State swamped by homeowner appeals of taxes, assessments
Catherine Jun / The Detroit News
LIVONIA -- Seeing empty houses and "For Sale" signs around his neighborhood, Jaroslaw Siemieniak swears the assessment on his home -- and his property taxes -- were too high last year.
Last spring, he convinced a three-member tax board at Livonia City Hall to lower his assessment, but not enough to reduce his taxes. So the 48-year-old engineer decided to appeal to the next higher power: the Michigan Tax Tribunal.
That was eight months ago. Siemieniak is still waiting.
"I haven't heard anything yet," he said Friday.
Siemieniak is not alone. The Michigan Tax Tribunal is still chipping away at an overwhelming backlog of appeals from last year, and now it's bracing for another flood of appeals this summer from this spring's round of disgruntled homeowners who failed to get their property assessments changed at their local boards of review. With many cities reporting record numbers of assessment challenges, the tribunal has tried to reduce the overflow. It has hired extra workers and encourages homeowners to appeal by phone, but the backlog continues to grow. An expected record number of appeals means property owners who appeal this year will likely not get a hearing until fall 2009.
"We'd like it to be shorter, but with the volume and everything it's just not possible," said Judge Patricia Halm, chairwoman of the tribunal.
In this slumping housing market, homeowners have been turning out in droves to formally protest their assessments, many baffled about why their assessments are not falling as fast as home prices.
And many grumblers are perplexed by taxes that go up as assessments come down, a paradoxical effect of a 1994 state law, Proposal A.
"Either they don't understand that, but even when they do understand it, they don't like it and want to talk to somebody about it," said Philip Mastin III, assessor for the city of Warren, which is fielding an 80 percent increase in property tax challenges this year over last.
Last year, Lansing received nearly 10,000 appeals, almost double the number in previous years, and that doesn't include appeals on commercial or industrial properties. That's the most since 1994.
With about 6,000 cases pending, what was once a six- to nine-month wait for a hearing has now lengthened to well over a year. Then there's another two- to three-month wait for a decision.
"We pretty much had our heads above the water until last year," Halm said.
In an attempt to manage this year's expected deluge, the state is requesting additional judges to hear cases and will likely hire extra summer staff to process requests and mail notices.
State officials warn that property owners awaiting a scheduled hearing or decision should still pay their taxes according to their bills, or face late fees, accrued interest payments and, if nonpayment continues, foreclosure.
Once the tribunal renders a decision that revises the taxes, the property owner gets a refund with interest.
But that is little consolation for Willard Lindley.
An attorney from Livonia, Lindley is still waiting for a hearing date on his two appeals -- from 2006 and 2007 -- on what he says is a bloated assessment on his two-story home.
"It is frustrating because I expect that I'm going to get a substantial refund and this is like a free loan to the state or to the city," he said. "I would just like my money back."
Proposal A was designed to protect homeowners from dramatic property tax hikes in robust housing markets by pegging tax increases to a more modest rate of inflation. This year, that is 2.3 percent.
But depending on when the home was purchased, in a declining market like this one, even dropping home values can call for a tax increase.
"It seems counterintuitive," said Paul Turner, 43, who believes the assessment on his home in Beverly Hills should have plunged more than it did, leading to a tax break.
"There's a huge chasm between reality and what they're willing to assess my property."
He made his case before the local board at the Southfield Township office on Thursday and vowed that if his assessment wasn't lowered, he would appeal to the state this year.
"It's getting to the point that I'll have to make the next step."
Monday, March 24, 2008
Housing woes cut into small builders
Housing woes cut into small builders
Companies struggle in sluggish home market as government scrambles to contain the damage.
Michael Corkery / Wall Street Journal
TWINSBURG, Ohio -- In the first wave of the housing crisis, homeowners across the U.S. lost their properties to foreclosure. Now, many of the nation's small and midsize home builders are on the ropes.
Bill Whitlatch, longtime owner of one of the leading home builders here in northeast Ohio, is among the casualties. Three years ago, he borrowed from regional banks to start six developments in the Cleveland area. Soon the region's home market turned cold. Buyers vanished. Whitlatch drained his personal savings of $2 million to keep his company going.
It wasn't enough. In September, the company filed for bankruptcy protection. Now owing about $1 million to dozens of subcontractors, and $8 million in debt to his banks, Whitlatch is selling the family home he designed.
"I couldn't come up with any more money, and I couldn't generate any more sales," says Mr. Whitlatch, 68, who says he had planned on selling his company and retiring.
Though he and other local builders didn't know it at the time, Cleveland's housing slump was one of the first manifestations of a national slowdown. Now, plummeting home sales across the U.S. have left many builders with unsold inventory and land. Some are falling behind on interest payments, beginning to face foreclosures on developments and, like Whitlatch, sometimes reaching into their own pocket to keep operations going.
Many smaller builders financed their developments with recourse debt, which means that if they default, banks could seize homes, cars and other personal assets.
The U.S. government is now scrambling to contain the damage from the housing market's unraveling. Last week, federal regulators cleared the way for mortgage finance giants Fannie Mae and Freddie Mac to inject as much as $200 billion into the mortgage market, a credit-boosting move that could help builders' sales.
The relief may come too late for those like Whitlatch. "There are a lot of companies on the brink" of bankruptcy, says Ricardo Chance, a managing director at KPMG Corporate Finance LLC, who is helping troubled builders in the Midwest, Northeast and Arizona restructure their businesses
Companies struggle in sluggish home market as government scrambles to contain the damage.
Michael Corkery / Wall Street Journal
TWINSBURG, Ohio -- In the first wave of the housing crisis, homeowners across the U.S. lost their properties to foreclosure. Now, many of the nation's small and midsize home builders are on the ropes.
Bill Whitlatch, longtime owner of one of the leading home builders here in northeast Ohio, is among the casualties. Three years ago, he borrowed from regional banks to start six developments in the Cleveland area. Soon the region's home market turned cold. Buyers vanished. Whitlatch drained his personal savings of $2 million to keep his company going.
It wasn't enough. In September, the company filed for bankruptcy protection. Now owing about $1 million to dozens of subcontractors, and $8 million in debt to his banks, Whitlatch is selling the family home he designed.
"I couldn't come up with any more money, and I couldn't generate any more sales," says Mr. Whitlatch, 68, who says he had planned on selling his company and retiring.
Though he and other local builders didn't know it at the time, Cleveland's housing slump was one of the first manifestations of a national slowdown. Now, plummeting home sales across the U.S. have left many builders with unsold inventory and land. Some are falling behind on interest payments, beginning to face foreclosures on developments and, like Whitlatch, sometimes reaching into their own pocket to keep operations going.
Many smaller builders financed their developments with recourse debt, which means that if they default, banks could seize homes, cars and other personal assets.
The U.S. government is now scrambling to contain the damage from the housing market's unraveling. Last week, federal regulators cleared the way for mortgage finance giants Fannie Mae and Freddie Mac to inject as much as $200 billion into the mortgage market, a credit-boosting move that could help builders' sales.
The relief may come too late for those like Whitlatch. "There are a lot of companies on the brink" of bankruptcy, says Ricardo Chance, a managing director at KPMG Corporate Finance LLC, who is helping troubled builders in the Midwest, Northeast and Arizona restructure their businesses
Up north dream homes a nightmare to unload
Up north dream homes a nightmare to unload
As economy slumps, second homes lose value as they sit unsold for months
Joel J. Smith / Special to the Detroit News
When Paul Bucci hung the "For Sale" sign on his Higgins Lake vacation home, he never dreamed he'd still be looking for a buyer 16 months later.
But in all that time Bucci, who built the house six years ago, has received only a single offer of $99,000.
That's $30,000 less than he had in mind for the three-bedroom chalet near a golf course.
"This isn't a shack. This is a beautiful year-round home," said the frustrated Bucci, a Chrysler worker from Grosse Pointe Farms. "I'm keeping the 'For Sale' sign up. I'll just sit on it if I have to. But I'm not giving it away."
Bucci, like thousands of other property owners, is learning the hard way that the fallout from a troubled economy has rippled out to the lakes, rivers and swimming pools of Michigan's venerable northern vacation home market.
Many homeowners are stuck paying the mortgage on an up north cottage they can't unload because other families, who might once have ventured into the vacation-home market, are cutting back in light of job-security fears, stricter lending standards, the high cost of gasoline burned on weekend drives north or other economic concerns.
Unfortunately for sellers, this "buyers" market has come when many second-home owners are facing layoffs, lost overtime, cuts in pay or simply want to move out of Michigan and seek work elsewhere.
They are desperate for the money they have tied up in their vacation property but can't get their hands on it -- at least not very quickly.
"There are a lot more homes for sale and they are on the market for a longer period of time," said Rick Stein, co-owner of RE/MAX Bayshore Properties in Traverse City. "In some cases the market time has doubled or tripled in just a year or two.
"There is a price that every property will sell for. It's just a matter of if you're willing to accept that price and how long you'll wait to get it."
For many, it'll be a long wait.
For example, there are 3,568 properties listed for sale with real estate agents in the Traverse City area.
Not all are cottages, of course, but competition for buyers will jump dramatically in four to six weeks as the summer selling season approaches.
"Part of the problem we're seeing is there is no sense of urgency on the part of the buyers," said Stein, who has been a real estate agent for 30 years.
"Buyers are looking, looking and looking. Everybody is waiting for the bottom of the market whenever that comes. They all want a deal."
Selling first home instead Joyce Adams-Pranion of Grosse Pointe Park has become so frustrated with trying to sell her two-bedroom log cabin on Saddleback Lake in Oscoda County that she has torn down the real estate sign and listed her downstate residence for sale instead.
She said that if she and her husband, Doug, who is disabled, can sell their Metro Detroit home, they will move up north, where the cost of living is cheaper.
"I've had that property listed for three years," Adams-Pranion said. "People wanted to give me half of what I paid. We've cut the price from $129,000 to $104,000. But buyers are so ridiculous they want us to give it away for free."
Jeffrey Mansell built a house near Sugar Loaf ski resort in the mitten's northwest corner. He built it to sell it for profit, but his dream never materialized. For two years, as the house sits empty, Mansell has been paying $1,100 a month on that $175,000 loan, and better than $250 a month more in property taxes and maintenance costs.
"I haven't got a single offer on the property," said Mansell, a highway light engineer from Salem Township. "Right now, I'm just stuck with it. I hope with mortgage rates dropping, I'll be able to sell it. I never dreamed it would take this long."
Shoppers are savvier
Northern Michigan real estate agents say they are selling about the same number of homes as in the past, but for lower prices and after a lot more time and effort.
Daniella M. Bell is a member of the $4 million club for 2007 as an associate broker with Coldwell Banker Schmidt Realtors in Cadillac.
She said the high inventory has made it a buyers' market and buyers today are more savvy and educated than before.
"Buyers won't buy property unless they think they are getting a good deal," Bell said. "The sellers are beginning to see that they have to be more realistic in their pricing if they are going to sell their property. If a home has been on the market for some time, generally it's because it's priced too high."
She said northern Michigan long has been southeast Michigan's prime target area for vacation homes, second homes and retirement living. But Bell said that with financing tight, people who are interested in moving north to live or retire are dependent on selling their Metro Detroit property first.
"That just isn't easy to do these days," she said.
At Michaywe, a 900-unit development with a golf course in Gaylord, 65 properties are for sale. Real estate agents expect that number to climb to about 100 as the summer approaches.
"I know people who have two homes for sale -- one here and one downstate," said Fred Smith, the Coldwell Banker agent at Michaywe. "Whichever one sells first, they will move into the other one. It's tough selling a home today.
"There is nothing written in stone that thou shall make money on real estate. People have to bite the bullet sometimes and take the loss."
As economy slumps, second homes lose value as they sit unsold for months
Joel J. Smith / Special to the Detroit News
When Paul Bucci hung the "For Sale" sign on his Higgins Lake vacation home, he never dreamed he'd still be looking for a buyer 16 months later.
But in all that time Bucci, who built the house six years ago, has received only a single offer of $99,000.
That's $30,000 less than he had in mind for the three-bedroom chalet near a golf course.
"This isn't a shack. This is a beautiful year-round home," said the frustrated Bucci, a Chrysler worker from Grosse Pointe Farms. "I'm keeping the 'For Sale' sign up. I'll just sit on it if I have to. But I'm not giving it away."
Bucci, like thousands of other property owners, is learning the hard way that the fallout from a troubled economy has rippled out to the lakes, rivers and swimming pools of Michigan's venerable northern vacation home market.
Many homeowners are stuck paying the mortgage on an up north cottage they can't unload because other families, who might once have ventured into the vacation-home market, are cutting back in light of job-security fears, stricter lending standards, the high cost of gasoline burned on weekend drives north or other economic concerns.
Unfortunately for sellers, this "buyers" market has come when many second-home owners are facing layoffs, lost overtime, cuts in pay or simply want to move out of Michigan and seek work elsewhere.
They are desperate for the money they have tied up in their vacation property but can't get their hands on it -- at least not very quickly.
"There are a lot more homes for sale and they are on the market for a longer period of time," said Rick Stein, co-owner of RE/MAX Bayshore Properties in Traverse City. "In some cases the market time has doubled or tripled in just a year or two.
"There is a price that every property will sell for. It's just a matter of if you're willing to accept that price and how long you'll wait to get it."
For many, it'll be a long wait.
For example, there are 3,568 properties listed for sale with real estate agents in the Traverse City area.
Not all are cottages, of course, but competition for buyers will jump dramatically in four to six weeks as the summer selling season approaches.
"Part of the problem we're seeing is there is no sense of urgency on the part of the buyers," said Stein, who has been a real estate agent for 30 years.
"Buyers are looking, looking and looking. Everybody is waiting for the bottom of the market whenever that comes. They all want a deal."
Selling first home instead Joyce Adams-Pranion of Grosse Pointe Park has become so frustrated with trying to sell her two-bedroom log cabin on Saddleback Lake in Oscoda County that she has torn down the real estate sign and listed her downstate residence for sale instead.
She said that if she and her husband, Doug, who is disabled, can sell their Metro Detroit home, they will move up north, where the cost of living is cheaper.
"I've had that property listed for three years," Adams-Pranion said. "People wanted to give me half of what I paid. We've cut the price from $129,000 to $104,000. But buyers are so ridiculous they want us to give it away for free."
Jeffrey Mansell built a house near Sugar Loaf ski resort in the mitten's northwest corner. He built it to sell it for profit, but his dream never materialized. For two years, as the house sits empty, Mansell has been paying $1,100 a month on that $175,000 loan, and better than $250 a month more in property taxes and maintenance costs.
"I haven't got a single offer on the property," said Mansell, a highway light engineer from Salem Township. "Right now, I'm just stuck with it. I hope with mortgage rates dropping, I'll be able to sell it. I never dreamed it would take this long."
Shoppers are savvier
Northern Michigan real estate agents say they are selling about the same number of homes as in the past, but for lower prices and after a lot more time and effort.
Daniella M. Bell is a member of the $4 million club for 2007 as an associate broker with Coldwell Banker Schmidt Realtors in Cadillac.
She said the high inventory has made it a buyers' market and buyers today are more savvy and educated than before.
"Buyers won't buy property unless they think they are getting a good deal," Bell said. "The sellers are beginning to see that they have to be more realistic in their pricing if they are going to sell their property. If a home has been on the market for some time, generally it's because it's priced too high."
She said northern Michigan long has been southeast Michigan's prime target area for vacation homes, second homes and retirement living. But Bell said that with financing tight, people who are interested in moving north to live or retire are dependent on selling their Metro Detroit property first.
"That just isn't easy to do these days," she said.
At Michaywe, a 900-unit development with a golf course in Gaylord, 65 properties are for sale. Real estate agents expect that number to climb to about 100 as the summer approaches.
"I know people who have two homes for sale -- one here and one downstate," said Fred Smith, the Coldwell Banker agent at Michaywe. "Whichever one sells first, they will move into the other one. It's tough selling a home today.
"There is nothing written in stone that thou shall make money on real estate. People have to bite the bullet sometimes and take the loss."
Michigan's home vacancy rate rises
Michigan's home vacancy rate rises
Only Florida, Nevada rank higher on list; problem most acute in Metro area.
Marisa Schultz / The Detroit News
The percent of non-rental homes that sit vacant on the market has risen markedly in Michigan, another example of how the state's beleaguered economy and foreclosure crisis have hit home.
Just two states rank higher -- Florida and Nevada -- for the rate of homeowner vacancies, according to census statistics released earlier this year. But unlike Michigan, those states have something powerful working in their favor: growing populations.
"If they stop building homes in Florida, they will eventually fill up," said Donald Grimes, senior research specialist in economics at the University of Michigan.
"Michigan has excess homes and a declining population, and that's a really bad combination."
In all, 3.8 percent of owner-occupied homes in the state are vacant and for sale, compared to 2.7 percent nationwide. The problem is more acute in Metro Detroit, where the vacancy rate is 4.1 percent compared to 2.8 percent among other metropolitan areas in the country.
The high vacancy rates come as no surprise to economists, Realtors and neighborhood residents. "For Sale" signs in front of empty houses have become a staple in communities throughout Metro Detroit. In many cases, their owners couldn't keep up with their mortgage payments and became victims of the foreclosure crisis.
"There's definitely more vacant homes now than two-three years ago," said Tom Goddeeris, executive director of the Grandmont Rosedale Development Corp., a nonprofit community revitalization organization in Detroit. "Just like everywhere else in Detroit, the number of foreclosed properties has increased over the last couple of years."
The negative impact of empty houses extends well beyond the former homeowners. Long grass, no snow removal and blight are among the problems often associated with abandoned homes. The longer they sit, the more likely they can become targets for thieves, vandals and squatters. And if they are sold, the price is often well below the market value.
"It brings the rest of the neighborhood home values down and makes it tough for others who want to sell down the road," said Scott Cummings, president of Mid American Mortgage in Auburn Hills.
The decline of the Detroit Three automakers, high unemployment and staggering foreclosure rates all combined to make a depressed real estate market in Michigan.
"I've been doing this now for 16 years, and this is as slow as I've ever seen," said Cummings, who hopes the downward trend is close to bottoming out.
Michigan wasn't always at the top for vacancies. In fact, Michigan's vacancy rate fared better than the national average throughout the 1990s. But by 2002, the trend reversed and the gap continues to widen.
It frightens Grimes that the rates have escalated, especially since Michigan wasn't doing economically well in the early 1990s but still managed to have better-than-average vacancy rates. Having such a disparity now could signal something serious, he fears.
"That's a very bad sign when those numbers are going up." Grimes said.
In the meantime, neighborhoods and community groups are doing what they can to care for vacant homes.
"Neighbors who live next to those homes are very good about keeping a watchful eye on those things," Goddeeris said of the Grandmont Rosedale communities of northwest Detroit.
"They'll make sure those houses look good."
Only Florida, Nevada rank higher on list; problem most acute in Metro area.
Marisa Schultz / The Detroit News
The percent of non-rental homes that sit vacant on the market has risen markedly in Michigan, another example of how the state's beleaguered economy and foreclosure crisis have hit home.
Just two states rank higher -- Florida and Nevada -- for the rate of homeowner vacancies, according to census statistics released earlier this year. But unlike Michigan, those states have something powerful working in their favor: growing populations.
"If they stop building homes in Florida, they will eventually fill up," said Donald Grimes, senior research specialist in economics at the University of Michigan.
"Michigan has excess homes and a declining population, and that's a really bad combination."
In all, 3.8 percent of owner-occupied homes in the state are vacant and for sale, compared to 2.7 percent nationwide. The problem is more acute in Metro Detroit, where the vacancy rate is 4.1 percent compared to 2.8 percent among other metropolitan areas in the country.
The high vacancy rates come as no surprise to economists, Realtors and neighborhood residents. "For Sale" signs in front of empty houses have become a staple in communities throughout Metro Detroit. In many cases, their owners couldn't keep up with their mortgage payments and became victims of the foreclosure crisis.
"There's definitely more vacant homes now than two-three years ago," said Tom Goddeeris, executive director of the Grandmont Rosedale Development Corp., a nonprofit community revitalization organization in Detroit. "Just like everywhere else in Detroit, the number of foreclosed properties has increased over the last couple of years."
The negative impact of empty houses extends well beyond the former homeowners. Long grass, no snow removal and blight are among the problems often associated with abandoned homes. The longer they sit, the more likely they can become targets for thieves, vandals and squatters. And if they are sold, the price is often well below the market value.
"It brings the rest of the neighborhood home values down and makes it tough for others who want to sell down the road," said Scott Cummings, president of Mid American Mortgage in Auburn Hills.
The decline of the Detroit Three automakers, high unemployment and staggering foreclosure rates all combined to make a depressed real estate market in Michigan.
"I've been doing this now for 16 years, and this is as slow as I've ever seen," said Cummings, who hopes the downward trend is close to bottoming out.
Michigan wasn't always at the top for vacancies. In fact, Michigan's vacancy rate fared better than the national average throughout the 1990s. But by 2002, the trend reversed and the gap continues to widen.
It frightens Grimes that the rates have escalated, especially since Michigan wasn't doing economically well in the early 1990s but still managed to have better-than-average vacancy rates. Having such a disparity now could signal something serious, he fears.
"That's a very bad sign when those numbers are going up." Grimes said.
In the meantime, neighborhoods and community groups are doing what they can to care for vacant homes.
"Neighbors who live next to those homes are very good about keeping a watchful eye on those things," Goddeeris said of the Grandmont Rosedale communities of northwest Detroit.
"They'll make sure those houses look good."
Wednesday, March 19, 2008
Fannie, Freddie free to pump billions into mortgage market
Fannie, Freddie free to pump billions into mortgage market
WASHINGTON — The government has freed up billions of dollars at Fannie Mae (FNM) and Freddie Mac (FRE), money that can be used to help homeowners refinance mortgages on the brink of default.
The Office of Federal Housing Enterprise Oversight, which oversees the government-chartered companies, unveiled a plan to ease mandatory capital requirements. It said the plan is expected to result in an immediate infusion of up to $200 billion into the market for mortgage-backed securities.
The mandatory cash cushion for Fannie and Freddie — now nearly $20 billion for the two — will be reduced by a third under the new deal. The freed-up money will go toward buying mortgages of struggling homeowners to enable them to refinance into more affordable loans.
Fannie and Freddie, now private companies, were created by Congress to create a secondary market for mortgages. They buy mortgages from banks and other primary lenders, giving them cash to lend again. Fannie and Freddie then package the mortgages as securities and sell them to investors.
The capital requirement for each company are being reduced from 30% to 20%. Under the deal, Fannie and Freddie will commit to raise additional capital. That could be done through special sales of stock or cuts in dividends. Together they will be expected to provide up to $200 billion in new funding for home loans, according to a person familiar with the deal, who spoke on condition of anonymity before the plan was made public.
FIND MORE STORIES IN: Congress | Republican | Office of Federal Housing Enterprise Oversight | James Lockhart | Freddie Mac Chairman | CEO Richard Syron
OFHEO, the federal agency, held a news conference with its director, James Lockhart, Fannie Mae President and Chief Executive Daniel Mudd, and Freddie Mac Chairman and CEO Richard Syron.
The two companies together hold or guarantee around $4.9 trillion in home-loan debt. As the mortgage crisis and ensuing credit crunch have worsened in recent months, policymakers have increasingly looked to them to step up their participation in the hobbled market for securities backed by mortgages.
It was the third step the government has taken in recent weeks to allow Fannie and Freddie to shoulder larger burdens in the mortgage market despite their multibillion-dollar fourth-quarter losses and expectations of further red ink this year.
The $168 billion economic stimulus package enacted last month included a temporary increase in the cap on mortgages that the companies can purchase or guarantee, from $417,000 to $729,750 in high-cost markets. And, as a reward for filing timely financial statements following multibillion-dollar accounting scandals, Fannie and Freddie were freed on March 1 of a combined $1.5 trillion cap on their mortgage-investment holdings.
Influential Democratic lawmakers have been pushing for a reduction in the companies' capital-holding requirements. Bush administration officials and numerous Republican lawmakers, on the other hand, have long opposed allowing Fannie and Freddie to take on more debt, contending that doing so could threaten the global financial system.
WASHINGTON — The government has freed up billions of dollars at Fannie Mae (FNM) and Freddie Mac (FRE), money that can be used to help homeowners refinance mortgages on the brink of default.
The Office of Federal Housing Enterprise Oversight, which oversees the government-chartered companies, unveiled a plan to ease mandatory capital requirements. It said the plan is expected to result in an immediate infusion of up to $200 billion into the market for mortgage-backed securities.
The mandatory cash cushion for Fannie and Freddie — now nearly $20 billion for the two — will be reduced by a third under the new deal. The freed-up money will go toward buying mortgages of struggling homeowners to enable them to refinance into more affordable loans.
Fannie and Freddie, now private companies, were created by Congress to create a secondary market for mortgages. They buy mortgages from banks and other primary lenders, giving them cash to lend again. Fannie and Freddie then package the mortgages as securities and sell them to investors.
The capital requirement for each company are being reduced from 30% to 20%. Under the deal, Fannie and Freddie will commit to raise additional capital. That could be done through special sales of stock or cuts in dividends. Together they will be expected to provide up to $200 billion in new funding for home loans, according to a person familiar with the deal, who spoke on condition of anonymity before the plan was made public.
FIND MORE STORIES IN: Congress | Republican | Office of Federal Housing Enterprise Oversight | James Lockhart | Freddie Mac Chairman | CEO Richard Syron
OFHEO, the federal agency, held a news conference with its director, James Lockhart, Fannie Mae President and Chief Executive Daniel Mudd, and Freddie Mac Chairman and CEO Richard Syron.
The two companies together hold or guarantee around $4.9 trillion in home-loan debt. As the mortgage crisis and ensuing credit crunch have worsened in recent months, policymakers have increasingly looked to them to step up their participation in the hobbled market for securities backed by mortgages.
It was the third step the government has taken in recent weeks to allow Fannie and Freddie to shoulder larger burdens in the mortgage market despite their multibillion-dollar fourth-quarter losses and expectations of further red ink this year.
The $168 billion economic stimulus package enacted last month included a temporary increase in the cap on mortgages that the companies can purchase or guarantee, from $417,000 to $729,750 in high-cost markets. And, as a reward for filing timely financial statements following multibillion-dollar accounting scandals, Fannie and Freddie were freed on March 1 of a combined $1.5 trillion cap on their mortgage-investment holdings.
Influential Democratic lawmakers have been pushing for a reduction in the companies' capital-holding requirements. Bush administration officials and numerous Republican lawmakers, on the other hand, have long opposed allowing Fannie and Freddie to take on more debt, contending that doing so could threaten the global financial system.
Blacklisting Hits Home Sellers
Blacklisting Hits
Home Sellers
By Dawn Wotapka and Marshall Eckblad
From The Wall Street Journal Online
In the nation's worst-hit real-estate markets, home sellers are suffering a new blow: They are being blacklisted by lenders.
As property values decline and credit markets contract, home lenders nationwide are growing ever more unwilling to finance home purchases in sharply declining housing markets, driving prices down further. In some cases, lenders have ruled out entire geographic regions and property types altogether, most notably high-rise condominiums in South Florida and Las Vegas.
Lenders including BankUnited, a unit of BankUnited Financial Corp., and Vertice, a wholesale lending unit of Wachovia Corp., have elected not to lend to some areas or properties because of declining prices. Countrywide Financial Corp., the nation's largest mortgage lender, considered a similar move last week before reversing course, and other lenders have tightened underwriting guidelines for slumping markets so as to make financing nearly unattainable.
There are "lists circulating" from banks, says Peter Zalewski, a broker with Condo Vultures Realty LLC, and those lists are pushing down prices when news of the black-marked properties spreads.
Moreover, the blacklisting isn't always obvious. "We don't call it blacklisting," said an official at a large bank. "We just don't write the loan."
The banks are acting to protect themselves in a steep downturn. But the drying up of loans threatens to create a self-perpetuating cycle.
"If mortgage credit dries up, then prices are going to fall more," says Morris Davis, a professor of real estate and urban land economics at the University of Wisconsin-Madison's School of Business and a former economist at the Federal Reserve Board.
Countrywide sent shudders through the ranks of mortgage brokers when it sent brokers an email recently under the heading "Urgent Product Elimination." The message announced the company would stop approving its Fast and Easy and Alt-A mortgages for all high-rise condominiums nationwide, effective almost immediately.
Countrywide's Fast and Easy loans don't require verification of income, brokers said. Alt-A loans are generally provided to buyers with good credit who lack full documentation.
Countrywide reversed its policy a day later without explanation, but the episode demonstrated lenders' reluctance to underwrite mortgages in the country's most uncertain real-estate markets. Countrywide didn't respond to multiple requests for comment.
Florida's largest bank, BankUnited Financial Corp.'s BankUnited FSB, drew up a "nonpermissible condominium project list" that identified addresses of 191 condominium developments in Florida and Las Vegas for which the bank won't provide financing. The list was reported by the South Florida Business Journal.
For more than half the properties listed in the memo, the bank cited "declining market value" as the reason it wouldn't provide financing. Melissa Gracey, a spokeswoman for BankUnited, confirmed that the list is still in force and said the bank's "very conservative" lending guidelines rule out mortgages for such properties.
In some cases, lenders have blacklisted not specific properties, but entire geographical areas.
In December, Wachovia's Vertice unit stopped writing mortgages for all condominiums in South Florida, says Kasey Emmel, a company spokeswoman.
Wachovia's main lending operation "continues to offer condo products in all markets, including Florida markets," says spokesman Don Vecchiarello.
Blacklisting isn't redlining -- the illegal practice of restricting lending on a socioeconomic basis -- so it doesn't run afoul of fair-lending laws, says Alexander Bono, a partner at Schnader Harrison Segal & Lewis, a law firm in Philadelphia. Banks are allowed "to identify a county when it's based upon something other than socioeconomic conditions" and then change its stipulations for lending there, Mr. Bono says.
Even when banks haven't officially ruled out entire markets, the stipulations they use before lending in such areas are becoming very stringent, and can leave mortgage credit all but off-limits.
"Companies won't lend" money for purchases in developments that aren't at least 60% filled, says Paul Miller, an analyst at Friedman Billings Ramsey & Co., a unit of FBR Capital Markets Corp. When vacancy rates in a development are higher than 40%, Mr. Miller says, "your condo fees go through the roof," since a development's minimum maintenance costs remain static, regardless of the number of residents. And if condo fees remain high -- as underwriting logic follows -- then homeowners may have a harder time making mortgage payments.
"We're very cognizant of the risks involved" with "condominium developments in particular," says Terry Francisco, a spokesman for Bank of America Corp.
Other larger lenders have also tightened standards for mortgages they write in declining regions.
In December, Fannie Mae, the nation's government-sponsored mortgage-lending behemoth, issued an announcement titled "Maximum Financing in Declining Markets."
"When a property is located in an area identified as declining," the announcement says, the lender originating the loan must reduce the maximum amount it could otherwise lend to that buyer by 5%.
In healthy markets, New York's J.P. Morgan Chase & Co. will currently lend borrowers a mortgage equal to as much as 90% of a property's value. For borrowers in states that have declining markets, however, the bank reduces that maximum, says Tom Kelly, a spokesman for the bank. J.P. Morgan then reduces that level even further for borrowers in the worst declining markets, Mr. Kelly says, though he declined to provide specifics.
CitiMortgage, a wholesale lending operation of another large Wall Street bank, Citigroup Inc., maintains a list of "declining market areas" that red-flags dozens of counties in more than 10 states. Citi reduces the amount it will lend for properties in those counties "by at least 5%," the document says.
"We routinely review our credit parameters, including maximum loan-to-value ratios, in declining markets," says Mark Rogers, a CitiMortgage spokesman.
One silver lining: For "all-cash buyers," Mr. Zalewski says, the lists are "heaven sent."
Buyers who have cash "can use that to negotiate," he says: "If you don't sell to us, who are you going to sell to?"
Home Sellers
By Dawn Wotapka and Marshall Eckblad
From The Wall Street Journal Online
In the nation's worst-hit real-estate markets, home sellers are suffering a new blow: They are being blacklisted by lenders.
As property values decline and credit markets contract, home lenders nationwide are growing ever more unwilling to finance home purchases in sharply declining housing markets, driving prices down further. In some cases, lenders have ruled out entire geographic regions and property types altogether, most notably high-rise condominiums in South Florida and Las Vegas.
Lenders including BankUnited, a unit of BankUnited Financial Corp., and Vertice, a wholesale lending unit of Wachovia Corp., have elected not to lend to some areas or properties because of declining prices. Countrywide Financial Corp., the nation's largest mortgage lender, considered a similar move last week before reversing course, and other lenders have tightened underwriting guidelines for slumping markets so as to make financing nearly unattainable.
There are "lists circulating" from banks, says Peter Zalewski, a broker with Condo Vultures Realty LLC, and those lists are pushing down prices when news of the black-marked properties spreads.
Moreover, the blacklisting isn't always obvious. "We don't call it blacklisting," said an official at a large bank. "We just don't write the loan."
The banks are acting to protect themselves in a steep downturn. But the drying up of loans threatens to create a self-perpetuating cycle.
"If mortgage credit dries up, then prices are going to fall more," says Morris Davis, a professor of real estate and urban land economics at the University of Wisconsin-Madison's School of Business and a former economist at the Federal Reserve Board.
Countrywide sent shudders through the ranks of mortgage brokers when it sent brokers an email recently under the heading "Urgent Product Elimination." The message announced the company would stop approving its Fast and Easy and Alt-A mortgages for all high-rise condominiums nationwide, effective almost immediately.
Countrywide's Fast and Easy loans don't require verification of income, brokers said. Alt-A loans are generally provided to buyers with good credit who lack full documentation.
Countrywide reversed its policy a day later without explanation, but the episode demonstrated lenders' reluctance to underwrite mortgages in the country's most uncertain real-estate markets. Countrywide didn't respond to multiple requests for comment.
Florida's largest bank, BankUnited Financial Corp.'s BankUnited FSB, drew up a "nonpermissible condominium project list" that identified addresses of 191 condominium developments in Florida and Las Vegas for which the bank won't provide financing. The list was reported by the South Florida Business Journal.
For more than half the properties listed in the memo, the bank cited "declining market value" as the reason it wouldn't provide financing. Melissa Gracey, a spokeswoman for BankUnited, confirmed that the list is still in force and said the bank's "very conservative" lending guidelines rule out mortgages for such properties.
In some cases, lenders have blacklisted not specific properties, but entire geographical areas.
In December, Wachovia's Vertice unit stopped writing mortgages for all condominiums in South Florida, says Kasey Emmel, a company spokeswoman.
Wachovia's main lending operation "continues to offer condo products in all markets, including Florida markets," says spokesman Don Vecchiarello.
Blacklisting isn't redlining -- the illegal practice of restricting lending on a socioeconomic basis -- so it doesn't run afoul of fair-lending laws, says Alexander Bono, a partner at Schnader Harrison Segal & Lewis, a law firm in Philadelphia. Banks are allowed "to identify a county when it's based upon something other than socioeconomic conditions" and then change its stipulations for lending there, Mr. Bono says.
Even when banks haven't officially ruled out entire markets, the stipulations they use before lending in such areas are becoming very stringent, and can leave mortgage credit all but off-limits.
"Companies won't lend" money for purchases in developments that aren't at least 60% filled, says Paul Miller, an analyst at Friedman Billings Ramsey & Co., a unit of FBR Capital Markets Corp. When vacancy rates in a development are higher than 40%, Mr. Miller says, "your condo fees go through the roof," since a development's minimum maintenance costs remain static, regardless of the number of residents. And if condo fees remain high -- as underwriting logic follows -- then homeowners may have a harder time making mortgage payments.
"We're very cognizant of the risks involved" with "condominium developments in particular," says Terry Francisco, a spokesman for Bank of America Corp.
Other larger lenders have also tightened standards for mortgages they write in declining regions.
In December, Fannie Mae, the nation's government-sponsored mortgage-lending behemoth, issued an announcement titled "Maximum Financing in Declining Markets."
"When a property is located in an area identified as declining," the announcement says, the lender originating the loan must reduce the maximum amount it could otherwise lend to that buyer by 5%.
In healthy markets, New York's J.P. Morgan Chase & Co. will currently lend borrowers a mortgage equal to as much as 90% of a property's value. For borrowers in states that have declining markets, however, the bank reduces that maximum, says Tom Kelly, a spokesman for the bank. J.P. Morgan then reduces that level even further for borrowers in the worst declining markets, Mr. Kelly says, though he declined to provide specifics.
CitiMortgage, a wholesale lending operation of another large Wall Street bank, Citigroup Inc., maintains a list of "declining market areas" that red-flags dozens of counties in more than 10 states. Citi reduces the amount it will lend for properties in those counties "by at least 5%," the document says.
"We routinely review our credit parameters, including maximum loan-to-value ratios, in declining markets," says Mark Rogers, a CitiMortgage spokesman.
One silver lining: For "all-cash buyers," Mr. Zalewski says, the lists are "heaven sent."
Buyers who have cash "can use that to negotiate," he says: "If you don't sell to us, who are you going to sell to?"
Playing the Housing Slump: Is It Time to Make Your Move?
Playing the Housing Slump: Is It Time to Make Your Move?
by Jonathan Clements
Saturday, March 15, 2008
Financial lore says you should buy when there's blood in the street -- which suggests real estate is a bargain, because there's blood all over the neighborhood.
Time to invest? I wouldn't be surprised to see home prices drop sharply this spring, as long-suffering sellers in hard-hit areas throw in the towel and slash their asking price.
That could spell opportunity for this year's buyers. But what if you already own a home -- and have no desire to become a landlord? Here are three ways to play today's battered housing market.
Trading up. If you're hankering after a larger home or a house in a better neighborhood, this could be your chance to trade up on the cheap.
To be sure, when you go to sell your current home, you will likely get a modest price. Since 2006's second quarter, real estate has fallen 10.2%, as measured by the S&P/Case-Shiller U.S. National Home Price Index. But your new, grander house will also be relatively inexpensive, so you're effectively cranking up your real-estate exposure when the market is well below its peak.
That said, I wouldn't think of this move as an investment. Your new home will probably mean not only a bigger mortgage, but also higher ongoing costs, including homeowner's insurance, property taxes and maintenance expenses. These ongoing costs will offset a large chunk of any future home-price appreciation.
In other words, trading up to a larger home or a better neighborhood is really about wanting to consume more real estate. Still, like any thrifty shopper, you want to buy when there's a sale -- and that is what today's market offers.
"It's like going from a Honda to a Mercedes," says Charles Farrell, a financial adviser with Denver's Northstar Investment Advisors. "It's a lifestyle choice. As long as it doesn't cut into your ability to accumulate capital for retirement, this is probably a pretty good time to upgrade."
Doubling down. Instead of trading up, you might be eyeing a vacation home. If you don't plan to rent the place out, the same logic applies: Once you subtract the annual costs from the price appreciation, you likely won't make very much money -- which means the property won't be much of an investment.
On the other hand, maybe you're two or three years from retirement and are toying with buying a second home that could become your sole residence once you quit the work force. Does it make sense to purchase now, given the decline in home prices?
Buying today is no doubt appealing, because it'll give you a chance to vacation in your future home. But whether it turns out to be a wise financial move depends on what happens to property prices -- and that's tough to predict.
Still, I wouldn't bank on a rapid bounce back in home prices. At the current sales pace, it would take a whopping 10.3 months to clear January's backlog of unsold homes. By contrast, in January 2005, the supply of unsold homes was at a mere 3.6 months, according to the National Association of Realtors.
The bottom line: If you think you'll get a lot of use from a second home, go ahead and buy. But if you view the purchase as a bet on rising home prices, I would hold off for now.
Helping hand. While buying more real estate for your own use probably won't be a great investment, you could help your adult children make good money -- by transforming them from renters to homeowners.
To that end, you might give your kids an advance on their eventual inheritance, so they have enough money to make a down payment. Yes, that means they will start to incur the housing costs I mentioned above, including property taxes and maintenance expenses. But your children will also replace their monthly rent check with a monthly mortgage check, and that will allow them to start building home equity.
"If you have kids who are first-time buyers in markets that are relatively depressed, this could be a good time," Mr. Farrell reckons. "These days, they might need to make a 10% down payment. You could make a gift to them of the down payment or make a loan to them."
by Jonathan Clements
Saturday, March 15, 2008
Financial lore says you should buy when there's blood in the street -- which suggests real estate is a bargain, because there's blood all over the neighborhood.
Time to invest? I wouldn't be surprised to see home prices drop sharply this spring, as long-suffering sellers in hard-hit areas throw in the towel and slash their asking price.
That could spell opportunity for this year's buyers. But what if you already own a home -- and have no desire to become a landlord? Here are three ways to play today's battered housing market.
Trading up. If you're hankering after a larger home or a house in a better neighborhood, this could be your chance to trade up on the cheap.
To be sure, when you go to sell your current home, you will likely get a modest price. Since 2006's second quarter, real estate has fallen 10.2%, as measured by the S&P/Case-Shiller U.S. National Home Price Index. But your new, grander house will also be relatively inexpensive, so you're effectively cranking up your real-estate exposure when the market is well below its peak.
That said, I wouldn't think of this move as an investment. Your new home will probably mean not only a bigger mortgage, but also higher ongoing costs, including homeowner's insurance, property taxes and maintenance expenses. These ongoing costs will offset a large chunk of any future home-price appreciation.
In other words, trading up to a larger home or a better neighborhood is really about wanting to consume more real estate. Still, like any thrifty shopper, you want to buy when there's a sale -- and that is what today's market offers.
"It's like going from a Honda to a Mercedes," says Charles Farrell, a financial adviser with Denver's Northstar Investment Advisors. "It's a lifestyle choice. As long as it doesn't cut into your ability to accumulate capital for retirement, this is probably a pretty good time to upgrade."
Doubling down. Instead of trading up, you might be eyeing a vacation home. If you don't plan to rent the place out, the same logic applies: Once you subtract the annual costs from the price appreciation, you likely won't make very much money -- which means the property won't be much of an investment.
On the other hand, maybe you're two or three years from retirement and are toying with buying a second home that could become your sole residence once you quit the work force. Does it make sense to purchase now, given the decline in home prices?
Buying today is no doubt appealing, because it'll give you a chance to vacation in your future home. But whether it turns out to be a wise financial move depends on what happens to property prices -- and that's tough to predict.
Still, I wouldn't bank on a rapid bounce back in home prices. At the current sales pace, it would take a whopping 10.3 months to clear January's backlog of unsold homes. By contrast, in January 2005, the supply of unsold homes was at a mere 3.6 months, according to the National Association of Realtors.
The bottom line: If you think you'll get a lot of use from a second home, go ahead and buy. But if you view the purchase as a bet on rising home prices, I would hold off for now.
Helping hand. While buying more real estate for your own use probably won't be a great investment, you could help your adult children make good money -- by transforming them from renters to homeowners.
To that end, you might give your kids an advance on their eventual inheritance, so they have enough money to make a down payment. Yes, that means they will start to incur the housing costs I mentioned above, including property taxes and maintenance expenses. But your children will also replace their monthly rent check with a monthly mortgage check, and that will allow them to start building home equity.
"If you have kids who are first-time buyers in markets that are relatively depressed, this could be a good time," Mr. Farrell reckons. "These days, they might need to make a 10% down payment. You could make a gift to them of the down payment or make a loan to them."
Thursday, March 6, 2008
Homeowner equity dipping below 50%, lowest on record
Homeowner equity dipping below 50%, lowest on record
ASSOCIATED PRESS • March 6, 2008
NEW YORK -- The Federal Reserve says Americans' percentage of equity in their homes has fallen below 50% for the first time since 1945.
The Fed's U.S. Flow of Funds Accounts shows homeowners' percentage of home equity slipped to a revised 49.6% in the second quarter of 2007 and declined further to 47.9% in the fourth quarter. It marks the first time homeowners' debt on their houses exceeds their equity since the Fed started tracking the data in 1945.
Home equity is equal to the percentage of a home's market value minus mortgage-related debt.
On average, housing is Americans' single largest asset. Economists expect falling home prices to continue to eat into equity.
ASSOCIATED PRESS • March 6, 2008
NEW YORK -- The Federal Reserve says Americans' percentage of equity in their homes has fallen below 50% for the first time since 1945.
The Fed's U.S. Flow of Funds Accounts shows homeowners' percentage of home equity slipped to a revised 49.6% in the second quarter of 2007 and declined further to 47.9% in the fourth quarter. It marks the first time homeowners' debt on their houses exceeds their equity since the Fed started tracking the data in 1945.
Home equity is equal to the percentage of a home's market value minus mortgage-related debt.
On average, housing is Americans' single largest asset. Economists expect falling home prices to continue to eat into equity.
Home foreclosures hit record high, Michigan ranks 3rd
Home foreclosures hit record high
Mich. ranks 3rd nationally; job losses, credit restrictions cited
By GRETA GUEST • FREE PRESS BUSINESS WRITER • March 6, 2008
Nearly 6% of all mortgages were delinquent nationwide in the fourth quarter and foreclosure starts were at the highest levels ever, according to a report issued this morning by the Mortgage Bankers Association.
Michigan continues to rank high for delinquencies and the number of homes in foreclosure. Michigan ranked second nationally with 8.97% of its home loans delinquent during the three months ended Dec. 31. Mississippi was first with 11% of delinquent loans and Georgia was third with 8.37%.
Michigan ranked third when it came to foreclosure inventory with 3.38% and third based on foreclosure starts with 1.29% during the quarter.
The total national delinquency rate is the highest in the mortgage bankers survey since 1985. The survey covers 46 million loans and represents more than 80% of all first lien residential mortgage loans outstanding in the United States.
“Declining home prices are clearly the driving factor behind foreclosures, but the reasons and magnitude of the declines differ from state to state,” said Doug Duncan, chief economist for the mortgage bankers.
“In states like Ohio and Michigan, declines in the demand for homes due to job losses and out-migration have left those looking to sell the homes with fewer potential buyers, particularly with the much tighter credit restrictions borrowers now face.”
Mich. ranks 3rd nationally; job losses, credit restrictions cited
By GRETA GUEST • FREE PRESS BUSINESS WRITER • March 6, 2008
Nearly 6% of all mortgages were delinquent nationwide in the fourth quarter and foreclosure starts were at the highest levels ever, according to a report issued this morning by the Mortgage Bankers Association.
Michigan continues to rank high for delinquencies and the number of homes in foreclosure. Michigan ranked second nationally with 8.97% of its home loans delinquent during the three months ended Dec. 31. Mississippi was first with 11% of delinquent loans and Georgia was third with 8.37%.
Michigan ranked third when it came to foreclosure inventory with 3.38% and third based on foreclosure starts with 1.29% during the quarter.
The total national delinquency rate is the highest in the mortgage bankers survey since 1985. The survey covers 46 million loans and represents more than 80% of all first lien residential mortgage loans outstanding in the United States.
“Declining home prices are clearly the driving factor behind foreclosures, but the reasons and magnitude of the declines differ from state to state,” said Doug Duncan, chief economist for the mortgage bankers.
“In states like Ohio and Michigan, declines in the demand for homes due to job losses and out-migration have left those looking to sell the homes with fewer potential buyers, particularly with the much tighter credit restrictions borrowers now face.”
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