Real Estate

27 Jun, 2011

Tighter lending crimps housing

  The Miami Real Estate Club has found that the percentage of mortgage applications rejected by the nation's largest lenders increased last year, spotlighting how banks' cautious lending practices are hampering the nascent housing market recovery.

Although lenders were expected to pull back from the freewheeling conditions that helped inflate the housing bubble, some economists argue they are now too conservative, and say that with the U.S. economy still wobbly, mortgages need to be easier to obtain for qualified borrowers, not harder.

Christopher Thornberg, a housing economist at Beacon Economics in Los Angeles, counters that "banks are doing what they need to do" to change lending standards in the wake of a "crazy bubble. "

He adds, "You had decades where credit standards were tougher than they are even now."

Among the would-be borrowers having a harder time are those who have seen their incomes fall or interrupted by a period of unemployment, scenarios that have become increasingly common in recent years. Some self-employed applicants are also hitting barriers to loans—hurdles they didn't face in the past.

Lending standards are still tight in part because government entities Fannie Mae, Freddie Mac, and the Federal Housing Administration, which collectively account for more than nine in 10 loans being made today, are under heavy pressure to avoid any losses.

Those firms don't make loans directly but instead purchase or guarantee mortgages that meet their standards, and so have significant influence over which loans banks are willing to approve.

Lou Barnes, a third-generation mortgage banker in Boulder, Colo., says lenders have grown too cautious.

Fannie and Freddie, in particular, "are behaving like a hurricane insurance company that won't write any policies within 200 miles of an ocean."

Fannie Mae, for its part, says tighter loan restrictions, while painful for the housing market, are necessary to correct past excesses.

"Clearly we got too loose. This is a return to historical standards," says Doug Duncan, Fannie's chief economist. "When markets were stable and these standards were applied, you didn't hear the same complaints."

On Tuesday, Mr. Barnes told Amy Menell that his bank wouldn't be able to approve her for a loan even though she has a credit score above 800, no debt and is willing to put down more than 50% on a $400,000 house in Boulder, Colo. Ms. Menell, a mother of three who is finalizing a divorce and receiving a cash settlement of $400,000, wants to take advantage of low interest rates and the depressed housing market to buy a home.

But Ms. Menell works as a real estate agent and had little income in 2009, when the housing market slowed.

That has left her without the two years of documented income the bank wants for her loan application, even though she says business has picked up over the last year.

"I know the housing market inside and out here, and believed that with a significant enough down payment and more assets behind you, that you could get a loan," she says.

Mr. Barnes says that in ordinary times, Ms. Menell would have had no difficulty getting a loan. "Going back as far as there has been banking, if somebody walked in the door with a 50% down payment, good credit, cash in reserve, they'd walk out with a loan," he says.

To be sure, the rejection rates have been higher than they are now, and reached 32.5% at the height of the housing bubble in 2007. That was driven, in part, by brokers and loan officers testing the limits to see just how loose banks were willing to go.

The mortgage data analyzed by The Wall Street Journal included loan applications filed by consumers who wanted to refinance existing mortgages as well as those planning to buy a home. Among home-purchase applications, lenders denied 19.9% of applications, up from 18.2% in the previous year, while 27.2% of refinance applications were denied, up from 24.4%.

Recent surveys by regulators show no sign of credit easing so far this year. Nearly four in 10 banks reported tighter mortgage lending conditions for the 12-months ended in February, according to a survey published this week by the government's Office of the Comptroller of the Currency. Just 8% said that standards had loosened.

The Journal obtained the data from individual lenders in accordance with the Home Mortgage Disclosure Act, which requires lenders to report such figures. The top 10 lenders accounted for more than 70% of loan originations last year, though a substantial percentage of those loans were obtained by the lenders immediately after smaller firms had approved the loans.

The analysis showed that denials increased in every state except Delaware and in all but nine of the top 100 metropolitan areas. Denial rates were highest in Miami, Detroit, and New Orleans, and lowest in Raleigh, N.C.; Bethesda, Md.; and San Jose, Calif.

Miami Real Estate Club has found that In Miami, where home prices are down by 50% from their 2006 peak, nearly 44% of loan applications were rejected last year.

The market relies heavily on buyers with cash: In April, nearly 63% of home sales were all-cash deals, according to the Miami Association of Realtors.

There are some limits to what the data can show. Loan officers say that many borrowers are being dissuaded from even applying in the first place, out of fear they won't meet stringent guidelines.

In past economic cycles, lending standards tended to ease within the first year of an economic recovery, and the OCC survey showed that banks have eased underwriting standards for commercial loans over the 12-month period ended in February.

But in the current cycle, lenders have kept standards tight for home loans even though the economy is growing. "There's no question that accessible credit is a problem," says David Stevens, chief executive of the Mortgage Bankers Association, an industry group.

Mr. Stevens, who headed the Federal Housing Administration for two years until March, says a key factor in banks' reluctance to lend more freely is the aggressive effort by Fannie and Freddie to force banks to repurchase loans if they go bad.

10 Jun, 2011

Do you believe it ARM's are on the rise again!

The Miami Real Estate Club has found that new loan inquiries climbed 15 percent this week as adjustable-rate activity shot up 30 percent. Borrowers seeking shorter-term loans got a big boost.

At 243, the U.S. Mortgage Market Index from Mortech Inc. and MortgageDaily.com for the week ended June 10 improved from last week's index of 212.

Helping drive the improvement in new business was adjustable-rate mortgage activity, which was up 30 percent from last Friday's report. The share of new activity that was for ARMs climbed to 10.52 percent this week from 9.47 percent seven days earlier.

Refinance inquiries rose 17 percent, while refinance share climbed to 54 percent from last week's 53 percent. The share reflected a rate-term refinance share of 41 percent and a 13 percent cashout refinance share.

Conventional business was up 16 percent, purchase activity climbed 12 percent and FHA inquiries were 7 percent higher.

Compared to a year earlier, overall business was off 11 percent.

Behind this week's surge were slightly lower mortgage rates and the prior week's holiday lull.

The average 30-year conforming fixed-rate mortgage was 4.645 percent this week, lower than 4.651 percent last week.

The improvement in conforming activity was matched by jumbo rate, with the jumbo 30-year easing to 5.160 percent from 5.170 percent. The spread between the conforming and jumbo 30-year mortgage was unchanged at 52 basis points.

The Mortgage Market Index report indicated that the 15-year fixed-rate mortgage was 3.820 percent, falling from 3.880 percent last week. The 15-year became a more attractive option this week, with the spread between the 15-year and 30-year mortgage widening to 83 BPS from the previous week's 77 BPS.

10 Jun, 2011

Mortgage rates set new low for 2011

The Miami Real Estate Club has found that home mortgage rates fell again to a fresh 2011 low as a week of downbeat jobs data fueled concerns over a possible economic slowdown this year, according to the latest survey from Freddie Mac.

The decline in fixed rates represented the eighth-straight weekly fall and comes after the Bureau of Labor Statistics this week said employers added far fewer private-sector jobs than expected.

"The housing market continues to be fragile across the nation as well," Freddie chief economist Frank Nothaft said, with Federal Reserve data released Wednesday showing weak sales and prices in most districts.

The 30-year fixed-rate mortgage averaged 4.49% in the week ended Thursday, down from 4.55% the prior week and last year's 4.72% average. Rates on 15-year fixed-rate mortgages fell to 3.68% from 3.74% the previous week and 4.17% a year earlier.

Five-year Treasury-indexed hybrid adjustable-rate mortgages fell to 3.28%, from 3.41% last week and 3.91% a year earlier. One-year Treasury-indexed ARM rates decreased to 2.95%, from 3.13% the prior week and 3.91% a year earlier.

To obtain the rates, fixed-rate borrowers required an average payment of 0.7 point, while the adjustable-rate mortgages required a 0.5 point payment. A point is 1% of the mortgage amount, charged as prepaid interest.

02 Jun, 2011

For apartment investors, risks in unabated enthusiasm.

Five years into the housing downturn, the latest data show little sign that a rebound in housing prices or volume is in the offing. The S&P/Case-Shiller index, amongst the most widely cited measures of home values, fell to an eight-year low in the just-released report of March 2011 activity. Distress continues to play a significant role in exerting downward pressure on prices; a larger overhang of foreclosures relative to demand for owned housing suggests that the index will trend even lower. Anticipating higher residential mortgage rates over the next year, significantly stronger job growth is a necessary but unlikely condition for housing market stability.

Apart from its drag on the broader economy, the Miami Real Estate Club has noticed that housing’s woes have clearly shaped the recovery in the apartment sector. Setting aside more stringent underwriting and the failure of many of the recession’s housing policy interventions, the prevailing perception of homeownership as a risky investment is amongst the key drivers of current apartment market trends. Why buy an asset when you expect prices to decline in the short-term? In 2010, ownership was down from its peak by over 500,000 households. Meanwhile, renters increased their ranks by almost 4 million households between 2005 and 2010.

With so many new renters, a relatively slow expansion of the rental inventory, and varying rates of substitution between the rental stock and various subsets of the shadow inventory, it is hardly surprising that the apartment sector was the first to record an inflexion in fundamentals. At a national level, apartment occupancy reached its nadir in 2009. Momentum has been building in the ensuing period. Just before the Memorial Day long weekend, Axiometrics reported that the national occupancy rate increased to 93.8 percent in April; effective rents were roughly 5 percent higher than a year earlier.

The shift in tenure bias away from ownership and towards renting, the improving apartment fundamentals that have followed on stronger demand, and competitive credit conditions have converged to support investment in the sector. In coastal markets, in particular, recent high-rise property sales suggest that the top-end of the market is priced to perfection. Emboldened by rising asset values and expectations of continued improvements in cash flow, lenders are now financing an uptick in construction activity. In some cases, underwriting assumptions belie any potential for the pendulum to swing back, even in part, to ownership.

While a degree of enthusiasm is certainly warranted amongst apartment market participants, investors and lenders should be careful not to ignore the medium- and long-term risks embedded in the sector’s current trajectory. After all, our industry’s own history is replete with evidence that unabated enthusiasm can ultimately prove destructive. Looking to the future, housing finance reform will keep more Americans in the rental pool, even if homeownership remains a central feature of the American Dream. But a diminished role for the government-sponsored enterprises in subsidizing mainstream multifamily credit is almost certainly a part of that bargain. For many of today’s buyers, the landscape of apartment finance could change dramatically before they refashion themselves as sellers.

02 Jun, 2011

Miami's Viceroy Hotel sells for $37 Million

MIAMI-Viceroy Miami, a 148-room luxury, full-service hotel in Downtown Miami, has traded for $36.5 million. Located along Brickell Avenue and constructed in 2009, the hotel calls the ICON Brickell complex home.

Pebblebrook Hotel Trust acquired the asset, which is located in one of the three ICON Brickell towers overlooking the Miami skyline, Miami River and Biscayne Bay. The ICON Brickell is a 10-acre urban development that also includes condominium residences. Viceroy Hotel Group will continue to manage the property.

“Miami has historically performed very well in recovery cycles and the distinctive quality and location of the Viceroy Miami creates a very strong investment opportunity for our company,” says Jon Bortz, chairman and CEO of Pebblebrook Hotel Trust. “The hotel benefits from its location within the ICON Brickell complex along Brickell Avenue, a high-end business district in Miami."

Like the Miami Real Estate Club, Bortz sees Downtown Miami as a cosmopolitan area that has redefined itself in recent years as the city’s work-play epicenter. Indeed, the Miami metropolitan market has experienced unprecedented growth over the past 20 years, benefitting from a healthy international tourism industry and a strong connection to South America’s rapidly expanding business centers.

“Pebblebrook Hotel Trust’s entrance into Downtown Miami through the purchase of the Viceroy Hotel is yet another sign that this market is strong, viable, and ripe for continued investment,” Leo Zabezhinsky, manager of Business Development and Real Estate for the Miami Downtown Development Authority, tells GlobeSt.com. “With nearly a dozen new luxury hotels adding 2,000 rooms to the area over the past decade, Downtown Miami has emerged as an international destination for business and tourism on par with major global cities around the world.”

In 2010, during the early stage of ramp up from its prior year opening, the Viceroy Miami operated at 68% occupancy, with an ADR of $183. During the next 12 months, Pebblebrook forecasts that the hotel will generate earnings before interest, taxes, depreciation and amortization of $2.4 million to $2.7 million and net operating income after capital reserves of $1.7 to $2 million.