Residential Appraising in Florida

S&P/Case-Shiller report: Tampa Bay home prices down 3.2 percent

2010-09-28T13:17:00.000-07:00

By Jeff Harrington, Saint Petersburg Times Staff Writer Posted: Sep 28, 2010

Tampa Bay area home prices have fallen 3.2 percent compared to a year ago, the third highest drop among 20 metro markets tracked in the S&P/Case-Shiller home price index.

The index released Tuesday morning showed home prices nationwide were up 3.2 percent from a year ago, with half the cities up for the year, some strongly. But the growth rate weakened considerably in July with the phase-out of homebuyer tax credits crimping sales this summer.

Hardest-hit markets over the year were Las Vegas, down 4.9 percent, and Charlotte, N.C., down 3.5 percent. On the flip side, California led the market rebounders: San Francisco prices were up 11.2 percent since July 2009, followed by San Diego (up 9.3 percent) and Los Angeles (up 7.5 percent).

Between June and July, Tampa Bay home prices were down a fraction, 0.2 percent., one of eight metros with a monthly drop.

Unlike some home price measures based strictly on current sales, Case-Shiller's index tracks the actual value of specific single-family homes over time. Condominiums are not included.

Comment: As is the case, all median pricing is considered micro market and Case-Shiller paints with a very broad brush. I have found that school districts are playing a very significant role in home valuation dynamics. My research has shown evidence indicating median sales price increases in those areas where public schoools are A rated. Something to ponder.

Real estate crash doesn't play favorites: Values fall across Pinellas County

2010-09-20T04:41:00.000-07:00

By David DeCamp and Darla Cameron, St. Petersburg Times Staff Writers -Sunday, September 19, 2010

ST. PETERSBURG — Brad Dieringer's first thought when he opened his property tax bill? Pop a beer.

Taxes for his Euclid-St. Paul home stand to fall almost $660 from last year.

Better to focus on that decrease than the more depressing figure on the notice. His home is worth 25 percent less than last year, according to the Pinellas County Property Appraiser's Office.

"What else can you do?" said Dieringer, 33, a construction project manager.

Dieringer and his wife, Emily, bought the 1940 home for $205,000 near the market's peak in 2006. They've spent thousands improving its foundation, roof and siding.

Like most Pinellas County homeowners, this year's bill reflected a continual slide in values. Their home is now valued at $94,000.

On average, home values fell 14.6 percent in Pinellas, according to a St. Petersburg Times review of assessments by the Property Appraiser's Office. It was slightly worse than the 13.6 percent decline in Hillsborough County, and the 12.8 percent average loss in Pasco County.

The real estate decline hasn't discriminated, striking ritzy beach enclaves like Belleair Shore and foreclosure-ridden Bartlett Park in St. Petersburg. Both areas saw a roughly 15 percent decrease.

"It's dropping about everywhere," said Pinellas County Property Appraiser Pam Dubov.

Factoring out businesses, apartment complexes and new construction, nearly every neighborhood dropped. In the few good ones, the average rise was meager, such as 1.5 percent in Historic Roser Park.

"The only reason I can see for it is, people aren't selling," said Debra Camfferman, 56, who has lived in the historic St. Petersburg neighborhood for 14 years.

Harbordale, a community south of downtown dotted with rentals and empty homes, didn't fare as well. Homes there fell 34 percent in value, on average.

Resident Early Bryant, 57, rents a home for $400 but might someday buy, he said. It's tough to even find renters sometimes, he said, but neighbors are trying to keep up. He mowed a vacant house's lawn Thursday.

"I try to keep my alley clean," Bryant said.

Values are as of Jan. 1, and don't include costs for real estate transactions, which drive sale prices higher. But the Pinellas Realtors Organization reported sale prices falling in August from last year, too.

Fewer owners are contesting their values this year, likely because no one wants to quibble with a lower tax bill even though the number means their home is worth less.

Dubov said appeals topped out in 2008, and have been falling since. Last year, there were only 2,900 contested properties.

In isolated instances, Dubov said, some are appealing because they want a higher value to help sell the home.

As real estate rocketed, many people benefited under the Save Our Homes cap that limits taxable value from going up more than 3 percent each year.

Now, values have plummeted so much that 70 percent of owners don't qualify for the cap. The ones who benefit will see their taxable value rise — and probably their tax bill go up — because their home is still assessed below market value. For example, Camfferman will pay $1,412 in property taxes for her Roser Park home, up $65 — despite a market value actually falling $12,000.

The market crash hasn't been enough to erase inequities in Florida's system. Homes with similar values can have drastically different tax values because longtime owners enjoy protection from increases.

"I call it the gotcha of moving to Florida. You're new — gotcha!" said Dieringer, a Texas native, as he rued bigger nearby homes with lower bills.

For example, Ron Wulfeck and his wife, Paulette, stand to pay $57 in property taxes this year. (Yes, that's $57 total.) They've owned their south Dunedin house — valued at $113,000 — since 1987.

"I love my tax bill," said Ron Wulfeck, 72, a retired firefighter.

Even so, their home and neighborhood bear the mark of recession. Wulfeck said he sees a few more renters, and homes selling for drastically less than they would have gone for a few years ago.

He wanted to sell the house and retire to Ohio. That's off until values rise again.

It's the real estate pause. It cuts across homeowners young and old. People just aren't moving.

Jason Jensen, 33, an architect, bought his two-bedroom Crescent Heights home in St. Petersburg in 2002 for $142,000. He watched as the value went up, and now down. In between, he had kids and watched neighboring homes ride the same wave.

Although homes in Crescent Heights lost 15 percent in value on average, Jensen said it's a good place to live. The recession makes him take a harder look at spending money, but he's optimistic about the future there.

He has to be. He won't move soon.

Tampa Bay home prices hit 10-year lows in August, report says

2010-09-13T07:02:00.000-07:00

By Jeff Harrington, St. Petersburg Times Staff Writer - Posted September 10,2010

Home prices in the Tampa Bay area fell to a 10-year low in August, according to a report Friday from Ybor City consultancy Home Encounter.

Home Encounter estimates that area sales prices averaged $89 per square foot last month, down 7 percent from a year ago and down 4 percent from July. Home prices and total home sales fell substantially in July following the expiration of homebuyer tax credits.

Home Encounter president Peter Murphy said there was no doubt the tax credit pushed prices higher, at least temporarily.

"Sellers asked a premium for their homes, which buyers were willing to pay to take advantage of the tax credit," he said.

Four months later, he said, prices have dropped by an average of $13,000, indicating tax credit-buyers overpaid.

The monthly report — which is drawn from Multiple Listing Service information on home closings in Hillsborough, Pinellas, Pasco and Polk counties — is a precursor to more extensive sales data from the National Association of Realtors. The Realtors' August report, which includes numbers for all of Florida, should be released Sept. 23.

Florida's citizens Says Sinkhole Claims Forcing Proposed Rate Hike

2010-09-08T12:57:00.000-07:00

By Timothy F. Kirn - Insurance Journal Southeast News - 09/08/2010

At a hearing yesterday before the Florida Office of Insurance Regulation, Citizens Property Insurance Corp. officials blamed sinkholes as the major reason the public insurer needs a rate increase.

Testifying at the public hearing in Tallahassee, Paul Palumbo, a senior vice president for underwriting, said Citizens took in $19.6 million for sinkhole coverage in
2009. But the company paid out $97 million in claims costs.

Citizens is asking for an average rate increase of 8.4 percent. The average increase being asked for policies that cover homes, condominiums, mobile homes and vacation or rental homes is 9.3 percent. The rate increases would vary quite a bit depending on the area, however. Some areas would have a decrease, while in others the increase could be as high as 11 percent, Citizens said.

The rising cost of sinkhole coverage in Florida has hit all home property insurers. Last month, Insurance Commissioner Kevin McCarty announced that the
Office was surveying insurance companies about claims to get a better idea about why, suddenly, Florida insurers are paying so much more in claims costs.

Some say the reason for the raft of claims is that the public has learned about sinkholes, and people have begun making claims for any cracks they see in their
homes. Investigating possible sinkhole damage, which an insurer is required to do, can cost tens of thousands of dollars.

At the hearing, Palumbo said there has never been a catastrophic claim for sinkhole damage in Citizens history. The claims have been for cracks in driveways and other relatively minor, possible damages.

He also noted that many of the claims are coming from areas outside of the region near Tampa Bay that has historically had the majority of sinkhole problems, the so-called "sinkhole alley" of Pasco and Hernando counties. According to Citizens, there have been about 300 claims made in the Miami area since the start of 2008.

Lynne McChristian, florida representative of the Insurance Information Institute, said in a telephone interview that the fact that Citizens is having a sinkhole problem is not a shock. But the extent of its problem is striking.

Almost 44,000 South Floridians file for Foreclosure This Year

2010-09-08T08:41:00.000-07:00

By TOLUSE OLORUNNIPA - Miami Herald - 09/08/2010

South Florida has been home to more than $62 billion in loan defaults and 250,000 foreclosure filings since 2007, according to a report released Tuesday by Bal Harbour-based Condo Vultures.

The region -- including Palm Beach, Broward and Miami-Dade counties -- has experienced 43,980 foreclosure filings so far this year, and a total of $11.6 billion in loan defaults.

Between January 2007 and September 2010, Palm Beach County had $18.8 million in loan defaults associated with 74,399 foreclosure filings. Broward County had $26.5 million in loan defaults associated with 110,571. Miami-Dade County had $18.3 million.

The average amount for defaulting loans in South Florida is $ $253,529.20, according to the report, based on county records.

Homes sales tumble 19 percent in Tampa Bay area

2010-08-24T13:44:00.000-07:00

By Jeff Harrington, Saint Petersburg Times Staff Writer - Posted: Aug 24, 2010

The expiration of homebuyer tax credits took a heavy toll in July as home sales in the Tampa Bay area plunged 19 percent from year-ago levels.

Statewide, existing home sales fell 14 percent compared to a year ago. The drop-off between June and July was even more stark, with sales off 25 percent statewide and 29 percent in the bay area.

Sales prices also turned south year over year, falling 9 percent to a median price of $130,500 in the bay area and dropping 7 percent statewide to $138,000.

Sean Snaith, director for the University of Central Florida's Institute for Economic Competitiveness, said the loss of the federal tax credit geared toward first-time homebuyers "added a double dip to what has already been a harrowing ride in the Florida housing market."

The association representing Florida Realtors took heart that condominiums sales were improving, with activity up 11 percent compared to a year ago. However, the median condo sales price last month was $87,200, down 20 percent from the year-ago level of $108,500.

Nationally, the steep drop pushed homes sales down to the lowest level in 15 years, despite the lowest mortgage rates in decades and bargain prices in many areas.

July's sales fell by more than 27 percent from June to a seasonally adjusted annual rate of 3.83 million, the National Association of Realtors said Tuesday. It was the largest monthly drop on records dating back to 1968, and sharp declines were recorded in all regions of the country.

Jennifer H. Lee, senior economist for BMO Capital Markets, called the numbers "truly gut-wrenching."

Those on the front lines of real estate describe an absolute standoff between buyers and sellers.

"What few buyers are out there circle a listing like a vulture, waiting from the day of its debut until it's left for dead, contacting us only after it has left the market to ask what it sold for and whether it's taking backup offers," said Glenn Kelman, chief executive of the online brokerage Redfin.

Times wires contributed to this report.

Plunging home sales could sink recovery

2010-08-24T13:41:00.000-07:00

Here is an article from CNN Money regarding the latest national housing trends.

By Hibah Yousuf, CNN Money staff reporter - August 24, 2010: 4:03 PM ET

NEW YORK (CNNMoney.com) -- With home sales plunging to their lowest level in 15 years, economists warn that a double-dip in housing prices is just around the corner, threatening to further slow the overall recovery.

Existing home sales sank 27.2% in July, twice as much as analysts expected, to a seasonally adjusted annual rate of 3.83 million units. Much of that drop is attributed to the end of the $8,000 homebuyer tax credit.

That credit brought buyers out in droves, as they tried to sign home contracts before the April 30 deadline. Now, two months later, sales are 34% below April's tax incentive-induced peak.

"Home sales were eye-wateringly weak in July," said economist Paul Dales of Capital Economics. "It is becoming abundantly clear that the housing market is undermining the already faltering wider economic recovery. With an increasingly inevitable double-dip in housing prices yet to come, things could get a lot worse."

The sales pace of all homes -- single-family homes, townhomes, condominiums and co-ops -- is at the lowest since NAR began tracking the figure in 1999. Sales of single-family homes, which account for a bulk of the transactions, are at the lowest level since May 1995.

Inventory has also continued to climb, rising 2.5% to 3.98 million existing homes for sale. That represents a 12.5-month supply at the current sales pace, the highest since October 1982 when it stood at 13.8 months. A six-month of supply is considered normal.

5 most affordable cities to buy a house
The combination of weak demand and glut of homes has put downward pressure on prices.

And as the recession proved, the housing market and the broader economy are closely intertwined. When housing prices collapse, so does the overall wealth and confidence of Americans.

"Falling housing prices strain the overall confidence in the economy and discourage Americans from spending," Dales said. "They also mean that banks lose money on their investments and curtail lending, meaning there is less money out there to invest and boost the economy.

The NAR report showed that the median price of homes sold in July was $182,600, up 0.7% from a year ago. Just under a third of homes sold during the month were distressed properties.

Though prices have yet to fall back, Dales expects they will decline about 5% from current levels over the next six months.

On the bright side, Dales said while a drop prices will put a dent in the economy recovery, it won't lead to another recession.

"The bulk of the downward adjustment in housing prices has been achieved over the last several years, so we're not headed for a complete disaster," said Dales. "We're going to see a double-dip in housing prices, but not a double-dip in the overall economy."

Sales by property and region: Sales of single-family homes sank 27.1% in July compared to the prior month, while condominium and co-op sales tanked 28.1%.

The Midwest fared the worst last month, with sales dropping 35% to an annual pace of 800,000 units in July. that's 33.3% lower than a year earlier.

Resales in the Northwest dropped 29.5% from the previous month to an annual pace of 620,000 units.

They fell by 25% in the West and 22.6% in the South.

Mortgage defaults among Florida's high-value loans highest in U.S.

2010-08-21T16:01:00.000-07:00

By Becky Bowers, Saint Petersburg Times Staff Writer - August 22,2010 — Five years ago, Florida's real estate market was a rollicking beachfront casino where you couldn't make a bad bet.

The reckoning hit high-rollers harder than anyone. Now home loans over $1 million are failing at a higher rate than the rest, and nowhere is that failure as severe as in Florida.

Case in point: A squat concrete block home in St. Petersburg's Snell Isle Shores cost $1 million in 2006. The $2 million mortgage also bankrolled demolition and the building of a 7,000-square-foot waterfront dream house.

By May 2009, the home was in foreclosure, and sold a year later. The winning offer? $1.13 million, a 60 percent discount from the asking price.

Developers and home buyers alike had banked on quickly rising home prices, said Sam Khater, senior economist at real estate analytics firm CoreLogic.

"The average person was basically betting, repeatedly," he said. High-value loans were an even worse bet.

The bulk of million-dollar loans were written in California, and to a lesser degree in New York and Florida, according to CoreLogic. But while California's and New York's default rates on those high-value loans were near or under the national average of 13 percent in April, nearly a third of Florida's were in default.

During the boom, Florida's dramatic price appreciation enticed buyers, said Mark Vitner, a senior economist at Wells Fargo who's been tracking the Florida real estate market since the mid '80s. If you could stretch to buy a high-end home, its rising value could make you rich.

"I know people that bought … would not think of themselves as speculating on a house. But they bought a lot more house than they should have because they could get the credit, and prices were going up," he said.

Alternative mortgages, such as five-year interest-only loans, made it easy to buy more house than you could afford, he said.

It wasn't just alternative mortgages that suffered, says Khater, the economist for CoreLogic, which compiled Florida and Tampa Bay default rates for the St. Petersburg Times. CoreLogic compared types of mortgages — from standard fixed rates to "funny" products — and saw the same trend, he said.

Khater points out that this recession, unlike earlier ones, hit middle- and high-income brackets especially hard. Home values dived at the same time stock portfolios suffered.

But it's also generally true that very small and very large loans tend to perform worse than those in the middle, said Michael Fratantoni, the vice president of research and economics for the Mortgage Bankers Association. Think of a "U" shape. That's why so-called "jumbo" loans typically have higher rates, even though those who get them have mostly higher incomes.

Why would a well-heeled buyer be riskier? A higher-value property tends to have a much more volatile price because the pool of potential buyers is smaller.

"In a down market, if it sells at all, it's going to sell for a much steeper discount," Fratantoni said.

And if it sits on the market as prices fall — and bay area prices fell more than 40 percent from 2006 — the mortgage holder is more likely to owe more than the home is worth. That increases the chances of becoming delinquent, even with the best intentions to sell and pay off the mortgage, he said.

Matthew Weidner, a St. Petersburg lawyer who focuses on foreclosures, said high-end bay area buyers were able to hang on longer as home values fell and investments and jobs disappeared. But this year he's seen a spike in foreclosures among people at the top of the economic ladder.

"It went from service workers to high-end professionals who got into trouble," he said.

Weidner said they used savings and assets to supplement their mortgage payments.

"Now they're in my office saying, 'I can't do this anymore.' "

Still, those high-value foreclosures remain a small fraction of the hundreds he's seen.

Indeed, it's not clear how many million-dollar mortgages face delinquency in the bay area. Nationally, huge mortgages represent a tiny slice of home loans, less than 1 percent, according to CoreLogic, which doesn't release its raw numbers.

At that price range, buyers are more likely to use cash, or get a loan for just part of the purchase price at a lower rate. And while Florida was among the top three states for such loans, many were concentrated in Miami.

So while the Tampa Bay area had a default rate of just over 24 percent on million-dollar loans in April, the actual number of loans may be very small, CoreLogic's economists cautioned. It's more accurate to concentrate on the state and national numbers, they said.

But where those struggling loans existed in this area, there were some mighty deals.

Take local short sales, in which a bank agrees to a price that's lower than what's owed, said Frank Malowany, a St. Petersburg real estate agent who specializes in higher-priced waterfront property.

This year, among about 80 sales in Pinellas and Hillsborough counties over $1 million, about a half dozen were distressed: bank-owned homes or short sales. Those numbers don't reflect homes in default that aren't yet for sale or remain unsold, or homes with million-dollar mortgages that sold for less than $1 million.

The discounts were hefty. One St. Petersburg home was listed for $2.95 million and sold for just over $1 million in March. Another in Redington Beach had a loan for $1.5 million and sold for $1 million flat.

Short sales let banks get at least some of their money back. And they've picked up in the past few months, said Glenn Goldberg, a 43-year-old St. Petersburg real estate attorney.

Like that dream home in Snell Isle Shores. Goldberg and his wife bought it for $1.13 million in May.

"We have two kids. We wanted to buy a bigger house, and we said, 'Why not?' "

Peter Krauser, president of Mark Maconi Homes of Tampa Bay, had built it in 2007. He recalls putting $2.4 million into the project. Property values kept soaring, so they kept adding custom features.

"The banks told us that anything we could build, we could sell," he said. Then banks started to realize how many speculators they had on their hands — and stopped writing big loans. And that was it, he said. "We just ran out of cash."

The bank filed to foreclose, but let him sell it instead. He owes the bank $200,000 in the deal. At the moment, he's not building anything.

"His product was fantastic. His timing wasn't so fantastic," Goldberg said. "It's like everything you do. Timing is everything."

OneWest Bank accused of pushing home loan borrowers into foreclosure

2010-02-21T07:36:00.000-08:00

Blog Editor's note: Although this article highlights a situation taking place in California, I thought it prescient, as it does have national significance.

By Jim Wasserman - Sacramento Bee - Published: Sunday February 21st, 2010

Nineteen months after the catastrophic failure of one of Sacramento's top lenders, Pasadena-based IndyMac Bank, a flurry of local lawsuits alleges that the bank's successor – OneWest Bank – is systematically working to push home loan borrowers into foreclosure.

The allegations filed in the Eastern District of U.S. Bankruptcy Court claim that OneWest can make more money by foreclosing than by keeping borrowers in their homes. That's due to its so-called "shared-loss" agreement with the Federal Deposit Insurance Corp., at least 10 local lawsuits allege.

A video made in Fairfield and circulating widely on the Internet also alleges that OneWest stands to earn millions from taxpayers by foreclosing on borrowers as a result of its shared-loss agreement with the FDIC.

OneWest declined to comment on either the lawsuits or the video.

The FDIC, which seized IndyMac in July 2008, sold the failed institution to Pasadena-based OneWest in March 2009.

As part of the deal, the FDIC agreed to absorb some losses from the troubled loan portfolio. That's after OneWest absorbs the first $2.5 billion in losses, the FDIC said.

But Sacramento bankruptcy lawyer Peter Macaluso claims the shared-loss agreement will reward OneWest for foreclosing on homes. Here's how, he said: The company bought IndyMac's troubled portfolio at a 30 percent discount. It can count on the FDIC eventually reimbursing 80 percent or more of its losses – and also can keep proceeds from the foreclosure sales.

"They're deliberately blowing people out in a systematic pattern," said Macaluso.

He has filed eight lawsuits in U.S. Bankruptcy Court on behalf of area IndyMac borrowers who have filed for Chapter 13 bankruptcy protection.

Macaluso alleges that OneWest improperly boosted his clients' monthly loan payments – sometimes by more than $1,000 – by doing a new escrow analysis after they had filed for bankruptcy protection. He said his clients can't afford the increases and are in danger of losing their homes.

On Friday, he said OneWest has since rescinded the extra payments in three cases.

Elk Grove bankruptcy attorney Mark Wolff makes similar allegations in two lawsuits in U.S. Bankruptcy Court.

"We made the allegations that it's a systematic approach they've employed, and it's a violation of bankruptcy code," said Wolff. He said he previously filed similar actions against Bank of America and JPMorgan Chase. His clients also are still in their homes.

A third attorney, Sean Gjerde of Elk Grove, recently filed a civil suit against OneWest in Sacramento Superior Court. It alleges violations of the Truth In Lending Act, claiming that OneWest is unresponsive to attempts to modify an Elk Grove client's IndyMac mortgage.

"As soon as OneWest took over, the communication stopped," Gjerde said. "My client has been in default for a long time and it's been like heck to even get them to talk to me."

The local lawsuits represent another messy aftermath of IndyMac's implosion in July 2008, a development that added to fears of an imminent U.S. financial collapse.

IndyMac was a leading Sacramento lender, ranking 10th in loan volume during the riskiest part of the housing market: mid-2005 to mid-2007. Statistics from researcher MDA DataQuick show IndyMac made 5,312 home loans worth $1.4 billion during this period in Sacramento, Placer, El Dorado, Yolo, Sutter and Yuba counties.

A Treasury Department performance report last week showed that OneWest has temporarily or permanently modified 25 percent of its loans that are 60 days or more late. Twelve lenders reported higher modification rates and nine reported worse rates. The report said OneWest had permanently modified 3,087 of its 112,000 delinquent loans by the end of January.

The video criticizing OneWest and the FDIC has gone viral on the Internet in real estate and lending circles. It was produced by partners in a Web-based real estate and mortgage firm, thinkbigworksmall.com.

The FDIC said the video had "no credibility."

OneWest wouldn't weigh in. "We're not commenting at all," said bank spokeswoman Diane Henry. "I think the FDIC was pretty clear."

The FDIC said the insurance corporation – established in 1933 to protect customers' bank deposits – currently has 94 shared-loss agreements in place with financial institutions that assumed troubled loan portfolios. The agency said OneWest must absorb the first 20 percent of its loan losses – $2.5 billion – before it can receive government funds to cushion the rest. Then, OneWest can be reimbursed for 80 percent or more of its losses.

The FDIC said it hasn't yet paid a penny to OneWest. It also noted that OneWest owns just 7 percent of the loans covered in the shared loss agreement. The rest are owned by investors.

FDIC officials also noted that they can rescind the deal if OneWest isn't complying properly with its agreement to modify loans.

FDIC spokesman David Barr offered no comment on the Sacramento lawsuits filed against OneWest.

In Roseville, Emily Touchstone is not among those suing OneWest. But she is soon to leave for the East Coast after losing a house refinanced with a IndyMac adjustable-rate loan in 2006. She said she couldn't get a OneWest modification after starting the process in March 2009. In October she lost her job.

Touchstone told a story familiar in Sacramento: months of phone calls, fielding requests for more information and then still more. Months behind on payments, she recently lost the house to OneWest. She called it a "preventable thing."

In Elk Grove, Tom Cravalho said the Association of Community Organizations for Reform, the housing counseling group known as ACORN, dropped his case in December, saying it got little response from OneWest.

"They said there was no communication from your lender," he said.

Cravalho called his 2005 IndyMac adjustable-rate refinance loan a "mistake." Now, he and his wife fear losing a $200,000 down payment on the house they bought in 2002.

Trouble started in February 2008 when Cravalho lost his job running a Contractors State License Services School branch in Sacramento. Eventually he turned to attorney Gjerde for help with a modification.

Gjerde has tried, but recently filed suit against OneWest, saying the bank didn't respond to him, either.

"They aren't even paying lip service," he said. "At least some lenders pay lip service."

Florida Court Decision Could Impact Builders and Bank Foreclosure Processes

2010-02-17T12:20:00.000-08:00

by Peter L. Mosca - Realty Times - Published: February 17, 2010

A ground-breaking South Florida court decision has paved the way to a legal solution for condominium and homeowners associations to address the under-reported but highly commonplace practice of banks stalling their foreclosures. Banks may engage in this tactic in an effort to delay taking title to financially upside down units and avoiding payment of past due assessments and legal fees due to associations. The new legal approach puts an end to this practice and is poised to dramatically strengthen the financial health of communities throughout the state of Florida.

From the firm that innovated "blanket receiverships" last year, now Association Law Group (ALG) has created the "reverse foreclosure" procedure in cases where an association has already acquired title to the property by its own foreclosure, but the bank’s foreclosure action is still pending or stalled. Under ALG’s new reverse foreclosure procedure, the association intentionally admits, in response to the bank’s foreclosure lawsuit, that the bank is entitled to take title to the financially upside down unit immediately. Under such procedure, the association knowingly waives its right of redemption and its right to a foreclosure sale, requests the court to grant a partial summary judgment against the association immediately, and further requests that the court direct the Clerk of Court to issue a certificate of title to the bank immediately, thereby making the bank the owner immediately and responsible for the association dues.

Attorney Ben Solomon of Association Law Group explains, "ALG’s reverse foreclosure procedure will finally help associations force banks to take title to financially upside down units much faster than ever before. This innovative new legal strategy holds banks accountable for paying their fair share of assessments and significantly reduces the amount of bad debt incurred by such associations." ALG’s new reverse foreclosure procedure cuts down on the bank’s opportunity to stall such foreclosure proceedings for an additional six months to a year or more (by intentionally delaying the setting of hearings, taking advantage of prolonged sale dates, etc.) because it forces the bank to take title to the upside down unit much quicker than usual because both parties agree they are immediately entitled to the property. Stalling by the bank typically adds to the amount of bad debt write offs an association eventually incurs when the bank finally does foreclose because by statute the bank is only obligated to pay the lesser of 12 months of past due assessments or 1% of the original mortgage for an HOA or 6 months of assessments or 1% for condos. The balance of past due assessments is then typically written off as bad debt and becomes a common expense to be paid by the rest of the unit owners.

This landmark case, HSBC Bank USA, et al. vs. Keys Gate Community Association, Inc., A Florida Non Profit Corporation, et al., was decided on January 12th in the 11th Judicial Circuit of Miami-Dade County. ALG represented Keys Gate Community Association, Inc. (Keys Gate), a homeowners association in Miami-Dade County with over 3,000 homes. In this precedential case, Keys Gate was awarded a partial final summary judgment of foreclosure against itself and in favor of HSBC Bank USA. As a part of that judgment, Keys Gate waived its right to public sale and requested a certificate of title be issued directly and immediately to the bank. Pursuant to the judgment, the Clerk of Court issued a certificate of title to HSBC the same day making the bank immediately liable for the payment of past due assessments and legal fees.

Based on the issuance of the certificate of title, the bank also was required to pay all current assessments as they become due. This new legal strategy saved Keys Gate a minimum of eight months or more of bad debt write offs because the association did not have to wait for the bank to get a foreclosure judgment, schedule a foreclosure sale, and sell the property at public auction. Importantly, this case sheds light on a little known banking practice that has been paralyzing homeowner and condominium associations across Florida -- namely that banks are significantly stalling their foreclosures to avoid paying the liabilities to the applicable association. This particular bank foreclosure case had been pending since 2007.

Specifically, in this case, Keys Gate filed and foreclosed its own claim of lien on the property and acquired title to the property through its own foreclosure sale back in April of 2007. The bank filed its foreclosure against the property in June of 2007 and through repeated stall tactics has still failed to complete the same for more than two and a half years. As a last resort, in November of 2009, ALG initiated its first reverse foreclosure procedure and moved the bank's foreclosure case forward by setting a hearing for summary judgment against its client Keys Gate. ALG then asked the court to issue a partial summary judgment in favor of the bank and to immediately grant the bank's request to take title to the unit as stated in its foreclosure complaint. As part of such reverse foreclosure, Keys Gate waived its rights to the property and, as the current unit owner, waived its right to public sale. The motion was granted and the Clerk of Court issued a certificate of title the same day transferring ownership of the property to the bank. The certificate of title then triggered HSBC Bank's requirement to pay its share of past due assessments, legal fees, court costs, and all assessments going forward. The bank's claim as to the other defendants is still pending.

The practice of banks delaying in foreclosure proceedings is not uncommon but it has a severe detrimental impact upon associations. Under the current law, a bank is not liable for condominium or homeowners associations' assessments until it takes title. As such, once a foreclosure is filed by a bank, there is little incentive for it to complete such foreclosure and take title to the unit until it has a buyer for the property or is otherwise ready to take responsibility for the liabilities associated with the property. It is this critical step in the process where banks have delayed -- sometimes for years -- to avoid having to pay assessments. Every month of delay equals another month of potential bad debt write off for an association. Until now, associations were left to fall further into debt and were powerless to encourage the banks to complete their foreclosures and collect back assessments. Some judges have tried to make banks liable for assessments if they did not aggressively pursue the foreclosure by granting a motion to compel, but that attempt to hold the banks accountable was recently ruled invalid by the Third District Court of Appeal.

ALG's innovative new legal strategy of reverse foreclosure has been enthusiastically endorsed by the Clerk of Court as another method to reduce their backlog of foreclosure sales. ALG has already been successful in implementing its "reverse foreclosure" procedure in both Miami-Dade and Broward counties and has plans to file dozens more in the upcoming months in multiple other counties.

Note: ALG has experience in representing all types of associations ranging from high rise condominium towers, to large master communities with thousands of homes, to smaller townhome and low-rise condominium projects.]

Recent appraisal rules open door to shady middlemen

2010-02-15T13:40:00.000-08:00

Blog Editor's Note: The following article is an excellent example of the law of unitended consequences. When the Feds decided to enact the HVCC, it allowed unscrupulous players to enter the appraisal mangagement arena, where some created a new revenue stream for themselves under the guise of managing their mortgage vendor's accounts. Thank you to Susan Taylor Martin for her in depth article.

By Susan Taylor Martin, St. Petersburg Times Senior Correspondent

Sunday, February 7, 2010

Last year, Global Appraisal Solutions of Clearwater hired appraiser John Viscusi to do property evaluations in the New York metro area.

But Viscusi says the company failed to pay him for 20 appraisals. And when he tried to contact the owner, Larry Holzer, he got no response.

Then Viscusi made an unsettling discovery.

An Internet search for Global immediately linked him to another company, Appraisal Mediation Solutions. Its phone number: The same as Larry Holzer's. Its address: a UPS store in Clearwater close to Holzer's condo.

"I'm down about $6,000,'' Viscusi says. He wonders if he will ever get his money because Global no longer appears to be in business even though Holzer still is.

Critics of recent changes in the way home appraisals are handled say Viscusi's situation illustrates a major problem with companies like Holzer's: They are totally unregulated in Florida and most other states.

The changes, which took effect in May, were designed to prevent the appraisal-related fraud that helped drive housing prices to unsustainable heights. The new Home Valuation Code of Conduct forbids banks, mortgage brokers and Realtors from working directly with appraisers.

Instead, they now go through "appraisal management companies'' like Holzer's — middlemen who hire the appraisers.

The code "has created this huge opportunity, and everybody and their brother is trying to take advantage of it, and a lot are unscrupulous,'' says Frank Gregoire, a St. Petersburg appraiser and former chairman of the Florida Real Estate Appraisal Board.

Gregoire and the board are backing a bill by state Rep. Matt Hudson, a Naples Republican, that would require owners of appraisal management companies to disclose criminal histories and license suspensions or revocations.

"My anticipation is that the board would not grant a license (for a management company) to someone who had a disciplinary record,'' Gregoire says.

That would eliminate companies owned by people like Holzer.

In 2007, Florida regulators permanently revoked Holzer's appraisal license because he had approved an error-filled appraisal done by a trainee under his supervision. The report didn't even have photos of the correct house.

The revocation barred Holzer himself from appraising property in Florida. But it didn't keep him from starting an appraisal management company, Global Appraisal Solutions, that could do business in Florida and every other state.

After the code of conduct took effect last spring, Global contracted with Lend America on Long Island to arrange appraisals for the company. Viscusi, who had worked directly with Lend America's loan officers, signed on with Global so he could continue doing appraisals, mostly for homeowners seeking to refinance or get equity lines.

Holzer and Global "would never let me know what they were charging (homeowners), whether it was $400 or $800,'' Viscusi says. But his own payments "were absolutely less'' than they used to be, reflecting a common complaint that injecting a middleman into the appraisal process has meant higher costs for consumers but less money for appraisers.

Viscusi says Global paid him $250 to $300 apiece for five appraisals in June, then stopped paying. He wasn't worried at first because Global boasted on its Web site in July that it was having its best month ever.

But as Viscusi did 20 more appraisals in July and August with no payment, he grew anxious. Holzer, who did not respond to his phone calls, sent out an e-mail in October claiming that lenders owed Global "a large outstanding balance for completed appraisals.''

Viscusi didn't believe the explanation, because the homeowners had paid Global, not the lenders.
Viscusi contacted appraisers in Texas, Chicago and the Washington, D.C., area who claimed they too had been stiffed by Global.

In December, Viscusi received a call from a woman who used to work for Global but had left to start her own appraisal management company.

"I pretty much told her that if she didn't give up information (on Holzer's whereabouts), she'd be held liable in any pending litigation,'' Viscusi says. "She said, 'If you click on his Web site, it will direct you to a new company.' '

That company, Appraisal Mediation Solutions, boasts that it "is one of the most trusted providers of real estate valuations in the nation.'' State records show it was incorporated in October but no officers were listed, which is unusual. The address is 140 Island Way, Clearwater No. 245 — a $15-a-month box at a UPS store near Holzer's waterfront condo.

When a reporter knocked on his door last week, Holzer cursed and ordered her off the property. The condo has been in foreclosure proceedings for two years, but Holzer staved off foreclosure by declaring bankruptcy in 2008 and 2009.

Though Global had appraisers working for it all over the United States, the spokesman for an organization that represents appraisal management companies says its problems were not typical.

"The appraisal management industry does 4 million appraisals a year, and I'll bet that the number done by that company down in Florida that has caused so much consternation is just minuscule,'' says Jeff Sherman of the Pennsylvania-based Title/Appraisal Vendor Management Association.

Any regulation of appraisal management companies should be done on the federal level, not by states with their varying requirements, Sherman says. Several states have passed laws, and a New Mexico bill would, controversially, cap companies' profits.

Viscusi, who has had no luck contacting Holzer and is now considering legal action, says companies like Global need to be regulated, regardless of whether Congress or the states do it.

"There should be a regulatory board that keeps an eye on these companies, because basically what they are is a shakedown middleman,'' he says. "All they do is collect a fee to channel an appraisal to an appraiser.''

Tampa Bay home sales see best October in four years

2009-11-23T11:27:00.000-08:00

By James Thorner, St.Petersburg Times Staff Writer Posted November 23rd, 2009 @ 11:29 AM

Tampa Bay home sales had their best October in four years as buyers rushed to take advantage of the $8,000 first-time home buyer tax credit.

Realtor sales in Pinellas, Pasco, Hillsborough and Hernando counties totaled 2,758 in October, up 37 percent from 2,021 sales in October 2008.

Last's month's closings were the highest since 3,735 homes changed hands in October 2005.
The data come from the Florida Association of Realtors, which noted that Tampa Bay home prices dropped 10 percent year over year, from $152,300 to $137,500.

Median home prices are 42 percent lower than they were at the peak in the summer of 2006.
Foreclosure and pre-foreclosure homes made up close to half of all sales in October. Cash buyers were everywhere, suggesting it was much more than first-time home buyers driving the market.

"We sold a half-million-dollar place on the beach to a couple from Scotland sight-unseen," said Mike Ward, a manager at Keller Williams Gulf Coast Realty in Seminole.

"We just keep plodding through and it all came to a nice culmination in October. Let's hope it continues."

Tampa Bay home sales don't match Florida's 34% boost in Sept.

2009-10-26T06:55:00.000-07:00

By James Thorner, St. Petersburg Times Staff Writer - Saturday, October 24, 2009

Florida home sales rose 34 percent in September compared with a year earlier, but Tampa Bay didn't share in that upsurge.

Tampa Bay Realtors reported a year-over-year sales increase of only 11 percent, far below sales spurts of 41 percent in Orlando and 42 percent in Sarasota.

Tampa Bay's underperformance left Realtors scurrying for answers. Earlier in the year, economists predicted the Nov. 30 deadline to use an $8,000 first-time home buyer tax credit would rev up sales in late summer and fall.

About 2,410 homes sold in September in Pinellas, Pasco, Hillsborough and Hernando counties. A year earlier, 2,174 homes changed hands.

Pinellas single-family home sales matched the state average, but the bay area's performance was dragged down by below-average activity in the other counties. But even Pinellas buyers were growing scarcer in September.

"We've heard appraisals didn't come in, banks dragged their feet too long and buyers got tired of waiting as reasons for the decline," the Pinellas Realtor Organization's Ann Guiberson said in a statement.

She could be channeling St. Petersburg Realtor Frank Malowany.
A specialist in the sale of million-dollar homes with Smith & Associates Real Estate, he grits his teeth as banks reject seven-figure, all-cash purchase offers for waterfront mansions facing foreclosure. What's worse, banks can take three to six months to decide.

"Nothing's smooth. If you're dying in a bed with cancer maybe they'll talk to you. Even then it's hard," Malowany said. "And we're talking cash buyers."

Nationally, home sales rose 9.2 percent from a year earlier, an increase that won guarded praise from the National Association of Realtors.

"Much of the momentum is from people responding to the first-time buyer tax credit, which is freeing many sellers to make a trade and buy another home," said Lawrence Yun, economist with the national Realtor group.

Contrary to what Yun said, economists reported this week that the credit hasn't had a desired ripple effect by stimulating move-up home purchases.

Tampa Bay's median home price dipped nearly 5 percent from August to September, from $144,600 to $137,800. But prices have floated in a narrow range on both sides of $140,000 for most of this year, leading some to call a home price bottom.

A gathering of housing industry economists in Washington this week predicted that national home prices — as well as those in Tampa Bay — would drop a bit further as another wave of foreclosure homes enters the market over the next six to eight months.

Robert Denk, a forecaster with the National Association of Home Builders, rated Florida as one of the most overbuilt markets in the country and described a "long road back to normal."

Even September home prices might not tell buyers and sellers what's happening on the ground today, said Amy Crews Cutts, economist with government-backed mortgage lender Freddie Mac.

That's because people who closed on homes in September probably signed purchase contracts in July and August. That makes it hard, in a declining market, to know what a home's worth in October, she said.

If there has been one area of improvement, it has been in the number of surplus homes on the market.The inventory of homes for sale in and around Tampa — 14,433 — declined to its lowest level since spring 2006. In Pinellas, about 12,773 homes were listed for sale in September, down 36 percent from the 20,053 homes for sale a year earlier.

"We still have over 6,000 single-family listings on the market, when 3,000 to 4,000 would indicate a more balanced market as we had from 2001 through 2003," Guiberson said.

‘Underwater’ homeowners lead Sept. foreclosures

2009-10-08T08:56:00.000-07:00

By DUANE MARSTELLER - dmarsteller@ bradenton.com

MANATEE — Most Manatee County homeowners who fell into foreclosure last month were financially “under water,” property and court records show.
Two out of every three owed more on their property than what it is worth, according to a Bradenton Herald analysis of property tax records and September foreclosure filings. The average deficit was $72,098.

The Herald’s findings didn’t surprise foreclosure experts, who said Monday that most Florida homeowners have been financially swamped by free-falling home values.

“I would have estimated it as closer to 100 percent,” said Shari Olefson, a Fort Lauderdale foreclosure attorney and author of “Foreclosure Nation: Mortgaging the American Dream.”

The average underwater homeowner in Manatee who was hit with a foreclosure suit in September owed $282,268 on a home valued at $210,170, the Herald’s analysis showed.

In the most extreme case, a bank claims a Michigan couple owes nearly $2.05 million on a Lakewood Ranch Country Club home that’s valued at $1.45 million. And it’s not just single-family homes: The owner of a Bradenton apartment complex valued at nearly $12.1 million is nearly $18.6 million in arrears, according to the lender seeking to foreclose on the property.

Two federal foreclosure-prevention programs have done little to help Florida homeowners because of the eligibility criteria, Olefson said.

With the average underwater homeowner in Manatee owing 134 percent of their home’s value, many don’t qualify for a refinancing program because it’s limited to 125 percent. Federal officials initially estimated as many as 5 million U.S. homeowners could benefit, but only 20,000 loans have been refinanced thus far, according to the Treasury department.

“Most of our properties are more than 25 percent underwater, so refinancing is out of the question for them,” Olefson said.

Another program requires mortgage modifications to cost homeowners no more than 38 percent of their income for the mortgage, taxes and insurance. “That option’s not available for many because our taxes and insurance are so high in Florida,” Olefson said.

The Herald’s analysis was based on each foreclosure case’s “estimate sheet” — the lender or servicer’s calculation of how much the borrower owes — and the subject property’s 2008 market value as determined by the Manatee County Property Appraiser’s Office. The number of underwater homeowners likely is higher, as home prices have fallen further since the property appraiser’s office calculated those values.

Lenders and servicers filed 534 mortgage foreclosure suits in Manatee County Circuit Court in September, eight more than they did in August. They have filed 4,829 such suits through the first nine months of 2009, or 16.5 percent ahead of last year’s record-setting pace.

More than 75 percent of September filings were against homesteaded properties, the highest percentage since the foreclosure surge began in late 2006. Among neighborhoods, Bayshore Gardens had the most foreclosure filings with 11, followed by Greenbrook Village with nine and Greyhawk Landing with eight.

The Case of the Missing REO Inventory

2009-10-07T08:44:00.000-07:00

Rick Sharga - Realtytrac - October 7th, 2009

Certain things in life are simply meant to be mysteries. There are age-old philosophical questions that have kept philosophers busy for millennia: What is the sound of one hand clapping? If a tree falls in the forest and no one is there, does it still make a sound? Other mysteries hang heavy with intrigue: What really happened to Amelia Earhart? And who really kidnapped the Lindbergh baby? And still others simply defy logic: If Denny’s is open 24 hours a day, 365 days a year, why are there locks on the doors?

Now we can add another question to the list of ongoing mysteries: With foreclosure activity breaking records nearly every month, where are all the REOs?It’s a fair question. In normal market situations, a bank will repossess a home and usually process it through to a listing agent to put on the MLS within 30 days.

In a relatively short period of time, virtually every marketable REO property finds itself listed for sale on the local MLS. Today, that’s simply not the case; it’s likely that between 450,000 and 500,000 properties repossessed over the past year are still not on the market. And with buyers hungry for housing bargains, and agents and brokers champing at the bit ready to sell the properties, it begs for a reasonable answer.

Lenders and servicers admit that it’s taking longer to process REOs than it has in the past, and they offer a number of legitimate reasons:

-Many of the properties have title issues that need to be resolved
-Many of the properties are in states of utter disrepair
-A number of states have strict redemption rights periods, which prevents the lender from reselling the property
-A few states have extended the length of eviction proceedings
-The sheer volume of REO activity has created a “pig in the python” phenomena, (to put this in perspective, there will be roughly four times the number of REOs this year as in the last “normal” year, 2005)

What else could be slowing things down? A popular theory is that many banks are holding the properties off the market in order to defer losses. There is some accounting logic to this theory, as in most cases banks aren’t required to adjust asset prices until the actual resale of the property.

Another idea is that the industry is holding back the inventory to create leverage with the government in order to force the creation of a “toxic bank” or RTC-like entity that would buy the distressed assets at 50 to 60 cents on the dollar rather than the 30 to 35 cents available on the market today.

This theory suggests that, seeing the threat of a massive inventory of distressed homes being released all at once, the government would “blink” rather than risk another housing market meltdown.

Whatever the reason — process issues or conspiracies — we’re going to continue to see record-breaking numbers of REOs for at least the next year, and will all be watching to see when these sought-after homes finally make their way to the market.

Owners believe homes worth more

2009-08-31T05:32:00.000-07:00

By Aaron Kessler - Sarasota Herald Tribune - Published: Monday, August 31, 2009

SURVEY: Listing, and selling, prices continue to disappoint

A new survey by Calif.-based HomeGain shows that a disconnect still remains between what sellers in Florida think their homes are worth and what buyers are willing to pay.

The third-quarter survey of Florida real estate agents, released last week by HomeGain, found that the vast majority of sellers -- some 70 percent -- continued to believe their homes were worth more than even their own Realtors were telling them.

The percentage of buyers who believed that home prices were "fairly valued" increased in the third quarter, to 24 percent. That was up from 18 percent in the second quarter, and 15 percent in the first quarter of 2009.

But it would appear many Florida sellers have yet to come to grips with the reality of the market.

The HomeGain survey found that 35 percent of sellers thought their homes were worth 10 percent to 20 percent more than the listing price recommended by their Realtors.

Seventeen percent were even more bullish (or deluded, depending on your perspective) and thought their homes should fetch 21 percent to 30 percent more, and 6 percent thought their property should be priced 30 percent higher.
Conversely, only 1 percent of sellers thought their home was worth 10 percent to 20 percent less than their agents recommended; 3 percent of sellers, 21 percent to 30 percent less; and 4 percent, more than 30 percent less.

Only 15 percent of Florida homeowners in the third quarter agreed with the listing price their Realtors recommended. Though that number has been steadily rising all year -- up from 10 percent in the second quarter and 5 percent in the first quarter -- a possible indication that some sellers are more willing to listen to their sales agents when it comes to price.

Overall, however, an overwhelming 70 percent of Florida sellers thought their homes were worth more than their listing price.

Florida sellers were not alone in their sentiment -- the national numbers released by HomeGain found that 74 percent of sellers in the United States as a whole thought their homes were worth more than the recommended listing price.

In terms of what buyers are looking for, and getting, in the Florida market, it was almost always a discount from the asking price, the survey found. In fact, an average of only 5 percent of buyers purchased a home for its listed price in the third quarter.

Eighty-four percent of buyers paid less, in some cases considerably less. On average, half of the homes sold went for a discount of between 5 percent and 10 percent less than their listing prices, the survey found. Thirty-two percent of homes sold for between 11 percent to 20 percent off the listing price, and 2 percent went for a discount of 21 percent to 30 percent.

Florida's Realtors actually grew more pessimistic in the third quarter about where prices could be headed: Of the agents surveyed, nearly half, 46 percent, believed that home values will fall in the next six months. At the end of the second quarter, only 24 percent believed that.

In terms of how the value of their clients' home values have fared over the last year, 93 percent of the real estate agents said prices have decreased. That was up from 82 percent at the end of the second quarter.

The percentage of agents who reported their clients' home values have stayed the same in the last year shrunk to only 4 percent, down from 13 percent in the second quarter.

Only 3 percent of agents reported the values of the homes they had listed actually increased since last year.

New Home Valuation Code of Conduct cures some ills, creates new ones

2009-08-24T08:18:00.000-07:00

By James Thorner, St. Petersburg Times Staff Writer, Sunday, August 23, 2009

Builder Charlie Hannah thought he was being generous when he agreed to sell a new 5,000-square-foot home for $1.15 million in the Tree Tops neighborhood near Tampa's Westchase.

But the appraiser returned an appraised value of $1 million on the lakeside house in June. Two months later, the sale remains in limbo and Hannah remains indignant.

Four other homes Hannah built in the same neighborhood recently sold for much more per square foot than the $1.15 million home. But the appraiser found a comparable home sale miles away in Odessa to justify what Hannah considers to be a low-ball valuation.

"I was floored by this. I still don't know how the appraiser could have done this," Hannah said. "I'm trying to rescue the deal now. But it's requiring 10 to 20 times the work it used to."

That message has reverberated through the Tampa Bay real estate community ever since the government's antifraud rules went into effect in May. The reform, though well intended, has inadvertently made it harder to sell and refinance homes in the Tampa Bay area. And it couldn't have come at a worse time as the housing market tries to shed the lead boots it has worn since 2006.

The new rules, called the Home Valuation Code of Conduct, forbid mortgage brokers, banks and Realtors from working directly or sharing information with appraisers. They typically work through appraisal management companies, middlemen whose job it is to hire appraisers from a pool.

Real estate professionals complain that appraisers have become discount commodities who are strangers to the neighborhoods they're evaluating. And since they're often allowed only 48 hours to complete an appraisal — about half the average time compared to before the reforms — the result can be hack work that ends up squelching a home sale.

"Appraisal management companies, with very few exceptions, select by price and turnaround times," said Frank Gregoire, a Pinellas appraiser with 30 years experience. "Rarely is their highest criteria the quality of the appraisal."

No one denies that reform was needed. Manipulation, and sometimes bribery, of appraisers helped doom the real estate market to its prolonged purgatory. By working too closely with appraisers, con artists stole billions of dollars through mortgage fraud during the years of the real estate boom. Tampa has ranked among the top 10 cities for mortgage fraud, represented by criminals such as Matthew Cox, serving a 26-year prison term for stealing $12 million from lenders.

"There was an egregious wrong perpetrated on the public," Hannah said. "The reforms were done for the right reasons. But we need a more thought-out system to do what it was intended to do.''

Residential appraisers work by tracking similar property sales — called comparisons or comps for short — to suggest the market value of a home that is for sale. Usually they use at least three comps; the more recent the sale the better. Factors weighed include age of the home, size, location and condition, but also whether the sale involved a foreclosed home or a non-distressed property.

Since the new rules took effect, the law of unintended consequences has upended real estate deals. St. Petersburg Realtor Nancy Riley blames sloppy appraisals. She had a buyer for a sixth floor Feather Sound condo overlooking the water and golf course. Both parties agreed to the $200,000 purchase price.
But the lender, using an appraisal management company, got an out-of-county appraiser. The disappointed buyer and seller learned the condo appraised at only $157,000. As two of his comps, the appraiser used a unit in a former assisted living facility and a single story condo without a view.

Riley tried to challenge the appraiser's findings — which included wrong photos attached to the wrong properties — but got a cold shoulder from the bank. She's still trying to salvage the deal.

"I sent them two pages of things wrong with the appraisal. They refused to listen," Riley said. "I got one or two snippy responses."

Mortgage refinancing — the centerpiece of the government's antiforeclosure efforts — has also suffered. Gregoire noted a case involving a house in upscale Tierra Verde. The home owner sought a reverse mortgage to pull cash from the home. Taking into account the recent depreciation, the home owner estimated the 2,000-square-foot home at $400,000. The initial quick-hit appraisal, using a $10 computer-generated valuation that isn't as good at distinguishing some of the nuances of real estate valuations like the differences between nearby neighborhoods, delivered a market price of $252,000.

When a real appraiser went to work on the house after driving up from Fort Myers, he, too, concluded the house was worth $252,000. Gregoire assumes the appraiser shoe-horned in comparable sales to make his numbers match the computer-generated price.

"That happens with appraisers who lack geographic confidence,'' Gregoire said. "I've been doing appraisals 30 years, but I don't go outside of Pinellas County. The most important thing is to know neighborhoods and submarkets.''

Safety Harbor-based appraiser Ed Walter blames part of the problem on rookie appraisers who work for peanuts. Walter charges $325 for his work. The appraiser management companies charge more, sometimes hundreds of dollars more. But they share only $150 to $200 of their fee with the appraiser from the pool. The consumer pays more but gets cut-rate work.

"The industry has lost a lot of good appraisers. There are lots of newbies willing to work for cheap and travel 50 to 100 miles," he said. "They're coming from Citrus County to do an appraisal in Hillsborough County. It's making a big difference.''

Disgruntled real estate professionals are proposing reforms to the reforms, including an 18-month moratorium on the Home Valuation Code of Conduct. Hannah would like to build a database, fed by Realtors, to ensure accuracy.
For example, some homes with dead lawns and ratty roofs sell cheaply, but by the time the appraiser uses them as comps they've been repaired. The appraiser might assume the home was pristine at the time it was sold, and that it's low price was reflective of the overall market.

One further wrinkle: To win the business of banks, some of the appraisal management companies offer clients guarantees that homes they appraise won't fall into mortgage default. That means it's sometimes better to err on the low side.

"It seems to me like the banks don't want to lend in Florida," Riley said. "We're being red-lined and boycotted.''

In Appraisal Shift, Lenders Gain Power and Critics

2009-08-21T13:18:00.000-07:00

By David Streitfeld, New York Times, Published, August 18th, 2009

Mike Kennedy, a real estate appraiser in Monroe, N.Y., was examining a suburban house a few years ago when he discovered five feet of water in the basement. The mortgage broker arranging the owner’s refinancing asked him to pretend it was not there.

Brokers, real estate agents and banks asked appraisers to do a lot of pretending during the housing boom, pumping up values while ignoring defects. While Mr. Kennedy says he never complied, many appraisers did, some of them thinking they had no choice if they wanted work. A profession that should have been a brake on the spiral in home prices instead became a big contributor.

On May 1, a sweeping change took effect that was meant to reduce the conflicts of interest in home appraisals while safeguarding the independence of the people who do them.

Brokers and real estate agents can no longer order appraisals. Lenders now control the entire process.

The Home Valuation Code of Conduct is setting off a bitter battle. Mortgage brokers, lenders, real estate agents, regulators and appraisers are all arguing over whether an effort to fix one problem has created many new ones.

The agents, maintaining that the changes are effectively blocking home sales by encouraging the use of inexperienced appraisers, are asking Washington to suspend the code until 2011. For their part, appraisers acknowledge that the change may have been well intentioned but contend that it has no teeth and is undermining the economics of their profession.

“We’ve been begging for years for enforcement of existing state and federal laws regulating appraising,” said Mr. Kennedy, a leader in the appraisal community. “We thought we were finally going to get that. But the code is doing nothing except putting ethical appraisers out of business.”

Financial change is one of the most contentious issues in Washington, and efforts to fix even widely acknowledged problems seem stalled. The attempt to change the appraisal system is an example of how difficult it can be to adopt changes that are good in theory and also work in practice — while simultaneously winning support from warring interest groups.

“The real estate industry is incredibly complex,” said Josh Denney, a lobbyist with the Mortgage Bankers Association. “If you take one piece and tinker with it, it causes friction throughout the process.”

The Home Valuation Code of Conduct had an unusual origin. It was developed by the New York attorney general, Andrew M. Cuomo, who persuaded the big federal mortgage agencies, Fannie Mae and Freddie Mac, to adopt it. That has effectively made it national policy.

Putting appraisals completely in the hands of lenders may sound like a good idea in principle, because it is supposed to be lenders who are putting their money at risk in a home loan.

But the reality is that many companies that write home loans these days do not have much incentive to worry about the accuracy of appraisals. That is because the companies do not keep the loans on their own books, instead selling them to Fannie Mae or Freddie Mac.

“The code is a formula for continued problems with fraud,” said David Callahan, a senior fellow with the public policy group Demos who has studied appraisals. “Appraisers have been asking for a long time for a reliable firewall between themselves and lenders, and are further from it than ever.”

Appraisers Pressured

Before real estate prices went out of control, appraisal work was straightforward. The appraiser examined a property inside and out, judging it against the prices that similar properties in the neighborhood were fetching. If the appraisal value matched the sales price, the lender financed the loan.

As lending standards collapsed during the housing boom, appraisers were pressured from all sides. When the appraiser did not deliver a satisfactory price, the deal did not get done, and the broker, agent and lender did not get their fees. Homeowners also loved inflated appraisals, using them to take out as much as possible when they refinanced.

“I got daily calls from lenders and brokers saying, ‘Here’s the address. Can you get me $400,000?’ ” said Mr. Kennedy, who has been in the business since 1993.

When he responded that it was illegal for him to supply an unsupported value — or when he noted in his report defects that the client hoped he would ignore, like a flooded basement — the broker or lender dropped him for a more compliant appraiser.

Petition Notes Abuses

The honest appraisers saw that the situation was helping to drive housing prices beyond reason. A petition they started a decade ago, just as the long boom was getting under way, warned of “the potential for great financial loss” to the economy if the penalties for pressuring appraisers were not enforced. The petition also complained that honest appraisers were being blacklisted. It drew 11,000 signatures.

Regulators and lawmakers did nothing. A rising market covered all sins. Then the market turned, and the lawsuits began.

In late 2007, Mr. Cuomo filed suit in New York Supreme Court against the data company First American and its subsidiary eAppraiseIT for fraud.

EAppraiseIT is an appraisal management company, which means lenders hire it to hire appraisers. This method, First American stressed in its annual report, produced “unbiased valuations” that benefited “not only the homeowner and lender, but our nation’s economy.”

Washington Mutual, based in Seattle, was the biggest client of eAppraiseIT. (Mr. Cuomo could not sue Washington Mutual for jurisdictional reasons.) The suit, still in court, charges that eAppraiseIT let itself be pressured by Washington Mutual to revise appraisals upward to match the value of deals.
Washington Mutual collapsed last fall, the largest bank failure in the nation’s history.

Mr. Cuomo, convinced that the troubles with appraisals went far beyond a single case, began an inquiry into Fannie and Freddie’s role in the buying of fraudulent mortgages. Before that investigation could be concluded, the two finance companies agreed they would buy mortgages only from lenders that abided by a new code of conduct.

In its original draft, the code froze out brokers and agents and placed severe restrictions on lenders. They were forbidden from using their staff appraisers or an appraisal management company in which they had more than a 20 percent interest.

The American Bankers Association and the Mortgage Bankers Association fought the restrictions, saying they would increase costs to consumers. The lenders also argued that Mr. Cuomo had no jurisdiction over their federally chartered operations. Banking regulators, who saw their authority being usurped, agreed.

The final version of the code gives much greater leeway to lenders. For instance, lenders can hire their own appraisers if they “recognize” that complaints will be forwarded to regulators.

The appraisal world was stunned. Dave Biggers, the chief executive of A La Mode, a maker of software for appraisers, said, “It’s like telling me I can steal as long as I ‘recognize’ that complaints will be directed to the police.”

Benjamin Lawsky, a special assistant to Mr. Cuomo, defended the revised version. “Our goal was always for the code to eliminate the causes of appraisal inflation while minimizing any disruptive impact on the industry,” he said. “We believe we accomplished this.”

Since national lenders cannot maintain lists of appraisers in every community, they long ago began outsourcing the process to the management companies, who had claimed about 30 percent of the market before the code took effect. Now that the lenders are the ones ordering all the appraisals, the management companies are expanding their share.

Real estate groups say the management companies, with the competition from brokers and agents eliminated, are now trying to fatten their profit margins by hiring appraisers as cheaply as possible.

These inexperienced appraisers, often traveling many miles to a market they do not know well, are scuttling legitimate deals, the agents claim. This argument has resonated in Congress, where 55 legislators have sponsored a bill calling for an 18-month moratorium on the code.

Appraisal management companies and lenders say the agents’ charges are not true.

“We’re an easy scapegoat,” said Donald Blanchard, chief compliance officer of Lender Processing Services Inc., which works with 20,000 appraisers. “We’ve yet to see any quantifiable proof as to the problems that management companies are supposedly causing.”

The real source of trouble for independent appraisers, he suggested, is not the code but a changing economy.

“Appraisers want to go back to the way it used to be,” Mr. Blanchard said. “But it’s good business for us to demand more for less.”

Fees Decline

Terry and Andrea Hartlieb, longtime appraisers in Fort Collins, Colo., miss the old days.

Instead of developing relationships with brokers and agents, the Hartliebs must wait for a lender or appraisal management company to call. A year ago, they would make $350 for an appraisal that would take about five hours. Now the management companies offer as little as half that. The couple has laid off four appraisers who used to work for them.

One recent call was about a complex property that would take additional time. Mr. Hartlieb asked for a bigger fee. The response: “We can get it done faster and for less elsewhere.”

Mrs. Hartlieb said, “Buying a house is the largest expense of your life. Don’t you want the best professional advice about its value, not the cheapest?”

Appraisers might be earning less, but consumers are being asked to pay more. The cost of an appraisal is now about $500, up from $400, appraisers say, because of the management companies’ share.

Moreover, if the goal of the code is to lessen pressure on appraisers, it is not clear that is happening.

A memo from U.S. Bancorp, which is based in Minneapolis, was posted recently on Appraisers’ Forum, an online discussion group. The memo bluntly urged the lender’s appraisers to “try and get the value we need the first time.” (A U.S. Bancorp spokeswoman said the memo was “not an official document.”)
In an online poll of 2,250 appraisers by Working RE magazine, half the respondents said they sometimes felt that management companies were ordering them to come up with a value that would make the deal work.

Banks and appraisal management companies say appraisers can be hypersensitive. “To some appraisers, the fact that we call you and ask a question is pressure,” said Mr. Blanchard of Lender Processing Services.

Under the code, the role of deciding what is pressure is assigned to a new entity called the Independent Valuation Protection Institute. If appraiser complaints are deemed valid, the institute is supposed to forward them to regulators.

Seventeen months after it was announced, the institute has no staff and no appraiser complaint hotline. All that exists is a single Web page.

Mr. Callahan, who wrote about the trouble with appraisals during the boom, is dismayed that the problem cannot be fixed even during the bust.

“Appraisers play a key role in keeping real estate transactions honest,” he said. “But we as a society have done very little to support them and ensure their independence.”

Florida tops again in late mortgages

2009-08-21T09:07:00.000-07:00

By DUANE MARSTELLER, Bradenton Herald, Friday, August 21st, 2009

Florida’s mortgage-delinquency rate remains the country’s highest, a national bankers group said in a report released Thursday.

More than one in five Florida mortgages either were at least one payment behind or in foreclosure as of June 30, almost twice the U.S. rate, the Mortgage Bankers Association said in a quarterly delinquency report.

“Florida continues to establish itself as the worst state in the union for mortgage performance,” said Jay Brinkmann, the trade group’s chief economist.
“Clearly we have not seen the bottom in Florida,” he said in a later interview.

The state led the nation with 12 percent of mortgages somewhere in the foreclosure process at the end of June. Another 10.8 percent were at least 30 days behind in payments, with nearly half of those more than 90 days overdue.
In contrast, just 4.3 percent of U.S. mortgages were in foreclosure and another 8.9 percent were delinquent but not yet in foreclosure. Still, the combined U.S. foreclosure/delinquency rate is the highest since the association began tracking it in 1972.

Observers attributed Florida’s weak showing to rising unemployment, falling home values and a higher percentage of non-primary homeowners.

“It’s getting to the point where we’re deeper into the recession, and people have hung on as long as they could possibly hang on and no longer can afford to keep paying their mortgages,” said Bob Stobaugh, a senior lender at Sentinel Mortgage Co. and president of the Gulf Coast Mortgage Bankers Association.

Some can’t pay because they’ve lost their jobs: Florida’s unemployment rate was 10.6 percent in June, the latest month for which figures were available.
For others, it’s because a foreclosure-fueled drop in home values has left them “under water” on their mortgages, Stobaugh said. Nearly half of Florida homeowners owed more than their homes are worth as of June 30, tracking service First American CoreLogic said in a recent report. Florida also is seeing more delinquencies and foreclosures involving second homes and investor-owned properties because it has more of them and foreclosure-relief efforts are focusing on primary homeowners, Stobaugh said. About 27.4 percent of single-family homes in Manatee do not have homestead exemptions, according to the Manatee County Property Appraiser’s Office.

The report said the mortgage crisis, which began with subprime loans taken out by those with spotty credit, also continued to spread. One in three new foreclosures between April and June was from a prime, fixed-rate loan, up from one in five a year earlier. Last year, subprime adjustable-rate loans caused the largest share of foreclosures.

“The rise in prime delinquencies . . . is a clear indication that employment is the driver of mortgage performance, with the worst performance coming in those areas that are combining jobs losses with large drops in home values like California and Florida,” Brinkmann said. “We won’t see a turnaround in delinquencies until we see improvements in employment, most likely the middle of next year.”

Stobaugh agreed, but wasn’t sure when that would happen. “Sooner or later this downward spiral will stop,” he said. “When, no one knows.”

McClatchy and the Associated Press contributed to this report.

House: Let foreclosed homeowners rent

2009-08-20T11:41:00.000-07:00

By Kenneth R. Harney, Special to the St. Petersburg Times - Saturday, August 15, 2009

WASHINGTON — Here are two questions getting a lot of attention on Capitol Hill and from the Obama administration: When homeowners lose their houses to foreclosure, should they be able to stay in the property, leasing it back at fair market rent from the lender?

Should they also get an option to purchase the house from the bank at the end of the lease term, assuming they have the income to afford it?

Before leaving for their August break, Democrats and Republicans in the House took a rare, unanimous stand on both questions by passing the Neighborhood Preservation Act by voice vote. The bill was co-sponsored by Reps. Gary Miller, R-Calif., and Joe Donnelly, D-Ind.

The bill would remove legal impediments blocking federally regulated banks from entering into long-term leases — up to five years — with the former owners of foreclosed houses. It would also allow banks to negotiate option-to-purchase agreements permitting former owners to buy back their houses.

The idea, said Miller, is, "at no cost to the taxpayer," to "reduce the number of houses coming into the housing inventory and preserve the physical condition of foreclosed properties," which ultimately should help stabilize values in neighborhoods with large numbers of distressed sales and underwater real estate.

If the bill is approved by the Senate, participation by banks would be purely voluntary. But the legislation might encourage banks to calculate whether they would do better financially taking an immediate loss at foreclosure, or by collecting rents and then selling the property at a higher price in four or five years.

Though it was not opposed by banking lobbies, the bill quickly attracted critics. The Center for Economic and Policy Research, a Washington think tank, said a key flaw is to leave decisions about leasebacks solely to banks.

"If Congress does want to give homeowners the option to stay in their homes as renters," said the group, "it will be necessary to pass legislation that explicitly gives them this right."

Some private-industry proponents of short sales — where the bank negotiates a price that's typically less than the owners owe on their note — say turning banks into landlords won't work well, either for the banks or foreclosed owners who want to stay in their houses.

Al Hackman, a San Diego realty broker with extensive experience in commercial transactions, argues that leasebacks with options to buy are the way to go — but not if banks run the show.

Hackman and a partner, Troy Huerta, have recently begun putting together what they call "seamless short sales" as alternatives for banks and property owners. Their short sales and leasebacks are "seamless" because the financially distressed homeowners remain in their properties, before and after the settlement.

Here's how they work: First, the bank agrees to a short sale to a private investor, just as they often do now. In the seamless version, however, the investor is contractually bound to lease back the house on a "triple net" basis — the tenants pay taxes, insurance and utilities — for two to three years.

The former owners only qualify if they have sufficient income to afford a fair market rent and can handle the other expenses, including maintaining the property. The deal comes with a preset buyout price after the leaseback period. That price is higher than the short-sale price paid by the investor, but lower than the original price of the house paid by the foreclosed owners.

Hackman and Huerta already are doing seamless short-sale transactions. Here is one that Hackman says is "real life" and moving toward escrow: A family purchased a house for $725,000 with 20 percent down in 2005, then made substantial improvements with the help of an equity line of $72,500. The house now is valued around $500,000, but is saddled with $625,000 in mortgage debts.

Enter the seamless short sale: Hackman has brought in a private investor who is willing to buy the house at current value, all cash. As part of the deal, the investor has agreed to lease back the house at $25,000 a year, triple net. In three years, assuming they've been good tenants, the original owners have the option to buy back the property for $550,000.

Hackman says the internal rate of return to investors can be raised or lowered based on rents and the buyback price, but typically are in the 8 to 10 percent range.

"It's a win-win," he says. "The owners stay in their houses. Private investors get a moderate return on what should be a safe investment."

Plus the banks are out of the equation.

Housing slowdown prompted big changes

2009-08-19T05:31:00.000-07:00

By Tom Bayles, Sarasota Herald Tribune, Monday, August,17, 2009

It is a tough time to be a home builder or subcontractor these days with new home construction in Southwest Florida at a near-standstill.

In North Port, it is at a complete halt: As the Herald-Tribune's John Davis found out, no new home permits were issued in North Port during July.

Davis also noted that construction in Sarasota County was at a 20-year low in 2008, with $318 million worth compared to $2 billion worth just before the boom went bust in 2006. In Manatee County, building for the first seven months of this year was down 36 percent compared with the same time frame last year.

Things have gotten so bad that the area two builders' groups recently merged into one to swell the new organization's ranks.

In April, the Home Builders Association of Manatee County and the Sarasota Building Industry Association merged into the the Home Builders Association of Manatee-Sarasota with about 600 members.

Membership in the Florida Home Builders Association, which is included with membership in the regional groups, dropped from roughly 22,000 at the height of the housing boom in summer 2005 to about 14,000 now.

So against that backdrop, it is nice to be able to report some positive news about some local builders and of an incentive plan to protect people who buy new homes against a decline in value.

Local builders garner industry awards

Self-billed as the "Grammys of the Home Building Industry," a pair of local builders garnered several Aurora Awards at the recent 2009 Southeast Building Conference in Orlando.

Manatee County's Neal Communities took home three awards for a pair of models in River Sound, one for company's Lake Cottage model, which ranges from 947- to 1648-square-feet, and two for the 1,200-square-foot Rose Cottage design.

"This is important recognition for our company and the many professionals who work with us," builder Pat Neal said in a statement.

Lakewood Ranch's John Cannon Homes won two awards, one for the Kaleeya, a 5,164-square-foot model home located in Rive Isle in Parrish and another for the Brisbane, a 4,287-square-foot model home in Antigua Cove in Ruskin.

The awards recognize excellence in several categories of construction by home builders, remodelers, commercial complexes and in architectural design.

"The Aurora Awards are the Grammys of the home building profession," Stephanie Henley, the chairwomen of this year's contest, said in a statement.

"The Aurora symbolizes tremendous achievement, honor and distinction among building industry professionals."

Builder offers money back if new home loses value

National builder Taylor Morrison has rolled out a home buyer's assurance program, which offers a refund of a down payment -- up to 10 percent of the original purchase price -- should their home decrease in value in five years.

Called "Total Assurance," the guarantee is designed to sell homes, of course, but also to let buyers who may be on the fence worrying about the direction of the housing market take advantage of today's low mortgage-interest rates.

"With Total Assurance we've made buying a new home easier than ever," Steve Kempton, division president for Taylor Morrison in South Florida, said in a statement. "We believe we have the best product out there and this program helps us demonstrate that to our customers."

The guarantee is available on new homes in Taylor Morrison's single-family home communities in Sarasota, Bradenton, Tampa, Fort Myers and Naples.

In this region, Taylor Morrison offers five new-home communities -- one of them starting in the $80,000s: Aberdeen and River Plantation in Parrish; Bradford Manor in Sarasota; Crystal Lakes in Palmetto and Palma Sola Trace (coach homes in that subdivision exempted) in Bradenton.

The fine print says a buyer must buy a Taylor Morrison home, live in it as their primary residence for five consecutive years, maintain it and stay current on any homeowners association dues to be eligible for the refund.

Tips for homeowners with Taylor, Bean & Whitaker loans

2009-08-12T05:39:00.000-07:00

By Jeff Harrington, St. Petersburg Times Staff Writer - Wednesday, August 12, 2009

Taylor, Bean & Whitaker's sudden closure last week continues to send ripples through the mortgage industry, causing its customers frustration and government regulators angst.

Freddie Mac said the collapse of the Ocala-based mortgage lender may cause it "significant" losses. Taylor Bean accounted for about 5.2 percent of Freddie Mac's single-family mortgage purchases last year, according to a regulatory filing.

Meanwhile, some who have FHA mortgage loans through Taylor Bean or were in the midst of closing have complained that they haven't been able to post their mortgage payments or reach anyone at the company.

The U.S. Department of Housing and Urban Development is urging patience. Bank of America will be taking over the servicing of Taylor Bean's loans.

"You will receive a letter from BAC Home Loans Servicing (a Bank of America subsidiary) confirming this transfer and welcoming you as a valued customer within two weeks of your loan being added to their systems," HUD said.

Other governmental advice:

• Federal loan guarantor Ginnie Mae is telling customers to make payments directly to BAC Home Loans Servicing LP, Payment Processing, P.O. Box 10334, Van Nuys, CA 91410-0334. For additional questions about loan servicing, contact Bank of America Home Loans Customer Service toll-free at 1-800-669-6607.

• If you're falling behind on payments, call HUD's National Servicing Center toll-free at 1-888-297-8685. Or you may seek help directly from a HUD-approved Housing Counseling Agency. To find one near you, call toll-free 1-800-569-4287.

• If you had a loan application in the pipeline and are unsure of its status, contact your mortgage broker or bank. You may need to seek a new FHA-approved lender.

• If you had an appraisal completed as part of an uncompleted loan application, your loan file (including the appraisal) could be transferred to another lender. FHA appraisals are valid for six months.

Ocala mortgage lender Taylor, Bean and Whitaker shuts down

2009-08-06T05:41:00.000-07:00

St. Petersburg Times Staff Writer - Aug 05, 2009

Ocala's Taylor, Bean and Whitaker Mortgage Corp., 12th-largest mortgage lender in the country, has shut down its lending operations after the Federal Housing Administration barred it from making loans that the agency insures.

In an e-mail — with the subject line "The saddest day of my life" — posted on the Ocala Star-Banner newspaper's Web site, Taylor Bean chairman Lee Farkas said Wednesday would be the company's last day of operations. "I have done everything possible to try to save it, but I couldn't," Farkas stated. "Since 1991, we have provided excellence in mortgage banking. We did our best for a very long time. I apologize to everyone." Farkas added that all staff except "essential employees" would be terminated Wednesday.

The closure came a day after the FHA punished Taylor Bean for failing to submit a required annual financial report, and "misrepresenting" its dealings with an auditor that had discovered "irregular transactions that raised concerns of fraud."

Tampa Bay home values were flat from April to May, index shows

2009-07-29T07:07:00.000-07:00

By James Thorner, St. Petersburg Times - Wednesday, July 29, 2009

Tampa Bay area home prices were flat from April to May, easing off months of decline, according to the S&P Case-Shiller home price index.

While the region's home prices fell 20.8 percent from May 2008 to May 2009, Case-Shiller suspects the worst of the housing slump is behind us.

"The pace of descent in home price values appears to be slowing," said David M. Blitzer, chairman of the index committee at Standard & Poor's.

Case-Shiller's numbers are considered especially reliable because they measure repeat sales of individual homes. Homes sales numbers published by the Florida Association of Realtors also confirm steadier home prices since about January. Since peaking in July 2006, Tampa Bay housing prices had been on a multiyear slide.

Local home sales, measured year over year, have also improved in almost every month since September. Discounted foreclosures homes have led the way. They typically sell for half to two-thirds of the price of a nondistressed property.

The month-to-month improvement in home prices wasn't restricted to Tampa Bay. On the 20-city Case-Shiller index, only four cities showed price declines from April to May: Las Vegas, Phoenix, Miami and Seattle.

But year to year, all 20 cities recorded home price drops, with Phoenix leading the list with a plunge of 34.2 percent. Las Vegas was second-worst.

"While many indicators are showing signs of life in the U.S. housing market, we should remember that on a year-over- year basis, home prices are still down about 17 percent on average across all metro areas, so we likely do have a way to go before we see sustained home price appreciation," Blitzer said.

Most Florida economists predict home prices will stay relatively flat for at least a year and won't appreciate with any strength or consistency before 2011. Stricter lending standards, including the near-disappearance of subprime mortgages blamed for sinking the housing market, have curtailed sales.

Loan balloons coming, could trigger new foreclosure 'tsunami'

2009-07-27T05:29:00.000-07:00

By DUANE MARSTELLER - Bradenton Herald - July 27,2009

A coming wave of mortgage adjustments threatens to prolong, and possibly worsen, the foreclosure crisis, industry analysts warn.

An estimated 2.8 million option adjustable-rate mortgages are scheduled to reset in the coming years, with the peak in mid-2011. Those resets will cause those borrowers’ monthly payments to balloon, potentially triggering a third wave of foreclosures.

“We do believe there is another wave coming, and I personally believe it will be the tsunami,” said L.R. “Chip” Waterman of Hunt Real Estate ERA in Sarasota, who specializes in foreclosed and bank-owned properties. “There’s no way we’ve begun to see the end of this.”

Others question if such dire predictions are exaggerated — but acknowledge the crisis is nowhere close to ending.

“I think we’re past the absolute tsunami of foreclosures, but we still have many more to go through,” said Ken Chapman Jr., a Sarasota attorney and president of the Sarasota-Bradenton Attorneys Real Estate Council.

Foreclosures rising

As of the close of business Friday, lenders have filed 3,602 foreclosure suits this year in Manatee County Circuit Court, court records show. There were 3.034 filed at the same point in 2008, which went on to set a local record with 5,592 in all.

The state and national pictures are not much better.

More than 1.5 million U.S. properties received a foreclosure filing or were seized by lenders in the first half of 2009, according to RealtyTrac, a data firm that tracks foreclosure filings.

One in 84 U.S. homes got a foreclosure filing, which can range from a notice of default to a bank repossession. In Florida, it was one in every 33, the firm said.

And more are on their way: More than 10 percent of Florida homeowners with a mortgage were at least 30 days behind on their payments during the first quarter of 2009, the Mortgage Bankers Association said. Another 10 percent already were in foreclosure.

The national delinquency and foreclosure rate was one in every eight, the highest in records going back to 1972, the bankers group said.

And a growing number of those are so-called “prime” borrowers, who had good credit and steady income when they got the loan.

“That’s the scary part,” Waterman said.

Many took out option adjustable-rate, or Alt-A mortgages, which allowed them to buy more house than they could have afforded using a traditional 30-year mortgage during the housing boom. Under most so-called option ARMs, initial monthly payments often covered just part of the interest, with the unpaid interest portion added to the loan’s balance. After a set amount of time, the loan resets and the borrower is required to also begin paying off the balance.

That will cause the monthly payment to balloon, something many borrowers had planned to avoid by either selling the house for a profit or doing a refinance. But housing prices slumped and credit tightened, leaving borrowers owing more than their homes were worth, unable to sell them for a profit or refinance, and struggling with higher payments.

As of April, more than half of such loans in the United States were either at least 60 days’ delinquent or in foreclosure, according to First American CoreLogic. Those numbers likely will increase, as resets are not set to peak until mid-2011.

Job loss a threat

Another threat to prolong the foreclosure crisis is growing unemployment.

“You can’t make the house payment if you don’t have a job,” Waterman said.
Manatee’s jobless rate hit 11.8 percent last month, the highest since the state began calculating it in 1975. The state and national unemployment rates also are near record highs.

Economists predict unemployment levels will continue rising in the foreseeable future, as job creation usually lags an economic recovery. That likely will help keep foreclosures at elevated levels, observers said.

“Unemployment is going to be driving it,” Chapman said.

While that could fuel new foreclosure filings, there’s still the thousands of already-filed cases that have yet to make their way through the courts.

“You’ve got a buildup out there that hasn’t even happened yet,” Waterman said.

Lenders held back in pursuing judgements and taking back homes late last year and in early 2009, the result of temporary moratoriums and the rollout of government programs designed to prevent foreclosures.

But those programs have had limited success to date, and even that might not be permanent. The rating agency Fitch recently said it expects three of every four homes that the government’s “Making Home Affordable” program saves from foreclosure will end up there eventually, largely because the homeowners have too much debt beyond their mortgage.

That has led to fears that lenders will flood the market with repossessed homes and drive down prices even more, thus delaying recovery of the housing market and the broader economy.

Chapman hopes that scenario doesn’t happen, and that the foreclosure crisis will ease.

“We’re nearing the end of the down cycle, but we’ve got a long way to go before we climb out of that hole,” he said. “We just don’t know how deep that hole is and how long it will take to climb back up.”

Another threat to prolong the foreclosure crisis is growing unemployment.
“You can’t make the house payment if you don’t have a job,” Waterman said.
Manatee’s jobless rate hit 11.8 percent last month, the highest since the state began calculating it in 1975. The state and national unemployment rates also are near record highs.

“Unemployment is going to be driving it,” Chapman said.

While that could fuel new foreclosure filings, there’s still the thousands of already-filed cases that have yet to make their way through the courts.
“You’ve got a buildup out there that hasn’t even happened yet,” Waterman said.

That has led to fears that lenders will flood the market with repossessed homes and drive down prices even more, thus delaying recovery of the housing market and the broader economy.

Chapman hopes that scenario doesn’t happen, and that the foreclosure crisis will ease.

State sues four South Florida foreclosure rescue companies

2009-07-22T07:23:00.000-07:00

Attorney general says operations broke the law by charging thousands in up front fees

By Diane C. Lade South Florida Sun Sentinel
6:19 PM EDT, July 21, 2009

State regulators filed a lawsuit in Palm Beach Circuit Court Tuesday against four South Florida mortgage loan modification companies they say were collecting a total of up to $1 million in monthly fees, as the Attorney General's Office cracks down on the foreclosure rescue industry.

Officials said the operations, which were related, illegally used President Barack Obama's voice in telemarketing calls and charged up to $5,000 up front to modify home loans, a violation of the 2008 Foreclosure Rescue Fraud Prevention Act. The state is seeking restitution for consumers, civil penalties and the companies' dissolution.

FHA All Day.Com, Inc., Safety Financial Services, Inc., Housing Assistance Law Center PA and Housing Assistance Now, Inc. were named in the suit, as well as Jason Vitulano, the owner of FHA All Day and Safety Financial. Attorney General spokeswoman Sandi Copes said the state has received a total of 300 complaints about the four businesses, which were based in Delray Beach, Boca Raton and Deerfield Beach.

One filing came from Kim Kyzar. She decided to try to lower the 8.1 percent interest rate on her Lake Worth house after receiving an FHA All Day marketing call featuring Obama talking about low-rate mortgages under the stimulus act.

She said she and her husband, who have an air conditioning business, paid FHA All Day $2,000 up front in March for a "forensic loan document review" plus another $500 for legal costs. But Kyzar became suspicious when the company stopped returning her phone calls in the middle of April. Going to the Boca Raton office, she found it empty.

"I have no idea if they are working on my case," said Kyzar, whose lender told her they never had been contacted by FHA All Day.Owner Vitulano said the attorney general had ordered him to close down the office, although he was worried it would generate more complaints when his customers could not find him. FHA All Day still is processing existing modifications, he said, although not taking new clients.

Vitulano said he only had rented space to Housing Assistance Law Center and denied any connection with Housing Assistance Now. He and the Attorney General's Office had discussed settling for $15,000 in investigative costs and $20,000 in restitution regarding FHA earlier this year but Vitulano said negotiations broke down when he refused to also permanently abandon the mortgage modification business.

But Copes said the attorney general decided to reinstate its investigation after receiving more complaints and learning more about the affiliated companies.

Rate of Tampa Bay foreclosures begins to ebb

2009-07-17T05:06:00.000-07:00

By James Thorner, Times Staff Writer In Print: Friday, July 17, 2009

With the subtlety of a cement sack loosed from a bank skyscraper, another 7,200 foreclosure cases dropped into our courtrooms last month.

That's 7,200 houses — the residential stock of a typical small town — plunged into mortgage default in a single month in Pinellas, Hillsborough, Pasco and Hernando counties.

But after digging through charts put out by RealtyTrac, the California company that publishes market-by-market foreclosure data, June could be the month when foreclosures began beating a retreat.

As I've repeated in earlier columns, home sales and prices have already begun to right themselves in the Tampa Bay area. Sales have risen in nine of the past 10 months. Prices seem to have stabilized — and even risen a smidgen — since January.

What's been lacking is evidence that insolvent homeowners would bleed fewer of their deeds onto the foreclosure market. That evidence might have emerged from June's foreclosure report.

After a punishing sequence of months in which local foreclosure filings, measured year over year, rose by 30 to 50 percent, foreclosures in June posted a gain of only 12 percent.

The number was impressively modest for several reasons. Foreclosures across Florida rose 31 percent to reach 52,899 in June. Nationally, June's 336,173 foreclosure filings represented an increase of 33 percent from a year earlier.

On top of that, at the start of the year economists predicted a wave of summer mortgage defaults as unemployment deepened and the state's foreclosure moratorium petered out. But June came and went without any spikes on the chart.

Why the reprieve? The government's foreclosure prevention programs, for all the initial hoopla about helping millions of hard-pressed homeowners, have served a piddling number of mortgage borrowers so far. At last count, loan restructuring has benefited fewer than 100,000 across the country.

A better explanation lies with the housing market itself. According to the Greater Tampa Association of Realtors, home sales in June totaled 1,714. That's a decline of almost half since June 2005, but monthly home sales haven't been that high since December 2006. Sales of distressed properties — bargain priced and attractive to cash buyers — have led the way.

Nevertheless, national economists remain pessimistic about foreclosures. The latest prediction, which has grown to mythic stature among national reporters, is the wave of "Alt-A" foreclosures that's supposed to capsize our market anew.
These were loans made to middle-of-the-road borrowers. Strapped to the hilt in the recession, these homeowners are supposedly about to mail their house keys back to the bank all at once.

Or so the money gurus inform us.

Dub me unconvinced. At least in our neck of the woods, foreclosures have been far more than just a subprime phenomenon the past two years. They have already cut into many middle-of-the-road borrowers around here. Those not peddling their distressed homes on the cheap are lobbying their banks for easier terms.

Yes, foreclosures in the Tampa Bay area are still rising, but they're rising at a dramatically slower rate. If we're lucky, June will mark the start of the Summer When Losing Your Home Lost its Groove.

Bob Shiller didn't kill the housing market

2009-07-15T12:56:00.000-07:00

He just predicted its demise. Now he's seeing some tentative signs of hope.

NEW YORK (Fortune) -- It's noon in New Haven, and Yale economist Robert Shiller and I are leaving his office to walk down the block for pizza. It was a damp morning, but now the sun is breaking through the clouds. "Do we need an umbrella?" he asks. I say I don't think so. But a few steps outside his office, he turns around to get one. "It's better to be safe," he says

That's Bob Shiller for you. He's a worrier. Well, more than that. He's obsessed with taming risk. And that means all kinds of risk -- from the chance of stray showers to a danger that's on everyone's mind these days: falling home prices. Shiller's name will forever be linked with the worst housing bust since the Great Depression and the economic slump it caused. He first warned of a housing bubble back in 2003 when bankers were merrily minting mortgage-backed securities. And it is the widely cited gauge he helped create -- the S&P/Case-Shiller home-price index -- that has heralded, in grim monthly installments, the devastating collapse of the residential real estate market.

Two years into the housing bust, Shiller finally sees some faint rays of sunshine (that's just light, not green shoots yet). When the June Case-Shiller figures were released, he said they showed "striking improvement in the rate of decline." Asked to look ahead, he says, "My guess is that prices will continue to fall for a while, but at a slower pace, and then stabilize. We've become very speculative in our attitude toward real estate, so there could be another boom. But if so, it likely won't happen for another five to 10 years."
Shiller doesn't care whether you listen to his opinion -- or anyone else's for that matter. But he does want to give you a way of protecting yourself from violent fluctuations in home values. He is a co-founder of MacroMarkets, a company that hopes to create financial vehicles for hedging a wide variety of risks.

MacroMarkets' latest offering, instruments that let you bet on the direction of home prices, just started trading on the New York Stock Exchange. Shiller hopes to make money from the venture, of course, but he also has an idealistic streak that can seem very ivory tower at times. "He cares about making the world a better place," says Karl Case, the Wellesley economics professor who helped develop the home-price index. "This is the way he has chosen to do so."
Shiller, 63, who looks like an older Hugh Grant and acts the part of the classic absent-minded professor, is much more than a real estate soothsayer. Early in his career he helped develop the field of behavioral finance. Along with University of Chicago professor Richard Thaler and others, he argued that human emotions created risks that the prevailing rational-markets dogma ignored. Many establishment economists derided those views, but today few dispute the idea that mood swings can lead to short-term price distortions. "They were really stuck on efficient markets, and now they aren't," says Shiller. "The whole profession has changed." His focus on the "irrational exuberance" (a term first uttered by Alan Greenspan and later the title of one of Shiller's six books) that can drive prices to wild extremes led him to warn that the giddy late-1990s stock market run-up was a bubble.

Intellectually, Shiller knows no fear. In everyday life, he's one of the most risk-averse people you'll ever meet. It's actually a bit extreme. He's never been drunk -- ever, he says -- and is afraid of heights, and he worries as much about other people's safety as his own. Watching his next-door neighbor and fellow Yale economist William Brainard fixing his roof, Shiller frets constantly about what he would do if his colleague got into trouble. "I know that Bob won't come up and get me," says Brainard, "but I know he'd call the right person." And Shiller is no speed demon, on-road or off. He was lapped in a go-cart race by Wharton School economist Jeremy Siegel, author of Stocks for the Long Run. (It was taped for The NewsHour With Jim Lehrer in 2002.) "I had never driven a go-cart before," he says. "What was I supposed to do -- just floor it?"

Perhaps it's Shiller's Midwestern roots -- he grew up in Michigan, where his father co-founded a company that made industrial ovens for the auto industry -- but for a guy with his forecasting track record, he is exceedingly modest. Where crash pundits like Nouriel Roubini and Nassim Nicholas Taleb trumpet their calls, Shiller disclaims any prescience. Didn't he predict the two biggest bubbles in recent years? "I only said they were possible," he says of the housing and stock market collapses. "He's very humble before his colleagues, and he's humble about how tough it is to truly understand how markets work," says Case. "Those are two different types of humility."

Whether he's talking about a theoretical inflation-adjusted currency or about the reindeer in a Medieval painting, Shiller is charming and chatty, although he rarely speaks a thoughtless word. And he clearly loves his work. He treats the world like a puzzle that is a joy to solve, preferably from the safety of his cozy academic berth. He attributes much of his success and happiness to his wife of 33 years, Virginia, a psychologist and lecturer at Yale, who has done everything from helping to edit his books to decorating his sky-blue office with dark-brown antiques. She even chose their vacation home, located on a small island just 10 miles from New Haven. No bridge connects it to shore and there is no electricity. Say, Bob, isn't that a little risky? Yes, but living just a little bit at the mercy of nature (albeit in a four-bedroom cottage) adds spice to his routine. "It's an adventure," he says. "It's like stepping back into the 19th century."

Yes, he has a playful side -- an idiosyncratic one. "I only do things because they're fun," says Shiller. "The house is fun for me, as is speaking with the Indian Parliament about the economy, as is studying data." Indeed, data mining is at the heart of everything he does. "It's considered something for lower-class economists to do -- the real leaders are the theorists -- but I like it," he says.

"What is striking about Bob is that he will consider any idea, and he takes a richer view of that thought and human nature by collecting data," says John Campbell, a former Ph.D. student of Shiller's and now chair of Harvard's economics department. "When the crash of '87 hit, he immediately surveyed people to get inside their heads. That informed his work on behavioral finance."

It was Karl Case's data, though, that formed the basis for the Case-Shiller index. In the early 1980s, while working on a paper arguing that the rapid home-price appreciation in the Boston area was unsustainable, Case constructed a rudimentary method for comparing repeat sales of the same homes. "But I knew nothing about financial bubbles," he says. A friend at Yale pointed him to Shiller, who loved the idea of applying his research on bubbles to the housing market. "We sat down at my dining room table, and he figured out how to do a repeat-sales index," says Case. "I'd done a crude version. But he added weighting and other things that made it much better."

Case and Shiller decided to look at prices in other cities to get a view of conditions around the country, and the Case-Shiller index was born. Allan Weiss, who did graduate work under Shiller, persuaded the professors to form a company to sell their research in 1991. In 2002 they sold Case Shiller Weiss to electronic data giant Fiserv (the terms were not made public, and Shiller says he is contractually bound not to disclose them). Later Fiserv (FISV, Fortune 500) struck a deal with Standard & Poor's to create tradable indexes based on the data.

Shiller serves as an unpaid adviser to S&P, but his business interests have shifted to MacroMarkets, the securities firm he founded in 1999 with Weiss (who has since left the company) and Sam Masucci, a former banker. Here's where Shiller pursues his holy grail: conquering risk. That may seem like a tainted quest. The belief that they had risk under control led a raft of storied firms -- Long-Term Capital Management, Bear Stearns, Lehman Brothers, and AIG (AIG, Fortune 500) -- to their ruin. Yet Shiller still believes in the dream. "The value of a house can fall. A hurricane might hit. An economy tied to oil prices might be very unstable. But we will create hedging markets that offset these problems," Shiller tells Fortune with surprising certitude. "We should be able to hedge everything from the rising costs of health care and education to national income risk and oil crises."

On June 30, MacroMarkets launched the first products that let investors make a pure directional bet on home prices. Called MacroShares, they trade on the New York Stock Exchange; their value is derived from changes in the Case-Shiller 10-city home-price index. If you expect home prices to rise, you'd buy the Up Metro Market (UMM); bears can buy the Down Metro Market (DMM). On the first day of trading the bears held sway: Investors bought 14,756 DMM shares, vs. only 6,204 of UMM.

"UMM and DMM will be the indicators that people will turn to when they want a snapshot of home-price sentiment," says Masucci. Shiller thinks they will have real practical value for homeowners. If you buy the DMM and the price goes down, the money you make on the investment will offset your lost home value. If prices go up, you lose money on the DMM, but your house will be worth more.

MacroMarkets has been down this road before. In 2006 it offered MacroShares that tracked the rise and fall in oil prices. But in 2008, after oil prices soared from $88 to $145 in only five months -- an event that the MacroShares were not designed to handle -- MacroMarkets wound them down. The company introduced another pair of oil MacroShares in July 2008, but they attracted few traders and were liquidated in June.

The problem, according to company executives and outside analysts, was that there are too many other ways to play oil prices -- something that's not true of real estate. Even so, some people wonder whether there will be significant demand for the housing products. You can already buy and sell futures on the Case-Shiller home index, and there has been very little interest in them. Morningstar analyst Scott Burns says that the MacroShares may do better because they are easier to trade.

WisdomTree, an investment and advisory firm founded by Shiller's go-cart rival Jeremy Siegel (the two are old friends, having met as grad students at MIT while standing in line to get chest X-rays), has a deal with MacroMarkets to publicize the products. "No other structure we know of allows the average investor to take a position in housing prices without just buying a house," says Bruce Lavine, WisdomTree's president.

Shiller and his partners believe they can create a variety of MacroShares and also other instruments to hedge a whole range of risks. What about a special currency system that makes future payments in inflation-adjusted dollars? Shiller says they're already experimenting with such a system in Chile. Or what about a GDP-linked security that would pose no inflation risk? "What the Chinese should be doing is buying shares in the U.S. economy," says Shiller. "Because if you own shares in the GDP, then inflation doesn't matter to you like it does when you buy the country's debt. But they can't right now."

Shiller's professional ambitions are so big because his fears are even larger. He worries that decades of a get-rich-quick ethos have eroded the work ethic that has been a cornerstone of U.S. economic and social stability. He is afraid that we stand at the brink of a destructive wave of populist anger, not entirely unfounded, against a financial system that has made some men centimillionaires while real income stagnated for almost everyone else. He believes that the financial industry has come to have such a big effect on the lives of all Americans that we need tools to protect ordinary people against market fluctuations. "Our sense of well-being in this country is ultimately supported by a general sense of fairness," he says. "Democracy is eroded when it's gone."

Turning to more immediate concerns, Shiller says that the economy seems to be righting itself, although his argument is, well, hedged. "People think the recession should be ending now, so the stock market is responding to that, and to some extent recovery becomes a self-fulfilling prophecy," he says. He also has what he calls a "doubt scenario" that reflects the impact of the unwinding of the greatest credit and real estate bubbles in history. "A reasonable case could be made," he says, "that even though past depression scares have proven to be unwarranted, this time it might be different."

For all his worries and warnings, he is ultimately a believer in good things happening because people want to bring them about, even in financial markets. "Financial crises are aberrations," he says. "We're learning how to create better hedging markets so that we can make finance less risky and so that we can say the triumph of capitalism was the story of our times." Considering the shambles the economy is in today, having that prediction come true would be quite an achievement. Shiller might even consider bragging about it.

Research associate Casey Feldman contributed to this article.

New rules blamed for blowing Lee County real estate deals

2009-07-09T06:47:00.000-07:00

By DICK HOGAN - news-press.com • July 9, 2009

New rules for appraising houses have some Lee County real estate agents fuming - they say inexperienced or out-of-town appraisers are blowing deals by giving lowball values that make financing impossible.
But some in the appraisal industry say that while the new rules aren't perfect, they're not a serious problem for the industry.

At issue are rules that took effect May 1 requiring that loans picked up by mortgage giants Fannie Mae and Freddie Mac need to include appraisals by appraisers that have no connection with the bank personnel approving the deals. That means that many banks have turned appraisals over to appraisal management companies that then hire the appraisers so there's no direct connection with the banks.

The rules, which are part of a pact between New York Attorney General Andrew Cuomo and Fannie Mae and Freddie Mac, are in response to widespread complaints about inflated appraisals during the real estate boom.

But agents say at least some of the appraisers are hired by management companies looking for the lowest bid. That increases the management company's cut of the appraisal fee.
Meanwhile, legislation has been introduced in Congress that would implement an 18-month moratorium on the new rules.
I think the cure is worse than the problem was," said Suzanne Sherer of Re/Max Realty Team, who's president of the Realtor Association of Greater Fort Myers and the Beach. "I think there's a huge disconnect between what happens in the decision-making up in Washington and what's happening in the streets. We've seen several deals fall apart based on the appraisal."
Bad appraisals are a frequent occurrence, said agent Ron Smiley of VIP Realty Group on Sanibel. "At our Monday sales meeting you hear some of the horror stories."

In one case in his office, he said, "They sent an appraiser in Cape Coral who just got his license out to Sanibel and the appraisal came in really low" because the appraiser wasn't familiar with the market.

"You get into the subtleties of beachfront" and issues such as direct vs. indirect beach access, Smiley said
Sherer said her office had a similar experience with an appraiser from central Florida who used a freshwater canal house as a comparable value for a Gulf-access home in the Cape.
When the agent protested, she said, "The answer was that 'It's all waterfront.'"
Appraisers take a more nuanced view, however.
While the new rules are not ideal, appraisers are not to blame for a market where prices are falling rapidly, said Bill Garber, director of governmental relations at the Appraisal Institute. He defended the industry, saying, "The appraisers only report what's going on in the market."

Matt Simmons, who appraises residential property for Fort Myers-based Maxwell & Hendry Valuation Services, said not all management companies operate strictly on the bottom line.

"There's all kinds of different shades here," he said. "The big banks go with the big-box appraisal management companies and that's where the bulk of the work goes," often to the low bid.
But, Simmons said, for one job to appraise some local properties, "We signed up today with a bank in Illinois. They've taken the time to go slowly. They took the time to pick a management company that didn't operate in the same way as the big-box ones do."

The new rules are in the right spirit, but had to be implemented because for years the federal government failed to push state regulators to crack down on unethical appraisers and lenders, he said.
"The whole reason this is being done is we wouldn't hold people responsible who were abusing the system and pressuring appraisers," Simmons said, and there won't be true reform "until you really draw down on that and focus in each state on weeding out the bad apples on both the lending and appraisal sides."
He also noted that lenders don't actually have to hire management companies - if they want to, they can erect strong rules separating their appraisal departments from the bank employees green-lighting loans.
David Hall, president of Fort Myers-based First Community Bank of Southwest Florida, said the new rules occasionally scuttle a deal but aren't a serious problem. "Usually the values (of the asking price and the appraisal) are relatively close" and something can be worked out.

When the prices are far apart, he said, it's a problem, but may simply indicate the seller wants too much for a property.
"If they've got an agreement to buy for $150,000 and the appraisal comes in at a hundred, are we doing the customer a favor letting him buy it at that price?" Hall asked. "The answer is no."

Pending Home Sales Record Fourth Straight Monthly Gain

2009-07-02T05:48:00.000-07:00

Washington, July 01, 2009
Pending home sales show a sustained uptrend, rising for four consecutive months with very favorable housing affordability and a first-time buyer tax credit boosting activity, according to the National Association of Realtors®.

The Pending Home Sales Index,1 a forward-looking indicator based on contracts signed in May, increased 0.1 percent to 90.7 from an upwardly revised reading of 90.6 in April, and is 6.7 percent higher than May 2008 when it was 85.0. The last time there were four consecutive monthly gains was in October 2004.

Lawrence Yun, NAR chief economist, cautions that there could be delays in the number of contracts that go to closing. “Closed existing-home sales have improved but are coming in lower than expected because some contracts are delayed or falling through from the application of new appraisal rules for many transactions,” he said. “Rises in contract activity show buyers are becoming more active even as they face much more stringent loan underwriting standards. Speedy clarification of the appraisal rules could smooth a housing market recovery and support the overall economy.”

For more information, contact:Walt Molony 202/383-1177 wmolony@realtors.org
Pending Home Sales Record Fourth Straight Monthly Gain
Washington, July 01, 2009
Pending home sales show a sustained uptrend, rising for four consecutive months with very favorable housing affordability and a first-time buyer tax credit boosting activity, according to the National Association of Realtors®.
The Pending Home Sales Index,1 a forward-looking indicator based on contracts signed in May, increased 0.1 percent to 90.7 from an upwardly revised reading of 90.6 in April, and is 6.7 percent higher than May 2008 when it was 85.0. The last time there were four consecutive monthly gains was in October 2004.
Lawrence Yun, NAR chief economist, cautions that there could be delays in the number of contracts that go to closing. “Closed existing-home sales have improved but are coming in lower than expected because some contracts are delayed or falling through from the application of new appraisal rules for many transactions,” he said. “Rises in contract activity show buyers are becoming more active even as they face much more stringent loan underwriting standards. Speedy clarification of the appraisal rules could smooth a housing market recovery and support the overall economy.”
The Pending Home Sales Index in the Northeast rose 3.1 percent to 80.9 in May and is 6.8 percent above a year ago. In the Midwest the index slipped 1.3 percent to 89.2 but is 11.4 percent above May 2008. The index in the South declined 1.7 percent to 92.6 in May but is 7.9 percent higher than a year ago. In the West the index rose 2.2 percent to 96.9 and is 0.7 percent above May 2008.

NAR President Charles McMillan, a broker with Coldwell Banker Residential Brokerage in Dallas-Fort Worth, said the appraisal issue is complicated. “We see that distressed homes often are selling for 20 percent less than normal homes in the same area, but some appraisals don’t distinguish between traditional homes and distressed property,” he said. “In many cases appraisers from outside the area are being used, but as everyone knows real estate is local and appraisals should be done by an expert with local expertise.”

McMillan said sellers shouldn’t hesitate to speak with an appraiser about their home. “Sellers should feel free to tell an appraiser about improvements and renovations to their home, and how it compares with other homes in the neighborhood,” he said.

“Also, if recent sales in the neighborhood were discounted, but not similar to your home in terms of quality or condition, that should be pointed out. It wouldn’t hurt to put all this in writing, especially if an appraiser is not familiar with your area. A Realtor® could offer guidance and information to help you with this process.”

NAR’s Housing Affordability Index2 remains at historic highs. The affordability index fell to 171.6 in May from an upwardly revised 178.8 in April, which was the highest on record dating back to 1970. “Under these conditions the typical family would devote only 14.6 percent of gross income to mortgage principal and interest, which is one of the lowest percentages on record,” Yun said.
The HAI is a broad measure of housing affordability using consistent values and assumptions over time, which examines the relationship between home prices, mortgage interest rates and family income.

A median-income family, earning $60,800, could afford a home costing $296,700 in May with a 20 percent downpayment, assuming 25 percent of gross income is devoted to mortgage principal and interest. Affordability conditions for first-time buyers with the same income and small downpayments are roughly 80 percent of what a median-income family can afford. The affordable price was significantly higher than the median existing single-family home price in May, which was $172,900.

The first-time buyer tax credit also is benefiting the market. “Strong activity by entry level buyers is helping to absorb inventory and allow some existing owners to make a trade,” Yun said.

Existing-home sales should trend up through the end of the year, with normal local market differences. “The big question is how much the appraisal issue will impact the ability of contracts to go to closing,” Yun said. “We are currently conducting a study to assess the degree to which new appraisal rules are impacting home sales.”

The National Association of Realtors®, “The Voice for Real Estate,” is America’s largest trade association, representing 1.2 million members involved in all aspects of the residential and commercial real estate industries.

Tampa Bay area home sales dip in May, but prices rebound

2009-06-24T05:08:00.000-07:00

By James Thorner, Times Staff Writer

After rallying for eight straight months, Tampa Bay home sales stumbled in May.

Single-family home sales totaled 2,243, down 1.2 percent from the 2,270 sales recorded in May 2008, according to the Florida Association of Realtors. It's also fewer than the 2,326 home closings in April.

But on the home price front, the trajectory has been positive. In May, Tampa Bay's median home sales price reached its 2009 peak. It rose to $141,100, up from $135,200 in April.

"We hit some great numbers in Hillsborough County. We moved 1,440 units and the median sales price was back up," said Deborah Farmer of StarLight Realty, past president of the Greater Tampa Association of Realtors. "I never thought I'd see the day when I could say, 'Back up.' "

May's sales crimp appeared as the government's housing stimulus lost some of its tickle. Mortgage rates rose unexpectedly in late May from their April lows. An Obama administration foreclosure prevention plan designed to help at least 2 million homeowners has enlisted fewer than 20,000 so far.
Lawrence Yun, chief economist of the National Association of Realtors, cast blame on banks forced to reject loans based on low appraisals.

"Pending home sales indicated much stronger activity, but some contracts are falling through from faulty valuations that keep buyers from getting a loan," Yun said.

"In the past month, stories of appraisal problems have been snowballing from across the country with many contracts falling through at the last moment."

Another possible explanation for the local slippage in sales: Foreclosure homes, a mainstay of the market for most of this year, didn't sell as well in May as they did in April.

For example, in Pinellas County, bank-owned homes represented 24 percent of sales in March and 22 percent of sales in April. But in May, that number declined to 20 percent. That could also explain why prices steadied: fewer foreclosure homes to suppress housing values.

"While one month of data does not a trend make, it is the first green shoot we have seen in some time as far as prices are concerned," said Sean Snaith, economist at the University of Central Florida. "Until prices stop declining, we cannot state with confidence that the housing market has stabilized."

Overall sales in Florida rose 16 percent year over year, from 12,044 to 13,921. Prices statewide fell 29 percent, from $203,800 last year to $144,400 in May. Driving much of the business were sales surges in places like Orlando and Cape Coral/Fort Myers.

Though Orlando housing prices stood a hair over Tampa's, sales there soared 31 percent in May. Home closings in Fort Lauderdale rose 47 percent last month.

Realtors urging hike in conventional loan limits

2009-06-22T09:40:00.000-07:00

By Jeff Ostrowski
Palm Beach Post Staff Writer

Three years ago, anyone with a pulse, a dismal credit score and an optimistic view of his financial future could score a mortgage for half a million dollars or more.

Today, even borrowers with hefty down payments, stellar credit scores and big personal balance sheets find it nearly impossible to land so-called "jumbo" mortgages, as loans of more than $417,000 are known.

"It's horrible," says Bobby Bashwiner, a loan officer at Group One Mortgage in Jupiter. "You have to have at least 30 percent down. You need a 700 credit score. You can hardly find a fixed rate. And if it's a condo, lenders won't even look at it."

In another symptom of how drastically the real estate market has changed in the past three years, lenders have all but stopped making jumbo loans. The credit crunch is one reason the housing recovery of recent months has skewed heavily toward low-cost homes, while properties priced for more than $500,000 can languish on the market for months or years.

Realtor Randy Bianchi of Paradise Properties in West Palm Beach has a $600,000 listing in a gated community that has been on and off the market since 2006. "There's just no activity," Bianchi says.

Other sellers of higher-end properties voice similar frustrations. In Palm Beach County, sales of under-$500,000 homes have increased during the past two years, but sales of over-$500,000 properties have plummeted, according to statistics from the Realtors Association of the Palm Beaches
"There's much more activity in the under-$500,000 category right now than the over-$500,000 market, that's for sure," says Scott Agran, head of Lang Realty in Boca Raton
The trend is the same nationally. Inventories of over-$750,000 homes have soared in the past two years, the National Association of Realtors says.

Where does blame lie?

All of this raises this chicken-and-egg question: Is the high-end housing market so slow because there are so few jumbo loans? Or are there so few jumbo loans because there are so few buyers of high-end homes?

Dennis S. Hudson III, head of Seacoast National Bank in Stuart, says the jumbo credit crunch is only part of the problem.

"A far larger issue is lack of buyers," Hudson says. "The folks who have been hit hardest in many ways are wealthier folks."

But the National Association of Realtors sees the lack of jumbo loans as a significant obstacle to high-end sales.

"The jumbo loan problem has been hindering that market," says association Chief Economist Lawrence Yun.

That is not expected to change when the latest existing-home sales figures are released Tuesday. As a result, the Realtors group is urging Congress to raise conventional loan limits to as much as $729,500 for high-cost markets such as New York, California and Hawaii. President Bush raised loan limits to those levels for 2008, but the move was nearly meaningless for Palm Beach County, where jumbo limits rose from $417,000 to $423,500.

Mortgage giants Fannie Mae and Freddie Mac still buy loans under $417,000, which means "conventional" mortgages are more plentiful than jumbo loans. And with Federal Housing Administration loans growing more popular, the FHA recently raised its loan limits to $423,750 for Palm Beach County and $375,000 for the Treasure Coast.

No more securitization

But last year's mortgage meltdown put an end to the once-thriving practice of securitizing jumbos, in which Wall Street players snapped up big mortgages and resold them to investors. Investment banks Bear Stearns and Lehman Brothers were among the players in that frenzied market. When they collapsed, so did the jumbo market.

"Loans over $500,000 are very, very difficult to get, because there's no securitization in the mortgage market anymore," says Bill Davis, head of Private Funding Specialists, a mortgage banking firm in Palm Beach Gardens. "The securitization is the key. When Lehman went down, that took away the oil that drove the engine."During the mortgage boom, jumbo loans were a great deal. They cost only a quarter of a percentage point more than conventional mortgages. But amid the jumbo loan credit crunch, that gap has soared. The spread between conventional and jumbo loans rose to as much as 1.79 percent this year, says Bankrate.com of North Palm Beach.

That gap rankles the affluent borrowers who take out jumbo mortgages.

"Realtors are saying their clients just don't want to enter the market because they feel cheated," Yun says. "They say, 'I have high income, I have good credit - why is everybody else paying less than I am?'"

Signs of life

That's not to say the high-end housing market has completely shut down. Palm Beach County saw 86 sales of properties for more than $500,000 in May, according to the Realtors Association of the Palm Beaches.

Some buyers paid cash. Some took out mortgages for $417,000 and covered the rest of the purchase price with large down payments or with home equity lines of credit.

And some took out adjustable-rate mortgages from lenders such as Seacoast National Bank, which has moved cautiously into the jumbo market. Seacoast is making adjustable-rate jumbo loans and keeping them rather than selling them to Wall Street.

"There is opportunity there, but we have to be very careful in the jumbo market," Hudson says.

After the housing crash exposed the risks of loose lending, Seacoast and other lenders are making loans only to borrowers who make large down payments and boast bulletproof credit histories.

Says Hudson: "Everything has to be perfect."

Florida real estate crash means Tampa Bay homes are too cheap, report says

2009-06-08T07:51:00.000-07:00

James Thorner, St. Petersburg Times Staff Writer , Jun 05, 2009

Tampa Bay area homes are too cheap. You read that right. According to IHS Global Insight, a economic forecasting company based in Lexington, Mass., our real estate is undervalued.

IHS took a measure of our depreciated home prices, population density, household income and historical attractiveness and insists our median home price of about $131,000 is 16.9 percent too low. Three years ago, when a typical home sold for $186,400, IHS deemed us 30 percent overvalued.

Florida's most stressed real estate region, Cape Coral-Fort Myers, was among the 10 most undervalued among 330 markets examined by IHS. Overvaluation remains a problem in places like the Pacific Northwest, south New Jersey and North Carolina

Pending sales for homes headed up

2009-06-03T06:03:00.000-07:00

Realtors are optimistic, but mortgage brokers remain wary

By Tom Bayles

The National Association of Realtors reported Tuesday that the number of homes under contract for sale in April posted the largest monthly jump in nearly eight years.

The spike in "pendings" was touted as a sign that sales are coming to life after a long and painful slump since the housing boom ended three years ago.
"The pronounced increase in April does indicate that actual existing home sales are poised to rise in the coming month or two," wrote Joshua Shapiro, chief U.S. economist with MFR Inc.

But local mortgage brokers and a noted Florida economist say that the housing industry is spewing hyperbole.
Tom Flood of Sarasota's Covenant Mortgage said 90 percent of his closings today involve short sales, deals where a lender agrees to accept less than what is owed on a property, or foreclosures -- and about 20 percent of them never consummate.

This is the eye of the storm, and it is not good news," he said. "You have to be careful with pending sales going through the roof.
In a normal market, Flood said, less than 5 percent of pendings fail to close. Not today.
"We jokingly call short sales long sales," he said. "You just cross your fingers."
The National Association of Realtors's seasonally adjusted index of sales contracts signed in April surged 6.7 percent to 90.3, far exceeding analysts' forecasts. It was the biggest monthly jump since October 2001, when pending sales rose 9.2 percent.
Economists surveyed by Thomson Reuters expected the index would edge up to 85 from 84.6 in March. Typically the index is a barometer for future existing home sales.

The index was 3.2 percent above last year's levels and has risen for three straight months after hitting a record low in January.
The big boost likely reflects the impact of a new $8,000 tax credit for first-time homebuyers that was included in the economic stimulus bill signed by President Barack Obama in February, Lawrence Yun, the Realtors' chief economist, said in a statement.

Even Yun, however, tempered his remarks.

He, too, cautioned that the pending sales data is more volatile than in the past because many sellers need banks to agree to a short sale, which is a difficult and time-consuming process that can wind up falling apart before the deal closes.
Matt Augustyniak, owner of Manatee County's Horizon Realty, which has a mortgage wing, said rules put into place by the Mid-Florida Multiple Listing Service water down the optimism that a spike in pendings would otherwise bring.

Pending home sales in Manatee, Sarasota and Charlotte counties combined rose 18.38 percent in April, according to an analysis of Trendgraphix data by Sarasota-based Michael Saunders & Co., which had its largest number of pendings in April since March of 2004.

Sean Snaith, a University of Central Florida economist, said the national rise in pendings is evidence that the market is at or near bottom. But he cautioned that there must be several quarters of positive news on many economic fronts before he would say things are normal.

"We've seen foreclosure sales perk up, but now we need to see some stabilization in prices before we start talking about the housing market being back in balance," he said. "I want to see the signs that the patient is completely healthy, not just that his blood pressure is down."

Recovery Act’s Homebuyer Tax Credit Can Immediately Help Thousands of First-Time Homebuyers

2009-06-01T11:21:00.000-07:00

RISMEDIA, June 1, 2009

Speaking to the National Association of Home Builders Spring Board of Directors Meeting, U.S. Housing and Urban Development Secretary Shaun Donovan announced that the Federal Housing Administration (FHA) will allow homebuyers to apply the Obama Administration’s new $8,000 first-time homebuyer tax credit toward the purchase costs of a FHA-insured home. Donovan said that this action will help stabilize the nation’s housing market by stimulating home sales across the country.

The American Recovery and Reinvestment Act of 2009 offers homebuyers a tax credit of up to $8,000 for purchasing their first home. Families can only access this credit after filing their tax returns with the IRS. This announcement details FHA’s rules allowing state Housing Finance Agencies and certain non-profits to ‘monetize’ up to the full amount of the tax credit (depending on the amount of the mortgage) so that borrowers can immediately apply the funds toward their down payments. Home buyers using FHA-approved lenders can apply the tax credit to their down payment in excess of 3.5% of appraised value or their closing costs, which can help achieve a lower interest rate.Read more:

We believe this is a real win for everyone,” said Donovan. “The Obama Administration is taking another important step toward accelerating the recovery of the nation’s housing market. Families will now be able to apply their anticipated tax credit toward their home purchase right away. At the same time we are putting safeguards in place to ensure that consumers will be protected from unscrupulous lenders. What we’re doing will not only help these families to purchase their first home but will present an enormous benefit for communities struggling to deal with an oversupply of housing.”

Currently, borrowers applying for an FHA-insured mortgage are required to make a minimum 3.5% downpayment on the purchase of their home. Current law does not permit approved lenders to monetize the tax credit to meet the required 3.5% minimum down payment, but, under the terms of this announcement, lenders can now monetize the tax credit for use as additional down payment, or for other closing costs, which can help achieve a lower interest rate. Buyers financing through state Housing Finance Agencies and certain non-profits will be able to use the tax credit for their downpayments via secondary financing provided by the HFA or non-profit. In addition to the borrower’s own cash investment, FHA allows parents, employers and other governmental entities to contribute towards the downpayment. This action permits the first-time homebuyer’s anticipated tax credit under the Recovery Act to be applied toward the family’s home purchase right away. Unlike seller-funded down-payment assistance, which was a vehicle for abuse, this program will allow homebuyers to shop for the best home price and services using their anticipated tax credit.

According to estimates by the National Association of Home Builders, the Administration’s homebuyer tax credit will stimulate 160,000 home sales across the nation- 101,000 of which will be first-time buyers who will receive the credit. Another 59,000 existing homeowners will be able to buy another home because a first-time buyer purchased their home. Given FHA’s current market share, it’s estimated that thousands of families will be able to purchase a home by allowing the anticipated tax credit to be applied toward their purchase together with an FHA-insured mortgage.

Homebuyers should beware of mortgage scams and carefully compare benefits and costs when seeking out tax credit monetization services. Programs will vary from organization to organization and borrowers should consider whether the services make sense for them, as well as what company offers the most suitable and affordable option.

For every FHA borrower who is assisted through the tax credit program, FHA will collect the name and employer identification number of the organization providing the service as well as associated fees and charges. FHA will use this information to track the business closely and will refer any questionable practices to the appropriate regulatory agencies, as necessary.

For more information, visit www.hud.gov.

Florida’s existing home, condo sales rise in April 2009

2009-05-28T05:13:00.000-07:00

ORLANDO, Fla. – May 27, 2009 – Florida’s existing home sales rose in April – the eighth consecutive month that sales activity increased in the year-to-year comparison, according to the latest housing data released by the Florida Association of Realtors® (FAR). April’s statewide sales showed gains over the previous month’s sales level in both the existing home and existing condominium markets.

Existing home sales rose 18 percent last month with a total of 13,111 homes sold statewide compared to 11,133 homes sold in April 2008, according to FAR. April’s statewide existing home sales were slightly higher than statewide activity in March.

Florida Realtors also reported a 21 percent rise in statewide sales of existing condos in April; existing condo sales last month increased 6.2 percent over the total units sold in March.

Fourteen of Florida’s metropolitan statistical areas (MSAs) reported increased existing-home sales in April and 11 MSAs also showed gains in condo sales. A majority of the state’s MSAs have reported increased sales for 10 consecutive months.

Florida’s median sales price for existing homes last month was $138,500; a year ago, it was $199,500 for a 31 percent decrease. Housing industry analysts with the National Association of Realtors® (NAR) note, however, a significant downward distortion in the current median price due to many discounted sales, including a large number of foreclosures. The median is the midpoint; half the homes sold for more, half for less.

The national median sales price for existing single-family homes in March 2009 was $174,900, down 11.5 percent from a year earlier, according to NAR. In California, the statewide median resales price was $253,040 in March; in Massachusetts, it was $255,000; in Maryland, it was $264,302; and in New York, it was $222,500.

According to NAR’s latest housing industry outlook, it could take a few months for the housing market to gain momentum, though there are signs of stabilization. “The share of lower priced home sales has trended up, indicating a return of many first-time buyers,” says NAR Chief Economist Lawrence Yun. “Buyer traffic has been rising, and real estate offices are getting phone inquires about the tax credit. By early summer we should be seeing a positive impact on home sales from record-low mortgage interest rates in addition to the stimulus provisions.”

In Florida’s year-to-year comparison for condos, 4,660 units sold statewide compared to 3,862 units in April 2008 for a 21 percent increase. The statewide existing condo median sales price last month was $106,600; in April 2008 it was $178,900 for a 40 percent decrease. In the latest data available at press time, NAR reported the national median existing condo price was $177,600 in March 2009.

Interest rates for a 30-year fixed-rate mortgage averaged 4.81 percent last month, down significantly from the average rate of 5.92 percent in April 2008, according to Freddie Mac. FAR’s sales figures reflect closings, which typically occur 30 to 90 days after sales contracts are written.

Among the state’s smaller markets, the Pensacola MSA reported a total of 316 homes sold in April compared to 272 homes a year ago for a 16 percent increase. The existing home median sales price was $143,300; a year ago, it was $157,400 for a 9 percent decrease. In the year-to-year comparison for the existing condo market, 48 units sold in the MSA last month, up 9 percent compared to 44 condos sold the previous April. The market’s existing condo median price remained level at $250,000.

The Appraisal Bubble

2009-04-23T07:07:00.000-07:00

In Run Up to Real Estate Bust, Lenders Pushed Appraisers To Inflate Values

By Joe Eaton The Center for Public Integrity April 14, 2009

In 2004, years before plummeting real estate values turned Fort Myers, Florida, into a top five foreclosure capital, appraiser Mike Tipton faced a dilemma.

Tipton’s employer, eAppraiseIT, sent him to value a two-bedroom home in a new subdivision built by the developer D.R. Horton. Paperwork given by the appraisal management company to Tipton included a $245,000 estimated value.

But after inspecting the home and comparing it to five similar houses that had recently sold, Tipton set the value at $237,000, $8,000 less than the estimate. He knew the difference might disappoint DHI Mortgage, the prospective buyer’s lender, which is a subsidiary of developer D.R. Horton. And indeed it did.

The lender, in a process appraisers say was common in the boom days before the housing bubble burst, asked Tipton to redo the appraisal. It sent paperwork through eAppraiseIT asking him to reconsider the value. It gave him different homes to use for comparisons.

“If you read between the lines, they wanted a larger value,” Tipton said. “I told them no, I wasn’t changing my report.”

Tipton, who like many other appraisers is paid by the job, says he was never given another appraisal for a D.R. Horton home. “All I can say is D.R. Horton has remained an active developer in Lee County,” Tipton said. “I didn’t see any further appraisals for DHI Mortgage. So you tell me.”

Carrie Gaska, a spokeswoman for First American eAppraiseIT, declined to comment on why Tipton received no further orders from the company for DHI Mortgage properties.

Tipton is among dozens of appraisers who have told the Center for Public Integrity that for years lenders across the United States have pushed them into inflating the value of homes to justify higher mortgages. Appraisers and lenders alike are demanding better oversight of the industry. In addition, the Center has obtained copies of lenders’ “blacklists” containing the names of thousands of appraisers; some appraisers say lenders used those lists to exclude those who refused to inflate home values.

The Center also found many appraisers who say they bowed to lender pressure to “hit the numbers” in order to remain in business. These appraisers, along with the lenders who pressured them, helped pump air into the housing bubble that led to widespread economic devastation, according to dozens of appraisers, lenders, and others with intimate knowledge of home loan practices.

And there’s evidence that Fannie Mae and Freddie Mac, the two largest purchasers of home loans, bought mortgages without ensuring they were made with accurate appraisals, according to an investigation by New York Attorney General Andrew Cuomo.

No one knows exactly how much of a role inflated appraisals played in the mortgage meltdown. But as an increasing number of homeowners face foreclosure, many remain unaware that the appraisal they paid for during the purchase process may not have reflected the true value of their investment, and may have allowed them to borrow more money than their home was worth.

Depending on the state where the homeowners purchased, the scheme may or may not have been against the law. Pressuring an appraiser to inflate the value of a property is a crime in at least 20 states and the District of Columbia, though it is often a misdemeanor punishable by a fine, a slap on the wrist that appraisers say does little to prevent the exertion of undue pressure.

There is rampant corruption throughout the industry,” said George Dodd, a veteran appraiser in Virginia who has been advocating for more regulation. “The way it stands now, the public doesn’t stand a chance.”

Dodd said, that in addition to the appraisal ordered by the lender, consumers can protect themselves by ordering a second independent appraisal before a purchase. They will, however, still have to pay for the lender’s appraisal.

Fudging the Numbers

Richard Frank, an appraiser in Vero Beach, Florida, started appraising homes in 1998, when values were climbing. From the beginning, Frank said he stepped into a business arrangement in which lenders forced appraisers to abandon their standards if they wanted work.

Frank said lenders commonly gave appraisers an estimated value for a home on each appraisal order. Appraisers, who usually determine values by comparing homes to recent sales of comparable properties, often worked backwards from that estimated price to find recent real estate sales that would “make the value,” he said. Working backwards from the estimate was faster. Everyone made money. And since appraising homes is subjective — both an art and a science — it was easy to fudge numbers.

“The [supposedly comparable] houses might be bigger and better, but who’s going to know?” Franks said. “In an increasing market, your sins are buried.”

If an appraisal came in lower than the purchase price, the loan likely would be denied. Since loan origination staff is typically paid by commission, a failed deal meant no paycheck for them. If that happened too many times, Frank says, lenders stopped sending the appraiser work. “Put out, and you will get more dates. It’s just that simple,” he said.

Richard Bitner, a former subprime lender in Texas who has written an insider account of the mortgage industry collapse, backs up Frank’s story. Bitner says the pressure came more from the cozy relationship between lenders and appraisers than threats.

“The pressure applied didn’t really need to be overt,” Bitner said. “If suddenly [an appraiser] can’t make the values, at the end of the day, it’s pretty easy to go to someone else. You are here to make money.”

Appraisers say lenders did just that, sometimes asking appraisers to promise a value before they officially ordered the report.

Both appraisers and lenders say the two professions have not always been at odds. Appraisers traditionally served as the front-line defense for loan underwriting departments, ensuring that the value of a home was worth the loan amount in case the lender needed to foreclose. In the past, many banks had in-house appraisal departments. And, unlike today, lenders historically kept and serviced the loan for the life of the mortgage. But when lenders began bundling loans and selling them to Wall Street and other investors, lenders carried less risk and industry analysts say they became less concerned about home values. With no “skin in the game,” lenders focused on closing deals. In this climate, many in the industry say the appraisal became a barrier to jump over.

Appraisers say making money was easy, as long as they did not cross lenders. But if they did, appraisers say lenders lashed out, adding their names to the blacklists that lenders originally kept to identify incompetent appraisers. Lenders kept their own lists, but appraisers sometimes found their names on those lists even if they never worked for that lender.

Amerisave, one of the largest online mortgage lenders, has close to 12,000 appraisers on its “ineligible appraiser list,” which was removed from the Atlanta-based company’s website after the Center made inquiries about it. In December, appraiser Tom Woolford found his name on Amerisave’s list when the list also appeared on a popular online appraisal industry forum. Woolford said he has never done an appraisal for Amerisave, and the address they used for him was at least 10 years old. He doesn’t know how he ended up on the list, but he says it could be a matter of reputation: He says he never gives in to lender pressure.

“I think you will find a lot of the people on these lists do not hit numbers,” Woolford said. “I won’t lie, and I won’t push a number for nobody.”

After conferring with top management officials, Martin Wilhelm, an Amerisave vice president, declined to answer questions about how it compiles its blacklist.

Unheard Warning Bells

Before real estate prices began to plummet in 2006, some sounded the alarm on fraudulent appraisals and lender pressure, but few listened to the warnings, least of all Congress, industry regulators, and the Justice Department.

David Callahan, a founder of the public policy think tank Demos, was one of the first people to study inflated appraisals and lender pressure. In 2005, Callahan wrote a paper describing the financial incentives for lenders and appraisers to pursue inflated appraisals. The goal of lenders, brokers, real estate agents and developers was to ensure that a home loan closed without a problem, Callahan said. All those people exert pressure on appraisers to inflate values.

In a 2007 study by October Research, a real estate news provider, 90 percent of more than 1,200 appraisers polled reported feeling pressure to change property values, usually from lenders, mortgage brokers or real estate agents.

“Congress didn’t really care about it,” Callahan said, noting the lack of reaction his report generated in Washington. “There was remarkably little legislative activity looking at the corruption in the real estate market.”

In fact, Congress had struggled with the issue of lender pressure on appraisers since the savings and loan crisis of the 1980s. In recent years, Congressman Paul Kanjorski, a Pennsylvania Democrat, has been the most vocal proponent for stronger regulation, proposing legislation in 2007 that would have set stiffer appraisal independence standards. The legislation, which would have prohibited lender coercion of appraisers and established penalties for it, was folded into the 2007 Mortgage Reform and Anti-Predatory Lending Act. The legislation faced stiff opposition and lobbying by the banking and mortgage industry, which argued it would adversely impact credit availability, and the bill was not taken up in the Senate after passing the House. In March, the legislation was reintroduced in the House as part of the Mortgage Reform and Anti-Predatory Lending Act.

Appraisal industry insiders say part of the difficulty in policing the process stems from regulatory fragmentation. Appraisers fall under the jurisdiction of state regulators, which enforce standards set up by the Appraisal Foundation, a nonprofit industry group authorized by Congress. State licensing is overseen by the Appraisal Subcommittee, an agency created by Congress in 1989.

Hyped appraisals did not escape the attention of federal banking and savings and loan regulators, but reports published since the mortgage industry collapse show that those officials did little to stop the practice. A February audit by the Treasury Inspector General on the implosion of IndyMac, a savings and loan, noted that the Office of Thrift Supervision, IndyMac’s primary regulator, identified problems with appraisals on the company’s loans in 2001, but took no formal action.

In one example from the audit report, an IndyMac file for a $1.5 million loan contained appraisals ranging from $639,000 to $1.5 million. “There was no support to show why the higher value appraisal was the appropriate one to use for approving the loan,” the report says.

In 2006, Ameriquest, then the largest subprime lender in the country, paid $325 million and agreed to reform its business practices to settle a 49-state investigation into its predatory lending practices. Among the allegations, the lawsuit claimed Ameriquest engaged in deceptive or misleading practices to obtain inflated appraisals substantially beyond the market values of homes. The company, which closed in 2007, denied the allegations.

Problems like these only seem to come to light during declining markets and concerns are put on a shelf when buyers return, says Dave Biggers, founder and CEO of the real estate technology company a la mode, inc. In an appreciating market, appraisals five to 10 percent beyond value are not an issue, he said, and home values climb beyond appraisal values soon after the sale.

But when the market peaked in 2005 and then began its sharp decline, inflated appraisals exacerbated the trouble faced by “underwater” homeowners. “We as the taxpayers are getting stuck with the bill,” Biggers said. “What has not been investigated is the systemic issues that take place on the basis of policy by many of these companies.”

“Who Has Juice with Whom”

Since the bubble burst, the FBI has focused most of its real estate efforts on appraisers and other fraudsters who developed intricate schemes to defraud banks. The Justice Department is not going through the wreckage looking at the institutionalized lender pressure on the appraisal process. An FBI official, asking not to be identified because the agency has no official position on the matter, said they view the matter as a regulatory issue to be addressed by Congress not a matter of law enforcement.

FBI Deputy Director John S. Pistole testified in March before the House Committee on Financial Services about the agency’s efforts to combat mortgage fraud, saying the bureau is focusing its limited white collar crime-fighting resources on real estate industry insiders engaged in fraud for profit. Those cases target real estate speculators and mortgage brokers who work with appraisers to sell a house for far more than its true value. So far, however, there have been no prosecutions of lenders who pressured appraisers to inflate values.
Instead, the highest-profile investigation of the appraisal industry has come from New York Attorney General Andrew Cuomo. In 2007, Cuomo filed a lawsuit against First American Corp. and its subsidiary First American eAppraiseIT, charging that eAppraiseIT allowed loan production staff at Washington Mutual to pressure appraisers to inflate home values. The suit is pending.

The suit claims the appraisal management company allowed Washington Mutual’s “loan production staff to hand-pick appraisers who bring in appraisal values high enough to permit WaMu’s loans to close, and improperly permits WaMu to pressure eAppraiseIT appraisers to change values that are too low to permit loans to close.”

In addition, the complaint alleges that executives at eAppraiseIt knew its appraisal arrangement with Washington Mutual broke the law. “I think WaMu’s new initiative is way over the line,” it quotes eAppraiseIT’s executive vice president as writing in spring of 2007 to the company’s president. “It is even possible that the current arrangement crosses the line.”

“Bingo!” replied the company president, according to the complaint. “It boils down to who has juice with whom at the regulatory level.”

In a 2007 press release, First American said the New York lawsuit “has no foundation in fact or law. The Attorney General’s allegations, largely based on a handful of e-mails that have been taken out of context, or mischaracterized, and an incomplete review of the facts, belie our record of compliance with applicable law.”

Cuomo also subpoenaed Fannie Mae and Freddie Mac. The investigation into whether the two largest loan purchasers bought loans that included inflated appraisals was dropped in March 2008 after Fannie and Freddie agreed to strict new rules — penned in part by Cuomo’s office — governing the appraisal practices for the loans they buy. They also agreed to pay $24 million to fund the Independent Valuation Protection Institute, a new organization to help implement and monitor the code.

What led Fannie and Freddie to the agreement was not made public, and Cuomo’s investigators aren’t talking, but his office did point the Center for Public Integrity to letters Cuomo sent in 2007 to the CEOs of both Fannie Mae and Freddie Mac, expanding his investigation to include a subpoena of their records.

In the letters, Cuomo wrote that his office had “uncovered a pattern of collusion between lenders and appraisers that has resulted in widespread inflation of the valuations of homes.” Further, Cuomo wrote that evidence shows mortgages Fannie and Freddie purchased from Washington Mutual “may be premised on fraudulently inflated appraisals” that do not meet regulatory standards. “We are, therefore, expanding our investigation to determine the extent of [Fannie Mae and Freddie Mac’s] knowledge of, and actions regarding, these problems as they relate to past mortgage purchases and securitizations.”

Cuomo’s office declined the Center’s request for details of its investigation’s findings.

The Home Valuation Code of Conduct, an industry standard which came about as a result of Cuomo’s investigation, is slated to go into effect on May 1, makes deep changes to the appraisal industry.

The code, which affects all loans eligible for purchase by Fannie and Freddie, bans lenders and brokers from pressuring appraisers to hype appraisals by threatening to withhold future business as punishment. Lenders must inform appraisers when they are removed from qualified use lists and allow them to appeal. It also bans loan origination staff from ordering appraisals directly — instead, the lender must use other in-house staff or go through a middleman appraisal management company. Even so, the incentive to pressure appraisers still exists, even for supposedly independent appraisal management companies.

Fox and the Hen House

Despite the changes, the new code has been panned by both the appraisal industry and some lenders. The National Association of Mortgage Brokers filed a lawsuit to try to block the rules, arguing that the code puts smaller mortgage brokerages at a disadvantage because they will be forced to rely on lenders to obtain appraisals for their customers, thereby limiting their ability to shop for loans. The association dropped the action earlier this month.

Appraisers who work for themselves or small businesses say the code will end their careers since mortgage brokers and other loan generation staff can no longer contact them directly. Instead, they say the code in effect directs all business to appraisal management companies, the unregulated middlemen that are often subsidiaries of lenders.

Appraisers say the management companies passed on pressure from lenders in the past, including in Cuomo’s case against eAppraiseIt, and see nothing in the new code to stop it from happening.

“It’s a bit of irony that the solution is the same thing that got us here,” said Bill Garber, director of government and external relations at the Appraisal Institute, a trade association representing appraisers.

The Home Valuation Code of Conduct, Garber added, is lip service to cleaning up the industry. Appraisal management companies “are just as capable of pressuring appraisers as anyone else.”

Appraisers also dislike the plan because some appraisal management companies take a hefty administrative fee and pay low rates to appraisers, which experienced appraisers say will force them out of the business and turn the industry over to less experienced appraisers who are more likely to make mistakes.

Pressure will still come from the management companies, said Dodd, the Virginia appraiser. “They could give a damn about the consumer. They don’t care if the consumer pays ten, twenty, or thirty thousand more than it’s worth.”
Cuomo hasn’t answered critics of the new code, and his office did not return calls from the Center for Public Integrity.

Lawyers, Banks, and Money

Since the real estate crash, the appraisal and lending industries have come under closer watch by regulators and Congress. But so far, no one has addressed the effect inflated appraisals have had on struggling homeowners. Buyers who moved in at the height of the boom are particularly vulnerable, and attorneys say their struggle provides fertile ground for civil litigation.

“I definitely believe that lenders have engaged in widespread illegal activities, and they will come under increased scrutiny in the next year or so as people who have been damaged by this realize there are some bad actors out there,” said Steve Berman, an attorney in Seattle.

In October, Berman’s firm, Hagens Berman Sobol Shapiro, filed a class action on behalf of blacklisted appraisers against Countrywide Financial and its subsidiary Landsafe, an appraisal management company. Like Cuomo’s suit, Berman’s case argues that Countrywide forced appraisers to hit the numbers and added them to a blacklist if they refused.

“Countrywide… has engaged in a practice of pressuring and intimidating appraisers into using appraisal techniques that meet Countrywide’s business objectives even if the use of such appraisal techniques is improper and in violation of industry standards,” the complaint alleges.

If the appraisers refused, the complaint says they were placed on a “field review list,” which disqualified them for further work for loans for Countrywide.

Because mortgage brokers shop for lenders, if an appraiser was blacklisted by Countrywide, the largest independent mortgage lender, they were in effect blacklisted by much of the industry, Berman’s complaint claims.

According to the complaint, Countrywide’s blacklist contains more than 2,000 appraisers. Berman said his firm is looking at other lenders and their blacklists as it considers further litigation.

The new appraisal code and increased scrutiny of the industry seems to have had some effect. Lender pressure is not as strong, appraisers say, but it still exists. Ray Miller, an appraiser outside Madison, Wisconsin, says the pressure is moving to FHA loans and refinancing as credit for other loans remains dried up.

In January, Miller said he did an appraisal for a lake home where the owner was looking to refinance. The original appraisal, done when the owner bought the home a few years back, listed the value at $554,000, but the comparables used to hit that number were from homes on a more upscale lake, Miller concluded.
Miller’s reappraisal came in at $400,000. “I’m just waiting for the phone call,” he said.

In February, Miller received a call from a different lender. This one wanted him to remove pictures of a cracked sidewalk he included in his appraisal. This would be prohibited under the Home Valuation Code of Conduct. But Miller expects lenders will figure out a way around the rules.

“They don’t want good appraisers,” he said. “They don’t want good numbers, even now.”

Why broker price opinions may cut home values

2009-04-16T19:36:00.000-07:00

Kenneth Harney - San Francisco Chronicle - 03/29/2009

Are lowballed valuation estimates on short sales and bank-owned foreclosures artificially depressing property values in neighborhoods across the country?

Growing numbers of appraisers and consumer groups believe the answer is yes - and are demanding that either Congress or state regulators crack down. Their complaints focus on what are called "broker price opinions," also known as BPOs, that substitute for actual appraisals.

Unlike standard property valuations performed by licensed appraisers - which can run to hundreds of dollars - the opinions often cost $50 and are performed by real estate agents who may have minimal or no appraisal training and are subject to no regulatory oversight. Realty agents defend the opinions, arguing that their extensive knowledge of local market trends equips them to render accurate estimates.

The opinions have become a booming business as foreclosures and short sales have risen sharply. When banks that own foreclosed houses need to put values on them for resale, increasingly they order opinions that can be delivered quickly at rock-bottom fees.

Short sales - when a lender agrees to take less than the principal amount owed by a delinquent owner provided the property is sold to a new buyer - also frequently entail use of the opinions.

On the Internet, the opinions are hawked to realty agents as a route to quick profits in an economic downturn. "This is the easiest and fastest way to make big money in 2009," says one Web site that promises agents "six figures or more" per year. The same site suggests that "bad times put you in the ideal spot" to rack up income by churning out the opinions for lenders.

One problem is that selling opinions to value houses violates the law in 23 states, according to appraisal industry leaders. In other states, the opinions may not be prohibited, but critics say they may be far off the mark in accuracy - typically coming in below appraised values. That's partly because agents who perform the opinions may set the value extra low to ensure quicker sales.

When houses are listed at fire-sale prices, they exert a downward pull on the values of other houses in the neighborhood because, under current lending industry underwriting guidelines, appraisers must consider recent listing prices as well as closed sale prices.

In testimony March 11 before the House Subcommittee on Financial Institutions and Consumer Credit, David Berenbaum, executive vice president of the National Community Reinvestment Coalition, called on Congress to outlaw the opinions when used as appraisal substitutes in distressed property transactions. Berenbaum said that realty agents "develop hasty and inaccurate BPOs that underestimate" the value of bank-owned and other distressed real estate. That lowballing, in turn, "is often destructive to local markets and depresses the value and equity of (lender-owned) properties."

Gary Crabtree, CEO of Affiliated Appraisers in Bakersfield, says his company's research "shows very clearly" that the opinions frequently understate actual market values by as much as tens of thousands of dollars.

Why would agents lowball their valuations? Crabtree argues that there are inherent conflicts of interest: "They want to sell the property fast" to make bank asset managers "look like heroes" to their bosses. They may also want additional BPO and property listing assignments from those same bank managers, yielding them commission dollars. Many of the properties are snapped up by investors at the depressed prices driven by the low valuations. Those sales then become "comparables" for appraisers, "which simply intensifies the downward spiral" in property values, said Crabtree.

Regulators in many states recently have expressed concern about excessive use of the opinions. The Nevada Real Estate Division warned agents that when real estate agents prepare "a BPO for any reason other than listing and selling a property," and receive compensation, they have violated state law.

Nebraska regulators issued a similar warning last December, threatening to criminally prosecute realty agents who are not licensed to perform appraisals but who issue the opinions as appraisal substitutes.

The National Association of Realtors, whose 1.2 million members include many of the agents who prepare the opinions, says it has no policy guidance for Realtors on the issue, but expects to issue a statement in May. Asked whether the association would at the minimum urge members to adhere to state laws and regulations, a spokesman said "there is no policy" on the sensitive issue at present.

National appraisal groups, including the Appraisal Institute, whose members lose revenue when lenders or property owners order the opinions, are up in arms. Bill Garber, the institute's head of government relations, said the opinions are an attempt "to pay the least to obtain something" - appraised value - "that is extremely important to get right."

Borrowers get the gift of time

2009-04-16T07:34:00.000-07:00

By Todd Ruger - Sarasota Herald Tribune, 04/15/2009

Heide and Ronald Felicita showed up in Circuit Court last week thinking this would be the hearing where they finally lose their home.

Their suitcases were packed and they removed all the pictures from the walls of their Venice home, which has been in foreclosure for nearly two years.

But like hundreds of foreclosed-upon residents in Manatee and Sarasota counties, the Felicitas got a reprieve -- weeks, possibly months, to stay in their home and try to clear their debt and work out a deal with their lender.
Since January, the rate of residents in Sarasota and Manatee counties who lost their homes to foreclosure has fallen 66 percent, going from more than 400 cases per month to just over 100.

The decline has nothing to do with the state of the real estate market or a sudden benevolence on the part of lenders.

Instead, it reflects a policy set down by 12th Circuit Court Judge Lee Haworth that has effectively stopped the fast track of summary judgments allowing lenders to quickly gain control of properties from distressed borrowers.

Last fall, as foreclosure cases overwhelmed the court system, Haworth ordered lenders' law firms to meet with homeowners starting in January and discuss alternatives to foreclosures. The judge's hope was that discussions could lead to resolutions that would prevent residents from losing their homes.

But lenders widely ignored the judge's request. So Haworth hit the law firms in the pocketbook, with a new rule requiring them to show up in person -- not just over the telephone -- for all hearings starting in March. They must also complete a checklist about the facts of the case.

Again, many lenders have failed to comply, leading Haworth and two other judges in the 12th Circuit to cancel cases, so many that their dockets are virtually bare. Last Wednesday, for example, Judge Donna Berlin canceled 20 of the 27 foreclosure cases on her docket, including the case against the Felicitas, whose attorney failed to show.

The reprieve is only temporary. Distressed homeowners still must find resolution with their lenders. Yet the extended time comes with opportunity because lenders have been more open in recent months to negotiate, and the Obama Administration is offering more help for homeowners.

"It gives us more time and, hopefully, the company will come up with something better," said Ronald Felicita, who lost his job as a home inspector in the real estate downturn. "Now, they could work with us."

Heide Felicita has found a job, but it is not enough to pay off what they owe on the house they bought 10 years ago. They are not sure where they might go if forced out of the home, but they might have to move in with relatives in Minnesota, Ron Felicita said.

The rules instituted by Haworth make the 12th Judicial District one of the toughest places to get a summary judgment, which gives the lender the property without lengthy litigation, attorneys said. Other circuits are starting to follow suit with similar rules.

"It's a new procedure, so people are not used to dealing with it," said Robert Schermer, who often makes the local appearance in court for the lenders' out-of-town attorneys. "And they don't really realize how serious the judges are, or how strictly they are enforcing it.

"They want every box checked and every spot filled in."

Other outside factors have worked to slow the pace of final judgments, including moratoriums on foreclosures from some of the country's largest lenders and new rules for refinancing loans.

But attorneys and judges say the new rules are the biggest cause. Attorneys for lenders, who mostly work at large, out-of-town "foreclosure mills" that handle cases across the state, are too overwhelmed to go through the careful review of cases and rules for each circuit.

"There have been days when the entire docket has been canceled from non-compliance," Circuit Judge Charles Williams said.

One day recently, Williams had four foreclosure hearings set. None of the hearings happened, though, because attorneys did not follow the rules.

Bradenton attorney John Fleck, who represents both homeowners and lenders in foreclosure cases, said the judges are doing the right thing if an attorney does not make sure his work is right.

"The judges think, 'If he didn't take the time to fill out the box, how can I be certain the rest of this was done correctly?'" Fleck said. "Until all these massive foreclosures, we didn't see this slipshod work."

Empty houses mean higher fees for deed-restricted communities

2008-12-30T14:12:00.000-08:00

By Dong-Phuong Nguyen, St. Petersburg Times, Tuesday, December 30, 2008

NEW TAMPA — Homeowners association fees are what keep deed-restricted communities from falling into disrepair. They pay for landscaping and upkeep, security and gym equipment.

But what happens when more and more homes go into foreclosure or enter into short sales, or when paying the fees becomes a low priority for struggling families?

The rest of the homeowners must cover the costs. And it's not just the shortfall they need to make up — a litany of items goes with it.

For a more detailed look at how this growing problem is affecting communities, consider the 1,100 households in Live Oak Preserve in New Tampa, where more than $500,000 in assessments have gone uncollected.

Recently, the homeowners association board approved a 2009 budget that increases fees by more than 40 percent — to $163.79 per household per month — to cover the bad debt and items associated with it, such as stamps and legal bills.

"These are very bad times," Ellen De Haan, the board's attorney, told the more than 60 residents at the budget meeting. "And it's happening everywhere."

Residents must now shell out almost $2,000 a year in assessments — about $200 more than last year — mainly because of foreclosures and short sales. The fees will cover such items as:

• $22,500 for postage and supplies that the association is anticipating it will need for mailings and certified letters to collect the fees. In the first nine months of this year, it spent $16,700 — $7,000 more than what was budgeted.

• $42,000 in legal fees because lawyers will be busy drafting the letters to collect the fees. The board had budgeted $5,900 this year and ended up spending $34,700 through September.
• $250,000 in anticipated uncollected fees.

The board also decided to make the assessments due monthly instead of quarterly, to make the smaller, more frequent payments appear less painful.

"It's pretty steep for some people to pay on a quarterly basis," said board chairman Rick Feather, adding that late fees will not be assessed during the first quarter of 2009.

Feather also emphasized that several contracts, such as for lawn and landscaping work, were renegotiated, bringing some costs down.

But one issue that has rankled residents in Live Oak is a bulk cable deal between the developer and a cable company that charges the community $1.1-million for cable — including cable for the unoccupied homes.

Many residents who attended the meeting blasted Feather for his role in the agreement, asking for ways to get out of the contract. The contract does not expire for 11 more years. Some residents have taken their fight to the federal level, meeting with Federal Communications Commission officials earlier this year for help. The FCC has not made a decision.

"If our neighbors need food, we will gladly step up and give it to them," said resident John Cutter. "We just don't want to pay for their cable."

Another resident, Realtor Martha David, said she thought she knew what she was getting into when she moved into Live Oak, but she feels she was misled.

"(The developer) presented to us that we would be saving money and have all these extra features,' " she said. Today, 25 houses in her 125-home village within Live Oak are vacant. "Now we're paying for people that have foreclosed and people who have walked away."

De Haan, the board attorney, likened living in a deed-restricted community to establishing a business with others.

"You went into a full equity partnership with everybody who lives in this community," she said. "As homeowners, you have to make it up. You're all partners in this business."

Comment: This situation is also becoming a major issue for the condominium market as foreclosures are running well above the single family residential market.

Once Trusted Mortgage Pioneers, Now Pariahs

2008-12-25T13:52:00.000-08:00

By MICHAEL MOSS and GERALDINE FABRIKANT
Published: December 24, 2008 - New York Times

“We are team-oriented, highly ethical, extremely competitive, profit-oriented, risk-averse, consumer-focused, and we try as much as possible to squeeze out any ego. Hubris is the beginning of the end.” — Herbert Sandler, June 2005

SAN FRANCISCO — Herbert Sandler, the founder of the Center for Responsible Lending, is standing in his bayfront office watching a DVD that trains brokers to pitch mortgages by extolling the glories of the real estate boom.

The video reeks of hucksterism, and it infuriates Mr. Sandler.
“I would not have approved that!” he declares. “I don’t think we should be selling our loans based on home prices continuing to go up.”

But the DVD was produced in 2005 by a mortgage lender that Mr. Sandler and his wife, Marion, ran at the time: World Savings Bank. And the video was a small part of a broad and aggressive effort by their company to market risky loans at the height of the housing bubble.

The Sandlers long viewed themselves — and were viewed by many others — as the mortgage industry’s model citizens. Now they too have been swept into the maelstrom surrounding who is to blame for the housing bust and the growing number of home foreclosures.

Once invited by Congress to testify about good lending practices, the Sandlers were recently parodied on “Saturday Night Live” as greedy bankers who handily sold their bank — and pocketed $2.3 billion in shares and cash — in 2006 before many of their loans began to sour.

Last month, the United States attorney’s office in San Francisco announced dual inquiries into whether World Savings engaged in predatory lending practices or misled investors about its financial well-being. And the bank has been sued by numerous borrowers who claim they were misled into taking out mortgages they could not afford.

At the center of the controversy is an exotic but popular mortgage the Sandlers pioneered that helped generate billions of dollars of revenue at their bank.

Known as an option ARM — and named “Pick-A-Pay” by World Savings — it is now seen by an array of housing analysts and regulators as the Typhoid Mary of the mortgage industry.

Pick-A-Pay allowed homeowners to make monthly mortgage payments that were so small they did not cover their interest charges. That meant the total principal owed would actually grow over time, not shrink as is normally the case.

Now held by an estimated two million homeowners, the option adjustable rate mortgage will be at the forefront of a further wave of homeowner distress that could greatly delay or even derail an economic recovery, mortgage industry analysts say.

The Wachovia Corporation, which bought the Sandlers’ bank two years ago, was so battered by the souring portfolio of World Savings that it began writing off losses now projected at tens of billions of dollars and eventually stopped offering option ARMs.

Through it all, the Sandlers have maintained they did nothing wrong beyond misjudging the real estate bubble.

“I didn’t mislead anybody, and to the best of my knowledge, our company didn’t, though there may have been an isolated case here and there,” Mr. Sandler said. “If home prices hadn’t declined by 50 percent, nobody would be raising these questions.”

Mr. Sandler also finds it incredible that borrowers feel victimized by Pick-A-Pay. “All of a sudden their home is worth half of what it was, and they say they didn’t know.”

Yet the Sandlers embraced practices like the use of independent brokers who used questionable methods to reel in borrowers. These and other practices, critics contend, undermined the conservative lending practices that the Sandlers built their reputations upon.
“This product is the most destructive financial weapon ever deployed against the American middle class,” said William J. Purdy III, a housing lawyer in California who is representing elderly World Savings customers struggling to repay their loans. “People who have this loan are now trapped, and they can’t get another loan.”

The Birth of Pick-A-Pay

Marion Sandler, now 78, was a Wall Street analyst in the early 1960s when she and her husband decided to buy a bank that took only savings deposits and made mortgage loans — a thrift, or savings and loan, in banking shorthand — and run it themselves.

Mr. Sandler, now 77, was a lawyer in Manhattan who grew up poor on the Lower East Side, the son of a compulsive gambler whose earnings were consumed by loan sharks.

The Sandlers searched for a thrift in the sizzling California market and paid $3.8 million in 1963 for an Oakland enterprise called Golden West Savings and Loan Association, which later became the parent company of World Savings. It had a main office and one branch.

When Reagan era deregulation arrived, the Sandlers and two other competitors were able to market option ARMs for the first time in 1981. Before that, lawmakers balked at the loan because of its potential peril to borrowers.

World Savings initially attracted borrowers whose incomes fluctuated, like professionals with big year-end bonuses. In the recent housing boom, when World Savings started calling the loan Pick-A-Pay, they began marketing it to a much broader audience, including people with financial troubles, like deeply indebted blue-collar workers.

As the entire thrift industry soared after deregulation, the Sandlers’ business also took off. They avoided financial problems by doing things like scrutinizing borrowers’ incomes to make sure loans were manageable and performing astute appraisals so the size of a mortgage was in line with the value of a home.

“Our protection was our total underwriting of the loan,” Mr. Sandler said. “From scratch.”
When many of the Sandlers’ competitors in the thrift industry later began collapsing under the weight of bad loans and investments, Congress and the media invited the couple to speak about the proper way to do business.

“The deregulatory situation attracted bums, charlatans, crooks, phonies, con men,” Mr. Sandler told an ABC News program in 1990.

The Sandlers also held onto World Savings’ loans rather than selling them off to Wall Street to be repackaged as securities. They say this made them more alert to risky borrowers than were lenders who sold off their loans.

When foreclosures occurred, World Savings executives would drive to the house to see if they had made mistakes appraising the property or underwriting the loan. “We called these the van tours,” Mr. Sandler said. “And we would say, ‘O.K., have we done anything wrong here?’ ”

More Philanthropic Work

As the Sandlers’ wealth increased, so did their philanthropy. Over the years, they financed scientific research and groups like Human Rights Watch and the American Civil Liberties Union. More recently they founded and financed ProPublica, a nonprofit investigative journalism enterprise that has collaborated with The New York Times on coverage and a news archive. Its 14-member advisory board includes two top New York Times Company editors.
The Sandlers’ giving intersected most directly with their business interests in 2002 when they helped create an advocacy group for low-income borrowers called the Center for Responsible Lending.

The center was the successor to a smaller organization in North Carolina, whose director, Martin Eakes, had helped the elderly and minorities avoid predatory banking practices.

“I said, ‘Isn’t that incredible what he is doing?’ ” Mr. Sandler recalled. “I said to Martin, ‘What would it take to do what you do on a national scale?’ ”

Mr. Eakes, who became the center’s executive director, had also just helped secure a new mortgage lending law in North Carolina that prohibited, among other things, the use of prepayment penalties.

“I hated prepayment penalties,” Mr. Eakes recalled, noting that such charges make it hard for cash-poor borrowers to refinance a loan for one with more manageable terms.

While Mr. Sandler supported the center’s antipredatory goals, he disagreed with Mr. Eakes’s position on prepayment penalties and sought to change his mind. Mr. Eakes says the Sandlers convinced him to drop his opposition to prepayment penalties, “but they never dictated to us what to do.”

Mr. Sandler acknowledges that some lenders used the penalties to lock borrowers into “absolutely awful” loans. But he said his bank used the penalties to fend off unethical brokers who enticed borrowers with low-interest-rate loans that often had hidden fees.
“You have to understand how independent brokers work,” Mr. Sandler says. “They are the whores of the world.”

Despite that distaste, World Savings made extensive use of brokers. By 2006, they were generating some 60 percent of its loan business, he acknowledged. He said he was compelled to do so because of brokers were a dominant force in the mortgage industry.

As a check on the representations that brokers made to borrowers, World Savings sought to telephone applicants to ensure that they understood the terms of their loan. These calls reached only about half of the borrowers, however, according to a former World Savings executive. Mr. Sandler did not dispute that point.
Customer complaints that an unethical broker had misrepresented the terms of World Savings loans is at the heart of a lawsuit filed against the bank and others in Alameda County, Calif. The broker was sentenced to a year in prison for misleading at least 90 World Savings borrowers.

Mr. Sandler points out that the company was itself a victim of this broker, that it cooperated fully with authorities, and that it was not charged with any wrongdoing.

Others have also raised questions about how carefully World Savings disclosed lending terms to its borrowers.

In August, a federal judge in South Carolina ruled that World Savings had violated the federal Truth in Lending Act by telling borrowers that choosing to make minimum monthly payments on Pick-A-Pay mortgages might cause their principal to grow — when in fact it certainly would occur.

Wachovia, which is defending the case, has appealed the ruling. Mr. Sandler said he was not familiar with this lawsuit, but generally, he says, “Wachovia’s legal defense is deficient.”

A Speedy Merger

By 2005, World Savings lending had started to slow, after more than quadrupling since 1998. The next year, Wachovia bought the bank in a hastily arranged deal. The Sandlers say they sold their firm at the top of the market because they were growing older and wanted to devote themselves to philanthropy.

Some current and former Wachovia officials say that the merger was agreed to in days and that it was impossible to conduct a thorough vetting of World Savings’ loans. Others say the portfolio was adequately scrutinized.

“Herb and his wife had run a tight ship,” said Robert Brown, a Wachovia board member. “There was not a huge concern about it because they had not had any delinquencies and foreclosures.”

Others were less sanguine. The creditworthiness of World Savings borrowers edged down from 2004 to 2006, according to Wachovia’s data. Over all, Pick-A-Pay borrowers had credit scores well below the industry average for traditional loans.

“I don’t think anyone thought a Pick-A-Pay product was a customer friendly product,” says a former Wachovia executive who requested anonymity to preserve professional relationships. “It is easy to mislead them.”

World Savings lending volume dipped again in 2006 shortly after the sale to Wachovia was initiated, according to the company’s federal filings.

This prompted World Savings to attract more borrowers by taking a step that some regulators were starting to frown upon, and which the company had been resisting for years: it allowed borrowers to make monthly payments based on an annual interest rate of just 1 percent. While World Savings continued to scrutinize borrowers’ ability to manage increased payments, the move to rock-bottom rates lured customers whose financial reliability was harder to verify.
Russell W. Kettell, a former chief financial officer of World Savings, says the merger created “pressure” for “a pretty good-sized increase in loan volume.”

Asked if Wachovia ordered World Savings to drop its rate, Mr. Kettell said, “No, but they wanted volume and wanted growth.”

A swift increase in option ARM lending had prompted federal regulators to weigh tougher controls on lending standards in 2005. Of the $238 billion in option ARM loans made nationally in 2005, World Savings issued about $52 billion, or more than one-fifth of the total.

Susan Schmidt Bies, a governor of the Federal Reserve System until last year, said the surge in volume caught regulators by surprise, and that she regrets not acting more quickly to protect borrowers because she believes that they could not understand the risky nature of option ARMs.

“When you get into people whose mortgage payments are taking half of their cash flow, they are in over their heads, and these loans should not have been sold to this customer base,” she said. “This makes me sick when I see this happening.”

In March 2006, two months before the Wachovia deal, Mr. Sandler wrote regulators and objected to several aspects of the new rules, including the regulator’s conclusion that option ARMS “were untested in a stress environment.”

He argued in the letter that World Savings had few loan losses in the recession of the early 1990s. Then again, the current financial crisis is far more severe than what occurred then — far more severe than anything the country has faced since the Great Depression.

By the third quarter of this year, Wachovia was projecting $26.1 billion of losses on a World Savings loan portfolio worth a total of about $124 billion. About 6.2 percent of the Pick-A-Pay loans were more than 90 days late, it said, compared with an industry average of 8 percent on option ARMs and 1 percent on Wachovia’s traditional loans.

Wells Fargo, which is now buying Wachovia, is more pessimistic: it expects losses of $36 billion on the loans unless efforts to stem foreclosures help rescue part of the portfolio. The losses caused analysts and others to reassess the Sandlers’ legacy.

After the “Saturday Night Live” skit, Paul Steiger, the former executive editor of The Wall Street Journal and the editor in chief of ProPublica, was among those who wrote to the show’s producer, Lorne Michaels, saying the Sandlers had been unfairly vilified. Mr. Michaels apologized for the skit (which suggested that the Sandlers “should be shot”) and removed it from NBC’s Web site.

Mr. Sandler says Wachovia did not work hard enough to help struggling borrowers, and that his loans became scapegoats for other problems at Wachovia. He remains confident that losses on its loans will not reach Wells Fargo’s projections.

He says World Savings was hit especially hard because it had made so many loans in volatile markets like inland California, but he disputes homeowner assertions that his option ARMs are at fault.

“We have not been able to identify one delinquency, much less a foreclosure, that is due to the product,” Mr. Sandler said, adding that “if home prices had not dropped, you wouldn’t see” a single article.

Over all, analysts expect the option ARM fallout to be brutal. Fitch Ratings, a leading credit rating agency, recently reported that payments on nearly half of the $200 billion worth of option ARMs it tracks will jump 63 percent in the next two years — causing mortgage delinquencies to rise sharply.

Mr. Sandler says that his loans are not in the pool that will become distressed in the next few years; he says they reset at a later date. He adds that were he not sure that the market would recover he would have sold his Wachovia stock at the time of the takeover. His charity has sold off much of its Wachovia stock, but he said he and his wife retain a substantial portion of their personal holdings.

Still, the Sandlers have their detractors.

“As the largest and most respected regulated institution providing option ARMs, I hold the Sandlers responsible because a large percentage of home borrowers — but not all — should have been advised that it was in their best interest to have a fixed-rate mortgage,” said Robert Gnaizda, general counsel for the Greenlining Institute, a homeowner advocacy group. “I believe that financial institutions have a quasi-fiduciary responsibility not to mislead the borrower.”

Mr. Sandler insists that World Savings prided itself on ethical conduct and that untoward behavior was never tolerated. “We were also a family, and you expected people to live their personal and business lives in a particular way,” he said.

RATE CUTS GIVE ONLY SOME HELP FOR ARMs

2008-12-22T07:41:00.000-08:00

By Michael Braga, Bradenton Herald Tribune, Published: Monday, December 22, 2008 at 1:00 a.m.

The historic drop in interest rates will help some people whose adjustable-rate mortgages are scheduled to reset in the near future, enabling them to remain in their homes and avoid foreclosure.

Adjustable-rate loans tied to LIBOR, or the London Interbank Offered Rate -- the international interest rate that banks charge each other -- dropped to as low as 4.5 percent last week, while adjustable-rate loans tied to the one-year Treasury bond dropped even lower.

"People with adjustable-rate mortgages have definitely gotten some relief," said John O'Neill, chief executive of Sarasota-based Century Bank.

But O'Neill and others noted that the rate drops have done nothing to address a fundamental stumbling block in the housing market: Most people who sought ARMs during the boom did so with the idea of refinancing or selling their homes before their mortgage rates reset to higher levels.

When the real estate market ended its historic climb with a swoon, many owners found they owed more on their houses than they were worth. They began to ask whether it made sense to keep making payments.

"Half of the problem is interest rates and the other half is value," said Peter Lyddy, a mortgage broker with Gulf Coast Mortgages of Southwest Florida. "If people don't have the wherewithal to stay with the market and wait for home values to rise, then a drop in interest rates is not going to help them."

That said, the Federal Reserve's recent moves to reduce interest rates from 1 percent to virtually zero will provide temporary relief for those struggling to make payments.

For example, someone who got a $300,000 adjustable rate mortgage in September 2005 with a 3.85 percent introductory rate that was supposed to reset monthly to LIBOR plus 4 percent starting in September would now be paying an interest rate of 4.88 percent, or $257.50 more each month than he was paying three years ago.

Last month, before the Federal Reserve made its big move, that same person would have paid an interest rate of 5.45 percent, or $400 per month more than he was paying three years ago.
His savings from a month ago: $142.50. But calculating the potential savings across the entire economy is more difficult, mortgage brokers say, because interest rates on adjustable-rate mortgages, or ARMs, are impacted by a multitude of factors.

"There are a lot of different adjustable rate loans -- ones that adjust every month and others that adjust annually or semiannually," said Frank Fontanetta, president of Sentinel Mortgage in Sarasota. "Most people who have adjustable rate mortgages are being affected in a very positive way right now. Indexes are dropping and if they have mortgages that adjust monthly, they will see their payments drop next month."

How much payments drop depends on whether their loans are tied to LIBOR or Treasury bills or some other index, Fontanetta said. That is because all these indexes are adjusting at different speeds.

The LIBOR rate has been running high in recent months -- and during the financial crisis -- as banks have hoarded cash and worried that other lenders might collapse and not pay them back.
Meanwhile, the average rate for a conventional 30-year fixed mortgage on a owner-occupied, single-family home with 20 percent down on Friday was 5.375 percent, which is up slightly for the week from Monday's rate of 5.25 percent.

Ground zero

The problem with the adjustable rate mortgages offered during the boom is that they were issued to people with more of an investor mentality than a homeowner mentality, said Jack McCabe, a Deerfield Beach real estate consultant. Those people were expecting their homes to appreciate in value. When the opposite happened, they wanted out.

"Many will default regardless of how low rates go," McCabe said. "Their houses have lost 20, 30 and even 40 percent of their value and they do not know how long it will be before prices go up by 20 to 40 percent again. It could be several years."

It may make sense for some of these borrowers to default on their loans and allow their credit ratings to drop, he said.

The only way to avoid that would be for banks to allow homeowners to reduce the total amount of money owed to levels more in line with current property values, McCabe said.

"There will be no bottoming out until banks are willing to agree on principal reductions of loan balances," he said. "We need to reappraise every property, determine the percentage decrease in value and reduce the principal owed to the new value of the home."

If someone bought a house for $400,000 with 10 percent down and the house is now worth 200,000, then the lender should reduce the amount owed to $180,000, McCabe said.

"That will give the homeowner some equity that he can borrow against in the future to make other purchases," he said. "That is what has always driven our economy, and until that happens we are not going to see any improvement."

Jim Wright, a mortgage broker with Eagle Mortgage Company in Venice, believes homeowners will soon be able to do what McCabe suggests through the federal government's much maligned "Hope for Homeowners" program.

Launched by the Bush administration in October, the program allows homeowners to refinance their existing loans based on current market values with the understanding that their lender will share in upside appreciation when the real estate market recovers.

For example, if someone owes $300,000 on their house that is now worth $200,000, they could get a new $193,000 Federal Housing Administration mortgage, Wright said. In return for forgiving $107,000 from the previous loan, the lender would get the right to collect up to 90 percent of the profits from the sale of the house after the first year and 50 percent after five years.

"Getting 50 percent of the net proceeds is a better option for the lender than going through a short sale or a foreclosure," Wright said. "At the same time, borrowers are able to protect their credit and get lower payments."

The program requires a lot of work on the part of both mortgage brokers and homeowners because the homeowner has to prove that paying the current loan is a hardship, Wright said. The homeowner also must have a minimum credit score of 580 and a loan of no more than $417,000.

Few of these loans have been negotiated to date, but Wright predicted that changes will be made when Barack Obama becomes president.

McCabe is skeptical. "The program was projected to help 400,000 homeowners, but so far it has helped zippo" because banks have been unwilling to reduce the money they are owed, he said.
O'Neill, the Century Bank CEO, acknowledged that, too.

"We're not willing to take haircuts on principal," he said.

Century will do short sales, in which the bank agrees to receive less money from the sale of a house than is owed on the property.

It also will help borrowers by allowing them to make interest-only payments or run up the principal owed in return for lower interest payments.

"We are doing whatever we can to restructure and keep people in their homes," O'Neill said.
But the fundamental attitudes toward home ownership have changed and far more people are willing to default on their mortgages than they were ten years ago, O'Neill said.

"There is not as much sentimental attachment to a home," he said.

"People see it more as an investment, and if the investment has gone bad, they are willing to walk."

Brokers jump as mortgage rates drop

2008-12-18T05:40:00.000-08:00

By Aaron Kessler - Bradenton Herald Tribune - Published: Thursday, December 18, 2008

LAKEWOOD RANCH - One day after the Federal Reserve said it was prepared to print vast sums of money to shore up the credit markets and buy up troubled debt, the effect on mortgages is already being felt in Southwest Florida.

Interest rates for 30-year fixed mortgages fell below 5 percent for the first time since summer 2003, when they broke that barrier for just a few days. Sustained rates in the 4 percent range have not been seen since the 1950s.

The average rate was 4.875 percent Wednesday afternoon — a drop of 0.625 percentage points in less than 24 hours and a number that has not been seen since August 1956. Late in the day, rates rose back to 5.25 percent, likely the result of a flood of applicants clogging the system, experts said.

On Wednesday morning, a dozen mortgage brokers braved the fog to gather at a Lakewood Ranch coffee house. Billed as “Mortgage Mocha,” the networking event organized by the local chapter of the Florida Association of Mortgage Brokers brought out a crowd energized by the Fed’s move.

“Who would have thought rates would be under five?” asked Mike Tullio, senior mortgage consultant at Blue Skye Lending. “I’m psyched. This is incredible.”

Don Stilts, regional manager for 1st Signature Lending, told the group, who sat in a circle sipping on their coffee: “We’re in uncharted waters. I’ve never seen anything like this before.”

Several other brokers also traded tales of increased activity, as both new buyers and those looking to refinance were calling to take advantage of the historically low rates.

The Fed’s short-term rate cut to virtually zero likely had little effect on mortgage rates, which have traditionally followed 10-year U.S. Treasury notes instead. But 10-year notes dropped as well this week, to their lowest yield since the 1960s, as investors poured in to scoop them up after the Fed’s indication that overall interest rates could be kept low for the foreseeable future.

There were 30-year fixed mortgages available Wednesday in Southwest Florida for about 4.87 percent with no points or extra fees. Adding a few points — each point is equal to one percent of the purchase price — could bring the rate down past 4.5 percent or even close to 4 percent.

Mortgage application volume jumped last week, fueled by borrowers seizing on lower rates to refinance home loans, the Mortgage Bankers Association said. The trade group’s seasonally adjusted application index rose 2.9 percent to 841.4 in the week ended Dec 12. The index stood at a revised 817.7 a week earlier.

The federal government had recently floated the idea that getting rates to 4.5 percent would help spur home sales and re-energize the refinancing market.

The Fed’s move also caused the “prime” rate charged by commercial banks, which many adjustable home equity lines and second mortgages are tied to, to fall to 3.25 percent — also its lowest rate in more than 50 years.

“It’s like they’re giving money away right now,” Tullio said of the prime rate drop.

But the positive developments may leave one important class of homeowners still twisting in the wind — those who are “underwater,” owing more on their mortgages than their homes are now worth.

“This is the greatest opportunity that I’ve ever seen to buy, but there are a couple of notable stumbling blocks,” said Sentinel Mortgage’s Frank Fontanetta in a separate interview on Wednesday.

Those blocks are the diminished home values plaguing the underwater owners, for whom lower interest rates unfortunately do not mean much.

“Those people cannot refinance; there’s really nothing they can do,” he said. “Generally they can’t sell it either. They’re just stuck.”

So far, government programs like the Hope for Homeowners, which provides a guarantee for lenders if they reduce the loan principal by a specified level, have not caught fire with banks. In fact, only a few hundred borrowers in the entire country have been helped so far by the program, which was intended to save more than 400,000 from foreclosure.

Congressional leaders as well as the Federal Deposit Insurance Corp. have pushed the Treasury Department to use money from the Troubled Asset Relief Program, known as TARP, to help underwater homeowners at risk of defaulting. Treasury has thus far resisted.

Meanwhile, for mortgage brokers looking to survive, lower interest rates that can prime the pump for new borrowers are a very welcome development.

Bryan Ehrlich woke up at 5:30 a.m. to drive nearly 80 miles from New Port Richey just to attend the brokers’ gathering on Wednesday. He said it was worth the trip to learn more about the new programs and brainstorm with his fellow brokers.

He also told those gathered that as the market struggles to right itself, the most important thing for those in the mortgage business is to be trustworthy because post-boom borrowers want the confidence to know they are in good hands. They have already seen what the dark side of the lending business can bring, and they have no desire to go down that road again.

“We should be fighting for higher entry standards into the industry,” said Ehrlich, president of Innovative Mortgage Services, based in Trinity. “Those who have less-than-desirable intentions should not be coming in anymore.”

Foreclosures in Florida fall sharply

2008-12-11T12:18:00.000-08:00

By Michael Braga
Published: Thursday, December 11, 2008 at 1:00 a.m. - Bradenton Herald Tribune

The number of foreclosures filed in Southwest Florida and across the state fell dramatically in November and is expected to fall further in December because of moratoriums declared by the state's lenders at the urging of Gov. Charlie Crist.

Manatee County saw the biggest drop in the region, reporting 363 foreclosure filings, 59 percent fewer than in October and 24 percent less than in November 2007, according to statistics released Wednesday by RealtyTrac, an Irvine Calif.-based market research firm.

Charlotte County logged 472 filings, down 28 percent from October, while Sarasota recorded 1,111 filings, a 3 percent drop from a month earlier.

The dramatic declines had at least one Realtor who specializes in foreclosed properties declaring that the foreclosure crisis has peaked.

"We may have passed the top of the cycle," said Matt Augustyniak, broker and owner of Horizon Realty in Bradenton. "Three years ago takes us to the end of 2005 when sales dropped off. There were not as many mortgages in 2006."

Foreclosure filings dropped 9 percent to 49,190 in Florida during November when compared with the previous month, and by 7 percent to 259,085 in the United States as a whole.

"Foreclosure activity in November hit the lowest level we've seen since June thanks in part to recently enacted laws that have extended the foreclosure process in some states, along with more aggressive loan modification programs and self-imposed holiday foreclosure moratoriums introduced by some lenders," said James J. Saccacio, RealtyTrac's chief executive, in a statement.

"There are several indications, however, that this lower activity is simply a temporary lull before another foreclosure storm hits in the coming months.
Saccacio noted that the Mortgage Bankers Association reported that delinquencies on loans not yet in the foreclosure process jumped to nearly 7 percent in the third quarter, a record high.
He also noted that U.S. Office of Thrift Supervision reported that more than half of the homeowners who received loan modifications to reduce monthly mortgage payments in the first half of 2008 are already delinquent again.

"Many of these delinquencies could turn into foreclosures next year," Saccacio said.
Dennis Black, a Port Charlotte real estate consultant, also believes the November drop is a temporary blip. "Remember, November is a month with a holiday. People tend to work less," he said.

Black also believes that the only thing the current 45-day moratorium on foreclosures will do is create a landslide of filings on the 46th day. "It's not going to change the fact that people are in houses they can't afford," he said.

It also is not going to change the fact that some people are victims of the crisis and others have found ways to profit from it.

Augustyniak, for example, says his firm is selling 35 foreclosed properties each month and another 25 through short sales in which buyers are paying less for properties than what banks are owed by former owners.

"Investors are coming in hot and heavy," Augustyniak said. "To me this is better than 2004 and 2005."

Margaret Amador, an agent with Allison James Estates & Homes who specializes in short sales, sees other investors holding off because of the financial crisis.

"I have a little three-bedroom house I am trying to sell on North Lockwood Ridge Road and I had a cash buyer who was willing to pay $77,000," Amador said. "But when the crisis deepened, this buyer decided he wanted to hold on to his cash."

For Venice resident Steven Baker, the crisis has produced nothing but frustration. He is trying to work with a bank on a commercial property he and his wife bought in 2006.

"In November 2007, we came to the bank in good faith to advise them we needed some options regarding our loan as we had been unable to sell, rent, or use the property," Baker said in an e-mail to the Herald-Tribune. "They managed to drag the process on and on, not returning phone calls, e-mails, etc."

"I think it all comes down to the fact the financial institutions really don't know how to handle the current situation to protect themselves, so will do whatever they can do at the cost of the borrowers, no matter what that cost is," Baker said. "They are finding the government will continue to issue handouts to themselves, so why make an effort to help the borrowers? They will get their money no matter what. It's a combination of greed and stupidity."

During November, Florida had the second most foreclosures in the country, with one for every 173 households. Nevada came was first with one filing for every 76 houses.

California and Florida cities accounted for 9 of the top 10 metro foreclosure rates. Cape Coral-Fort Myers posted the highest foreclosure rate with one filing for every 59 houses. Two other Florida cities ranked among the top 10: Fort Lauderdale at No. 7, with one for every 117 housing units; and Port Lucie-Fort Pierce at No. 8, with one for every 118 housing units.

Sarasota County had one filing for every 195 houses; Charlotte one for every 203; while Manatee had one for every 458.

A case study in housing collapse

2008-12-01T05:51:00.000-08:00

By Michael Van Sickler, Times staff writer In print: Sunday, November 30, 2008

TAMPA — Thousands of miles from the trading floors of global stock markets, an abandoned house in one of Tampa's poorest neighborhoods is an improbable place to learn about why the world's financial system is collapsing.

But if you want to understand how we got into this mess, the stucco house at 4809 N 17th St. isn't a bad place to start.

Beer bottles and shards of glass litter the yard. A blue tarp covers much of the rotting roof. Boards shutter the windows.

This husk sold for $300,000 in 2006 with the help of a no-money-down mortgage from a subsidiary of Washington Mutual Bank. The owner defaulted; WaMu owns it now. Listed for $52,000, the house could be yours for $35,000 cash.

"What we had here was an obvious case of mortgage fraud," said Josh Parker, a Coldwell Banker Realtor.

The 17th Street house is one of a constellation of 90 homes stretching across Tampa, all bought and sold in the past four years by a 34-year-old tattoo parlor owner.

Most of the homes Sang-Min Kim sold are empty now. Many have code violations, and are clustered in impoverished neighborhoods such as Belmont Heights and Sulphur Springs.

The trail of foreclosures and blight is lined with the bad mortgages approved or assigned by Wachovia, Washington Mutual, Bank of America, National City Bank, Lehman Bros., Fannie Mae, Freddie Mac and Wells Fargo.

The loans — many made by banks now getting billions in a taxpayer bailout — dwarfed the true value of the properties. Some borrowers had no prospects to suggest they could pay off the loans. Multiple loans from the same bank branch sometimes went to a questionable borrower within weeks of each other.

"It's obvious the banks weren't paying attention, or worse," said Richard Hagar, a property fraud expert.

• • •

Kim, who has no criminal record in Florida, made millions selling houses. More than a third of the homes he sold are in default, with more expected. Some of the buyers have criminal records as drug dealers.

Real estate is popular among drug dealers, experts say. It's a cash investment that allows them to launder money, and the returns are terrific. Flipping a single house, a dealer can score more than he can grinding it out on a street corner for a year.

A common scam works like this: Someone with cash buys a crummy house cheap. A mortgage broker signs on and finds an appraiser to inflate the value. The broker shops the loan application, with false data about the borrower and the house. Bank loan officers approve it.

In recent years, this scam went unchecked as bank oversight mostly vanished. Banks had traditionally held onto mortgages for 30 years and had a self-interest in seeing that borrowers could repay the loans. But as lending rules were relaxed, banks sold the riskiest loans to investment firms, which dumped them into pools of thousands of other mortgages that investors would buy.

This pass-the-buck system did such a poor job policing itself, Hagar said, that "government now considers (mortgage fraud) a national security threat that's undermining our banking system.''

All it takes to prevent, Hagar said, is someone at the bank to ask a couple of questions. "This kind of fraud should be easy to spot."

• • •

"Sonny'' Kim, who was born in South Korea, owns Body Design Tattoos, an Asian-themed tattoo and body piercing parlor on N Florida Avenue. He's also listed as an owner of a flea market.

He started flipping property four years ago. In late 2005, he formed a real estate investment firm. Buyers paid Kim $10.7-million for homes he bought for $6.5-million, according to Hillsborough County property records.

What's his secret? Kim won't say. He politely declined any comment for this story.

His homestead tax exemption is on a house in Pasco's Meadow Pointe subdivision appraised at $215,000.

Kim lived there until recently, said Greg Ingram, who lives next door but never got to know his neighbor. Judging from a steady rotation of flashy cars in the driveway — a Hummer, a Mercedes, a Lexus, a Cadillac — Ingram assumed Kim worked at a car dealership.

In 2006, Kim bought an empty lot in a gated Lutz subdivision for $220,000 where he built a two-story, five-bedroom, five-bath house. Although it is not registered as his homestead, Kim lives there. Valued at $1.1-million, it's a world away from the homes Kim sells for profit.

Take the 54-year-old stucco house slumped at 7016 N Oregon Ave. in central Tampa. The back facade is crumbling. In October, a large maple branch lay in the front yard, tangled in an electrical wire it snapped on the way down.

Neighbors said they had not seen anyone in the house for six months. A June 18 legal notice tacked to the door cited the owner for weeds, debris and junk.

The deed from 2006 lists Kim's investment company as the seller and a Tampa woman as the buyer. Haydee Llanes got a $200,000 mortgage — more than double the property appraiser's current market value — and defaulted this year.

Her phone is disconnected. Her address is listed at a house that's abandoned. She defaulted on two other loans issued that same year. One was for a house she bought from one of Kim's business associates.

His name is Francisco Acevedo. Law enforcement knows him well.

• • •

In 1999, Acevedo made the mistake of paying a midnight visit to a home in Land O' Lakes that Pasco County sheriff's deputies were watching. They stopped him after he left the home and found $24,000 cash in the trunk of his car.

Prosecutors said Acevedo was the main source in a drug ring that sold $70,000 of cocaine a week in Hernando, Hillsborough and Pasco counties.

He shows up time and again in Sonny Kim real estate deals. He and his wife acquired seven homes from Kim. In more than a dozen other deals where Acevedo bought or sold homes, Kim prepared the paperwork.

After Acevedo's arrest for cocaine trafficking, Kim wrote the judge, describing Acevedo as a "hard-working citizen" deserving of a second chance.

Acevedo pleaded guilty to trafficking and got two years in prison. After his release on probation, he and Kim managed a property maintenance company together.

Now 31, Acevedo has his own real estate investment company called the Acevedo Investment Group. "Take control of your future," says the company Web site. "In America, the most common way to accumulate wealth is through home ownership."

Since February, he has been sued four times for foreclosure. His wife has defaulted on three mortgages. His father defaulted on a $164,000 mortgage for a home he bought from Sonny Kim.

Acevedo did not respond to messages seeking comment.

• • •

It takes 29 pages for the Florida Department of Law Enforcement to list the 45 times Thermozi Thomas has been arrested since 1980. Marijuana and cocaine possession and distribution. Arson. Insurance fraud.

He pleaded guilty for the 1999 false imprisonment of a woman he drove home from a bar. The arrest report said he wouldn't let her go until she had sex with him. While he smoked crack, the woman called 911.

Last year, a judge ruled he was "incompetent to proceed'' on a cocaine charge and let him go.

Through the years, most of the charges against the 46-year-old Thomas have been dropped, often because he was deemed incompetent to stand trial. His former lawyer says Thomas is schizophrenic.

Since 2000, Thomas has bought and sold about 35 homes, most with quit-claim deeds that don't show the true sales price. Kim acquired at least six homes from Thomas.

Thomas — repeatedly ruled incompetent for trial — prepared documents in at least two deals with Kim. After his latest arrest, Thomas was placed in a state hospital, said his former attorney, Ronald Young.

"I can't imagine this guy as a real estate magnate," Young said. "Unless he's the greatest actor in the world, I have a funny feeling that someone took advantage of him. There's no way he was in any shape to flip homes."

Then there is Andre Scott, arrested in 2003 after delivering cocaine to an undercover officer in a Kash n' Karry parking lot.

While on probation, Scott started flipping subpar houses. He said in a 2006 interview with a promotional magazine that "house hustling'' gave him an honest way to live a life of luxury.

"I drive a Hummer and own a 1970 vintage Oldsmobile 442," Scott said then. "I always wanted diamonds and now I own them legally and no one can take them away."

Scott is a witness on at least one-third of the deeds for homes sold to Kim. Of those, Kim sold more than a dozen homes to people who later defaulted. Kim sold two homes to Scott in August and September. Scott paid him nearly $100,000 more than Kim paid for the properties.

In October, when Scott was arrested on a domestic battery charge, he listed his home address as the Pasco house that Kim owns.

Scott declined to comment.

• • •

Deanna Jones notarized dozens of Kim's deals, including many where the buyers are now in default.

"I can go home and sleep at night," she said. "That's all that matters."

Jones said Kim did nothing wrong by involving ex-felons in his deals.

"You're saying criminals can't buy or sell property?" she said. "Why don't you write about all the teachers molesting kids? That's a bigger problem, don't you think?"

Jones pleaded guilty this year to grand theft and criminal use of personal information after she ran up about $10,000 in fraudulent credit card charges. She got 18 months probation.

Jones works for a Broward County title agency operated by Howard Gaines. A federal grand jury in Fort Lauderdale indicted him in June. Gaines was part of a conspiracy to obtain mortgages by using straw buyers, according to the indictment. As title attorney, he was accused of falsifying documents to the bank to make it look like the buyers qualified for the loans.

The indictment covered only transactions in South Florida. Gaines has a Tampa office that leases space in a building owned by Kim. His company processed more than one-third of Sonny Kim's sales in Hillsborough County. Of those, at least 18 have defaulted.

When asked if Gaines would comment, Jones instant messaged him, then read aloud his reply message. "He just said, 'Don't give (the reporter) my number, I have nothing to say.' "

• • •

Five mortgages for people buying homes from Kim in Tampa were approved in Florence, S.C., by a subsidiary of Washington Mutual Bank. The deals, worth a total of $1-million, went through within five months of each other. All defaulted.

Asked if the banks saw any red flags, a WaMu spokeswoman cited privacy and would not address specific cases.

Nor would officials at Wachovia comment on three loans for a total of $597,000 that were made to Frank and Sarah Acevedo within two months of each other for homes they bought from Kim. All three defaulted.

Kim sold six homes to buyers using $1.2-million in mortgages bearing a lender address of Suite 250, Bayport Plaza: the local home of First Franklin, then a division of National City Bank. The mortgages were approved in a matter of months; all defaulted.

Near Tampa International Airport, with its gleaming glass facade, marble floors and tenants such as Boeing and Morgan Stanley, the 11-story Bayport Plaza is a high-rent repository for a series of deals involving near-worthless real estate.

From here, First Franklin approved a $138,000 mortgage for a yellow clapboard house on N 34th Street that Kim sold in 2006. It has particle board nailed across a side window and dirt smeared along its front. The buyer defaulted within months. It's listed now at $29,000.

"Amazing. I didn't know you could get such high prices in that part of Tampa," said Dianne Hart, CEO of the East Tampa Business and Civic Association, which builds houses in struggling neighborhoods. "And the banks approved these mortgages? Well, I guess that explains why we're in the situation that we're in."

Inez Albury is the only name from First Franklin that appears on the public documents for that loan and two others in Sonny Kim deals that defaulted.

Her job was "closer," meaning Albury processed the loan applications after an underwriter had reviewed the appraisal justifying the loan amount and the borrower's credit and criminal history. She lost her job in late 2007 as the boom ended with a thud.

During the good times, Albury described an assembly line approach to keep up with demand at her office. Managers made it clear they needed to hit their numbers each month.

The pressure was intense by 2006 and early 2007, she said. She reviewed as many as 20 loan applications a day, sending each one down the line to a title agency, sometimes just minutes before a closing. She never rejected one.

"We had quotas we had to meet," Albury said. "We didn't have time to look at them."

The house at N 34th Street is now listed at one-fifth of the loan amount she processed. The loan was approved for a man arrested for delivering cocaine and multiple other charges.

"That's ridiculous," Albury said. "I felt like it had to be a good loan by the time it reached me. I was just doing the job I was taught to do. I wasn't the one making the decisions."

Getting an explanation from First Franklin is impossible. Its Tampa office closed this year. The company was bought in late 2006 by Merrill Lynch, which was trying to grab a share of the sub-prime profits it saw competitors like Lehman Bros. making.

When that market tanked, Merrill Lynch found itself stuck with billions in junk mortgages. Under pressure, it merged with Bank of America in September.

Washington Mutual and Wachovia also have gone under or were forced to merge.

• • •

Kim's sales represent a miniscule fraction of mortgages these banks approved, but they illustrate how reckless the lenders became.

Dissect any of the 35 sales involving homes that ended up in foreclosure after they were sold by Sonny Kim, and it's hard to believe that lenders made any attempt to verify anything.

That's no surprise to prosecutors and experts who have reviewed thousands of mortgage fraud files. They say that often what allowed scams to work were banks that freely approved loans for borrowers who made absurd claims, like the carwash employee who supposedly earned $40,000 a month.

"Saying there was lax oversight is too kind, there was no oversight," said Doug Pollock, an expert witness for federal agencies prosecuting fraud. "The whole reason we're in this mess is because of the lenders. This is corporate greed all the way up the ladder."

Nothing will improve without accountability on all levels, Pollock said, especially as the same banks get billions in a taxpayer bailout.

"The bad guys took advantage of a weak system," he said. "Law enforcement needs to prosecute these guys. But we're forgetting who's really responsible, and that's the bankers. No one is holding them accountable or making them change the way they do business.''

But the nation's top regulators suggest there's little payoff in a crackdown.

"There's no question that somewhere in this terrible mess many laws were broken," the chairman of the Securities and Exchange Commission, Christopher Cox, recently told Congress. "But, you know, cleaning up the mess through law enforcement after the fact, while important, is not ideal."

Federal mortgage fraud investigations are typically triggered after a lender files a "suspicious activity'' report. In the FBI's Tampa division, the number of such reports nearly quintupled between 2004 and 2007, from 430 to 2,041. This expanding caseload is swamping an agency that since 9/11 diverted most of its investigators to counterterrorism.

Rampant fraud has created market conditions that encourage more manipulation. As home prices fall because of the glut of foreclosures, the banks are desperate to sell. Someone flush with cash could do well.

Despite the bleakest market in years, Sonny Kim has sold 25 homes this year.

He fetched $185,000 in September for a home in Belmont Heights that had an appraised value of $128,000.

Kim keeps buying, too. On Oct. 20, he snapped up a house south of Bearss Avenue that sold for $198,000 in 2006. Kim paid just $83,000.

Kim bought it from WaMu. The owner had defaulted on his mortgage, and the bank needed to unload the house.

FHA-Backed Loans: The New Subprime

2008-11-26T09:20:00.000-08:00

The same people whose reckless practices triggered the global financial crisis are onto a similar scheme that could cost taxpayers tons more

By Chad Terhune and Robert Berner of Business Week, 11/19/2008

As if they haven't done enough damage. Thousands of subprime mortgage lenders and brokers—many of them the very sorts of firms that helped create the current financial crisis—are going strong. Their new strategy: taking advantage of a long-standing federal program designed to encourage homeownership by insuring mortgages for buyers of modest means.

You read that correctly. Some of the same people who propelled us toward the housing market calamity are now seeking to profit by exploiting billions in federally insured mortgages. Washington, meanwhile, has vastly expanded the availability of such taxpayer-backed loans as part of the emergency campaign to rescue the country's swooning economy.

For generations, these loans, backed by the Federal Housing Administration, have offered working-class families a legitimate means to purchase their own homes. But now there's a severe danger that aggressive lenders and brokers schooled in the rash ways of the subprime industry will overwhelm the FHA with loans for people unlikely to make their payments. Exacerbating matters, FHA officials seem oblivious to what's happening—or incapable of stopping it. They're giving mortgage firms licenses to dole out 100%-insured loans despite lender records blotted by state sanctions, bankruptcy filings, civil lawsuits, and even criminal convictions.

More Bad Debt

As a result, the nation could soon suffer a fresh wave of defaults and foreclosures, with Washington obliged to respond with yet another gargantuan bailout. Inside Mortgage Finance, a research and newsletter firm in Bethesda, Md., estimates that over the next five years fresh loans backed by the FHA that go sour will cost taxpayers $100 billion or more. That's on top of the $700 billion financial-system rescue Congress has already approved. Gary E. Lacefield, a former federal mortgage investigator who now runs Risk Mitigation Group, a consultancy in Arlington, Tex., predicts: "Within the next 12 to 18 months, there is going to be FHA-insurance Armageddon."

The resilient entrepreneurs who populate this dubious field are often obscure, but not puny. Jerry Cugno started Premier Mortgage Funding in Clearwater, on the Gulf Coast of Florida, in 2002. Over the next four years, it became one of the country's largest subprime lenders, with 750 branches and 5,000 brokers across the U.S. Cugno, now 59, took home millions of dollars and rewarded top salesmen with Caribbean cruises and shiny Hummers, according to court records and interviews with former employees. But along the way, Premier accumulated a dismal regulatory record. Five states—Florida, Georgia, North Carolina, Ohio, and Wisconsin—revoked its license for various abuses; four others disciplined the company for using unlicensed brokers or similar violations. The crash of the subprime market and a barrage of lawsuits prompted Premier to file for U.S. bankruptcy court protection in Tampa in July 2007. Then, in March, a Premier unit in Cleveland and its manager pleaded guilty to felony charges related to fraudulent mortgage schemes.

But Premier didn't just close down. Since it declared bankruptcy, federal records show, it has issued more than 2,000 taxpayer-insured mortgages—worth a total of $250 million. According to the FHA, Premier failed to notify the agency of its Chapter 11 filing, as required by law. In late October, an FHA spokesman admitted it was unaware of Premier's situation and welcomed any information BusinessWeek could provide.

You'd think the government would have had Premier on a watch list. According to data compiled by the FHA's parent, the U.S. Housing & Urban Development Dept. (HUD), the firm's borrowers have a 9.2% default rate, the second highest among large-volume FHA lenders nationally.

Now, members of the Cugno family have started a brand new company called Paramount Mortgage Funding. It operates a floor below Premier's headquarters in a three-story black-glass office building Jerry Cugno owns in Clearwater. In August 2007, only weeks after Premier sought bankruptcy court protection, the FHA granted Paramount a license to issue government-backed mortgages. "I am the only person in the country who really understands FHA," Cugno says with characteristic bravado.

One day recently, Nicole Cugno, his 27-year-old daughter and a Paramount vice-president, was on the phone at her desk, giving advice to new branch managers. Despite past troubles with Premier, the family says Paramount dutifully serves borrowers. The Cugnos stress that the two companies are legally separate organizations.

Similarly worrisome stories are playing out around the country. In Tucson, First Magnus Financial specialized in risky "Alt-A" mortgages, which didn't require borrowers to verify their income. State and federal regulators cited the company for misleading borrowers, using unlicensed brokers, and other infractions. It shut down last summer and laid off its 5,500 employees. But in May, the FHA issued a group of former First Magnus executives a new license to make taxpayer-insured home loans. They have opened a company called StoneWater Mortgage in the same office building that First Magnus had occupied.

G. Todd Jackson, an attorney for StoneWater, said in a written statement that the new company "is not First Magnus." StoneWater employs "a new business model, with different loan products, in a different market," he added. First Magnus had "a long record of compliance," he said. "Isolated incidents and personnel problems occurred, but none were remotely systemic, and all were promptly addressed and corrected by management when discovered."

Back to Life

Nationstar Mortgage, based in suburban Dallas, closed its 75 retail branches in September 2007 after the subprime market crashed. But in August, Chief Information Officer Peter Schwartz told the trade paper American Banker that Nationstar now plans to emphasize FHA-backed loans, which he called a "high-growth channel." The lender received federal approval in March to offer government-guaranteed loans. Just a year earlier, it agreed to pay the Kentucky Financial Institutions Dept. a $105,000 settlement—one of the largest of its kind in that state—to resolve allegations that Nationstar employed unlicensed loan officers and falsified borrowers' credit scores. Nationstar didn't admit wrongdoing in the case.

"All loans we originate conform to industry best practices, as well as all applicable federal and state laws," says Executive Vice-President Steven Hess. The settlement in Kentucky, he adds, isn't "relevant to our FHA status."

Lend America in Melville, N.Y., uses cable television infomercials and a toll-free number (1-800-FHA-FIXED) to encourage borrowers in trouble with adjustable-rate mortgages to refinance with fixed-rate loans guaranteed by the FHA. Anticipating the real estate crash, the Long Island firm switched its strategy in 2005 from subprime to FHA-backed mortgages, says Michael Ashley, Lend America's chief business strategist. This year, the company will make 7,500 FHA loans, worth $1.5 billion, he says. "FHA is a big part of the future," Ashley adds. "It's the major vehicle for the government to bail out the housing industry."

But why the federal government would want to do business with Lend America is perplexing. Ashley has a long history of legal scrapes. One of them led to his pleading guilty in 1996 in federal court in Uniondale, N.Y., to two counts of wire fraud related to a mortgage scam at another company his family ran called Liberty Mortgage. He was sentenced to five years' probation and ordered to pay a $30,000 fine. His father, Kenneth Ashley, was sentenced to nearly four years in prison. "I was just a pawn in a chess game between my father and the government," says the younger Ashley, who is 43. "It doesn't affect my ability to do lending." The default rate on Lend America's current FHA loans is 5.7%, or 53% above the national average, according to government records.

Asked about FHA oversight of former subprime firms, agency spokesman Lemar Wooley says: "FHA has taken appropriate actions, where necessary, with these lenders with respect to their participation in FHA programs." First Magnus, Nationstar, and Lend America met all applicable federal rules, Wooley says. But on two occasions since 2000 one office of Lend America in New York temporarily lost its authority to originate FHA-backed loans because of an excessive default rate, he says. Wooley says the FHA wasn't aware that Lend America's Ashley had been convicted. The firm didn't list Ashley as a principal, Wooley says. FHA lenders are required to disclose past regulatory sanctions and are forbidden to employ people with criminal records.

Founded during the New Deal, the FHA is supposed to promote first-time home purchases. Open to all applicants, it allows small down payments—as little as 3%—and lenient standards on borrower income, as long as mortgage and related expenses don't exceed 31% of household earnings. In exchange for taxpayer-backed insurance on attractively priced fixed-rate loans, buyers pay a modest fee. Lenders and brokers can get a license to participate in FHA programs if they demonstrate industry experience and knowledge of agency rules.

During the subprime boom, the FHA atrophied as borrowers migrated to the too-good-to-be-true deals that featured terms such as extremely low introductory interest rates that later jumped skyward. But since the subprime market vaporized in 2007, FHA-backed loans have become all that's available for many borrowers. By fall 2008, FHA loans accounted for 26% of all new mortgages being issued nationwide, up from only 4% a year earlier. As of Sept. 30, the most recent date for which data are publicly available, the FHA had 4.4 million single-family mortgages under guarantee, worth a total of $475 billion.

A Swelling "Tsunami"

Congress and the Bush Administration are strongly encouraging lenders to apply for FHA approval and tap into the government's loan-guarantee reservoir. In September, the agency guaranteed 140,000 new loans, up from 60,000 in January. In October, as Congress and the White House scrambled to respond to the spreading financial disaster, the FHA began to extend $300 billion in additional loan guarantees under the banner of a new program called HOPE for Homeowners. The limit on the amount buyers may borrow will rise in January to $625,000 from $362,790 in 2007.

Some current and former federal housing officials say the agency isn't anywhere close to being equipped to deal with the onslaught of lenders seeking to cash in. Thirty-six thousand lenders now have FHA licenses, up from 16,000 in mid-2007. FHA "faces a tsunami" in the form of ex-subprime lenders who favor aggressive sales tactics and sometimes engage in outright fraud, says Kenneth M. Donohue Sr., the inspector general for HUD. "I am very concerned that the same players who brought us problems in the subprime area are now reconstituting themselves and bringing loans into the FHA portfolio," he adds.

FHA staffing has remained roughly level over the past five years, at just under 1,000 employees, even as that tsunami has been building, Donohue points out. The FHA unit that approves new lenders, recertifies existing ones, and oversees quality assurance has only five slots; two of those were vacant this fall, according to HUD's Web site. Former housing officials say lender evaluations sometimes amount to little more than a brief phone call, which helps explain why questionable ex-subprime operations can reinvent themselves and gain approval. "They are absolutely understaffed," says Donohue, "and they need a much better IT system in place. That is one of their great vulnerabilities."

Joseph McCloskey, a former director of FHA's single-family asset management branch, says workers reviewing lender applications have had difficulty for years tracking whether executives of previously disciplined mortgage firms were applying for new FHA licenses. "Technologically, they are challenged," McCloskey, now a consultant to FHA lenders, says of his overmatched former colleagues.

The FHA's Wooley disputes these criticisms. The agency can cross-check names and thoroughly examine lender applications, he says.

Like Flies to Honey

There are numerous law-abiding FHA lenders and brokers, just as there are subprime mortgage firms that behaved honestly and cautiously in recent years. But the current economic crisis has turned the FHA into a profit magnet for all kinds of financial players. Major Wall Street investment firms are finding their own angles, which are entirely legal.

In April 2007, Goldman Sachs (GS) purchased a controlling stake in Senderra Funding, a former subprime lender in Fort Mill, S.C. Goldman, which has received $10 billion in direct federal rescue money, converted Senderra into an FHA lender and refinance organization. The strategy appears likely to produce hefty margins. In September, Goldman paid 63¢ on the dollar in a $760 million deal with Equity One (EQY), a unit of Banco Popular (BPOP), for a batch of subprime mortgage and auto loans. Through Senderra, Goldman plans to refinance at least some of the mortgages into FHA-backed loans. Because of the government guarantee, it can then sell those loans to other financial firms for as much as 90¢ on the dollar, according to people familiar with the mortgage market. That's a profit margin of more than 40%.

Goldman's dealings suggest another reason FHA-insured lending is booming: The federal guarantee creates an incentive for banks to buy FHA loans and bundle them as securities to be sold to investors. This is happening as the securitization of subprime and conventional mortgages has largely ceased.

Operating far from Wall Street, the Cugno clan of Clearwater exemplifies a certain indefatigable American spirit in the face of economic setbacks. Whether that enterprising drive is always something to celebrate is less clear.

The Cugnos concede that their older mortgage firm, Premier, had its flaws. "My dad's company got too big," says Nicole Cugno. "It was too hard to control." At its peak in 2006, Premier originated $1 billion in loans each month and had annual revenue of more than $200 million. It sold what amounted to franchises to brokers around the country who frequently operated with little supervision from the 200-employee home office. "Everybody had a few bad apples, and I had a few of them," Nicole's father, Jerry, says. "If they got in trouble, we fired them."

Mark Pearce, deputy commissioner of banks in North Carolina, one of the five states that banned Premier, counters that the company seems to have invited abuses. North Carolina investigators concluded that Premier's branch in Charlotte allowed, among other deceptive practices, unlicensed brokers from around the country to "park" loans there for a fee. The aim was to make it appear that the mortgages were associated with a licensed broker trained and supervised by a substantial firm. "This is a company that should not be doing business in North Carolina," Pearce says.

But the Cugnos are very much staying in business. While Premier's bankruptcy proceedings continue in Tampa, members of the family are employing essentially the same model with their new company, Paramount. Only this time they are stressing federally guaranteed FHA loans. Paramount charges branches $1,625 a month to use its name, FHA license, and software. On its Web site, it tells brokers that FHA loans are "the new subprime."

"We're taking some of the things Premier did and tweaking [them]," says Barry McNab, a former Premier executive who now heads FHA lending for Paramount. About 9 out of 10 Paramount loans have FHA backing, he explains. It's difficult to evaluate most of those guaranteed loans, since they are so new. But a look at the experiences of some past Premier borrowers isn't encouraging.

U.S. District Judge Richard Alan Enslen in Kalamazoo, Mich., began a June 2007 written opinion about Premier's practices with this observation: "The crooks in prison-wear (orange jump suits) are easy to spot. Those in business-wear are not, though they do no less harm to their unsuspecting victims."

The case before Judge Enslen concerned Marcia Clifford, 53. She won a civil verdict that Premier had violated federal mortgage law when it replaced the fixed-rate loan it had promised her with one bearing an adjustable rate. Enslen also found that Premier had misrepresented Clifford on her application as employed when she was out of work and living on $700 a month in disability payments. Despite his ire, the judge decided to award Clifford, who did sign the deceptive documents, only $3,720 in damages, an amount based on unauthorized fees Premier had pocketed.

Clifford's name now appears along with a lengthy list of Premier's other creditors in the bankruptcy court in Tampa. Unable to make her $600 monthly mortgage payment, she received an eviction notice in June and says she is likely to lose her three-bedroom house in Belding, Mich. "It was a bait and switch," Clifford says, sobbing. "The folks at Premier are coldhearted."

Janice Dixon is also owed money by Premier. In March 2006 an Alabama jury awarded her $127,000 in damages related to a fraudulent refinancing in which, she alleged, the company didn't disclose the full costs of her borrowing. "Who will fix this?" Dixon, 49, asks. "They will continue to do these same things over and over."

Wooley, the FHA spokesman, says the agency noticed Premier's default rate rising earlier this year. But he adds that both Premier and Paramount met FHA requirements.

Low Income? No Problem

Like the Cugnos, Hector J. Hernandez lately has shifted his mortgage business away from subprime and toward FHA loans. The Coral Gables (Fla.) lender has a different twist on the business: He uses FHA-backed loans to help hard-pressed borrowers buy condominiums in buildings he owns.

Sascha Pierson was an unlikely borrower. She had no employment income when she bought a three-bedroom condo in Palmetto Towers, a Hernandez property in Miami, in July 2007 for $318,000. She borrowed almost the entire purchase price from Great Country Mortgage Bankers, Hernandez's loan company. Pierson, 29, says she is pursuing a psychology degree online from Kaplan University. She lives on a $42,000 annual educational grant from the government of the Cayman Islands, where she is a citizen. But the grant ends this year, and even with two roommates, she doesn't know how she's going to pay the $2,600 monthly bill for her mortgage and condo fee. "I am seriously worried about defaulting on my loan," she says.

Less extreme versions of Pierson's situation seem common at Palmetto Towers, a pair of eight-story stucco buildings Hernandez acquired in 1996. BusinessWeek interviewed eight condo owners at the complex, all of whom had obtained FHA-backed loans from Great Country. All eight, including Pierson, say they agreed to terms that required them to make mortgage and condo-fee payments that total considerably more than the FHA's guideline of 31% of their monthly income. Four of the eight owners say they received cash payments at closing of $10,000 or more as incentives to buy. The payments, which the FHA says are prohibited, were included in the loans. Pierson says she received $19,500. "They called it a 'cash-back opportunity,'" she explains.

Her neighbor, Lorena Merlo, 27, received a Great Country check for $14,640 at the closing in April on her $316,375 three-bedroom unit. Merlo, a part-time legal assistant, and her husband, Renny Rivas, a drywall laborer, earn a total of $52,000 a year and have two young sons. Their monthly home payments amount to 58% of their gross income, way over the FHA limit. "We are four months behind on our mortgage," says a mournful Merlo.

Defaults and Denials

Of the 158 units in Palmetto Towers, 66 are in foreclosure, records show. An additional 33 are unsold. Great Country has originated 1,855 FHA mortgages since November 2006; 923 of those were in default proceedings as of Oct. 31. The firm's 50% default rate is the highest in the entire FHA program.

Hernandez blames the high failure rate on the disastrous South Florida real estate market, not Great Country's practices, which he says are all legitimate. Asked in a phone interview whether he encourages buyers to purchase condos they can't afford, paying them questionable cash incentives, he says flatly, "That is not true." He adds: "[The buyers] are lying. They are disappointed by falling prices."

In October, however, the FHA decided it had seen enough. It ended Great Country's guaranteed-lending privileges in the Miami and Orlando markets where it had been active. Borrowers on nearly half of the company's defaulted loans made payments for only three months or less; 105 borrowers never made any payments at all. Brian Sullivan, another FHA spokesman, says the agency has referred the case to its inspector general's office. In response to BusinessWeek's questions, the Florida Financial Services Dept. has started a separate investigation, a person close to the state agency says.

But don't assume that Hernandez is through with FHA-guaranteed loans. At the Palmetto Towers sales office, Alexis Curbelo, a loan officer for Great Country, explains in an interview that buyers can now obtain FHA loans through Ikon Mortgage Lenders in Fort Lauderdale. Public records show Ikon closed a Palmetto Towers FHA loan in September for $222,957. Edgard Detrinidad, Ikon's president and a former business associate of Hernandez, denies he is financing any other loans for Hernandez's buyers.

Market gradually absorbing inventory

2008-11-21T06:13:00.000-08:00

By Greg Lane • Tallahassee Democrat • November 18, 2008

The past two years were like a whirlwind to those of us in the real estate business. The market was like a record wind gust.

When the excitement stopped in the fall of 2007, the slowdown hit us hard and fast, like a tornado. Real estate professionals, buyers and sellers seemed unprepared for the torrential drop in volume from August 2007 to September 2007.

This pivotal period is a traditional seasonal slowdown, a time when local real estate activity takes a back seat to school preparations, parades and family gatherings. But during the pivotal period in 2007 we were not prepared for the 45-percent drop in the amount of transactions of condos, townhouses and single-family homes.

In contrast, there was virtually no change in volume from July to August 2007; this left us ill prepared for such a plunge a month later. Fast forward to 2008. How did our market react this time during the same pivotal period? Surprisingly, we only noticed a 15-percent decrease from August to September, not the monumental landslide like the year before.

Is this a sign that our market has hit bottom? Might we see a recovery soon? I don't think we can rush to any major conclusions based on this data. First of all, our October 2008 was no better than September — sales volume actually decreased again, compared to virtually no change for the same time period in 2007.

The good news is that building permits are down, new construction activity has come to a halt and active listings are down. The peak of our listing inventory in Leon County this year (single-family homes, townhouses and condos in MLS) was 3,430 in May. It is now down to 2,941, a 15-percent decrease. Existing new construction is slowly being absorbed and we are starting to see the bottom in many market segments.

It used to seem that buyers were sitting on the fence, and then it appeared that they were sleeping on the fence. Today, the buyers are still there, but they are hiding behind the fence, waiting for the right price.

Our forecast for this quarter is the same as it was every year before the "gold rush" of 2006-07. We should see slow activity in October and November, with a typical increase the first few weeks of December. Based on historical data, our market will warm up again in the spring, but we will need a red-hot summer to carry us through the fall of 2009.

In Times Like This, Only the Freshest Comps Will Do

2008-11-20T06:42:00.000-08:00

By Kenneth R. Harney, Washington Post, Saturday, November 8, 2008

How fresh are your "comps," the comparable sales of properties used as benchmarks in home real estate appraisals? Buyers and sellers rarely had to be concerned about such a question -- or even understand it -- when values were on the upswing.

But in soft and declining markets, lenders are making comps a big deal. Some sellers are forced to renegotiate lower prices with buyers, even after they have a signed contract.
Rather than accepting sales of similar properties that closed as much as six to 12 months ago, lenders and mortgage investors are demanding that appraisers include only the freshest comps, ideally those closed within the previous 90 days, to support their valuations.

They're also pushing for more extensive data on local listings, pending sales and listing-price-to-selling-price ratios before they agree to fund a mortgage.

As a result, growing numbers of sales transactions are being complicated, even knocked off track, as buyers demand that sellers lower agreed-upon contract prices to reflect the lower loan amounts lenders are offering.

"Appraisals have become a real hassle," said Steve Stamets, a loan officer with 20 years of experience at Nationwide Home Mortgage in Rockville. "Some sellers are taking a beating," he said, citing a recent transaction where the appraisal came in thousands of dollars below the signed contract price. Had the seller not agreed to eat the difference -- take a lower price than the buyer had agreed to in the contract -- "the whole deal could have fallen through," Stamets said.

Major lenders and investors such as Fannie Mae and Freddie Mac are "beating down on the appraisal" by demanding 90-day comps or fresher, he said

In Richmond, appraiser Perry Turner of P.E. Turner & Co. said his firm has seen numerous cases where using newly mandated 90-day or more recent comps, as opposed to those six months or older, has contributed to valuations lower than the price on the sales contract.
"In 95 percent of those cases," he said, "the [listing and selling] agents have gotten together and renegotiated the contract" rather than lose the deal.

In Woodland Hills, Calif., appraiser Kerry Leiman, owner of Leiman Appraisal, defends the tougher standards as producing valuations that are much more finely tuned to short-term changes in local prices.

"Shorter is far better," Leiman said, even if sometimes there are not enough comparable closed sales that fit the lender's tighter time requirements. In those instances, he said, appraisers can look to current listings and use time adjustments based on local market pricing trend data to come up with appropriate estimates.

Turner said that when there are not enough 90-day comparables, he can sometimes persuade real estate agents to disclose in confidence the prices on pending sales, which otherwise are not reported or listed until closing. Pushed by lenders for the freshest possible data on properties, Turner also can tap into the local multiple listing service and statistically derive adjustment indexes for small geographic areas based on the percentage difference between original asking prices and selling prices.

That, in turn, allows him to adjust estimated prices for current listings that are comparable to the property he's appraising. If the listing is for $400,000 and the index suggests that houses in the area are selling for an average of 4 percent below the original list or asking price, the appraiser can estimate the probable value of the unsold comparable house at $16,000 less, or $384,000.

Tim McCarthy, an appraiser in Tinley Park, Ill., agrees that requirements for fresher comps generally improve valuation accuracy for lenders' purposes, but pointed out that they are not foolproof. To the extent that appraisers have to focus on listing-price-to-selling-price and time-on-market indexes, they may miss some of the games that sellers and agents can play, he said.

For example, McCarthy said, a seller with a current listing at an unreasonable price that hasn't sold for months might pull the house off the market, then come back with it as a "new" listing with the same excessive price. As long as the listing date is at least three months from the date the house was pulled off the market, the listing will be counted as new under some multiple listing service rules, and the high asking price may get factored into new appraisals.

In that case, the whole push for fresh data "just totally misses the mark," McCarthy said.

Foreclosures may alter home values

2008-11-14T09:02:00.000-08:00

By Will Van Sant, St Petersburg Times Staff Writer In print: Friday, November 14, 2008

In a sign of how the real estate market has imploded, property appraisers plan to figure in foreclosure sales when they value homes next year.

State Department of Revenue rules advise county property appraisers to ignore foreclosures and other types of "distressed" sales in favor of arms-length deals between willing buyers and sellers.

The belief is that such open market sales are truer indicators of home values. But that's only the case when foreclosure sales are relatively rare, not rampant like they are now, property appraisers are saying.

"The number of foreclosure sales we are dealing with now is so much greater than I have ever seen that I believe they have become part of the market," said Pam Dubov, Pinellas County's property appraiser-elect.

Warren Weathers, Hillsborough County's chief deputy appraiser, said that Dubov is right and that his office also will look at how to gauge the effect of foreclosure sales on values. In Pasco County, Appraiser Mike Wells has already done so for this year's tax roll.

"Some of the Department of Revenue rules are for a normal market," Weathers said, "and this is not a normal market."

Dubov and Weathers have yet to come up with a method for weighing how the inclusion of foreclosure sales will effect homeowners' property tax bills.

It's complex and uncharted territory, they said. Next week, appraisers from across Florida are meeting in St. Petersburg, and Dubov said she plans to raise the issue.

"We have to do some gaming of this and see what it looks like," she said. "I just know we can't do business as usual."

But both she and Weathers agree one likely result is that homeowners in areas with lots of foreclosure sales whose homes are assessed near market value will see their property tax bills drop next year, assuming governments don't raise tax rates.

In Pasco, Property Appraiser Wells said that in the spring he told his staff to consider foreclosure sales when developing the current tax roll. Wells said he did so after talking with his staff, his attorney and few others. He has yet to hear complaints from the state, or from homeowners who saw their tax bills dip.

"I believe it allowed me to come up with a fairer picture of the market, and what is going on out there," Wells said.

Jim Overton, Duval County property appraiser and president of the Florida Association of Property Appraisers, said he was unaware of Wells' move but isn't surprised others are eager to follow. The issue was discussed recently among appraisers at the national level, he said, and will be taken up by his association in coming months.

According to Dubov, Gov. Charlie Crist's office has asked the Department of Revenue for a review of the matter. Other than to say two or three appraisers have been in contact about the issue, the department declined to discuss what Dubov, Weathers and others plan.
Hernando County Property Appraiser Alvin Mazourek said he also was considering how to incorporate distressed sales into next year's values.

Though some homeowners may see their tax burden lift a bit, the decision by property appraisers to include foreclosure sales in their market analysis could reduce the amount of revenue going to already strapped local governments.

Incoming Pinellas administrator Bob LaSala said that in such a precarious economy it makes sense for appraisers to innovate and change their practices, even if it makes his job tougher.
"I wouldn't begrudge the homeowner who is struggling with a tax bill a solution that might make sense in this broader picture just because I've got constraints as well," LaSala said.

Florida is second only to California in the number of struggling borrowers who have lost their homes to lenders. In Tampa Bay area counties last month, 26 percent of real estate deals involved banks selling off properties reclaimed through foreclosure. Another 9 percent were "short sales," where borrowers behind on mortgages settle with lenders for less than what's owed.

That means in October more than one in three deals were distressed. The figure in September was 28 percent.

By comparison, in September 2007, 6 percent of sales were distressed; in September 2006, just 1 percent.

Peter K. Murphy, a real estate consultant with Home Encounter in Ybor City who provided the data on distressed deals, said that last month banks were selling foreclosed homes for 60 percent of market value.

Federal grants to be used to buy up South Florida foreclosures

2008-11-14T08:48:00.000-08:00

South Florida governments are gearing up to spend more than $161 million in federal grant money to stimulate the housing market.

The buyer of that ramshackle foreclosure down the street just might be the government.
In coming months, South Florida cities and counties will be armed with more than $161 million in new federal grant money and a mandate to stabilize falling home values and decay in neighborhoods hardest hit by the real estate downturn.

Their spending plans include buying and rehabbing, reselling or renting out property repossessed by banks through foreclosure, a first for many small municipalities without housing authorities. Cities may also use money to develop new projects and tear down neighborhood eyesores.

Miami Gardens' plans include using homes to help young adults aging out of foster care. Miramar wants to give financial aid to middle-income home buyers
.
Hialeah wants to build more $300-a-month rental units. And Miami-Dade plans to use some money on the once fraud-wracked redevelopment of the Scott Carver housing project in Liberty City.

The funds represent South Florida's share of a $3.9 billion pot offered as part of a larger housing stimulus plan passed by Congress this summer.

The stimulus money comes as the state's housing market continues to slog along under historic foreclosure rates, unsold homes and growing economic malaise. In all, Florida will get $541 million, with $91 million going to state government.

When it comes to house hunting, governments don't lack for choices. As of Oct. 31, banks owned 10,725 homes in Miami-Dade and 10,234 in Broward, according to RealtyTrac data released Thursday.

And foreclosures keep rising: In October, foreclosures were up 53 percent in Broward and 97 percent in Miami-Dade over a year ago, RealtyTrac reported. The figures mean one of every 114 homes in Broward is either headed into foreclosure or already bank-owned. In Miami-Dade, it's one of every 93 homes.

Lenders have already begun knocking on doors at Miami-Dade agencies, county officials said. The county will get $62.2 million, the largest share of any locality in the country.
''This is not a whole lot of money in reality, but I think there will be a whole broad spectrum of people we can help. The magnitude of the problem is really huge,'' said Robert Cruz, chief economist for Miami-Dade.

NEW UNITS

Housing administrators' tentative plan is to spend almost $37 million buying bank-owned single- and multi-family properties, hoping to add roughly 342 new units to its affordable housing stock. The county now owns 10,000 units. There are 71,000 people on the waiting list for those as well as privately owned units through Section 8.

The rest will be spent demolishing 80 blighted structures as well as on homeownership counseling and mortgage assistance for about 130 families. The county will leverage nearly $9 million for infrastructure needed to complete work on the Scott Carver HOPE VI housing project, which will help bring 236 new units online when finished. In all, they expect to directly aid 1,500 families.

The County Commission will vote on the plan next Thursday. Broward approved its plan Thursday.

FORMULA USED

To decide how much money communities get, the U.S. Department of Housing and Urban Development used a formula accounting for the number of subprime loans, bank-owned homes and defaults. How they use the money is largely up to them, provided they create more affordable housing for low- to middle-income families.

''The fact you got a large amount indicates the size of the problem in your community,'' said Dan Rosemond, Miami Gardens' community development director. The city will get $6.86 million it will use to buy 25 homes. Code enforcement officers have already identified 25 that will be demolished.

Four other Miami-Dade cities qualified -- Miami, North Miami, Hialeah and Homestead, widely known for their foreclosure problems.

Other municipalities could get money from the state's entitlement.

Thirteen jurisdictions in Broward will get money, including the county's $17.76 million. Miramar gets more than $9 million, which it plans to use to help an estimated 75 new buyers with financing and grants.

Some government administrators who are entitled to far less question how much good the money can do.

North Miami housing manager Tom Calderon said with only $2.84 million, the city may be able to buy 12 bank-owned foreclosures among the roughly 1,000 within its boundaries.
Calderon said ideally the money would be used to target areas with the most foreclosures. Studies have shown a single foreclosure can lower the values of all homes within an eighth of a mile by 0.9 percent. The impact is amplified as the number of foreclosures on the block increase. But in North Miami they are everywhere, Calderon said.

''The money is for neighborhood stabilization, but how do you stabilize an area when there might be three or four on the same block and you can only buy one or two? You still have the vacant homes,'' Calderon said.

CHALLENGES

Cities face other challenges in using the money as prescribed, such as suddenly bearing the burden of owning and managing property.

''The city of Homestead does not want to be a landlord, I'll tell you that right now,'' said Laurin Yoder, the city's community development manager. Homestead was considering hiring a property management company or deeding their foreclosures to a nonprofit that would maintain the homes until they could be sold.

Miami Gardens plans to hire real estate agents to do the negotiating.

Cities will be responsible for their homes' upkeep, property taxes and insurance. Another challenge: The homes must be sold to income-eligible buyers who intend to live there. The sluggish housing market and credit crunch could make that difficult.

''Are we going to get banks to loan to people? Because money is still tight. And we have to find qualified individuals,'' said Dan Keefe, assistant to the Plantation mayor.

To line up homes with potential buyers, Keefe said Plantation would likely start by reaching out to city employees first. North Miami plans on doing the same, since financial help can be offered to households making 120 percent of the area's median income, or up to $72,350 for a family of four. The income limits are high enough to help people like police officers and teachers, Calderon said. In Broward, families of four making as much as $85,440 are eligible.
EARNINGS OBSTACLE

A separate obstacle comes, though, in making sure 25 percent of city grant money goes to families of four earning less than roughly $30,000 in Miami-Dade and roughly $36,000 in Broward.

''It's difficult to put a family of four making $30,000 into a home because even if you gift it to them, there are taxes, insurance and the regular cost of owning a home,'' said Homestead's Yoder. ``We're not exactly sure how we're going to make it work.''

Hialeah's solution is to use its entire $5.38 million to build a rental complex similar to a recently finished 300-unit affordable housing project on Okeechobee Road, said Fred Marinelli, director of the city's grants and human services department.

''We would rather get it close to the people, rather than turn around and give it to the banks,'' Marinelli said, adding the grant allows the city to develop these units on Hialeah-owned land. He expects to build around 45 units that will be leased to residents on the county's affordable housing waiting list for $300 a month.

HUD RULES

Cities that have decided to buy, though, are also concerned about adhering to HUD rules requiring them to negotiate a 5 percent discount with lenders for each property and a 15 percent discount for all properties combined. Smaller cities, who may be able to buy only a handful of homes, wonder if lenders will cooperate.

''The county's $62 million is a lot different than our $7 million, and banks have a little more economy of scale in terms of trying to negotiate with the county,'' Miami Gardens' Rosemond said.

Of the many obstacles cities must navigate in spending the grant money, perhaps the most daunting is the time in which to get it all done. Local governments had six weeks to pull together their spending plans to meet a Dec. 1 deadline. After they get the green light, all the money must be obligated in 18 months and projects done in four years.

''The government expects us to act quickly, so we're not going to have time to create a new program because those need to be tested, and time is of the essence,'' said Gus Zambrano, Miramar's economic development director. The city will use a program that is already in place to distribute its $9.31 million in grants and loans to individuals who will buy foreclosures, in some cases sharing future profits with homeowners.

The biggest flaw Calderon of North Miami sees is that none of the grant money may be used to help people currently at risk of foreclosure, a point of confusion for many current homeowners.

''We're not allowed to use one penny for prevention,'' Calderon said, ``It's for neighborhood stabilization. But how do you stabilize a neighborhood better than making sure people stay in their homes?''

Is Help Finally on the Way?

2008-11-11T11:53:00.000-08:00

FOR IMMEDIATE RELEASE

November 11, 2008

Statement of FHFA Director
James B. Lockhart

Welcome. I am pleased that you are able to be here. I would also like to welcome Brian Montgomery, HUD Assistant Secretary and FHA Commissioner; Neel Kashkari, Interim Assistant Treasury Secretary for Financial Stability; Faith Schwartz, Executive Director of HOPE NOW and Michael Heid, Wells Fargo. As a Navy veteran, I do not like interfering with your Veterans Day, but as you all know there is a battle going on in the housing market.

As housing prices have fallen, delinquencies on mortgages have tripled, not just for subprime and Alt-A, but also for prime mortgages. Foreclosures have increased almost 150% from two years ago. Foreclosures hurt families, their neighbors, whole communities and the overall housing market. We need to stop this downward spiral.

Today we are announcing a major program designed to greatly reduce preventable foreclosures with a simplified, streamlined loan modification program to get struggling homeowners into mortgages that they can afford. It is an achievable goal if homeowners, banks, mortgage servicers, investors, Fannie Mae and Freddie Mac all work together.

As the regulator of Fannie Mae, Freddie Mac and the Federal Home Loan Banks (FHLBanks), the Federal Housing Finance Agency (FHFA) strongly supports the Enterprises’ leadership role in setting industry standards for assisting "at risk" borrowers who could lose their homes to foreclosure. This streamlined modification program with uniform eligibility requirements will be supported by a consistent, efficient process approved by key industry participants. This program resulted from a unified effort among the Enterprises, Hope Now and its twenty-seven servicer partners, the Department of the Treasury, the Federal Housing Administration (FHA) and FHFA.

In developing this program, we have drawn on the FDIC’s experience and assistance, and have greatly benefited from the FDIC’s input.

Fannie Mae and Freddie Mac own or guarantee almost 31 million mortgages, about 58% of all single family mortgages. Although these mortgages only represent 20% of serious delinquencies, I believe their leadership role combined with the many partners of HOPE NOW should spread this approach throughout the whole mortgage loan servicing business. The performance of private label mortgage backed securities that were sliced and diced and sold to investors is just the opposite of Fannie Mae’s and Freddie Mac’s. Private label securities represent less than 20% of the mortgages but 60% of the serious delinquencies. As the regulator of the housing GSEs that own over a quarter of a trillion dollars of private label securities, I ask the private label MBS servicers and investors to rapidly adopt this program as the industry standard. Not only will this streamlined program assist borrowers, but broad acceptance and effective implementation could stabilize communities and property values.

The program targets the highest risk borrower who has missed three payments or more, owns and occupies the property as a primary residence, and has not filed for bankruptcy. To be considered for the program, a seriously delinquent borrower should contact his or her servicer and provide the requested income information. The program creates a fast-track method of getting troubled borrowers to an affordable monthly payment where "affordable" is defined as a first mortgage payment, including homeowner association dues, of no more than 38 percent of the household’s monthly gross income. This affordable payment will be achieved through a mix of reducing the mortgage interest rate, extending the life of the loan or even deferring payment on part of the principal. Servicers will have flexibility in the mix used to get there, but the goal is to create a more affordable payment.

If the servicer is unable to create an affordable payment with this streamlined program, it will further evaluate the borrower’s situation through a customized process. The key to success is the borrower’s ongoing cooperation and communication with the servicer. Borrowers shouldn’t fear working with servicers. They have dedicated personnel who are experienced in working with borrowers who are struggling with finances, but who are eager to keep their homes.
The streamlined modification program complements existing loss mitigation programs. We expect that it could significantly increase the number of modifications completed. Borrowers who participate will be strongly encouraged to seek financial counseling through HUD-approved agencies – particularly, if the default is a result of being overextended or due to financial mismanagement.

Fannie Mae and Freddie Mac will soon issue specific guidance to their servicers implementing this program requiring implementation by December 15th. To encourage participation, servicers will receive a fixed payment of $800 for each loan modified through this program.
Troubled borrowers eligible for this program have already experienced significant erosion in their credit scores, making them unlikely to obtain mortgage credit, through typical means. Many also lack equity in their homes. This streamlined program is meant to reach as many of these borrowers as possible to give them a chance to save their homes and begin restoring their credit. The borrowers’ ultimate obligation to repay his or her current mortgage does not change.

Regrettably, there are many American families in this situation. This unified effort on the part of the Fannie Mae, Freddie Mac, private lenders and servicers, and the Federal agencies represented here is a bold attempt to move quickly in defining a nationwide program that can quickly and easily reach many of these troubled borrowers, thereby stabilizing those families and the communities and neighborhoods in which they live.

QUESTIONS AND ANSWERS ON THE STREAMLINED MODIFICATION PROGRAM

Q: What is a modification?
A: A modification is a change to the original mortgage terms. It may include a change to the product (an ARM to a fixed rate mortgage), interest rate, amortization term and maturity date, and/or unpaid principal balance. The change/s is made to create a more affordable payment for the borrower.

Q: What is a streamlined modification?
A: A streamlined modification is a modification that requires less documentation and less processing. In this case, the streamlined modification seeks to create a monthly mortgage payment that is sustainable for troubled borrowers by targeting a benchmark ratio of housing payment to monthly gross household income.

Q: What is the benchmark ratio?
A: This is the first time the industry has agreed on an industry standard. The benchmark ratio for calculating the affordable payment is 38 percent of monthly gross household income. Once the affordable payment is determined, there are several steps the servicer can take to create that payment – extending the term, reducing the interest rate, and forbearing interest. In the event that the affordable payment is still beyond the borrower’s means, the borrower’s situation will be reviewed on a case-by-case basis using a cash flow budget.

Q: Who participated in creating the Streamlined Modification Program? Is this identical to the FDIC’s IndyMac protocol?
A: This program resulted from a unified effort among the Enterprises, Hope Now and its twenty-seven servicer partners, Treasury, the Federal Housing Administration (FHA) and FHFA. In addition, we’ve drawn on the FDIC’s experience and assistance from developing the IndyMac streamlined approach and have greatly benefited from the FDIC’s input and example. To accommodate the need for more flexibility among a larger number of servicers, the Streamlined Modification Program does differ from the IndyMac model in a few areas. However, it uses the same fundamental tools to achieve the same affordability target.

Q: How is this different from Citi’s announcement today?
A: This effort compliments efforts of those banks that have mortgage portfolios and can reach out directly to borrowers for loans they own and service. This is a significant announcement in that Fannie Mae, Freddie Mac and FHFA have mutually agreed as major investors to a single streamlined modification program with a common affordability standard. The majority of HOPE NOW banks who own portfolio mortgages will adopt or offer programs as or more aggressive then what’s being announced.

Q: What is the role of HOPE NOW?
A: HOPE NOW has the leading servicers as members. HOPE NOW collaborated with Fannie Mae, Freddie Mac and FHFA on arriving at a standard that is consistent and addresses the capacity challenge for servicers dealing with increased delinquencies. This will take on-going work to implement for servicers. We anticipate this being implemented by December 15th.

Q: Why is there not a foreclosure moratorium?
A: Any borrower who qualifies and responds to the servicer will be given the opportunity to provide the required information for consideration. If necessary, the scheduling of a foreclosure sale will be suspended. A suspension requires that the borrower maintain contact, desires to keep his or her home, has the ability to make the affordable payment offered, and promptly respond to requests for information and signed documents.

Q: Why is it necessary?
A: With the rise in serious delinquencies and increasing number of loans in foreclosure, this program will help borrowers who have missed three or more payments, but want to keep their homes. Because the eligibility requirements and process are streamlined and consistent, the program will allow servicers to reach more borrowers more quickly.

Q: Who is eligible?
A: The highest risk borrower, who has missed three payments or more, owns and occupies the property as a primary residence, and has not filed bankruptcy. The loan is a Freddie Mac, Fannie Mae or portfolio loan with participating investors. To qualify for the streamlined modification, the borrower must certify that he or she experienced a hardship or change in financial circumstances, and did not purposely default to obtain a modification.

Q: Why must the borrower be 90 days delinquent? Why not earlier in the delinquency cycle?
A: This is a streamlined solution targeted to reach the most at risk borrower. For borrowers who do not qualify, other solutions are available. This in no way substitutes for the meaningful efforts by all servicers and investors that are currently in place. The 212,000 workouts reported by HOPE NOIW in September are testimony to that fact. We will continue to see those efforts produce meaningful results.

Q: How many people will this help?
A: While difficult to assess, it is clear delinquencies are predicted to continue well into 2009. Foreclosure estimates are significant. Having a streamlined approach will assist many borrowers who default and more quickly. We estimate this will ultimately help thousands of borrowers.

Q: What if a borrower is not eligible but still wants to save his/her home?
A: If the servicer is unable to create an affordable payment with this streamlined program, it will further evaluate the borrower’s situation via the standard process. The standard modification program requires a personal cash-flow budget customized to the borrower’s situation.
Q: How do borrowers apply?
A: To be considered for the program, a seriously delinquent borrower should contact his or her servicer and provide the requested information – monthly gross household income, association dues and fees, and a hardship statement.

Q: How do borrowers complete the modification process?
A: Upon receiving the Modification Agreement from the servicer, the borrower signs it and returns it with the 1st payment at the modified terms along with income verification. Once the borrower makes three payments at the modified terms and the account is current as of day 90 of the modified plan, the modification is complete.

Q: What are the goals of the program?
First, we hope that other industry participants -- portfolio lenders and representatives of private label security investors – readily and rapidly adopt this program as the industry standard. Second, the program could increase the number of modifications significantly. Third, broad acceptance and effective implementation could stabilize communities and property values.

Q: When will servicers start offering this program?
A: We expect that by December 15th, servicers will be positioned to work with eligible borrowers.

Q: Will servicers get more details on this program?
A: Both Fannie Mae and Freddie Mac will be communicating directly with their approved servicers through an announcement, letter or bulletin.