My wife Brenda and I will be on vaction in Hawaii. We leave 10/30 and return 11/11. You can reach me at pdribin@dribinconsulting.com
« September 2011 | Main | November 2011 »
October 2011
October 29, 2011
October 28, 2011
October 27, 2011
October 26, 2011
Editorial Calls for Support for HUD Housing and Community Development Programs
A Foolish Time to Cut Housing Aid
Published: October 25, 2011
With record numbers of families teetering on the verge of homelessness, Congress should be shoring up the precious few federal programs that provide affordable housing for the poor, the elderly and the disabled. Instead, both the House and Senate are considering cuts to the Department of Housing and Urban Development budget, which would hurt cash-strapped states and communities in sheltering the most vulnerable citizens.
The agency spends most of its budget on low-income programs, including on rent vouchers used by nearly two million families and a program that makes it possible for developers to set aside affordable units in multifamily buildings. The Obama administration has asked Congress for about $41.7 billion for the department, roughly the same amount as in each of the past three years. It says that the proposed House budget would provide about $38 billion, and the one in the Senate about $37 billion.
The federal government’s failure beginning in 1990s to meet its commitment to public housing makes further cuts devastating. Public housing, with more than $25 billion in a backlog of repairs, is on the verge of collapse. Unless Congress puts significant money into the capital fund, tens of thousands of units around the country will continue to crumble and could be lost forever.
The administration has asked for a modest $3.8 billion for the Community Development Block Grant program, which was set up to improve housing, infrastructure and economic opportunities to poor and moderate-income people in all communities. If Congress falls short of that request, it could kill off building and renovation projects, sacrificing as many as 6,000 jobs.
Congress should fully finance the $88 million housing counseling program, which helps distressed homeowners avoid foreclosure; a cut seems particularly foolish when millions of families are facing threats of foreclosure. Given a recent surge in homelessness, Congress would also be wise to come up with the $2.4 billion for the department’s homelessness prevention and rehousing program. This is no time to abandon needy families. A relatively small investment could prevent hardship and homelessness for people who have no other
October 25, 2011
Office Rental Market Still Weak
It’s Still a Renter’s Market, Office Landlords Learn
Hiroko Masuike/The New York Times
The financial holding company Nomura Securities received incentives for its 20-year lease at Worldwide Plaza.
By TOM ACITELLI
Published: October 25, 2011
Last February, Bloomberg L.P. signed a 400,000-square-foot lease at 120 Park Avenue. Wells Fargo had originally scouted the space, but Bloomberg offered a higher rent, making one of this year’s biggest office deals. It was a sign, commercial real estate brokers said, that the Manhattan office market was tilting in landlords’ favor again.
Hiroko Masuike/The New York Times
UBS Financial Services received nine months of free rent for its 10-year lease at 200 Park Avenue, often called the MetLife Building.
With tenants competing for space, it would not be too long before rents, tempered by the recession, would rise and incentives for tenants, a staple of the office market since the credit crisis of 2007, would recede significantly.
But that conventional wisdom has largely proved wrong. While Manhattan office rents have indeed risen since the recession and leasing activity has picked up, tenants can still command several months of free rent and allowances of many dollars a square foot in improvements to their space.
That is because, given the economic uncertainty at home and abroad, brokers say more tenants are deciding to sit tight rather than expand or move their offices.
Where tenants might have gotten perhaps 10 to 12 months of free rent upfront in 2009, they are now getting six to eight, commercial brokers said. Where landlords might have put up $65 to $70 a square foot in allowances for tenants to improve their spaces, they are now offering $55 to $60.
“It started to look like the tables were going to turn,” said Michael Cohen, the president for the tristate region for the real estate broker Colliers International and an owner of Class A and B office space in Manhattan. “What actually happened was we hit this newfound financial crisis. Instead of the tables turning, they hovered.”
For much of the last decade, Manhattan office rents seemed to only ascend, reaching well over $100 a square foot in some trophy properties, like the Bank of America Tower at 1 Bryant Park and the Seagram Building at 375 Park Avenue. Hefty incentives were largely unheard-of, as companies buoyed by the growing economy were expanding their offices or upgrading, and willing to pay top dollar to do so.
The average net effective rent — taking into consideration the tenant incentives that in varying degrees have long been part of the office market — was $69.48 a square foot in the first few months of 2008, according to research from the brokerage firm Cushman & Wakefield. By the end of that year, after the collapse of Lehman Brothers, it was $58.97. At the start of 2010, the net effective rent for Manhattan office space was $40.54, a drop of more than 42 percent from two years before. By the middle of 2011, it had edged up only about $7 a square foot.
And some tenants, suffering financially but still bound to a lease, put up space for sublease, further depressing rents. By early 2009, sublease space accounted for more than 27 percent of available office space in Manhattan.
“At the same time, we also had very large blocks of space, 100,000 square feet or greater,” said Mitchell Konsker, a vice chairman of the broker Jones Lang LaSalle. “Between both the softness in the sublease market during the recession and the large blocks of space, that put a lot of pressure on landlords to lower rents to be competitive.”
The economic tumult also meant more renewals and fewer new leases. Cushman & Wakefield’s research shows that 8.6 million of the 34.9 million square feet leased in 2010 came from renewals, the highest amount since at least 2004 (in 2005, for instance, renewals accounted for barely three million square feet of office leases).
“In the depths of the recession, what most tenants did was hide,” said Howard Fiddle, a vice chairman at CBRE Group Inc., “and there were very few relocations because tenants didn’t want to spend any capital at all and they didn’t want to make any long-term commitments.”
When leasing activity did pick up this year, it smacked into a fresh crop of bad economic news, including financial services layoffs in Manhattan and the debt crisis in Europe, not to mention ongoing high-stakes budget talks in Washington.
Landlords, according to brokers, will have to keep offering incentives to skittish tenants, however incrementally less generous than before. (Several prominent Manhattan office landlords declined to comment for this article, though they did not dispute that they were offering incentives greater than those offered before the recession.)
Brokers said recent deals with substantial incentives included the following:
¶ The Man Group, an investment management house, is taking a lease for 48,709 square feet for 10 years at 452 Fifth Avenue, set to close in the fourth quarter of 2011, at rents of $82 to $88 a square foot. But with at least 10 months of free rent and $75 a square foot for work on the space, the effective rent drops to $64.52.
¶ The banking giant UBS Financial Services leased 44,612 square feet for 10 years and eight months in 200 Park Avenue, in a deal that will also close in the fourth quarter. The rents there ranged from $70 to $75 a square foot. UBS received nine months of free rent and $60 a square foot for work on the space, clipping its effective rent to $56.99.
¶ The financial holding company Nomura Securities received $70 a square foot for work and 18 months’ free rent for its 897,000-square-foot, 20-year lease at Worldwide Plaza at 825 Eighth Avenue. Nomura’s rent effectively dropped to $38.42 to $42.69, from $46 to $63 a square foot.
Those incentives will continue, brokers said, until the Manhattan office vacancy rate reaches “equilibrium”— about 7 to 8 percent. Right now, the vacancy rate is around 9 percent, much higher than the 6 to 7 percent before the recession.
While New York’s commercial real estate market in the past might have lagged the overall economy by months, brokers said, the market now tends to react much more immediately, slowing or growing in a globalized environment. A debt crisis in Greece or a political debate in Florida can rattle an already jittery set of landlords and tenants dealing in the nation’s most expensive commercial real estate.
One potential stumbling block for New York is the possibility that financial services firms, now undergoing a rash of layoffs, will spill more sublease space onto the market. That could drive rents lower and incentives higher, as landlords of directly available space compete with the cheaper sublease space that is often already built out.
“I’m going to stick my neck out and say that I believe the current market conditions will persist for at least six months, and maybe as long as a year,” Mr. Cohen of Colliers International said. “But, as sure as the sun will rise, we will see tenant incentives return to shrinking — as I would have thought they’d be doing already.”
What's This? Sponsored Headlines
- PC World Latest Technology NewsWireless Displays Cut the TV Cable for Good
- Work Goes Strong10 Lies You’ve Been Told about Your Resume
- TheStreet10 Naked Celebrity Phone Hacks
- Kiplinger10 U.S. Cities With the Most Expensive Cost of Living
Get Free E-mail Alerts
October 24, 2011
Revised Mortgage Refinancing Program for Underwater Mortgages
Refinancing Program
By BINYAMIN APPELBAUM
Published: October 24, 2011
WASHINGTON — The federal government said on Monday that it would overhaul a program that lets homeowners refinance mortgage loans at lower interest rates to address problems that have limited participation to less than a million borrowers, far below the lofty estimates when the program started in 2009.
Gene J. Puskar/Associated Press
The refinancing program announced on Monday will let people qualify for new loans no matter how far the value of their homes have declined.
Blogs
The Caucus
The latest on the 2012 election, President Obama, Congress and other news from Washington and around the nation. Join the discussion.
The White House described the changes as part of a broader plan to boost the economy through measures that do not require legislative action, reflecting a pragmatic recognition that Congress is deadlocked on economic issues, and a political effort to blame Republicans for the standoff.
“We have far too many Americans who have paid their bills and done everything right on their mortgages and yet they’re still stuck with interest rates of 6 or 7 percent,” said Shaun Donovan, the secretary of Housing and Urban Development. The existing program, he said, “has not reached the scale that we had hoped and the scale that it needs to reach.”
The broader refinancing program, which will still take months to implement, will let people qualify for new loans no matter how far the value of their homes have declined, and without regard to their financial situations so long as they have made at least six consecutive monthly mortgage payments. The plan also will reduce the fees that borrowers must pay, for example by dispensing with the need for an appraisal in many cases and by automatically transferring mortgage insurance to the new loan.
The plan also seeks to encourage banks and mortgage companies to participate by eliminating their legal responsibility for problems with the original loan, a significant financial benefit in many cases.
But the government maintained the narrow focus of the original program, significantly limiting the potential impact of the changes. The refinancing offer only applies to loans in the portfolios of the government-owned mortgage finance companies Fannie Mae and Freddie Mac. It only applies to loans that they acquired before May 31, 2009. And it only applies to loans worth more than 80 percent of the value of the home. In other words, it does not matter how deeply a homeowner is underwater — the loan can be worth twice the value of the home — but owners with more equity are not eligible.
The government estimates the revised program will allow perhaps 1 million homeowners to refinance — less than it once projected would benefit from the original program.
The changes announced Monday address a series of problems that lenders and outside experts warned from the outset would undermine the original program. In particular, the high cost of refinancing proved a formidable barrier to many homeowners struggling to pay their bills. So did the strict income requirements, which in many cases created the odd situation that a person who had never fallen behind on their mortgage payments was unable to qualify for a loan with a lower monthly payment.
The terms of the program are set by the Federal Housing Finance Agency, an independent agency that administers Fannie Mae and Freddie Mac, and that had resisted calls to broaden the program because it said its primary responsibility was to staunch the losses at the two companies. The agency said Monday that it had agreed to make the changes because doing so would contribute to that goal.
“Our goal in pursuing these changes is to create refinancing opportunities for these borrowers, while reducing risk for Fannie Mae and Freddie Mac and bringing a measure of stability to housing markets,” said the agency’s acting director, Edward J. DeMarco.
Some of the most important changes concern technical issues deep inside the machinery of the mortgage process. For example, borrowers who took two mortgage loans, and cannot afford to repay the second loan, cannot refinance the first loan without the permission of the second lender. The government has now negotiated a blanket grant of permission from many lenders.
Gene Sperling, director of the president’s National Economic Council, said the mortgage industry had shown a new willingness to facilitate refinancing, making the broader program possible.
“What has changed and made this more viable and led the president to push all of us even harder was that there was a growing awareness among all the stakeholders” that this problem needed to be addressed, Mr. Sperling said on a conference call Monday to discuss the announcement from the federal housing agency.
HUD Choice Neighborhoods Program
Fighting Poverty and Creating Opportunity: The Choice Neighborhoods Initiative
Written in collaboration with Luke Tate, Senior Advisor for Urban Policy
Raphael Bostic, Assistant Secretary for Policy Development and Research Recent Census numbers present a sobering picture: over 10.6 million Americans lived in neighborhoods with poverty levels over 40 percent in 2007 — a sharp increase from 7.9 million in 2000. And the recession of the last few years has only increased the strain on high-poverty communities.
This is especially troubling because extremely high-poverty neighborhoods cause disproportionately negative outcomes for their residents. Families in these communities face interconnected challenges, including persistent unemployment, high rates of crime, failing schools, capital disinvestment; and large health disparities. Recent research shows that these challenges are large and impactful. Whether or not a child grows up in a high-poverty neighborhood has a greater impact on their subsequent welfare than factors such as their parents’ educational levels or income.
Choice Neighborhoods represents a key Obama Administration initiative designed to address the problems of growing poverty and high poverty neighborhoods. Choice Neighborhoods is a competitive grant program that provides flexible resources for local leaders to help transform high-poverty, distressed neighborhoods into mixed-income neighborhoods with the affordable housing, safe streets, and good schools every family needs.
Choice Neighborhoods represents the next generation of neighborhood revitalization policy, as it builds upon the HOPE VI public housing revitalization program launched in 1993. HOPE VI provided funds for local leaders to redevelop some of the nation’s most severely distressed public housing and create stable mixed-income communities. While housing was the main objective, experience has shown that this redevelopment has also been associated with reduced levels of poverty, crime, and unemployment, increased income and property values, and the creation of investment, business growth, and local jobs. Indeed, the Urban Institute has estimated that, with these gains, a typical 700-unit HOPE VI redevelopment would save taxpayers $22 million relative to HUD’s doing nothing to change the status quo.
Choice Neighborhoods takes HOPE VI to the next level by broadening the properties and activities that resources can be targeted towards. The goal is to ensure that the redevelopment is an even more robust anchor that spurs neighborhood stability and elevated levels of investment. The hope is that this structure will help communities implement strategies that are more comprehensive and better tailored to local context, with the result being even more effective redevelopment and stability.
With the launch of our first implementation grants in September, we will see how the broader, interconnected Choice Neighborhoods approach — ensuring access to high-quality education, safe streets, and opportunities available outside the immediate neighborhood being revitalized — allows Choice Neighborhoods to play a critical role in larger plans to reinvigorate cities.
This goal — housing redevelopment as a catalyst for neighborhood change — places Choice Neighborhoods with a range of other urban redevelopment strategies. All of these strategies acknowledge the opportunities that high poverty and other troubled neighborhood conditions offer. For example, it is not uncommon for highly distressed neighborhoods to be located in close proximity to central business districts and other job centers — a “hole in the donut” of surrounding opportunity. But what we see in the strategies is considerable variation in the degree to which the redevelopment efforts seek to build robust linkages between the neighborhood being redeveloped and those around it that have valuable amenities and opportunities.
Take convention centers and stadiums, two types of projects that have been the focus of many redevelopment efforts across the country. These projects cannot be endlessly replicated throughout cities with distressed neighborhoods — and moreover, research suggests that stadiums often offer little in the way of sustained economic activity and investment relative to the taxpayer investment.
Choice Neighborhoods takes a different approach, one that emphasizes creating essential building blocks of healthy and strong communities — housing, offices and retail, schools, parks, and anchor institutions like universities and hospitals — to fuel revitalization, with a focus on expanding access to opportunity and ending concentrated poverty. We believe this approach is a better one and, unlike the stadium and convention strategy, is one that can be replicated in communities across the nation.
President Obama’s recently released report, Creating Pathways to Opportunity, outlines a model that could be replicated nationwide:
In New Orleans, Choice Neighborhoods will spur the revitalization of the Iberville/Tremé neighborhood, where 52 percent of families live in poverty, with a plan centered on the transformation of distressed, highly-concentrated public housing into mixed-income housing that preserves the historic character of the neighborhood. The partnership, led by the City of New Orleans and its housing authority, will take advantage of the neighborhood’s adjacency to the French Quarter, bringing back the streetcar named Desire, and expanding the reach of New Orleans’ strong tourism economy to include the musical and cultural heart of Tremé. A new hospital, clinic, and biomedical research facility, tied to integrated job training, will create critical employment opportunities for neighborhood residents and expand access to affordable health care. And through the Choice Neighborhoods partnership with the Recovery School District, Louisiana’s fastest-improving school district, children growing up in the revitalized neighborhood will have access to the quality educational opportunities they need to achieve their potential. All of this work is aligned by a $30.5 million Choice Neighborhoods grant that leverages over $1 billion in private, non-profit, and other investments into the community, driving all of the partners to a coordinated effort to end intergenerational poverty.
With the launch of Choice Neighborhoods, we have an exciting opportunity to learn from innovative cities like New Orleans, Chicago, and San Francisco as they use neighborhood revitalization efforts to advance broader city revitalization plans — and show local leaders around the country what is possible. We can also learn from the anchor institutions working alongside those cities to develop innovative supports for the new generation of Choice Neighborhoods — adding political and economic heft to coalitions bridging housing, schools, and private business, with a common goal of ending persistent poverty in their communities.
PD&R Edge Archives
FEATURED ARTICLE ARCHIVE
MESSAGE ARCHIVE
NEWS ARCHIVE
PARTNER REPORT ARCHIVE
Publications
Cityscape
From Street Life to Housing: Consumer and Provider Perspectives on Service Delivery and Access to Housing
Community and Economic Development
Regulatory Barriers to Manufactured Housing Placement in Urban Communities
Affordable Housing
Enhancing Energy Efficiency and Green Building Design in Section 202 and Section 811 Programs
Newsletters
ResearchWorks
What Do We Know About Homeless Veterans?
Breakthroughs
State Supports Innovative Catalyst Projects
Evidence Matters
Quantifying Energy Efficiency in Multifamily Rental Housing
Insights
Bridging the Gap: Homelessness Policy
Larry Summers on Fixing the Housing Crisis
By Lawrence H. Summers The views expressed are his own.
The central irony of financial crisis is that while it is caused by too much confidence, too much borrowing and lending and too much spending, it can only be resolved with more confidence, more borrowing and lending, and more spending. Most policy failures in the United States stem from a failure to appreciate this truism and therefore to take steps that would have been productive pre-crisis but are counterproductive now, with the economy severely constrained by lack of confidence and demand.
Thus even as the gap between the economy’s production and its capacity increases and is projected to increase further, fiscal policy turns contractionary, financial regulation turns towards a focus on discouraging risk taking, and monetary policy is constrained by concerns about excess liquidity. Most significantly the nation’s housing policies especially with regard to Fannie Mae and Freddie Mac–institutions whose very purpose is to mitigate cyclicality in housing and who today dominate the mortgage market–have become a textbook case of disastrous and procyclical policy.
Annual construction of new single family homes has plummeted from the 1.7 million range in the middle of the last decade to the 450 thousand range at present. With housing starts averaging well over a million during the 1990s, the shortfall in housing construction now projected dwarfs the excess of construction during the bubble period and is the largest single component of the shortfall in GDP.
Losses on owner-occupied housing have reduced consumers’ wealth by more than $7 trillion over the last 5 years, and uncertainty about the future value of their homes, as well as the inability to refinance at reasonable rates, deters household outlays on durable goods. The continuing weakness of the housing sector is a major source of risk for major U.S. financial institutions raising significantly the costs of the loans they offer.
In retrospect it obviously would have been better if financial institutions and those involved in regulating them–especially the FHFA–recognized that house prices can go down as well as up; if more rigor had been applied in providing credit; if the GSEs had been more careful in monitoring those originating and servicing loans; and if all those involved had been more vigilant about fraudulent behavior.
The question now is what should be done to address the housing market, given the drag it represents on the national economy. With virtually all mortgages in the United States provided by the Federal government or guaranteed by the GSEs, this is inevitably a matter of government policy.
Unfortunately, for the last several years policy has been preoccupied with backward-looking attempts to address the consequences of past errors in mortgage extension by addressing homeowners on a case-by-case basis, and decisions regarding the GSEs have been left to their conservator FHFA which has taken a narrow view of the public interest. FHFA has not acted on its conservatorship mandate to insure that the GSEs act to stabilize the nation’s housing market, and taken no account of the reality that the narrow financial interest of the GSEs depends on a national housing recovery. Instead of focusing on the stabilization of the housing market, its focus has been on reversing its previous policies heedless of changes in the environment, and in treating mortgage finance as a morality play involving homeowners, financial institutions and banks rather than an important component of national economic policy. A better approach would involve a number of changes in policy.
First, and perhaps most fundamentally, credit standards for those seeking to buy homes are too high and rigorous in America today. This reduces demand for houses, lowers prices and increases foreclosures, leading to further tightening of credit standards and a vicious growth-destroying cycle. Publicly available statistics suggest that the characteristics of the average applicant in 2004 would make an applicant among the most risky today. Of course the pattern should be opposite, given that the odds of a further 35 percent decline in house prices are much lower than they were at past bubble valuations.
Second, as President Obama stressed in presenting his jobs bill, there is no reason why those who are current on GSE guaranteed mortgages should not be able to take advantage of lower rates. From the point of view of the guarantor as distinct from the mortgage holder, lower rates are all to the good since they reduce the risk of default. Yet, at least until now the GSEs have made refinancings very difficult by insisting on significant fees and by requiring that any new refinancier take on all the liability for errors in underwriting the original mortgage, at a cost to American households of tens of billions a year.
Third, stabilizing the housing market will require doing something about the large and growing inventory of foreclosed properties. The same property sold in a foreclosure sale nets about 30 percent less than if sold in the ordinary way and the knowledge that that there is a huge overhang of foreclosed properties deters home purchases. Aggressive efforts by the GSEs to finance mass sales of foreclosed properties to those prepared to rent them out could benefit both potential renters and the housing market.
Fourth, there is the issue of preventing foreclosures which was the initial focus of housing policy efforts. The truth is that it is far from clear what the right way forward is. While the Obama administration HAMP effort has been widely criticized for overly restrictive eligibility criteria, the reality is that a large fraction of those receiving assistance have ultimately been unable to meet even their reduced obligations. This suggests that the task of helping homeowners without either damaging the financial system or simply delaying inevitable outcomes is more difficult than is often supposed. Surely there is a strong case for experimentation with principal reduction strategies at the local level. The GSEs should be required to drop their current posture of opposition to experimentation and move on a more constructive posture.
Fifth, there were clearly substantial abuses by major financial institutions and most everyone in the mortgage industry during the bubble period. Just compensation to the victims is a legitimate objective of public policy. But allowing negotiation over the past to be the dominant thrust of present policy creates overhangs of uncertainty that impose huge costs on the financial system and inhibits current lending. It is equally in the interests of bank shareholders and the housing market that a rapid resolution of disputes be achieved. The FHFA should be striving to bring the current period of uncertainty to a rapid conclusion.
While the GSEs are by far the most important actors in the mortgage space (and hence the FHFA that serves as their conservator is the most important player in housing policy), there are others who can make a constructive difference. Bank regulators could facilitate inevitable restructuring of underwater mortgages by requiring banks to treat second mortgages and home equity loans in realistic ways. The Fed could support demand and the housing market by again expanding purchases of mortgage backed securities.
With constructive approaches by independent regulators, far better policies could be in place six months from now. The anticipation of a change to supportive policies could change the tone of the market even sooner. There is nothing else on the feasible political horizon that can make as a large a difference in driving American economic recovery.
