SEC stops $100 million real-estate scheme

SEC stops $100 million real-estate based Ponzi scheme

The Securities and Exchange Commission filed a complaint against a man accused of running a $100 million real estate based Ponzi scheme in Utah. According to the complaint, Wayne Palmer of National Note of Utah, lured more than 600 individuals into investing in mortgage notes and real estate assets by promising annual returns of 12% a year.

“Palmer promised double-digit returns at his real estate seminars, where investors learned the hard way about his lies and deceit,” said Kenneth Israel, director of the SEC’s Salt Lake City Regional Office. The SEC obtained a temporary restraining order and froze the assets of Palmer and his business.

The SEC’s complaint, filed in the U.S. District Court for the District of Utah, charges National Note and Palmer with violating the anti-fraud and securities registration provisions of U.S. securities laws. Additionally, Palmer faces charges that he operated as an unregistered broker-dealer.

According to the SEC Palmer told investors their money would be completely secure and that his company had a gleaming record and never missed paying principal or interest on its promissory notes. Marketing materials handed out by Palmer to some investors showed National Note returns did not fluctuate, and said investors were guaranteed payment even if property owners missed payment on mortgage loans held by the company.

National Note then allegedly used most of the money from new investors to pay earlier investors — a Ponzi scheme by definition. The complaint said, since 2009, National Note would not have been able to survive had it not been for new investor funds, and that its payments to investors stopped in October of last year. The complaint alleges that Palmer continued to tell investors the money was on its way, while simultaneously soliciting new investors without disclosing that the company was delinquent in making payments to existing investors.

jhuseman@housingwire.com
@JessicaHuseman

Multifamily values rise

Multifamily property values rise 25%: Freddie Mac

After reaching their trough in the first quarter of 2010, multifamily property values rose 25% over the course of the past two years, Freddie Mac said Tuesday.

The government-sponsored enterprise made this assertion after reviewing statistics from the National Council of Real Estate Investment Fiduciaries index.

Interest in the entire multifamily segment is growing with construction starts on buildings with at least five apartments increasing 48% when comparing just the first five months of 2012 to the year earlier period, Freddie Mac added.

“Further increases in rental demand are likely in the coming year as newly formed households postpone homeownership decisions until the economy strengthens and they have accumulated sufficient savings,” said Frank Nothaft, vice president and chief economist for Freddie Mac. “Overall, apartment market trends may show further vacancy declines and rent gains, with property values improving as well.”

In the yearlong period ending in March, 1.5 million U.S. households moved into rentals, a 4% increase in one-year’s time.

“While nominal rents rose (2 to 4 percent) during the year ending March 2012, average rent on an inflation-adjusted basis remained below where it had been for much of the decade prior to the Great Recession,” Freddie Mac wrote in its latest report.

Real Estate Forecast

The top 12 trends in this month’s Barometer highlight a wavering economy, more down than up signals in the capital markets, mixed directions in property fundamentals, and a housing market that remains on a low simmer. Still, 76 percent of the key indicators in the Barometer are better than a year ago, 1 percent remain the same, and only 23 percent are worse. (For annual projections of key Barometer indicators, see the new ULI Real Estate Consensus Forecast).

Note: More commentary and data can be found throughout the tabs and in the accompanying tables.

In those top 12 monthly trends:

  • Employment growth in May was a discouraging 69,000 jobs, the lowest monthly gain in 12 months. At May’s pace, it would take six years to regain the 5 million jobs lost in the past four and a half years. The unemployment rate, which had reached a three-year low in April, inched up again in May.
  • GDP growth in the first quarter of 2012, already estimated to be lower than the fourth-quarter figure, was revised further downward. GDP growth is now substantially below its 40-year quarterly average.
  • Consumer confidence fell and growth in retail sales was weak, even when adjusted for the decline in gasoline prices. Both monthly and year-over-year S&P 500 returns were negative.
  • Private construction was the only slightly bright spot in the economy, as it continued to inch up. Still, total construction is off by one-third from its pre-recession high. Investment-grade property prices were unchanged in March or declined slightly, as indicated by two repeat-sales indices; general-grade prices were close to flat. All prices remain substantially off from their pre-recession high.
  • REIT returns were negative in all sectors in May, and year-over-year returns are low.
  • Commercial property transaction volumes fell in April, continuing the zigzag pattern of the past year and a half.
  • CMBS issuance activity stepped up to the highest volume in 15 months, and CMBS delinquency rates rose to a record high.
  • Office vacancy and retail availability in the first quarter were unchanged from the fourth quarter, while industrial availability and apartment vacancy improved slightly. All sectors, including hotels, improved compared with a year ago except for the retail sector, which remains at the same high level.
  • Apartment rents and hotel revenue per available room (RevPAR) show continued strong growth, with apartment rents now surpassing their pre-recession high. Rents in the industrial and office sectors are slowly inching up; retail rents are still declining.
  • The multifamily housing construction industry maintained its momentum with permits and starts at three-and-a-half-year highs, although these current levels are only about 60 percent of their long-term monthly averages (since 1970).
  • In the single-family housing construction industry, permits are near a two-year high, though starts declined for the second-straight month; both figures are only approaching 50 percent of their long-term monthly averages (since 1970). Sales of new single-family homes increased but are still near 50-year lows, and prices declined.
  • Total foreclosure filings were down in April to their lowest monthly level in almost five years.

Splitting in Two?

Is the Housing Market Recovery Splitting in Two?

Daily Real Estate News | Wednesday, June 06, 2012

A new article at CNBC.com suggests that the real estate market is splitting in two, with the high-end segment soaring and the rest of the market continuing to struggle as it inches toward recovery mode.

“It’s become a tale of two markets,” Michael Simonsen, CEO of Altos Research, told CNBC.com. “At the high end, well-financed people have taken advantage of cheap money. And demand is up, inventory is down, and prices are responding.”

The article says that wealthy buyers tend to have good credit and are taking advantage of record low mortgage rates.

As such, in housing markets with median home prices of $1 million or more, home prices have jumped more than 10 percent year-over-year, according to Altos Research. Inventory is also down by 10 percent. What’s more, areas with a median home price of $10 million or more, home prices have risen 13 percent or more, according to Altos.

So how about the other “side” of the market? Unemployment and tightened lending conditions that have caused some buyers to struggle to obtain financing continues to slow the housing recovery, housing experts note.

Source: “Tale of Two Markets: No Downturn in Megahome Sales,” CNBC.com (June 5, 201

Economy Sparks Remodeling: How To Ensure A Successful Project

Springtime generates a lot of home improvement activity. Many buyers are out shopping for their new home. With the purchase of their home, the desire to remodel often comes next. For others, the drastically fluctuating housing prices are causing homeowners to stay put and that’s causing them to want to remodel their existing footprint.
Whether its a room addition or the renovation of a kitchen to upgrade amenities and make the space feel more comfortable to suit your needs, precautionary steps to get the most out of your remodeling project will create the best outcome.

Some of the most popular remodeling projects have to do with creating homes that are livable for all ages. The National Association of Home Builders says, in 2010, that 62 percent of surveyed builders were working on “aging in place” modifications.

That means granny flats or in-law apartments (extra rooms with kitchenettes) are becoming staples in homes. As baby boomers ease into their golden years this type of remodeling project will continue to grow. Entry-level bedrooms are also popular additions due to the ease of access for the elderly.

Some remodeling companies are now requiring their staff to become Certified Aging in Place specialists so they can offer expertise in designing and modifying buildings and homes for the elderly. Another hot trend is using outdoor living space to expand the home’s square footage. What’s hot in outside remodels? It may be expensive but natural stone is all the rage. Gourmet grilling kitchens, fireplaces, flat screen TVs with surround sound and big comfy couches turn the backyard into a cozy space to relax and entertain.

Regardless of which type of remodel you’re planning to do, finding the right contractor for the job is vital and can be a difficult task.

The National Homebuilders Association offers some tips for homeowners to help them navigate the process. Here are some important precautionary measures to take before your hire a remodeler.

Check with NAHB.org to find a remodeler who is a member of the National Association of Homebuilders. You can also check with the Better Business Bureau at BBB.org to look up the company’s rating. Of course, family and friends can also offer referrals but checking with professional associations can help provide background information that a friend might not be able to.

Another great way to find a remodeler is to scope out the companies who are working in the neighborhood or an area that you like. Try to stop in and see if you’re able to tour the house and speak with the homeowners. Be sure to ask questions about how smoothly the overall project went and if the crew kept the area clean during the project.

After you have done your research and decided that you like the company’s work, keep in mind that you should also make sure that you can work with its employees. Do you like their style of communication? Do you feel like your ideas are being heard? Are they paying attention to the design style that you want?

The NAHB says before you sign a contract make sure you’ve looked at all the bids carefully and watch out for extremely low bids. “Make sure the builder/remodeler provides you with a complete and clearly written contract. The contract will benefit both of you. If you are having a new home built, get and review a copy of the home warranty and homeowner manual as well.” Also, check to make sure the company carries workers compensation and general liability insurance.

Finally, remember to clearly convey your wants and needs regarding your remodeling project. This helps both you and the remodeler to manage expectations and, ultimately, ensure that you get exactly what you want.

Written by Phoebe Chongchua

Housing Counseling Helps Families

WASHINGTON – The U.S. Department of Housing and Urban Development (HUD) today released two reports on the impact of HUD-approved housing counseling has for those families who purchase their first homes and those struggling to prevent foreclosure.  In both studies, HUD found housing counseling significantly improved the likelihood homeowners remained in their homes.

Both the pre-purchase counseling and foreclosure counseling studies enrolled clients in the fall of 2009 and early 2010. HUD found that 35 percent of participants became homeowners within 18 months of pre-purchase counseling and only one of those buyers subsequently fell behind in their mortgage payments. The foreclosure counseling study reveals that with a counselor’s help, nearly 70 percent of those counseled obtained a mortgage remedy to retain their home, and 56 percent cured their defaults and became current on their mortgages.

“These two studies underscore the need to continue supporting housing counseling programs across this country, especially during this period when families need these services the most,” said Raphael Bostic, HUD’s Assistant Secretary for Policy Development and Research.  “The evidence is clear, with a little investment on the front end, we can go a long way toward improving the chances families will buy a home they can afford and sustain their homes in the long run.”

Pre-Purchase Counseling Outcome Study

The “Pre-Purchase Counseling Outcome Study” enrolled 573 individuals seeking pre-purchase counseling services in fall 2009 from 15 HUD-funded counseling agencies across the country.  The objectives of the study were to examine the characteristics of pre-purchase counseling clients, the types of services they received, and whether and under what circumstances they purchased housing in the 18 months after starting counseling.

While HUD cannot conclude that the study sample is representative of all pre-purchase counseling clients served by the study agencies, this study provides a snapshot of some pre-purchase counseling clients at 15 different housing counseling agencies across the country in the fall of 2009.

The key findings of the study include:

  • 35 percent of the study participants had become homeowners 18 months after seeking pre-purchase counseling.
  • Most purchasers had a FICO score of 620 or higher (71 percent), and were reported as having completed counseling by their housing counselor (72 percent).
  • Only one of the purchasers had fallen at least 30 days behind on mortgage payments 12-18 months after receiving pre-purchase counseling services.
  • Most were motivated to seek counseling to identify homebuyer assistance programs (58 percent) or to obtain down payment or closing cost assistance or to qualify for a specific loan program (58 percent).
  • Study participants were racially and ethnically diverse (52 percent African American, 32 percent White, 16 percent of another race or multi-racial, and 19 percent Hispanic), were more likely to be young (51 percent were under age 35), female (72 percent), have dependents under the age of 18 living with them (57 percent).

These findings suggest that counseling helped a diverse group of low- to moderate-income individuals obtain useful information in connection with preparing to purchase a home and indicate that pre-purchase counseling assists clients make good decisions regarding homeownership and might help to make homeownership more sustainable.

Foreclosure Counseling Outcome Study

HUD’s “Foreclosure Counseling Outcome Study” involved conducting baseline interviews with 824 foreclosure counseling clients, tracking the housing counseling services they received, and analyzing homebuyer outcomes through an analysis of credit report data.  A follow-up telephone survey was conducted approximately 18 months after the foreclosure counseling services were delivered.

About three-quarters of the homeowners who had fallen behind on their payments did so because of a loss of income, and very few had any savings to draw upon to pay missed mortgage payments.  The study finds that large shares of counseled homeowners were able to obtain a remedy, retain their home, and become current on their mortgages.  These outcomes were much more common among homeowners in the study who sought counseling before becoming delinquent or in the early stages of delinquency (1-3 months).

This study provides information on who accesses counseling services when facing challenges in paying their mortgage loan, what services those clients obtain, and identifies the outcomes the clients experienced in the following 18 months (though it cannot assert that the counseling caused the outcomes).  The report’s findings include:

  • Most study participants attempted to contact their servicer when they first fell behind but were unsuccessful in negotiating with their lenders on their own.
  • With a counselor’s help, 69 percent of counselees obtained a mortgage remedy, and 56 percent were able to become current on their mortgages.
  • Nearly 70 percent of clients who sought counseling before becoming delinquent were in their home and current on their mortgage payments at the 18-month follow-up period, whereas only 30 percent of clients who were six or more months behind at the time they entered counseling were in their home and current at follow-up.

The results suggest that counseling can help many homeowners at risk of foreclosure to negotiate and obtain mortgage remedies, and to become current on their mortgage payments.  In addition, homeowners in the study who were able to obtain mortgage remedies were more likely to stay in their homes.  The HUD study is also one of the few studies that documents housing outcomes in relation to specific counseling services received.

Read HUD’s Pre-Purchase Counseling Outcome StudyandForeclosure Counseling Outcome Study.

Housing Symptoms

Housing symptom of larger, global economic crisis
Posted by Kerri Panchuk on May 21, 2012 12:20 PM
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Capital Economics released a report Monday suggesting job outsourcing and a decline in labor wages is derailing the economy, making housing issues look more like a byproduct of the cause rather than a symptom.

The report paints a picture in which general economic malaise may be more of a byproduct of long-term globalization, job outsourcing and technology replacing humans as opposed to a problem stemming solely from the 2008 housing bust.

Research economist Paul Ashworth concluded, “Labor share of income has been on a downward structural trend since the 1980s, resulting from the decline in labor’s bargaining power, globalization and technological progress. Not only will that downward trend continue, but it could even intensify as technology has a bigger effect. Admittedly, we should see a cyclical recovery in labour’s share over the next few years, but this will be temporary and we would expect the downward structural trend to dominate over longer periods.”

Since income levels are the basis for other spending, including housing, Capital Economics paints a picture of Americans increasingly taking home less to cover general expenditures. Ashworth claims when job cuts hit other employment areas, like information services and finance, it could send more workers into lower paying jobs.

Labor compensation accounted for 68% of national income in the 1980s, but fell to an average of 64% in the 2000s and has averaged lower than 62% since the recovery began, Capital Economics wrote.

While Ashworth acknowledges the strain of the late 2000s housing and mortgage finance crisis, he sees the trend of falling wages and outsourcing as a long-term transition that will impact America’s economy today and in the future.

He also suggested that the issue may be closer to reaching the political class in the U.S. and could give rise to a new preference for some protectionism.

“We have previously flagged up the possibility that the U.S. might embrace trade protection as a means of simultaneously tackling its high unemployment rate and persistent current account deficit,” wrote Ashworth.

“We have to admit that trade protection remains well down the political agenda, but it could still become a pivotal issue in this year’s presidential election. The leading Republican candidate Mitt Romney has indicated that he would unilaterally declare China a currency manipulator on his first day in office, opening the door to the imposition of a wide range of tariffs on Chinese goods.”

He added that China may also rebalance and shift away from exports, moving toward investment and increasing domestic consumption, which would increase demand for American consumer goods.

kpanchuk@housingwire.com

Rental Household Market

Rental households comprise 34% of the housing stock and are growing at the incredible rate of 1.6 million per year, while owned households are actually declining in number, according to John Burns Real Estate Consulting, which called the increase an “incredible surge” in demand.

Only 20% of renters live in large buildings of 20 or more units, and the remaining 80% of renters live in alternative types of housing.

The single-family rental business, which is already larger than the institutional apartment business, is booming. About 55% of new renters are leasing single-family homes, while the remaining 45% are renting apartments. Never before seen levels of distressed home sales, which sit at the lowest home price/rent ratios in decades, are driving the boom, the consultancy said.

Burns said intelligent investors should take advantage of the “temporary disconnect in the market.”

Consumer Credit Defaults Continue

Consumer credit defaults continued to decline in April, marking fresh post-recession lows.

The composite Standard & Poor’s/Experian index dropped to 1.86%, it’s lowest level since July 2007, from 1.96% in March. It’s the fourth monthly decline in a row after defaults ticked up at the end of last year.

First mortgage and second mortgage defaults also fell in April to 1.76% and 0.93%, respectively, new lows since July 2007 and August 2005.

“April data show the continuation of the positive trend we saw in the first quarter of 2012,” David Blitzer, head of S&P’s index committee, said in a news release. “Not only have we continued the general downward trend in consumer default rates that began in the spring of 2009, but we appear to be reaching new lows across many of the loan types.”

Of the four categories measured, only bankcard defaults rose from March, up slightly to 4.49% from 4.47%.

Four of the five metropolitan areas in the index fell month-to-month, while Los Angeles default rates remained flat.

The monthly index measures first-time defaults and covers roughly $11 trillion in outstanding loans in Experian’s database.

ascoggin@housingwire.com