KeNo's Housing and Economic Portal: Thursday June 25 Housing and Economic stories

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TOP STORIES:

Neighbors are forcing neighbors into foreclosure over HOA dues - (www.sacbee.com) Thousands of Americans who have generally kept up with their mortgages are still in danger of losing their homes because they made a fateful trade-off in this shaky economy - they let their homeowner association dues slide. Many homeowners are learning to their surprise that condo and neighborhood associations that oversee security patrols, mow lawns, plant flowers and clean the community swimming pool may have the right to foreclose when dues aren't paid. That right is often written into the purchase agreement signed by the homeowner. Among those who have been threatened with foreclosure is Lacey Pilat, who lost her job catering lavish corporate parties and nearly lost her two-story house in this Dallas suburb. "Basically, our landscaper was foreclosing on the house," said Steve Pilat, her husband. "That's the way we looked at it." These foreclosure actions do not necessarily pit neighbor against neighbor. Many homeowner associations have turned the job of collecting member dues over to outside management companies. And to them, it's strictly business, not personal. Homeowner association boards and their management companies defend the practice, saying maintaining the neighborhood preserves everyone's property values. "We have compassion for those folks. At the same time, we feel for the rest of the homeowners who are paying their dues," said Andrew Schlegel, executive vice president for Merit Property Management, which manages more than 140,000 California homes in community associations. In California, associations can foreclose only after 12 months of missed fees or $1,800 in back dues. "No one wants to do this," Schlegel said. "It's only coming up when people are completely obstinate about it." In fact, most people end up saving their homes. Homeowner association boards - particularly those that have lost many of their dues-paying members to the housing collapse and the slumping economy - often work with down-on-their-luck neighbors to come up with some sort of compromise. That's what happened with the Pilats.

Mortgage Market Remains Solidly Frozen - (Mish at http://globaleconomicanalysis.blogspot.com) On May 28 I wrote Mortgage Market Locks Up. Ten year treasury yields started to soar and 30 year mortgages for good borrowers jumped a full point from 4.5% to 5.5%. The question on my mind at the time was whether or not the mortgage action was a brief outlier. It wasn't. Things are now worse. Two days ago Michael Becker, a Mortgage Consultant at Green Pastures Mortgage & Finance wrote: Mish, I’ve attached two rate sheets to this e-mail. One shows the rates from May 21st, and the other from today June 5th (after a re-price). You can see on May 21st 4.625% was paying .375 points, and today 5.625% is paying .25 points. So in a little over 2 weeks rates have jumped 1%. That is a huge jump. When you add in the effect of the new Home Valuation Code of Conduct (HVCC) appraisal process, many loans originations will never close. This is because it is taking 15-25 days to get an appraisal back, and often those appraisals are coming 10-25% low. So locks expire or appraisals kill the deal, the latter possibly on purpose. You are going to see the recovery in housing come to a complete halt. Trade up buying is already dead. Michael Becker

On Wednesday I called Jeff Bell a Certified Mortgage Planning Specialist at Cobalt Mortgage for his take on the situation. Jeff commented: "Mortgage rates jumped again to 5.75% and refis are frozen solid. The trade-up market is dead but some new houses are still moving .... for now. "

AIG's bailout bash resort faces foreclosure sale - (www.latimes.com) St. Regis resort in Dana Point faces foreclosure sale. The owners of the Orange County resort, known for being the site of a $440,000 AIG retreat after the federal bailout, default on a $70-million loan. Want to buy a five-star, down-on-its-luck resort? The St. Regis Monarch Beach, infamous as the hotel where American International Group sponsored a luxury retreat just days after accepting a federal bailout, has been scheduled for a foreclosure auction. The companies that own the resort are in default on a $70-million loan from Citigroup Global Markets Realty Group, people knowledgeable about the debt said Tuesday. Negotiations continue in an effort to avoid an auction, according to those sources. But unless something is worked out, the St. Regis will go on the block July 7, to be sold to the highest bidder, according to a "terms of public sale" document obtained by The Times. The resort's troubles come as the recession and credit crunch have hammered the hotel industry, depressing room rates and occupancy levels and making loans all but impossible for hotel owners to get. Resorts like the St. Regis, which cater to wealthy travelers and the high-end corporate retreat business, have seen some of the steepest declines in revenue. Business is so bad -- and funding so expensive -- that hardly any hotels are being sold these days, and most are now worth 50% to 80% less than at the peak, said hotel broker Alan X. Reay of Atlas Hospitality Group in Costa Mesa. Just this week, Sunstone Hotel Investors Inc. said it would turn the trendy W Hotel in downtown San Diego over to its lenders, part of a growing trend that Reay said was a "bloodbath." The St. Regis -- which has several restaurants, a golf course and a private beach club -- has been hit by a steep drop in bookings, according to the people with knowledge of the situation. Built by the Makarechian development family of Newport Beach, the property is current, for now, on two other mortgages totaling $230 million on the 400-room hotel and golf course, these people said, speaking on condition of anonymity because of the sensitivity of the situation. When the Makarechians and their partners, including San Francisco's Farralon Capital hedge fund, refinanced the property and incurred $300 million in debt in 2007, credit markets had not yet seized up and the hotel's revenues were high enough to support the payments. But that's no longer the case, these people said. Neither Citigroup nor representatives of the St. Regis would comment on the record. The St. Regis always aimed to satisfy the smallest whims of wealthy people and high-end corporate travelers. Before the hotel opened in 2001, Paul Makarechian, the 27-year-old scion overseeing non-residential projects for the family, took The Times on a tour, pointing out sweeping tapestries, elaborately stitched duvet covers matching fabric-draped headboards -- even motion sensors so employees would know without knocking if guests were present.

Marin County heading for castastrophic fall in upper end house prices - (www.examiner.com) While not faring as badly as some California Counties, Marin County, according to the 2000 census, has the highest per capita income in the country, is awash in supply in commercial and residential real estate. Vacancy rates in class A commercial real estate is cited as being over a stunning 41% in San Rafael by the Marin Independent Journal http://www.marinij.com/marinnews/ci_12531864?IADID=Search-www.marinij.com-www.marinij.com). The Examiner recently reviewed one of the most extensive reviews of current foreclosures throughout Marin County provided by Foreclosure Radar. Foreclosures almost doubled to over 800 residential properties from the 440 cited by the Marin Independent Journal for 2008 (http://www.marinij.com/data/ci_11564640) just five months ago. The 800 plus Marin households cited are currently in pre foreclosure, foreclosure or being auctioned off by banks. The entire housing supply in Marin County according to wikipedia totals 61,000 (http://en.wikipedia.org/wiki/Marin_County,_California) . Mortgage experts have often cited some localities in California as being relatively immune from harsh downturns in real estate due to a limited supply of new homes or office buildings due to stringent building codes, zoning and a anti growth stance among the local community. Estimated values for the distressed homes in Marin County ranged from $100k in Novato to a $3.6 mm home in Tiburon an $4mm home in Kentfield. Mark Hanson, Managing Director of the Fieldcheck Group thinks its going to get much worse before it gets better for the mid to high end of the residential market. " I don't think we have begun to see the beginning of this negative equity crisis yet. Its all about who can buy these homes at the higher end and with the home financing market tightening the way it is, the number of buyers that can put down $300k - $400 k cash in order to buy a $1mm plus home is getting smaller and smaller. Historically, 'move up buyers" would take up supply in the high end, but these potential buyers can't sell their homes at their desired prices and therefore can't move. I think we are heading for a castastrophic fall in home values in the upper end of the housing market. " According to the website: www.marinrealestatewiz.com/ , as of May 2009, 19 homes were listed for sale in Ross, with 0 being under contract. The economic impact of the distressed markets and high upturn in vacancy rates is not good for the County and City government budgets within Marin County as the tax rolls suffer from lower taxes bases when homes are finally sold to receiving little to no income from vacant commercial properties. The inventory of unsold homes continues to grow, actual sales (which triggers precious sales tax revenues for the cities and County) have stalled. Meanwhile the continuing increase in the velocity of foreclosure listings further deteriorates local markets as banks auction off homes for rock bottom prices creating a downward spiral on property values. Like many Counties around the state, the County of Marin has a large and growing unfunded pension liability with 14 recent retirees receiving over $100k for life from taxpayers. Estimates for unfunded public employee pensions and medical benefits range from $700mm to over $1 billion which means cuts in services and a "crowding out" effect for government services to taxpayers as all monies are used first to payoff cadillac pension and healthcare benefits. Recent statewide initiatives, backed by Governor Schwarznegger, leading Democrats and public employee unions, asked California voters to approve more taxes. Four out of five of these intiatives were soundedly rejected by voters, thus leaving policy makers and government leaders little room to manuever. The mandate and choices are few but one is clear: "cut spending....now." And local government leaders can no longer look to any budget relief from real estate sales as the economy continues its stall and with unemployment statewide at almost 10% and current and unfunded budget deficits soar.

California nears financial meltdown as revenues tumble - (www.reuters.com) California's government risks a financial "meltdown" within 50 days in light of its weakening May revenues unless Governor Arnold Schwarzenegger and lawmakers quickly plug a $24.3 billion budget gap, the state's controller said on Wednesday. Underscoring the severity of California's cash crisis, Controller John Chiang, who has previously warned the state's government risks running out of cash without a budget deal, said revenues in May fell by $1.14 billon, or 17.7 percent, from a year earlier. Additionally, the revenues of the government of the most populous U.S. state fell short of estimates in Schwarzenegger's budget plan by $827 million, Chiang said. He warned California's state government is speeding toward a financial disaster unless officials act urgently to balance its books. "Without immediate solutions from the governor and legislature, we are less than 50 days away from a meltdown of state government," Chiang said in a statement. California's revenues have been on a dramatic slide as a result of recession, rising unemployment and its lengthy housing downturn. The state's revenues from personal income taxes tumbled by 39.3 percent in May from a year earlier while revenues from corporate taxes fell by 52.1 percent and revenues from sales taxes sagged by 7.6 percent, according to a report released by Chiang's office. "A truly balanced budget is the only responsible way out of the worst cash crisis since the Great Depression," Chiang, a Democrat, said.

Fed Would Be Shut Down If It Were Audited - (finance.yahoo.com) The Federal Reserve's balance sheet is so out of whack that the central bank would be shut down if subjected to a conventional audit, Jim Grant, editor of Grant's Interest Rate Observer, told CNBC. With $45 billion in capital and $2.1 trillion in assets, the central bank would not withstand the scrutiny normally afforded other institutions, Grant said in a live interview. "If the Fed examiners were set upon the Fed's own documents-unlabeled documents-to pass judgment on the Fed's capacity to survive the difficulties it faces in credit, it would shut this institution down," he said. "The Fed is undercapitalized in a way that Citicorp is undercapitalized." Grant said he would support legislation currently making its way through Congress calling for an audit of the Fed. Moreover, he criticized the way the Fed has managed the financial crisis, saying the central bank's target rate should not be around zero. "I think zero is the wrong rate for almost any economy," Grant said, adding the Fed has "embarked on a vast experiment in moral hazard. Interest rates are the traffic signals in a market economy, and everything's green. ... You have to wonder whether these interest rates are the right clearing rate or rather they are the imposition of a central bank."

Homebuyers Crash Into Appraisal Roadblock - (www.minyanville.com) Mortgage guidelines have become increasingly strict -- not to mention regimented -- as the private secondary-mortgage market has all but disappeared in the past 24 months. But according to the Wall Street Journal, appraisals are increasingly becoming one of the biggest hurdles for new purchase and refinance transactions. In the wake of the recent collapse in home prices, appraisers have come under fire for bowing to lender demands during the boom, offering up property values more aligned with lenders' wishes than with reality. In 2007, the state of New York sued Washington Mutual -- now owned by JPMorgan -- for colluding with a subsidiary of First American Corporation to overinflate home values. Collusion between appraisers and mortgage brokers, real-estate agents, banks, and borrowers helped fuel runaway price appreciation. In response, Fannie Mae and Freddie Mac -- the 2 government-owned giants that control around two-thirds of the mortgage market -- issued new guidelines dictating how lenders can select and evaluate appraisals. The new policies went into effect May 1. To help facilitate the new, tighter rules, lenders are using appraisal management companies, or AMCs, which employ networks of appraisers around the country to provide what purport to be unbiased value analysis. All this, of course, comes at a cost which is ultimately borne by borrowers. And, in what could be considered ironic if it weren't so repellent, appraisers are crying foul.

Senators Want Taxpayer Gift To Future Foreclosees To Rise To $15,000 - (www.bloomberg.com) awmakers are pushing to revive legislation in the Senate that would almost double an $8,000 tax credit for first-time homebuyers and expand the program to all borrowers. Senator Johnny Isakson, a Georgia Republican, introduced a bill today that would increase the tax credit to $15,000 and remove income and other restrictions on who can qualify, according to his spokeswoman, Sheridan Watson. The Treasury Department declined to comment on the proposal. The legislation, co-sponsored by Senate Banking Committee ChairmanChristopher Dodd, a Connecticut Democrat, would extend the homebuyer credit to multifamily properties used as the borrower’s primary residence. It would also eliminate income caps of $75,000 and $150,000 on individuals and couples seeking to claim the credit. “The housing market continues to be a drag on the economy, John Castellani, president of the Washington-based Business Roundtable, said in a telephone interview today. “We believe that if we don’t stabilize this vital sector, we can’t turn the tide on the recession.” The Business Roundtable represents more than 100 chief executive officers including General Electric Co.’s Jeffrey Immelt and Exxon Mobil Corp.’s Rex Tillerson. The group and the National Association of Realtors are pushing to expand the tax credit and to lower mortgage rates to revive the housing market. For All Borrowers: “One of the biggest problems facing the American people today is an illiquid housing market, a decline in their equity, a decline in their net worth and a depression in the housing market that we are obligated to correct if we possibly can,” Isakson said in a statement. Isakson said his legislation would spur demand in the housing market by giving homeowners the incentive to trade up to a more expensive home. The bill would extend the tax credit, which now applies to homes purchased from Jan. 1 to Dec. 1, 2009, to one year after the new measure is signed into law, according to Watson. Isakson’s bill would make the credit available to all borrowers, not only borrowers who haven’t owned a home in the previous three years as is the case under current law. It would also let borrowers divide the credit over two years. The legislation wouldn’t be applied retroactively to purchases completed before the date of enactment, Watson said.