Last month, 155,000 borrowers left, bringing the drop-out total to 436,000

THE Obama administration’s flagship effort to help people in danger of losing their homes is falling flat.

More than a third of the 1.24 million borrowers who have enrolled in the US$75 billion mortgage modification programme have dropped out.

That exceeds the number of people who have managed to have their loan payments reduced to help them keep their homes.

Last month alone, 155,000 borrowers left the programme – bringing the total to 436,000 who have dropped out since it began in March 2009.

About 340,000 homeowners have received permanent loan modifications and are making payments on time.

Administration officials say that the housing market is significantly better than when President Barack Obama entered office. They say that those who were rejected from the programme will get help in other ways.

But analysts expect that the majority will still wind up in foreclosure, and that could slow the broader economic recovery.

A major reason so many have fallen out of the programme is that the Obama administration initially pressured banks to sign up borrowers without insisting first on proof of their income. When banks later moved to collect the information, many troubled homeowners were disqualified or dropped out.

Many borrowers complained that the banks lost their documents. The industry said that borrowers weren’t sending back the necessary paperwork.

Carlos Woods, a 48-year-old power plant worker from New York made nine payments during a trial phase, but was kicked out of the programme after Bank of America said that he missed a US$1,600 payment afterward. His lawyer said that they can prove that he made the payment.

Such mistakes happen ‘more frequently than not, unfortunately’, said his lawyer, Sumani Lanka. ‘I think a lot of it is incompetence.’ A spokesman for Bank of America declined to comment on Mr Woods’ case.

Treasury officials now require banks to collect two recent pay stubs at the start of the process. Borrowers have to give the Internal Revenue Service permission to provide their most recent tax returns to lenders.

Requiring homeowners to provide documentation of income has turned people away from enrolling in the programme. Around 30,000 homeowners started the programme in May. That’s a sharp turnaround from last summer when more than 100,000 borrowers signed up each month.

As more people leave the programme, a new wave of foreclosures could occur. If that happens, it could weaken the housing market and hold back the broader economic recovery.

Even after their loans are modified, many borrowers are simply stuck with too much debt – from car loans to home equity loans to credit cards.

‘The majority of these modifications aren’t going to be successful,’ said Wayne Yamano, vice-president of John Burns Real Estate Consulting, a research firm in Irvine, California. ‘Even after the permanent modification, you’re still looking at a very high debt burden.’ So far nearly 6,400 borrowers have dropped out after the loan modification was made permanent. Most of those borrowers likely defaulted on their modified loans, but a handful either refinanced or sold their homes.

Credit ratings agency Fitch Ratings projected that about two-thirds of borrowers with permanent modifications under the Obama plan will default again within a year after getting their loans modified.

Obama administration officials contended that borrowers are still getting help – even if they fail to qualify. The administration published statistics showing that nearly half of borrowers who fell out of the programme as at April received an alternative loan modification from their lender. About 7 per cent fell into foreclosure.

Another option is a short sale – one in which banks agree to let borrowers sell their homes for less than they owe on their mortgage.

A short sale results in a less severe hit to a borrower’s credit score, and is better for communities because homes are less likely to be vandalised or fall into disrepair. To encourage more of those sales, the Obama administration is giving US$3,000 for moving expenses to homeowners who complete such a sale or agree to turn over the deed of the property to the lender.

Administration officials said that their work on several fronts has helped stabilise the housing market. Besides the foreclosure- prevention plan, they cited government efforts to provide money for home loans, push down mortgage rates and provide a federal tax credit for buyers.

‘There’s no question that today’s housing market is in significantly better shape than anyone predicted 18 months ago,’ said Shaun Donovan, President Barack Obama’s housing secretary.

The mortgage modification plan was announced with great fanfare a month after Mr Obama took office. It is designed to lower borrowers’ monthly payments – reducing their mortgage rates to as low as 2 per cent for five years, and extending loan terms to as long as 40 years. Borrowers who complete the programme are saving a median of US$514 a month. Mortgage companies get taxpayer incentives to reduce borrowers’ monthly payments.

Consumer advocates had high hopes for Mr Obama’s programme when it began. But they have since grown disenchanted. ‘The foreclosure-prevention programme has had minimal impact,’ said John Taylor, chief executive of the National Community Reinvestment Coalition, a consumer group. ‘It’s sad that they didn’t put the same amount of resources into helping families avoid foreclosure as they did helping banks.’ – AP

Source: Business Times, 24 Jun 2010

Both sufficiently strong to see through existing contracts, as conditions have stabilised

(NEW YORK) US mall operators are holding retail tenants to their leases as the industry remains in waiting mode for growth to return, possibly not until 2011, a retail real estate insider said recently.

During the height of recession last year, mall landlords got a ‘reality check’ about the state of the economy and modified leases for retail tenants to help prevent them from falling into bankruptcy.

But now conditions have stabilised. Mall owners and tenants alike are sufficiently strong to see their existing agreements through, even if the economy recovers in fits and starts.

‘It is business as usual,’ Nina Kampler, executive vice-president at Hilco Real Estate, told the Reuters Consumer and Retail Summit.

At the same time, it has not translated into a real pickup in the commercial business.

‘There’s very little retail closures right now,’ she said.’There’s very little retail expansion. There’s very little retail activity.’

The economic crisis forced a number of US retailers to fail last year, including electronics chain Circuit City and department store Mervyn’s, squeezing in turn the malls that had housed them.

General Growth Properties went bankrupt, setting off a bidding war between Brookfield Asset Management and Simon Property Group, as declining demand spurred consolidation.

But the 2009 holiday shopping season saw a slight uptick in consumer spending, and contrary to expectations, the wave of retailer bankruptcies seems to have subsided.

These days, mall owners know their surviving tenants are not likely to file for bankruptcy. For their part, the retailers know that they are going to need healthy relationships with their landlords when they want to grow again in 2011 and 2012, Ms Kampler said.

Until growth picks up significantly, most retailers will likely cut their store counts and sizes when current leases expire, Ms Kampler said.

‘You trim the deadweight off your otherwise healthy growing tree,’ she said.

The United States’ overall store count is still a bit too high, especially in secondary and tertiary markets. In prime markets such as the New York City area and Southern California, there are malls with no vacancies, Ms Kampler said.

But even there, landlords have a price.

‘Someone who wants to get into a top centre can get into a top centre, if they are prepared to pay those dollars,’ she said. — Reuters

Source: Business Times, 24 Jun 2010

WASHINGTON: Sales of new US homes dropped a record 32.7 per cent last month to the lowest level in at least four decades as the boost from a popular tax credit faded, adding to worries of a slowing economic recovery.

The Commerce Department said yesterday that single-family home sales tumbled to a 300,000-unit annual rate, the lowest level since the series started in 1963.

In addition, the April and March sales figures were revised down to 446,000 units and 389,000 units, respectively. The drop in sales last month unwound two months of gains, which had been inspired by a government tax credit for home buyers.

Prospective home owners had to sign contracts by April 30 to qualify for the tax credit. Analysts polled by Reuters had forecast new home sales sliding to a 410,000-unit pace. New home sales are measured at contract signing.

‘The previous two months were revised down, so the lift from the tax credit was less than we previously realised. We are getting a little nervous,’ said Mr David Sloan, an economist at 4Cast in New York.

US stocks fell after the report, with the Dow Jones Industrial Average down nearly 36 points, or 0.35 per cent, at 10,257.55 an hour into trading.

The report was the latest in a series to suggest that the economy’s recovery from the worst downturn since the 1930s might be losing strength.

It also came as Federal Reserve policymakers gathered for a two-day meeting at which they were expected to extend their pledge to hold overnight interest rates ultra low for ‘an extended period’ to aid the still fragile economic recovery.

The United States central bank is not seen lifting rates, currently near zero, until next year. A report on Tuesday showed sales of previously owned homes, which are recorded at contract closing, fell unexpectedly last month.

‘We see no chance of a quick, sustained recovery, though we are hopeful there is little further downside’ Mr Ian Shepherdson, chief US economist at High Frequency Economics in Valhalla, New York, said in a note to clients. Mr Shepherdson had correctly forecast the drop in sales.

The expiry of the tax incentive also resulted in a decline in new home construction, and applications for loans to buy homes fell last week, staying near 13-year lows.

Last month’s weak sales pace saw the supply of homes available for sale jumping a record 46.6 per cent to 8.5 months’ worth, the highest in nearly a year, from 5.8 months’ worth in April.

However, the number of new homes on the market dipped 0.5 per cent to 213,000 units, the lowest since November 1970.

REUTERS, BLOOMBERG

Source: Straits Times, 24 Jun 2010

WASHINGTON: Sales of existing homes in the US fell 2.2 per cent in May after two consecutive rises, an industry group said yesterday, despite support from a government tax incentive programme.

The National Association of Realtors (NAR) said that existing home sales dropped to an annual rate of 5.66 million units, from an upwardly revised surge of 5.79 million units in April.

Most analysts had expected sales to rise to 6.10 million units as homebuyers raced to close contracts under a federal tax incentive programme.

‘Although the data can be volatile, the homebuyer tax credit seems to have run out of steam early,’ said Ms Celia Chen at Moody’s Economy.com. The report ‘suggests that there may be greater fundamental weakness in housing demand than anticipated’, she added.

The Dow Jones Industrial Average lost ground after the news but rose again. It was 30.15 points higher at 10,472.56 after two hours of trade.

Existing home sales last month were 19.2 per cent above their level in May last year as the housing sector slowly stabilises after the collapse of a real estate bubble caused a mortgage meltdown that sparked a global financial crisis in mid-2007.

‘We are witnessing the ongoing effects of the homebuyer tax credit,’ said Mr Lawrence Yun, NAR’s chief economist.

The government reported last week that new housing construction in the United States slumped 10 per cent in May to its lowest level since October 2009.

NAR said it was supporting Senate amendments to extend the homebuyer tax credit closing deadline through Sept 30 and to renew a national flood insurance programme.

‘Sales and related local economic activity would have been higher without delays in the closing process or flood insurance issues,’ Mr Yun noted.

‘The tax credit undoubtedly pulled into the spring transactions which would have taken place in the summer, so the next few months will be tough,’ said Mr Ian Shepherdson, chief US economist at High Frequency Economics.

AGENCE FRANCE-PRESSE

Source: Straits Times, 23 Jun 2010

A new breed is standing out from the masses with designer details and special perks

(NEW YORK) A new breed of hotels is trying to stand out from the masses with designer details and memorable perks and prices around US$250 a night.

Finding a decent place to sleep in New York City has never been easy. Traditionally, you either had to spend a tonne of money (the Ty Warner Penthouse at the Four Seasons for US$35,000 a night, anyone?) or scrimp and hope for the best (warning: a recent search for ‘bed bugs’ on TripAdvisor found 877 mentions for city hotels).

What is a budget and style-conscious traveller to do? Go for the new middle. In a city that still boasts one of the nation’s highest room rates (US$238 on average in Manhattan, according to Smith Travel, which tracks the industry), hotels aiming for the midrange are reaching new heights.

The trend began about three years ago, with a trickle of boutiquey places like the Pod, the Ace and the Jane – which offered a patina of style without the premium prices. It has accelerated in recent months, with a raft of new hotels promising cool design, nods to local flavour and wallet-friendly rates of about US$200 to US$250.

Call them budget boutiques. But instead of coming from daring young hoteliers, many are being rolled out by chains like InterContinental and Wyndham in a bid to attract a hipper clientele.

‘There’s a huge wave of consumer demand, especially with the younger Gen Y or millennials, for properties that have some level of style to them,’ said Sean Hennessey, founder of Lodging Advisors, a hospitality consultant firm.

In May, I slept in some of these new hotels. Despite their novelty, some were already victims of their own cliches. Rooftop bars, rainfall showers and iPhone docks were everywhere. Still, rooms were large by the city’s pint-size standards, service was sharp, and for the moment, they offer some of the best values around.

Distrikt Hotel

Why book? On an exhaust-choked block next to the Port Authority bus station, three new cookie-cutter hotels are stacked together like cereal boxes in a configuration that hotel bloggers have started calling a ‘tri-pack’. Distrikt, next door, is different: It has a simulacrum of soul. This is impressive, not only because of its unseemly location – within shouting distance of a homeless shelter and a parole office – but also a kitschy design conceit: Every floor takes its cue from a New York City neighbourhood.

Room: My standard room was on the 28th floor: Central Park. Don’t expect a wax statue of Frederick Law Olmsted. The only nods to the famous park were photo collages that hung in the room and hallways.

Needless to say, the actual park wasn’t visible from the window, though tantalising glimpses of the Hudson River were. The room itself was a beige rectangle furnished with the type of inoffensive contemporary furniture one might find in a West Elm catalogue.

Vibe: Blame the sketchy neighbours, but parts of the hotel feel as though they’re under lockdown. Key cards are needed to operate the elevators, and the marble-and-steel lobby is a tad cold, despite a 12-foot vertical garden. An adjacent lounge, called Collage, looks like a modern airport bistro. It serves breakfast by day, and drinks and bar food by night. On a recent Friday evening, it was empty. ‘This is New York City,’ said the young bartender. ‘Who wants to stay inside their hotel?’

Mints: An organic fudge brownie awaits you in the room, along with a personalised welcome letter – nice touches for a hotel of this class. There’s no fitness centre, but free passes are available to the nearby Mid City Gym. You can check your e-mail on one of three large Mac screens in the lobby, but be prepared to wait.

342 West 40th Street, between Eighth and Ninth avenues; (888) 444-5610; distrikthotel.com; free Wi-Fi; breakfast for US$14.95; 155 rooms from US$209.

Eventi Hotel

Why book? Straddling the higher end is the Eventi, a 292-room hotel that opened last month in northern Chelsea. Operated by Kimpton – a San Francisco-based chain that helped pioneer the budget boutique niche – it offers doses of luxury that are unusual at this price range. There’s clever design, 24-hour room service, a large terrace, a sunny gym, a spa that offers something called spirulina body wraps, and even dog and cat massages.

Room: The standard queen was sleek and handsome, with custom-made furnishings (dark woods, cloud-gray upholstery, heavy drapes) that felt rich. It had a risque side: a huge mirror faced the bed, Frette robes were trimmed with zebra prints, the honour bar was stocked with an Intimacy Kit (US$6). Other high-end perks await in the marble-tiled bathroom. There was an elongated tub, a magnifying makeup mirror and bottles of musk-scented Italian hair products.

Vibe: It’s a work in progress. Planned for October are a Basque restaurant by Jeffery Chodorow, a plaza with a movie screen and whiskey bar. Meanwhile, the lobby – with cave-red marble and quirky seating nooks – fills up during the free wine hour that begins at 5pm. For breathing room, take your glass to the wraparound terrace on the fifth floor, furnished with terra-cotta planters and oversize wicker love seats.

Mints: No Pringles here. The minibar was stocked with goodies like blueberry acai Gummy Pandas (US$4), Late July organic crackers (US$3), and Alba Botanica shave cream (US$5). There’s even a 375-millilitre bottle of Absolut vodka, big enough for an impromptu party. Service was polished. A free toothbrush and hair straightener were delivered in less than five minutes.

851 Avenue of the Americas, between 29th and 30th streets; (212) 564-4567; eventihotel.com; Wi-Fi is US$10 per day (free for Kimpton rewards members); a breakfast buffet is US$22; 292 rooms starting at US$249 (at US$399 once introductory rates finish in fall)

Fashion 26

Why book? A quick step from the Fashion Institute of Technology, this shiny new hotel by Wyndham tries hard to live up to its name.

There’s a Best Dressed Guest contest held occasionally (winners get room upgrades), the Mondrian-like mural above the front desk is made from thread spools, and the concierge keeps tabs on sample sales. No, you won’t see a gaggle of models during check-in, but the hotel does have fun playing dress-up.

Room: A standard room was maybe a size medium, with plenty of nods to fashion: buttons on the door numbers, a merino herringbone throw on the bed and mint-green polka dots on the walls. Housekeeping staff members wear custom dresses that hint, naughtily, at French maid. A big window offered postcard views of the Empire State Building, as well as peeks inside garment showrooms across the street.

Vibe: Despite all the sartorial trappings, guests dressed like any in your typical off-the-rack hotel. On a recent Monday, there were FIT parents in the slate-gray lobby, and suits trading airport stories in the elevator. There’s a chatty cocktail scene at the lobby bar, but Rare, the fiery orange dining room, was desolate. Maybe the ho-hum menu – part burger joint, part formal steakhouse – was to blame. A rooftop bar is expected to open this month.

Mints: Service was elegant and unobtrusive. Arriving two hours before check-in was no problem; the attendant had a room ready. Come back from dinner and the bed is turned down: the pillows stacked upright, the comforter removed, a note left on the sheets with tomorrow’s weather, and a mint. There’s also a decent gym in the basement and a single-cup Keurig coffee maker in the room.

152 West 26th Street, between Avenue of the Americas and Seventh avenues; (212) 858-5888; f26nyc.com; free Wi-Fi and a US$15 cold and US$19.70 hot breakfast buffet, along with à la carte; 280 rooms from US$229.

Hotel Indigo

Why book? Hotel Indigo may be the prototype of this new hotel class. Started by the InterContinental Hotels Group, which owns Holiday Inn and other chains, the Indigo brand aims to be affordable yet stylish, though its first property in New York City doesn’t quite hit the mark. It opened last October in the heart of the flower district, so it is hemmed on all sides with orchids and pussy willow.

There are flowers inside the hotel, too, though mostly of the printed variety. Hallway carpets with comically giant indigos and carrot-orange walls conspire to create a visual jungle. Too bad the floral theme didn’t extend to the scent. The lobby smelled more like cleaning fluid than roses.

Room: The oversaturated colour scheme continued inside the room, with a headboard stitched together from swatches of reds, oranges and yellows. Still, the room was bright and airy, with hardwood floors, a small desk and a floor-to-ceiling print of sewing needles. The view was quintessentially New York: fire escapes and the back of old factory buildings. As in many of these budget boutiques, the bathroom was sleekly appointed. In this case, however, the shower lacked water pressure, and a puddle from the previous night was still on the shower floor in the morning.

Vibe: An oddball mix. Foreign tourists in I (HEART) New York T-shirts sat in the lobby. Office workers crowded the smoky rooftop Glass Bar. And at Blu, its street-level Italian restaurant, there was, well, no one. The soupy risotto I was served one night may have something to do with it.

Mints: Service was unexpectedly attentive; the front desk called shortly after check-in to make sure everything was in order. In the basement, there’s a basic business centre (two desktop computers) and a well-equipped, if petite, fitness studio with free weights and treadmills.

127 West 28th Street, between Avenue of the Americas and Seventh Avenue; (212) 973-9000; indigochelsea.com; 122 rooms from US$269; US$15.99 breakfast buffet, and à la carte brunch served on weekends. — NYT

Source: Business Times, 22 Jun 2010

Bankers and agents disagree on responsibilities of foreclosed owners

(NEW YORK) As the housing market continues to sputter, the real estate industry is increasingly split on the responsibilities of overextended and foreclosed homeowners.

On one side are the bankers, who say borrowers should be liable for what they owe. On the other side are real estate agents, who say those who lost their houses should not be so burdened by debt that they cannot move on.

The differences have real financial consequences: Bankers want to collect on billions of dollars in outstanding loans; real estate agents want as many people as possible to return to the housing market.

For the first time, the debate is spilling into the realm of law making, with state legislators in California considering a bill that would redefine the obligations of many defaulting homeowners. The efforts to shape the bill demonstrate how much is at stake – in California and the many other states with distressed real estate markets.

The legislation introduced in the spring by the real estate lobby would have largely shielded foreclosed homeowners from debt collectors. But by the time it passed the state Senate on June 4, the banking lobby had succeeded in scaling it back. Now the bill is headed to the state Assembly, where a committee will take it up next week and bankers intend to continue lobbying against it.

‘We’re concerned this could adversely accelerate strategic defaults,’ said Rodney K Brown, chief executive of the California Bankers Association, referring to instances in which borrowers leave their properties without settling with the lender.

For years, a house in California was a machine for building wealth, and few were the families that could resist temptation. They refinanced their loans to pay for vacations, operations, tuition or, frequently, investments in more houses. Many of these households ended up struggling after the crash.

The lenders were often aggressive in making loans and frequently were predatory. The extent to which this absolves the borrowers of responsibility is at the centre of the current debate.

In the style of King Solomon, the proposed law in its current form tries to divide defaulting borrowers into the sober and the feckless, and help only the first group.

The bill that passed the Senate by a lopsided vote of 30-4 would protect former homeowners up to the amount of their original loan. For instance, a family that took out a US$500,000 mortgage to buy a house and then refinanced and took cash out, swelling their loan to US$600,000, would be released from claims on the original sum but remain vulnerable on the US$100,000.

Ellen M Corbett, the Democratic state senator from San Leandro, California, east of San Francisco, who introduced the measure, said it is a matter of fairness.

During the Depression, she said, California legislators decided that losing your house was punishment enough. They did not want lenders endlessly hounding borrowers for the difference between what they owed and what their former house was worth, an amount called the deficiency.

Seventy-five years later, because of that law, anyone who has an original loan and wants to get rid of the house because it has fallen in value can simply walk away without further legal jeopardy. But a homeowner who refinanced, even for the straightforward reason of getting a lower interest rate, could in theory lose the house and be pursued for the deficiency.

‘I don’t believe the original intent was to have a two-tier system, where some were protected and some were not,’ Ms Corbett said.

The agents, too, say this is a fairness issue. But there is also self-interest involved.

‘Realtors are very worried about this because they think it will destroy the housing market if people end up with these huge deficiency judgements and are never able to buy a house again,’ Ms Corbett said.

To some extent, this is a fight over something that is not happening, at least not yet.

Lenders in California rarely chased foreclosed borrowers for deficiency judgments. Pursuing such cases in court can be an arduous process, and few of those in foreclosure have the assets or incomes to make it worthwhile.

But the threat of such action can come in handy for lenders, servicers and collection agencies. By raising the possibility of a court fight, they can negotiate favourable terms when agreeing to loan modifications and workouts, surrenders of deeds and sales for less than the full amount owed, also known as short sales.

‘Using the threat of a deficiency, full-recourse lenders often prevail upon distressed borrowers to sign new, unsecured obligations in exchange for their assent to a proposed short sale or surrender of a deed,’ said William A Markham, a lawyer with Maldonado & Markham in San Diego. ‘This practice will nearly vanish overnight if the new measure becomes law.’ About a third of the seven million California households with a mortgage have negative equity, a condition known as being underwater, according to the research firm CoreLogic. Many of these families might be content to wait years for a rebound in real estate but others, if at least partly freed from deficiency worries, might walk away.

‘This will lead to a surge in the supply of housing, a corresponding decrease in the price, and a welcome hastening of the end of the foreclosure crisis in California,’ Mr Markham said.

State Senator Mimi Walters, a first-term Republican representing Laguna Hills, north of San Diego, voted against the measure precisely because it could encourage more defaults.

‘I’m very sympathetic to what’s going on in the economy and to people that are losing their homes,’ said Ms Walters, a former executive with two Wall Street firms. ‘But we have to be careful not to overleverage ourselves and to take responsibility when making investments.’ The banking lobby says it could accept the bill as is, on one condition: that it apply only to new loans. In its current form, it applies to any existing loan. — AP

Source: Business Times, 22 Jun 2010

(SAN FRANCISCO) US commercial property values are rebounding slowly and may remain as much as 40 per cent below their 2007 peak levels, Pacific Investment Management Co said.

More than US$500 billion of property will hit the market as lenders dispose of assets or restructure debt on properties where valuations have dropped below loan levels, keeping ‘general’ prices down for three to five years, Newport Beach, California-based Pimco, which runs the world’s biggest bond fund, said on its website.

‘Capital is clearly returning to commercial real estate, helping to stem the value decline in the sector,’ Pimco said in a report based on research in 10 cities. ‘Optimism should be tempered, because national price indices are misleading when transactions are limited and fail to reflect the significant uncertainty around property valuations.’

High unemployment, potential re-regulation and an increased savings rate are among factors that will ‘lengthen the deleveraging process and suppress a recovery,’ Pimco said in the report dated June 2010 and led by John Murray, commercial property portfolio manager.

Competitive bidding for ‘lower-risk trophy assets’ in cities such as New York and Washington have led property investment trusts and private equity funds to search for acquisitions ‘even in challenged markets,’ Pimco said. Capitalisation rates declined in 2006 and 2007 as non-US buyers also sought property.

The capitalisation rate is a measure of property returns derived from net operating income divided by property value.

As regional US banks are forced to recognise losses on construction loan portfolios, ‘the deleveraging cycle will take far longer to play out’ than in previous real estate cycles, making a V-shaped recovery unlikely, the report said.

‘Many assets may not return to their peak 2007 values until the 2020s,’ according to Pimco.

Investors will find ‘attractive’ real estate opportunities in the loan portfolios of troubled banks, large loan restructurings and subordinate positions of CMBS (commercial mortgage-backed securities) tranches, Pimco said.

‘Extreme discipline in assessing both the asset level and macroeconomic risks will be critical to making the right investment decisions,’ the report said. — Bloomberg

Source: Business Times, 17 Jun 2010

Lenders loosening hold on these assets; multi-family property in demand

(NEW YORK) Financial institutions that have lent money to property investors are starting to loosen their hold on these properties, potentially putting more property into play, property insiders said this week.

Multi-family property is an area where this is happening, with relatively strong demand and banks more willing to move properties off their books, one top executive said at the Reuters Global Real Estate and Infrastructure Summit in New York.

‘They seem like they’re much more aggressive now. They’re starting to really take things into hand, calling up and saying, ‘What’s the real number? How can we get this sold?’ They want to step in. They want to get it done,’ said Pam Liebman, chief executive of the Corcoran Group.

Many commercial property players have said that billions of dollars are waiting to be invested in distressed property.

However, little desirable property is on the market because banks are concerned about the strength of their balance sheets and are unwilling to write down property values, they noted.

Richard LeFrak, chief executive of the LeFrak Organization, a commercial property developer, said that overall, banks are still largely sitting on the assets when they can. ‘They’re waiting for their capital to get more robust before they have to write these things down. And if you could pay any kind of interest, they can play with you,’ Mr LeFrak said.

This could happen, for instance, with European financial institutions invested in syndicated loans to largely failed condominium developments, he said.

‘I think that some of the European banks are under a little more pressure now to raise cash, and that they may be forcing things where they are participating in some loans,’ Mr LeFrak said.

Banks have not moved more quickly because they are still under water on some assets, these specialists said. ‘I think they are culling through the inventory just like anybody else would and saying, ‘If I wait with this one, I will do better’,’ Mr LeFrak said.

Among areas where banks have been willing to move in quickly to sell are hotel properties, where the taint of foreclosure can hurt business and eat into values quickly, according to Evercore Partners senior managing director Martin Cicco. ‘There is a negative perception so they tend to move more quickly on that type of asset,’ Mr Cicco said, noting that a hotel is an ongoing business rather than just a property. — Reuters

Source: Business Times, 17 Jun 2010

WASHINGTON: Housing starts in the United States fell to a five-month low last month but industrial output rose, evidence of an uneven recovery that has kept inflation at a minimum.

As the government’s tax incentives for home buyers expired, new home building dropped 10 per cent to a seasonally adjusted annual rate of 593,000 units, the lowest level since last December, the Commerce Department said yesterday.

Industrial production, in contrast, surged 1.2 per cent.

Some of that was due to a spike in utilities as rising temperatures prompted many Americans to turn on their air-conditioners. But manufacturing output was firm as well, climbing 0.9 per cent, according to the Federal Reserve report.

Despite that performance, prices at the wholesale level retreated last month. The Labour Department’s Producer Price Index eased 0.3 per cent as petrol costs tumbled.

The grim housing picture is a concern for economists. Real estate was at the epicentre of the credit crisis, and many believe construction must play a role in any robust recovery.

‘These numbers are not good,’ said Mr Dan Cook, a senior market analyst at IG Markets in Chicago. ‘There’s too much (housing) inventory, and it’s going to take a while for the industry to work its way through that.’ That should contribute to a moderation of the US economic recovery.

The percentage decline in home construction was the biggest in 14 months and April’s housing starts were revised down to show a 3.9 per cent increase from a previously reported 5.8 per cent rise. Analysts polled by Reuters had expected housing starts to fall to 650,000 units.

New building permits, which give a sense of future home construction, dropped 5.9 per cent to a 574,000-unit pace last month, the lowest in a year.

The combination of low inflation and still low levels of resource utilisation should allow the Federal Reserve to renew its commitment to low interest rates at next week’s meeting, which would help to nurture the economic recovery, analysts said.

REUTERS

Source: Straits Times, 17 Jun 2010

High joblessness fuelling foreclosure crisis, says study

(BOSTON) Job growth will be the key factor in whether the US real estate market can extend a recovery after the end of the federal homebuyer tax credit, according to a Harvard University study.

High unemployment is fuelling the foreclosure crisis and discouraging the household formation that drives property demand, according to the State of the Nation’s Housing report issued yesterday by Harvard’s Joint Center for Housing Studies.

The weak labour market resulted in people ‘doubling up’, or sharing residences, rather than buying their own home, the report said.

‘What happens with jobs will matter the most to the strength of the housing rebound,’ said Eric Belsky, executive director for the centre in Cambridge, Massachusetts. ‘If employment growth surprises on the upside or downside, housing numbers could too.’

The US unemployment rate dropped to 9.7 per cent last month from 9.9 per cent in April, the Labor Department said on June 4. For all of 2010, it probably will be 9.6 per cent, the highest for any year since 1983, according to the average estimate of 82 economists polled by Bloomberg.

The homebuyer tax credit of as much as US$8,000 required buyers to have a signed contract by April 30 and close on a property by July 1.

The credit resulted in one million additional home sales between February 2009, when it began, and its expiration this year, according to Lawrence Yun, chief economist of the Chicago-based National Association of Realtors.

Consumer confidence now needs to improve for the market to sustain itself, he said in an interview.

The percentage of consumers who planned to buy a home in the next six months fell to 1.9 per cent in May after touching a seven-month high of 2.8 per cent in March, the New York-based Conference Board said in a report last month.

‘It comes down to whether consumers perceive that the market has bottomed or if they continue to wait,’ Mr Yun said. ‘If they wait, it pushes the market down and becomes a self-fulfilling prophecy.’

Mounting foreclosures are another headwind for a real estate recovery, according to the Harvard report. There were 2.1 million loans in the foreclosure process in the first quarter, almost quadruple the number from three years ago.

‘The foreclosure trend is going to get worse before it gets better,’ Thomas Lawler, an independent housing consultant in Leesburg, Virginia, said in an interview.

‘The biggest risk for housing is that you’ll see more foreclosed homes hitting the market and not have an offsetting rebound in household formation triggered by a recovering jobs market.’ – Bloomberg

Source: Business Times, 15 Jun 2010