New Jersey's new foreclosure law
In response to the increasing number of foreclosures in New
Jersey, a new law written by Assemblyman Gary Schaer of the 36th
Legislative District, will provide critical protections to ensure
homeowners are not preyed upon at their most vulnerable time.
When facing the potential loss of their home, many people seek
out the services of foreclosure prevention companies. The
Foreclosure Rescue Fraud Prevention Act requires mortgage
foreclosure consultants to adhere to stringent rules and
guidelines when providing services to individuals facing the loss
of their home. Schaer explained that the new law requires that
these consultants be "experts, with documentation and education
behind them." The new law seeks to protect residents from the
potential fraudulent acts of foreclosure rescue companies by
requiring such companies to post a bond with the Department of
Banking and Insurance before conducting any business in the State
of New Jersey. The law also provides contract rights for owners
of financially distressed residential property who contract with
foreclosure consultants. The salient points of the law require
that the contract for services be in writing and must contain
disclosures and notice requirements in 14-point boldface type;
may be canceled at any time until every service has been
performed and the prescribed relief secured; and that fees may
not be collected prior to the completion of all agreed upon
services and the securing of the distressed property.
Additionally, the law prescribes specific civil penalties for
foreclosure consultants who violate its provisions.
Disappointing jobs report, unemployment up
The US economy created just 80,000 jobs in June and the
unemployment rate held steady at 8.2%, reflecting continued slow
growth in the economy with the presidential election just four
months away. The Bureau of Labor Statistics said private
payrolls increased 84,000, while the government lost 4,000 jobs.
Economists expected job growth of about 100,000 and the
unemployment rate to be unchanged, though many had increased
their forecasts based on some recent indicators. With yet
another month of weak employment growth, the second quarter marks
the weakest three-month period in two years. May's weak initial
69,000 report was revised upward to 77,000, which made the June
number essentially flat. A measure of unemployment that includes
discouraged workers ticked higher to 14.9%, its highest level
since February, while the labor force participation rate stayed
near a 30-year low at 63.8%. Unemployment for blacks surged to
14.4% — the highest level of 2012 and up from 13.6% in May —
while the 11.0% rate for Latinos was unchanged over May but also
at a high for the year.
Olick - is the rental market overheating?
The still faltering housing recovery, tight credit, lackluster
employment growth and overall weak consumer confidence has kept
demand for apartments high, despite historic housing
affordability. That, plus a shortage of supply, means rents are
going higher, increasing at their fastest pace since the fall of
2007, according to Reis Inc., which expects rent growth to
accelerate even more as vacancies tighten. How tight are
supplies? Less than five% of the national apartment supply was
vacant this past spring, according to Reis. That’s only the
third time that’s happened in over thirty years. “The target
renter demographic (younger Americans) has seen what’s happened
in home buying, and the ease of just writing a monthly check is
compelling,” says analyst Alexander Goldfarb at Sandler
O’Neill. For investors in apartment REITs (real estate
investment trusts), that means higher returns. For buyers in the
space, however, that means pricier properties, and smaller
gains.
While some analysts believe the space is overheated, Goldfarb
notes that given incredibly low financing today make apartments a
good buy overall, even in the pricey coastal markets. “What
people never say is, let’s put it in context. You’ve got a
ten-year [US Treasury bond yield] under two%, so if you go back
to the 2006 peak, the ten-year was around 5-6%…so while
absolute valuations are back to historic peaks, the cost of
financing is a lot cheaper, so people can still make money buying
at current prices,” explains Goldfarb. He does, however, like
the sunbelt over the coastal markets, as prices there are not as
high. Post Properties focuses on the sunbelt, with 30% of its
portfolio in Atlanta, which has very little supply and high
demand due to a surge in foreclosures. “We still love the
apartment sector,” says Mitch Roschelle of PwC, citing the
falling home ownership rate. “We’re going to have, for the
foreseeable future, an excess of people who want to rent versus
apartments that are available.”
Still he cautions that investors looking to the future may move
away from the pricey apartment market and toward office,
“because they think that offices may be the next story down the
road.” The office space is still struggling to find its
footing, especially in the smaller, inland markets. “A shift
in improving investor sentiment across the office sector is
really a function of the fact that apartments are sort of
yesterday's story. They're overbought,” warns Roschelle.
Analysts at Reis also warn that supply in the apartment sector is
coming fast. They estimate 70,000 units to come online in 2012,
double the rate of 2011, and around 150,000-200,000 in 2013.
“While this kind of supply growth need not push apartment
fundamentals back into contractionary territory, it is important
for individual investors to consider how greater competition in
specific submarkets caused by the proliferation of apartment
rentals will impact their property’s or portfolio’s
performance,” notes the Reis report.
Bankruptcies down
The number of US businesses and consumers filing for bankruptcy
fell 14% in the first half of 2012 and could end the year at the
lowest level since before the 2008 financial crisis, according to
data released yesterday. New bankruptcy filings fell to 632,130
in the first six months of the year compared to the same period
last year, according to Epiq Systems, which manages documents and
claims for companies in bankruptcy. The number of businesses
filing for bankruptcy dropped 22% to 30,946 and the number of
consumers seeking court protection from creditors fell 13% to
601,184. Gerdano attributed the decline to low interest rates,
which have been kept at rock-bottom levels since the financial
crisis by the US Federal Reserve. Despite the drop in filings,
there have been several large bankruptcies this year, including
photography icon Eastman Kodak, textbook publisher Houghton
Mifflin Harcourt Publishers, and Hostess Brands, the maker of
Wonder Bread and Twinkies.
WSJ - why so few sought foreclosure redress
US bank regulators didn't work hard enough to make sure the
public understands a process set up to compensate borrowers who
were subject to foreclosure-processing errors, a federal watchdog
has found. The Government Accountability Office, in a report
released Thursday, found that the review process designed by the
Office of the Comptroller of the Currency and Federal Reserve has
been difficult for consumers to understand. The report echoed
concerns raised over the past year by several Democratic
lawmakers on Capitol Hill. An outreach letter sent to consumers,
a website and a form needed to request a review were "written
above the average reading level of the US population, indicating
that they may be too complex to be widely understood," the GAO
found. Without those details, "borrowers may not be motivated to
participate," the report said. Though the review process was
launched last fall, regulators announced just last month that
borrowers may be eligible for up to $125,000 per consumer,
depending on the severity of the error. The bank regulators'
compensation system is separate from a $25 billion settlement
that federal and state officials announced earlier this year to
settle foreclosure-abuse allegations. Comptroller of the
Currency Thomas Curry didn't dispute the report's conclusions,
and said the agency will work to make sure the forms used by
borrowers are more readable and contain information about how
much money borrowers are in line to receive.
Why central banks can't stop the slowdown
The rate cuts from three major economies yesterday may have
dominated headlines, but it did little to inspire confidence in
global stock markets, which fell as investors took the move to
mean the world economy remains in trouble. The European Central
Bank and the People's Bank of China both slashed interest rates,
the former to a record low, amid signs that economies in these
regions are still weakening. The Bank of England, whose rates are
already at an all-time low 0.5%, said it would buy 50 billion
pounds ($78 billion) of assets with newly printed money to help
the economy out of recession . But such actions by central banks
are becoming less effective, says one money manager, who suggests
that policymakers should instead let the economic bust work
itself through the system. "There's virtually zero chance of
that succeeding," Bill Smead, CEO of Smead Capital Management,
told CNBC Asia's said, referring to pump-priming by the central
banks. He cited the work of Michael Pettis, Finance Professor at
Peking University, who said that when an economy that's dependent
on fixed-asset investment like China unwinds, there are only two
options. One is to have a "deep and long recession" lasting
three or four years, and the other is to go through 10 years of
zero growth, Smead said. But this will have huge impact on the
prices of all assets across the board, he warned. Jian Chang,
China Economist of Barclays, agrees that that further moves by
central banks around the world will not be effective in spurring
growth. "At this point, such central bank moves no long impress
the market. Central banks rate cut may well be perceived as a
sign of panic or desperation," Chang said. "Markets remain
cautious, given the weakening growth momentum seen across the
board in major economies and they doubt the effectiveness of such
monetary easing may have in lifting growth."
WSJ - cities consider seizing mortgages
A handful of local officials in California who say the housing
bust is a public blight on their cities may invoke their
eminent-domain powers to restructure mortgages as a way to help
some borrowers who owe more than their homes are worth. Eminent
domain allows a government to forcibly acquire property that is
then reused in a way considered good for the public—new
housing, roads, shopping centers and the like. Owners of the
properties are entitled to compensation, which is usually
determined by a court. But instead of tearing down property,
California's San Bernardino County and two of its largest cities,
Ontario and Fontana, want to put eminent domain to a highly
unorthodox use to keep people in their homes. The
municipalities, about 45 minutes east of Los Angeles, would
acquire underwater mortgages from investors and cut the loan
principal to match the current property value. Then, they would
resell the reduced mortgages to new investors.
The eminent-domain gambit is the brainchild of San
Francisco-based venture-capital firm Mortgage Resolution
Partners, which has hired investment banks Evercore Partners and
Westwood Capital to raise funds from private investors. The
company's chief executive, Graham Williams, is a
mortgage-industry veteran who helped pioneer lending programs for
low-income borrowers at Bank of America Corp. in the early 1990s.
Its chairman, Steven Gluckstern, is an entrepreneur who once
owned the New York Islanders hockey franchise. Evercore's founder
and co-chairman, Roger Altman, served in the Clinton
administration and is raising funds for President Barack Obama's
re-election effort. For a home with an existing $300,000
mortgage that now has a market value of $150,000, Mortgage
Resolution Partners might argue the loan is worth only $120,000.
If a judge agreed, the program's private financiers would fund
the city's seizure of the loan, paying the current loan investors
that reduced amount. Then, they could offer to help the homeowner
refinance into a new $145,000 30-year mortgage backed by the
Federal Housing Administration, which has a program allowing
borrowers to have as little as 2.25% in equity. That would leave
$25,000 in profit, minus the origination costs, to be divided
between the city, Mortgage Resolution Partners and its
investors.
Investors holding the current mortgages predict the move will
backfire by driving up borrowing costs and further depress
property values. "I don't see how you could find it anything
other than appalling," said Scott Simon, a managing director at
Pacific Investment Management Co., or Pimco, a unit of Allianz
SE. A letter sent last week to city leaders from 18 trade
associations, led by the Securities Industry and Financial
Markets Association, warned that such a move "could actually
serve to further depress housing values" by making banks less
willing to lend. The plan's backers are unfazed. "The exact
opposite is true. There's no private market right now," said Mr.
Gluckstern of Mortgage Resolution Partners. "Until you clear out
this problem [of underwater loans], private lending will not come
back."
In response to the increasing number of foreclosures in New
Jersey, a new law written by Assemblyman Gary Schaer of the 36th
Legislative District, will provide critical protections to ensure
homeowners are not preyed upon at their most vulnerable time.
When facing the potential loss of their home, many people seek
out the services of foreclosure prevention companies. The
Foreclosure Rescue Fraud Prevention Act requires mortgage
foreclosure consultants to adhere to stringent rules and
guidelines when providing services to individuals facing the loss
of their home. Schaer explained that the new law requires that
these consultants be "experts, with documentation and education
behind them." The new law seeks to protect residents from the
potential fraudulent acts of foreclosure rescue companies by
requiring such companies to post a bond with the Department of
Banking and Insurance before conducting any business in the State
of New Jersey. The law also provides contract rights for owners
of financially distressed residential property who contract with
foreclosure consultants. The salient points of the law require
that the contract for services be in writing and must contain
disclosures and notice requirements in 14-point boldface type;
may be canceled at any time until every service has been
performed and the prescribed relief secured; and that fees may
not be collected prior to the completion of all agreed upon
services and the securing of the distressed property.
Additionally, the law prescribes specific civil penalties for
foreclosure consultants who violate its provisions.
Disappointing jobs report, unemployment up
The US economy created just 80,000 jobs in June and the
unemployment rate held steady at 8.2%, reflecting continued slow
growth in the economy with the presidential election just four
months away. The Bureau of Labor Statistics said private
payrolls increased 84,000, while the government lost 4,000 jobs.
Economists expected job growth of about 100,000 and the
unemployment rate to be unchanged, though many had increased
their forecasts based on some recent indicators. With yet
another month of weak employment growth, the second quarter marks
the weakest three-month period in two years. May's weak initial
69,000 report was revised upward to 77,000, which made the June
number essentially flat. A measure of unemployment that includes
discouraged workers ticked higher to 14.9%, its highest level
since February, while the labor force participation rate stayed
near a 30-year low at 63.8%. Unemployment for blacks surged to
14.4% — the highest level of 2012 and up from 13.6% in May —
while the 11.0% rate for Latinos was unchanged over May but also
at a high for the year.
Olick - is the rental market overheating?
The still faltering housing recovery, tight credit, lackluster
employment growth and overall weak consumer confidence has kept
demand for apartments high, despite historic housing
affordability. That, plus a shortage of supply, means rents are
going higher, increasing at their fastest pace since the fall of
2007, according to Reis Inc., which expects rent growth to
accelerate even more as vacancies tighten. How tight are
supplies? Less than five% of the national apartment supply was
vacant this past spring, according to Reis. That’s only the
third time that’s happened in over thirty years. “The target
renter demographic (younger Americans) has seen what’s happened
in home buying, and the ease of just writing a monthly check is
compelling,” says analyst Alexander Goldfarb at Sandler
O’Neill. For investors in apartment REITs (real estate
investment trusts), that means higher returns. For buyers in the
space, however, that means pricier properties, and smaller
gains.
While some analysts believe the space is overheated, Goldfarb
notes that given incredibly low financing today make apartments a
good buy overall, even in the pricey coastal markets. “What
people never say is, let’s put it in context. You’ve got a
ten-year [US Treasury bond yield] under two%, so if you go back
to the 2006 peak, the ten-year was around 5-6%…so while
absolute valuations are back to historic peaks, the cost of
financing is a lot cheaper, so people can still make money buying
at current prices,” explains Goldfarb. He does, however, like
the sunbelt over the coastal markets, as prices there are not as
high. Post Properties focuses on the sunbelt, with 30% of its
portfolio in Atlanta, which has very little supply and high
demand due to a surge in foreclosures. “We still love the
apartment sector,” says Mitch Roschelle of PwC, citing the
falling home ownership rate. “We’re going to have, for the
foreseeable future, an excess of people who want to rent versus
apartments that are available.”
Still he cautions that investors looking to the future may move
away from the pricey apartment market and toward office,
“because they think that offices may be the next story down the
road.” The office space is still struggling to find its
footing, especially in the smaller, inland markets. “A shift
in improving investor sentiment across the office sector is
really a function of the fact that apartments are sort of
yesterday's story. They're overbought,” warns Roschelle.
Analysts at Reis also warn that supply in the apartment sector is
coming fast. They estimate 70,000 units to come online in 2012,
double the rate of 2011, and around 150,000-200,000 in 2013.
“While this kind of supply growth need not push apartment
fundamentals back into contractionary territory, it is important
for individual investors to consider how greater competition in
specific submarkets caused by the proliferation of apartment
rentals will impact their property’s or portfolio’s
performance,” notes the Reis report.
Bankruptcies down
The number of US businesses and consumers filing for bankruptcy
fell 14% in the first half of 2012 and could end the year at the
lowest level since before the 2008 financial crisis, according to
data released yesterday. New bankruptcy filings fell to 632,130
in the first six months of the year compared to the same period
last year, according to Epiq Systems, which manages documents and
claims for companies in bankruptcy. The number of businesses
filing for bankruptcy dropped 22% to 30,946 and the number of
consumers seeking court protection from creditors fell 13% to
601,184. Gerdano attributed the decline to low interest rates,
which have been kept at rock-bottom levels since the financial
crisis by the US Federal Reserve. Despite the drop in filings,
there have been several large bankruptcies this year, including
photography icon Eastman Kodak, textbook publisher Houghton
Mifflin Harcourt Publishers, and Hostess Brands, the maker of
Wonder Bread and Twinkies.
WSJ - why so few sought foreclosure redress
US bank regulators didn't work hard enough to make sure the
public understands a process set up to compensate borrowers who
were subject to foreclosure-processing errors, a federal watchdog
has found. The Government Accountability Office, in a report
released Thursday, found that the review process designed by the
Office of the Comptroller of the Currency and Federal Reserve has
been difficult for consumers to understand. The report echoed
concerns raised over the past year by several Democratic
lawmakers on Capitol Hill. An outreach letter sent to consumers,
a website and a form needed to request a review were "written
above the average reading level of the US population, indicating
that they may be too complex to be widely understood," the GAO
found. Without those details, "borrowers may not be motivated to
participate," the report said. Though the review process was
launched last fall, regulators announced just last month that
borrowers may be eligible for up to $125,000 per consumer,
depending on the severity of the error. The bank regulators'
compensation system is separate from a $25 billion settlement
that federal and state officials announced earlier this year to
settle foreclosure-abuse allegations. Comptroller of the
Currency Thomas Curry didn't dispute the report's conclusions,
and said the agency will work to make sure the forms used by
borrowers are more readable and contain information about how
much money borrowers are in line to receive.
Why central banks can't stop the slowdown
The rate cuts from three major economies yesterday may have
dominated headlines, but it did little to inspire confidence in
global stock markets, which fell as investors took the move to
mean the world economy remains in trouble. The European Central
Bank and the People's Bank of China both slashed interest rates,
the former to a record low, amid signs that economies in these
regions are still weakening. The Bank of England, whose rates are
already at an all-time low 0.5%, said it would buy 50 billion
pounds ($78 billion) of assets with newly printed money to help
the economy out of recession . But such actions by central banks
are becoming less effective, says one money manager, who suggests
that policymakers should instead let the economic bust work
itself through the system. "There's virtually zero chance of
that succeeding," Bill Smead, CEO of Smead Capital Management,
told CNBC Asia's said, referring to pump-priming by the central
banks. He cited the work of Michael Pettis, Finance Professor at
Peking University, who said that when an economy that's dependent
on fixed-asset investment like China unwinds, there are only two
options. One is to have a "deep and long recession" lasting
three or four years, and the other is to go through 10 years of
zero growth, Smead said. But this will have huge impact on the
prices of all assets across the board, he warned. Jian Chang,
China Economist of Barclays, agrees that that further moves by
central banks around the world will not be effective in spurring
growth. "At this point, such central bank moves no long impress
the market. Central banks rate cut may well be perceived as a
sign of panic or desperation," Chang said. "Markets remain
cautious, given the weakening growth momentum seen across the
board in major economies and they doubt the effectiveness of such
monetary easing may have in lifting growth."
WSJ - cities consider seizing mortgages
A handful of local officials in California who say the housing
bust is a public blight on their cities may invoke their
eminent-domain powers to restructure mortgages as a way to help
some borrowers who owe more than their homes are worth. Eminent
domain allows a government to forcibly acquire property that is
then reused in a way considered good for the public—new
housing, roads, shopping centers and the like. Owners of the
properties are entitled to compensation, which is usually
determined by a court. But instead of tearing down property,
California's San Bernardino County and two of its largest cities,
Ontario and Fontana, want to put eminent domain to a highly
unorthodox use to keep people in their homes. The
municipalities, about 45 minutes east of Los Angeles, would
acquire underwater mortgages from investors and cut the loan
principal to match the current property value. Then, they would
resell the reduced mortgages to new investors.
The eminent-domain gambit is the brainchild of San
Francisco-based venture-capital firm Mortgage Resolution
Partners, which has hired investment banks Evercore Partners and
Westwood Capital to raise funds from private investors. The
company's chief executive, Graham Williams, is a
mortgage-industry veteran who helped pioneer lending programs for
low-income borrowers at Bank of America Corp. in the early 1990s.
Its chairman, Steven Gluckstern, is an entrepreneur who once
owned the New York Islanders hockey franchise. Evercore's founder
and co-chairman, Roger Altman, served in the Clinton
administration and is raising funds for President Barack Obama's
re-election effort. For a home with an existing $300,000
mortgage that now has a market value of $150,000, Mortgage
Resolution Partners might argue the loan is worth only $120,000.
If a judge agreed, the program's private financiers would fund
the city's seizure of the loan, paying the current loan investors
that reduced amount. Then, they could offer to help the homeowner
refinance into a new $145,000 30-year mortgage backed by the
Federal Housing Administration, which has a program allowing
borrowers to have as little as 2.25% in equity. That would leave
$25,000 in profit, minus the origination costs, to be divided
between the city, Mortgage Resolution Partners and its
investors.
Investors holding the current mortgages predict the move will
backfire by driving up borrowing costs and further depress
property values. "I don't see how you could find it anything
other than appalling," said Scott Simon, a managing director at
Pacific Investment Management Co., or Pimco, a unit of Allianz
SE. A letter sent last week to city leaders from 18 trade
associations, led by the Securities Industry and Financial
Markets Association, warned that such a move "could actually
serve to further depress housing values" by making banks less
willing to lend. The plan's backers are unfazed. "The exact
opposite is true. There's no private market right now," said Mr.
Gluckstern of Mortgage Resolution Partners. "Until you clear out
this problem [of underwater loans], private lending will not come
back."
