Smart Real Estate News & Commentary by Chris McLaughlin January 5, 2012
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California homeowners sue Capital One over short sales
Homeowners say in a class action that Capital One illegally made them pay thousands of dollars in deficiency contributions after short sales of their homes, though the state prohibited that in 2010. Then-Gov. Arnold Schwarzenegger signed Senate Bill 931 into law in late 2010 to reduce foreclosures and boost short sales. Before the law took effect in January 2011, homeowners had no incentive to short sell their homes because while lenders could not obtain a deficiency judgment on foreclosed properties, they could go after homeowners who sold short.
“However, it quickly became apparent that where there was a second mortgage, the junior lien holder often refused to release the lien and the short sale never went through,” according to the complaint. “In February 2011, SB 458 was introduced, and on July 15, 2011, it was signed into law on an emergency basis. Section (a) of SB 458 expanded SB 931′s prohibition on obtaining a deficiency judgment to junior lien holders. Additionally, Section (b) of SB 458 further mandate that a ‘holder of a note shall not require the trustor, mortgagor, or maker of the note to pay any additional compensation, aside from the proceeds of the sale, in exchange for the written consent to the sale.’…Capital One has refused to comply with SB 458. In clear violation of the statute’s unambiguous prohibition, Capital One has illegally required California borrowers to pay the deficiency on their mortgages, in addition to ‘the proceeds of the sale, in exchange for [Capital One's] written consent to the sale.’ As a result, Capital One has generated substantial revenues from the collection of deficiencies from California-based borrowers in connection with completing short sales”.
The plaintiffs are represented by Mary Blasy with Scott+Scott of San Diego. They seek damages for violations of California’s Code of Civil Procedure, violations of California’s Business and Professional Code, conversion and unjust enrichment. A Capital One spokeswoman would not comment on the lawsuit.
Job claims and layoffs down, hiring up
The news is all good for the jobs market so far in 2012: Separate reports Thursday showed a surge in private-sector job creation, a sharp drop in weekly unemployment claims and planned layoffs at their lowest level in six months. Private-sector jobs surged by 325,000, according to ADP and Macroeconomic Advisors, while the government said weekly jobless claims fell 15,000 to 372,000 — still at an elevated level but consistent with recent data showing a consistent if grudging turnaround. Goods-producing businesses created 176,000 positions in the month, according to ADP’s payrolls count, while the goods-producing sector rose 52,000 and manufacturing increased 22,000. For the government’s weekly claims tabulation, it was the fourth drop in five weeks. The four-week average, which smooths fluctuations, declined to 373,250, the lowest level since June 2008. Applications have declined steadily over the past three months. The four-week average fell 11% in 2011, evidence that companies are laying off fewer workers. But many employers have been slow to add jobs.
The reports come a day ahead of the Labor Department’s monthly report expected to show 150,000 total jobs created in the public and private sectors. In a related report, the number of planned layoffs at US firms declined to its lowest level since June, suggesting ongoing improvement in the labor market although unemployment remains historically high, a report on Thursday showed. Employers announced 41,785 planned job cuts last month, down 1.6% from 42,474 in November, according to the report from consultants Challenger, Gray & Christmas. But December’s job cuts were up from the same time a year ago, rising 31% from the 32,004 job cuts announced in December 2010. For all of 2011, employers announced 606,082 cuts, up 14% from the 529,973 layoffs in 2010. The 183,064 government job cuts in 2011 represented a record high for that sector since Challenger began tracking it in 2002. And while the financial sector did not come close to its record high, annual cuts for the sector were 63,624, up 165% from 2010. The report showing a further decline in job cuts comes one day ahead of the US Labor Department’s key US jobs report, which is forecast to show a 150,000 increase in non-farm payrolls. Challenger said planned hirings in December totaled 14,074, down from 63,527 in November but up from 10,575 a year earlier. For all of 2011, announced new jobs totaled 537,572, up from 402,638 in 2010.
Fed – foreclosure is not the best solution
More than four years into the housing crisis, and after millions of Americans have lost their homes, Federal Reserve Chairman Ben Bernanke is finally taking a stand. Bernanke sent a Federal Reserve paper to the leaders of the House of Representatives’ Committee on Financial Services arguing that relying heavily on foreclosures to deal with mortgage borrowers that can’t meet their obligations is “costly and inefficient” for the housing market because they can lead to deteriorating homes and weigh on the property values in the surrounding community. Instead, the paper encourages lenders to “aggressively” pursue loan modifications and for servicers to be given more incentives to seek alternatives to foreclosure. Foreclosures “can result in ‘deadweight losses,’ or costs that do not benefit anyone, including the neglect and deterioration of properties that often sit vacant for months (or even years) and the associated negative effects on neighborhoods,” the paper said. “These deadweight losses compound the losses that households and creditors already bear and can result in further downward pressure on house prices.”
The paper mirrors findings from regional Fed banks indicating that foreclosures can be detrimental to more Americans than just those who are losing their homes. Properties that are occupied, but in foreclosure, drive down the surrounding property values twice as much as vacant properties, an October study from the Cleveland Federal Reserve found. And with millions of foreclosed properties already in the pipeline, the foreclosure process is already taking longer than in recent memory — a situation that may only be exacerbated if lenders don’t take the Fed’s advice. The average foreclosure process now takes 674 days, almost triple the time necessary in 2007.
Sales mixed in December
Although analysts were expecting sales at stores open at least 12 months to rise an average of 3.3%, according to Thomson Reuters Same-Store Sales Index. There were plenty of headwinds including mild winter weather and high levels of unemployment that retailers grappled with during December. The results were a mixed bag, with retailers such as Macy’s Limited and Zumiez, posting solid results and raising their earnings forecast. But the results were different for others such as discounter Target, which fell short of analysts’ expectations and cut its outlook for the fourth quarter. Target said same-store sales rose 1.6%, far short of the 3.1% average analyst estimate from Thomson Reuters. As a result of its weak sales, Target cut its fourth-quarter earnings estimate to a range of $1.35 to $1.43 a share, from a prior estimate of $1.43 to $1.53 a share. “December sales were below our expectations as growth in grocery and beauty offset softness in electronics and music, movies and books,” said Gregg Steinhafel, chairman, president and chief executive officer of Target, in a press release. “Sales and traffic were strongest in the week leading up to Christmas as guests waited to shop for last-minute gifts.” Others who posted weak results blamed the mild winter temperatures, which hurt sales of winter apparel and other winter merchandise.
Olick – Richard Cordray appointment to have big impact
“Barely a few hours after the White House confirmed that President Obama would use a controversial recess appointment to install former Ohio Attorney General Richard Cordray as the director of the Consumer Financial Protection Bureau (CFPB), both Obama and Cordray were sitting at the dining room table of Endia and William Eason; the Easons, both in their 90s, nearly lost their home due to ‘trickery and abuse’ by a non-bank mortgage broker. ‘The Easons need someone who will stand up for them,’ President Obama told a crowd later at a Cleveland high school. ‘Millions of Americans need someone who will look out for their interests. They need someone like Richard.’ Part of Richard Cordray’s job will be to increase oversight of mortgage brokers, which has already started with new underwriting standards mandated by the Dodd-Frank financial reform legislation. His appointment will finally allow the CFPB to start regulating non-depository firms (non-bank lenders), which up to now it could not. ‘And that could have a big impact,’ says Guy Cecala, CEO and Publisher of Inside Mortgage Finance. ‘A lot of these firms – ranging from mortgage brokers to large lenders like PHH – have effectively escaped regulation in the past. Now they will not only have to submit to reporting but also lending regulations previously only extended to depository institutions.’
That will likely take a while, as Cordray settles in, but there are more near-term implications of the appointment, like that he could potentially help finalize a deal with the state attorneys general and the big banks over the so-called ‘robo-signing’ scandal. ‘As a former AG, he could use that to his advantage in the ongoing negotiations with the AGs,’ notes Edward Mills, policy analyst at FBR. ‘Beyond a settlement, what we would be looking for are updated disclosure documents that are easier for consumers to understand and a definition of what is a ‘qualified mortgage’ – which sets in place new consumer protections on all mortgages.’ And even beyond the short and long term implications of Cordray’s new role at the CFPB is the significance of the recess appointment itself on something even more crucial to housing: The Federal Housing Finance Agency (FHFA), overseer of Fannie Mae and Freddie Mac. The FHFA has been run by an acting director, Edward DeMarco, for several years. DeMarco has stood in the way of various government attempts to use Fannie Mae, Freddie Mac and the FHA to help troubled borrowers and resuscitate the overall housing market. He has consistently argued that his job is to protect the books of these mortgage giants, not to ameliorate the dyspeptic housing market. If the President can use the recess appointment for Cordray, then he could potentially use it to replace the very controversial DeMarco. ‘A different FHFA director might take a more expansive view of what is needed to help housing,’ notes Jaret Seiberg, financial services policy analyst at Guggenheim Securities. ‘That opens the door to much bigger refinancing programs than what have been adopted so far. For borrowers, that means lower rates which helps the economy, helps housing and helps the President’s re-election effort.’”
Regional banks to improve in 2012?
This year should be a better one for regional banks than 2011, Barclays Capital banking analyst Jason Goldberg said yesterday. Goldberg, who predicted in October that the banks will improve as long as the US economy improves, said that last year was “clearly disappointing” since 2011 started with expectations of 3% gross domestic product growth and ended with only a 1.7% rise. There was also uncertainty about how the international Basel 3 bank solvency requirements and the US Dodd-Frank financial services law would affect regionals, plus the concerns about Europe’s solvency. Goldberg expects those factors to have less of an impact on the banks in 2012. He is “overweight” on regional banks that “used the economic downturn to improve their franchises,” including bigger Wells Fargo, US Bancorp and PNC Financial. These banks, he said, “made acquisitions to improve their franchise and took market share from their struggling peers.” Goldberg also likes Capital One, which “clearly benefited in 2011 from a much improved environment, in terms of credit quality for credit cards.” He says it will see a “modest pickup in growth” this year, thanks to two pending acquisitions.
Housing starts to rise in 2012?
Housing starts have hit their low point and will gradually pick up this year, Goldman Sachs chief economist Jan Hatzius said yesterday. “We’re pretty confident that housing starts have bottomed at this point,” he said. “It’s going to gradually pick up as the still large amount of vacancies and excess supply comes down.” Housing prices, however, will continue to fall until hitting bottom in the second half of the year, according to Goldman’s forecast. Hatzius said the price bubble of 2006 has finally disappeared, and housing is now “fairly valued,” but there will be “some small declines in house prices for most of this year basically because of the excess supply that’s still out there. But we’re pretty confident that we’re pretty close to the bottom here.”
Hatzius is also confident the Federal Reserve will have some form of quantitative easing later this year. “We think they’re still missing their dual mandate significantly on the weak side, even with all the policy measures that they’ve already taken,” he said of the Fed. There is still a “big gap” between the current unemployment rate of 8.6% and the Fed’s estimate of “sustainable unemployment” of 6%, Hatzius said. ”We don’t think that gap is going to significantly diminish in the course of this year, so I think they’re going to target that.” He also thinks inflation is going to go below the Fed’s target by the end of the year. The Fed said in November it was comfortable with the current inflation level of 3.9%, which includes food and energy prices, or 2% excluding them. Hatzius also reiterated Goldman’s forecast for a still sluggish recovery of 2% or so in 2012. the year “won’t look that different from 2011,” he said, with the first half of this year slower than the second half of last year.
Factory orders up in November
Orders to US factories rose sharply November on a surge in demand for airplanes. But demand for goods that signal business investment plans fell for the second straight month. The Commerce Department said orders to US factories rose 1.8% in November, following two months of declines. It was the best showing since a 2.1% gain in July. But orders for so-called core capital goods, such as computers and electronic equipment, dropped 1.2% following a 0.9% decline in October. The category is closely watched because it is a good proxy for business investment. Manufacturing has been one of the bright spots in this sub-par recovery but there is concern that US exports could falter if debt problems in Europe push that region into a severe recession.
HUD suspends affordable housing firm
The Department of Housing and Urban Development (HUD) suspended James Grier and Philadelphia-based Mantua Gardens East Inc., a Section 8 apartment complex, from doing business with the government, alleging the company improperly threatened tenants with eviction and withdrew thousands of dollars from reserves without permission. HUD also proposed their debarments to prevent Grier and the company from participating in government-related business for five years. Grier could not be reached for comment. A phone number for Mantua Gardens East was disconnected and a management firm connected with the apartment complex was closed Wednesday evening when a reporter called. HUD said Grier and MGE improperly withdrew $325,000 from reserves without HUD approval and submitted false and misleading financial reports to HUD. MGE also failed to provide sufficient notice to tenants of its intention to opt out of the Section 8 project-based program, denying them adequate time to make housing arrangements and threatening them with eviction. Section 8 is a HUD affordable housing program. It includes housing vouchers for low-income residents as well as project-based financing such as that provided to MGE.
MGE agreed to a $720,000 mortgage loan in 1970 insured by the Federal Housing Administration (FHA). As an FHA mortgagor, MGE is required to establish and maintain a reserve account to meet emergency needs at the apartment complex, which comprises 10 buildings in Philadelphia’s University City neighborhood. In 2008, Grier and MGE improperly withdrew reserves without HUD approval and then refused to restore the funds, HUD said. Grier and MGE pledged the funds, along with one of the development’s buildings and future rent payments, as collateral for a separate loan from a lending institution, according to HUD. MGE received project-based Section 8 subsidies for nearly 30 years. Under the terms of the contract, MGE was entitled to opt out of the contract, but was first required to provide one year’s notice to the tenants. In October 2011, MGE notified HUD that it was opting out of the program but failed to properly notify tenants, HUD said.
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Chris McLaughlin
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About the author:
Chris McLaughlin is widely known as America’s top
Real Estate Attorney and Investment Consultant.
* As the top Florida foreclosure and pre-
foreclosure expert, he oversees more than
100 short sale & REO closings each month
* Long-time authority on real estate investing
and rapid reselling of distressed homes. Owns
portfolio of nearly 150 high-value, high-profit
properties
* Owner of one of Florida’s largest Real Estate firms,
running 4 different offices, supporting over
420 agents, uniquely positioning him to help
thousands of investors make money in the
biggest market opportunity ever!
* In 2010, Chris’ 4 Central Florida real estate offices
closed 2,786 sides for a closed sales volume of
$392,912,927!
* Highly sought-after speaker, consultant, and
seminar leader for current trends and hot topics
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