Headlines – Week of September 5, 2010
September 13, 2010
Fannie Mae Approves 123 New Florida Condos
According to a new report from CondoVultures.com, Fannie Mae has approved 123 new Florida condo projects for financing in the first eight months of 2010, a sharp reversal to 2008 when not a single project was accepted.
This is a huge deal since new condominium projects that fail to receive Fannie Mae approval are virtually locked out of conventional financing when interest rates are at record lows. A lack of available financing typically means lower prices for sellers as the only would-be buyers have all cash and demand deep discount to transact deals.
New condo project approvals for financing in 2010 have already risen by more than 40% compared to 2009 when 87 projects were deemed acceptable for mortgages by Fannie Mae. No new Florida condos were approved for financing in 2008 after 27 projects were approved in 2007, according to the report based on Fannie Mae data.
In the first half of 2010, Fannie Mae acquired or guaranteed more than $420 billion in loans. Since 2009, Fannie Mae has acquired or guaranteed more than $1.2 trillion in mortgages.
Florida’s real estate crash, which began in 2007, has made financing a serious challenge. Few lenders want to originate new mortgages as prices plummeted and foreclosure rates spiked.
Since 2007, more than 250,000 foreclosure filings secured by $62.5 billion in mortgages have been initiated in South Florida region (Miami-Dade, Broward, and Palm Beach counties) where lenders have repossessed more than 100,000 properties.
Since January 2010, Fannie Mae has attempted to reverse the financing problem by developing new “special approval” requirements specifically for Florida condominiums. The “special approval” status is for Florida condominiums only and lasts for no more than 18 months.
To implement the program, Fannie Mae created a six-member team of underwriters who are versed in the “special approval” criteria and sent them out to evaluate Florida condos. It is this team that has approved more than 120 condos in 2010.
Mortgage Write-downs Gain Appeal for Banks
Much has been written about banks avoiding write downs of the loans on their books. The term “extend and pretend” was coined to describe banks that extend their loans with the hope that the market will improve. Even banks that foreclosed on properties have kept them on their books, reluctant to auction them in a market where investors offer as low as 10 cents on the dollar.
According to an article in the NewsOberserver.com, some reports now indicate this appears to be changing, and it could have implications for property owners caught up in the sell-off.
As evidence, is a plan by BB&T to auction $1 billion of performing and nonperforming loans in the Southeast.
BB&T has been more aggressive of late in writing down its troubled loans and moving to rid itself of some of them. The bank’s CEO, Kelly King, has indicated the strategy will continue as long as investor appetite for the loans remains at current levels.
Other regional banks, including Pittsburgh-based PNC Financial Services Group and Birmingham, Ala.-based Regions Financial, are pursuing similar strategies.
The move to deal with troubled real estate loans is driven partly by federal regulators who have increased pressure on banks whose capital ratios fall below a certain level.
Many believe that banks are coming to terms with the fact that commercial real estate is declining in value and it’s just not coming back in the next three months or six months.
The auctions also are a sign that the gap between what the banks will take for the loans – and what investors will pay – is narrowing.
Some believe banks have reached the point where they realize they’re not going to get 80 cents on the dollar for the value of the loans they package and they are going to be looking at 35 or 40 cents on the dollar, which seems to be where these loan packages are selling.
For property owners whose loans are included in these packages, the auctions could mean trouble. If an investor buys a loan for 40 cents on the dollar, that means they can foreclose on the property, auction it off and still make a profit.
Florida’s Red Ink Not so High
According to an article in News Service of Florida, the State of Florida’s looming budget shortfall has been sliced in half by state analysts who credit federal stimulus dollars, years of spending cuts and Indian gambling money. However, the state still faces a $2.5 billion deficit.
A year ago, state forecasters projected a $5.5 billion gap for 2011-12, as the remnants of the recession and a stone-cold housing market looked certain to dig deeply into state tax collections.
Amy Baker, coordinator of the Legislature’s Office of Economic and Demographic Research, conceded however, that the revised projection does not take into account the Gulf of Mexico oil spill impact on state coffers.
While the expected budget hole has diminished, the debate over how to fill it remains largely unchanged. The Legislature’s ruling Republicans have already set the stage for another round of belt-tightening – and could draw strength from the economists’ crediting reduced state spending as helping yield the improved forecast.
The state’s current $70.2 billion budget is propped up by $2.5 billion in federal stimulus dollars – the last installment of $27 billion in cash that flowed to Florida from Washington over the past three years. The latest round was enhanced by an additional $700 million in federal Medicaid money that came to Florida in August.
Posted by Scott R. Lodde