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August 14, 2010

Issue 109


I don't really have a title this week, only the picture.  That's how I feel about the continuing nonsense that I see coming out of Washington.  It's just one piece of insanity after another.  Let's start with this:  (it's long, but worth the read)

Manhattan Luxury Condos Try FHA Backing in Sales `Game Changer'

By Oshrat Carmiel -

Aug. 13 (Bloomberg) -- The Federal Housing Administration is providing a lifeline to new Manhattan luxury condominiums after sales stalled. Bloomberg's Monica Bertran reports. (Source: Bloomberg)

Whitney Gollinger, marketing chief for a Manhattan condo building with an outdoor movie theater and panoramic city views, is highlighting a different amenity to spur sales: the financial backing of the federal government.

The Federal Housing Administration agreed in March to insure mortgages for apartments at the 98-unit Gramercy Park development, known as Tempo. That enables buyers to make a down payment of as little as 3.5 percent in a building where apartments range from $820,000 to $3 million.

“It’s a government seal of approval,” said Gollinger, a director at the Developments Group of New York-based brokerage Prudential Douglas Elliman Real Estate. “We need as many sales tools as we can have these days, and it’s one more tool.”

The FHA, created in 1934 to make homeownership attainable for low- to moderate-income Americans, is providing a lifeline to new Manhattan luxury condominiums after sales stalled. Buildings featuring pet spas, concierges and rooftop lounges are applying for agency backing to unlock bank financing for purchasers. The FHA guarantees that if a homebuyer defaults on his mortgage, the agency will pay it.

At least nine Manhattan condo developments south of 96th Street have sought approval for FHA backing since the agency loosened its financing rules in December, according to a database of applications kept by the U.S. Department of Housing and Urban Development. The change allows the FHA to insure loans in new projects where only 30 percent of units are in contract, down from at least 50 percent. About 1,900 apartments in New York’s most expensive neighborhoods would be covered by the applications.

Filling a Void

The agency also offers insurance to half of all mortgages in a single building after previously setting a limit at 30 percent, according to the new standards, which expire in December. The entire property must be approved for a buyer to get backing. Most of those that applied in Manhattan are buildings converted to condos or built since 2007.

The FHA is filling a void left after mortgage-finance agency Fannie Mae tightened its condo lending standards last year. The Washington-based company won’t back loans made in new buildings where fewer than 51 percent of the units are in contract, sometimes setting a requirement as high as 70 percent.

That in turn makes mortgage lenders hesitant to make loans at developments under those thresholds, said Orest Tomaselli, chief executive officer of White Plains, New York-based National Condo Advisors LLC, which advises condominiums on how to adhere to Fannie Mae and FHA standards.

‘Not an Accident’

“It’s not an accident that the FHA is offering this -- not private lenders,” said Christopher Mayer, senior vice dean at Columbia Business School’s Paul Milstein Center for Real Estate in New York. “An unfilled condominium complex is not the kind of thing that a bank looking to rebuild its balance sheet on real estate is looking to do.”

In New York City, the priciest urban U.S. housing market, the FHA insures loans of as much as $729,750, and permits buyers to borrow up to 96.5 percent of the price.

No buildings in Manhattan applied for FHA recognition between 1998 and 2008 -- though in those years the program didn’t require an entire property be approved and condo buyers could seek FHA-insured loans on their own, Tomaselli said.

New development in Manhattan represented 23 percent of the sales market in the second quarter, compared with 35 percent two years earlier, according to New York appraiser Miller Samuel Inc. About 8,700 new apartments in the borough were empty as of June, partly because of a lack of available financing for buyers, said Jonathan Miller, president of the firm.

‘Ironic’ Move

“Something has to happen for this product to be marketable,” Miller said. “I just find the whole thing ironic that FHA is providing financing for luxury housing.”

The FHA loosened the condo rules because of “market conditions,” according to Lemar Wooley, an agency spokesman.

“We are certainly cognizant of falling sales prices, limited availability of liquidity, etc., so we wanted to be flexible,” Wooley wrote in an e-mail. “The risk was considered before issuance of the temporary guidance.”

The new rules are a “game changer,” said Ryan Serhant, vice president at Nest Seekers International, a brokerage with offices in New York and Florida. He’s marketing 99 John Deco Lofts, a 442-unit conversion project in downtown Manhattan that features a “zen” flower garden and Brooklyn Bridge views.

The development, where sales began more than two years ago, had 10 units go into contract with FHA backing since approval in March. The FHA suspended its support for the building Aug. 3, according to the agency website. The property is working to have it reinstated, Serhant said.

Eager for Approval

Angela Ferrara, who markets the Sheffield condos on West 57th Street, checks every day whether the 597-unit property, which applied to the FHA in May, has won approval. Ferrara, vice president of sales for New York-based the Marketing Directors Inc., says she is eager to start touting the FHA backing to potential buyers. That’s a reversal from the past, when government loan programs weren’t necessary -- or advertised.

“People would get the wrong idea, and think it was a different type of government-subsidized product,” Ferrara said. “It was almost regarded as a negative, particularly in the luxury properties.”

Now, she said, “It’s actually became a widely accepted marketing tool.”

The Sheffield promotes amenities such as concierge service, a pet spa and massage rooms, according to the project’s website. A neighborhood guide on the site lists chef Thomas Keller’s four-star restaurant Per Se as a nearby attraction, along with Lincoln Center, Carnegie Hall and Tiffany & Co.’s flagship Fifth Avenue store.

‘Great Solution’

The Sheffield’s owner, New York-based Fortress Investment Group LLC, took over the condo conversion project in foreclosure last August after the original developer, Kent Swig, defaulted on a loan. With 56 percent of the converted units sold or in contract, the building has about 230 units left to sell, Ferrara estimates.

FHA is “definitely is a great solution right now,” said Tomaselli of National Condo Advisors, which prepared the FHA applications for Tempo and Sheffield.

“The savvy developers did it first,” Tomaselli said. “But everybody else is catching up.”

In the borough of Brooklyn, FHA support accounted for half of the 29 units sold at the 111 Monroe condos in Clinton Hill and a quarter of apartments in Williamsburg’s NV building, which is sold out after two years on the market, said David Behin, executive vice president at the Developers Group, a New York brokerage for new buildings.

Limits to Success

The FHA’s effectiveness will be limited in Manhattan because apartment prices are higher than in Brooklyn and the insured loan is capped at $729,750, Behin said. The median price of a Manhattan apartment in a new development was .4 million in the second quarter, according to Miller Samuel and Prudential Douglas Elliman.

“With apartments over $1 million, FHA isn’t going to help you,” Behin said. “You’d have to put down 30 percent to get the loan of $729,000. And if you have 30 percent to put down, a bank will loan to you without FHA.”

Borrowers backed by FHA are essentially buying mortgage insurance, said Debra Shultz, managing director at Manhattan Mortgage Company Inc. in New York. Buyers pay an upfront premium of 2.25 percent of their loan value, and a monthly fee equal to about 0.5 percent of the loan amount for at least five years, she said.

Nationwide, the FHA insured 21 percent of all mortgages made in the second quarter, or $71.4 billion worth of loans, according to Geremy Bass, publisher of the Inside FHA Lending newsletter. That’s close to the $79.5 billion total value of all FHA-backed loans in 2007.

Rising Defaults

Nine percent of all FHA-insured loans were 90 days or more past due or in the process of foreclosure in the first quarter, compared with 7.4 percent a year earlier, data from the Washington-based Mortgage Bankers Association show.

The agency doesn’t require a minimum credit score for the mortgage insurance, though many lenders who fund the loans insist on a rating of at least 580, said Shultz.

The FHA is considering a minimum required score of 500, according to a notice the agency filed in the Federal Register on July 15. A person with a 500 rating is in the lowest one percentile of credit scores nationally and was likely delinquent on several accounts in the last year, said John Ulzheimer, president of consumer education for, a consumer and credit education company based in San Francisco.

Taking on Risk

“The government is taking on more risk,” said Guy Cecala, publisher of Inside Mortgage Finance. “That’s the bottom line. They really can’t say no, because that’s their purpose. It’s to support the housing market when there’s no other funding.”

Until they heard about FHA, Asha Willis and her boyfriend, Cesar Rivera, didn’t think they would buy a place for at least five years -- enough time to save a 20 percent down payment, she said. The couple reasoned that they earned enough to make monthly mortgage payments, and began an apartment search in February, limiting their hunt to buildings with agency backing.

Willis, an attending physician at Maimonides Medical Center in Brooklyn; and Rivera, a sales associate at Chelsea Piers in Manhattan, toured several glass and steel high rises and decided on a one-bedroom at Toll Brothers Inc.’s Two Northside Piers in Williamsburg, Brooklyn. It didn’t have FHA approval at the time, but developers promised it was on its way, Willis said.

Contract Contingency

“Our contract had a contingency that if they weren’t FHA approved we could get out of the contract,” said Willis, currently a renter at Manhattan’s Stuyvesant Town.

Prices at the building range from the “high $300,000s” to more than $2 million, according to Adam Gottlieb, project manager for Northside Piers. The property, which began sales in October 2008, received FHA approval in June.

Shultz, whose Manhattan Mortgage has sourced FHA loans for buyers in Brooklyn, the borough of Queens and on New York’s Long Island, said the last month brought a sudden surge of calls from would-be buyers seeking FHA insurance for Manhattan purchases.

“It’s definitely breaking through to the Manhattan market,” she said.

At Tempo, which is still under construction, developers are hoping that FHA approval will appeal to buyers of lower-priced units and inch the number of contracts signed to the 51 percent that conventional mortgage lenders require, Gollinger said. About 15 percent of the 98 units are under contract.

The developers plan to tout FHA support in e-mails and other promotions in a sales push next month as the building nears completion, Gollinger said.

“I never even dealt with this,” she said. “All of a sudden it became an absolute must.”

This is just a mind numbingly dumb idea.  One of the sales people for the condos, calls this the "government seal of approval."  Did we not learn ANYTHING over the last 10 years.  The government is going to back multimillion dollar condos?????  WTF????  Excuse my abbreviation, but this time of stupidity demands a more demonstrative tone.  Putting 3.5% down on a 2 million dollar property is just asking for that person to walk away if things go south.  Guess what?  Things ARE going to go further south in the coming years.  These properties WILL be foreclosed on.  The taxpayer WILL be on the hook.  Absolutely insane.
But wait....there's more:

Government to spend $3 billion to help homeowners

Mortgage assistance would go to jobless, people with medical conditions

By Jeffry Bartash, MarketWatch

WASHINGTON (MarketWatch) -- The White House on Wednesday said it would spend an additional $3 billion to help distressed homeowners in the states with the highest jobless rates to pay their mortgages.

Affordable housing for the affluent

Juliet Chung discusses developers of high-end vacation homes, which are building smaller, less expensive houses in resort communities as home sales slump in major markets across the country.

The latest round of funding pushes the total federal commitment up to $4.1 billion. The government already runs two other programs to help homeowners modify existing mortgages or make their monthly payments.

So far, existing government programs designed to help people to stay in their homes have met with limited success. The rate of property foreclosures climbed 8% to 1.65 million in the first six months of 2010 compared to the prior year, according to RealtyTrac. Shiller sees significant likelihood of double dip

The new program is meant to prevent further home foreclosures in 17 states plus the District of Columbia. Most of those states have experienced a rash of foreclosures that have depressed the housing market and local economy.

Eligible homeowners could receive no-interest loans up to $50,000 for as long as 24 months. The money would be lent to people who lost their jobs or cannot find enough work and are in danger of losing their homes. People whose medical conditions have also reduced their ability to work would also qualify.

To receive aid, homeowners would have to show a good record of mortgage payment before their employment or medical condition changed. They would also have to demonstrate a "reasonable likelihood" of resuming payments within two years, government officials said.

The states with the highest foreclosure rates are Nevada, Florida and Arizona. Nevada and Florida would quality for fresh government assistance but not Arizona, which has slightly lower unemployment rate compared to the national average.

Other states eligible for assistance are: Alabama, California, Georgia, Illinois, Indiana, Kentucky, Michigan, Mississippi, New Jersey, North Carolina, Ohio, Oregon, Rhode Island, South Carolina and Tennessee.

The federal Housing Finance Agency would distribute $2 billion to the states through the so-called Hardest Hit Fund set up earlier this year. The Housing and Urban Development Department would also make $1 billion available via a new emergency program authorized by the recently signed Dodd-Frank law regulating the finance industry. See earlier story.

Homeowners would apply for relief through their state housing agencies.

Herb Allison, a senior Treasury official, said the goal of the program is to "stabilize a fragile housing market and allows responsible homeowners the chance to reduce their monthly mortgage payments to affordable levels."

The White House is authorized to spend up to $50 billion to help homeowners under the Troubled Asset Relief Program originally created by the Bush administration to bail out Wall Street.

Critics say the relief programs are unfair to homeowners who are current on their mortgage payments. They also argue that much of the money is wasted because distressed homeowners usually default even after getting government help.

The latest Treasury report shows that about 10% of distressed homeowners who received modified loans in the fourth quarter of 2009 are delinquent in their payments.

"The default rates are far better than most experts predicted," Allison said.

The modification program, known as HAMP, helps homeowners to renegotiate with banks to reduce the size of their original mortgages, most of which are much higher than the current value of their homes.

Yet only 39,000 homeowners were able to qualify for permanent modifications in June and just 400,000 have benefited since the program was enacted, according to government data. A report by Fitch Ratings Ltd. suggests as many as three-quarters of the modified loans could end up in default once again.
No interest loans.....yeah, that sounds like a GREAT idea.  Can't we just let things run their course?  Let's just get through the hangover and begin again.  Is pain not allowed in our society anymore?  Papa Sam will take care of you no matter what.  Until he doesn't, and then you get pissed:

New York's jobless 99ers channel anger in Wall Street protest, demand unemployment extension

BY Lore Croghan
Daily News Staff Writer

The 99ers took a stand on Wall Street Thursday. 
A throng of desperate job-hunters -- who've been
out of work so long their unemployment benefits
ran out -- staged a protest rally on the steps of
Federal Hall.

"Are you going to tell us, President Obama and
Congress, that our lives are not worth saving?"
asked 99er Connie Kaplan.

She had to move in with her daughter in Astoria,
Queens to survive and gets food from food banks.

The grassroots political group, which sprang up
after jobless Americans started commiserating
online, is demanding that unemployment benefits be
extended to include them. Sen. Chuck Schumer (D-
N.Y.) co-sponsored a recently introduced bill that
would create extensions in states with
unemployment rates of 7.5% or higher.

"My family is broken up," 99er and former public
relations director Anne Strauss, 58, of Smithtown, L.
I., told the Daily News.

Her house is for sale and her husband, also
unemployed, has moved in with his son in Albany
to take a commission-only job.

Strauss applied for a job at a bakery. One question
on the application form asked of the job, "Will it
interfere with your after-school activities?"

Pedro Coniconde, 45, of Tompkinsville, Staten
Island, lost his job as a file clerk at Bank of New
York in February 2008. He held a sign saying, "Pls.
Do Not Treat Us the Unemployed Like Lepers and
People now need MORE than 99 weeks to find a job?  If you can't find a job in 99 weeks, there is something you are doing wrong.  YOU need to be more aggressive.  Move, work as an apprentice for nothing, take classes online, SOMETHING!  That is the creeping destructive effects of government handouts.  They create RELIANT sheep, just waiting around for someone ELSE to do something.  This is the plan.  Make no mistake, this is the intended result.  Creating a helpless large class of people that can't do much for themselves.  But can you really blame them as they see bailout after bailout of the bankers:  (from GATA)

Dave from Denver…

Monday, August 9, 2010

Just When You Think The Taxpayer Bailout Of Real Estate Crooks And Banks

can't get any more absurd, you wake up to this (sourced from disclosure that the commercial real estate lobby is asking for Congress to borrow even more money and give it to the banks to bail them out of their commercial real estate disasters:

The undersigned commercial real estate industry associations strongly support the Community Recovery and Enhancement Act (CRE Act), important legislation introduced by Congresswoman Shelley Berkley to help incentivize equity investment in distressed commercial real estate assets and to address the pending crisis threatening community banks that currently hold significant real estate debt on their books.

Please note that this pathetic entreaty specifically refers to community banks as being the primary beneficiary. Let me state for the record that the real problem with underwater CRE loans is sitting on the balance sheets of Citicorp, Bank of America, JP Morgan and other big banks. I know this for a fact. I know from a very good friend of mine who is a commercial real estate investment consultant to pension funds that these big banks do not mark down their real estate assets at all until a forced restructuring occurs. And many of the mega-deals that are at least 50% underwater - this means the equity is wiped out and the bank loan is worth, AT MOST, 50 cents on the dollar - have yet to be restructured.

The big banks don't care about the community/regional banks other than to let them die so the big banks can pick over the carcasses. Make no mistake, this is another big bank bailout in process. Is everyone interested in seeing more of their tax money going into the pockets of the big banks and the people who run them? That's where this is headed...

The Congressman who introduced this - Shelley Berkely from Las Vegas - is a lifelong politician and no doubt has been heavily controlled and likely PAC-subsidized by the casino industry (i.e. lots of corruptions and graft to toss around). Here's her bio: Congressional Scumbag. The casino industry has completely overbuilt Vegas and the big banks have underwritten most of the debt to finance the overbuilding.

That's just beautiful.  More money for the idiotic loan makers.  Let's just send money to EVERYONE!  That will solve the problems.  Would that work?  Not in a million years, check out this chart:
Does that look like a sustainable trend.  Can we REALLY issue 45% of all the country based debt in the world?  For now we can, but not forever.  Here's another chart:  (thanks to Craig)
This is a chart prepared by the Congressional Budget Office.  Notice that things are supposed to get better and better until 2013 when they will start to worsen again.  If the deficit is that low in 2012, I'll eat my hat.  This is complete fantasy.  Also notice that the White House estimate stays about the same from 2012 to 2019....RIGHTTTTTTT!  That's going to happen.  Here's a quote:

"I sincerely join... in abjuring all political connection with every foreign power; and though I cordially wish well to the progress of liberty in all nations, and would forever give it the weight of our countenance, yet they are not to be touched without contamination from their other bad principles. Commerce with all nations, alliance with none, should be our motto." --Thomas Jefferson to Thomas Lomax, 1799. ME 10:124

Now try to square that quote with this last chart:
About as far from Jefferson's vision as one could imagine.  Unsustainable too, just like almost everything else we do as a country.  Notice Russia's percentage, 3.5%.  Remember the cold war?  They were spending as much as us.  Eventually, we will be unable to continue the spending.  Of course these crazy charts and stories lead time and time again to the one asset that will save  I'm constantly writing how gold is manipulated.  Here is a chart that is hard to explain otherwise:  (from GATA) 
What this chart shows is the cumulative gains made in the price of gold divided into two time frames:  10:30 A.M. to 3:00 P.M. and the rest of the 24 hour day.  The line in red shows the intraday COMEX time frame.  This is when the banks and FED do their work.  The blue line, which is nearly 3 times longer in duration, shows all other times of day.  This is primarily an Asian influenced market.  The red line is all New York influence.  How can it be that nearly all the gains take place at night, and all the losses during the day?  Shouldn't it be evenly divided?  Of course it should, if it was a fair open market.  It's not.  Eventually this will blow up.  You'll be glad you have gold that day.  I did find an excellent article on buying/storing physical gold in various forms with a lot of explanation.  It was created by  Check it out here
I'll finish this week with a video of Glenn Beck, it speaks for itself, have a great week!