Defining Deal Collapses, Tischman/Blackrock Walk Away

Posted on January 25, 2010 by grim

From the WSJ:

Tishman Venture Abandons Stuyvesant

A group led by Tishman Speyer Properties has decided to give up the sprawling Peter Cooper Village and Stuyvesant Town apartment complex in Manhattan to its creditors in the collapse of one of the most high-profile deals of the real-estate boom.

The decision comes after the venture between Tishman and BlackRock Inc. defaulted on the $4.4 billion debt used to help finance the deal. The venture acquired the 56-building, 11,000-unit property for $5.4 billion in 2006—the most ever paid for a single residential property in the U.S. The venture had been struggling for months to restructure the debt but capitulated facing a massive debt load and a weak New York City economy that has undercut rents and demand for high-priced apartments.

The property’s owners signaled they would be unable to reach a deal with lenders and instead decided to allow creditors to proceed with what amounts to an orderly deed-in-lieu of foreclosure, which means a borrower voluntarily gives the property back to lenders to avoid a foreclosure proceeding.

From the NYT:

Huge Housing Complex in N.Y. Returned to Creditors

The owners of Stuyvesant Town and Peter Cooper Village, the iconic middle-class housing complexes overlooking the East River in Manhattan, have decided to turn over the properties to creditors, officials said Monday morning.

The decision by Tishman Speyer Properties and BlackRock Realty comes four years after the $5.4 billion purchase of the complexes’ 110 buildings and 11,227 apartments in what was the most expensive real estate deal of its kind in American history.

The surrender of the properties, first reported by the Wall Street Journal, ends a tortured real estate saga that saw the partnership make expensive improvements to the complex and then try to rent the apartments at higher market rates in a real estate boom. But a real estate downturn and the city’s strong rent protections hindered those efforts, leaving the buyers scrambling to make payments on loans due for the properties, which have been a comfortable harbor for the city’s middle class since they opened in the late 1940s.

Posted in Economics, National Real Estate | 337 Comments

NJ Commercial Snapshot

Posted on January 24, 2010 by grim

From the APP:

More offices, shopping centers delinquent on loans

The Whiting Town Center is a sprawling complex on Lacey Road in Manchester whose tenants include restaurants, doctor’s offices and a Super Foodtown that serves as an anchor. There are a few empty stores, but nothing that would signal distress.

Until you talk to one of the tenants.

“The middle class, they’re just dead in the water,” said Cathy Lada, owner of the flooring store, A Lada Flooring. “We’re basically (living) paycheck to paycheck right now. There’s no security.”

With tenants hurting and unemployment rising, banks are bracing for another round of shaky loans, this one to borrowers who own property such as shopping centers and office buildings.
…
“Definitely we’re seeing more stress on our commercial real estate loans and our borrowers,” said Bruce Dansbury, chief operating officer of Sun Bancorp, the Vineland-based parent company of Sun National Bank. “It’s there. It’s real. You can see it as you ride around. You see vacancies in shopping centers and office buildings. It seems like everywhere you go there is a “For Lease’ sign.”
…
The result: About 4.6 percent of commercial mortgages in the region that includes Monmouth and Ocean counties were at least 30 days past due during the third quarter of 2009, up from 2.1 percent during the fourth quarter of 2008 and mirroring the national rate, according to Foresight Analytics, an Oakland, Calif., research firm.

From the Star Ledger:

N.J. commercial landlords tack on incentives to fill vacant space

The deserted office building off Prospect Plains Road in Cranbury looks as if it could still be occupied, with 42 acres of manicured landscaping and traffic signs advising employees where to park.

But it’s been more than two years since Aetna Insurance moved out of the space at 1 Continental Drive, leaving the 500,000-square-foot building empty as the day it was built.

The agency trying to lease the five-story building has dropped the price to $4.95 a square foot, or about $10 less than the 2006 price. The agency tells potential tenants that a square foot of premium office space off exit 8A of the New Jersey Turnpike — where the building is located — is now as affordable as a “golf ball” or “hamburger.”
…
At the end of last year, about 34.7 million square feet of office space was on the market in central and northern New Jersey — up from 31.5 million available square feet at the end of 2008, according Grubb & Ellis, a commercial real estate firm.

But that doesn’t include the “shadow market” of space that landlords are simply not bothering to try to lease, said Matt Dolly, managing director of research in the New Jersey office of FirstService Williams.

Dolly said with that space could amount to hundreds of thousands of extra square feet.
…
The jobless rate in New Jersey has now hit 10.1 percent, with more than half of those out of work “knowledge-based workers,” or those that would likely work in offices, according to an estimate from the Edward J. Bloustein School of Planning and Public Policy at Rutgers University.

And the glut of commercial office space on the market has dropped asking prices to similar lows. The average asking rate for Class A space — the highest quality — has dropped to its lowest level in more than five years — $28.80 a square foot in the northern and central parts of the state, according to Grubb & Ellis.

From the Press of Atlantic City:

Malls struggling to fill vacancies in tight economy

The row of blacked-out stores at Heather Croft Square gives the impression of a retail ghost town. For more than 20 years, the big draw at the shopping center on Tilton Road in Egg Harbor Township was a Superfresh, until it closed in 2007.

The impending recession gutted the center. A dollar store went bust, a lending company left and a dinette and bar stool supplier shut down. Larry Delany watched helplessly as his neighbors’ stores suffered.
…
The alarms were ringing for retail mall and strip center operators a year ago, when major chains such as Circuit City and KB Toys prepared to go out of business after a weak holiday shopping season.

In April, Chicago-based General Growth Properties Inc., which operates four malls in northern New Jersey, filed for one of the largest commercial real estate bankruptcies ever after struggling with a $27.3 billion debt load. Its malls remain open as it works to restructure its debt.
…
In September, Taubman Centers Inc., of Bloomfield Hills, Mich., reported a negative cash flow with its luxury shopping mall in Atlantic City, The Pier Shops at Caesars, and said it did not think it could pay off its $135 million mortgage. A company spokeswoman said last week that a plan to turn over the property to lenders is still in negotiations.
…
The Shore Mall in Egg Harbor Township was reportedly in jeopardy of closing after its anchor, Boscov’s, filed for bankruptcy protection in 2008 and threatened to go out of business. It has since come out of bankruptcy and is adding staff.

The department store’s survival was especially critical after Value City closed that same year. Shore Mall, which opened in 1968, is made up primarily of smaller, independent retailers as opposed to the national chains with greater access to capital.
…
Streb said the region remains “overmalled,” and weaker properties that don’t upgrade face difficulties. He ranks malls with a letter grade, and said modern, fresher properties such as the Cherry Hill Mall can be considered an A. He gave the Hamilton Mall in Mays Landing a B, and the Shore Mall a C.

“The A malls are going to survive,” he said. “It’s the B malls that should upgrade, and the C malls, if they don’t do anything, can potentially close.”

Posted in Economics, New Jersey Real Estate | 99 Comments

Prices Fall in Bergen, Passaic

Posted on January 22, 2010 by grim

From the Record:

Home prices fell 13% in Bergen and Passaic in 2009

Prices of single-family homes fell by an average 13 percent in Bergen and Passaic counties in 2009, according to data from two multiple listing services.

The average price of a single-family home sold in Bergen County in 2009 was about $553,000, down 13 percent from 2008. The median price — the point at which half the prices are above and half below — was $435,000, a 10.3 percent decline from a year earlier. The lower median value reflects the fact that more homes were sold at the more affordable end of the market.

In Passaic County, the average price in 2009 was $330,187, down 12.6 percent.

Posted in Housing Bubble, New Jersey Real Estate | 343 Comments

Foreclosure Filings Jump in Jersey

Posted on January 21, 2010 by grim

From the Star Ledger:

N.J. sees 29 percent, year-end jump in residential foreclosure filings

As the real estate market struggles to gain its footing back, the state’s number of residential foreclosure fillings jumped 29 percent at year’s end from 2008, according to data from the state judiciary.

Homeowners saw a record number of foreclosure filings in 2009. The housing crisis as well as the jobless rate — of 10.1 percent, which recently eclipsed the national rate in December — wreaked havoc on New Jerseyans who were forced into loan modifications, short sales, and even foreclosure.

Last year, banks filled 62,775 filings, up from 48, 698 in 2008.That’s a far cry from 2006, when only about 23,000 notices were filled.

The parts of the state with the widest margins of fillings increase were Atlantic and Bergen counties — 55 percent and 48 percent, respectively.

And the counties that saw the smallest jumps were Cumberland and Essex Counties — 11 percent and 12 percent increases, each.

From the Philly Inquirer:

Mortgage foreclosures way up in N.J.

New Jersey’s residential-mortgage foreclosure rate shot up 29 percent from 2008 to 2009, with a South Jersey county among the hardest hit, according to statistics released yesterday.

The number of commercial foreclosures, meanwhile, was up 68 percent, from 875 to 1,471.

The counties with the biggest increases in residential foreclosures were Atlantic, Bergen, and Sussex.
…
The foreclosure crisis will not get better any time soon, said James Hughes, dean of the Edward J. Bloustein School of Planning and Public Policy at Rutgers University.

The crisis started when lenders sold exotic mortgages to people who neither understood nor could afford them. Now the crisis is rapidly moving through the middle class.

“There were a lot of sharks in the cities getting people to buy existing housing at inflated prices, and people were in over their heads. You had all those scandalous mortgage products,” Hughes said.

And he said there is a “shadow inventory” of foreclosures. At President Obama’s request, many banks have held back on publicly filing foreclosure actions, but that won’t last.
…
Many residents find their mortgages are higher than their home values, putting them under water.

“Joining into the aftereffects of predatory lending, you now have middle-class households who have lost their jobs and stretched themselves too thin,” Hughes said.
…
The courts have been feeling the bump since at least 2007, when filings went up from 24,857 to 36,360.

Kevin Wolfe, chief of civil practice in the Administrative Office of the Courts, said there was a five- to six-month backlog in reviewing cases.

Posted in Foreclosures, Housing Bubble, New Jersey Real Estate | 313 Comments

NJ Unemployment Hits 33 Year High

Posted on January 20, 2010 by grim

From the Record:

NJ unemployment rate hits highest mark in nearly 33 years

In a blow to hopes of a quick recovery, New Jersey lost 2,300 jobs in December and unemployment rose to 10.1 percent – the highest level in nearly 33 years, figures released Wednesday show.

The job loss takes the number of jobs lost in 2009 to 90,100, about the same as in 2008, according to the monthly employment report released by the New Jersey Department of Labor and Workforce Development.

New Jersey’s unemployment rate is now 0.1 of a percentage point higher than the national rate of 10 percent. The state started the year with a rate of 7.3 percent.

From the Star Ledger:

N.J. unemployment rate rises to 10.1 percent

The New Jersey unemployment rate cracked the 10 percent mark in December after hovering just below it for several months.

The state lost 2,300 jobs, including 1,100 private-sector jobs, to bring the unemployment rate to 10.1 percent, up from 9.7 percent in November, and 6.8 percent in December 2008, the state labor department said today.

Manufacturing, construction and financial activities sectors lost the most jobs, while other sectors gained.

From the Philly Inquirer:

N.J. jobless rate rises, tops U.S. level

New Jersey’s unemployment rate rose in December to the highest in 33 years as employers in manufacturing, construction and financial services continued to cut jobs, the state said today.

Overall, New Jersey lost 2,300 jobs last month, boosting the unemployment rate to 10.1 percent, from 9.7 percent in November. December marked the first time since October 2006 that the state’s jobless rate was higher than the nation’s, which was 10 percent.

It is significant that the state’s total workforce – those employed and those looking for work – fell by 2,500 in December, which means those people stopped trying to find jobs.

Five of the 10 sectors in private industry reduced employment last month, four added jobs, and one was unchanged, the state Department of Labor and Workforce Development said.

The biggest cuts were made by manufacturers (5,400 jobs), construction contractors (2,400), and financial-service firms (1,700).

Posted in Economics, New Jersey Real Estate | 111 Comments

FHA to tighten lending standards. As FHA goes, so goes the market.

Posted on January 20, 2010 by grim

From the WSJ:

FHA to Lift Mortgage Insurance Fees

The Federal Housing Administration will announce more-stringent lending requirements and higher borrower fees on Wednesday to cushion against rising defaults and stave off the need for a taxpayer bailout of the agency.

The FHA, which has taken on a major role in the housing market during the economic downturn, doesn’t lend money to home buyers, but insures lenders against default on loans that meet FHA criteria. In exchange for that backing, borrowers who take out FHA-backed loans must pay an upfront insurance premium, currently set at 1.75% of the total loan amount. The premium can be rolled into the loan.

The FHA is set to raise that fee to 2.25%, the second increase in the past two years, according to people familiar with the matter. The value of the FHA’s reserves to cover losses has fallen to $3.6 billion, about 0.5% of the $685 billion in loans outstanding, down from 3% a year earlier. Congress requires the agency to maintain a 2% capital-reserve ratio. If the larger upfront fee had been in place last year, the FHA would have boosted its reserves by more than $1 billion.
…
The FHA, which backs as many as half of all new loans in certain housing markets, has come under fire for insuring loans with little or no money down as home prices have plunged over the past three years. With its reserves falling, the agency has been forced to walk a tightrope between protecting taxpayer dollars and helping to facilitate the housing recovery.

The FHA will keep minimum down payments at the current 3.5% level for most borrowers. But the agency will require riskier borrowers with credit scores below 580 to make a minimum 10% down payment. While the FHA doesn’t have a credit-score cutoff, most lenders require a minimum 620 score.

Some housing analysts have pushed for higher down payments on FHA-backed loans, and a bill in Congress would raise down payments to 5%, from the current 3.5%.

Instead, the FHA will reduce the amount of money that sellers can kick in for closing costs to 3% of the sale price, down from the current level of 6%. The higher cap led to abuses where sellers “heavily marked up the purchase price,” says Lou Barnes, a mortgage banker in Boulder, Colo.

From the NY Times:

F.H.A. to Raise Standards for Mortgage Insurance

The Federal Housing Administration, which is supporting the housing market by insuring thousands of new mortgages every day, is expected to announce on Wednesday that it is tightening standards.

Borrowers who get an F.H.A.-insured loan will soon have to pay a higher initial insurance premium. The new premium will be 2.25 percent of the value of the loan, up from 1.75 percent.

Starting this summer, sellers will not be able to offer as much help to buyers to pay their closing costs. The maximum amount of assistance will drop to 3 percent of the value of the property, from the current 6 percent.
…
For years, the F.H.A. operated largely out of the public view. But it has become a subject of controversy recently even as it has ballooned in size. Some of the agency’s critics want it to tamp down risk by insuring fewer loans; others think it should help the market by insuring even more.

As of December, the F.H.A. was insuring 5.8 million single-family residences that had a total loan balance of $750 billion. More than half a million of the loans were seriously delinquent and heading toward foreclosure.

Many of these troubled loans were made in 2007 and 2008 as the market was plunging.

Posted in National Real Estate, Risky Lending | 270 Comments

Corzine Approves Buyer Rebates

Posted on January 19, 2010 by grim

From the Star Ledger:

Corzine passes real estate legislation

Two days before Gov. Jon S. Corzine was due to leave office he signed two pieces of real estate related legislation into law, according to a release.

The state’s housing crisis influenced state politicians to sponsor real estate laws that both benefit victims of foreclosures and buyers looking to take advantage of the down market.

The first measure now makes it legal for real estate brokers to pass some of their profits onto their clients.

Before this latest move, it was illegal for real estate agents to entice potential clients with the promise of a cash. New Jersey was one of 11 states that didn’t allow the incentive.

The act allows an individual real estate agent to decide whether to pay their clients or not, and stream lines business policies for some nationwide real estate brokerages.

Posted in New Jersey Real Estate, Politics | 360 Comments

Mortgage Modification Program A Failure

Posted on January 18, 2010 by grim

From Bloomberg:

Loan Modification Recipients Fall Short, Drop Out

About 25 percent of homeowners who received trial loan modifications through President Barack Obama’s main foreclosure prevention plan are failing to keep up with their new reduced payments, the Treasury Department said.

At least 196,000 borrowers have missed some or all of their required payments, according to comments Treasury officials made on a conference call today and calculations from government data. An additional 115,000 homeowners who started trial repayment plans last year have either dropped out or been kicked out of Obama’s Home Affordable Modification Program, the officials said.

“None of these programs have really been a success,” said Vivek Sriram, a mortgage strategist for RBC Capital Markets in New York. “With the high unemployment rate, it’s tough to solve the problem because these people will redefault even if their loan terms are fixed.”

The U.S. has shed 7.2 million jobs since the recession began in December 2007, with almost half those losses occurring after Obama took office in January 2009. The mortgage program, which Obama said would target as many as 4 million Americans struggling to hold onto their homes, has successfully modified 66,465 loans as of Dec. 31, according to data released today by the Treasury.

From UPI:

Mortgage modification numbers still small

Only a few U.S. homeowners enrolled in a federal foreclosure prevention program have achieved permanent loan modifications, statistics indicate.

Data released Friday by the U.S. Treasury Department showed that only 7 percent of those in the Obama administration’s Making Home Affordable program have moved from its trial phase into a permanent loan modification — about 66,000 of the 850,000 homeowners enrolled, The Washington Post reported.

Government and industry officials have said the main reason is that many of the homeowners in the program’s trial phase have been unable to provide enough documentation to prove they qualify and are at risk, but housing advocates counter that in some cases, homeowners have indeed provided the necessary paperwork but are in limbo while waiting for their lenders to act, the Post said.

Posted in Economics, National Real Estate, Politics, Risky Lending | 169 Comments

Weekend Open Discussion

Posted on January 15, 2010 by grim

This is the time and place to post observations about your local areas, comments on news stories or the New Jersey housing market, open house reports, etc. If you have any questions you wanted to ask earlier in the week but never posted them up, let’s have them. Also a good place to post suggestions, requests for information, criticism, and praise.

For readers that have never commented, there is a link at the top of each message that is typically labelled “[#] Comments“. Go ahead and give that a click, you might be missing out on a world of information you didn’t know about. While you are there, introduce yourselves to everyone.

For new readers that have only read the messages displayed on the main page, take a look through the archives, a substantial amount of information has been put online in the past year. The archives can be accessed by using the links found in the menus on the right hand side of the page.

Posted in General | 231 Comments

NJ Foreclosures: Stabilization at multi-year highs isn’t improvement

Posted on January 14, 2010 by grim

Don’t get me wrong, stabilization is good news, but realize that stabilization at these levels is nothing to cheer about. The rate of foreclosures in NJ did not decline in NJ in 2008, they increased by 1%. The best we can say is things aren’t getting worse, but stabilization at these levels over a long term would be disaster. Too early to sound the all-clear on foreclosures. Not only do we need to see the rate decline, but the rate needs to make a strong attempt at a return to the historical norm. What is most disconcerting is that given the incredible amount of federal stimulus and local anti-foreclosure legislation, at best those measures halted the increase. Given the dollars spent to simply arrest the increase, I really wonder how many more dollars are going to be required to push the market towards improving, and not just stabilizing.

From the Record:

Foreclosure filings nearly flat in N.J., but problem is far from over

Foreclosure filings in New Jersey totaled about 63,000 last year, a 1 percent increase over 2008, RealtyTrac said Wednesday. However, the housing market’s troubles are far from over, experts say.

“A massive supply of delinquent loans continues to loom over the housing market, and many of those delinquencies will end up in the foreclosure process in 2010 and beyond,” said James J. Saccacio, chief executive officer of RealtyTrac, which follows the foreclosure market.

Nationally, foreclosure filings were up about 21 percent in 2009, to 2.8 million. The worst-hit states continue to be Nevada, Arizona, Florida and California.

The foreclosure numbers “would have been worse if not for legislative and industry-related delays in processing delinquent loans,” Saccacio said. Those delays include trial-loan modifications, state legislation extending the foreclosure process and “an overwhelming volume of inventory clogging the foreclosure pipeline,” he said.
…
Salowe-Kaye said her agency is still being inundated by distressed homeowners. And nowadays, more are in trouble not because they got subprime loans but because they have lost their jobs, she said. New Jersey’s unemployment rate is 9.7 percent.
…
“A lot of foreclosures are being postponed,” she said. “But the house of cards will soon collapse, and a lot of people are going to be put out.”

From the Star Ledger:

N.J. foreclosure filings level off

he number of foreclosure filings sent to New Jerseyans leveled off at the end of last year, according to RealtyTrac.

Lenders sent foreclosure filings to 63,208 commercial and residential properties in New Jersey, about 1 percent more than in 2008, according to the Irvine, Calif.-based firm.

The latest statistics are a sign the real estate market has bottomed-out, according to industry observers. However, they are still a substantial increase over the amount of filings seen before the most recent recession.

“I still think we’re a long way off from letting out that sigh of relief,” said James Bednar, who writes a real estate blog at njrereport.com

The number of filings in New Jersey sky-rocketed in 2008. In 2007, the number of properties that received foreclosure filings was 31,071. In 2006, it was 21,794.

From MarketWatch:

2009 foreclosures hit record high

The number of U.S. residential properties receiving at least one foreclosure filing jumped 21% in 2009 to a record 2.82 million, RealtyTrac, an online foreclosure marketplace, reported Thursday.
…
“As bad as the 2009 numbers are, they probably would have been worse if not for legislative and industry-related delays in processing delinquent loans,” said James Saccacio, chief executive officer of RealtyTrac.

Saccacio said that monthly foreclosure filings peaked in July at 361,000, then declined for four months before rebounding in December. He said short-term factors, including trial loan modifications, state legislation extending the foreclosure process and an overwhelming volume of inventory clogging the foreclosure pipeline contributed to the second-half declines.

But “in the long term, a massive supply of delinquent loans continues to loom over the housing market, and many of those delinquencies will end up in the foreclosure process in 2010 and beyond, as lenders gradually work their way through the backlog,” he said.

Posted in Foreclosures, New Jersey Real Estate | 379 Comments

Beige!

Posted on January 13, 2010 by grim

Beige Book, from the Fed:

Federal Reserve Districts – Second District–New York

Construction and Real Estate

Commercial real estate markets in the District were mixed but, on balance, softer since the last report. Manhattan’s office vacancy rate leveled off in the final quarter of 2009, but asking rents on Class A properties reportedly tumbled by 15 percent and were down 26 percent from a year earlier. Office markets surrounding New York City were mixed: asking rents declined moderately, while vacancy rates were little changed overall–up slightly in Westchester and Fairfield Counties but down slightly in northern New Jersey and Long Island. Office markets in upstate New York were generally stable, on balance, with faint signs of improvement in the Buffalo and Albany areas but modest softening in metropolitan Rochester. Sales transactions of office properties were exceptionally low throughout the District in the fourth quarter, and, in most cases, down from both the third quarter and a year earlier.

Housing markets have been mixed but, on balance, steady since the last report. Home sales reportedly slowed considerably in the Buffalo area in November and early December, though prices remained higher than a year ago; this slowing is partly attributed to the expiration of the [now extended] homebuyer tax credit. Contacts in northern New Jersey report that resale activity and prices have picked up modestly, though both remain at fairly depressed levels; the uptick in prices may be partly due to fewer distress sales. New home construction in northern New Jersey remains stable at an exceptionally low level, with a modest pickup in multi-family development offsetting further weakening in the single-family sector. New York City’s housing market has shown some signs of stabilizing. Co-op and condo prices continued to decline in the fourth quarter but at a more moderate pace than earlier in the year–in both Manhattan and the outer boroughs. Moreover, the number of transactions picked up, both from the third quarter and from a year earlier, and the inventory of unsold units, though still fairly high, fell 25 percent from late-2008 levels. Manhattan’s apartment rental market also showed signs of stabilizing in December, as both rents and inventories were virtually unchanged from November. Still, rents remain well below year-earlier levels, especially when landlord concessions (fee waivers and free rent for 1-2 months) are factored in, though some of the more aggressive incentives are reportedly being scaled back.

(emphasis added)

Posted in Foreclosures, New Jersey Real Estate | 125 Comments

Edison NJ Mortgage Lender Subpoenaed By HUD

Posted on January 12, 2010 by grim

Edison-based lender Security Atlantic Mortgage was subpoenaed by the HUD Office of the Inspector General today. Security Atlantic and 14 other lenders nationwide are being investigated by the U.S. Department of Housing and Urban Development for having significantly high default rates on FHA loans they’ve issued.

Security Atlantic Mortgage (http://www.fhaok.com) is a large FHA wholesale shop. According to their website, they’ve got 30% of the FHA market in New Jersey. According to the HUD Neighborhood Watch Early Warning System (Hat tip Calculated Risk) 15.48% of Security Atlantic’s FHA loan originations were in default or claim terminated compared to the 5.05% nationwide average.

From HUD:

HUD INSPECTOR GENERAL PROBES MORTGAGE COMPANIES WITH SIGNIFICANT CLAIM RATES

U.S. Department of Housing and Urban Development (HUD) Inspector General Kenneth M. Donohue and Federal Housing Administration (FHA) Commissioner David H. Stevens announced today an initiative focusing on mortgage companies with significant claim rates against the Federal Housing Administration mortgage insurance program.
…
Inspector General Donohue said, “The goal of this initiative is to determine why there is such a high rate of defaults and claims with these companies and whether there is wrongdoing involved. We aren’t making any accusations at this time, we have no evidence of wrongdoing, but we will aggressively pursue indicators of fraud. We are members of the President’s Financial Fraud Enforcement Task Force and today’s activities reflect our commitment to seeking information on red flags that may arise from data analysis.

“This initiative was prompted, in part, by the FHA Commissioner, David Stevens, who was alarmed by the incidence of claims against the FHA insurance fund by a number of poor performing companies and reached out to the HUD OIG for assistance.

FHA is the new subprime. It’s amazing how many subprime shops have morphed into FHA lenders following the subprime collapse. As the securitization market shut down, FHA went from being a rarely used homeownership tool to being a cesspool for subprime loans. Too little too late Inspector Donahue, we’re all on the hook already.

“The FHA market share has skyrocketed,” Inspector General Donohue further said. “Our job is oversight. We work for the American taxpayer. Each loan on this list will be thoroughly examined and we will track down the reasons why it failed. Once we determine the causes, we will look to see whether there is a need for further review or remedial action. We want to send a message to the industry that as the mortgage landscape has shifted we are watching very carefully and that we are poised to take action against bad performers.”

“Skyrocketed” is code-word for get your wallets out taxpayers, you’re on the hook for one hell of a bailout.

Posted in New Jersey Real Estate, Risky Lending | 169 Comments

Otteau: Slow recovery for housing, no recovery for high-end

Posted on January 12, 2010 by grim

From the Record:

N.J. real estate prices headed up

New Jersey home prices have bottomed out and will rise about 2 percent this year, real estate appraiser Jeffrey Otteau predicted Monday.

“While things will get better from here, they’re going to get better at a slow, steady and sustained pace,” Otteau said. Otteau is based in East Brunswick, but he analyzes real estate markets around the state.
…
He predicted that prices, which he says have fallen about 18 percent since the peak of the market in 2006, will rise only about 3 percent a year for the next five years. As a result, home values won’t return to their 2005 levels until 2016.

Otteau’s prediction is in line with other forecasts that home values will be either rise slightly or be flat this year. No one is predicting a jump in values, and some analysts expect further declines.

Otteau said the housing recovery will be slow as foreclosures continue “flooding into the system” and high unemployment keeps potential buyers out of the market.

He said home sellers have to price their properties competitively, because buyers will not be willing or able to overpay. Aside from buyers’ stagnating incomes, lenders are no longer giving mortgages to unqualified buyers.
…
But sellers trying to unload million-dollar-plus homes are in trouble, he said.

“The luxury end of the market will probably never recover,” he said. He said that as baby boomers downsize from big homes, there will be fewer younger buyers who can afford to buy those properties.

There’s an even bigger oversupply of 55-and-up housing units, which were overbuilt during the housing boom, Otteau said. He estimates there is a 16-year supply of those units available.

Posted in Economics, New Jersey Real Estate | 224 Comments

Corzine “was unwilling to make the tough decisions”

Posted on January 11, 2010 by grim

From Bloomberg:

Corzine Leaves $8 Billion Gap as N.J. Governor Readies Exit

Jon Corzine, only the second sitting New Jersey governor to lose a general election since 1947, makes his farewell speech tomorrow with the third-most indebted U.S. state facing spending cuts as steep as 25 percent to close a record $8 billion budget gap.

The one-term Democrat is leaving with tax revenue down 12 percent since taking office in 2006, local property levies up 9 percent to the highest-in-the-nation average of $7,045 and his Republican successor, former U.S. prosecutor Christopher Christie, proposing state-aid reductions that may force towns to fire teachers, close libraries and stop maintaining parks.

Corzine, 63, the former chairman of Goldman, Sachs & Co., vowed to use his Wall Street experience to repair the state’s finances after his election. After winning increases in taxes and proposing to raise highway tolls 800 percent, he faced mounting voter disapproval as the global recession that started in 2007 pushed New Jersey’s unemployment rate to a 32-year high.

The governor’s inability to erase chronic deficits and the economic slump have left chaos for his successor, said John Mousseau, who helps oversee $1.4 billion at Cumberland Advisors Inc. in Vineland, New Jersey.

“Governor-elect Christie has a hell of a problem ahead of him,” Mousseau said. “Were the expectations higher for Governor Corzine? Obviously.”
…
The governor “was unwilling to make the tough decisions he needed to make,” said Senator Kevin O’Toole, a Republican member of the Senate Budget Committee from Wayne. “There was this great hope that he’d be an imaginative, aggressive Wall Street genius who was going to fix state finances in New Jersey. Governor Corzine was ill-equipped to deal with Trenton and with state politics.”
…
Christie, 47, takes office Jan. 19 as New Jersey faces an $8 billion deficit in the fiscal year beginning July 1, more than a quarter of the budget and its biggest shortfall ever, according to the nonpartisan Office of Legislative Services. To narrow the gap, he asked state department heads to prepare scenarios for cuts of 15 percent to 25 percent.

Posted in Economics, New Jersey Real Estate, Politics, Property Taxes | 323 Comments

Like clockwork, with spring comes optimism.

Posted on January 10, 2010 by grim

But is it founded in logic, reason, and data? Or is it nothing more than the same hopeful cheerleading we’ve seen for at least the past 3 spring seasons?

From the NY Times:

Optimism About the New Year

SO is it over? The three-year period of unrelenting home price declines: has it stopped? And is it possible that sales prices will go the other way in 2010?

Excited by brisk business in some locales even during the traditionally slow holidays, a few real estate brokers began blurting out such hopes.
…
Statistically speaking, there are grounds for modest optimism that prices will trend upward in the near future, said the market analyst Jeffrey Otteau, whose Otteau Valuation Group continuously tracks sales data in 21 counties for real estate companies.

Mr. Otteau cited one recent report indicating that New Jersey was one of a half dozen “breakout” states in which prices had already begun to creep up in the second half of 2009. That report came from the Federal Housing Finance Agency, which indexes purchase prices of homes with mortgages guaranteed by Freddie Mac and Fannie Mae.

Looking at data from the entire period of the slide — the start of 2006 through the third quarter of 2009 — Mr. Otteau concluded that the state’s residential market “didn’t get hammered all that bad” compared with the nation at large, and was likely to recover faster.
…
The median home price declined 12.4 percent statewide over the three years, to $289,275 from $330,331, by the Otteau Group calculations. Two northwestern New Jersey counties, Sussex and Hunterdon, got hit much harder than the average, both experiencing declines of more than 20 percent, which various analysts have ascribed to sparser development, smaller population and greater distance from job centers.

Back when home prices were at their highest, buyers had started to “push west” to those counties, trading longer commutes for affordability, said James Bednar, who writes a blog on state real estate at njrereport.com. With the general decline in prices during the past few years, “demand to move to those western counties has dropped,” said Mr. Bednar, whose online self-description is “Grim.”
…
In Hudson County, by contrast, median purchase prices fell just 2.6 percent, peak to trough. The pace of sales pace slowed sharply over the three-year period, even as thousands of new, high-end condominiums came on the market. But Hudson’s proximity to Manhattan jobs bolstered values, as it has for the 30 years, since waterfront area redevelopment began west of the river. ****

In Essex, Somerset, Mercer, Camden, Atlantic and Salem counties, prices declined 5 to 10 percent.

In Bergen, Union, Monmouth and Gloucester counties, the decline was 10 to 15 percent.

Besides Sussex and Hunterdon, the hardest-hit counties — with declines between 15 and 20 percent — were Passaic, Morris and Warren, in the northern part of the state; Ocean and Burlington in central Jersey; and Cape May at the southern tip.
…
In general, Mr. Bednar said, “it’s that lower end that is taking the biggest hit.” On the other hand, it is his view that those same lower-priced areas saw “the biggest speculation, and biggest run-up” in prices during the boom years before 2006.
…
Mr. Otteau suggested that it was best not to obsess over home values in the short term.

According to the housing finance agency, he noted, New Jersey’s median home price rose nearly 6 percent when measured over a five-year period, 2003 to 2009. Going back all the way to 1991, when the agency started keeping its statistics in their current form, the median home price has risen 129 percent.

“If you bought in the last five years and need to sell your house today,” Mr. Otteau said, “then the short-term cycle is relevant. But only about 1 out of 10 homeowners are in that situation. For the rest of us, it doesn’t really matter what home prices are doing right now.”

**** I’m not sure exactly where the pricing data came from, but some of those appear to be off a bit, for example:

According to the NJAR, for Hudson County

2008 Q3 to 2009 Q3 – Down 9.7%
2007 Q3 to 2008 Q3 – Down 6.9%
2006 Q3 to 2007 Q3 – Down 0.3%

Median Price
2006 Q3 – $366,000 (rough peak)
2009 Q3 – $306,000 (current, not trough)

Down 16.4% peak to current.

Posted in Economics, New Jersey Real Estate | 175 Comments