Mortgage ruling could shock U.S. banking industry

... "Class certification of rescission claims would saddle the mortgage lending industry and ... But an adverse ruling for borrowers would cut off an important remedy. ...
By: Gina Keating - Analysis: Reuters.com
A lawsuit filed by a Wisconsin couple against their mortgage lender could have major implications for banks should a U.S. appeals court agree that borrowers can cancel their loans en masse when their lenders violate a federal lending disclosure law.

The case began like hundreds of others filed since the U.S. housing boom spawned a rise in sales of adjustable rate loans. Susan and Bryan Andrews of Cedarburg, Wisconsin, claimed that lender Chevy Chase Bank FSB (CCX_pc.N: Quote, Profile, Research, Stock Buzz) had hidden the true terms of what they believed was a good deal on a low-interest loan.

In their 2005 lawsuit, the couple said the loan's interest rate had more than doubled by their second monthly payment from the 1.95 percent rate they thought was locked in for five years. The interest rate rose well above the 5.75 percent fixed-rate loan they had refinanced to pay their children's college tuition.

The Andrews filed the case seeking class action status; and in early 2007, U.S. District Judge Lynn Adelman ruled that the bank had violated the Truth in Lending Act, or TILA, and that thousands of other Chevy Chase borrowers could join them as plaintiffs.

The judge transformed the case from a run-of-the-mill class action to a potential nightmare for the U.S. banking industry by also finding that the borrowers could force the bank to cancel, or rescind, their loans. That decision was stayed pending an appeal to the 7th U.S. Circuit Court of Appeals, which is expected to rule any day.

The idea of canceling tainted loans to stem a tide of foreclosures has caught hold in other quarters; a lawsuit filed last week by the Illinois attorney general asks a court to rescind or reform Countrywide Financial Corp (CFC.N: Quote, Profile, Research, Stock Buzz) mortgages originated under "unfair or deceptive practices."

'MASSIVE CLASS SUITS'

The mortgage banking industry already faces pressure from state and federal regulators, who have accused banks of lowering underwriting standards and forcing some borrowers, through fraud, into costly adjustable loans that the banks later bundled and sold as high-interest investment vehicles.

The loans have caused serious instability in the financial sector, as mortgage interest rates adjusted upward and borrowers began defaulting at a significant rate starting in 2007, drawing lawsuits from investors and homeowners.

Federal appeals courts disagree over whether class-wide rescission under the Truth in Lending Act is available, said attorney Christine Scheuneman, whose firm represented Chevy Chase at the district court.

"If class treatment is found to be available for rescission ..., given the current crisis not predicted in 2005, the result all over the country could be massive class suits," said Scheuneman, a partner at Pillsbury Winthrop Shaw Pittman LLP.

The Truth in Lending Act, a 1968 federal law designed to protect consumers against lending fraud by requiring clear disclosure of loan terms and costs, lets consumers seek rescission, or termination, of a loan and the return of all interest and fees when a lender is found in violation.

Should the 7th U.S. Circuit Court of Appeals agree with Judge Adelman, banking industry associations predict "confusion and market disruption" as banks curtail lending further.

"Class certification of rescission claims would saddle the mortgage lending industry and secondary market with billions of dollars of class action exposure for supposed violations of TILA that do not give rise to any actual damages," the financial services associations wrote in an amicus brief.

But the Andrews' attorney, Kevin Demet, said lenders want to scare the judiciary into banning class action rescissions because they were unable to convince Congress to do so in the 1990s.

"If (banks) get relief (from the appeals court), it's activist judges trying to give them what they could not get legislatively," said Demet, of Demet & Demet of Milwaukee, Wisconsin.

Consumer advocates said the banks would have "no more or no less" liability for the tainted mortgages if the court found in favor of the Andrews plaintiffs.

But an adverse ruling for borrowers would cut off an important remedy. Borrowers would "lose the opportunity to use rescission to save their homes from foreclosure or to rescind their mortgages and refinance into affordable ones," the Center for Responsible Lending, the National Consumer Law Center, Public Citizen and AARP Foundation Litigation wrote in an amicus brief filed in the case.

Both sides said the case will likely be decided by the U.S. Supreme Court.
Read more!

INSTANT VIEW: Fed holds rates steady

The Fed's moderately hawkish statement accompanying its decision to leave interest rates unchanged signals the central bank may raise interest rates later this year, an analyst says.
Reuters
The U.S. Federal Reserve held a key interest rate steady on Wednesday and voiced greater concern about inflation, taking a step down a road that could lead to higher borrowing costs.

KEY POINTS:

* The decision by the U.S. central bank, announced at the end of a two-day meeting, leaves the benchmark federal funds rate at 2 percent.

* It was the first time the Fed has held rates steady at a policy-setting session since embarking on a series of rate reductions in September to put a floor under an economy hit hard by a housing downturn and credit crisis.

COMMENTS: GREG SALVAGGIO, VICE PRESIDENT OF TRADING, TEMPUS CONSULTING, WASHINGTON:

"It's a bit more hawkish than people were whispering about. Certainly, the Fed's saying that the upside risks to inflation have risen has taken the market a bit off guard. This should be longer-term bullish for the dollar. Whether it can hold gains today remains to be seen. There are obviously some buyers coming into the market now, with people looking to grab the euro at cheaper levels there. But beyond that move, it should be dollar supportive."

ROBERT DYE, SENIOR ECONOMIST, PNC FINANCIAL SERVICES GROUP, PITTSBURGH, PENNSYLVANIA:

"The Fed presented a more balanced assessment of risks and there's no change in policy for the time being. They obviously had to signal that they would continue to keep a watchful eye on inflation, but we expect them to continue to hold rates steady over the summer months and through the end of this year, contrary to the prediction of the fed funds futures market."

WILLIAM LARKIN, PORTFOLIO MANAGER, CABOT MONEY MANAGEMENT, SALEM, MASSACHUSETTS:

"The bond market is selling off, but I thought the statement was pretty positive for bonds because they said that they thought growth and inflation were going to moderate."

"But most people see inflation (will) be a chronic problem as long as energy prices stay high."

STEPHEN SCHORK, EDITOR OF THE SCHORK REPORT, ENERGY NEWSLETTER, PHILADELPHIA:

"If we begin to see further dollar strength take some of the wind out of the bulls' sails, it will have a negative impact on oil prices." TOM KNIGHT, ENERGY PRODUCTS TRADER, TRUMAN ARNOLD, TEXARKANA, TEXAS:

"I don't expect the Fed decision to keep rates unchanged to do much for energy futures. Crude futures are still trading in range. We've fallen below $132 and drifting back higher... we will likely end at the middle of the range."

JOE MANIMBO, CURRENCY TRADER, RUESCH INTERNATIONAL, WASHINGTON:

"The Fed made a moderately hawkish statement, signaling that the Fed may actually go ahead and raise interest rates later this year. That would obviously help the dollar."

MARKET REACTION:

* BONDS: U.S. Treasury debt prices extended losses

* CURRENCIES: U.S. dollar gains, and then reverses the initial move as the euro bounces back above $1.56

* STOCKS: U.S. equity indexes add to gains

* RATE FUTURES: Fed fund futures choppy on FOMC decision, split on prospects for August fed move.
Read more!

Will Sleepy Larchmont Wake Up as Next Robertson?

Rent hikes driving out area merchants.
By DANIEL MILLER: Los Angeles Business Journal online
A landlord’s desire to attract national chains has rattled merchants in sleepy Larchmont Village.

When real estate investor Albert Mizrahi paid $23 million for four buildings on sleepy Larchmont Boulevard last year, longtime retailers and residents began to worry.

They wondered if Mizrahi, who took months to assemble the 20,000-square-foot portfolio, would jack up rents and drive away longtime businesses, possibly changing the character of the quaint retail district by adding more national franchises as tenants.

So far this much is clear: Rents are up in Larchmont Village and several of Mizrahi’s tenants have already closed shop, with a few more likely to leave the shopping district between First Street and Beverly Boulevard.

What’s less clear: whether the nearly 90-year-old Hancock Park-area neighborhood is headed for wholesale changes, or if it’s simply in line for more of the modernization it has weathered in the past.

“The retail needs to be updated,” said Mizrahi, who offers no apologies for renting his new properties for $10 to $15 per square foot, about double the rest of the village. “They are afraid to change – any change whatsoever.”
Of course, in L.A., business owners have some reason to wonder when a shopping district appears on the cusp of change.

Not far away, on Robertson Boulevard, what was once a quaint neighborhood retail district with reasonable rents has been transformed in a chi-chi hangout for celebrities, replete with luxury boutiques, tourists and paparazzi.

However, if Larchmont is headed in that direction, the changes will not come easily.

Mizrahi’s efforts to give the street a facelift come as the city is considering a zoning regulation that would trim Larchmont Village’s 45-foot building height limit to 35 feet and limit street frontage for each business to 50 feet. Such limitations wouldn’t prevent national luxury retailers from opening on the street, but they might discourage some.

On June 19, the Los Angeles Department of City Planning held a public meeting to discuss the regulation, introduced by Los Angeles City Councilman Tom LaBonge last fall. The proposal could come before the City Council for a vote by year’s end.

“I am proposing certain restrictions that would preserve the character of the street, which is wonderful,” said LaBonge, a regular on the street who is on a first-name basis with many of the business owners. “Larchmont is the model street of Los Angeles for local retail.”

Concerns heightened

In fact, it was not Mizrahi’s purchases that spurred the community to reassess its retail character or advocate the zone change. Instead, it was last fall’s shuttering of La Luna Ristorante, which closed after a dispute with its landlord about a rent increase. There are only 75 storefronts on the blocks-long district.

“At that point the local community decided they needed to pay more attention to the character of the street,” said John Winther, manager of Coldwell Banker’s two Hancock Park offices and president of the Larchmont Boulevard Association, which represents business owners.
That concern was only heightened when Larchmont Hardware, Larchmont Village Jewelers and Melissa Levinson Antiques closed their shops after Mizrahi purchased their buildings.

And more departures are on the way. Mizrahi said that two tenants at his 123 N. Larchmont Blvd. building – Silver Lining, a picture framer, and Floret, a florist – cannot afford his new rental rates and will leave.

The owners of both businesses declined to comment.

“The neighborhood has always been good to businesses along here,” said Linda Lennon, co-owner of Village Heights jewelry and gift store, who does not rent from Mizrahi. “The neighbors support the village and it is not the greatest economy but it’s pretty steady. If Mr. Mizrahi thinks it’s going to be another Robertson Boulevard or Grove I don’t see anyone being comfortable with that.”

The stretch of Robertson Boulevard between Third Street and Beverly Boulevard was long a haven for hip, up-and-coming clothing designers. But in the last few years, luxury retail chains such as Chanel have opened. They are often patronized by young Hollywood starlets like Lindsay Lohan, followed by paparazzi.

The radical changes have allowed landlords to raise rents dramatically, which has forced out many locals tenants over the last two years. Robertson landlords even buy out the leases of their tenants so that the retail space can be leased to a national tenant for a much higher price. For example, in February the Horn women's boutique closed after the owner, Susanne Zenker, sold her lease back to the landlord. The landlord has leased the space to eye wear chain Luxottica. On Robertson, rental rates are in the $25-$28 range, per square foot per month.

Mizrahi, who also owns property in Santa Monica, said that despite the departures on Larchmont, he does not envision transforming the area into another Robertson. He called Larchmont perhaps the best retail district in Los Angeles and he “tried to buy as much as (he) could.” But he added the street doesn’t have a good retail mix, with too many coffee houses and children’s stores.

Mizrahi said he’d like to see more stores that cater to adults and freely admits he would lease space to national tenants – but maintains they would need to come up with concepts that jibe with Larchmont’s small-town charms.

“I saw it like a diamond in the rough, where it just needed a little bit of shining up,” said Mizrahi, who has leased space to Wachovia Corp. for a bank branch that will open this fall. It will be the fourth national bank in the district, providing little comfort to critics.

But Mizrahi has defied expectations, telling the Business Journal he backs the proposed regulation changes – which local business owners uniformly support. Still, there is a suspicion among some that he’s likely only paying lip service to calm fears.

“I was surprised, but not necessarily encouraged,” said Edie Frere, owner of Landis Gifts & Stationery, who lives in the area and grew up nearby. “For a guy who has rented to a bank I assumed he’d want to rent big spaces to big people.”

Indeed, the regulation changes would limit Mizrahi’s ability to remodel his properties at 107, 123, 150 and 227 N. Larchmont Blvd. into multistory retail destinations. But that doesn’t mean he couldn’t bring in smaller national boutiques.

“Gucci and Pucci. That’s not what this neighborhood is about,” said Frere, who does not rent from Mizrahi but said she couldn’t afford his asking rents.

Blue blood

On a recent afternoon, children rode scooters slowly down the sidewalk in Larchmont Village while diners waited to be seated outside several pleasant cafes.

Winther said the street is reminiscent of idyllic Mayberry from “The Andy Griffith Show” fame. Others say the street resembles the commercial district of a picturesque New England town – fitting for an area that is adjacent to Hancock Park, one of Los Angeles’ older neighborhoods.

But Mizrahi and his Charles Dunn Co. Inc. leasing agents appear to disagree with what the local community wants out of the shopping district. Mizrahi said locals “aren’t leaving enough money on that street,” adding that the street needs to support the community so that locals don’t go “somewhere like the Beverly Center because you can’t buy a belt” on Larchmont.

Charles Dunn leasing agent David Aschkenasy, who grew up nearby on June Street, said that he remembers about 10 to 15 years ago when several national retailers came to the street. At first, locals were unhappy with the new Blockbuster Video, Starbucks and Jamba Juice, among other businesses. But locals came to enjoy the new shops.

“People settled down and started using the products,” he said. “While people are scared of the unknown right now, I think they will be pleasantly surprised.”

Meanwhile, Mizrahi is making upgrades to his buildings as his agents seek out new tenants. He said he’d like to bring a restaurant into the 3,000-square-foot space at 107 North Larchmont, an attractive old home that formerly housed the jewelry store and antique shop.

He is also upgrading the structure of the 150 North Larchmont building, which used to house the hardware store. Mizrahi said he bought four residential tenants out of their leases on the second floor of the building and is converting those units into office space.

In fact, the story of the close of 82-year-old Larchmont Hardware on Dec. 31 encapsulates many of the issues at hand. It was a place that Frere said she shopped at least twice a week.

But Mizrahi said that the store was paying “way below market rent” and it wasn’t making money. He said store owner Russ Wilson was offered a smaller space but decided to close up and focus on running his West Hollywood hardware shop.

“The community loved the store and supported it, but they were also going to Home Depot,” Mizrahi said.
Read more!

California: Sales Rise as Home Prices Bottom

As foreclosures push down California housing prices, first-time home buyers surge into the market.
By: Alex Veiga: REALTOR®Magazine
The California median home price fell 30 percent in May, the sharpest decline in 20 years, since DataQuick Information Systems began keeping records.

The drop in home prices has sparked a home-buying rally that's beginning to reverse more than two years of monthly year-over-year sales declines.

"Inland markets hit hardest by foreclosures and falling prices are now the most likely to post higher sales than last year," says Andrew LePage, a DataQuick analyst. "These communities have been attracting first-time buyers, first-time move-up buyers and investors."

Richard Cosner, president of Prudential California Realty, says buyers of homes whose prices have declined in the last 18 months from $400,000 to $200,000 must compete with multiple bidders.

"For the first-time homebuyers and for that bottom tier of homes, we've found what the bottom of the pricing is," Cosner says.
Read more!

Is Hollywood Heading for Crash?

Wave of new condos in area faces soft market.
By: DANIEL MILLER: Los Angeles Business Journal online
The real estate bust has hit the downtown condo market, slowing its resurgence as a hip residential neighborhood.

Now, it appears, the Hollywood renaissance is in line for some lowered expectations.

The crane has been a dominant part of the Hollywood skyline, with more than 1,200 condo and rental units now under construction. Several experts say those units, or at least most of them, likely will be completed on time.

But there’s a big bulge of units further behind in the current development cycle, and they appear to be in greater peril. According to a March 3 study by the Community Redevelopment Agency of Los Angeles, there are 2,121 entitled units and 1,507 proposed units in larger Hollywood-area developments.

“You already know there are a number of projects that won’t see the light of day this year,” said John Given, a senior vice president at Los Angeles-based CIM Group Inc., a major player in the Hollywood renaissance that owns the popular Hollywood & Highland retail and theater project.

Of course, the problem is the tightened credit markets since the collapse of the subprime mortgage industry. It is difficult for developers to obtain financing for their projects. Even when they do, buyers find loans harder to come by.

“The credit markets are preventing people from getting any traction,” said Lew Feldman, a real estate attorney with Goodwin Procter LLP, who has worked on a handful of land deals in Hollywood. “Until that settles out, a lot of folks are going to be putting on a smiley face, but no money is going to be flowing.”

The resurgence of the Hollywood residential market has been remarkable. At the start of the decade, very little condo and apartment construction occurred there.

Impressive as the construction figures are, they undercount the real activity because they don’t count projects with fewer than 100 units, such as CIM’s 63-unit luxury apartment building at the southeast corner of Sunset Boulevard and Vine Street. That project is well underway and should be ready for occupancy by the first quarter of 2009.

Hollywood’s residential market is smaller than downtown’s, where about 7,900 units are under construction. Both Hollywood and downtown have emerged as L.A.’s big and desirable destinations for those who want to live in a high-rise in an urban environment with cultural attractions, quirky nightspots and subway stations.

Some successes

Given said his company is concerned with softness in the condo market, but believes strongly in the long-term viability of Hollywood. Indeed, there have already been success stories. For example, the Kor Group opened its 96-unit Broadway Hollywood condo project last year at the southwest corner of Hollywood Boulevard and Vine Street. There are only a few condos left and many have been sold in the $700 per square foot range, said Tyson Sayles, Kor’s executive vice president of acquisition.

“We are big believers in Hollywood as a 24-hour destination, but that said, projects have to pencil and the short-term economic outlook is a lot more uncertain,” said Sayles. “I don’t think every project will go forward, and that’s OK; it is part of the real estate cycle.”

One of the those developments that has yet to receive financing is a 23-story condo tower at 5925 Sunset Blvd. by Portland-based Gerding Edlen Development Co. LLC.
The established development company has found success downtown with two South Park condo towers and has another on the way. The company bought the Hollywood property in September 2006, but still needs to complete financing for its $160 million in construction and development costs.

Gerding Edlen Principal Tom Cody said the company is close to getting $64 million in equity financing, but acknowledged the process has been slow because of the choppy real estate and finance markets.

“We are actively working on financing, and it hasn’t delayed us because we are (still seeking) entitlements,” said Cody, adding that his company would like to break ground by fall. “But, in this market today you have to kiss a lot of frogs before you find the prince you need.”

Cody said that a year ago his company would have talked to “two or three” potential financing partners, but “now it’s more like 20.”

“The upside is we are finding it possible to put it together because the Hollywood market is so compelling. If it were a project in a marginal area, you could forget about it,” he added.

Market lynchpin

Given the state of the market, all eyes now are on the $600 million mixed-use W hotel project at Hollywood and Vine, a long moribund corner that in its heyday was the intersection of commerce and Hollywood glamour.

The 5-acre project will feature a 305-room W hotel aimed at young wealthy professionals, 143 luxury condos, 375 high-end apartments and 50,000 square feet of retail – all atop a subway stop.

“This is a critical project for Hollywood and the city’s future,” said Los Angeles City Council President Eric Garcetti, who represents the area and believes the project will do more for Hollywood than even the Hollywood & Highland tourist destination.

Dallas-based Gatehouse Capital Corp. and Norwalk, Conn.-based HEI Hospitality LLC are building the condos and hotel. Foster City-based Legacy Partners Inc. is building the apartment units. All are contributing to the retail.

Gatehouse President Marty Collins expects the condo portion of the project to be a tone setter for the market. He said the units are priced in the $1,200-per-square-foot range – high for a large Hollywood project. The company has already begun pre-selling units, which start in the high $800,000s and go up to $9 million for a luxury penthouse.

Collins said he’s not concerned about a residential slowdown despite the collapse of housing markets in far flung areas like the Inland Empire. “Clearly these units will sell for more than anything else that is out on the market. Day in day out, what happens to the subprime market out in Riverside doesn’t really have a tremendous effect on where we are with the pricing band,” he said.

Indeed, there’s a feeling among some developers that since construction on the W project is well under way and there is virtually no chance it won’t be completed, Hollywood will get a boost from it no matter what happens with other projects.

“The whole area just takes on a whole new dynamic. Critical mass is good for everybody in terms of the food and beverage venues and giving a more pedestrian nature to the street,” said Avi Brosh, who heads Palisades Development Group, a Santa Monica developer that is building the long-stay Pali House hotel nearby. He also converted the nearby Equitable office building into condos last year, so far selling about half the 65 units.

“The W is the first pie in the sky project that got done and it’s amazing it is happening,” he said.
Read more!

Some Buy a New Home to Bail on the Old

In markets hit hardest by falling home prices and rising foreclosures, borrowers with good credit buy a new home - often at a much lower price - then bail out of the "upside down" mortgage on their first home. But walking away from a mortgage has plenty of drawbacks and Fannie plans to toughen rules.
By: NICK TIMIRAOS: WSJ.com
Fannie Plans Rules To Avoid Practice Described as Fraud.
Next month, Michelle Augustine plans to walk away from her four-bedroom house in a Sacramento, Calif., subdivision and let the property fall into foreclosure. But before doing so, she hopes to lock in the purchase of another home nearby.

"I can find the same exact house as what I live in right now for half the price," says Ms. Augustine, 44 years old, who runs a child-care service out of her home. She says she soon will be unable to afford her monthly payments, which will jump to $4,000 from $3,300 in August, and she doesn't want to continue to own a home that is now worth $200,000 less than what she paid for it two years ago.

In markets hit hardest by falling home prices and rising foreclosures, lenders and brokers are discovering a new phenomenon: the "buy and bail," in which borrowers with good credit buy a new home - often at a much lower price - then bail out of the "upside down" mortgage on their first home.

Homeowners are able to pull off this gambit - which some lenders and real-estate agents call mortgage fraud - by taking advantage of mortgage-lending practices that allow them to buy a new primary residence before their existing residence has been sold. And with the lending industry in disarray as it tries to restructure millions of mortgages, some boast they are able to pull off the strategy with ease.

In some cases, homeowners are coached through the buy-and-bail process by real-estate agents and brokers who see nothing wrong with it. Some blame the phenomenon in part on lenders' unwillingness to cut deals or restructure loans made when home prices were inflated. "It's just a business decision," says Linda Caoili, a Sacramento real-estate agent who is working with Ms. Augustine and others who are considering walking away from their mortgages. "If you're upside-down $250,000, why would you keep it? It just doesn't make sense."

To be sure, walking away from a mortgage, even if legal, has plenty of drawbacks: Borrowers lose the ability to take out unsecured loans, since foreclosures can stay on a credit report for seven years. In some states, lenders can sue for assets, including a new house. Fannie Mae, the government-sponsored mortgage underwriter, recently revised the amount of time borrowers with a foreclosure must wait to receive a home loan to five years from four. Proposed Fannie Mae guidelines, which could take effect later this month, also would require those borrowers to make a 10% down payment and meet a minimum credit score after the five-year period.

While buy-and-bail is on the rise, the practice doesn't appear to be widespread. Credit is much tighter now than it was during the real-estate boom, and most families with an upside-down mortgage likely will hold on to their homes and hope the market improves in the future - even though many of them could lose their properties.

Still, with home prices falling rapidly in some parts of the country, a growing number of frustrated consumers are willing to take the risk - especially in so-called nondeficiency states such as California and Arizona, where it is more difficult for a lender to sue consumers who walk away from their mortgages. Borrowers who bought or refinanced their home with a personal line of credit, however, instead of a home-purchase loan - a common practice during the housing boom - could be sued by a lender in those states. Borrowers also could be on the hook if lenders can show that homeowners committed fraud by misrepresenting themselves on their loan application.

Yet even in cases in which a lender could attach a lien on the new home, some homeowners simply assume that lenders are too swamped. "So many people are foreclosing, is it cost effective for lenders to go after all of these people?" says Steve Hawks, a Las Vegas real-estate agent who handles lender-owned properties.

That works in the favor of borrowers such as Blair Morrow. Last year, he rented out his Sacramento home when he moved to Houston for a new job, but he lost those renters in February. He quickly arranged to buy a new home in Houston, fearing that his old residence would be foreclosed and he would take a big hit on his credit.

"I had 30 days to make a decision: Live in a rental house the rest of my life or buy a house and walk away from the one in California," says Mr. Morrow, 56, who works at a car dealership. He wrestled with the decision for a while, but justified it once Countrywide Financial Corp., the lender for his first home, approved the new home loan. "Countrywide didn't say peep," he says. Countrywide didn't return calls seeking comment.

Ms. Augustine, the Sacramento day-care provider, became a first-time homeowner in November 2006 by taking out two loans with nothing down to cover the $426,000 home purchase. With her home valued at about $220,000 now, she is actively looking in nearby communities for another one to buy before the bank forecloses on her current home.

The mortgage industry is starting to wise up to the practice and is scrambling to fight back. Buy-and-bail is "certainly fraudulent and unfortunately on an uptick," says Gwen Muse-Evans, vice president for credit policy and controls at Fannie Mae. Although she doesn't have data to quantify the size and scope of the trend, Ms. Muse-Evans says overwhelming anecdotal reports have prompted the agency to draft tougher regulations aimed at closing one big loophole that allows underwater homeowners to qualify for new home loans.

That loophole currently works like this: Homeowners provide a rental agreement showing that they will rent out their first home, and underwriters allow rental income to cover as much as 75% of the mortgage payments on the first home when determining whether the borrower can make payments on two homes. This allows homeowners to secure a second mortgage that they might not otherwise afford.

Under revised Fannie Mae guidelines, which could take effect next week, loan applicants who claim they will rent out their first home will have to produce supporting evidence, including an executed lease agreement. Borrowers also will have to prove that they can pay the mortgage, property taxes and insurance for both residences. The guidelines will make an exception only for borrowers who have at least 30% equity in their current home.

Of course, many individuals still can qualify for that second loan because of a strong credit and cash position. If they "have the intention of fraud, then at the end of the day there's really little you can do to totally prevent that," says Ms. Muse-Evans.

Some private lenders aren't waiting for Fannie's lead. In April, underwriters handling bank-owned properties at IndyMac Bancorp Inc. told brokers they would require borrowers purchasing new homes while retaining their existing home as a rental to prove that they could make full payments on both homes to qualify for a loan. A memo sent to a Southern California broker said the policy change was prompted by "losses from individuals walking away from properties after the acquisition of a new home."

An IndyMac spokesman said the bank hadn't changed its policies and had always "underwritten loans with an eye towards insuring that our borrowers could readily rent out their current property and/or reasonably support both payments."

Realtors say the new guidelines could put further pressure on sales, but Lawrence Yun, chief economist for the National Association of Realtors, says the impact of such guidelines on sales would be marginal. He calls Fannie Mae's response appropriate because any artificial increase in home sales hurts the average consumer.

Meanwhile, Mr. Hawks, the Las Vegas broker, says he receives one to two dozen inquiries every week from individuals inquiring about a buy-and-bail. "People are starting to ask how much their good credit is worth," particularly when their home is underwater by hundreds of thousands of dollars.

The tactic doesn't appeal to people such as John Ristuccia, a 48-year-old Buckeye, Ariz., paper-company sales director whose job was moved to Houston in August. He is trying to complete a "short sale" for $425,000 on his five-bedroom, 4,000-square-foot home, which was appraised for $800,000 last year. In a short sale, a lender allows the sale of property for less than the amount due on the outstanding loan and often forgives the remaining debt.

Even though he might be able to qualify for a second home loan, Mr. Ristuccia says he wouldn't consider sticking his bank with his suburban Phoenix property. "Just personally I've got a problem with that," he says. "I really can't put it in terms other than it feels wrong."


Read more!

How To Green Your Lighting

How we light up the places we live and work makes a big impact on how we feel. It also makes a big impact on the environment. Get ten tips to green your lighting.
YAHOO!Green
How to Green Your Lighting What’s the Big Deal?
The kind of bulbs, the kind of fixtures, the kind of power, and the habits we keep can all add up to a very significant greening. Start with the fact that a conventional incandescent bulb turns only around five to ten percent of its consumed energy into light, the rest goes out as heat. From there, there’s no limit to how green your lighting can be.

Top 10 Tips
Here are 10 highly effective ways to go greener. Hit it.
1. CFL: The better bulb
Compact florescent bulbs (CFLs) are those swirley little guys that look like soft-serve ice cream cones. Actually, they come in a myriad of different shapes, sizes, and colors of light. Economically speaking, they’re a great deal, too. CFLs cost a bit more than an incandescent, but use about a quarter as much energy and last many times longer (usually around 10,000 hours). It is estimated that a CFL pays for its higher price after about 500 hours of use. After that, it’s money in your pocket.

Also, because CFLs release less heat, not only are they safer, but your cooling load is less in the summer. CFLs aren’t hard to find anymore, and many cities will give them away for free. Wal-Mart has plans to sell 100 million of them.

2. Get the LEDs out
LEDs are a definite TreeHugger favorite. LEDs, or light emitting diodes, are a technology that allows for extremely energy efficient and extremely long-lasting light bulbs. LEDs are just starting to hit the consumer market in a big (read affordable) way and still cost quite a bit more than even CFLs, but use even less energy and last even longer.

An LED light bulb can reduce energy consumption by 80-90% and last around 100,000 hours. They even light up faster than regular bulbs (which could save your life it there are LEDs in the brake lights of your car). They are almost always more expensive presently, but we have seen the cost go down steadily. It’s no coincidence that the Millennium Technology Prize went to the inventor of the LED.

Most LED lamps on the market have the bulbs built into them, so you buy the whole unit. For screw-in bulbs, check out Ledtronics, Mule, and Enlux. For desk lamps, check out a few affordable ones from Sylvania and Koncept. For more designer models, look at LEDs from Herman Miller and Knoll. Vessel rechargeable accent lamps represent some of the interesting new things LEDs can do as well.

3. Materials
Light isn’t all about the bulbs, though. Having eco-friendly lamps and light fixtures is key to greening your lighting. When scouting for new gear, keep your eyes out for lamps made with natural, recycled, or reused materials. Lights made from recycled materials include metal, glass, or plastic, and natural materials can include felt, cloth or wood. Interesting lamps that use reclaimed materials include these made from traffic signal lenses, and these made from wine bottles. Also, don’t be shy about borrowing ideas for reuse in your own projects (see DIY).

4. Disposabulb
Fluorescents last a long time, but when they’re dead, they have to be properly disposed of. CFLs, like all florescent bulbs, do contain a small amount of mercury, which means they definitely can’t be thrown in the trash. Every city has different services for recycling, so you’ll need to see what’s offered in your area. LEDs, to our knowledge, do not contain mercury, but the jury may still be out on how to best recycle them.

5. Wall warts
Power adaptors, or “wall warts” as they’re affectionately called, are those clunky things you find on many electrical cords, including those attached to lamps and some light fixtures. You’ll notice that they stay warm even when their device is turned off. This is because they in fact draw energy from the wall all the time. One way to green your lighting is to unplug their wall warts when not in use, attached lights to a power strip and turn off the whole switch when not in use, or get your hands on a “smart” power strip that knows when the devise is off.

6. Day-lighting
By far, the best source of light we know is (yes, you guessed it) the sun, which gives off free, full-spectrum light all day. Make the most of daylight by keeping your blinds open (sounds obvious but you might be surprised). If you want to go a little farther, put in some skylights, or, of you are designing a home or doing a renovation, put as many windows on the south-facing side of the house as possible (or north-facing if you live in the southern hemisphere). To take it even further, sunlight can be “piped” inside via fiber optics and other light channeling technologies.

7. Good habits
As efficient as your lighting equipment might be, it doesn’t make sense to have lights on when no one’s around. Turn out lights in rooms or parts of the house where no one is. Teach your family and friends about it too and it will become second nature. If you want to get a little more exact, follow these rules:
Standard incandescent: turn off even if you leave the room for just seconds. Compact fluorescent: turn off if you leave the room for 3 minutes. Standard fluorescent: turn off if you leave the room for 15 minutes.

8. Do it yourself
We’re always encouraging people to take matters into their own hands. So much great eco-innovation comes when people create the things they can’t find elsewhere. Lighting is an especially accessible and rewarding thing to tackle. For some inspiration, check out the Cholesterol lamp made from cast-off plastic egg cartons, and the recycled Tube Light. Strawbale building pioneer Glen Hunter made some LED fixtures when he couldn’t find any he liked on the market. Eurolite, the company from which he bought the lighting components, liked his designs so much they decided to sell them.

9. Dimmers and motion sensors
Motion sensors can be a good way to keep lights turned off when they’re not needed, and dimmers can give you just the right amount of life, and timers can be set to turn things on and off when needed.

10. Get green power
A great way to green your lighting is to buy green power. More and more electric utilities are offering customers a green power option on their bill. Signing up for green power usually means paying a few more dollars a month to support energy in the grid that comes from renewable sources like wind, solar, or biogas. For some more info on how to get green juice, look here, and for the greenest grids in the States, look here. More info is also available in How to Green Your Electricity.

So You Wanna Do More
Not content with just getting by? Go hardcore.
Daylight pays
From hockey rinks and schools, to Wal-Mart, to euro office buildings, natural lighting is being used to do better business, make people happier, and save energy and dollars. The presence of day-lighting often shows increased worker satisfaction and productivity in offices, better test scores in schools, increased sales in retail settings, and, of course, lower energy bills.

Working with the sun
Planning your day around the planet’s great source of free, full-spectrum light is good for the brain and body, and will mean less burning of the midnight oil. Optimization theory takes advantage of the daylight cycle. It’s not just for energy savings and bringing more natural light in your life, but that’s definitely part of it.

By the Numbers
Want the real deal? Here's where the rubber meets the road.
1. According to a report published by the International Energy Agency (IEA), a global switch to efficient lighting systems would trim the world's electricity bill by nearly one-tenth. The carbon dioxide emissions saved by such a switch would, it concludes, dwarf cuts so far achieved by adopting wind and solar power. According to Paul Waide, a senior policy analyst with the IEA and one of the report's authors, "19% of global electricity generation is taken for lighting— that's more than is produced by hydro or nuclear stations, and about the same that's produced from natural gas."

2. Studies by the Heschong Mahone Group found that sales increased 40% in stores with good natural light.

3. Through the use of day-lighting in design, builders can meet 25 to 33 percent of the necessary requirements to achieve a Silver LEED rating.

4. According to the federal Energy Star program: “If every American home replaced just one light bulb with an ENERGY STAR, we would save enough energy to light more than 2.5 million homes for a year and prevent greenhouse gases equivalent to the emissions of nearly 800,000 cars.”

Getting Techie
Not content with the high level? Here's the nitty gritty.
Light emitting diodes (LEDs) are a big deal and we’ll be seeing them pop up in more and more places. Read more about what they are and how they work on Wikipedia’s excellent page.

A heliodon is a devise that allows architects, builders, and engineers to simulate the effects of sunlight on the lighting needs of building designs.

Color temperature is measured in kelvins, and brightness is measured in lumens and footcandles, and the effect of light on colored surfaces in measured in the Color Rendering Index.
Dig Deeper Into TreeHugger
Dig deeper by perusing some of our thousands of posts.
Bringing sunlight indoors can be done in many ways. TreeHugger has covered the Sunpipe, the work of the Oak Ridge National Laboratory, developments coming out of Queensland University of Technology, FluoroSolar, and the Suntracker. The University of Nottingham has also integrated daylight into its new Creative Energy Homes.

For more lighting products, inventions, concepts, news, and activism, dive into TreeHugger's Lighting category.

Dig Deeper Into Other Sources
TreeHugger is one of many sources; here are some other great ones.

• Lamprecycle.org
• CFLbulbs.com
• Wikipedia’s CFL Page
• Description of a Kilowatt-Hour
• The U.S. Green Building Council
• Energy Star
• GE’s page on light color
• Heschong and Mahone Group has done a variety of studies on the effects of day-
lighting and productivity in buildings.

Where to Get This Stuff
Vote with your dollars and help support the green revolution.

• Ledtronics
• Osram
• Panasonic
• GE
• Phillips
• Syvania
• Luxlite
• Mule
• Eurolite
• Enlux
• Mio
• Greener Lifestyles
• Vessel
• 1000 Bulbs
• Luceplan

Read more!

Number of Foreclosed Homes Keeps Rising

The number of foreclosed homes owned by lenders continues to rise despite signs that they are increasingly willing to slash prices to sell those properties.
By: JAMES R. HAGERTY: WSJ.com
Lenders Cut Prices
To Jump-Start Sales
As Inventory Grows

Lenders and investors in mortgages owned about 660,000 foreclosed homes in April, up from 493,000 in January and 231,000 in January 2007, according to First American CoreLogic, a research firm based in Santa Ana, Calif., that collects data from lenders and county clerks. The April total works out to about one in seven previously occupied homes available for sale nationwide.

A surge in defaults has increased the inventory of bank-owned homes, known in the trade as REO, for "real estate owned." By cutting prices, lenders have managed to increase sales of such homes sharply in recent months in some cities hit hard by foreclosures, including Las Vegas, Detroit and Sacramento, Calif., local real-estate brokers say.

With home prices falling, "holding the assets means further losses," said Mark Fleming, chief economist for First American CoreLogic. Some lenders now are cutting prices as often as every 20 days on homes that aren't selling, said David McCarthy, chief executive officer of Integrated Asset Services LLC, a Denver-based company that helps banks value and sell REO homes.

But lenders haven't yet managed to catch up with the inflow of foreclosed homes. Mark Zandi, chief economist at Moody's Economy.com, forecasts that the inventory of REO homes won't peak before the end of 2009.

In dollar terms, foreclosed one- to four-family homes owned by lenders whose deposits are insured by the Federal Deposit Insurance Corp. more than doubled to $8.56 billion at the end of the first quarter from $3.59 billion a year earlier.

The REO glut is weighing on house prices in many areas, as banks tend to cut prices faster than other sellers. A new set of local home-price indexes, to be introduced this week by Integrated Asset Services, shows that the median price of homes sold in Riverside County, Calif., in April was down about 29% from a year earlier. The median price fell about 13% in Clark County, Nev., and 12% in Arizona's Maricopa and Pima counties. Median-price comparisons can be skewed by shifts in the proportions of high- and lower-priced homes sold from one year to the next but provide a broad indication of market trends.

To avoid or at least delay losses, many lenders are trying to avert foreclosures by easing loan terms or giving struggling borrowers more time to catch up. Hope Now, an alliance of mortgage companies and investors, said last week that mortgage companies completed loan workouts for 183,000 households in April, up from 160,000 in March.

Meanwhile, long-term interest rates rose last week, marking another potential drag on the housing market. The average rate on 30-year fixed rate loans eligible for sale to government-sponsored investors Fannie Mae and Freddie Mac was 6.17%, up from 6.02% a week earlier, according to HSH Associates, a financial publisher in Pompton Plains, N.J.
Read more!