KeNo's Housing and Economic Portal: Sunday December 13 Housing and Economic stories

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Easy FHA Loans in Expensive Areas - (www.nytimes.com) In January, Mike Rowland was so broke that he had to raid his retirement savings to move here from Boston. A week ago, he and a couple of buddies bought a two-unit apartment building for nearly a million dollars. They had only a little cash to bring to the table but, with the federal government insuring the transaction, a large down payment was not necessary. “It was kind of crazy we could get this big a loan,” said Mr. Rowland, 27. “If a government official came out here, I would slap him a high-five.” In its efforts to prop up a shattered housing market, the government is greatly extending its traditional support of real estate, including guaranteeing the mortgages of middle-class and even upper-class buyers against default. In 2007, the government did not insure a single mortgage in this city, one of the most expensive in the country. Buyers here, as well as in Manhattan, Santa Monica and every other wealthy area, were presumed to be able to handle the steep prices and correspondingly hefty down payments on their own. Now the government is guaranteeing an average of six mortgages a week here. Real estate agents say the insurance is such a good deal that there will soon be many more. Policy changes like the shift in insurance, while often introduced on a temporary basis, are becoming so popular that they could prove difficult to undo. With government finances already under great strain, the policy expansions are creating new risks for American taxpayers. The Internal Revenue Service is giving tax rebates to first-time buyers, and soon to move-up buyers, in a program beset by accusations of fraud. And the government agency that issues mortgage insurance, the Federal Housing Administration, is underwriting loans at quadruple the rate of three years ago even as its reserves to cover defaults are dwindling. On Thursday, the Mortgage Bankers Association said more than one in six F.H.A. borrowers was behind on payments. F.H.A. insurance was created for minority and low-income families who could not come up with the traditional down payment of 20 percent required by private lenders. Buyers receive loans from government-approved lenders and are required to document their income and assets. They must pay a substantial insurance premium of 1.75 percent of the loan. But in return, their down payment can be as low as 3.5 percent. For decades, most F.H.A. loans were in low-cost states like Texas and Michigan. Under the agency’s loan limits, houses along the coasts were usually too expensive to qualify. In 2007, fewer than 4,400 F.H.A. loans were made in California, according to the research firm MDA DataQuick, and none were in San Francisco. The Economic Stimulus Act of 2008 helped change that by temporarily doubling the maximum loan the F.H.A. insured, to $729,750. A two-unit property like the one bought by Mr. Rowland and his friends can be insured for up to $934,200. “F.H.A. financing was a lost language in San Francisco, the real estate equivalent of Aramaic,” said Michael Ackerman, the agent who represented Mr. Rowland and his friends. “Once the limits were raised, smart buyers started calling.”

Defective Paperwork Strips Mortgage Holder of Foreclosure Rights - (www.law.com) A Massachusetts federal judge has upheld a bankruptcy court ruling allowing a trustee to treat a mortgage as an unsecured claim, which strips the mortgage holder of foreclosure rights, because of defective mortgage paperwork. In a Nov. 17 order, District Court Judge Patti Saris affirmed a bankruptcy court order denying the plaintiffs' request to send a question of law to the Supreme Judicial Court of Massachusetts. The case is Mortgage Electronic Registration Systems Inc. (MERS) v. Warren E. Agin, trustee. The plaintiffs wanted the state high court's take on whether the omission of a borrower's name on an acknowledgement form, which a notary public uses to confirm the identity of the borrower, is a "material defect" that voids the mortgage. In Massachusetts, deeds or mortgages recorded at a county registry of deeds must have a properly executed acknowledgment form. One of the plaintiffs in the June 3 bankruptcy court appeal is MERS, which runs a national mortgage electronic registration system that simplifies the selling or trading residential or commercial mortgage loans. The other plaintiff is the actual lender, Countrywide Home Loans Inc., which Bank of America Corp. acquired in 2008. The ruling concerned a mortgage held by debtor Mathew Giroux, who filed a voluntary Chapter 7 case in bankruptcy court in Massachusetts on June 27, 2008. The bankruptcy court granted the trustee's motion for summary judgment on May 21, which allowed him to treat the mortgage as a unsecured debt. Saris agreed with the bankruptcy court that Massachusetts case law holds that the state "requires strict formalities in the execution of acknowledgements." Saris also agreed with the bankruptcy court that Massachusetts courts are likely to follow a 2004 6th U.S. Circuit Court of Appeals decision, In re Biggs, which held that omitting the lender's name in an acknowledgement was not a "purposeless formality." "Although the question of the acknowledgment's validity is a determinative issue, the Court finds the outcome in the state court to be reasonably clear," Saris wrote. Cases about the issue have also cropped up in federal courts in other jurisdictions, said the trustee's lawyer, Jeffrey J. Cymrot of Boston-based Sassoon & Cymrot. Cymrot said he's also working on a similar pending case. "It's largely due to pushing mortgages through the system," Cymrot said. "I don't think it's rare." The case shows that sloppy execution of mortgage documents has consequences in bankruptcy cases, Cymrot said. He also said the central question is analogous to that in cases challenging foreclosures because of defective documents that have cropped up in recent months. "It's related, but it's another type of sloppiness," Cymrot said. Bank of America did not respond to requests to comment by deadline. MERS spokeswoman Karmela Lejarde said the company declined to comment.

Pain increasing at the VERY high end - (finance.yahoo.com) Last year, a 40-acre Greenwich, Conn., property with a 21,897-square-foot, 14-bedroom Jacobean manor was listed for $125 million. It was the world's second most expensive home for sale. It now sports a $60 million price tag and falls just short of making this year's list. It's no secret sellers across the country are resorting to measures such as price cuts of 20% and higher to move their homes. What's new: That group is increasingly including owners of eight- and nine-figure properties. Last year, investor Marty Zweig pulled the $70 million Pierre Hotel penthouse off the market after it was listed for four years. Financier Leonard Ross, who had asked $165 million for the Hearst Mansion in Beverly Hills, Calif., de-listed it in September 2008. A few months later, Prince Bandar of Saudi Arabia removed his $135 million Aspen ski lodge from the ranks of available listings. This year, "Hillendale," in Stamford, Conn., fell victim to the depressed housing market. It was listed for $95 million. It's no longer for sale. Others, such as the owners of an $85 million Wallace Neff-designed mansion, are leasing their properties until the market picks up. Such moves, says Jonathan Miller, president and CEO of real estate appraisal firm Miller Samuel, are to be expected. "There was a frenzy that caused the prices of these properties to be astronomical," he says. "Dramatic discounts are not as much a reflection of the market crashing, but a reflection of a reality." While the number of buyers willing to invest in eight- and nine-figure homes has always been slim, a pullback in jumbo loan-financing has shrunk the pool even further. And some with the means to pay cash are waiting to see when the housing market will return to stability. They may be holding off a while. "First, the lower end of market started breaking," says Mike Simonsen, chief executive of Altos Research, a real estate statistics provider. "Then, it was only 12 months ago when the luxury market started to break, and just recently when the ultra-luxury market started to break. It may be years--it may be many years--before that market recovers. For this level, it will be even slower than the luxury market at large." To entice buyers, owners and their brokers are resorting to strategies often reserved for sellers in more mainstream markets. That's the tack the owners of the BootJack Ranch in Pagosa Springs, Co., adopted. In the last year, they lowered their asking price from $88 million to $68 million. The home's broker, Bill Fandel of Sotheby's International Realty, hoped the discount would ignite interest. He says inquiries are coming from overseas billionaires.

Ohio Sues Credit Rating Firms Moody, S&P, Fitch - (www.nytimes.com) Already facing a spate of private lawsuits, the legal troubles of the country’s largest credit rating agencies deepened on Friday when the attorney general of Ohio sued Moody’s Investors Service, Standard & Poor’s and Fitch, claiming that they had cost state retirement and pension funds some $457 million by approving high-risk Wall Street securities that went bust in the financial collapse. The case could test whether the agencies’ ratings are constitutionally protected as a form of free speech. The lawsuit asserts that Moody’s, Standard & Poor’s and Fitch were in league with the banks and other issuers, helping to create an assortment of exotic financial instruments that led to a disastrous bubble in the housing market. “We believe that the credit rating agencies, in exchange for fees, departed from their objective, neutral role as arbiters,” the attorney general, Richard Cordray, said at a news conference. “At minimum, they were aiding and abetting misconduct by issuers.” He accused the companies of selling their integrity to the highest bidder. Steven Weiss, a spokesman for McGraw-Hill, which owns S.& P., said that the lawsuit had no merit and that the company would vigorously defend itself. “A recent Securities and Exchange Commission examination of our business practices found no evidence that decisions about rating methodologies or models were based on attracting market share,” he said. Michael Adler, a spokesman for Moody’s, also disputed the claims. “It is unfortunate that the state attorney general, rather than engaging in an objective review and constructive dialogue regarding credit ratings, instead appears to be seeking new scapegoats for investment losses incurred during an unprecedented global market disruption,” he said.

Housing "Recovery" Built on Sand - (online.barrons.com) THE ONLY REAL SURPRISE in the latest disastrous batch of data on housing is that anybody is surprised. With the $8,000 tax credit originally set to expire, housing starts plunged nearly 11% in October, to a seasonally adjusted annual rate of 529.000 units. That put new home construction back to the dismal levels of last spring before a temporary blip lifted housing activity during the warm-weather months. Even though the home-buying subsidy was extended through next March and expanded beyond first-time buyers, there's little evidence that these giveaways are working. Applications for mortgages for home purchases, for instance, fell to a 12-year low last week even with a 30-year mortgage going for well under 5%. For reasons best understood themselves, analysts had forecast an uptick in housing starts to the 600,000 annual rate in October from September's 592,000 pace. While the lowest fixed mortgage rates and reduced home prices have kept housing from collapsing further, the 10.2% unemployment is working against home buying. Meantime, foreclosures, which are running at 300,000 a month are adding to the inventory of homes available for sale. In other words, prospective buyers have an array of houses available to them in most regions at knock-down prices. But there's no reason for them to hurry while apartment rents are tumbling. Builders, meanwhile, would be loath to build new houses on spec, even if their banker would provide the financing. All of which points to an extended period of depressed housing activity after the excess supply from the boom built on absurdly easy credit is worked off. This is an example of what economists of the Austrian school call "malinvestments," which are the inevitable result of a credit inflation. The boom results in an inevitable bust, during which past excesses have to be corrected, however painfully.

Glut of FL foreclosures expected to swell - (www.bradenton.com) t first glance, case number 2009-CA-11764 is not much different than many others that have been filed in Manatee County Circuit Court this year. In the suit, filed Nov. 12, a mortgage servicer contends a southern Manatee couple defaulted on their $49,500 loan by not making any payments since June. The servicer, acting on behalf of Fannie Mae, seeks to foreclose on the couple’s unit in the Shadybrook Village condominium complex. But the case is notable because it was the 5,593rd mortgage foreclosure lawsuit filed in Manatee in 2009 — eclipsing a record high set just last year. The tally has since grown to 5,687 cases as of Friday, and is widely expected to exceed 6,000 when the year is over. That was no surprise to court officials, foreclosure experts and those in the mortgage industry, who say the trend is unlikely to change anytime soon. “I wish things were different, but I don’t think it’s going to be much better in 2010,” said Bob Stobaugh, the Gulf Coast Mortgage Bankers Association’s 2009-10 president. He and others cite many reasons for their pessimism, including high unemployment; growing numbers of delinquent loans; lenders’ inability or unwillingness to modify loan terms; and ineffective mortgage relief programs. “I hate to be a pessimist, but I also have to acknowledge reality,” Anne Weintraub, a Sarasota real-estate attorney and foreclosure expert, wrote in an e-mail. “It is my opinion that the amount of foreclosures will increase in the new year.” Crisis enters fourth year: That extends the local mortgage meltdown into its fourth year. The crisis began in late 2006 as the once-sizzling housing market was rapidly cooling off. Rising defaults among subprime borrowers — those with poor or spotty credit and/or job histories who took out higher-cost loans to buy overpriced homes during the boom — initially drove the flood of foreclosure filings. Also at fault: speculators and fraudsters who helped drive up prices artificially, only to be caught when the market turned, leaving them unable to flip or rent out homes they had no intention of occupying.