KeNo's Housing and Economic Portal: Thursday November 12 Housing and Economic stories

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TOP STORIES:

Wow, judges now nixing lenders’ foreclosure claims entirely in court - (www.nakedcapitalism.com) This is probably my fourth post on the tangled web woven by securitization, which puts a considerable distance between home owners and mortgagees which own a mortgage. The issue is causing huge problems in bankruptcy and foreclosure in courts around the U.S. This morning, Gretchen Morgenson has another good piece out describing how a judge nixed all claims by mortgagee which refused to modify a home owner’s mortgage. The debtors’ revolt is on. For decades, when troubled homeowners and banks battled over delinquent mortgages, it wasn’t a contest. Homes went into foreclosure, and lenders took control of the property. On top of that, courts rubber-stamped the array of foreclosure charges that lenders heaped onto borrowers and took banks at their word when the lenders said they owned the mortgage notes underlying troubled properties. In other words, with lenders in the driver’s seat, borrowers were run over, more often than not… But some judges are starting to scrutinize the rules-don’t-matter methods used by lenders and their lawyers in the recent foreclosure wave. On occasion, lenders are even getting slapped around a bit. One surprising smackdown occurred on Oct. 9 in federal bankruptcy court in the Southern District of New York. Ruling that a lender, PHH Mortgage, hadn’t proved its claim to a delinquent borrower’s home in White Plains, Judge Robert D. Drain wiped out a $461,263 mortgage debt on the property. That’s right: the mortgage debt disappeared, via a court order. I see this as a watershed case in jurisprudence surrounding mortgage-related bankruptcies and foreclosures. The reason this is huge is that it echoes the case in Kansas I have written about in two previous posts:

· “Why mortgages aren’t modified and what a ruling stopping foreclosures means”

· “What are the legal rights of lenders and homeowners in foreclosure?”)

At issue is the question of what legal rights do lenders or their agents have in foreclosure in the new byzantine world of securitized mortgages. In the New York case the judge nixed the entire claim as the mortgagee could not prove it had legal claim to the mortgage note. With the mortgagee unable to show ownership, the homeowner might even be able to stay in his home mortgage-free, Morgenson attests. That’s huge – and we should definitely expect an appeal.

Is the Housing Market About to Get Even Uglier? - (online.wsj.com) Despite some tentative signs of recovery, the U.S. housing market remains vulnerable to further price drops—especially in areas where large numbers of mortgages are headed toward foreclosure over the next few years. The Wall Street Journal's quarterly survey of housing-market data in 28 major metro areas shows sharp drops in the number of homes listed for sale across the country. But the potential supply of homes is far larger because banks are likely to acquire significant numbers of foreclosed homes in some areas, notably Las Vegas, Atlanta, Detroit, Phoenix, Miami and other parts of Florida, and Sacramento, Calif., over the next few years. Sales of those homes may depress prices further. By contrast, metro areas with relatively low foreclosure and mortgage-delinquency rates include Boston, Denver, Minneapolis, San Francisco, Seattle, Raleigh, N.C., and Portland, Ore., making them less vulnerable. Homeowners and potential buyers have been whipsawed by conflicting signals about the state of the market in recent months. Ulani and Mike Thiessen found the market surprisingly hot when they went shopping for their first home in Las Vegas during the summer. With the help of Kim Kelly-Reed, an agent from One Source Realty & Management, the Thiessens finally bought a foreclosed house in September for about $136,000—but only after being outbid on three other houses. "It's a crazy market out there," says Ms. Thiessen, who works for an electrical contractor. Despite a continuing surge in defaults, there is a shortage of well-preserved foreclosed homes on the market in Las Vegas, Sacramento and some other metro areas where first-time home buyers have been competing with investors for newly affordable properties. "Anything under $300,000 that is decent within hours has dozens of offers," says Michael Lyon, CEO of Lyon Real Estate in Sacramento. The supply of foreclosed homes listed for sale has dwindled largely because of government-mandated efforts to save as many borrowers as possible from losing their homes. That campaign has gummed up the foreclosure process, slowing the flow of houses into bank ownership—but only temporarily. Over the next few years, housing analysts believe, millions of other homes are heading for bank ownership, but no one can say how long that will take or when a sudden torrent of bank-owned properties may swamp certain local markets.

Key West Condo Falls from $294,000 to $77,500 - Still Unsold! - (keywestchronicle.blogspot.com) The carnage continues in the Key West condo market. Take the small condo in Key West that sold in September 2004 for $720 per square foot. Must be luxurious you say? Located at 3312 Northside Drive, unit 301 is a studio - meaning no bedroom - and offers 408 square feet of living space. Here is a photo of the building:

Last sale was $294,000. Today, this condo is offered for $77,500. And with today's 5% mortgage rate, you could finance this entire purchase for $416 month. But at $190 per square foot, is it worth it yet?

Unemployment in Nevada, Florida Increases to Record - (www.bloomberg.com) Unemployment rose in 23 U.S. states in September and hit records in Nevada, Rhode Island and Florida. Nevada’s jobless rate, at 13.3 percent, was the second- highest among U.S. states behind Michigan, the Labor Department said today in Washington. Unemployment in Rhode Island reached 13 percent, and Florida’s rate climbed to 11 percent, the highest since data began in 1976. Mounting unemployment is hurting state budgets by cutting tax revenue and boosting benefits to fired workers. Joblessness nationally will reach 10 percent this quarter, a Bloomberg News survey of economists showed this month, indicating consumers will probably not lead a recovery from the recession. “There is still scant evidence of hiring,” said Marisa Di Natale, a director at Moody’s Economy.com in West Chester, Pennsylvania. “We expect the unemployment rate in most areas to continue rising despite fewer job cuts,” she said. The number of states with at least 10 percent unemployment held at 14 last month. The jobless rate nationally reached a 26-year high of 9.8 percent in September, the Labor Department reported earlier this month. Unemployment in the District of Columbia also exceeded 10 percent for a fifth consecutive month, rising to 11.4 percent from 11.1 percent. Michigan Unemployment: Michigan continued to lead the nation in joblessness, with a rate of 15.3 percent in September, up from 15.2 percent. The depressed labor market in the state reflects Michigan’s dependence on the auto industry, said Timothy Bartik, a senior economist with the W.E. Upjohn Institute in Kalamazoo, Michigan, a non-profit labor-research group. “Any state that specializes in a particular industry, when that industry tanks, it’s very hard to offset in any five- or 10-year period.” New York City’s unemployment rate reached a 25-year high of 10.3 percent in September, the state’s Labor Department reported last week. The rate was 10.2 percent in August and 6 percent in September 2008. The state’s jobless level held at 8.9 percent.

Oops, subsidized apt complex overcharged tenants millions in rent - (www.nytimes.com) The state’s highest court dealt a potentially crippling blow on Thursday to the owners of the sprawling Stuyvesant Town and Peter Cooper Village complexes in Manhattan when it ruled that they improperly began charging market rents on thousands of apartments. The ruling by the Court of Appeals may leave the current owner, a partnership of Tishman Speyer Properties and BlackRock Realty, and the former owner, Metropolitan Life, liable for an estimated $200 million in rent overcharges and damages owed to tenants of about 4,000 apartments. In a 4-to-2 decision, the court said the owners improperly raised rents beyond certain set levels at the complexes while receiving tax breaks from the city for major renovations. The ruling could affect landlords of as many as 80,000 apartments across the city who may also have improperly raised rents and deregulated apartments while receiving special tax breaks. But the immediate and most devastating impact was on the Tishman Speyer partnership, which was already facing extreme financial difficulties after paying a record $5.4 billion in 2006 for the properties near the East River. The owners are running out of cash to pay building loans, and analysts have said it is highly likely the partnership will default by December. If the owners are forced to reimburse tenants, analysts say it would only hasten the path to default. Frank Innuarto, president of Realpoint, a credit rating agency, characterized the ruling as “the last shoe to drop” for Tishman Speyer and BlackRock. The partnership originally had $890 million in reserve funds that were established, in part, to pay the difference between rent revenues and the monthly debt payments on the property; Mr. Innuarto said there is only about $24 million left — only enough to cover the gap until December. “The property has never been able to generate nearly enough cash to service its debt,” said Manus Clancy, a senior managing director at Trepp, another credit rating agency. “The interest reserve is dwindling, and now the property faces the prospect of taking a hit on its income.”