Tight Credit Woes

Story first appeared in USATODAY.


Adele and Josue Montoya missed the housing bubble and bust.

Still, the first-time home shoppers are in a situation not unlike that faced by millions of Americans in the years preceding the start of the housing collapse in 2006.

Then, as now, home prices were rising rapidly in the Sacramento area where they live. Investors chasing fat profits on rising prices were a big part of the U.S. housing market, just as they are now. Buyers, such as the Montoyas, thought prices would go up further.

One thing is very different: It's far harder to get a home loan.

To pre-qualify for a home loan, the Montoyas had to submit reams of documents to show that they could actually afford it. That often didn't happen in the loose-lending days leading up to the housing bust, which helped drive Lehman Bros. into bankruptcy five years ago.

What's more, new lending rules have been put in place to guard against the worst lending abuses that fueled the housing bubble, the mortgage industry says. But critics say the rules aren't shaping up to be tough enough.

"We've created this false sense that we've made mortgages low risk," says Edward Pinto, resident fellow at the American Enterprise Institute. "But as time goes on and the push for looser lending occurs ... the same thing could happen again."

In the housing bubble from 2000 to 2006, U.S. home prices rose by an inflation-adjusted 76%, based on Case-Shiller data. The bubble was fed by low interest rates, easy credit, scant regulation, toxic mortgages and, some economists argue, a false belief that home prices couldn't fall.

Trillions of dollars in risky mortgages became embedded in the U.S. financial system as the loans were packaged, turned into securities and sold to investors. Lehman bet on rising property prices, too.

The change in lending standards since the bust is hard to miss.

In 2006, 16% of new home loans were subprime, meaning they went to borrowers with credit scores below 620. Last year, just 0.2% of new home loans were subprime, according to mortgage tracker Lender Processing Services.

By 2006, loans issued with little or no documentation of borrowers' finances made up more than one in four mortgages, says the Center for Responsible Lending. As the recession hit, and home prices tanked, many of those borrowers found they couldn't afford their home loans anymore. All told, an estimated 7 million homes have been lost to foreclosure or short sale in the housing bust, says market researcher RealtyTrac.

The change isn't a bad thing, says Adele Montoya, 38. She works as an office supervisor. Her husband works as a produce supervisor in a grocery chain. The couple wants to know they can afford whatever loan they get.

"I don't want any surprises down the road," she says.

Signs of easing

Lending standards "remain tight" but have eased slightly in recent quarters, says Jonathan Corr, CEO of mortgage tracker Ellie Mae.

In August, the average FICO score for a closed home loan was 734, down from 748 for all of last year, show data to be released next week by Ellie Mae. The top FICO score is 850. The average down payment was 18%, vs. 21% last year.

Corr says lenders appear to be easing standards, given rising home prices and higher interest rates, which cut into refinance volumes, leaving lenders to look for more business from home purchases.

Rising home prices also reduce the risk of loan defaults. After falling more than 30% from their 2006 peak, U.S. home prices were up 12.1% in June over 12 months, Case-Shiller says. They're still about 23% off their 2006 peak.

As the bust recedes, look for further easing in mortgage lending as the housing industry tries to drum up business, says Anthony Sanders, real estate finance professor at George Mason University.

"There's a lot of money in weak credit standards," he says.

Reducing lending risks

There are some new safeguards, however.

"We are in an entirely different universe than the unregulated period" before the bubble, says David Stevens, CEO of the Mortgage Bankers Association.

One big change is that, starting in January, lenders must make home loans that meet new federal qualified mortgage standards or face greater liability from borrower lawsuits, should the loans go sour.

Some of the risky loans that fed the housing bubble are outside the new standards. Those include interest-only loans and loans that push borrowers' debt above 43% of their income.

Lenders could still make those loans. But borrowers could sue to recoup losses or stop foreclosures if they went into default.

The standards put a "set of documented rules" around what lenders are doing today, Corr says.

If loans are resold to investors, thereby shifting risk, other rules will come into play.Those are still being developed by six federal agencies, including the Federal Reserve and the Securities and Exchange Commission.

The current proposal is for those loans to meet the same standards dictated by the qualified mortgage rule.

In 2011, regulators had proposed a 20% down payment for loans sold to investors, or lenders would have to retain 5% of the risk.

Last month, the 20% down payment condition was dropped amid opposition from the real estate industry and consumer groups. They argued it would hurt the housing market, including first-time buyers.

The typical American family would have to direct every penny of savings for 16 years to a housing down payment if 20% was required, said the Coalition for Sensible Housing Policy, which includes real estate, banking and consumer groups. They also argue that low-down-payment loans work as long as lenders make sure consumers can afford their loans.

Sanders says higher down payments guard against mortgage defaults. Even before the new rule gets out the door, "it's being weakened," he says.

Echos of past bubbles

Loose lending standards weren't the only factor driving the bubble.

An even bigger factor may have been the widespread expectation that home prices would only go up, says Harvard economics professor Edward Glaeser.

The same optimism has long fueled real estate bubbles in America, including the frontier land boom of the 1790s, the Alabama land boom in 1820, the skyscraper craze of the 1920s and the Southern California housing boom in the 1990s, he says.

"It's the same American instinct to gamble on land," Glaeser says, noting that even George Washington was a big land speculator.

What's more, the U.S. tax code still encourages home ownership through the mortgage interest deduction, Glaeser notes.The government also now backs more home loans than ever, about 85% of new loans through Freddie Mac, Fannie Mae and the Federal Housing Administration. While reducing the government's role in the home loan business is being discussed, reforms are likely years away.

The biggest impediment to another housing bubble might be that "a whole generation of buyers have seen that housing can go down," says Discover Home Loans economist Cameron Findlay.

The U.S. homeownership rate has fallen from a record high of 69.2% in 2004 to 65% and could drop to 63.5%, he says.

Even the Montoyas have decided to hold off on buying in the frenzied Sacramento market, where prices were up almost 27% in July year-over-year. They expect new home construction to add to the supply of homes for sale, increasing their chances.

"We're just going to wait," Adele Montoya says.

Mortgage Lender Layoffs

Story first appeared in the Detroit Free Press.


After four years of rapid growth and expansion, mortgage lender Michigan Mutual laid off nearly a fifth of its workforce last week as the mortgage industry as a whole adjusts to rising interest rates and a slowdown in the once-booming refinancing business.
The majority of the 68 layoffs on Aug. 26 were at Michigan Mutual’s Southfield office and mostly involved loan underwriting and loan-processing positions, said Hale Walker, co-founder of the Port Huron-based firm. It now employs 355 workers, down from a peak of 465.
“It was heart-wrenching to have to lay off people,” he said. “This is the first time that we’ve had to do this in 20 years.”
Walker blamed the need for layoffs on several factors that industry experts say also are affecting the nationwide mortgage market, particularly rising interest rates.
Big national lenders such as Bank of America, Wells Fargo, Citicorp and Troy-based Flagstar Bank have all announced layoffs in recent weeks, citing the affect of higher rates on the refinance business.
Some of these same institutions did significant hiring in the past two years to help process the heavy inflow of applications from borrowers wishing to refinance their home mortgages at historically-low rates.
But because interest rates began to climb this spring, there has been less interest in refinancing and less work for the staff to do.
Flagstar Bank made an undisclosed number of recent layoffs due to the fall in refinance activity, President and CEO Alessandro DiNello said Wednesday.
“In a mortgage business that’s so cyclical and so dependent on rates, when production declines, you’re going to have a declining workforce as well,” DiNello said, adding that Flagstar Bank continues to hire in its home purchase mortgage lending business.
The average rate on a fixed 30-year mortgage was 4.5% last week, up from 3.4% in early May and 3.6% a year ago, according to a market survey by government-backed Freddie Mac.
Data compiled by Inside Mortgage Finance Publications show how refinance activity has been slipping. In the first quarter, refinance activity represented 76% of all mortgage originations. That fell to 67% in the second quarter and is projected to hit about 60% by the end of the current third quarter.
“Rates kept falling and falling and people were refinancing two or three times, and that trend is over,” said Paul Muolo, managing editor at Inside Mortgage Finance Publications.
To offset the lost refinancing business, many lenders are pushing to gain a bigger piece of the pie in the purchase mortgage business.
“They’re all going to try to move into this business of making mortgages for people to buy homes, but there’s only so much room on the life raft and you’re going to see more of this,” Muolo said, referring to the recent layoffs.
DiNello said that due to market conditions, Flagstar’s total mortgage origination volume for the year is on pace to be about $10 billion lower than last year’s $53 billion.
Yet his firm, one of the nation’s largest wholesale mortgage lenders, is hoping to see continued growth in its retail lending operations for people buying new homes.
“The refinance business is going to continue to decline, and then what us mortgage lenders hope is that the economy picks up at enough of a pace to make up for a good portion of that lost refinance business,” DiNello said.
“Now realistically, I don’t think the economy is going to grow fast enough to make up entirely for that lost refinance business, so what all of us are going to try to do is gain market share.”
For Michigan Mutual, another factor in last week’s layoffs was the April 1 increase in mortgage insurance premiums on new Federal Housing Administration loans. FHA loans are “a very big product for us, so the volume of that business has gone down,” said Hale Walker, who co-founded the firm in 1992 with his brother, Mark Walker.
Michigan Mutual, which changed its name from First Preferred Mortgage on Jan. 1, reported $1.8 billion in business last year, up from $1.1 billion in 2010.
Once other aspects of its lending business pick up, Michigan Mutual hopes it can rehire many of the employees who were let go.

When owners walk, 'zombie' homes become nuisance

Story originally appeared on USA Today.

A zombie-titled property is in a gray area between the homeowner and the bank that foreclosed on the home.

MELBOURNE, Fla. -- Zombies are everywhere lately, it seems. TV shows, video games, even chasing runners during special 5K races.

You might even have a zombie next door. The first sign of trouble: An unmaintained yard, growing wild amid summer heat and rain.

"Zombie" properties — homes abandoned by the owners, but still not reclaimed by banks — continue to be a problem in Brevard County, Fla., even as the worst of the foreclosure crisis has passed.

In Brevard, there were 6,920 homes somewhere in the process of foreclosure in June, according to RealtyTrac, a California-based real estate information company.

Of those, 1,903 are homes vacated by their owners, the company said.

RealtyTrac compared data of properties in default or scheduled for foreclosure auction with data from the U.S. Postal Service indicating whether a home has been vacated by the homeowner.

Florida had 55,503 owner-vacated properties in June, more than any other state.

"Florida has the twin problems of a high foreclosure rate and a very lengthy foreclosure process," said Daren Blomquist, vice president at RealtyTrac.

"That means it is more susceptible to having these zombie foreclosures, because you have a homeowner who could be in foreclosure for two or three years and decides to walk away from the situation."

Brevard, with 28% of foreclosed homes vacated, was above the national average of 20% and state average of 23%.

The problem is particularly acute in the summer when it quickly becomes obvious which homes are not being maintained.

"The rainy season is always my busy time," said Maddie Curtis, code enforcement officer for Rockledge, Fla. "My case load doubles or triples this time of year."

When the lawn grows too high, along with other signs of neglect, Curtis steps in. But with a zombie, neither party will take responsibility and the city is left to maintain and place liens on the property.

She sends e-mails to banks and homeowners, makes follow-up phone calls, and e-mails pictures of violations while she builds a case file on each property.

"I do a lot of documentation for the foreclosures," Curtis said. "The whole foreclosure-mortgage situation is an absolute mess."

The housing collapse that began several years ago left homeowners owing banks much more than their houses were worth and they just walked away from properties in foreclosure.

The exodus might have slowed, but there were 6,142 foreclosures filed in Brevard County last year and 2,587 through the first six months of this year, according to county records.

Until a bank follows through on a foreclosure and accepts title of a property, an absent and unaware homeowner remains on the title and responsible for the property, even after going through bankruptcy.

Meanwhile, a zombie-titled property can rack up thousands of dollars in liens in the homeowner's name ready to ambush the next potential owner while it threatens the health and safety of a neighborhood.

"It is an ideal breeding ground for snakes, cockroaches, mosquitoes as well as other insects and critters," said Curtis, who became Rockledge's code enforcement officer in 2009. "Generally things that can make someone's life miserable."

A zombie-titled house in north Rockledge has plagued the otherwise well-kept neighborhood for more than a year.

The homeowners, Brenda and Cleo Hillmon, were notified their house was in foreclosure in June 2011, according to Brevard County records. They left the house and filed for bankruptcy.

Since then, Curtis has had to respond to complaints from neighbors about the property for more than a year.

Last year, Curtis sent two code violation notices to the Hillmons,who still live in Brevard County, asking them to mow the lawn or the city would do it and bill them $300.

Cocoa, Fla., attorney Carole Suzanne Bess responded in writing to the city, stating that the Hillmons had filed for bankruptcy and sanctions would be sought against the city if the couple received further notifications, according to the letter on file with the city of Rockledge.

The vacant house had become a haven for an unwelcome element in the neighborhood.

"The neighbors were calling me stating that the house was being used as a crack house," Curtis said. "When the neighbors would call me up, they said whatever you do, don't go talk to them because they are bad, they're bad news."

The large volume of foreclosures in the system has created a backlog that could take a single case 18 months or more to complete, Bess said. She suggests homeowners remain in the house or rent it during the foreclosure process.

"I tell people to stay as long as they can because you are really doing your neighbors a service and helping yourself," Bess said. "If it is occupied, there is less that can go wrong."

Palm Bay has 1,911 properties in active foreclosure and 439 that are owner-vacated, according to RealtyTrac.

Brevard's largest city has a $200,000 annual budget to maintain properties that violate the code and the city has to step in.

The city will send the owner notice that they have 20 days before the city deals with the problem.

"That includes not just mowing but securing if the house's windows are broken," said William Martinez, supervisor of code compliance section for Palm Bay.

Martinez is also familiar with the zombie-title situation that creates orphaned properties.

"We have quite a few of them," Martinez said. "(Banks) are getting the judgment in court, but they are withholding applying for the certificate of title that would give them possession of the property."

Most Brevard municipalities require banks to register vacant properties in foreclosure and provide contact information.

"We require them to register with us and maintain the property," said Dan Porsi, Melbourne, Fla., code enforcement administrator. "Usually, all we have to do is call them and they have somebody out there."

But banks typically hire private companies to take on maintenance duties of these properties. That can take as long as 60 days to happen.

"Meanwhile, we have a house that is not being maintained for a couple of months," Curtis said. "Then it could take another month to get through their maintenance cycle."

Curtis sees 10 or more overgrowth cases each month and the process of finding the guardian for a property starts again.

"The homeowner has no legal rights to the house, but because they are on the title, they have all the liability for what happens to the house," Curtis said. "It's a zombie title."

Vacated homes in foreclosure

Here are the number of properties in the foreclosure process and the homes that owners have vacated:

U.S.

Foreclosed homes: 844,640

Owner-vacated homes: 167,680

Percentage: 20%

Florida

Foreclosed homes: 242,772

Owner-vacated homes: 55,503

Percentage: 23%

Brevard County, Fla.

Foreclosed homes: 6,920

Owner-vacated homes: 1,903

Percentage: 28%

Source: RealtyTrac

Owner protests as tax debt sends home into Oakland County auction

Story originally appeared on the Detroit News.

Highland Township— Leo Ortkras has lived in his home off Duck Lake for 37 years, rebuilding the dilapidated cottage he purchased on a land contract and turning it into what he calls “a nice little piece of property on the lake.”

On Monday, Ortkras’s home will go up for auction through Oakland County because he failed to pay back taxes on the property. Ortkras says that would be understandable, except he has the money to pay and the county won’t take it now that he’s missed the deadline.

“I’m going to lose my home and all the equity in the house because I owe $12,400,” said Ortkras, a concrete contractor. “It’s something I’ve worked my whole life for and they are just going to take it.”

According to state law, Oakland County Treasurer Andy Meisner is doing exactly what he must, but that has prompted some people to question whether the law needs to be changed.

Meisner says his office contacted Ortkras no less than 10 times in the past two years, even offering him a $25 a month payment plan. After paying off back taxes for 2009, Ortkras never accepted a payment plan for outstanding taxes he owed for 2010 onward, Meisner said.

Ortkras says he didn’t know about the payment plan program and that he was notified in April that he had failed to pay the taxes on his 1,186-square-foot property with an assessed value of $83,340. Three weeks ago, a sign appeared on his lawn declaring the property up for auction.

Ortkras has a history of several federal and state liens being placed against his property dating to 1997, money woes he attributes to the economy.

“I haven’t done any new construction in six years,” he said. “I used to make a lot of money doing it, but the economy’s been terrible for building.”

County treasury officials are required by law to follow through on auctioning properties to recoup unpaid taxes and fees.

For most delinquent owners, foreclosure becomes official on March 31 following three years of unpaid taxes, at which point the homeowner has no more right to the property. . To prevent situations like the one Ortkras is facing, Oakland County has offered payment plans to homeowners who know they are at risk but want to save their homes.

“I understand that there have to be deadlines, but if the deadline is April 1, you should allow the homeowner to pay up until the last minute of the auction,” said Oakland County Commissioner Bob Hoffman, R-Highland, who is working with Ortkras.

Meisner said he has been a proponent of allowing county treasurers more flexibility in the state law, but his hands are tied.

“If we think this is a genuine issue, we don’t talk to the guy whose job it is to administer the law,” he said. “We have to talk to lawmakers.”

Ortkras isn’t the only owner listed on the deed. He bought it with a woman he was living with at the time, Mary Lynne Havey, who now spends most of the year in Florida but also has a house in White Lake Township. She says she was never notified of the sale from the county and can’t believe the house would be up for auction.

“I’ve seen the commercials with Andy Meisner talking about the auctions and how you can get your dream home,” she said. “But what they don’t tell you is you get these houses on somebody else’s bad luck.”

Wayne County Treasurer Raymond Wojtowicz recently changed his office’s policy, which had allowed taxes to be paid up to the point of sale. Dearborn Heights sued the treasurer after being denied the right to purchase a foreclosed property on South Beech Daly last year, but lost a Wayne County Circuit Court ruling in the case earlier this year.

Oakland County will auction off properties in townships and villages on Monday, property in cities on Tuesday and properties specifically in Pontiac on Wednesday. According to a listing with the county, there are 1,073 properties for sale in the auction. Ortkras and Havey are prohibited from bidding on the property, which requires a minimum bid of $12,211.

In the meantime, Ortkras and Havey are working with lawyers to try to get a judge to halt the sale, but they don’t have much hope.

“I don’t want to lose my home,” said Ortkras. “It’s a very nice house and I take care of my property. I’ve just been trying to get by.”

Meisner said the county “doesn’t want anybody’s property.”

“We want to promote homeownership,” said Meisner. “Ultimately what it comes down to is if people take responsibility and follow the rules.”

Mortgage applications continue to fall

Story originally appeared on USA Today.

Mortgage applications fell for the fourth straight week as interest rates continued to tick up.

According to the Mortgage Bankers Association (MBA), mortgage applications fell 4% last week after plummeting 11.7% the week before. The Market Composite Index, a measure of mortgage loan application volume, decreased 4.0% on a seasonally adjusted basis from one week earlier. Mortgage applications are now about a third below their level from a year ago.

The decline in mortgage activity is fueled by the rise in interest rates which have reached their highest level since July 2011. The average rate for the 30-year fixed rate-mortgage increased to 4.68% from 4.58% last week. The spike in rates has driven the refinance share of mortgage applications down to 64%.

Mike Fratantoni, MBA's vice president of research and economics, said last week that refinancing applications reached their lowest level in two years. The rate remains unchanged.
According to economists at Contingent Macro Advisors, mortgage activity has fallen 43.6% over the past two months.

"Mortgage applications had been on a rising trend over the past 18 months although there has been substantial week-to-week volatility, but the trend now appears to have topped out and begun a steady retreat," according to a statement from Contingent Macro Advisors.

The adjustable-rate mortgage (ARM) share of activity decreased to 7% of total applications. Despite the rise in rates and declines in applications, the four-year average for home purchases continues to climb since it turned upward in November 2011.

London Commercial Property Deals Jump on Foreign Buyers

Story originally appeared on Bloomberg.

Investors bought more commercial real estate in central London last year than in the rest of Britain for the first time as buyers from the U.S. to Malaysia favored the U.K. capital, according to broker DTZ (UGL).

Investors purchased a record 16.1 billion pounds ($25 billion) of income-producing office buildings, stores, and warehouses in London last year, a 48 percent increase, compared with an 18 percent drop to 15.9 billion pounds in the rest of the U.K., according to DTZ.

“The surge in investment activity in central London can be linked to very strong demand for prime U.K. assets from foreign investors,” Ben Burston, head of U.K. Research at DTZ, wrote in a report today. “London offers large lot sizes and liquidity.”

Overseas investors accounted for 16 billion pounds of U.K. commercial property purchases last year, 61 percent more than in 2011. Britain is Europe’s largest property market and the second-most liquid market in Europe after Sweden, London-based DTZ said in the report.

London deals involving overseas investors last year included the 330 million-pound purchase of Devonshire Square near Liverpool Street station by Blackstone LP, the world’s largest private-equity firm. Malaysian fund Permodalan Nasional Bhd. bought the headquarters of law firm Linklaters LLP in the U.K. capital and New York-based Brookfield Office Properties Inc. (BPO) acquired a 518 million-pound portfolio of buildings from Hammerson Plc.

Liquidity Story

“Good liquidity is essential,” Hans Vrensen, global head of research at DTZ, said in a statement. “If you cannot buy into and then later sell out of a market, relative value is immaterial.

‘‘We highlight the U.K. alongside the U.S., Germany, China and Japan as especially attractive to international investors,’’ he said.

While London may be seeing the greatest benefit, buying conditions across Britain are the best since 2002, according to DTZ. Assets outside the U.K. capital are fetching lower prices, increasing returns at a time when the yield on 10-year gilts remains below 2 percent.

Real estate investors in the U.K. have been turning to insurers, pension funds and the bond markets for financing as banks are reluctant or unable to extend credit. The value of non-bank debt rose 35 percent to about 20.6 billion pounds last year, according to DTZ, a unit of Sydney-based UGL Ltd. (UGL) New bond issuance globally rose 30 percent to $92 billion.

Private-equity firms bought $273 billion of income- producing real estate globally last year and were the ‘‘main driver of global growth,’’ DTZ said in the report.

Fun plus hard work equals success for Quicken Loans

Story originally appeared on USA Today.

Quicken's residential mortgage business outshines its more buttoned-down competitors.

DETROIT -- Nerf gunfights and costume contests are generally not encouraged inside major mortgage banking companies. But at Quicken Loans' headquarters in downtown Detroit, high jinks and horseplay figure prominently in a corporate culture that is upending the industry's more buttoned-down players.

The latest statistics show the value of the firm's mortgage loans soaring to $70 billion last year from $12 billion in 2008. Quicken, which operates online with no brick-and-mortar storefronts, now ranks as the nation's third-largest residential mortgage lender, closing in on No. 2 JP Morgan Chase, based on 2012 fourth-quarter figures. In a highly fragmented industry, Quicken now writes nearly 5% of all residential mortgages in the U.S., and is still growing.

Record-low interest rates have helped, spurring a refinancing boom that has boosted profits. And despite a few charges of overly aggressive sales techniques and some questionable loans, analysts credit Quicken with prospering today because it mostly stayed away from the worst sort of mortgage practices that punctuated the nation's housing meltdown.

Perhaps most important to Quicken's growth was its ability to grab market share from lenders badly bruised by the 2007-08 housing market collapse.

"Dan Gilbert has been smartly seeing an opportunity and filling a void left in the industry," Paul Moulo, managing editor at Inside Mortgage Finance Publications, said last week. "While they were napping, so to speak, Quicken ate their lunch."

The benefits of this meteoric rise flow not just to billionaire founder and chairman Dan Gilbert and his partners in the privately held Quicken, but also to Quicken's headquarters in the city of Detroit. With Quicken the flagship of Gilbert's business, sports, casino and real estate empire, profits from mortgage lending underwrite his investments downtown, where he owns 17 buildings and controls others through leases, as well as his purchase this month of Greektown Casino-Hotel.

Gilbert's vision for a downtown revival featuring Parisian-like sidewalk cafés and other amenities would be unimaginable without profits from Quicken's 10,000 employees and their mortgage expertise. Gilbert's aides estimate his downtown investments exceed $100 million and likely will grow.

Relaxed environment

Gilbert, 51, received a real estate license and law degree early in life, but he was always more interested in running his own company. He started Rock Mortgage in 1985 with his brother and a friend.

By 1993, when now-CEO Bill Emerson joined as a loan officer, Rock was still a traditional paper-based lender in suburban Bingham Farms. Employees wore suits and ties.

It was a different environment and business model than today's Quicken, which sprawls through several of Gilbert's buildings downtown. The atmosphere is high-energy, the dress is casual and the decor colorful as youthful mortgage bankers compete on loan volume and mini-basketball hoops.

The company's loan process has been paperless for years. The transition began in early 1998, when Gilbert wrote a memo urging staff to explore an online format. The company eventually closed its 30 or so storefronts.

In May of that year, Gilbert took Rock public. Software maker Intuit bought the company in 1999 for more than $500 million and changed its name to Quicken Loans to match its popular software product. The two firms never quite meshed, and Gilbert and his partners bought it back in 2002 as a private company for a fraction of the earlier sale price, retaining the Quicken brand on a perpetual lease.

By going all-online, Quicken could digitally track every step — from taking the initial call from a potential customer to ordering closing documents. Quicken shrunk the mortgage approval time down to about 30 days from three to six months — a major selling point for marketing and advertising. Today at Quicken's headquarters, teams of data analysts sit in "mission control," tracking thousands of loan applications on banks of oversized computer screens.

"The only way that works is with technology," Emerson said. "The only way that works is if you've got a paperless system, so you can literally have 25 people touching the same loan at the same time doing different functions."

'Engineered to amaze'

When the national housing market collapsed, Gilbert, Emerson and other Quicken executives decided to ramp up efforts to grab mortgage lending market share. They launched the "Engineered to Amaze" marketing campaign and started hiring at a time when competitors were still laying off.

"(Other) lenders had pulled back," said Kenneth Fears, senior economist with the National Association of Realtors. "They weren't expecting this boom — they weren't expecting rates to go lower, so they were trying to cut costs. Well, they cut a lot of staff. And these aren't the kind of (employees) you can pull off the street and train right away."

Moulo, the managing editor at the financial services publication, recalled his own visit to Quicken's website earlier this year when he considered refinancing a home loan. He filled out the online questionnaire, and — bang! — his phone rang about 15 seconds later. It was a Quicken salesperson. "That's how aggressive they are," he said.

Shayla Miller, 24, an elementary school teacher from Bartlesville, Okla., turned to Quicken when she and her husband bought their first house. Miller's parents had used Quicken earlier and referred her. "I like that they were available all the time to me," she recalled last week. "I can always call after 5 (p.m.). I can always call on Saturday."

It took 27 days from her and her husband's offer on the house to closing on the mortgage, she said.

Such feedback from consumers has helped Quicken win the coveted J.D. Power award for quality three years running.

Pressure and rewards

For employees who adapt to Quicken's high-energy culture, where the mantra is "Every client, every time, no exceptions, no excuses," rewards can be high. Quicken is routinely atop local and national Best Places to Work lists.

For those who don't thrive, work can seem a high-pressure chamber where leaders extol workers to sell, sell, sell.

In recent years, some former employees filed lawsuits seeking unpaid overtime. The claims turn on a facet of federal law requiring overtime for salespeople but not "mortgage bankers" who function as broader financial advisers, as Quicken defines its sales staff.

In early 2011, a federal jury found in Quicken's favor. CEO Emerson felt so vindicated, he framed and mounted a blowup of the case document on his office wall.

Quicken also has been accused occasionally of engaging in overly aggressive and improper sales tactics. That includes a lawsuit in West Virginia brought by Lourie Brown, a nurse who made just more than $14 an hour. She said she was sold a 30-year, $144,800 adjustable rate mortgage in 2006 with a $107,000 balloon payment. Brown defaulted on the loan less than a year later.

The total amount due on the 30-year loan would have been $550,000, despite her house's fair market value determined by the court to be about $46,000, according to court records and attorneys involved with the case.

A state circuit court found Quicken committed fraud and violated various provisions of the state's Consumer Credit and Protection Act and awarded nearly $2.8 million in punitive damages and attorney fees. In late 2012, the West Virginia Supreme Court largely upheld the decision but sent the case back to the lower circuit court for it to explain how it arrived at the award and the amount. The case remains in the lower court awaiting further action.

In a statement Friday, Quicken said, "We fully expect the circuit court's continued review of the case to find that the irrational award to this plaintiff is out of line with any near reasonable review of the facts and the law surrounding this case."

Despite such incidents, several industry analysts contacted by the Free Press said Quicken largely steered clear of the types of business practices that contributed to the subprime loan market meltdown that drove some banks and other lenders out of business. "They were smart enough in their previous lives to stay out of hard-core subprime," Moulo said. "So that allowed them to live to play another day."

Emerson said last week that Quicken has never written inappropriate loans: "Our industry forgot what responsible lending was, and fortunately for us, we didn't," he said. "A good chunk of the reason we're still here is that we didn't do that stuff."

Building for the future

The looming question for Quicken: What happens as historically low interest rates inch up? That could curtail the refinancing boom, a major part of Quicken's current business success.

Emerson said Quicken has enough partnerships and strategies to generate strong revenue. Among other steps, Quicken has partnered for the past 18 months with investment firm Charles Schwab to offer cross-branded mortgages.

Quicken also has started servicing mortgages, handling the payments and paperwork during the life of the loan for fees. In late March, Quicken purchased about $34 billion in mortgage servicing rights from Ally Bank. The purchase will boost Quicken's servicing portfolio to about $120 billion, Emerson said. The pool of loans can be mined for refinancing opportunities.

Shah Tehrany, managing director with Franklin First Financial, a mortgage company based in Melville, N.Y., said he believes Quicken will continue to thrive even as the market pivots.

"Dan Gilbert is a smart guy," he said. "It will be interesting to see how he maneuvers the company if the industry shifts, but I think they'll do just fine. They have a good brand, and they're spending money in the right spots."

Cut costs and make home improvement pay off

Story originally appeared on USA Today.

Spring has sprung and home improvement is on the minds of many Americans who – according to a Harvard University Joint Center for Housing Study -- are spending more on home improvement.

Indeed, 72% of homeowners have at least one home improvement project on their to-do list this year, expecting to spend an average of $4,000, according to an Echo Research survey conducted on behalf of American Express.

So, how can you get the most bang for your home improvement buck? Here are six tricks of the trade from BankRate.com:

1. Think of your home like a car. Give it regular maintenance before costly repairs sneak up.

2. Consider used tools instead of new. You can often snag them at yard sales and at auctions. Farm auctions are an amazing source for mowers. FarmersAdvance.com has a calendar of upcoming events.

3. In some cases you can save hundreds – even thousands – of dollars by renting versus buying tools like power paint sprayers, scaffolding and platforms.

4. Invariably there's a screw or two left over after every project. Keep things like nails and screws organized in a plastic bag or mason jar, so you can find them fast next go-around without having to purchase dozens when you only need one or two.

5. There are probably some places you don't need to be real picky about paint. If so, consider the "oops" bin, where custom colors someone didn't end up buying may be. Local municipalities and waste management departments may have paint they'd love for you to take off their hands for free. And, go for as few coats as possible.

6. Lastly, keep things dry. Moisture is a real culprit in prompting pricey fixes. Make sure your heating and air conditioning system is well maintained. And consider investing in a dehumidifier.

When all is said and done, what kind of return can you expect on your home improvement investment?

In their annual Cost vs. Value reports, Remodeling magazine and the National Association of Realtors estimate improvement projects on average return nearly 61% of the cost in terms of higher home values. So, you won't get it all back, but it's a decent return on investment if the repairs fit your budget.

Colony Capital’s Barrack Sees Bubble in U.S. Housing Market

Colony Capital LLC’s Tom Barrack said U.S. homes are in danger of becoming overvalued as low borrowing rates and a strong labor market fuels demand.

“We have asset bubbles for sure and asset bubbles are necessary when you don’t have growth” in the economy, Barrack, Colony’s founder and chairman, said today in an interview at the Bloomberg Doha Conference. “If you go to new homes, the builders have to buy lots, so the next stage we are going to see is a land boom.”

The S&P/Case-Shiller index of residential-property values in 20 U.S. cities rose in January by the most since June 2006, the group said on March 26. The improving market will encourage property owners to put their homes on the market and prompt construction companies to start work on new buildings, boosting the economy.

Colony Capital is among the private-equity firms that are competing for a limited number of homes on the market. The Santa Monica, California-based firm has raised $2.2 billion for rental properties.

Think before you tap 401(k) to pay off mortgage

Story originally appeared on USA Today.

Q: My husband and I have a terrible situation. Our mortgage rate is 9% with a loan balance of $122,000 and 25 years left to pay. Because of the market downturn, the home value is approximately $85,000. My husband is 57 and I am 55. When he turns 59½, would it be good to use our 401(k) retirement savings to pay off this mortgage? Or do we have other options?

A: No question, it's a bad situation.You did not indicate if the loan is a financial hardship, or if you and your husband are having trouble keeping up with mortgage payments.

If, indeed, you are severely stressed, then you should find out who owns the loan (FHA, Fannie Mae or Freddie Mac). You may be able to modify the loan under the HARP or HAMP programs. If none of these lenders owns the mortgage, you may still be able to negotiate a reduction through the Principal Reduction Alternative program. But you will need to demonstrate financial need.

If you can make the payments, the interest rate on the mortgage is really sickening, given today's rates. One way to recast this is to think of this loan as a credit card, at low interest (for credit cards). How would you approach paying off a large, expensive credit card debt? Here are some possibilities:

1. Accelerate principal payments. The goal here is not necessarily to pay off the entire loan, but to pay off, as quickly as possible, enough to have equity in the home (about $45,000 in additional principal reduction). That should make refinancing possible. Also, during this period the value of the home may increase so that there will be less difference between mortgage owed and then-current value.

2. Ask a Realtor or two to come over and do a market analysis. Is there anything you could do to improve the home relative to similar homes? Sometimes a thorough repaint, junk cleanup, or other fairly inexpensive alterations can make a big difference in appraised value. It's worth getting expert evaluation from a Realtor.

3. Ask the Realtor for recommendations on a mortgage broker and contact them. Some mortgage brokers are more creative than others, so it's worthwhile talking to several. It's particularly worthwhile to explore community lenders who may hold their own loans, or mortgage brokers who work with private investors. However, be very cautious with the terms of such loans, and have an attorney review the proposed loan.

4. Is there anyone in your circle of friends and colleagues who might be interested in making a private loan? Even if you pay a higher-than-current mortgage interest rate (say, 6%) it might be an attractive return for the investor. And even if you cannot borrow the full amount of the mortgage, you might be able to borrow enough to pay down the principal and refinance the balance. But the private loan should be reported as part of total indebtedness (otherwise it's fraud).

5. You might explore refinancing policies with your lender. Generally, a lender might be more willing to discuss loan modification if the loan is in default, but no one should attempt a so-called strategic default without consulting a reputable and knowledgeable real estate attorney.

6. You might explore the lender's policies on turning the property over to it. The lender may not be too enthusiastic, but if you are willing to move, you may want to talk this over with an attorney, as well.

Now to examine the original idea: Should you withdraw from your 401(k) to pay off the loan?

Based strictly on numbers, it is only worth paying off a mortgage if the interest rate on the mortgage exceeds what you might expect to earn from a diversified portfolio of investments. Historically, a portfolio of 60% stocks/40% bonds has earned approximately 8.6% (1926-2011), so you are right on the borderline of whether it would be worthwhile with a 9% interest rate. However, the psychological peace may more than outweigh simple numbers.

Before withdrawing the money, you should consider whether the remaining 401(k) will offer withdrawals sufficient to allow you to maintain your needed retirement income. Even though there will no longer be a mortgage payment, there will still be property taxes, home maintenance, insurance and incidental costs of homeownership. It's very important that retirees not become house-rich and cash-poor. You cannot replace the 401(k) funds with a home equity loan, and such a loan may be harder to secure once you are retired.

This is a situation where there are no good answers, but also tremendous flux in public policy. You should explore the suggested alternatives and keep a close eye on the news for any changes or new offerings in the next several years. As with most financial situations, the more money you can set aside for debt repayment and an investment war chest, the more alternatives you are likely to have in the future.

New mortgage program offers lower payments

Story originally appeared on USA Today.

The federal government on Wednesday announced a new loan modification program designed to help many more struggling homeowners than previous initiatives by requiring no documentation of income or financial hardship.

Under the Streamlined Modification Initiative, borrowers with loans backed by mortgage finance giants Fannie Mae and Freddie Mac must be at least 90 days delinquent on their mortgages and and make three trial payments on time. The initiative is being launched by the Federal Housing Finance Agency, which regulates Fannie and Freddie.

"This new option gives delinquent borrowers another path to avoid foreclosure," says FHFA Acting Director Edward DeMarco.

Other programs to aid struggling homeowners, such as the Home Affordable Modification Program (HAMP), required borrowers to provide financial, income and hardship documentation. That created bureaucratic bottlenecks for many mortgage servicers, which limited the effectiveness of the programs.

The new initiative will begin July 1, 2013, and end Aug 1, 2015. By July 1, mortgage servicers must identify delinquent borrowers and send them a letter offering the modification.

To reduce their monthly payments, borrowers will get a new interest rate that's equal to or below their current rates, based on the average of 30-year fixed mortgages, and the term will be extended to 40 years. Also, borrowers who owe more than their homes are worth will pay no interest on up to 30% of their unpaid balance. Borrowers, on average, are expected to reduce their monthly payments by 30%.

FHFA notes that in most cases, borrowers who provide proof of income and financial hardship can receive a more affordable monthly payment through the HAMP program.

To be eligible for the new program, homeowners must be 90 days to 24 months delinquent on their loans. They also must have a first-lien mortgage that's at least 12 months old, and the amount they owe on their mortgages must be at least 80% of their home value.

FHFA says it has screening measures in place to ensure that the new program isn't exploited by strategic defaulters — people who stop paying their loans to get a modification.

FHFA officials have not estimated the number of borrowers they expect to participate. But in a pilot program, 70% of those offered the opportunity took part in the trial, and 50% of the latter group received a permanent loan modification.

Ira Rheingold, executive director of the National Association of Consumer Advocates, says the program "is not a bad idea" because it addresses mortgage servicers' paperwork snafus.

"It's a solution for some people who just want a roof over their head and don't want to lose their home," he says.

But it will not be the best option for homeowners who could save more money through other programs that require documentation, Rheingold says.

More critically, he says, the program doesn't lower the principal owed by borrowers to give them more equity in their homes. FHFA has been unwilling to do that.

About one in five homeowners owe more on their mortgages than their homes are worth. That's been an impediment to the revival of the housing market and the economy.

"Unless they address principal reduction, it's not good enough," Rheingold says.

Fannie and Freddie helped 130,000 homeowners avoid foreclosure in the fourth quarter, pushing their total such successes last year to 540,000, according to FHFA. Since 2008, they have helped 2.7 million borrowers avoid foreclosure, including 1.3 million through loan modifications and the remainder through repayment and forbearance plans, short sales and other strategies.

Puerto Rico Creates Tax Shelters in Appeal to the Rich

Story originally appeared on the New York Times.

Known for its white-sand beaches and killer rums, Puerto Rico hopes to stake a new claim: tax haven for the wealthy.

Since the beginning of the year, the island has gone on a campaign to promote tax incentives that took effect last year, marketing its beautiful beaches, private schools and bargain costs in an effort to lure well-heeled hedge fund managers and business executives to its shores.

So far, Puerto Rico’s pitch has attracted a handful of under-the-radar millionaires. Several American executives of mostly smaller financial firms say they have already relocated to the island, and Puerto Rican officials say another 40 persons, mostly from the United States, have applied.

The tax savings could add up to “at least in the six figures” each year, said Barry Breeman, an American who said he was moving to Puerto Rico with his wife. Mr. Breeman is the co-founder of the New York-based Caribbean Property Group, a real estate investment firm that has substantial holdings on the island.

Millionaires are nice, but Puerto Rican officials hope to reel in billionaires like John A. Paulson, the hedge fund manager who Bloomberg News reported earlier this month was weighing a move.

The attention prompted an unusual statement from Mr. Paulson, which declared that he was not relocating. (Still, Mr. Paulson, a 57-year-old New Yorker, had briefly considered a move, say two people with knowledge of his plans.)

If not Mr. Paulson, government officials and real estate brokers in Puerto Rico hope to sell other wealthy mainland Americans on what they hope will become the next Singapore or Ireland as a favored low-tax destination. Puerto Rico is closer and, compared with Ireland, decidedly warmer. And unlike in Switzerland or other havens, in Puerto Rico, Americans do not give up their citizenship.

“There’s nothing wrong with spending 183 days a year on a sailboat or yacht and working from here,” said Alberto Bacó Bagué, the secretary of economic development and commerce for the island, in a telephone interview. “We’re catching up to Ireland and Singapore — you can shelter income legally, and legally in a good way.”

Puerto Rico is a commonwealth of the United States, but for tax purposes, it is treated differently. Most residents of Puerto Rico, with the exception of federal employees, already pay no federal income tax. A person needs to live 183 days a year on the island to become a legal resident.

The new tax breaks are a twist on the island’s tradition of using tax perks to bolster the economy. Puerto Rico’s per-capita income is around $15,200, half that of Mississippi, the poorest state in the nation. In 2006, a previous incentive exempting United States companies from paying taxes on profits from Puerto Rican manufacturing ended after Congress said that the incentive had bilked taxpayers.

The new tax breaks are a radical shift in that they focus on financial, legal and other services, not manufacturing. Puerto Rico slashed taxes on interest and dividends to zero from 33 percent, and it lowered taxes on capital gains, a major source of income for hedge fund managers, to zero to 10 percent.

The incentives work with existing United States breaks. While residents still have to file a federal tax return, they do not have to pay capital gains taxes of 15 percent on assets held before moving and sold after 10 years of island residency.

The new tax incentives “likely will be considered more broadly by some taxpayers as a new opportunity for income shifting and tax deferral,” said Michael Pfeifer, an international tax lawyer at the law firm Caplin Drysdale in Washington.

Mr. Bacó, the Puerto Rican economic development official, is planning a road show on the East Coast next month to woo financial and law firms as well as wealthy individuals to moving to Puerto Rico.

Because of its new aggressive tax breaks, Puerto Rico is a supercharged version of Florida, which does not tax individuals on ordinary income.

Recently, a business development group in Palm Beach, Fla., wined and dined 10 executives from the Northeast who had flown in for a two-day tour showcasing the state’s tax advantages, complete with golf outings, showings of oceanfront office space and a soiree aboard a yacht.

Florida has already landed one big fish: Edward S. Lampert of ESL Investments moved his headquarters from Greenwich, Conn., to near Miami last year.

The sales pitches by Florida and Puerto Rico tap into a growing resentment among affluent people who feel that they have been vilified by politicians or believe they have unfairly become targets for disproportionately higher taxes. In one highly publicized example, the actor Gérard Depardieu, angry over a plan by the French government to raise taxes to 75 percent for the wealthy, accepted a Russian passport from President Vladimir V. Putin. Russia has a flat tax rate of 13 percent.

But a move to Puerto Rico may be easier said than done. Privately, some lawyers and accountants in the United States express concern that individuals who move to the American island for its lower taxes might appear “unpatriotic” in a widening crackdown by authorities on offshore tax dodging through Switzerland, Israel and Singapore.

And while the island’s tax breaks are legal, some investors say they do not want their hedge fund managers straying too far from their mainland office.

“Citi Private Bank expects hedge fund principals to be in a primary office with their critical employees close by,” David Bailin, the global head of managed investments for the firm, wrote in an e-mail.

Puerto Rico has been battered by several years of recession. Its unemployment rate is more than 13 percent, well above the national rate, and its economy remains mired. In December, Moody’s Investors Services downgraded the island’s debt to one notch above junk status; and in a recent research note, Breckenridge Capital Advisors said the island was “flirting with insolvency.” The island has the weakest pension fund in America and by some estimates could run out of money as soon as 2014.

An influx of wealthy financiers would provide a much-needed lift to the economy.

Margaret Pena Juvelier is a real estate broker with Sotheby’s International Realty who left the Upper East Side last fall to open an office in San Juan. “We’re getting an average of 10 to 15 calls or e-mails a day from people who want to look at homes,” she said.

Ms. Juvelier often sends a black S.U.V. with a driver in a suit and tie to meet clients, some of whom fly in on private jets and pepper her with questions like “is there a Whole Foods here?” and “if I get really sick, do I have to be medevaced?”

Nicholas Prouty of the investment fund Valivian Advisors, who is moving to San Juan from Greenwich, Conn., said he wanted “the excitement of having new experiences coupled with the worry of the unknown.”

While the real estate broker Ana González Brunet declines to name names, saying “discretion to billionaires is important,” she said multiple individuals had recently looked at the 8,379-square-foot penthouse in the Acquamarina in the chic Condado neighborhood of San Juan. The $5 million condo has underground parking and a panoramic view of the ocean through floor-to-ceiling windows, and is near luxury boutiques like Cartier, Salvatore Ferragamo and Louis Vuitton.

“It’s like being in the best part of Manhattan,” Ms. González Brunet said.

$3.6B Foreclosure Deal for Home Owners

Story first appeared on USA Today -

Consumer advocates say banks getting off too easy in reworked foreclosure settlement

A foreclosure settlement between the government and 13 banks will spread $3.6 billion in cash among millions of borrowers starting in April, regulators said Thursday.

But the $5.7 billion in mortgage relief that’s also part of the deal may favor borrowers with the biggest unpaid loan balances, consumer advocates say.

The settlement, first announced in January, is intended to compensate borrowers for foreclosure and mortgage servicing abuses.

The cash will be split among 4.2 million borrowers who were in foreclosure in 2009 or 2010 and had home loans serviced by one of 13 banks. They include Bank of America, Wells Fargo, and JPMorgan Chase.

Cash payouts will range from a few hundred dollars up to $125,000, says the Office of the Comptroller of the Currency (OCC). It’s overseeing the settlement with the Federal Reserve Board.

The companies are expected to meet their $5.7 billion mortgage relief obligation, in part, by modifying loans. They’ll earn certain levels of credit toward that $5.7 billion for certain actions.

Consumer advocates said they were shocked and dismayed when they learned Thursday how some of the credits will be tallied.

For instance, a bank forgiving $15,000 in principal owed on a $100,000 unpaid balance would get a $100,000 credit.

If the bank forgave $15,000 in principal on a $500,000 unpaid balance, they would get a $500,000 credit, says Bryan Hubbard, OCC spokesman.

The OCC says the terms are meant to drive modifications that best serve borrowers.
Consumer advocates, however, say the system will lead the banks to focus on high-balance loans instead of more smaller ones.

Plus, it’ll let them inflate the value of their modifications, says Alys Cohen, of the National Consumer Law Center. “It lets the banks off easy,” she says.

When the deal was announced, consumer advocates said it included too little money. The new credit formula is “monumentally bad,” says Ira Rheingold, executive director of the National Association of Consumer Advocates. “I’m absolutely stunned that they would do this.”

The OCC disagrees with the consumer advocates. It also says regulators could take further action if the banks fail to meet the deal’s requirements for well-structured assistance.

The $9.3 billion settlement largely replaces a 2011 agreement reached between the regulators and the companies. That one required case-by-case foreclosure reviews and was too slow and costly, regulators say.

Florida man swallowed by sinkhole presumed dead

Story first appeared on The Detroit News -

Hazard common in state due to porous limestone caverns

In a matter of seconds, the earth opened under Jeff Bush's bedroom and swallowed him up like something out of a horror movie. About the only thing left was the TV cable running down into the hole.

Bush, 37, was presumed dead Friday, the victim of a sinkhole — a hazard so common in Florida that state law requires home insurers to provide coverage against the danger.

The sinkhole, estimated at 20 feet across and 20 feet deep, caused the home's concrete floor to cave in around 11 p.m. Thursday as everyone in the Tampa-area house was turning in for the night. It gave way with a loud crash that sounded like a car hitting the house and brought Bush's brother running.

Jeremy Bush said he jumped into the hole but couldn't see his brother and had to be rescued himself by a sheriff's deputy who reached out and pulled him to safety as the ground crumbled around him.

"The floor was still giving in and the dirt was still going down, but I didn't care. I wanted to save my brother," Jeremy Bush said through tears Friday. "But I just couldn't do nothing."

Officials lowered equipment into the sinkhole and saw no signs of life, said Hillsborough County Fire Rescue spokeswoman Jessica Damico.

A dresser and the TV set had vanished down the hole, along with most of Bush's bed.

"All I could see was the cable wire running from the TV going down into the hole. I saw a corner of the bed and a corner of the box spring and the frame of the bed," Jeremy Bush said.

At a news conference Friday night, county administrator Mike Merrill described the home as "seriously unstable." He said no one can go in the home because officials were afraid of another collapse and losing more lives. The soil around the home was very soft and the sinkhole was expected to grow.

Engineers said they may have to demolish the small house, though from the outside there appeared to be nothing wrong with the four-bedroom, concrete-wall structure, built in 1974.

"I cannot tell you why it has not collapsed yet," said Bill Bracken, the owner of an engineering company called in to assess the sinkhole and home.

Florida is prone to sinkholes because there are caverns below ground of limestone, a porous rock that easily dissolves in water. A sinkhole near Orlando grew to 400 feet across in 1981 and devoured five sports cars, most of two businesses, a three-bedroom house and the deep end of an Olympic-size swimming pool.

More than 500 sinkholes have been reported in Hillsborough County alone since the government started keeping track in 1954, according to the state's environmental agency.

Jeremy Bush said someone came out to the home a couple of months ago to check for sinkholes and other things, apparently for insurance purposes. "He said there was nothing wrong with the house. Nothing. And a couple of months later, my brother dies. In a sinkhole."

Six people were at the home at the time, including Jeremy Bush's wife and his 2-year-old daughter.

States with faster foreclosure rates seeing sharper home price increases

Story first appeared on USA Today -

Many states with faster foreclosure processes are seeing sharper increases in home prices than states where foreclosures take longer to get done.

There are exceptions, and other factors — such as job growth — are likely stronger drivers of home price trends, economists say.

But home price data generally show stronger price increases in states where courts don't have to approve foreclosures than in states where they do. Foreclosures are completed faster where court approval isn't necessary.

Last year, home values tracked by Zillow, a web-based real estate tracker, rose an average 5.4% in the 24 states where foreclosures don't go through the courts, according to Zillow. Where they do, the average increase was 3.2%.

Asking prices, a leading indicator of price trends, show a similar pattern.

In January, asking prices in non-judicial states were up an average of 7.3% year-over-year vs. 3.1% for judicial foreclosure states, show data from real estate website Trulia.

Non-judicial foreclosure states have tended to clear out distressed home inventory quicker, which is helping prices, says John Burns, CEO of John Burns Real Estate Consulting. Its home price analysis shows that the 10 major metropolitan areas that have seen the most rapid appreciation in the past year are in non-judicial foreclosure states.

Job growth and how far prices dropped during the housing bust are probably stronger drivers of home price trends, says Trulia economist Jed Kolko. But foreclosure speeds are a contributing factor, he and others say.

In Florida, New York and New Jersey — all judicial foreclosure states — the average loan in foreclosure was past due for more than 31 months before the process was completed, according to December data from Lender Processing Services.

In California, Arizona and Nevada — all non-judicial foreclosure states — that average was fewer than 22 months, LPS data show.

Those three states were among the top seven in terms of home value gains last year, Zillow's data show.

Homes lingering in foreclosure "creates real uncertainty," which hurts prices, and inhibits investor buyers, says Stan Humphries, Zillow's chief economist.

Investors have played a big role in driving prices higher in Arizona, Nevada and California, he adds.

As of December, 10% of Florida's home loans were still in some stage of foreclosure, the highest percentage in the nation. Behind it were New Jersey, at 7%, and New York, at 5%, according to CoreLogic.

The overhang of distressed homes in the market "is absolutely contributing" to smaller price gains in judicial foreclosure states, says Mike Fratantoni, economist with the Mortgage Bankers Association.

Florida home values, up 6.4% last year, bested the national rise of 5.9%, Zillow's data show. But values rose less than 1% last year in New York and New Jersey, Zillow says.

Florida values would probably have risen more last year if more of its foreclosures were behind it, says Kolko.

That's because Florida, like Arizona, California and Nevada, saw home prices fall more than 40% from its peak before the housing bust. It's also a market that attracts investor and second-home buyers.

Exceptions to the trends in price gains between judicial and non-judicial foreclosure states underscore that many factors influence home values, Kolko says.

For instance, Zillow's data show strong price gains last year in Indiana, a judicial state. On the other hand, Rhode Island had the greatest price depreciation last year, the data show, and it's a non-judicial state.

Burns' data show that five of the top 20 housing markets for price gains were cities with full or partial court oversight of foreclosures, including Washington, D.C., New York and Miami.

Mortgage Rates Holding Steady

Story first appeared on USA Today -

The average U.S. rate on the 30-year fixed mortgage was unchanged this week near historic lows, while the average rate on the 15-year loan fell. Low mortgage rates could help strengthen the housing recovery.

Mortgage buyer Freddie Mac said Thursday that the rate on the 30-year loan stayed at 3.53%. That's still near the 3.31% rate reached in November, the lowest in records dating to 1971.

The rate on the 15-year fixed mortgage dropped to 2.77% from 2.81% last week. The record low is 2.63%.

Cheap mortgages are encouraging more people to buy homes and refinance, trends that could help boost the economy this year.

Increased sales are helping push home prices up steadily, which makes consumers feel wealthier and more likely to spend. In addition, a limited supply of houses for sale has created demand for new construction, which has made builders more confident.

And when people refinance, that typically leads to lower monthly mortgage payments and even more spending. Consumer spending drives nearly 70% of economic activity.

Still, the housing market has a long way to a full recovery. And many people are unable to take advantage of the low rates, either because they can't qualify for stricter lending rules or they lack the money to meet larger down payment requirements.

To calculate average mortgage rates, Freddie Mac surveys lenders across the country on Monday through Wednesday of each week. The average doesn't include extra fees, known as points, which most borrowers must pay to get the lowest rates. One point equals 1% of the loan amount.

The average fee for 30-year loans ticked up to 0.8 point from 0.7 point last week. The fee for 15-year loans was unchanged at 0.7 point.

The average rate on a one-year adjustable-rate mortgage fell to 2.53% from 2.59%. The fee for one-year adjustable-rate loans declined to 0.4 from 0.5 point.

The average rate on a five-year adjustable-rate mortgage fell to 2.63% from 2.7% last week. The fee remained at 0.6 point.

New Home Sales in 2011: Best since 2009

Story first appeared on USA Today

Sales of new homes cooled in December from November, but sales for all last year were the best since 2009.

The Commerce Department said Friday that new-home sales fell 7.3% last month to a seasonally adjusted annual rate of 369,000. That's down from November's 398,000 rate, which was the fastest in 2 ½ years.

For all of 2012, sales rose nearly 20% from 2011, to 367,000. That's the most since 2009 and the first annual gain since 2005, although that's coming off the worst year for new-home sales since the government began keeping records in 1963. Sales are still below the 700,000 level that economists consider healthy.

The housing market began to recover last year, roughly five years after the housing bubble burst. Stable job gains and record-low mortgage rates encouraged more people to buy homes.

Sales of previously occupied homes rose to 4.65 million last year, the most in five years.

Home prices rose steadily, and the gains appear to be sustainable. Builders finished their best year for residential construction since 2008.

The housing market has a long way back to a full recovery. But most economists expect the recovery will strengthen in 2013.

One reason is more people are looking to buy or rent a home after living with relatives or friends during and immediately after the Great Recession.

And the supply of both newly built and previously occupied homes for sale have dwindled. Fewer homes for sale have helped drive prices higher and made many markets more competitive.

Though new homes represent less than 20% of housing sales, they have an outsize impact on the economy. Each home built creates an average of three jobs for a year and generates about $90,000 in tax revenue, according to the National Association of Homebuilders.

Gains in home building helped boost construction hiring in December by 30,000 jobs, the most in 15 months.

Still, the number of first-time buyers remains low, which has limited sales. Many are unable to qualify for historically low mortgage rates because banks have adopted tighter credit standards and are requiring larger down payments..

Lafayette Towers being revamped for young professionals by Detroit Developers

Story first appeared on The Detroit News

The Lafayette Towers, like the rest of the Lafayette Park neighborhood, was once considered a shining example of urban revitalization.

Designed by famed architect Ludwig Mies van der Rohe and built in 1961, the apartment towers were part of a planned community that included a shopping center, a 19-acre park and a school to attract young professionals to live near downtown.

Today, as the city undergoes its latest round of urban renewal, investor and lifelong Detroiter Gregory Jackson said he wants to use the aging modernist-style glass and aluminum high-rise community to reinvent Detroit living.

He bought the 22-story, 584-unit apartment complex from the city for $5.8 million in November with a promise that he would pay to bring the iconic structures back to their original glory.

"I wanted to be part of the renaissance that's taking shape in Detroit," said Jackson, who lives on the city's west side.

The renaissance that Jackson and other developers refer to is tied to rising demand in certain neighborhoods for rental housing for the city's new class of young professionals. Their migration has resulted in a more than 90 percent occupancy rate in Midtown and surrounding areas, according to Midtown Detroit Inc., which tracks housing trends.

State and federal tax incentives as well as easier availability of financing make renovating empty and historic buildings more appealing for Detroit investors than new construction, real estate experts said.

In October, Bloomfield Hills-based Princeton Enterprises bought the shuttered, historic Milner Hotel in downtown with preliminary plans to convert the 10-story building into apartments and rename it The Ashley.

In November, the 34-story Broderick Tower accepted its first tenants after completion of a two-year renovation project. And as investors bid on the Free Press Building on Lafayette Boulevard, there was talk that the historic structure would be converted into housing.

"The city has prioritized restoration rather than new construction. Detroit would like to see the empty buildings back into the market," said Richard Baron, chairman of the St. Louis-based development firm McCormack Baron Salazar.

Baron, who has years of experience rehabilitating historic buildings, is in talks with Susan Mosey of Midtown Detroit Inc. on a $25 million project to restore a vacant building on Alexandrine, just west of Woodward Avenue, into rental residences.

Though demand for housing in certain areas continues to climb, incentives for developers to embark on new construction projects aren't there, Baron said.

Jackson said an investment of as little as $5 million could help attract new, younger tenants.

The Lafayette Towers, he said, noting that it is more than 50 percent occupied, already has some amenities that would appeal to potential younger tenants. The complex is equipped with an Olympic-sized pool, fitness center and 360-degree panoramic views of the city. It's also within walking distance of Greektown.

Rents at Lafayette Towers range from $500 a month for a studio to $1,400 a month and up for a three-bedroom unit, with approximately 30 units that qualify for government subsidies.

Jackson said units can run as low as $1 per square foot, compared to other units downtown where rentals such as the Broderick Towner and other recently renovated buildings charge a much higher rate.

The rates at Lafayette Towers will eventually go up, but Jackson said he does not plan to raise rents until after all renovations are made.

Preliminary improvements, he said, will include adding shuffleboard courts and cabanas to the rooftop pool area, replacing equipment and offering classes in the fitness center, and updating kitchens and bathrooms in apartment units. Jackson said he also plans to install bicycle racks, improve Wi-Fi service and allow residents to use rooftop lounge spaces to hold receptions.

Jackson said he hopes to have initial renovations completed within 18 months.

Molly Dougherty, 24, a high school English teacher, moved into the complex in August with her fiancé.

"(We) decided to move to an exciting part of town," Dougherty said.

Dougherty came to Detroit about a year and a half ago from Omaha, Neb., to volunteer at Cristo del Rey High School. She eventually got hired permanently at the parochial school and decided to move out of a roommate situation in the Mexicantown neighborhood to a more cosmopolitan living experience.

"There's a certain energy in an urban area. I like all the diversity — every day you see different people," said Dougherty, who regularly walks to Greektown for its restaurants, bars and casino.

Wilbert Sherrod, 73, a retired dentist who has lived in Lafayette Towers for 38 years, shared similar sentiments. When he moved into the city more than 40 years ago, he was immediately drawn to the air of affluence that the complex inspired.

"As soon as I came into the city," Sherrod said, "I said, 'I want to live here.' "

Sherrod said he loves summer walks to the RiverWalk, Renaissance Center and Greektown. He does most of his grocery shopping at Lafayette Foods down the street. In fact, after retirement he sold his car and rents one occasionally if he needs to go to the suburbs for errands.

But Sherrod said security and maintenance declined at the complex over the years.

By this past summer, Lafayette Towers was in danger of being sold by the U.S. Department of Housing and Urban Development in a foreclosure auction after then-owner Northern Group failed to make mortgage payments. The city stepped in and bought the property, with the understanding that it would seek a private buyer who would invest in its long-term revival.

When Jackson heard about its financial woes, he approached the city.

"I've been looking for an opportunity to invest in a city that I love," Jackson said.

Sherrod, who lives in a unit overlooking Ford Field, Comerica Park and Gratiot Avenue, said he is ready for the proposed revival.

"I hope this gentleman is truthful with his promise," he said.

Home Construction Surge – Continuing Forward

Story first appeared on USA Today

Many homebuilders were forced to drastically scale back construction on new homes during the aftermath of the housing bust, to reduce the risk of being left with multiple newly build but as of yet unsold properties.

But an improving housing market has homebuilders feeling more confident about sales, and that's likely to kick the pace of new construction into a higher gear this year.

The Commerce Department said Thursday that builders broke ground on houses and apartments last month at a seasonally adjusted annual rate of 954,000. That's 12.1% higher than November's annual rate. And it is nearly double the recession low reached in April 2009.

Construction increased last month for both single-family homes and apartments. And the pace in which builders requested permits to start more homes ticked up to a 4½ year high.

For the year, builders started work on 780,000 homes. That's still roughly half of the annual number of starts consistent with healthier markets. But it is an increase of 28.1% from 2011. And it is the most since 2008 — shortly after the housing market began to collapse in late 2006 and 2007.

Steady hiring, record-low mortgage rates and a tight supply of new and previously occupied homes available for sale have helped boost sales and prices in most markets. That has persuaded builders to start more homes, which adds to economic growth and hiring.

David Williams, a homebuilding analyst with Williams Financial Group, says builders are very closely tied to what's happening in the housing market and they're going to build homes to meet demand, but not go overboard.

"I don't think, at this point, that they're going to overbuild," Williams said, noting that homebuilders are still holding back on building too many spec homes, or properties built before they're sold.

Having some spec homes can help sales, especially when a buyer isn't willing to wait several months for their home to be built. Builders tend to put up more of those homes heading into the spring home-selling season that traditionally begins next month.

Larry Webb, CEO of homebuilder The New Home Co., in Aliso Viejo, Calif., says he is building homes at a faster pace than a year ago, but he sticks to a sell-first, build-second approach.

Overall, Webb is selling and building a minimum of four homes a month, at least double the pace of sales and construction two years ago.

Webb believes the stepped-up pace of home construction will continue this year. But he's holding on to the sell-first approach.

"Based on what we've gone through in the last recession and the way we do business, we think we should primarily build after we sell homes," he said. "We only build after we sell."

The company, which builds homes in California, has 10 open communities and plans to open another 14 this year.

"Normally there's a big drop off between Thanksgiving and Christmas," Webb said. "We saw very solid traffic and we're anticipating a very good first quarter."

Thursday's positive housing report, along with a steep decline in unemployment benefit applications, contributed to a strong day on Wall Street. The Standard & Poor's 500 closed at a five-year high.

"There is no denying that the housing market recovery is solidifying, and we expect construction activity to ramp up to the 1 million annualized threshold by the end of this year," said Michael Dolega, an economist with TD Economics, in a note to clients.

Dolega said the gains in home building helped boost construction hiring in December by 30,000 jobs — the most in 15 months. He predicts the construction industry could add half a million jobs in 2013.

In December, the pace of single-family home construction, which makes up two-thirds of the market, increased 8 percent. While that's well below healthy levels, single-family housing starts are now 75 percent higher than the recession low reached in March 2009.

Apartment construction, which is more volatile, surged 23 percent last month. It is now back to pre-recession levels.

Applications for building permits, a sign of future construction, inched up to a rate of 903,000 — the highest level since July 2008.

"The strong rise in single-family starts is a clear indication of builder confidence in the sales outlook," said Pierre Ellis, an economist at Decision Economics, in a note to clients.

Confidence among homebuilders held steady in January at the highest level in nearly seven years. But builders are feeling slightly less optimistic about their prospects for sales over the next six months, according to a survey released Wednesday.

In November, sales of previously occupied homes rose to their highest level in three years, while new-home sales reached a 2 1/2-year high.

Those factors have helped make homebuilders more confident and spurred new home construction. But homebuilders' are still warily watching the current standoff in Washington between President Obama and Congress over several approaching budget deadlines, including the need to boost the nation's $16.4 trillion borrowing limit.

Though new homes represent less than 20 percent of the housing sales market, they have an outsize impact on the economy.   For each home built, there is approximately $90,000 in tax revenue and an average creation of three jobs lasting for at least a year, data from the homebuilder’s association shows.

7-year confidence high for home-builders

Story first appeared on USA Today

Although at the highest level in almost seven years, confidence among U.S. home builders remained unchanged from the month of December to January.  Builders are however remaining less optimistic about sales for the next six months.
 
A report on an index that tracks home builder sentiment out Wednesday showed sentiment holding steady last month. A Charleston WV Real Estate Lawyer firm has been monitoring this.  The National Association of Home Builders/Wells Fargo index was unchanged at 47, the highest reading since it hit 51 in April 2006, just before the housing bubble burst.  Dallas Real Estate Lawyer firms are watching the housing market trends.

Readings below 50 suggest negative sentiment about the housing market.   A New York Real Estate Lawyer monitors this.  Still, the index has been slowly trending higher since October 2011, when it was 17.  An Indianapolis Real Estate Lawyer is following the progression on this.

A measure of traffic by prospective customers increased, while a gauge of current sales conditions remained unchanged from December's reading.   In Canada, a Toronto Real Estate Defense Lawyer has been keeping tabs on the changing market.  The six month outlook for sales declined.

New mortgage rule aims to protect borrowers

originally appeared in USA Today:

A new federal rule on home loan lending will give consumers more protection against risky mortgages, the government says, but it isn't immediately expected to make mortgages easier to get.

The Consumer Financial Protection Bureau today adopted the rule, which it says spells out what lenders must do to ensure that borrowers can afford their mortgages. Homeowners will also benefit from working with an excellent Michigan bathroom remodeling company.

The rule is meant to guard against lending practices that preceded the housing bust, when many borrowers took on risky loans they didn't understand and could not afford. A wave of foreclosures followed, helping to drive down home prices more than 30% since 2006.

Washington is saying that we're going to protect borrowers and regulate what mortgages are going to look like, according to a policy analyst with financial services firm Keefe Bruyette & Woods.

The CFPB Director called the rule a common sense one that ensures responsible borrowers get responsible loans.

But some consumer groups say it gives lenders too much protection and doesn't include adequate provisions to protect low-income borrowers.

The rule invites abusive lending, according to the National Consumer Law Center.

The rule, as required by the 2010 Dodd-Frank financial overhaul legislation, defines what constitutes a qualified mortgage.

If lenders meet those standards, borrowers who later default will have little recourse to fight foreclosure by claiming the lender sold them a risky loan.

The rule, effective next year, says a qualified mortgage cannot:

• Contain "risky" features, such as terms that exceed 30 years, interest-only payments or negative-amortization payments where the principal amount increases.

• Carry fees and points in excess of 3% of the loan.

• Be issued to borrowers who, once getting the mortgage, will spend more than 43% of their income on debt payments.

The 3% and 43% standards are reasonable, according to the CEO of LendingTree, an online lender exchange.

Only about 8% of loans that LendingTree facilitated in the last quarter had points and fees above 3%, it says.

Fewer than 14% of recent home loans sold to mortgage giants Freddie Mac and Fannie Mae had debt-to-income ratios above 43%, says mortgage tracker Inside Mortgage Finance.

But he says that 43% is too high for some low-income people, who'll get these loans, and then have no recourse.

Lenders can make loans that do not meet the qualified mortgage standards. If so, they won't have the same protections against consumer challenges.

To give the market time to adjust, loans that bust the 43% limit will be considered "qualified" if they meet Freddie and Fannie's standards, the CFPB says.

The rule's standards largely track with current lending practices — which many complain are too restrictive — and doesn't do anything to loosen credit, according to the CEO of Inside Mortgage Finance.

The CFPB, however, says the clarity of the rule, which lenders have sought since 2010, will enable banks to ease standards over time.

The rule will make it harder for some borrowers to get certain loans, such as interest-only loans more popular with wealthier borrowers, he says.

It will also continue to make it hard for subprime borrowers with weak credit to get loans, he says. That's because they'll have more recourse against lenders, should loans go bad, than prime borrowers will, he says.

Another Slap on the Wrist for Big Banks

originally appeared in The New York Times:

In the face of widespread evidence of illegal foreclosure practices, federal regulators in 2011 told the big banks to investigate themselves.

The banks had to hire consultants to review foreclosures in 2009 and 2010. If violations were found, they were supposed to reimburse wronged borrowers “as appropriate.” Regulators pledged to ensure that the reviews would be comprehensive and reliable. In practice, it was left up to banks to decide what constituted wrongful foreclosure and appropriate redress.

Not surprisingly, after spending an estimated $1.5 billion on consultants, the banks have found little wrongdoing and provided no meaningful relief. Equally unsurprising, regulators will let the banks off with a wrist slap for their failure to execute credible and effective reviews.

This week, the Federal Reserve and the Office of the Comptroller of the Currency reached a deal with 10 banks under which the regulators will end the reviews and the banks will instead provide $8.5 billion in aid to borrowers. Of that, $3.3 billion is earmarked for cash payments to borrowers who lost their homes and $5.2 billion is for loan modifications and other help for borrowers currently at risk of foreclosure.

Regulators have said that the goal in ending the reviews is to provide relief to borrowers “in a more timely manner.” If it’s timely relief they wanted, they would not have instituted the deeply flawed review process in the first place, nor would they have let the sham reviews drag on for more than a year. Worse, the settlement amount is inadequate.

Since there are no reliable analyses to identify wronged borrowers — which was the ostensible purpose of the self-reviews — there is also no clear way to apportion the $3.3 billion among 3.8 million borrowers covered by the settlement. Some borrowers may get big sums while others get nothing, or millions could receive token payments. But given the extent of foreclosure abuses and the amount of money available, the individual reimbursements will be paltry compared with the harm of losing one’s home in an abusive process. If, say, half of the potentially eligible borrowers received a payment, each would get roughly $1,700 on average.

The $5.2 billion in antiforeclosure aid is potentially even more problematic. Details are not yet available, but, presumably, a bank will receive credit toward its obligation for various forms of assistance — say, a dollar’s worth of credit for every dollar by which it reduces the balance on an underwater loan or a lesser amount for every dollar of payment it postpones for unemployed borrowers. A similar formula, currently being used to enforce a separate mortgage settlement struck between banks and government officials in 2012, has yielded troubling preliminary results. It appears, for instance, that much of the aid is going to higher-income borrowers, even though the housing bust disproportionately hurt low-income communities.

For the new settlement to have any credibility, regulators must appoint an independent monitor with full authority to oversee, analyze and publicly report on the deal’s enforcement.

In the meantime, the only hope for lasting change rests with the Consumer Financial Protection Bureau, which is expected to issue new rules shortly to rein in the risky and abusive mortgage practices of banks.

What’s needed are rules to ensure that lenders face legal consequences if they structure and promote loans that fail because of lax underwriting. Rules are also needed to ensure that all eligible borrowers facing foreclosure can receive modifications according to specific, publicly available criteria. If foreclosure is unavoidable, a bank must provide borrowers with proof of its legal right to foreclose before the process gets under way.

The bureau cannot undo the past, but strong rules could at least help to ensure that the past is not repeated.