Friday, October 14, 2011

Study: Economic Woes Cause Birth Rate to Fall

The sour economy is being blamed on a sharp decline in births in the country. An analysis by Pew Research Center found that since a 2007 record of 4,316,233 births in the U.S., fertility rates have been steadily falling--even though the nation’s population continues to grow. In reviewing preliminary data from 2009, Pew found that births dropped to 4,131,018 in 2009--which is the lowest number since 2004--and that births were even lower in 2010 at 4,007,000. In all states, Pew found fertility declines occurred within one to two years of the beginning of economic declines. States facing the greatest economic hardships were found to have the largest drop in fertility rates, while states that had only minor economic declines were found to have smaller declines in fertility rates, according to Pew. By race and ethnicity, Pew found that Hispanics had the largest drop in fertility rates. Hispanics also have been one of the hardest hit racial groups in the recession with sinking employment levels and household wealth. Birth rates dropped by 5.9 percent among Hispanic women from 2008 to 2009 compared to dropping 2.4 percent among black women and only 1.6 percent among white women. Source: “In a Down Economy, Fewer Births,” Pew Research Center (Oct. 12, 2011)

Improved Job Report Sends Mortgage Rates Higher

After posting record lows the last few weeks, mortgage rates inched higher this week, Freddie Mac reports in its weekly mortgage market survey. Yet, rates still remain near 60-year lows. “An employment report that was better than market expectations helped to lift long-term Treasury bond yields and mortgage rates as well,” Frank Nothaft, Freddie Mac’s chief economist, notes. In September, the economy added 103,000 workers; however, the unemployment rate still remained high at 9.1 percent. Here’s a closer look at rates for the week ending Oct. 13. 30-year fixed-rate mortgages: averaged 4.12 percent, with an average 0.8 point, moving up from last week’s record-hitting 3.94 percent average. A year ago at this time, 30-year rates averaged 4.19 percent. 15-year fixed-rate mortgages: averaged 3.37 percent with an average 0.8 point--that’s up slightly from last week’s low of 3.26 percent average. Last year at this time, 15-year rates averaged 3.62 percent. 5-year adjustable-rate mortgages: averaged 3.06 percent, with an average 0.6 point, and inching up from last week’s 2.96 percent. Last year at this time, the 5-year ARM averaged 3.47 percent. 1-year ARMs: averaged 2.90 percent with an average 0.6 point, a drop from last week’s 2.95 average. A year ago, 1-year ARMs averaged 3.43 percent. Source: Freddie Mac

5 States With the Highest Home Ownership Rates

Where is home ownership the highest? Home ownership rates tended to be highest in states that are less populated and with low home prices, according to a review of recently released 2010 Census Data by 24/7 Wall St. On the other hand, states with the lowest home ownership rates tend to have more pricey homes and be in large cities. The following are the states with the highest percentage of homes occupied by their owners. 1. West Virginia Home ownership rate: 73.4% Median home value: $94,500 2. Minnesota Home ownership rate: 73% Median home value: $200,400 3. Michigan Home ownership rate: 72.1% Median home value: $132,200 4. Iowa Home ownership rate: 72.1% Median home value: $122,000 5. Delaware Home ownership rate: 72.1% Median home value: $294,400 The state with the lowest home ownership rate? New York, which has a home ownership rate of 53.3 percent. Source: U.S. Census Bureau and “States With the Highest (and Lowest) Homeownership,” (Oct. 12, 2011)

Thirty-Year Rate Jumps Back Up Above 4% Mark in One Week's Time

The run for below-four-percent 30-year mortgage rates was short-lived. After a history-making drop to 3.94 percent last week, Freddie Mac has recorded an 18 basis point jump in the average interest rate on a conventional fixed-rate mortgage with a 30-year term. The GSE says the 30-year fixed-rate mortgage averaged 4.12 percent (0.8 point) for the week ending October 13, coming off last week’s record low in which the 30-year rate dipped below the 4 percent mark for the first time ever. The 30-year rate is not too far off of levels since last year at this time, when it was averaging 4.19 percent. The 15-year rate also leapt higher. Freddie’s study puts the average 15-year fixed-rate mortgage at 3.37 percent (0.8 point) this week, up from 3.26 percent last week. A year ago at this time, the 15-year rate was averaging 3.62 percent. The 5-year adjustable-rate mortgage (ARM) is now averaging 3.06 percent (0.6 point). That’s up from 2.96 percent last week. Roll the clock back 12 months, and the average rate for a 5-year ARM was 3.47 percent. The 1-year ARM, which is tied to shorter-term Treasuries as opposed to the longer-term 10-year Treasury yields that influence fixed-rate movement, headed lower this week. Freddie reports the average rate for the 1-year ARM came in at 2.90 percent (0.6 point) this week, down from 2.95 percent last week. At this time last year, the 1-year ARM averaged 3.43 percent. Save for the 1-year ARM, mortgage rates across the board rose sharply this week from the previous week’s record-setting lows. Freddie Mac attributes the sudden upward movement to the better-than-expected employment report last Friday, but the GSE stressed that even with the increases, mortgage rates remain near their 60-year lows. Freddie Mac’s weekly rate survey is based on data collected from about 125 lenders across the country.

Former Lend America President Pleads Guilty to Mortgage Fraud

After admitting to an extensive mortgage fraud scheme, the former president of Lend America was suspended from doing any future business with HUD. Michael Primeau pled guilty to an extensive mortgage fraud scheme in which he ordered employees to pay company operating expenses with funds intended to pay borrowers’ first mortgages at refinance closings. Previously an FHA -approved lender, New York-based Lend America also allegedly violated FHA’s origination and underwriting standards on several occasions, according to HUD. Violations include submitting false certifications, approving loans that did not meet minimum credit requirements, failing to properly and accurately document borrowers’ incomes, and omitting liabilities from underwriting analyses. Ideal Mortgage Brokers, operating as Lend America and Lending Key, was in operation for 20 years before HUD determined it was violating FHA rules. In 2009, HUD barred the company from originating and underwriting FHA-insured mortgage loans. At the same time, Ginnie Mae shut down the operation and seized the company’s portfolio. Announcing Primeau’s suspension from conducting further business with HUD, the department’s general counsel, Helen Kanovsky said, “We take this action to protect the public.” “Beyond this particular suspension, the broader message to the lending community should be crystal clear – the federal government will not do business with those who fleece homeowners,” Kanovsky added.

JPMorgan Rebuffs Reports That AG Settlement Is Imminent

JPMorgan Chase used its third-quarter earnings call with investors Thursday to rein in expectations about when a mortgage servicing settlement might be reached with state officials. CEO Jamie Dimon described the settlement talks as “getting bogged down” because of the many varying demands of each of the 50 state attorneys general, a couple of which have already pulled out of the negotiations because they disagree with the terms of the proposal under consideration. JPMorgan is one of five major mortgage servicers involved in the negotiations, and Dimon’s remarks don’t jibe with the flood of media reports coming out this week citing unnamed sources who claim a final settlement agreement is just days away. Several state attorneys general themselves have made public statements dismissing the unsubstantiated news that a deal is just around the corner. Reuters quoted Florida Attorney General Pam Bondi as saying on Wednesday, “I read this morning that we’re settling this tomorrow. I doubt that’s going to happen.” Dimon told his company’s investors, “We would love to have some kind of settlement. We think it’s actually good for everybody to get [it done] and move on,” but he was quick to add, “if it’s reasonable.” The New York-based bank reported third-quarter net income of $4.3 billion, compared with $4.4 billion over the same period last year. JPMorgan logged higher mortgage servicing expenses and lower servicing-related revenue in Q3 when compared to a year earlier. Servicing expense was up $292 million year-over-year. The company attributed the increase to higher core and default servicing costs. Approximately 65 percent of the servicing expense in Q3 was related to default costs, “which are expected to remain elevated,” JPMorgan explained in its earnings presentation to investors. Servicing-related revenue of $1.2 billion was down 10 percent from the third quarter of 2010, due to a decline in third-party loans serviced. The company also reported that it was out $314 million in Q3 for loan repurchases. That figure represents a 79 percent decline from a year earlier. “We do expect [repurchase] losses to remain at $350 million per quarter, but that may vary around the time of settlements and the like,” CFO Doug Braunstein told investors. Expenses within the company’s real estate portfolio were down 7 percent year-over-year, reflecting a decrease in the costs associated with foreclosed assets due to temporary delays in foreclosure activity, but Braunstein said he expects that to increase as foreclosures resume. “Consistent with recent trends, expect continued elevated default management and foreclosure-related costs in the mortgage banking” business line, JPMorgan told investors.
In preparation to begin policing the nation’s largest lenders, the Consumer Financial Protection Bureau (CFPB) Thursday released its examination procedures for mortgage servicers. The bureau will begin its review of more than 100 “large” banks, thrifts, and credit unions with reviews of their mortgage servicing practices. “Mortgage servicing has a huge impact on consumers and is a priority for the CFPB,” said Raj Date, special advisor to the Secretary of the Treasury, according to a Thursday press release. “The mortgage servicing market has been bogged down by widespread reports of pervasive and profound consumer protection problems,” Date continued, adding, “We are going to take a close and measured look at whether servicers are following the law.” CFPB examiners will be charged with gathering information regarding the banks’ policies and procedures and assessing whether they are abiding by the law. “When necessary, examiners will coordinate and work closely with CFPB’s enforcement staff to take appropriate enforcement actions to address harm to consumers,” the CFPB stated in its release. The bureau’s agents will examine samples of customer complaints and interview some consumers to “determine whether their complaints were resolved adequately, and whether they were resolved in a timely manner,” states the CFPB Supervision and Examination Manual. Examiners will also review servicing records for customers in imminent risk of default, in default, and in foreclosure. Where an examiner sees possible violations, he or she will reach out to consumers to determine whether the servicer acted appropriately. In the area of loss mitigation, examiners will review each bank’s policies and identify where “broad employee discretion” exists. Examiners will also evaluate whether the information offered to consumers regarding loss mitigation options is “clear, prominent, and readily available,” including any fees or negative consequences associated with the loss mitigation action. When a customer’s loss mitigation application is denied, the examiners will look for an adequate and timely explanation to the borrower. The CFPB will also review servicers’ actions regarding bankruptcy. The agency will evaluate whether the bank properly applies payments from bankruptcy trustees to clients’ accounts and whether the servicer notifies the borrower, bankruptcy trustee, or court of any fees accrued by the borrower. In cases of foreclosure, the examiners will look for instances where the borrower was not seriously delinquent, was in the process of a trial modification, or had a modification or forbearance request pending. “The CFPB is making the general exam manual and servicing procedures public so that financial services providers know what to expect during their examinations, and so that the public knows how we are fulfilling our responsibilities,” the CFPB stated the day of the release. “We want to build a constructive relationship with the companies we supervise, and we understand the importance of establishing expectations up-front,” the agency stated.

New Building Spending Rises In August, But Weakness Prevails

In the second unexpected surprise for construction industry watchers in two weeks, nonresidential construction spending rose 1.6% in August from the previous month to an annual rate of $553 billion, according to the U.S. Commerce Department. According to Census Bureau data released this week, private nonresidential construction spending inched up 0.2% in August and is 5.6% higher from a year ago, while public-sector construction spending rose a strong 3.1% -- the largest monthly gain since February 2009 -- to an annualized $288.2 billion in August. However, spending for publicly financed structures like bridges, hospitals, schools, roads and highways, sewers, water systems and government buildings remains down 6.3% compared to the same period last year, even as private-sectors project demand has steadily increased, according to the Associated General Contractors of America (AGC). Private residential and nonresidential project spending is up 5.6% year to date from 2010 and inched up a modest 0.4% between July and August, from $508.9 billion to $511 billion. "Over the past month, both publicly and privately financed construction spending grew -- an indication that recessionary forces are being held at bay for now," said Anirban Basu, chief economist for the Associated Builders and Contractors (ABC), which represents primarily construction-related firms in the industrial and commercial sectors. The increase in project spending is the second bit of good news for the beleaguered construction industry in recent weeks. The Architecture Billings Index, a leading indicator of future construction spending, showed increased demand for the services of architects in August for the first time in four months, according to the American Institute of Architects (AIA). Although analysts expect nonresidential spending to strengthen through 2012 from near-zero levels over the last two years, commercial developers will slow down some projects already started and delay projects scheduled to start due to concerns about the economy and a further contraction in the availability of construction financing. Monetary policy makers hope a lowering of long-term interest rates will create liquidity in construction and mortgage funding.

Brooklyn Multifamily Trades for $10.7M

United American Land Company LLC acquired the former 34-unit student dormitory at 184 Joralemon St. in Brooklyn from the Brooklyn Law School for $10.7 million, or about $315,000 per unit. The 12-story, 29,800-square-foot multifamily building was built in 1910 in the Downtown Brooklyn submarket of Long Island. The new owners have plans and designs in place for an early 2012 condo conversion. Isaac Billitzer and Erez Itzhaki with Itzhaki Properties represented the buyer. Billitzer also represented the seller in the deal. Please refer to CoStar COMPS #2180415 for more information on this transaction.

Ares Management, Canada Pension Plan To Pay $1.6 Bil. for 99 Cents

99 Cents Only Stores agreed to be acquired by affiliates of Ares Management LLC and Canada Pension Plan Investment Board for $20/share of common stock for a total value of $1.6 billion. Last March, private equity fund Leonard Green & Partners LP made a similar offer for $19.09/share. City of Commerce, CA-based 99 Cents Only Stores currently operates 289 extreme value retail stores consisting of 214 stores in California, 35 in Texas, 27 in Arizona, and 13 in Nevada. The company’s existing stores average 21,200 gross square feet, however, 99 Cents has been targeting new store locations between 15,000 and 19,000 gross square feet. Members of the Gold/Schiffer family voted to support the transaction and will continue to hold a significant minority ownership stake. Eric Schiffer (CEO), Jeff Gold (president and COO), and Howard Gold (executive vice president) will continue in their current leadership roles at the company and will serve as directors. Founder David Gold will serve as chairman emeritus. "We expect this transition to be a win-win for everyone as it delivers significant value to our shareholders," Schiffer told employees on announcing the deal. "It provides access to expertise to help us accelerate our growth, and helps ensure that we can continue to deliver extreme value to our customers and provide a great place to work for our 99ers. The news of this agreement should not be a distraction to any of us, as we do not contemplate any material change in the way the business is managed. It is business as usual." 99 Cents is required to pay a termination fee of $47.25 million if it terminates the merger agreement under certain circumstances. Ares and the Canada Pension Plan would have to pay a $94.5 million termination fee. The buyers have obtained equity financing commitments from Royal Bank of Canada, RBC Capital Markets, Bank of Montreal and BMO Capital Markets providing for a $150 million revolving credit facility, a $525 million term loan and a $250 million bridge facility (with the bridge facility to be funded through a private placement of non-convertible debt securities or a bank loan). The transaction is expected to close during the first quarter of calendar year 2012.

Single-Tenant Property Sales Surge To Record Numbers

With money to burn but still having a strong aversion to risk, investors have increasingly turned single-tenant properties into one of the hottest commercial real estate plays in the country. For the last quarter of 2010 and first two quarters of this year, CoStar Group shows that sales of single-tenant properties have averaged more than 10,000 transactions per quarter - the highest quarterly totals on record. And for third quarter comparable sales CoStar is showing that pace is continuing. So far this year, CoStar has tallied more than 30,000 single-tenant sales valued at $29.2 billion in all property types. Retail sales have accounted for about half of the activity. The single-tenant, net lease investment sales market is expected to continue growing, according to Jones Lang LaSalle. "The low interest rate environment and the lack of safe-haven investment alternatives are driving new sources in build-to-suit and sale-leaseback activity, and investors have incredibly healthy appetites for stable and dependable income streams that single-tenant assets provide," said Guy Ponticiello, managing director Jones Lang LaSalle's Corporate Finance & Net Lease division. Fully leased core properties have been highly sought-after by investors, often from overseas, and prices for these properties have been strong, according to Jane L. Mendillo, president and CEO of Harvard Management Co. in her most recent Harvard University Endowment report. "We were able to sell some of our portfolio properties in this category at excellent values," Mendillo said. And now Harvard is ready to invest in new round of such properties. Jones Lang LaSalle's Capital Markets secured $360 million in acquisition equity for a real estate investment vehicle to be managed by U.S. Realty Advisors LLC. The entity, called USRA Net Lease Capital Corp., will pursue the purchase of single-tenant net leased assets throughout the U.S. Harvard University's endowment is the main investor in the venture that could buy more than $1 billion of triple-net leased property. Indeed, institutional and private equity interest in this property type is high. "One way to hedge risks in today's highly volatile and lower-yield environment is to invest in net lease properties, ideally with credit tenants," said Tim Wang, Ph.D., senior vice president of Clarion Partners in New York. "Until recently, the most active net lease investors have been dominated by dividend-paying private REITs and 1031 exchange buyers. However, net lease investments are becoming increasingly attractive to institutional investors because of their longer lease terms, higher income, and lower operating expenses. "For assets in primary U.S. markets on a long-term (10+ year) net lease to a nationally recognized company there is a highly disproportionate supply of money vs. supply of product. This has been a primary driver pushing yields down to levels not seen since prior to the credit crisis," said David B. Chasin, executive vice president of Pegasus Investments in Los Angeles. "Given the macro-economic uncertainty, historically low Treasury yields and breakdown of Wall Street equity markets, the net leased investment market provides an extremely attractive platform." But big money isn't the only player in the market. Mike Eyer, senior advisor for Sperry Van Ness in Fort Collins, CO. said. "Recently individual buyers from the coastal markets are getting even more aggressive and are pricing the institutions out of the market." The increasing demand for these investment leases isn't necessarily coming by choice, added Brian Merzlock, valuation manager at Williams Williams & McKissick auction house in Tulsa, OK. "This is a market-forced move," Merzlock said. "When you are disheartened by the world markets time and time again, you become more restrictive with your capital, and the retail lease market becomes a more appealing to risk appetite." "With companies recording higher profit levels, there has to be some kind of tax shield in the capital fund creating a traditional solution to the nasty volatile bear market trends we are experiencing," Merzlock said. "We are seeing increased stability in those markets that have been traditionally strong and little demand in the newer 'suburbs' where you'll see numerous clusters of new, yet vacant, retail buildings haunting the markets long after Oct 31." Jeffrey Rogers, president and COO of Integra Realty Resources in New York, said, "Investors are favoring this type of investment because capital for this property type has increased and demand for the property type is outpacing supply. There has been very little new development over the past three years and that has caused some pent-up demand." Consequently, "any increase in demand for retail products will increase the desirability of net leased retail investments because demand leads to better tenant quality, which is one of the three metrics investors focus on to decide whether to invest. Increased sales and consumer sentiment leads to higher tenant credit ratings. The other two metrics are favorable lease terms and location of the asset," Rogers said.