Real Estate: December 2007

Friday, December 14, 2007

SoCal's Villas at Tustin sell

The Villas at Tustin Apartments in Tustin, Calif., recently sold to an out-of-state investor for a price of $74.3 million.

Chicago-based Waterton Associates purchased the 406-unit property from San Mateo, Calif.-based Acacia Capital Corp. Built in 1971, this property is just minutes from the 806-acre Platinum Triangle redevelopment area, which is entitled for 7 million square feet of office and retail and is expected to bring 26,000 new jobs to the submarket, according to a press statement.

The buyer plans "interior renovation" and "exterior upgrades" in an attempt to increase its operating income. Joe Leon of Hendricks & Partners, the brokerage that handled the deal, said in a statement, "Washer and dryer appliances, alone, could add as much as $75 per unit per month in new net operating income and the buyer plans to incorporate this amenity into their finished product over the next couple of years."

The sales price represents a price of $183,004 per unit.

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source: columbusrealtors.com

Commercial, multifamily mortgage debt grows to new high

The level of commercial/multifamily mortgage debt outstanding grew by 2.8 percent in the third quarter, exceeding $3.2 trillion, which is a record, according to the Mortgage Bankers Association analysis of the Federal Reserve Board Flow of Funds data.

The $3.22 trillion in commercial/multifamily mortgage debt outstanding recorded by the Federal Reserve was an increase of $87.7 billion from the second quarter 2007, MBA reported. Multifamily mortgage debt outstanding grew to $813 billion, an increase of $23.5 billion, or 3 percent, from the second quarter.

"The third quarter included the periods immediately before and immediately after the dramatic adjustments in the capital markets," Jamie Woodwell, MBA's senior director of commercial/multifamily research, said in a statement. "As a result, commercial/multifamily mortgage debt outstanding grew to a new record -- $3.2 trillion -- but the quarter-over-quarter change in mortgage debt outstanding fell from $107 billion last quarter to $87.7 billion this quarter. Even with the drop, the $87.7 billion increase in Q3 still marked the fourth-largest increase on record."

The Federal Reserve Flow of Funds data summarizes the holding of loans or, if the loans are securitized, the form of the security. For example, many life insurance companies invest both in whole loans for which they hold the mortgage note (and which appear in this data under life insurance companies) and in commercial mortgage-backed securities (CMBS), collateralized debt obligations (CDOs) and other asset-backed securities (ABS) for which the security issuers and trustees hold the note (and which appear here under CMBS, CDO and other ABS issuers).

Commercial banks continue to hold the largest share of commercial/multifamily mortgages, $1.35 trillion, or 42 percent of the total. Many of the commercial mortgage loans reported by commercial banks, however, are actually "commercial and industrial" loans to which a piece of commercial property has been pledged as collateral. It is the borrower's business income -- not the income derived from the property's rents and leases -- that drives the underwriting, pricing and performance of these loans. A recent MBA Research PolicyNote found that among the top 10 commercial real estate bank lenders, 48 percent of their aggregate balance of commercial (nonmultifamily) real estate loans were related to owner-occupied properties.

Since the other loans reported here are generally income property loans, meaning that the income primarily comes from rents, the commercial bank numbers are not comparable.

CMBS, CDO and other ABS issues are the second-largest holders of commercial/multifamily mortgages, holding $760 billion, or 24 percent of the total. Life insurance companies hold $293 billion, or 9 percent of the total, and savings institutions hold $212 billion, or 7 percent of the total. Government-sponsored enterprises (GSEs) and Agency- and GSE- backed mortgage pools, including Fannie Mae, Freddie Mac and Ginnie Mae, hold $146 billion in multifamily loans that support the mortgage-backed securities they issue and an additional $126 billion "whole" loans in their own portfolios, for a total share of 8 percent of outstanding commercial/multifamily mortgages.

Looking just at multifamily mortgages, the GSEs and Ginnie Mae hold the largest share of multifamily mortgages, with $146 billion in federally related mortgage pools and $126 billion in their own portfolios -- 34 percent of the total multifamily debt outstanding. They are followed by commercial banks with $163 billion, or 20 percent of the total; CMBS, CDO and other ABS issuers with $123 billion, or 15 percent of the total; savings institutions with $95 billion, or 12 percent of the total; state and local governments with $65 billion, or 8 percent of the total; and life insurance companies with $47 billion, or 6 percent of the total.

In the third quarter of 2007, CMBS, CDO and other ABS issues saw the largest increase in dollar terms in their holdings of commercial/multifamily mortgage debt -- an increase of $50 billion, or 7 percent, which represents 57 percent of the total $88 billion increase. Commercial banks increased their holdings of commercial/multifamily mortgages by $9 billion, or 0.7 percent -- representing 10.5 percent of the net increase in commercial/multifamily mortgage debt outstanding.

In percentage terms, finance companies saw the biggest increase in their holdings of commercial/multifamily mortgages -- a jump of 7.5 percent, while state and local government retirement funds saw their holdings decrease by 2 percent.

The $23.5 billion increase in multifamily mortgage debt outstanding between second-quarter 2007 and third-quarter 2007 represents a 3 percent increase. In dollar terms, CMBS, CDO and other ABS issuers saw the largest increase in their holdings of multifamily mortgage debt -- an increase of $7 billion, or 6 percent, which represents 29.4 percent of the total increase. Government-sponsored enterprises increased their holdings of multifamily mortgage debt by $6.8 billion, or 5.7 percent. Agency- and GSE-backed mortgage pool holdings increased by $4.6 billion, or 3.2 percent.

In percentage terms, CMBS, CDO and other ABS issues recorded the biggest increase in their holdings of multifamily mortgages, up 6 percent, while REITs saw the biggest drop, down 6.9 percent.

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source: columbusrealtors.com

Tailor open house to market conditions

People attend Sunday open houses for all sorts of reasons. There are curiosity seekers; neighbors might stop by to see a house if it hasn't been on the market in years; and some come in search of decorating ideas or to check out prices in the neighborhood. In other words, most people who walk through an open house aren't really buyers.

This fact infuriates some sellers who feel that public open houses are a waste of time for everyone except perhaps the agent holding the house open who might pick up a client. However, in an area where listings are in high demand, public open houses can be an effective way to drum up buyer interest.

When there aren't enough homes for sale to satisfy the need, buyers gravitate to the limited supply that is available. An active open house can create a sense of urgency. This is particularly the case when a listing is new on the market in a sought-after neighborhood.

During the hot seller's market of a couple of years ago, public open houses were a useful marketing tool. In some cases, listing agents held off letting any buyers preview the home until the first public open house, thereby forcing buyers to attend the grand opening en masse.

In most markets around the country, these frothy days are over. Some markets that didn't heat up a couple of years ago are doing well now, like Raleigh, Austin and Salt Lake City. But, generally, the market has softened in most markets that were previously hot.

Even in a soft market, some buyers find the house they buy at a public opening. However, a sale is much less likely to occur this way. In a soft market, buyers are more reticent, as there is less impulse buying than there is when prices are increasing.

In a slow market, there are fewer buyers and it takes longer for listings to sell. Buyers usually have more to choose from. A listing that's held open often in a market like this can send the wrong message. It can telegraph a sense of desperation. Or, it may indicate that the price is high, or that there is something wrong with the property.

HOME SELLER TIP: A strategic use of open houses is recommended in a buyer's market. You might have your home open when it's new on the market, and periodically during the marketing period so that the prospective buyers and their agents are aware that you are still actively searching for a buyer. But, it's generally not a good idea to have your home open every weekend. You might overexpose it to the market.

It's not absolutely necessary to have a public open house to sell your home. The Internet has made it possible for buyers to preview listings without even getting into their car. A good Internet presence for your listing on well-attended Web sites like www.realtor.com, which includes quality photos of the property, is critical. Eighty percent of today's home buyers use the Internet to find a home. When buyers see a listing they like, they request a showing.

There's another aspect of public open houses to consider. If there are a lot of listings on the market, an open house can give buyers an easy opportunity to run through the house and cross it off their list.

THE CLOSING: The most productive showings are the ones where the buyers are accompanied by their agent who can help them work through any objections they might have to the property.

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source: boston.com

House bill targeting payments to brokers unenforceable

YSP abuse, as explained in my first column, arises when mortgage brokers steer borrowers into high-rate loans on which the broker collects a rebate from the lender, without the knowledge of the borrower. To eliminate it, I suggested a simple and easily enforceable rule that would help the naive as well as the informed borrower. The rule is that lenders must credit all rebates to borrowers. The borrowers would then have to authorize the payment to brokers.

One of the important objectives of The Mortgage Reform and Anti-Predatory Lending Act of 2007 (HR 3915), which passed the House of Representatives Nov. 15, is to prevent YSP abuse. Will it?

The first version of the bill that I looked at would indeed have prevented YSP abuse, but it also would have eliminated mortgage brokers. The version passed by the House, modified after inputs were received from brokers, would not put them out of business, but neither would it prevent YSP abuse. Section 123b1 reads as follows:

AMOUNT OF ORIGINATOR COMPENSATION CANNOT VARY BASED ON TERMS - No mortgage originator may receive from any person, and no person may pay to any mortgage originator, directly or indirectly, any incentive compensation, including yield spread premium or any equivalent compensation or gain, that is based on, or varies with, the terms (other than the amount of principal) of any loan that is not a qualified mortgage. ?

Let's start with the clearest part of this statement, which is the last phrase. Whatever restrictions are called for, they will not apply to qualified mortgages. A qualified mortgage, as defined elsewhere in the bill, is one with an interest rate that is no more than 3 percent above the comparable Treasury rate, or 1.75 percent above the average conventional rate.

This indicates that the framers of the bill believe that YSP abuse is a problem only for the highest-rate loans, which is absurd. The problem cuts across the entire market. Indeed, high-rate and high-cost are not the same thing -- a loan with a rate only 2 percent above the average could be loaded with superfluous fees and charges.

Will the restriction on incentive payments at least eliminate YSP abuse on the high-rate loans to which it applies? The bill says that originators (which include loan officers employed by lenders as well as mortgage brokers) cannot be paid more on high-rate loans than on low-rate loans. Since YSP abuse is exactly that, this provision is right on target. It defines YSP abuse accurately, and declares it to be illegal.

Unfortunately, this provision is unenforceable. The standard for determining whether compensation on a high-rate loan is excessive is the compensation received on a low-rate loan, which is unknown and in many cases unknowable. Originators collecting YSP on high-rate loans don't report what they would have charged on low-rate loans.

To enforce this rule, regulators would have to do a statistical analysis of the originator's charges on different loans so as to determine whether or not compensation is higher when a loan involves YSP. This is not feasible because there are too many originators and not nearly enough regulators. Even if it were feasible, it won't work for brokers who get paid only from YSP, which is very common, and it won't work for loan officers employed by lenders who originate at their own risk, for whom there is no YSP.

Indeed, the only originators who would leave a trail for the enforcement police would be the brokers who give their customers the choice of whether they want to pay the broker out of pocket or have the broker paid with YSP. Because these brokers offer borrowers a choice, fees will be shown with and without YSP, allowing a statistical analysis of whether there are any differences. There won't be, because these are the good guys. The bad guys will be beyond reach.

In contrast, a rule requiring lenders to credit rebates on high-rate loans to borrowers, who would have to explicitly authorize its payment to the brokers, would impact all brokers alike, and impose no onerous enforcement burden on regulators. Indeed, because wholesale lenders would welcome such a rule, there would be no regulatory burden at all. Poof, YSP abuse would disappear overnight. To level the playing field between lenders and brokers, a comparable rule is needed that would prohibit loan officers from charging prices above those posted by the lender.

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source: boston.com

Realtors paint rosier sales picture

WASHINGTON - Bucking conventional wisdom, a trade group for real estate agents yesterday said the battered housing market is on the verge of stabilizing and inched-up its outlook for 2007 and 2008 home sales.

The revised monthly forecast from the National Association of Realtors, which followed nine straight months of downward revisions, calls for US existing home sales to fall 12.5 percent this year to 5.67 million - the lowest level since 2002. Last month, the association predicted 5.66 million existing homes would be sold this year, down from 6.48 million last year.

The Realtors' group also forecast sales will rise slightly in 2008 to 5.7 million, up from last month's prediction of 5.69 million.

Numerous other economists are far less optimistic than the trade group. They predict weak sales and falling prices through next year and beyond and emphasize that those problems could worsen.

Patrick Newport, an economist at Global Insight, forecasts that home sales will drop from 5.66 million this year to 4.7 million in 2008 - 1 million fewer home sales than the real estate group's forecast.

"With the economy and job growth slowing . . . it is hard to believe that we have hit bottom," Newport said in a note to clients yesterday. "Our view is that prices need to drop further, and that housing activity will hit bottom about the middle of 2008."

Joel Naroff, chief economist for Commerce Bank, said the United States is 12 to 18 months away from a "normal housing market" in which sales are growing and prices are rising or stable. Furthermore, he said the trade group's 0.2 percent revision to its sales forecast should be taken with a grain of salt.

Nevertheless, the Realtors group's chief economist, Lawrence Yun, gave a positive outlook for job growth and the replacement of subprime lenders to borrowers with weak credit with government-backed loans as reasons for the improved outlook.

"Despite over-exaggerated negative coverage on the housing conditions, many local markets are actually seeing price increases," Yun said at a press briefing. "Mortgage availability is improving."

While Yun acknowledged that housing prices soared relative to buyers' availability to afford homes in places like Miami and San Diego, he said housing "remains affordable in vast parts of the country" - particularly in the Midwest.

The trade group also said its index that forecasts near-term home sales inched upward in October. The trade group's seasonally adjusted index of pending sales for existing homes rose 0.6 percent to 87.2 from an upwardly revised September index of 86.7, but was down 18.4 percent from a year ago - the third-largest year-over year decline on record.

The Realtors group also forecast the median price for US existing homes - the point at which half sold for more and half for less - will sink by 1.9 percent to $217,600 this year and rise 0.3 percent next year to $218,300.

If median prices fall this year, it will be the first time in the nearly 40 years that the trade group has tracked that data.

Other ways to measure national housing prices, such as the S&P/Case-Shiller index, have already shown price declines.

In addition, a government index of national home prices marked a quarterly decline for the first time in 13 years in the third quarter. Home prices dipped 0.4 percent nationwide in the July-September period, compared with the previous quarter, the Office of Federal Housing Enterprise Oversight said last month.

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source: boston.com

Friday, December 14, 2007

SoCal's Villas at Tustin sell

Commercial, multifamily mortgage debt grows to new high

Tailor open house to market conditions

House bill targeting payments to brokers unenforceable

Realtors paint rosier sales picture

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