Are homebuilders asking Congress for too much?

In a recent post, I discussed a recent presentation by reps from the NAHB on how the credit crunch is now impacting loans for land purchases, development and construction.

My friend Brian, a banker with a mid-sized regional bank, took issue with this story and has written a response, which follows below:

To broaden sources of AD&C credit, Mitchell called for:

• Fannie Mae to ramp up activity in its AD&C loan purchase program and for Freddie Mac to create a similar program. Federal Home Loan Banks to improve AD&C liquidity by accepting housing production loans as collateral for the secured advances they make to member institutions. These institutions were not set up to be collateral lenders. Collateral lending represents a much higher tier of risk taking than cash flow lending. The source of repayment for these loans is the completion and sale of the project, not an individual's capacity to repay a loan over time. This would incrementally worsen the risk profile of these psuedo-government agencies over time, resulting in higher insurance costs for all depositors, which would be required to increase the reserves associated with the much higher loan loss rates associated with AD&C loans. Simply put, he is asking the tax payers to bear equity risk of banks and developers.
  
  
• The Federal Housing Administration to help increase competition in the AD&C market by insuring the construction portion of these loans in order to attract new originators such as mortgage banking companies. “As in the case of the end-loan mortgage market, FHA could be a crucial stabilizing force in AD&C lending in turbulent times such as these,” said Mitchell. Looking to add to the basket of implicit government guarantees. The developer and bank should assess these risks up front. He wants to create a securitization mechanism for construction loans. Securitizations ultimately depend on cash flow for repayment, and not project completion and resale. Looking for Wall Street to be collateral lenders made possible by Uncle Sam's mitigation of repayment risk through an implicit guarantee that would make securitiaztion possible.
  
  
• Wall Street specialists to develop a prototype private security instrument for AD&C loans. In particular, changes to tax provisions relating to Real Estate Mortgage Investment Conduits and Taxable Mortgage Pools could be helpful in securitizing construction loans. Wall Street doesn't go to Washington when it wants to develop new products. Again, security instruments are repaid from cash flow, not resale. Wants third parties to assume risks that builders arguably cannot quantify themselves. If the builders and banks are incapable of quantifying and valuing this risk (as they are now), then the he wants Washington to legislate a better fool theory.
  
  
• Banking regulators to take a balanced approach when evaluating bank lending, especially in regard to AD&C loans. “Small businesses, including small builders, are vital to the economy, and arbitrary or unreasonable regulatory restrictions would only serve to harm many builders, and potentially, many banks,” said Mitchell. “It would be ironic and tragic to have the positive work of the Fed undone by bank regulators taking a totally different vision and approach when it comes to lending matters.” Lambast the Activist Judges if you don't agree with their ruling and seek to throw them out. The regulators are concerned with individual bank and aggregate banking system solvency. The Fed is concerned with monetary policy and keeping markets liquid. These objectives are not necessarily counter to each other.

SoCal homebuilders averaging one sale per month

Thanks to Regional Sales Director Greg Doyle at new home data provider Hanley Wood Market Intelligence, I've got some great stats to share for the first two months of 2008 versus the same time of 2007 as well as the last 12-month period for Southern California. Greg, who comes to Hanley Wood with a considerable background in homebuilding and analysis, oversees the counties of Los Angeles, Ventura and Kern, and can be reached at 310-791-6157 x 201 or gdoyle@hanleywood.com.

For January and February of 2008, net sales fell by over 60% from last year to under 3,000 homes, although single-story condos performed worse (-68%) than townhomes (-53%) and single-family homes (-59%).

One big reason for the fall? Cancellation rates, which spiked up to 20% versus 12% last year. Consequently, average sales per project now average just 1.01 per month versus 2.58 a year ago (hence the industry layoffs).

Median asking prices fell by 13% from a year ago to $421,990 versus $485,900, although condo prices actually rose by nearly 5%; townhome/duplex prices plummeted by 26% and single-family asking prices are down by 15% from the first two months of last year.

Declines in the median asking price per square foot closely tracked total prices except for condos, which fell by less than 1% to $399 versus over 17% to $204 for all sectors combined.

Although the number of unsold new homes under construction has fallen by 20% from a year ago, as homes are finished up they become known as "standing inventory," and that category has risen by nearly 66% from a year ago, with standing townhomes/duplexes up by nearly 133%.

Want to see the entire Summary Statistics report for Southern California? Visit the reSOURCES section of the MetroIntelligence website (free registration required).

Want to know more about the data that Hanley Wood collects? Contact Greg Doyle for Los Angeles/Ventura/Kern, Catherine La Femina for San Diego/Orange County or Kathryn Boyce for Northern California. You can find all contact numbers for the various offices here.

Credit crunch increasingly impacting homebuilders

Not surprisingly, loans for builders to purchase land or fund land development and home construction is also being impacted by the general credit crunch. From a story in the Nation's Building News:

The mortgage credit crunch has spilled over into land acquisition, land development and home construction (AD&C) lending, increasing the challenges faced by builders in the current housing downturn, NAHB told the Congress last week...

Residential AD&C loans are used to purchase land; develop lots; build a project’s infrastructure such as streets, curbs, sidewalks, lighting, and sewer and utility connections; and construct homes.

Presently, funding for viable residential development and construction projects has been severely limited or blocked entirely at federally insured depository institutions, which are the sole source of housing production credit for the small businesses that comprise most of the home building industry, Mitchell told lawmakers.

“The current financing quagmire for home builders vividly illustrates the importance of developing additional sources of AD&C credit,” said Mitchell. “Furthermore, there is no secondary market for residential AD&C loans where community banks and thrifts could turn to help manage their balance sheets and obtain liquidity for additional lending.”

He noted that a viable secondary market for AD&C loans would directly benefit builders and lenders by transferring risk away from lenders; increasing the availability of funds so that projects could be more reliably completed; and mitigating the devastating impact of equity calls on builders, or transfers of partially completed projects to banks under capital and/or regulatory pressure.

To broaden sources of AD&C credit, Mitchell called for:

• Fannie Mae to ramp up activity in its AD&C loan purchase program and for Freddie Mac to create a similar program.
  
  
• Federal Home Loan Banks to improve AD&C liquidity by accepting housing production loans as collateral for the secured advances they make to member institutions.
  
  
• The Federal Housing Administration to help increase competition in the AD&C market by insuring the construction portion of these loans in order to attract new originators such as mortgage banking companies. “As in the case of the end-loan mortgage market, FHA could be a crucial stabilizing force in AD&C lending in turbulent times such as these,” said Mitchell.
  
  
• Wall Street specialists to develop a prototype private security instrument for AD&C loans. In particular, changes to tax provisions relating to Real Estate Mortgage Investment Conduits and Taxable Mortgage Pools could be helpful in securitizing construction loans.
  
  
• Banking regulators to take a balanced approach when evaluating bank lending, especially in regard to AD&C loans. “Small businesses, including small builders, are vital to the economy, and arbitrary or unreasonable regulatory restrictions would only serve to harm many builders, and potentially, many banks,” said Mitchell. “It would be ironic and tragic to have the positive work of the Fed undone by bank regulators taking a totally different vision and approach when it comes to lending matters.”

Collateral damage from unfinished new home projects

When I was recently asked by the blog L.A. Land to defend the temporary change in the tax law to allow builders to recapture taxes paid in the boom years to help them weather the bust, I did so partly to gauge the sentiments of the blog's readers. The results? A big PR headache for builders, as the mail ran 40:1 against any type of bailout.

But one of the reasons I defended the 'bailout' was because when a builder goes bust, it's not just the executives and employees who are punished -- it's also the vast army of subs and suppliers, not to mention homebuyers who were buying into what they thought would be a new -- and finished -- community. While the anti-bailout folks would casually dismiss this as Rumsfeldian 'collateral damage,' I think it's a bit more complicated than people either realize or want to know. From an MSNBC story:

As America’s housing market has foundered, homeowners who bought into newly rising projects at just the wrong time have found themselves marooned in stalled, abandoned or largely unoccupied developments with little place to turn, placing a strain on them and municipalities forced to pick up the pieces.

Experts say it’s one of the least examined aspects of the housing downturn, and one that has struck many parts of the country, from areas like Las Vegas, which experienced rampant speculation and overbuilding, to cities where construction was more restrained such as the Jersey Shore and Philadelphia...

One third of over 200 cities surveyed have seen an increase in abandoned or vacant properties in their communities as well as other forms of blight, according to a report released last month by the National League of Cities in Washington.

Nearly 60 percent said lenders have not offered to help cities deal with the fallout from foreclosures and other problems in housing.

“In more cases, cities are picking up the slack by maintaining the homes, mowing the lawns and making sure that neighborhoods with abandoned housing are safe,” said Christiana McFarland, research manager at the league’s Center for Policy and Research. “It’s a strain on resources.”

More than 25,000 vacant and abandoned properties cost eight Ohio cities at least $63 million, as local governments deal with job losses and the foreclosure crisis, according to a February report commissioned by ReBuild Ohio, a coalition of local government, nonprofit and civic groups...

Like abandoned and foreclosed homes, unfinished houses and projects are not merely community nuisances. They also contribute to the glut of inventory dragging down the market...

When fewer than half of the units in a project have been sold, the developer usually retains control of the homeowners association, diminishing the clout of residents if they wish to get things done.

The next wave of mortgage problems: Option ARMS

I remember when I was first offered an Option ARM mortgage, and it almost seemed too good to be true, so I dug a little deeper, and discovered that I'd only end up paying $50 per more for a traditional, fully amortizing, 30-year fixed note at under 6%. Frankly, I think most brokers tended to vastly under-estimate the potential downsides of these loans to borrowers (i.e., negative amortization and a loan that re-sets when the rising loan balance gets to a certain level) because they earned more in commissions than they would from other programs. Despite the news of rising foreclosures, some analysts are warning that there will be a new wave of Option ARM re-sets around the corner. From an article in Slate:

The most common subprime loans were known as "2/28" in the industry: 30 years, including a two-year teaser rate before the interest rate rose. Now these loans have reset, and we're seeing the fallout.

But prime borrowers, too, got loans that started out with low payments; if you bought or refinanced your house in the last few years, it's not unlikely that you have one. With an "option ARM" loan you have the "option" (which most borrowers happily take) of paying less than the interest; the magic of "negative amortization." The loan grows until you hit a specified point—the exact point varies with the lender; with Countrywide, it'll come after about four and a half years—when the payment resets to close to twice where it was on Day 1.

Just two banks, Washington Mutual and Countrywide, wrote more than $300 billion worth of option ARMs in the three years from 2005 to 2007, concentrated in California. Others—IndyMac, Golden West (the creator of the option ARM, and now a part of Wachovia)—wrote many billions more. The really amazing thing is that the meltdown in California is already happening and virtually none of these loans have yet reset...

When those dominoes start falling next year, we may or may not have a subprime bailout plan, and the discussion will start about how to bail out this next tranche of borrowers. The bailout plans on the table now, such as the one put forward by Barney Frank (one of Congress' genuinely cogent financial minds), are reasonably based on the principle of bringing payments down to a point that homeowners can afford.

But where prices fall 40 percent to 60 percent, all that goes out the window. Why? Because in expensive locales like San Diego, tens of thousands of people with 100 percent loan-to-value mortgages and option ARMs are living in homes in which they have no equity and on which they owe a lot more than the house is worth...

If you're one of the "homedebtors" (a fantastic neologism coined by the anonymous blogger IrvineRenter on the Irvine Housing Blog) in this position, you might start thinking very seriously about just how attached you are to the wisteria vine snaking over the basketball hoop on your garage. That's what a lot of other California borrowers will be doing.

The luckiest of those are the ones who used option ARMs to buy a house. For them, walking away is easy: Their loans are "nonrecourse," and the lenders can't go after them for more than the value of the house. The choice is harder for those who used the loans to refinance. The quirks of real-estate law regarding refi loans make it possible (though not necessarily easy) for lenders to try to get back more money even after taking the house.

If you think, however, that should make lenders a lot happier, forget it. LoanSafe's Bedard says that even in this group, most of the option ARM borrowers he talks to—some of them living in $800,000 houses—are already considering walking away from their deeply depreciated homes as soon as the rates reset.

Bet on this: Whatever moral qualms are being urged on borrowers to keep them from walking away from their mortgages, they'll count for a lot less than the economic reality facing borrowers whose homes have fallen in value by half. Lenders had no reservations about selling borrowers loans with rising payments that would be poisonous in a rising market. Now it seems borrowers have no reservations about leaving those lenders with the risks they begged to take...

Of course, all those people stuck between rising mortgages and falling prices are free to follow Paulson's advice: Keep making payments on an outsized mortgage, and take a bullet for the greater economic good. Fortunately for them, and perhaps unfortunately for the economy, a lot of them will come to the realization that they just don't have to.

Sorry, but this housing bust isn't that special

According to a story in the Financial Post of Canada (hat tip: Patrick.net), a new report issued by Goldman Sachs concludes that the current housing bust is well in line with those experienced by other countries in the past and price declines are the consequence of a boom which disconnected from the fundamentals:

The United States may be suffering its worst housing bust since the Great Depression but by international standards it's not so special.

A new report by Goldman Sachs suggests the United States is going through a garden variety housing downturn that will involve a sharp slowing in overall economic growth and a sluggish recovery that equity markets will nevertheless sniff out well ahead of time...

The biggest decline in price terms was the Netherlands which posted a 50% decline in prices in the early 1980s, Finland at 49% and Japan at 44%. Together with slumps in Sweden and Spain, these are considered the "Big Five" crashes and were accompanied by banking crises, saw significant public bailouts, had fiscal costs ranging from 4% to 24% of GDP, and caused great economic damage.

On average, real house prices tended to fall about 30% and only bottomed after six years.

Interestingly, almost every country has had two busts including Canada, which also posted a 16 quarter 21% price decline in the early 1980s, the U.K., Germany and Japan.

As Goldman expects the United States to end up with a cumulative house price decline of 30% to 35% - prices are down about 11% so far - over the next 18 months, its slump looks comparable to the international experience...

There are some differences however.

Nominal short-term interest rates seem to have peaked before real house prices peaked and easing began about a quarter later than the experience of other OECD busts.

U.S. equity prices have also been atypical, rising even after the initial price bust and only acknowledging the damage a year after the bust began in late 2006.

In general, equity prices tended to peak nearly two years ahead of house prices. The trough in equity prices occurred on average around five quarters after the bust began, ahead of the trough in GDP and well before the housing bust ended.

Of course there is always a chance the current U.S. bust ends up making the Big Five the Big Six crashes but Goldman does not expect so - so far.

California foreclosures push prices down by 26%

Increasing rates of foreclosures in California helped push sales prices down by 26% in March from a year ago as housing bust continues to unravel. From an AP story:

A glut of foreclosed homes helped prompt a 26 percent plunge in California home prices in March, spotlighting a trend that experts said is likely to keep squeezing the struggling market for at least several more months.

More than 38 percent of California homes sold in March had been foreclosed at some point during the previous year, DataQuick Information Systems said in its survey released Thursday.

That helped drive the state's median home price down to $358,000, from $484,000 in March 2007, when the market peaked, DataQuick said.

In addition, the number of new and resale houses and condos sold last month plummeted 38.3 percent from a year earlier to 24,565...

Foreclosed homes in the state sell for about 15 percent less than non-foreclosed homes in the same neighborhoods, bringing all prices down, he said.

Riverside and San Bernardino counties — a rapidly growing region known as the Inland Empire — were particularly hard hit. Foreclosures accounted for 56 percent of the sales last month in Riverside County, where the median price of a home fell 27 percent to $306,250.

The nationwide foreclosure glut is expected to worsen in May and June as two- and three-year introductory interest rates expire on homes purchased in 2005 and 2006..

The foreclosure glut has hit California especially hard. The state ranks only behind Nevada — and just ahead of Florida, Arizona and Colorado — in the percentage of households in foreclosure, according to RealtyTrac's March rankings.

April 18th edition of Builder Bytes released

Looking for a great summary of the latest news impacting homebuilding and real estate? Then check out the latest edition of Builder Bytes, published by our friends at Peninsula Publishing. Some interesting links from the latest release:

Bush Names SBA Head Preston as Housing Secretary
Bloomberg.com
April 18 (Bloomberg) -- President George W. Bush today named Steven C. Preston secretary of U.S. Housing and Urban Development, replacing Alphonso Jackson, who resigned amid a federal criminal probe into contracts awarded by the agency.
http://www.bloomberg.com/apps/news?pid=20601087&sid=aT7
CwhXMkAtw&refer=home

Tenn. housing agency creates rental property Web site
Nashville Business Journal
The Tennessee Housing Development Agency has created a free Web site for owners and managers of rental property to list housing.
http://www.bizjournals.com/nashville/stories/2008/04/14/daily1.html?q=housing%20news

Democrats unveil housing rescue plan
AP Associaes Press
WASHINGTON (AP) — Homeowners buckling under their mortgage payments would be allowed to refinance into more affordable government-backed loans under a proposal introduced by a House committee chairman Thursday.
http://ap.google.com/article/ALeqM5hTPEQZyeqPg80iIH0uvvPz6Lz3mgD903RM782

McCain seeks aid for some homeowners
Yahoo Newss
NEW YORK - Republican Sen. John McCain called for federal aid for well-meaning homeowners who can't pay their mortgages, an attempt to fend off criticism that he has been indifferent to the housing crisis and the market upheaval it has spawned.
http://news.yahoo.com/s/ap/20080410/ap_on_el_pr/mccain_economy

Beazer Homes launches eSmart green building initiative

Although some builders are partnering with local builder's associations to brand their green building efforts, Beazer Homes has announced their own, called eSmart. The first Top 10 builder to do so, it comes right on the heels of a national branding campaign announced by the NAHB in February at the Int'l Builder's Show. I'd certainly look for other large builders to follow suit. From the press release:

Beazer Homes USA, Inc. (NYSE: BZH), one of the nation’s top 10 homebuilders, today launched eSMART by Beazer Homes™, the first comprehensive program of its size designed to increase energy and water efficiency, and improve indoor air quality, for every home it builds.

The innovative program combines high-performance products from GE, Honeywell, Moen and others with industry-approved green building practices, and is designed to have an immediate impact on the home’s annual operating costs. The new eSMART features will be made available at no additional cost to buyers.

Going forward, every newly-started Beazer home will include products designed to increase energy and water efficiency, including Honeywell FocusPRO™ Programmable Thermostats, GE EnergySmart™ compact fluorescent light bulbs (CFLs), GE Energy Star® dishwashers and MOEN water-saving bathroom faucets and showerheads. Additionally, each new Beazer home will incorporate products designed to improve indoor air quality, including air filters with a higher minimum efficiency rating value (MERV), and carpets and paints that emit lower volatile organic compounds (VOCs)...

eSMART by Beazer Homes™ will provide homeowners immediate annual energy savings when compared with a similar home built without these features. For example, converting the typical 3-bedroom, 2½-bath Beazer home to EnergySmart™ CFLs will save homeowners approximately $331 in annual energy and replacement costs* (at 9.7 cents/kWh).

According to Callahan, Americans’ expectations about energy efficiency in new home construction are changing. Some 66 percent of consumers polled by Beazer Homes in March 2008 report being more conscious of the environment and the need to conserve natural resources today than they were five years ago. And nearly three-quarters (73 percent) said that builders need to do more to make an affordable "green" home available to the average American. Driving this point home, two-thirds of survey respondents ranked the importance of energy-saving features, such as programmable thermostats and CFLs, on par with higher-end kitchen features when making a new home purchase decision.

The perils of hiring a property manager

My apologies for the somewhat sparse blogging this week, but I've been very distracted with a small income property I have here in Southern California. Although one of my tenants and my management company have long been at odds, it wasn't until recently that I saw firsthand the enormous problems that can arise when you put your trust into a property management company that's interested in the fees but not so interested in earning it properly.

I only mention this because I think this is a timely story in a market in which people have (a) bought properties to rent out in order to build equity (over time, of course); and (b) are intending to sit on homes now under-water and rent them out until the market rebounds. In fact, hiring the wrong management company can cause financial and legal disasters, so look for a future post (or article) on what to look for when hiring such a company.

Housing Chronicles passes 5 million headline views, mostly via Reuters

Since signing up with the BlogBurst service in early February of this year, the Housing Chronicles blog has just passed the 5-million headline view mark. Most of these posts have been picked up by the Reuters.com website, followed by the Chicago Sun-Times, Fox Business News and the Wall Street Journal.

Through another service called Sphere, posts have also appeared on websites for The Washington Post, CNN.com as well as the Wall Street Journal. While it's difficult to predict the future of blogs, the success of these syndicators as well as the large investment in blog networks by groups like Forbes.com and InmanNews.com tells me that blogs are definitely becoming growing members of traditional online media.

No credit history but you pay your bills? No problem!

Despite the media largely covering those people who borrowed more than they could afford, there's another sub-set of people who have paid off mortgages and shun credit cards. Consequently, when they or others lacking a standard credit record apply for credit -- a huge group estimated at 70 million adults and also including immigrants, new college grads and the newly divorced or widowed -- they're often turned down because lenders can't estimate the risk.

Fortunately, 'alternative credit bureaus' such as Lexis Nexis and TransUnion, First American Credco and others are jumping to serve this market of the so-called "unbanked." From a story in Business Week:

Financial firms like PRBC, credit report processor First American Credco, data provider LexisNexis, and credit bureau TransUnion are scrambling to fill that void with new products and services that cater to this emerging niche, the so-called unbanked. Traditional credit bureaus usually collect data on credit cards, auto loans, and other types of consumer debt. By comparison, these alternative players gather payment information that isn't reported to the typical data collectors, including cell-phone bills and rent. Increasingly, banks are using that sort of information to help vet potential borrowers...

Collecting and verifying all that data is no easy task. Consumers often stuff rent receipts and electricity bills in an old shoe box or a filing cabinet—if they keep them at all. At PRBC, founded by Chairman Michael Nathans more than a decade ago, home buyers enter their payment histories on the Web site, providing the firm with bank-account data and faxing supporting documents or receipts. Then PRBC, which charges customers a $65 fee, hires an outside firm to do a background check and ensure that the information is legitimate. Rival LexisNexis, which is paid by lenders, pores through public documents to find phone records, auto deeds, and other pieces of a consumer's financial life.

Each company slices and dices the data differently. Some, like PRBC, LexisNexis, and eBureau dump the information into their own mathematical models to come up with a score, not unlike Fair Isaac's FICO, the traditional three-digit scoring system that rates customers on their credit-card and other debt histories. The goal is the same: to help lenders assess whether a customer will make good on a loan...

But while more banks are using the data provided by these alternative credit bureaus in their underwriting process, big lenders remain hesitant to adopt the new credit scores...

Some lenders take their cues from mortgage giants Fannie Mae (FNM) and Freddie Mac (FRE). While both use FICO scores in their underwriting, the government-sponsored firms won't use the alternative credit scores until there's more historical data on how well they predict whether consumers will make their loan payments. Critics argue there isn't a large enough sample size in some studies to know whether the data are statistically significant.

But as companies collect more data and mine the information for behavioral patterns, industry experts believe alternative scores will gain wider acceptance. LexisNexis has found that borrowers who stay at the same address for years pay back their loans more frequently than folks who move around. Another study from policy group PERC that looked at 7.5 million people showed that consumers who make timely utility payments tend to be low-risk borrowers.

New housing construction plummets as foreclosures rise

Continuing to pull back from offering new housing product, builders pulled the fewest annualized permits since early 1991 while housing starts fell by 12% during March. Meanwhile, foreclosure activity continues to rise, expected to reach a peak in the 3rd and 4th quarters of this year as ARM payments reset. From two stories (here and here) at MSNBC:

Home building projects started in March fell by 11.9 percent to a lower-than-expected annual rate while building permit activity, a sign of future construction plans, was off 5.8 percent, a government report on Wednesday said.

The Commerce Department said housing starts set an annual pace of 947,000 units in March, lower than the 1.02 million expected by economists. The February starts figure was revised upward to 1.075 million from the 1.065 million originally reported...

Building permits fell by 5.8 percent to an annual rate of 927,000, the slowest pace since a 916,000 rate set in April 1991. Economists polled by Reuters had forecast March permits at 970,000 after the 984,000 rate of February...

The onslaught of homes facing foreclosures has yet to ebb, a research report showed Tuesday, with bank repossessions skyrocketing last month as more troubled homeowners mailed in their keys and walked away.

And the worst isn’t over: The wave of adjustable-rate loans resetting to higher rates will crest in May and June. And that’s expected to push more homeowners into default and foreclosure in the third and fourth quarters of this year, according to RealtyTrac Inc. of Irvine, Calif...

The overall foreclosure rate is 5 percent higher than in February, which saw an unexpected month-to-month decline over January. March marked the 27th consecutive month of year-over-year increases in national foreclosure filings.

That meant one in every 538 households received a filing during the month. Forty-four percent were households that slipped into default for the first time and more than a fifth were homes banks took back...

between 750,000 and 1 million bank-owned properties will hit the market this year, or about a quarter of the homes up for sale. In some areas, these properties will continue to slow sales and depress prices further...

Nevada clocked in the worst foreclosure rate for the 15th straight month. Last month, one in every 139 households received a foreclosure-related notice, nearly four times the national rate. The number of properties with a filing increased 24 percent over February and 62 percent over the previous March.

California had the second-highest foreclosure rate in the country. One in every 204 California households received a foreclosure-related notice. The state had 64,711 properties facing foreclosure, the most of any state and more than double last year’s total.

In Florida, 30,254 homes reported at least one filing, down nearly 7 percent from February, but up 112 percent from the year before.

Rounding out the states with the highest foreclosure rates were Arizona, Colorado, Georgia, Ohio, Michigan, Massachusetts and Maryland.

Was the departing HUD chief to blame for the housing mess?

Recently I've been seeing more blame for the housing & mortgage crisis laid at the feet of the Bush Administration's relentless focus on increasing homeownership rates with a type of USSR-type attitude of "The ends justifies the means" that ignored potential consequences. According to a story at MSNBC, the primary culprit of that policy was departing HUD chief Alphonso Jackson:

In late 2006, as economists warned of an imminent housing market collapse, housing Secretary Alphonso Jackson repeatedly insisted that the mounting wave of mortgage failures was a short-term "correction."

He pushed for legislation that would make it easier for federally backed lenders to make mortgage loans to risky borrowers who put less money down. He issued a rule that was criticized by law enforcement authorities because it could increase the difficulty of detecting and proving mortgage fraud.

As Jackson leaves office this week, much of the attention on his tenure has been focused on investigations into whether his agency directed housing contracts to his friends and political allies. But critics say an equally significant legacy of his four years as the nation's top housing officer was gross inattention to the looming housing crisis...

During Jackson's years on the job, foreclosures for loans insured by HUD's Federal Housing Administration (FHA) have risen and default rates have hit a record high...

Jackson, who declined to be interviewed, will be remembered as a Cabinet secretary so committed to carrying out President Bush's goal of increasing homeownership that he encouraged policies that threatened to exacerbate the mortgage crisis, according to interviews with more than 30 current and former HUD officials and housing experts, and a review of numerous HUD documents and audits...

In the policy arena, Jackson quickly made known his loyalty to Bush and his determination to help increase the number of U.S. homeowners by at least 5 million. Loans by FHA-approved lenders accounted for less than 10 percent of the overall market in the past five years, but its loan programs were supposed to be targeted to low- and moderate-income individuals, many of them first-time buyers.

In 2006, Jackson proposed plans to modernize the FHA lending process. Backed by the White House, his proposal would allow FHA lenders to offer loans with no down payment, eliminating the long-standing 3 percent minimum. Lenders also could increase the size of the loan to cover the median home price in high-cost areas. High-risk borrowers could qualify by agreeing to pay higher premiums.

Jackson said the goals were to encourage first-time home buyers and to help the FHA compete with the booming subprime market. In an online White House forum in 2007, he said the FHA "is undergoing a historic transformation to give homebuyers who do not qualify for prime financing a better alternative to high-cost, high-risk loan products."...

Members of Congress who oversee HUD said Jackson's emphasis on pushing homeownership -- without many brakes -- ignored the root of the mortgage crisis.

"Homeownership appears to be a bigger priority in the administration than affordability and foreclosure," Sen. Christopher S. Bond (R-Mo.) told Jackson at a recent hearing. He added: "I'll tell you quite frankly, I think the emphasis on homeownership helped to drive the foreclosure crisis we're now in. . . . All these wonderful ideas . . . didn't do them any good when we put them in housing they couldn't afford."...

Inside HUD, numerous staffers said, Jackson made clear that he believed overregulating and investigating mortgage lenders could harm the president's homeownership goals...

Enforcement seemed to be a low priority for HUD in both staffing and budget, according to agency observers. David Berenbaum, executive vice president at the National Community Reinvestment Coalition, an association working to prevent foreclosures and abusive lending, said HUD is supposed to be the government's lead enforcer of fair-lending laws. The laws prohibit financial discrimination and exploitation of minority borrowers, who took out a disproportionate share of the subprime loans. Berenbaum said HUD largely paid nonprofits to monitor compliance with fair-lending laws...

Jackson had insisted he would stay in office until the end of Bush's term. But last month, several Democratic senators who hold HUD's purse strings called for his resignation. He had refused to answer their questions about allegations that he was engaged in political favoritism and cronyism. A federal grand jury is investigating whether Jackson lied to Congress about his involvement in contracts and whether he steered millions of dollars in government work at the Virgin Islands and New Orleans housing authorities to his friends...

Sen. Patty Murray (D-Wash.), head of the Senate Appropriations subcommittee that oversees HUD, said March 21 that Jackson had become unfit to lead the agency.

"We are in the midst of a national housing crisis," she said. "The allegations of cronyism and favoritism against Secretary Jackson are a worsening distraction at HUD at a time when we must have a credible housing secretary that is beyond suspicion."

Sounds like a different version of the Katrina fiasco all over again.

Let's hope when people vote in November for President they'll consider more than just someone with whom they'd want to share a beer, because we've seen the consequences of that type of vacuous analysis over and over again -- disaster.

Apartment rents seemingly unrelated to housing prices

According to the source Rentomatics.com -- which pulled from its 8 million apartment listings -- rents for apartments varied greatly during 2007, rising in San Francisco but falling in Phoenix, thus proving that real estate is actually a lot more complicated than simple calculations involving incomes, prices and rents. In places like Phoenix, it wasn't an over-supply of apartments that hit median rents, it was an over-supply of new, single-family homes that compete with apartments for the same tenants. From an MSNBC story:

A curious thing happened during 2007 while the mortgage market was imploding: Median apartment rental prices in major cities shifted dramatically, dropping by up to nine percent in some markets — Phoenix — and rising as much as 14.6 percent in others — San Francisco — according to data released from Newton, Mass.-based Investment Instruments Corporation...

To calculate these prices, Investment Instruments culled data from among eight million entries in its Rentometer and Rentomatic rental listing directories, said Allison Atsiknoudas, Investment Instruments’ CEO. While prices for single-family homes and condos have declined or slowed between 2007 and 2008 in major markets, the rental market hasn’t necessarily followed suit...

ONE-YEAR CHANGE

Median rents for the first quarters of 2007 and 2008, with the percentage change in valued for 12 metro areas. Area 2007 2008 Change Atlanta $1,007 $986 -2.1% Austin $936 $907 -3.0% Boston $1,593 $1,645 3.3% Chicago $1,328 $1,355 2.0% Las Vegas $1,053 $1,056 0.2% Los Angeles $1,638 $1,699 3.8% Miami $1,411 $1,368 -3.0% New York $1,606 $1,751 9.0% Phoenix $1,035 $939 -9.3% San Francisco $1,579 $1,810 14.6% Seattle $1,098 $1,211 10.3% Washington, DC $1,608 $1,687 4.9% All metros $1,324 $1,368 3.3%

Source: Rentomatic.com

Atsiknoudas says that when rent prices move less than three percent (in either direction) per year, then a market is basically “stable.” Larger fluctuations — such as Phoenix’s nine percent drop— indicate instability or unusual circumstances. Atsiknoudas says that cities with the largest price hikes — New York, Seattle, and San Francisco — can attribute that to steady population growth driven by relocating job seekers. But that means renters, both new to town or long a part of it, are paying the price...

“There’s definitely no rental market growth here,” says Mark Forrester, a partner with Hendricks & Partners in Phoenix. “The effective rent has dropped, though the street prices haven’t changed.”

What he means by that, he says, is that landlords may advertise one price but what a tenant actually pays is often lower, especially if the landlord offers a “concession” such as one month free for those who sign a 12-month lease — a tactic that landlords didn’t use in 2007 but which is now “pretty common,” he says...

Forrester says that the rental market in Phoenix has been impacted not by an oversupply of apartment properties, but by an oversupply of single-family homes. The city can accommodate about 30,000 new homes per year, he said, but between 2005 and 2007 about 60,000 were built annually and many were acquired by investors to function as rentals or for quick resales. A local decline in home values means many of these homes are unable to sell. Faced with mortgage payments, the homes’ developers or owners then attempt to rent them as a way to cover costs, which creates a “shadow market” for rentals that competes with the regular apartment market, he says.

With vacancy high, deals are available on single-family homes...

Atsiknoudas says that, for the next six months anyway, she expects markets with stable pricing may continue to show price increases. Forrester says he thinks the market will begin repairing itself around 2009.