Real Estate Journal Online

In Chicago, nearly half of all housing sales are distressed properties[1]. And while that does not necessarily mean good things for the housing market as a whole, it has spawned a new breed of real estate investor, called a “workout investor,” that are sifting through the backlog of deals stagnating thanks to failures at the end of the “boom years” and literally working something out. While workout investors are not unique to Chicago, their activities do tend to be focused in hardest hit areas like Chicago. These investors may create online listings to help promote their properties nationwide, specialize in distressed auctions, work for and with banks to make condo buildings more salable or convert them to multifamily properties or even specialize in the more traditional “fix and flip.” Oddly, though, it is a largely secretive group – for the most part because lenders do not want to work with investors who will let the world know the dire straits that many banks are in. If they did, everyone would be trying to get in on the “goldmine” of workouts, explains one investor in the area who says that “everybody wants a workout, but everybody wants to keep it a secret.”

Firms that specialize in workouts are springing up all over the country. They advertise themselves as the next step when an individual property owner’s efforts to keep a piece of real estate have failed. For example, in the San Francisco area, one company “played hardball” when a bank refused to work with the owner of a property facing foreclosure. They managed to negotiate the debt down by 75 percent and brought in a buyer for the property[2]. Ben Thypin, a senior market analyst at Real Capital Analytics, believes that banks actually need the presence of workout investors in many cases because it helps them make the case to shareholders and their own investors that they are getting the best value possible. “Having a third party involved lends credibility to whatever amount they are able to recover,” he explained.

However, particularly in the case of commercial properties, the original owners may have more leverage than they realize. If a bank mishandled a loan or offered to do things for the owner that may not have been followed through on, then a property owner may be able to negotiate the debt on the commercial property down to current market value, the “holy grail” of this type of workout.

Some analysts believe that if workout investors continue to work at their current pace, the housing market could resolve itself in another three to five years. Do you think that this “new breed” is good for the industry and for the real estate market as a whole?

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Let us know what you think about the concept of workout investing in the space below.

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[1] http://articles.chicagotribune.com/2011-04-29/classified/ct-mre-0501-buying-failed-housing-20110429_1_workout-properties-real-estate

[2] http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2011/04/22/BUIJ1J5IAQ.DTL

A former real estate appraiser who participated in inflating values of homes in a local mortgage-fraud scheme in Pennsylvania will give up her appraiser’s license permanently and pay around $15,000 in civil penalties in order to make restitution for her deception[1]. Natalie Hurlburt is probably glad to pay the fines, given that five other people involved in the scam landed in federal prison. Hurlburt violated state consumer protection laws by reporting inaccurate values for properties and “failing to perform appraisals with the generally accepted standards of practice, performance and analysis,” said the state attorney general’s office. Hurlburt’s faulty appraisals were part of a scheme to boost prices of properties and sell them at inflated prices. Hurlburt can continue to work in the appraisal business as long as her job is “clerical in nature” and does not include any aspects of appraising.

Do you think that this appraiser is getting off easy?

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Let us know what you think of Pennsylvania’s treatment of this appraiser in the space below.

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[1] http://www.goerie.com/apps/pbcs.dll/article?AID=/20110430/NEWS02/304299874/-1/NEWSSITEMAP

In a speech yesterday in Arlington, Virginia, Federal Reserve Chairman Ben Bernanke credited high unemployment and continuing home foreclosures with slowing the pace of economic recovery in the United States[1]. He believes that these two factors are not just “restraining the U.S. recovery,” but also putting people at risk of being “left behind.” “Our economy is far from where we would like it to be,” he added, citing “minorities, the young and those with less education” as being particularly at risk.

Although prices on residential properties are still dropping – some reports indicate that they have returned to very near the lows from 2009[2] – home sales are finally on the rise according to the National Association of Realtors (NAR). NAR reported that pending sales of existing homes rose in March by 5.1 percent[3]. NAR’s chief economist, Lawrence Yun, says that this data indicates that “the downtrodden housing market is recovering without the benefit of government programs that spurred gains last year.”

Do you think that Bernanke is right that the market is holding the economy back? Should the government get involved in the housing market again?

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Let us know what you think about today’s economy in the space below.

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[1] http://www.bloomberg.com/news/2011-04-29/bernanke-says-high-unemployment-housing-restrain-u-s-economic-recovery.html

[2] http://www.bloomberg.com/news/2011-04-26/home-prices-in-20-u-s-cities-fell-3-3-from-year-ago-case-shiller-says.html

[3] http://www.reuters.com/article/2011/04/28/usa-economy-housing-idUSN2826590920110428

Michael T. Pines, the attorney who advised his clients in foreclosure to “break in and retake their homes” has had his license to practice law revoked and been branded by the State Bar of California a “substantial threat of harm to the public”[1]. The measure is temporary, however, and will be reconsidered when the bar hears other disciplinary measures against Pines. “It won’t affect me at all, or my clients,” said Pines, who claims that clients in foreclosure whose homes have been “stolen” through faulty foreclosure processes essentially have the right to steal their homes back[2]. He advised around 70 clients to illegally reenter their homes after being evicted by banks. Pines has said that while he will continue to advise clients to break back into their old homes, he will not, himself, participate in any break-ins that could result in his arrest. He also is engaged in encouraging fellow attorneys to stop paying bar association dues and is investigating what he believes is a conspiracy to implicate him in a murder plot.

Do you think that Pines has any ground to stand on, or has he simply, as a member of the bar put it, “lost his ability to distinguish between zealous advocacy and lawlessness?” Should he be suspended or given a medal?

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Let us know what you think of this unusual approach to allegations of faulty foreclosure practice in the space below.

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[1] http://latimesblogs.latimes.com/lanow/2011/04/lawyer-who-advised-homeowners-break-into-their-forclosed-homes-has-law-license-revoked.html

[2] http://www.signonsandiego.com/news/2011/apr/28/pines-suspended-law-practice/

Although foreclosures and REO properties continue to force home prices down throughout the country, analysts believe that the tide may finally be turning, albeit slowly, for the beleaguered housing industry[1]. According to the associated press, sales of distressed properties at rock bottom prices in Las Vegas, Miami, Phoenix, Tampa and Detroit – some of the hardest hit metropolitan areas in the country – have thinned the supply of homes enough to “clear the way for higher prices in the long run.” In fact, unsold home inventories in these cities have shrunk by 13 percent over the past year as the deals become too good to pass up, with all five markets at or below 2002 levels[2]. Although economists are maintaining a healthy reserve of caution – many believe that the “shadow market” of backlogged foreclosures and REO properties could “throw the housing market back into turmoil” and doubt that home prices will rebound any time soon – the decrease in inventory is vital to the long-term recovery of value and price in any area.

Celia Chen, a senior director at Moody’s analytics, points to housing supply as a key component in market improvement. “If we were to see several months of supply getting smaller, it would point to an improving housing market,” she said. Chen does not believe that the identity of the buyers is particularly relevant at this stage of the recovery, adding that “even if it is investors [buying the inventory], they are renting them out in hopes that prices in the next several years will rise.”

All the evidence seems to point toward 2011 as the year to “get in on the bottom” of the real estate industry. Do you think that the time has finally come to start buying again?

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Let us know what you think about the decision to buy in today’s market in the space below.

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[1] http://www.sify.com/finance/bargain-prices-help-reduce-glut-of-foreclosures-news-news-le3i4ldcgga.html

[2] Standard & Poor’s/Case-Schiller Home Price Index

In October of this year, government-controlled Fannie Mae and Freddie Mac will stop making expensive, “jumbo” loans of more than $625,500. Analysts predict that this deadline could cause purchases in high-end properties with hefty price tags to spike in the coming months as borrowers rush to beat the deadline and avoid huge down payments on their new homes[1]. Currently, Fannie and Freddie will make mortgages in amounts up to $729,750. Once the new regulations go into effect, lenders who make loans in excess of $625,500 will have to hold the mortgage themselves or find a private lender to purchase it, which means that the down payments on high-priced homes are likely to skyrocket this fall.

Many experts in the mortgage industry do not believe that the GSEs’ exit from jumbo loans will have a major effect on borrowers’ ability to get high-priced loans, citing increased private lending performance in the sector already as an indication that “the mortgage industry will…find a way to deal with these new rules because they will go out of business if they don’t,” as realtor Linda Chaletsky put it[2]. These same analysts point out that jumbo loan limits have only exceeded $418,000 for the last three years or so anyway, and private lenders are already moving to fill the gap. In the fourth quarter of 2010, private lenders accounted for more jumbo loans that Fannie and Freddie, indicating that the market is already moving to compensate for the new regulations, points out Inside Mortgage Finance’s Guy Cecala.

Do you think that phasing out jumbo loans is a good move for the GSEs?

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Let us know what you think of Fannie’s and Freddie’s recent and upcoming changes in the space below.

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[1] http://www.ibtimes.com/articles/138726/20110427/buyer-rush-to-beat-jumbo-mortgage-deadline.htm

[2] http://www.bestcashcow.com/articles/jumbo-mortgage-rules-are-changing-this-year-8602

A California judge has dismissed claims for over $352 billion in losses in mortgage bond securities (MBS) against Bank of America[1]. A group of investors sued the lender after it purchased Countrywide in 2008 because of Countrywide’s now-notoriously poor underwriting criteria. The group had already reduced their claims substantially to $17 million, but the judge ruled that the bank as shielded from “successor liability,” meaning that the pension fund in question could continue to press claims against Countrywide, but that claims against BofA – and likely other defendants like Goldman Sachs and Deutsche Bank – will not stand.

The issue with the Countrywide purchase is, ultimately, whether BofA’s acquisition of the lender was a merger or a purchase[2]. The transaction was not structured as a merger, but investors believe it should be treated as one in the eyes of the court so that BofA can be held accountable for toxic mortgage securities that led to devastating losses. At least in California, though, the courts do not agree with the investors and have cleared the beleaguered lender.

Do you think that this decision is fair, or should BofA be held accountable for Countrywide’s shoddy lending practices?

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Let us know what you think is fair in the space below.

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[1] http://www.dsnews.com/articles/judge-rules-bofa-not-liable-for-countrywides-mbs-sales-2011-04-25

[2] http://www.theatlantic.com/business/archive/2011/04/is-bank-of-america-off-the-hook-for-countrywides-misdeeds/237893/

HUD has selected 18 lenders for its new two-year pilot program to encourage qualified borrowers to make energy-saving improvements to their homes. The loans, called PowerSaver loans, will offer up to $25,000 to eligible homeowners to enable them to make energy-efficient improvements to their properties, including installing insulation, sealing ducts, replacing doors and windows, upgrading HVAC systems and installing better water heaters, solar panels and geothermal systems[1]. The program is backed by the FHA and the lenders range from local to national banks.

With Earth Day just recently passed, there is a lot of focus on “green building” right now. However, the National Association of Home Builders (NAHB) emphasizes that a single investment can “pay real dividends” long after the investment is paid off[2]. For this reason, the Earth Day Network’s message this year was “a billion acts of green,” which coincides nicely with HUD’s new green initiative. PowerSaver loans are designed to fill in when homeowners may not be eligible for home equity lines of credit. They are only available to borrowers with “good credit, manageable debt and at least some equity in their home.” Lenders will retain 10 percent of the balance on each loan, providing “serious skin in the game” for this program.

Do you think that green improvements and green improvement initiatives are timely and relevant right now?

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Let us know what you think about green building and green certifications in the space below.

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[1] http://nationalmortgageprofessional.com/news24788/hud-selects-18-lenders-green-housing-pilot-program

[2] http://www.nahb.org/news_details.aspx?sectionID=148&newsID=12537

Military families that were overcharged on their mortgages or even went through improper foreclosures have reached a settlement with JP Morgan Chase & Company[1]. The lender will pay $56 million to settle the claims, an additional $12 million to the class action lawsuit itself and set aside $15 million for additional damages found in later cases not actually part of the lawsuit. JP Morgan Chase is accused of violating the Service members Civil Relief Act (SCRA), which prohibits lenders from charging active duty military members more than 6 percent on their mortgages and from foreclosing on their homes during service and for nine months after the completion of their active duty[2]. The suit was initiated by a marine captain who charged JP Morgan Chase with refusing to lower his interest rate when he went on active duty and eventually threatening to foreclose.

Ultimately, JP Morgan Chase admitted wrongfully foreclosing on 18 service members and said it had found “other potential cases” in the interim. Frank Bisignano, Chase Chief Administrative Officer, issued a statement at the end of last week saying that “we hold ourselves accountable and responsible for these mistakes and fixing them is just the beginning of a new way forward.” The lender has lowered its interest rate to 4 percent for military members on active duty for up to a year after completion and has expanded its loan modification program for service members who have served since September 11, 2011. The lender also pledges to forgive all mortgage debts for the service members who were foreclosed on.

Despite all these changes, at least one retired colonel remains skeptical that JP Morgan Chase will institute long-term changes to reflect the terms of the settlement. “They realized that the tsunami was headed right for them,” he has said, stating that “to this day the mortgage servicing industry [does not] understand the SCRA and all of the protections.”

Do you think that JP Morgan Chase has “settled up” in this case? How should they have acted differently and do you think that the changes will stick?

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Let us know what you think of lenders who foreclose on military members in the space below.

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[1] http://nationalmortgageprofessional.com/news24790/military-families-reach-48-million-plus-settlement-jp-morgan-chase-faulty-foreclosures Plus+Settlement+With+JP+Morgan+Chase+for+Faulty+Foreclosures

[2] http://www.pressherald.com/news/nationworld/chase-settles-military-mortgage-lawsuit_2011-04-24.html

While it looks like new construction is not going to bounce back any time soon in most areas of the country, some contractors are reporting “bright spots” in an otherwise stagnant market. For example, data centers, market rate apartment buildings and manufacturing facilities do appear to have “growth potential” despite low overall new construction starts[1]. Housing and construction remain, according to analysts, the “weak link” in the country’s economic recovery, so any bright spots in this area are welcome[2]. Thanks to a large volume of existing homes at rock-bottom prices on the market and a looming “shadow inventory” that is making many developers extremely wary of starting new projects, it could be some time before the construction and development sector recovers completely. In fact, some in the industry feel that it may never fully bounce back. “Schools, public works projects, hurricane protection in New Orleans, the stimulus projects – these all kept people employed…[and there is] nothing to replace them” as the projects are completed, explains Ken Simonson, chief economist for the Associated General Contractors of America. He believes that even the trend in building toward “market rate apartments” may not be as positive as it originally seems since people “are moving out of their parents basements” (which is why they need apartments) but are still hesitant to “get back into home ownership.”

Do you think that our economy can make a full recovery without construction returning to previous levels?

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Let us know what you think about the types of new construction going on right now in the space below.

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[1] http://www.globest.com/news/1899_1899/midatlantic/309354-1.html?ET=globest:e25737:482976a:&st=email

[2] http://www.businessweek.com/news/2011-04-17/home-sales-construction-probably-rose-u-s-economy-preview.html