The office of embattled New York Governor David Paterson scrapped a deal with Aqueduct Entertainment Group (AEG) to develop a casino at the Aqueduct Race Track in Queens, poised to be the Big Apples first gambling destination.
The decision shouldnt have come as a big surprise. Mr. Patersons selection of AEG sparked a furor among losing bidders and prompted a federal investigation, as critics complained that AEG wasnt qualified to spearhead such an ambitious and expensive project.
“The Division of the Lottery has concluded that it cannot issue a gaming license to Aqueduct Entertainment Group (AEG). Therefore, the State has officially withdrawn its support for AEG to develop and operate a video lottery terminal (VLT) facility at Aqueduct Race Track, Mr. Patersons office said in a statement Thursday. The Executive Branch advocates that the selection of the Aqueduct VLT franchisee be done pursuant to an expedited, transparent, apolitical and publicly accountable procurement process.”
Mr. Paterson passed over heavyweight gaming companies like Penn National Gaming and MGM Mirage and New York City real estate veteran SL Green Realty for AEG, which has close ties to Floyd Flake, an influential Queens preacher and former congressman. Critics blasted the choice as politically motivated. The losing bidders even considered a lawsuit alleging AEG wasnt forced to adhere to the same conditions as the other four contenders.
Its unclear how the state will move forward with another bidding process, but some of the companies want back in the game. The SL Green/Hard Rock team is still interested and ready to go forward. We have already fulfilled all of Lotterys licensing requirements and we remain able to deliver on our promises both on expedited timing and on our long-term vision for this exciting project, said SL Green in a statement.
Crevices, some 15 feet deep, are shown outside three homes at the Rivermist subdivision in San Antonio
Pulte Homes offered to purchase 27 San Antonio homes damaged by a January retaining-wall collapse that created crevices up to 15 feet deep and eight feet wide.
The builder will also erect a new wall, a six-month project with a price tag estimated between $4 and $5 million. Work will begin following city approvals and permits. Given that time commitment, Pulte’s Centex division, which built the homes in this development known as Rivermist, offered to buy back the units deemed uninhabitable.
Pulte, the nation’s largest builder, will also cover moving costs, home improvements and reasonable legal fees. For owners who want to keep their homes, it will provide or fund alternative housing until the new wall is finished and certified.
Spokeswoman Valerie Dolenga couldn’t provide a total cost Thursday.
The community’s average selling price is $200,000, though some of the affected homes commanded more because they are bigger and offer city views. Two of the affected addresses have already closed for an undisclosed sales price.
The builder has not addressed other residents’ complaints of reduced property values, leaving some angry. “We’ve worked all our lives for nothing,” resident Dell Hammett told the San Antonio Express-News. “It makes us sick.”
But since the collapse, six homes have sold at prices similar to before the slope’s failure, Ms. Dolenga said, a sign the community is holding value.
In late January, about 90 houses were evacuated following a “significant soil movement” underneath some of the homes. Most owners returned home quickly, but 27 units were deemed unsafe. Those residents are in hotels or short-term housing paid for by Pulte, Ms. Dolenga said.
San Antonio officials later said the retaining wall went up without a permit. A representative for Pulte, which acquired Centex last year, said in January that “it was our understanding that we were in full compliance with the city requirements.” Pulte hired an engineering firm to test and analyze the soil.
Readers, what would you do in similar circumstances?
Responding to critics, officials of the Federal Housing Administration are set to warn in Congressional testimony Thursday that a double-dip decline in housing prices may result from even a slight increase in minimum down payments on FHA-backed loans.
An increase in down payments to 5%, from the current minimum 3.5%, would limit new FHA-backed loans by 40%, equivalent to 300,000 fewer home sales, according to testimony that FHA Commissioner David Stevens is set to deliver on Thursday.
“We share the goal of increasing equity in home purchase transactions, but determined after extensive evaluation that such a proposal would adversely impact the housing market recovery,” Mr. Stevens says in his testimony.
The FHA doesn’t make loans but instead insures lenders against losses, and the agency charges insurance premiums to borrowers for that backing. Critics of the agency say that loans with low down payments risk putting taxpayers on the hook for big losses if home prices tumble further. Defaults on loans insured by the agency over the past three years have mounted amid the economic downturn, depleting the agency’s reserves.
Any steps that would sharply restrict the number of borrowers who are eligible for FHA-backed loans, such as higher down payments, would also limit the new business that the FHA desperately needs to help offset rising losses.
“It’s that sort of rationale that got us into the problem in the first place, that we need to be chasing the borrowers to prop up our system,” says Rep. Scott Garrett (R., N.J). “That’s what got us here in the first place.”
Instead of raising down payments, the FHA has already said it will raise the upfront insurance premium that borrowers must pay, and it is reducing the amount of money that sellers can kick in to pay for closing costs. The FHA has also said it will increase minimum down payments to 10% for borrowers with a credit score of 580 or lower.
The FHA is asking Congress for authority on Thursday to raise separate insurance premiums that are paid monthly. The agency is also asking Congress for greater authority to hold lenders accountable for bad loans and to eject lenders that it says aren’t living up to its standards. These proposed policy changes would generate an extra $4.1 billion in receipts for the agency next year, according to the FHA.
Rep. Garrett said he plans to submit an amendment to the FHA’s bill that would increase minimum down payments to 5%. Republicans introduced a separate bill on Wednesday that would make many of the changes proposed by the agency and create additional oversight. But that measure wouldn’t increase minimum down payments.
Angela Iannelli and her 11-year-old Blue Macaw, Luke, missing.
It isnt about the parrot, a lawyer for Angela Iannelli told me.
The issue, insisted the lawyer, Michael Rosenzweig of Edgar Snyder & Associates in Pittsburgh, was the distress inflicted on Ms. Iannelli by Bank of America Corp.s bungling. As we reported Wednesday, the bank apologized for an incident in which its contractors entered her home near Pittsburgh while she was out, cut off utilities, padlocked the door and confiscated her pet parrot. Though Ms. Iannelli had fallen a month or so behind on mortgage payments, her case hadnt reached the stage at which Bank of America would be justified in taking such actions to secure the collateral.
She had to find someone with a bolt cutter to get back into her own house.
Ms. Iannelli, 46 years old, alleges that the incident — which separated her from her 11-year-old parrot, Luke, for more than a week — caused so much emotional distress that she needed a prescription medication for anxiety.
Journalists who cover the foreclosure crisis get calls and emails every day from Americans who complain about banks disorganized and sometimes cold-hearted responses to people trying to save their homes. (We dont hear about the cases in which bank employees do a good job, and surely that happens in many cases.) So why write about Luke the parrot? Because Luke makes a good symbol of what happens when bureaucratic organizations are overwhelmed by a wave of human misery.
Banks mortgage-lending departments are efficient when it comes to making loans and collecting payments. Theyve honed their employee incentives and procedures over decades. They didn’t spend nearly as much time thinking about how to handle defaults and foreclosures because it was always assumed those would remain the exception, to be handled by an obscure department known as loss mitigation.
Today distressed borrowers are hardly exceptional. Nearly eight million households, or 15% of those with mortgages, are behind on their payments or in the foreclosure process. Many borrowers complain that they get the runaround when they call their lenders for help, receive contradictory information from different employees and are required to repeatedly fax in same documents.
Suicide threats from distressed borrowers are so common that one lender, OneWest Bank Group, Pasadena, Calif., has had to establish procedures for alerting the police. Lenders call-center employees are under heavy pressure. These people make $14 or $15 an hour and we ask them to move mountains, a OneWest executive said at an industry conference last month.
In her suit, filed Monday in the Allegheny County Court of Common Pleas, Ms. Iannelli says a contractor hired by Bank of America entered her house about 15 miles north of Pittsburgh in mid-October when she was away. In what it describes as an invasion of the home, the lawsuit says that the contractor stopped utility services, cut water lines and electrical wiring, damaged flooring and finishings, poured antifreeze into sinks and toilets and stole the parrot.
Ms. Iannelli, who owns a diner and works part time as a bartender, alleges in her suit that Bank of America representatives were unhelpful when she called in to protest. They first told her they had no idea where the parrot was. Days later, they finally determined that Luke was at the offices of the contractor in Ebensburg, Pa. — 80 miles from her home. Bank of America didnt deliver Luke home. Instead, Ms. Iannelli had to drive across a mountain range to fetch him. The round trip took about four hours.
Anyone who has ever tried to sort out a minor problem with a credit-card bill or bank statement by dialing an 800 number will sympathize with Ms Iannelli. She says bank representatives at various times during her ordeal told her they were tired of hearing from her, said their computers were down, put her on hold, asked her to called back later, hung up on her, and advised her to seek help from the police if she was so worried about her pet.
Her lawyer, Mr. Rosenzweig, said Ms. Iannelli is seeking damages of more than $50,000. The amount of any damages would be decided by a jury if the court goes to trial.
A Bank of America spokesman said the bank will quickly to review the allegations in the lawsuit, the actual events that led to them and the causes of those events, and consider any hardship that resulted.
After she drove two hours to reclaim her parrot in October, Luke initially seemed nervous, Ms. Iannelli said in an interview Wednesday. Hes doing very well now, she said.
Luke, a macaw with blue and orange plumage, now may be the nations most famous parrot. His picture was in The Wall Street Journal; he appeared on ABCs Good Morning America television show Thursday.
The parrot had no comment.
Please follow me for housing news on Twitter @jamesrhagerty
Another New York office building is in imminent default.”
Larry Silverstein, of Silverstein Properties, Inc. and the California State Teachers Retirement System paid $416 million in 2006 for the Manhattan skyscraper at 575 Lexington Avenue.
Today, the propertys $325 million loan has been transferred to a special servicer, because the lender thinks the loan has a higher probability of defaulting during the term, according to Fitch Ratings, which analyzes commercial mortgage-backed securities. As of Oct. 2009, the building had $7 million remaining on its $10 million cash reserve, according to Fitch.
A spokesman for Silverstein, Dara McQuillan, emailed a statement in response to our query:
The transfer of the 575 Lexington Avenue loan to special servicer was done at our request to help facilitate ongoing discussions with our lender about a modification to our loan, which is not currently in default. We are optimistic that these discussions will be productive. This action has no impact on tenant services. Further, the debt is secured exclusively by the property and is not cross-collateralized with any others. It does not impact any other developments or properties in which Silverstein Properties and its various partners are invested. ”
The skyscraper was built in 1958 and renovated in 1990, according to CoStar Group. After buying it in 2006 for roughly $650 a foot, Silverstein installed a new entrance, renovated the lobby with Italian marble and put in new elevators, with the goal of renewing new tenants at higher rents when their leases expired, according to Fitch. At the time the building was 94% occupied, according to Mr. McQuillan. But today, the buildings vacancy has risen. Silverstein said that it is in negotiations with a tenant that would put the building at more than 89% occupancy.
Mr. Silverstein is best known as the developer who purchased the World Trade Center lease six weeks before the September 11 terrorist attacks. His company is currently negotiating with The Port Authority of New York & New Jersey in an attempt to work out a stalemate over that site’s redevelopment. An arbitration panel set a deadline of Friday close of business for the parties to hash out a new construction timetable agreement.
Update: After researching the topic, the Georgia Transplant Foundation said it has no record of an agreement with the family. It is going to ask the Harpers to remove the logo from the Web site.
It appears that a family that received an Extreme Makeover home in suburban Atlanta has resorted to raffling off their supersized house to avoid foreclosure.
Milton and Patricia Harper, who received a Beazer-built McMansion in Season 2 of the ABC series in 2005, are still selling tickets for $25–or 5 for $100–for a raffle that appears to have been scheduled for Jan. 29. The event, which mentions the “Harper Foundation” and other monikers, is said to support organ-transplant patients.
It is unclear exactly how they benefit. The Harpers couldn’t be reached. The local Susan G. Komen affiliate, which is supposed to get a nickel for each ticket sale, is checking into whether it has received any money. The Georgia Transplant Foundation, whose logo also appears on the site, couldn’t immediately comment.
The prize is listed as a 6,300-square-foot house in Lake City, Ga., with no mortgage. The sprawling residence boasts five bedrooms, seven bathrooms, five fireplaces and an outdoor kitchen. The great room, the raffle site adds, has “vaulted ceilings accented with antique hickory wood beams obtained from a 135-year-old dairy farm in Pennsylvania.”
This is the latest bizarre chapter for the Harper house: The family’s tear-jerker story about losing their son won them a home makeover from the ABC popular television show. But the family used the home as collateral for a $450,000 loan that fell into trouble and was modified by Chase in 2008. As foreclosure loomed, the family filed for bankruptcy, halting the process until last fall, according to a Chase spokeswoman. While the restarted foreclosure process drags on, the family has time to pay off the debt.
Associated Press
The Harpers tear up at the site of their new home in 2005.
Chase is looking into the raffle.
On the site, the Harper family says it is time to downsize “due to the current economic crisis and with two of the three children becoming adults.”
The raffle was scheduled for 1 p.m. on Jan. 29, though it’s unclear if it happened. The rules state it can be extended. (There are no updates on the Facebook page.) Tickets seem to still be for sale.
For those seeking bargains in todays bombed-out housing market, it helps to have strong nerves and a big wad of cash.
Getty Images
But do you also need a fancy cellphone?
As I write in today’s Journal, real estate brokers and software firms are rushing out all kinds of applications, or “apps,” designed to turn the Apple Inc. iPhone and other smart phones into essential tools for home shoppers.
Theres plenty of gimmickry in this sphere, of course, but there are also some useful functions. Smart phone apps combine access to information from the Internet with global-positioning technology. So if you find yourself in a new and alluring neighborhood and wonder whether you could afford to live in it, your smart phone may help provide the answer. By using home-search apps, you can find out which homes are for sale in your immediate proximity without having to type in addresses or ZIP codes. You also can find out which nearby homes have sold recently and at what prices.
Jon Mirmelli, a real estate investor in Scottsdale, Ariz., recently got an email informing him that a home in Phoenix was about to be put up for auction at a minimum bid of $668,000. With a few taps on his iPhone, he got details on the size of the house, a map and then panoramic photos of the relevant street. The images showed an older home that likely needed a lot of work.
“Within a minute, I had enough information to say its not worth driving” 25 miles to inspect the home, Mr. Mirmelli says. He also occasionally uses an app from Zillow.com to get estimates of home values and other data.
Apps have become more than “just a cool little novelty,” says Myron Lo, vice president of innovation at ZipRealty Inc. The Emeryville, Calif.-based real estate brokerage firm, which provides services in 22 states, offers a free app that includes home listings, value estimates and other data.
The most common place to obtain apps is Apples online iTunes store, where many are free and some are priced in a range of 99 cents to a few dollars. Brokers tend to offer their apps for free as a way of attracting customers. Most apps are geared for the iPhone but more are being developed for phones using Google Inc.s Android operating system.
Zillow says people are looking up 2 million homes a month on its free app. “We were blown away by how much usage it gets,” a spokeswoman says.
Move Inc. offers a free Realtor.com home-search app with listings and open-house information, among other things. Trulia Inc. and Smarter Agent LLC also offer free home-search apps. So do more and more real estate brokers, including the Coldwell Banker franchise chain; Corcoran Group, which operates in the New York area and South Florida, and Redfin Corp., which operates in nine states.
“I dont think its driving revenue for us but its making customers happier,” says Glenn Kelman, chief executive of Seattle-based Redfin.
The Coldwell Banker app, available for both iPhones and Android models, so far has listings of houses only from that firm and related companies, but Mike Fischer, Coldwell Bankers senior vice president for marketing, says he hopes to offer all listings eventually.
Better Homes & Gardens Real Estate LLC, a chain of brokers, offers an app that helps people sort pictures of house they like and send them to friends. The app also digs up information on local schools and other neighborhood details. “You have to constantly upgrade it and add features,” says Sherry Chris, CEO of the chain.
InnovationGeo LLC has a series of local apps called under the Are You Safe brand. These apps, priced at 99 cents, tell you what sorts of crimes and how many of them have occurred near where you happen to be at the moment. As you move from an area deemed relatively safe into one with more crime, the apps meter shifts from green to red.
“Weve created a Geiger counter for crime,” says Benjamin Mokotoff, who helped create the app for InnovationGeo. (No stats are available yet on how many people are mugged while staring at crime stats on their iPhones in sinister neighborhoods.)
So far, that Are You Safe apps are available for only a few cities: Washington, Atlanta, Sacramento, Indianapolis and Milwaukee. But the company is trying to add more cities. One obstacle, Mr. Mokotoff says, is that many cities refuse to release information on crime broken down by address.
Other apps, such as Offender Locator and StaySafe, show you whether any registered sex offenders live nearby.
The free Walk Score app, from Front Seat LLC in Seattle, rates neighborhoods based on the ease of walking to shops, restaurants and other public places.
The Yelp app from Yelp Inc. has information and reviews on restaurants, shops, bars and other local businesses. The EveryBlock app, produced by EveryBlock LLC, provides news, crime information, real estate listings and foreclosure data, among other things, in 15 cities.
A variety of apps calculate mortgage costs or crunch numbers of potential income from rental properties. One called Dictionary of Real Estate Terms, available for $4.99 from Intersog LLC, promises to let you “be in the know wherever you go.”
Please follow me for housing news on Twitter @jamesrhagerty.
The Federal Reserve is almost done buying mortgage-backed securities, which has helped lower mortgage rates to near historical lows for much of the past year, but rates appear to be holding steady: they ended the week at a still low 5.01% last week, up slightly from 4.95% the previous week, according to the Mortgage Bankers Association.
Another glimmer of good news: applications for purchase mortgages increased by 5.7% last week, from the previous week. While purchase applicationswhich give an insight to potential homebuying activityare still down from one year ago, it’s up from the 13-year lows set earlier this year.
Refinances still account for around two thirds of mortgage applications, and the refi share should stay high for as long as rates remain at low levels. How much rates rise after the Fed ends its mortgage securities purchases has been a big point of debate between economists, investors and analysts for weeks.
While some have argued that rates could rise between one and two full percentage points (and that the resulting political pressure would force the Fed to resume its purchases at some point), more analysts have argued in recent weeks that the effect on rates may be more muted, with rates rising by around 0.3 percentage points. A report from Goldman last week suggested that rates might rise by as little as 0.1 percentage points.
The WSJ’s Jon Hilsenrath and Sudeep Reddy report in today’s paper that the end of the mortgage purchase program is very much on track:
Some investors worry mortgage rates could shoot up without the Fed’s support. But officials have been comforted by the fact that rates haven’t moved up even as they have slowed their buying.
The market reaction to a Fed pullback “will actually be a pleasant surprise,” said Ajay Rajadhyaksha, Barclays Capital’s head of U.S. fixed-income strategy.
When the Fed became the dominant buyer of mortgages, big investors such as mutual funds and insurers walked away from the market and purchased Treasury debt instead. Once the Fed stops, Mr. Rajadhyaksha said, there will be pent-up demand from private investors to soften the impact.
He expects Treasury and mortgage yields to rise no more than half a percentage point in coming months. Today, yields on 30-year fixed mortgages are around 5%.
The Fed plans to gradually reduce its mortgage portfolio. As mortgage-backed securities are paid off by borrowers, it plans to avoid reinvesting the proceeds in new securities.
Around $200 billion of mortgage-backed securities will be pared from the Fed’s portfolio this way through next year, estimates Brian Sack, the director of the New York Fed’s markets group.
Readers, do you think the Fed should extend the purchase program? Cast your vote here.
Charging up the car in the garage might seem like something from the Jetsons cartoon, but builder KB Home is making that a reality Tuesday.
The company now offers the option to pre-wire homes to accommodate electric-vehicle charging stations, the latest option from a builder known for plenty of choices.
This isn’t exactly a granite countertop, but, in a release, Chief Executive Jeffrey Mezger says the company is thinking about how home owners will live “in the future.”
KB Home says its leading the way with this offering: The National Association of Home Builders reports it appears to be the first builder to add such a standard option. Of course, should this prove popular, it is likely other builders will quickly follow.
Trucks at Work calls the move “another step in a broader albeit piecemeal effort to create ‘recharging infrastructure’ in major cities across the U.S. to make [electric vehicles] and plug-in hybrids more practical for daily use.”
The news today that the estate of real-estate baroness Leona Helmsley has signed a deal to sell a deal to sell one of its trophy properties–the Helmsley Carlton House on Manhattan’s East Side-raises many interesting issues about the commercial real estate market.
The $170 million sale marks the first deal the estatewhose mandate is to liquidate all the holdingshas brought to the market. It also shows that demand for stabilized and quality properties is increasing, as the WSJ’s Lingling Wei writes.
But perhaps the most interesting question: What happened to that dog? The canine in question is Trouble Helmsley, the beloved Maltese poodle left behind by the late Leona Helmsley who died in 2007.
Trouble initially inherited a $12 million trust fund, which was later reduced to $2 million by a Manhattan judge in 2008, at the request of Trouble’s trustees. (The remainder went to charity.)
That’s “enough money to pay for Troubles maintenance and welfare at the highest standards of care for more than 10 years, which is more that twice her reasonably anticipated life expectancy, said the general manager of the Helmsley Sandcastle Hotel, where the dog now resides, in an affidavit.
Life is good for Trouble, infamously dubbed “rich bitch,” by the NY Post: Trouble is no trouble. She is alive and well and thriving, says Howard Rubenstein, the spokesman for the Helmsley estate.
The dog’s security costs the Helmsley estate $100,000 a year.
Efforts to modify loans and delay foreclosures may have helped hold down the stock of foreclosures for sale in the second half of 2009, fostering home-price stabilization. But that cure could require different medicine: an elevated level of foreclosures for sale over the next three years.
Analysts from J.P. Morgan Chase & Co. are forecasting that bank-owned sales as a share of total home sales will remain at current or even higher levels three years from now in more than half of the nation’s 10 largest housing markets, according to a recent investor presentation. (The slides for the presentation are available as a PDF.)
Bank-owned sales–or “REO,” real-estate owned, in industry parlanceare expected to account for between 39% and 50% of home sales in Phoenix in the fourth quarter of 2012, up from 37% at the end of last year. The REO share of sales in San Diego, where one-quarter of sales at the end of last year were REO, is projected between 24% and 31% three years out.
2Q 2009
4Q 2009
4Q 2012
Los Angeles
52%
39%
22-28%
New York
11%
12%
12-16%
Santa Ana, Calif.
30%
16%
18-23%
Long Island, N.Y.
8%
8%
5-7%
Chicago
33%
28%
21-28%
San Diego
38%
25%
24-31%
San Francisco
14%
10%
9-12%
Oakland, Calif.
47%
20%
18-23%
Phoenix
57%
37%
39-50%
San Jose, Calif.
43%
22%
14-18%
Source: J.P. Morgan Chase & Co.
New York City could also see a slight increase in the REO share of sales, with a projection that 12% -16% of sales coming from foreclosures at the end of 2012, compared to a 12% REO share at the end of last year. Foreclosures could stay the same or rise in Santa Ana, Calif.; San Francisco and Oakland, while they’re projected to be lower in three years in Los Angeles, Chicago, Long Island, N.Y., and San Jose, Calif.
With the exception of New York, foreclosures began to heavily flood housing markets in the first and second quarters of 2009. Because foreclosures sell at a discount, that generated big price declines that have since moderated as the REO share of the market has eased.
J.P. Morgan says that spring 2009 will likely mark the peak of foreclosure sales as a share of total home sales, but that REO sales will grow and remain high in most markets through 2012. Even if REO sales account for 50% of all home sales three years from now in Phoenix, for example, that will still be below the 57% foreclosure share from last spring.
Follow me for more housing and mortgage news on Twitter at: @NickTimiraos
Is the government’s massive support of homeownership nothing more than a “sacred cow in American society?” asks Robert Shiller in the New York Times this weekend.
The Yale University housing economist explored America’s long-standing relationship with, and affinity for, homeownership by asking readers to consider the long-term justification for the government’s support of the housing market.
Government support for the housing market, of course, is not unique to this downturn and began during the Great Depression in an effort to jumpstart the building trades, Mr. Shiller points out. Since then, real estate has been firmly rooted in the political firmament.
But housing has become about more than economic health. Mr. Shiller notes the psychological and cultural importance that the country has long placed on owning homes and land: “Historically, homeownership has been associated with freedom, while renting often in tenements or mill villages has been linked to the oppression of a landlord,” he writes.
The irony of course is that owning a home, especially in recent years, has become oppressive in its own right. The impulse to become a homeowner encourages people to put lots of their net worth into one asset that can be difficult to sell when demand dries upask anyone who’s wanted to relocate for work over the past two years, and who bought a house between 2004 and 2006 with less than 20% down. And some would argue, these supports also prop up home prices forcing people to spend more on housing.
How to reconcile this conflicting strands? Mr. Shiller doesn’t offer up any silver bullet. He points out that our national identity needn’t depend on homeownership. Homeownership in Switzerland, a country with similar identity characteristics as the United States, notes Mr. Shiller, has a homeownership rate that is half of what it is in the U.S. (So too does Manhattan, where the easy availability of attractive rental housing makes renting far more economic than in, say, Buffalo).
He then suggests charting a path to “new kinds of financial institutions entities that may lead us to a different kind of housing, yet preserve our core values. Although such innovation isnt likely to end subsidies, it should refocus them on enhancing the qualities of life that we really value.”
Readers, should these institutions exist, and what should they look like?
American mortgage institutions encourage people to take a leveraged position in the real estate market, which is quite risky because home prices can and do decline, as we have learned so painfully. Leverage a risky investment 10 to 1 and you can expect trouble and we have plenty of it today. More than 16 million homeowners owe more on their mortgages than their homes are worth, according to Mark Zandi of Economy.com.
If we choose to keep subsidizing individual homeownership, we must also commit to adding safeguards so that homeowners are less financially vulnerable. Of course, that will require some creative finance.
Frank comments from Vornado Realty Trust Chairman Steven Roth have sparked a political uproar in Boston over the stalled redevelopment of the Filene’s Basement site.
In an unscripted lecture at Columbia University last week, Mr. Roth implied that allowing a construction site to become an eyesore can be a successful business strategy because the government is likely to offer more generous incentives.
Boston Mayor Thomas Menino read the comments and fired off a letter to Mr. Roth blasting his “outrageous” remarks. “Admitting that you embraced a deliberate policy of long-term blight, at a major commercial location in New York City, exhibits a callous disregard for the well-being of the city and its people.”
Mr. Menino continued: “Inflicting pain on people, business, and communities to inflate the return to your enormously profitable company is reprehensible.”
Last week, Mr. Roth recounted how in the mid-90s he deliberately let the hulking Alexanders department store sit vacant for more than three years. Why did I do nothing? Mr. Roth said, according to an article on the lecture in The New York Observer. Because I was thinking in my own awkward way, that the more the building was a blight, the more the governments would want this to be redeveloped; the more help they would give us when the time came.
Vornado didn’t respond to a request for comment.
Frank comments from Vornado Realty Trust Chairman Stephen Roth have sparked a political uproar in Boston over the stalled redevelopment of the Filene’s Basement site.
In an unscripted lecture at Columbia University last week, Mr. Roth implied that allowing a construction site to become an eyesore can be a successful business strategy because the government is likely to offer more generous incentives.
Boston Mayor Thomas Menino read the comments and fired off a letter [attached] to Mr. Roth blasting his “outrageous” remarks. “Admitting that you embraced a deliberate policy of long-term blight, at a major commercial location in New York City, exhibits a callous disregard for the well-being of the city and its people.”
Mr. Menino continues.
“Inflicting pain on people, business, and communities to inflate the return to your enormously profitable company is reprehensible.”
Vornado did not respond to a request for comment.
You can read the rest of Mr. Menino’s scathing letter (which is address, incorrectly to “Steven Roth) here:
Anyone remember Victor Vangelakos? He’s the loneliest condo dweller in Fort Myers, Fla.–and he can’t take it anymore, according to the News-Press.
Last year Mr. Vangelakos paid $430,000 for his condo in Tower 1 of the Oasis in downtown Fort Myers. He was only one of a few to actually close on an apartment in the building after putting down a deposit. Not wanting to run a 32-story building with only a few occupants, developer The Related Group hashed out deals with the other buyers who settled into Tower 2. Mr. Vangelakos’s lenders, as we wrote last year, wouldn’t agree to a swap. So, the Weehawken, N.J., firefighter went ahead with his family’s plan to use the apartment as a vacation home.
In an article last year, the Los Angeles Times wrote about a local man in a similar situation who described one of the perks of being the only guy in an empty apartment building: taking out the garbage in the nude. For the Vangelakos family such perks have apparently lost their appeal. They say that living in the 32-story tower is “creepy, especially at night.” Birds have nested in the empty apartment units.
Now, Mr. Vangelakos is suing Related in Miami to get out of his contract, according to the News-Press. He says Related is stalling and “playing hardball” because of his wife’s legal problems: She’s in prison for taking parking ticket payments in her job at Weekhawken City Hall.
Related’s general counsel Betsey McCoy says that the company is happy to offer the family a swap for a condo in Tower 2. But so far, Mr. Vangelakos is still fighting.
Correction: An earlier version of this blog post said that Mr. Vangelakos touted taking out the garbage in the nude as a perk of living in an empty building. That was not correct. A different apartment dweller in California made that statement. We regret the error.
California will receive $700 million and Florida will take $400 million in federal aid to begin designing programs to ease foreclosures, under the Obama adminstration’s latest effort to ease the housing crisis.
President Obama announced the program, which would aid state housing finance agencies in the “hardest-hit” states, during a swing through Las Vegas last month. On Friday, the administration announced the funding formulas and totals for the five states that are set to receive aid. Michigan will receive $155 million, Arizona gets $125 million and Nevada receives $103 million.
Funding is awarded based on a formula based on unemployment, price declines and the volume of delinquent loans. California had the second worst price decline, the third-worst unemployment rate, and the greatest volume of delinquent loans at the end of 2009–enough to grab almost half of the $1.5 billion that the Obama administration agreed to give to the five states. While Nevada, which has had the sharpest home-price declines and has a 13% unemployment rate, walks away with the smallest cash grant, the state actually takes the most money per delinquent borrower. (Read more about the funding allocation formula here).
It’s now up to the states to decide how to use the money, and they’ll have to present plans to Treasury next month. Those plans could include new efforts to modify loans, including principal write-downs for borrowers who owe far more than their homes are worth, initiatives to address second-lien mortgages, and efforts to speed up short sales, where homes are sold for less than the amount owed.
We wrote today about this paper from economists at the New York Federal Reserve and New York University that argues that the Federal Housing Administration may be missing certain warning signals in its annual audit that could underestimate losses.
The FHA says that it disputes both the characterizations of its annual audit and the conclusions of the study.
One interesting claim that the study makes concerns the way in which the FHA treats so-called “streamline” refinance transactions where existing FHA borrowers are allowed to refinance even if the value of the loan equals or exceeds the value of the home. Those loans are more likely to be underwater, the economists argue, than the FHA methodology suggests, which could lead to risks that aren’t accurately reflected in the annual audit.
To be sure, the agency already owns the risk on those loans, so it’s not necessarily bad policy to allow those borrowers to refinance and take advantage of a lower rate. The authors argue that the agency, however, isn’t properly accounting for big uptick in those loans, which hadn’t been heavily used until home price declines accelerated two years ago.
The problem isn’t with the actual loans, per se, but with the way in which they’re accounted for in the review. When a loan terminates — either because it’s paid off, it defaults, or it refinances — the review puts it into either a “good” bucket or a “bad” bucket. Refinances are classified as “good” terminations because the existing loan is paid off without requiring the FHA to pay a claim, or reimburse the lender, for a loss. In the past, that wasn’t a problem, because streamline refinances weren’t heavily used–borrowers were refinancing out of the FHA, and the loan was history.
But as streamline refinances have picked up, more loans are being counted as “good” terminations when, in fact, the risk hasn’t gone away for the FHA.
Unfortunately, while streamline-refinancing terminates a particular mortgage, it does not terminate the underlying risk to FHA. It is neither a Bad nor a Good termination, but rather an entirely different event. Including streamline refinances in the Good group artificially inflates the size of this group.
That, in turn, skews the estimates used to predict the probabilities surrounding future loan performance. “The inappropriate treatment of streamline refinancing is but one part of a larger problem” with the agency’s models, the authors conclude.
Agency officials said they welcomed the analysis, but disagreed with the conclusions and stood by the review as conducted. “We think based on their review, they’re overstating” the problem, said one senior agency official who had seen an early copy of the study. “Theyre misapplying the way that they look at that differential.”
Rep. Barney Frank again made comments that sent ripples through bond markets on Friday when he suggested that the U.S. might force Fannie Mae and Freddie Mac bondholders to take a haircut. He later backed off a bit, and in a statement said it made sense for the Treasury to take the extraordinary steps that it made last December to stand behind the companies, effectively guaranteeing bondholders.
Recall that Rep. Frank, who chairs the House Financial Services Committee, caused a similar stir when he said he was preparing to recommend that the government abolish Fannie and Freddie, the mortgage-finance giants that he has long supported. Of course, that doesn’t mean the government won’t continue to play a big role in the housing market, but given his druthers, Rep. Frank said he’d start from scratch when revamping the housing-finance market.
The Treasury made clear again on Friday that it still stands behind Fannie and Freddie. The government took control of Fannie and Freddie nearly 18 months ago and has injected $127 billion into the companies (and promised unlimited amounts of future aid) to support them.
The issue is technical and, of course, political: Republicans have pushed for the U.S. to bring Fannie and Freddie onto its books, which would sharply increase the government’s liabilities. It would also force the White House to more quickly address problems at Fannie and Freddie, something it hasn’t shown a great desire to do.
Rep. Frank objects to the idea that the U.S. should formally assume a legal obligation to back bondholders, even though the Obama administration, like the Bush administration before it, has effectivelythough not explicitlyguaranteed that debt.
Markets largely shrugged off Rep. Frank’s comments because the Treasury has made clear its commitment to bondholders, analysts said. Still, with the Federal Reserve weeks away from ending its $1.25 trillion in purchases of the companies mortgage-backed securities, “comments like this don’t help,” said Bose George at Keefe, Bruyette & Woods. Ideally, you want other buyers to be comfortable to step in when the Fed backs away…. Its better if the message is more consistent that [the companies] debt would be safe.
Jim Vogel, an analyst at FTN Financial, offers a pretty sharp diagnosis on what’s happening here:
Rep. Frank has no intention of disturbing the existing arrangement that supports the securities of Fannie Mae and Freddie Mac. Yet, he knew his remarks would be interpreted in just that fashion….
Rep. Frank wants to reshape the housing finance system with a strong head start in the current Congress. No one else cares enough to move it up on the agenda for 2010. What do you do in that situation? You rattle cages and remind people you are still quite vocal on the topic. You stir up the bond markets so the bond market will stir up Washington. He wants people calling Treasury, urging it to say something, or better yet, do something to speed up the timetable.
Treasury is happy with the status quo and has no interest in tackling the housing finance system before financial reform is completed and community banks are on a stronger footing. So, Rep. Frank is likely to remain vocal, occasionally throwing a stone into the bond market to produce a wave or two. Expect similar comments between now and August. It’s a core reason why he’s scheduled a hearing for March 23 on the topic.
The savings that Treasury would recoup from any “haircut” to bondholders, he continues, “would be overwhelmed by the loss of tax revenue brought about by the disruption to the capital markets and housing finance.” Mr. Vogel concludes that the leadership vacuum intentionally left by the administration means that “investors will be buffeted occasionally as various leaders express their opinions about the [companies] and how they should be reconstituted.”
As we’ve written, there’s growing uncertainty about how high mortgage rates will go once the Federal Reserve winds down its purchases of mortgage-backed securities at the end of the month.
In a research note out Wednesday, Goldman Sachs analyst Sven Jari Stehn says that the rate increase may be more muted than some expect–if the Fed doesn’t make a big deal out of it. (Matt Phillips writes in more detail about the MBS purchase program over at Marketbeat.)
Since the Fed has had this program in place, the market has been more sensitive to the central banks announcements on mortgages rather than the actual purchases that followed them up, Mr. Stehn writes:
Our analysis only points to a modest rise in mortgage rates of around 10 [basis points] when the Fed stops buying MBS in a few weeks. Together with the subdued outlook for MBS origination volumes in a weak housing market environment, this suggests that nominal mortgage rates will remain low. However, an announcement to sell MBS which we believe will not occur for some time to come would likely result in a much bigger rise in mortgage rates of up to 80bp.
Then Mr. Stehn hedges his analysis:
Again, however, we emphasize that it is difficult to have a great deal of confidence in our regression results given the inherent difficulty of estimating the impact of an unprecedented policy in an environment of nearly unparalleled swings in the mortgage and broader asset markets.
Readers, what’s your prediction on mortgage rates?
It appears that Saks Fifth Avenue doesnt think the other tenants in a planned Westchester real estate development are up to snuff; at least enough for the upscale retailer to open its only store in the county.
Saks pulled out of a deal to anchor the controversial Ridge Hill mixed-use development in Yonkers, N.Y. because developer Forest City Enterprises didnt adhere to a co-tenancy agreement, according to an article by The Real Deal Friday.Such clauses require the landlord to secure certain retailers and restaurants in their malls before they come aboard.
These agreements are nothing new and are commonly required by major department stores. But, co-tenancy has become very stringent amid steep declines in consumer spending and rising retailer bankruptcies. During the downturn, mall developers, finding it more difficult to find the desired tenants within a relatively short time frame, had to delay new projects.
“Saks Fifth Avenue had signed a letter of intent to be a part of the Ridge Hill development, but Forest City was unable to secure our agreed upon list of co-tenants for the development,” Julia Bentley, a Saks spokeswoman told The Real Deal. The publication said Ms. Bentley declined to name who was on that list. Forest City said committed tenants include Whole Foods, Cheesecake Factory and Sephora.
Saks scrapped its plan less than a year after it signed a letter of intent to anchor the development with 80,000 square feet of space. For its part, a Forest City Enterprises spokesman told The Real Deal they failed to meet the co-tenant requirement because retailers didnt want to commit so way in advance of the 2011 opening.
The $685 million mixed-use development is poised to feature more than 150,000 square feet of office and research space and up to 1,000 apartments.
When January’s home resales fell 7.2% from December and new-home sales plunged to a record low, winter weather became the fall guy: The Northeast has had more than its fair share of snow and ice, which typically leaves consumers thinking more about hot cocoa indoors than houses. Other regions have been similarly afflicted by the white flaky stuff. Florida’s weather woes have even, ahem, sliced into the nation’s tomato supply. Some homeowners have wondered whether to put off listing until the sun reasserts itself.
Stephen East, an analyst with Ticonderoga Securities, points out that weekend conditions are key, given that’s when most would-be buyers do their looking. Who wants to tramp through a foot of snow to a bunch of open houses? So, he consulted weather maps to see what was really going on. Mr. East’s findings show active precipitation nationwide, affecting several major markets.
Still he leaves the question open: “The maps make for some interesting arguments, and given that our meteorological skills only rival Punxsutawney Phils, we do not claim to have a definitive answer,” Mr. East writes. “However, after reviewing all these precipitation maps, while remembering much of this precipitation is of the frozen variety, which hangs around, dissuading people from venturing out, we would argue that January was usefully affected by bad weather while February looked a bit more conducive to visiting model homes.”
Readers, did weather affect home sales? What did you see where you live? Should this theory just melt away; is the real culprit simply high unemployment? (See the Ticondergoda report.)
When January’s home resales fell 7.2% from December and new-home sales plunged to a record low, winter weather became the fall guy: The Northeast has had more than its fair share of snow and ice, which typically leaves consumers thinking more about hot cocoa indoors than houses. Other regions have been similarly afflicted by the white flaky stuff. Florida’s weather woes have even, ahem, sliced into the nation’s tomato supply. Some homeowners have wondered whether to put off listing until the sun reasserts itself.
Stephen East, an analyst with Ticonderoga Securities, points out that weekend conditions are key, given that’s when most would-be buyers do their looking. Who wants to tramp through a foot of snow to a bunch of open houses? So, he consulted weather maps to see what was really going on. Mr. East’s findings show active precipitation nationwide, affecting several major markets.
Still he leaves the question open: “The maps make for some interesting arguments, and given that our meteorological skills only rival Punxsutawney Phils, we do not claim to have a definitive answer,” Mr. East writes. “However, after reviewing all these precipitation maps, while remembering much of this precipitation is of the frozen variety, which hangs around, dissuading people from venturing out, we would argue that January was usefully affected by bad weather while February looked a bit more conducive to visiting model homes.”
Readers, did weather affect home sales? What did you see where you live? Should this theory just melt away; is the real culprit simply high unemployment? (See the Ticondergoda report.)
Aerosmith drummer Joey Kramer’s home in Marshfield Hills, Mass., has sold for $2.7 million. Photos.
Only time will tell if Warren Buffet’s predictions about housing recovery will come true, but for now, here’s a look at the highs and lows of the high-end market:
Radio talk-show host Rush Limbaugh lists his penthouse on Manhattan’s Fifth Avenue for $13.9 million. Mr. Limbaugh paid $5 million for the 10-room home, which overlooks Central Park. (New York Post)
Joey Kramer, the drummer of the band Aerosmith, sells a house on the South Shore of Massachusetts for $2.7 million, 27% less than its most recent asking price. Located in Marshfield Hills, the gated 17-acre compound, with ocean views, includes a 6,200-square-foot shingled house with four bedrooms and a recording studio. It also has a pool, a Koi pond, a carriage house for guests and three stand-alone garages where Mr. Kramer kept his car collection. Mr. Kramer, 59, combined two properties and built the house in 2003. He and his ex-wife, April, put the property up for sale in $5 million in July 2008. Photos. (WSJ)
A bank-controlled property tied to Edra Blixseth, ex-wife of timber magnate Tim Blixseth, hits the market in Los Cabos, Mexico, for $12.88 million. The roughly two-acre oceanfront estate has a 10,000-square-foot house with six bedrooms and more than 7,000 square feet of outdoor living space. Ms. Blixseth gained control of the home in divorce proceedings, but has declared personal bankruptcy. A bank-controlled 249-acre estate in Rancho Mirage, Calif., built by the Blixseths was also recently listed for $75 million. Any offer for either property is subject to bankruptcy-court approval in Montana. Photos. (WSJ)
Larry Hagman, who played oil tycoon J.R. Ewing on the prime-time drama “Dallas,” cuts the price of his estate in Ojai, Calif., by 11% to $9.5 million. Mr. Hagman, 78, and his wife, Maj, built the 43-acre property in 1992. In 2003, Mr. Hagman installed a giant solar-power system, cutting his electric bill from $37,000 to $13. (WSJ)
Former New York Giant Tiki Barber sells his four-bedroom home on Manhattan’s Upper East Side to Fortunoff heir David Fortunoff for its October listing price of $3.495 million. The home includes a maid’s room, a children’s room, a terrace and four marbled bathrooms. (New York Observer)
Another former New York Giant, Michael Strahan, lists a 2,000-square-foot loft in Manhattan’s Tribeca neighborhood for $1.85 million. Mr. Strahan bought the two-bedroom, two-bathroom home in 2006 for $1.6 million. (New York Post)
General Growth Properties is locked in a bankruptcy takeover battle.
It has rejected overtures from Simon Property Group Inc. and touted a deal in principle with Brookfield Asset Management.
The GGP saga isnt likely to end anytime soon. Various creditors appear at odds over the recent offers. And GGP President and Chief Operating Officer Thomas Nolan testified in bankruptcy court Wednesday that four or five suitors have signed non-disclosure agreements to look at GGP data.
The WSJs Mike Spector and Simon Constable interviewed Nolan about the recent takeover battle, what it means for U.S. retail and where GGP goes from here. (Read more on Deal Journal.)
The Filene’s site in Boston was wrapped after complaints from the city.
Boston Mayor Thomas Menino, who is pushing to fill the hole in the ground that was once the Filenes Department store, may raise his eyebrows at some recent remarks from the chairman of developer Vornado Realty Trust.
Vornados Stephen Roth implied Wednesday that the vacant lota gaping eyesore in the heart of the citys historic shopping district –may not be lying fallow because the developer lost its financing (as I reported last fall), but because it makes cold, hard business sense.
At a lecture at Columbia University Mr. Roth recounted how in the mid-90s he deliberately let the hulking Alexanders department store sit vacant for more than three years, even though, as his mother put it, it was dirty and there were bums sleeping in the sidewalks. Mr. Roth ignored his mom and various appeals to build. Why?
“Why did I do nothing? Mr. Roth said, according to an article on the lecture in The New York Observer. Because I was thinking in my own awkward way, that the more the building was a blight, the more the governments would want this to be redeveloped; the more help they would give us when the time came.
“And they did.” he said, drawing a laugh from the audience according to the article.
If Mr. Roths development partnership, which includes local builder Gale International, is pursuing this blight strategy in Downtown Crossing it is sure to spark outrage among Boston residents and businesses who have been watching unhappily as the shopping district loses tourist traffic and retailers. Vornado did not immediately respond to a request for comment. The joint-partnership development also received financing from J.P. Morgan Chase & Co. and Mack-Cali Realty Corp.
Mr. Roth also said Wednesday that the roughly 10-year delay between his acquisition of the Alexanders site and when his company finished building the mixed-use skyscraper known as the Bloomberg building in 2004 was intentional and not a result of his indecision as newspapers reported at the time, according to the Observer article. “Bullshit. I knew exactly what I wanted to do, Mr. Roth reportedly said. I wanted the price to go up. A lot. And I was willing to wait because I had almost no basis in the land.”
If you needed further evidence that real estate developers have ice running through their veins, this is it.
In his January inauguration speech, Mr. Menino said restarting construction of the Filenes site was one of his administrations top priorities. Take note Mr. Mayor: if you want Mr. Roth to get his shovels back in the ground, you may need to play hardball.
Architect Jeff Kovel’s first solo project was this home in the Portland Heights of Portland, Ore. Photos.
Fans of “Twilight” know the name Jeff Kovel because the architect designed the home occupied by the Cullens, the featured vampire family in the film. But back before Twilight groupies started sending him fan mail, Mr. Kovel designed a home in the Portland Heights area of Portland, Ore., featured Thursday as “House of the Day” on WSJ.com. That three-bedroom, two-and-a-half bathroom home was the first Mr. Kovel designed with his own firm, Skylab Architecture.
The Portland Heights home started as a spec house, or “an incubator project,” as Mr. Kovel calls it. “When I went out on my own I was 27, we didn’t really have a client base, so I conceived of [this project] as a way to establish our firm and our capabilities,” says Mr. Kovel, now 37.
Construction took 14 months, and the home was completed in 2001, selling just before September 11. However, the terrorist attacks on that day led the New York buyer to back out of the deal, Mr. Kovel says.
The architect himself moved into the home for six months. “It was a pretty interesting experience to live in it after building it,” he says. “It was just a real learning experience for me, to experience the theories day in and day out, to watch how the light changes in the house ”
The house’s current owners, Scott and Pam Gibson, purchased it for $2.35 million about eight years ago. They hired Mr. Kovel to make a few changes, including the addition of a 5,000-bottle wine storage building. They listed the house for $2.79 million and moved to Jackson Hole, Wyo. in October.
The home featured in the “Twilight” movie is also in Portland, Ore. Fans of the vampire flick know the house as the “Cullen House,” but Mr. Kovel calls it the “Hoke House” for its real-life owner, John Hoke, the director of footwear design at Nike. Mr. Hoke bought the home, also built on spec, just a few days after it hit the market in 2007, Mr. Kovel says. The home includes a 14-foot cantilever and has three bedrooms. It measures 4,896 square feet and has an open floor plan. In a 2008 cover story before “Twilight” was filmed, the magazine Portland Spaces compared it to Frank Lloyd Wright’s Fallingwater.
Soon after Mr. Hoke and his wife, Karen, moved into their new home, a film scout approached them and asked to use it in the “Twilight” movie, Mr. Kovel says.
In an interview about the Hoke’s home, Mr. Kovel told the blog Design Tavern that he and his staff saw the movie together and have received fan mail from all over the world.
Another Cullen home featured in the Twilight series’ second installment “New Moon” — but not designed by Mr. Kovel — is currently on the market in Vancouver, British Columbia. That five-bedroom, four-bathroom house is listed for $2.998 million. Renovated in 2001, the post-and-beam-style home has a great room, a pool and a koi pond.
