June 26, 2015

Money Laundering, Speculation And Low Interest Rates

It’s Friday desk clearing time for this blogger. “More Americans who recently went through foreclosure or bankruptcy are getting home loans. A new wave of nonbank lenders is bringing these risky buyers back into the housing market some seven years after the mortgage meltdown. The lenders are targeting borrowers who have recently gone through a foreclosure, short sale or bankruptcy—but who they say are safer than their credit profiles suggest. They are sometimes approving borrowers in as little as a few months or even weeks after a foreclosure.”

“‘Lenders are trying to carve out niches that play upon the fact that underwriting remains, by historic standards, very tight,’ said Guy Cecala, publisher of Inside Mortgage Finance. ‘That’s always the way it starts out and then you keep loosening and loosening—we’re right at the beginning of that.’”

“Earlier this year, the Federal Housing Administration, which insures mortgages for borrowers with relatively low down payments and less-than-pristine credit scores, cut its annual premium costs by half a percentage point. With that move, officials said they aimed to save borrowers an average of $900 annually and support 250,000 home sales for first-time buyers over three years. However, Edward Pinto, a housing expert with the American Enterprise Institute, said in research expected to be released Thursday that borrowers have used premium-cut savings to buy pricier properties. Further, Pinto said FHA has picked up borrowers who mostly would otherwise have taken loans backed by other federally controlled mortgage programs.”

“‘FHA’s action did little to expand access to middle-and lower-wealth borrowers,’ Pinto wrote. ‘Instead the benefits were largely captured by the National Association of Realtors and other housing-interest groups, as the premium cut was largely capitalized into the purchase of higher priced homes. The [FHA premium] reduction provided a textbook case of how the additional buying power created by liberalized credit during a seller’s market, primarily gets absorbed in price, without much increase in accessibility.’”

“Residential foreclosure rates in Wilmington have improved, but activity remains higher than the national average. Real estate agent Dave Sordelet said some of the houses may be difficult to maintain because the owners overpaid for properties to begin with. ‘If you look at the houses that sold in 2006 and 2007 that were commanding $150,000, it was questionable back then,’ he said. ‘Things got overvalued and today you can’t sell them for $100,000.’”

“Since 2005, more than 1-in-3 Detroit properties — 139,699 of 384,672 — have been foreclosed because of mortgage defaults or unpaid taxes, property records show. The vast majority are houses. When Talise Banks bought in 2002, all homes on the block were occupied. All but seven of 24 homes on the block have been foreclosed in the past 10 years. Her mortgage payment is $900 per month for a home appraised at $5,000. She owes $82,000 on the mortgage for the 900-square-foot home.”

“‘People come around and see no neighbors, so they steal, rob and strip,’ said Banks, 30, a single mother of two young boys. ‘They come by, take out windows, hot water heaters and whatever else from homes. There’re just a lot of problems.’”

“Marc Cohodes, once called Wall Street’s highest-profile short-seller by the New York Times, has come out of partial retirement to make targeted bets against ’subprime’ Canadian lenders. Cohodes — who is familiar with Vancouver — says Vancouver real estate has reached peak insanity, and any number of factors could trigger a collapse. ‘The cross-currents are beyond crazy in Vancouver — it’s a mix of money laundering, speculation, low interest rates,’ he said. ‘A house is something you live in, but in Vancouver you guys are trading them like the penny stocks on Howe Street. It’s as clear as day that the market is a Chinese money laundering mecca.’”

“Surging Chinese demand for Australian homes is dwarfing efforts to root out illegal buyers as the government struggles to avert a backlash against unaffordable housing. Chinese already buy almost a quarter of new homes in Sydney and their outlay will more than double to A$60 billion ($46 billion) in the six years to 2020, according to Credit Suisse Group AG. ‘Forget the anti-corruption,’ said Ray Chan, managing director of Sydney-based Henson Properties, which sells homes almost exclusively to Chinese. ‘A lot of money is coming through.’”

“Macau’s six-year lucky streak has come to an end. That’s become evident not just at the baccarat tables but at real estate agencies, too. After more than quintupling over six years, residential prices are heading for their first year of declines since 2008, tracking a gambling revenue slump in the world’s largest casino hub. China President Xi Jinping’s drive to eradicate corruption and a slowing economy has kept high rollers away, dragging down the city’s economic output 24.5 percent in the first quarter.”

“Prices fell as much as 26 percent at One Central Residences, high-end serviced apartments located next to casinos, according to Franco Liu, Macau head of Savills Plc. ‘Those in the casino industry are concentrated in the luxury home segment,’ Liu said. ‘They’ve made lots of money in the past and spent it on properties or cars. These past few months, the drop is more significant because they’re offloading some of their investments.’”

“A year after lensmen from The Business Times put together a photo essay on ‘dark condos’ to highlight the rising vacancies in the private housing market, they returned to the same 10 completed condo projects to capture these developments, as far as possible, from the same angles. They even went at around the same time - between 8 pm and 9.30 pm on a weekday, before the school holidays, when people could reasonably be expected to be home. Their findings: Only one of the 10 developments was visibly more lit up than a year ago.”

“Roving expats and rich foreigners occupying condos only part of the time could be seen as contributing to the sub-optimal use of Singapore’s real estate, said DTZ South-east Asia’s chief executive Ong Choon Fah, but then again, this is ‘the price you pay for being a global city.”

“The idea was logical enough: The government should step in to restore the housing market, which the financial crisis had crippled. While low interest rates may have given housing prices a boost, they have not increased home ownership. As Lance Roberts noted on his blog, ‘trillions of dollars have been directly focused at the housing markets including HARP and HAMP, mortgage write-downs, delayed foreclosures, government backed settlements of ‘fraud-closure’ issues, debt forgiveness and direct buying of mortgage bonds by the Fed to drive refinancing and purchase rates lower.’”

“‘Speculators have flooded the market with a majority of the properties being paid for in cash and then turned into rentals,’ Roberts wrote. ‘This activity drives the prices of homes higher, reduces inventory and increases rental rates which prices first-time homebuyers out of the market.’ In other words, government policies designed to turn renters into homebuyers have instead created more renters. But at least institutional investors made money.”

“It took some nine years for the wheels of justice to catch up with one of this city’s most notorious real estate con men. But, justice finally prevailed last week in the case of Michael David Scott, a now 51-year-old from Mansfield who ravaged the Dorchester real estate market with a rash of bogus mortgage and bank loan schemes.”

“Amazingly, Scott kept up his bold dealings after he was indicted in 2010. It was only after the Globe and the Reporter exposed his continued practices that he lost his realtor’s license in 2012. It’s no secret that state and federal authorities were too slow to act on the rampant real estate shenanigans that helped plunge the country into deep recession in the mid-to-late 2000s.”

“Michael David Scott is a poster boy for that reckless, unchecked period that wreaked havoc on the streets where he operated— places with names like Parkman Street, Adams Street and Navillus Terrace. We hope the punishment he will receive fits the crime.”

Bits Bucket for June 26, 2015

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