The states of Illinois and California have filed lawsuits against Countrywide for engaging in “unfair business practices” according to an article on porfolio.com.
The Illinois lawsuit was initiated after the state subpoenaed documents last fall. Attorney General Lisa Madigan says the company promoted high-risk loans that contributed to the high number of foreclosures in Illinois, the AP reports. The complaint, reports Gretchen Morgenson of the New York Times, accuses Countrywide of "relaxing underwriting standards, structuring loans with risky features, and misleading consumers with hidden fees and fake marketing claims, like its heavily advertised 'no closing costs loan.'""People were put into loans they did not understand, could not afford, and could not get out of," the Illinois attorney general, Lisa Madigan, told the Times, "This mounting disaster has had an impact on individual homeowners statewide and is having an impact on the global economy. It is all from the greed of people like Angelo Mozilo."The attorney general is seeking that any mortgages that used deceptive practices be rescinded or modified in some way. In the California complaint, Attorney General Jerry Brown says Countrywide violated the state's unfair business practices and false advertising laws to market and originate sometimes risky mortgages.
The Illinois lawsuit was initiated after the state subpoenaed documents last fall. Attorney General Lisa Madigan says the company promoted high-risk loans that contributed to the high number of foreclosures in Illinois, the AP reports.
The complaint, reports Gretchen Morgenson of the New York Times, accuses Countrywide of "relaxing underwriting standards, structuring loans with risky features, and misleading consumers with hidden fees and fake marketing claims, like its heavily advertised 'no closing costs loan.'""People were put into loans they did not understand, could not afford, and could not get out of," the Illinois attorney general, Lisa Madigan, told the Times, "This mounting disaster has had an impact on individual homeowners statewide and is having an impact on the global economy. It is all from the greed of people like Angelo Mozilo."The attorney general is seeking that any mortgages that used deceptive practices be rescinded or modified in some way.
In the California complaint, Attorney General Jerry Brown says Countrywide violated the state's unfair business practices and false advertising laws to market and originate sometimes risky mortgages.
The Senate is moving ahead with sweeping legislation on housing while having to answer questions on how Senators Christopher Dodd and Kent Conrad managed to get such low rates through a special “V.I.P” program called “Friends of Mozilo”.
Seeking to address the questions being raised by the disclosure of the Countrywide V.I.P. loans, an amendment to that bill would require lawmakers to disclose the lender and terms of the mortgages on their residences in an annual financial statement, reports Lori Montgomery of the Washington Post.Politico.com, which has asked all 100 senators to disclose where they got their mortgages and whether there were any special terms, says that only 15 members have failed to respond.
Mortgage credit problems among the largest mortgage lenders are well known because they get a lot of exposure and scrutiny. But the Wall Street Journal reminds us that smaller banks are at risk when real estate loans, especially construction loans, aren't performing.
When smaller banks nationwide made $280 billion in loans mostly to condominium developers and home builders, a practice that has developed is the banks calculating the interest that would be paid if the loan became due or the property generated cash flow, and paying that interest to themselves in what is called "interest reserves." While a sound practice, regulators are concerned it could be used to "mask" underperforming or delinquent loans, the Journal reported.
As an indication of regulators' concerns about construction lending, the FDIC in recent months has hit some banks -- including Towne Bank of Arizona, HomeTown Bank, of Villa Rica, Ga., and Integrity Bank, of Alpharetta, Ga., -- with cease-and-desist orders requiring, among other things, that they overhaul how they use interest reserves. Analysts have warned that some 150 small banks could fail in the next few years because of their big bets on construction loans.
A warning sign of this for analysts is when a bank reports a relatively small number of delinquent construction loans in one quarter, that suddenly spikes the next. There can be many reasons for this but it attracts attention as a possible abuse of interest reserves. Banks stop paying interest reserves when it becomes clear the loan is a dud, and it "looks like" the delinquency just happened, when (regulators fear) the portfolio of loans was less attractive than portrayed for some time.
One local Phoenix bank seems to be doing it right. As reported in the Journal:
Meridian Bank in Phoenix is among the banks where nonaccrual rates have outpaced delinquencies. Only 6.4% of Meridian Bank's construction loans were delinquent in the fourth quarter of 2007, but its nonaccruing loans jumped to 30% in this year's first quarter. That jump was among the largest of banks with a sizable proportion of construction loans, according to FDIC data on more than 8,000 banks analyzed by The Wall Street Journal. "What's been going on...is that interest reserves are running out before the projects are being delivered," said Doug Hile, chief executive of Meridian Bank. He said many troubled borrowers are asking for banks to add extra interest reserves to keep their loans current. "But we're not doing it," Mr. Hile said. "We don't view that as a sound banking practice." He said Meridian Bank, with $2.5 billion in total assets, is in no danger of failing because it is "very well capitalized."
Meridian Bank in Phoenix is among the banks where nonaccrual rates have outpaced delinquencies. Only 6.4% of Meridian Bank's construction loans were delinquent in the fourth quarter of 2007, but its nonaccruing loans jumped to 30% in this year's first quarter. That jump was among the largest of banks with a sizable proportion of construction loans, according to FDIC data on more than 8,000 banks analyzed by The Wall Street Journal.
"What's been going on...is that interest reserves are running out before the projects are being delivered," said Doug Hile, chief executive of Meridian Bank. He said many troubled borrowers are asking for banks to add extra interest reserves to keep their loans current. "But we're not doing it," Mr. Hile said. "We don't view that as a sound banking practice." He said Meridian Bank, with $2.5 billion in total assets, is in no danger of failing because it is "very well capitalized."
Mesa-based Towne Bank has eliminated funding interest reserves. "Realistically, you never know whether a borrower can keep the loan current if you are the one who's making the payment," Patrick F. Patrick, who became chief executive of the bank in February, told the paper.
A recent Arizona Republic article discussed the problem residents of the Valley are having with public transportation. In an effort to save money on gas quite a few residents are riding the buses and it's getting awfully crowded.
In April, about 600 vehicles a day packed the Pecos Road park-and-ride lot, which has 560 designated spaces, Phoenix Public Transit Department spokeswoman Marie Chapple Camacho said. The city plans to expand the Pecos lot to 1,000 spaces in fall 2009, Chapple said. "If you get here after 7:10 (a.m.), it gets hard to find parking," Ahwatukee commuter Linda Davis said. But David said it is worth the gas savings when it costs $50 to fill her Audi A4's tank. Mel Hannah, also of Ahwatukee, said there has been a noticeable increase in riders to and from the Pecos lot. "If you get there soon enough, you can get a seat," Hannah said. "Ultimately, there's people standing. A monthly bus pass is a fraction of what it costs in gas. It's a comfortable ride, air-conditioned. You can relax, read, take a nap."
In April, about 600 vehicles a day packed the Pecos Road park-and-ride lot, which has 560 designated spaces, Phoenix Public Transit Department spokeswoman Marie Chapple Camacho said.
The city plans to expand the Pecos lot to 1,000 spaces in fall 2009, Chapple said.
"If you get here after 7:10 (a.m.), it gets hard to find parking," Ahwatukee commuter Linda Davis said.
But David said it is worth the gas savings when it costs $50 to fill her Audi A4's tank.
Mel Hannah, also of Ahwatukee, said there has been a noticeable increase in riders to and from the Pecos lot.
"If you get there soon enough, you can get a seat," Hannah said. "Ultimately, there's people standing. A monthly bus pass is a fraction of what it costs in gas. It's a comfortable ride, air-conditioned. You can relax, read, take a nap."
At least one more bus is on the way but the city is unsure of how much help it will ultimately be. With more and more people realizing that the bus is the easiest way to go it has become almost impossible to find a comfortable seat, if any at all.
Park-and-ride use is growing in popularity all over the Valley as gasoline prices skyrocket, taxing a system that has rarely, if ever, seen this kind of ridership. Park-and-ride parking lots are overflowing, and Valley Metro spokeswoman Susan Tierney said passengers should expect standing-room only aboard their buses. "I guess we're all in this gas-price shock together, and how do we deal with it?" Tierney said. "We deal with it as a community."
Park-and-ride use is growing in popularity all over the Valley as gasoline prices skyrocket, taxing a system that has rarely, if ever, seen this kind of ridership. Park-and-ride parking lots are overflowing, and Valley Metro spokeswoman Susan Tierney said passengers should expect standing-room only aboard their buses.
"I guess we're all in this gas-price shock together, and how do we deal with it?" Tierney said. "We deal with it as a community."
Appraisers, like our Realtor, surveyor and notary friends among others in the real estate service business, are highly susceptible to record-high gas prices. But neither rain nor snow nor sleet nor $4.00 a gallon will keep us from our appointments, so we follow many of the common sense gas-saving tips listed here. Driving efficiently, keeping the vehicle in good shape and especially better route planning and combining trips are techniques everybody can use right now to escape at least part of the gas price pinch in Phoenix.
There are wildly varying opinions on the Phoenix and Maricopa County real estate market. But that's because real estate can vary so wildly in the greater Phoenix area.
One economist, the University of Arizona's Marshall Vest, told a recent meeting of business and political leaders here that "we're in the most severe downturn since World War II," citing Valley home price declines, foreclosures and job losses.
But opinions vary. Catherine Reagor, the Arizona Republic's senior real estate reporter, told KTAR "it looks like we're going to shake out sooner than expected. Some people thought we would peak on foreclosures this fall, it looks like hopefully this summer now."
But she cautioned that there may be another 10 to 15 percent dip in Phoenix real estate values before it's all over. She forecast that prices may level off in mid or late 2009.
And a recent study of Maricopa County resale activity by Arizona State University's Realty Studies noted a welcome bounce in sales in April, the first year-over-year improvement since July 2005.
Jay Butler, director of Realty Studies in ASU's Morrison School of Management and Agribusiness, cites the Maricopa County housing price declines as a factor stirring investor interest as well as sales of lower-income owner occupant properties. The average monthly mortgage payment in Maricopa County fell from $1,320 to $1,060, even though rates climbed slightly -- a difference made entirely of lower prices.
The study notes how difficult it is to paint with a broad brush when it comes to Phoenix and Maricopa County real estate:
Changes in median prices can vary tremendously throughout the Valley. For the western suburbs the median price has fallen 24.1 percent from last year’s $235,000 to $178,431, while East Mesa moved down 8.7 percent ($235,000 to $214,500). Since the Greater Phoenix area is so large, the median price can range significantly from $563,000 ($605,000 in March) in North Scottsdale to $146,455 ($148,800 in March) in the Maryvale area of the city of Phoenix.
It seems that the housing boom reports of 2003-06 were not accurate in portraying the state’s population numbers. This has lead economists and government officials to announce the numbers were, in fact, inflated. This may seem like a minor thing but it will have a major impact on the state.
Taxes, freeways, commercial and residential projects all are based on how many people are expected to move here.
"Population growth is the beginning of the food chain of Arizona's economy," said Ioanna Morfessis, founding chief executive of the Greater Phoenix Economic Council and economic development consultant for some of the Valley's new communities, including Maricopa. "But if the numbers are wrong, and I think the state's population numbers are inflated, it's going to be a house of cards for the economy."
What does this mean for the housing market? Analysts are expecting any relief from the latest mortgage crisis to take longer than initially expected. This is because more homes were vacant than expected and even more are becoming vacant because of foreclosures.
Jay Butler, director of realty studies at Arizona State University Polytechnic, says part of the current formula for projecting Arizona's population assumes 1 to 2 percent of the state's homes are vacant.
"Now we know at least 10 percent of the new homes built during the boom were vacant, and foreclosures are leaving more homes empty," Butler said. "We have tried to go to door to door in the past to track vacant homes, but now with the Valley's size, it's a daunting task. No one really knows how many homes are empty."
As part of the new method to project the state's population, accurate occupancy data will be sought from local governments and utilities such as Arizona Public Service.
What will this mean for Arizona residents? It could mean a decrease in the budget for everything from road repair to schools.
State government receives federal funding based on the number of new residents. Local taxes can be raised or lowered depending on how many people will be paying them. Municipalities receive their share of state taxes and other funds based on their populations.
"Arizona is very dependent on its population numbers because we have a revenue-sharing system," said Kent Ennis, deputy director of the Arizona Department of Commerce. "A municipality's growth determines how much they get of sales and income taxes and highway funds. Billions of dollars are riding on how much an area grows and how good population estimates are for that area."
The Phoenix, Arizona residential real estate market isn't quite partying like it's 2005 yet, but according to one unique metric the "bread and butter" of the Phoenix market may be on the rebound.
Bloodhound Realty has been tracking "sales prices for MLS-listed suburban homes from 1300sf to 1900sf built in 1998 or later, the homes that drive the resale market" in Phoenix, since January, 2004. An explanation of this unique index, and a link to its data -- updated monthly -- can be found here.
"May 2008 was the strongest month for the homes we track since May of 2007, with the best month before then being November of 2006," the company reported. "A total of 170 of these homes sold in May, up from 114 in April."
Prices for homes tracked by the index are dipping, as you would expect, down 25.5% from May of 2007. The drop has contributed to clearing some of the inventory logjam in the Valley. Inventories of the homes tracked by the index dropped seven percent from April and 14 percent from March. The company reports that the absorption rate -- a rough gauge of how long it takes an average home in the index to sell -- implied from May's results is 5.2 months, down significantly from 8.4 months in April.
It will take a few more months and analysis of much more data to determine if the Phoenix real estate market is on the rebound, but Bloodhound Realty's data are promising.
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