Luxury Homeowners in US use ‘Short Sales’ as Defaults Rise

December 17, 2009 by  
Filed under Luxury Home Digest


By Kathleen M. Howley and Dan Levy

stock photo : Foyer with curved staircase in luxury homeDec. 17 (Bloomberg) — Homeowners with mortgages of more than $1 million are defaulting at almost twice the U.S. rate and some are turning to so-called short sales to unload properties as stock-market losses and pay cuts squeeze wealthy borrowers.

“The rich aren’t as rich as they used to be,” said Alex Rodriguez, a Miami real estate agent with JM Group USA Inc., whose listings include a $2.9 million property marketed as a short sale because the price is less than the mortgage, leaving the bank with a loss. “People have reached the point where they can’t afford the carrying expenses of a $2 million home.”

Payments on about 12 percent of mortgages exceeding $1 million were 90 days or more overdue in September, compared with 6.3 percent on loans less than $250,000 and 7.4 percent on all U.S. mortgages, according to data from First American CoreLogic Inc., a Santa Ana, California-based research firm. The rate for mortgages above $1 million was 4.7 percent a year earlier.

As defaults on the biggest mortgages rise, borrowers such as Steve Holzknecht are turning to short sales to exit loans that now are larger than the market value of the house. In such a transaction, the lender agrees to accept less than a 100 percent payoff on a mortgage to expedite the property’s sale.

Holzknecht, 53, last month cut the asking price for his 7,280-square-foot home in Kirkland, Washington, by $550,000 to $1.25 million, lower than the balances of his two mortgages. Holzknecht, the former owner of Four Suns Inc., a Seattle luxury homebuilder that went out of business two months ago, constructed the Craftsman-style home in 2000. He declined to identify his lenders or the amount he owes.

Common Plight

“It’s not uncommon to see this situation on the high end of the market — homes selling for less than it would cost to build them,” said Holzknecht’s agent, Joe Flick of Roanoke Group in Seattle. The property came on the market eight months ago priced at $1.85 million, he said.

Porter Michael Peterson, a 33-year-old linebacker for the National Football League’s Atlanta Falcons, bought a mansion near Tampa, Florida, four months ago for $1.1 million — almost half the amount of the mortgage taken out by the sellers three years earlier, according to real estate records. Reggie Roberts, a spokesman for the Falcons, didn’t return a call seeking comment.

Short sales almost tripled to 40,000 in the first six months of 2009 from the same period a year earlier, according to data from the Office of Thrift Supervision. The bank regulator doesn’t break out short sales by size of mortgage.

Upside Down Mortgages

“You are just starting to see the tip of the iceberg with luxury short sales,” said Adrian Heyman, owner of Property Advisors, a real estate broker in Scottsdale, Arizona. “A lot of wealthy people are upside down in their mortgages and they just can’t afford the second or third vacation home anymore.”

There are 114,000 home loans of more than $1 million, according to First American. About a quarter of all mortgaged homes in the U.S. have loan balances bigger than their current value, known as being upside down or underwater, the data company said.

The Dow Jones Industrial Average lost more than half its value as it tumbled to a 12-year low in March. The number of U.S. households with a net worth of more than $1 million, not counting primary residences, fell to a five-year low of 6.7 million last year from a record 9.2 million in 2007, according to Spectrem Group, a Chicago-based consulting firm.

The financial-services industry was among the hardest hit by the recession. While Goldman Sachs Group Inc. set aside a record $16.7 billion in the first nine months of the year for employee bonuses, some Wall Street executives will see pay cuts, according to Johnson Associates Inc., a New York-based compensation-consulting firm.


Year-end bonuses for people at hedge funds, asset- management firms and insurance companies probably will drop an average 20 percent, the firm said.

“There’s a lot of distress,” said Tracy McLaughlin, co- owner of Morgan Lane Real Estate in Ross, California, north of San Francisco. “You have hedge-fund guys whose funds evaporated and a year-and-a-half later they’re still not working.”

The entry-level segment of the housing market was aided this year by an $8,000 first-time buyers tax credit that pushed resales to a 6.1 million annual pace in October, the highest since February 2007, the National Association of Realtors said in a Nov. 23 report.

President Barack Obama signed a bill last month extending the program into next year. The new version keeps the first-time buyer benefit and makes a smaller credit available to some move- up buyers. It can’t be used for homes priced above $800,000.

Luxury Market Left Out

The Federal Reserve set out in January to lower fixed mortgage rates by purchasing $1.25 trillion of bonds backed by home loans. The 30-year fixed rate for so-called conforming loans that can be bought by Fannie Mae and Freddie Mac dropped to an all-time low of 4.71 percent in the week ended Dec. 4, according to McLean, Virginia-based Freddie Mac, the second- largest U.S. mortgage financier. The rate rose to 4.81 percent last week.

The Fed purchases haven’t affected the high end of the market because they exclude so-called jumbo loans. Mortgages above the $729,750 limit set by Congress for the nation’s highest-priced markets cost almost 1 percentage point more than conforming loans, according to Keith Gumbinger, vice president at HSH Associates, a mortgage-data company in Pompton Plains, New Jersey. That’s quadruple the historic spread.

“There is no refinance market for you if you are underwater and outside the Fannie and Freddie framework,” Gumbinger said. “High-end neighborhoods are all suffering from the same problems of diminished income at a time when there is little equity to work with.”

Trapped by Market

Masoud Bokaie, co-founder of engineering firm BORM Associates Inc. in Irvine, California, owes $2.6 million on a 3,664-square-foot house with marble floors and granite counters about 10 miles (16 kilometers) away in Newport Beach. He’s waiting to hear whether lenders Luther Burbank Savings and Wells Fargo & Co. will approve a short sale.

He received an offer last month “close to” the loan balances, said Shirley Cameron, his agent at Coldwell Banker Platinum Properties in Irvine, who declined to specify how much. Bokaie said he doesn’t want to pay $7,000 a month in net costs including the property’s mortgages and taxes when real estate values in the area continue to tumble.

“What’s the point when the market is going in the other direction?” Bokaie said in an interview.

The U.S. median home price was $173,100 in October, 25 percent lower than its July 2006 peak, according to the National Association of Realtors. Prices fell 7.1 percent from a year earlier, the slowest pace of the year.

More Declines Expected

“The reason the low end stopped falling is because the government stepped in with affordable loans,” said Scott Simon, managing director at Pacific Investment Management Co., a Newport Beach-based investment firm that runs the world’s largest bond fund. “There is no political will to bail out a million-dollar house.”

Luxury home prices probably will drop another 5 percent before reaching a bottom in September 2010, according to Sam Khater, senior economist at First American.

Those declines may lead to losses on jumbo mortgages that dwarf the “haircut,” or discount to full value, that banks take on short sales or foreclosures of moderately priced homes, said Rodriguez, the agent with JM Group in Miami.

“When the bank takes a loss on a $3 million property it’s a lot bigger than the loss on a home with a $150,000 mortgage,” Rodriquez said.

To contact the reporters on this story: Kathleen M. Howley in Boston at; Dan Levy in San Francisco at

Federal Reserve MBS Purchases on Hold at 16 Billion

December 14, 2009 by  
Filed under Mortgage Updates

The Federal Reserve today reported on their weekly purchases of agency mortgage-backed securities (MBS).

In the five trading days between December 3 and December 9, the Federal Reserve purchased a total of $27.25 billion agency MBS. In those five days the Federal Reserve sold $11.25 billion agency MBS, most of which were Fannie 5.0 coupons (dollar rolls). The Fed’s weekly net purchase total was $16.00 billion. This is the fourth consecutive week purchases have come in at $16.00 billion.

The goal of the Federal Reserve’s agency MBS program is to provide support to mortgage and housing markets and to foster improved conditions in financial markets more generally. Only fixed-rate agency MBS securities guaranteed by Fannie Mae, Freddie Mac and Ginnie Mae are eligible assets for the program. The program includes, but is not limited to, 30-year, 20-year and 15-year securities of these issuers.

Since the inception of the program in January 2009, the Fed has spent $1.07 trillion in the agency MBS market, or 85.65 percent of the allocated $1.25 trillion, which is scheduled to run out in March 2010.

Education and Earning

December 14, 2009 by  
Filed under Luxury Home Digest

Most of us grew up believing that education and earning power were irrevocably shackled to each other, and where one went, the other inevitably followed.

These days, we’re no so sure.

Below, a partial list of billionaires who dropped out of school and went on to become outrageous successes in the technology, entertainment and fashion fields.

1.  Sir Richard Branson dropped out of high school at the age of 16 and soon founded both Virgin Records and Virgin Atlantic Airways–as well as 300 other companies. He also bought a 79-acre Caribbean Island at the age of 24

2.  Kirk Kerkorian is a Las Vegas Legend with big stakes in Bellagio, Excaliber, Luxor, Mandalay Bay, MGM Grand, New York-New York, Circus Circus, The Mirage, and more. He dropped out of school in the 8th Grade.

3.  Bill Gates, founder of Microsoft, needs little introduction. He and wife Melinda are world-class philanthropists in addition to being the wealthiest couple in the world. Most of us know he was a Harvard dropout who couldn’t resist teaming up with:

4.  Paul Allen, co-founder of Microsoft who dropped out of Washington State University to join buddy Bill in their MS venture. He ended up with over 100 million shares of Microsoft and today owns 12 pro sports teams, lots of real estate, and big stakes in other tech and media companies including Dreamworks Studios.

5.  Steve Jobs dropped out of Reed College after just one semester and went on to found Apple Computer and become the largest shareholder in Disney Studios. A dropout earning $1 per year might have bolstered my parents admonishments, were it not that Mr. Jobs also owns 30 million shares of Apple plus perks.

6.  Larry Ellison, flashy founder of Oracle, dropped out of Illinois’ University of Urbana-Champaign (as well as the University of Chicago) and in 1977 invested $2000 to start Oracle Corporation, which is today the second  largest software company in the world. He also pilots his own jets.

7.   Michael Dell dropped out of the University of Texas at Austin after starting a little computer company he called PC’s Unlimited. Wildly successful, this dropout went on to develop Dell Computers into a name with worldwide recognition.

8.   David Geffen, a beacon in the entertainment industty, was another University of Texas at Austin dropout. He was also a cofounder of DreamWorks–and likely shares genius and coffee with Paul Allen (above).

9.  The Ralph Lauren name has become an icon in the fashion world. The City College of New York dropped out and founded the Polo Ralph Lauren brand. He reportedly got an early start, though, by selling neckties in high school where he declared his intentions to become a millionaire.

10. Sheldon Adelson is a casino legend/kingpin and Wall Street wizard, who is also a City College of New York dropout. He is CEO of the Las Vegas Sands Corp which also holds the Venetian Resort Hotel Casino and the Sands Expo and Convention Center. Adelson also help found the COMDEX computer trade show.

Moving From A Luxury Home

December 14, 2009 by  
Filed under Luxury Home Digest

The move from a luxury home can be a daunting one–especially when grand pianos, snooker tables and valuable art need to be both carefully packed, insured and moved into new abodes. 

Specialists are needed to make the event a success!
Moving a luxury home successfully is similar to planning a large wedding. Both events have many moving parts, (no pun intended,) and both require specialists to help you make your events successful.
When Moving a Luxury Home, Find Specialty Movers For Key Items in Your Home

When moving a luxury household, it is important to do some advance planning,  just as one would do with a wedding. Most luxury homes have very expensive furnishings that require specialized care in knowing how to pack move. It is recommended to contact moving specialists, much as you would contact wedding specialists such as a caterer, a florist and a local band. 
The Top Seven Speciality Movers for Luxury Homes are the Following:
1. Luxury home piano movers
Moving a grand piano effectively requires specialized equipment and skills. To ensure that your luxury grand piano is not damaged while moving, it is advised to hire a professional piano mover (a company that only specializes in moving pianos). 

2. Luxury home fine art packers, shippers and movers

The most important aspect of moving fine art lies in packing your fine art properly. Depending on the type of art, and if the art is being shipped or moved, there are various ways to properly package for the ultimate protection. Hire a fine art packing specialist to pack all of your fine art to ensure it’s full protection.
3. Luxury home packers
Hire professional movers to pack your home in moving boxes, which they will likely provide. Should you decide to pack valuables yourself,  you can either buy the moving boxes and moving supplies from the mover, or order moving boxes online for less.
4. Luxury home spa movers
If you want to take your 8 person hot tub with you, there are specialized movers who can help move your spa. Given the cost for such a move and the distance it is being hauled, it may be more cost-effective to purchase a replacement at the new destination.
5. Luxury home antique movers
If you have valuable antiques that need to be moved, you may want to hire an antique moving specialist to transport your valuables.
6. Luxury home pool table movers
You would think that  pool tables might be easy to move, but they are not. Luxury pool and snooker tables are very heavy and require special equipment and training to move. Luxury pool tables are usually made out of slate and require special and talent equipment to move these heavy items.
7. Luxury home movers to transport your heaviest furniture
If you own a luxury home, that means that you may have much larger rooms, which typically have much larger, and heavier furniture than the normal household. Some of the furniture for luxury homes is so large that movers actually need to use lift gates that raise your furniture up onto their moving truck. Again, skilled talent and special equipment is required. This is important  because many local movers don’t use lift gates–nor are they critical for most local moves. However, if your  furniture is very large and heavy, be sure to find an insured mover that has lift gates on their moving trucks.
We hope these moving tips are helpful in identifying the moving specialist that are helpful when moving a luxury home.
Consulting Real Estate

Mortgage Rates Follow Bond Yields Higher This Week

December 14, 2009 by  
Filed under Mortgage Updates

McLean, VA – Freddie Mac (NYSE:FRE) today released the results of its Primary Mortgage Market Survey (PMMS) in which the 30-year fixed-rate mortgage (FRM) averaged 4.81 percent with an average 0.7 point for the week ending December 10, 2009, up from last week when it averaged 4.71 percent. Last year at this time, the 30-year FRM averaged 5.47 percent.

The 15-year FRM this week averaged 4.32 percent with an average 0.6 point, up from last week when it averaged 4.27 percent. A year ago at this time, the 15-year FRM averaged 5.20 percent.

The 5-year Treasury-indexed hybrid adjustable-rate mortgage (ARM) averaged 4.26 percent this week, with an average 0.5 point, up from last week when it averaged 4.19 percent. A year ago, the 5-year ARM averaged 5.82 percent.

The 1-year Treasury-indexed ARM averaged 4.24 percent this week with an average 0.7 point, down slightly from last week when it averaged 4.25 percent. At this time last year, the 1-year ARM averaged 5.09 percent.

“Following an upbeat employment report, long-term bond yields rose slightly and fixed mortgage rates followed,” said Frank Nothaft, Freddie Mac vice president and chief economist. “The economy shed only 11,000 jobs in November, far fewer than the market consensus forecast, and the unemployment rate unexpectedly fell to 10 percent. In addition, revisions added 159,000 jobs to September and October.”

“Notwithstanding, rates on 30-year fixed mortgages are almost 0.7 percentage points below those at the same time last year. This translates into an $81 lower monthly payment on a $200,000 conventional mortgage

FHA Condo Rules

December 14, 2009 by  
Filed under Real Estate Politics & Regulations

The Federal Housing Administration puts its long-awaited new financing rules for condominium units into operation last week — immediately affecting sales in hundreds of condo projects across the country.

Among the key make-or-break rules that condo marketers, buyers, lender and realty agents now need to know about are the following:

FHA won’t insure mortgages in buildings or complexes where less than 30 percent of the units haven’t already been sold.

At least 50 percent of the units in a project must be owner-occupied or sold to purchasers who intend to occupy them.

No individual owner or investor can hold title to more than 10 percent of the units in the entire project.

No more than 25 percent of the square footage of a condo project can be non-residential — in other words, used for commercial purposes.

No more than 50 percent of the units can have FHA insured financing on them. FHA doesn’t want to “concentrate its risk” in any single project.

No more than 15 percent of the units in a project can be 30 days or more delinquent on their monthly payments to the condo association.

Although some developers and in urban areas welcomed the new rules, industry critics say they will actually curtail the availability of low-downpayment FHA financing for many individual buyers. Others say some of the percentage thresholds are off the mark.

For example, Phil Sutcliffe, a national condo financing expert based outside Philadelphia, says he recently had to turn down two condo projects that sought FHA financing – even though both were more than 50 percent owner occupied and pre-sold. The reason: The developers had chosen to rent out more than 10 percent of the unsold units to generate cash flow. But by doing so, Sutcliffe said, they crossed the “single owner” maximum, thereby denying future FHA financing to all remaining units in the building.

“It just makes no sense in this situation,” he said. With no FHA loans available to potential purchasers, “the owners may have to hand back the keys to the bank.”

Andrew Fortin, vice president for government affairs at the Community Associations Institute, which represents condominium, cooperative and planned unit developments across the country, told Realty Times that the 25 percent commercial-use cutoff is “problematic” because many projects have been designed for “mixed use” in urban areas.

Fortin’s group also is critical of the new 15 percent delinquency ratio on association dues. Not only is a 30-day delinquency measure “a very arbitrary standard,” he said, but it’s also not a good indicator of the association’s underlying financial health.