Sales, but No Frenzy, From Home-Buying Tax Credit

The looming expiration of a tax credit for home buyers has spurred some consumers to hurry to ink deals, but the last-minute activity has been more muted than some brokers and builders anticipated.
By: DAWN WOTAPKA And ROBBIE WHELAN: wsj.com
Many people who wanted to act on the tax credit already have done so, said Eric Lipar, chief executive of Texas-based LGI Homes. "We're not seeing an increase in traffic," he said. "It's business as usual."

To qualify for the credits of up to $8,000, home buyers must sign purchase contracts by midnight Friday, and those purchases must be completed by June 30. Some sellers were preparing for a possible 11th-hour rush: Home builder Lennar Corp. is keeping some of its sales offices open until midnight Friday, while rival KB Home extended hours both Thursday and Friday.

And some brokers say their business has surged as the deadline neared.

"It's gone nuts," said Lew Reich, an agent at the brokerage of Keller Williams Realty in Plano, Texas. "We're seeing a very strong rush, strong sales, a lot of people are being energized by the end of the credit."

David Lee, who does maintenance work for the Mandalay Bay casino in Las Vegas, submitted a $150,000 offer on Tuesday for a three-bedroom house in Las Vegas. He hopes to get an $8,000 tax credit, but the home is a bank-owned foreclosure, and Mr. Lee is still waiting to hear from the bank about whether his offer has been accepted. "I'm kind of going crazy because it's a lot of money for me," Mr. Lee said.

If Mr. Lee doesn't get a home now, however, he figures he might be able to get one cheaper in a few months—if prices fall further.

It isn't clear how effective the credit has been. Sales of new single-family homes surged 27% in March from the prior month on a seasonally adjusted basis, the Census Bureau reported, but that estimate is based on a small sample and is frequently subject to large revisions. So far, the credit has been most effective with first-time buyers not stuck with an existing home to sell.

The end of the credit has stirred fears that the housing market, which has showed signs of stabilizing in much of the country over the past year, might face further steep price declines. Economists note that the buying incentives pulled demand forward, so buyer traffic could fall come Saturday.

Meanwhile, many of the same headwinds remain: Unemployment is high, and the foreclosure crisis continues to dump more distressed properties on the market.

Congress initially passed a $7,500 tax credit for first-time buyers two years ago, which had to be repaid over 15 years. Then, last spring, Congress extended the credit, expanded it to $8,000 and waived the repayment requirement. When that was set to expire Nov. 30, Congress extended it again and added a $6,500 tax credit for some repeat buyers.

Many buyers had rushed to meet the expected November deadline, leaving less demand in the market as the new cutoff approached. "There is no doubt the first round of the credit had a much bigger impact," said John Burns, an Irvine, Calif., home-building industry consultant.

The credit won't be extended—for now, at least. The National Association of Home Builders has said it currently isn't lobbying for another round. Some consider that a good thing because a more normal market will result.

Some forecasters expect foreclosure activity to put further pressure on prices and inflate inventories in troubled markets, but Lawrence Yun, chief economist with the NAR, said he is not worried about distressed homes.

"We know that foreclosures will remain high" he said. "We've had this shadow inventory coming on, and it is being absorbed."

The key test, he added, is whether home sales numbers for the coming fall and winter seasons will match those from last year. He predicted that job growth and the creation of new households would compensate for the expiration of the tax credit in stimulating the market.

Sellers unloaded homes at an annual rate of 5.3 million units in the third quarter of last year, up more than 11% from the previous quarter, according to the NAR.

"If this year's [autumn and winter] sales can match up with last year, when there was the credit, then we can say that the housing market is back on its feet," Mr. Yun said.
Read more!

Home prices rise in three California cities

A trio of California cities bucked a nationwide home price decline in February while most of the other metro areas posted losses or...
By: Alejandro Lazo: latimes.com
The Standard & Poor's/Case-Shiller index of 20 metropolitan areas falls 0.1% overall for February. But San Diego, San Francisco and Los Angeles post gains.

A trio of California cities bucked a nationwide home price decline in February while most of the other metro areas posted losses or flattened out, underscoring the resurgence of the Golden State's coastal markets, data released Tuesday showed.

The Standard & Poor's/Case-Shiller index of 20 metropolitan areas was down 0.1% from January on a seasonally adjusted basis, marking the closely watched measure's first decline since home prices began to recover last June.

But in a positive sign for housing, the index posted a 0.6% increase from February 2009, its first year-over-year increase in more than three years.

The mixed readings come as the expiration of a federal tax credit for buyers looms at the end of this week. Many analysts expect home prices to decline once the incentive runs out — but not nearly as steeply as when values entered a nearly three-year free-fall in the summer of 2006 that helped drag the U.S. into one of the most brutal recessions since the Great Depression.

"Generally, I don't see an upbeat picture, I see the trend as faltering," said David Blitzer, chairman of Standard & Poor's Index Committee. "One of the few spots that seems surprisingly strong is California."

California cities saw home prices in February gain 0.8% in San Diego, 0.4% in San Francisco and 0.2% in Los Angeles.

Mark Zandi, chief economist with Moody's Economy.com, said the strong showing in California reflected the reduction in foreclosures on the market over the last year. Foreclosures made up 44.3% of the resale market in February, down from an all-time high of 58.8% in February 2009, according to San Diego research firm MDA DataQuick.

"California is perhaps the most efficient state in respect to resolving its foreclosure issue and so a lot of properties were pushed through the process," Zandi said. "There are now fewer in the pipeline."

Although foreclosures may increase in California in coming months, leading to a period of flat prices and perhaps even some declines, the state was "much further along in getting its house in order than most parts of the country," he said.

Not reflected in the Case-Shiller numbers are regions in the state farther from the coast where overbuilding was more prevalent and the unemployment rate remains above average, said Richard Green, director of USC's Lusk Center for Real Estate.

"We are doing a little better than the rest of the country, and that is not particularly surprising because California, in general, didn't overbuild the way Arizona and Las Vegas and Florida did," Green said. "In the places we did, prices collapsed so much it's hard for them to fall much further."

In the next two months, some California shoppers have a shot at as much as $18,000 worth of tax credits if they get their timing right.

The federal tax-credit program, set to expire Friday, provides up to $8,000 for first-time purchasers and as much as $6,500 for some current homeowners. To qualify for that credit a buyer must sign a contract on a home by April 30 and close the deal by June 30.

Adding to that incentive is a statewide credit, which was approved by lawmakers last month and kicks in May 1, for as much as $10,000 for first-time buyers and those purchasing newly built homes.

The Case-Shiller index covers three months of data beginning in December, when sales began a three-month slump after what was to have been the federal tax credit's Nov. 30 expiration; Congress in November extended the credit. February's sales data capture that plunge and the traditionally slow winter months. Home sales picked up again in March, and many expect that trend to continue at least through April.

Along with the California cities, Las Vegas eked out a 0.1% gain. Fourteen cities posted declines in February over January, with the biggest losses in Portland, down 1.9%; Dallas, falling 1.4%, and Chicago, down 1%. Two cities were flat for the month.
Read more!

Home Prices Probably Increased First Time in 3 Years

The trend in U.S. home prices probably turned up in February for the first time in more than three years, and consumers became less pessimistic this month as the jobs picture brightened, economists projected reports today will show.
By: Shobhana Chadra: Bloomberg.com
The S&P/Case-Shiller index of property values in 20 cities climbed 1.3 percent from February 2009, the first year-over-year gain since December 2006, according to the median forecast of 22 economists surveyed by Bloomberg News.
A report from the Conference Board may show sentiment improved for a second month.

Home prices in January were 30 percent below the peak reached in July 2006, indicating the industry that helped trigger the worst recession since the 1930s will take years to recover lost ground. A pickup in employment is needed to help stem the damage from mounting foreclosures and to sustain recent gains in household spending.

“The bottom has been reached in home prices and we’re now seeing gradual improvement,” said Joel Naroff, president of Naroff Economic Advisors Inc. in Holland, Pennsylvania. “Prices will move upward but we’re not going to get spectacular gains any time soon because of all the troubled houses out there.”

The S&P/Case-Shiller figures, due at 9 a.m., would follow a 0.7 percent year-over-year drop in January. Bloomberg survey forecasts ranged from a decline of 0.8 percent to an increase of 1.6 percent. Year-over-year records began in 2001.

Year-Over-Year

While the data also include month-to-month changes in prices adjusted for seasonal variations, it’s best to focus on the year-over-year trends, the group charged with issuing the report said on April 20. The panel includes Karl Case and Robert Shiller, the economists who created the gauges.

The seasonally adjusted and unadjusted series “have given conflicting signals” recently, with the former rising while the latter fell, the group said in a statement. The turmoil in housing in the past few years has influenced the models used in adjusting the data, “resulting in larger seasonal adjustments and misleading results,” according to the group.

The New York-based Conference Board’s sentiment index is due at 10 a.m. The gauge probably rose to 53.5 from 52.5 in March, according to the survey median. Estimates ranged from 48 to 57, and the measure averaged 98 during the economic expansion that ended in December 2007.

“Once people feel there’s more job security, consumer confidence will come back up faster,” Naroff said. “We need faster employment growth.”

Payroll Gains

Employers in the world’s largest economy added workers to payrolls in March for the third time in the past five months, according to figures from the Labor Department.

Reflecting the stabilization in housing, the Standard & Poor’s Supercomposite Homebuilder index, which includes Pulte Group Inc. and Lennar Corp., has gained 26 percent this year compared with a 8.7 percent rise in the broader S&P 500 Index.

Prices may improve in coming months as homebuyers rush to take advantage of a government tax credit worth as much as $8,000 before it expires. Purchase contracts must be signed by the end of this week and transactions need to close by the end of June in order for buyers to be eligible.

Growing demand may help offset the pressure on prices from mounting foreclosures. Filings jumped 16 percent in the first quarter from a year earlier, and bank seizures reached a record, according to Irvine, California-based RealtyTrac Inc. Foreclosures push up the number of homes on the market, forcing builders and sellers to make concessions to get deals done.

Some businesses see better prospects. M.D.C. Holdings Inc., the Denver-based builder of Richmond American Homes, said its loss narrowed in the first quarter from a year earlier as orders jumped 38 percent.

“While this trend is encouraging, we remain cautious due to the impending expiration of the federal homebuyer tax credit and depressed overall economic conditions,” Chief Executive Officer Larry Mizel said in an April 23 statement.
Read more!

The New Rules of Remodeling

After years of economic recession and housing-market malaise, people are starting to fix up their homes again—but the forces driving today's action couldn't be more different from those during the boom.
By: M.P. MCQUEEN: wsj.com
You may have noticed the lines at home-improvement stores getting longer or heard the whirring of buzz saws in your neighborhood. After years of economic recession and housing-market malaise, people are starting to fix up their homes again.

According to an April 15 report from the Joint Center for Housing Studies at Harvard University, annual spending on remodeling is expected to accelerate this year, with nearly 5% growth over 2009. "This year could produce the first annual spending increase for the industry since 2006," the peak of the housing boom, says center director Nicolas P. Retsinas.

But the forces driving today's action couldn't be more different from those during the boom. Back then, people wanted to renovate their places so that they could trade up to bigger homes, or because their home equity was soaring and they wanted to reinvest some of the spoils.

Now, the opposite is happening: Many people who bought during the boom years are accepting the reality that they won't soon be swapping up for a sybaritic spread. Their mortgages may remain above water, but after years of falling home prices, their equity is so low that the transaction costs of buying a new house would leave little for a down payment.

In short, they are stuck.

"People have seen their down payments kind of wiped out," says Harvard economist Jeremy Stein. "They are locked into their house. They can't really move, even if they thought the other house was cheap and a good deal."

So these people are making their homes more comfortable for a longer-than-expected stay. Setting aside old calculations of how much a particular improvement will add to resale value, they are making smaller tweaks that can make a big difference in livability. You might call it "psychological return on investment."

Nowadays, say real-estate agents and contractors, smaller projects like updating kitchens and baths and humble attic-bedroom conversions are more popular, while two-story master suites and $100,000 kitchen blowouts are decidedly out of fashion. Hidden improvements like insulation also are on the rise, as people realize they won't be able to pass on their drafts, leaks and other problems to the next guy. Tax credits that expire in 2010 are enticing people to make energy improvements, too.

One of the most cost-effective improvements, say contractors, is removing a wall to create an open kitchen-dining area. The project "makes the kitchen feel bigger and the kitchen and dining room more usable," says Sarah Susanka, an architect and author of "The Not So Big House" book series. "It's such a simple thing to do." It can cost as little as a couple of thousand dollars, according to David Merrick, a home remodeler in Kensington, Md., but can run much higher if plumbing and electrical work are involved.

A surprising number of people fall into the category of being above water on their mortgage but anchored to their property. According to First American Core Logic, at least 24.5 million borrowers in the U.S. have home equity of less than 25%, and of those, 13.2 million are above water. Considering the 9% in commissions and fees that typically come with buying and selling a house, as well as the typical 20% down payment on the new one, it is easy to see why people aren't house-hopping like before.

This applies even to affluent professionals. Paul Sorbera, an executive recruiter in Greenwich, Conn., is seeing it firsthand among his clients. He says many financial-services executives "bought $2 million homes in the good times and have $1.3 million houses now because of the price decline. They have some money in the bank and can afford their current living standard, but moving is very impractical for them."

Economists, whose models often assume the rationality of hypothetical consumers, say remodeling makes sense for such people. "If they don't have a lot of equity in their houses and can't move, they should have a propensity to improve rather than move," says Richard K. Green, director of the University of Southern California's Lusk Center for Real Estate. "When you renovate, you save a lot of transaction costs."

Web sites such as Remodelormove.com offer calculators to help consumers make the decision.

Kate Anderson, 42 years old, of Sunnyvale, Calif., a technical writer and homemaker, and her husband, Scott, 43, a vice president at Hewlett-Packard, say they considered buying a larger place to accommodate their growing children, a daughter, 10, and son, 8. But they surmised that buying and selling now would be too expensive. "We didn't think it was worth the whole sale purchase expense … just to get a few extra square feet," Mrs. Anderson says.

Instead, they opted to fix up their 1950s-era tract home, worth an estimated $750,000. Most houses in their neighborhood with new kitchens and baths sell for up to $850,000, she says. While their home "is a little squished," they chose to "gradually improve it," she says.

In December, the Andersons remodeled their kitchen, putting in hardwood floors, cherry cabinets and stainless-steel appliances, ripping out a closet and expanding a doorway to improve the flow. They also installed new incandescent ceiling lights and under-cabinet fixtures, which Mrs. Anderson says she especially loves.

Because they made no major structural changes, they kept the cost to about $50,000, a bargain in the pricey Silicon Valley market. It wasn't easy to hew to that budget, though; the couple decided to ditch a garden window over the sink and self-closing drawers, which would have added several thousand dollars to the cost.

Even in the ever-grander suburbs outside Washington, people are thinking smaller. A few years ago, Mr. Merrick, the contractor, says, more people were doing two-story additions, and most people who remodeled kitchens made them larger. Now, "four of the last six kitchens I did, the footprint stayed exactly the same," he says.

Journal Community discuss..
“ I see a lot more of this going on in my neighborhood. Basements, upper rooms, etc. But I am also seeing a lot more home sales. Five new homes all sold in a month. Of course it helped the builder brought the price down by almost $100K! ”
.—Michael H. Serafin.

Home-improvement retailers are seeing a clear trend toward smaller renovations. Craig Menear, executive vice president of merchandising at Home Depot, says there has been strength recently in projects involving simple décor updates such as ceramic tile, interior paint, faucets and bath fixtures. At Lowe's, customers were drawn to products to update flooring, cabinetry and countertops during the last few months of 2009, the most recent period for which data are available, spokeswoman Maureen Rich says.

Part of the reason, of course, is money. With home prices slumping, there is less equity for homeowners to tap. An April 20 survey by American Express, the first of its kind, found that 72% of affluent homeowners planned to make improvements to their houses in 2010. But they expected to spend an average of just $11,500. And most respondents planned to pay for their projects with cash; just 16% planned to use debt.

Banks also are making credit less available than they used to. Keith T. Gumbinger, vice president of HSH.com, a mortgage-data firm, says that before the housing bust, banks would often lend for projects based on the value of the house after completion of the project, but they are less likely to do so now because "there's no guarantee the improvement or the market will lead to price appreciation." The result: even affluent homeowners aren't able to borrow as much as they used to.

With little reason to expect huge price gains in the housing market in the next few years, some homeowners are thinking especially long-term. Diane Ausavich, a remodeling contractor in Milwaukee, says a pair of physicians, as part of a bathroom renovation, recently installed a barrier-free, walk-in shower and higher countertops in their three-story lakefront home built in the 1890s. They did it "so that as they get older they can wheel in and out with a wheelchair if they should have to," Ms. Ausavich says. The homeowners are in their mid-40s and, "being doctors, I'm sure they see the gamut," she says.

Likewise, Marge Kumaki, 57, a marketing and public-relations consultant who resides in Silver Spring, Md., says she and her husband decided to do some basic upgrades on the post-World War II split-level home they have owned for 21 years after their two children left the nest for good in 2007.

She says she would prefer to move to a new high-rise condominium in downtown Bethesda, but that they decided to stay and renovate because it is more cost-effective and they like where they live now. Last summer's severe thunderstorms, which flooded their finished basement and required repairs, spurred them to get started.

Ms. Kumaki says they are planning to spend in the low $30,000s to update the upstairs bathroom, kitchen and family room.

But the couple have decided to hold off on another dream. "I've always wanted an addition, since it is a split level and you can go up or down," she says. "I'd like another level on top, but that's the future."

The New Remodeling Rules
During the bubble, homeowners sought the biggest, splashiest home improvements to boost resale value. Now they're doing smaller projects that deliver a similar result for far less money.

POPULAR PROJECTS DURING THE BOOM*
Major home office remodel
Cost: $27,000
THE NEW VERSION**
Basic remodel, converting a bedroom by adding low-priced cabinets. Can cost as little as $2,000 plus rewiring and adding receptacles, according to Washington-area contractor David Merrick.
RESULT
Provides a new, dedicated work area at a fraction of the price.

POPULAR PROJECTS DURING THE BOOM*
Bathroom addition
Cost: $37,200
THE NEW VERSION**
Typical 5' x 7' upgrade within existing home dimensions, including low-flow toilets, new fixtures, mirrored walls and new architectural lighting. Cost: $16,000
RESULT
Mirrors, better lighting increase the feeling of space; low-flow toilets save money on water bills; bath fixtures including body sprays give "spa" feel to the home without the expense of whirlpool baths.

POPULAR PROJECTS DURING THE BOOM*
Major kitchen remodel/expansion
Cost: $55,500
THE NEW VERSION**
Remodel within existing dimensions, including removal of a wall for improved flow between kitchen and dining room, new energy-efficient appliances and water-saving fixtures, new cabinets and flooring, and bigger windows. Cost: $21,000
RESULT
Less wall space and bigger windows give a small home the appearance of more space and light; energy-efficient appliances save money on heat and hot water.

POPULAR PROJECTS DURING THE BOOM*
Family room addition
Cost : $79,000
THE NEW VERSION**
Screened-in porch. Starts at a few thousand dollars, assuming there is a roof and foundation in place; $15,000 to $20,000 to convert a small deck; or more than $50,000to build new.
RESULT
Screened-in porch increases usable space and brings outdoors indoors; accentuates landscaping and gardens.

POPULAR PROJECTS DURING THE BOOM*
Master suite addition
Cost: $98,863
THE NEW VERSION**
Attic bedroom. Convert unfinished space into 15' x 15' bedroom and a 5' x 7' bathroom with shower. Cost: $49,346.
RESULT
Provides more living space for a returning family member.
Read more!

Economic signs show recovery, point to low rates

The number of U.S. workers filing new claims for jobless aid fell last week as the labor market gradually heals and producer price data showed inflation remained muted, despite a surge in food costs last month.
By: Lucia Mutikani: Reuters.com
Housing Market

In other data, sales of previously owned home rose 6.8 percent to an annual rate of 5.35 million units in March as Americans rushed to take advantage of a tax credit for home buyers, the National Association of Realtors said.

Analysts said the data on Thursday pointed to a moderate economic recovery that should see the Federal Reserve renew its pledge to keep benchmark interest rate exceptionally low for an extended period at its regular two-day meeting next week.

"Inflation is still not an issue that the Fed is concerned about and the job market is very slowly improving, which is an underpinning for moderate economic growth being sustained," said Stuart Hoffman, chief economist for PNC Financial Services in Pittsburgh. "It's too soon for the Fed to move away from the extended period language."

Initial claims for state unemployment benefits dropped 24,000 to a seasonally adjusted 456,000, the Labor Department said on Thursday, resuming a downward trend that had been interrupted by the Easter holiday. That compared to market expectations for 455,000.

The data covered the survey period for the government's closely monitored employment report for April, which will be released on May 7.

While initial claims are still above levels viewed by analysts as in line with job market stability, anecdotal evidence indicates employment is slowly rising.

Last month, the economy recorded its largest jobs gain in three years, largely driven by private sector hiring as employers started to warm up to the economy's recovery - which is showing signs of gathering momentum.

Analysts expect the hiring trend continued in April, also supported by recruitment for the 2010 census.

The number of people still receiving benefits after an initial week of aid fell 40,000 to 4.65 million in the week ended April 10, the Labor Department said. However, it was less than market expectations for a fall to 4.60 million and the prior week's figure was revised up.

FOOD PRICES BOOST PPI

In a second report, the department said prices paid at the farm and factory gate increased 0.7 percent following a 0.6 percent drop in February on strong food and gasoline costs.

The Labor Department said 70 percent of the increase in wholesale prices in March was due to a 2.4 percent jump in consumer foods, the largest rise since January 1984. Gasoline prices rebounded 2.1 percent from a 7.4 percent fall in February.

Still, inflation pressures remain benign. Stripping out volatile food and energy costs, core producer prices gained 0.1 percent in March after rising by the same margin in February.

Government data last week showed consumer prices barely increased in March. A combination of benign inflation pressures and excess resource slack in the economy support the U.S. central bank commitment to low interest rates.

The Fed will hold a regular two-day policy meeting on Tuesday and Wednesday next week.

Markets had expected producer prices to rise 0.4 percent.

The data had little impact on U.S. financial markets, which were watching developments in Greece for direction.

U.S. stocks fell as new budget deficit data on Greece fanned fears about that country's ability to raise enough money to meet debt payments. U.S. government debt prices rose modestly and the dollar hit a one year high against the euro.

EXISTING HOME SALES JUMP

In a separate report, sales of previously owned home rose 6.8 percent to an annual rate of 5.35 million units in March as Americans rushed to take advantage of a tax credit for home buyers, the National Association of Realtors said.

Despite the rise, activity remained severely depressed from levels preceding the country's sharpest housing downturn in modern history. High home vacancies are constraining rentals, helping to put a lid on inflation.

"We're reinforcing the case that we're getting a gradual bottom in housing. Despite that, enthusiasm will be tempered by the prospect of more foreclosures ahead," said Jim Awad, managing director at Zephyr Management in New York.

In another report, U.S. home prices fell 0.2 percent on a seasonally adjusted basis in February and dropped 3.4 percent in the year, the Federal Housing Finance Agency said on Thursday.

The regulator's price index, calculated using purchase prices of homes financed with mortgages that have been sold to or backed by Fannie Mae (FNM.N) or Freddie Mac (FRE.N), has fallen 13.3 percent below its April 2007 peak.

(Additional reporting by Pedro da Costa in Washington and Lynn Adler in New York)
Read more!

Washington Mutual created 'mortgage time bomb,' Senate panel says

The failed bank made subprime loans it knew were likely to go bad and then packaged them into risky securities, Senate investigators say.
By: Jim Puzzanghera and E. Scott Reckard: latimes.com
Before Washington Mutual collapsed in the largest bank failure in U.S. history, its executives knowingly created a "mortgage time bomb" by making subprime loans they knew were likely to go bad and then packaging them into risky securities, a congressional investigation has found.

In some cases, the bank took loans in which it had discovered fraudulent activity - such as misstated income by borrowers - and rolled them into mortgage securities sold to investors without disclosing the fraud, according to the report released Monday by the Senate's Permanent Subcommittee on Investigations.

The actions were driven in part by greed, according to the committee report, which pointed out that WaMu's pay practices rewarded loan officers and processors based on how many mortgages they could churn out.

The new disclosures could give a boost to efforts by President Obama and congressional Democrats to pass sweeping overhaul of financial regulations, which the Senate is set to consider this spring, said Sen. Carl Levin (D-Mich.), the subcommittee's chairman.

"Washington Mutual built a conveyor belt that dumped toxic mortgage assets into the financial system like a polluter dumping poison into a river," Levin said. "Using a toxic mix of high-risk lending, lax controls and destructive compensation policies, Washington Mutual flooded the market with shoddy loans and securities that went bad. . . . It is critical to acknowledge that the financial crisis was not a natural disaster, it was a man-made economic assault."

WaMu's failure is also under investigation by the Justice Department. The Seattle-based thrift, which was seized by federal regulators in September 2008 and sold to JPMorgan Chase & Co. for $1.9 billion, had nearly a third of its 2,200 branches in California and was a major player, along with rival Countrywide Financial Corp., in helping fuel the state's housing boom.

According to the Senate report, WaMu executives were aware in 2006 of problems at its Southern California subprime unit, Long Beach Mortgage Co. Excerpts of internal e-mails and reports offer a stark and unvarnished view of the warning signs that were dismissed as the bank tumbled toward failure.

The company's chief risk officers called Long Beach Mortgage, the subprime subsidiary the firm used to stage its rapid growth in home lending, "a real problem for WaMu." Stephen Rotella, WaMu's former chief operating officer, described the unit as "terrible."

"Short story is this is not good," David Schneider, WaMu's former president of home loans, wrote in a December 2006 e-mail. "We are all rapidly losing credibility as a management team."

Long Beach Mortgage was founded by the late Roland E. Arnall, a West Los Angeles billionaire who later built Ameriquest Mortgage Co. and its sister companies into the nation's largest subprime operation.

Washington Mutual acquired the bulk of Long Beach Mortgage - the part that offered loans through brokers, not through its own employees - in 1999.

Long Beach Mortgage's lending reflected the general disintegration of standards across the industry, said Paul Muolo, executive editor of National Mortgage News and co-author of "Chain of Blame," a 2008 book about the mortgage meltdown. Companies such as Orange-based Ameriquest, Irvine's New Century Financial Corp. and San Jose's First Franklin Financial Corp. competed for ever riskier subprime loans that Wall Street banks transformed into mortgage bonds and sold around the world.

"It's hard to say which lender went berserk first," Muolo said, as the subprime rivals wound up adopting the philosophy "If he or she breathes, we will make the loan."

The subcommittee's investigators, who conducted more than 100 interviews and depositions and collected 50 million documents, found that Washington Mutual jumped headlong into subprime and other risky lending in 2003 to increase profits.

The company and its Long Beach unit "used shoddy lending practices . . . to make tens of thousands of high-risk home loans that too often contained excessive risk, fraudulent information or errors," according to a subcommittee memo.

Internal company documents highlighted the profit pressures. "In 2007, we must find new ways to grow our revenue. Home Loans Risk Management has an important role to play in that effort," read a late 2006 message from the unit's chief risk officer to the risk management team.

Adding to the problems, WaMu and Long Beach Mortgage frequently steered borrowers who qualified for prime loans into subprime loans, the subcommittee found. WaMu then spread the risk of those loans and riskier ones to investors by packaging the subprime loans into $77 billion worth of securities it sold to investors, the panel found.

"At times, WaMu selected and securitized loans that it had identified as likely to go delinquent," the report said.

A June 2008 review by the bank's main regulator, the Office of Thrift Supervision, found a "culture focused more heavily on production volume rather than quality."
Top employees could become members of the company's President's Club, which offered lavish, all-expense-paid trips to Hawaii or the Caribbean, the subcommittee found.

Levin said the findings showed the need for a new consumer financial protection agency, which Obama has proposed as part of his regulatory overhaul, to stop lenders from preying on borrowers. "The bottom line is that WaMu had poor policies, poor controls, inadequate oversight of its loans [and] turned out toxic mortgages that sunk the bank, devastated homeowners and polluted the financial system like a poison," Levin said. "This was a Main Street bank that got taken in by these Wall Street profits."

JPMorgan, which acquired WaMu, had no comment on the report.

On Tuesday, the Senate subcommittee launches a series of hearings looking at WaMu's 2008 failure as a case study of the financial crisis. Former WaMu executives are scheduled to testify Tuesday, with testimony Friday from regulators and later this month from credit rating firms and investment banks that also contributed to the bank's problems.

A report to be released Friday from the inspectors general of two agencies that regulated WaMu - the Office of Thrift Supervision and the Federal Deposit Insurance Corp. - is expected to fault the regulators for their oversight of the bank.
Read more!

Tax Credits, Shoppers Lift Home Prices

County median rises 4 percent in March after two-month slide.
By: Joel Russell: labusinessjournal.com
L.A. County’s median home price rose 4 percent in March after two months of declines.

The combination of federal tax credits and seasonal trends pushed up the median price of a Los Angeles County home 4 percent in March.

The median’s rise to $340,000 marks a turnaround after two successive months during which sales and prices slumped, nipping a nascent recovery begun in the second half of last year.

Many economists have attributed the strengthening of the housing market to the decision to extend until April 30 federal tax credits that had been scheduled to expire Nov. 30. The credits offer $8,000 to new home buyers and $6,500 to repeat buyers; they sparked a flurry of sales late last year.

“National housing sales have collapsed in the last three months after the stimulus package wore off,” said Christopher Thornberg, founding principal at Beacon Economics in Inglewood. “Now, again, you have these policies to restrict supply and stimulate demand in the market.”

In March, there were 4,849 homes sold in the county, an increase of 6.8 percent from February, after adjusting for the number of selling days per month as collected by HomeData, a Hicksville, N.Y., housing data firm. The median price is $13,000 higher than February, but lower than the December 2009 median of $348,000.

Geographically, sales activity in March was widespread, with ZIP codes in Lancaster, Compton, Pico Rivera, Bellflower and Granada Hills each showing more than 40 homes sold. Surprisingly, wealthy neighborhoods in Palos Verdes Estates, Calabasas and Beverly Hills also showed strong activity after years of dormancy.

“The traditional market weak spot – homes in the $1 million-$2.5 million range – has come back to life,” said Tom Dunlap, general manager at Prudential California Realty in Beverly Hills. “There is a lot of cash parked on the sidelines and the price is coming down now to where people who have been watchful are coming off the sidelines.”

Leslie Appleton-Young, chief economist at the California Association of Realtors in Los Angeles, sees the movement in luxury homes as the next phase in the recovery of the housing market, which started its collapse as subprime loans soured. The problems took longer to reach affluent home buyers, who had enough assets and income to wait out the market. But now even the owners in swanky neighborhoods need to sell and have dropped their asking prices significantly, especially as job losses have taken their toll on all wage groups.

“You’re seeing values at the high end,” Appleton-Young said. “Also, the spread of foreclosures starting a year ago has affected the high end. You’re seeing more nondiscretionary sellers now than earlier in the recession.”

David Jervis, a broker at Century 21 Jervis & Associates in Downey, said large homes in his market that previously fetched $2.5 million now sell in the $800,000-$1.1 million range.

“Typically, the people who sell are those who need to sell,” said Jervis, who specializes in selling bank-owned properties.

For homes selling for less than $550,000 that qualify for Federal Housing Administration-backed loans, “as soon as the property hits the market, we see a minimum of 10 offers and as many as 20,” he said. “People are overbidding each other up to 12 percent above asking price because there’s so little sellable inventory.”

Jervis believes the expiration of the federal tax credits shouldn’t slow demand for homes as long as banks don’t flood the market with their full list of foreclosure properties and other elements in the market remain stable, particularly liberal FHA loan terms.

In the L.A. condominium market, the number of units sold in March totaled 1,777, a gain of 2 percent compared with February after adjusting for the number of selling days each month. The median condo price in March was $300,000, a 1.7 percent rise compares with February.

Read more!

Obama administration adopts get-tough stance on mortgage bias

The Justice Department takes aim at brokers who overcharged minority applicants for loans during the housing boom, along with the companies that purchased those loans.
By: Kenneth R. Harney: latimes.com
A new Obama administration get-tough policy on home mortgage discrimination is drawing kudos from consumer advocates, along with expressions of serious concern from lawyers who represent lenders and brokers.

In a settlement last month with two subsidiaries of ailing insurance giant American International Group Inc., the Justice Department took aim at one of the most controversial practices of the housing boom years: National subprime mortgage lenders originated billions of dollars in high-interest-rate loans through local brokers who sometimes hit African American and other minority applicants with excessive loan charges.

Mortgages extended to African Americans often carried higher fees than those paid by white subprime applicants - even when the borrowers' credit profiles and other factors were roughly the same. But did these disparities in fees open those lenders who purchased the loans from local brokers to legal attack?

Weren't the higher fees solely the result of predatory pricing by individual brokers operating independently of their wholesale lenders? If a broker charged African Americans higher fees than whites, wasn't this violation of fair lending laws on the broker's shoulders?

The Obama administration gave a resounding answer to that question: no. The consent order requires AIG's subsidiaries to pay $6.1 million to about 2,500 African American borrowers, or an average of $2,300 in cash restitution for overcharges per loan.

The companies are also required to spend at least $1 million on consumer financial education programs. None of the firms admitted wrongdoing as part of the settlement. AIG Federal Savings Bank and Wilmington Finance Inc. no longer are involved in the wholesale mortgage market. AIG took a $182-billion bailout from the government in 2008 and is in the process of reorganizing its business activities. No individual mortgage brokers were cited in the case.

The core message here, according to Justice Department officials: Lenders who use independent brokers to originate mortgages cannot ignore what those brokers are doing to their minority customers. They will be held responsible for civil rights violations because they should have been monitoring their broker networks for signs of discriminatory pricing - which should be detectable by examining loan packages and performing statistical analyses.

Assistant Atty. Gen. Thomas E. Perez said: "Discriminatory practices by lenders, brokers and other players contributed to our nation's housing crisis and economic meltdown. Lenders who looked the other way and ignored the discriminatory practices of brokers must be held accountable."

Perez warned that many other lenders who use broker networks could also be vulnerable to legal actions.

Community groups and civil rights advocates hailed the settlement as a huge step forward.

"It's a new day for borrowers," said David Berenbaum, chief program officer for the National Community Reinvestment Coalition. "Borrowers should see fewer backdoor pricing abuses" - especially the bloated fees, interest rates and unequal underwriting standards that were commonplace during the housing boom years.

But some mortgage industry groups and lawyers who specialize in financial issues disagree. They contend that holding giant wholesale lenders responsible for illegal acts they did not themselves commit not only is unfair but also will do long-term harm to all borrowers.

"We absolutely oppose discrimination in any form," said Roy DeLoach, chief executive of the National Assn. of Mortgage Brokers. "But we think the government's target should be the persons who actually do the discriminating" - in this case, individual, local brokers - not the lenders who acquired the loans with no knowledge of the discriminatory fees.

DeLoach argues that the administration's approach will discourage some lenders from dealing with brokers in general, thereby reducing competition in the marketplace, especially in areas with significant minority populations.

Paul F. Hancock, a partner with the law firm K&L Gates who served for 20 years in the Justice Department's civil rights division and was a deputy attorney general in Florida, says the AIG settlement "is really stretching the law, maybe even going beyond the law" by holding lenders responsible for the actions of independent brokers.

Bottom line for consumers: Look for more fair lending settlements, more financial restitution and much closer supervision of loan officers - whether they're on lenders' staffs or independent brokers - to ensure that every mortgage applicant gets equal treatment.
Read more!

Two Energy Credits To Trim 2010 Taxes

Two energy tax credits hold appeal both for true green diehards and those who are staying put due to housing market doldrums.
By: LAURA SAUNDERS: wsj.com
Still smarting from your 2009 taxes, due in a few days? Start whittling the bill for next April.

A good place to begin: two federal tax credits for homeowners who want to save energy, one of which expires at the end of this year. The credits have appeal both for true green diehards and those who are staying put due to housing market doldrums.

The credits took effect in their current form in February 2009. Both offer dollar-for-dollar write-offs against taxes, not just a deduction from income. And unlike many tax benefits, there are no income limits on who can use them.

Yet experts say many people are still unaware they exist. Bill Shaw, a remodeler in Houston, says his best marketing has been done by—of all people—tax preparers. "Since January, my phone has been ringing off the hook with people whose accountants told them" about the credits, he says.

The smaller benefit, known as the Residential Energy Property Credit, will appeal to a broader swath of taxpayers. It applies to 30% of the cost of retrofitting an existing home to save energy, up to $1,500. That means you have to spend $5,000 to receive the maximum credit. This benefit expires at the end of 2010, and amounts claimed in 2009 count toward the $5,000 total.

Items that qualify include insulation, windows, doors, roofing, hot water heaters and air-conditioning systems. Not included: ceiling fans or window air-conditioning units. Installation costs are permitted for some items but not others (see chart below). The Internal Revenue Service recently said that qualified items installed in an addition to an existing house also are eligible.

The other credit, known as the Residential Energy Efficiency Property Credit, is far more generous but typically requires greater expense and commitment to green living. It is for 30% of the total cost of items such as solar panels, windmills and geothermal heat pumps, and the credit amount is unlimited. It expires at the end of 2016.

Jeremy Skogquist, an executive with NIH Homes in the Minneapolis area, says he has sold more than a dozen $25,000 packages in the past year tied to this credit. The package offers a geothermal system to store water for heating and cooling deep in the ground where the temperature is a constant 52 degrees. "The tax credit cuts my clients' payback time to about four to five years from six to eight at current rates," he says.

Far to the south, Houston architect Kathleen English is using both credits to save nearly $15,000 on the cost of a "green" house she is rehabbing for her family. In addition to a geothermal system, it will have solar panels, special insulation, a reflective roof and energy-efficient windows. She is springing for solar panels now, hoping that her local utility at some point will pay homeowners to feed excess power back into the grid.

If you want to use either credit, do your research. The specifications for what is eligible are precise and stringent. For example, some Energy Star-rated items qualify for the credit while others don't. Taxpayers claim either credit on Form 5695, and for your records you should keep the manufacturer's certification that the component is eligible. (Many contractors, like Bill Shaw, will help with the paperwork.)

Those planning to upgrade windows may want to wait a bit, because a pending bill expected to pass Congress in the next few months would expand the law to include all Energy Star windows, whereas only some are currently allowed. The provision should take effect 90 days after enactment.

Comprehensive information about eligibility is available on the National Association of Home Builders Web site and from the IRS. Retailers like Home Depot and Lowe's also provide useful guides. For a listing of separate state and local energy tax incentives, see www.dsireusa.org.
Read more!

Evoluciona el movimiento verde en la Isla

Según el doctor Abruña, no se puede negar que se están dando pasos, pero el camino es todavía extenso.
By: Raisa Rivas Español / Especial para Construcción: elnuevodia.com
Si usted piensa que la construcción verde es una moda del Siglo XXI, o simplemente una tendencia nueva y pasajera, se equivoca. Pero más aún, le sorprenderá saber que en la Isla se han hecho innumerables esfuerzos desde hace tres décadas.

“Si bien es cierto que si nos comparamos con el resto del planeta, estamos en una etapa casi embrionaria y nos falta muchísimo por desarrollar, también lo es que hemos dado pasitos y que cada vez hay más profesionales multidisciplinarios interesados genuinamente en el tema”, dijo el arquitecto Fernando Abruña, quien es el primero a quien se asocia con la arquitectura verde en la Isla.

Esa conexión “Abruña-Arquitectura Verde” no es casual. Lleva más de 35 años practicando la profesión y desde que comenzó tenía tanto interés en el tema que en el 1980 publicó su libro “Fresco Gratis”, donde exponía ideas para usar la naturaleza al ambientar los edificios.

“Tenemos que remontarnos a 1973. A grandes rasgos, el despertar fundamental se inició a raíz del embargo petrolero de esa época, que dio como resultado el aumento exagerado de los precios del petróleo y la histeria de la gente. Una de sus consecuencias más conocidas fue la caída de la industria de la construcción y el increíble aumento de los intereses hipotecarios, pero también esa crisis tuvo un efecto de crear conciencia de la cantidad de energía que consumía el mundo occidental”, explicó Abruña.

A raíz de ese momento histórico que abrió los ojos al mundo, se hicieron grandes esfuerzos para identificar estrategias de ahorro de energía, como sellar herméticamente las ventanas de los edificios para que no se escapara el frío o el calor, dependiendo del área donde estaban construidos. Sin embargo, el remedio resultó peor que la enfermedad, porque se dieron cuenta que el aire del interior de esos edificios se viciaba, dando como resultados los temidos hongos en las propiedades.

Más tarde (en 1976) se añadió otro evento importante, que fue el caso de la legionelosis, una enfermedad bacteriana que puede producir neumonía. Una epidemia de esta enfermedad afectó a los participantes de una convención estatal de la Legión Americana y, por esto, se le dio el nombre de ‘enfermedad de los legionarios’. Se encontró que los brotes de legionelosis aparecen en diversos tipos de sistema de agua, como por ejemplo, los procedentes de torres de agua para refrigeración de acondicionadores de aire.

“Podemos decir que esos eventos dieron paso a la arquitectura verde, que es una vertiente que incluye la búsqueda de la calidad del ambiente interior’, abundó el arquitecto y profesor universitario. “Es una combinación de ver cómo conservamos la energía, pero a la vez logramos un ambiente adecuado y saludable”, dijo.

Más tarde, dos desastres ambientales siguieron abonando al movimiento que ya se había iniciado: el petrolero Exxon Valdez, en 1989, que derramó en el Prince William Sound en Alaska, más de 37,000 toneladas de crudo al Océano (la peor tragedia ecológica en la historia de ese estado), y el desastre ambiental de Chernobyl, en Ucrania, en 1986. Éste tuvo un componente adicional, pues se vio que la nube radiactiva se extendió a otros países, ya que se estimó que la cantidad de material radiactivo liberado fue unas 500 veces mayor que la bomba atómica de Hiroshima. La magnitud del daño causado contribuyó a que la gente entendiera que el problema ambiental que sucede en una región del mundo puede afectar a todo el planeta.

Posterior a esa etapa, se inicia el Departamento de Energía Federal y más tarde en la Isla, la Oficina de Energía de Puerto Rico, para promover las fuentes de energía alternas. Esa oficina pasó luego al Departamento de Asuntos al Consumidor (DACO) y eventualmente se constituyó en la Administración de Asuntos de Energía que ahora se llama Administración de Asuntos Energéticos.

“Ha pasado el tiempo, pero sigue existiendo un denominador común: tiene un presupuesto irrisorio”, expresó el experto.De acuerdo a Abruña, en la Isla hay un problema adicional al del pobre presupuesto, pues todos los combustibles son fósiles, lo que implica que por persona se abona grandemente al calentamiento global. “Desde el punto de vista per cápita, tenemos la triste distinción de ser uno de los líderes en consumo y generación de CO2, y aunque hay diferentes estadísticas para decir cuánto es dicho consumo, el promedio está entre las 12 a las 22 toneladas por persona. Una cantidad exorbitante”.


SOSTENIBLE, SUSTENTABLE, VERDE Y ECOLÓGICO

Los cuatro son términos que se utilizan, aunque sostenible es el correcto desde el punto de vista de la academia, según Abruña, quien dice que, no obstante, todo lo que falta por hacer, afortunadamente ha visto un cambio sustancial en esa materia en los últimos diez años.

Un ejemplo de esto es que cuando fundaron e inscribieron el Capítulo de Puerto Rico y el Caribe del US Green Building Council (entre 2004 y 2005) estaba formado ‘por dos o tres personas’. Ahora ha visto con gran satisfacción un dramático crecimiento en los miembros. Al grupo se han unido profesionales de diferentes ramas de la construcción incluyendo ingenieros, corredores de bienes raíces, arquitectos y tasadores, una prueba fehaciente del interés que despierta el tema para Abruña, quien fue su primer presidente y sigue siendo parte de la Junta de Directores.

En cuanto a la construcción de propiedades que reúnan los criterios de ‘vivienda sostenibles’, Abruña quiso dar un paso al frente y predicar con el ejemplo.

“Comencé a diseñar casas ecológicamente sostenibles desde que entré en la Universidad de Puerto Rico en la década de 1970. Diseñé varias casas que por diferentes razones nunca se construyeron, pero me quedé con el saborcito de hacerlas, pues creía firmemente en este concepto’, y el sueño largamente acariciado se hizo realidad contra viento y marea.

En el 2000 construyó en Vega Alta la ‘Casa Ausente’, una propuesta tan revolucionaria que se hizo famosa no sólo en Puerto Rico, sino también internacionalmente. Construida originalmente para él vivirla, esa construcción fue considerada la primera casa ecológica de la Isla. En ella se dio el gusto de aplicar todas las teorías en que creía, con la que en esencia quería demostrar que se puede vivir en un lugar sin dañar al ambiente, y de una manera costo accesible.

En el 2001, participó en otro proyecto de envergadura, con grupos estudiantiles y profesionales no sólo de la Escuela de Arquitectura de la Universidad de Puerto Rico sino también del Recinto Universitario de Mayagüez.

Diseñaron y construyeron la Casa Solar, que los llevó al primer evento del Décalo Solar en Washington.

¿Un esfuerzo costoso?

Hay un principio equivocado de que este tipo de construcción es sólo para millonarios o al menos personas muy adineradas. ‘Es erróneo. Puedes tener un edificio verde, bien orientado, con el uso de materiales apropiados. Hay muchas oportunidades de diseñar edificios que no sean impactados grandemente desde el punto de vista de costo, y parte de nuestra misión es seguir educando a la ciudadanía y a los profesionales’.

Abruña otra vez quiso pasar de la teoría a la práctica para dar un ejemplo real de que se podían construir casas con los criterios sostenibles, pero económicas. “En el 2004 diseñamos un modelo con esas especificaciones, pero nos tomó varios años más para encontrar quién se enamorara del proyecto. Lo logramos con los empresarios de Villas Miantojo”. El año pasado terminó para esa empresa la Casa Solaria, un prototipo que está en la Universidad del Turabo.

‘Tenemos que hacer un cambio bien radical de la manera en que construimos. Se estima que para el 2030 los edificios deberán ser ‘carbón neutral’ o neutros en emisiones de CO2, porque, de otra manera, el asunto del calentamiento global se va a agudizar dramáticamente. Parte del calentamiento global tiene que ver con la construcción y, según muchos expertos, el problema del calentamiento va a ser más sombrío que lo que pinta Al Gore en su documental ‘Una Verdad Incómoda’, por el que ganó el Nóbel de la Paz’.

Según el doctor Abruña, no se puede negar que se están dando pasos, pero el camino es todavía extenso.
Read more!

Haga la diferencia...

Son muchos los que se preguntan qué pueden hacer para poner su casa verde, es decir, un hogar que utilice menos energía y agua, se produzca menos basura y sea más saludable para vivir.
By: Raisa Rivas Español / Especial para Construcción: elnuevodia.com
A continuación, se aclaran varias dudas, dependiendo la magnitud de los cambios.

Mitos y realidades

MITO: Si mi casa fue construida sin los estándares verdes, no podré arreglarla.

REALIDAD: Falso. Aunque es todo un proyecto y requiere su compromiso, podrá lograrlo. Debe empaparse de todos los detalles, incluyendo los materiales usados en la construcción y el tipo de pintura que se usó. Esta última es uno de los elementos que más puede afectar su salud.


MITO: Estando en casa, estamos protegidos de la contaminación del aire.

REALIDAD: Sí está protegido del aire exterior, pero el de su casa puede ser más dañino que el de afuera. ¿Cómo? Teniendo los abanicos, acondicionadores de aire y los filtros sucios; usando detergentes no recomendados y pintura dañina a su salud. Los abanicos de los baños o extractores que no funcionan causan humedad que puede crear hongos. Hasta los muebles pueden tener componentes dañinos a su salud. Algunos de estos factores causan condiciones crónicas.


MITO: Una casa verde es más costosa que una que no lo sea.

REALIDAD: Dependiendo de lo que escoja, la realidad es que, inicialmente, podría invertir más, pero no sólo verá reducciones en su factura de luz y agua mensualmente (lo que ya es un ahorro), sino que las probabilidades de enfermarse de ciertas condiciones, como las respiratorias son menores.


MITO: En Puerto Rico no se consiguen los productos para poner mi casa verde.

REALIDAD: En la Isla puede encontrar desde los accesorios para el baño y cocina ecológicamente amigables, hasta los enseres para toda la casa, con el sello de ‘Energy Star’. Pregunte en su tienda o ferretería favorita y busque en Internet.
Read more!

Speeding Up Short Sales

This week, new federal rules were implemented to expedite and streamline the short sale process–but not every short sale qualifies.
By: JUNE FLETCHER: wsj.com
Q: When I bid on a short sale, why does it take months to hear back from the seller's lender, even though the offer is close to the broker's price opinion? Would it speed things up if I added a provision that the offer becomes invalid after three months, or some other time period?

—Mountain View, Calif.
A: You won't need Zen-like patience to wait for a lender to approve your short sale bid any longer. That's because this week, new federal rules were implemented to give lenders financial incentives to expedite and streamline the short sale process.

But bear in mind that these rules don't cover all loans: Only those that aren't guaranteed by Freddie Mac or Fannie Mae, which have their own short-sale procedures. Moreover, the homeowner must be behind in payments or at risk of default; the unpaid principal balance must be equal to or less than $729,750, and the total mortgage monthly payment must be greater than 31% of the borrower's income. So if you're looking to buy someone's McMansion or vacation home, you may still face a lengthy wait.

For all these properties that don't fall under the new federal guidelines, the process is still likely to remain grueling, simply because it's complicated: Sellers have to document hardship. Brokers need to offer their opinion of the property's current value, based on comparable sales. Lenders need to determine whether their net proceeds from the short sale would exceed what they'd get if the property went into foreclosure, and must make sure that the proposed transaction is "arm's length" (that is, that the buyer isn't a friend or relative of the seller, or worse, a "rescue scammer," that is, someone who promises to "save" your house if you sign over the deed, or who promises to negotiate with your lender on your behalf for a fee. And all parties to the original loan, including investors who own even tiny pieces of it (there may be a long list), servicers and private mortgage insurers must sign off on the sale.

Furthermore, sometime during the process, one of the parties who are being asked to take a loss may insist that the sellers take a personal note to cover some of the debt after the sale goes through. In that case, the sellers may decide to let the property go into foreclosure instead of proceeding with the sale. Or the sellers' circumstances may change—for instance, they may go into bankruptcy—which could delay or halt the sale.

During this entire ordeal, the paperwork is handled by the lender's loss mitigation department, which is undoubtedly swamped with applications. Short sales are the number one category of distressed property, rising to 17.1% of all sales in February, according to the latest Campbell/Inside Mortgage Finance Survey.

So putting a time limit to your offer isn't going to do you any good. It's better simply to look for short-sale properties that fall under the federal guidelines or to concentrate on "pre-approved" properties that are being handled by experienced negotiators.
Read more!

FBI probes L.A. Housing Department’s actions in apartment project for homeless seniors

The FBI is investigating an affordable-housing deal in which Los Angeles officials channeled $26 million to a developer who they knew was under criminal investigation for alleged misuse of public funds, city officials said Thursday.
By: Jessica Garrison at Los Angeles City Hall: latimes.com
The developer, David Rubin, was indicted last fall in New York for alleged bid-rigging and fraud, charges unconnected to the L.A. project.

The $26 million went toward construction of a 92-unit apartment building near downtown L.A. for disabled homeless seniors. It has sat empty since October while its prospective tenants live in shelters or substandard housing.

The city's Housing Authority, concerned about irregularities in the deal, has refused to release money that would pay the tenants' rent. Without that rental income, the developer could be forced into default. In turn, the city could be on the hook for millions of state and federal dollars that it helped arrange for the developer, City Controller Wendy Greuel said in an interview Thursday.

The controversial deal came to light in an audit released by Greuel's office. FBI agents have requested notes and documents gathered during the audit, the controller's office said.

The agency involved in the deal is the Housing Department, which oversees compliance with rent control laws and aids construction of privately run, affordable apartments. The Housing Authority, a separate agency, manages federal Section 8 rental vouchers and city-owned housing projects.

The audit found that in 2008, Housing Department officials "blatantly disregarded information that ... one of the partners was under federal investigation."

Officials "then chose not to share this information with the city attorney or other stakeholders," Greuel said in a letter to Mayor Antonio Villaraigosa and other city leaders.

The audit does not accuse any city officials of criminal behavior, or allege that the $26 million was misspent.

Doug Guthrie, the newly appointed head of the Housing Department, said he was working to find a way to "get these people housed."

Guthrie succeeded Mercedes Marquez, who headed the agency when the deal was made.

"We are left today with a much-needed project [that] sits empty," Greuel said, calling it "a fiasco."

Officials in the housing department, she added, "appeared to act in the developer's best interest, as opposed to the best interest of the city and the taxpayers."

Rubin could not be reached for comment. His attorney, Donald Etra, was not immediately available. Marc Gelman, chief executive of Enhanced Affordable, said the company had done nothing wrong, adding that it has severed ties with Rubin. Gelman blamed squabbling city agencies for keeping homeless seniors from moving in to the new building, and said he might sue the city for not releasing the rent money.

"I have an empty building that every day costs money to operate, pay the debt ... a minimum of a few thousand dollars a day," Gelman said. "And these poor homeless people, we have them coming to our office, our building, on a daily basis."

Added Rudolf Montiel, the head of the Housing Authority: "It is reprehensible that public officials would aid and abet in the misuse of federal dollars. ... Unfortunately, the tenants are the ones who are bearing the brunt of the misdeeds of this developer."
Read more!

Calif. lawmakers approve foreclosure tax-relief measure

The bill would waive state taxes on mortgage debt that has been forgiven in a foreclosure or short sale and could affect some 34,000 taxpayers.
By: Patrick McGreevy: latimes.com
Legislature approves tax break for people in foreclosures, short sales.
The measure, which is expected to be signed by Gov. Schwarzenegger, would waive state taxes on mortgage debt that has been forgiven in a foreclosure or short sale.

Thousands of Californians whose homes were foreclosed on or sold at a loss will likely get tax relief under a measure approved Thursday by the state Legislature.

The bill would waive state taxes on mortgage debt that has been forgiven in a foreclosure or short sale. It is expected to affect about 34,000 taxpayers.

Gov. Arnold Schwarzenegger is expected to sign the measure, which would also provide about $60 million in tax credits to green-energy companies, so people can take advantage of it by the April 15 deadline for tax returns.

Californians can already claim the tax breaks on federal returns. "This is a great example of what we can accomplish when we work together to solve problems for Californians," said Schwarzenegger spokesman Aaron McLear. "This bill will protect homeowners from unfair taxes and encourage California solar companies to expand and create jobs."

The short-sale provision would mean about $34 million less in tax revenue for the state over three years, according to the Franchise Tax Board.

Other parts of the measure, SB 401 by Sen. Lois Wolk, D-Davis, would increase penalties and interest payments on some tax bills. Republicans called that a tax increase, and several GOP members of both houses voted against the bill, which was opposed by the Howard Jarvis Taxpayers Assn.

As the real estate market has slumped, many Californians have found themselves owing much more on their mortgages than their homes are worth. Some have walked away, resulting in foreclosure, or asked their lender to approve a short sale, in which a home is sold for less than the debt, some of which is waived.

The amount waived has been considered taxable income under California law; the measure passed Thursday would eliminate that tax when a bank agrees to accept less than what is owed on a home.

The governor vetoed a similar bill last month because it included a provision, since removed, that would have increased penalties against businesses and wealthy individuals who abuse tax credits.

Business groups including the California Chamber of Commerce and Western States Petroleum Assn. complained that the provision would have made businesses reluctant to claim the tax breaks for fear of making a costly error. The businesses also said California's tax penalties were already tougher than those enforced in other states.

Wolk said the penalties would not have applied to honest mistakes.

The "green" state credits are a response to the federal American Recovery and Reinvestment Act, which provides grants to firms for power plants that produce renewable energy.

The federal government does not tax the grant money. Under the bill approved Thursday, California would provide similar relief.
Read more!

Calpers to Bow Out of Condo Project in Venice

Pension fund had pushed partner to reduce unit prices.
By: Daniel Miller: labusinessjournal.com
The upscale Dogtown Station condominium project at 700 Main St. in Venice has had an interesting year.

The 35-unit project was completed in January 2009, right as the recession was kicking into high gear. The developer, RAD Ventures LLC, managed to close seven of 20 pre-sales. However, sales ground to a halt in spring of that year, and the Venice development company’s equity partner, California Public Employees’ Retirement System, sought to push things forward.

“They would have been happy to accelerate sales and get out of the project and move on. I am more interested in taking my time,” said RAD Managing Partner Robert D’Elia, who opted to not lower prices, which range from $575 to $600 per square foot. “It’s a delicate balance between maximizing price and the cost of money.”

Now, though, the $40 million project is undergoing changes.

D’Elia is in the process of buying out the pension fund’s stake, in addition to getting a new mortgage, allowing him to replace lender iStar Financial Inc. D’Elia said specifics of the deals couldn’t be disclosed because they were still being finalized.

Meanwhile, Dogtown has found some success with a marketing campaign that highlights how the units can serve both as residences and offices. Units are built with open floor plans and include rooftop patios or balconies. The high ceilings and loft layouts have attracted live-work occupants.
“Our marketing has been geared almost exclusively toward the entertainment industry,” said Charlotte Bjorlin D’Elia, the developer’s wife and managing partner of RAD Marketing L.A., which is handling the marketing.

The company has sold seven more units since the campaign started and another five are in escrow. Bjorlin D’Elia said that 75 percent of buyers have said they will use the lofts as live-work spaces. Owners include artists; producers; and actors, such as Dylan McDermott, who will house his production company there.

A spokesman for the pension fund said it doesn’t comment on properties managed by partners. Stockbridge Real Estate Funds, which manages the investment on behalf of the pension fund, did not return calls seeking comment.

Lender Sells

A 16-unit Panorama City condo building operating as a rental property has been sold for $3.75 million. Tobias Group LLC, a partnership of two L.A. real estate investors, purchased the building from bridge lender Lone Oak Fund LLC.

The Brentwood lender took ownership of the 9201 Tobias Ave. property in May 2009 after foreclosing on the former owner. Tobias paid $3.75 million, or $234,375 per unit.

Charles Dunn Co. broker Michel Hibbert, who represented both parties, said the March 12 transaction wouldn’t have happened if Lone Oak didn’t provide the buyer with a loan on favorable terms. Tobias was required to put down only 15 percent of the purchase price, with the remainder financed. Other lenders likely would have required a 30 percent down payment, he said.

Gerald Ducot, Lone Oak co-founder and principal, said his company acted aggressively because it dislikes keeping properties acquired through foreclosure. The firm has sold five such properties since 2009.

Hibbert said that Tobias will sell the units as condos once the market turns, though that could take as long as seven years. The units all have three bedrooms and average about 1,600 square feet.

Investor Jeff Bazyler of Tobias declined to comment.

Local Hiring

Pacific Office Properties Trust Inc., a small real estate investment trust focused on commercial office space, has hired a new chief executive.

The Santa Monica company, which has a 4.7 million-square-foot portfolio, named James R. Ingebritsen its chief executive March 29. He was the firm’s executive vice president in charge of capital markets.

Ingebritsen replaced interim Chief Executive Jay Shidler, chairman of the company. Pacific Office Properties was formed in March 2008 after the merger of the Western U.S. portfolio of Shidler’s company – real estate investment firm Shidler Group of Honolulu – and the Arizona Land Income Corp., another investment company.

“I will be taking on the responsibility of the strategic direction of the company as opposed to day-to-day operation, which is what I was doing previously,” said Ingebritsen, a co-founder and major investor in Pacific Office Properties, which owns a handful of Southern California buildings.

Shares of Pacific Office Properties closed at $4.01 on the NYSE Amex Equities exchange April 1.
Read more!

Pending Home Sales Show Healthy Gain, Hint at Spring Surge

Pending home sales rose in February 2010, potentially signaling a second surge of home sales in response to the home buyer tax credit, according to the National Association of Realtors.
RISMEDIA
The Pending Home Sales Index (PHSI), a forward-looking indicator based on contracts signed in February, rose 8.2% to 97.6 from a downwardly revised 90.2 in January, and remains 17.3% above February 2009 when it was 83.2.
The data reflects contracts and not closings, which usually occur with a lag time of one or two months.

Lawrence Yun, NAR chief economist, said the improvement is another hopeful sign. “The rise in buyer contact activity may signal the early stages of a second surge of home sales this spring. The healthy gain hints home prices are continuing to flatten,” he said. “We need a second surge to meaningfully draw down inventory and definitively stabilize home values.”

The PHSI in the Northeast rose 9.0% to 77.7 in February and is 18.9% higher than February 2009. In the Midwest the index jumped 21.8% to 97.9 and is 18.7% above a year ago. Pending home sales in the South increased 9.2% to an index of 107.0, and the index is 17.5% higher than February 2009. In the West the index fell 4.8% to 98.0 but is 14.6% above a year ago.

“Anecdotally, we’re hearing about a rise of activity in recent weeks with ongoing reports of multiple offers in more markets, so the March data could demonstrate additional improvement from buyers responding to the tax credit,” Yun said.
Read more!

Green Design Trends in 2010

The recession may have you staying put instead of moving up. Let's look at what the experts say are some of the green design trends for your home in 2010.
By: Carla L. Davis: RealtyTimes
The American Institute of Architects reports that "without the rapid appreciation in home values seen between 1995 and 2005, design of kitchens and bathrooms has recently been somewhat more modest.
Functionality is now preferred to more and larger kitchens and bathrooms within U.S. homes. Households are placing a premium on products and features that promote energy efficiency, and adaptability in the use of space for seniors and those with accessibility concerns. ... Integrating kitchens with family space remains a design priority, as does including areas devoted to recycling, pantries, computer workstations, and spaces devoted to recharging laptops, cell phones and PDAs.”

This kind of "reverse growth" is a blessing when it comes to cost savings. The average U.S. household spends around $1,900 a year on utility bills. The U.S. Department of Energy says green ways can cut your bills by up to 25 percent. Functional design is a good place to make big changes.

Some other popular green trends include:

•LED lighting: The abbreviation for "light-emitting diode," these environmentally friendly lights give off the same light as regular 40 watt bulbs, but they last 50 times longer, making them a cost-effective option for lighting your home.

•Water saving toilets: Low flush toilets use only 1 to 2 gallons of water per flush compared to the usual 3 to 5 gallons.

•Renewable flooring: All renewables are not made the same, and a savvy homeowner should explore what option best fits their needs. You can choose from bamboo, natural linoleum, cork flooring, and even wood floors.

Other design trends take us to color. Following the green movement, color choices for 2010 reflect the return to an earthy mentality. Earth tones are very popular, using less dye and chemicals to produce. And while global colors are also popular for design, such as yellow, orange, green, and plum, there is another issue to take into consideration when choosing them.

Green hues may be optimistic and uplifting, but recent studies have shown that the color green -outside of natures - can itself be toxic. According to the New York Times article, The Toxic Side of Being, Literally, Green, "Take Pigment Green 7, the commonest shade of green used in plastics and paper. It is an organic pigment but contains chlorine, some forms of which can cause cancer and birth defects. Another popular shade, Pigment Green 36, includes potentially hazardous bromide atoms as well as chlorine; while inorganic Pigment Green 50 is a noxious cocktail of cobalt, titanium, nickel and zinc oxide."

The best alternative to chemicals, when it comes to paint, could be low and zero voc. As well, a wealth of organic upholstery fabrics are found on the market today. Go green!
Read more!

In Santa Monica, affordable-housing rental agreements are often not enforced

The city is now vowing to crack down after complaints of violations by developers, who have been allowed to exceed zoning restrictions in exchange for offering low- and moderate-income rentals.
By: Martha Groves: latimes.com
For decades, Santa Monica has allowed developers to add floors to their buildings or exceed other zoning restrictions in exchange for providing affordable housing to poor and moderate-income tenants.

Such was the case with Dorchester House, a luxury condominium low-rise just blocks from the Pacific Ocean. Almost three decades ago, the city approved a development plan in which 15 first-floor units were earmarked as affordable housing.

But as real estate attorney Stanley Epstein learned recently, the city has done little to enforce these agreements.

Epstein said he made this discovery when he went to look at a Dorchester House condo earlier this year. He found condo owners living in the income-restricted units instead of renting them to low- and moderate-income tenants.

In one instance, Epstein said, one rental was advertised as $2,000 per month, although the rent-control price would have been about $1,200.

In response to complaints and threats of litigation, the city is vowing to crack down on violators.

City Manager Rod Gould acknowledged that Santa Monica needs "to tighten it up" when it comes to ensuring that developers live up to their requirements to provide affordable housing. Officials are devising a plan "to monitor and ensure compliance," he said.

The city has negotiated 11 such development agreements, and several others are in the works. Currently, 861 deed-restricted residences are on the books, but more are anticipated as the city prepares to adopt a long-range plan that emphasizes development of affordable housing as part of mixed-use and transit-oriented projects.

City officials have declined to say how they plan to respond to allegations regarding the Dorchester House, but in February, the city filed suit against the owners of the Plaza at the Arboretum, a 350-unit complex near Santa Monica's creative office district.

The suit alleges that owners were not complying with a 1998 agreement to provide 97 units for low- and moderate-income tenants. After receiving complaints from tenants, the city conducted an audit and found many violations, including failure to verify tenants' eligibility for affordable housing and to rent to qualified residents.

"This is the first time this kind of case has been brought," said Adam Radinsky, head of the city attorney's office's consumer protection unit. Asked whether the city might seek to evict ineligible tenants, he said: "The initial policy being discussed is a policy to enforce agreements with developers who get the benefit of the bargain."

The owners and managers of the Arboretum named in the lawsuit were BlackRock Realty Advisors Inc., CSHV Arboretum LLC and Riverstone Residential Group.

Epstein has vowed to challenge the city in court if it does not begin to aggressively investigate and enforce the agreements. "If they're going to be too cowardly to do what they're supposed to do, we're looking at litigation," he said. "They have an obligation on behalf of prospective tenants."
Read more!

101 Freeway Park Proposal Ramping Up

Federal lawmaker plays up plan.

COURTESY ART

Artist rendering of proposed Hollywood Central Park atop the Hollywood (101) Freeway.
By: Alexa Hyland; labusinessjournal.com
The idea of creating a public park out of thin air above the Hollywood Freeway may not be a pie-in-the-sky notion anymore.

Rep. Xavier Becerra (D-Los Angeles) has agreed to request $5.85 million to launch planning for the park. That’s viewed as a crucial early step and vote of confidence.

“We were surprised,” said Laurie Goldman, president of the non-profit created to spearhead the effort, Friends of the Hollywood Central Park. “We didn’t think we would make it this round, but we did. It doesn’t mean we will get what we asked for, but it’s a huge first step of many steps.”

The park, which would be built on a concrete cap atop the Hollywood (101) Freeway, has been favored largely by business groups. The money to build the park – estimated at $950 million – would come mainly from foundations.

Of course, there’s no guarantee that the federal funding for planning will win approval. But if it does, it could put the park on a slide toward reality. That’s significant partly because the idea for the park has been viewed by some as a nice concept that probably wouldn’t go anywhere, especially with the downturn in the economy.

The Business Journal first reported the park proposal in October 2006. Don Scott, senior vice president at First Financial Bancorp, told his fellow Hollywood Chamber of Commerce board members about the idea and they adopted it.

The chamber called for a park that would cover from Hollywood to Sunset boulevards between North Bronson Avenue and North Wilton Place. That would mean stretching the park over the freeway on a platform, or “cap,” that would turn the open-air freeway into a tunnel.

Councilman Eric Garcetti led a City Council vote in 2007 that expanded the project, which now would stretch from Hollywood to Santa Monica boulevards and boost the parkland to 44 acres.

The project would generate 4,500 construction jobs in the short term.

Gary Toebben, president and chief executive of the Los Angeles Area Chamber of Commerce, said the park’s biggest economic benefit would be in the long term: The grassy tree-lined area would boost business for nearby establishments and drive the development of new ones.

“Having a park there will do what other parks do – encourage people to come there and walk around,” Toebben said. “Usually, that’s a real asset to the businesses around the park. And certainly, it’s a place right now where it’s a freeway, so you don’t have people who are lingering in that area right there because it’s not possible.”

Leron Gubler, president and chief executive of the Hollywood chamber, said his organization has supported the plan because it would be good for area businesses.

“We wouldn’t have undertaken the project if we didn’t think this would be good for the businesses,” Gubler said. “It takes the community to the next level.”

Needing green

Hollywood has seen a boom in apartment and condo buildings thanks to efforts to revitalize the area. Those include the W Hollywood Hotel & Residences, with 143 condos and an adjacent apartment building, and the Sunset Vine Tower, a mixed-used development with 63 luxury apartments.

As the redevelopment of Hollywood continues, the need for green space becomes more apparent. While all of Los Angeles has 0.012 acres of open space per resident, one of the lowest ratios in the state, Hollywood has far less at only 0.005 acres per resident.

“The benefits are incredible for a community that’s starved of open green space and children who have never been on a picnic,” said Goldman, who’s been working on the project since it was proposed. “What better use of our freeways but to cover them with a park?”

The chamber worked behind the scenes to build support among local developers, neighborhood councils, elected officials and, most importantly, the California Department of Transportation. The City Council then approved funding for an economic feasibility study and park backers began meeting with community members to discuss how the space should be designed. Meanwhile, Goldman and others formed a non-profit, Friends of Hollywood Central Park, to coordinate predevelopment planning.

Backers of the park met with Becerra during a chamber trip to Washington in March, and convinced the congressman to request the money, which would pay for reports required under the California Environmental Quality Act, civil engineering and design plans, and land-use and entitlement applications toward the project.

The plan discussed in the feasibility study includes a small, informal amphitheater, a baseball field next to Helen Bernstein High School, a picnic and playground area, sculpture garden and a large, multipurpose plaza at Fountain Avenue and St. Andrews Place.

The feasibility study puts the cost at about $950 million, with government funding covering some of the costs and foundations paying the remainder. The study stated that likely contributors would be the California Endowment, the William and Flora Hewlett Foundation and the California Wellness Foundation. The groups are committed to projects related to air quality and environment health.

One foundation representative said that his organization backs park projects, but it hasn’t been involved in anything as big as Hollywood Central Park.

“We have funded projects that improve quality of life and environment, especially in low-income communities, in the past,” said Eric Brown, a communications director at the Hewlett Foundation. “It’s usually through some kind of organization such as Trust for Public Land, although never at a scale of this size.”

Indeed, the eye-popping price tag is the park’s biggest hurdle.

“It’s expensive,” Toebben acknowledged. “And I think that is the major challenge and one of the reasons why the project was part of our agenda in Washington.”

Goldman said Friends of Hollywood Central Park has been working to raise funds for an environmental impact report, which the organization hopes will be under way by the beginning of this summer, and a study by Beacon Economics looking at the impact the park would have on the local economy.

“Before you know it, we will have a park and won’t even remember how long it took us to get there,” Goldman said.

Read more!