Published in the NY Times, Tuesday, January 8, 2008
Baltimore is suing bank over foreclosure crisis
By GRETCHEN MORGENSON
Baltimore’s mayor and City Council are suing Wells Fargo Bank, contending that its lending practices discriminated against black borrowers and led to a wave of foreclosures that has reduced city tax revenues and increased its costs.
The recent surge in homeowner defaults nationwide, generated by lax lending practices during the real estate boom, has officials bracing for a range of problems that often accompany foreclosures. Some municipalities, including Cleveland and Buffalo, are trying to make lenders responsible for abandoned properties to ward off crimes like arson, drug use and prostitution.
But the civil suit that officials in Baltimore are filing in United States District Court may presage another type of litigation against lenders by municipalities facing shortfalls in their budgets.
In the suit, Mayor Sheila Dixon joined with the City Council to ask that the court bar Wells Fargo from charging higher fees to black borrowers. Many of these borrowers paid more under the bank’s subprime lending program, designed for less creditworthy consumers, and are more likely to default on their loans.
In 2006, Wells Fargo made high-cost loans, with an interest rate at least three percentage points above a federal benchmark, to 65 percent of its black customers in Baltimore and to only 15 percent of its white customers in the area, according to the lawsuit. Similarly, refinancings to black borrowers were more likely to be higher cost than to white ones and to carry prepayment penalties.
The complaint requests unspecified damages to cover the diminished property tax revenues and higher costs that the city said it had incurred. Additional costs include those for fire and police protection in hard-hit neighborhoods and expenditures to buy and rehabilitate vacant properties.
Kevin Waetke, a Wells Fargo spokesman, rejected the contention that race was a factor in the bank’s pricing of mortgage loans. “We do not tolerate illegal discrimination against or unfair treatment of any consumer,” Mr. Waetke said. “Our loan pricing is based on credit risk. We are committed to serving all customers fairly — our continued growth depends on it.”
But Suzanne Sangree, chief solicitor for the Baltimore City Law Department, said: “This wave of foreclosures in minority neighborhoods really threatens to undermine the tremendous progress the city has made in developing distressed neighborhoods and moving the city ahead economically. Wells Fargo could do a lot, as well as other banks that have engaged in similar practices, to help to curb the flood of foreclosures that the city is experiencing now.”
Among the practices cited by the city, Wells Fargo allowed mortgage brokers to charge higher commissions when they put borrowers in loans with higher interest rates than the customers qualified for based on their credit profiles. The bank also failed to underwrite mortgage loans to traditional criteria, the suit said, setting up the borrowers for default. Such practices were common at many lenders during the boom.
Now, Baltimore is a city in a foreclosure crisis, according to the complaint. Citing figures from the Maryland Department of Housing and Community Development, the suit said foreclosure-related events in the city, including notices of default, foreclosure sales and lenders’ purchases of foreclosed properties, rose more than five times between the first and second quarters of 2007.
Wells Fargo has been the largest or second-largest provider of mortgage loans to Baltimore borrowers since 2004, according to the lawsuit. From 2004 through 2006, Wells Fargo made at least 1,285 mortgage loans a year to area residents with a total value of more than $600 million. Wells Fargo now has the largest number of foreclosures in Baltimore of any lender, the suit stated.
Half of the Wells Fargo foreclosures in 2006 occurred in census tracts with populations that were more than 80 percent black, the suit said. Meanwhile, only 16 percent of the foreclosures were found in tracts with populations that are 20 percent or less black. Figures for 2007 were similar, the city said.
John P. Relman, a lawyer at Relman & Dane in Washington, represents the City of Baltimore in its case against Wells Fargo. “Foreclosures have a more profound effect in minority communities because they are closest to the line of distressed neighborhoods in many cities,” Mr. Relman said. “That causes big problems for the cities, not just the lost income from taxes but also the long-term social costs. Programs are going to be needed to stabilize the communities to be rebuilt.”
The Baltimore complaint cited a 2005 study showing that foreclosures required more municipal services and higher costs. The study, commissioned by the Homeownership Preservation Foundation of Minneapolis, identified 26 different costs incurred by government agencies responding to foreclosures in Chicago and in Cook County, Ill., in 2003 and 2004. The analysis concluded that total costs reached $34,199 for each foreclosure.
Online story here. Archived here.
(Note: Online stories may be taken down by their publisher after a period of time or made available for a fee. Links posted here is from the original online publication of this piece.)
(In accordance with Title 17 U.S.C. Section 107, this material is distributed without profit to those who have expressed a prior interest in receiving the included information for research and educational purposes. Plainfield Today, Plainfield Stuff and Clippings have no affiliation whatsoever with the originator of these articles nor are Plainfield Today, Plainfield Stuff or Clippings endorsed or sponsored by the originator.)
Showing posts with label RealEstate. Show all posts
Showing posts with label RealEstate. Show all posts
Wednesday, January 09, 2008
Saturday, December 15, 2007
Development - APP - Esperanza halted, others cut back
Published in the Asbury Park Press, Tuesday, December 11, 2007
A blip in beachfront boom
Esperanza halts condo construction
By Nancy Shields • COASTAL MONMOUTH BUREAU • December 11, 2007
ASBURY PARK — The Hoboken developer building the 224-unit Esperanza high-rise on the city's beachfront says it is temporarily closing down the construction site and sales office.
Dean Geibel, president of Metro Homes, said the company recently informed the city that it was halting construction and sales "until such time market conditions allow us to move forward and successfully complete this important luxury beachfront development.
"We are convinced that the national mortgage crisis now impacting real estate markets around the country represents a temporary setback, and we remain fully committed to Asbury Park and its rebirth," Geibel said in a telephone interview Monday.
Geibel said there are sales contracts on about 70 of the condominium units in the two-tower building, which is three stories out of the ground and is being constructed on the site of the failed C-8 condominium project that dogged the city for 17 years until Metro Homes imploded the unfinished steel skeleton in the spring of 2006.
Geibel said the money people put down on their units is being held in escrow. "It's too early to decide how they'll be impacted," he said.
The Esperanza promised buyers beachfront homes with hotel amenities in an architectural design that evokes images of waves and ships.
"I understand what they're going through, and I do not blame them," said City Councilman John Loffredo, who said that Metro Homes had told the city a couple of months ago that it might have to alter the design.
Loffredo, who wants the Esperanza built as is, said redesigning it would mean starting over with the city's technical review committee and Planning Board to get a new project approved.
Metro Homes' decision comes as Madison Marquette, the national retail developer, has formed a joint venture with master developer Asbury Partners and is restoring and renovating the Paramount Theatre and Convention Hall, the Casino, the Power Plant and boardwalk pavilions.
Upbeat outlook
City Manager Terence Reidy said he talked to about 50 investors at a luncheon Monday at the Market In The Middle restaurant downtown.
"I feel badly about this hiccup with Metro Homes. Dean has come to us and said he's regrouping. This is a good time to do it, in light of winter and the market. I think it's a positive strategic move for Dean. . . . We'll be there and work with him every step of the way."
"I think what is so significant about Asbury Park is a solid stream of people coming in to fix up homes, starting businesses," Reidy added. "The foundation is so strong in this city now that it's not built on one person, one developer, one project. . . . It's literally built on thousands of people who are coming in saying, "This is where I want to live.' "
Bob Davis, president of the Rumson-Fair Haven Bank, which plans to open a fourth branch to be known as the Asbury Park Community Bank in the city's downtown next April, said he did not think the news about Metro temporarily closing down affected his bank's project.
Local businessman Steve Troy, who is on the city's Planning Board and a leader in the Chamber of Commerce, did not like the news that Metro is shutting down, saying it is happening at a time when the city's revival seems to be particularly successful.
"This (Metro Homes) really is more a statement about the turmoil in the real estate market than the future of Asbury Park," Troy said.
Deputy Mayor Jim Bruno said he found out about Metro Homes' decision on Friday.
"They have to regroup, may have to downsize it, refinance it," Bruno said. "I guess they're not going to have enough money to finish this project. It won't be as high-end as they thought it would be."
South end slowdown
With the site between Third and Fourth avenues closing down, it will mean that only Paramount Homes is still building on the waterfront north of the newly reopened and renamed Berkeley Hotel.
Earlier this year, Kushner Cos. made significant changes in its housing investments, and its affiliated company, Westminster Communities, halted going forward on its second block at the south end of Asbury Park next to Wesley Lake. Westminster opened a new sales office at its existing site of townhomes and condominium flats to sell those units already built.
Larry Fishman, chief operating officer of Asbury Partners, the master developer that bought up the waterfront and sold off parcels to individual developers, said Monday that a number of companies, including Madison Marquette, are interested in buying out Westminster's real estate interests.
Gary Mottola, Madison Marquette's president of investments, could not be reached for comment.
"Asbury Partners is very sad that the current financing and real estate market has caused Metro to suspend construction on the Esperanza," Fishman said.
"It's a great building in a fabulous location," he added. "Reported sales were going well in terms of pre-sales and prices despite an overall negative market. We are hopeful Metro will be able to start construction soon or sell to another developer."
Fishman said the building was designed three years ago and Metro may require certain modifications that affect both the marketability and profitability.
Fishman said he could not comment if his company could decrease the amount of money it is slated to make as the master developer on the Esperanza.
Geibel said Metro Homes is not stopping construction or sales or any of its other projects, including the huge Trump Plaza Jersey City condominium project. Metro and partner Donald Trump are the builders.
"There are some adjustments that have to be made," Reidy, the city manager, said. "We don't live in a static environment; we live in a world that is in flux. I think Metro Homes is a solid organization and I think they have a very positive vision. We'll work together."
CARE TO COMMENT?
angelface wrote:
dankaplan, if you reread my comment, there is no mention that my business failed. I simply stated I moved my business to a thriving, safe area. Not sure about the tillie guy but I do know a few business that left. I know many people who moved out of Asbury in the past year. My business did pretty good in Asbury. I left once again, because of the bs in Asbury and mainly because of the trash. Living there, I witnessed many a morning, prostitutes, crack addicts, etc. and many times heard gunshots. I simply thought my life was more deserving. If you must know I opened my business in Lavalette. I , once again, thought Asbury was going to be the Old Asbury we all loved. As for advice my dear, this is my third location I opened so I evidently know what I am doing. By the way I have been back to Asbury , I know quite a few of the merchants. They tell me the truth of what is going on. Not impressed . Did you hear about the family held at gunpoint on Cookman. ?
12/14/2007 7:30:34 PM
dankaplan wrote:
Angelface, I'm sorry to hear that your business failed. It seems like you and Tilliesdead had bad experiences in Asbury Park. Opening a business is a significant endeavor and can take planning, including a contingency for failure. I hope you have such a plan for your new business in the other town. What town is it? What type of business? I hope this time you sought the advice of someone who could develop a business plan with you. If you come back to Asbury Park sometime, you can see the families, singles, couples, young and old attending events along the waterfront. The rest of Asbury Park is cleaning up, and currently there is a variety of levels of "cleanliness". Currently, I'd recommend only about 3/4 of the city to families with children, and much less at night. That will change. It is a good feeling to support a place that has such a brighter future over the next few years and decades. I hope you have found something that you can support, be happy with, and be proud of.
12/14/2007 9:55:52 AM
angelface wrote:
I jumped on the boat 3 years ago!!!!! I JUST JUMPED OFF!!!. I not only lived in AP , I opened a business. I was so sick of the BS in that town, never mind the rapes, shootings, burglaries, gangs, etc. I was pro ASbury, defended it everytime someone knocked me down and told me I was crazy. They were right. Yes, Asbury has lots of good people living there but the bad is BAD, very ugly and scary. I now live in a very peaceful area where I hear the ocean in the still of the night, not gun shots. My business in thriving in another beach town where families cann not only go to the boardwalk but can walk ALL over the town. Yes, progress has been made but they should put more effort in cleaning up the streets first then the waterfront . Good Luck to all. Its so sad what is happening to what was once a beautiful beach town. They missed the boat trying to sell the upscale crap. The new Asbury will never be the old Asbury. The other reason I left.
12/13/2007 9:31:03 PM
AsburyFuture wrote:
I have a problem with building low income housing by the beach as well. It will not work. Just look at the souyth west section of town. That is the area that needs the most help. Fix up the neighborhoods there, not shift people around. People need to learn how to take care of themselves before they can take the responsibility of owning their own home in the tourist area. No one wants to see people throw garbage on the ground, or people who don't know how to rake leaves etc... I don't see the benefit of putting low income housing in the tourist area.
12/13/2007 4:05:33 PM
SilverSurfer wrote:
OK what was that article. That guy died for his nice or daughter or something to that extent BUT SHE WAS IN A GANG>>>>> They weren't trying to hit him; they were going for another gang member. I'm sure he knew she was in a gang. It's sad true, but think about it this way 2 gang members of the street. And maybe that girl will rethink about being in a gang and start to convince others. Unfortunately the world need martyrs. Stopping gangs starts at home.
12/13/2007 3:39:58 PM
Emile wrote:
>>>So people get shot every now and again. They probably deserve it<<< Yeah, Silver, they probably deserved it: http://thecoaster.net/wordpress/?p=1668 I guess you subscribe to the Sharpe James school of sociology - "They ain't shootin' at me!"
12/13/2007 2:53:33 PM
SilverSurfer wrote:
IT DOES NOT STOP AT THE BEACH FRONT. THE BEACH IS FOR THE UPPER CLASSES which is fine . It gives me something to aspire to. If they put AFFORDABLE HOUSING ON THE BEACH I WOULD BE PISSED OFF because i would not qualify. Why give the poor the best location????? That�s Madness.
12/13/2007 2:19:24 PM
SilverSurfer wrote:
Ok I've been reading posts on all the stories. I find it pretty funny how people just go after any thing about AP. They say its a ghetto, everyone that bought there got ripped the school systems suck yada yada... I moved to AP 3 years ago I almost bought a house on the "bad side" I really did not care because its really not that bad. Secondly all the people that criticizes AP where do you live? I have A side walk a house with a nice size yard and 9 blocks from the beach. We have some of the best restaurants on the shore, an art community that can rival any jersey town. So people get shot every now and again. They probably deserve it gangs are a problem everywhere. Here people get shot Manalapan Egg harbor kids die too usually OD under their parents nose. No i don�t have kids and guess what if i did i would send them to private school anyway. One more thing there are at least 6 houses that have been redone or built on my block and 2 more in the process of being redone.
12/13/2007 2:18:19 PM
dankaplan wrote:
Emile,�thanks for pointing me to that Esperanza web site.� I never looked there before.� Yes, the advertiser could have done better with the boardwalk picture.� Asbury Park's boardwalk looks similar, but the diagonal boards give it more character.� Also, the benches in Asbury Park are a bit newer and cleaner looking.� I've never seen that particular girl in the surf and the bowling balls look newer than the ones at Asbury Lanes.� I guess they used artistic license.� On the nightlife page,�the bar picture looks similar to the Harrison, the microphone looks like something I'd see at Georgie's on Karaoke night and the mixing board scene is something I'd see at Paradise or the Circuit.� On the dining page, the latte looks like one I've gotten at Wish You Were Here, the red chairs at the long table look like one of the coffee shops, maybe�America's Cup.� The food looks like something I've seen on my dinner plate at Moonstruck, Isabella's, or Laila's.
12/13/2007 12:46:28 PM
Emile wrote:
P.S. If you go to esperanzanj.com and click on community, the site tells you "However you choose to entertain yourself in Asbury Park, you're promised something new, something fresh and something never seen before." Then you click on recreation, and they show a picture of AVON's boardwalk. If that doesn't speak volumes about where the developer's heads were, I don't know what would.
12/13/2007 11:18:16 AM
Online story here. Archived here.
(Note: Online stories may be taken down by their publisher after a period of time or made available for a fee. Links posted here is from the original online publication of this piece.)
(In accordance with Title 17 U.S.C. Section 107, this material is distributed without profit to those who have expressed a prior interest in receiving the included information for research and educational purposes. Plainfield Today, Plainfield Stuff and Clippings have no affiliation whatsoever with the originator of these articles nor are Plainfield Today, Plainfield Stuff or Clippings endorsed or sponsored by the originator.)
A blip in beachfront boom
Esperanza halts condo construction
By Nancy Shields • COASTAL MONMOUTH BUREAU • December 11, 2007
ASBURY PARK — The Hoboken developer building the 224-unit Esperanza high-rise on the city's beachfront says it is temporarily closing down the construction site and sales office.
Dean Geibel, president of Metro Homes, said the company recently informed the city that it was halting construction and sales "until such time market conditions allow us to move forward and successfully complete this important luxury beachfront development.
"We are convinced that the national mortgage crisis now impacting real estate markets around the country represents a temporary setback, and we remain fully committed to Asbury Park and its rebirth," Geibel said in a telephone interview Monday.
Geibel said there are sales contracts on about 70 of the condominium units in the two-tower building, which is three stories out of the ground and is being constructed on the site of the failed C-8 condominium project that dogged the city for 17 years until Metro Homes imploded the unfinished steel skeleton in the spring of 2006.
Geibel said the money people put down on their units is being held in escrow. "It's too early to decide how they'll be impacted," he said.
The Esperanza promised buyers beachfront homes with hotel amenities in an architectural design that evokes images of waves and ships.
"I understand what they're going through, and I do not blame them," said City Councilman John Loffredo, who said that Metro Homes had told the city a couple of months ago that it might have to alter the design.
Loffredo, who wants the Esperanza built as is, said redesigning it would mean starting over with the city's technical review committee and Planning Board to get a new project approved.
Metro Homes' decision comes as Madison Marquette, the national retail developer, has formed a joint venture with master developer Asbury Partners and is restoring and renovating the Paramount Theatre and Convention Hall, the Casino, the Power Plant and boardwalk pavilions.
Upbeat outlook
City Manager Terence Reidy said he talked to about 50 investors at a luncheon Monday at the Market In The Middle restaurant downtown.
"I feel badly about this hiccup with Metro Homes. Dean has come to us and said he's regrouping. This is a good time to do it, in light of winter and the market. I think it's a positive strategic move for Dean. . . . We'll be there and work with him every step of the way."
"I think what is so significant about Asbury Park is a solid stream of people coming in to fix up homes, starting businesses," Reidy added. "The foundation is so strong in this city now that it's not built on one person, one developer, one project. . . . It's literally built on thousands of people who are coming in saying, "This is where I want to live.' "
Bob Davis, president of the Rumson-Fair Haven Bank, which plans to open a fourth branch to be known as the Asbury Park Community Bank in the city's downtown next April, said he did not think the news about Metro temporarily closing down affected his bank's project.
Local businessman Steve Troy, who is on the city's Planning Board and a leader in the Chamber of Commerce, did not like the news that Metro is shutting down, saying it is happening at a time when the city's revival seems to be particularly successful.
"This (Metro Homes) really is more a statement about the turmoil in the real estate market than the future of Asbury Park," Troy said.
Deputy Mayor Jim Bruno said he found out about Metro Homes' decision on Friday.
"They have to regroup, may have to downsize it, refinance it," Bruno said. "I guess they're not going to have enough money to finish this project. It won't be as high-end as they thought it would be."
South end slowdown
With the site between Third and Fourth avenues closing down, it will mean that only Paramount Homes is still building on the waterfront north of the newly reopened and renamed Berkeley Hotel.
Earlier this year, Kushner Cos. made significant changes in its housing investments, and its affiliated company, Westminster Communities, halted going forward on its second block at the south end of Asbury Park next to Wesley Lake. Westminster opened a new sales office at its existing site of townhomes and condominium flats to sell those units already built.
Larry Fishman, chief operating officer of Asbury Partners, the master developer that bought up the waterfront and sold off parcels to individual developers, said Monday that a number of companies, including Madison Marquette, are interested in buying out Westminster's real estate interests.
Gary Mottola, Madison Marquette's president of investments, could not be reached for comment.
"Asbury Partners is very sad that the current financing and real estate market has caused Metro to suspend construction on the Esperanza," Fishman said.
"It's a great building in a fabulous location," he added. "Reported sales were going well in terms of pre-sales and prices despite an overall negative market. We are hopeful Metro will be able to start construction soon or sell to another developer."
Fishman said the building was designed three years ago and Metro may require certain modifications that affect both the marketability and profitability.
Fishman said he could not comment if his company could decrease the amount of money it is slated to make as the master developer on the Esperanza.
Geibel said Metro Homes is not stopping construction or sales or any of its other projects, including the huge Trump Plaza Jersey City condominium project. Metro and partner Donald Trump are the builders.
"There are some adjustments that have to be made," Reidy, the city manager, said. "We don't live in a static environment; we live in a world that is in flux. I think Metro Homes is a solid organization and I think they have a very positive vision. We'll work together."
CARE TO COMMENT?
angelface wrote:
dankaplan, if you reread my comment, there is no mention that my business failed. I simply stated I moved my business to a thriving, safe area. Not sure about the tillie guy but I do know a few business that left. I know many people who moved out of Asbury in the past year. My business did pretty good in Asbury. I left once again, because of the bs in Asbury and mainly because of the trash. Living there, I witnessed many a morning, prostitutes, crack addicts, etc. and many times heard gunshots. I simply thought my life was more deserving. If you must know I opened my business in Lavalette. I , once again, thought Asbury was going to be the Old Asbury we all loved. As for advice my dear, this is my third location I opened so I evidently know what I am doing. By the way I have been back to Asbury , I know quite a few of the merchants. They tell me the truth of what is going on. Not impressed . Did you hear about the family held at gunpoint on Cookman. ?
12/14/2007 7:30:34 PM
dankaplan wrote:
Angelface, I'm sorry to hear that your business failed. It seems like you and Tilliesdead had bad experiences in Asbury Park. Opening a business is a significant endeavor and can take planning, including a contingency for failure. I hope you have such a plan for your new business in the other town. What town is it? What type of business? I hope this time you sought the advice of someone who could develop a business plan with you. If you come back to Asbury Park sometime, you can see the families, singles, couples, young and old attending events along the waterfront. The rest of Asbury Park is cleaning up, and currently there is a variety of levels of "cleanliness". Currently, I'd recommend only about 3/4 of the city to families with children, and much less at night. That will change. It is a good feeling to support a place that has such a brighter future over the next few years and decades. I hope you have found something that you can support, be happy with, and be proud of.
12/14/2007 9:55:52 AM
angelface wrote:
I jumped on the boat 3 years ago!!!!! I JUST JUMPED OFF!!!. I not only lived in AP , I opened a business. I was so sick of the BS in that town, never mind the rapes, shootings, burglaries, gangs, etc. I was pro ASbury, defended it everytime someone knocked me down and told me I was crazy. They were right. Yes, Asbury has lots of good people living there but the bad is BAD, very ugly and scary. I now live in a very peaceful area where I hear the ocean in the still of the night, not gun shots. My business in thriving in another beach town where families cann not only go to the boardwalk but can walk ALL over the town. Yes, progress has been made but they should put more effort in cleaning up the streets first then the waterfront . Good Luck to all. Its so sad what is happening to what was once a beautiful beach town. They missed the boat trying to sell the upscale crap. The new Asbury will never be the old Asbury. The other reason I left.
12/13/2007 9:31:03 PM
AsburyFuture wrote:
I have a problem with building low income housing by the beach as well. It will not work. Just look at the souyth west section of town. That is the area that needs the most help. Fix up the neighborhoods there, not shift people around. People need to learn how to take care of themselves before they can take the responsibility of owning their own home in the tourist area. No one wants to see people throw garbage on the ground, or people who don't know how to rake leaves etc... I don't see the benefit of putting low income housing in the tourist area.
12/13/2007 4:05:33 PM
SilverSurfer wrote:
OK what was that article. That guy died for his nice or daughter or something to that extent BUT SHE WAS IN A GANG>>>>> They weren't trying to hit him; they were going for another gang member. I'm sure he knew she was in a gang. It's sad true, but think about it this way 2 gang members of the street. And maybe that girl will rethink about being in a gang and start to convince others. Unfortunately the world need martyrs. Stopping gangs starts at home.
12/13/2007 3:39:58 PM
Emile wrote:
>>>So people get shot every now and again. They probably deserve it<<< Yeah, Silver, they probably deserved it: http://thecoaster.net/wordpress/?p=1668 I guess you subscribe to the Sharpe James school of sociology - "They ain't shootin' at me!"
12/13/2007 2:53:33 PM
SilverSurfer wrote:
IT DOES NOT STOP AT THE BEACH FRONT. THE BEACH IS FOR THE UPPER CLASSES which is fine . It gives me something to aspire to. If they put AFFORDABLE HOUSING ON THE BEACH I WOULD BE PISSED OFF because i would not qualify. Why give the poor the best location????? That�s Madness.
12/13/2007 2:19:24 PM
SilverSurfer wrote:
Ok I've been reading posts on all the stories. I find it pretty funny how people just go after any thing about AP. They say its a ghetto, everyone that bought there got ripped the school systems suck yada yada... I moved to AP 3 years ago I almost bought a house on the "bad side" I really did not care because its really not that bad. Secondly all the people that criticizes AP where do you live? I have A side walk a house with a nice size yard and 9 blocks from the beach. We have some of the best restaurants on the shore, an art community that can rival any jersey town. So people get shot every now and again. They probably deserve it gangs are a problem everywhere. Here people get shot Manalapan Egg harbor kids die too usually OD under their parents nose. No i don�t have kids and guess what if i did i would send them to private school anyway. One more thing there are at least 6 houses that have been redone or built on my block and 2 more in the process of being redone.
12/13/2007 2:18:19 PM
dankaplan wrote:
Emile,�thanks for pointing me to that Esperanza web site.� I never looked there before.� Yes, the advertiser could have done better with the boardwalk picture.� Asbury Park's boardwalk looks similar, but the diagonal boards give it more character.� Also, the benches in Asbury Park are a bit newer and cleaner looking.� I've never seen that particular girl in the surf and the bowling balls look newer than the ones at Asbury Lanes.� I guess they used artistic license.� On the nightlife page,�the bar picture looks similar to the Harrison, the microphone looks like something I'd see at Georgie's on Karaoke night and the mixing board scene is something I'd see at Paradise or the Circuit.� On the dining page, the latte looks like one I've gotten at Wish You Were Here, the red chairs at the long table look like one of the coffee shops, maybe�America's Cup.� The food looks like something I've seen on my dinner plate at Moonstruck, Isabella's, or Laila's.
12/13/2007 12:46:28 PM
Emile wrote:
P.S. If you go to esperanzanj.com and click on community, the site tells you "However you choose to entertain yourself in Asbury Park, you're promised something new, something fresh and something never seen before." Then you click on recreation, and they show a picture of AVON's boardwalk. If that doesn't speak volumes about where the developer's heads were, I don't know what would.
12/13/2007 11:18:16 AM
Online story here. Archived here.
(Note: Online stories may be taken down by their publisher after a period of time or made available for a fee. Links posted here is from the original online publication of this piece.)
(In accordance with Title 17 U.S.C. Section 107, this material is distributed without profit to those who have expressed a prior interest in receiving the included information for research and educational purposes. Plainfield Today, Plainfield Stuff and Clippings have no affiliation whatsoever with the originator of these articles nor are Plainfield Today, Plainfield Stuff or Clippings endorsed or sponsored by the originator.)
Development - Ledger - Projects shelved, cut back, delayed
Published in the Star-Ledger, Sunday, December 02, 2007
[See Hughes, Kaplan quotes]
Real estate slump has developers stymied
Perth Amboy, Carteret, East Brunswick slowed
BY SUE EPSTEIN
Star-Ledger Staff
More than $2 billion in redevelopment projects were planned in Perth Amboy, East Brunswick and Carteret, where officials hoped declining business districts and abandoned industrial spots would be replaced by luxury condominiums, townhouses and homes.
But with the real estate boom a fading memory and some housing developers declaring bankruptcy, the grand plans for redevelopment linked to housing have been shelved, scaled down and put in jeopardy. Some underestimated how quickly the housing slump would set in.
"I thought we'd just be going downhill, but we went off a cliff," said Jason Kaplan, president of Kaplan Cos., a developer with multimillion-dollar projects planned in Carteret and Perth Amboy.
In East Brunswick, where Toll Brothers has a contract to redevelop the "Golden Triangle," the formal application for the $35 million project was expected to have been submitted to the planning board already, but the plans have been delayed.
The project would replace a shopping center off Tices Lane, Old Bridge Turnpike and Route 18 with a mix of retail, office and residential units. The site currently includes the Route 18 Flea Market, Jason's Furniture, Sam's Club and the East Brunswick Transportation Center, all of which have leases running through 2008. Toll Brothers now wants to extend the leases until late 2009.
Mayor William Neary said he believes the housing market could have been the reason Toll Brothers has taken longer to file its formal project application.
In Perth Amboy, officials said Kushner Cos., developers of the $600 million Landings at HarborSide project, have delayed the start of the next phase of the project until spring because of the market.
"The question looking back historically is -- were the success stories based on regular market pressures or the housing bubble?" said James Hughes, the dean of the Edward J. Bloustein School of Planning and Policy at Rutgers University in New Brunswick. "We won't know that for several years because this downturn will last several years."
Hughes said he expects the uncertain housing market to continue to decline through 2008 and maybe longer.
"The market is almost paralyzed right now," he said.
Carteret Mayor Dan Reiman and Perth Amboy Mayor Joseph Vas said they are willing to work with developers to tweak projects and make them more marketable in today's climate.
"We have to work to accommodate the needs of the market," Reiman said. "We're fortunate that we have so much going on, not only residential but commercial. We have 13 independent projects. While some have slowed, others have not."
Reiman said the borough worked with Kaplan Cos. to redesign the Gateway at Carteret, the largest redevelopment project in the borough, to reduce the number of the townhouses offered, and their price. The borough also has seen the amount collected from building permits drop $300,000 this year, Reiman said.
Vas acknowledged that effects of the national housing slump have been felt in his city, but he said the impact has been minimal.
"It's difficult to be isolated from a national trend," Vas said. "But I'm confident about what Perth Amboy has to offer."
The next phase in the Landings project has been put off until the spring, and Vas said that the project's developer, Charles Kushner, is taking advantage of the lull in the market to fine-tune the project's specifics.
He said Kushner was examining ways to make the housing units more cost-effective than the first three buildings, so that the development can offer more for less.
Still, Vas maintained that he is not worried by the lagging sales in the national housing market. The first three buildings in the Landings at HarborSide project sold out, and he expects similar success with the additional buildings planned.
Staff writer Allison Steele contributed to this report. Sue Epstein may be reached at sepstein@starledger.com or (732) 404-8085.
Online story here. Archived here.
(Note: Online stories may be taken down by their publisher after a period of time or made available for a fee. Links posted here is from the original online publication of this piece.)
(In accordance with Title 17 U.S.C. Section 107, this material is distributed without profit to those who have expressed a prior interest in receiving the included information for research and educational purposes. Plainfield Today, Plainfield Stuff and Clippings have no affiliation whatsoever with the originator of these articles nor are Plainfield Today, Plainfield Stuff or Clippings endorsed or sponsored by the originator.)
[See Hughes, Kaplan quotes]
Real estate slump has developers stymied
Perth Amboy, Carteret, East Brunswick slowed
BY SUE EPSTEIN
Star-Ledger Staff
More than $2 billion in redevelopment projects were planned in Perth Amboy, East Brunswick and Carteret, where officials hoped declining business districts and abandoned industrial spots would be replaced by luxury condominiums, townhouses and homes.
But with the real estate boom a fading memory and some housing developers declaring bankruptcy, the grand plans for redevelopment linked to housing have been shelved, scaled down and put in jeopardy. Some underestimated how quickly the housing slump would set in.
"I thought we'd just be going downhill, but we went off a cliff," said Jason Kaplan, president of Kaplan Cos., a developer with multimillion-dollar projects planned in Carteret and Perth Amboy.
In East Brunswick, where Toll Brothers has a contract to redevelop the "Golden Triangle," the formal application for the $35 million project was expected to have been submitted to the planning board already, but the plans have been delayed.
The project would replace a shopping center off Tices Lane, Old Bridge Turnpike and Route 18 with a mix of retail, office and residential units. The site currently includes the Route 18 Flea Market, Jason's Furniture, Sam's Club and the East Brunswick Transportation Center, all of which have leases running through 2008. Toll Brothers now wants to extend the leases until late 2009.
Mayor William Neary said he believes the housing market could have been the reason Toll Brothers has taken longer to file its formal project application.
In Perth Amboy, officials said Kushner Cos., developers of the $600 million Landings at HarborSide project, have delayed the start of the next phase of the project until spring because of the market.
"The question looking back historically is -- were the success stories based on regular market pressures or the housing bubble?" said James Hughes, the dean of the Edward J. Bloustein School of Planning and Policy at Rutgers University in New Brunswick. "We won't know that for several years because this downturn will last several years."
Hughes said he expects the uncertain housing market to continue to decline through 2008 and maybe longer.
"The market is almost paralyzed right now," he said.
Carteret Mayor Dan Reiman and Perth Amboy Mayor Joseph Vas said they are willing to work with developers to tweak projects and make them more marketable in today's climate.
"We have to work to accommodate the needs of the market," Reiman said. "We're fortunate that we have so much going on, not only residential but commercial. We have 13 independent projects. While some have slowed, others have not."
Reiman said the borough worked with Kaplan Cos. to redesign the Gateway at Carteret, the largest redevelopment project in the borough, to reduce the number of the townhouses offered, and their price. The borough also has seen the amount collected from building permits drop $300,000 this year, Reiman said.
Vas acknowledged that effects of the national housing slump have been felt in his city, but he said the impact has been minimal.
"It's difficult to be isolated from a national trend," Vas said. "But I'm confident about what Perth Amboy has to offer."
The next phase in the Landings project has been put off until the spring, and Vas said that the project's developer, Charles Kushner, is taking advantage of the lull in the market to fine-tune the project's specifics.
He said Kushner was examining ways to make the housing units more cost-effective than the first three buildings, so that the development can offer more for less.
Still, Vas maintained that he is not worried by the lagging sales in the national housing market. The first three buildings in the Landings at HarborSide project sold out, and he expects similar success with the additional buildings planned.
Staff writer Allison Steele contributed to this report. Sue Epstein may be reached at sepstein@starledger.com or (732) 404-8085.
Online story here. Archived here.
(Note: Online stories may be taken down by their publisher after a period of time or made available for a fee. Links posted here is from the original online publication of this piece.)
(In accordance with Title 17 U.S.C. Section 107, this material is distributed without profit to those who have expressed a prior interest in receiving the included information for research and educational purposes. Plainfield Today, Plainfield Stuff and Clippings have no affiliation whatsoever with the originator of these articles nor are Plainfield Today, Plainfield Stuff or Clippings endorsed or sponsored by the originator.)
Sunday, October 14, 2007
Monday, August 27, 2007
Taxes - Ledger - Realtors oppose local transfer tax
Published in the Star-Ledger, Friday, August 3, 2007
Realtors oppose plan for local tax on transfers
BY JOE DONOHUE
Star-Ledger Staff
The powerful New Jersey Association of Realtors announced a major lobbying push this fall to try to kill legislation that would let municipalities impose a separate local tax on realty transfers.
"What we're afraid of happening is that this is going to be one of those issues that's going to pop up in 'lame duck,' and they are going to rush it through," said Jarrod Grasso, the group's vice president of governmental affairs. "This isn't going to be an issue we're going to sit back on."
Grasso said the Realtors were concerned by recent comments by Gov. Jon Corzine in a Star-Ledger story in which he said he still thinks municipalities should be given more tax-raising options, possibly including local realty transfer taxes.
The New Jersey State League of Municipalities is pushing hard for such an expansion. Five bills have been introduced in the Legislature during the last year to allow cities and towns to charge a local tax of 50 cents per $500 of a home's sales price. Two of the bills would apply statewide, while three would apply only to Newark and Jersey City.
Assemblywoman Joan Quigley (D-Hudson), a co-sponsor of both versions, said she believes the local fees "make sense." She said she was hoping one of the bills would win approval during the lame duck session after the election, but acknowledged many of her colleagues already have been swayed by the Realtors, which typically ranks among the top 10 special interest donors each election.
"If we're going to get it through, the mayors are going to have to talk to their legislators," she said.
William Dressel, executive direc tor of the League of Municipalities, said one reason property taxes are so high in New Jersey is municipalities have few alternatives to balance their revenues. Mayors at least should be given the option of raising other taxes to offset property taxes, he said.
"I think it's a decision that has to be made locally," Dressel said.
A Star-Ledger analysis recently found one of the few local tax op tions that does exist -- the hotel- motel tax -- generated about $37 million for towns last year. Homeowners in a dozen towns would have paid at least $100 more each year in property taxes without the tax.
Jersey City Mayor Jerramiah Healy said he believes the new local fee could be a boon to real estate by curbing property taxes. He esti mates it would raise $30 million an nually in Jersey City alone.
"This is a perfect way to provide property tax relief," adding the local fees would be small compared to real estate brokers' sales commissions, which usually run around 6 percent of home sales.
A calculator available on www.njhometax.com, a special Web site created by the Realtors to stir up opposition to the tax, lets people compute the potential im pact on their wallets. It shows, for instance, the owner of a $356,700 house, the statewide median price, would pay $357 if the new local tax becomes law. That payment would be made on top of the $2,799 realty transfer tax already imposed by the state.
Grasso said state officials not only should reject the local tax, but they also should consider lowering the state realty transfer tax, since it has shot up 80 percent during the past four years.
"Gov. Corzine has come out talking about no new taxes, no new fees. We want that mantra to continue," Grasso said.
Online story here. Archived here.
(Note: Online stories may be taken down by their publisher after a period of time or made available for a fee. Links posted here is from the original online publication of this piece.)
(In accordance with Title 17 U.S.C. Section 107, this material is distributed without profit to those who have expressed a prior interest in receiving the included information for research and educational purposes. Plainfield Today, Plainfield Stuff and Clippings have no affiliation whatsoever with the originator of these articles nor are Plainfield Today, Plainfield Stuff or Clippings endorsed or sponsored by the originator.)
Realtors oppose plan for local tax on transfers
BY JOE DONOHUE
Star-Ledger Staff
The powerful New Jersey Association of Realtors announced a major lobbying push this fall to try to kill legislation that would let municipalities impose a separate local tax on realty transfers.
"What we're afraid of happening is that this is going to be one of those issues that's going to pop up in 'lame duck,' and they are going to rush it through," said Jarrod Grasso, the group's vice president of governmental affairs. "This isn't going to be an issue we're going to sit back on."
Grasso said the Realtors were concerned by recent comments by Gov. Jon Corzine in a Star-Ledger story in which he said he still thinks municipalities should be given more tax-raising options, possibly including local realty transfer taxes.
The New Jersey State League of Municipalities is pushing hard for such an expansion. Five bills have been introduced in the Legislature during the last year to allow cities and towns to charge a local tax of 50 cents per $500 of a home's sales price. Two of the bills would apply statewide, while three would apply only to Newark and Jersey City.
Assemblywoman Joan Quigley (D-Hudson), a co-sponsor of both versions, said she believes the local fees "make sense." She said she was hoping one of the bills would win approval during the lame duck session after the election, but acknowledged many of her colleagues already have been swayed by the Realtors, which typically ranks among the top 10 special interest donors each election.
"If we're going to get it through, the mayors are going to have to talk to their legislators," she said.
William Dressel, executive direc tor of the League of Municipalities, said one reason property taxes are so high in New Jersey is municipalities have few alternatives to balance their revenues. Mayors at least should be given the option of raising other taxes to offset property taxes, he said.
"I think it's a decision that has to be made locally," Dressel said.
A Star-Ledger analysis recently found one of the few local tax op tions that does exist -- the hotel- motel tax -- generated about $37 million for towns last year. Homeowners in a dozen towns would have paid at least $100 more each year in property taxes without the tax.
Jersey City Mayor Jerramiah Healy said he believes the new local fee could be a boon to real estate by curbing property taxes. He esti mates it would raise $30 million an nually in Jersey City alone.
"This is a perfect way to provide property tax relief," adding the local fees would be small compared to real estate brokers' sales commissions, which usually run around 6 percent of home sales.
A calculator available on www.njhometax.com, a special Web site created by the Realtors to stir up opposition to the tax, lets people compute the potential im pact on their wallets. It shows, for instance, the owner of a $356,700 house, the statewide median price, would pay $357 if the new local tax becomes law. That payment would be made on top of the $2,799 realty transfer tax already imposed by the state.
Grasso said state officials not only should reject the local tax, but they also should consider lowering the state realty transfer tax, since it has shot up 80 percent during the past four years.
"Gov. Corzine has come out talking about no new taxes, no new fees. We want that mantra to continue," Grasso said.
Online story here. Archived here.
(Note: Online stories may be taken down by their publisher after a period of time or made available for a fee. Links posted here is from the original online publication of this piece.)
(In accordance with Title 17 U.S.C. Section 107, this material is distributed without profit to those who have expressed a prior interest in receiving the included information for research and educational purposes. Plainfield Today, Plainfield Stuff and Clippings have no affiliation whatsoever with the originator of these articles nor are Plainfield Today, Plainfield Stuff or Clippings endorsed or sponsored by the originator.)
Thursday, August 16, 2007
Mortgage Fraud - Financial Times - Payback Time
Published in the Financial Times [London], Thursday, August 9, 2007
[Mortgage Fraud]
Payback time
By Brooke Masters and Saskia Scholtes
At the height of the US subprime lending boom, taking out a mortgage could not have been easier. Low credit score and history of bankruptcy? No problem. Income too low to qualify for a mortgage? Inflate what you earn on a "stated income" loan. Nervous that your lender might check up on your "stated income"? Visit www.verifyemployment.net.
For a $55 fee, the operators of this small California company will help you get a loan by employing you as an "independent contractor". They provide payslips as "proof" of income and, for an additional $25, they also man the telephones to give you a glowing reference should your lender need it.
But perhaps the most absurd aspect of the US subprime mortgage market in recent years is that lenders became so generous with credit provision for out-of-pocket borrowers that very few checks were ever made.
That left the system extraordinarily vulnerable to widespread fraud, a possibility that federal and state prosecutors across the US have begun to look into. With the subprime crisis expected to cost investors between $50bn (£24bn, €36bn) and $100bn, according to the US Federal Reserve, these investigations could transform it from a market correction to a full-blown national scandal.
At the root of the subprime problem was easy credit: lenders and their brokers were often rewarded for generating new mortgages on the basis of volume, without being directly exposed to the consequences of borrowers defaulting. During several years of strong capital markets and strong investor appetite for high-yielding securities, lenders became accustomed to easily selling the risky home loans they made to Wall Street banks. The banks in turn packaged them into securities and sold them to investors around the globe.
Such ease of mortgage funding allowed thousands of borrowers to get away with fraudulently mis-stating their incomes, often with the encouragement of their brokers. More ambitious fraudsters appear to have taken out multiple mortgages and walked away with the cash.
Karen Gelernt, a partner at law firm Cadwalader, Wickersham & Taft, says: "The difficulty is getting a handle on the size of the problem, because there is no real mechanism for reporting fraud for most originators in this market. In fact, they had every incentive not to report."
Fraud has been detected up and down the financing chain: just as borrowers have lied to get better rates and larger loans, mortgage brokers and loan officers have lied to borrowers about the terms of their loans and may also have lied to the banks about the qualifications of the borrowers. Appraisers, likewise, have lied about the value of the properties involved.
"The recent rapid expansion of the subprime market was clearly accompanied by deterioration in underwriting standards and, in some cases, by abusive lending practices and outright fraud," Ben Bernanke, Fed chairman, recently told lawmakers. With mortgage rates rising and house prices falling, subprime borrowers have been defaulting at record rates.
The fallout is working its way up from the retail level - forcing people out of their homes and lenders into bankruptcy. Investment banks have lost revenue as investors back away from mortgage securities and a handful of high-profile hedge funds have collapsed - most notably two highly leveraged funds managed by Bear Stearns. The crisis has contributed to turmoil in financial markets in recent weeks and could threaten the health of the US economy as lenders tighten access to credit, putting a drag on consumer spending.
For some, this rapid and dramatic unravelling of the subprime lending industry has echoes of the costly savings and loans crisis of the early 1980s - a meltdown that also had its origins in financial market innovation and inadequate oversight, and which many cite as a contributing factor in the 1990-91 economic recession. That crisis ended with a federal bail-out of $150bn and a handful of high-profile convictions for fraud.
This time around, the major losers have been hedge funds, which in theory are limited to wealthy investors. But some analysts believe the pain could spread - many pension funds and college endowments have turned to hedge funds to heat up their returns and some, including Harvard University, are starting to get their fingers burned. Harvard is estimated to have lost $350m of the $550m it invested in a hedge fund run by Jeffrey Larson, a former Harvard money manager, that collapsed recently as a result of positions related to the subprime market.
If the losses trickle down and end up hurting small investors, pressure may grow for a public bail-out. Rumours swept the market earlier this week that Fannie Mae and Freddie Mac, the government-backed mortgage agencies, might get the authority to make sweeping purchases of underpriced mortgage securities.
"The US mortgage landscape has become a top-of-mind political talking point, and we would not be surprised to see the usual 'flow like mud' legislative process fast-tracked with respect to items offering relief to the -troubled mortgage market," says Louise Purtle, strategist at -CreditSights, a research firm.
Most fraud in subprime lending appears to have been so-called "fraud for purchase" - lying about income so as to win a mortgage approval. In reviewing a sample of "no doc" loans that relied on borrowers' statements, the Mortgage Asset Research Institute recently found that almost all would-be home owners had exaggerated their income, with almost 60 per cent inflating it by more than 50 per cent.
These fraudulent borrowers are often difficult to uncover, says Ms Gelernt, because they often stretch to meet their minimum payments for some time before they eventually default. The time lag between initial fraud and default also makes a conviction hard to obtain, she adds, while mortgage investors also have little chance of recovering their losses from individual borrowers in these circumstances.
Many of the originators to blame for poor quality control standards may not be held to account either - with several such lenders already in bankruptcy. "There's a real problem in finding fraud after the fact because the money is already out the door and you won't get the recovery," says Ms Gelernt.
Loose lending standards also facilitated fraud for profit. US prosecutors around the country have broken up at least a dozen mortgage fraud rings and more cases are expected.
In one New York case, the FBI charged 26 people who used stolen identities, invented purchasers and inflated appraisals to obtain subprime loans on more than $200m of property. In an Ohio case, 49 per cent of the mortgages processed by a -single broker never made even a first payment.
The fate of a series of North Carolina neighbourhoods built by Beazer Homes may offer a foretaste of the looming problem. Low income home-buyers around Charlotte have sued the builder alleging that its lending arm steered them into mortgages they could not afford, leading to widespread foreclosures.
The homeowners allege that sales agents misrepresented their personal data, including assets and income, to help them qualify for government-insured mortgages starting in 2002. By the beginning of this year, 10 Beazer subdivisions in Charlotte had foreclosure rates of 20 per cent or higher, compared with 3 per cent state-wide, according to a local newspaper analysis.
The FBI is probing Beazer for possible fraud and the US Housing and Urban Development is examining whether its sales practices violated government-insured mortgage rules. Beazer has defended its sales practices and says it has a "commitment to managing and conducting business in an honest, ethical and lawful manner". In June it announced that it had fired its chief accounting officer for allegedly attempting to destroy documents. The company's shares have lost 75 per cent of their value since the probes began.
Several state attorneys-general are also on the trail. Andrew Cuomo of New York state made headlines this spring with a series of subpoenas to property appraisal companies and has said publicly that he is probing the entire industry. Sources familiar with the office's work say the investigation is still at a relatively early stage.
Marc Dann, the Ohio attorney- general, is looking further up the funding chain. He has been outspoken in his criticism of the role the financial services industry may have played in the large numbers of foreclosures in his state. "There's a whole series of people that knew or should have known that there was fraud in the acquisition of these mortgages," Mr Dann told the Financial Times. "We're looking at ways to hold everybody who aided and abetted that fraud."
Mr Dann's office is looking at brokers, appraisers, rating agencies and securitisers and plans to use several legal methods to hold bad actors accountable. The Ohio attorney-general not only has criminal enforcement powers, but also represents the third-largest set of public pensions in the country and can thus file civil lawsuits on behalf of investors.
"But for the mechanism of packaging these loans, the fraud never would have existed," Mr Dann says. "We're following this trail from homeowner to bondholder." He says his investigation could take six months to a year to bear fruit.
The Securities and Exchange Commission, for its part, is investigating whether Bear Stearns and other hedge fund managers were forthright about disclosing the rapidly declining value of their holdings.
Many of the mortgage-related securities bought by the hedge funds are rarely traded and difficult to value accurately. They are often valued in portfolios according to complex mathematical models because real market prices are not available, making it possible to disguise underperformance if models are not updated.
The SEC has not brought a case in the area so far, but current and former regulators note that it has previously won settlements from several mutual funds and banks that failed to revise the prices of illiquid assets during a falling market.
Private securities lawyers are also starting to file securities fraud lawsuits on behalf of investors who have lost out because of the subprime meltdown.
Jake Zamansky, a lawyer who negotiated an early settlement from Merrill Lynch in the scandal over skewed investment bank research, has filed an arbitration claim against Bear Stearns alleging the firm misled investors about its exposure to the mortgage-backed securities market.
The class action law firm of Bernstein Litowitz is also preparing a claim against Bear Stearns, alleging the firm made material mis-statements in the offering documents for its now defunct hedge funds.
"This was simply about a hedge fund strategy that failed," said a Bear Stearns spokesman. "We plan on defending ourselves vigorously against the allegations in these complaints."
Other hedge funds may also come under political or legal pressure over their role in the loan crisis.
Richard Carnell, a professor at Fordham law school, says it may be possible to hold the investment banks that securitised the mortgages at least partially responsible in the case of a major collapse of the market. "There are two things you can object to in the securitisers' conduct: failing to disclose material facts about the credit quality of the mortgages; and you can also criticise them for acting as an enabler for someone they know is a bad actor," he says.
But putting together a case will not be easy because the hedge funds and other investors who bought such securities are presumed to be sophisticated about financial matters. This means it will be harder for them to prove they were not properly warned about the risks involved.
In the case of the Bear Stearns funds, investors may face new hurdles to recovering any money through US lawsuits. Though the funds operated mostly in New York, they were incorporated in the Cayman Islands and that is where they have filed for bankruptcy. In what could be a test case for international bankruptcy laws, the liquidators have applied to the US courts asking them to block US lawsuits during the liquidation process.
Bear Stearns said in a statement: "Because the two funds are incorporated in the Cayman Islands, the funds' boards filed for liquidation there . . . The return to creditors and investors will be based on the underlying assets and liabilities of the funds not on the location of the filing."
Even if the US lawsuits do go forward, a case pending before the Supreme Court could also prove crucial to investors who hope to make a case that hedge funds and rating agencies enabled widespread fraud.
In Stoneridge Investment Partners v Scientific Atlanta, the court is considering whether investors can recover from firms - including accountants, lawyers and bankers - that help a public company commit fraud by participating in a "scheme to defraud". If the high court rules against "scheme liability", investors who lost money in the subprime market will have very few places to turn to try to get some of it back.
William Poole of the Federal Reserve Bank of St. Louis thinks that this may be what investors who lose money on subprime-linked securities deserve for not looking at them closely enough.
Criticising Wall Street underwriting standards recently, he said: "The punishment has been meted out to those who have done misdeeds and made bad judgments. We are getting good evidence that the companies and hedge funds that are being hit are the ones who deserve it.''
Online story here. Archived here.
(Note: Online stories may be taken down by their publisher after a period of time or made available for a fee. Links posted here is from the original online publication of this piece.)
(In accordance with Title 17 U.S.C. Section 107, this material is distributed without profit to those who have expressed a prior interest in receiving the included information for research and educational purposes. Plainfield Today, Plainfield Stuff and Clippings have no affiliation whatsoever with the originator of these articles nor are Plainfield Today, Plainfield Stuff or Clippings endorsed or sponsored by the originator.)
[Mortgage Fraud]
Payback time
By Brooke Masters and Saskia Scholtes
At the height of the US subprime lending boom, taking out a mortgage could not have been easier. Low credit score and history of bankruptcy? No problem. Income too low to qualify for a mortgage? Inflate what you earn on a "stated income" loan. Nervous that your lender might check up on your "stated income"? Visit www.verifyemployment.net.
For a $55 fee, the operators of this small California company will help you get a loan by employing you as an "independent contractor". They provide payslips as "proof" of income and, for an additional $25, they also man the telephones to give you a glowing reference should your lender need it.
But perhaps the most absurd aspect of the US subprime mortgage market in recent years is that lenders became so generous with credit provision for out-of-pocket borrowers that very few checks were ever made.
That left the system extraordinarily vulnerable to widespread fraud, a possibility that federal and state prosecutors across the US have begun to look into. With the subprime crisis expected to cost investors between $50bn (£24bn, €36bn) and $100bn, according to the US Federal Reserve, these investigations could transform it from a market correction to a full-blown national scandal.
At the root of the subprime problem was easy credit: lenders and their brokers were often rewarded for generating new mortgages on the basis of volume, without being directly exposed to the consequences of borrowers defaulting. During several years of strong capital markets and strong investor appetite for high-yielding securities, lenders became accustomed to easily selling the risky home loans they made to Wall Street banks. The banks in turn packaged them into securities and sold them to investors around the globe.
Such ease of mortgage funding allowed thousands of borrowers to get away with fraudulently mis-stating their incomes, often with the encouragement of their brokers. More ambitious fraudsters appear to have taken out multiple mortgages and walked away with the cash.
Karen Gelernt, a partner at law firm Cadwalader, Wickersham & Taft, says: "The difficulty is getting a handle on the size of the problem, because there is no real mechanism for reporting fraud for most originators in this market. In fact, they had every incentive not to report."
Fraud has been detected up and down the financing chain: just as borrowers have lied to get better rates and larger loans, mortgage brokers and loan officers have lied to borrowers about the terms of their loans and may also have lied to the banks about the qualifications of the borrowers. Appraisers, likewise, have lied about the value of the properties involved.
"The recent rapid expansion of the subprime market was clearly accompanied by deterioration in underwriting standards and, in some cases, by abusive lending practices and outright fraud," Ben Bernanke, Fed chairman, recently told lawmakers. With mortgage rates rising and house prices falling, subprime borrowers have been defaulting at record rates.
The fallout is working its way up from the retail level - forcing people out of their homes and lenders into bankruptcy. Investment banks have lost revenue as investors back away from mortgage securities and a handful of high-profile hedge funds have collapsed - most notably two highly leveraged funds managed by Bear Stearns. The crisis has contributed to turmoil in financial markets in recent weeks and could threaten the health of the US economy as lenders tighten access to credit, putting a drag on consumer spending.
For some, this rapid and dramatic unravelling of the subprime lending industry has echoes of the costly savings and loans crisis of the early 1980s - a meltdown that also had its origins in financial market innovation and inadequate oversight, and which many cite as a contributing factor in the 1990-91 economic recession. That crisis ended with a federal bail-out of $150bn and a handful of high-profile convictions for fraud.
This time around, the major losers have been hedge funds, which in theory are limited to wealthy investors. But some analysts believe the pain could spread - many pension funds and college endowments have turned to hedge funds to heat up their returns and some, including Harvard University, are starting to get their fingers burned. Harvard is estimated to have lost $350m of the $550m it invested in a hedge fund run by Jeffrey Larson, a former Harvard money manager, that collapsed recently as a result of positions related to the subprime market.
If the losses trickle down and end up hurting small investors, pressure may grow for a public bail-out. Rumours swept the market earlier this week that Fannie Mae and Freddie Mac, the government-backed mortgage agencies, might get the authority to make sweeping purchases of underpriced mortgage securities.
"The US mortgage landscape has become a top-of-mind political talking point, and we would not be surprised to see the usual 'flow like mud' legislative process fast-tracked with respect to items offering relief to the -troubled mortgage market," says Louise Purtle, strategist at -CreditSights, a research firm.
Most fraud in subprime lending appears to have been so-called "fraud for purchase" - lying about income so as to win a mortgage approval. In reviewing a sample of "no doc" loans that relied on borrowers' statements, the Mortgage Asset Research Institute recently found that almost all would-be home owners had exaggerated their income, with almost 60 per cent inflating it by more than 50 per cent.
These fraudulent borrowers are often difficult to uncover, says Ms Gelernt, because they often stretch to meet their minimum payments for some time before they eventually default. The time lag between initial fraud and default also makes a conviction hard to obtain, she adds, while mortgage investors also have little chance of recovering their losses from individual borrowers in these circumstances.
Many of the originators to blame for poor quality control standards may not be held to account either - with several such lenders already in bankruptcy. "There's a real problem in finding fraud after the fact because the money is already out the door and you won't get the recovery," says Ms Gelernt.
Loose lending standards also facilitated fraud for profit. US prosecutors around the country have broken up at least a dozen mortgage fraud rings and more cases are expected.
In one New York case, the FBI charged 26 people who used stolen identities, invented purchasers and inflated appraisals to obtain subprime loans on more than $200m of property. In an Ohio case, 49 per cent of the mortgages processed by a -single broker never made even a first payment.
The fate of a series of North Carolina neighbourhoods built by Beazer Homes may offer a foretaste of the looming problem. Low income home-buyers around Charlotte have sued the builder alleging that its lending arm steered them into mortgages they could not afford, leading to widespread foreclosures.
The homeowners allege that sales agents misrepresented their personal data, including assets and income, to help them qualify for government-insured mortgages starting in 2002. By the beginning of this year, 10 Beazer subdivisions in Charlotte had foreclosure rates of 20 per cent or higher, compared with 3 per cent state-wide, according to a local newspaper analysis.
The FBI is probing Beazer for possible fraud and the US Housing and Urban Development is examining whether its sales practices violated government-insured mortgage rules. Beazer has defended its sales practices and says it has a "commitment to managing and conducting business in an honest, ethical and lawful manner". In June it announced that it had fired its chief accounting officer for allegedly attempting to destroy documents. The company's shares have lost 75 per cent of their value since the probes began.
Several state attorneys-general are also on the trail. Andrew Cuomo of New York state made headlines this spring with a series of subpoenas to property appraisal companies and has said publicly that he is probing the entire industry. Sources familiar with the office's work say the investigation is still at a relatively early stage.
Marc Dann, the Ohio attorney- general, is looking further up the funding chain. He has been outspoken in his criticism of the role the financial services industry may have played in the large numbers of foreclosures in his state. "There's a whole series of people that knew or should have known that there was fraud in the acquisition of these mortgages," Mr Dann told the Financial Times. "We're looking at ways to hold everybody who aided and abetted that fraud."
Mr Dann's office is looking at brokers, appraisers, rating agencies and securitisers and plans to use several legal methods to hold bad actors accountable. The Ohio attorney-general not only has criminal enforcement powers, but also represents the third-largest set of public pensions in the country and can thus file civil lawsuits on behalf of investors.
"But for the mechanism of packaging these loans, the fraud never would have existed," Mr Dann says. "We're following this trail from homeowner to bondholder." He says his investigation could take six months to a year to bear fruit.
The Securities and Exchange Commission, for its part, is investigating whether Bear Stearns and other hedge fund managers were forthright about disclosing the rapidly declining value of their holdings.
Many of the mortgage-related securities bought by the hedge funds are rarely traded and difficult to value accurately. They are often valued in portfolios according to complex mathematical models because real market prices are not available, making it possible to disguise underperformance if models are not updated.
The SEC has not brought a case in the area so far, but current and former regulators note that it has previously won settlements from several mutual funds and banks that failed to revise the prices of illiquid assets during a falling market.
Private securities lawyers are also starting to file securities fraud lawsuits on behalf of investors who have lost out because of the subprime meltdown.
Jake Zamansky, a lawyer who negotiated an early settlement from Merrill Lynch in the scandal over skewed investment bank research, has filed an arbitration claim against Bear Stearns alleging the firm misled investors about its exposure to the mortgage-backed securities market.
The class action law firm of Bernstein Litowitz is also preparing a claim against Bear Stearns, alleging the firm made material mis-statements in the offering documents for its now defunct hedge funds.
"This was simply about a hedge fund strategy that failed," said a Bear Stearns spokesman. "We plan on defending ourselves vigorously against the allegations in these complaints."
Other hedge funds may also come under political or legal pressure over their role in the loan crisis.
Richard Carnell, a professor at Fordham law school, says it may be possible to hold the investment banks that securitised the mortgages at least partially responsible in the case of a major collapse of the market. "There are two things you can object to in the securitisers' conduct: failing to disclose material facts about the credit quality of the mortgages; and you can also criticise them for acting as an enabler for someone they know is a bad actor," he says.
But putting together a case will not be easy because the hedge funds and other investors who bought such securities are presumed to be sophisticated about financial matters. This means it will be harder for them to prove they were not properly warned about the risks involved.
In the case of the Bear Stearns funds, investors may face new hurdles to recovering any money through US lawsuits. Though the funds operated mostly in New York, they were incorporated in the Cayman Islands and that is where they have filed for bankruptcy. In what could be a test case for international bankruptcy laws, the liquidators have applied to the US courts asking them to block US lawsuits during the liquidation process.
Bear Stearns said in a statement: "Because the two funds are incorporated in the Cayman Islands, the funds' boards filed for liquidation there . . . The return to creditors and investors will be based on the underlying assets and liabilities of the funds not on the location of the filing."
Even if the US lawsuits do go forward, a case pending before the Supreme Court could also prove crucial to investors who hope to make a case that hedge funds and rating agencies enabled widespread fraud.
In Stoneridge Investment Partners v Scientific Atlanta, the court is considering whether investors can recover from firms - including accountants, lawyers and bankers - that help a public company commit fraud by participating in a "scheme to defraud". If the high court rules against "scheme liability", investors who lost money in the subprime market will have very few places to turn to try to get some of it back.
William Poole of the Federal Reserve Bank of St. Louis thinks that this may be what investors who lose money on subprime-linked securities deserve for not looking at them closely enough.
Criticising Wall Street underwriting standards recently, he said: "The punishment has been meted out to those who have done misdeeds and made bad judgments. We are getting good evidence that the companies and hedge funds that are being hit are the ones who deserve it.''
Online story here. Archived here.
(Note: Online stories may be taken down by their publisher after a period of time or made available for a fee. Links posted here is from the original online publication of this piece.)
(In accordance with Title 17 U.S.C. Section 107, this material is distributed without profit to those who have expressed a prior interest in receiving the included information for research and educational purposes. Plainfield Today, Plainfield Stuff and Clippings have no affiliation whatsoever with the originator of these articles nor are Plainfield Today, Plainfield Stuff or Clippings endorsed or sponsored by the originator.)
Saturday, July 21, 2007
Mortgage Brokers - Herald News - NJ May Set Broker Rules
Published in the Herald News [Paterson], Friday, July 20, 2007
New Jersey may home in on broker rules
By HEATHER HADDON
HERALD NEWS
A consortium of 26 states took steps earlier this week to protect future homeowners from getting saddled with the risky mortgages that have left thousands of New Jersey residents on the brink of losing their properties.
But some housing experts say the guidelines provide too little, too late. That, and New Jersey wasn't among the states who initially signed on.
"I was disappointed," said James Bednar, of Clifton, who runs a real estate blog about North Jersey. "I had thoroughly expected New Jersey to be on that list."
State banking authorities say it's just a matter of time before New Jersey signs on. Regardless, housing advocates argue that no single set of recommendations can erase the damage done by loose lending standards to homeowners, pension holders and the economy.
On Tuesday, a group of banking regulators agreed to extend new guidelines for federal mortgage brokers to ones charted on the state level -- where many experts say the riskiest loans come from.
The guidelines would require brokers ensure that borrowers can afford a loan at its maximum monthly rate, not just an artificially low "teaser" amount. Brokers would also face new restrictions in issuing loans without income verification, which became a commonly abused practice in recent years.
"Hopefully, this will get more of the unscrupulous players out of the industry," said John Allison, a member of the Conference of State Bank Supervisors from Mississippi.
Unscrupulous brokers have already done extensive damage. On Wednesday, Federal Reserve Board Chairman Ben Bernanke devoted half of his assessment of the American economy to the negative impact of the mortgage and housing markets.
The bad news continued on Wednesday when Bear Sterns, the fifth-largest securities firm in the United States, announced that two of its mortgage investment funds had little or no value left. Pension funds, including in New Jersey, commonly invest in these types of funds. Now, angry shareholders have begun suing over their worthless investments.
The fallout reminds Bender of the junk bond fiasco of the 1980s.
"It's already caused a lot of suffering. Now, it's going mess up the economy," he said.
Homeowners struggling to hang on are in the eye of the storm. New Jersey ranked ninth in the nation for the number of loans in jeopardy of default in May, according to Bargain Network, a company that tracks the industry. In the past three months, more than 12,000 loans went into default in New Jersey, a 25 percent increase from the beginning of this year.
Not all loan defaults turn into foreclosures. But those have been on the rise as well.
In Passaic County, foreclosures are projected to rise by 22 percent this year, an analysis of county Sheriff's Department statistics shows.
Tighter standards for who can receive a loan would have prevented much of the hardship, according to Melissa Totaro, a West Orange lawyer who previously worked for the Passaic County Legal Aid Society.
"It's just a matter of common sense," Totaro said. "Any guidelines are better than just trusting the market."
Last year, risky loans like these constituted 20 percent of the mortgage market. Most went to low-income borrowers, people with bad credit or those who had personal debt to refinance.
Jacqueline McCormack, spokeswoman for the New York State Banking Department, said that signing onto the guidelines was a no-brainer because they mirror federal ones. "This needs immediate attention," McCormack said.
But New Jersey regulators opted to ruminate longer on the standards. "We wanted to make sure we understand them before we sign on," said Marshall McKnight, a spokesman for the state Division of Banking and Insurance.
McKnight said he couldn't estimate exactly when the state would make a decision, but it should be soon.
The guidelines will give regulators more ammunition to crack down on mortgage brokers that bilk homeowners into a loan they can't afford. But they don't outlaw the practice cold.
"One would hope (the guidelines) will be followed. But they don't have teeth," said Henry Wolfe of Legal Services of New Jersey.
Totaro, the lawyer, said that any measure helps.
"It's too late for people who are in foreclosure," she said. "It's not too late to stop this craziness and help people in the future."
Link to online story.
(In accordance with Title 17 U.S.C. Section 107, this material is distributed without profit to those who have expressed a prior interest in receiving the included information for research and educational purposes. Plainfield Today, Plainfield Stuff and Clippings have no affiliation whatsoever with the originator of these articles nor are Plainfield Today, Plainfield Stuff or Clippings endorsed or sponsored by the originator.)
New Jersey may home in on broker rules
By HEATHER HADDON
HERALD NEWS
A consortium of 26 states took steps earlier this week to protect future homeowners from getting saddled with the risky mortgages that have left thousands of New Jersey residents on the brink of losing their properties.
But some housing experts say the guidelines provide too little, too late. That, and New Jersey wasn't among the states who initially signed on.
"I was disappointed," said James Bednar, of Clifton, who runs a real estate blog about North Jersey. "I had thoroughly expected New Jersey to be on that list."
State banking authorities say it's just a matter of time before New Jersey signs on. Regardless, housing advocates argue that no single set of recommendations can erase the damage done by loose lending standards to homeowners, pension holders and the economy.
On Tuesday, a group of banking regulators agreed to extend new guidelines for federal mortgage brokers to ones charted on the state level -- where many experts say the riskiest loans come from.
The guidelines would require brokers ensure that borrowers can afford a loan at its maximum monthly rate, not just an artificially low "teaser" amount. Brokers would also face new restrictions in issuing loans without income verification, which became a commonly abused practice in recent years.
"Hopefully, this will get more of the unscrupulous players out of the industry," said John Allison, a member of the Conference of State Bank Supervisors from Mississippi.
Unscrupulous brokers have already done extensive damage. On Wednesday, Federal Reserve Board Chairman Ben Bernanke devoted half of his assessment of the American economy to the negative impact of the mortgage and housing markets.
The bad news continued on Wednesday when Bear Sterns, the fifth-largest securities firm in the United States, announced that two of its mortgage investment funds had little or no value left. Pension funds, including in New Jersey, commonly invest in these types of funds. Now, angry shareholders have begun suing over their worthless investments.
The fallout reminds Bender of the junk bond fiasco of the 1980s.
"It's already caused a lot of suffering. Now, it's going mess up the economy," he said.
Homeowners struggling to hang on are in the eye of the storm. New Jersey ranked ninth in the nation for the number of loans in jeopardy of default in May, according to Bargain Network, a company that tracks the industry. In the past three months, more than 12,000 loans went into default in New Jersey, a 25 percent increase from the beginning of this year.
Not all loan defaults turn into foreclosures. But those have been on the rise as well.
In Passaic County, foreclosures are projected to rise by 22 percent this year, an analysis of county Sheriff's Department statistics shows.
Tighter standards for who can receive a loan would have prevented much of the hardship, according to Melissa Totaro, a West Orange lawyer who previously worked for the Passaic County Legal Aid Society.
"It's just a matter of common sense," Totaro said. "Any guidelines are better than just trusting the market."
Last year, risky loans like these constituted 20 percent of the mortgage market. Most went to low-income borrowers, people with bad credit or those who had personal debt to refinance.
Jacqueline McCormack, spokeswoman for the New York State Banking Department, said that signing onto the guidelines was a no-brainer because they mirror federal ones. "This needs immediate attention," McCormack said.
But New Jersey regulators opted to ruminate longer on the standards. "We wanted to make sure we understand them before we sign on," said Marshall McKnight, a spokesman for the state Division of Banking and Insurance.
McKnight said he couldn't estimate exactly when the state would make a decision, but it should be soon.
The guidelines will give regulators more ammunition to crack down on mortgage brokers that bilk homeowners into a loan they can't afford. But they don't outlaw the practice cold.
"One would hope (the guidelines) will be followed. But they don't have teeth," said Henry Wolfe of Legal Services of New Jersey.
Totaro, the lawyer, said that any measure helps.
"It's too late for people who are in foreclosure," she said. "It's not too late to stop this craziness and help people in the future."
LENDING GUIDELINES
• A consortium of banking regulators proposed new standards for state mortgage brokers earlier this week. New Jersey has yet to sign but is expected to do so. Here's some of what regulators recommend that brokers do:
• Ensure that a borrower has sufficient income to pay the loan at the highest interest rate, not just an initial teaser offer.
• If income isn't verified, limit loans to specific circumstances, such as when someone anticipates earning additional income.
• Explain possible risks for suddenly increasing payments in a company's advertisements.
• Stop giving predatory loans, or face investigation from regulators.
Source: Statement on Subprime Mortgage Lending
Link to online story.
(In accordance with Title 17 U.S.C. Section 107, this material is distributed without profit to those who have expressed a prior interest in receiving the included information for research and educational purposes. Plainfield Today, Plainfield Stuff and Clippings have no affiliation whatsoever with the originator of these articles nor are Plainfield Today, Plainfield Stuff or Clippings endorsed or sponsored by the originator.)
Tuesday, January 16, 2007
Real Estate - NY Times - Condo buyers scarce in DC
Published in the New York Times, Tuesday, January 16, 2007
Buyers Scarce, Many Condos Are for Rent
By VIKAS BAJAJ
WASHINGTON — David Franco’s illuminated model of a proposed 10-story condominium tower dominates a sales center that, in spite of the “Now Selling” banner still fluttering outside, is conspicuously closed for business.
“We could have waited it out and kept pushing and pushing,” Mr. Franco said about the decision to abandon plans to sell 180 luxury condominiums with floor-to-ceiling windows offering views of the Washington Monument and Capitol Hill. “But it would have taken significantly longer.”
(Chart, NY Times)
After six weeks of failing to lure more than a couple of dozen buyers, Mr. Franco and his partner, Jeff Blum, joined the builders of nearly 6,000 condominium units in the Washington metropolitan area who have decided in the last three months to recast their projects as rental apartment buildings.
Since the middle of 2006, the frenzied condominium market here and in several other big cities like Las Vegas, Miami and Boston has collapsed. Once roaring sales have slowed to a trickle, sparse inventory has mushroomed into a glut and soaring prices have flattened out and started falling.
In many cities, banks have significantly scaled back loans to condominium builders. Some have demanded that developers sell half or more of the units in a building before even beginning construction.
In hopes of salvaging something from their costly plans, hundreds of developers like Mr. Franco are looking to the strong market for apartments, planning to rent their units for at least a couple of years while waiting for today’s condo surplus to shrink. Mr. Franco and Mr. Blum hope to break ground on what will be a somewhat less expensive building this spring.
In some cases, developers are even turning older buildings back to rentals after a brief or aborted attempt at condo conversion. Meanwhile, another 2,500 proposed condominiums in the Washington area have been scrapped altogether, according to Delta Associates, a real estate research firm.
The latest salvage operation on the part of condo developers is far from a sure bet, however. Condominium buildings generally cost more to build and operate than those built for apartments from scratch. And while rents are high and rising in most cities, in many cases they still are not sufficient to turn a profit.
Industry analysts also point out that rents may start sagging if too many condos are converted into apartments too quickly. While rents were rising at a robust 6.1 percent annual pace in the Washington area late last year, according to the Bureau of Labor Statistics, some buildings in the suburbs have recently started promoting move-in specials and other incentives to lure renters.
“You can do it, but it isn’t as attractive,” Tom Meagher, a Boston real estate consultant, said about converting condos into apartments. “You are not going to get enough rent to cover the cost. You might have to go back and redesign the floor plans.”
In the Boston area, Mr. Meagher is tracking 600 condo projects representing about 49,000 units in various stages, from applying for permits to active construction. While the recent slowdown is forcing developers to consider converting their projects to apartments and offices, he expects as many as a third of them will never be built at all.
Mr. Franco said that he and Mr. Blum were able to cut 10 percent from the costs of their planned building, on land in the trendy U Street corridor. That should be enough to make a profit, he said. Beyond switching to some less expensive materials, they also decided to subdivide some larger units into smaller apartments.
The partners are now going through a similar financial exercise on another proposed building across the street, which was to house 225 condominiums but now could be recast as a rental building as well.
Lenders started tightening the purse strings for the condominium market in early 2006 as sales weakened first in cities like Miami and Las Vegas.
“Did the lenders pull back soon enough?” asked Robert Brennan, managing director of real estate finance at Credit Suisse in New York. “I don’t think we know yet.”
Real estate experts say condos are more susceptible to booms and busts than single-family homes are because they attract more investors who do not intend to live in them and are easier to build than a new subdivision in many cities.
And while there are tentative signs that the worst of the overall housing slump may be easing as builders cut back and interest rates remain relatively modest, condo markets continue to suffer.
Take the owner trying to sell a spacious two-bedroom condo for $879,000 in the former Columbia Hospital for Women, which closed in 2002, in the Foggy Bottom neighborhood of Washington. In 2004, the investor was so confident that he would make a handsome resale profit that he told his agent, Thomas P. Murphy, he wanted to buy five condos. Mr. Murphy said he flatly told his client he would only assist him in purchasing one unit in any one building.
“He needs $890,000 to break even, but the offers are at $800,000 to $840,000,” Mr. Murphy said. “He does remember that I told him he was not getting five of them.”
Could he rent the condo? Yes, but that option is not appealing, either. Mr. Murphy estimates that the unit could rent for $4,000 a month, far short of the $6,800 a month the condo costs in mortgage interest, maintenance fees, insurance and taxes.
“They have a choice of how they want to lose it,” Mr. Murphy said of investors and condo developers. “Drip by drip or in one slap.”
Mr. Murphy said he believed condo sales had picked up somewhat lately and he even ran a four-way bidding contest on one well-priced condo in Foggy Bottom, near the State Department. But the supply of newly built condos is so large and so many of them are similar to each other that many sellers are having to sharply cut their asking price. Others have simply given up.
At the end of 2006, 24,200 units were on the market in the Washington area, up from 13,000 at the start of 2005. Sales have slowed to 663 in the fourth quarter of 2006 from 3,520 in the first quarter of 2005, according to Delta Associates. Recorded prices have been flat, which probably masks an effective decline since only the most attractive properties are selling and many owners throw in extra inducements that do not show up in official figures.
One of the few exceptions to the trend is in Manhattan, particularly at the high end. Condo and co-op sales increased to 2,441 in the fourth quarter, from 1,574 a year ago, and inventory was relatively flat at 5,900, said Jonathan J. Miller, an appraiser. Much of the increase can be attributed to a legal change in how sales of co-ops are recorded, but Mr. Miller said a 5.5 percent drop in prices from the third quarter also helped.
Nationally, condominium sales have fallen further than those of single-family properties, 13.6 percent from November 2005 to the same month in 2006; free-standing homes showed a 10.7 percent decline in the same period. Inventories have risen 38.1 percent for condos and 29.6 percent for individual homes, according to the National Association of Realtors. The national median price — half the condos sold for more and half for less — was $224,600 in November, unchanged from November 2005.
But there is no comprehensive, national source of data for new condominiums sales. The Realtors group only measures sales of existing units and the Commerce Department, which tracks sales of new single-family homes, does not collect data on condominiums.
In the recent housing boom, many cities welcomed condos, hoping the young, upper-income set they attract would help revitalize older neighborhoods. In some cities, condominium construction also gave municipal officials an opportunity to demand that developers set aside some units for affordable housing in exchange for zoning and building approvals.
In Washington, the area around 14th and U Streets was one of several formerly run-down neighborhoods to get a facelift largely from new condo projects. The area was once a hub of African-American civic and cultural life, but the neighborhood was ravaged by riots in 1968 after Martin Luther King Jr.’s assassination and fell into decades of neglect and disrepair.
The area has now become home to trendy cafes, a Whole Foods grocery and other stores. But signs of its hardscrabble past linger on in dilapidated apartment buildings and storefronts. The influx of transplants from nearby Dupont Circle and Adams Morgan has also raised the usual strains that accompany gentrification — rising rents, increased traffic and the displacement of local residents.
Mr. Franco, who lives in the neighborhood, said he was sensitive to those concerns. His company, Level 2 Development, contributed $1 million to help a group of tenants in low-income apartments buy their building as part of a deal with the local government for the approval of his condo project.
He had hoped to take up residence in a 3,200-square-foot corner unit with an expansive terrace, which will now be cut up into smaller rental apartments.
But as he drove around the neighborhood recently pointing out rows of redeveloped buildings, he acknowledged that the market might have reached its limit for now. As an example, he pointed to a used car lot that seemed to be a vestige of a bygone era.
“The reality is not everything can make way for condos,” Mr. Franco said. “This guy may be doing so much business that it has far more value than what a real estate sale can fetch.”
Link to online story.
(Note: Online stories may be taken down by their publisher after a period of time or made available for a fee. Links posted here is from the original online publication of this piece.)
(In accordance with Title 17 U.S.C. Section 107, this material is distributed without profit to those who have expressed a prior interest in receiving the included information for research and educational purposes. Plainfield Today, Plainfield Stuff and Clippings have no affiliation whatsoever with the originator of these articles nor are Plainfield Today, Plainfield Stuff or Clippings endorsed or sponsored by the originator.)
*
Buyers Scarce, Many Condos Are for Rent
By VIKAS BAJAJ
WASHINGTON — David Franco’s illuminated model of a proposed 10-story condominium tower dominates a sales center that, in spite of the “Now Selling” banner still fluttering outside, is conspicuously closed for business.
“We could have waited it out and kept pushing and pushing,” Mr. Franco said about the decision to abandon plans to sell 180 luxury condominiums with floor-to-ceiling windows offering views of the Washington Monument and Capitol Hill. “But it would have taken significantly longer.”
(Chart, NY Times)
After six weeks of failing to lure more than a couple of dozen buyers, Mr. Franco and his partner, Jeff Blum, joined the builders of nearly 6,000 condominium units in the Washington metropolitan area who have decided in the last three months to recast their projects as rental apartment buildings.
Since the middle of 2006, the frenzied condominium market here and in several other big cities like Las Vegas, Miami and Boston has collapsed. Once roaring sales have slowed to a trickle, sparse inventory has mushroomed into a glut and soaring prices have flattened out and started falling.
In many cities, banks have significantly scaled back loans to condominium builders. Some have demanded that developers sell half or more of the units in a building before even beginning construction.
In hopes of salvaging something from their costly plans, hundreds of developers like Mr. Franco are looking to the strong market for apartments, planning to rent their units for at least a couple of years while waiting for today’s condo surplus to shrink. Mr. Franco and Mr. Blum hope to break ground on what will be a somewhat less expensive building this spring.
In some cases, developers are even turning older buildings back to rentals after a brief or aborted attempt at condo conversion. Meanwhile, another 2,500 proposed condominiums in the Washington area have been scrapped altogether, according to Delta Associates, a real estate research firm.
The latest salvage operation on the part of condo developers is far from a sure bet, however. Condominium buildings generally cost more to build and operate than those built for apartments from scratch. And while rents are high and rising in most cities, in many cases they still are not sufficient to turn a profit.
Industry analysts also point out that rents may start sagging if too many condos are converted into apartments too quickly. While rents were rising at a robust 6.1 percent annual pace in the Washington area late last year, according to the Bureau of Labor Statistics, some buildings in the suburbs have recently started promoting move-in specials and other incentives to lure renters.
“You can do it, but it isn’t as attractive,” Tom Meagher, a Boston real estate consultant, said about converting condos into apartments. “You are not going to get enough rent to cover the cost. You might have to go back and redesign the floor plans.”
In the Boston area, Mr. Meagher is tracking 600 condo projects representing about 49,000 units in various stages, from applying for permits to active construction. While the recent slowdown is forcing developers to consider converting their projects to apartments and offices, he expects as many as a third of them will never be built at all.
Mr. Franco said that he and Mr. Blum were able to cut 10 percent from the costs of their planned building, on land in the trendy U Street corridor. That should be enough to make a profit, he said. Beyond switching to some less expensive materials, they also decided to subdivide some larger units into smaller apartments.
The partners are now going through a similar financial exercise on another proposed building across the street, which was to house 225 condominiums but now could be recast as a rental building as well.
Lenders started tightening the purse strings for the condominium market in early 2006 as sales weakened first in cities like Miami and Las Vegas.
“Did the lenders pull back soon enough?” asked Robert Brennan, managing director of real estate finance at Credit Suisse in New York. “I don’t think we know yet.”
Real estate experts say condos are more susceptible to booms and busts than single-family homes are because they attract more investors who do not intend to live in them and are easier to build than a new subdivision in many cities.
And while there are tentative signs that the worst of the overall housing slump may be easing as builders cut back and interest rates remain relatively modest, condo markets continue to suffer.
Take the owner trying to sell a spacious two-bedroom condo for $879,000 in the former Columbia Hospital for Women, which closed in 2002, in the Foggy Bottom neighborhood of Washington. In 2004, the investor was so confident that he would make a handsome resale profit that he told his agent, Thomas P. Murphy, he wanted to buy five condos. Mr. Murphy said he flatly told his client he would only assist him in purchasing one unit in any one building.
“He needs $890,000 to break even, but the offers are at $800,000 to $840,000,” Mr. Murphy said. “He does remember that I told him he was not getting five of them.”
Could he rent the condo? Yes, but that option is not appealing, either. Mr. Murphy estimates that the unit could rent for $4,000 a month, far short of the $6,800 a month the condo costs in mortgage interest, maintenance fees, insurance and taxes.
“They have a choice of how they want to lose it,” Mr. Murphy said of investors and condo developers. “Drip by drip or in one slap.”
Mr. Murphy said he believed condo sales had picked up somewhat lately and he even ran a four-way bidding contest on one well-priced condo in Foggy Bottom, near the State Department. But the supply of newly built condos is so large and so many of them are similar to each other that many sellers are having to sharply cut their asking price. Others have simply given up.
At the end of 2006, 24,200 units were on the market in the Washington area, up from 13,000 at the start of 2005. Sales have slowed to 663 in the fourth quarter of 2006 from 3,520 in the first quarter of 2005, according to Delta Associates. Recorded prices have been flat, which probably masks an effective decline since only the most attractive properties are selling and many owners throw in extra inducements that do not show up in official figures.
One of the few exceptions to the trend is in Manhattan, particularly at the high end. Condo and co-op sales increased to 2,441 in the fourth quarter, from 1,574 a year ago, and inventory was relatively flat at 5,900, said Jonathan J. Miller, an appraiser. Much of the increase can be attributed to a legal change in how sales of co-ops are recorded, but Mr. Miller said a 5.5 percent drop in prices from the third quarter also helped.
Nationally, condominium sales have fallen further than those of single-family properties, 13.6 percent from November 2005 to the same month in 2006; free-standing homes showed a 10.7 percent decline in the same period. Inventories have risen 38.1 percent for condos and 29.6 percent for individual homes, according to the National Association of Realtors. The national median price — half the condos sold for more and half for less — was $224,600 in November, unchanged from November 2005.
But there is no comprehensive, national source of data for new condominiums sales. The Realtors group only measures sales of existing units and the Commerce Department, which tracks sales of new single-family homes, does not collect data on condominiums.
In the recent housing boom, many cities welcomed condos, hoping the young, upper-income set they attract would help revitalize older neighborhoods. In some cities, condominium construction also gave municipal officials an opportunity to demand that developers set aside some units for affordable housing in exchange for zoning and building approvals.
In Washington, the area around 14th and U Streets was one of several formerly run-down neighborhoods to get a facelift largely from new condo projects. The area was once a hub of African-American civic and cultural life, but the neighborhood was ravaged by riots in 1968 after Martin Luther King Jr.’s assassination and fell into decades of neglect and disrepair.
The area has now become home to trendy cafes, a Whole Foods grocery and other stores. But signs of its hardscrabble past linger on in dilapidated apartment buildings and storefronts. The influx of transplants from nearby Dupont Circle and Adams Morgan has also raised the usual strains that accompany gentrification — rising rents, increased traffic and the displacement of local residents.
Mr. Franco, who lives in the neighborhood, said he was sensitive to those concerns. His company, Level 2 Development, contributed $1 million to help a group of tenants in low-income apartments buy their building as part of a deal with the local government for the approval of his condo project.
He had hoped to take up residence in a 3,200-square-foot corner unit with an expansive terrace, which will now be cut up into smaller rental apartments.
But as he drove around the neighborhood recently pointing out rows of redeveloped buildings, he acknowledged that the market might have reached its limit for now. As an example, he pointed to a used car lot that seemed to be a vestige of a bygone era.
“The reality is not everything can make way for condos,” Mr. Franco said. “This guy may be doing so much business that it has far more value than what a real estate sale can fetch.”
Link to online story.
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