April 21, 2014

Caught Up In The Easy Money

The Tampa Bay Times reports from Florida. “Seven of the largest investors buying homes here have in two years spent more than $1 billion, amassing 6,800 houses in an unprecedented land grab, a Tampa Bay Times analysis has found. Now, for investors, comes the hard part. They must fix up, rent out and maintain thousands of widespread homes, all the while pulling in tenants and convincing their financial backers this untested business is worth the risk. At the start, some investors went on a leasing spree, renting to ‘anybody who was able to gather a security deposit,’ analyst said David Guarino, a senior research analyst with John Burns Real Estate Consulting.”

“But the plan backfired, with many renters falling behind on their payments. Between October and January, the payments from a highly watched set of Invitation Homes rents fell 7 percent, data from Morningstar show. ‘You have a guy in a huge tower in New York buying homes in Tampa, but they don’t understand the local market,’ said Guarino. ‘They got in thinking it’d be easy, and they’d make a lot of money … but they’re starting to understand it’s not as easy as they thought.’”

“Investors landed here at a time when the average household’s spending on rent is near its highest point in the last three decades, Zillow data show. But even at that baseline, market watchers said, investors have set rents surprisingly high. Peter Murphy, president of Home Encounter, a Tampa property management firm, said investors showed ’some big gaps between projection and reality’ on what renters here could afford.”

“Holding that hard line has crimped the number of homes investors have been able to rent. ‘They’ve been very non-negotiable,’ said Jack McCabe, a Deerfield Beach housing consultant. ‘They’d rather let a home sit empty than taking a lesser amount of rent. Some thought they could raise their rents 10 percent a year, and that just isn’t going to happen. People just can’t afford that … when their income is flat or declining, which is what we have in Florida right now.’”

Click Orlando. “Realtor Ericka Lankford says more homeowners are opting to list their home because of the rise in prices. For buyers there is more out there to choose from. For example, February of last year a little over 7,000 homes were available. February 2014 more than 10,000 homes are on the market. ‘The median price for a home has gone up to $158,000 that’s 18 percent more than last year,’ she said.”

The Sun Sentinel. “Three in 10 Palm Beach County homeowners with a mortgage – nearly 119,000 people — owe at least 25 percent more than the properties are worth, first quarter figures from RealtyTrac show. Broward County has a similar profile, with 30 percent, or more than 153,600 people, seriously underwater. Most underwater borrowers bought or refinanced from 2004 to 2006 and saw their values tumble during the market meltdown.”

“Even with values increasing, these owners can’t sell unless they bring money to the closing table. ‘It’s horrible — your whole life is on hold,’ said David Dabby, a South Florida housing consultant.”

The Herald Tribune. “From the start of the year through the end of March, 69,971 homeowners in the Sarasota-Bradenton-North Port area owed 25 percent more on their loans than the value of the properties used to secure them, RealtyTrac Inc. shows. Those borrowers represent 28 percent of all properties with a mortgage during the first quarter of 2014.”

“Though the region’s median price for a single-family home has swelled from $137,500 in February 2011 to $200,000 this year, housing values have failed to keep pace. Realtors say that is because the rapid price hikes were the result of fewer discounted foreclosures and short sales rather than properties actually appreciating by that much. Those distressed sales are no longer pushing prices to the same degree. The result is an unusually high number of homeowners who are forced to wait out the housing rebound before they can sell.”

“‘There are a lot of people who’re upside down, but they can still afford their mortgages, so they can’t get out,’ said Marcus Vanzant, owner of Marcus & Co. Realty in Manatee County. ‘The days of buying a house and seeing your equity rise like the stock market is long gone. I still see it all of the time. People are taking big losses in order to be able to sell.’”

My Sun Coast. “About one in four Suncoast homeowners still find themselves underwater. ‘It doesn’t surprise me at all. The way everyone’s been buying houses around here and then all of a sudden everything goes downhill,’ said Homeowner Bill Friedman. He says he’s exhausted all his options, and sees foreclosure as inevitable. ‘We had to remortgage. We had to refinance a couple times because of the recession and everything else…losing jobs.’”

From WFLX. “The days that Bob Domanick and his neighbors can sit at their condo pool in Boynton Beach may be numbered. Each one may be forced to sell their units back to the company that owns the property. If a company owns 90 percent of the condo units on a property, it can purchase the remaining units for fair market value. The problem for these residents is that fair market value is a far cry from what they paid for their homes in 2006. ‘A lot of us are underwater, which means we owe more than they’re willing to give us, and that puts us in a tough position,’ said Domanick.”

From CBS 12 News. “A CBS 12 Waste Watch investigation has uncovered how a South Florida city lost hundreds of thousands of tax dollars handing out mortgages. According to documents from the Boynton Beach Community Redevelopment Agency, almost a third of the homes in the city’s homeowner assistance program went into foreclosure. That money is tax revenue from the city, county and state. ‘You try to make things good for people and give them a hand. Once in a while, it doesn’t work,’ Boynton Beach Mayor Jerry Taylor said.”

“Vivian Brooks, executive director of the Boynton Beach community redevelopment agency, says the city filed judgments against the people in an attempted to collect some of the funds. The program has been discontinued.”

The News Journal. “Former mortgage broker Christopher Mencis — one of the four main individuals indicted by a federal grand jury in a mortgage fraud operation that federal agents said cheated banks out of millions between 2006 and 2012 — testified on behalf of the government Friday. He blamed accused ringleader Jim Sotolongo for bringing him all the business that later materialized into fraudulent mortgage loan applications to banks. ‘I got caught up in the easy money,’ Mencis testified.”

“But Mencis’ testimony was contradicted by another government witness who said he was defrauded by the ring, a Pennsylvania carnival worker named George Goetz. Goetz’s sister used to work for Sotolongo and Garrett in the early 2000s. Goetz’s name and signature appeared on a mortgage loan application for a $1.2 million riverfront house on Coral Way in Port Orange, investigators said. As in many of the mortgage loan applications prepared by Mencis, Goetz’s application stated that Goetz earned $35,000 a month.”

“‘I didn’t even have a savings account at that time,’ Goetz testified after Mencis left the witness stand. ‘I earned more like $60,000 a year.’”

Bits Bucket for April 21, 2014

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