A Lack Of Scrutiny In Florida
The Miami Herald reports from Florida. “Adjustable-rate mortgages, or ARMs, popular during the housing boom, have lost both their appeal and the advantage they once offered borrowers. With the decline in home values, most South Floridians with option ARMs are, at best, stuck with them for now, unable to refinance in a conventional manner because their loan is upside-down. ‘If I would have known what was going to happen, I would have gotten a fixed rate,’ said Ronald Rostran, who bought a new three-bedroom, two-bath house in Homestead in the summer of 2007 for $250,000. ‘We thought we could stay in the house for two or three years and then sell it. I had no idea.”’
“Rostran planned to turn a profit in the housing boom. Now his hours as a truck driver have been drastically reduced and he is several months late on his $1,700 mortgage payment. More than a refinance, he’s looking for a loan modification. To top it off, the builder in his development is now selling new houses like his for $180,000 — $70,000 less than he paid. ‘Yes, for me it has been a nightmare,’ he said.”
“Mariah Fox has been trying unsuccessfully to refinance her ARM and is hoping she’ll qualify for one of the new federal packages that help people with upside-down loans. Fox bought her home in South Miami-Dade in 1998 with a fixed-rate mortgage at 8.5 percent interest. By 2005, the value of her home had more than doubled, to $172,000. She decided to refinance with an option ARM, borrowing an additional $20,000, for a new mortgage of $105,000.”
”’I wanted to repair the house and go through graduate school without being stressed out,’ said the mother of three. ‘There wasn’t much fear about [an ARM] then and the plan was to refinance in a couple of years before it started readjusting. At the time, it seemed like a good idea.”’
“The ARM started readjusting monthly in late 2008. Her house is now appraised at $100,000, down from $140,000 last year when she first tried to refinance. And her loan principal has grown to $117,000 because the minimum payment she recently has been making doesn’t cover the monthly interest due. ‘I’ve put lots of money into the house in the last six years and it’s all a wash,’ Fox said. ‘I’m going deeper into a hole every month.’”
“‘Most of our loan consultants wouldn’t put somebody in an adjustable unless it was their intent to be out of the house before it reset,’ said said Chris Buttafuoco, managing director of residential lending at Great Florida Bank. ‘We used it as a vehicle for folks not planning to be in the home long-term.”’
The Orlando Sentinel. “A troubled developer in the Four Corners area near Walt Disney World, sued by British investors after the vacation homes for which they paid thousands weren’t built, has now sought protection from its creditors in bankruptcy court. The company owes creditors a total of $184 million.”
“So far, only 96 town houses have been completed and prepared for occupancy. Of the 972 units planned for the site, 370 have purchase contracts but haven’t gone to closings. Tierra del Sol started to send buyers letters asking for contract extensions — and more money to finish the construction. ‘They started calling and trying to get me to sign another contract and pay double [the price],’ said Tom DeNapoli, who said he paid a $27,000 deposit for a four-bedroom town house that was supposed to be completed in 2005. He asked for his deposit back but never got it.”
“‘It certainly negated any other [investment] opportunity I might have had. Look at the history of this company. … I don’t think I’m going to get my money back,’ DeNapoli said.”
The New York Times. “Off the turnpike here in central Florida, hidden behind stucco walls, sits a sprawling Tuscan-style clubhouse on a hill overlooking a string of lakes, a golf course and green fields. This 1,900-acre property, called Bella Collina, was designed to hold 800 homes. Today, only 48 houses dot the landscape, and just three are occupied. The clubhouse, though open, is eerily quiet, and a promised swimming pool and equestrian center have yet to be built.”
“As the real estate boom expanded in recent years, developers and home buyers believed that residential golf resorts were a sure-fire bet. Many buyers looked to buy properties that they could flip for a quick profit. ‘The aggressive building of new resort courses continued from the mid-1990s into the 2000s, contributing to an increasing glut of inventory that finally found no market,’ said Joe Beditz, CEO of a trade group that tracks data on the golf industry.”
“Bella Collina, the brainchild of Robert Edward Ginn III, looks like a ghost town. So does Tesoro, another resort opened by Ginn near Port St. Lucie, where just 150 houses sit on 900 lots. And the Conservatory in Palm Coast, also from Ginn, is even more barren: 335 out of 340 lots are empty.”
“But when the real estate market began to tank in 2007, his empire came undone. ‘As property values plummeted, many investors had property worth less than their loans, and they were unprepared to pay their club and association fees,’ says Toby Tobin, a Florida real estate agent.”
“For Ginn, a man who could sell 400 lots in a single day during the height of the real estate boom, it has been a huge comedown. But when a new resort was in the works, Ginn knew how to generate a buying frenzy by holding lavish parties where potential buyers greatly outnumbered available lots, say agents and investors who attended the events. ‘You would come to one of Ginn’s sales weekends and you would be drinking and thinking, ‘I hope I get chosen as one of the select few who gets to buy a lot,’ recalled Hilton Wiener, a lawyer who bought an investment property at Tesoro. ‘The setting is very lush: hand-rolled cigars, fancy parties, vans with the Ginn name plastered on them.’”
“The Florida suit…alleges that Ginn worked to artificially inflate the prices of parcels in his development. In one case, according to the lawsuit, a buyer bought two properties for a total of $1.007 million, and Ginn’s title company recorded the respective sale prices as $1.007 million and $1. The company then used the larger price as a ‘comparable’ figure in an appraisal for Roy Bridges, a British financial adviser who bought a property for $1.195 million, according to appraisal records. Bridges’ property is now in foreclosure.”
“Ginn contends that ‘the county recorded it incorrectly.’”
“According to a transcript of a video obtained by a law firm representing property owners in the suit, a Ginn salesman told a group of potential buyers at Bella Collina that ‘Lot 5 sold for $2.1 million this morning.’ But property records showed that the parcel sold for just $416,900, according to the lawsuit. Ginn said he was ’shocked because the salesman deviated from company practices.’”
“Ginn says he is ‘ready to sell properties in trophy locations’ when the market turns around. ‘If you can’t sell,’ he said, ‘you die.’”
The News Press. “Rich and Linda Ricciani are using a novel marketing approach to sell their riverside estate in Fort Myers. A coupon. A coupon worth $1 million. Starting today, the coupon will appear in Florida newspapers, including The News-Press, the Wall Street Journal and newspapers in such northern cities as Boston and Minneapolis. If no buyer is found, the campaign will end July 31.”
“‘My broker and I were throwing around strategies and coming up with ideas, and one idea led to another and led to another,’ said owner Rich Ricciani. ‘Everybody puts an ad in the paper or on TV. We just wanted to think outside the box and try something different.’”
“The three-story house along the Caloosahatchee, with its 8,500 square feet of living area, was to be the family’s estate. Planning started 10 years ago and construction, which was completed in 2008, took more than three years because of the home’s many custom features. Ricciani, a real estate investor and developer, said while work was under way, he and his wife decided the home was no longer appropriate for them.”
“‘Our lifestyle has changed, our family has changed,’ he said. ‘It’s too big a house for two people and I’m 10 years older. It was a great idea then.’”
“Michaele Stahl, a luxury home specialist for Prudential Florida WCI Realty in Fort Myers, endorsed the Riccianis’ approach. ‘In this market, I think anything that anybody tries is not a bad thing,’ she said. ‘A $1 million coupon is kind of unusual in real estate. I’m not really into gimmicks, but I can’t blame anybody for trying.’”
“Stahl also stressed the importance of aligning with current market standards. ‘This will get attention, but I’m not sure it will help it to sell,’ Stahl said of the coupon. ‘In this market, it really all comes down to price.’”
From Florida Today. “Existing home sales in Brevard County were up 17 percent in April from a year ago, the third consecutive month of increased sales. The median sales price for single-family homes in April was $113,600, a 29 percent drop compared with the year-ago price of $160,000. The median price was $123,700 in March. The last time the median price was lower was in April 2002, when it was $109,300.”
“The dropping prices helped tempt John Dobay and his fiancé, Dawn McDonald, to check out a condo in Cocoa Beach Wednesday. The couple from Niles, Ohio, are regular visitors to the area and were in town for one of Dobay’s sons’ high school graduation. ‘That’s why we are looking now. It is the time to buy,’ said Dobay.”
“It is those ‘distress sales’ that have driven prices down and brought buyers back to the market, said Sean Snaith, an economist at the University of Central Florida. ‘I think they are starting to recognize that there are some values out there that are going to seem like real bargains five or 10 years down the road,’ Snaith said.”
“He points out that builders have told him many homes are now selling for less than it cost to build them. ‘Houses right now are selling below their replacement cost, which tells me we overshot the bottom,’ he said.”
The Bradenton Herald. “Melissa Murray was laid off in August. In April, her husband Russell Murray was laid off. To avoid foreclosure or falling behind on the bills, the Murrays are doing what many homeowners are doing in these tough economic times — renting out a room in their home.”
“‘It’s inconvenient. It upsets me that I have to do this,’ said Melissa Murray. ‘But if we do not find a suitable renter within the next month, we won’t be able to keep our heads above water.’”
“Economist Sean Snaith said it is common during a recession for people to search for alternative methods to generate income. Room rentals, he says, seem to be a popular option when faced with foreclosure possibilities and a poor real estate market. ‘It’s more prevalant given the nature of the recession and the role housing has played,’ Snaith said. ‘In this particular downturn, more people have been forced into this option as a way to make mortgage payments. It’s difficult to sell a house and for many homeowners it’s a better option than foreclosure.’”
“Murray and her husband receive about $1,000 in unemployment compensation a month, nearly the same amount as their mortgage payment. ‘With our mortgage, utilities, vehicle insurance, phone and just your basic necessities, it’s just barely enough,’ Murray said.”
“Manatee County had 2,450 foreclosure filings this year as of May 18. Pat Palmeri-Bates, a Realtor at Keller Williams of Greater Manatee and Palmetto, said renting is just about all some homeowners can do to avoid foreclosure. ‘A lot of people don’t want to take a hit of doing a short sale so they figure they’ll try to rent it, and at least some money’s coming in. It’s better than no money.’”
“During the past year, Palmeri-Bates estimates she’s rented 29 single-family homes and has about 25 rentals on her listings. ‘It seems as soon as I get something rented I get two more,’ Palmeri-Bates said. ‘Now we’re seeing people looking to rent out rooms in their homes.’”
The Associated Press. “Mike Manikchand points toward his neighbors in Lehigh Acres — a half-dozen empty, foreclosed-upon homes, sitting on weed-strewn yards — and he wonders: What will happen if a hurricane slams into southwest Florida this year? His simple answer: ‘A lot of these places will get destroyed.”’
“A 22-year-old pharmacy student, he took advantage of a dismal housing market and bought a foreclosed duplex for $36,000. In coming months, he and millions of others along the Atlantic and Gulf coasts will dutifully track tropical weather forecasts and stockpile batteries, flashlights and tins of tuna, hoping that hurricanes blow harmlessly out to sea.”
“But who will secure all the foreclosed homes if a storm does approach? No one really knows. If the bank hasn’t yet taken the title of a home, the property is in a kind of limbo, and local officials or homeowners associations may have no legal right to trespass and secure it. And many hard-hit counties don’t have the money or manpower to do it.”
“‘Simple logistics tells me (the banks) don’t have the staff to follow up,’ said Kenneth Wilkinson, property appraiser for Lee County, which in March had the third-highest foreclosure rate in the United States, after California’s Merced County and Nevada’s Clark County.”
“One real estate agent in the Fort Myers area said the process of putting the maintenance work out to bid and then getting approval from the bank that owns the property might not be workable as a storm bears down. ‘During a hurricane, we need to get out of town, not wait for approval for funding to secure a building,’ said Suzanne Sherer, president of the Realtors Association of Greater Fort Myers and the Beaches. ‘I won’t have time to get a bid from a handyman.”’
“Residents throughout the hurricane zone are worried, especially those who live in foreclosure-dotted neighborhoods. Armando Gonzalez retired from Miami to Lehigh Acres five years ago. He and his wife moved to a small home a few blocks from the city center, in a quiet yet thriving neighborhood. But in the last two years, his neighbors left, either because of foreclosure or job loss. Now he’s the only one on his block; the home next to him has a broken window and the one across the street is only half-built.”
“When asked what would happen to all the nearby, dilapidated homes if a hurricane hit, Gonzalez shrugged and grinned. ‘I can’t do anything,’ he said. ‘Maybe I’ll pray. God will save me.”’
The Herald Tribune. “The federal government is learning from the mistakes of the housing bubble. But what lessons will local governments salvage from a boom-and-bust cycle that overestimated home demand while underestimating the problems that would ensue when the mania collapsed?”
“With the pain and perfection of hindsight, the world now knows just how destructive ‘irrational exuberance’ can be. A housing bubble, coupled with deeply flawed credit practices and risk mismanagement, triggered a financial disaster of epic proportions.”
“During the boom, some long-needed traffic improvements were planned and scheduled to tie in with proposed mega-projects, which would help pay for the work. But then the development plans collapsed with the market. In several cases the projects and the traffic improvements remain unbuilt.”
“The cause of sustainable growth might also benefit from better use of data that could serve as an early-warning system on speculative excess. These indicators could include such numbers as the proportion of homes purchased as primary residences; median price compared to median income; and divergences from historical norms in price appreciation.”
“A lack of scrutiny helped enable the financial crisis. More watchdogs are needed — not just on Wall Street but here at home, to catch the mortgage fraud, inflated appraisals and other improper activity that contributed to the destructive bubble.”
