Source: Anna Thibodeaux, Baton Rouge Business Report
The subprime mortgage mess sweeping the country won’t overtake Baton Rouge’s robust housing market, which will likely begin feeling the rumblings of a credit crunch and increasing foreclosures this year.
“The sky isn’t falling. We’re still real affordable compared to the rest of the nation,” says Mike Anderson, president of the Louisiana Mortgage Lenders Association in Baton Rouge. “We’ll still sell homes, but the bottom line is not as many people will be approved for loans.”
The credit crunch—or what Anderson calls a “huge paradigm shift” in lending observed in recent weeks—was ignited by mounting foreclosures nationally with subprime borrowers defaulting on mortgages. As the interest on their adjustable rate mortgages (ARMs) increases, they’re finding themselves unable to afford their monthly payment.
With the credit crunch, they can’t qualify for refinancing and often are unable to sell their house because they typically owe more than it’s worth in a market with falling house prices, or the market is too glutted to find a buyer as the housing bubble bursts.
Anderson and area real estate agents agree foreclosures are rising in the Baton Rouge area, but disagree over the impact.
“The people who know they have good credit are not worried about it,” Anderson says. “But it’ll definitely make an impression on those who think they may have credit issues.”
People with good credit will still be able to get loans, but there will be fewer buyers, he says. Anyone with a credit score in the mid- to high 500s has little or no chance of getting a loan, especially a zero-down loan.
“I think you will see credit tight another year,” Anderson says. “I think the problem and industry will correct itself. I don’t think it’s as big a catastrophe as it’s being made to be. It won’t be as easy to get a home loan as it used to be, but to be honest it was a little too easy.”
Rising foreclosures won’t signal a hard landing for Baton Rouge, he says. The area’s healthy market—and Louisianans’ typically conservative preference for 30-year fixed mortgages—will cushion the blow from the sub-prime meltdown.
But Bonnie Boyter, an agent with Coldwell Mackey Co. in Baton Rouge who handles Fannie Mae REOs (bank repossessed properties) says she’s hearing a heavy wave of foreclosures is anticipated by year-end. Boyter, who has been an agent for 36 years, says it could equal the one that hit with the savings and loans crisis in the 1980s.
“We’re looking at it flattening to a terrible slowdown,” Boyter says of the local market. While she could not estimate the number of anticipated foreclosures, she says, “It has gone up a great percentage”—so much so that her company has added a Web page solely dedicated to them. “I do not see relief or let up in the foreclosures until well into 2008. It will be 2009 before we come out of this foreclosure thing, before the housing industry can right itself.”
Boyter also says more foreclosures will hurt house prices as more buyers expect to buy these properties at bargain prices. Despite the forecast, Boyter also readily says the Baton Rouge market will rebound. “We look down the road to a real good, strong market in Baton Rouge.”
Jeff Furniss, who handles REOs for Coldwell Banker One in Baton Rouge, says the situation is difficult to gauge when his foreclosures are still half of what they were before hurricanes Katrina and Rita. Furniss says he handled nearly 140 a month before the 2005 storms.
“We still are in one of the best real estate markets around,” Furniss says, optimistic about the market ahead. But he also reports seeing more defaults on higher-end properties in the $350,000 to $750,000 range, which he also attributes to ARMs and poor judgment by lenders. “They’ve been giving loans to almost anybody with a pulse.”
Areas with mostly “first-time, working-class buyers with credit glitches” in the $150,000 or less price range will likely be hardest hit by foreclosures, he says. Because of bad lending, Furniss predicts more property will sit on the market soon and eventually prices will drop in certain areas for one to two years. Soon after, he predicts a slow 2% to 3% yearly growth in appreciation instead of the 6% to 10% experienced in the last two years.
Dianne Pellerin, an agent with C.J. Brown Realtors and a 24-year veteran in REOs, says their REO sales have increased substantially. Pellerin also blames ARMs for the increase and buyers not setting up escrows to cover taxes.
“The sky is not falling,” Pellerin says, echoing Anderson. “It’s not gloom and doom in Louisiana. It’s going to be fine. I’m no busier than I was before Katrina, but I expect some increased activity from subprime in the next five years. Louisiana is not one of the worst states for repos. We are fine.”
While easy loans are gone, Pellerin also predicts the Baton Rouge market will turn itself around.
“It may take things longer to sell, but I don’t think it’ll hurt the value,” she says of house prices. “REOs aren’t selling at bargain prices because they’re priced pretty well to the market.
“They’re good deals, but not bargain basement yet because they’re selling without us having to give them away. Investors who couldn’t buy a year ago have it to buy now.”
Accurate Valuations Group Appraiser, William D. Cobb, has operated as a home appraiser for 15 years now primarily in the Greater Baton Rouge, Louisiana market. For more information on Accurate Valuations Home Appraisal Group, visit Denham Springs Real Estate Appraisers Denham Springs Homes Realtor
The Bush administration today rolled out a plan officials said was geared at helping up to 700,000 homeowners avoid foreclosure in the next two years, but which is not intended as a bailout of mortgage lenders who are facing mounting losses on bad loans.
The plan gives the Federal Housing Administration the authority to insure loans for delinquent borrowers facing foreclosure. Administration officials said the new "FHASecure" program will allow FHA to guarantee an additional 60,000 refinance loans a year.
Because borrowers pay premiums on FHA mortgage insurance, the program is expected to pay for itself and can be implemented immediately as an administrative action.
"We will enact it today, but it will probably be Tuesday (before the program goes into effect) given the long weekend," a senior Housing and Urban Development official speaking on background told reporters in a conference call today. A plan to introduce risk-based pricing in January is also expected to allow FHA to help an additional 20,000 troubled borrowers refinance into conventional loans. All told, HUD expects to boost FHA-backed refinancings to 240,000 in the current fiscal year, compared with a projected 160,000 under previous existing programs.
HUD estimates that the introduction of risk-based pricing -- which will allow borrowers who previously would not have qualified for FHA programs to participate by paying slightly higher premiums -- will help an additional 120,000 home buyers a year obtain FHA-backed purchase loans.
While the Center for Responsible Lending has projected that more than 2 million homeowners have lost or will lose their homes to foreclosure in the next two years, the HUD official said such estimates include vacation homes and investment properties purchased by speculators using subprime loans.
"We think ultimately there may be 600,000 to 700,000 people we can assist through this program over a two-year period," the HUD official said. "Unfortunately, there will be some families we will be unable to help."
The FHASecure program will be geared toward borrowers who have become delinquent on their adjustable-rate mortgages because of interest-rate resets. It will be available only to those who meet FHA's underwriting guidelines, which currently includes a requirement that borrowers have at least a 3 percent equity stake in their homes. The program will insure loans only for borrowers who had a good payment history for six months prior to the interest-rate reset that caused their delinquency.
Borrowers seeking to refinance under FHASecure must obtain a new appraisal and be able to demonstrate they can repay the loan. But there is no minimum FICO score, and outstanding late payments can be refinanced into the new loan as long as the 3 percent equity requirement is maintained.
The plan rolled out by the Bush administration also calls for the Treasury and Housing and Urban Development departments to identify borrowers who are in danger of defaulting, and work with private lenders and mortgage repurchasers Fannie Mae and Freddie Mac to provide new loans that could help them keep their homes.
"The government has got a role to play -- but it is limited," Bush said at a White House press conference. "A federal bailout of lenders would only encourage a recurrence of the problem. It's not the government's job to bail out speculators, or those who made the decision to buy a home they knew they could never afford. Yet there are many American homeowners who could get through this difficult time with a little flexibility from their lenders, or a little help from their government. So I strongly urge lenders to work with homeowners to adjust their mortgages."
Bush also asked Congress to change a provision of the tax code that can penalize borrowers who are able to negotiate forgiveness of part of their mortgage debt. The Internal Revenue Service currently considers cancelled mortgage debt as taxable income, which can complicate the process of working out loan modifications or holding a short sale in exchange for forgiveness of debt.
"If the bank modifies your mortgage and forgives $20,000 of your loan, the tax code treats that $20,000 as taxable income," Bush said. "When your home is losing value and your family is under financial stress, the last thing you need to do is to be hit with higher taxes."
The National Association of Realtors issued a statement welcoming the administration's actions, saying "FHA can now help many more families in jeopardy" of losing their homes.
Bush also called on Congress to pass an FHA modernization bill that would allow the administration to expand risk-based pricing, reduce down-payment requirements on loans it guarantees, and raise loan limits in high-cost states like California and New York from $363,000 to $417,000.
In a statement, Mortgage Bankers Association Chairman John Robbins said many of the proposals rolled out today "are ones for which we have long advocated, even before the recent troubles in the subprime mortgage market." Robbins said he hoped the "president's attention to turmoil in the mortgage markets … would encourage Congress to take the needed steps to reform FHA."
As he concluded his press conference, Bush disregarded the final question directed his way.
"Sir, what about the hedge funds and banks that are overexposed on the subprime market?" the president was asked. "That's a bigger problem. Have you got a plan?"
Although Bush did not delve into the subject, Federal Reserve Chairman Ben Bernanke delivered a speech on the topic today at an economic symposium in Jackson Hole, Wyo.
Bernanke gave no indication in the speech that the Fed will move to cut a key short-term interest rate at a Sept. 18 meeting.
Some economists say slashing the federal funds rate -- the rate banks charge each other for overnight loans -- would encourage borrowing. But Bernanke said that because the majority of mortgage loans are now securitized and sold to private investors in the secondary market -- rather than held in the portfolios of banks and other institutions -- short-term interest rates aren't as important to housing markets as they once were.
About 56 percent of the home mortgage market is now securitized, compared with only 10 percent in 1980 and less than 1 percent in 1970, Bernanke said.
As a result, "the availability of mortgage credit today is generally less dependent on conditions in short-term money markets, where the central bank operates most directly," Bernanke said.
While acknowledging the potential threat disruptions in the mortgage lending industry pose to the economy at large, Bernanke said that some increase in the premiums investors require to take risk is "probably a healthy development."
"In recent months we have seen a reassessment of the problems of maintaining adequate monitoring and incentives in the lending process, with investors insisting on tighter underwriting standards and some large lenders pulling back from the use of brokers and other agents," Bernanke said. "We will not return to the days in which all mortgage lending was portfolio lending, but clearly the originate-to-distribute model will be modified -- is already being modified -- to provide stronger protection for investors and better incentives for originators to underwrite prudently."
***
Send tips or a Letter to the Editor to matt@inman.com
Accurate Valuations Group Appraiser, William D. Cobb, has operated as a home appraiser for 15 years now primarily in the Greater Baton Rouge, Louisiana market. For more information on Accurate Valuations Home Appraisal Group, visit FHA Appraisers in Baton Rouge
Housing-price futures contracts expiring in August 2008 this week began trading on the Chicago Mercantile Exchange and investors appear to have taken all the recent bad real estate news to heart. Investors are expecting deep declines in many formerly hot markets with Miami expected to fall 9.4 percent, Las Vegas 9.2 percent and Los Angeles 8.4 percent by the end of the second quarter of 2008. Markets expected to fall the least are Chicago at 5.3 percent, Denver 6.6 percent and San Francisco 6.8 percent. For the overall 10-city composite index, prices are expected to fall 6.4 percent.
Investor expectations are reflected in housing-price futures and options traded on the Chicago Mercantile Exchange, which are based on a subset of the S&P/Case-Shiller U.S. National Home Price Indices. These property derivatives are traded on indices for a 10-market index and the component markets of that composite. Expectations of future price changes are implied by the percentage difference in the index value for the relevant market (most recently published on Aug. 28, 2007, for June 2007 period) and the current price of the four traded futures contracts expiring in November 2007, February 2008, May 2008 or August 2008.
Contract
June 2007Index Value (as of 8/28/07)
August 2008Contract Value(as of 8/28/07)
Implied Price Change
COMPOSITE
$ 217.07
$ 203.20
-6.4%
Miami
$ 264.89
$ 240.00
-9.4%
Las Vegas
$ 221.86
$ 201.40
-9.2%
Los Angeles
$ 262.12
-8.4%
San Diego
$ 231.37
$ 212.20
-8.3%
Washington, D.C.
$ 233.52
$ 216.40
-7.3%
New York
$ 208.52
$ 194.00
-7.0%
Boston
$ 171.30
$ 159.40
-6.9%
San Francisco
$ 209.48
$ 195.20
-6.8%
Denver
$ 138.09
$ 129.00
-6.6%
Chicago
$ 165.96
$ 157.20
-5.3%
So how do investor expectations compare to recent housing-price trends? This week, Standard & Poor's released its S&P/Case-Shiller U.S. National Home Price Index for June 2007. The composite index of 20 markets was down 3.5 percent over the 12-month period from June 2006 to June 2007. The 10-city composite was down 4.1 percent, so investor expectations of a housing price decline of 6.4 percent by the end of the second quarter of 2008 imply a significant acceleration in the rate of decline.
As always, there are large differences in housing-price trends in local markets. Of the 20 markets tracked by the indices, 15 showed price decreases and five showed price increases over the last 12-month period. Seattle was up 7.9 percent, Charlotte 6.8 percent and Portland 4.5 percent. Both Atlanta and Dallas showed a nominal increase of 1.6 percent.
Several markets were down dramatically, with Detroit off 11 percent, Tampa down 7.7 percent, San Diego off 7.3 percent and Washington, D.C., down 7 percent during the 12 months between June 2006 and June 2007.
Market
Index Value for June 2006
Index Value for June 2007
Percent Change
20 MARKET COMPOSITE
206.39
199.18
-3.5%
10 MARKET COMPOSITE
226.29
217.07
-4.1%
Seattle
177.81
191.92
7.9%
Charlotte
126.48
135.05
6.8%
Portland
177.72
185.76
4.5%
Dallas
124.52
126.53
1.6%
Atlanta
134.01
136.12
167.10
165.96
-0.7%
139.46
138.09
-1.0%
215.83
208.52
-3.4%
Cleveland
122.93
118.54
-3.6%
177.90
171.30
-3.7%
Minneapolis
170.91
164.35
-3.8%
218.12
209.48
-4.0%
273.22
262.12
278.22
264.89
-4.8%
233.75
221.86
-5.1%
Phoenix
227.42
212.52
250.99
233.52
249.60
231.37
Tampa
237.68
219.37
-7.7%
Detroit
123.12
109.57
-11.0%
The composite index and its regional sub-indices use the repeat-sales pricing technique to measure housing markets by collecting data on single-family home re-sales, capturing re-sold sale prices to form sale pairs. Price appreciation or depreciation is more accurately reflected by the change in value of the same properties over time across entire market areas rather than the more volatile median home prices published by the National Association of Realtors.
As always, it's worth remembering that the CME futures contracts are thinly traded relative to much more established contracts for commodities and foreign exchange so they reflect the collective wisdom of fewer investors. But it's one more data point for your crystal ball and not one that leads to a very optimistic conclusion about the future direction of the real estate market.
Stephen Bedikian is a partner at Real IQ Consulting, which provides real estate strategy consulting and lead analytics services. He can be reached by phone at: 310.871.3737 or by e-mail: sbedikian@realiq.com. Source is Inman News.
Accurate Valuations Group Appraiser, William D. Cobb, has operated as a home appraiser for 15 years now primarily in the Greater Baton Rouge, Louisiana market. For more information on Accurate Valuations Home Appraisal Group, visit Appraisers in Baton Rouge
Source: Ilyce R. Glink - Inman News
What’s behind today’s mortgage market crisis?With rising defaults come worried investors
As I write this, the mortgage market has had a rough few weeks — some might say the ride has been more stomach-churning than anything a big roller coaster amusement park has to dish out.
But it isn’t just the subprime lenders who are in trouble. Countrywide is the largest independent mortgage company in the country.
Here’s how the mortgage market normally works: If you want to buy a home, you shop for a mortgage at Lenders A, B and C. You decide that Lender C offers the best deal, with a good loan program, mortgage interest rate and points. And, it promises to close in six weeks or less.
So you apply for a mortgage. The mortgage company takes your application, cashes your application check and sends out an appraiser to make sure the property is worth at least what you’re paying for it.
Provided everything checks out and you have enough cash for the closing, you close on the property. The mortgage company turns around and resells your loan to a variety of investors on what is commonly known as the secondary mortgage market.
Fannie Mae and Freddie Mac are the big players on the secondary mortgage market, and they buy loans that are for $417,000 or less, also known as conforming loans.
They pay the mortgage company the amount of the mortgage plus another fee on top of that and then turn around and package maybe 5,000 or 10,000 of these loans together and resell them to other investors who are looking for a stable investment with a steady rate of return. That’s what U.S. mortgages are supposed to have — a rock steady rate of return with just a tiny percentage of loans being paid late or going into foreclosure.
What happens when no one wants to buy your mortgage?
The whole mortgage market freezes up. If investors won’t buy packaged loans from Fannie Mae and Freddie Mac, they don’t have cash to buy loans from lenders. Then, lenders won’t have cash to give you a mortgage to buy your house.
And then what happens? The entire housing market grinds to a halt.
Admittedly, we’re not seeing everything slow down and there are plenty of mortgage companies that have enough cash on hand and can afford to keep mortgages in their own portfolios until the liquidity crisis eases up.
But you can really see who doesn’t want to play by checking out the loan offerings at Bankrate.com.
A recent check of mortgage pricing discovered that if the average rate is 6.25 percent for a 30-year fixed-rate mortgage, Bank of America is offering just over 7 percent and Countrywide is at 7.1 percent. That’s one way to discourage business.
But in some ways, borrowers looking for jumbo loans (amounts over $417,000) have it worse. Even if you have good credit, there are very few investors willing to buy jumbo mortgages at the moment, so interest rates have jumped up to anywhere from 8 to 13 percent.
Right now the stock market is having an adverse reaction to the credit crunch. Home buyers and sellers are nervous. While the liquidity crisis (which experts have said would never come to the U.S. residential market) came on very quickly, it could take months to unravel and calm the home-buying waters.
To get even more valuable advice from Ilyce, visit her Personal Finance and Real Estate Center.
Source: Livingston Parish News Online
Editorial: No cause for panic in housing market
Everyone in the U.S. is watching home sales this year as a barometer of the overall health of the economy. Much of the year’s stock market gains were erased in a two-week span this month when the news of rising mortgage defaults in an environment of slowing home sales set off a near panic that circled the globe. The Federal Reserve finally stepped in and lowered interest rates to head off the possibility of a credit crunch that might lead to across-the-board economic woes.
Yet the Commerce Department reported Friday that new-home sales unexpectedly rose 2.8 percent in July, after falling 4 percent in June. Despite that increase, sales are down a significant 10.2 percent from a year ago. This is, however, an overall national statistic and does not necessarily reflect the uniqueness of each region. Broken down regionally, the July improvement is seen to originate mostly in the West, where sales went up by 22.4 percent. In the South, sales were up 0.6 percent. Meanwhile, the Northeast saw a 24.3 percent downturn, while sales were down 0.9 percent in the Midwest.
Because of lagging sales, home prices have been flat or dropping, but not by dramatic amounts. While buyers are more cautious and resistant to high prices and credit is tighter, sellers are also willing to hold on and leave their houses on the market longer if that’s what it takes. The median price of a new home in the U.S. was $239,500 in July, up from $238,100 in July a year ago, while the average home price dropped to $300,800 in July, down from $311,300 for the same month last year. The fact that the average is down while the median is up indicates that despite the market swoon, more buyers are purchasing more expensive properties - possibly because they see opportunity in a softer market.
One thing that continues to insulate our area from some of the problems experienced elsewhere is the relatively inexpensive real estate in this region. That may sound like an odd statement during this boom economy, but the fact is the average home sale price in Denham Springs in July was $175,000 and that’s well below average and median in most places in the country.
The first filing for Carriage Wood Estates, a 122-lot subdivision off Vignes Road, has hit the market. Christopher Gendusa, one of the developers, says lots will sell for between $75,000 and $100,000. Although the lots in Carriage Wood are all the same size, the pricing depends on if the land is on the water. Gendusa and his GM Investments purchased the Carriage Wood land earlier this month for $1.5 million. --Timothy Boone
E Federal Credit Union paid $850,000 for a 2.8-acre tract in Zachary, along La. Highway 64 and plans to build its 10th branch there. The credit union, which will be next to the new Zachary library branch, is set to open early next year. Ken Bordelon, the credit union's chief executive officer, said in a statement E Federal wanted to move into the "booming and dynamic Zachary area." E Federal, which is the state's sixth largest credit union, is set to open a branch on Market Street, near Coursey Boulevard in Baton Rouge, before the year’s end.
The Wall Street Journal says that hotel construction is booming once again after several slow years. Private spending on hotel building is running 65% ahead of last year, according to U.S. Census figures. The newspaper says most of the activity is happening in the Southeast, because of resort locations in places such as Florida, the Carolinas, Virginia and Georgia. The sectors seeing the most activity are the midscale hotels that don't have restaurants and bars, such as Holiday Inn Express and Hampton Inn, and upscale brands, such as Courtyard by Marriott and Hilton Garden Inn.
One of the factors that's getting upscale hotels built is adding condos to the mix. Developers say that rising construction and land costs, plus the price tag of offering amenities such as twice-a-day-maid service, have forced them to look for new ways of covering the cost of a project. Lodging Econometrics, a consulting firm in Portsmouth, N.H., estimates 95% of the luxury hotels and resorts in development are part of larger real estate projects (such as the Hilton Garden that will be in Perkins Rowe). Read the story on hotel residences here.
The Brunswick building at 240 Laurel St., near Third Street in downtown Baton Rouge, sold last week for $810,000. It consists of approximately 8,000 square feet and was fully occupied at the time of the sale. The purchaser plans to keep the office building as an investment, and was satisfied with the return it was generating. The building had no parking, and the sale price calculates to just over $100 per square foot. According to Snappy Jacobs, who represented the purchaser, the activity in the downtown area has brought additional interest, and the new owner wanted to capitalize on this. Brad Wray of NAI/Latter & Blum Realtors, represented the Brunswick building as owner/agent. Way bought the building in February 2005 for about $500,000, converted the second floor space to office use and leased it.
(Appraiser Tom Cook owns Cook Moore and Associates. Reach him at 293-7006 or TCook@cookmoore.com.)
Bank won't occupy new office space: Wells Fargo Bank's plans to lease 60,000 square feet of space in Perkins Rowe have fallen through after the company announced it was shutting down its nonprime wholesale lending business. A bank spokesman says the company will not lease office space at the intersection of Perkins Road and Bluebonnet Boulevard. Wells Fargo, which will close its Essen Lane office in about two months, was set to be the main office tenant in Perkins Rowe. Dali Place gets new owners: The Dali Place apartments, a 128-unit complex on Ardenwood Drive, have been sold to a California real estate investor for $4.8 million. Bruce Wood purchased Dali Place in a deal that closed last week, according to court documents. In with the new and out with the old: The Business Investment Group has sold its old office on Bluebonnet Boulevard for nearly $943,000. Hays and Breard Enterprises bought the nearly 5,000-square-foot office building in a deal that closed Wednesday, according to court records. Plans are to put an Ameriprise Financial office in the space. BIG recently moved into a new 6,000-square-foot office near the Bluebonnet-Jefferson Highway intersection.
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