Monday, August 31, 2009

Two Real Estate Investment Trusts Register to Go Public




NEW YORK, Aug 28 (Reuters) - Two real estate investment trusts filed for initial public offerings on Friday, bringing to eight the number of applications since early July by REITs created by real estate companies seeking to take advantage of the distressed commercial property market.

Brookfield Realty Capital Corp, will originate, invest in, and manage, a portfolio of commercial mortgage loans and is seeking to raise up to $500 million in a deal to be managed by Goldman Sachs, according to a prospectus filed with the U.S. Securities and Exchange Commission.

Brookfield said it will use the proceeds from its IPO to originate and acquire mortgage loans, and mezzanine loans, and possibly commercial mortgage-backed securities.

The REIT will be managed by a wholly owned subsidiary of Brookfield Asset Management Inc.

Another REIT, Marathon Real Estate Mortgage Trust, filed on Friday to raise up to $300 million to invest primarily in mortgage-backed securities, mortgage loans and other real estate-related loans and securities.

Marathon will be externally managed and advised by Marathon Asset Management LP, which in July was among nine fund managers chosen by the U.S. Treasury to take part in its Public-Private Investment Program, or PPIP, designed to remove from banks' balance sheet "toxic assets" whose values have been crushed by the financial crisis.

Other PPIP managers that have created REITs and filed for IPOs since July include AllianceBernstein (AB.N), and Invesco Ltd (IVZ.N).

Marathon's IPO will be led by Credit Suisse and JP Morgan.

Investors have shown renewed interest in IPOs by REITs. The largest U.S. IPO of 2009 was by Starwood Property Trust Inc (STWD.N) which raised $951.5 million earlier this month.

Neither of the two latest REITs set terms for their IPOs, including the number of shares to be sold or the timing, although both said they had applied to list their shares on the New York Stock Exchange. (Reporting by Phil Wahba; Editing by Tim Dobbyn)

Wednesday, August 19, 2009

Unemployment Spike Compounds Foreclosure Crisis




The country's growing unemployment is overtaking subprime mortgages as the main driver of foreclosures, according to bankers and economists, threatening to send even higher the number of borrowers who will lose their homes and making the foreclosure crisis far more complicated to unwind.
This Story

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Unemployment Spike Compounds Foreclosure Crisis
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Special Report: Foreclosure Prevention Program

Economists estimate that 1.8 million borrowers will lose their homes this year, up from 1.4 million last year, according to Moody's Economy.com. And the government, which has already committed billions of dollars to foreclosure-prevention efforts, has found it far more difficult to help people who have lost their paychecks than those whose mortgage payments became unaffordable because of an interest-rate increase.

"It's a much harder nut to crack, unemployment," said Mark A. Calabria, director of financial regulation studies at the Cato Institute. "It's much easier to bash lenders than to create jobs."

During the first three months of this year, the largest share of foreclosures shifted from subprime loans to prime loans, according to the Mortgage Bankers Association. The change to prime loans -- traditionally considered safer -- reflects the growing numbers of unemployed who are being caught up in the foreclosure process, economists say.

Rep. Barney Frank (D-Mass.), chairman of the House Financial Services Committee, has proposed using $2 billion in government rescue funding to provide emergency loans to these borrowers. "We are going to be seeing more foreclosures because of prolonged unemployment," he said. "These are people who weren't in trouble and wouldn't be in trouble if they hadn't lost their job."

Unlike the borrowers with subprime mortgages who helped ignite the housing downturn more than two years ago, Deepak Malla, 42, fell behind on his payments when his information technology job was shipped overseas late last year. He does not have a subprime loan, and he made a 20 percent down payment when he bought his five-bedroom house in Ashburn in 2005. The payments were affordable -- until he lost his job.

Last year, about 40 percent of borrowers who sought help at NeighborWorks, a large housing counseling group, cited unemployment or a pay cut as a primary reason for their delinquency. Now it is about 65 percent. The number citing a subprime loan fell significantly.

"Rising unemployment, for the sake of this downturn, has magnified things considerably," said John Snyder, manager of foreclosure programs for NeighborWorks. "It's less about the payment adjustment."

When a subprime borrower becomes delinquent because of a hefty payment increase, the fix often involves lowering the interest rate to its original level. Unemployment poses a more difficult challenge, industry officials and consumer advocates said. During extended periods of joblessness, the borrower accrues large late fees that drive up monthly payments. And a new job often comes with lower pay, making it more difficult to catch up.
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When Malla landed another job earlier this year, he took a pay cut of more than 25 percent. He launched a six-month campaign to get Wells Fargo to lower his mortgage payments from $3,500 to reflect his new financial reality, but he was rebuffed repeatedly. "I wanted to work out with them based on my current scenario," Malla said.

He considered refinancing his mortgage, which had a 5.8 percent interest rate, but his home's value had fallen significantly since the market peak, making that impossible. Instead, the lender recommended that he sell the house in a short sale. That would mean selling for less than he owed and walking away with nothing.

"They didn't say why -- just that [a loan modification] is outside the investor guidelines," Malla said. "I was very, very frustrated." (After being contacted by The Washington Post, a Wells Fargo spokesman said Malla does qualify for a loan modification after all.)

Banks and government regulators are studying how to address the shifting nature of the crisis, which has been exacerbated by falling home prices. When the housing crisis began in 2007, the unemployment rate was about 4.6 percent. It hit 9.4 percent last month, and many economists expect it to reach 10 percent by the end of the year.
This Story

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Unemployment Spike Compounds Foreclosure Crisis
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Special Report: Foreclosure Prevention Program

Hope Now, a government-backed group of mortgage lenders, has established a task force to look at how to best help unemployed borrowers; one strategy involves creating new types of loan modifications. The Obama administration is also studying the issue as it considers how to make its foreclosure prevention program, known as Making Home Affordable, more effective.

Many housing experts say it will take more than the $75 billion the administration has already said will be spent on foreclosure prevention. Several economists at the Federal Reserve Bank of Boston have proposed creating a government lending or grant program for unemployed borrowers, lowering their payments for up to two years while they look for work. Such a program could cost $25 billion annually and help 3 million homeowners, lowering their payments by 50 percent on average, according to the economists' proposal.

Currently, unemployed borrowers have few options to save their homes. Banks often will allow two or three missed payments, known as forbearance, to give borrowers time to find a job. Others offer to temporarily lower their payments by 50 percent. But both of these options are not permanent and are ill-suited to the current crisis, consumer advocates and industry officials say.

Part of the problem is that it is taking longer for borrowers to find new employment -- a three-month suspension of payments often is not enough. The number of unemployed people who have been looking for a job for more than 26 weeks rose more than 500,000 last month. And under the current system, once borrowers resume payments, their monthly balances rise to make up for overdue amounts.

"Who knows what's going to happen at the end of the [forbearance], even if they can get it?" said Paul S. Willen, senior economist for the Federal Reserve Bank of Boston.

Citigroup established a test program for unemployed workers in March, offering to lower their payments to $500 a month for three months.

But few of the 600 or so borrowers who have qualified for the plan have reported that they were able to find new jobs, and Citigroup is considering lengthening the period, company officials said. The test has shown that borrowers are at their most motivated shortly after losing their job, so the company may also lift a requirement that homeowners miss at least two payments to qualify for assistance. No decision on the changes has been made, company officials said.

The program has reinforced Citigroup's conclusion that "unemployment is in fact the root cause of many of the delinquencies," said Sanjiv Das, chief executive of CitiMortgage. The trick, he said, is to give borrowers enough assistance to keep them motivated to find a job quickly so they can resume making full mortgage payments.
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Under the federal foreclosure prevention program, unemployment insurance can be counted as income when a borrower applies for a modification. But the borrower must show eligibility for at least nine months of unemployment checks.

Bill Kachur of Jacksonville, Fla., lost his job as an online training instructor for a large government contractor in January and began scrambling to protect his four-bedroom home, purchased in 2000, from foreclosure. He has been able to scrape together enough to keep up his $850 monthly mortgage payments by liquidating his retirement and investment accounts to supplement his unemployment benefits of $1,200 a month.

"I had to do it," said Kachur, 47. "If you have bad credit, you can't get another job."

Kachur estimates that he has enough for only a few more months of payments, but because he is eligible for more unemployment benefits, he is lobbying his lender, Bank of America, for help. A modification under the federal plan would cut his payments nearly in half, he said.

He said his requests have been denied so far.

Bank of America said it could not comment on Kachur's specific case. The company complies with the federal foreclosure-prevention plan, including considering unemployment benefits when appropriate, spokesman Rick Simon said.

But a workout faces other tests, including whether a loan modification or foreclosure is better for the investor, he said. "It has to meet all the other guidelines as well," Simon said.

FHA Loans Hit a Speed Bump

Frances Katzen, an executive vice president at Prudential Douglas Elliman, was elated when she found a buyer for the one-bedroom she was representing in a Lower East Side condo conversion. The transaction went awry, however, when the buyer learned at the closing table that the financing she had been counting on had fallen through, thanks to an obscure loophole in guidelines by the Federal Housing Administration: Loans insured by the FHA currently cannot be issued in a condo conversion until at least one year after the condo has been declared effective. The buyer "got all the way to the closing and was told that the mortgage was not issued," recalled Katzen, who now refuses to work with FHA-insured loans, despite the fact that the government-backed mortgages are exploding in popularity.

"We're reading about FHA loans, but we're finding it very difficult [for buyers to get them,]" she said. "It's been a very trying time, and disappointing."

The obstacle Katzen encountered is only one of many obscure and ever-changing regulations that make FHA-insured mortgages nearly impossible for many New Yorkers to obtain, brokers said.

With conventional financing elusive, many developers are undertaking the lengthy and expensive process of having their projects FHA-approved, believing it will give them a leg up on sales amid the credit crunch.

But even as the once-rare program becomes more widespread, brokers and developers are discovering that FHA-insured loans are not all they're cracked up to be. What's more, changes to the agency's guidelines slated to become effective October 1 will drastically reduce the number of eligible buyers for the program by capping the number of FHA loans in a given project at 30 percent, even in FHA-approved developments.

"It's horrible what they're proposing," said Philip Sutcliffe, a Pennsylvania-based consultant who specializes in submitting new condo projects around the country for FHA approval. "It's bad public policy at a point when the condo market can least afford to have restrictions placed on it."

Loans insured by the FHA, an arm of the U.S. Department of Housing and Urban Development (HUD), provide lenders with protection in the event that the homeowner defaults. Because the lenders bear less risk, FHA-insured loans require smaller down payments — sometimes as low as 3.5 percent — and allow buyers more flexibility on income, credit scores and payment ratios. In exchange, buyers pay an insurance premium on the loan, which in some cases makes their monthly payments higher than conventional loans.

Until recently, FHA loans were rare in New York City because most homes here cost more than the agency's maximum loan limit. For the same reason, New York developers here generally avoided the expensive and time-consuming process of seeking FHA approval for their new condos, especially since the easy credit markets of recent years made it easy for buyers to get financing from other sources.

But the FHA this winter raised its maximum loan limit here to $729,750 as part of the national stimulus package, making FHA loans more accessible for New Yorkers.

"Six months ago, nobody knew about FHA," said Richard Bouchner, managing director of Commodore Property Group, a mortgage company and real estate brokerage. He said that's changing now that conventional financing requires higher downpayments than in the past, adding that he's gotten several inquiries from buyers looking for FHA programs.

"Most people see FHA as a kind of shining light, something they didn't think they would be able to get," he said.

Meanwhile, many developers recently have rushed to get FHA approval for new developments. Projects that have already been approved include 111 Monroe in Bedford-Stuyvesant, 105 Lexington Avenue in Clinton Hill, NV in Williamsburg, Hamilton Lofts in Harlem and 10-50 Jackson Avenue in Long Island City.

The program is seen as the savior of many of these projects, real estate insiders said.

At 111 Monroe, "I don't think we would have any deals or any potential deals if we did not have FHA," said David Behin, an executive vice president at the Developers Group, a marketing and sales firm that is in the process of merging with another company, the Real Estate Group New York. It has encouraged its developers to get FHA approval. "It's been an enormous help for us."

FHA loans are also gaining in popularity nationwide, according to Adam Glantz, a spokesman for the New York bureau of HUD, who said they are being tapped more frequently by homebuyers across the country, filling the void left by subprime lending.

In 2006, Glantz said, FHA backed only about 3 percent of home loans in the country. Now, that number has swelled to at least 30 percent.

In New York City, the number of FHA-backed loans issued between January and March of 2009 leaped to 2,315, up from 995 in the same period of 2008, said Glantz.

But many New Yorkers are now discovering that securing an FHA-insured mortgage is more difficult than it may first appear.

The program has a raft of often-inscrutable guidelines, many of which disproportionately impact New Yorkers. For example, the FHA does not currently insure loans for purchases of co-ops, Glantz said.

Another obstacle for New Yorkers is that the FHA does not back loans in buildings where the board of managers may exercise a right of first refusal on units being sold. While the practice is rare in other parts of the country, it's very common here, removing FHA loans as an option for many buyers.

New York is "one of the only states that have right of first refusal language in the documents," Sutcliffe said. "We have thousands of projects all over the city that have a right of first refusal."

In response, Sutcliffe said, developers of many new condos are rushing to remove the option from their offering plans.

"I'm working on about 100 projects in New York City, and in every one of them, the offering plan has to be amended to remove the right of first refusal," he said. But it's too late for purchasers of older apartments in buildings where the board of managers already has the right of first refusal. For them, getting an FHA-backed loan isn't an option.

Then there's the one-year delay for condo conversions, which stipulates that if a developer is converting a building from a prior residential use to condos, FHA will not back loans in the building for one year after the condo declaration has been recorded, Sutcliffe explained.

On top of these complications, buyers often don't know until the last minute whether they are eligible for FHA financing because the loans are manually underwritten, Bouchner said.

With Fannie Mae and Freddie Mac, buyers can input their information into a computer and get a formal preapproval. With FHA loans, buyers "don't know if they've been approved until their file gets in front of an underwriter," Bouchner said. "It's a bit frustrating."

He added, "FHA is this really weird, opaque part of the mortgage world." Starting on October 1, FHA is changing some of its guidelines, Sutcliffe said. The one-year minimum for conversions and the right-of-first-refusal requirements will be removed, but they will be replaced by a far larger obstacle: Under the new guidelines FHA will no longer insure more than 30 percent of loans in a given building, even if that project has been FHA-approved.

The change could hurt the condo market because for buyers unable to afford large down payments, "FHA is the only game in town," Sutcliffe said.

It's particularly problematic because FHA-insured loans require 51 percent of the units in a project to be in contract. If only the first 30 percent can get FHA loans, "how are [developers] going to sell the other 20 percent of the units if [they] don't have the financing they need?" Sutcliffe said. "It's almost a self-fulfilling prophecy."

Manny Alvarado, an FHA specialist at HUD, said the agency put the limitation in place to limit its risk in case a project fails. "We're looking at reducing our exposure," he said.

The rule change presents a roadblock for developers who have spent time and money to get their projects FHA-approved and are now depending on FHA-insured loans to help their buyers get financing.

"It's a death blow," said Moshik Regev, the vice president of Absolute Development and the developer of the Prospect & Homes Condominiums at 1236 Prospect Avenue in the Bronx. "They're taking the last market niche that's still out there, and they're going to kill it."

The 18-unit development, where the average purchase price is $250,000, was pre- approved for FHA loans last year, and all but one of the buyers in contract plan to use FHA financing, Regev said.

"It wouldn't be possible for [buyers] to do it without FHA," he said. "To cap the units at 30 percent, it's ridiculous. To me, in this day and age, to do something like that is just terrible."

He said he has an option to buy and develop two lots, one in Brooklyn and one in the Bronx, but he and his partners have put the plans on ice for the time being as a result of the rule change.

"At this point, we put them on hold," he said. "We don't know what's going to happen."

Sunday, August 2, 2009

American Recovery Act - $8,000 Obama Rebate

  • The tax credit is equal to 10 percent of the home’s purchase price up to a maximum of $8,000, whichever is less.
  • The tax credit is for first-time home buyers. Those who have not owned a property in 3 years are considered 1st time buyers.
  • The tax credit does not have to be repaid, provided the homeowner occupies the property as his/her primary residence for the first 3 years following the date of purchase.
  • The credit is available for homes purchased on or after January 1, 2009 and before December 1, 2009.
  • Single taxpayers with incomes up to $75,000 and married couples with incomes up to $150,000 qualify for the full tax credit*.
* Partial tax credits for those with incomes over the above limits may be available. Consult your tax advisor for details.