Archive for the 'Real Estate News' Category

Mortgage Rates to Rise?

posted on April 2nd, 2010 filed under: Real Estate Market Data, Real Estate News

Fixed-rate mortgages are most closely tied to the yield on the 10-year Treasury note.  The yield has risen sharply of late, and spiked again today after a jobs report that was not even any big surprise.  Unless the yield on the 10-year backs off, expect higher mortgage rates before long.

[iframe height=”380″ width=”400″]http://plus.cnbc.com/rssvideosearch/action/player/id/1458237689/code/cnbcplayershare[/iframe]

In the wake of Wednesday’s expiration of the Federal Reserve’s mortgage-backed securities purchase program (on top of last October’s expiration of the Fed’s Treasury purchase program), the prospect of a breakout in 10-year Treasury yields looms large for the real estate market.

Real estate in Miami and Coral Gables is already vulnerable to further declines, as home prices remain elevated relative to incomes.  Higher borrowing costs could help push prices lower unless wages rise even more than is already necessary to support prices.

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Update 04/05/10:  Charts show near-term breakout, albeit within long-term downtrend.

Six-Month Chart (from www.barchart.com)

Six-Month Chart (from www.barchart.com)

Historical Chart (from www.multpl.com)

Historical Chart (from www.multpl.com)

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Bank, Government Augment Relief to Insolvent Mortgage-Debtors

posted on March 27th, 2010 filed under: Financial Responsibility, Real Estate News

Bank of America will forgive up to 30% of the principal owed by debtors who have missed at least two months of mortgage payments and owe at least 20% more than their home is worth.

Separately, the federal government expanded its assistance program for defaulting debtors.  Most significantly, the plan pays lenders, who made bad loans, to reduce the amount owed by debtors, who borrowed more than they can afford to pay.  The Federal Housing Administration will then guarantee new loans at 97.5% of the current market value, or 115% if the debtor took out a second mortgage and spent all that money already.

To be eligible, the debtor’s loan balance must be less than $729,750, and the debtor’s monthly mortgage payments must be more than 31 percent of the debtor’s income.  The bigger the debt and the lower the income, the more likely the debtor is to qualify for government assistance.

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You Can Walk Away, But You Can’t Hide: Lenders Selling Deficiency Judgments to Collection Agencies

posted on March 23rd, 2010 filed under: Financial Responsibility, Real Estate News

A recent post explained that walking away from your mortgage could leave you in hock in states, like Florida, where lenders have recourse against borrowers for the difference between the loan amount and property value.  Several news outlets have since published similar reports.

For example, an article in the Miami Herald reports that investors are buying the rights to collect second mortgages and other liens such as home equity lines of credit.  The practice is especially relevant in non-recourse states like California, where first-mortgage lenders can look only to the property to satisfy the debt, but junior lienholders apparently can pursue the debtor personally.

In places like Miami and Coral Gables, real estate became so ridiculously overvalued that a foreclosure or short sale does not even recover enough to satisfy the first mortgage.  Nothing is left for the second mortgage or HELOC lender, who gets zero cents on the dollar.

To mitigate the loss, the lender sells the loan (at a substantial haircut, no doubt) to a collection agency, which then hounds the debtor until the end of time.

[L]enders have been quietly selling second mortgages and home equity lines left unpaid after foreclosures and short sales.  The buyers: collection agencies, which in some states have years to make a claim.

If they win court judgments, these collectors could have years to pursue borrowers with repayment plans, and even garnish their wages . . . .

“The only relief a consumer will have is entering into a debt negotiating plan or filing for bankruptcy” . . . .

Debtors can attempt to head off these troubles by negotiating a solution at the time of a short sale.  But many don’t know better, and aren’t warned by real estate agents who often are “not really equipped . . . . They’re set up to make the sale.”

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Thinking of Buying Foreclosures in Miami or Coral Gables? WATCH OUT!!!

posted on March 22nd, 2010 filed under: Financial Responsibility, Properties in Focus, Real Estate News

Buyers attracted by seeming bargains among foreclosure auctions can instead lose their shirts.  An easy way to buy Miami or Coral Gables real estate on the cheap turns out to be an easy way to lose a whole lot of money.

As the Miami Herald reported a few weeks ago, the new online auction system for foreclosures in Miami-Dade County streamlines the process of buying foreclosed properties so much that amateurs are getting involved — and getting burned.

The problem is that foreclosures are sometimes brought by junior lienholders, meaning the sale does not discharge senior liens.  If you buy the property at foreclosure, you’re still subject to the senior lien.  This can be disastrous.

Here’s an urgent case study:  601 Sunset Drive in Coral Gables.  This property will be auctioned soon.  The lender has listed its maximum bid at just under $300,000.  If you bid more than that, and more than any other bidders, you will win the auction.  It’s a decent-size house on a big lot, so even in today’s ailing real estate market in Miami and Coral Gables, it seems like a screaming bargain.

601 Sunset Dr.

601 Sunset Dr.

Public records, however, suggest a huge pitfall (do your own homework on this and decide for yourself, of course).  Citibank is the foreclosing lender.  But Citibank is foreclosing on a home equity line of credit.  That’s not the first mortgage.  And there is a whopper of a first mortgage: $825,000 to JP Morgan Chase.

So let’s say you win the auction with your bid of $300,000.  That could turn out to be nothing more than a downpayment, because public records suggest the property is still subject to the $825,000 first mortgage.  If that’s the case, you have effectively paid $1.125 million, not even counting whatever fees Chase can pile on top of the mortgage balance, plus the property taxes that Chase has apparently been paying.

The same thing happens in condo foreclosures.  Let’s say there’s a condo worth $200,000 today that somebody bought for $400,000 at the top of the real estate market in Miami and Coral Gables.  And let’s say there’s a $350,000 mortgage outstanding.  The person defaults on the loan and stops paying maintenance fees to the condo association.  The lender doesn’t foreclose, because that would mean taking responsibility for taxes, maintenance fees, et cetera.  So the association forecloses, not because they think they’ll get any money (the $300k lender is senior and gets the whole $200k in a forced sale), but to force the lender to take title and responsibility in what’s known as a “reverse foreclosure.”  If you buy the association’s lien — say, $20k — you have bought a property worth $200,000 for $20k, but it’s subject to a $300k mortgage.  You’re in for $320,000, not $20,000.

Miami has an excellent online system for searching public records, but unless you understand it all — mortgages, liens, lawsuits, forms of ownership, homestead rights, and more — you might just be America’s Next Foreclosure.  WATCH OUT!!!

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Miami Ranks As Most Troubled U.S. Real Estate Market

posted on March 18th, 2010 filed under: Financial Responsibility, Real Estate Market Data, Real Estate News

Oh, Lawdy, Trouble So Hard.

Miami ranks as the most troubled real estate market in the United States, says Forbes.  The honor was bestowed on the Miami metropolitan area for having, by a wide margin, the highest percentage of mortgages delinquent 90 days or more.  The number for Miami is — hold onto your hats — 28.8%.

Try to wrap your mind around that.  Think about what it means for someone to be 90 days delinquent.  That’s not just late on a single monthly payment.  That’s nonpayment for three months in a row, strongly suggesting that the borrower has no ability or intent to pay again.

This is misery.  Personal financial ruin.  Borrowers have themselves to blame, but financial institutions and real estate brokerages are equally responsible.  It was irresponsible for anyone to buy, lend money on, or advise the purchase of property at prices equal to six times the buyer’s gross income, at ownership costs twice the rental costs, and in drastic deviation from historical price trends.

Miami Real Estate Photos -- Residential Neighborhood 2

The greed and incompetence are staggering.  Next time someone preens about being a “top producer,” think what their sales “producing” did to the personal financial condition of real people.  What does it mean for someone to buy a house for $1.1 million on an income of $200,000, only to find their home sweet home worth $700,000?  What does it mean to take a $400,000 loss when your income is $200,000?  How much, and for how long, would you have to save to make up for that kind of loss?  And for what?  So some bailed-out mortgage investor can keep taking six-figure summer vacations in the Hamptons?

From Forbes:

In greater Miami, including Fort Lauderdale and West Pam Beach, one-quarter [actually, 28.8%] of mortgages are 90 days past due or worse.  In Miami proper, one-fifth of mortgages are in foreclosure or converted to REO.  Worst in the country by far.

The next-worst metro is Las Vegas, at 21.7%.  Florida fares poorly as a whole, with only one metro area under 10% in the 90-day delinquency measure.

The Forbes study is based on data from First American CoreLogic.

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Condo Flipping in Miami Real Estate Market — Just Like the Good Ol’ Days?

posted on March 16th, 2010 filed under: Financial Responsibility, Real Estate News

When the Miami and Coral Gables real estate markets were in mania mode, condo buyers would sell (assign) their purchase contracts for hefty profits.  Condo units might be flipped numerous times before a building was even constructed.

Miami Real Estate Photos -- Brickell Key 1

So what should you make of today’s Miami Herald article reporting that bulk buyers of condo units have been flipping deals within weeks, even minutes, for hefty profits?

First, don’t take it literally.  Nobody buys condos in bulk and sells to a new buyer within minutes, unless it’s all prearranged.  More likely, a first bulk buyer enters a purchase contract that is not assignable, and while waiting for the deal to close, finds the new buyer and lines up the two deals to close on the same day.

Second, if you’re an individual or a family looking to buy a place for yourself, none of this really matters to you.  The bulk market is not the same as the owner-occupied market.  It’s the difference between wholesale and retail.  If one wholesaler gets such a good deal that another wholesaler is willing to pay a premium, that doesn’t necessarily affect prices at the store.

Just because there’s activity in bulk condo transactions doesn’t change the fundamentals that should inform your decision about buying real estate in Miami or Coral Gables.  If you care about whether a purchase makes financial sense, the price you pay should bear a reasonable relationship to incomes, rents and historical values.

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With Fed Ending Mortgage Purchases, Fannie and Freddie Step In — What It Means for Real Estate in Miami and Coral Gables

posted on March 13th, 2010 filed under: Real Estate Market Data, Real Estate News

It might take a little longer for the free market to start peeking through the fog of government intervention.  As noted previously, the Federal Reserve has artificially suppressed mortgage rates by purchasing well over a trillion dollars of mortgage-backed securities (MBS).

Ordinarily, rates would rise if the biggest buyer walked away from the market.  Rising mortgage rates would put renewed pressure on property values here in Miami and Coral Gables, as elsewhere.  But the nearly total nationalization of the mortgage market will not be so quickly abandoned.  Fannie Mae and Freddie Mac recently announced plans to buy back $200 billion of nonperforming mortgage loans at full value.

That’s not the same as buying new mortgages, but will have much the same effect.  The investors who get bought out are in the mortgage market for a reason.  It’s their investing focus.  And they’ll plow a lot of that freed-up money right back into mortgages — maybe not every dime of the $200 billion, but most of it.

Is this another bailout?  Yes, indirectly.  Fannie and Freddie guaranteed that garbage in the first place, so they’re already on the hook for it.  But Fannie and Freddie themselves exist only by dint of taxpayer bailouts.  If you’ve got a claim against an insurance company that gets bailed out, then you’re bailed out too.  Think AIG.

Considering the timeline, an intent to perpetuate the socialization of housing is easily deduced:

09/23/09:  Fed announces it will buy $1.25 billion in MBS through March 2010

12/24/10:  Treasury lifts all limits on taxpayer bailout of Fannie & Freddie

02/10/10:  Fannie & Freddie announce plan to buy back $200 billion in bad loans

Isn’t that special?

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Condos in Downtown Miami Reportedly Gaining Residents (If Not Value)

posted on March 12th, 2010 filed under: Financial Responsibility, Real Estate Market Data, Real Estate News

Condo prices may not be recovering yet in downtown Miami, but enough units have been sold and rented that the area is gaining residents and becoming more lively.  That’s the conclusion of a study reported by the Miami Herald today.  (No mention of Coral Gables, but the trend there is probably comparable.)  A few highlights:

  • 74% of units are occupied, up from 62% last May, which means . . .
  • 26% of units are vacant, down from 38% last May
  • 52% of occupied units are rented
  • 68% of units have been sold, up from 62% last May
  • 22,079 units were built since 2003
  • 7,010 remain unsold, down from 8,000 last May
  • 51% of unsold units are in the Brickell area, 23% in the Central Business District

Miami Real Estate Photos -- Condos and Biscayne Bay

A choice quote comes from a nightclub operator who says things are going well.  And why, praytell, are things going well?

“Renters are the ones with the disposable income.”

Owning a home shouldn’t mean otherwise ruining your life, but that’s exactly what happens when the financial/real-estate complex convinces you to commit an unreasonable portion of future earnings to housing.

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Strategic Default Not So Easy in Miami and Coral Gables Real Estate

posted on March 11th, 2010 filed under: Financial Responsibility, Real Estate News

Strategic default is a fancy term for a property owner’s refusal to pay a loan that far exceeds the value of the property.

Whether that’s an option depends on what state you’re in.  Some states are non-recourse, meaning the mortgage holder cannot pursue the borrower personally for the difference between the loan amount and the property value.  Florida, however, is a recourse state.  Borrowers are personally liable for the difference (generally speaking).

A borrower in Miami or Coral Gables therefore cannot so easily walk away from a home loan.

That would be good to remember before you “lever up” and buy real estate.  For no other asset would you dream of paying a price that is a function of maximizing the amount you can borrow against the next 30 years of your income.  But that is exactly what you’re asked to do when buying real estate.

The result, if you’re not careful, can effectively be debtor’s prison.  You can owe a distant mortgage holder money for a property that you no longer own because the mortgage holder took it away from you in partial satisfaction of your bad debt.  The rest you can pay off with your future wages — like a subtle form of slavery.  Or you can declare personal bankruptcy.  (If you’re actually in such a situation, please consult an attorney licensed in your state, don’t draw specific conclusions from a real estate blog.)

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Update 03/14/10:  Right after this post, Moody’s reported that lenders were being more aggressive in seeking deficiency judgments against borrowers who walk away.  It’s in the latter half of the following CNBC clip:

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Is the Worst Really Over for Miami and Coral Gables Real Estate?

posted on March 7th, 2010 filed under: Financial Responsibility, Real Estate News

Have you been hearing that real estate has turned the corner — that sales are up and prices have stabilized?  While there’s some evidence for that, the future is by no means safe and sound.  And as poster children for the real-estate bubble, Miami and Coral Gables remain as risky as anywhere.

A huge number of properties have been languishing in pre-foreclosure for months or even years at this point.  Scheduled repossession dates are postponed as banks shun not only the property-tax and maintenance responsibilities that would come with repossession, but the mammoth losses that would show up on their balance sheets if they re-sold the properties.

A recent Standard and Poor’s analysis of the national market lends credence to this view, and paints a very disturbing picture:

[I]n Standard & Poor’s Ratings Services’ view, the mortgage crises may be far from over.  The overhang of homes heading toward liquidation suggests more delinquencies and lower home prices are to come.

The current “shadow inventory” (including all delinquent loans, not only those that are real estate owned [REO]) of troubled mortgages will likely take about 33 months — or nearly three years — to clear at the current rate of liquidation.

We believe that the recent reversal in housing prices is the result of a temporary constriction in the supply of foreclosed homes on the market. . . . [T]here is a rapidly growing shadow inventory of properties where borrowers are delinquent but foreclosure has not been completed.

Far from the wave of foreclosures being over, S&P points out in a simple chart that in 2005, the ratio of distressed loan balances outstanding to distressed loan balances closed was about 18 to 1.  Now it’s 31 to 1.

This wouldn’t be the first time that properties in Miami and Coral Gables emerged from a pounding only to find that it was just the eye of the storm.

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