Tag Archives: real estate development

State of Washington Fines Countrywide for $1 Million for Discriminatory Lending — Will Seek to Revoke Countrywide’s License to Do Business in State

Washington Governor Christine Gregoire today announced plans by her state to fine Countrywide Home Loans $1 million for discriminatory lending.

In addition, the company will be required to pay more than $5 million in back assessments the company failed to pay.

Gregoire also announced the state is seeking to revoke Countrywide’s license to do business in Washington for its alleged illegal activity.

Joining Gregoire at today’s announcement was Deb Bortner, director of consumer services at the Washington state Department of Financial Institutions (DFI), and James Kelly, president of the Urban League of Metropolitan Seattle.

“The allegation that Countrywide preyed on minority borrowers is extremely troubling to me,” Gregoire said. “And I hope to learn eventually just how much this may have contributed to foreclosures in our state. The allegation offers evidence that Countrywide engaged in a pattern to target minority groups and engage in predatory practices.”

“That’s why we intend to bring the full weight of the state on Countrywide to rewrite home loans for minority borrowers who may have been misled into signing predatory mortgages,” the governor noted. “My job is to protect hard-working Washingtonians, and protect them we will.”

DFI is required to examine every home-lender licensed in the state of Washington. The agency conducted its fair lending examination of Countrywide last year. At that time, DFI looked at roughly 600 individual loan files and uncovered evidence that Countrywide engaged in discriminatory lending that targeted Washington’s minority communities. The agency also found significant underreporting of loans during its investigation.

“The Urban League is seeing far too many families caught up in the mortgage crisis who are being steered into bad loans,” stated James Kelly. “Today’s announcement from the governor is consistent with her message of protecting Washingtonians from national mortgage instability.”

DFI sent Countrywide a statement of charges on June 23, notifying the company of the fine and the back assessments the state plans to pursue.  Washington says that the investigation continues.

We have written on the disproportionate impact that the mortgage meltdown and housing crisis has had on minorities.

Washington’s action against Countrywide comes on the heels of lawsuits for fraud, deception, and unfair trade practices filed against Countrywide by the states of Illinois, California, and Florida.



More Housing Blues — U.S. Homeownership in Sharp Decline as Housing Crisis Forces More Families into Rentals

Even in the midst of the most serious housing and foreclosure crisis since the 1930s, the United States is still a nation of homeowners not renters. 

But recent data released by the U.S. Census Bureau show that Americans are now renting their living spaces at the highest level since 2002, and the percentage of households headed by homeowners has suffered the sharpest decline in 20 years

Households headed by homeowners fell to 67.8 percent from 69.1 percent in 2005. By extension, the percentage of households headed by renters increased to 32.2 percent, from 30.9 percent.

According to the New York Times, these figures “while seemingly modest, reflect a significant shift in national housing trends, housing analysts say, with the notable gains in homeownership achieved under Mr. Bush all but vanishing over the last two years.” 

“Many of the new renters, meanwhile, are struggling to get into decent apartments as vacancies decline, rents rise and other renters increasingly stay put. Some renters who want to buy homes are unable to get mortgages as banks impose stricter standards. Others remain reluctant to buy, anxious that housing prices will continue to fall.”

“We’re not going to see homeownership rates like that (the 1990s and the early 2000s) for a generation,” said Mark Zandi, the chief economist at Moody’s Economy.com.

“The bloom is off of homeownership,” said William C. Apgar, a senior scholar at the Joint Center for Housing Studies at Harvard University who ran the Federal Housing Administration from 1997 to 2001.  Apgar said the Joint Center had predicted an increase of 1.8 million renters from 2005 to 2015, given expected population trends. Instead, they saw a surge of 1.5 million renters from 2005 to 2007 alone. In the first quarter of this year, 35.7 million people were renting homes or apartments.

Zandi said minority and lower-income homeowners had been hardest hit. Nearly three million minority families took out mortgages from 2002 to the first quarter of this year. Since minority families were more likely to receive subprime loans, economists believe these families account for a disproportionate share of foreclosures.

As we’ve noted before, the collapse of the housing market and the rise in foreclosures have created an ideal market for apartment owners, especially in economically depressed regions.

As the demand for rental housing has increased, so has the cost of renting.  Nationally, rents are up about 11 percent from 2005.

Christopher E. Smythe, the president of the Northeast Ohio Apartment Association, which represents landlords in the Cleveland area, said the collapse of the housing market had improved the economic climate for apartment owners.

“Our apartment traffic is up, people are renting again and occupancies are up,” he said in a letter to members this year.

The Times also reports that in high-end markets like Los Angeles, the slump in the housing market has begun to push up vacancies as condominiums are converted into rentals.

On the other hand, “those new apartments are often out of reach of struggling families. And since many owners of rental properties are also going into default, the foreclosure wave has resulted in fierce competition for affordable apartments in some cities.”

In other words, the housing crisis is hitting the most economically vulnerable families the hardest. 

As we’ve discussed in an earlier post, minorities have been the most seriously affected by the subprime crisis and the bursting of the housing bubble.  Not surprisingly, the Census Bureau data shows that the percentage increase in renter households from 2005 to 2008 was nearly twice as high for Black families than for Whites.

We’re reminded of the old Billie Holiday song, God Bless the Child, written at the end of the Great Depression:

Them that’s got shall get
Them that’s not shall lose
So the Bible said and it still is news
Mama may have, Papa may have
But God bless the child that’s got his own
That’s got his own

Yes, the strong gets more
While the weak ones fade
Empty pockets don’t ever make the grade
Mama may have, Papa may have
But God bless the child that’s got his own
That’s got his own



Who is Still Against Federal Foreclosure Legislation?

As the Congress comes closer to passing legislation to help homeowners facing foreclosure, it is worth taking a look at the opposition to federal foreclosure aid.

Of course, there are those who strictly oppose nearly all forms of government intervention in the economy.  Congressman and presidential candidate Ron Paul and his free market libertarian supporters would be among this group.

Then are those who are opposed to market interventions in general, but will support some government interventions when the stability of the market is at stake.  Most Republicans fit into this group — including Federal Reserve Chairman Ben S. Bernanke.

That’s why it was significant that it was Bernanke who last week made the most convincing argument from a free market perspective for federal aid to homeowners facing foreclosure.

As we noted in an earlier post, Bernanke told an audience at the Columbia Business School that the foreclosure crisis posed the clear and present danger of wreaking economic havoc far beyond the housing market. “High rates of delinquency and foreclosure,” Bernanke said, “can have substantial spillover effects on the housing market, the financial markets, and the broader economy.”

What is at stake, according to Bernanke, is not merely the homes and financial well-being of hundreds of thousands of borrowers, but “the stability of the financial system.”  In this extreme circumstance, even staunch free market advocates, such as Bernanke himself, recognize the need for the government to intervene in the market.

We think, then, that the overwhelming vote in the House of Representives in favor of government intervention to stop the rising tide of foreclosures — legislation that now has the support of many free market Republicans — was rooted at least as much in the economic reality of averting catastrophe as the political expediency of government largess in an election year.

Who then is still opposed to foreclosure aid?

The answer is the apartment owners.

Behind any legislative process is a power struggle of conflicting interests, and very often these interests are economic.  In the case of foreclosure aid, there this now a growing consensus that the foreclosure crisis threatens not merely the borrowers and the lenders, but the economy as a whole and hence the economic interests of almost every sector of the economy.

Except apartment owners.

The National Multi-Housing Council (NMHC) and the National Apartment Association (NAA) have consistently argued that the blame for the foreclosure crisis is what they have called the “misguided” national policy of “home ownership at any cost” and that “People were enticed into houses they could not afford and the rarely spoken truth that there is such a thing as too much homeownership was forgotten.”

The fact is that in sharp contrast to other sectors of the real estate market, the apartment industry has not suffered as a result of the current housing crisis.  Rather, as we’ve noted before, the real estate crisis is forcing the lower end of the single-family housing market back into multi-family rental apartments.  People have to live somewhere — if they can’t afford to live in a house that they own, they will be forced to live in a house that someone else owns, such as multi-family apartment units. As homeowners suffer, apartment owners benefit.

The apartment industry has some very powerful supporters in Congress, including Senator Richard C. Shelby of Alabama, the ranking Republican on the Senate Banking Committee.   Senator Shelby,  who has opposed federal intervention to stop foreclosures, has made millions as a landlord and is the owner of a 124-unit apartment complex in Tuscaloosa called the Yorktown Commons. 

“I want the market to work if it can, and most of the time it will, but not without some pain,”  Senator Shelby has said.

This time, the pain appears to be too great, too wide-spread, and too dangerous, for most other members of Congress, as well as most important players in the economy, to allow it to continue unabated.

Indeed, Shelby has already signaled that he would support a version of the legislation — and that the White House would sign the bill into law.

“I think if we reach a compromise,” Shelby said, “it would be acceptable to the White House because, as a Republican and former chairman of the committee, I’m going to do everything I can, work with the administration, to make sure that the program works for those it’s intended to do and make sure we can afford it as a nation.”

In this crisis, even Senator Shelby has other, larger, and more important economic interests at stake than helping the apartment industry.




Sam Zell Sees Little Damage, Quick Recovery, in Commercial Real Estate — with Mortgage Backed Securities Leading the Way

Billionaire real estate investor Sam Zell has never been shy about expressing his views or going against majority opinion. 

He has embraced the description of himself as a “contrarian” — and not only in regard to investment strategies.  

While just about everyone else has been publicly sympathetic to the many thousands of people who’ve been forced into or close to foreclosure, Zell told an audience last week at the Milken Institute Global Conference in Los Angeles that “What this country needs is a cleansing” in the residential market. “We need to clear out all of those people who should never have been in houses in the first place and who for sure shouldn’t be getting sympathy,” Zell said.

The blame for the current housing slump, according to Zell, isn’t the financial industry’s subprime mortgage practices or overbuilding by contractors.  Rather, the blame belongs to the federal government’s policy of “encouraging homeownership at any cost.” The rise in the U.S. homeownership rate from 63% to 69% during the boom was totally unjustified, Zell said, other than by “the political impetus of, ‘Let’s put more people into homes they can’t afford.'”

Zell, of course, is perhaps the nation’s largest apartment owner. 

As Chairman of Equity Group Investments, Zell controls Equity Residential, the largest publicly traded owner, operator and developer of multifamily housing in the United States with nearly 160,000 apartments in 25 states and the District of Columbia.  And, as we’ve noted in an earlier post, the apartment industry has adamantly opposed federal aid to homeowners facing foreclosure and blamed the housing crisis on what it has called the “misguided” national policy of “home ownership at any cost.”

Zell also went against majority opinion this week when he asserted that the real estate crisis was just about ended, as least for commercial properties, and mortgage-backed securities would be leading the comeback. 

According to Zell, institutional investors are beginning to return to the market for mortgage-backed securities to finance commercial real estate deals and new construction. “I believe the overall market has already started to ease,” Zell said. “Is it in large volumes? No. Is it the first natural step in the evolution? Yes.”

In particular, Zell did not see real damage being done to office properties.  His former company, Equity Office, which he sold to The Blackstone Group in February 2007 for $39 billion, is the largest owner of office buildings in the United States. 

“I’m sure there’s going to be some casualties, particularly in what I would call ex-urban, the glass-block commodity office building,” he said. “I don’t think there is going to be any casualties in Manhattan. I don’t think there’s going to be any casualties in any of the first-class office space around the country. The commercial real estate market is going to do terrific no matter what the economy does, short of a depression.”

On this point, we think he’s probably right.

We wouldn’t want to argue with a real estate investor who has been smart enough to become number 164 on Forbes Magazine’s list of the richest people in the world.

On the other hand, Zell told an audience at the Wharton School last September that the turmoil in the financial markets was only an “emotional reaction” that would soon stabilize.

He was wrong on that one.

And he does own the Cubs.




Crisis Exposes Conflicts in Real Estate Industry as Apartment Sector Opposes Aid for Homeowners

Recent attempts in Congress to relieve the real estate crisis may not have produced much in the way of solutions, but they have certainly exposed the conflicting interests inherent in the real estate industry.

One such conflict is between individual homeowners (and the realtors who are allied with them) and the owners of multi-family housing.

In a joint statement issued on April 10, 2008, before the House Financial Services Committee, the National Multi-Housing Council (NMHC) and the National Apartment Association (NAA) took the opportunity to blame what they called the “misguided” national policy of “home ownership at any cost” for the current housing crisis.

According to the joint statement,“People were enticed into houses they could not afford and the rarely spoken truth that there is such a thing as too much homeownership was forgotten”

In sharp contrast to other sectors of the real estate market, the apartment industry has not suffered as a result of the current housing crisis.

As a recent NMHC press release observed, “The challenging economic times and financial market disruptions are having little impact on the apartment industry’s biggest firms.”

We think that the apartment industry is understating its gains from the real estate crisis.

The real estate crisis is forcing the lower end of the single-family housing market back into multi-family rental apartments.  People have to live somewhere; if they can’t afford to live in a house that they own, they will be forced to live in a house that someone else owns, such as multi-family apartment units. As homeowners suffer, apartment owners benefit.

The multi-housing and apartment sector therefore opposes pending legislation that would create a new tax credit for people who buy a new house or a house in default or foreclosure. 

According to a statement issued by Jim Arbury, Senior Vice President of Government Affairs for the NMHC and NAA Joint Legislative Program, “a home buyer tax credit does nothing to help people stay in their houses. The real problem in the housing market is not the oversupply problem, which the home buyer tax credit targets, but the liquidity problem. Investors have lost confidence in the mortgage market securitization process and until that confidence is restored, the housing market will continue to suffer. ”

“The unintended consequences of a home buyer tax credit should cause any lawmaker to pause and reconsider, Arbury said.  “In short, such a credit could actually increase foreclosures and accelerate house price declines…It would increase foreclosures because it creates an incentive for lenders to foreclose so that they can entice a buyer to use the government subsidy to take the house off their balance sheet… It would also accelerate the decline in house prices, specifically the house prices of fiscally responsible owners.  If these responsible owners want or need to sell their houses, they are now competing with new and foreclosed properties that come with a $15,000 taxpayer subsidy (the value of the proposed home buyer credit).  These responsible owners will be forced to lower their sales prices by $15,000 in order to compete.  Should the government be using taxpayer dollars to erode the equity of hardworking, responsible homeowners?”

Instead of a tax credit for home buyers, the apartment industry proposes measures that would “create more affordable housing for the people who are going to be displaced from their single-family houses in this market downturn” – in other words, incentives to build and invest in more apartments.