Wyoming threatens to sell prime Grand Teton land
By MEAD GRUVER – ASSOCIATED PRESS
MOOSE, Wyo. — For Sale: Two square miles of Grand Teton National Park.
Majestic views of the Teton Range. Prime location for luxury resort, home development. Pristine habitat for moose, elk, wolves, grizzlies.
Price: $125 million. Call: Gov. Dave Freudenthal.
Wyoming is trying to force the Interior Department to trade land, minerals or mineral royalties for 1,366 acres it owns within the majestic park. If the foot-dragging feds don’t agree to a deal — soon — Freudenthal threatens to put a For Sale sign on the property.
Wyoming has owned the land since statehood in 1890, when the federal government set aside land in new Western states to be mined, logged or leased to raise money for public education. Wyoming kept its so-called “school sections” after Grand Teton National Park was established in 1950.
The state has tried for a decade to negotiate some kind of trade. Saying that his patience is running out, Freudenthal, a Democrat, sent an ultimatum recently to park Superintendent Mary Gibson Scott.
“I think he wants to pound the (for sale) sign in himself,” said Ed Grant, director of the Office of State Lands and Investments.
Wyoming gets just $3,000 a year from the land by leasing it for cattle grazing. Sold with the proceeds invested at 3 percent, the land easily could bring in $3.75 million a year.
The state constitution requires state officials to manage state lands for maximum profit. Their oaths of office require them to act.
“If it’s to recreate on, or if it’s a new ski lodge, highest and best use,” said Susan Child, deputy director of the state lands office. “It’s obviously not grazing.”
Even in pro-development Wyoming, however, selling off land in a national park isn’t a popular idea. Some are protesting already.
But Freudenthal, who has a long history of run-ins with the Interior Department over endangered species and snowmobiles in Yellowstone National Park, isn’t stepping on any toes he hasn’t smashed already. What’s more, he’s wrapping up his second term and will leave office next year. He’s all but enshrined as one of the most popular governors in Wyoming history.
“We’re going to continue to push on it,” he said. “Somehow we’ve got to get some attention.”
Freudenthal certainly has grabbed the park’s.
“These are wildlife-rich habitats completely surrounded by pristine park land,” said park spokeswoman Jackie Skaggs. “For obvious reasons, Grand Teton National Park would be very, very concerned and disappointed if these lands were sold for development.”
A deal wouldn’t be unprecedented: Utah in 1999 worked out an elaborate swap involving nearly 600 square miles of state land within several national parks, monuments and recreation areas. The state got $50 million plus 240 square miles of federal land in return.
In 2003, Sen. Craig Thomas, R-Wyo., got a bill passed that was supposed to encourage some kind of swap in Grand Teton. But Thomas died in 2007 and a deal has been elusive.
Discussions to trade the Grand Teton land for 800,000 acres of U.S. Bureau of Land Management land got nowhere. Wyoming officials said the BLM land is undesirable.
“Trash land,” said Grant. “The state said, ‘No, we’ve got prime, in-park real estate.’”
A plan to trade coal rights bogged down when Wyoming didn’t agree to a federal plan for valuing the reserves.
“I admit we’re not as bright as those boys on the Potomac,” Freudenthal said. “But it’s not our first county fair.”
The Interior Department continues to work with Wyoming to resolve the matter, said Interior spokeswoman Kendra Barkoff.
Both sides are working on getting an updated appraisal for the state land. A 2005 appraisal put the land’s value at $98.5 million. Wyoming officials figure it’s now worth between $100 million and $125 million.
The land consists of two parcels of a square mile each plus a handful of other lots. All are in the southern end of Grand Teton with views of the world-famous Teton Range.
The only real value comparison is the private land remaining in Grand Teton.
Such “inholdings” are among the most desirable properties in pricey Jackson Hole. A 0.86-acre inholding with a modest house, for example, listed for $1.9 million in 2007.
“It was a feeding frenzy. We had three offers in 24 hours,” said David Viehman, with Jackson Hole Real Estate Associates.
The National Park Service has been gradually acquiring inholdings to add to the park over the years, leaving Wyoming by far the largest owner of park inholdings.
“They’ve been pretty aggressive about picking up private inholdings to keep people from developing them, and have always assumed they got the use of the state’s land without paying for it,” Freudenthal grumbled. “Why buy the cow when the milk’s free?”
Public opposition could tamp down the value of the state land as a property that realistically could be developed, giving the federal government an upper hand in negotiations. Recently a group called Save Historic Jackson Hole took out an ad in the Jackson Hole News & Guide urging people to write Freudenthal and oppose any auction.
“We don’t think that’s a good solution, to go the private sector,” said the group’s executive director, Armond Acri. “Any development there is going to be problematic.”
Grand Teton National Park online: http://www.nps.gov/grte/index.htm
Middle-Of-Nowhere Mansions
Francesca Levy – FORBES
Ultra-high-end homes are on the market for tens of millions in Door County, Wis., and other unexpected spots. What are they doing there?
Homes that cost $10 million or more are expected to boast certain luxuries, and the gated compound called the Brentwood has all the amenities a trophy home should: a three-tiered screening room, billiards hall equipped with wet bar, master bathroom with a fireside Jacuzzi and 10-spigot shower, guest homes, lushly wooded surroundings, tennis court and boat dock.
What’s unusual about the Brentwood is its location: Big Chippewa Lake, Minn. Two hours outside Minneapolis, it is worlds away from moneyed areas like Beverly Hills, Calif. or Vail, Colo., where the vast majority of astronomically expensive homes are clustered.
Yet millionaires, moguls and well-to-do families have installed estates worth double-digit-millions in places where no nearby home comes remotely close in price. Why would anyone put so much money into a property with a location that makes it exceedingly difficult to resell? The answer is often personal.
When the Brentwood’s publishing industry owners decided to build a sprawling, homey family retreat, they eschewed more glamorous locales; their Minnesota roots span generations. The wealthy couple hosted children and grandchildren at the property, which is decorated with whimsical brass sculptures of deer and prancing children, until the family outgrew it. Now Realtor Greg Antonsen, of Christie’s Great Estates, says it’s a perfect buy for a family or anyone looking for a little solitude.
“You have all the privacy you want–it’s its own world,” says Antonsen. “When you’re on this lake, it’s you and you alone.”
In most parts of the country, even the most expensive homes cost less than $10 million. But some rich families, when deciding where to settle, choose sentimental value over deluxe areas, resulting in homes so opulent they often stand out like sore thumbs.
The Price of History
Another Minnesota home with a shocking price tag, the Southways Estate, was built by the Pillsbury family in 1918 and occupied in the 1990s by Minnesota Vikings co-owner James Jundt and his family. The Jundts have been trying to unload the storied family home for two years at $53 million, and attempted to sell it in a much publicized December 2009 auction.
But in spite of its sweeping views, period details and architectural significance, the auction hasn’t yet resulted in a sale. Perhaps that’s because in uncertain economic times, few real estate investors want to take a chance on a grand home in an out-of-the-way place.
Age and backstory lend cachet to a number of mansions off the beaten path. A former plantation is on the market in Charleston, S.C., for $22 million. In Foxburg, Pa., a restored 1828 home, built by the descendants of George M. Fox, who founded the Quaker religion, is being sold for $24 million.
The Chateau du Lac, a mansion that will appeal to eccentrics, is in an unlikely place: Door County, Wis. At $23 million it’s by far the most expensive home in the scenic area, but that’s not the only strange thing about it. The home’s buyer will also receive all its contents, like a kitchen full of antique silver and cutlery, and a collection of evening purses. Should they be pet lovers, there’s space for the family’s departed dog in the home’s adjacent mausoleum. The home’s owner, 90-year-old businessman Frank Spitzer, bought it sight unseen for his wife Erlys, who has since died.
“It’s just an expense at this point,” says George Chakmakis, Spitzer’s lawyer, in an e-mail. “He has still never been there.”
A Resale Challenge
A mansion that’s far from millionaire’s row can offer seclusion, uninterrupted views and more bang for your buck. But selling ultra-high-end homes can be tough in areas where few are looking to put their wealth on display. The universe of buyers for homes this expensive is already small, and it shrinks even more when the location is obscure. The Jundts’ inability to sell Southways, even with aggressive tactics, demonstrates the difficulty of marketing grand homes in modest places.
“The people who are going to live in Minnesota are the people who already live in Minnesota. There’s a nine out of 10 chance that whoever buys that home is from there, has roots there, or already lives there and is moving up,” says John Brian Losh, CEO of Luxuryrealesate.com. “That buyer is there right now, but they just think the price is too high.”
General Growth in agreements to sell Nevada lots
General Growth signs deals with PulteGroup, MDC Holdings
By Ilaina Jonas and Helen Chernikoff – REUTERS
NEW YORK- General Growth Properties Inc (GGP.N) has asked a bankruptcy court judge to allow it to sell 503 lots in Summerlin, Nevada and has entered agreements with two top U.S. homebuilders, according to a court filing.
The No. 2 U.S. mall owner has signed agreements to sell 271 Summerlin lots to a PulteGroup Inc (PHM.N) unit for $20 million and 232 Summerlin lots to MDC Holdings Inc (MDC.N) for $18 million, according to a motion filed July 1 in U.S. bankruptcy court in Manhattan.
The agreements are to serve as opening or “stalking horse” bids for auction of the properties, which are located in the Mesa Village of Summerlin.
Should PulteGroup or MDC Holdings lose the auction, they will receive a break-up fee of up to 3 percent of the price in the agreement and up to $50,000 in expenses, according to the filing.
Summerlin, a master-planned community under development for about 20 years, is composed of 22,500 acres and is home to about 100,000 residents in 40,000 residences. It has 25 public and private schools, golf courses, parks, shopping centers and medical facilities.
There are about 7,000 acres of undeveloped land left, according to the filing.
“That’s a good price,” said Rick Hildreth, a broker in Land Advisors’ Las Vegas office.
The supply constraints on Summerlin’s land make deals there highly desirable, Hildreth said.
“Inventory for new homes are pretty low there,” he said, adding that new homes that are for sale in such communities as Harmony Homes are selling well.
Markets like Las Vegas and Phoenix, that fell hard in the housing bust, saw a sales spike and escalating prices this winter as public homebuilders competed for land to position themselves for a recovery.
Now that the federal homebuyer tax credit has expired, however, the frenzy has calmed somewhat, Hildreth said.
“They’re looking but they’re being a little more reluctant to move forward,” he said, noting that on Tuesday he closed a deal with MDC Holdings and in May he did so with Pulte.
General Growth acquired Summerlin in 2004 when it bought Rouse Cos, a mall and master-planned community developer.
Meanwhile, heirs of Howard Hughes have asked the bankruptcy court to allow them to have the remaining lots of Summerlin appraised.
In 1996, Rouse bought the master-planned community of Summerlin from Hughes Corp, which was founded by industrialist Howard Hughes. Hughes died in 1976.
The sales agreement called for the heirs to be paid for half the value of the land not sold at Summerlin by the end of 2009. But the bankruptcy prevented that final payoff.
General Growth, which filed for bankruptcy in April 2009, also seeks to auction off 90-acre parcel zoned for manufacturing for high-tech and 7.2-acre parcel for a strip mall in Summerlin.
All the sales and the procedures for selling are subject to bankruptcy court approval. A hearing is slated for July 22. Objections are due July 14.
Shares of General Growth closed Friday down 1.4 percent at $12.75 on the New York Stock Exchange. PulteGroup shares finished down 2.7 percent at $8.16, while MDC stock ended down 1.8 percent at $26.59, all on the NYSE.
Neither Pulte nor MDC Holdings could be reached for comment. (Reporting by Ilaina Jonas; Editing by Phil Berlowitz and Tim Dobbyn)
Auctioned Homes: Are They Great Deals Or Huge Money Pits?
By KATHLEEN DOLER, FOR INVESTOR’S BUSINESS DAILY
Ample quantity but questionable quality describes today’s residential real estate auctions.
House-hunters and investors go to “REO” and courthouse auctions to buy foreclosures. Increasingly, they’re bidding online.
Prices for REOs — “real estate owned” by lenders — can seem rock bottom. But experts stress that auctioned homes are sold “as-is,” which in today’s market can mean that the home needs a significant amount of work.
“The quality of the homes we’re getting is not as good as in 2008 … 60% of the homes we get are in nonfinanceable condition,” said Jeff Frieden, CEO of Real Estate Disposition (REDC) of Irvine, Calif., which auctions lender-owned homes across the U.S.
Handyman Specials
Properties deteriorate when they sit unoccupied or are inhabited by a strapped homeowner, Frieden and others say. And foreclosures are often stripped of appliances and fixtures when a disgruntled homeowner leaves or later by vandals. Plus, homes sold at REO auctions are typically homes lenders tried to sell but couldn’t via the regular market.
Yet the auction business remains brisk. Investors buy auctioned properties to fix and flip or hold and rent.
Frieden says REDC auctioned 32,000 lender-owned homes in 2008, 34,000 in ‘09 and is “on track to sell 40,000 this year.” Investors now make up 60% of the buyers.
REDC sold 2% of its homes online in 2008 and 27% in 2009. This year, Frieden expects that to hit 40%.
Hudson & Marshall, another auction company that sells REOs, says it’s moving more homes online too. In some cases, it’s brokering deals one-on-one between qualified online buyers and lenders.
“We qualify the buyer and if it’s an acceptable offer it goes through” right away, said Dave Webb, an H&M principal.
Frieden says REDC also sometimes offers a “bid now” option on a home, to sell it immediately. But most online REDC homes go through eBay-style three-day auctions, “with a flurry of activity within the last hour.”
Webb says currently 42% of Hudson & Marshall’s business is investors. He cautions all auction buyers to research properties and know condition, value, neighborhood, possible rents and taxes before bidding.
Bandwagon’s A Long One
There’s no shortage of foreclosures to buy now or down the road. Rick Sharga, senior vice president of foreclosure marketplace RealtyTrac, in Irvine, Calif., says more than 7 million properties are in some stage of foreclosure or “seriously delinquent” on mortgage payments.
“We’re seeing a huge build-up in homeowners who are well past 90 days (past) due,” Sharga said. The market can only absorb 1.5 million to 2 million foreclosed properties a year, he says, so foreclosure sales and auctions will continue for years.
Sharga says, though, that the foreclosure process has slowed as lenders deal with new loan modification programs and rules. Plus, they’re pacing the foreclosure process to only slowly acquire — and acknowledge on their books — these severely depreciated assets.
The depth of the foreclosure mess now makes it possible for investors to get in on routine courthouse auctions where lenders used to simply repossess properties. But these auctions only happen in what are called nonjudicial states.
In some states, a foreclosure is processed in state court and is called a judicial foreclosure. In other states with nonjudicial foreclosure, it happens without court intervention.
In nonjudicial states, after all notices of default have been served, a property is foreclosed via an auction at the courthouse. The mortgage-holder — usually the lender — is allowed to make the first bid, which often is for the amount owed on the home. But today many homes aren’t worth what’s owed on them. So lenders are setting their bids lower than the mortgage in some cases, giving third-party investors the ability to outbid them.
“In late 2008, banks started discounting opening amounts and that made it possible for a third party to outbid the bank,” said Sean O’Toole, CEO of ForeclosureRadar in Discovery Bay, Calif.
In May 2009, only 12.7% of foreclosures in California went to third parties vs. the bank, O’Toole says. By May 2010 that reached 22.7%.
Courting Uncertainty
REO auctions are risky enough but courthouse auctions involve even more risk. At one of these, the buyer must pay cash and there’s no title insurance issued. Also, usually there’s no opportunity to inspect the home and it’s the buyer’s responsibility to evict the owner or tenant, subject to state laws.
Conversely, at REO auctions, buyers can inspect a home, acquire title insurance and get financing. However, a buyer at an REO auction may still end up acquiring a property with a tenant, because some states have tightened eviction laws, and lenders have been renting some foreclosed homes.
Online Advantages
Real estate investor Kami Merabi, CEO of Merabi & Sons, based in Sherman Oaks, Calif., has bought a couple of properties via online auctions. He says these auctions give him direct control vs. having a representative at a live auction. Also, “you don’t get caught up, you’re more in control in an online auction,” Merabi said.
The key to investing wisely in auctioned homes, he says, is to investigate thoroughly and see “what the piece you’re buying is worth, what is your purpose in buying it and set a limit for yourself” on the price.
“You’ve got to be disciplined,” Merabi said.
Former bridal store in New Dorp sold at auction
By Tevah Platt – SI Live
STATEN ISLAND, NY – NEW DORP – The glamorous, 10,000-square-foot boutique that had been New York Bridal Couture in New Dorp was sold at auction last week for $2.12 million.
After just two years in business, the owners of the bridal store at 2455 Hylan Blvd. closed shop in 2009, citing the ailing economy.
The owners had bought the building for $2.6 million in 2006, and spent hundreds of thousands of dollars in renovations, adding marble details and glittering chandeliers to the 6,500-square-foot showroom. The property also included a 14-car parking lot.
David R. Maltz & Co., a Plainview, L.I.-based real estate auctioning company, conducted the public auction last Thursday afternoon.
Nine bidders posted certified checks of $115,000 to participate in the auction, agreeing to what would be an all-cash deal that would close without contingencies within 45 days.
The advantage to sellers in such cases is that they can set the date of sale, said Richard Maltz, vice president of the company’s real-estate auction division and the conductor of the bidding.
The recent recession has made such arrangements appealing to owners who need to quickly achieve liquidity. Maltz said his company has experienced 30 to 40 percent growth in business in the past three years.
Originally offered on the market at $3.5 million, the owners of the shop chose to auction the property to rid themselves of onerous carrying costs, Maltz said.
The opening bid was $1.2 million, and three bidders continued to butt heads in the auction after the price topped $1.8 million.
The buyer asked to remain anonymous until closing.
Maltz & Co. handles a handful of Staten Island properties each year. Its national real estate auctions bring in $100 million a year, said Maltz, whose recent sales have ranged from a $2.4 Miami office building to a $19 million golf course in Muttontown, L.I.
Duke Says Return to Pre-Crisis Lending May Take Years
Businessweek – By Scott Lanman and Joshua Zumbrun
Federal Reserve Governor Elizabeth Duke said that while an improving U.S. economy will help reverse a decline in credit, it may take several years for lending to return to pre-crisis levels.
So far, the resumption of credit growth following the recession has lagged behind all business cycles of the past 40 years except the 1990-91 recession, after which it took three years for consumer credit to recover and almost nine years for commercial real estate, Duke said in a speech to bankers in Columbus, Ohio.
The Fed has held its target interest rate at zero to 0.25 percent since December 2008 to lower borrowing costs and help the economy recover. Even with the record-low interest rates, loans held by commercial banks fell by about 5 percent in 2009, Duke said. The central bank repeated last week that “tight credit” is holding back consumer spending.
“Just as the causes for the decline in lending are multifaceted and complex and took time to evolve, the solutions will likely be equally difficult and will take time to fully work,” Duke, the only former commercial banker on the Fed’s Board of Governors, said at an event for Ohio Bankers’ Day, presented by the Ohio Department of Commerce.
“We at the Federal Reserve, meanwhile, will continue to do everything we can to encourage a return to a healthy credit environment,” said the 57-year-old Duke, who took office in 2008 as then-President George W. Bush’s last Fed appointee.
Asset Sales
Responding to audience questions afterward, Duke said her opinion is that the Fed shouldn’t begin selling its more than $1 trillion in mortgage-backed securities until after it raises interest rates. The central bank should communicate sales “well in advance to the markets so that markets aren’t surprised,” Duke said.
Four areas will determine the availability of credit: bank profits, regulation, borrowers’ demand and the economy’s strength, Duke said.
The banking industry “continues to recovery slowly,” with a measure of net income returning to “about pre-crisis levels for the largest 25 banks” in the first quarter, while smaller banks had net interest margins and non-interest income remain “weaker than they were prior to the crisis,” Duke said. Excluding an accounting change, loans contracted in April and May at about a 7.75 percent rate, she said.
Both strong and weak banks are reducing lending, which is “very different” from past examples when declines could be attributed to drops in the portfolios at weaker banks, Duke said.
Bankers Reluctant
Many bankers have told Duke that they are reluctant to extend new credit or restructure loans because of an “uncertain regulatory environment,” she said. She asked bankers to tell the Fed if its examination policies are “unnecessarily impeding the flow of credit.”
Consumer borrowing rose for the first time in three months in April, according to Fed data. The total amount of outstanding credit to consumers has declined 5.5 percent since reaching a peak in July 2008.
Household spending is constrained by “high unemployment, modest income growth, lower housing wealth, and tight credit,” the Fed’s Open Market Committee said in the statement following its June 22-23 meeting. The panel cited a decline in bank lending in recent months. The Fed renewed its pledge of low interest rates for an “extended period.”
“Just looking at the statistics, it is not hard to construct a scenario in which consumer demand for credit remains sluggish for quite a while,” Duke said. Household net worth dropped about 25 percent during the crisis, about 20 percent of mortgage borrowers lack equity in their homes and consumers “remain quite burdened by debt payments,” she said.
Growth Estimate
Consumer spending accounts for about 70 percent of the U.S. economy, and sluggish growth in consumption restrains the pace of recovery. On June 25, the Commerce Department lowered its estimate for growth in the first quarter of 2010 to 2.7 percent from 3 percent, reflecting a smaller gain in consumer spending.
Confidence among U.S. consumers sank in June more than forecast as Americans became distressed over the outlook for jobs and incomes, a report from the New York-based Conference Board said yesterday. Sentiment fell most in regions affected by the oil spill in the Gulf of Mexico.
“It is going to be, I think, a long period for jobs to recover,” Duke said. The U.S. unemployment rate was 9.7 percent in May, close to a 26-year high.
For small businesses, credit conditions “remain tight,” Duke said, citing a National Federation of Independent Business 2009 survey showing 50 percent of borrowers got all or most of the credit they wanted, compared with about 61 percent from 2003 to 2006 who got all they wanted and 28 percent who got most.
Duke and Fed Chairman Ben S. Bernanke heard in discussions in Tampa, Florida, and Detroit that lower values of collateral may be having an effect on business owners’ abilities to get financing, Duke said.
Buy Your Next Home From Uncle Sam
Eric Fox – San Francisco Chronicle
Americans that are brave enough to buy a home despite persistent predictions of a double dip in housing may want to contact the Federal government, as the recession and financial crisis has turned Uncle Sam into one of the largest owners of real estate in the United States.
Rising Foreclosures
The housing bust has led to an unprecedented number of foreclosures in the United States. In May 2010, 322,920 foreclosure notices were filed against homeowners, and more than three million homes have been seized over the last five years from delinquent borrowers. (It is possible to come back from the edge. Learn more in Avoid Foreclosure: Properly Handling An Underwater Mortgage.)
While most may assume that banks are the only source of foreclosure efforts, the U.S. government also owns a large number of residential properties due to its large role in buying and guaranteeing mortgages. Many of these properties are held due to the conservatorship established over the Government Sponsored Entities (GSE) back in 2008.
Freddie Mac
The Federal Home Loan Corporation, or Freddie Mac as it is more popularly known, owned approximately 45,000 multi and single-family homes at the end of 2009. The company put a gross value on these properties of $5.13 billion. Freddie Mac obtained these properties by being the highest bidder at foreclosure auctions when the properties collateralize loans owned by the company, or when owners just transfer the property to Freddie Mac without going through the foreclosure process.
Freddie Mac is furiously attempting to dispose of these homes, and has been fairly successful as the company’s weighted average holding period for real estate owned is less than one year. The company markets the homes through HomeSteps, where buyers can search by state and city for homes to purchase.
Fannie Mae
The Federal National Mortgage Association, or Fannie Mae, is also a large owner of foreclosed property. The company owned more than 86,000 single family homes at the end of 2009, with a balance sheet value of $ 8.5 billion. These homes are concentrated in states that were ground zero of the housing bust, with 28% if the inventory in California, Nevada, Arizona and Florida.
Fannie Mae also markets these homes intensively, and sold 123,000 in 2009. The company’s official web site to sell homes is called HomePath, where buyers can conveniently look up inventory near their location.
Other Agencies
Another source of inventory owned by the government is from the U.S. Department of Housing and Urban Development (HUD). HUD obtains its properties through a foreclosure auction on a Federal Housing Administration (FHA) insured loan. HUD also has its own web site at Hud.gov/homes.
Next up is the Federal Deposit Insurance Corporation (FDIC), which owns its inventory through its role in seizing failed banks. The FDIC owns single family homes but also has large amount of other properties including industrial and commercial properties, and raw land. The web site is located here.
The Department of Veterans Affairs and the U.S. Department of Agriculture also have a role in financing and guaranteeing home loans so both own single family home and other inventory. Buyers can look for their dream home here on web sites set up by these agencies as well.
Buyer Beware
Buyers shopping for homes from the government should be aware of the disadvantages of the process. Many agencies offer properties “as is” with no warranties on the condition. There is also little flexibility on negotiating the terms of the contract if the government accepts your offer. Fannie Mae, for example, does not accept offers for houses that are contingent on a buyer selling a currently owned home.
Bottom Line
The U.S. government is one of the largest homeowners in the country, with thousands of single and multi family homes in its inventory. These properties were either seized in asset forfeiture operations or foreclosure, and various government agencies are desperately trying to unload these through auctions or online listing. Buyers should check out the government inventory before signing that contract.
Northern Colorardo recreational property to be auctioned
By Margaret Jackson – Denver Post
More than 600 acres of recreational land in near Red Feather Lakes in northern Colorado will be sold at auction July 27.
The property bordering the Roosevelt National Forest includes 1.7 miles of the North Poudre River and has excellent fishing and game populations.
Westchester Auctions will conduct the auction at 1 p.m. July 27 at the Beaver Meadows Resort Ranch. Westchester representatives will be available at Beaver Meadows on from 1 to 3 p.m. July 6 and July 20 to answer questions and offer property viewings.
The Inflatable Loan Pool
By GRETCHEN MORGENSON – THE NEW YORK TIMES
AMID the legal battles between investors who lost money in mortgage securities and the investment banks that sold the stuff, one thing seems clear: the investment banks appear to be winning a good many of the early skirmishes.
But some cases are faring better for individual plaintiffs, with judges allowing them to proceed even as banks ask that they be dismissed. Still, these matters are hard to litigate because investors must persuade the judges overseeing them that their losses were not simply a result of a market crash. Investors must argue, convincingly, that the banks misrepresented the quality of the loans in the pools and made material misstatements about them in prospectuses provided to buyers.
Recent filings by two Federal Home Loan Banks — in San Francisco and Seattle — offer an intriguing way to clear this high hurdle. Lawyers representing the banks, which bought mortgage securities, combed through the loan pools looking for discrepancies between actual loan characteristics and how they were pitched to investors.
You may not be shocked to learn that the analysis found significant differences between what the Home Loan Banks were told about these securities and what they were sold.
The rate of discrepancies in these pools is surprising. The lawsuits contend that half the loans were inaccurately described in disclosure materials filed with the Securities and Exchange Commission.
These findings are compelling because they involve some 525,000 mortgage loans in 156 pools sold by 10 investment banks from 2005 through 2007. And because the research was conducted using a valuation model devised by CoreLogic, an information analytics company that is a trusted source for mortgage loan data, the conclusions are even more credible.
The analysis used CoreLogic’s valuation model, called VP4, which is used by many in the mortgage industry to verify accuracy of property appraisals. It homed in on loan-to-value ratios, a crucial measure in predicting defaults.
An overwhelming majority of the loan-to-value ratios stated in the securities’ prospectuses used appraisals, court documents say. Investors rely on the ratios because it is well known that the higher the loan relative to an underlying property’s appraised value, the more likely the borrower will walk away when financial troubles arise.
By back-testing the loans using the CoreLogic model from the time the mortgage securities were originated, the analysis compared those values with the loans’ appraised values as stated in prospectuses. Then the analysts reassessed the weighted average loan-to-value ratios of the pools’ mortgages.
The model concluded that roughly one-third of the loans were for amounts that were 105 percent or more of the underlying property’s value. Roughly 5.5 percent of the loans in the pools had appraisals that were lower than they should have been.
That means inflated appraisals were involved in six times as many loans as were understated appraisals.
David J. Grais, a lawyer at Grais & Ellsworth in New York, represents the Home Loan Banks in the lawsuits. “The information in these complaints shows that the disclosure documents for these securities did not describe the collateral accurately,” Mr. Grais said last week. “Courts have shown great interest in loan-by-loan and trust-by-trust information in cases like these. We think these complaints will satisfy that interest.”
The banks are requesting that the firms that sold the securities repurchase them. The San Francisco Home Loan Bank paid $19 billion for the mortgage securities covered by the lawsuit, and the Seattle Home Loan Bank paid $4 billion. It is unclear how much the banks would get if they won their suits.
Among the 10 defendants in the cases are Deutsche Bank, Credit Suisse, Merrill Lynch, Countrywide and UBS. None of these banks would comment.
As outlined in the San Francisco Bank’s amended complaint, it did not receive detailed data about the loans in the securities it purchased. Instead, the complaint says, the banks used the loan data to compile statistics about the loans, which were then presented to potential investors. These disclosures were misleading, the San Francisco Bank contends.
In one pool with 3,543 loans, for example, the CoreLogic model had enough information to evaluate 2,097 loans. Of those, it determined that 1,114 mortgages — or more than half — had loan-to-value ratios of 105 percent or more. The valuations on those properties exceeded their true market value by $65 million, the complaint contends.
The selling document for that pool said that all of the mortgages had loan-to-value ratios of 100 percent or less, the complaint said. But the CoreLogic analysis identified 169 loans with ratios over 100 percent. The pool prospectus also stated that the weighted average loan-to-value ratio of mortgages in the portion of the security purchased by Home Loan Bank was 69.5 percent. But the loans the CoreLogic model valued had an average ratio of almost 77 percent.
IT is unclear, of course, how these court cases will turn out. But it certainly is true that the more investors dig, the more they learn how freewheeling the Wall Street mortgage machine was back in the day. Each bit of evidence clearly points to the same lesson: investors must have access to loan details, and the time to analyze them, before they are likely to want to invest in these kinds of securities again.
Fannie Mae, Freddie Mac Should ‘Unwind’ Portfolios, Pimco Says
Businessweek – By Jody Shenn
Fannie Mae and Freddie Mac, the housing-finance companies supported by U.S. taxpayers, should take advantage of demand for government-backed mortgage debt and sell their holdings, according to Pacific Investment Management Co.
“Since the government’s going to want to unwind them at some point anyway, why not do it at the best levels ever?” Scott Simon, the mortgage-bond head at Newport Beach, California-based Pimco, manager of the world’s biggest fixed- income fund, said in a telephone interview. “It’s good for taxpayers, good for stakeholders, good for everybody.”
The average price of the $5.2 trillion of so-called agency mortgage bonds guaranteed by Fannie Mae and Freddie Mac or federal agency Ginnie Mae rose last week to an all-time high of 106.3 cents on the dollar, according to Bank of America Merrill Lynch’s Mortgage Master Index. The Federal Reserve said today it would replace its contracts to take delivery of certain bonds with other debt, reflecting a lack of supply in the market.
Investors have viewed the mortgage obligations as a haven amid Europe’s sovereign debt crisis and as signs of a slowing U.S. economy roil markets. Average values, which have also climbed on speculation that homeowner refinancing won’t accelerate and that the Fed will hold short-term interest rates at record lows, have climbed from 104.2 cents on March 31, when the Fed stopped entering contracts to buy $1.25 trillion.
‘Appalled’ at Behavior
“If they just hold it all, they’ll make much, much less money,” and potentially report losses under accounting rules Simon said in the interview last week, referring to Fannie Mae and Freddie Mac. “I’m appalled as a taxpayer they aren’t selling.”
Janis Smith, a spokeswoman for Washington-based Fannie Mae, Michael Cosgrove, a spokesman for McLean, Virginia-based Freddie Mac, and Corinne Russell, a spokeswoman for the Federal Housing Finance Agency, their regulator, declined to comment.
The companies, which have received $145 billion of U.S. capital injections, hold $1.5 trillion of housing loans and securities combined, including almost $700 billion of agency mortgage bonds, down from almost $840 billion at the start of the year, according to their latest disclosures. The U.S. has directed each of them to keep their portfolios below $900 billion.
The companies also guarantee $3.9 trillion of housing debt they don’t hold. This year, they’ve increased the amount of un- securitized mortgages in their investment portfolios, as they buy delinquent loans out of the securities they back to reduce expenses, while paring their securities holdings mainly by allowing them to pay down.
Reducing Portfolios
While the Obama administration has deferred developing a proposal for the so-called government-sponsored enterprises’ future with the U.S. housing market still struggling, Treasury Secretary Timothy Geithner told lawmakers in March that his department “remains firmly committed to ensuring that the GSEs’ retained portfolios are substantially reduced.”
Most proposals for leaving the firms as government-linked or making them U.S. agencies envision maintaining smaller portfolios or none at all, according to a Government Accountability Office report in September. Caps on their portfolios are scheduled to drop by 10 percent annually.
It “would be appropriate” for the companies to start selling securities, though they may be resisting the idea, said Anthony Sanders, a professor of finance at George Mason University in Fairfax, Virginia.
Return to Profitability
“They actually believe they will be put back to the market again,” said Sanders, also a former mortgage-bond research director at Deutsche Bank AG. “And the larger the portfolios they retain, in theory, the easier it is for them to return to being profitable businesses.”
Fannie Mae and Freddie Mac should sell “every” mortgage bond they own with 5 percent, 5.5 percent and 6 percent coupons, while allowing their own debt to mature, be retired through contractual call options or buybacks, or be offset with interest-rate swap contracts, Simon said.
The least expensive coupons are the so-called current- coupon bonds that most directly affect home-loan rates because they’re the ones into which lenders typically sell new loans, he said. Those “are the ones Fannie and Freddie don’t own.”
The New York Fed said in a statement today that it would use so-called coupon swaps to cancel its $9.2 billion of contracts to buy 5.5 percent Fannie Mae securities, and instead enter contracts to take delivery of other debt.
Retaining Low Rates
Sales by Fannie Mae and Freddie Mac of mortgage bonds, even those that don’t directly affect loan rates, may run counter to the government’s other actions meant to support markets, including promises by the Fed to keep its benchmark rate target unchanged for an “extend period.” At their April meeting, central bank policy makers debated when and how fast to sell holdings, signaling no rush to start.
Still, in unwinding their portfolios, Fannie Mae and Freddie Mac would also be removing their own corporate bonds from the market, lessening their supply at the same time, or entering swap contracts with similar effects, Pimco’s Simon said.
Pimco’s $228 billion Total Return Fund reduced its holdings of mortgage securities to 16 percent last month, down from 83 percent in January 2009, according to its website. Because the fund holds less of the debt than found in benchmark indexes, it would do better than rivals if the bonds underperform.