Boston Real Estate Blog

Mortgage Market Update 

April 26, 2010

As the first time homebuyer deadline rapidly approaches, I wanted to keep you informed on current interest rates and a few items pointers on Flips and Deposits that may help going forward.  

Mortgage Rates:  Mortgage rates bounced around a tight range for most of last week, as there wasn’t much in the way of news to motivate movement in the first three days of the week. Below is a sample of some of our key rates for a 740 FICO and 80LTV borrower w/ NO points:

Program Updates:    Below is a graph which illustrates how borrowers are financing their new home purchases. “FHA IS THE WAY” has been the motto of many mortgage bankers and brokers since the collapse of the secondary mortgage market in 2007. Notice how FHA market share has grown since then and one might argue many of the first time home buyers who took advantage of the tax credit were able to because of FHA. 

Underwriting Updates:   

Flips - Property Flipping is a process of purchasing existing or proposed construction properties with the intention of reselling the properties for a profit. Individuals that flip properties employ a variety of different approaches to reach their objective - some briefly hold title(months or days) and others assign their interest in a contract to a third party(nominee) without ever taking title. Although these practices are legal, obtaining financing through conventional means can be problematic if:

·         The time the seller has title to the time of the P&S signing is less than 90 days

·         The increase in sales price is greater than 20% from their cost and significant repairs can not be substantiated

Although we may be able to work through some of these issues, it is always best to involve me in the process early if you suspect the property may fall into the definition of a flip.  As usual, Mortgage Insurance guidelines are significantly stricter so please pay special attention to any borrower with any preapproval with less than 20% down. 

Deposits - In most circumstances, deposit funds must be drawn from a homebuyer’s personal account. If your client’s intention is different from that, urge the homebuyer to contact the lender immediately.  You may have cause for concern under the following scenarios: 

• Deposit written on a credit card check
• Friend or relative writes check instead of your client
• Funds wired from an unknown source

Since most banks must now verify source of deposit money, deals could be delayed or even denied under the above deposit situations.

As always, please let me know if you have any questions or need any additional information.

Best, 

Jason Deeb
Senior Loan Officer

Direct:  781.486.7143
Cell:      617.901.8405

Fax:      781.245.7373
Email:   jdeeb@msamortgage.com

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By Chris Reidy (Boston Globe)

The number of Massachusetts homes sold last month jumped nearly 12 percent from July 2008, and the decline in prices moderated, the Warren Group reported today.

Low interest rates, reduced prices, the first-time homebuyer tax credit, and improved consumer confidence contributed to last month’s results, said the Warren Group, the Boston firm that tracks local real estate data and publishes Banker & Tradesman.

“This is a much-needed boost for the state’s housing market,” Warren Group chief executive Timothy M. Warren Jr. said in a statement. “We haven’t had a double-digit gain in monthly home sales since last October. And the declines in home prices have been getting smaller every month.”

A trend toward moderation first seen in June appeared to continue in July, he added, while cautioning: “We’re not out of the woods yet. We have to see consistent gains in sales going forward for home prices to stabilize.”

The number of single-family home sold in Massachusetts rose 11.8 percent to 4,977 from 4,453 in July 2008, the first increase in monthly home sales year-over-year in 2009, the Warren Group said.

The median selling price for single-family homes fell 4.7 percent to $305,000 from $320,000.

“Monthly median home prices fell by double-digit percentages year-over-year in the first five months of 2009,” the Warren Group said. “But in June and July, home prices slipped by only single-digit percentages. The median price for homes sold through July retreated 11.4 percent to $280,000 from $316,000.”

The Warren Group press release continued: “Condo sales remained fairly flat in July, but that’s a significant step up from prior months when sales sank by 20 to 30 percent. And the decline in condo prices in July wasn’t as steep as it has been.”

The number of Massachusetts condos sold in July was 2,190 in July, slightly lower than the 2,227 sales in July 2008. So far this year, condo sales are off by about 20 percent, the Warren Group said.

The median condo price fell 4.3 percent to $276,000 in July from $288,500 last year. July’s 4.3 percent drop was the smallest so far in 2009. the Warren Group reported. In the first five months of the year, price declines exceeded 10 percent.

The Massachusetts Association of Realtors also issued its monthly report on the local housing market this morning. The association uses a different method to track sales activity than the Warren Group does.

July sales of single-family homes were up 12.7 percent compared with the same month a year ago, the first time since December 2008 that home sales have gone up year-over-year, the association said. Condominium sales were also up for the first time since August 2007.

According to the association, the number of single-family homes sold in July was 4,460 versus 3,957 in July 2008 and up 7.5 percent from the 4,147 sold in June 2009, the association said.

The median selling price for a detached single-family home in Massachusetts was $310,000, down 5.1 percent from $326,500 in July 2008 and up 1.3 percent from $306,000 in June 2009, the association said.

Looking at the Massachusetts condo market for last month, the association said that sales were essentially flat on a year-to-year basis - 1,820 sold in July 2009 versus 1,803 in July 2008 and up 12.1 percent from 1,623 sold in June of this year.

The July median selling price for a Massachusetts condo was $275,000, down 3.5 percent from $284,950 a year ago and flat with June 2009, the association said.

“Activity has been building for the past few months and we are finally seeing the real estate market respond in a positive way,” Massachusetts Association of Realtors president Gary Rogers said in a statement. “Buyers are taking advantage of the $8,000 first-time homebuyer tax credit, low interest rates, and more affordable prices and getting into the market. While it is only one month, the number of homes put under agreement are also up, which means there is a good chance we could see additional months of increased sales ahead.”

A third report on the housing market was also issued today - the S&P/Case-Shiller Home Price Indices. Many observers deem the Case-Shiller indices to be one of the most accurate measures of the housing market because it tracks repeat sales.

This methodology collects data on single-family home resales, capturing re-sold sale prices to form sale pairs, according to S&P’s website.

S&P/Case-Shiller data out today showed that Boston-area homes increased in value by 2.6 percent in June when compared with May.

While the news was generally good today, the Warren Group had some sobering news to report last week: While Bay State foreclosures in July dropped sharply from a year ago, the number of foreclosure proceedings started by lenders increased to approach “historic highs.”

The recession has consumers being furloughed or laid off, and one result is that more people are struggling to make their monthly house payments, that foreclosure report suggested.

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July 8 (Bloomberg) — U.S. apartment vacancies rose to their highest in 22 years in the second quarter as job losses cut tenant demand and more units came to market.

Vacancies climbed to 7.5 percent from 6.1 percent a year earlier, New York-based real estate research firm Reis Inc. said today. The last time landlords had so much empty space was in 1987, when vacancies reached 7.6 percent as the Standard & Poor’s 500 Index plummeted 23 percent in the last three months of that year.

“Vacancies continued to rise despite what has traditionally been a strong leasing period for apartment properties,” said Victor Calanog, director of research at Reis.

Job losses and falling wages are shrinking the pool of potential renters, defying forecasts that prospective homebuyers would rent rather that purchase as house prices decline. The U.S. unemployment rate rose to a 26-year high in June and U.S. payrolls dropped more than forecast in June, the government said last week.

Equity Residential, founded by billionaire Sam Zell and now the biggest U.S. apartment landlord by market capitalization, said in April that job losses made the company “cautious” and it was offering rent reductions to lure tenants.

Asking rents for apartments fell 0.6 percent in the second quarter from the first, Reis said. That matched the rate of change in the first quarter, the biggest drop since Reis began reporting such data in 1999.

Asking rents dropped 0.7 percent from a year earlier to an average $1,040 a month.

Rents Drop

Rents paid by tenants, also known as effective rents, fell 0.9 percent from the previous quarter to $975, said Reis. Effective rents were 1.9 percent lower than a year earlier.

Effective rents fell the most in San Jose, San Francisco, Las Vegas, Southern California’s Orange County and Seattle. Those cities had been boosted by technology companies or the housing boom.

Rents paid by tenants climbed the most in Birmingham, Alabama; Chattanooga, Tennessee; Louisville, Kentucky; Norfolk/Hampton Roads, Virginia; and Syracuse, New York, according to Reis.

The vacancy rate increased the most in Tucson, Arizona, by 1.5 percent to 9.9 percent, followed by Charlotte, North Carolina; Little Rock, Arkansas; and Richmond, Virginia, Reis said.

New York’s Rate

Vacancies shrank the most in Columbia, South Carolina, by 1.2 percent to 13 percent, followed by New Haven, Connecticut; Colorado Springs and Birmingham, Alabama, the report said.

New York had the lowest vacancy rate in the second quarter, at 2.9 percent, followed by New Haven, home to Yale University; Central New Jersey; New York’s Long Island; and Syracuse, New York, according to Reis.

Jacksonville, Florida, had the most apartment vacancies, at 13.1 percent, Reis said. Next were Charleston and Columbia in South Carolina and Greensboro/Winston-Salem in North Carolina, said Reis.

The vacancy rate rose even as the net change in occupied space climbed by 2,530 units, Reis said.

A total of 22,696 units were completed last quarter, raising the total for the first half to 47,000, Calanog said. Reis expects more than 100,000 units to become available this year.

“New buildings coming online over 2009 and 2010 will face higher initial vacancy levels, and will work to increase the pressure on leasing managers,” Calanog said.

June 29 (Bloomberg) — Bernard Madoff was sentenced to 150 years in prison for masterminding the largest Ponzi scheme in history.

Madoff appeared in court today before U.S. District Judge Denny Chin for the first time since his March 12 guilty plea for an epic swindle that may have reached $65 billion.

“I don’t ask for any forgiveness,” Madoff, 71, told Chin. He said he deceived his brothers, his two sons and his wife. The courtroom burst into applause as Chin imposed the sentence, which is about six times longer than those meted out to the chief executives of WorldCom Inc. and Enron Corp.

Madoff pleaded guilty to securities fraud, mail fraud, wire fraud, investment adviser fraud, three counts of money laundering, false statements, perjury, false filings with the SEC and theft from an employee benefit plan.

Madoff today was led into the 11th floor courtroom in Manhattan federal court clad wearing a suit and flanked by federal marshals. Seated beside defense attorney Ira Sorkin, Madoff sat silently as nine former investors assailed him for a fraud that cost many their life savings.

Madoff has shown “no remorse,” said victim Carla Hirschhorn, of Manalapan, New Jersey, at the hearing. She told Chin her life is a “living hell,” her mother is dependent on social security and her daughter works two jobs to pay tuition. “Don’t fail us,” she told the judge.

Deeply Flawed

Sorkin told the court after the victims spoke that his client is a “deeply flawed human being.”

Madoff’s sentencing caps the downfall of an acclaimed investment adviser who told the world his fortune came through an eponymous firm that specialized in making markets, trading securities and advising wealthy clients.

Over three decades, he built a reputation as a brilliant stock picker who delivered steady returns through both bull and bear markets. He attracted an international client roster that included celebrities including filmmaker Steven Spielberg, fund managers such as J. Ezra Merkin, charities, universities, friends and even European royalty.

His facade shattered on Dec. 11, as Madoff confessed to authorities that his firm, Bernard L. Madoff Investment Securities LLC, was “one big lie.” Under immense pressure from a rush of investor redemptions, he admitted he used money from new investors to pay old ones. Regulators later said that his investment advisory business hadn’t made a trade in at least 13 years.

Some of his thousands of investors lost their life savings. Thierry Magon de La Villehuchet, chief executive officer of Access International Advisors, which managed $3 billion, was driven to suicide because of his firm’s Madoff-related losses, his brother, Bertrand Magon de la Villehuchet, said in January.

Maximum Sentence

Madoff received the maximum sentence on the 11 fraud charges to which he pleaded guilty. Before his sentencing, he consulted with Herbert Hoelter of the National Center on Institutions and Alternatives, a prisoner advocacy group, according to court records.

Other Hoelter clients have included lifestyle doyenne Martha Stewart, who was jailed for obstructing justice, and football player Michael Vick, who served time for helping to run a dog-fighting ring.

The U.S. Bureau of Prisons will now decide where Madoff serves his term. Since being locked up in March, he’s been housed in the maximum security Metropolitan Correctional Center next door to the courthouse.

Other aging white-collar convicts are in low-security prisons. Former WorldCom Inc. Chief Executive Officer Bernard Ebbers, 67, is housed at the Federal Correctional Institution in Oakdale, Louisiana. John Rigas, 84, the ex-CEO of Adelphia Communications Corp., is imprisoned at the Federal Correctional Institution in Butner, North Carolina.

‘Ashamed’

At his guilty plea in March, Madoff said that in the early 1990s, with the U.S. in a recession, he felt “compelled” to provide the returns his investors expected and began stealing investor money. He said the proprietary trading and market- making units of his business, both run by his sons, were “legitimate,” and his U.K.-based affiliate, Madoff Securities International Ltd., was an “honestly run” business.

“I am actually grateful for this opportunity to publicly speak about my crimes, for which I am so deeply sorry and ashamed,” Madoff said in court at the time. “I knew what I was doing was wrong, indeed criminal.”

The case doesn’t end with the sentencing. Investigators have seized control of Madoff offices at the lipstick-shaped building at 885 Third Avenue in Manhattan, where Madoff Securities operated out of three floors.

Prosecutors are probing whether his subordinates helped him swindle investors. A central issue is whether employees knew of the fraud. Madoff’s accountant, David Friehling, has been indicted on federal charges of lying to Madoff investors about whether he audited the firm.

Civil Lawsuits

No one else at the firm has been charged, and Madoff has not publicly implicated others. His sons Andrew and Mark Madoff ran the proprietary trading operations at Madoff’s firm. They turned their father in to authorities on Dec. 10 after he confessed to them, their attorney, Martin Flumenbaum, has said.

There has been a burst of civil litigation as well. Stephen Harbeck, president of the Securities Investor Protection Corp., which is liquidating Madoff Securities, said in May that it may take longer than 10 years to finish locating the company’s assets and paying back victims.

Investors have filed lawsuits against funds that invested with Madoff and were wiped out, including Fairfield Greenwich Group and Gabriel Capital LP. SIPC has also filed “clawback” suits against the feeder funds. Fairfield Greenwich is being sued for the $3.5 billion it withdrew before the fraud unraveled.

The case is U.S. v. Madoff, 09-cr-00213, U.S. District Court for the Southern District of New York (Manhattan).

Parking is still like gold in Back Bay.An unidentified buyer spent a whopping $300,000 yesterday for a private parking space in Back Bay Proper. The highest price ever paid for a Boston parking spot at 48 Commonwealth Ave. Sold to a resident of an adjacent brownstone that has multimillion-dollar condos but little parking. Located in an alleyway behind the building, the $300,000 spot features detailed red-and-white brickwork that matches the structure’s renovated 19th century exterior. LINK said the parking spot’s $300,000 sale price represents a new Boston record, topping the $250,000 that four Hub spaces have sold for since 2007.You can buy a small condo for just $250,000.Hub residents interviewed yesterday at the site had mixed emotions about the pricey parking.