Archive for June, 2015

Unknown

By Brian Honea

Since a borrower’s credit score influences a lender’s decision on whether or not to give that borrower a single family mortgage loan, the importance of having a good credit score when buying a home cannot be underestimated, according to Freddie Mac’s blog on Monday.

According to Freddie Mac, the best way to earn a high credit score is to pay debts on time that include credit cards, car payments, or student loan payments. Since a recent survey by TransUnion found that three out four consumers know their credit score is important but are unaware of the critical role the score plays when they are seeking a mortgage loan, on Monday Freddie Mac published a list of helpful hints (as reported by financial-education company Financial Finesse) to consider for consumers who are trying to build a solid credit score or consumers who may not know of its importance.

A credit score between 661 and 780 is generally considered good, with 700 being the “sweet spot,” according to Freddie Mac; a credit score between 781 and 850 is considered excellent. Those with lower credit scores who do get accepted for mortgage loans (and other types of loans) will almost certainly pay higher interest rates than those with higher credit scores; therefore, those with higher credit scores pay less over the life of the loan due to paying less interest.

Freddie Mac encourages borrowers not just to stop at getting one credit score, but to obtain credit scores from all three of the main credit bureaus – Equifax, Experian, and TransUnion. Different actions that affect a consumer’s credit are sometimes scored differently between the bureaus, which might cause a great deal of variation in that consumer’s overall credit score.

Contrary to popular belief, Freddie Mac said transferring credit card balances to a card with a lower interest rate will not help, and could in fact hurt a consumer’s credit. Freddie Mac encourages consumers to pay their existing accounts rather than opening new ones. Consumers are encouraged to track their scores regularly so that they might catch and correct any issues early, according to Freddie Mac.

Advertisements

images

By: Xhevrije West

Amidst the positive May job report from the Bureau of Labor and Statistics (BLS), consumer attitudes concerning the housing market showed vast improvement for the month of May, according to results from Fannie Mae’s May 2015 National Housing Survey. These positive changes also support the case for an increase in housing activity this year.

The BLS’s May jobs report showed an acceleration in average hourly earnings and reflected recent trends of firming personal income growth, revealing that the share of survey respondents reporting a significant increase in their household income climbed 4 percentage points to a near all-time high, Fannie Mae reported.

“Things are looking up for housing,” said Doug Duncan, SVP and chief economist at Fannie Mae. “Those saying it is a good time to sell a house hit a survey high of 49 percent. Also, the percentage of consumers telling us their household income is significantly higher than 12 months ago grew six percentage points to 28 percent over the past two months.”

While job growth continues to push meaningful income growth, the outlook for housing market growth is also improving, the GSE says. Of those surveyed, the share of respondents who say home prices will go up in the next 12 months increased to 49 percent, while the share who say home prices will go down dropped to 6 percent. Those who say it is a good time to buy a house rose back up to 66 percent, while those who say it is a good time to sell went up to a new survey high of 49 percent.

Additionally, the survey found that 66 percent of respondents noted that they would prefer to buy rather than rent a home on their next move, while the share who would rent fell to 27 percent. The percentage of respondents who expect home rental prices to go up rose to 55 percent. Those who think it would be easy to get a home mortgage decreased to 50 percent, while those who think it would be difficult remained at 46 percent.

The survey found that 47 percent of consumers say that mortgage rates will go up in the next 12 months. The average 12-month home price change expectation remained at 2.8 percent, while the average 12-month rental price change expectation rose to 4.3 percent. The share of respondents who say the economy is on the right track decreased by 4 percentage points to 38 percent, while those who say the economy is on the wrong track rose by 3 percentage points to 52 percent, the survey says.

“We have found that these two indicators–good time to sell and income growth–are key drivers for the performance of the housing market and play an important role in our soon to be released Home Purchase Sentiment Index (HPSI),” Duncan said. “The increase in these indicators suggests our forecast of moderate improvement in the housing market in 2015 is on course and mirrors the near-term performance of other leading market data, including mortgage applications and pending home sales.”

images-1
By Erika Morphy

WASHINGTON, DC—Last week Senate Judiciary Committee Chairman Chuck Grassley and ranking member Senator Patrick Leahy introduced bipartisan legislation to reauthorize and reform the EB-5 Regional Center program.

This did not come as a surprise to the commercial real estate industry, which has been watching the approaching Sept. 30, 2015 deadline with a mixture of dread and anticipation.

Simply put, the program has become an increasingly popular funding source for projects, David Cohen, a shareholder at Brownstein Hyatt Farber Schreck in Washington DC, tells GlobeSt.com.

“As the popularity of the EB-5 program has grown in the last few years, so too has the scope of the deals its being used to fund,” he says. “There is far more money at stake than there was even a few years ago.”

The changes proposed in the bill — officially called the American Job Creation and Investment Promotion Reform Act — touched upon some of the more controversial parts of the program. It proposes strengthening oversight by Department of Homeland Security and Securities and Exchange Commission oversight and putting in place measures that would discourage fraud. Overall, national security would have a greater focus this time around.

“While the exception rather than the rule, the program is not without controversy and the few high-profile incidences of fraud have attracted attention,” says Andrew Lance, a New York-based partner at Gibson, Dunn & Crutcher’s Real Estate practice.

“In the current political climate, and with conservative Chuck Grassley – who has vocally expressed several concerns with the EB-5 program, including national security – replacing fervent supporter Patrick Leahy as head of the Senate Judiciary Committee, Congress is expected to revisit several hot button topics as part of any program reauthorization.”

images

By Xhverije West
A new survey of housing attitudes released by the MacArthur Foundation found that a majority of Americans believe the country is still not past the housing crisis that began seven years ago. The 2015 How Housing Matters Survey found that three in five Americans believe we are “still in the middle” of the housing crisis or “the worst part is yet to come” of the crisis.

The survey also determined that Americans believe a middle-class lifestyle is harder to obtain in today’s market and that it is more likely for a family to fall from the middle class than join it.

“Decent housing at an affordable price remains a challenge for an increasing number of Americans, even after the recession has formally ended,” said Julia Stasch, MacArthur president. “It is disturbing that people feel the American dream and prospects for social mobility are receding. This survey is a wake-up call. People want and expect solutions to the housing crisis to be a higher priority for both national and local leaders alike.”

The survey is conducted by Hart Research Associates and commissioned by the MacArthur Foundation and is the third annual national survey of housing attitudes, the foundation said. The associates interviewed 1,401 adults, mostly millennials, on landlines and cell phones, between April 27 and May 5.

According to the survey, of the three in five Americans that believe the housing crisis is not over, 41 percent believe we are “still in the middle” of the housing crisis, while 20 percent feel “the worst is yet to come.” This is an improvement from 2014 where 70 percent of Americans felt the housing crisis has not passed, while 77 percent felt the same in 2013. With such pessimism alive among Americans after seven years since the crisis, the foundation noted ongoing concerns about housing affordability as well as lingering economic trauma.

“Most Americans do not believe the housing crisis is over, and this has contributed to the public feeling shaken in its optimism about what the future holds, particularly for younger people,” said Geoffrey Garin, Hart Research Associates president. “The building blocks of success–having a good job, decent housing, and the ability to save for a secure future–are viewed as harder to achieve than they were a generation ago, and this in turn helps drive pessimism about social mobility. The idea that downward mobility is more likely today than upward mobility turns the American Dream on its head, and is an indicator of how badly confidence has been eroded.”

Yesterday, Fannie Mae released its May 2015 National Housing Survey, revealing a different perspective from consumers. The survey found that attitudes among consumers concerning the housing market showed vast improvement for the month of May, and these positive changes support the case for an increase in housing activity this year.

According to Fannie Mae, the survey polled 1,000 Americans via live telephone interview to determine their attitudes toward owning and renting a home, home and rental price changes, homeownership distress, the economy, household finances, and overall consumer confidence. Homeowners and renters were asked more than 100 questions used to track attitudinal shifts.

“Things are looking up for housing,” said Doug Duncan, SVP and chief economist at Fannie Mae. “Those saying it is a good time to sell a house hit a survey high of 49 percent. Also, the percentage of consumers telling us their household income is significantly higher than 12 months ago grew six percentage points to 28 percent over the past two months.”

images-6

By CRAIG KARMIN – Wall Street Journal

Some investors are betting the next big market in hospitality will be the scruffy, cost-conscious backpacking crowd.

AllianceBernstein LP, Invesco Ltd. and billionaire Ronald Burkle’s Yucaipa Cos. all are pouring money into upscale youth hostels, a new kind of lodging that has been growing in Europe and is starting to crack the U.S. market.

These accommodations look nothing like what traveling college students of years ago are likely to remember. Back then, a youth-hostel stay usually meant sharing dingy, cramped quarters with a dozen strangers and waiting to use a communal restroom.

The modern hostel still offers the social lubricant of shared rooms, though generally for fewer people. But in other respects it more closely resembles a fashionable boutique hotel. Such properties feature private bathrooms, vibrant bars with specialty cocktails, yoga classes on rooftops, and mahogany-filled rooms from interior designers like Roman & Williams. Most also offer the option of private rooms with one or two beds.

This month, Freehand, one of the first of these brands based in the U.S., is opening a Chicago hostel. It is its second U.S. property, following one in Miami Beach that has 278 beds and opened in 2012. Generator Hostels, the operator of nine European hostels with 6,200 beds, is close to a deal to acquire a building on Collins Avenue in Miami Beach for its first U.S. hostel, say people familiar with the matter.

Josh Wyatt, a partner at Patron Capital Partners, the London-based private-equity firm that is the majority owner of Generator, says the high-end hostel concept represented a new niche. “We looked at the boutique space and said, ‘No one really does this with hostels,’ ” he says.

The budding interest in a sector historically dominated by modest mom-and-pop operations shows how well the hospitality market is doing, but also how crowded the more-traditional segments of the market have become.

‘The millennials want something cheap, but they want it to be cool. ’
(Hostel investor Bert Crouch)

It also shows how any business model that attracts the much-coveted millennial generation, often defined as the group born between 1980 and 2000, holds a particular investor appeal.

A recent report from real-estate broker CBRE Group Inc. says this generation of travelers has about €200 billion ($220 billion) in annual spending power, stays longer when traveling than other age groups, and didn’t much slow its traveling during the recession.

“The millennials want something cheap, but they want it to be cool,” says Bert Crouch, a portfolio manager at Invesco, which last year paid €60 million for a 23% stake in Generator.

The hostel model typically relies on high per-room occupancy and lower costs, such as providing only light housekeeping in the shared rooms. It also counts on strong food and beverage sales. Mr. Wyatt says Generator’s average bed rate is €25 and that guests typically spend at least half that amount at the bar or restaurant or on travel items sold at the hostel.

Hostel owners say their products attract budget-minded travelers to cities they might otherwise not be able to afford. A spot in an eight-bed room at the Freehand Miami has rented on average in 2015 for about $42 a night, Freehand says. By contrast, a hotel room in Miami this year charged on average $242 a night, according to data tracker STR Inc.

Some analysts caution that the track record for these modern hostels is short and predicting the future tastes of the younger generation can be difficult. In the U.S., there could also be a perception problem to overcome, since hostels are still often associated with concerns about safety, noise and cleanliness.

“We’d be naive to think the concept will be accepted right off,” Invesco’s Mr. Crouch says. “But it won’t take long with social media for the word to spread about the experience.”

Hostels have to compete with other low-cost options, including budget hotels and home-rental companies like Airbnb Inc. Operators looking to open hostels in New York also face potential legal issues. A local law limits the number of people who aren’t traveling together that can stay in a room at the same time.

“We have the capital ready to go and a few sites in mind, but we need to be legal to be ready to operate,” says Robert Savage, spokesman for Beds & Bars, a U.K.-based hostel company that operates in 10 European cities. He says the company is avoiding the U.S. until it can start with a foothold in New York.

Not everyone is deterred. Andrew Zobler, chief executive of hotel developer Sydell Group, which owns Freehand with Yucaipa and AllianceBernstein, says he plans to open a downtown Manhattan property within three years, tweaking his formula to focus more on private rooms.

Freehand also expects to open a Los Angeles hostel in about 18 months. Mr. Zobler says he and his partners are spending $250 million on the four projects.

Generator got its start in 2007 when Patron bought hostels in London and Berlin, with part of the €40 million Patron allotted to this investment idea. The company expects to have 13 hostels open by the end of 2016, and it is looking in Los Angeles, Washington and other U.S. cities.

“It may be a few years for the U.S. to fully embrace hostels,” Mr. Wyatt says. “But there is momentum building.”

images-5 images-4

By Brian Honea

Tim Rood, Chairman of Washington, D.C.-based business advisory firm The Collingwood Group, recently discussed the “housing sales roller coaster” and the challenges the country will face if millennials do not enter the housing market, according to a post Wednesday on the Voice of Housing, The Collingwood Group’s blog.

Rood, whose two decades of mortgage industry experience include serving as of Senior Director and Principal of Fannie Mae’s eBusiness Division, told radio host Jim Bohannon that the recent surge in apartment construction was largely due to developers taking advantage of millennials who have aspirations of homeownership, but cannot afford it but want to get out of their parents’ houses.

What will eventually happen if millennials continue this trend and become addicted to the urban lifestyle, he said, is that a whole generation will be looking to downsize.

“You’ve got the boomers, for example, that are stuck in the suburbs and we always thought they would want to move south, go to retirement go play some golf, go fishing,” Rood said. “But it turns out they, too, want to move to these urban areas, which is creating more demand for those residences, those apartments, driving up rents, but who the heck is going to take up and sop up all the inventory in the suburbs if that plays out?”

Rood noted that a recent study found that only about 20 percent of seniors who are passing away have any kind of financial assets outside of their home equity – and that generation has been touted as the most prosperous in the country’s history.

“You know what are we going to do if we find the millennials priced out of the market or making lifestyle decisions that keep them out of the housing market never saving, never building up equity,” Rood said. “Sooner or later these folks are going to want to retire or have some sort of health issue and Uncle Sam’s going to foot the bill.”

When Bohannon asked Rood about causes of the housing crisis, Rood responded that deregulation, and not the Community Reinvestment Act as many have speculated, was the main cause of the meltdown.

“Washington in the late ’90s and early 2000s said, ‘You know what? There’s a lot of old rules that were applying to banks that we should strip away. We should just trust that Wall Street and the banks will act in their own self-interest and not do silly things like lend to people who can’t pay for their mortgages, because ultimately that will crater the system.’ It’s kind of like that scene in Animal House where Otter goes, ‘You messed up, you trusted us.’

Well, that’s exactly what happened. They just got away from themselves and trusted that values would always go up, and therefore it doesn’t matter whether somebody can pay because they will always have a way out.”

April showed an increase in new home sales but a decline in existing home sales, prompting Bohannon to ask Rood about the “housing sales roller coaster.” Rood said a lack of inventory was partly to blame for the flat existing home sales, but also the fact that millions of underwater homeowners do not have enough equity built up to cover the transaction costs of selling and then moving into another property, so they “feel kind of trapped and there just isn’t a lot of upward pressure from the demand side to make that change.”

images-2

By: Brian Honea

The U.S. Supreme Court ruled on Monday that an underwater second mortgage cannot be extinguished, or “stripped off,” as unsecured debt for a debtor in bankruptcy, according to the Supreme Court’s website.

In the cases of Bank of America v. Caulket and Bank of America v. Toledo-Cardona, Florida homeowners David Caulkett and Edelmiro Toldeo-Cardona had filed for Chapter 7 bankruptcy and had second mortgages with Bank of America extinguished by a bankruptcy judge following the housing crisis of 2008 based on the fact that they were completely underwater. On Monday, just more than two months after hearing arguments for the case, the Supreme Court ruled in favor of the bank.

When the Supreme Court heard arguments for two cases on March 24, attorneys representing Bank of America contended that the high court should uphold a 1992 decision in the case of Dewsnup v. Timm, which barred debtors in Chapter 7 bankruptcy from “stripping off” an underwater second mortgage down to its market value, thus voiding the junior lien holder’s claim against the debtor. Attorneys for the debtors argued that the Dewsnup decision was irrelevant for the two cases.

Bank of America appealed the bankruptcy judge’s ruling for the two cases, but the 11th Circuit U.S. Court of Appeals upheld the bankruptcy court’s decision in May 2014, going against the Dewsnup ruling by saying that decision did not apply when the collateral on a junior lien (second mortgage) did not have sufficient enough value. The bank subsequently appealed the 11th Circuit Court’s ruling.

The Supreme Court ruled on Monday that the second mortgages should not be treated as unsecured debt, hence upholding the Dewsnup decision. Justice Clarence Thomas, in delivering the opinion of the court, wrote that, “Section 506(d) of the Bankruptcy Code allows a debtor to void a lien on his property ‘[t]o the extent that [the] lien secures a claim against the debtor that is not an allowed secured claim.’ 11 U. S. C. §506(d). These consolidated cases present the question whether a debtor in a Chapter 7 bankruptcy proceeding may void a junior mortgage under §506(d) when the debt owed on a senior mortgage exceeds the present value of the property. We hold that a debtor may not, and we therefore reverse the judgments of the Court of Appeals.”

“The Court has spoken, and we respect its ruling,” said Stephanos Bibas, an attorney for defendant David Caulkett, in an email to DS News. “But we are disappointed that the Court extended its earlier precedent in Dewsnup v Timm, even though it acknowledged that the plain words of the statute favor giving relief to homeowners such as Messrs. Caulkett and Toledo-Cardona. We hope that in the near future, the Administration’s home-mortgage-modification programs will offer more relief to homeowners in this situation struggling to save their homes.”

A Bank of America spokesman declined to comment on Monday’s Supreme Court’s ruling.