You Got A Better Idea?!? Government Opens Suggestion Box For Ideas On How To Rent Out Foreclosed Properties

by:  Peter J. Gallagher

  The New York Times is reporting that the government is soliciting ideas for turning its glut of vacant, foreclosed houses into rental units that could be managed by private parties or sold in bulk  ("U.S. Seeks Ideas On Renting Out Foreclosed Property").  The goal of the program would be to "stabilize neighborhoods where large supplies of empty, foreclosed properties have hurt property values" and "clear the nation’s balance sheet of real estate holdings that, because they have been difficult to sell individually, have hung over the housing market and stunted sales of existing homes and new construction."  The request for ideas comes from the Federal Housing Finance Agency, the Department of Housing and Urban Development, and the Treasury Department, and you can click here to submit your ideas.

As the article notes, the percentage of homes owned by the government that are currently in foreclosure is somewhat staggering:

Of the 248,000 homes owned by Fannie Mae, Freddie Mac and the F.H.A. at the end of June, 70,000 were listed for sale, said Corinne Russell, a housing finance agency spokeswoman. The remainder were not yet on the market or the agencies had already received an offer from a prospective buyer.

But it is possible that hundreds of thousands of more homes that are now in the foreclosure process could come into the possession of the federal government in the next few years, housing experts say.

The government is now looking for a few good men ideas for how to deal with this crisis.  Among those already proposed are "rent-to-own programs, in which previous homeowners or current renters could lease properties as a path to ownership, and ways in which the properties can be used to support affordable housing."

If you have any thoughts, be sure to let us know when you let the government know.

As Real Estate Market Continues To Struggle, A Ray Of Sunshine Emerges From, Of All Places, Florida

by:  Peter J. Gallagher

The most recent Case-Shiller index suggests that home prices ticked up in May ("U.S. Housing Prices Rise Slightly, But Remain Weak").  While this might sound like good news, experts were hardly celebrating.  Most attributed the rise in the composite index to "seasonal factors" (i.e., demand is typically strongest in the Spring) and pointed to other negative signs – "contract cancellations, tightened lending standards and sales of new homes in June" — as better examples of the overall health of the market. 

Against this grim news comes surpisingly good news from the usually bad news rich housing market of Florida.  In "Affluent Buyers Reviving Market For Miami Homes," the New York Times notes that sales in Miami, particularly on higher end properties, are up more than 16%, with more than two-thirds of those sales being all cash deals.  While this revival is obviously limited to the wealthy, it is at the very least a small ray of hope in an otherwise downtrodden real estate market.

Surprise! You Don’t Have To Pay As Much As You Thought On That Mortgage

by:  Peter J. Gallagher

Last week, Bank of America agreed to a multi-billion dollar settlement with upset investors who had purchased securities comprised of subprime mortgages originated by Countrywide Financial (which Bank of America acquired in 2008) and serviced by Bank of America ("Bank Of America Settles Claims Stemming From Mortgage Crisis").  Among other things, the investors claim that that Countrywide "created securities from mortgages originated with little, if any, proof of assets or income," and that Bank of America then "failed to heed pleas for help from homeowners teetering on the brink of foreclosure."  While the settlement still needs to be approved by a judge, and has already run into some opposition ("Investors Challenge Bank Of America Settlement" and "Bank Of America's Proposed Mortgage Debt Settlement Criticized"), it was generally seen as the first major concession by a bank in connection with its role in the mortgage meltdown

On the heels of this settlement comes news that Bank of America (along with JPMorgan and a few other lenders) is also taking a more proactive approach with homeowners who are not even in default.  As the New York Times reports in its article, "Big Banks Easing Terms On Loans Deemed As Risks," the banks are "quietly modifying loans for tens of thousands of borrowers who have not asked for help but whom the banks deem to be at special risk."  The article tells the story of Rula Diosmas, a Florida (of course) woman who had $150,000 shaved off of the mortgage of her Miami condominium by JPMorgan even though she did not request a modification and was not in default.  The bank explained its reasoning as follows:

Banks are proactively overhauling loans for borrowers like Ms. Giosmas who have so-called pay option adjustable rate mortgages, which were popular in the wild late stages of the housing boom but which banks now view as potentially troublesome.

. . .

Option ARM loans like Ms. Giosmas’s gave borrowers the option of skipping the principal payment and some of the interest payment for an introductory period of several years. The unpaid balances would be added to the body of the loan.

. . .

“By proactively contacting pay option ARM customers and discussing other products with better options for long-term, affordable payments, we hope to prevent customers from reaching a point where they struggle to make their payments,” Mr. Frahm [a spokesman for Bank of America] said.

The banks' efforts have not come without some critism, however, including the claim that the banks are behaving in "contradictory and often maddening ways" — showing concern for those who might get in trouble while at the same time being punished by regulators for doing a poor job modifying mortgages that are already in default.

How Lady Gaga Keeps Her Poker Face And Avoids The Paparazzi When Looking For An Apartment

by:  Peter J. Gallagher

The New York Times recently reported on the lengths celebrities go to in order to maintain their anonymity when buying property in New York City ("Keep My Boldface Name Out Of It").  Real estate brokers interviewed for the article described signing confidentiality agreements with clients, taking them to view apartments in the dead of night, and employing code words for their clients in order to avoid the ever-prying eyes of professional celebrity watchers.  They also described a tactic that is becoming more popular with celebrities, purchasing property in the name of a trust or limited liability company to hide the identity of the true owner, as in this example of a famous tabloid friend:

[W]hen Jennifer Aniston — whose search for a home in Manhattan was chronicled with the same intensity as every change in her hairstyle and relationship status — reportedly settled on a West Village apartment last month, her name appeared nowhere on the paperwork.

But her dog’s did. As was widely reported, the corgi-terrier mix (who has since died) lent his name to the Norman’s Nest Trust, which purchased several apartments in a building on West 12th Street; Bruce Lagnese, Ms. Aniston’s business manager, signed the documents.

Increasingly, however, celebrities are not alone in seeking to hide their identities.  The article notes that "Wall Street types are more eager than ever to keep their multimillion-dollar real estate deals away from prying eyes," both because of the "public scorn" with which many are held and, more importantly apparently, to protect assets from their spouses in case their marriages "hit the rocks."  

The article does note that not all celebrities hide from the spotlight as they apartment shop.  Courtney Love shared nearly every aspect of her search for the "perfect downtown town house" through correspondence with the editors at Curbed NY and through Twitter.  In case you are wondering, she settled on renting a cozy place on West 10th Street for $28,000 a month. 

How Do You Say Scapegoat In French? “Fabulous Fab” Still The Only Target Of SEC Investigation Into Goldman Sach’s Mortgage Trading Operations

by:  Peter J. Gallagher

Several years after the start of the financial crisis, and the mortgage meltdown that caused it, only one individual, Fabrice Toure – a/k/a “Fabulous Fab,” his self-imposed moniker — has been sued by the SEC for selling the mortgage backed securities that created, or at the very least exacerbated, the crisis.  According to a recent piece in the New York Times,"SEC Case Stands Out Because It Stands Alone," Toure was an obscure trader for Goldman Sachs who was thrust into the national spotlight in 2010 when the SEC sued him for his role in creating and marketing Abacus, one of the many mortgage backed securities created by Goldman during the irrational exuberance of the early to mid 2000s.  (Abacus is interesting in its own right because it is one of the securities that was devised with the help of John Paulson, the hedge fund manager who famously made billions shorting mortgage backed securities like Abacus.)  As the article notes, the question many have raised is why Toure and why only Toure?

According to at least one former co-worker, Toure was a “junior” and “insignificant” member of a larger team at Goldman responsible for developing mortgage backed securities.  In their response to the SEC, Toure’s lawyers emphasized this point, identifying all of the other members of the team, and arguing that “singling Mr. Toure out for criticism regarding the content of this clearly collaborative effort is unreasonable.” For its part, the SEC has not explained why it focused on just one member of one team at one bank, and further on just one deal created by that bank.  However, as the article notes, recent increased interest from other regulators, including New York’s attorney general, indicates that this may not be the case for long, and the banks may soon be called upon to answer for their role in the crisis. 

 Finally, as interesting as Toure’s story is, equally interesting is the story behind how many of the documents that tell the story – including Toure’s non-public response to the SEC lawsuit – came to light.  The Times received them from an artist and filmmaker named Nancy Cohen who found the materials on a laptop given to her by a friend in 2006.  The friend told her that he found the laptop in a garbage can downtown.  Apparently, emails to Tourre continued “streaming into the device.”  While Cohen ignored them for years, she began paying attention when she learned about the SEC’s lawsuit, and subsequently gave the documents to the Times.