Investing is so 2012: FHA Continues to Waive Restrictions on Flipping

“Flipping” has earned a bit of a bad reputation since issues with the housing market started a few years ago. The Federal Housing Authority agreed with the iffy nature of flipping and instituted an anti-flipping measure in 2003 that “was initially put in place to prevent predatory flipping, in which homes are quickly resold at inflated prices to unsuspecting borrowers.” This measure disallowed FHA lending to any homeowner who owned a home for less than 90 days (see article).

With the intention of spurring investor purchases of foreclosed homes once again, this measure was suspended in 2010 and was originally to expire this month. However, given the continuing issues with the market, the FHA has extended the waiver. Foreclosed homes lead not only to deferred maintenance of a home, which can be costly and can make resale of the home that much more difficult, but they can also lead to greater crime rates as people strip wires and steal plumbing, appliances and other elements of the home; squatting and other undesirable effects are also a side effect within the neighborhood in which they exist.

As the FHA eases up on so-called “flipping,” many are looking to rehab the term itself. The FHA defines “flipping” as:

“Property ‘‘flipping’’ refers to the practice whereby a property recently acquired is resold for a considerable profit with an artificially inflated value, often the result of a lender’s collusion with the appraiser. Most property flipping occurs within a matter of days after acquisition, and usually with only minor cosmetic improvements, if any. In an effort to preclude this predatory lending practice with respect to mortgages insured by FHA, HUD issued a final rule on May 1, 2003 (68 FR23370) that provides in 24 CFR 203.37a that FHA will not insure a mortgage if the contract of sale for the purchase of the property that is the subject of the mortgage is executed within 90 days of the prior acquisition by the seller and the seller does not come under any of the exemptions to this 90-day period that are specified in § 203.37a(c).”

However, in defense of what they consider solid investments, many who would be deemed flippers want us to know that, “For real estate investors, the term ‘flipping’ simply means buying and selling quickly. There is no connotation of fraud just because a home is bought and sold in a short period of time” (see article). The same investors will tell you that, “Limiting investor profits on the resale of a home with documented, legitimate renovations [such as the FHA did in 2003] shows a lack of understanding of the financial issues involved in buying and renovating houses.”

A controversial issue, flipping can be argued on either side. But for now, the FHA is recognizing that – squeamish as they may be about it – flipping may be just one of many necessary solutions to the current housing issue.

Reason for some cautious optimism in 2012…

Contract signings for homes up in November

But the gauge has become less reliable lately because of cancellations

DEREK KRAVITZ, Associated Press, December 29, 2011, link

WASHINGTON — The number of Americans who signed contracts to buy homes in November rose to the highest level in a year and a half.

Normally, that would signal better home sales. But a growing number of buyers are canceling their contracts at the last minute, making the gauge less reliable.

The National Association of Realtors says its index of sales agreements jumped 7.3 percent last month to a reading of 100.1.

A reading of 100 is considered healthy. The last time the index was that high was in April 2010, one month before a federal home-buying tax credit expired.

Contract signings usually indicate where the housing market is headed. There’s a one- to two-month lag between a signed contract and a completed deal.

Perhaps your home has some New Year’s resolutions as well…

As 2012 approaches and everyone is thinking about getting in shape, getting on track and generally getting it together, it may be time to do the same for your home. With the market as it is, it’s best to have your home in the absolute best condition possible to attract ready, willing and able buyers. And while the word “renovation” strikes fear in the hearts of many homeowners, there are plenty of ways to update your home for minimal money and disruption. Here are just some of them:

1) Turn your closet into an office. See more

2) Fix those squeaky floors. See more

3) Remodel your garage. See more

4) Touch up those paint jobs. See more

5) Clean out those gutters and downspouts. See more

Take some time to look around your house and see how you can make easy updates to not only enjoy your home more yourself but also to avoid costly deferred maintenance and unnecessary expenses and rushing around should you decide to sell. Should you have any questions about which projects will help the value of your home the most, don’t hesitate to call. And certainly if the project seems too big for a little DIY, I have great suggestions for contractors, plumbers, electricians and a whole slew of other professionals who can help you make your home the best it can be in 2012.

Recession is the mother of invention.

Why Hard Times Can Make Great Buildings

JULIE V. IOVINE, The Wall Street Journal, December 23, 2011, link

A slow economy is hard on architecture, except when it isn’t. As the best buildings of 2011 amply show, closer scrutiny to the bottom line and even the need to lop off extras can lead to a sharper and more forceful design.

[BEST ARCHITECT] Frank Gehry’s 8 Spruce Street, at right, dwarfs the Woolworth Building.

The 76-story Beekman Tower by Frank Gehry, renamed New York by Frank Gehry and now known as 8 Spruce St., opened early in the year. During more than five years of intense scrutiny, the tallest residential building in the city re-emerged after financing difficulties—and a halt in construction that spurred rumors it would be half its final height—as a rental with its market-rate rents stabilized for 20 years. For now far taller than anything in its City Hall company and dwarfing even the 57-story Woolworth Building, Mr. Gehry’s steely undulating spire—the architect’s first skyscraper in the U.S.—will make good company when joined on the skyline by all the super towers a few blocks west at the World Trade Center.

Resilience also helped two museums realize their potential even as they faced delays and stiff value engineering—a construction-world euphemism for cutting corners. As a city-funded project for a perennially cash-strapped organization, the addition to the Museum of the Moving Image in Queens occasioned modest expectations. But when the addition, designed by Thomas Leeser, an architect’s architect with few completed works, opened in January following at least one complete redesign, the diamond-cut opaque facade with its canted, liquid white walls and Yves-Klein-blue quilted auditorium, among other zoomy touches, propelled the museum in a stroke to the forefront of high-tech media display spaces. In Denver, the architecture for a museum dedicated to works by the obsessively private Abstract Expressionist Clyfford Still stands out for its confident refusal to draw excess attention to itself. Designed by Allied Works Architecture, the firm that gave a makeover to 2 Columbus Circle in New York, the Clyfford Still Museum that opened in November is structurally a simple box made rich by textures and a subtly manipulative use of natural light. Notably, the building’s corduroy-concrete envelope echoes in the perforated cast-concrete ceilings stretched into a delicate web filtering overhead light. Architecture that elegantly showcases the art it contains without broadcasting itself has not been in fashion for a long time and is cause for gratitude.



Philippe RuaultThe ambitious, cantilevered Milstein Hall at Cornell University

Less accessible to the wider public and therefore all the more impressive are the academic institutions that have pursued bold architecture for the everyday use of students and faculty. Milstein Hall at Cornell University is a $52-million addition to the school’s architecture, planning and art departments. Designed by Rem Koolhaas and Shohei Shigematsu of the Dutch firm OMA, it needed to weave between two existing buildings and also bridge a roadway before even thinking about making a statement. The resulting structure is startlingly multifaceted: From some angles it is a politely elevated rectangular box inserted gingerly between the collegiate beaux arts Sibley Hall from 1894 and the industrial-brick Rand Hall. Structurally, it is far more ambitious, an extended cantilever supported by an array of progressively off-kilter columns telegraphing a message about load stresses. Just outside the entrance, the floor plate buckles up into a dome dotted on its swollen flank with bubble seats on one side and a stair to the upper floor on the other. A bridge crosses under the dome to allow viewing of student life and class activity going on below. It’s the hospitable version of Fritz Lang’s “Metropolis.”

[BEST ARCHITECT] Raul J. Garcia/Clyfford Still MuseumThe Clyfford Still Museum in Denver has a simple structure and a corduroy-concrete surface.

Milstein Hall shows off one extreme of a current concept popular with academic and research institutions and geared to encourage what the OMA architects call “improvisational interaction.” It could also be called design for casual socializing. The Ray and Dagmar Dolby Regeneration Medicine Building at the University of California, San Francisco is pursuing the same agenda in a warmer climate. Taking advantage of a disadvantaged sliver of a site stuck behind a midcentury university building and pinned against a forest hillside, Rafael Viñoly Architects transformed what might have been a regulation laboratory building into something more reminiscent of a Mediterranean villa. With the structure’s ascending series of terraces edged in wildflower-strewn green-roof lawns and cascading stairs and ramps, even the corrugated steel siding appears sun-kissed. The architect’s approach is organic in an almost geological sense, shaping the building in a riverbed curve and lifting it above a steep site on concrete piers to minimize its impact on the landscape. There is nothing exceptionally experimental here, but it does speak eloquently of architecture’s welcome drive to draw people into a deeper and more rewarding engagement with their environments.

Builders zone in on apartments as renters continue to pay big bucks…

CNN Money says that, “Home building spiked up in November to the strongest level in almost two years, as record-low mortgage rates and a surge in apartment and condo construction lifted activity” (see article). What’s perhaps surprising about this trend is that much of this building is focused on apartments.

With the current job market and mortgage difficulties, many are looking to rent. As more renters sell their homes or simply choose not to buy in the first place, rents are skyrocketing. This is not news to anyone in the Bay area, whose rents continue to rise and rental applications flood in to landlords.

For their part, builders are looking to take advantage of this trend, with the Washington Post noting these stats (see article):

— Builders should start at least 600,000 homes this year. That’s up from 587,000 last year and 554,000 in 2009 — the worst year on record. In a healthy market, economists say, about 1.2 million homes are started each year.

— The pace of apartment construction has soared. About 175,000 will be started this year, also roughly half the number in a healthy economy. But it’s far more than the 97,000 apartments begun in 2009.

— Single-family home construction, which accounts for about 70 percent of the housing industry, has essentially stalled for three years. This year will probably turn out to be the worst in the half-century records have been kept.

For builders, apartments are simply a better option; “It’s not as easy to get a home as it used to be,” says Rex Jensen, chief executive of the company developing a project in Fayetteville, North Carolina in the Wall Street Journal. “There are credit issues for buyers,” he says, “Also, from an infrastructure standpoint, it’s cheaper to invest in an apartment building than in a sprawling subdivision” (see article).

As builders struggle to keep up with renter demands, it is inevitable that there will be some lag, as there was with new construction a few years ago. Renters will have to wait for projects to be funded and completed before moving in so that the rental shortage will continue to lead to higher rents than we’ve seen in some time and more applications than apartments. And while some worry about over-saturation of apartment buildings, it looks like this niche construction boom is going to keep going strong until these hopeful renters find homes.

‘Tis the season for fewer foreclosures…

Scheduled home auctions hit nine-month high

Seasonal pullback in foreclosure activity by lenders and mortgage servicers

ALEX VEIGA, Associated Press, December 15, 2011

LOS ANGELES — Fewer U.S. homes entered the foreclosure process or were taken back by banks in November, reflecting a seasonal pullback in foreclosure activity by lenders and mortgage servicers.

But for some homeowners already behind on their mortgage payments, the end-of-year slowdown isn’t likely to provide much of a reprieve.

The number of homes in foreclosure and scheduled to be auctioned hit a nine-month high last month, foreclosure listing firm RealtyTrac Inc. said Thursday.

The surge came about because of a spike three months earlier in homes entering the foreclosure process for the first time. And unless those borrowers find a way to get current on their mortgage payments, many of those homes will likely be sold at auction or end up being taken back by the lender.

“Despite a seasonal slowdown similar to what we’ve seen each of the past four years, November’s numbers suggest a new set of incoming foreclosure waves,” said RealtyTrac CEO James Saccacio.

All told, foreclosure auctions were scheduled on 96,540 U.S. homes last month, RealtyTrac said. That’s up 13 percent from October, but still down 17 percent from November last year.

Some states posted far higher monthly increases in scheduled home auctions last month. In California, they were up 63 percent, while in Washington they climbed 56 percent.

Those homes could end up back on the market as foreclosures or short sales, when a homeowner sells their property for less than what they owe on their mortgage. And that means more pressure on home values, because foreclosures and short sales typically sell for a lot less than other homes.

U.S. foreclosure activity slowed sharply starting in October of last year, after problems surfaced with the way many lenders were handling foreclosures. Specifically, signing off on home foreclosures without first verifying documents — a practice referred to as “robo-signing.”

Many of the nation’s largest banks reacted by temporarily ceasing all foreclosures, re-filing previously filed foreclosure cases and revisiting pending cases to prevent errors.

The pace of foreclosure activity continued to slow much of this year as major lenders worked toward a possible settlement of government probes into the industry’s mortgage-lending practices.

Those settlement talks, led by a group of state attorneys general, have suffered some setbacks in recent months after officials in California and Massachusetts broke with the rest of the states. There also has been disagreement among the states’ prosecutors over what terms to offer the banks.

Still, there have been signals that foreclosure activity will be increasing in coming months.

Banks stepped up action in August against homeowners whose mortgage had gone unpaid. The number of homes receiving an initial notice of default that month jumped 33 percent from July. Default notices also rose between September and October.

That helped set the stage for the sharp increase in scheduled foreclosure auctions last month and will likely contribute to an anticipated bump in home repossessions early next year, Saccacio said.

Home repossessions hit their lowest level since March 2008 last month, according to RealtyTrac. In all, banks took back 56,124 homes last month, down 17 percent from October and from November a year ago.

Banks are now on track to repossess some 810,000 homes this year, down from more than 1 million last year, according to RealtyTrac. The firm had originally anticipated some 1.2 million homes would be repossessed by lenders this year.

High unemployment, a sluggish housing market and falling home values remain a major factor in homeowners falling behind on their mortgage payments. Many borrowers also have simply stopped paying their mortgage because they are underwater — a term for owing more on a mortgage than the home is worth.

At the end of September, 10.7 million, or 22.1 percent of all U.S. homes with a mortgage, were underwater, according to CoreLogic. And an additional 2.4 million borrowers had less than 5 percent equity in their homes, the firm said.

In all, 224,394 U.S. properties received a foreclosure-related notice last month, down 3 percent from October and down 14 percent from November last year, RealtyTrac said. That amounts to one in every 579 households.

Initial default notices declined 8 percent from October and were down 9 percent from November last year.

At the state level, Nevada had the nation’s highest foreclosure rate last month with one in every 175 households receiving a foreclosure notice — more than three times the national average.

California, which alone accounted for 28 percent of all U.S. homes receiving a foreclosure notice last month, had the second-highest foreclosure rate. Arizona was third.

Rounding out the top 10 states with the highest foreclosure rate in November are Utah, Georgia, Michigan, Florida, Illinois, Ohio and South Carolina.