NEW YORK (CNNMoney) — Reducing the amount struggling homeowners owe on their mortgages is proving to be a more effective way to prevent foreclosures than other methods, such as reducing interest rates or postponing payments, a new report finds. In a report presented this week, Amherst Securities Group said that when principal reductions brought mortgages near the home’s market value, borrowers were substantially less likely to fall behind on payments again and lose their homes.
Only 12% of borrowers who received principal reductions re-defaulted in 2011, Amherst found. That’s compared with 23% of borrowers who received mortgage modifications with interest rate reductions (but no principal reduction) and 30% who received forbearance, which postpones their debt repayment. “[Modifications] with principal forgiveness are apt to be most effective, as the borrower no longer owes the money — so he is no longer hopelessly underwater,” said Laurie Goodman, Amherst’s housing market analyst and one of the authors of the report.
The success these principal reductions have had in turning delinquent borrowers back into paying clients has led many lenders to step up debt forgiveness on the loans in their own portfolios.
So far this year, principal reductions have accounted for 40% of the modifications done by the banks, up dramatically from 25% in 2011 and 11% in 2010, according to Amherst.
The mortgage servicers cannot forgive debt on loans that are owned or backed by one of the two government-controlled mortgage giants, Fannie Mae (FNMA, Fortune 500) and Freddie Mac (FRE), however, and they are limited in what they can forgive on loans owned by investors.
That means, of the vast majority of loans — 6 million since April 2009, according to the Treasury Department — only a fraction have received debt forgiveness. That may be changing, though.
The Federal Housing Finance Agency, which controls the majority of outstanding mortgages through its oversight of Fannie and Freddie, has thus far prohibited the mortgage giants from including debt forgiveness as part of their mortgage modifications. See also: Most affordable cities to buy a home
Last month, however, Fannie and Freddie announced they would participate in two programs in California and Nevada that will use part of a $7.6 billion Hardest Hit Fund to pay down loans the companies own or back.
However, the move will not cost Fannie and Freddie anything and is a far cry from the principal reduction that private mortgage servicers are extending to borrowers.
“My guess is that eventually, [Fannie and Freddie will] go down that path, but there’s still a lot of reticence there,” said Mark Zandi, the chief economist for Moody’s Analytics. “People have problems with principal reduction. They think it’s unfair.”
Even if Fannie and Freddie remain on the sidelines, Amherst said it expects to see a continued increase in principal reductions.
The cash-strapped Miami-Dade School District has several options to consider from developers interested in buying its prime downtown real estate, but interest has cooled from its biggest suitor — the Genting Group.
In December, the Malaysian investors told the School Board they were interested in buying the district’s downtown property, which spans more than 10 acres of parking lots and office buildings on eight separate parcels.
But on Monday, the group said it is pursuing scaled-back plans for a luxury development — for now without a casino — on The Miami Herald’s bayfront property, which Genting purchased last year from the newspaper’s parent company.
“Though we initially indicated interest in the School Board properties, we have since decided to move forward developing Resorts World Miami on the nearby Miami Herald site, independent of the school bpard land,” said Jessica Hoppe, vice president and general counsel for Resorts World Miami.
Starting with its purchase of The Miami Herald property, the Genting Group has invested about $500 million in real estate in the Omni area. The group is moving ahead with a luxury complex on the bay after its bid to build the world’s largest casino faded in February in the Florida Legislature.
“We understand Genting’s decision, and the matter remains under the cone of silence,” John Schuster, spokesman for the school district, said in an email.
Last fall, the district issued a request for letters of interest in the property, the first step in selling or developing it, and got some proposals.
Superintendent Alberto Carvalho has not recommended any option to board members, but released the letters in a Feb. 9 memo to the board for “informational purposes.”
“We have a structured process if we were to proceed,” said Jaime Torrens, the district’s chief facilities officer. “There’s no pricing at this point. It’s very conceptual.”
Among the proposals:
–One from 1550 The Chelsea to buy the district’s lot at 1535 NE Second Ave. The developers are working on a mixed-use tower near the Omni hotel. It owns the Brickell Flatiron, which includes the bar Baru, and has plans for a park and to build Park Lane Towers in a vacant area.
“We’re the natural purchasers,” said managing member Mallory Kauderer. “I’ll pay a good price because we’re on Biscayne Boulevard.”
–An offer to buy one of the district’s parcels, 1610 NE First Ct., for $908,440 in cash from Prince Albert, a company of the Kluger family, who own other properties in the area.
–A pitch to market and sell the district’s eight parcels separately by Ryan Shaw with Marcus & Millichap, a national real estate brokerage. In his letter, Shaw estimated the value of each of the district’s properties for a total of more than $40.7 million.
“It would be in the School Board’s best interest to bring these properties to market separately,” Shaw said. “They’re sitting on equity that could be better served in the school district by building more facilities more centrally located and getting out of downtown.”
–A conceptual plan from Town Square Neighborhood Development, a nonprofit focused on developing the area around the Adrienne Arsht Center. The group has no funds, but has a wish list to make over the performing arts area.
Any timeline to sell the district’s property would likely take at least a year, given the deal’s complexity and need to find a place for the district to relocate its headquarters, Torrens said. Atsthe nerve center of the fourth largest school district in the country, the district oversees more than 300 schools, 30,000-plus employees and nearly 350,000 students.
Torrens said the district could weigh other alternatives, too. “It isn’t just sell. There are different types of leases or developments,” he said.
Genting cools interest in buying Miami-Dade School District property By Laura Isensee, Miami Herald
Several years ago, I happened to pair up with someone I hadn’t previously met at the Santa Fe Country Club, where I usually play. After a few holes, we discovered common professional interests: He was about to buy a local magazine and—after editing a travel magazine for several years—I was looking for a new opportunity. We had a lively discussion, with both of us thinking: ‘Mmm, kismet?’ Then a curious thing happened. He preferred to drive his cart at top speed between shots and holes, whereas I liked to walk the course and take my time lining up each shot. At the end of 18, we exchanged numbers, but we both knew we’d never collaborate.
Why? Because the way we played golf spoke volumes about the way we approached our professions.
This weekend, golf is once again on our minds as the Master’s—perhaps the premiere golf tournament in the country—enters its second round of play. The other day, in an interview with a national newspaper, 2011 US Open champ Rory McIllroy was briefly embarrassed when his phone rang, an awkward moment on a course where handheld devices are strictly forbidden. However, it’s a good reminder, for all of us weekend duffers who are taking our clubs out of the closet for the first time this year, how important etiquette and good manners are to the game.
It may be a canard that more deals are struck on the golf course than in any other venue. But if you want to be a walking cliché, I humbly offer a few pieces of advice.
1. Take Lessons
Face it: You stink. Luckily, it’s not necessarily a life sentence. Living in the Rockies, where golf is a seasonal pursuit, I need all the help I can get when the snow melts. Starting the season by hitting two thousand balls on the range will not improve a flawed swing. So take a couple of lessons, but avoid the Pro who gives you 87 things to remember on your backswing. Don’t combine golf and business until you’re playing competently. Otherwise, your clients will rightly assume you’re an idiot.
2. Follow the Rules
A couple of years ago, I read about pro golfer Camilio Villegas being accessed a penalty for removing some debris from around his ball before taking his shot. He seemed genuinely surprised at having broken the rules. What’s shocking is that he didn’t know the rules. You don’t have to be the rule-book Nazi in your foursome, but take some time to read it before the season starts. You’ll be amazed at what you’ve forgotten—or never knew.
3. Observe Dress Codes
One of the best things about business golf is getting invited to play at a client’s or colleague’s club for the first time. Don’t show up in cargo shorts and your vintage Beck tee shirt. Call ahead to the pro shop and ask about the dress code. Dustin Johnson or Bubba Watson are good golf fashion icons: conservative but with a little individual flair. Forget the lime green or cranberry red ensembles. It works for Rickie Fowler. It doesn’t work for you.
4. Play Fair
Golf is self-policing. There are no refs, umpires, or line judges. Just you and your conscience. If your client sees you kicking your ball out of the rough for a better lie, do you think he’ll consider you a go-getter who doesn’t let anything stand in his way—or a lying, self-deceiving sleaze? Mmm. I was playing with a retired chief operating officer a few years ago and I remember him saying, ‘It’s too bad the ethics of golf don’t apply to business.’ That’s just the kind of guy who is perplexed by the public’s attitude toward Wall Street.
5. Observe the Etiquette of the Game
Golf etiquette requires a couple of volumes to detail, from determining driving order to conceding a putt. It boils down to erring on the side of good manners. You don’t throw your briefcase across the boardroom when a deal goes sour (if you still have a briefcase, troglodyte), so throwing your clubs and cursing when you overshoot the green is going to tell your business golf partner that you’re a bad-tempered, tantrum-throwing moron—just the kind of business connection to avoid. Accept failures with grace and victories with humility.
6. Don’t Bet on It
My father imparted two pearls of wisdom when he introduced me to the game. First, never play against anyone, just yourself. Second, if you get frustrated, just enjoy the view. Tournaments are one thing, but putting too competitive an edge on a business golf game can get ugly. You really want to have to watch someone you’re hoping to do business with resentfully write out a check to you in the clubhouse? Conversely, are you willing to trash all sense of honor by five-putting the last hole so your client can walk away $105 richer? If your answers are yes, I suggest you take up trout fishing with dynamite.
7. Don’t Drink and Drive, Let Alone Putt
Until the final putt on the 18th, don’t even think about a cold one. My regular foursome includes a communications executive, an electrical contractor, and a chef. We don’t talk business; we talk smack. So a couple of tall boys in the cart is appropriate. But when you’re doing business on the course, the last thing you want is for things to get sloppy. The clubhouse after play is the appropriate venue—and if you’ve done your prep correctly for the last 18 holes, it’s the right place to close the deal.
8. Know When to Talk Business
One of the oldest maxims of the game is to never talk business the first time you play with a new colleague or client. Pushing your business agenda when you’re supposed to be enjoying leisure time is unseemly. When business does enter into things, observe these four nevers: First, never discuss business before the third hole; second, never after the 15th; third, never when someone is preparing to shoot; and fourth, never on the green. Personally, I like to walk a course—not just for the exercise, but for the stroll between shots that actually gives you and your partner time for a leisurely chat.
9. Play Charitable Tournaments
Yes, local tournaments for charity are possibly the best venue for networking ever devised. If run well, they’re also usually a hell of a lot of fun. Also, at the end of the weekend, you’ve helped raise money to help someone’s life other than your own.
10. Take Advantage of Reciprocals
No doubt you’ve gone to your club’s general manager or pro and asked for help with a reciprocal—the gentlemen’s agreement by which you’re allowed to play as a guest at another club. The problem with this is that if your club pro is not well respected—or your club is not at a certain tier—your request to play at Pine Valley, N.J., will probably be turned down. About eight years ago, a number of online ‘reciprocal clubs’ sprang up that offered a matchmaking service for private club members. You still might get turned down because your own club isn’t up to snuff, but the advantage is they come up with lots of clubs you’d never think of playing and they can reach out internationally to clubs at which your own would never have connections. If you travel abroad frequently, membership is a bargain, but they’d still never let you into Pine Valley.
The Ten Commandments of Business Golf By Kent Black Businessweek.com
It’s not that Miami isn’t welcoming to Americans, or that developers prefer Brazilians. They don’t. But in this global city today, the big real estate buyers are all from abroad. And one of the reasons, especially when it comes to new developments, is the sales model.
“Latin Americans and Europeans are used to paying in cash for real estate. American’s are not. What we’re doing with our Brickell House property in Miami is telling people that they can pay us quarterly while the project is being built so that by the time it is done in two years, you have paid for almost 70% of your home,” says Harvey Hernandez, chairman of the Newgard Development Group, a luxury property developer in Miami.
“This is the best way to buy it. Or you can wait for the project to be complete, like Americans do, and pay about 40% more,” he says.
They pay-as-they-build sales model is popular in Latin America. It’s not unusual to see new residential high rises going up in São Paulo with floors being sold before the roof of the building is even in place. For Brazilians, in particular, Miami is their second or third home. Real estate prices in upscale beachfront property in Rio de Janeiro, for example, is more expensive than it is in Miami, a city in a developed country with all the bells and whistles.
Hernandez says that within just 90 days of trying to sell Brickell House’s 374 units, 190 of them have already gone, 90% of them to Brazilians, Venezuelans, Mexicans, Russians, Chinese and Europeans. One bedroom units cost around $300,000, chump change in Europe thanks to a favorable exchange rate.
The sales success at Brickell House is the result of the world’s rekindled love affair for South Beach and new, ultra-mod American luxury in a glam global city. South Florida is in the early stages of a new development wave to cater to the foreigners, with 22 newly-announced projects accounting for more than 4,000 units in a section of the city that’s basically sold out.
“The fact that Brickell House has reached the fifty percent sales mark in just four months is further proof that Miami’s condo market is back,” says Alicia Cervera Lamadrid, Managing Director of Cervera Real Estate.
Today, fewer than 1,500 condos in the Brickell Financial District are on the market, according to a June 2011 market study by the Miami Downtown Development Authority. With the continuation of this sales velocity, the remaining unsold inventory could be sold-out in the next year leaving an inventory gap in Miami.
“Miami’s existing condo inventory has been absorbed at a faster rate than anyone could have predicted,” says Hernandez. “We are still seeing strong interest from international buyers who appreciate Miami’s status as a global business and entertainment hub and see value in the city’s Brickell Financial District. We see our sales momentum continuing through our groundbreaking this summer and we expect to be sold out by the end of 2012.”
Low interest rates and an improving jobs picture have given real estate investment trusts a boost that makes them an attractive alternative to stocks and bonds.
Commonly called REITs, the trusts have underperformed stocks this year just slightly but face strong prospects going forward as the two critical factors propelling the commercial real estate market continue to take hold.
REITs invest across a broad array of sectors, from office buildings to shopping malls and hotels. There also are health care, timber and infrastructure REITs. They are required to distribute 90 percent of their taxable income to investors through dividends.
“That really is a perfect storm that’s very good for REITs,” says Rick Romano, co-manager of the Prudential Global Real Estate Fund in Newark, N.J. “It will mean the economy isn’t growing fast enough to add new supply and for rates to increase, but we have enough jobs growth so vacancies are starting to push rents.”
Ironically, it is the tepid but steady pace of job growth — less than 150,000 per month — that creates a Goldilocks environment where the jobs picture is not too hot so as to drive home-buying but just hot enough to propel rents higher.
“If we can stay around 100,000 to 200,000 (new jobs) a month, we think that’s kind of a good backdrop for REITs and real estate,” Romano says.
The MSCI REIT Index has gained about 6.5 percent in 2012 after rising 8.7 percent the previous year.
Industrial REITs have done best, gaining 15.5 percent, while hotels are up 11.4 percent and shopping centers about 11 percent, according to the National Association of Real Estate Investment Trusts.
That compares to stocks, where the Standard & Poor’s 500[.SPX1361.23|3.19(+0.23%)] has gained 7.4 percent, and Treasurys, which have lost about 2 percent.
But the $200 billion U.S. REIT market doesn’t face quite the same challenges as stocks and bonds, and offers an attractive dividend at about 3.6 percent industrywide.
The real estate sector, struggling thought it may be, boasts strong support from government policy makers — the Federal Reserve has pledged to keep rates low — and faces less danger from headwinds such as the sovereign debt crisis in Europe.
S&P on Wednesday reiterated its “stable” outlook on REITs and said they should do better than home builders this year. Making that view even more positive is that sentiment as registered by the National Association of Home Builders has hit its highest level since May 2007, according to data released Wednesday.
“The commercial real estate sector is in the midst of a gradual recovery that, in many markets, rests more on limited new supply than on tenant demand, which remains subdued,” said Standard & Poor’s credit analyst Lisa Sarajian.
“However, our current stable outlook for REITs anticipates that they will keep outperforming the broader commercial real estate market and their private competitors — and their manageable funding needs and access to diverse sources of capital position them well for growth,” she added in an analysis.
For investors, a number of publicly traded companies offer attractive opportunities.
American Tower briefly hit an all-time high Wednesday and has gained more than 14 percent over the past year, even though the REIT trades at more than seven times book value.
The popular Vornado Realty Trust and the industrial real estate conglomerate Prologis also are attractive, says Scott Colyer, CEO and chief investment officer at Advisors Asset Management in Monument, Colo.
“It’s probably one of your best trades this year,” Colyer says of the REIT space. “Real estate to us is the ultimate hard asset, the ultimate guard against inflation. What the Fed is doing is actually very supportive of the real estate market and probably will be for quite some time. Low rates and rising demand is a pretty good combination for the real estate market.”
Indeed, the timing seems to be right as a number of economists believe real estate at least has reached a plateau if not a decided turn higher.
“We think that growing investment demand will prompt homebuilders to increase significantly construction of multi-family units in 2012,” Paul Diggle, property economist at Capital Economics in London, said in a research note. “But in a turnaround from last year’s performance, we also expect single-family starts to increase this year.”
Residential REITs have underperformed so far, making them one area investors may want to look for future gains should housing pick up. Apartment REITs have returned just 1.72 percent, though manufactured homes are up nearly 4 percent, according to NAREIT.
“All the well-known real estate tycoons were waiting for potential armageddon in commercial real estate, but it didn’t happen,” Colyer says. “You’re buying real estate at the right time in the cycle, when there’s a tailwind behind it and it should do well for many years to come.”
Source: CNBC.com REITs Find ‘Perfect Storm’ to Ride Real Estate Wave By: Jeff Cox CNBC.com Senior Writer