real estate

Monday, December 17, 2007

Fannie Mae deems Denver a "declining market"

Metro Denver's designation as a "declining market" could delay any recovery in the area's long-suffering residential real-estate market, local housing experts said Tuesday.

Some mortgage lenders are designating Denver and surrounding counties, excluding Boulder, as a market where prices are declining, upon instruction from Fannie Mae, which backed 41 percent of the nation's home mortgages in the third quarter.

Fannie Mae is requiring a 5-percentage-point larger down payment on loans made in declining markets starting in the middle of next month.

"When you look at it, it impacts everybody. If you want to sell your property, it becomes more difficult to do that," said Zachary Urban, director of housing counseling with Brothers Redevelopment.

First-time buyers and others with minimal savings or equity for a down payment are likely to find themselves knocked out of the market.

Tighter restrictions could also hamper the ability of some borrowers to refinance out of troublesome loans, Urban said.

"It is pretty hard if you are living paycheck to paycheck and you want a house and have to put 5 percent down," said Carol Wolfe, an appraiser in Aurora.

Even for a low-end condo costing $130,000, many first-time buyers haven't saved that kind of cash, she said.

"A large number of consumers are scared or befuddled, so they aren't doing anything," said Larry McGee, managing broker with the Berkshire Group in Denver.

Keeping up with all the changes in the lending rules is difficult, but over time he expects borrowers to adjust to the new realities.

"In the short term, this isn't comfortable for a lot of people, but long-term you have to get some kind of commitment established on the part of the buying public," McGee said.

Down payments are a way to do that.

Fannie Mae and its brother agency Freddie Mac have relied on appraisers to determine if a home was in an area with declining values.

Too many appraisers, under pressure to not derail a purchase, were marking the "stable" box instead of the one that said "declining," said Wolfe, who works with Freddie Mac on appraisal-fraud cases.

Appraisers also have failed to properly account for concessions from sellers, which inflate the value of a home.

Under pressure from rising defaults and needing to raise more capital, Fannie Mae has tightened its standards, and Freddie Mac is expected to do the same.

"We need to conservatively manage our business and risks through prudent pricing and underwriting in order to provide sustainable liquidity to our lender customers and stability to the markets," Fannie Mae spokesman Brian Faith said last week in a statement.

Some low-down-payment loans are still available.

Loans made through the Federal Housing Authority require a 3 percent down payment, and the Colorado Housing and Finance Authority offers mortgages with a $500 or $1,000 down payment.

The CHFA recently rolled out its FHASecure Refinance program to transition borrowers struggling with conventional loans, either fixed-rate or adjustable, into a 30-year fixed-interest-rate FHA loan.

Borrowers can be delinquent if the cause was an adjustment in their loan payment.

CHFA director of home finance Karen Harkin estimates the authority can lend up to $500 million in home loans per year and is seeking more capacity.

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source: denverpost.com

Inner-city landlord shifts to the suburbs and loses

Families in financial trouble aren't the only ones falling into foreclosure.

Investors are defaulting on home loans, too.

One of them is former N.C. judge William Helms, who bought up starter homes across Charlotte's suburbs -- then stopped paying for them.

Helms gained attention as an absentee landlord in the early 1990s, when Charlotte cited him for hundreds of code violations at inner-city rentals he owned.

Helms sold those aging homes in 2000 for about $1.2 million, he says. And he turned his attention toward the suburbs.

Charlotte's starter-home subdivisions gleamed as an investment. The prices were right and upkeep was cheap since houses were new. Rent the houses out, and they would generate cash -- especially if you brought in tenants with reliable, government-assisted rent.

Later on, after houses appreciated, you could sell for a profit.

"On paper, it was the perfect business model," says Helms, 61, a Union County lawyer, who served as a Superior Court judge.

With his sister Mickie, Helms formed one of Charlotte's most active suburban investment teams.

Beginning in 1999, the pair bought more than 50 starter homes in a year, property records show. About half were in his name, half in hers. Prices ranged from about $96,000 to $140,000. Most were built by Beazer Homes or Crossman Communities, both major starter-home builders that later merged.

The Helmses bought three, six, 12 homes at a time. They invested primarily in four neighborhoods -- Brookmere, Hemby Woods, Northridge Village and Stewarts Crossing -- all of which became high-foreclosure areas.

William Helms provided the money, he says, and his sister managed the homes. Mickie Helms could not be reached for comment, despite repeated attempts by the Observer.

They filled most of their homes with renters -- often bringing in tenants with federal Section 8 rental assistance, Helms says.

Between 2001 and 2006, the government paid more than $400,000 in rent for tenants living in the homes owned by Mickie and William Helms, according to Section 8 records obtained by the Observer. The checks went to Mickie Helms' property management company, Citywide Realty Services.

But they didn't cover the entire mortgages, Helms says. And two things happened to sink their investment, he says.

Easy-credit home loans made it harder to find renters. Instead, they bought homes for little or no money down.

"I was having to feed it with more and more of my own money," he says. "There wasn't any cash flow."

At the same time, Helms began to lose his eyesight from a disease called macular degeneration -- and says he spent substantial amounts of money seeking experimental treatment.

The Helmses began selling off homes in 2003. But it was hard to find buyers as others began losing their homes and sales prices stalled.

The Helmses sold more than a dozen homes to people who would later default on their loans.

And in December 2003, the Helmses signed over deeds for 16 properties to First United Equity, an investment company run by a real estate agent named Theresa Lewis, who offered to help sell their homes.

Helms says he doesn't know details of that transaction because his sister handled it, but they hoped sales would cover their outstanding mortgages.

But Lewis didn't sell the homes. In 2005, she pleaded guilty in a mortgage fraud scheme involving properties unrelated to the Helmses' homes.

Since 2004, lenders foreclosed on at least 23 loans executed by the Helmses, property records show -- about half against William Helms, the rest against Mickie and her husband, Richard Ricozzi.

The four neighborhoods where they invested have had some 300 foreclosures, and are struggling with deteriorating conditions and crime.

Helms lost money, he says, but doesn't know how much.

"It's really nothing compared to these families who had the dream of owning a home and, as this crisis developed, had their dream turn into a nightmare."

Charlotte real estate attorney Vicki Sprouse, who closed most of the Helmses' purchases, says she's not sure why so many ended in foreclosure. William Helms put 10 percent down and the transactions were solid and routine, she says.

Sprouse was indicted last month in an unrelated mortgage fraud conspiracy. She says she's innocent and was unaware of any fraud involving the transactions at issue.

Helms says he knows nothing about Sprouse's troubles, and that he never intended to hurt any neighborhood.

"We had all good intentions as investors," he says.

source: charlotte.com

RPT-Online video helps troubled borrowers spot fraud

WASHINGTON, Dec 12 (Reuters) - Fraudsters are targeting troubled borrowers facing foreclosure in a scheme that could leave homeowners with even more debt than they otherwise would face, a new online video warns.

In the video that dramatizes a common case of fraud, a homeowner receives an unsolicited offer to help settle mortgage debt but ends up homeless and with battered credit.

Under a common scheme, a con artist will seek out a public notice of foreclosure and approaches the potential victim with documents and the promise of sorting out the debt.

"You sign, thinking you are saving your home but you are really giving the con artist the deed to your house," according to the video called Avoid Fraud, which can be found on the Internet site YouTube. ( http://www.youtube.com/avoidfraud )

Once a con artist has the deed to a home, he can strip out any untapped value and also charge new expenses under the borrower's name, according to Freddie Mac (FRE.N: Quote, Profile , Research), the mortgage finance company that produced the video.

Rather than accept unsolicited offers of help, troubled borrowers should contact their mortgage servicer or lender directly, Freddie Mac advises.

Borrowers can also get free credit counseling help from a government-chartered program called HOPE NOW by dialing 1-888-467-3669. (The digits in the phone number correspond to the letters on phone key pads that spell out HOPE NOW.)

Freddie Mac produced the film because one in four troubled borrowers turn to the Internet for advice first on how to get help saving their homes, said Ingrid Beckles, the company's vice president for asset management.

"With fraud reports on the rise, we are using every communication channel out there to warn borrowers about these fraudsters and urge borrowers to call their lenders when they fall behind on their mortgage

source: reuters.com

Will the Bush administration's freeze really help resolve the country's home mortgage meltdown?

There are five reasons to worry about the U.S. Treasury Department's plan, developed with private financial institutions, that would lock in current interest rates on some subprime home mortgages for five years:

» It might not solve anything. If mortgage holders barely can make their payments now, this probably would just postpone eventual foreclosures.

» It's an issue of fairness. The Bush plan helps borrowers with risky credit histories who obtained loans they couldn't afford. Those who have maintained good credit records but are struggling to keep up with escalating payments don't qualify. They still would have to refinance their loans.

» It addresses only part of the problem. Eligibility issues involving the bailout likely will lead to lawsuits.

» It's disingenuous and will have negligible impact. The Bush plan, announced on Dec. 6, is too little, too late. While 800,000 foreclosures were initiated during the second half of this year, only an estimated 250,000 of those loans will qualify for the interest rate freeze.

» It's being motivated by the concerns of mortgage service companies, which bundle loans and sell them to investors. They're hesitant to modify at-risk loans because they could be sued for breach of contract by the investors, many of whom are foreign.

Government intervention in the housing market - however necessary it might be in such a calamitous situation - has become politically expedient as the 2008 presidential campaign unfolds.

Leaders of both major political parties want to act like they're doing something to help as the mortgage crisis threatens the stability of the U.S. economy.

Sen. Hillary Clinton, D-N.Y., a leading presidential candidate, has proposed a more aggressive intervention that would include a 90-day moratorium on all housing foreclosures.

Government efforts to reverse the meltdown have less to do with actually keeping people in their homes than protecting U.S. banks and lending institutions, many of whom helped create the problem and enable the process.

Lending, appraisal, real estate fraud and predatory practices also might become the targets of federal prosecution.

Regulatory oversight of the home mortgage industry must be strengthened.

However, once the government starts interfering in the terms of private home mortgage contracts, it could end up rewarding badly flawed or predatory lending instead of allowing appropriate free-market forces to deal out suitable punishments.

Free-market adjustments shouldn't be negated by government bailouts, however seemingly expedient or well-intentioned.

source: recordnet.com

Web Video Combats Foreclosure Scams

WASHINGTON (Reuters) - Fraudsters are targeting troubled borrowers facing foreclosure in a scheme that could leave homeowners with even more debt than they otherwise would face, a new online video warns.

In the video that dramatizes a common case of fraud, a homeowner receives an unsolicited offer to help settle mortgage debt but ends up homeless and with battered credit.

Under a common scheme, a con artist will seek out a public notice of foreclosure and approaches the potential victim with documents and the promise of sorting out the debt.

"You sign, thinking you are saving your home but you are really giving the con artist the deed to your house," according to the video called Avoid Fraud, which can be found on the Internet site YouTube.

Once a con artist has the deed to a home, he can strip out any untapped value and also charge new expenses under the borrower's name, according to Freddie Mac, the mortgage finance company that produced the video.

Rather than accept unsolicited offers of help, troubled borrowers should contact their mortgage servicer or lender directly, Freddie Mac advises.

Borrowers can also get free credit counseling help from a government-chartered program called HOPE NOW by dialing 1-888-467-3669. (The digits in the phone number correspond to the letters on phone key pads that spell out HOPE NOW.)

Freddie Mac produced the film because one in four troubled borrowers turn to the Internet for advice first on how to get help saving their homes, said Ingrid Beckles, the company's vice president for asset management.

"With fraud reports on the rise, we are using every communication channel out there to warn borrowers about these fraudsters and urge borrowers to call their lenders when they fall behind on their mortgage," she said.

source: pcworld.com