Bank Foreclosures Information

The Riverside Hotel in downtown Detroit has been added to lists of Michigan bank foreclosures after Chicago-based lender Mutual Bank foreclosed on the hotel in July.

The hotel, formerly called Pontchartrain, was acquired by Florida-based investment partnership Shubh Hotels Detroit LLC in 2005. The partnership promised to renovate the ailing Pontchartrain and make it into a first-class hotel, but it failed for various reasons.

Hospitality industry analysts said the temporary closure of the Riverside Hotel, which has about 400 rooms, may improve the occupancy rates of other hotels, but on the whole, the foreclosure is not good for the city and the hospitality industry, according to Michael O’Callaghan, a top executive of the Detroit Metro Convention and Visitors Bureau.

Nonetheless, downtown Detroit still has the ability to host large conventions because of the addition of 2,000 new rooms at three casino resort hotels and at the renovated Doubletree Fort Shelby and Westin Book Cadillac hotels.

Before the foreclosure, Shubh Hotels had not paid the salaries of its employees for two months. In late June, the participants and guests of the National Baptists Convention who stayed in the hotel left early because of lack of air conditioning and problems with services.

The problems of the hotel worsened when hotel lender Mutual Bank also suffered the same fate as the hotel. At the end of July, the bank was closed by the Illinois Department of Financial and Professional Regulation Banking Division due to insolvency. The appointed receiver Federal Deposit Insurance Corporation in turn approved the application of Garland, Texas-based United Central Bank to take over Mutual Bank. The Texas bank acquired Mutual Bank’s assets, deposits and loans, including loans provided to the Riverside Hotel.

Lawyer David Findling was appointed receiver for the hotel by the Wayne County Circuit Court. Findling said the hotel needs renovations before it can operate again. He said he hopes United Central Bank puts more funds into the hotel so it can reopen and operate fully. He argued that a fully functioning hotel would get a better sales price than an unoccupied and closed hotel.

Findling also added that a vacant hotel building is not good for the image of the city which is trying its best to recover from the adverse effects of closures in the automobile industry.

According to Chuck Skelton, head of the hotel advisory firm Hospitality Advisors, the 1965-built Riverside Hotel needs around $100 million to modernize it even after a partial upgrade worth $35 million some years ago.

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Over 14 percent of Ohio homes purchased with loans were in default or had already become foreclosed houses for sale in the second quarter of this year, according to a bank survey conducted by the Mortgage Bankers Association.

In the first quarter, 13 percent of homeowners in the state with home loans were in default or in foreclosure.

Across Ohio, almost 9.8 percent of mortgage borrowers were in default by 30 days or more but not yet in foreclosure in the second quarter. Approximately 4.5 percent of homeowners with home loans were in the process of foreclosure.

Nevertheless, Ohio is not among states with the worst default rates. Florida is still the highest in default rate, with nearly 23 percent of all its mortgages in default by at least a month or in foreclosure. California, Nevada and Arizona are the other states following Florida’s default rates.

In a nationwide survey of foreclosures in the second quarter of 2009, Ohio ranked 12th in foreclosure rate, with 1.16 percent of all households receiving a default or foreclosure filing.

Jay Brinkmann, the lead economist of MBA, said that the mortgage problem will continue to worsen until 2010 and 2011.

He predicted that unemployment and home loan defaults will reach their highest levels midway in 2010 and that foreclosures will reach their peak about 6 months later.

Brinkmann further explained that there will be no significant reductions in default and foreclosure rates until the unemployment problem is solved. He also cited the situation of homeowners in many areas where home values have gone down far below their loan amounts.

Across the U.S., over 13 percent of households with home loans were in default by at least a month or in foreclosure in the second quarter. With a 14-percent rate, Ohio is in a worst state of delinquency.

According to housing analysts, the high default rates arose from rising unemployment rates and increasing defaults in the home loan category previously thought as safe from delinquency and foreclosure.

In 2008 and in the first months of 2009, only borrowers who took out subprime and other risky home loans were defaulting and going into foreclosure. But now, borrowers who had strong credit, had higher incomes and who took out prime loans with proper documentation are the ones missing their monthly payments because of reductions in income and loss of jobs.

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Multiple offers are returning to many housing markets as banks create buying frenzies by releasing their real estate owned foreclosures for sale to the market at low prices.

According to agents and brokers, banks are deliberately listing their foreclosed properties under value to create competition among buyers, get multiple offers and increase the sales price.

In many markets across the country where there are a lot of short sales and foreclosures in the past several months, homebuyers and investors have been competing to get the best deals.

In Seattle, homes listed at $300,000 get a lot of offers and are often sold in its first weekend of listing. Based on data from the National Association of Realtors, the median price for an existing single family home in the area covered by Tacoma, Seattle and Bellevue in the second quarter has fallen by 13.7 percent from the second quarter of 2008.

Also, according to a home price index, home prices in the Seattle metro area have dropped by around 20 percent from their peak level in 2007.

These price declines have created a frenzy of home buying, shrinking inventories of homes for sale and increasing pending home sales in the Puget Sound region in July by 21 percent from July 2008, according to a regional multiple listing service.

Housing market analysts said multiple offers are rising in markets that suffered sharp home declines but are still viewed by many as desirable markets.

In Cape Cod, Massachusetts, area brokers have observed that oftentimes multiple offers arise because banks have been slow in responding to purchase offers. They also said that foreclosure homes priced under $200,000 get the most number of offers.

In the past months in Chicago, real estate businessman Paul Gorney has observed that homes priced below $400,000 are getting multiple offers. He has interpreted this increase as an increase in demand for beginner homes. Even short sales, according to him, have been getting a lot of offers as soon as they are listed.

In Montclair, New Jersey, brokers said sellers routinely list their homes at low prices, hoping that their low initial asking price will create a frenzy of offers and will drive up the sales price.

Housing analysts however point to areas battered by foreclosures, such as Fort Myers in Florida, as having the sharpest rises in multiple offers. Bank owned homes oftentimes receive over 30 offers with prices about 150 percent above the asking price.

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The country’s largest mortgage funding provider, Fannie Mae, has reported a total net loss of $14.8 billion in the second quarter of 2009, marking the eighth consecutive quarter it reported a loss.

The $14.8 billion loss is much higher compared to the $2.3 billion loss reported in the second quarter of 2008 and is lower than the $23.2 billion loss reported in the first quarter of this year.

Total credit-related costs in the second quarter dropped from the total credit costs of $20.9 billion in the first quarter, but the lingering effects of defaults and foreclosed for sale inventories still put total credit costs at the high level of $18.8 billion.

Fannie Mae explained in its report that the negative effects of the nearly three-year drop in home prices have been worsened by the continued rise in unemployment, increasing the rate of defaults in its portfolios of less risky home loans.

In June, Fannie Mae said that its non-performing guaranteed loans increased to $171 billion from $144.9 billion in March and from $119.2 billion in December 2008.

With the still huge losses and increased non-performing loans, Fannie Mae said it has asked the Treasury for $10.7 billion to cover its deficit, bringing the total of funds withdrawn by Fannie Mae under its preferred stock purchase facility to $45.9 billion.

Meanwhile, net interest income increased to $3.7 billion in the second quarter, an increase of 15 percent from the first quarter. Its income from mortgage guarantee fees however dropped to $1.7 billion from $1.8 billion in the first quarter.

Fannie Mae and Freddie Mac together guaranteed or owned about 50 percent of all home loans issued in the U.S. as of 2008, which amounted to $12 trillion.

Currently, the two entities are operating as government-sponsored enterprises mandated to help carry out the Obama administration’s Making Home Affordable Program. They are however losing billions from the loan refinancing and modification schemes of the program as they have to post losses when they pull out home loans that back their mortgage securities.

Fannie Mae stated in its documents filed with the Securities and Exchange Commission that there is a high level of uncertainty in its financial situation because of its housing obligations, its dividend payments and the persistent effects of the economic downturn.

In one announcement from the White House, the federal government refuted a report by Washington Post that federal officials were planning to isolate the bad debts of Fannie Mae and Freddie Mac.

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Four apartment buildings in East Orange, New Jersey are referred to in bankruptcy documents filed by apartment owner and operator Connolly Properties Inc. in the U.S. Bankruptcy Court in Newark in the last week of July.

The same apartment buildings were the target of motions of foreclosures filed by Fannie Mae in the U.S. District Court in Newark two days before the bankruptcy case was filed.

According to the documents filed by Fannie Mae against Connolly Properties, its CEO David Connolly and the 4 limited liability companies holding the 4 apartment buildings, the Connolly enterprise owed $17.8 million for the acquisition of the apartment buildings in June 2007. Connolly agreed to pay Fannie Mae approximately $115,700 a month until July 2017, but Fannie Mae claimed Connolly has failed to pay its monthly due since April 1.

Fannie Mae also included in its filing a letter in June to David Connolly demanding immediate payment for almost $18 million, representing the loan balance plus interests and late fees.

In the Fannie Mae filing, Connolly Properties was also accused of reducing the value of the apartment buildings because of its failure to maintain the properties and pay water, sewer and other municipal charges.

Meanwhile, in the bankruptcy documents filed by Connolly, additional loans by Connolly and the four LLCs to various entities were listed. Included are unsecured loans of $230,469 owed to Hess Corp., $182,626 owed to Citibank, $47,908 owed to PSE&G and over $56,000 owed to law firm Brach Eichler.

Connolly also included in its filing a document ordering utility companies to continue providing services to the 4 apartment buildings, which have lots of tenants.

Jon Searles, spokesperson for Fannie Mae, said that typically in apartment foreclosures, the court appoints receivers that become managers of the properties, doing things such as collecting rents, repairing defects and ensuring the safety and good quality of life of tenants.

Ron Simoncini, spokesperson for Connolly Properties, said that the firm is negotiating with Fannie Mae concerning the debts and is hoping to continue as operator and owner of the buildings.

The biggest of the 4 buildings, called Fulton Towers, is an 11-story building with 114 units. It was built in 1929, the same year the building on 158 S. Harrison was built. The building on 120 S. Harrison was built in 1925.

Recently, Connolly Properties became the target of criticisms from local officials and tenants for substandard conditions in several of its 29 properties in East Orange and in other cities.

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The vacation home market in Steamboat Springs in Routt County, Colorado was a favorite among affluent baby boomers. Investor speculations created a market boom in the area between 2003 and 2007, spurred by the growing demand for vacation properties.

According to industry experts, many investors competed for pre-construction prices planning to sell for profits upon completion of a condominium project.

But the real estate development market took a beating in 2007 due to the collapse of subprime lending, decline in consumer spending and bank failures. The devastating developments wreaked havoc on the local economy, resulting to a drop in construction and homes sales, increase in the number of bank foreclosed home listings, shut downs of restaurants and retail centers and massive lay offs.

According to analysts, the mountain real estate development is driven by affluent people belonging to the 5 percent of the total population of the country. They believed that the key to the recovery of the mountain resort property market lies on the financial conditions of affluent families in suburban Texas, Connecticut, California and Illinois.

They said that baby boomers wanting vacation homes transformed the real estate market in Routt County into a booming business in 2007, reaching $1.5 billion total home sales. The booming market attracted all sorts of buyers, many wanting to capitalize on investment potentials of mountain resort properties.

Many of them bought grand houses and paid their mortgages by renting the properties to vacationers. The amount earned from vacation rentals were more than enough to pay for their mortgages.

Until the latter of 2008 when the financial market collapse and recession spreads quickly across the country, leaving the affluent vacation home market dried up. And to make matters worse, a great number of loans taken out for vacation homes were adjustable rate mortgage with higher interest.

The turn of events left many owners unable to save their properties from foreclosures. Some of them just walk away from their properties when they learned that they were worth less than their mortgages.

The number of properties that received foreclosure filings as of July 24 reached a total of 96, and the figures keep getting higher every day.

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The mortgage servicers accused of abusing mortgage borrowers are the ones receiving much of the billions of dollars allocated to the Obama administration’s Making Home Affordable Program, which aimed to help Americans keep their houses from becoming foreclosed houses, according to a study made by Associated Press.

AP said also that the federal government has to work with mortgage servicers despite their blemished records in treating borrowers because they stand as the only connection between mortgage lenders and borrowers.

Mortgage servicers are entities that collect monthly loan payments from borrowers and then distribute collections to the lenders or investors holding the mortgages.

According to the AP, the servicers are the ones in the best position to restructure distressed home loans under the federal government’s $50 billion home loan reduction program and they are also rewarded for their service.

Despite their role in the Home Affordable Modification Program, the AP found that more than 30 mortgage servicers have been sued for systematically charging illegal fees and harassing borrowers. Recently, they are again accused of hindering efforts to modify loans, increasing the fees they earn while delaying the delivery of help to borrowers.

Even the biggest names in the mortgage servicing industry, like Bank of America, JPMorgan Chase, Wells Fargo and Citigroup, have been sued for mortgage lending and servicing abuses and some of them have made settlement agreements with entities that represent homeowners. They are also being rewarded for every loan modification they work out.

Meanwhile, the smaller players which are now servicing the majority of subprime loans and holding volumes of delinquent loans have been sued for worse accusations.

The biggest abuse lawsuit pursued against a mortgage servicing company was the suit brought by the Federal Trade Commission and the Department of Housing and Urban Development against Select Portfolio Servicing. The servicer was accused of charging illegal fees, including costs for insurance not needed by borrowers.

Select Portfolio settled in 2003 and paid $55 million, but now it can receive up to $660 million for working out loans under HAMP.

According to AP, more than 30 servicers are facing lawsuits accusing them of charging illegal fees, engaging in illegal loan collection practices and prematurely foreclosing on houses.

More than 14 have been sued for misleading borrowers about HAMP, leading to more foreclosures. At least 3 of the servicers have settled predatory collection accusations and promised to stop any illegal practice, but they are still being sued for the same accusations.

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Many cities across the country posted a decline in their inventory of homes for sale last month as bargain-hunting buyers and investors continue to search for distressed properties.

As of July 31, the number of homes for sale on the market in 28 major cities across the country dropped by 2.5 percent compared with figures the previous month. Homes for sale include condominiums, single-family houses and town houses.

Since 1984, July inventories on the national basis have dropped by an average of 1 percent compared with the June level. Last month’s inventory rate in 28 major metropolitan areas in the country dropped by 27 percent compared with June figures the previous year.

According to industry experts, the exact inventory rate could not be determined because the numbers do not include all bank foreclosed house that are due for release on the market for sale by lenders.

They said that almost 50 percent of foreclosed properties are not listed for sale by banks, adding that many of these repossessed homes are being used as rentals. Also, some foreclosed houses that are not listed need major repairs and are subject to delays or litigation.

Some industry analysts are expecting a resurgence of foreclosure properties on the market before the year ends. They explained that the resurgence would be driven by the increasing unemployment rate which left many financially-struggling homeowners unable to pay their monthly mortgages.

Other factors that would contribute to the anticipated surge of foreclosures this year are the resetting of adjustable-rate mortgages and the decision by lenders to pursue foreclosure actions that have been delayed due to moratoriums in several states that aimed to help distressed homeowners remain in their homes.

Furthermore, industry analysts are expecting that some major metropolitan areas that were spared from the foreclosure crisis will experience the next wave of foreclosures.

In the first six months of this year, cities with over one million population experienced a rapid rise in foreclosure rates. Las Vegas, Nevada posted the most number of foreclosure filings for the period, with one out of 13 properties on the brink of foreclosure.

Another city that has been spared from the crisis last year is Chicago, Illinois which now posted a 30 percent increase in its foreclosure activity.

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If industry analysts will just look at recently released data, it showed that the real estate market is on its way to recovery. In June, new home sales rose by 11 percent, the highest in eight years. The number of unsold houses dwindled while housing starts rose in the two consecutive months of May and June.

Furthermore, the monthly home prices in 20 major metropolitan areas in the country are showing some stabilization based on the Standard & Poor’s Case-Shiller Index.

However, data did not impress some industry analysts as they looked at the overall scene in the housing market.

They said that the overall housing market is still soft, noting the long time it takes to sell a property, the difficulty of many borrowers to obtain financing and challenges facing lenders and appraisers.

The only silver lining in the current grim scene is the flood of first-time buyers and speculators who were enticed by discounted prices and the $8,000 tax credit.

Industry analysts who do not seem to see any turnaround in the housing market explained that declining property prices is not yet over. Center for Economic and Policy Research co-director Dean Baker said that it is wrong to assume that the housing market has reach a turning point, noting the oversupply of houses, including bank foreclosure homes, which means property prices will continue their downward movement.

Industry analysts noted that many potential buyers are taking their time making a purchase because they are not sure if they still have jobs in the coming months. Added to that is the lackluster results of government efforts to prevent foreclosures, including mortgage modification programs and foreclosure moratoriums.

Yardeni Research economist Ed Yardeni said that a solid recovery in the housing market should start with controlling the rise of unemployment which has now a national average of 9.5 percent and is expected to jump to 10 percent by the end of 2009.

Assistant professor and Oregon Economic Forum director at the University of Oregon Timothy Duy said that a fast recovery for the housing market means a return to the 2006 mortgage market wherein lenders did not give attention to the growing household debt levels and not so good credit histories.

He said that there will be no housing recovery unless conditions return to the period wherein loans are provided to almost everyone.

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In five U.S. states, banking regulators closed 5 banks downed by record numbers of defaults and foreclosures, increasing the number of failed federally insured banks this year to 69.

Mutual Bank, the biggest of the shuttered banks, with $1.6 billion total deposits and $1.6 billion in total assets, was shut down by the banking division of the Illinois Department of Financial Professional Regulation.

The banking division made FDIC as receiver and approved the assumption of deposits and assets of the failed bank by Texas-based United Central Bank of Garland. The FDIC signed a loss-sharing deal with First United Central Bank covering Mutual Bank’s $1.3 billion assets. The 12 branches of the failed bank will reopen as units of United Central Bank.

First State Bank of Altus, which had $98.2 million in total deposits and $103.4 million in total assets, was shut down by the Oklahoma State Banking Department and will be taken over by Herring Bank of Amarillo, Texas. Herring will acquire the failed bank’s deposits and around $64.4 million of its assets. The remaining assets will be acquired by the FDIC, which was appointed as receiver, for subsequent sale. First State’s branches will reopen as units of Herring Bank.

FDIC closed Integrity Bank in Jupiter, Florida and approved the assumption of the failed bank’s deposits and around $52 million of assets by Fort Lauderdale-based Stonegate Bank.

Integrity had $102 million in total deposits and $119 million in total assets. The FDIC will sell the remaining assets.
Another bank closed by FDIC was First BankAmericano in Elizabeth, New Jersey, which had $157 million in total deposits and $166 million in total assets. Another New Jersey bank, Crown Bank, will assume the First BankAmericano’s deposits and assets, including its six branches.

Peoples Community Bank of West Chester, Ohio will be taken over by Hamilton-based First National Bank, which will acquire $657.8 million of the failed bank’s assets in an agreement with the FDIC. Peoples had $598.2 million in total assets and $705.8 million in total deposits, including 19 branches.

The total of 69 bank failures so far this year represents big jumps from the 25 failures last year and the 3 failures in 2007.

According to analysts, residential loan defaults and foreclosures have been the main causes of the failures. Although residential foreclosures are slowing down, regional banks are expected to suffer from commercial real estate defaults. The FDIC expects to spend around $70 billion to cover bank failures through 2013.

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