Housing Recovery Plan Called Into Question

By Jacqueline Hlavenka

Reprints

News Tip?

Get Alerts

Disable this ad

Sign Up for the New York AM Alert

Join the thousands of real estate professionals that subscribe to the New York AM Alert. Each and every morning, we deliver the important stories, data, analysis…as well as the opinions and insights of industry thought leaders to provide you with market intelligence and a daily business advantage.

Become a registered member today and don’t miss another important story in the New York market. Let GlobeSt.com be your source for everything real estate.

Close [X]

About this Ad

At GlobeSt.com, we are passionate about bringing you the best possible user experience. We listened to your feedback and now offer the ability to access information on GlobeSt.com without interruptions! Supercharge your viewing experience by disabling these ads.

Sign Up Today

The CRE industry is mixed
over the President's new
plan.

NEW YORK CITY-Just one short week ago, President Barack Obama called for “no more red tape” and “no more runaround” from the banks, offering homeowners the chance to save about $3,000 a year on their mortgages by refinancing at historically low rates. But with mortgage origination and home prices nearing bottom, the commercial real estate industry is divided over whether the President’s plan and new Financial Fraud Task Force will help—or hurt—the already troubled housing market.
“To get into these massive banking crises and massive recessions, the typical answer is to re-inflate the economy, which is what they are doing, and there’s noting wrong with that until a point,” says Joel Ross, president of New York City-based Citadel Realty Advisors and GlobeSt.com blogger. “At some point, you lose control of it potentially. If you keep re-inflating and re-inflating for too long, it feeds on itself.”
As the average rate for a 30-year fixed-rate loan continues to dip below 4%, home affordability is high, but the ability to obtain or refinance a mortgage remains tight. According to a Mortgage Bankers Association survey for the week ending Jan. 20, mortgage applications decreased by 5%, a sharp dip from a 4.5% uptick directly after the holidays. The survey—which covers over 75% of all US retail mortgage banking applications—shows for the second consecutive time, mortgage applications declined again by 2.9%.
We Also Recommend:

With interest rates near zero, many are concerned that the US Treasury Department’s third expansion of its Home Affordable Modification Program could create further stagnation, since many homeowners cannot qualify for loans to begin with.
“It is one more in a whole series of attacks on the banks and re-hashing what has already been hashed,” Ross says. “In doing this billion settlement, or at least they are trying to do it, this is one more way the government can attack the banks, fine the banks and squeeze the banks. The more they do this, the less banks are going to make mortgages. If you are a bank and you have Cordray coming after you and now this fraud task force coming after you, why would you make another mortgage?”
Ross adds that the remaining defaulted mortgages in the market need to be sold, worked out and modified by the private sector and out of Fannie Mae and Freddie Mac. On Monday, the taxpayer owned mortgage giant came under fire after an NPR/ProPublica investigation alleged that the agency utilized a mortgage financing vehicle that prevented homeowners from refinancing by keeping American homeowners trapped in high-cost mortgages with interest rates well above 4%.
On Tuesday, the Federal Housing Finance Agency—the board that regulates Fannie and Freddie—responded in a statement that the organizations have historically used the structuring of collateralized mortgage obligations as a tool to manage its retained portfolio.
But even with continued low interest rates from the Fed, home pricing has taken another tumble across the country. The latest S&P Case-Shiller indices show home prices for 20 cities fell by 1.3%, a 3.7% decline from November 2010—a slide back to mid-2003 levels.
As a result, home prices are now lower than they were a year ago, notes David M. Blizter, chairman of the index committee at S&P Indices. The only positive for the month was Phoenix, one of the hardest hit real estate markets in recent years, showing 0.6% in gains. But cities like Atlanta continue to illustrate relative weakness, down 2.5% over the month, after having fallen by 5% in October, 5.9% in September and 2.4% in August. In addition, Las Vegas, Seattle and Tampa all reached new lows.
“The trend is down and there are few, if any, signs in the numbers that a turning point is close at hand,” he says, in the report.
In response to the latest S&P data, Richard K. Green, director of the USC Lusk Center for Real Estate, tells GlobeSt.com that it is difficult to interpret house prices right now due to large numbers of investor sales, particularly in hard-hit states like California, Arizona and Florida.
“What happens is investors buy with cash, and sellers are willing to sell at a discount to buyers with cash because they don’t have to worry about waiting about whether the mortgage is going to come through,” Green says. “We are seeing a lot of contracts canceled because people apply for mortgages and don’t get them. To some extent, the price pressure downward is a function of the fact that we have an unnaturally large amount of cash-financed sales at the moment.”
Since home price trends have been deflated by inflation, in turn, apartment rents have risen. But Green says if this trend continues, potential buyers may gradually go back to single-family from multifamily based on deals in the marketplace. “Affordability is remarkably strong because interest rates are so low and rents are rising, which means rental housing is becoming less attractive relative to owner housing,” he says. “You throw that together and you think there has to be a recovery somewhere out there sometime soon.”
Others are also optimistic. Michael Slattery, senior vice president of the Real Estate Board of New York, an industry group representing the rental and sales market throughout the city’s five boroughs, tells GlobeSt.com that lower mortgage rates are “certainly enticements” to people who want to buy, but extra due diligence is required.
“Since the Great Recession, the standards for qualification have become much more stringent,” Slattery says. “Although you can get a good deal, the qualifications that you need to meet make it that much more difficult to satisfy the requirements. It’s been a mixed blessing. It’s been attractive and a help, but it has become much more difficult to find financing based on the requirements that are needed.”
David DeRosa, managing member of Farmingdale, NY-based Island Properties & Associates, believes that the money now being lended out will be stronger -- and the additional oversight will prevent another crisis.
“It stops the conglomerates – the larger banks – that made so much money from selling these mortgage-backed securities to each other," he says. "That’s where they got themselves in trouble. They were constantly making billions of dollars on paper and then all of a sudden, this paper wasn't worth anything. It forces that kind of oversight.”
Both the National Apartment Association and its sister organization, the National Multi-Housing Council, declined to comment for this story.

Categories: Northeast, Mid-Atlantic, Multifamily, Residential, New York

GLOBEST.COM B2B FEATURED SERVICE PROVIDERSAdd your company


Apartment Bank	Coldwell Banker Commercial	Green Courte Partners	Lone Oak Fund

Comments+ Add your comment

Posted by charlescecil

It is unfortunate that the focus seems stuck on lowering mortgage interest rates. While not harmful, it does nothing for the real problem, which is that, for the most part, owners and buyers lack the cash required to refinance or acquire a home (SFH or Condo) under the current lender requirements (down payment and cash reserves). Add that to the phantom equity in the housing stock, and we are stuck. We need a bold solution for the latter, and I would perhaps a Federal bond issuance to fund the capital losses lenders will incur when they write-down principal on their loans, or a special tax break with a short term window that would achieve the same end result for the lenders. Yes, there is the potential for moral hazard, but I would observe that at this point, we should accept moral hazard, and get on with it.

February 01, 2012 at 02:15 PM EDT #

Post your comment

You must be registered to post a comment. Click here to register.

Log in

If you have already registered to GlobeSt.com, please use the form below to login. When completed you will immeditely be directed to post a comment.

LOCATE A SERVICE

Most Popular Searches

Apartment Bank	Architects
Avant Capital Partners	Building Services
Coldwell Banker Commercial	Consultants
Developers	Financial Services
Full Service	Green Courte Partners, LLC
Law Firms	Leasing Brokers
Lone Oak Fund, LLC	Mortgage Bankers
REO/Special Servicers	Silo Financial Corp.
Silver Arch Capital Partners, LLC

Featured Advertisers

User's Choice

Most Popular

C-III Closes on NAI Global Acquisition

NEW YORK CITY-The completed deal follows several other C-III acquisitions and marks ‘a significant step forward’ in creating a fully diversified CRE services company, says CEO Andrew Farkas.

Property Alert

Post Your Property

The Marketplace Advertise Here

MEMBER LOGIN (Register Now)

Wednesday 1 February 2012