TAMPA – June 1, 2009 – Some consider them good capitalists. Others see them as opportunists. Still others call them vultures.
Whatever the name, hedge fund investors likely will be major players in Florida real estate in the next few years, buying up mortgage notes – troubled or not – for a fraction of their original value.
Often, the funds are passive investors. But here in Sun City Center, Jim Biggins is fighting to protect his family business, Cypress Creek Assisted Living Residence, from a Greenwich, Conn.-based hedge fund called Silver Point Capital.
Shortly after buying Cypress Creek’s mortgage note from M&I Bank, the hedge fund moved to foreclose. Biggins filed for Chapter 11 bankruptcy protection to fend off the investors and he said he’s confident a judge will give him time to find new financing.
Now 44, Biggins grew up helping out at his family’s assisted living facility in Manatee County, delivering dinner to seniors and cleaning floors before running home to finish his homework.
“I’m a little disappointed that they didn’t give us terms, because we could get them paid off if they would just give us time,” Biggins said. “They could get their money without destroying a family business.”
Silver Point declined to comment.
In Florida, the next wave of loan defaults and foreclosures is expected to hit the state’s battered commercial real estate market. Investment funds are forming to capitalize. While some investors also target distressed home mortgages, many hedge funds – private investment funds that aren’t regulated by the government – prefer the multimillion-dollar mortgages common in commercial real estate.
Local bankers and commercial real estate brokers report getting cold calls from hedge funds inquiring about distressed mortgages for sale.
At the moment, funds holding as much as $300 billion are looking to buy distressed real estate debt, said Pat Blount, an Oklahoma-based consultant who has advised banks on asset sales. Florida is high on their list of targets.
True impact may be felt later
It isn’t clear how many funds are taking aim at Florida. But one investment banker who advises banks, Russ Hunt of the Kendrick Pierce firm in Tampa, said he’s aware of at least 200. Blount said the real impact of hedge funds may be felt in coming months and years as some banks grow more desperate to sell troubled assets.
At the moment, there is a gap between how much banks want for their troubled loans and how much hedge funds are willing to pay, Blount said.
If a borrower can’t pay off the mortgage, the investor might foreclose and hold the property until the real estate market improves, said Chris Moench, an executive at Directed Capital Resources, a small St. Petersburg-based private equity firm that buys performing and distressed mortgages. Unlike hedge funds, Direct Capital sticks to buying mortgage notes and doesn’t venture into other investments, he said.
In some cases, the investors don’t have to wait long for a big payoff.
Last year, the real estate market came crashing down on homebuilder Peter Bennett. Several of his multifamily development projects have gone into default, and his bank, M&I Bank, sold off the mortgages to hedge funds including Silver Point Capital and Chicago-based Lincolnshire Associates.
One of the projects, a proposed multifamily housing project along MacDill Avenue in Tampa, carries a $1.4 million mortgage note that Silver Point Capital bought from M&I in March 2008.
In three months, Bennett was able to sell the MacDill Avenue property to another builder and pay off the hedge fund. It isn’t clear how much Silver Point paid for the note, but banking consultants said it isn’t uncommon to pay 50 cents on the dollar for a defaulted mortgage.
If that’s the case, Silver Point might have made an $800,000 profit in three months.
Today, Bennett is concerned less with the behavior of Silver Point Capital than M&I Bank. He had hoped his bank would renegotiate his loan.
“To me, if they’ve come to the decision to sell this note at cents on the dollar, why not work with the developer?” Bennett said.
M&I does not comment on customer matters, a spokeswoman told The Tampa Tribune.
In Sun City Center, Biggins, too, wonders why M&I Bank sold his mortgage note. Unlike Bennett, Cypress Creek Assisted Living Residence wasn’t in financial distress.
His problems started in 2007 when his $4.9 million mortgage was set to mature and a balloon payment for the remaining balance was coming due.
M&I Bank originally acquired Cypress Creek’s mortgage when it acquired Gold Bank three years ago. At first, it seemed M&I was willing to renew the loan for a year until he could find new financing, Biggins said. But before he could sign the papers to renew the loan, a FedEx letter arrived revealing that the bank had sold his mortgage note to Silver Point Capital.
“To be candid, I didn’t really know what that meant,” Biggins said. “After I spoke to Silver Point it was clear that there were no terms and they were just looking for the lump sum payoff.”
Hoping to avoid foreclosure
Today, Biggins continues to operate Cypress Creek. He worries some residents will leave the center because of its bankruptcy case, but he’s hopeful a bankruptcy judge will extend the terms of its loan and keep Silver Point from foreclosing.
“We need more than just a couple of months,” Biggins said. “We need potentially years to get this accomplished with the way the current market is.”
On a recent weekday morning, the assisted living home appeared serene and friendly.
A handful of seniors sat in the home’s front drive area, enjoying the midmorning sun and waving to strangers. A group of seniors was readying for the 10:30 a.m. prayer session.
Biggins appears to know many of its 94 residents by name.
His family built Cypress Creek in 1998. Despite its challenge, Cypress Creek is profitable, he said. But a huge mortgage note looms and for now he can’t pay it off.
While Silver Point Capital wouldn’t comment, Moench of Directed Capital Resources said many such funds are not just looking to foreclose and take property. His own firm, he said, generally tries to work with borrowers so they can make payments on their outstanding balance.
However, he acknowledged he occasionally has to foreclose if the borrower can’t or won’t make payments.
Moench said he doesn’t take offense at the term “vulture fund.” But he insisted such funds perform a service. Banks are swelled with troubled loans and someone needs to take the loans off their hands, even if it means foreclosure, Moench said.
“We need to make money,” he said, “but we do it in a way that we can hold our head high.”
What are hedge funds?
Hedge funds are private investment funds that are exempt from Securities and Exchange Commission regulation, unlike mutual funds, which are regulated and report their holdings to the SEC. This gives hedge funds more freedom to invest in risky assets using different techniques. For example, a hedge fund may buy stocks it expects to fall in value, profiting through a technique called “short selling.” Hedge funds also often buy currencies, real estate and other assets.
“Vulture funds” are investment funds, including many hedge funds, which invest in distressed companies or distressed mortgages, hoping to buy low and sell high.
Sources: Hedge Fund Association; Investment Company Institute
Copyright © 2009 Tampa Tribune, Fla.
Monday, June 1, 2009
Mortgage rate rise thwarts some refinancing plans
NEW YORK – June 1, 2009 – Roger Wald recently discovered he would save $25,000 a year if he refinanced his five-year mortgage at 4.75 percent. Wald, an auto body repairman in Sarasota, Fla., could have gotten that rate last month.
But like many homeowners, he waited for rates to fall further. Now, he’s worried he missed his chance.
Mortgage rates at some lenders spiked by as much as 1 percent last Wednesday and saw little relief on Thursday, according to mortgage brokers.
“The 4.75 percent my broker quoted two weeks ago? There’s no way I’m going to get that now,” said Wald, 49.
The fear dogging homeowners and investors alike is that April’s record lows in mortgage rates may have come and gone.
The stock market has rallied since early March on the assumption the economy will rebound later this year. Federal Reserve Chairman Ben Bernanke has been calling early signs of economic stabilization “green shoots” – and one of those shoots was a pickup in refinancing activity caused by tumbling mortgage rates.
But mortgage rates have rebounded sharply over the past few days as the nation’s growing debt raises concerns that government-backed assets could lose some of their value. It’s a trend that could slow both refinancing and home buying if it continues. Higher mortgage rates won’t necessarily derail the economy’s recovery, analysts say, but it certainly won’t help.
“If the Fed does not step in, you are going to see the ‘green shoots’ get frost bite,” said T.J. Marta, founder of financial research firm Marta on the Markets.
The average rate for a 30-year fixed mortgage is back at 4.91 percent this week, up from 4.82 percent last week, Freddie Mac said Thursday.
The 30-year fixed mortgage rate hit a record low of 4.78 percent in April thanks in large part to the Fed’s decision this year to buy as much as $1.25 trillion in mortgage securities and $300 billion in Treasury notes. So far, the Fed has bought $130.5 billion in government debt and more than $431 billion in mortgage securities.
Lower rates led to a surge in mortgage applications. Applications rose for five straight weeks between early March and early April, according to the Mortgage Bankers Association. And sales of both existing and new homes ticked higher from March to April, according to data released this week.
The Fed’s moves, however, have recently lost their effectiveness in the market. The yields on the 10-year and 30-year Treasury notes have surged to a six-month high, and are nearly where they were a year ago. That’s significant because Treasury yields, or their annual rates of return, help set mortgage rates.
Mortgage activity is already starting to decline. Mortgage applications tumbled 14 percent in the week ended May 22 from the previous week, the Mortgage Bankers Association said Wednesday. Applications to refinance a loan were down almost 19 percent.
The Fed has many tools to bring rates down again. It could increase how much it intends to spend on Treasury purchases or mortgage-backed securities. It could also decide to simply buy longer-dated Treasurys, said David Ader, government bond strategist at RBS Greenwich Capital. Recently, the Fed has been focusing on buying shorter-term government debt.
But if the Fed buys more Treasurys, some investors worry the central bank’s moves could have unintended consequences. That’s because when the Fed buys the debt that the government issues, it is essentially creating money. And that can cause inflation and weaken the value of the dollar against other major currencies.
A plunge in the dollar and high inflation might scare away foreign investors from buying U.S. debt, said Mike Larson, a real estate analyst with Weiss Research. And that would cause Treasury yields to rise eventually anyway, he said.
“The Fed is really backed into a corner,” Larson said.
It would be preferable if the 10-year Treasury yield fell back to 3 percent, from its current 3.75, said Mark Zandi, chief economist at Moody’s Economy.com. Such a pullback would help bring down mortgage rates and motivate people to refinance and buy homes.
When borrowers refinance to lower rates their monthly payments goes down so they have more free cash to spend on other things they need and want. And that’s good for businesses – consumer spending accounts for about two-thirds of economic activity.
Dan Lawrence, Wald’s mortgage broker in Florida, said clients of his who have refinanced to a lower rate averaged between $300 and $400 in savings on their monthly mortgage payments, and almost assuredly pump some of those savings back into the economy.
“They’re going to go out dinner more. They’re going to buy shoes,” he said.
But many analysts, including Larson at Weiss Research, expect mortgage rates to head back toward 6 percent. The question, they say, is how fast.
Copyright © 2009 The Associated Press
But like many homeowners, he waited for rates to fall further. Now, he’s worried he missed his chance.
Mortgage rates at some lenders spiked by as much as 1 percent last Wednesday and saw little relief on Thursday, according to mortgage brokers.
“The 4.75 percent my broker quoted two weeks ago? There’s no way I’m going to get that now,” said Wald, 49.
The fear dogging homeowners and investors alike is that April’s record lows in mortgage rates may have come and gone.
The stock market has rallied since early March on the assumption the economy will rebound later this year. Federal Reserve Chairman Ben Bernanke has been calling early signs of economic stabilization “green shoots” – and one of those shoots was a pickup in refinancing activity caused by tumbling mortgage rates.
But mortgage rates have rebounded sharply over the past few days as the nation’s growing debt raises concerns that government-backed assets could lose some of their value. It’s a trend that could slow both refinancing and home buying if it continues. Higher mortgage rates won’t necessarily derail the economy’s recovery, analysts say, but it certainly won’t help.
“If the Fed does not step in, you are going to see the ‘green shoots’ get frost bite,” said T.J. Marta, founder of financial research firm Marta on the Markets.
The average rate for a 30-year fixed mortgage is back at 4.91 percent this week, up from 4.82 percent last week, Freddie Mac said Thursday.
The 30-year fixed mortgage rate hit a record low of 4.78 percent in April thanks in large part to the Fed’s decision this year to buy as much as $1.25 trillion in mortgage securities and $300 billion in Treasury notes. So far, the Fed has bought $130.5 billion in government debt and more than $431 billion in mortgage securities.
Lower rates led to a surge in mortgage applications. Applications rose for five straight weeks between early March and early April, according to the Mortgage Bankers Association. And sales of both existing and new homes ticked higher from March to April, according to data released this week.
The Fed’s moves, however, have recently lost their effectiveness in the market. The yields on the 10-year and 30-year Treasury notes have surged to a six-month high, and are nearly where they were a year ago. That’s significant because Treasury yields, or their annual rates of return, help set mortgage rates.
Mortgage activity is already starting to decline. Mortgage applications tumbled 14 percent in the week ended May 22 from the previous week, the Mortgage Bankers Association said Wednesday. Applications to refinance a loan were down almost 19 percent.
The Fed has many tools to bring rates down again. It could increase how much it intends to spend on Treasury purchases or mortgage-backed securities. It could also decide to simply buy longer-dated Treasurys, said David Ader, government bond strategist at RBS Greenwich Capital. Recently, the Fed has been focusing on buying shorter-term government debt.
But if the Fed buys more Treasurys, some investors worry the central bank’s moves could have unintended consequences. That’s because when the Fed buys the debt that the government issues, it is essentially creating money. And that can cause inflation and weaken the value of the dollar against other major currencies.
A plunge in the dollar and high inflation might scare away foreign investors from buying U.S. debt, said Mike Larson, a real estate analyst with Weiss Research. And that would cause Treasury yields to rise eventually anyway, he said.
“The Fed is really backed into a corner,” Larson said.
It would be preferable if the 10-year Treasury yield fell back to 3 percent, from its current 3.75, said Mark Zandi, chief economist at Moody’s Economy.com. Such a pullback would help bring down mortgage rates and motivate people to refinance and buy homes.
When borrowers refinance to lower rates their monthly payments goes down so they have more free cash to spend on other things they need and want. And that’s good for businesses – consumer spending accounts for about two-thirds of economic activity.
Dan Lawrence, Wald’s mortgage broker in Florida, said clients of his who have refinanced to a lower rate averaged between $300 and $400 in savings on their monthly mortgage payments, and almost assuredly pump some of those savings back into the economy.
“They’re going to go out dinner more. They’re going to buy shoes,” he said.
But many analysts, including Larson at Weiss Research, expect mortgage rates to head back toward 6 percent. The question, they say, is how fast.
Copyright © 2009 The Associated Press
The economy’s ‘less worse’
TAMPA, Fla. – June 1, 2009 – Florida’s economy may not be headed up yet, but at least things are “less worse” than they were, Regions Bank Chief Economist Bob Allsbrook quipped.
Bad grammar or not, the description sums up the views of four economists surveyed by the Tribune last week. A range of economic indicators is mostly negative, but in a few cases their pace of decline has slowed.
Meanwhile, as hard as the recession has hit the Bay area, a new Economic Stress Index developed by The Associated Press suggests this area isn’t suffering nearly as much as parts of California and Michigan, where unemployment tops 20 percent.
“I think there’s growing evidence at the national level that the blackness has begun to lighten in spots,” said Sean Snaith, an economist at the University of Central Florida’s Institute for Economic Competitiveness.
Still, in Florida, “I’m not seeing great signs that things are completely over.”
Nationally, economists and Treasury Department officials are hinting that the worst of the recession may be over. There are some encouraging signs in Florida, too, including:
• A glimmer of hope in employment. On Friday, the state reported the first drop in the unemployment rate in more than three years. It was a small drop – falling to 9.6 percent in April from 9.8 percent in March – but it could mean the rate is stabilizing, state economist Rebecca Rust told reporters Friday.
Take the good news with a grain of salt, though. It isn’t clear yet whether the drop in unemployment was caused by increased hiring or by more people giving up their job search and dropping out of the state’s labor force, Rust said.
• A spark of life in housing. Lately, the Florida Association of Realtors has been trumpeting increasing home sales in the state. For example, sales of existing homes rose 30 percent in March, rising to 13,085 sales from 10,080 sales in March 2008. However, a large number of those sales are foreclosure sales, said Scott Brown, chief economist with Raymond James Financial.
The AP’s Economic Stress Index puts the Bay area’s economic struggles in perspective, measuring unemployment, foreclosures and bankruptcies in every county in the United States.
For example, Hillsborough County got a “stress index” rating of 13.63; Pinellas County, 13.24; and Pasco County, 15.49. Higher scores indicate more stress, up to a level of 100.
By comparison, some counties in California and Michigan have stress index scores of 28 because their unemployment rates are above 20 percent. The least-affected counties in America tend to be in the Plains states, where unemployment is about 5 percent.
Economists are reluctant to say that Florida is in recovery. In fact, they say the state probably will take longer to break out of the recession than other states.
A sobering sign is in sales tax figures, which show Floridians have cut back their spending more sharply in recent months.
For example, in April, sales tax receipts were down 13.8 percent from the same month a year earlier. That’s a steeper decline than Florida saw in the fall, when year-over-year sales tax receipts were down about 11 percent, and over the summer, when the year-over-year decline was about 8 percent.
Meanwhile, Chris Lafakis, an economist with Moody’s Economy.com, sees a troubling trend in Florida’s labor market. Though April’s unemployment data was encouraging, the number of people in Florida’s labor force actually fell during the first three months of this year.
That was the first time the labor force had contracted for three consecutive months in at least 30 years, Lafakis said. So, more unemployed Floridians seem to be giving up looking for work and dropping out of the labor market, he said.
Lafakis estimates unemployment in Florida will top out at 11.4 percent in spring 2010 before starting to decline.
Copyright © 2009 Tampa Tribune,
Bad grammar or not, the description sums up the views of four economists surveyed by the Tribune last week. A range of economic indicators is mostly negative, but in a few cases their pace of decline has slowed.
Meanwhile, as hard as the recession has hit the Bay area, a new Economic Stress Index developed by The Associated Press suggests this area isn’t suffering nearly as much as parts of California and Michigan, where unemployment tops 20 percent.
“I think there’s growing evidence at the national level that the blackness has begun to lighten in spots,” said Sean Snaith, an economist at the University of Central Florida’s Institute for Economic Competitiveness.
Still, in Florida, “I’m not seeing great signs that things are completely over.”
Nationally, economists and Treasury Department officials are hinting that the worst of the recession may be over. There are some encouraging signs in Florida, too, including:
• A glimmer of hope in employment. On Friday, the state reported the first drop in the unemployment rate in more than three years. It was a small drop – falling to 9.6 percent in April from 9.8 percent in March – but it could mean the rate is stabilizing, state economist Rebecca Rust told reporters Friday.
Take the good news with a grain of salt, though. It isn’t clear yet whether the drop in unemployment was caused by increased hiring or by more people giving up their job search and dropping out of the state’s labor force, Rust said.
• A spark of life in housing. Lately, the Florida Association of Realtors has been trumpeting increasing home sales in the state. For example, sales of existing homes rose 30 percent in March, rising to 13,085 sales from 10,080 sales in March 2008. However, a large number of those sales are foreclosure sales, said Scott Brown, chief economist with Raymond James Financial.
The AP’s Economic Stress Index puts the Bay area’s economic struggles in perspective, measuring unemployment, foreclosures and bankruptcies in every county in the United States.
For example, Hillsborough County got a “stress index” rating of 13.63; Pinellas County, 13.24; and Pasco County, 15.49. Higher scores indicate more stress, up to a level of 100.
By comparison, some counties in California and Michigan have stress index scores of 28 because their unemployment rates are above 20 percent. The least-affected counties in America tend to be in the Plains states, where unemployment is about 5 percent.
Economists are reluctant to say that Florida is in recovery. In fact, they say the state probably will take longer to break out of the recession than other states.
A sobering sign is in sales tax figures, which show Floridians have cut back their spending more sharply in recent months.
For example, in April, sales tax receipts were down 13.8 percent from the same month a year earlier. That’s a steeper decline than Florida saw in the fall, when year-over-year sales tax receipts were down about 11 percent, and over the summer, when the year-over-year decline was about 8 percent.
Meanwhile, Chris Lafakis, an economist with Moody’s Economy.com, sees a troubling trend in Florida’s labor market. Though April’s unemployment data was encouraging, the number of people in Florida’s labor force actually fell during the first three months of this year.
That was the first time the labor force had contracted for three consecutive months in at least 30 years, Lafakis said. So, more unemployed Floridians seem to be giving up looking for work and dropping out of the labor market, he said.
Lafakis estimates unemployment in Florida will top out at 11.4 percent in spring 2010 before starting to decline.
Copyright © 2009 Tampa Tribune,
Sunday, May 31, 2009
Two-thirds of coastal state residents feel no hurricane threat
MIAMI – May 29, 2009 – Hurricanes may flood entire cities, rip off roofs and level trees every year, but when it comes to overcoming public apathy, they’re stunningly powerless.
Two-thirds of residents in coastal states feel no threat from storms. More than half don’t have a hurricane survival kit or know whether their homeowner’s insurance covers storm damage.
Those are some of the key findings from a new poll to be released Thursday at Florida International University in Miami.
The six-month hurricane season starts Monday, but the Mason-Dixon poll of residents from Maine to Texas found that most remain unprepared, even unconcerned, about a strike from a major hurricane.
“It seems Americans need an urgent reminder every year about something that we ought to get by now,” said Ron Sachs, a Tallahassee, Fla.-based media consultant who is national coordinator for the National Hurricane Survival Initiative, which commissioned the poll. “It’s not called the mean season for nothing.”
The initiative, a coalition of government and relief organizations and corporations that promote hurricane awareness and safety planning, will release the complete poll at FIU’s International Hurricane Research Center.
It shows that while the number of hurricanes has jumped upward over the last decade, public preparation has not followed course.
Despite five major hurricanes last year, for instance, the number of people who feel no threat from storms actually rose – to 62 from 54 percent the previous year.
Some other results:
• 83 percent of respondents have taken no steps to make their homes stronger
• 55 percent have no family disaster plan
• 13 percent said they would not evacuate even if ordered to do so
The poll surveyed 1,100 adults from 18 Gulf and Atlantic coast states who were interviewed May 6-11. The margin of error is plus or minus 3 percentage points.
Florida Lt. Gov. Jeff Kottkamp is scheduled to join weather forecasters and emergency managers, insurance executives and others to provide the full results and urge residents to prepare for hurricane season.
Partners in the initiative include the National Hurricane Center, the Salvation Army, the National Emergency Management Agency and FIU’s International Hurricane Research Center. Corporate sponsors include Travelers Insurance and Plylox.
© 2009 The Miami Herald
Two-thirds of residents in coastal states feel no threat from storms. More than half don’t have a hurricane survival kit or know whether their homeowner’s insurance covers storm damage.
Those are some of the key findings from a new poll to be released Thursday at Florida International University in Miami.
The six-month hurricane season starts Monday, but the Mason-Dixon poll of residents from Maine to Texas found that most remain unprepared, even unconcerned, about a strike from a major hurricane.
“It seems Americans need an urgent reminder every year about something that we ought to get by now,” said Ron Sachs, a Tallahassee, Fla.-based media consultant who is national coordinator for the National Hurricane Survival Initiative, which commissioned the poll. “It’s not called the mean season for nothing.”
The initiative, a coalition of government and relief organizations and corporations that promote hurricane awareness and safety planning, will release the complete poll at FIU’s International Hurricane Research Center.
It shows that while the number of hurricanes has jumped upward over the last decade, public preparation has not followed course.
Despite five major hurricanes last year, for instance, the number of people who feel no threat from storms actually rose – to 62 from 54 percent the previous year.
Some other results:
• 83 percent of respondents have taken no steps to make their homes stronger
• 55 percent have no family disaster plan
• 13 percent said they would not evacuate even if ordered to do so
The poll surveyed 1,100 adults from 18 Gulf and Atlantic coast states who were interviewed May 6-11. The margin of error is plus or minus 3 percentage points.
Florida Lt. Gov. Jeff Kottkamp is scheduled to join weather forecasters and emergency managers, insurance executives and others to provide the full results and urge residents to prepare for hurricane season.
Partners in the initiative include the National Hurricane Center, the Salvation Army, the National Emergency Management Agency and FIU’s International Hurricane Research Center. Corporate sponsors include Travelers Insurance and Plylox.
© 2009 The Miami Herald
Saturday, May 30, 2009
11% of Florida homes in some state of foreclosure
ORLANDO, Fla. – May 29, 2009 – The faltering economy and falling home prices plunged an additional 99,000 Florida borrowers into foreclosure in the first three months of the year, bringing the total number of home loans in some stage of the foreclosure process to 374,134.
With 11 percent of its home loans in foreclosure, Florida ranked first in the country for defaults and was the only state in double digits. The rate was up roughly 2 percent from the previous quarter, according to figures released Thursday by the Mortgage Bankers Association.
As job losses mounted and incomes dwindled, more and more homeowners fell behind on their loans, with payment problems socking greater numbers of previously credit-worthy borrowers who have traditional mortgages.
The delinquency rates for loans 30 days or more past due stood at 10.67 percent in Florida, or about 378,000 of some 3.54 million loans.
The rate dipped slightly from the previous quarter, but that is always the case at the start of the year, said Jay Brinkmann, chief economist for the MBA. The rate nationally was 9.12 percent. Florida’s crisis is particularly acute because of the staggering run-up in real estate values during the housing boom. People rushed to get loans to buy property that, in many cases, they could not afford. When prices collapsed, homeowners were stuck, unable to sell or refinance. Others were caught in adjustable-rate mortgages with payments that soared.
With Florida home values continuing to fall, Brinkmann predicted foreclosures would continue to rise through the rest of the year. A large oversupply of new property makes stabilizing home prices in the state likely a distant prospect.
“It’s going to take getting demand even with supply just to put a floor under prices. Even then, it may not get it up to a point where it gets buyers back above water,” Brinkmann said.
At the end of March, roughly 71 percent of owners who bought in Miami-Dade and Broward counties in the past five years were underwater, or owed more than their homes were worth, according to Web-based real estate services firm Zillow.com.
Analysts have said so-called negative equity is one of the biggest reasons why borrowers fall into foreclosure – if they need to sell, they can’t, at least not for enough to cover the debt, or they choose to throw in the towel, thinking it’s better to take their losses and rent.
While most lenders have established loan modification programs and are helping borrowers reduce their monthly payments through things like interest rate reductions and extended terms, many homeowners are falling back into default. A recent study by Fitch Ratings projected that as many as 75 percent of subprime loan modifications would fall behind by 60 days or more within a year. Brinkmann said that so-called redefaults could show up in the new foreclosure statistics: “There may be repeat visitors coming back into the numbers.”
Copyright © 2009 The Miami Herald
With 11 percent of its home loans in foreclosure, Florida ranked first in the country for defaults and was the only state in double digits. The rate was up roughly 2 percent from the previous quarter, according to figures released Thursday by the Mortgage Bankers Association.
As job losses mounted and incomes dwindled, more and more homeowners fell behind on their loans, with payment problems socking greater numbers of previously credit-worthy borrowers who have traditional mortgages.
The delinquency rates for loans 30 days or more past due stood at 10.67 percent in Florida, or about 378,000 of some 3.54 million loans.
The rate dipped slightly from the previous quarter, but that is always the case at the start of the year, said Jay Brinkmann, chief economist for the MBA. The rate nationally was 9.12 percent. Florida’s crisis is particularly acute because of the staggering run-up in real estate values during the housing boom. People rushed to get loans to buy property that, in many cases, they could not afford. When prices collapsed, homeowners were stuck, unable to sell or refinance. Others were caught in adjustable-rate mortgages with payments that soared.
With Florida home values continuing to fall, Brinkmann predicted foreclosures would continue to rise through the rest of the year. A large oversupply of new property makes stabilizing home prices in the state likely a distant prospect.
“It’s going to take getting demand even with supply just to put a floor under prices. Even then, it may not get it up to a point where it gets buyers back above water,” Brinkmann said.
At the end of March, roughly 71 percent of owners who bought in Miami-Dade and Broward counties in the past five years were underwater, or owed more than their homes were worth, according to Web-based real estate services firm Zillow.com.
Analysts have said so-called negative equity is one of the biggest reasons why borrowers fall into foreclosure – if they need to sell, they can’t, at least not for enough to cover the debt, or they choose to throw in the towel, thinking it’s better to take their losses and rent.
While most lenders have established loan modification programs and are helping borrowers reduce their monthly payments through things like interest rate reductions and extended terms, many homeowners are falling back into default. A recent study by Fitch Ratings projected that as many as 75 percent of subprime loan modifications would fall behind by 60 days or more within a year. Brinkmann said that so-called redefaults could show up in the new foreclosure statistics: “There may be repeat visitors coming back into the numbers.”
Copyright © 2009 The Miami Herald
Friday, May 29, 2009
Details of FHA’s $8K downpayment advance released
WASHINGTON – May 29, 2009 – The U.S. Department of Housing and Urban Development (HUD) released more details today about its program to help first-time homebuyers use a tax credit as part of a downpayment.
HUD announced the program on May 12 at the National Association of Realtors® Housing Summit. In the interim, HUD posted an announcement and then immediately took it down, leading to speculation that the program would be pulled. In response, HUD said the rules had simply not been finalized, and the original announcement had been posted in error.
“We’ve been eager for word from the federal government since the new FHA downpayment assistance plan was announced, and even more so after the program details were first published and then quickly pulled,” says John Sebree, FAR vice president of public policy. “Luckily, that turns out to be a minor setback and there will be a federal downpayment program to complement the $30 million we were successful in securing in the Florida budget.”
The most significant change involves the amount of downpayment required by qualified first-time homebuyers. FHA mortgages require a 3.5 percent downpayment, and the $8,000 tax credit cannot be used to override that requirement. Once the 3.5 percent downpayment requirement has been met, however, the tax credit can be applied to additional costs, including a higher downpayment, paying points to lower the mortgage rate, and/or closing costs. Lenders will treat the tax credit money as a second lien on the home until it’s paid back.
“Mortgage industry leaders have indicated that this type of product may not be immediately available to consumers,” says Sebree. Since lenders will oversee the tax credit loan, they must create internal programs to handle the process.
Lenders have some flexibility on payback requirements for the upfront loan of the tax credit, though HUD also created rules to protect homebuyers from onerous terms. To read the complete overview in Mortgagee Letter 2009-15, go here.
© 2009 FLORIDA ASSOCIATION OF REALTORS®
HUD announced the program on May 12 at the National Association of Realtors® Housing Summit. In the interim, HUD posted an announcement and then immediately took it down, leading to speculation that the program would be pulled. In response, HUD said the rules had simply not been finalized, and the original announcement had been posted in error.
“We’ve been eager for word from the federal government since the new FHA downpayment assistance plan was announced, and even more so after the program details were first published and then quickly pulled,” says John Sebree, FAR vice president of public policy. “Luckily, that turns out to be a minor setback and there will be a federal downpayment program to complement the $30 million we were successful in securing in the Florida budget.”
The most significant change involves the amount of downpayment required by qualified first-time homebuyers. FHA mortgages require a 3.5 percent downpayment, and the $8,000 tax credit cannot be used to override that requirement. Once the 3.5 percent downpayment requirement has been met, however, the tax credit can be applied to additional costs, including a higher downpayment, paying points to lower the mortgage rate, and/or closing costs. Lenders will treat the tax credit money as a second lien on the home until it’s paid back.
“Mortgage industry leaders have indicated that this type of product may not be immediately available to consumers,” says Sebree. Since lenders will oversee the tax credit loan, they must create internal programs to handle the process.
Lenders have some flexibility on payback requirements for the upfront loan of the tax credit, though HUD also created rules to protect homebuyers from onerous terms. To read the complete overview in Mortgagee Letter 2009-15, go here.
© 2009 FLORIDA ASSOCIATION OF REALTORS®
Thursday, May 28, 2009
Repeat buyers boost home sales
WASHINGTON – May 28, 2009 – More repeat buyers appear to be buying homes, contributing to a slight uptick in existing-home sales this spring. First-time buyers’ share of existing-home sales in April declined to 40 percent from over half in March, according to the National Association of Realtors® (NAR).
The majority of buyers are now repeat buyers, which includes owner-occupants who are moving up to larger or more expensive homes. Investors make up the rest of the market.
Sales of existing homes last month rose 2.9 percent to a seasonally adjusted annual rate of 4.68 million units from 4.55 million in March, the NAR reported Wednesday. Still, that was 3.5 percent below April 2008 levels. Home sales are rising in areas that have had a large number of foreclosures, such as California, Nevada and Florida.
Activity from repeat buyers is important for increasing sales of midprice homes and for clearing out inventory of unsold homes. At the end of April there were 3.97 million existing homes for sale, a 10.2-month supply at the current sales pace, compared with a 9.6-month supply in March. Economists say a six-month supply is healthy.
“During the spring season we see existing-home owners put their homes on the market,” says Lawrence Yun, chief economist at NAR. “First-time buyers are releasing the existing-home owners, who are then able to sell to make their purchases. It’s a chain reaction.”
But the market may not yet be drawing large numbers of repeat buyers who are trading up to larger or more expensive homes.
“The move-up buyers aren’t there. People are sitting on the sidelines trying to judge the market,” says Coldwell Banker CEO Jim Gillespie. “I believe it’s more investors.”
Some economists say that even with more repeat buyers and a tax credit for first-time home buyers, the housing market’s recovery is still faltering because of the economy and job losses.
“Sales will continue to drop in the second half of the year, because the economy is losing so many jobs and the GDP (gross domestic product) is still dropping,” says Patrick Newport at IHS Global Insight.
The national median price for existing homes was $170,200 in April, 15.4 percent below 2008.
Sales of foreclosed properties and others that sold for less than their mortgage balance continue to pull down the median price because they generally sell at discounts. They represented 45 percent of all existing-home sales in April.
2009 © USA TODAY. All rights reserved.
The majority of buyers are now repeat buyers, which includes owner-occupants who are moving up to larger or more expensive homes. Investors make up the rest of the market.
Sales of existing homes last month rose 2.9 percent to a seasonally adjusted annual rate of 4.68 million units from 4.55 million in March, the NAR reported Wednesday. Still, that was 3.5 percent below April 2008 levels. Home sales are rising in areas that have had a large number of foreclosures, such as California, Nevada and Florida.
Activity from repeat buyers is important for increasing sales of midprice homes and for clearing out inventory of unsold homes. At the end of April there were 3.97 million existing homes for sale, a 10.2-month supply at the current sales pace, compared with a 9.6-month supply in March. Economists say a six-month supply is healthy.
“During the spring season we see existing-home owners put their homes on the market,” says Lawrence Yun, chief economist at NAR. “First-time buyers are releasing the existing-home owners, who are then able to sell to make their purchases. It’s a chain reaction.”
But the market may not yet be drawing large numbers of repeat buyers who are trading up to larger or more expensive homes.
“The move-up buyers aren’t there. People are sitting on the sidelines trying to judge the market,” says Coldwell Banker CEO Jim Gillespie. “I believe it’s more investors.”
Some economists say that even with more repeat buyers and a tax credit for first-time home buyers, the housing market’s recovery is still faltering because of the economy and job losses.
“Sales will continue to drop in the second half of the year, because the economy is losing so many jobs and the GDP (gross domestic product) is still dropping,” says Patrick Newport at IHS Global Insight.
The national median price for existing homes was $170,200 in April, 15.4 percent below 2008.
Sales of foreclosed properties and others that sold for less than their mortgage balance continue to pull down the median price because they generally sell at discounts. They represented 45 percent of all existing-home sales in April.
2009 © USA TODAY. All rights reserved.
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