This year was a pretty good year for bonuses, roughly on par with 2006, some of them less, some of them more,” he said.
But, he said, that won’t necessarily be true a year from now, and this knowledge could keep traders and investment bankers from splurging on real estate this year as they have in past years.
“Everybody sees the storm clouds on the horizon,” because Wall Street firms have already had write-downs of more than $100 billion from their mortgage-backed securities businesses, Mr. Johnson said. “If you’re going to commit to some big purchase, it makes you pause. Your pay may go down.”
He predicts that by the end of 2008 employees at the top will be hurt the most: those whose total compensation of salaries and bonuses is more than $1 million could see cuts by 40 to 50 percent; those in the $500,000 to $1 million range could see cuts of about 20 percent; and those with pay of less than $500,000 could see 10 percent cuts.
Shai Shustik, the president of the brokerage firm Manhattan Residential Inc., which has many clients who work on Wall Street, says they are proceeding with more caution. “I don’t think people are as gung-ho and anxious to get out there and spend everything they made, like they did in 2007,” he said. “People aren’t going to stretch as much.” In the past, “the guys who tell you they’re spending $2 million spend $2.4 million or $2.6 million,” he said. “Now, they want to stick to $2 million.”
Many of these Wall Street employees might also find that their bonuses are being paid less in cash and more in stock.
Melissa Cohn, the president of the Manhattan Mortgage Company, said that one banker who had negotiated the contract on a $9 million town house had to pull out of the deal because he found out he would receive only $750,000 in cash from his total bonus. The remainder would take other forms, like stock, meaning that he would have less to spend in the near term on real estate. “He’s gone from the $9 million to $10 million range to the $5 million to $6 million range,” she said. “Everyone in general is being more conservative.”
Moving beyond bonuses, the fallout from the mortgage crisis is likely to touch a broad swath of the real estate market. Qualifying for mortgages, for instance, may be more problematic this year for buyers in all price ranges. The mortgage crisis, which was set off by defaulting subprime loans last summer, has forced lenders to tighten their standards across the board in both Manhattan and the boroughs.
Richard Barenblatt, a mortgage broker with the Apple Mortgage Corporation, advises his clients to prepare themselves for far stricter mortgage requirements than they would have faced six months ago.
For starters, lenders expect borrowers to make higher down payments for co-ops and condos. He said that before the broad defaults on subprime mortgages forced banks this past summer to tighten standards, buyers with good credit applying for full-income verification loans could qualify for mortgages worth 95 percent of the purchase price up to $1 million. Now these same buyers qualify for mortgages valued at only 90 percent of the price up to $1 million.
Some lenders are also requiring borrowers to have more money in reserve; for example, borrowers applying for jumbo mortgages — those surpassing $417,000 — may need to show that they have the equivalent of up to 12 months of mortgage payments in cash after closing.
Mr. Barenblatt encourages buyers to pay down credit card balances below 40 percent of their total combined credit card limits; for buyers with debt levels above that, he said, banks are less likely to approve mortgages.
He also thinks buyers should talk to their lawyers about getting mortgage and appraisal contingencies written into their contracts. A contingency is a clause that allows a buyer to back out of a deal if he or she can’t find a mortgage, if the lender changes the terms of the mortgage before closing or if an appraisal comes in unexpectedly low. In the past, sellers in Manhattan have often balked at contingencies, because there was usually another buyer waiting in the wings willing to buy without one. Mr. Barenblatt also encourages buyers to try to get preapproved for mortgages.
Condo buyers might find extra scrutiny when visiting the mortgage broker because lenders have seen too many cities around the country where new condos are sitting vacant or unfinished.
Some major lenders in New York have stopped giving mortgages at condo projects where the developer has not sold 90 percent of the units. These banks are imposing even stricter standards than those Fannie Mae and Freddie Mac are putting into effect on March 1 for mortgages below $417,000, according to Brad German, a spokesman for Freddie Mac. The threshold for the two government lenders: 51 percent of units must be sold.
“We changed our guidelines in response to shifts in the real estate market, including oversupplies in Florida, Las Vegas, Arizona and other condo markets outside of New York City,” he wrote in an e-mail message. “Our mortgage purchase guidelines are national in scope.”
These national guidelines are making it more difficult for condo buyers in Manhattan. Foreign buyers and financial industry employees have paid top dollar for these new apartments in the last year precisely because they required less money down and had more flexible requirements than co-ops.
Ms. Cohn of Manhattan Mortgage tells of clients who have had mortgage applications rejected by some banks because the building where they wanted to buy was not 90 percent sold out. “There has been an apocalyptic change in the lending market,” she said. “Banks that were market leaders have eliminated numbers of programs and products and have made sweeping changes.”
Foreign buyers, who have made about a third of the condo purchases in the last 18 months, have done so because they see it as a wise investment considering the weakness of the dollar, said Mr. Mayer of Columbia Business School. But, he added, even foreign buyers will walk away from deals if they don’t think Manhattan prices will remain strong or if they cannot expect high returns on their investments.
“They don’t need to buy real estate to make a bet on the dollar,” he said.
All of these situations could create a window of opportunity for buyers. In fact, certain market segments have already started to show signs of slowing.
Sofia Kim, who is the head of research for StreetEasy.com, said that out of the 24,000 apartments listed by the site at some point in 2007, about 20 percent, or 4,800, had cut prices, by an average of 8 percent.
Most sellers who cut their prices were offering one- and two-bedroom co-ops, Ms. Kim said. These price cuts were concentrated on the Upper East Side and in Chelsea, Greenwich Village and Midtown. In the coming year, she expects that sellers may continue to cut their prices if sales are slow.
Prices in Inwood and Hudson Heights, in the northern reaches of Manhattan, had dropped about 5 percent by the end of last year, according to fourth-quarter data released by Halstead Property.
Data from the Corcoran Group, tracking sales in Brooklyn in the fourth quarter of 2007, show that prices on certain types of apartments in coveted neighborhoods like Park Slope and Fort Greene had dropped slightly.
Some neighborhoods like Williamsburg and Greenpoint have had 15 percent price drops from their peak in the summer of 2005, and sellers are negotiating deals, said David Maundrell, the president of Aptsandlofts.com, a Williamsburg brokerage.
Brooklyn buyers, he said, have been especially fortunate in negotiating deals on new condos. Developers of new condos with fewer than 10 units have agreed to pay closing costs for buyers, while developers of larger projects have been willing to negotiate on price. “Most of my guys in the larger buildings will consider any offer,” Mr. Maundrell said.
Prices in New York City are not expected to be significantly affected by foreclosures this year, as the number of foreclosures in the city’s outlying neighborhoods is rising, but still low. Fourth-quarter data tracked by PropertyShark.com show that there were 605 foreclosures throughout New York City in the fourth quarter of 2007, a 71 percent increase over the 354 foreclosures in the same period in 2006.
But that is in a city of three million households and represents only 0.02 percent of New York City inventory. That’s far less than in Miami, which has a 0.25 percent foreclosure rate, and Los Angeles, which has a 0.21 percent foreclosure rate.
Ryan Slack, the chief executive of PropertyShark, said that the New York numbers may rise steadily through 2008, but they will still represent only a tiny share of the overall market. “They’re not that high a percentage of the inventory,” he said. “If you’re selling into the market, you’re going to be more affected by the dynamics of buyers and sellers than foreclosures.”
The rental market, which has been exceptionally tight for the last few years, is also showing some signs of loosening up. Marc Lewis, the chief operating officer of rentals and investment sales at Century 21 Fine Homes and Estates, says that the rental market slowed in the middle of September and has not picked up since.
The December survey of 10,000 apartments tracked by the Real Estate Group New York shows that the rental market fell from the previous month, especially on the Upper West and East Sides, and in Midtown East, Gramercy Park and SoHo. Some declines were striking; rent in studios in doorman buildings in the financial district, for example, dropped by $503, to $2,559 a month.
Mr. Lewis said there were fewer new hires relocating to Manhattan for jobs and paying high rents. He said that landlords were much more willing to pay commissions, offer a free month’s rent or both. And, he said, they’re much more willing to negotiate on apartments that rent for more than $2,000.
“If they have an apartment that’s empty for a week or two or a month, they’ll entertain an offer,” Mr. Lewis said. “It’s definitely going to continue for the next three, four or five months.”
In the end, economists and real estate brokers say they don’t expect Manhattan to suffer as severe a housing slump as the rest of the nation because there hasn’t been as much overbuilding.
That’s because banks stopped lending to developers to build more condos and developers turned nearly a third of the sites into other uses like hotels, offices and rental buildings, said Robert Knakal, the chairman of the commercial real estate brokerage Massey Knakal Realty Services Inc., based on what he saw from the projects that his company had marketed.
In addition, more of the condos that were built were snapped up by more Wall Street bankers and foreign buyers than some real estate industry experts had originally expected.
“What this means for the consumer is that there will be product available for them to look at, but not a significant oversupply,” Mr. Knakal wrote in an e-mail message. He added, “Buyers who are on the sidelines waiting for prices to drop significantly before buying may be there for a long time.”
No one is predicting that 2008 will be a repeat of 2007. The sprawling pieds-Ã -terre may still sell for millions at the Plaza and 15 Central Park West, but in general, economists are predicting that prices will drop in some segments of the market and in some neighborhoods around the city.
“New York has had a very good run, and there are still a lot of people sitting around with cash,” said Christopher Mayer, the Paul Milstein professor of real estate at Columbia Business School. “But that doesn’t last forever.”
There are already signs of a more sober market ahead: Wall Street workers may face leaner bonuses this year and in years to come, borrowers may have a harder time getting mortgages and foreign buyers may reconsider the potential returns of investing in New York.
Mr. Mayer said that a national recession could weaken Manhattan prices even further because fewer workers could afford to buy in the borough.
Diane M. Ramirez, president of Halstead Property, is less concerned about a recession because the inventory of property on the market is currently low. She said that in the recession of the late ’80s, Manhattan dropped sharply because the city had an oversupply of apartments. “We had a deeper, longer recession than most cities,” she said. “We lost 20 to 50 percent value.”
When trying to gauge the real estate market — or, for that matter, the city’s economic outlook — the first stop is always Wall Street.
Wall Street jobs make up 5 percent of the total jobs in New York City but 23 percent of the city’s total wages, according to data tracked by the New York State DepartmenticesLabor. Annual bonuses are also tracked by real estate brokers with a fanatical devotion.
History shows that a great deal of the bonus money is used to buy real estate. Financial workers are typically the first buyers to show up with the cash in the spring buying market, and this helps shape demand for apartments.
“That energy of the bonus money really does get the spring market percolating,” Ms. Ramirez said. “The bonus tends to be the starting gate for them.”
While it may seem counterintuitive, considering how much havoc the subprime crisis has brought to the financial industry, one analyst is predicting that 2007 bonuses, which workers will receive over the next couple of months, will be about the same as last year’s record bonus year for some bankers.
These workers are compensated based on their performance for the whole year, and most banks did well leading up to the credit crisis last summer. So, while workers may not earn more than they did in 2006, they could still have plenty of money to put toward real estate.
Alan Johnson, the managing director of Johnson Associates, a firm that tracks compensation data, said that over all, bonuses should remain flat for a broad spectrum of the financial industry. “This year was a pretty good year for bonuses, roughly on par with 2006, some of them less, some of them more,” he said.
But, he said, that won’t necessarily be true a year from now, and this knowledge could keep traders and investment bankers from splurging on real estate this year as they have in past years.
“Everybody sees the storm clouds on the horizon,” because Wall Street firms have already had write-downs of more than $100 billion from their mortgage-backed securities businesses, Mr. Johnson said. “If you’re going to commit to some big purchase, it makes you pause. Your pay may go down.”
He predicts that by the end of 2008 employees at the top will be hurt the most: those whose total compensation of salaries and bonuses is more than $1 million could see cuts by 40 to 50 percent; those in the $500,000 to $1 million range could see cuts of about 20 percent; and those with pay of less than $500,000 could see 10 percent cuts.
Shai Shustik, the president of the brokerage firm Manhattan Residential Inc., which has many clients who work on Wall Street, says they are proceeding with more caution. “I don’t think people are as gung-ho and anxious to get out there and spend everything they made, like they did in 2007,” he said. “People aren’t going to stretch as much.” In the past, “the guys who tell you they’re spending $2 million spend $2.4 million or $2.6 million,” he said. “Now, they want to stick to $2 million.”
Many of these Wall Street employees might also find that their bonuses are being paid less in cash and more in stock.
Melissa Cohn, the president of the Manhattan Mortgage Company, said that one banker who had negotiated the contract on a $9 million town house had to pull out of the deal because he found out he would receive only $750,000 in cash from his total bonus. The remainder would take other forms, like stock, meaning that he would have less to spend in the near term on real estate. “He’s gone from the $9 million to $10 million range to the $5 million to $6 million range,” she said. “Everyone in general is being more conservative.”
Moving beyond bonuses, the fallout from the mortgage crisis is likely to touch a broad swath of the real estate market. Qualifying for mortgages, for instance, may be more problematic this year for buyers in all price ranges. The mortgage crisis, which was set off by defaulting subprime loans last summer, has forced lenders to tighten their standards across the board in both Manhattan and the boroughs.
Richard Barenblatt, a mortgage broker with the Apple Mortgage Corporation, advises his clients to prepare themselves for far stricter mortgage requirements than they would have faced six months ago.
For starters, lenders expect borrowers to make higher down payments for co-ops and condos. He said that before the broad defaults on subprime mortgages forced banks this past summer to tighten standards, buyers with good credit applying for full-income verification loans could qualify for mortgages worth 95 percent of the purchase price up to $1 million. Now these same buyers qualify for mortgages valued at only 90 percent of the price up to $1 million.
Some lenders are also requiring borrowers to have more money in reserve; for example, borrowers applying for jumbo mortgages — those surpassing $417,000 — may need to show that they have the equivalent of up to 12 months of mortgage payments in cash after closing.
Mr. Barenblatt encourages buyers to pay down credit card balances below 40 percent of their total combined credit card limits; for buyers with debt levels above that, he said, banks are less likely to approve mortgages.
He also thinks buyers should talk to their lawyers about getting mortgage and appraisal contingencies written into their contracts. A contingency is a clause that allows a buyer to back out of a deal if he or she can’t find a mortgage, if the lender changes the terms of the mortgage before closing or if an appraisal comes in unexpectedly low. In the past, sellers in Manhattan have often balked at contingencies, because there was usually another buyer waiting in the wings willing to buy without one. Mr. Barenblatt also encourages buyers to try to get preapproved for mortgages.
Condo buyers might find extra scrutiny when visiting the mortgage broker because lenders have seen too many cities around the country where new condos are sitting vacant or unfinished.
Some major lenders in New York have stopped giving mortgages at condo projects where the developer has not sold 90 percent of the units. These banks are imposing even stricter standards than those Fannie Mae and Freddie Mac are putting into effect on March 1 for mortgages below $417,000, according to Brad German, a spokesman for Freddie Mac. The threshold for the two government lenders: 51 percent of units must be sold.
“We changed our guidelines in response to shifts in the real estate market, including oversupplies in Florida, Las Vegas, Arizona and other condo markets outside of New York City,” he wrote in an e-mail message. “Our mortgage purchase guidelines are national in scope.”
These national guidelines are making it more difficult for condo buyers in Manhattan. Foreign buyers and financial industry employees have paid top dollar for these new apartments in the last year precisely because they required less money down and had more flexible requirements than co-ops.
Ms. Cohn of Manhattan Mortgage tells of clients who have had mortgage applications rejected by some banks because the building where they wanted to buy was not 90 percent sold out. “There has been an apocalyptic change in the lending market,” she said. “Banks that were market leaders have eliminated numbers of programs and products and have made sweeping changes.”
Foreign buyers, who have made about a third of the condo purchases in the last 18 months, have done so because they see it as a wise investment considering the weakness of the dollar, said Mr. Mayer of Columbia Business School. But, he added, even foreign buyers will walk away from deals if they don’t think Manhattan prices will remain strong or if they cannot expect high returns on their investments.
“They don’t need to buy real estate to make a bet on the dollar,” he said.
All of these situations could create a window of opportunity for buyers. In fact, certain market segments have already started to show signs of slowing.
Sofia Kim, who is the head of research for StreetEasy.com, said that out of the 24,000 apartments listed by the site at some point in 2007, about 20 percent, or 4,800, had cut prices, by an average of 8 percent.
Most sellers who cut their prices were offering one- and two-bedroom co-ops, Ms. Kim said. These price cuts were concentrated on the Upper East Side and in Chelsea, Greenwich Village and Midtown. In the coming year, she expects that sellers may continue to cut their prices if sales are slow.
Prices in Inwood and Hudson Heights, in the northern reaches of Manhattan, had dropped about 5 percent by the end of last year, according to fourth-quarter data released by Halstead Property.
Data from the Corcoran Group, tracking sales in Brooklyn in the fourth quarter of 2007, show that prices on certain types of apartments in coveted neighborhoods like Park Slope and Fort Greene had dropped slightly.
Some neighborhoods like Williamsburg and Greenpoint have had 15 percent price drops from their peak in the summer of 2005, and sellers are negotiating deals, said David Maundrell, the president of Aptsandlofts.com, a Williamsburg brokerage.
Brooklyn buyers, he said, have been especially fortunate in negotiating deals on new condos. Developers of new condos with fewer than 10 units have agreed to pay closing costs for buyers, while developers of larger projects have been willing to negotiate on price. “Most of my guys in the larger buildings will consider any offer,” Mr. Maundrell said.
Prices in New York City are not expected to be significantly affected by foreclosures this year, as the number of foreclosures in the city’s outlying neighborhoods is rising, but still low. Fourth-quarter data tracked by PropertyShark.com show that there were 605 foreclosures throughout New York City in the fourth quarter of 2007, a 71 percent increase over the 354 foreclosures in the same period in 2006.
But that is in a city of three million households and represents only 0.02 percent of New York City inventory. That’s far less than in Miami, which has a 0.25 percent foreclosure rate, and Los Angeles, which has a 0.21 percent foreclosure rate.
Ryan Slack, the chief executive of PropertyShark, said that the New York numbers may rise steadily through 2008, but they will still represent only a tiny share of the overall market. “They’re not that high a percentage of the inventory,” he said. “If you’re selling into the market, you’re going to be more affected by the dynamics of buyers and sellers than foreclosures.”
The rental market, which has been exceptionally tight for the last few years, is also showing some signs of loosening up. Marc Lewis, the chief operating officer of rentals and investment sales at Century 21 Fine Homes and Estates, says that the rental market slowed in the middle of September and has not picked up since.
The December survey of 10,000 apartments tracked by the Real Estate Group New York shows that the rental market fell from the previous month, especially on the Upper West and East Sides, and in Midtown East, Gramercy Park and SoHo. Some declines were striking; rent in studios in doorman buildings in the financial district, for example, dropped by $503, to $2,559 a month.
Mr. Lewis said there were fewer new hires relocating to Manhattan for jobs and paying high rents. He said that landlords were much more willing to pay commissions, offer a free month’s rent or both. And, he said, they’re much more willing to negotiate on apartments that rent for more than $2,000.
“If they have an apartment that’s empty for a week or two or a month, they’ll entertain an offer,” Mr. Lewis said. “It’s definitely going to continue for the next three, four or five months.”
In the end, economists and real estate brokers say they don’t expect Manhattan to suffer as severe a housing slump as the rest of the nation because there hasn’t been as much overbuilding.
That’s because banks stopped lending to developers to build more condos and developers turned nearly a third of the sites into other uses like hotels, offices and rental buildings, said Robert Knakal, the chairman of the commercial real estate brokerage Massey Knakal Realty Services Inc., based on what he saw from the projects that his company had marketed.
In addition, more of the condos that were built were snapped up by more Wall Street bankers and foreign buyers than some real estate industry experts had originally expected.
“What this means for the consumer is that there will be product available for them to look at, but not a significant oversupply,” Mr. Knakal wrote in an e-mail message. He added, “Buyers who are on the sidelines waiting for prices to drop significantly before buying may be there for a long time.”
Chase, Wells Fargo say they can weather subprime storm
Standard & Poor's warns of bigger losses on 2006 loans
Wednesday, January 16, 2008Inman News
Investors showed renewed confidence that financial markets will weather the subprime mortgage crisis after JPMorgan Chase & Co. and Wells Fargo & Co. reported write-downs on mortgage-related investments dented fourth-quarter profits but that the firms remain adequately capitalized.
Standard & Poor's Ratings Service, however, said home-price declines and losses on subprime loans made in 2006 will be greater than expected, raising the specter of further tightening of credit to prospective home buyers.
Shares of JP Morgan Chase and Wells Fargo both got a boost Wednesday after the companies disclosed that write-downs on mortgage-related investments were smaller than at some rival firms, and that both companies posted record revenue for the year.
Although JP Morgan Chase wrote down $1.3 billion in bad mortgage-related investments during the fourth quarter, it managed to turn a $3 billion profit and boost credit reserves to $10 billion. Fourth-quarter mortgage loan originations were $40 billion, up 2 percent from the previous quarter and 34 percent from a year ago, the company said.
For the year, JP Morgan Chase had record profits of $15.4 billion on revenue of $71.4 billion, growing its payroll by 6,307 positions, to 180,667.
At Wells Fargo, charge-offs on bad loans hit $1.2 billion, up from $726 million a year ago, and the bank boosted loan loss provisions by $1.4 billion. Fourth-quarter mortgage originations declined 20 percent from a year ago to $56 billion, largely because Wells Fargo has cut back or stopped making nonprime, nonconforming and home equity loans through third-party channels, the bank said.
Nevertheless, Wells Fargo posted a $1.36 billion profit for the quarter, and $8.06 billion in net income for the year. All told, Wells Fargo originated $272 billion in mortgages in 2007, down 7 percent from the year before, and grew its servicing portfolio by 12 percent, to $1.53 trillion.
Moody's Investors Service said today Wells Fargo can keep its "A" financial strength rating and "Aaa" rating on deposits, as the bank's diverse business model will help it endure greater-than-expected losses in its home-equity portfolio.
Stocks also got a boost today from a Labor Department report showing the Consumer Price Index rose by just 0.3 percent in December, raising expectations that the Federal Reserve will make a dramatic, 50-basis-point reduction in its target for the federal funds overnight rate when it meets at the end of the month.
The Dow Jones Industrial Average plunged 277 points Tuesday after Citigroup Inc. reported a $9.83 billion fourth-quarter loss driven by $18.1 billion in write-downs on investments tied to subprime mortgages. Investors were also alarmed by a Commerce Department report that showed retail sales fell 0.4 percent in December, a sign that the economy may be headed into a recession (see Inman News story).
Although stock market investors are rooting for short-term interest-rate cuts to stimulate economic growth, a dramatic move by the Fed could also send long-term interest rates up -- including those on 30-year fixed-rate mortgages -- if bond investors become concerned about inflation.
Falling home prices and rising delinquencies and defaults could also put upward pressure on mortgage rates, if investors who fund home loans demand higher returns for risk.
Analysts at Standard & Poor's Ratings Services said this week they now expect losses on subprime loans bundled up as collateral for investments in 2006 to reach 19 percent, up from a previous estimate of 14 percent.
The revisions were based on "growing economic consensus that U.S. home-price declines will be larger than previously forecasted and that the slump in the U.S. housing market is expected to last far longer than previously anticipated," Standard & Poor's analysts said.
Home prices have declined about 6 percent nationwide since the beginning of 2006, and Standard & Poor's Chief Economist David Wyss now estimates that before bottoming out in the middle of the year, home prices will have come down 8 percent to 11 percent from their peaks.
The rating agency said it has also changed other assumptions it uses to evaluate investments backed by mortgage loans, which could lead it to downgrade its ratings on those investments. Downgrades would force banks and bond insurers to undertake another round of write-downs, and further restrict mortgage lending.
Alt-A lender IndyMac Bancorp Inc. said Tuesday it was laying off 2,403 workers because the secondary market for loans it makes remains frozen, and it expects 2008 loan volume will dwindle to less than half of that seen two years ago (see Inman News story).
Today, bond insurer Ambac Financial Group Inc. said it is attempting to raise $1 billion in capital in order to keep its AAA ratings from Standard & Poor's and Moody's.
Ambac announced fourth-quarter write-downs of $5.4 billion on its credit derivative portfolio, and a $143 million loss provision related to securities backed by home-equity lines of credit and second loans.
With Ambac facing a fourth-quarter loss of up to $32.83 per share, Chief Executive Officer Robert J. Genader had been replaced by Michael A. Callen. The company promised further details when it reports fourth-quarter results on Jan. 22, a week earlier than planned.
While the news was not as grim at JP Morgan Chase and Wells Fargo, both companies did see increasing delinquencies and defaults on consumer loans, including auto loans and credit cards.
At Wells Fargo, the charge-off rate on credit-card debt rose grew from 4.3 percent to 5.01 percent, which the bank said was in line with industry standards. Credit-card losses for the quarter totaled $223 million, while losses on other revolving credit and installment loans, including auto loans, totaled $421 million.
The $1.2 billion in fourth-quarter charge-offs also included $277 million in bad second mortgages, up from $153 million in the third quarter, and $34 million in first mortgages, double the $16 million seen in the third quarter. The charge off rate on second mortgages rose to 1.46 percent, compared with 0.83 percent in the previous quarter.
Total nonperforming assets grew to $3.87 billion, up from $3.18 billion, including $649 million of foreclosed real estate and repossessed vehicles.
The bank said growth in nonperforming assets was due to a national increase in foreclosure rates. Due to "illiquid market conditions," Wells Fargo has decided to hold more foreclosed properties than it has historically.
Standard & Poor's warns of bigger losses on 2006 loans
Wednesday, January 16, 2008Inman News
Investors showed renewed confidence that financial markets will weather the subprime mortgage crisis after JPMorgan Chase & Co. and Wells Fargo & Co. reported write-downs on mortgage-related investments dented fourth-quarter profits but that the firms remain adequately capitalized.
Standard & Poor's Ratings Service, however, said home-price declines and losses on subprime loans made in 2006 will be greater than expected, raising the specter of further tightening of credit to prospective home buyers.
Shares of JP Morgan Chase and Wells Fargo both got a boost Wednesday after the companies disclosed that write-downs on mortgage-related investments were smaller than at some rival firms, and that both companies posted record revenue for the year.
Although JP Morgan Chase wrote down $1.3 billion in bad mortgage-related investments during the fourth quarter, it managed to turn a $3 billion profit and boost credit reserves to $10 billion. Fourth-quarter mortgage loan originations were $40 billion, up 2 percent from the previous quarter and 34 percent from a year ago, the company said.
For the year, JP Morgan Chase had record profits of $15.4 billion on revenue of $71.4 billion, growing its payroll by 6,307 positions, to 180,667.
At Wells Fargo, charge-offs on bad loans hit $1.2 billion, up from $726 million a year ago, and the bank boosted loan loss provisions by $1.4 billion. Fourth-quarter mortgage originations declined 20 percent from a year ago to $56 billion, largely because Wells Fargo has cut back or stopped making nonprime, nonconforming and home equity loans through third-party channels, the bank said.
Nevertheless, Wells Fargo posted a $1.36 billion profit for the quarter, and $8.06 billion in net income for the year. All told, Wells Fargo originated $272 billion in mortgages in 2007, down 7 percent from the year before, and grew its servicing portfolio by 12 percent, to $1.53 trillion.
Moody's Investors Service said today Wells Fargo can keep its "A" financial strength rating and "Aaa" rating on deposits, as the bank's diverse business model will help it endure greater-than-expected losses in its home-equity portfolio.
Stocks also got a boost today from a Labor Department report showing the Consumer Price Index rose by just 0.3 percent in December, raising expectations that the Federal Reserve will make a dramatic, 50-basis-point reduction in its target for the federal funds overnight rate when it meets at the end of the month.
The Dow Jones Industrial Average plunged 277 points Tuesday after Citigroup Inc. reported a $9.83 billion fourth-quarter loss driven by $18.1 billion in write-downs on investments tied to subprime mortgages. Investors were also alarmed by a Commerce Department report that showed retail sales fell 0.4 percent in December, a sign that the economy may be headed into a recession (see Inman News story).
Although stock market investors are rooting for short-term interest-rate cuts to stimulate economic growth, a dramatic move by the Fed could also send long-term interest rates up -- including those on 30-year fixed-rate mortgages -- if bond investors become concerned about inflation.
Falling home prices and rising delinquencies and defaults could also put upward pressure on mortgage rates, if investors who fund home loans demand higher returns for risk.
Analysts at Standard & Poor's Ratings Services said this week they now expect losses on subprime loans bundled up as collateral for investments in 2006 to reach 19 percent, up from a previous estimate of 14 percent.
The revisions were based on "growing economic consensus that U.S. home-price declines will be larger than previously forecasted and that the slump in the U.S. housing market is expected to last far longer than previously anticipated," Standard & Poor's analysts said.
Home prices have declined about 6 percent nationwide since the beginning of 2006, and Standard & Poor's Chief Economist David Wyss now estimates that before bottoming out in the middle of the year, home prices will have come down 8 percent to 11 percent from their peaks.
The rating agency said it has also changed other assumptions it uses to evaluate investments backed by mortgage loans, which could lead it to downgrade its ratings on those investments. Downgrades would force banks and bond insurers to undertake another round of write-downs, and further restrict mortgage lending.
Alt-A lender IndyMac Bancorp Inc. said Tuesday it was laying off 2,403 workers because the secondary market for loans it makes remains frozen, and it expects 2008 loan volume will dwindle to less than half of that seen two years ago (see Inman News story).
Today, bond insurer Ambac Financial Group Inc. said it is attempting to raise $1 billion in capital in order to keep its AAA ratings from Standard & Poor's and Moody's.
Ambac announced fourth-quarter write-downs of $5.4 billion on its credit derivative portfolio, and a $143 million loss provision related to securities backed by home-equity lines of credit and second loans.
With Ambac facing a fourth-quarter loss of up to $32.83 per share, Chief Executive Officer Robert J. Genader had been replaced by Michael A. Callen. The company promised further details when it reports fourth-quarter results on Jan. 22, a week earlier than planned.
While the news was not as grim at JP Morgan Chase and Wells Fargo, both companies did see increasing delinquencies and defaults on consumer loans, including auto loans and credit cards.
At Wells Fargo, the charge-off rate on credit-card debt rose grew from 4.3 percent to 5.01 percent, which the bank said was in line with industry standards. Credit-card losses for the quarter totaled $223 million, while losses on other revolving credit and installment loans, including auto loans, totaled $421 million.
The $1.2 billion in fourth-quarter charge-offs also included $277 million in bad second mortgages, up from $153 million in the third quarter, and $34 million in first mortgages, double the $16 million seen in the third quarter. The charge off rate on second mortgages rose to 1.46 percent, compared with 0.83 percent in the previous quarter.
Total nonperforming assets grew to $3.87 billion, up from $3.18 billion, including $649 million of foreclosed real estate and repossessed vehicles.
The bank said growth in nonperforming assets was due to a national increase in foreclosure rates. Due to "illiquid market conditions," Wells Fargo has decided to hold more foreclosed properties than it has historically.
Wednesday, January 16, 2008
Americans Pay for Housing Boom's Excess
By MADLEN READ and JOE BEL BRUNO,
AP
Posted: 2008-01-16 16:41:14
NEW YORK (AP) - The bill for America's excessive borrowing during the housing boom has arrived, and more people are having trouble paying it. JPMorgan Chase & Co. and Wells Fargo & Co., two of the nation's biggest banks, on Wednesday joined a growing chorus warning that the subprime mortgage mess is just the start of a sweeping lending crisis. And some fear that consumers falling behind on all kinds of loan payments could tip the economy's scale toward recession. Strapped consumers are having a tough time making payments on credit cards, home-equity loans, and even for their cars. This has caused three of the top five U.S. commercial banks that have already reported damaging fourth-quarter results to set aside some $12.5 billion to cover future loan losses - and that number will likely grow as the year wears on. Problems in the subprime mortgage t in 17 years. There was no sign of a turnaround in the last few months of the year. The Federal Reserve reported that the economy grew at a slower pace in late November and December as credit problems intensified and consumers tightened their spending. To some, it appears that the Fed came to its rate-cutting decision in August a bit too late. Others point to the falling dollar and surging oil prices, factors that usually prevent the central bank from easing its monetary policy. While debate persists about the Fed's timing and the extent of the slowdown, bank executives - who have scrambled to prepare for another tumble in home prices and higher unemployment in 2008, feel academic definitions are beside the point. "We're not predicting a recession - it's not our job - but we're prepared," JPMorgan Chase CEO Jamie Dimon told analysts after the nation's third-largest bank wrote down $1.3 billion and said profit dropped 34 percent. His financial institution didn't do all that bad. Rival Citigroup Inc. fared the worst during the fourth quarter, losing $9.83 billion after writing down the value of its portfolio of mortgage and mortgage-backed products by $18.1 billion. Wells Fargo, a more traditional bank that avoided last year's trading woes, saw its profit fall 38 percent due to troubles with home equity loan and mortgage defaults. JPMorgan is girding for home prices to decline further in 2008 by 5 percent to 10 percent; Citigroup's estimate of 7 percent falls within that range, too. "The banks are the infrastructure for everything, the heartbeat of the market," said Chris Johnson, president of Johnson Research Group. "They need to be fixed before the market, and economy, can move forward with confidence. They need to get all their dirty laundry out there." Banks and card companies like American Express Co. - which warned last week that it would add $440 million to loan loss provisions - said in the regions where home prices are declining, card default rates are rising faster. The same goes for auto loans, subprime mortgages and home equity loans in these areas, which include Florida, Michigan and California. A big reason for the rise in credit card default rates is that they are returning to more usual levels following a change in bankruptcy law that sent rates lower for a time. But the fact that more losses are being seen in the weaker parts of the country shows the increase is economically driven as well. Analysts believe this means one thing: Consumers will be the ones paying for years of lax lending standards by U.S. financial institutions. Many will become more restrictive about who gets credit in a bid to stem future losses - and that could curb consumer spending, which accounts for more than two-thirds of the economy. "We've pushed the envelope," Johnson said. "Along with the joy of a market that goes as high as ours is the agony of when it starts to correct itself."
Copyright 2008 The Associated Press. The information contained in the AP news report may not be published, broadcast, rewritten or otherwise distributed without the prior written authority of The Associated Press. Active hyperlinks have been inserted by AOL.
01/16/08 16:38 EST
By MADLEN READ and JOE BEL BRUNO,
AP
Posted: 2008-01-16 16:41:14
NEW YORK (AP) - The bill for America's excessive borrowing during the housing boom has arrived, and more people are having trouble paying it. JPMorgan Chase & Co. and Wells Fargo & Co., two of the nation's biggest banks, on Wednesday joined a growing chorus warning that the subprime mortgage mess is just the start of a sweeping lending crisis. And some fear that consumers falling behind on all kinds of loan payments could tip the economy's scale toward recession. Strapped consumers are having a tough time making payments on credit cards, home-equity loans, and even for their cars. This has caused three of the top five U.S. commercial banks that have already reported damaging fourth-quarter results to set aside some $12.5 billion to cover future loan losses - and that number will likely grow as the year wears on. Problems in the subprime mortgage t in 17 years. There was no sign of a turnaround in the last few months of the year. The Federal Reserve reported that the economy grew at a slower pace in late November and December as credit problems intensified and consumers tightened their spending. To some, it appears that the Fed came to its rate-cutting decision in August a bit too late. Others point to the falling dollar and surging oil prices, factors that usually prevent the central bank from easing its monetary policy. While debate persists about the Fed's timing and the extent of the slowdown, bank executives - who have scrambled to prepare for another tumble in home prices and higher unemployment in 2008, feel academic definitions are beside the point. "We're not predicting a recession - it's not our job - but we're prepared," JPMorgan Chase CEO Jamie Dimon told analysts after the nation's third-largest bank wrote down $1.3 billion and said profit dropped 34 percent. His financial institution didn't do all that bad. Rival Citigroup Inc. fared the worst during the fourth quarter, losing $9.83 billion after writing down the value of its portfolio of mortgage and mortgage-backed products by $18.1 billion. Wells Fargo, a more traditional bank that avoided last year's trading woes, saw its profit fall 38 percent due to troubles with home equity loan and mortgage defaults. JPMorgan is girding for home prices to decline further in 2008 by 5 percent to 10 percent; Citigroup's estimate of 7 percent falls within that range, too. "The banks are the infrastructure for everything, the heartbeat of the market," said Chris Johnson, president of Johnson Research Group. "They need to be fixed before the market, and economy, can move forward with confidence. They need to get all their dirty laundry out there." Banks and card companies like American Express Co. - which warned last week that it would add $440 million to loan loss provisions - said in the regions where home prices are declining, card default rates are rising faster. The same goes for auto loans, subprime mortgages and home equity loans in these areas, which include Florida, Michigan and California. A big reason for the rise in credit card default rates is that they are returning to more usual levels following a change in bankruptcy law that sent rates lower for a time. But the fact that more losses are being seen in the weaker parts of the country shows the increase is economically driven as well. Analysts believe this means one thing: Consumers will be the ones paying for years of lax lending standards by U.S. financial institutions. Many will become more restrictive about who gets credit in a bid to stem future losses - and that could curb consumer spending, which accounts for more than two-thirds of the economy. "We've pushed the envelope," Johnson said. "Along with the joy of a market that goes as high as ours is the agony of when it starts to correct itself."
Copyright 2008 The Associated Press. The information contained in the AP news report may not be published, broadcast, rewritten or otherwise distributed without the prior written authority of The Associated Press. Active hyperlinks have been inserted by AOL.
01/16/08 16:38 EST
PMI: Odds favor price declines in 13 top markets
Risks greatest in California, Florida
Tuesday, January 15, 2008Inman News
The chance that home prices will fall during the next two years increased in 39 of the 50 largest U.S. markets during the third quarter, according to the latest quarterly risk index from PMI Mortgage Insurance Co.
PMI's Winter 2008 U.S. Market Risk Index showed a greater than 50 percent chance of price declines in 13 of the nation's 50 largest housing markets, up from 10 in the previous quarter.
PMI said some of the increase in house-price risk was due to changes to its model, which now includes data on foreclosure rates provided by the Mortgage Bankers Association. But in many cases, higher risk scores reflected "a significant deterioration of the housing market in the third quarter."
There is a "high likelihood that home prices will be lower in many of these MSAs two years from now," the report said. Although the number of MSAs with relatively low home-price risk continues to outnumber those with relatively high risk, that could change if the economy and financial markets worsen further, PMI warned.
All but two of the 13 highest-risk markets were in California and Florida. In California, the report noted, markets in the Central Valley and Southern California are weaker than those in the Northern California MSAs, where employment continues to be strong.
The metropolitan statistical areas (MSAs) with the highest risk scores were Riverside, Calif., where PMI forecasts a 94 percent chance of a two-year price decline; Las Vegas (89 percent); and Phoenix (83 percent).
Markets that saw significant price increases from 2002 to 2005 are "at much higher risk of price declines" than those where prices appreciated more modestly, said David Berson, chief economist for PMI's parent company, The PMI Group Inc., in a statement.
Although housing affordability improved in 161 of 381 MSAs studied, it declined in the remaining 220 markets. Nationwide, the affordability index was 95.53, compared with 95.96 in the second quarter of 2007.
The number of MSAs experiencing year-over-year price declines during third quarter -- 89 -- was also up from 67 in the previous quarter, the report said, citing numbers from the Office of Federal Housing Enterprise Oversight (OFHEO).
Among the top 50 MSAs, the 13 judged by PMI to be facing a greater than 50 percent chance of price declines in the next two years were:
Riverside-San Bernardino-Ontario, Calif. (94 percent)
Las Vegas-Paradise, Nev. (83 percent)
Phoenix-Mesa-Scottsdale, Ariz. (83 percent)
Santa Ana-Anaheim-Irvine, Calif. (81 percent)
Los Angeles-Long Beach-Glendale, Calif. (79 percent)
Ft. Lauderdale-Pompano Beach-Deerfield Beach, Fla. (78 percent)
Orlando-Kissimmee, Fla. (74 percent)
Sacramento-Arden-Arcade-Roseville, Calif. (73 percent)
Tampa-St. Petersburg-Clearwater, Fla. (72 percent)
West Palm Beach-Boca Raton-Boynton Beach, Fla. (71 percent)
San Diego-Carlsbad-San Marcos, Calif. (69 percent)
Oakland-Fremont-Hayward, Calif. (65 percent)
Miami-Miami Beach-Kendall, Fla. (58 percent)
The markets identified by PMI as the least risky, with a less than 1 percent chance of price decline during the next two years, were Charlotte-Gastonia-Concord, N.C.-S.C.; Kansas City, Mo.-Kan.; Austin-Round Rock, Texas; Columbus, Ohio; Cincinnati-Middletown, Ohio, Ky., Ind.; Indianapolis-Carmel, Ind.; San Antonio, Texas; Houston-Sugar Land-Baytown, Texas; Pittsburgh, Pa.; Dallas-Plano-Irving, Texas; and Fort Worth-Arlington, Texas.
***
Send tips or a Letter to the Editor to matt@inman.com, or call (510) 658-9252, ext. 150.
Copyright 2008 Inman News
Risks greatest in California, Florida
Tuesday, January 15, 2008Inman News
The chance that home prices will fall during the next two years increased in 39 of the 50 largest U.S. markets during the third quarter, according to the latest quarterly risk index from PMI Mortgage Insurance Co.
PMI's Winter 2008 U.S. Market Risk Index showed a greater than 50 percent chance of price declines in 13 of the nation's 50 largest housing markets, up from 10 in the previous quarter.
PMI said some of the increase in house-price risk was due to changes to its model, which now includes data on foreclosure rates provided by the Mortgage Bankers Association. But in many cases, higher risk scores reflected "a significant deterioration of the housing market in the third quarter."
There is a "high likelihood that home prices will be lower in many of these MSAs two years from now," the report said. Although the number of MSAs with relatively low home-price risk continues to outnumber those with relatively high risk, that could change if the economy and financial markets worsen further, PMI warned.
All but two of the 13 highest-risk markets were in California and Florida. In California, the report noted, markets in the Central Valley and Southern California are weaker than those in the Northern California MSAs, where employment continues to be strong.
The metropolitan statistical areas (MSAs) with the highest risk scores were Riverside, Calif., where PMI forecasts a 94 percent chance of a two-year price decline; Las Vegas (89 percent); and Phoenix (83 percent).
Markets that saw significant price increases from 2002 to 2005 are "at much higher risk of price declines" than those where prices appreciated more modestly, said David Berson, chief economist for PMI's parent company, The PMI Group Inc., in a statement.
Although housing affordability improved in 161 of 381 MSAs studied, it declined in the remaining 220 markets. Nationwide, the affordability index was 95.53, compared with 95.96 in the second quarter of 2007.
The number of MSAs experiencing year-over-year price declines during third quarter -- 89 -- was also up from 67 in the previous quarter, the report said, citing numbers from the Office of Federal Housing Enterprise Oversight (OFHEO).
Among the top 50 MSAs, the 13 judged by PMI to be facing a greater than 50 percent chance of price declines in the next two years were:
Riverside-San Bernardino-Ontario, Calif. (94 percent)
Las Vegas-Paradise, Nev. (83 percent)
Phoenix-Mesa-Scottsdale, Ariz. (83 percent)
Santa Ana-Anaheim-Irvine, Calif. (81 percent)
Los Angeles-Long Beach-Glendale, Calif. (79 percent)
Ft. Lauderdale-Pompano Beach-Deerfield Beach, Fla. (78 percent)
Orlando-Kissimmee, Fla. (74 percent)
Sacramento-Arden-Arcade-Roseville, Calif. (73 percent)
Tampa-St. Petersburg-Clearwater, Fla. (72 percent)
West Palm Beach-Boca Raton-Boynton Beach, Fla. (71 percent)
San Diego-Carlsbad-San Marcos, Calif. (69 percent)
Oakland-Fremont-Hayward, Calif. (65 percent)
Miami-Miami Beach-Kendall, Fla. (58 percent)
The markets identified by PMI as the least risky, with a less than 1 percent chance of price decline during the next two years, were Charlotte-Gastonia-Concord, N.C.-S.C.; Kansas City, Mo.-Kan.; Austin-Round Rock, Texas; Columbus, Ohio; Cincinnati-Middletown, Ohio, Ky., Ind.; Indianapolis-Carmel, Ind.; San Antonio, Texas; Houston-Sugar Land-Baytown, Texas; Pittsburgh, Pa.; Dallas-Plano-Irving, Texas; and Fort Worth-Arlington, Texas.
***
Send tips or a Letter to the Editor to matt@inman.com, or call (510) 658-9252, ext. 150.
Copyright 2008 Inman News
CONSIDERING A MOVE TO NEW MEXICO?
Last year, I had the opportunity to travel West for the first time! Lisa Davis, Taos realtor, provided an overview of the marketplace plus one of my friends was househunting.
If you are ever in the area, don't hesitate to say hi to Lisa or send her referrals! She'll do a great job. PS Let her know I sent you and you may have the opportunity to explore the ultimate green house..."the Earth Ship"
Here's Lisa's January newsletter regarding stats..
We have had such great snow this year, the Taos Ski Valley is hoppin'. The ski valley has announced some plans for refurbishing the village area which will enhance the appeal of the Taos Ski Valley, but the BIG news out of the Ski Valley is that starting in March, they are allowing snowboarding. This has been a hot topic for years and now, it's happening.
The attached newsletter offers a snap shot of the basic sales stats for 2007, as you will see, volume is down from 2006. This is no different from what is happening across the country. The volume and prices have reverted to a more normal market. I am curious to see what 2008 will bring, I have heard that the Fed's are expected to lower interest rates again this month.
As we all know, the media tends to sensationalize things and I think it's important to keep the following in perspective:
1. Real Estate is a long term investment. The boom created a misconception that real estate is a high yield, short term investment.
2. There is no such thing as a bad market. No matter where we are in a cycle there are still sellers and buyers...with low interest rates, it's still a good time to buy. NAR reports that 2007 existing home sales surpassed those of 2002, then a record breaking year!
3. Foreclosure perspective: Foreclosure is always bad news, the recent foreclosures that we are hearing about is predominately with sub-prime loans which are held by less than 10% of homeowners and most will not go into foreclosure. The foreclosure rate on prime loans is only 0.6 percent.
I wish you all a wonderful 2008...come on out to Taos and hit the slopes...or, don your snow shoes and take a walk through the woods...it's magical!
Sincerely,Lisa Davis, CRS, GRIAssociate BrokerResort and Recreation SpecialistFine Homes SpecialistPrudential Taos Real Estatehttp://www.enchantedtaos.com/lisa@enchantedtaos.comTel: 800-530-8899 ext 220Fax: 575-758-4833
STATS
2007 Total Units Sold (all types, entire MLS): 508 (compared to 752 in 2006.)
Dollar volume: 2007 $157,732,861 (compared to $197,553,722 in 2006.)
To break it down by category (not all categories shown):
2007 Single Family Residential total units sold: 214 (compared to 283 in 2006.)
Average sales price: $403,929. (compared to $359,873 in 2006.)
(2007 Median sales price $337,313) Average days on the market: 307
2007 Condo total units sold: 100 (compared to 144 in 2006.)
Average sales price: $279,226. (compared to $261,734 in 2006.)
2007 Land less than 5 acres units sold: 91 (compared to 144 in 2006.)
Average sales price: $123,832 (compared to $112,044 in 2006.)
2007 Land more than 5 acres and less that 10 units sold: 23 (compared to 46 in 2006.)
Average sales price: $127,741 (compared to $178,864 in 2006.)
2007 Land more than 10 acres units sold: 21 (compared to 52 in 2006.)
Average sales price: $193,733 (compared to $352,717 in 2006.
(Note: Available land is further away from Taos which is being reflected in the price)
What does all of this mean? Well it means that it’s a great time to buy in Taos! Some prices are
coming down along with interest rates! Opportunity is knocking!!!!
To put it in perspective, 2006 was a banner year on all accounts and the softening
of our market in 2007 is really more of a “normalizing”.
Last year, I had the opportunity to travel West for the first time! Lisa Davis, Taos realtor, provided an overview of the marketplace plus one of my friends was househunting.
If you are ever in the area, don't hesitate to say hi to Lisa or send her referrals! She'll do a great job. PS Let her know I sent you and you may have the opportunity to explore the ultimate green house..."the Earth Ship"
Here's Lisa's January newsletter regarding stats..
We have had such great snow this year, the Taos Ski Valley is hoppin'. The ski valley has announced some plans for refurbishing the village area which will enhance the appeal of the Taos Ski Valley, but the BIG news out of the Ski Valley is that starting in March, they are allowing snowboarding. This has been a hot topic for years and now, it's happening.
The attached newsletter offers a snap shot of the basic sales stats for 2007, as you will see, volume is down from 2006. This is no different from what is happening across the country. The volume and prices have reverted to a more normal market. I am curious to see what 2008 will bring, I have heard that the Fed's are expected to lower interest rates again this month.
As we all know, the media tends to sensationalize things and I think it's important to keep the following in perspective:
1. Real Estate is a long term investment. The boom created a misconception that real estate is a high yield, short term investment.
2. There is no such thing as a bad market. No matter where we are in a cycle there are still sellers and buyers...with low interest rates, it's still a good time to buy. NAR reports that 2007 existing home sales surpassed those of 2002, then a record breaking year!
3. Foreclosure perspective: Foreclosure is always bad news, the recent foreclosures that we are hearing about is predominately with sub-prime loans which are held by less than 10% of homeowners and most will not go into foreclosure. The foreclosure rate on prime loans is only 0.6 percent.
I wish you all a wonderful 2008...come on out to Taos and hit the slopes...or, don your snow shoes and take a walk through the woods...it's magical!
Sincerely,Lisa Davis, CRS, GRIAssociate BrokerResort and Recreation SpecialistFine Homes SpecialistPrudential Taos Real Estatehttp://www.enchantedtaos.com/lisa@enchantedtaos.comTel: 800-530-8899 ext 220Fax: 575-758-4833
STATS
2007 Total Units Sold (all types, entire MLS): 508 (compared to 752 in 2006.)
Dollar volume: 2007 $157,732,861 (compared to $197,553,722 in 2006.)
To break it down by category (not all categories shown):
2007 Single Family Residential total units sold: 214 (compared to 283 in 2006.)
Average sales price: $403,929. (compared to $359,873 in 2006.)
(2007 Median sales price $337,313) Average days on the market: 307
2007 Condo total units sold: 100 (compared to 144 in 2006.)
Average sales price: $279,226. (compared to $261,734 in 2006.)
2007 Land less than 5 acres units sold: 91 (compared to 144 in 2006.)
Average sales price: $123,832 (compared to $112,044 in 2006.)
2007 Land more than 5 acres and less that 10 units sold: 23 (compared to 46 in 2006.)
Average sales price: $127,741 (compared to $178,864 in 2006.)
2007 Land more than 10 acres units sold: 21 (compared to 52 in 2006.)
Average sales price: $193,733 (compared to $352,717 in 2006.
(Note: Available land is further away from Taos which is being reflected in the price)
What does all of this mean? Well it means that it’s a great time to buy in Taos! Some prices are
coming down along with interest rates! Opportunity is knocking!!!!
To put it in perspective, 2006 was a banner year on all accounts and the softening
of our market in 2007 is really more of a “normalizing”.
Monday, January 14, 2008
Dramatic Fed cut would hike mortgage rates
Commentary: Bernanke must make choice as political pressure intensifies
By Lou BarnesInman News
Long-term rates are unchanged this week, about the only things in finance that are. The 10-year T-note is still in the 3.80s, mortgages 6 percent, 5.875 percent, 6 percent. …
Two big speeches (Treasury Secretary Paulson and Fed Chairman Bernanke) and the demise of Countrywide overshadowed news of a steadily weakening economy and credit trouble spreading outward from mortgages.
The newest consumer data arrived in December retail results, uniformly lousy, and AT&T described a pullback in consumer spending on the most basic services. American Express -- good, tough, old outfit -- is the newest to announce rising defaults.
Countrywide: Its borrowers in process and sellers and Realtors nearby all should feel relieved. Fundings are now secure.
However, BofA's acquisition has all the fingerprints of a liquidation, one in the interests of banking regulators to avoid the collateral scramble and fire sale inevitable upon the instant of bankruptcy. The idiot stock market soared on the acquisition news on Thursday, and reality dawned today: BofA's stock is down, its credit-risk premium up, and Moody's is considering a downgrade.
So, what's the benefit of this deal to BofA, good money after the bonehead $2 billion infusion into Countrywide last September? First, good will and blessings from the whole regulatory apparatus. No other institution had the strength left to absorb the Countrywide wreck, and good deeds beget future favors. BofA's September infusion may have bought it control, but system conditions have since deteriorated so badly that it need not have paid a dime -- regulators would have come to call, hats in hands.
Deconstruct the deal: The prize inside Countrywide is its loan servicing portfolio; right now a migraine, but $1.4 trillion in mortgage customers is a huge base of clients who instantly become BofA pigeons. Loan servicing has a common market value in excess of 1.5 percent; even if this pool is discounted for bulk and trouble to 1 percent, that's $14 billion in value.
BofA is paying $4 billion for the overall wreck, meaning Countrywide -- minus its servicing portfolio -- has a negative value of at least minus $10 billion. Its dinky "bank" (really an S&L, easier regulation) is leveraged to the eyeballs and probably has a net-loss portfolio; and the insurance and securities and other tacked-on businesses have value only if originations run hot (not).
The massive origination arm has negative value also. Absent the fee-rich subprime and option-ARM game, Countrywide is a low-margin, commodity Fannie-Freddie shop just like the rest of us. BofA needs another brand name like a moose needs a hat rack, and assumes future losses from litigation, portfolio and downsizing. A lot of branch landlords are going to have some re-leasing to do.
Thus an industry re-sizes capacity from all-time-fantasy down to actual demand. Expect Washington Mutual to follow the merge-out parade.
The speeches: Treasury Secretary Paulson offered nothing, and the no-show hurt the markets. His gratuitous advice that firms re-capitalize ignored their grave difficulty in doing so.
Bernanke looked haggard. He has studied class-A financial crises his whole life, but leading the Western banking system out of one is a different matter. The speech is an excellent read. He is under no illusions: "... The financial system remains fragile" [!!]. Long sentence, third paragraph from the end, after many promises to intervene to save the economy: [compressed] "However ... unmoored inflation or eroded Fed credibility could reduce the Fed's ability to counter shortfalls in economic growth."
He is stuck: slash rates and take the inflation risk? Or fight inflation and let the economy fend for itself -- and become the most hated man in America?
If he cuts dramatically to save the economy, look for mortgage rates to rise. That's the largest probability, now, as political pressure on him is too strong to withstand.
Lou Barnes is a mortgage broker and nationally syndicated columnist based in Boulder, Colo. He can be reached at lbarnes@boulderwest.com.
Commentary: Bernanke must make choice as political pressure intensifies
By Lou BarnesInman News
Long-term rates are unchanged this week, about the only things in finance that are. The 10-year T-note is still in the 3.80s, mortgages 6 percent, 5.875 percent, 6 percent. …
Two big speeches (Treasury Secretary Paulson and Fed Chairman Bernanke) and the demise of Countrywide overshadowed news of a steadily weakening economy and credit trouble spreading outward from mortgages.
The newest consumer data arrived in December retail results, uniformly lousy, and AT&T described a pullback in consumer spending on the most basic services. American Express -- good, tough, old outfit -- is the newest to announce rising defaults.
Countrywide: Its borrowers in process and sellers and Realtors nearby all should feel relieved. Fundings are now secure.
However, BofA's acquisition has all the fingerprints of a liquidation, one in the interests of banking regulators to avoid the collateral scramble and fire sale inevitable upon the instant of bankruptcy. The idiot stock market soared on the acquisition news on Thursday, and reality dawned today: BofA's stock is down, its credit-risk premium up, and Moody's is considering a downgrade.
So, what's the benefit of this deal to BofA, good money after the bonehead $2 billion infusion into Countrywide last September? First, good will and blessings from the whole regulatory apparatus. No other institution had the strength left to absorb the Countrywide wreck, and good deeds beget future favors. BofA's September infusion may have bought it control, but system conditions have since deteriorated so badly that it need not have paid a dime -- regulators would have come to call, hats in hands.
Deconstruct the deal: The prize inside Countrywide is its loan servicing portfolio; right now a migraine, but $1.4 trillion in mortgage customers is a huge base of clients who instantly become BofA pigeons. Loan servicing has a common market value in excess of 1.5 percent; even if this pool is discounted for bulk and trouble to 1 percent, that's $14 billion in value.
BofA is paying $4 billion for the overall wreck, meaning Countrywide -- minus its servicing portfolio -- has a negative value of at least minus $10 billion. Its dinky "bank" (really an S&L, easier regulation) is leveraged to the eyeballs and probably has a net-loss portfolio; and the insurance and securities and other tacked-on businesses have value only if originations run hot (not).
The massive origination arm has negative value also. Absent the fee-rich subprime and option-ARM game, Countrywide is a low-margin, commodity Fannie-Freddie shop just like the rest of us. BofA needs another brand name like a moose needs a hat rack, and assumes future losses from litigation, portfolio and downsizing. A lot of branch landlords are going to have some re-leasing to do.
Thus an industry re-sizes capacity from all-time-fantasy down to actual demand. Expect Washington Mutual to follow the merge-out parade.
The speeches: Treasury Secretary Paulson offered nothing, and the no-show hurt the markets. His gratuitous advice that firms re-capitalize ignored their grave difficulty in doing so.
Bernanke looked haggard. He has studied class-A financial crises his whole life, but leading the Western banking system out of one is a different matter. The speech is an excellent read. He is under no illusions: "... The financial system remains fragile" [!!]. Long sentence, third paragraph from the end, after many promises to intervene to save the economy: [compressed] "However ... unmoored inflation or eroded Fed credibility could reduce the Fed's ability to counter shortfalls in economic growth."
He is stuck: slash rates and take the inflation risk? Or fight inflation and let the economy fend for itself -- and become the most hated man in America?
If he cuts dramatically to save the economy, look for mortgage rates to rise. That's the largest probability, now, as political pressure on him is too strong to withstand.
Lou Barnes is a mortgage broker and nationally syndicated columnist based in Boulder, Colo. He can be reached at lbarnes@boulderwest.com.
Real estate rates dip overnight
30-year fixed rate at 5.52%; 10-year Treasury yield at 3.79%Monday, January 14, 2008Inman News
Long-term mortgage interest rates headed lower Friday, and the benchmark 10-year Treasury bond yield dropped to 3.79 percent.
The 30-year fixed-rate average sank to 5.52 percent, and the 15-year fixed rate slipped to 5.03 percent. The 1-year adjustable rate was down at 5.34 percent.
The 30-year Treasury bond yield fell to 4.38 percent.
Rates and bonds are current as of 7:15 p.m. Eastern Standard Time.
Mortgage rate figures are according to Bankrate.com, which publishes nightly averages based on its survey of 4,000 banks in 50 states. Points on these mortgages range from zero to 3.5.
In other economic news, the Dow Jones Industrial Average tumbled 246.79 points, or 1.92 percent, finishing at 12,606.3. The Nasdaq lost 48.58 points, or 1.95 percent, closing at 2,439.94.
Stock figures are current as of 7:30 p.m. Eastern Standard Time
30-year fixed rate at 5.52%; 10-year Treasury yield at 3.79%Monday, January 14, 2008Inman News
Long-term mortgage interest rates headed lower Friday, and the benchmark 10-year Treasury bond yield dropped to 3.79 percent.
The 30-year fixed-rate average sank to 5.52 percent, and the 15-year fixed rate slipped to 5.03 percent. The 1-year adjustable rate was down at 5.34 percent.
The 30-year Treasury bond yield fell to 4.38 percent.
Rates and bonds are current as of 7:15 p.m. Eastern Standard Time.
Mortgage rate figures are according to Bankrate.com, which publishes nightly averages based on its survey of 4,000 banks in 50 states. Points on these mortgages range from zero to 3.5.
In other economic news, the Dow Jones Industrial Average tumbled 246.79 points, or 1.92 percent, finishing at 12,606.3. The Nasdaq lost 48.58 points, or 1.95 percent, closing at 2,439.94.
Stock figures are current as of 7:30 p.m. Eastern Standard Time
Saturday, January 12, 2008
I thought this would be optimistic for our wallets...of course any savings will go directly to fuel our houses and keep our lights on in 2008...But, think green both in prosperity and ecological conservation...change your light bulbs...now, what company is that? That's a best stock!
Drew
Best Stocks for 2008: Housing woes take a toll on Toll Brothers (TOL)
Posted Dec 20th 2007 10:30AM by Steven HalpernFiled under: Newsletters, Toll Brothers (TOL), Stocks to Buy, Housing, Best Stocks for 2008
For 25 years, Steven Halpern, editor of TheStockAdvisors.com, has surveyed the leading financial newsletter advisors asking for their favorite stocks for the coming year. This article is one of 100+ ideas in the Best Stocks for 2008 report.
"Homebuilders have been in a slump, to say the least," says Jim Farrish, editor of Sector Exchange.
"The technical charts on homebuilders look very similar to those of technology stocks during their rise from 1998-2000. In fact, the index has declined more than 70% peak to trough. Looking toward 2008 and the housing market, we could start to see a turnaround.
"The start is likely to be government aided, which is why we like this as an aggressive play, as the Federal government will put more money into fixing something than corporate America. Current proposals will not come close to fixing it, but will at least put a band aid on the situation and allow the healing process to begin.
"Our vote to benefit here would be Toll Brothers (NYSE: TOL). The company has one of the better-looking balance sheets in the industry and management has done a fairly good job of dealing with this downside market."Its weekly chart shows a decline from a high of $55 to a current price of $22. Their stock has found support near the $19.50 mark and has developed a trading range since July with the top at $23.50. With the stock currently near the high end of the trading range, we would look for a breakout as a buy point.
"If sales increase throughout 2008, we would look for the stock to rise near the $34 mark. There are a lot of things that need to come together for this play to achieve its goal, but then that is what makes it an aggressive opportunity.
"Thus, our entry point would be a break above $23.50 or accumulate shares on a pullback near the bottom of the trading range. Our stop would be $18 and the target $34."
Tags: best stocks 2008, BestStocks2008, contarian stocks, homebuilders, homebuilding stocks, housing stocks, jim farrish, money strategies, out of favor stocks, real estate stocks, sector exchange, sector investing, steven halpern, thestockadvisors.com, tol, toll brothers, TollBrothers, top stocks 2008, TopStocks2008
Drew
Best Stocks for 2008: Housing woes take a toll on Toll Brothers (TOL)
Posted Dec 20th 2007 10:30AM by Steven HalpernFiled under: Newsletters, Toll Brothers (TOL), Stocks to Buy, Housing, Best Stocks for 2008
For 25 years, Steven Halpern, editor of TheStockAdvisors.com, has surveyed the leading financial newsletter advisors asking for their favorite stocks for the coming year. This article is one of 100+ ideas in the Best Stocks for 2008 report.
"Homebuilders have been in a slump, to say the least," says Jim Farrish, editor of Sector Exchange.
"The technical charts on homebuilders look very similar to those of technology stocks during their rise from 1998-2000. In fact, the index has declined more than 70% peak to trough. Looking toward 2008 and the housing market, we could start to see a turnaround.
"The start is likely to be government aided, which is why we like this as an aggressive play, as the Federal government will put more money into fixing something than corporate America. Current proposals will not come close to fixing it, but will at least put a band aid on the situation and allow the healing process to begin.
"Our vote to benefit here would be Toll Brothers (NYSE: TOL). The company has one of the better-looking balance sheets in the industry and management has done a fairly good job of dealing with this downside market."Its weekly chart shows a decline from a high of $55 to a current price of $22. Their stock has found support near the $19.50 mark and has developed a trading range since July with the top at $23.50. With the stock currently near the high end of the trading range, we would look for a breakout as a buy point.
"If sales increase throughout 2008, we would look for the stock to rise near the $34 mark. There are a lot of things that need to come together for this play to achieve its goal, but then that is what makes it an aggressive opportunity.
"Thus, our entry point would be a break above $23.50 or accumulate shares on a pullback near the bottom of the trading range. Our stop would be $18 and the target $34."
Tags: best stocks 2008, BestStocks2008, contarian stocks, homebuilders, homebuilding stocks, housing stocks, jim farrish, money strategies, out of favor stocks, real estate stocks, sector exchange, sector investing, steven halpern, thestockadvisors.com, tol, toll brothers, TollBrothers, top stocks 2008, TopStocks2008
Wednesday, January 09, 2008
Countrywide Home Loan Delinquencies Rise
Countrywide Financial Corp.'s shares tumbled for the second day Wednesday after the nation's largest mortgage lender said the delinquency and foreclosure rate of home loans in its portfolio surged in December.
The news drove Countrywide shares down almost 10 percent in midday trading. Shares slipped 54 cents to $4.93.
The drop followed a loss of $2.17, or 28.4 percent, on Tuesday.
The company said some 6.96 percent of the loans in its servicing portfolio were delinquent last month, up from 5.02 percent in December 2006.
About 1.04 percent of the mortgage loans were pending foreclosure, up from 0.65 percent.
Countrywide's loan fundings during the month rose 1 percent from the previous month, ahead of internal forecasts, the company said.
Calabasas, Calif.-based Countrywide said it funded $24 billion in loans in December, giving it a total of $69 billion for the fourth quarter.
Average daily mortgage applications in the month slipped from November, but Countrywide attributed that to a typical seasonal decline.
The company's banking operations had assets of $113 billion at the end of December, up from $83 billion at the end of November.
Countrywide Financial Corp.'s shares tumbled for the second day Wednesday after the nation's largest mortgage lender said the delinquency and foreclosure rate of home loans in its portfolio surged in December.
The news drove Countrywide shares down almost 10 percent in midday trading. Shares slipped 54 cents to $4.93.
The drop followed a loss of $2.17, or 28.4 percent, on Tuesday.
The company said some 6.96 percent of the loans in its servicing portfolio were delinquent last month, up from 5.02 percent in December 2006.
About 1.04 percent of the mortgage loans were pending foreclosure, up from 0.65 percent.
Countrywide's loan fundings during the month rose 1 percent from the previous month, ahead of internal forecasts, the company said.
Calabasas, Calif.-based Countrywide said it funded $24 billion in loans in December, giving it a total of $69 billion for the fourth quarter.
Average daily mortgage applications in the month slipped from November, but Countrywide attributed that to a typical seasonal decline.
The company's banking operations had assets of $113 billion at the end of December, up from $83 billion at the end of November.
Countrywide sees business stabilizing
Mortgage lender closed more loans in November, but foreclosures also rise
Reuters
updated 8:24 a.m. ET, Wed., Jan. 9, 2008
NEW YORK - Countrywide Financial Corp., whose shares have tumbled amid worries about the largest U.S. mortgage lender's survival prospects, on Wednesday said it made more loans than it expected in the fourth quarter, though homeowner foreclosures and delinquencies rose.
In its monthly operating report, Countrywide said it funded $23.4 billion of mortgage loans in December, up 1 percent from the prior month, though down 44 percent from $41.7 billion a year earlier. Average daily mortgage loan applications fell 16.9 percent from November to $1.54 billion.
For the quarter, Countrywide said it funded $68.5 billion of mortgage loans, and $69.2 billion of total loans.
"Management is pleased with the progress we have made in positioning the company to navigate the current challenging environment," Chief Operating Officer David Sambol said in a statement.
Countrywide shares rose 47 cents, or 8.5 percent, to $6.02 in pre-market trading.
The shares had fallen 27.4 percent on Tuesday. Some of the decline came even after the Calabasas, California-based company rejected market rumors that it was considering filing for bankruptcy protection.
In its monthly report, Countrywide also said foreclosures and delinquencies among mortgage loans it services, or for which it collects payments, rose in December to the highest level since 2002, the earliest period for which figures are available.
It said the pending foreclosure rate rose to 1.44 percent from 1.28 percent in November and 0.70 percent a year earlier, while the delinquency rate rose to 7.20 percent from 6.52 percent in November, and 4.60 percent in December 2006.
Countrywide's mortgage loan servicing portfolio rose to $1.48 trillion at year end, as homeowners prepaid fewer loans.
(c) Reuters 2008. All rights reserved. Republication or redistribution of Reuters content, including by caching, framing or similar means, is expressly prohibited without the prior written consent of Reuters. Reuters and the Reuters sphere logo are registered trademarks and trademarks of the Reuters group of companies around the world.
Mortgage lender closed more loans in November, but foreclosures also rise
Reuters
updated 8:24 a.m. ET, Wed., Jan. 9, 2008
NEW YORK - Countrywide Financial Corp., whose shares have tumbled amid worries about the largest U.S. mortgage lender's survival prospects, on Wednesday said it made more loans than it expected in the fourth quarter, though homeowner foreclosures and delinquencies rose.
In its monthly operating report, Countrywide said it funded $23.4 billion of mortgage loans in December, up 1 percent from the prior month, though down 44 percent from $41.7 billion a year earlier. Average daily mortgage loan applications fell 16.9 percent from November to $1.54 billion.
For the quarter, Countrywide said it funded $68.5 billion of mortgage loans, and $69.2 billion of total loans.
"Management is pleased with the progress we have made in positioning the company to navigate the current challenging environment," Chief Operating Officer David Sambol said in a statement.
Countrywide shares rose 47 cents, or 8.5 percent, to $6.02 in pre-market trading.
The shares had fallen 27.4 percent on Tuesday. Some of the decline came even after the Calabasas, California-based company rejected market rumors that it was considering filing for bankruptcy protection.
In its monthly report, Countrywide also said foreclosures and delinquencies among mortgage loans it services, or for which it collects payments, rose in December to the highest level since 2002, the earliest period for which figures are available.
It said the pending foreclosure rate rose to 1.44 percent from 1.28 percent in November and 0.70 percent a year earlier, while the delinquency rate rose to 7.20 percent from 6.52 percent in November, and 4.60 percent in December 2006.
Countrywide's mortgage loan servicing portfolio rose to $1.48 trillion at year end, as homeowners prepaid fewer loans.
(c) Reuters 2008. All rights reserved. Republication or redistribution of Reuters content, including by caching, framing or similar means, is expressly prohibited without the prior written consent of Reuters. Reuters and the Reuters sphere logo are registered trademarks and trademarks of the Reuters group of companies around the world.
Tuesday, January 08, 2008
No easy answer to housing crisis, Paulson says
Administration looking at options as wave of mortgages to reset rates
The Associated Press
updated 3:53 p.m. ET, Mon., Jan. 7, 2008
WASHINGTON - The Bush administration is working to combat the country’s severe housing crisis but there is no simple solution, Treasury Secretary Henry Paulson said Monday, adding that a correction in the housing market is “inevitable and necessary.”
Paulson said the country was facing an unprecedented wave of 1.8 million subprime mortgages that are scheduled to reset to sharply higher rates over the next two years. He said this raised the threat of a market failure and was the reason the administration brokered a deal with the mortgage industry to freeze certain subprime mortgage rates for five years to allow the housing market to recover.
“By preventing avoidable foreclosures, we will safeguard neighborhoods and communities and fulfill our responsibility of protecting the broader U.S. economy,” Paulson said in a speech in New York. “However, let me be clear: there is no single or simple solution that will undo the excesses of the last few years.”
Paulson said that the deal the administration brokered with the industry to freeze certain subprime mortgage rates for five years did not involve the use of any taxpayer money. Conservative critics have complained that the administration’s plan represented government intrusion in the operation of markets that would end up rewarding some people who had taken out risky mortgages.
In his speech, Paulson raised the possibility that some sort of “systematic approach” may need to be developed to help homeowners with other types of adjustable-rate mortgages that are resetting to higher rates. The current plan only involves subprime mortgages, loans offered to borrowers with weak credit histories.
The steep slump in housing has been a serious drag on the overall economy. There are rising fears that the country could topple into a recession. Those worries were heightened after a report Friday showing that the unemployment rate jumped to a two-year high of 5 percent in December with job growth slowing to a crawl.
Paulson called the current housing correction inevitable after what occurred during the five-year boom in which sales and prices climbed to record levels.
“After years of unsustainable price appreciation and lax lending practices, a housing correction is inevitable and necessary,” Paulson said.
He said that the correction was taking a toll on the economy that would continue for a period of months.
“It will take additional time for markets to regain confidence,” Paulson said. “The overhang of unsold homes will contribute to a prolonged adjustment and poses by far the biggest downside risk.”
Paulson and President Bush both delivered speeches Monday declaring the economy is fundamentally sound. Bush received an update Friday from Paulson, Federal Reserve Chairman Ben Bernanke and other market regulators about how markets have been performing following a severe credit squeeze that began in August that roiled financial markets around the world.
The administration is considering an economic stimulus package that might include tax cuts to ward off a recession. Bush is expected to unveil the package, if he decides to go ahead with it, around the time of the Jan. 28 State of the Union address.
Asked about a stimulus package, Paulson said Monday that Bush has not made any decisions yet but that the administration was very much focused on the issue.
“This is a decision the president still has to make. When he makes it, we will report to all of you,” Paulson said during a question-and-answer session after his speech.
The credit crisis was sparked by raising defaults on subprime mortgages. Those defaults have already resulted in multibillion-dollar losses at many financial institutions who bought securities backed by the subprime mortgages that have gone bad.
Paulson said that those large write-downs showed the system was working.
“As markets reassess, we should not be surprised or disappointed to see financial institutions writing down assets and strengthening balance sheets,” he said.
Paulson said the administration is continuing to work with the mortgage industry to ensure the quick implementation of the agreement to freeze subprime mortgages that are due to reset if the homeowner is living in the house, is current with payments before they reset but cannot make the higher payments.
He said that last Friday more than 20 mortgage institutions that are part of the HOPE NOW alliance met to work through outstanding issues involved in the mortgage plan. “We expect most servicers to begin fast-tracking borrowers in the next few weeks,” he said.
Copyright 2008 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.
Administration looking at options as wave of mortgages to reset rates
The Associated Press
updated 3:53 p.m. ET, Mon., Jan. 7, 2008
WASHINGTON - The Bush administration is working to combat the country’s severe housing crisis but there is no simple solution, Treasury Secretary Henry Paulson said Monday, adding that a correction in the housing market is “inevitable and necessary.”
Paulson said the country was facing an unprecedented wave of 1.8 million subprime mortgages that are scheduled to reset to sharply higher rates over the next two years. He said this raised the threat of a market failure and was the reason the administration brokered a deal with the mortgage industry to freeze certain subprime mortgage rates for five years to allow the housing market to recover.
“By preventing avoidable foreclosures, we will safeguard neighborhoods and communities and fulfill our responsibility of protecting the broader U.S. economy,” Paulson said in a speech in New York. “However, let me be clear: there is no single or simple solution that will undo the excesses of the last few years.”
Paulson said that the deal the administration brokered with the industry to freeze certain subprime mortgage rates for five years did not involve the use of any taxpayer money. Conservative critics have complained that the administration’s plan represented government intrusion in the operation of markets that would end up rewarding some people who had taken out risky mortgages.
In his speech, Paulson raised the possibility that some sort of “systematic approach” may need to be developed to help homeowners with other types of adjustable-rate mortgages that are resetting to higher rates. The current plan only involves subprime mortgages, loans offered to borrowers with weak credit histories.
The steep slump in housing has been a serious drag on the overall economy. There are rising fears that the country could topple into a recession. Those worries were heightened after a report Friday showing that the unemployment rate jumped to a two-year high of 5 percent in December with job growth slowing to a crawl.
Paulson called the current housing correction inevitable after what occurred during the five-year boom in which sales and prices climbed to record levels.
“After years of unsustainable price appreciation and lax lending practices, a housing correction is inevitable and necessary,” Paulson said.
He said that the correction was taking a toll on the economy that would continue for a period of months.
“It will take additional time for markets to regain confidence,” Paulson said. “The overhang of unsold homes will contribute to a prolonged adjustment and poses by far the biggest downside risk.”
Paulson and President Bush both delivered speeches Monday declaring the economy is fundamentally sound. Bush received an update Friday from Paulson, Federal Reserve Chairman Ben Bernanke and other market regulators about how markets have been performing following a severe credit squeeze that began in August that roiled financial markets around the world.
The administration is considering an economic stimulus package that might include tax cuts to ward off a recession. Bush is expected to unveil the package, if he decides to go ahead with it, around the time of the Jan. 28 State of the Union address.
Asked about a stimulus package, Paulson said Monday that Bush has not made any decisions yet but that the administration was very much focused on the issue.
“This is a decision the president still has to make. When he makes it, we will report to all of you,” Paulson said during a question-and-answer session after his speech.
The credit crisis was sparked by raising defaults on subprime mortgages. Those defaults have already resulted in multibillion-dollar losses at many financial institutions who bought securities backed by the subprime mortgages that have gone bad.
Paulson said that those large write-downs showed the system was working.
“As markets reassess, we should not be surprised or disappointed to see financial institutions writing down assets and strengthening balance sheets,” he said.
Paulson said the administration is continuing to work with the mortgage industry to ensure the quick implementation of the agreement to freeze subprime mortgages that are due to reset if the homeowner is living in the house, is current with payments before they reset but cannot make the higher payments.
He said that last Friday more than 20 mortgage institutions that are part of the HOPE NOW alliance met to work through outstanding issues involved in the mortgage plan. “We expect most servicers to begin fast-tracking borrowers in the next few weeks,” he said.
Copyright 2008 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.
Monday, January 07, 2008
Dirty deeds: Cities fight banks over vacant homes
As housing crisis deepens, cities fight lenders over abandoned homes
By Michael Orey
Business Week
updated 9:21 a.m. ET, Mon., Jan. 7, 2008
On Dec. 17 in a windowless Buffalo courtroom, Cindy T. Cooper, a prosecutor for the city, buzzes among a dozen men in suits, cutting deals. "You've got to unboard [the house], go in, and clean it out," she tells one. "If all the repairs are done quickly, I wouldn't ask for any fines." To another, she says, "the gutters weren't done right," and asks to see receipts for the work. It's "Bank Day" in Judge Henry J. Nowak's housing courtroom, more typically a venue where landlords and tenants duke it out over evictions and back rent. Instead, Cooper is asking lawyers for CitiFinancial, JPMorgan Chase, and Countrywide Financial to fix problems like peeling paint, broken masonry, and overgrown or trash-filled yards at houses the city says the banks are responsible for maintaining. It may be surprising to find these financial-services giants hauled before this obscure local tribunal.
In fact, Cooper and Nowak are at the forefront of a pioneering effort to deal with a vexing problem: The surging number of vacant and abandoned homes resulting from the mortgage market meltdown. The vacancies occur when lenders bring foreclosure suits against delinquent borrowers. Mere notice that such an action might be filed often sends residents packing. In Buffalo and other Rust Belt cities, the problem has been particularly acute, because in many cases banks are abandoning the houses, too, after determining that their value is so low that it's not worth laying claim to them. When city officials try to hold someone responsible for dilapidated properties, they often find the homeowner and bank pointing fingers at each other. Indeed, the houses fall into a kind of legal limbo that Cleveland housing attorney Kermit J. Lind calls "toxic title". While formal ownership remains with a borrower who has fled, the bank retains its lien on the property. That opens up a dispute over who is responsible for taxes and maintenance. Even when lenders do complete the foreclosure, they may walk away from the property, leaving it to be taken by a city for unpaid taxes, a process that can take years. Orphaned properties quickly fall into disrepair, the deterioration sometimes hastened by vandals who trash the interiors, lighting fires and ripping out wiring and pipes to sell for scrap. Squatters or drug dealers may move in.
The impact goes far beyond the defaulting homeowner, as neighbors and entire communities confront a spreading blight. Vacant residences deprive cities of tax revenue and can cost them thousands to maintain. A 2001 Temple University study in Philadelphia found that simply being within 150 feet of an abandoned property knocked $7,600 off a home's value.
In Buffalo, prosecutor Cooper is bringing lenders before Judge Nowak to hold them accountable. Wielding the threat of liens, which can hold up the lenders' other real estate transactions, she aims to make banks keep foreclosed homes in good condition until a buyer can be found. As an alternative, Cooper or Nowak may try to get lenders to donate properties to community groups or to pay for demolition when houses are beyond repair. "At least in Buffalo," says Cooper, "the days are gone when you can do a foreclosure and walk away without taking care of the property."
Those charged with violations by Cooper include participants all along the complex mortgage-industry food chain, from loan originators to servicers to the Wall Street trusts that buy up the vast majority of home loans and then securitize them. A similar initiative is under way in Cleveland, where Judge Raymond L. Pianka puts lenders on trial in absentia when they fail to respond to charges.
Even places with high property values, like Chula Vista, Calif., a San Diego suburb, are taking steps to avoid the neglect that can occur during lengthy foreclosures. "It seems like a number of the lenders aren't even doing things that are in their own best interest to preserve the asset," says Pianka — a problem he attributes to the fragmented nature of the business. "It's not an address. It's not a property. It's just a loan number," he says. "So they'll push a button in San Francisco, and it will set things in motion to do things with [a] property that don't even make sense."
The proceedings in Pianka's and Nowak's courtrooms offer a sobering reminder that underlying the attenuated ownership and esoteric products spun out of mortgages are actual buildings, some with leaky roofs or broken porch railings. The industry denies responsibility for properties to which it has not taken title. "The notion that a mortgage company has an obligation to make repairs on a property that it doesn't even own is very hard to comprehend," says Marco Cercone, a Buffalo attorney who represents a range of lenders before Nowak in the courtroom. Cooper says that banks and other financial firms once extolled houses as the best possible collateral for a loan. Now they're stuck with that collateral, and they don't like it.
If there ever is a national response to the messy legacy left by foreclosures, it might include something like the Buffalo system, which seeks to take action before the presence of abandoned houses hurts entire neighborhoods and which spreads the pain among many players. "We're kind of a crystal ball into what might happen" elsewhere, Cooper says.
Lenders may rue the day the State University of New York at Buffalo admitted Cooper to pursue a PhD in sociology and a law degree. The subject of her doctoral thesis, submitted in December, 2006: the role of banks in residential abandonment and why they should be accountable for property-code violations. The fourth-generation Californian says she quickly became attached to Buffalo for its history and architecture. Now 33, Cooper and her husband are rehabilitating a house that she bought after getting an IRS tax lien removed from the property. "My passion for this work is because I love this town," she says.
While researching her thesis, Cooper interned for Judge Nowak. Tall, soft-spoken, and unfailingly courteous, the judge, 39, began holding Bank Day earlier this year and schedules it once a month. The civility of the proceedings and the large number of bank lawyers in attendance belie a noteworthy fact: They are there under coercion. A few years ago, Nowak says, "the city became increasingly frustrated with the banks' role" in contributing to Buffalo's abandoned-property problem. (Estimates put the number of abandoned homes in the city at between 5,000 and 10,000.) In 2004, New York State amended the definition of "owner" in its property maintenance code to include not just titleholders but others who had "control" over a premises.
While the statute makes no reference to lenders, Nowak contends that the letters banks send to defaulting homeowners threatening to boot them from their houses show that they have begun to "assert some measure of control." On this premise, Nowak says, Buffalo began contacting banks "en masse" about foreclosed properties, but "a lot of times we'd just be rebuffed and ignored."
Cooper, as an intern, suggested a tactic that the judge adopted. When banks ignored summonses for code violations, Nowak began entering default judgments against them and imposing the maximum fine, which can reach $10,000 to $15,000. For a big bank, that's not much. The real pain comes because the fines give the city a lien that impedes the banks' ability to buy or sell other properties in the area. In addition, when lenders come to his court to get residents evicted from a particular property, Nowak refuses to grant the request until the bank addresses violations outstanding on other properties. Judge Pianka employs similar tactics in Cleveland. On Dec. 10, for example, he assessed a $50,000 fine against an absentee defendant, Mortgage Lenders Network USA, for 21 code violations at a home.
Even far from the Rust Belt, in places where empty houses retain significant value, the lending industry seems to have trouble preserving its collateral when homes are abandoned during foreclosure. In Chula Vista, a number of houses have been trashed by college students who have held parties in the vacant properties. In other cases, pillagers pull up in rental trucks to cart away cabinets, wood flooring, and fixtures stripped from the homes. But in October, an ordinance went into effect requiring lenders to register and maintain houses that have been abandoned during foreclosure.
Compliance, says Chula Vista code enforcement manager Doug Leeper, has been spotty. "What I need them to do is keep the water on and keep the lawn green," he says, noting that the first sign of abandonment is often a yard that has turned brown and a pool that has gone murky green.
That slide into decrepitude is exactly what Cooper is trying to head off in Buffalo. In February, she joined the city's law department, where one of her duties is prosecuting banks. She and Nowak each say their main objective is not collecting fines but bringing banks to the table to try to find constructive solutions for dealing with abandoned property. That doesn't mean borrowers are off the hook. Cooper typically charges both borrowers and lenders, and Nowak may fine homeowners or sentence them to community service. "Can both be responsible?" asks Cooper. "Absolutely."
The approach in Buffalo is paying dividends. In a case on Dec. 17, attorney Cercone addressed the status of a house that had gone into foreclosure in 2006. Cercone was representing JPMorgan Chase and Ocwen Loan Servicing (which in turn were representatives of a securitized trust that had purchased the mortgage). Cercone submitted an affidavit showing that Ocwen, which had been cited for violations in December, 2006, had spent $30,000 to repair the property, including scraping lead paint from the entire house. In September, the affidavit notes, JP Morgan Chase sold the property at a loss of $19,500, not including the cost of repairs. "The bank in this case dealt with the property as well as could be done under the circumstances," Nowak said from the bench, and he agreed not to impose any fines.
Still, even with novel and aggressive tactics, the path to resolution for many properties in Buffalo can be tortuous and protracted. A house at 1941 Niagara St. — one of dozens of properties that Cooper examined as a graduate studenthas yet to see its final chapter, though it may be close.
In 1998, Elizabeth M. Manuel obtained a $34,500 mortgage on the property from IMC Mortgage (since acquired by Citibank). By 2002, the loan had been sold into a securitization trust administered by Chase Manhattan (now JPMorgan Chase) as trustee. It also went into default, and Chase began foreclosure proceedings. In a court filing, Manuel (who could not be located for comment) said she left the home while the foreclosure action was pending. More than five years later, though, the title remains in her name. The house, although still standing, has become a fire-gutted wreck.
In May 2007, Nowak issued a default judgment against Chase for $9,000. But these cases can be notoriously difficult to untangle. Thomas A. Kelly, a spokesman for the bank, notes that Chase sold its trustee business to the Bank of New York Mellon in October, 2006, and couldn't locate anyone at Chase able to comment. But he reiterates the industry view that Chase can't be held responsible for maintaining a property it never owned. He acknowledges that if a home didn't seem worth taking as collateral, the bank may have made a decision to "just walk away."
The value of 1941 Niagara, estimate city assessors, is $4,500, of which $4,300 represents the value of the land. The home, Cooper says, is slated for "imminent" demolition.
Copyright © 2008 The McGraw-Hill Companies Inc. All rights reserved.
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URL: http://www.msnbc.msn.com/id/22506609/
As housing crisis deepens, cities fight lenders over abandoned homes
By Michael Orey
Business Week
updated 9:21 a.m. ET, Mon., Jan. 7, 2008
On Dec. 17 in a windowless Buffalo courtroom, Cindy T. Cooper, a prosecutor for the city, buzzes among a dozen men in suits, cutting deals. "You've got to unboard [the house], go in, and clean it out," she tells one. "If all the repairs are done quickly, I wouldn't ask for any fines." To another, she says, "the gutters weren't done right," and asks to see receipts for the work. It's "Bank Day" in Judge Henry J. Nowak's housing courtroom, more typically a venue where landlords and tenants duke it out over evictions and back rent. Instead, Cooper is asking lawyers for CitiFinancial, JPMorgan Chase, and Countrywide Financial to fix problems like peeling paint, broken masonry, and overgrown or trash-filled yards at houses the city says the banks are responsible for maintaining. It may be surprising to find these financial-services giants hauled before this obscure local tribunal.
In fact, Cooper and Nowak are at the forefront of a pioneering effort to deal with a vexing problem: The surging number of vacant and abandoned homes resulting from the mortgage market meltdown. The vacancies occur when lenders bring foreclosure suits against delinquent borrowers. Mere notice that such an action might be filed often sends residents packing. In Buffalo and other Rust Belt cities, the problem has been particularly acute, because in many cases banks are abandoning the houses, too, after determining that their value is so low that it's not worth laying claim to them. When city officials try to hold someone responsible for dilapidated properties, they often find the homeowner and bank pointing fingers at each other. Indeed, the houses fall into a kind of legal limbo that Cleveland housing attorney Kermit J. Lind calls "toxic title". While formal ownership remains with a borrower who has fled, the bank retains its lien on the property. That opens up a dispute over who is responsible for taxes and maintenance. Even when lenders do complete the foreclosure, they may walk away from the property, leaving it to be taken by a city for unpaid taxes, a process that can take years. Orphaned properties quickly fall into disrepair, the deterioration sometimes hastened by vandals who trash the interiors, lighting fires and ripping out wiring and pipes to sell for scrap. Squatters or drug dealers may move in.
The impact goes far beyond the defaulting homeowner, as neighbors and entire communities confront a spreading blight. Vacant residences deprive cities of tax revenue and can cost them thousands to maintain. A 2001 Temple University study in Philadelphia found that simply being within 150 feet of an abandoned property knocked $7,600 off a home's value.
In Buffalo, prosecutor Cooper is bringing lenders before Judge Nowak to hold them accountable. Wielding the threat of liens, which can hold up the lenders' other real estate transactions, she aims to make banks keep foreclosed homes in good condition until a buyer can be found. As an alternative, Cooper or Nowak may try to get lenders to donate properties to community groups or to pay for demolition when houses are beyond repair. "At least in Buffalo," says Cooper, "the days are gone when you can do a foreclosure and walk away without taking care of the property."
Those charged with violations by Cooper include participants all along the complex mortgage-industry food chain, from loan originators to servicers to the Wall Street trusts that buy up the vast majority of home loans and then securitize them. A similar initiative is under way in Cleveland, where Judge Raymond L. Pianka puts lenders on trial in absentia when they fail to respond to charges.
Even places with high property values, like Chula Vista, Calif., a San Diego suburb, are taking steps to avoid the neglect that can occur during lengthy foreclosures. "It seems like a number of the lenders aren't even doing things that are in their own best interest to preserve the asset," says Pianka — a problem he attributes to the fragmented nature of the business. "It's not an address. It's not a property. It's just a loan number," he says. "So they'll push a button in San Francisco, and it will set things in motion to do things with [a] property that don't even make sense."
The proceedings in Pianka's and Nowak's courtrooms offer a sobering reminder that underlying the attenuated ownership and esoteric products spun out of mortgages are actual buildings, some with leaky roofs or broken porch railings. The industry denies responsibility for properties to which it has not taken title. "The notion that a mortgage company has an obligation to make repairs on a property that it doesn't even own is very hard to comprehend," says Marco Cercone, a Buffalo attorney who represents a range of lenders before Nowak in the courtroom. Cooper says that banks and other financial firms once extolled houses as the best possible collateral for a loan. Now they're stuck with that collateral, and they don't like it.
If there ever is a national response to the messy legacy left by foreclosures, it might include something like the Buffalo system, which seeks to take action before the presence of abandoned houses hurts entire neighborhoods and which spreads the pain among many players. "We're kind of a crystal ball into what might happen" elsewhere, Cooper says.
Lenders may rue the day the State University of New York at Buffalo admitted Cooper to pursue a PhD in sociology and a law degree. The subject of her doctoral thesis, submitted in December, 2006: the role of banks in residential abandonment and why they should be accountable for property-code violations. The fourth-generation Californian says she quickly became attached to Buffalo for its history and architecture. Now 33, Cooper and her husband are rehabilitating a house that she bought after getting an IRS tax lien removed from the property. "My passion for this work is because I love this town," she says.
While researching her thesis, Cooper interned for Judge Nowak. Tall, soft-spoken, and unfailingly courteous, the judge, 39, began holding Bank Day earlier this year and schedules it once a month. The civility of the proceedings and the large number of bank lawyers in attendance belie a noteworthy fact: They are there under coercion. A few years ago, Nowak says, "the city became increasingly frustrated with the banks' role" in contributing to Buffalo's abandoned-property problem. (Estimates put the number of abandoned homes in the city at between 5,000 and 10,000.) In 2004, New York State amended the definition of "owner" in its property maintenance code to include not just titleholders but others who had "control" over a premises.
While the statute makes no reference to lenders, Nowak contends that the letters banks send to defaulting homeowners threatening to boot them from their houses show that they have begun to "assert some measure of control." On this premise, Nowak says, Buffalo began contacting banks "en masse" about foreclosed properties, but "a lot of times we'd just be rebuffed and ignored."
Cooper, as an intern, suggested a tactic that the judge adopted. When banks ignored summonses for code violations, Nowak began entering default judgments against them and imposing the maximum fine, which can reach $10,000 to $15,000. For a big bank, that's not much. The real pain comes because the fines give the city a lien that impedes the banks' ability to buy or sell other properties in the area. In addition, when lenders come to his court to get residents evicted from a particular property, Nowak refuses to grant the request until the bank addresses violations outstanding on other properties. Judge Pianka employs similar tactics in Cleveland. On Dec. 10, for example, he assessed a $50,000 fine against an absentee defendant, Mortgage Lenders Network USA, for 21 code violations at a home.
Even far from the Rust Belt, in places where empty houses retain significant value, the lending industry seems to have trouble preserving its collateral when homes are abandoned during foreclosure. In Chula Vista, a number of houses have been trashed by college students who have held parties in the vacant properties. In other cases, pillagers pull up in rental trucks to cart away cabinets, wood flooring, and fixtures stripped from the homes. But in October, an ordinance went into effect requiring lenders to register and maintain houses that have been abandoned during foreclosure.
Compliance, says Chula Vista code enforcement manager Doug Leeper, has been spotty. "What I need them to do is keep the water on and keep the lawn green," he says, noting that the first sign of abandonment is often a yard that has turned brown and a pool that has gone murky green.
That slide into decrepitude is exactly what Cooper is trying to head off in Buffalo. In February, she joined the city's law department, where one of her duties is prosecuting banks. She and Nowak each say their main objective is not collecting fines but bringing banks to the table to try to find constructive solutions for dealing with abandoned property. That doesn't mean borrowers are off the hook. Cooper typically charges both borrowers and lenders, and Nowak may fine homeowners or sentence them to community service. "Can both be responsible?" asks Cooper. "Absolutely."
The approach in Buffalo is paying dividends. In a case on Dec. 17, attorney Cercone addressed the status of a house that had gone into foreclosure in 2006. Cercone was representing JPMorgan Chase and Ocwen Loan Servicing (which in turn were representatives of a securitized trust that had purchased the mortgage). Cercone submitted an affidavit showing that Ocwen, which had been cited for violations in December, 2006, had spent $30,000 to repair the property, including scraping lead paint from the entire house. In September, the affidavit notes, JP Morgan Chase sold the property at a loss of $19,500, not including the cost of repairs. "The bank in this case dealt with the property as well as could be done under the circumstances," Nowak said from the bench, and he agreed not to impose any fines.
Still, even with novel and aggressive tactics, the path to resolution for many properties in Buffalo can be tortuous and protracted. A house at 1941 Niagara St. — one of dozens of properties that Cooper examined as a graduate studenthas yet to see its final chapter, though it may be close.
In 1998, Elizabeth M. Manuel obtained a $34,500 mortgage on the property from IMC Mortgage (since acquired by Citibank). By 2002, the loan had been sold into a securitization trust administered by Chase Manhattan (now JPMorgan Chase) as trustee. It also went into default, and Chase began foreclosure proceedings. In a court filing, Manuel (who could not be located for comment) said she left the home while the foreclosure action was pending. More than five years later, though, the title remains in her name. The house, although still standing, has become a fire-gutted wreck.
In May 2007, Nowak issued a default judgment against Chase for $9,000. But these cases can be notoriously difficult to untangle. Thomas A. Kelly, a spokesman for the bank, notes that Chase sold its trustee business to the Bank of New York Mellon in October, 2006, and couldn't locate anyone at Chase able to comment. But he reiterates the industry view that Chase can't be held responsible for maintaining a property it never owned. He acknowledges that if a home didn't seem worth taking as collateral, the bank may have made a decision to "just walk away."
The value of 1941 Niagara, estimate city assessors, is $4,500, of which $4,300 represents the value of the land. The home, Cooper says, is slated for "imminent" demolition.
Copyright © 2008 The McGraw-Hill Companies Inc. All rights reserved.
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URL: http://www.msnbc.msn.com/id/22506609/
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