Foreclosures HELP

BANKRUPTCY PROCEEDING

SimonTheBroker — Thu, 22 Jan 2009 20:36:00 GMT

Publicity in the East Hampton Star for this home...
Click on the home to read all about it

2008 Real Estate update

SimonTheBroker — Wed, 10 Dec 2008 17:08:00 GMT

December 2008 Real Estate update...summer rentals are being renewed, at less than last years' rates. Inventory has increased, but there are buyers on the sidelines that are planning to rent ...as we still live in paradise. The buyers' consensus is that they are waiting for market guidance on a few fronts...will the prices come down here like they have in other parts of the country...? and just as important, will the bailout have programs that actually reach the marketplace?

I published two plans specifically focused on the real estate market, with the latest by Barron's out since Sunday that calls for the government to sponsor a 4.5% mortgage rate for current homeowners and new buyers...across the board. It could be effected quickly through the disabled and nationalized Fannie and Freddie. What it would address that no other plan has, is help the people that are up to date on their mortgages, and are feeling the pinch anyway. There can be no plan that helps just a portion of the market without side effects. Imagine being up to date through struggles, and your neighbor gets a hand because they couldn't keep up...or just gave up?

I sincerely believe this would also inspire enough real estate buyers on the sidelines to venture forth a little more...and it would also stem the pending foreclosures, and allow some people to withdraw some of the excess inventory from the market. If there is a program that would effectively calm the mood, if not put in a bottom that we can work on, then it should happen now, or in the first 100 days of Obama's presidency.

It would also start up the economy machine and get money flowing...which could stem the pending deep resession. I've been wrong before, but this would work...like no other game in town.

JUST FOR FUN...

SimonTheBroker — Wed, 10 Dec 2008 16:07:00 GMT

Just for fun...

...pick some of the following 20 questions to find out if your potential broker is the right one for you. I hope you'll pardon the shameless self-promotion, but we can think of no other way to impress upon you how important it is to have the right person handling the details of your family's affairs.
If you get too many "Uh..."s then you might want to think twice before picking them to handle your property. After all, if they can't handle these questions well, just how well are they going to handle the real time questions or objections, from potential buyers? How well are they going to handle negotiating on your behalf? Will they know what is happening when it is actually happening?

1- Do you live in the area?

2- All the time?

3-What have you sold, recently, and can you spell disclosure for me?

4- Do you know what joist is? A Plinth?

5- What's the current code for a joist? and in North Haven?

6- Do you know what a wetlands indicator is, and can you identify one for me?

7- Can you amortize my buyer's mortgage for them...all by yourself?

8- Do you know what a back door is? In a contract?

9- How do you qualify your prospects without being rude?

10- How long will it take for me to get my house up on the internet?

11- Have you ever heard of a domino deal? How would you structure one for me?

12- What's the definition of a fixture?

13- How do you measure the square footage of a house?

14- Have you ever been involved in a bidding war?

15- From every different perspective? How many times?

16- What's the first thing an engineer looks for? Why do you suppose?

17- Do you know what the Income Approach is? How would you build mine?

18- When would the answer to #18 mean the difference between "In Contract" and "SOLD"

19- Have you ever built a house for a dollar? How many times?

20- This is a great one for your potential broker..."Are these questions making you nervous?"

If they can't handle most of these questions really well, just how well would they handle a potential buyer's questions or objections, (with your money at stake...)???
What about all the subtleties of negotiations? Nobody is perfect, but can they handle it for you reasonably well? Forget about the big corporate name on their card, because it is the agent that will be negotiating for you, not the big corporate name. This agent might have help available to answer a question...but do you want someone that needs help... in the moment they need it?
Feel free to call Simon (631)725.4357 or come by Simon Harrison's Hamptons Office for answers to these questions, and why they could be very important in determining who might be your best candidate.

How to Solve the Foreclosure Crisis

SimonTheBroker — Mon, 08 Dec 2008 21:25:00 GMT

How to Solve the Foreclosure Crisis

A Solution That Works

SimonTheBroker — Tue, 21 Oct 2008 13:50:00 GMT

A Solution That Works: How To Stop The Housing Crisis Today

FDIC Chief Blasts Bailout For Not Helping Homeowners
Friday, October 17, 2008

Yesterday, the Chairman of the Federal Deposit Insurance Corp (FDIC) — the organization that insures banking deposits — criticized the U.S. Government’s recent $700 billion rescue package as helping stabilize financial markets, but not doing enough to address home foreclosures.

FDIC Chairman Sheila Bair told the Wall Street Journal she’s perplexed that so much attention has been focused on institutions, and not on assisting borrowers.

“I support all the measures; I’ve been a part of all the measures that have been taken,” she said.

“But we’re attacking it at the institution level as opposed to the borrower level, and it’s the borrowers defaulting.”

You can read the full story at Reuters.

Dan Gilbert Outlines His Plan on Fox Business News

Tuesday, October 14, 2008

Gilbert Outlines His Housing Rescue Plan for Fox’s Neil Cavuto

Last night, Dan Gilbert was interviewed by Neil Cavuto on Fox Business News’ highly popular “Your World” business news show.

During the interview, Dan Gilbert outlined the root problem that still persists at the center of the current financial crisis: The death spiral of mounting foreclosures, rapidly falling property values and billions of dollars in Option ARM loans set to start adjusting in early ‘09.

He also outlined his proposed solution, which would refinance the riskiest of those loans into a standard conforming 30-year fixed mortgage, without forgiving any principal — a key differentiator between Dan Gilbert’s solution and competing plans.

During the interview, Dan also took on the concern about rewarding homeowners who may have made bad mortgage decisions in past by pointing out that if foreclosures continue at the rate we are seeing, entire neighborhoods could be negatively impacted — including the homeowners who have made their payments on time.

You can view the entire interview on Fox here.

Detroit Free Press: Two Propose Sane Fixes to Housing Meltdown

Sunday, October 12, 2008

In this morning’s Sunday edition of The Detroit Free Press, Free Press business columnist Tom Walsh takes a look at two “sane” proposals to fix the housing meltdown: a plan from retired Episcopalian priest and head of the Detroit Office of Foreclosure Prevention and Reponse, Stephen Bancroft, and Dan Gilbert’s “A Solution That Works.”

Here’s what Walsh had to say about the plans:

The trick to making such a plan fly politically, Gilbert and Bancroft agreed, is convincing the 90% of homeowners who did not take out risky loans — and who dutifully pay bills on time — that they are not being punished for the sins of others.

Gilbert’s plan would not lower the loan principal owed by borrowers in trouble, he said, because that would be a red flag to people who are already pushing against rewarding irresponsible behavior.

While Bancroft’s plan would reduce the principal in some cases, the government would hold a 10-year lien on properties and reap 80% of the gains if home prices rebound beyond pre-slump levels. The goal is to stop the free-fall of prices, which is hurting everyone in what Gilbert called the “death spiral” in the market.

It’s not necessary to feel sympathy for people stuck in upside-down home loans.

And we need not feel bad for Quicken Loans, which has shrunk from 4,000 employees to about 3,200, even though it shied away from some of the riskiest loan products.

What we need is a solution that helps bring sanity back to housing, ASAP.

You can read the entire column by Tom Walsh here.

To read our complete Homeowner Rescue Plan, go here.

Senator Stabenow Says “A Solution” is “Persuasive”

Friday, October 10, 2008

Michigan Senator says bailout bill too costly; supports a plan similar to Dan Gilbert’s homeowner rescue proposal

Sen. Debbie Stabenow, D-Mich, told the Associated Press on Wednesday that Congress’ $700 billion attempted bailout of the banking industry was “too expensive” and didn’t address the core issues underneath the current financial crisis: the housing market and jobs.

Stabenow told the AP that she favored a less expensive solution that does a better job of directly addressing the housing crisis and said she found Dan Gilbert’s more focused and less-expensive plan “very persuasive.”

You can read the entire article in Forbes here.

The White House Solution to The Financial Crisis: Take Over The Banks?

Thursday, October 9, 2008

White House considering taking over some banks, says AP, anonymous source.

The big news this morning is a rumor that the White House is considering taking over ownership of certain banks — the latest move in the government’s “Whack-a-Mole” approach to dealing with the current financial market crisis.

According to the Associated Press:

An administration official, who spoke on condition of anonymity because no decision has been made, said the $700 billion rescue package passed by Congress last week allows the Treasury Department to inject fresh capital into financial institutions and get ownership shares in return.

This official said all the new powers granted in the legislation were being considered as the administration seeks to deal with a serious credit crisis that has caused the biggest upheavals on Wall Street in seven decades and continues to roil global markets.

This rumor comes on the heels of yesterday’s emergency interest rate cut by the Fed, which reduced its key rate from 2 percent to 1.5 percent. In an effort to stave off the spread of the U.S. finance market woes, other global central banks followed suit, including the Bank of England, The European Central Bank and the central banks for Canada, Sweden, Switzerland and China.

Details on the possible U.S. government takeover of select banks are sketchy, but proponents of the plan argue it will inject fresh capital into banks, help them clean up their balance sheets and allow them to resume lending.

The problem with this proposal (like nearly every other tactic that’s been employed over the past three weeks) is that it treats a symptom, rather than the cause. While market psychology is complex, much of the current panic is being driven by a fear of more mortgage defaults, which will add additional “bad debt” to already troubled balance sheets of banks and financial institutions that hold these loans. Buying out the bad debt isn’t the solution. You’re just transfering the problem from private institutions to public ones — in this case, the Federal government.

A better solution, which is what we are advocating here at “A Solution That Works,” is to have the Federal government and private lending institutions work together to immediately refinance the worst loans (those in most immediate danger of foreclosure) by reducing the interest-rate dramatically, waiving prepayment penalties (which makes it cost-prohibitive for homeowners to improve their situation) and refinance individuals out of risky loan programs and into safe, secure, fully-amortizing 30 year fixed loans.

There is no need to tamper with the principal amount or have the government “buy up” bad debt (both of which were proposed by John McCain this week), because the homeowner is given affordable, long-term fixed rate financing that allows them to afford and make their monthly payments. Once you’ve accomplished that, the risk of foreclosure on these mortgages is immediately and dramatically-reduced. This makes lending less risky, reduces the future risks associated with having these loans on the books, and as foreclosures slow, would start to stabilize property values.

While the homeowner may still be in a negative equity situation, they at least have hope at the end of the tunnel and chance to equalize their equity as property values stabilize, and hopefully grow.

Fox News's business host Neil Cavuto interviews Dan Gilbert on his housing market rescue plan.
Forbes Magazine: Senator Stabenow Says Gilbert Plan is "Persuasive"
Detroit Free Press Tom Walsh: 2 Propose Sane Fixes to Housing Meltdown
As bailout vote nears, other plans proposed - The Detroit Free Press
Dan explains the rescue plan to News/Talk 760 WJR's Frank Beckmann
Dan Gilbert talks to CNBC's Maria Bartiromo about why the $700 billion government bailout isn't enough to solve the death spiral in the housing market.

Watch the Interview!

I have the answers...

SimonTheBroker — Mon, 13 Oct 2008 17:25:00 GMT

...CNBC asked for CEOs to come forward and lead us out of the fray on Friday, Oct 9th...the day of the thousand point swing. Reluctantly I answered the call. I have enough economics training, experience, and a touch of arrogance to be dangerous...and I have nothing but theories anyway.

It's safe to assume that the worldwide markets aren't just correcting, they are broken. If the equity markets are shut down worldwide, it could allow the bailout measures, and other remedies at the disposal of those in charge), to take some sort of effect. Thaw the gears in the frozen credit wasteland.

The credit markets, (interbank lending), have to flow again for many companies to remain going concerns. The de-leveraging has to complete its course, and the main side effect is wealth destruction. Wealth was created by electronic means via financial vehicles like checking, credit cards, and the more subtle forms are only understood by some in Wall Street...derivatives, collateralized debt obligations, (CDOs) mortgage backed securities, (MBS) options (puts and calls), shorting, hedges, straddles, collars etc. All of these and more create multiples of actual dollars, layers of synthetic dollars...in fancier forms. Since risk is being re-valued, the 60 to 1 ratios of synthetic to real dollars have recenty been ratcheted down, and since there still isn't a market for the smaller ratios... it might have to get to historical ratios. History tells us that those ratios are often associated with the average price earnings ratios of fortune 500 companies. That's 10 to 1 and since we're way above that, Look out below...

If you think Education costs too much...

...you should see how expensive ignorance is.

I have a theory that is somewhat connected to the US government having the ability to print more money...and flooding the illiquid system. The side effect is that inflation will ramp up, and dollars will be worth less, meaning it will take more actual dollars to buy the same gallon of milk, the same widget, the same car and the same sheet of plywood. What will also happen is that the very expensive housing market will be supported in dollar values, and a floor will be set...which will set the stage for a recovery. The side effects will be too numerous to mention. The minimum wage will not be enough, taxes will need to be adjusted, and everyone will just have to adjust to ten dollar milk...but since the market is already broken, let's make sure that housing is fixed. If you think that AIG is too big to fail, wait till you see how big the US housing market is...

Specific property consultation

SimonTheBroker — Fri, 10 Oct 2008 21:04:00 GMT

Specific property consultation is available by appointment and includes;

1- Current market analysis including rent and sale options.

2- Strategies and other options to stay in your home.

3- Negotiating with your bank, including preparing for modifications.

To buy a foreclosure:

TO STOP A FORECLOSURE

SimonTheBroker — Thu, 02 Oct 2008 19:49:00 GMT

For those under pressure with your mortgage, please visit the following links to New York State Banking dept as well as two local HUD-approved NON-PROFIT organizations that will help you apply for a loan modification. You DO NOT HAVE TO PAY for these counseling services, and there are many con-artists preying on people that need the help to avoid losing their homes. There are other companies, but check those out with NYS Banking first to make sure they are approved...here's a helpful link.

http://www.banking.state.ny.us/hetp.htm

http://www.americandebtresources.com/site68.php

http://www.cdcli.org/services_subitems.asp?sid=1&ssid=33

If you need some suggestions about what to do, the first thing that all of these counselors suggest is to be proactive and contact NYS Banking, then your bank. It does take a long time for a bank to take the home, and there are many steps that can be taken in between that stop the sale. It could take years.

TO BUY A FORECLOSURE

SimonTheBroker — Thu, 02 Oct 2008 19:36:00 GMT

The reality about buying investment properties in default is three-fold...

1- Foreclosure proceedings can take a very long time, (and in Suffolk County it is rumored to be up to two years from a missed payment)...and a loan modification could take the place of a sale at the last minute.

2- If a property is foreclosed and sold at an auction, often the house has not been taken care of and needs at least some minor work, and sometimes a lot of work that one cannot see...nor have time to inspect properly.

3- Often a house is foreclosed because there is more owed on the property than it is worth. Read this as many times as you need to until you understand what it says. Foreclosures do not always represent a good deal.

Occasionally they do represent a value, as banks do not want to own real estate. They do not want to manage the properties, nor do they want to affect their ratios. Always keep in mind that banks are savvy sellers, and the buyers circling the foreclosures are also well versed and often experienced lawyers, sometimes they're sharks. Sometimes they're rank amateurs that are dangerous to even themselves. If you don't know which one you are, then you're probably not a shark...and you probably could get hurt.

There's also some negative energy attached to investing in foreclosures, and it isn't always pretty. Sometimes it's a business decision to let a bank take a home, and sometimes it is a family that met with unforseen circumstances. That might not be something you've thought about.

Downsizing the American home

SimonTheBroker — Tue, 10 Jun 2008 19:35:00 GMT

Downsizing the American home
During the housing bubble, KB Home priced out first-time homebuyers by building bigger. Its new, more modest model provides a glimpse of what the return of the housing market may look like.

By Shawn Tully, editor at large

(Fortune Magazine) -- In the history of real estate there are a handful of legendary homebuilders - William Levitt, who created Levittown on Long Island, being one, and then there's Eli Broad, who became a billionaire building tract homes throughout the Midwest and Southern California.

Surrounded by the famous Jasper Johns series "The Seasons" in his office 11 floors above Los Angeles' Wilshire Boulevard, Broad does not miss much. The 75-year-old real estate pioneer has seen bull and bear markets, and in recent years he watched as the company he founded (and cashed out of so he could focus on philanthropy) lost its way. During the bubble, KB Home (KBH, Fortune 500), like many other big builders, blew up its old-line business by going ritzy and building expensive houses. Now KB is among the first homebuilders to recognize the error of its ways, and it is returning to its roots as a purveyor of low-cost, smaller homes. In some cases KB is even using the same façades from the go-go years and then shrinking the house that lurks behind them to be half as deep - and about half as expensive. "If I had to write a headline for housing, it would be back to basics," says Broad. "The right thing to do is just what KB is doing: build starter homes that compete with rentals."

KB's recovery plan is not just a tale of two houses. It is a tale of two CEOs. During the bubble Bruce Karatz, a flamboyant marketer, believed that the public's hunger for McMansions would keep the good times rolling for years to come. It was his successor, Jeff Mezger, a hammer-and-studs operator, who recognized that the world had gone mad and steered KB back to first-time buyers. That strategy shift may prove to be a primer on how the housing market rejuvenates itself after a boom and a bust.

When owning is as cheap as renting

When the real estate market comes back, it will not be with a sonic boom. It is likely to be subtle, below the public's radar. The revival will probably begin in the areas hit hardest by the bust: in Florida, Las Vegas, and the honeycombed tracts that flank the broad freeways east of Los Angeles known as the Inland Empire. (Indeed, home sales in Southern California surged 22% from March to April, hitting their highest levels since August.) Why will housing come back? For a reason as solid as floor joists: The entry-level buyer, for the first time in years, is finding that owning a new house is suddenly just as cheap as renting. "Those first-time buyers got locked out by high prices," says John Karevoll of DataQuick, a research firm that assembles data on the U.S. real estate market. "Now the buying activity that was on hold is starting to come back."

In hindsight, the reason for the current malaise is simple: too few buyers. By 2007 more and more people were frozen out of the market - especially the entry-level buyers, who now account for as much as 30% of new-home sales. They're the twentysomething young professionals who rent until they get married or the first child arrives, and then reach for the American dream of homeownership. From 2005 to 2006 some first-timers rushed to purchase homes they couldn't afford with the help of exotic loans. But another big group of young consumers steered clear and are finally looking to buy. Now that prices of new houses have fallen as much as 30% in areas including the Inland Empire and the outskirts of Phoenix, they are returning- prompting a turning point in the housing cycle. Call it the New Affordability.

Three factors are driving the New Affordability: housing prices, house size, and the government's expanding role in the mortgage market. The experience of Richard Murkey, 28, and his wife, Kayla, 25, epitomizes the trend. The Las Vegas residents started shopping in 2006 but couldn't remotely afford the $300,000-plus prices that modest houses were fetching at the height of the frenzy. "Then, in the middle of 2007, we saw prices dropping, so we started looking again," says Richard, who sells safety products to construction sites. In January the Murkeys went to contract on a four-bedroom, Tuscan-style house at $246,000, more than $50,000 less than that KB model sold for 18 months before. It gets better. KB Home offered a program called "price protection" that guarantees that if the price of your model falls before the closing, KB will lower your price to match it. Result: The Murkeys got a discount that dropped the price from $246,000 to $213,000.

Nor was financing a problem. The Murkeys obtained an FHA-insured loan at under 6%, with a down payment of just 3%. Their mortgage, taxes, and insurance total $1,400 a month, a mere $200 more than the rent they were paying on their three-bedroom apartment. The FHA's role is something that housing bears have mostly overlooked: The FHA, Fannie Mae, and Freddie Mac are now guaranteeing more than 90% of loans to first-time homebuyers. The FHA is providing lending that the private market has stopped making to borrowers with blemishes on their credit records. Both the rates and down payments are extremely low.

Today seven in ten KB customers are getting financing from the FHA. The current rates are below 6%, more than 100 basis points under those on jumbo mortgages not backed by the FHA or Fannie Mae or Freddie Mac. (Fannie and Freddie lend less readily to people with past credit problems and hence aren't as crucial to the entry-level market as FHA financing.) Congress has raised the FHA limit to $729,750 in high-cost areas like Los Angeles through the end of 2008. But even if the limits aren't extended, virtually all the houses KB sells are priced for an FHA loan.

The houses themselves are being radically downsized to meet buyers' budgets. At the peak of the last boom, in 2006, KB's customers craved cathedral ceilings, formal dining and living rooms, and fancy wrought-iron railings on windows and balconies. Today's buyers, KB found, are willing to trade size and amenities for far lower prices. But they're extremely specific about what they want to keep. Buyers welcome houses half as big as the models that reigned at the peak, as long as they offer plenty of bedrooms. They also don't miss the formal living and dining rooms if KB provides a "great room" combining the two in one open space that includes a generous-sized kitchen.

Bargain-hunters are drawn to these small houses, which look just like the behemoths built in 2005 and 2006. In Beaumont, a community of tract homes 70 miles east of Los Angeles, the Seneca Springs community is dotted with 4,000-square-foot, seven-bedroom Mediterranean homes that KB built at the peak. But right next to them the company is erecting new houses with exactly the same 50-foot façades- and a big difference you don't notice from the street: They're about half as deep and roughly 2,000 square feet. Those homes preserve the community's curb appeal by keeping the façades looking similar and sumptuous. But purchasers love that the new homes boast five bedrooms, and they especially appreciate the pricetag: about $220,000, vs. $420,000 for the big neighboring homes built at the peak (and that now sell for around $300,000). Over time this New Affordability may swell the ranks of buyers. "What's been killing the market is people who are waiting to buy or incapable of getting financing," says Jonathan Dienhart of Hanley Wood Market Intelligence, a residential real estate research firm.

Downsizing the American home (page 2)

By Shawn Tully, editor at large

During the bubble KB lost its way. Building big, pricey homes wasn't a mistake- that's what the public wanted. The real problem was that management misread the future: It bought the illusion that the frenzy would last, and gorged on overpriced land. Management's grandiose thinking also pushed KB into splashy new businesses far from its traditions. KB began in 1957, when Broad, then 23, recognized that he could lure legions of first-time buyers from their Detroit garden apartments if he could build houses more cheaply than his competitors. His rivals were erecting classic houses with basements. Broad saw basements as an anachronism: Homeowners no longer needed cellars for storing coal. So his new company, Kaufman & Broad, erected houses on a concrete slab and used part of the savings to offer his suburban commuters a popular new feature, the carport. Broad's $13,700, three-bedroom starter homes carried the same monthly cost as a two-bedroom rental. "It was all about affordability," says Broad, "just like it is again today." By the early 1960s Broad had moved Kaufman & Broad to California and expanded into the thriving Sunbelt markets that, along with the Golden State, are still KB's main turf, chiefly Arizona, Nevada, North Carolina, and Florida. Then as now, KB built not only starter homes but also their cousins, inexpensive houses for customers moving up.

Market forces were partly to blame for KB's detour in 2005 and 2006. Builders could sell all the $400,000 homes they wanted, and the margins on those McMansions were a lot fatter than on small houses, chiefly because they could build them on virtually the same small lots as the old-fashioned starter houses. Still, some of the blame for KB's losing its way belongs to the CEO who succeeded Broad, his protégé Bruce Karatz.

Karatz led a high-profile life. He was married to the Food Network's Sandra Lee, was a regular in a skybox at L.A. Lakers games, and earned more than $40 million in fiscal 2005, ranking among America's highest-paid CEOs. Karatz launched a division to build high-priced urban condos and hotels in downtown L.A. Martha Stewart designed a special line of premium homes for KB: Her clapboard Katonah model, featuring colonial columns, dormers, oval windows, and transoms, sold for an un-KB price of $500,000 at the peak in Houston.

In Karatz's defense, KB was profiting wildly from the expensive houses it was building, and in 2005 the CEO predicted sales would double to $18 billion by 2008 (we'll get to the actual number in a minute). But a year later Karatz was forced to resign, the victim of a stock-options backdating scandal. (Karatz declined to comment for this story.) To calm investors, KB's board brought in Stephen Bollenbach as the new chairman. Bollenbach (who's a board member of Time Warner (TWX, Fortune 500), Fortune and CNNMoney.com's parent company) arrived from a tenure at Hilton Hotels that culminated last year in his selling the company to the Blackstone Group for an astounding $26 billion.

In November 2006, KB also promoted its longtime COO, Jeff Mezger, to CEO. In contrast to the flashy Karatz, Mezger is a brick-and-mortar operator. At 10 years of age, Mezger was attending planning-board meetings with his father, a Chicago homebuilder. His obsession is to make homes affordable but still offer features that sharply distinguish KB houses from the competition's. Jon Georgio, a landscaping contractor, recalls working with Mezger in the depressed market of the early 1990s in Antelope Valley, 40 miles north of L.A. "All the other developers were seeding front lawns, so the lots looked messy and unfinished while the lawn was growing," recalls Georgio. "Jeff insisted on sodding all the lawns to get a lush green look." By giving the landscaper lots of lawns to fill, Mezger persuaded Georgio to supply sod for close to the same price as seed. The gambit worked. "Jeff found a way to sell dozens of houses when few other builders were selling," says Georgio. The landscaper is quick to caution that Mezger can be a hoot outside the office: He's the proud owner of a 1963 Corvette and hosts Georgio for karaoke duels at his Bel Air home.

A strong balance sheet

It was Mezger who shifted KB's focus back to the customer who built the franchise, the first-time homebuyer. His coup was making the turn to affordability before such competitors as Centex (CTX, Fortune 500) and Ryland Homes (RYL). "By late 2005 we could see credit was tightening and investors were no longer buying," says Mezger. So he pitched his strategy toward producing the old KB product. "We needed to build houses priced for the median incomes of our communities," says Mezger. "We got away from that in 2004 to 2006." He also strove to build big financial reserves to provide KB with the staying power to weather the stricken market, for several years if needed. Hence, KB sold off huge landholdings and thousands of homes at a loss. In the fiscal year that ended in November, it posted a deficit of $929 million on $6.4 billion in sales, about a third of what Karatz predicted just three years ago.
KB is booking those losses because it's been selling homes and lots at well below the amount it spent to build or buy them. But it put out that cash years ago. Now Mezger is building fewer homes and acquiring less land than in the past. So despite the accounting losses, KB is taking in far more cash than it's putting out. As a result, it has increased its cash hoard from $700 million to $1.3 billion and has reduced debt by almost $1 billion, or 33%, in the past 18 months. "KB has one of the strongest balance sheets of any homebuilder, and the resources to get through the downturn," says Jay McCanless, an analyst with brokerage firm FTN Midwest Securities. Gone, too, are the noncore projects of the Karatz years. The new boss has dumped the corporate jet, and the annual report is a stapled SEC filing. "Who needs fancy pictures in this kind of a housing market?" he asks.

Mezger's back-to-basics approach depends on two variables beyond his control: land prices and labor costs. In Jacksonville, for example, the price for finished lots with roads and utilities in place tripled from $25,000 to $75,000 between 2002 and 2006. KB couldn't make money building its old staple and had to build big. By 2006 KB's median price in Florida had jumped from $180,000 to $270,000, and the size of its houses had ballooned from 1,800 to more than 3,000 square feet.

Today both land and construction costs are falling rapidly. In California's Inland Empire, the price per finished lot has collapsed, plunging from $150,000 at the peak to about $50,000. Labor costs, the single biggest expense after land, are also dropping as construction trades look for work. In Florida, construction costs for a 2,000-square-foot home have dropped to $80,000, vs. $100,000 at the peak, a 20% reduction. The result is that the average sales price there has fallen from $275,000 to $215,000. In the inland areas of Southern California it has dropped from $350,000 to $260,000.

Additionally, KB is cutting costs by assembling homes from prefabricated 12- and 16-foot panels that are hoisted into place with cranes.

That wasn't possible when buyers coveted fancier houses with custom elements.

So if those first-timers who sat out the era of the McMansions and the McMortgages start buying these modest homes, Mezger may go down in the annals of real estate as the man who saved The House That Eli Broad Built. He'll also need to expand his crooning repertoire. On karaoke nights, he usually caps the evening by singing "Unforgettable." Since his music collection harks back to the 1930s, investors are hoping that he may soon be singing another classic: "We're in the Money."

First Published: June 4, 2008: 5:54 AM EDT

Going Green

SimonTheBroker — Fri, 06 Jun 2008 16:18:00 GMT

Keep in mind that the square footage price is alarmingly deceptive in building trades, for several reasons. The main one is that there are different methods to measure square footage;
heated space, floor area of heated or living space, (not the same)
under the roof, measure the main floor then a fixed percentage of the second floor
displacement.

The latest in the Southampton town halls is to change from floor space to wall space, the difference includes the thickness of the walls and can be measured from outside.

...with all these active methods, simple logic says that we're talking about cubic feet instead of square footage, and there should be a standard. There is, a standard that appraisers use, a standard that assessors use, a standard that builders use, a standard that AC men use, a standard that real estate brokers use, a standard that there is no standard. Measure your own should be the norm.

...there's also a discussion about GREEN sizing and mcMansions and banking

...we'll get to that later, but understand that the first 1000 square feet of a home costs more than the third thousand and a lot less than the 7th thousand cubic foot. This is because the permit and the engineering all go into the first square foot, and the well and the heating system, electrical hook-up etc. Adding capacity on all the systems and an outlet and more ductwork is just economy of scale efficiency. The banks and mortgage companies probably knew this, but they're changing the metric just in time. That's sarcasm that might be too subtle for some...because the banks writing mortgages encouraged larger loans and therefore encouraged higher appraisals via the same high costs per square foot to build. This phenomenon created a market for McMansions over and above Wall Street player's interest in what Shaq calls "Gangsta houses"

‘Little Indication’ of Housing Bottom

SimonTheBroker — Fri, 30 May 2008 15:05:00 GMT

Economic insight and analysis from The Wall Street Journal.
May 27, 2008, 12:41 pm

Economists React: ‘Little Indication’ of Housing Bottom

Economists and others weigh in on the latest data from the Case-Shiller house price indices, which showed a drop in prices, and new-home-sales data, which showed an increase in sales and a jump in new-home prices.

· Both median and average sales prices [measured in the new-home-sales data] rose in April from last year’s level. In March these two measures were both declining at a double-digit pace. Part of the turnaround may be due to a compositional effect. The only region where sales declined last month was in the South, also a region with below-national-average prices. The Case-Shiller index, out earlier this morning, controls for these regional mix-shifts and shows continuing rapid declines in house prices. –Michael Feroli, J.P. Morgan

· This is the third consecutive month The [Case-Shiller 20-city index] fell 2.18% month-over-month, continuing its now 5-month streak of greater than 2% monthly home price declines. Bought a house last October with 10% down? Congratulations — you’re now underwater. Is all real estate local? Not anymore, but it is regional. Within individual metropolitan areas, there were a few surprises, perhaps the biggest being Dallas, which flip-flopped from a 0.67% price decline in Feb to a 1.10% price increase in March. California (not just southern) and Florida continue to live up to their reputations as the biggest post-boom bust locales… The sizeable March revision (-17,000) [to new-home sales data] was the bigger story, as it may suggest a higher level of abandonment by buyers who walked away from contracts. In light of the ~2% monthly decline in home prices nationwide, it’s not surprising to see a tick up in abandonments.–Guy LeBas, Janney Montgomery Scott

· House prices continued to decline in March but the drop in both the 10- and 20-city composite Case-Shiller housing price indices was slower than in the two previous months… Sales of new single family homes rose 3.3% but this initial estimate of the April sales totals matched the previous estimate for March, which had been the lowest level since late 1991. Indeed, the latest report included downward revisions to sales figures for each of the past six months. The median sales price was surprisingly higher than a year ago but, as with the big drop in the median price in March, probably reflected a shift in the regional sales mix. –David Resler, Nomura Securities

· New home sales extended their 33 months decline, which has now totaled 62.1%. Moreover, despite this month’s increase, there is little indication that home sales are approaching a bottom. Inventories of unsold homes remain very high despite slipping for the thirteenth consecutive month. Prices [in the new-home data] posted an unusual gain but this was due to a shift in the composition of sales toward more expensive areas rather than stability in prices. Home prices are still falling on trend. –Steven A. Wood, Insight Economics

· Inventory of existing homes is still very close to its record high so prices will continues to fall rapidly. Since its May 06 peak the Case-Shiller index is now down 15.7%; we expect the peak-to-trough drop to reach 25-to-30%. –Ian Shepherdson, High Frequency Economics

· Despite the sharp drop in home prices, housing demand has remained depressed, leaving a huge overhang of homes on the market for sale. In addition, rising foreclosures puts downward pressure on home prices since foreclosed homes typically sell at a discount to the market clearing price. As such, we expect home prices to fall another 10% through the end of 2009 as the market slowly, and painfully, clears the hefty overhang of homes on the market for sale. –Michelle Meyer, Lehman Brothers

· Chatter about a possible turn in the housing market remains hopelessly premature. The latest Case-Schiller house prices indices, which it should be remembered cover repeat sales of single-family homes so exclude condos and that the data is also smoothed over three months, underlined that the housing market continues to go from bad to worse… Don’t be fooled by the optical illusion of a month-to-month pop in new home sales in April, which will almost certainly be revised away. Seasonal adjustments also appear to be flattering the April data. Bottom line - demand for new housing is still falling & at a rapid pace. –Richard Iley, BNP Paribas

· The only tentative — and it is only very tentative — positive sign [in the Case-Shiller data] is that once we seasonally adjust the 20-city index the monthly rate of decline did not steepen, holding approximately constant at around 25%. Of course, prices are still falling at a 25% annual rate which is pretty horrendous, tons of excess supply remains and there have been temporary pauses before over this downturn. –Goldman Sachs

Economic Scene

SimonTheBroker — Wed, 28 May 2008 15:40:00 GMT

Business

Economic Scene

As Home Prices Drop Low Enough,
a Committed Renter Decides to Buy

By DAVID LEONHARDT
Published: May 28, 2008

For the last few years, I have been an evangelist for renting.

The New York Times

Multimedia

Interactive Graphic
Is It Better to Buy or Rent?

Buy or Rent? Look at the Rent Ratio

I’ve told my sister-in-law and her husband that they would be crazy to abandon their reasonably priced one-bedroom rental in Brooklyn. When two of my colleagues were moving to Los Angeles, I e-mailed them a spreadsheet that helped persuade them not to buy a house there. That same spreadsheet was the basis for an article in 2005, when I argued that “renting has become a surprisingly smart option.” Last spring — like any good evangelist, comfortable with repetition — I wrote a similar article.
The case for renting has been simple enough. House prices rose so high in the first half of this decade that you could often get more for your money by renting. You could also avoid having a large part of your net worth tied up in a speculative bubble.
All this time, I have been a renter myself, first in the New York suburbs and then in Manhattan. But my wife and I will be moving to Washington this summer. And the housing market has, obviously, changed quite a bit since our last move, in 2005. Nationwide, prices fell 14.1 percent from early 2007 to early this year, as Standard & Poor’s reported Tuesday. Home prices almost certainly still have a way to fall, but they’re now well below their peak.
So my wife and I began our search with open minds, willing to consider renting or buying. We ended our search by signing a contract to buy a house.
This is the story of my conversion.
•
One of the big lies of the real estate business is the idea that renting a home is tantamount to throwing money away. It’s a useful fiction for real estate agents, because they make vastly bigger commissions on house sales than rentals. But the comparison isn’t nearly so straightforward for the rest of us.
Renting involves one obvious, recurring cost that can never be recouped: the monthly rent check. Buying, on the other hand, involves multiple expenses, some of which aren’t so obvious. On top of closing costs, there are repairs, property taxes, mortgage principal and mortgage interest. (The mortgage-interest tax deduction reduces this last cost but doesn’t eliminate it.) When you own, you also lose the ability to invest your down payment elsewhere, like the stock market.
Of course, owning also brings benefits that have nothing to do with money. You can settle into your home, confident that no landlord will kick you out. You can repaint the walls and redo the kitchen. All else being equal, owning seems far preferable to renting.
Knowing all this, my wife and I were willing to buy a house even if it was ultimately going to cost us a bit more than renting. We just weren’t willing to have it cost a lot more than renting.
Over the last several years, I’ve come to like a simple, back-of-the-envelope way to compare the costs of renting and owning. You find two similar houses, one for sale and the other for rent, and divide the sale price by the annual rent. You can call the result the rent ratio.
The concept will probably sound familiar to stock market investors. It’s the real estate market’s version of a price-earnings ratio — a measure of how expensive an asset is, relative to the underlying economic fundamentals. Like a P/E ratio, the rent ratio provides something of a reality check.
Throughout the 1970s, ’80s and ’90s, the average rent ratio nationwide hovered between 10 and 14. In the last few years, though, it broke through that historical range and hit almost 19 by the time the housing market peaked, in 2006.
And while home prices — and rent ratios — have always been higher on the coasts, they reached whole new levels recently. In the Washington area, the ratio went above 20. In Boston, New York, Los Angeles and south Florida, it topped 25. In Northern California, it approached 35, higher than it had been in any city, at any point on record.
In concrete terms, a rent ratio above 20 means that the monthly costs of ownership well exceed the cost of renting. At current mortgage rates, for example, a $500,000 house would typically bring monthly expenses of about $3,000 (taking into account taxes, repairs, a typical down payment and, yes, the mortgage deduction). When the rent ratio is 20, that same house could be rented for only about $2,000 a month.

There are two problems with buying a house in this situation. The first, plainly, is the extra $1,000 you’re paying each month for the privilege of owning, on top of the thousands of dollars you spent on closing costs. The second problem is that a rent ratio above 20 is a good indication of a bubble. When the prices of houses get out of line with the competition’s prices — that is, those in the rental market — a correction is coming.

Tax Rebates Won't Spark U.S. Economy

SimonTheBroker — Tue, 13 May 2008 20:32:00 GMT

Tax Rebates Won't Spark U.S. Economy, Survey Shows (Update1) By Shobhana Chandra and Alex Tanzi

May 9 (Bloomberg) --

The Bush administration's tax rebates won't prevent the U.S. economy from stagnating in the second quarter as soaring food and fuel bills hurt consumers, a Bloomberg News survey showed.

``Consumers have gone into the bunkers,'' said Ken Goldstein, an economist at the Conference Board, the New York- based research group that tracks confidence. They ``fear that their budgets are getting squeezed tighter and tighter.''

The economy will grow at a 0.1 percent annual rate from April to June, the least since the 2001 recession, according to the median estimate of 54 economists surveyed from May 2 to May 8. Household spending may rise at a 0.5 percent pace, half the first quarter's gain and the smallest increase in 17 years.

Economists also said the economy would grow less in the second half of the year than forecast last month, even as the odds of a recession came down. After paying the higher costs of food and gasoline, the $117 billion in rebates may leave little extra as individual taxpayers are limited to $600.

``A $600 check isn't enough to turn things around,'' said Goldstein. ``It took so much to wilt consumer confidence, that it's not going to be rebuilt real fast.''

The survey median showed the economy will expand at a 1.5 percent pace in the fourth quarter, following a 1.6 percent growth rate in the previous three months, when most of the money returned by the government is likely to be spent. The U.S. grew at a 0.6 percent pace in the first three months of 2008.

`Disappointing'

``The rebates won't generate a sustained increase in spending,'' said John Silvia, chief economist at Wachovia Corp. in Charlotte, North Carolina. ``By the fourth quarter, growth will look disappointing to most people.''

After accelerating to a 2.3 percent annual pace in the third quarter, gains in consumer purchases will slow to 1.6 percent in the last three months of the year. Spending rose at an average rate of about 3.4 percent over the past decade.

Federal Reserve policy makers will keep the target interest rate unchanged at 2 percent until the second quarter of next year, the survey showed, to allow time for the 3.25 points of reductions since September to take effect.

Another sign of slumping domestic demand is a decline in imports, which is narrowing the country's trade gap. The U.S. trade deficit in March narrowed more than forecast to $58.2 billion, as imports dropped by the most in more than six years, the Commerce Department said today.

Recession Chances

Economists polled remained on recession watch, even as the odds of a U.S. contraction now, or within the next 12 months, fell to 55 percent from 70 percent in the April survey.

``I don't think we're totally out of a bad situation that could easily get worse,'' said Oscar Gonzalez, an economist at John Hancock Financial Services in Boston. ``We're walking along the edge'' of a recession, he said.

One risk is the labor market may worsen. The unemployment rate will rise to 5.5 percent by the end of 2008, from 5 percent in April, the survey showed. The economy lost 260,000 jobs in the first four months of this year, and companies remain reluctant to hire.

Cash-strapped Americans are accumulating credit-card and other forms of debt. Consumer borrowing jumped more than double the amount economists forecast in March, while the share of banks making it tougher for companies and consumers to borrow approached a record in the past three months, according to Fed reports this week.

Wal-Mart Shoppers

Shoppers are turning to discount chains to stretch their paychecks. Wal-Mart Stores Inc., the world's largest retailer, said sales at outlets open at least a year may rise as much as 2 percent in May, excluding fuel. That's after a 3.2 percent gain in April that was larger than they anticipated.

Still, even Bentonville, Arkansas-based Wal-Mart has noticed a change in buying patterns.

``The economy continues to get tougher and the paycheck cycle is more pronounced for customers than in past months,'' Eduardo Castro-Wright, chief executive officer of Wal-Mart's U.S. stores, said yesterday in a statement. ``As money gets tighter for them toward the end of the month, sales drop more than we have seen in the past.''

Purchases of expensive goods are plummeting. Sales of cars and light trucks in April slid to a 14.4 million annualized rate, the lowest since 1998, according to industry figures.

The jump in inflation may not go much beyond record prices for gasoline and the rising cost of food, economists said. Prices tied to consumer spending and excluding food and fuel, the Fed's preferred measure, will rise 2 percent in 2008, according to the survey median, the smallest gain in five years.

Compared with prior surveys that typically reflected more than 60 responses, the May poll was based on fewer estimates, indicating economists' projections may be in flux.

``The uncertainty is palpable,'' said Martin Regalia, chief economist at the U.S. Chamber of Commerce in Washington. ``We're flirting with a recession, but it's just not clear. If we stayed right where we are, it's almost a coin flip.''

To contact the reporters for this story: Shobhana Chandra in Washington at schandra1@bloomberg.net; Last Updated: May 9, 2008 08:54 EDT

Seeking a Mortgage

SimonTheBroker — Mon, 05 May 2008 15:31:00 GMT

Seeking a Mortgage in Today's Market Is Not Easy

^{^{By Aleksandra Todorova
March 27, 2008

WITH FALLING HOUSING PRICES, relatively low interest rates and an abundant inventory of properties to choose from, you'd think buying a home these days would be a breeze.
That's until you start shopping for a mortgage. Stung by the subprime mortgage crisis, lenders have tightened their requirements considerably, giving even the most creditworthy borrowers a hard time when it comes to qualifying for a new mortgage or refinancing an existing one.
"Financing has become the single most important factor for home buyers and sellers," says Anthony Marguleas, owner of real estate brokerage Amalfi Estates in Pacific Palisades, Calif. Marguleas recently represented several sellers who had been preapproved for loans with a 10% down payment. But as they moved toward closing they were told that, due to a change in lending requirements, they would need to put 20% or even 25% down to gain approval.
"Lenders are changing their guidelines every day and making them more restrictive," Marguleas notes. He now asks that all new clients have a mortgage preapproval that's no more than a few weeks old. "If they show a preapproval from three months ago, it may no longer be valid," he explains.
While real estateand mortgage brokers may resent this more stringent lending landscape, lenders counter that things are simply getting back to the way they should be. "To me, it's like it was back in the 1980s," says Steve Jacobson, president of Fairway Independent Mortgage Corporation, a Madison, Wis.-based lender. "When you sat with someone 20 years ago, you had to discuss four things: job stability, cash, credit and income. All four had to make sense for a loan to work."
Now, if you lack in one area (say, your credit score isn't great or your assets are insufficient) you'd have to make up for it in others (with a higher down payment, for example). Here's what it takes to get approved for a loan in this environment.

A healthy credit score

The almighty FICO score^{1 has long been crucial to people's ability to borrow. During the real estate boom, however, the ready availability of subprime loans ensured that even borrowers with scores in the 500s could qualify for a mortgage. "A few years ago, you could get a 100% stated-income loan with a 640 FICO score," says A. W. Pickel, president of LeaderOne Financial, a Overland Park, Kan.-based mortgage lender. (Stated-income loans don't require borrowers to show proof of income, such as tax forms and pay stubs.) One company, he says, even offered such loans to home buyers with scores as low as 580.}
The bar for what's considered a healthy score is decidedly higher today, making it difficult for consumers with mediocre credit to qualify for a mortgage they can afford. "To be a successful borrower today at the best possible rate available, you have to have a FICO score of at least 700 or 720," says Keith Gumbinger, vice president of mortgage research firm HSH Associates.
Earlier this month, Fannie Mae issued a directive requiring lenders to adjust loan pricing by 0.5% to 2.75% of a loan's value based on a borrower's credit score, says Bruce Brown, president of First Security Mortgage Company, a Liberty, Miss.-based mortgage lender. Those with scores of 720 or more can qualify for the cheapest rates and no fees. But with scores between 700 and 719, borrowers will have to pay an additional 0.5% of the borrowed amount in the form of a fee or a higher interest rate. That's an added $1,000 fee on a $200,000 mortgage, or a rate increase that would be equivalent to that amount.
This makes boosting2 your credit score even more imperative. "These [cost] adjustments are done in 20-point increments so if you jump your score by as little as 20 points, the cost savings are significant," Brown says.

A sizable down payment

Forget about 100% financing. Today, even a 5% or 10% down payment may be insufficient, especially if you live in a declining market and your score is lower than 620. That's because mortgage insurers have stopped insuring loans for 100% financing, Brown explains, and have significantly limited insuring 95% financing for borrowers with low credit scores. (Private mortgage insurance is required for anyone who puts down less than 20%.)
If you're buying a condo, be ready to cough up even more. Sean Burton, chief operating officer of CityView, a Los Angeles-based real estate investment firm, says condo buyers today are not only required to put down as much as 20%, but often have to prove they have enough money in the bank to cover three to six months' worth of living expenses. "The combination of doubling the down payment and requiring reserves has pushed many people out of the market," he says.

Flawless documentation

Even people with perfect credit are required to submit documentation detailing every aspect of their financial lives, from their income to the dollars and cents in their bank accounts. So-called stated-income-stated-asset loans, where borrowers weren't required to verify their income, assets and other financials, are now history, Brown says, no matter how perfect your credit. "Even people who were being treated like the kings and queens of credit before are now being treated like everybody else," he notes.

Credit Crunch Consequences

The real estate bust has greatly transformed the mortgage lending environment. Here are three changes that will affect borrowers in the months ahead.
Cumbersome appraisals
With home values plummeting throughout the country, investors who help finance mortgages are scrutinizing appraisals like never before, says Bruce Brown, president of First Security Mortgage Company. "You've got people who are creditworthy and can get approved for a loan, but the investors may look at the appraisal and deny the loan or make the appraiser jump through a lot of hoops to justify it," he explains.
Typically, appraisers are required to show so-called comps (recent sales of comparable homes) from the past 12 months. But now, investors are often requiring comps that are just six months old. That could be a problem for lower-density areas or ones where few similar homes have sold in the required time frame.
Appraisals are also getting costlier, since most lenders now bring in a second company to review each appraisal and make sure the value is accurate, says Marve Stockert, executive director of the Illinois Association of Mortgage Professionals. "We're seeing, in some cases, anywhere from $50,000 to $100,000 price adjustments," he notes. "A property that comes in appraised at $400,000 may come in, after the review, at $300,000." The cost of the review, roughly $125 to $255, is often passed along to the consumer in the form of additional fees, Stockert says.
Re-financing snags
Looking to refinance? If you have a second mortgage, like a home equity loan or line of credit, you may be required to pay it off before you can proceed with a refinancing. That's because during refinancing, a second loan automatically comes into first position, meaning that in the event of a default, the secondary lender has first dibs on the property's equity. Second-loan lenders, therefore, have to agree to subordinate their loans, or move them back into second position, Brown explains. (In the event of a default, the secondary lender will get repaid only after the first collects what they're owed.) Problem is, with declining property values, many lenders are refusing to subordinate because they fear they'd be left empty-handed if the home is foreclosed. "That's very rampant right now," Brown says.
FHA loans are back in vogue
FHA loans, which are guaranteed by the government and allow low or no down payments, were largely ignored during the real estate boom. The relatively low limits on the amount that these loans would finance excluded borrowers in high-price markets like New York and California. Attaining an FHA loan was also cumbersome, requiring more documentation and a stricter appraisal. Needless to say, many folks chose the faster, easier route: a 100% subprime loan, says A.W. Pickel. "They were more interested in moving fast and believed the hype out there that prices would keep rising forever and they could re-fi out of it," he notes.
Now, however, subprime loans are all but extinct, and thanks to the Economic Stimulus Act of 2008, FHA loan limits are as high as $729,750. (The limits vary by county. Find yours here^{3.) "Just for that reason alone you'll see more people doing FHA financing," says Jacobson. So far this year, 20% of the loans his firm has extended are FHA loans, compared with only 12% last year.}}}

Sam Zell Sees Commercial Real Estate Investment Accelerating

SimonTheBroker — Thu, 01 May 2008 15:14:00 GMT

Sam Zell Sees Commercial Real Estate Investment Accelerating
By Bob Ivry

May 1 (Bloomberg) -- Billionaire ease,'' Zell said in an interview in New York.

Since July, when demand dried up for mortgage bonds and credit markets froze, lenders haven't issued any major construction loans because they couldn't sell them on the secondary market, Zell said. Now, with returns from Treasury bonds below the rate of inflation, demand for mortgage securities is beginning to revive, he said.

Insurance companies and pension funds need returns of at least 6 percent to match their liabilities, Zell said. Investment in commercial mortgage-backed securities is already beginning to return for the first time since July, he said.

``Is it in large volumes? No,'' he said. ``Is it the first natural step in the evolution? Yes.''

The yieldon the two-year Treasury note was 2.72 percent yesterday, while one measure of the cost of commercial real estate borrowing, 10-year fixed conduit spreads, dropped 28 percent in the last month, according to Morgan Stanley.

Zell, 66, sold Equity Office Properties Trust, the largest owner of U.S. office buildings, for $39 billion including debt in February 2007, five months before the credit crunch.

`Ex-urban' offices

The value of the best office buildings in city centers will weather the slowing economy, Zell said. He said he's more concerned about flashy glass towers built in far suburbs.

``I'm sure there's going to be some casualties, particularly in what I would call ex-urban, the glass-block commodity office building,'' he said. ``I don't think there is going to be any casualties in Manhattan, I don't think there's going to be any casualties in any of the first-class office space around the country. The commercial real estate market is going to do terrific no matter what the economy does, short of a depression.''

In June, Zell bought Chicago-based media company Tribune Co. for $8.3 billion and took it private. Tribune's holdings include the Chicago Tribune newspaper, the Chicago Cubs baseball team and its Wrigley Field home, and WGN-TV. He remains chairman of Equity Residential, the largest U.S. owner of rental property.

Zell ranked 164th on Forbes Magazine's list of the richest people in the world for 2008.

To contact the reporter on this story: bivry@bloomberg.net. Last Updated: May 1, 2008 00:01 EDT

Loan Industry Fighting Rules on Mortgages

SimonTheBroker — Mon, 28 Apr 2008 16:59:00 GMT

Some economists and housing experts say the Fed's lax oversight helped enable lending companies to reap enormous profits by providing millions of unsuitable and abusive loans to homeowners who often did not fully understand the terms or appreciate their risk....The new rules would apply extra protection to any mortgage with an interest rate three percentage points above Treasury rates. Officials said that they would cover all subprime loans, which accounted for about a quarter of all mortgages last year as well as many exotic mortgages known in the industry as "Alt-A" loans.

April 28, 2008
Loan Industry Fighting Rules on Mortgages By STEPHEN LABATON

WASHINGTON — The mortgage industry, facing the prospect of tougher regulations for its central role in the housing crisis, has begun an intensive campaign to fight back.

As the Federal Reserve completes work on rules to root out abuses by lenders, its plan has run into a buzz saw of criticism from bankers, mortgage brokers and other parts of the housing industry. One common industry criticism is that at a time of tight credit, tighter rules could make many mortgages more expensive by creating more paperwork and potentially exposing lenders to more lawsuits.

To the chagrin of consumer groups that have complained that the proposed rules are not strong enough, the industry's criticism has already prompted the Fed to consider narrowing the scope of the plan so it applies to fewer loans.

The debate over new mortgage standards comes in response to a severe crisis in the housing and financial markets that many economists trace back to overly loose credit and abusive loans. Those practices, combined with low interest rates, led to inflated market values that have declined rapidly in recent months as investors have begun to lose confidence in the financial instruments tied to those loans.

Four months ago, the Fed proposed the new standards on exotic mortgages and high-cost loans for people with weak credit. The Fed's proposals came after it was criticized sharply for being a captive of the mortgage lending industry and for failing over many years to supervise it adequately.

Proposals are pending in Congress on mortgage standards, but it is not clear whether they will be adopted this year. The Fed has its own authority under housing and lending laws to adopt mortgage standards.

The plan presented by the Fed was proposed by its chairman, Ben S. Bernanke, and Randall S. Kroszner, a former White House economist in the Bush administration who is now a Fed governor and leads the Fed’s consumer and community affairs committee.

The plan would not cover existing mortgages but would apply only to new ones. It would force mortgage companies to show that customers can realistically afford their mortgages. It would require lenders to disclose the hidden fees often rolled into interest payments. And it would prohibit certain types of advertising considered misleading.

The Fed is expected to issue final rules this summer.

Earlier this month, as the comment period was about to close, the Fed was deluged with more than 5,000 comments, mostly from lenders who said the proposals could affect loans that have not presented problems. Some bankers and brokers also said the rules would discourage them from lending to some creditworthy borrowers.

The plan was criticized in separate filings by three of the industry's most influential trade groups - the American Bankers Association, the Mortgage Bankers Association and the Independent Community Bankers of America. More modest concerns about some of the provisions were also raised by the National Association of Home Builders and the National Association of Realtors.

Regulators have been meeting about the proposals with bankers, brokers and consumer groups in recent weeks and are continuing to do so.

Some of the groups seeking changes maintain that the proposals threaten to make borrowing for a home far more expensive and would unfairly deny mortgage brokers the right to earn certain fees.

Small community banks, which have played no significant role in the housing crisis, have urged the Fed to limit the scope of the proposed rules so that they do not discourage them from issuing loans. Lending groups have also raised concern that they would lead to frivolous and expensive litigation.

"We support many of the provisions in the proposed rule, but we do have concerns about the increased regulatory burden, liability and reputational risks that lenders might face," said Kieran P. Quinn, chairman of Column Financial, Credit Suisse's mortgage lending subsidiary in Atlanta, and the chairman of the Mortgage Bankers Association.

On at least one major aspect of the proposed restrictions " how broadly they should apply " the industry appears to be making headway. In a recent speech, Mr. Kroszner suggested that in response to criticism that the plan was including too many kinds of loans the Fed was considering whether to narrow the plan.

"We have heard from commenters who have expressed concern that in the current market environment, the proposed trigger could cover the market too broadly, and we will carefully consider the issues they raise and other possible approaches to achieve our objective," Mr. Kroszner said last month at a conference of the National Association of Hispanic Real Estate Professionals.

Before this year, the Fed had applied an extra set of protection from abusive lending practices to a subset of subprime borrowers under the Home Ownership Equity Protection Act of 1994. The Fed has applied the law to fewer than 1 percent of all mortgages - those with interest rates at least eight percentage points above prevailing rates on Treasury securities.

As of January, the most recent month of available data, about a quarter of all subprime adjustable mortgages were delinquent, twice the level of the same period last year. Lenders began foreclosure proceedings on about 190,000 of these mortgages in the last three months of 2007.

The new rules would apply extra protection to any mortgage with an interest rate three percentage points above Treasury rates. Officials said that they would cover all subprime loans, which accounted for about a quarter of all mortgages last year as well as many exotic mortgages known in the industry as "Alt-A" loans.

These loans are made to people with relatively good credit scores but who might provide little documentation of their income or assets, or who make smaller than usual down payments or purchase loans that have unusual terms, like interest-only payments for an initial period.

Many mortgage brokers and bankers complain that the lower threshold would unnecessarily include many borrowers who are not at risk from abusive practices.

"There are a lot of community banks that have shied away from these loans because nobody wants to be a higher-priced lender," said Karen Thomas, a lobbyist for the Independent Community Bankers. "With the trigger being set so low, it is encroaching on traditional, common sense mortgages. Our fear is it will result in less credit availability, which is not what we need in an already tight credit market."

But consumer groups say that the proposed rules are already weak and that efforts to further weaken them would render them all but useless.

"The Fed has accurately diagnosed that this is a brain tumor and responded by prescribing an aspirin," said Kathleen E. Keest, a former state regulator who is now a senior policy counsel at the Center for Responsible Lending, a group supporting home ownership. "In the industry, there is a fair amount of denial. They just don't get it. There is a calamity within the industry, and they don’t have a new script yet, so they rely on the old script, which is that regulation will raise costs."

But, she went on, "What we now see is that the unintended consequences of deregulation are worse. Their line is that regulation will cut back access to credit. That's been their line ever since the small loan laws were adopted in the early 1900s."

At the same time, letters urging the Fed to further tighten the rules were sent by Sheila C. Bair, the Republican head of the Federal Deposit Insurance Corporation, as well as senior members of the House Financial Services Committee.

In her letter, Ms. Bair, whose agency regulates many banks, urged the Fed to apply the proposed restrictions to loans that are three percentage points or higher than equivalent Treasuries. To prevent lenders from evading the limit by creatively structuring the loan and fees, she also suggested that the Fed impose the tighter restrictions if the loan fees exceeded a dollar amount.

While the Fed plan would require disclosures that could make it harder for lenders to include hidden sales fees that are usually paid to the mortgage broker, Ms. Bair suggested that the plan go further and ban some practices.

The plan, for instance, would require subprime lenders to explicitly describe fees that are now hidden. But Ms. Bair has proposed the elimination of such fees, saying such a ban would "eliminate compensation based on increasing the cost of credit and make the amount of the compensation more transparent to consumers."

Ms. Bair also proposed making it easier for borrowers to sue lenders without having to show that they were engaged in a pattern of abusive practices, which is a requirement under the proposed Fed rules. She said that forcing borrowers to show a pattern of abuse "clearly favors lenders by limiting the number of individual consumer lawsuits and the ability of regulators to pursue individual violations."

Ms. Bair also recommended that the Fed eliminate a so-called safe harbor provision in the proposal that protects lenders who fail to verify the income or assets of a borrower in some circumstances.Copyright 2008 The New York Times Company