About half of U.S. mortgages seen underwater by 2011

[Kerry]

If a tree falls down in the woods and no one is around to hear it- does it make a sound?  If WE are in the woods and no one hears our warnings, are we making any sounds?

About half of U.S. mortgages seen underwater by 2011
         
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By Al Yoon Al Yoon ? Wed Aug 5, 5:12 pm ET
NEW YORK (Reuters) ? The percentage of U.S. homeowners who owe more than their house is worth will nearly double to 48 percent in 2011 from 26 percent at the end of March, portending another blow to the housing market, Deutsche Bank said on Wednesday.

Home price declines will have their biggest impact on prime "conforming" loans that meet underwriting and size guidelines of Fannie Mae and Freddie Mac, the bank said in a report. Prime conforming loans make up two-thirds of mortgages, and are typically less risky because of stringent requirements.

"We project the next phase of the housing decline will have a far greater impact on prime borrowers," Deutsche analysts Karen Weaver and Ying Shen said in the report.

Of prime conforming loans, 41 percent will be "underwater" by the first quarter of 2011, up from 16 percent at the end of the first quarter 2009, it said. Forty-six percent of prime jumbo loans will be larger than their properties' value, up from 29 percent, it said.

"The impact of this is significant given that these markets have the largest share of the total mortgage market outstanding," the analysts said. Prime jumbo loans make up 13 percent of the total market.

Deutsche's dire assessment comes amid a bolt of evidence in recent months that point to stabilization in the U.S. housing market after three years of price drops. This week, the National Association of Realtors said pending home sales rose for a fifth straight month in June. A widely watched index released in July showed home prices in May rose for the first time since 2006.

Covering 100 U.S. metropolitan areas, Deutsche Bank in June forecast home prices would fall 14 percent through the first quarter of 2011, for a total drop of 41.7 percent.

The drop in home prices is fueling a vicious cycle of foreclosures as it eliminates homeowner equity and gives borrowers an incentive to walk away from their mortgages. The more severe the negative equity, the more likely are defaults, since many borrowers believe prices will not recover enough.

Homeowners with the riskiest mortgages taken out during the housing boom have seen the greatest erosion in equity, in part because they were "affordability products" originated at the housing peak, Deutsche said. They include subprime loans, of which 69 percent will be underwater in 2011, up from 50 percent in March, Deutsche said,

Of option adjustable-rate mortgages -- which cut payments by allowing principal balances to rise -- 89 percent will be underwater in 2011, up from 77 percent, the report said.

Regions suffering the worst negative equity are areas in California, Florida, Arizona, Nevada, Ohio, Michigan, Illinois, Wisconsin, Massachusetts and West Virginia. Las Vegas and parts of Florida and California will see 90 percent or more of their loans underwater by 2011, it added.

"For many, the home has morphed from piggy bank to albatross," the analysts said.

[Carl]

Perhaps these numbers apply to people who bought in a certain recent time
frame, but certainly this does not include all of the real estate market.

I bought in 1999, and I will not be underwater. My little sister bought almost
14 years ago, my middle sister 20 years ago, my eldest sister inherited.

That sample means nothing, of course, but I suspect these cases are being
filtered out of the statistics. It also includes investment real estate cases,
where the novice flipper got caught with an over-priced property and a bad
loan. The numbers apply to transactions during the insane rush.

Still, it is a major issue since property values are declining everywhere. The
best approach here for folks that are able to meet their loan obligations is to
stay put until values rebound. They will rebound, but nobody knows when.
NOBODY. Which makes these 2011 estimates just that - estimates.

[Kerry]

South Florida homeowners walking away from underwater mortgages
By MONICA HATCHER

Miami Herald

Sunday, October 25, 2009

Andres Duque thought he got a real steal when he paid $125,000 for his Little Haiti condo. But four years later, similar units are selling for $35,000 and even less.

And so, faced with the prospect of being underwater on his mortgage — owing more than the unit is worth — for the next 20 years, Duque, 33, made what seemed to him like a rational choice: to cut and run.
 
He stopped paying the mortgage, basically forcing the lender to take the condo off his hands through foreclosure.

``I was able to pay off all my credit cards,'' said Duque, who is biding his time in the condo, waiting until they come and evict him. ``In a way, it was the best thing that happened to me because all my income is not being consumed by this freaking monster of a debt.''

Duque's game plan is known as a strategic default — when borrowers walk away from loans, even if they can afford the payments. Here is a look at the benefits, the risks and the ethics of such a move.

As property values have plummeted by an average of 50 percent, such strategic defaults now make up a sizable chunk of South Florida's foreclosures. In the fourth quarter of last year, they accounted for an estimated 28 percent of all defaults in Miami-Dade and Broward counties, according to recent research from the credit bureau Experian and Oliver Wyman, a New York-based international consulting firm.

That's up from 8 percent in the same quarter two years ago. With property values down even further now, researchers are certain the numbers have risen even more.

With the social stigma of foreclosure eroding, experts say it is becoming easier for discouraged borrowers to justify throwing in the towel.

``People are saying, ` Everyone is doing this, and I do not feel any compunction in fashioning my own bailout,' '' said Roy Oppenheim, a Weston real-estate and foreclosure defense attorney who conducts weekly seminars that discuss strategic defaults and other financial options for distressed borrowers.

South Florida is already a veritable Atlantis of underwater borrowers. In September, homeowners here collectively owed $62.7 billion more than their homes were worth, according to an analysis by First American CoreLogic. The analysis found that about half of all outstanding mortgages in Miami-Dade and Broward are underwater.

Among those who bought in Broward in 2006, the median negative equity was $75,000 as of March. In Miami-Dade, the figure was $63,000, the Web-based real-estate service firm Zillow.com reports. Negative equity refers to the difference between a loan balance and the market value of a home.

``I wouldn't blame borrowers who knew they were facing significant losses even if they could afford to stay,'' said Andrea Heuson, a finance professor at the University of Miami. ``Every day you wake up, you are reminded how much you paid for something, and then you read every day in the newspaper how much prices have fallen.''

THE MANY CONSEQUENCES

Walking away, however, is fraught with financial, legal and ethical dilemmas. Lenders, government and the credit industry are starting to pay more attention to how strategic defaulters think and behave — in an effort to convince them to tough it out.

``It's a huge problem, and it doesn't get addressed in the process right now,'' said Ron Kaniuk, a Boca Raton foreclosure and bankruptcy attorney. He said lenders are encouraging the trend by primarily offering loan modifications only to those who have fallen behind or are seriously at risk of foreclosure.

Duque, in fact, said he shunned a modification because it didn't reduce his balance.

``It's really a social change in the way debtors think, and it's taking creditors some time to absorb that,'' said Mark King, an attorney with the Miami office of Jones Walker who represents banks in commercial foreclosures. Commercial property owners also have started walking away.

William Hardin, a real-estate professor at Florida International University, said people have a moral obligation to honor their mortgages when they can.

``The vast majority knew what they were doing and were taking a risk, and the fact of the matter is [the mortgage] is a contract. We live in a world where contracts have to be honored. It's the way our economy works.''

High default rates have already meant higher loan costs and tougher underwriting standards for all borrowers.

Tracking strategic defaults is an inexact science. Experian researchers identified possible strategic defaulters as homeowners who have gone straight from current on their payments to not paying at all, but remained in good standing on other credit obligations. Nationally, Experian estimated 588,000 borrowers defaulted on purpose in 2008.

Also fueling the phenomenon has been a shift from viewing a home as a place to live to an investment, valued insofar as its potential resale price goes up.

Frustration with the tax-funded bailout of banks and Wall Street may have also emboldened depressed borrowers to default out of anger and a desire to stick it to the banks. Duque's resolve, for example, hardened after watching Michael Moore's movie Capitalism: A Love Story. In the movie, Moore makes a case that corporations preying on consumers led to the housing crisis and recession.

``In the movie, there were Congress people telling the American public to stay in their homes, to squat and do what you have to do to fight. A lot of it struck home in many, many, many ways, and I am going to stay here until [my bank] comes to get me out,'' Duque said.

Aside from the new philosophical justification for stopping his payments, Duque said his decision was fundamentally an economic one. ``My mortgage was killing me, even before things went to hell. I was being choked by the property,'' said Duque, who works at the Mondrian Hotel in Miami Beach.

Most strategic defaulters find themselves weighing whether the hit to their credit scores is easier to bear than paying underwater mortgages for years to come.

The most optimistic analysts say it could be three years before prices begin to appreciate. Others say prices have another 30 percent-plus to fall before flat-lining.

Prepared for the worst, Duque has been surprised by the seemingly minimal consequences so far. His credit limits on two cards were slashed by a few thousand dollars, but they were not canceled.

``I went to BrandsMart and applied for a card, and they denied me, so my credit score must be pretty low,'' he said. ``That's fine with me, as long as I have a couple of credit cards.''

Surprisingly, strategic defaulters with good credit scores who remain current on their other credit lines can quickly rehabilitate their credit scores after foreclosure — faster than many realize, according to Sarah Davies, a senior vice president at VantageScore, a credit scoring and consumer analytics firm owned jointly by the nation's three major credit reporting agencies. ``You can pull yourself out of any major impact from foreclosure in 24 months,'' she said.

And five years down the road?

``A foreclosure is going to be very easy to explain, seeing there are thousands of others who have also defaulted. So, there is a safety-in-numbers issue there,'' Heuson said, referring to a possible borrower rationale.

Consumers are essentially putting a price on their credit score, said Piyush Tantia, a partner in the retail and business banking practice of Oliver Wyman.

But there are other risks.

Foreclosure defense attorneys warn of the growing threat that lenders will obtain deficiency judgments against borrowers. Such judgments allow them to collect the difference between the loan balance and the market value of the properties. They also allow lenders to garnish wages and seize assets.

While the risk is not great now statistically, Marc Ben Ezra, a Fort Lauderdale attorney who files foreclosures for banks, said it's possible that lenders may begin pursuing legal rights to collect.

Jim Angleton, senior vice president of Miami-based Republic Federal Bank, estimated lenders are going after borrowers 15 percent of the time. ``You know they are not being forthright with you about their assets when they are keeping their credit cards, their very fine cars and other assets current.''

Oppenheim recommends homeowners bulletproof themselves by hiring a lawyer and perhaps an accountant to explore the possible consequences.

Other real-estate experts say walking away may not be worth it in the short term, when you factor in the cost of finding new shelter and the increased consumer interest rates that stem from any foreclosure.

TACTIC NOT FOR EVERYONE

Defaulting, though, is not for everybody whose mortgage is underwater, and plenty of people stick with their homes out of a sense of financial responsibility, integrity and faith that prices will recover eventually. There are also people who forked over tens of thousands of dollars in down payments and face a real financial loss by walking away.

Analia Vence, who is renting her underwater town house in Homestead to a tenant for less than the monthly mortgage payment, said she has no intention of walking away. She paid $170,000 in 2006, and now nearby foreclosed homes are selling for $80,000.

``We bought the property as an investment, and we never thought to sell it immediately. We're only paying $200 or $300 for the mortgage, so it doesn't make sense to hurt our credit for that much,'' Vence said.

[Lil B]

Foreclosures Expected to Jump to 4 Million Nationwide in 2010

by Kim Miller

Analysts from two Real Estate tracking groups said today they expect the number of homes receiving a foreclosure notice in 2009 to reach 3.2 million, growing to 4 million next year.

Not surprisingly, Florida is among four states forecast to have the highest rate of foreclosures as adjustable rate mortgages reset.

The information came during a conference call about a survey released this afternoon by Trulia.com and RealtyTrac.

The survey showed a decrease in American adults interested in buying a foreclosed property. Just 43 percent said they were “somewhat likely” to buy a foreclosed home, down from 55 percent six months ago.

How that will affect the nation’s foreclosure crisis is unclear, but continued job loss and adjustable mortgages are expected to increase the problem through 2010.

“California, Nevada, Florida and Arizona, if you track the states with the highest run-up in pricing in the early part of the decade, you can draw a straight line correlation to where you had the most reckless lending practices,” said Rick Sharga, senior vice president of Irvine, Calif.-based RealtyTrac.

RealtyTrac’s report on November foreclosure rates ranked Florida No. 2 in the nation with one in every 165 homes receiving a foreclosure notice.

Today’s news wasn’t good for those hoping to see the market make an abrupt turnaround in 2010.

Pete Flint, CEO of Trulia.com, predicts that home prices will drop, inventory levels will creep back up, and mortgage rates will increase _ all leading to the continuing struggle of the housing market.

“I hate to be a naysayer but we still have a long road ahead of to reach a healthy market,” Flint said.

He blamed some of the foreclosure increase on what he said are ineffective government loan modification programs.

A Treasury Department report released last week showed just 31,000 troubled home loans have been permanently modified under the Obama administration’s Making Homes Affordable Program.

“The loan modification program has been all lip service and little action,” Flint said. “The goal of the project was to stabilize the market but the focus has been on short term fixes instead of long term.”

http://blogs.palmbeachpost.com/realtime/2009/12/15/foreclosures-expected-to-jump-to-4-million-nationwide-in-2010/

[Lil B]

More Than Half a Million Florida Homes Got Foreclosure Notice Last Year, Making State No. 2 In Count

By Kimberly Miller
Palm Beach Post Staff Writer
Jan. 14, 2010

More than half a million Florida homes received some type of foreclosure notice in 2009, a sad but not shocking measure during a year that broke records nationally for bank-seized properties.

The end-of-year foreclosure report released this morning by Irvine, Calif.-based RealtyTrac recorded foreclosure filings last year on 2.8 million homes nationwide, or one in 45.

In Florida, 516,711 residences, or one in every 17 homes, received at least one foreclosure notice.

The total number of filings in Florida puts the Sunshine State in the No. 2 spot in the nation for troubled homes. California took first place with 632,573 foreclosure filings last year.

Florida ranked third nationally for its rate of foreclosures, following Nevada and Arizona.

"Just the sheer volume in Florida and California is pretty amazing," said Daren Blomquist, a RealtyTrac spokesman. "The two states definitely stand out."

Overall, Florida's 2009 foreclosure filings were a 34 percent increase from 2008. That tops the nationwide increase of 21 percent.

In Palm Beach County, the number of homes receiving at least one foreclosure notice hit 30,870 in 2009, a 32 percent jump over 2008.

Treasure Coast counties showed similarly grim results.

Martin County recorded 3,004 foreclosure filings in 2009, a 43 percent hike compared to 2008. St. Lucie County had 12,626 homes receive a filing, a 17 percent increase from 2008.

As bleak as 2009 was for foreclosures, experts said federal programs prevented an even worse scenario from unfolding.

The Making Homes Affordable loan modification plan announced in February, and the first-time home buyer tax credit, which has now been extended through April and expanded to include some current homeowners, kept foreclosures at bay.

What is feared, however, is that many foreclosures were just stalled by the programs, and that unemployment and adjustable rate mortgages scheduled to recast this year will make 2010 another dismal year for homeowners.

Another concern is the plunge in home values will push more underwater homeowners to stop paying their mortgage believing a foreclosure is a better economic option.

"I'm moderately gloomy about this year," said Florida Atlantic University Assistant Business Professor Charles Carter, who specializes in urban economics and housing issues. "What foreclosures mean is bad times for everyone."

There was some good news this week on local housing and condo sales.

The Realtors Association of the Palm Beaches reported Wednesday that sales of condominiums were up 34 percent in December compared to the same time in 2008. Home sales increased 27 percent.

http://www.palmbeachpost.com/news/more-than-half-a-million-florida-homes-got-178215.html

[Lil B]

Moodys Predicts Florida Recovery Will Take Until 2030

St. Petersburg Times,
(09/24/2009)
By Robert Trigaux

Slow Recovery for Florida Housing Prices The Florida housing market is unlikely to fully recover until 2030, predicted Moody's economy.com analyst Celia Chen. The Florida housing market peaked in 2006 and since then has dropped 46 percent. Chen argued that the comeback will take so much time because: Prices are still falling and won't hit bottom until 2011. The state's foreclosure process is lengthy, which is prolonging the downturn. Florida prices flew highest and are thus looking at the biggest declines.

Chen said economic growth in Florida will outpace the nation during the 2011-2016 rebound, but added that a "tremendous amount of equity has been lost by Florida homeowners, and this will continue to constrain consumer spending in the state."
 
http://www.floridacddreport.com/story.cfm?id=23

[Lil B]

CDD Defaults May Be Disaster for a Swath of Homeowners

By James Thorner
Times Staff Writer
December 6, 2009

More than 50 of Tampa Bay's community development districts are in or near default, a condition that could have serious ramifications for thousands of homeowners across Tampa Bay and accelerate the decline of already troubled Florida banks.

Developers use CDD bonds, or "dirt bonds," to build roads, utilities and clubhouses. Of Tampa Bay's 115 community development districts, 28 have already defaulted and another 25 could be teetering toward insolvency. That's 46 percent of the total.

They include some of the biggest names in Tampa Bay residential real estate: New River and Longleaf in Pasco County; SouthBay and Live Oak Preserve in Hillsborough County; and Sterling Hill and Southern Hills Plantation in Hernando County.

Developers initially make CDD payments but gradually shed the expense as home buyers assume their proportional share. When the housing market collapsed, developers were left covering payments on unsold land.

The result has been massive defaults totaling nearly $700 million in the Tampa Bay area alone. Another group of neighborhoods, indebted to the tune of $476 million, are on a "watch list" owing to lackluster sales.

"Wow. Those are amounts I can't even get my hands around," said Mark Straley, a Tampa lawyer who helped set up CDDs around Tampa Bay.

In a pattern familiar to Tampa Bay residents behind on their house payments, developers are being foreclosed on by their bondholders, restructuring bond deals and in some cases relinquishing land to cover outstanding debt. That leaves thousands of Tampa Bay homeowners who bought in those neighborhoods in a predicament.

Will default reduce the appeal of these neighborhoods and snip property values? Will the builder they assumed would finish the community turn over remaining lots to a lesser builder? And, perhaps most troubling, will neighborhood upkeep suffer when CDD payments go missing?

"If the developer doesn't make his debt service, he also doesn't make operations and maintenance payments. Nobody cuts the lawn and trims the hedges and hours are cut at the clubhouses,'' said Richard Lehmann, a Miami Lakes businessman who tracks the state's nearly 580 CDDs in a publication called Debt Securities Newsletter.

Among the biggest development's on Lehmann's "watch list" is Connerton, the new town that was supposed to rise south of State Road 52 in central Pasco County. Terrabrook, the developer, has made its payments. But it miscalculated when it invested $45 million to build a giant clubhouse, miles of roads and other infrastructure. After selling only 200 homes, Terrabrook has been trying to sell the project at a loss and leave Florida.

Connerton's quagmire illustrates the stickiness of the CDD issue, complicated by the fact that most of these developments also carry huge bank mortgages.

When a development goes broke, the law ensures that CDD bondholders get repaid first. Since land values have crashed so badly, that means little or no money is left to pay off the bank mortgages on the same property. Banks can foreclose on the property. But that would obligate them to start making CDD payments in place of the insolvent developers. Few banks want to take on that debt.

The problem is epitomized by the south Hillsborough County community of SouthBay/Little Harbor. The developer defaulted last year on $57.4 million in bonds. But if and when the land reverts to CDD bondholders, the banks, which loaned the project $100 million, could lose every penny still outstanding.

So what started as a bond crisis could quickly spiral into a regional banking crisis.

"One way or another, the district is going to get its money," said Brian Lamb, whose Tampa company manages dozens of CDDs in and around Tampa. "But that leaves little for the banks."

Needless to say, developers loathe the publicity that CDD default brings. Perry Reader, developer of Pasco's Longleaf community, is negotiating with bondholders after his company, Crosland, defaulted on $23.7 million in construction debt.

"There's been a slowdown in sales, and we're caught with the ramifications," said Reader, whose neighborhood sports traditional front porches, a "village green" and a small downtown. "What's important is that the community stay healthy."

Lehmann considers a district in default when it can't make payments from current revenue and dips into emergency reserves. Even when bondholders agree to restructure debt, Lehmann doesn't drop neighborhoods from the default list. That's led to threats from development lawyers who think he's hurting sales by downgrading them prematurely. Lehmann scoffs at that notion. He publishes a list of CDD defaults on the Web site www.floridacddreport.com.

"They want to have their cake and eat it too," he said. "They can't make the payment, but they don't want to be marked down as a defaulter."

Other Tampa Bay developers are surrendering to the market. The latest phase of the once stellar-selling Meadow Pointe community in Wesley Chapel — called Meadow Pointe IV — will likely revert to bondholders. Developers, led by Clearwater businessman Lee Arnold, plan to deed the land to creditors.

A bunch of other communities, most of which barely got off the ground before the market plunged, are prime CDD foreclosure candidates. They include Cordoba Ranch in Lutz, New Port Estates on Gandy Boulevard in Tampa, Concord Station in Land O'Lakes and Riverwood Estates south of Zephyrhills.

Insiders like Lamb and Straley still vouch for CDDs as financing vehicles. By appearing in a home­owner's property tax bill, CDD assessments are much easier to collect, unlike homeowners association fees, which usually are paid out of pocket.

Most examples of Tampa Bay neighborhoods turning shabby for lack of home sales are not CDD neighborhoods. Still, no one has underwritten CDD bonds in Tampa Bay since the housing slump took hold in 2007.

Lamb anticipates changes to CDD rules to prevent developers from drawing on the money too fast ahead of home sales.

"There's not a more secure way to finance construction," Lamb said. "The mechanism still works. It will come back."

Neighborhoods in trouble
These Tampa Bay neighborhoods have defaulted on repaying community development district bonds. Some will successfully renegotiate deals with bondholders. Others will fall further behind.

Hillsborough County
Highlands: $29.5 million
Heritage Isles: 8.8 million
Grand Hampton: $13.9 million
Live Oak Preserve No. 2: $27.3 million
K-Bar Ranch: $5.6 million
Cordoba Ranch: $10.2 million
Belmont: $30 million
South Bay: $57.4 million
South Fork East: $23.8 million
River Bend: $19.6 million
Palm River: $6.6 million
New Port Tampa Bay: $49.6 million
Oak Creek: $79.4 million
Cypress Creek of Hillsborough: $22.7 million

PASCO COUNTY
Bella Verde Golf Community: $10.6 million
Concord Station: $19.7 million
Chapel Creek: $27.5 million
Lakeshore Ranch: $10.7 million
Longleaf: $23.7 million
Country Walk: $13.6 million
Meadow Pointe IV: $28.7 million
Zephyr Ridge: $10.4 million
New River: $27.3 million
Riverwood Estates: $23 million

HERNANDO COUNTY
Spring Hill Killarney: $12.2 million
Sterling Hill: $47.3 million
Southern Hills Plantation: $12.4 million

PINELLAS COUNTY
Clearwater Cay Club: $33.8 million

Note: The Debt Securities Newsletter, which tracks the states' nearly 580 community development districts, considers a district to be in default on its bonds when it can't make payments from current revenues and dips into emergency reserves.
http://www.tampabay.com/news/business/realestate/cdd-defaults-may-be-disaster-for-a-swath-of-homeowners/1056605

Key points about CDDS
• District bonds are fixed rate, tax-exempt revenue bonds sold to institutional buyers.

• Special assessment lien has priority over mortgage loan or any other liens.

• Special assessments run with the land and can be transferred to future property owners.

• Debt service on the bonds are payable only from the special assessments.
http://www.review.net/print/doubling-down/

Developing Strategies for Developers with Infrastructure Development Bond Responsibilities in a Down Market
http://www.deanmead.com/CM/Articles/Developing-Strategies.pdf

[Kerry]

I believe this bears repeating.

Note: The Debt Securities Newsletter, which tracks the states' nearly 580 community development districts, considers a district to be in default on its bonds when it can't make payments from current revenues and dips into emergency reserves.

Just in case some on Airoso aren't aware.  AREN'T AWARE??????? Did I really say that?????  

[Carl]

Just in case you hadn't noticed, real estate prices here in Port St. Lucie is now at 2001 levels:


http://media.living.net/statistics/2010/Jan%202010%20home%20chart.pdf



Prices are now 62% off the highs of 2005. Of course, prices
are down almost everywhere in the USA, but thanks to our
local leadership and their "growth at any costs" approach,
we are leading the nation in the extent of the drop.

[Kerry]

Can I call it or can I call it?!?!  How many years ago did I first say "we were simply going to go back to where we were before"?  DAMN I'm good!

[Carl]

Yeah, now if I could just roll my health back to 2001.

Seriously, we're at a 100K median. Someone needs to tell
the insurance companies to adjust those declaration sheets.
My house is covered up to 309K - what a laugh!

The problem is, my deductible is tied to that, and 309K is
seriously off the mark. I realize that's tied to replacement
cost and not market value but sheesh, if the house burns
down, I won't rebuild. Not when I can go three doors down
and buy for 110K.

[Lil B]

More Than Half of Mortgaged Homes in St. Lucie, Martin Are 'Under Water'

By Paul Ivice
March 10, 2010

More than half of mortgaged residential properties in St. Lucie and Martin counties are “under water,” a recent report by a company that tracks home sales, price trends and foreclosures shows.

The report by California-based First American CoreLogic found that 56 percent, or 62,696, of all residential properties with a mortgage in the Port St. Lucie Metropolitan Statistical Area were in a negative equity position for the fourth quarter of 2009. That’s more than double the national rate of 24 percent.

The Port St. Lucie Metropolitan Statistical Area encompasses St. Lucie and Martin counties. First American did not report similar data for Indian River County.

Another 3 percent, or 3,345, in the two-county area had equity of less than 5 percent.

Negative equity, often referred to as “under water” or “upside down,” means a borrower owes more on the mortgage than the home is worth. Negative equity can occur because of a decline in value, an increase in mortgage debt or a combination of both.

First American CoreLogic also reported that more than one-fourth of home mortgages in St. Lucie County are at least 90 days delinquent.

The report found that 26.6 percent of residential mortgages were severely delinquent in St. Lucie County, the third-highest rate among Florida’s 48 most-populous counties. A year ago, 19.7 percent of St. Lucie County mortgages were more than 90 days past due.

Indian River County’s mortgage delinquency rate is 16.6 percent, up from 10.3 percent a year ago. In Martin County, the rate is 11.8 percent, up from 7.1 percent.

Foreclosure rates in January in the Treasure Coast were up compared with the same period last year, according to First American CoreLogic, which analyzes data from 47 million properties with a mortgage, or more than 85 percent of all mortgages in the U.S. The foreclosure rate is the percentage of loans in some stage of the foreclosure process, from 90-day delinquencies through properties sold at auction.

St. Lucie County had the highest rate among the three counties at 15.1 percent, up from 11.7 percent a year earlier. St. Lucie County’s rate was the fourth highest in the state behind Miami-Dade (18.1 percent), Osceola (17.8) and Hendry (15.3).

Indian River County’s rate was 9.7 percent, up from 6.5 percent a year ago. Martin County’s rate was 6.9 percent, up from 3.6 percent.

The national foreclosure rate for January was 3.2 percent.

“Negative equity is a significant drag on both the housing market and on economic growth. It is driving foreclosures and decreasing mobility for millions of homeowners,” said Mark Fleming, chief economist with First American CoreLogic. “Since we expect home prices to slightly increase during 2010, negative equity will remain the dominant issue in the housing and mortgage markets for some time to come.”

Negative equity continues to be concentrated in five states: Nevada, which had the highest percentage negative equity with 70 percent of all of its mortgage properties under water, followed by Arizona (51 percent), Florida (48 percent), Michigan (39 percent) and California (35 percent).

Among those five states, the average negative equity share was 42 percent, compared with 15 percent for the remaining states.

http://www.tcpalm.com/news/2010/mar/10/more-than-half-of-mortgaged-homes-in-st-lucie/

[Carl]

Negative equity can occur because of a decline in value, an increase in mortgage debt or a combination of both.

For those who bought at the peak and saw their value fall,
I have some (little) sympathy. For those who used their
homes as an ATM machine, and refinanced (increased) their
mortgage instead of paying it off, I have zero sympathy.

You had equity, and you spent it on something else. For
those who simply had to do it, to meet medical bills, I'll
restore my sympathy. For those who put "houses on wheels"
in their driveways, you made your own bed.

Not that any of this matters. At the rate Obama is
refinancing our country, the Chinese will own all of it by 2015.

[Kerry]

   Till they implode just as the Japanese did.  Everyone notice this is a recycled article?  I posted the first one a year ago.

[Lil B]

Gov't Announces Plan to Shrink Home Loans for Some Troubled Borrowers, Aid Jobless

ALAN ZIBEL, CHRISTOPHER S. RUGABER
Associated Press Writers
March 26, 2010

WASHINGTON (AP) — Under pressure to stem the foreclosure crisis, the Obama administration launched a plan Friday to reduce the amount some troubled borrowers owe on their home loans and give jobless homeowners a temporary break.

Administration officials cautioned that the plan won't stop all foreclosures or help all troubled homeowners. Instead, officials said their goal is to meet their original target, announced last year, of helping 3 million to 4 million borrowers avoid foreclosure.

The new effort is designed to help two groups:

— Borrowers who owe more on their loans than their houses are worth. Nearly 15 million homeowners fall into this category, according to Moody's Analytics. About 10 million of them owe at least 20 percent more than their house's current value.

These people would be helped in either of two ways: Their mortgage companies can cut the total amount they owe on their mortgage. Or they can refinance into loans backed by the Federal Housing Administration, which insures loans against default. The FHA will get $14 billion in incentive money from the federal bailout fund.

— Unemployed borrowers. People receiving unemployment benefits would see their mortgage payments drop to no more than 31 percent of their monthly income — but only for three to six months. That's intended to give homeowners more time to find a job. Once they do, they may qualify for a loan modification that would permanently reduce their payments.

The administration's existing program to prevent foreclosures has failed to make a dent in the problem. A lack of planning and shifting rules on qualifications for it produced a huge backlog in the program, the special inspector general for the federal financial bailout fund told lawmakers this week. Only 170,000 homeowners have completed loan modifications out of 1.1 million who began the program over the past year.

On Friday, administration officials played down any notion that the new plan would solve the foreclosure epidemic. About 6 million homeowners have missed at least two months of payments.

Diana Farrell, a White House economic adviser, said the plan won't prevent most of the 10 million to 12 million foreclosures expected over the next three years. Doing so, she said, "wouldn't be fair, it would be too expensive and we probably wouldn't succeed in any case, because many people got into homes that they simply cannot afford."

The administration also stressed that the plan won't aid investors, speculators or "Americans living in million-dollar homes or defaulters on vacation homes."

Mark Zandi, chief economist at Moody's Analytics, estimated the plan could help 1 million and 1.5 million homeowners avoid foreclosure, compared with about 500,000 if no changes were made in the program.

"The changes are wide-ranging and significant and have the real potential for bringing the foreclosure crisis to a much quicker end," Zandi said.

But preventing even a fraction of potential foreclosures could help stem the slide in home prices. That would encourage those who are "under water" — who owe more than their homes are worth — to keep paying their mortgages as prices stabilize.

Some are unconvinced.

"We remain dubious about government mortgage modification efforts," wrote Jaret Seiberg, an analyst with Concept Capital's Washington Research Group. "So far none have lived up to expectations, and we see little reason to believe the latest effort will turn out any different."

The plan announced Friday will require the mortgage companies participating in the administration's existing foreclosure prevention program to consider slashing the amount borrowers owe. They will get incentive payments if they do so.

It also includes three to six months of temporary aid for borrowers who have lost their jobs. And there will be additional payments to give banks an incentive to reduce payments or eliminate second mortgages such as home equity loans. That problem that has blocked many loan modifications.

The plan will also allow lenders to refinance mortgages that are under water with a new loan backed by the FHA. Lenders will have to reduce the first mortgage by at least 10 percent. And the total mortgage debt cannot exceed 115 percent of the current value of the home.

The four big holders of second mortgages — Citigroup Inc., Bank of America Corp., Wells Fargo & Co. and JPMorgan Chase & Co. — have now joined the government's program to modify second mortgages, after pressure from the Treasury Department. That program was delayed for months but now the major players in the industry are on board.

Rep. Barney Frank, D-Mass., said Friday that he would call top executives from the four big banks to a hearing next month. "We will be urging the banks to show full cooperation with this plan," he said in a prepared statement.

http://www.sun-sentinel.com/sns-ap-us-mortgage-aid,0,7042245.story?track=rss&utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+sun-sentinel%2Fnews%2Flocal%2Fmiami+%28Miami-Dade+County+News+%2F+South+Florida+Sun-Sentinel%29

[Carl]

Some of this will help, like a band-aid on a severed artery.
The part about the principal reduction seems to me to be
pretty much a useless gesture for the vast majority of
those people behind on their payments, unless they are
deliberately just not paying.

If I lose my job and can no longer make my $1300/month
mortgage payment, reducing the amount I owe from say,
$200,000 to $150,000 isn't going to change the fact that
you aren't getting a payment this month.

The best thing the bank can do for someone in this position
is to take the money they were going to "forgive" and use it
to help find that person a JOB. Until the JOBS problem is
addressed and resolved, everything else is re-arranging the
furniture on the deck.

[Lil B]

CRUNCH TIME FOR FLORIDA CDDs

May 1, 2010 is a date that should see a large number of new defaults of Florida CDDs. This is the date, along with November 1, when semiannual interest payments are made to bondholders. It is, therefore, the date after which trustees start reporting which projects did not make their tax payments and therefore reserve funds had to be invaded to make the payment. Or the trustee may make no payment at all because interest reserve funds have been exhausted.

What makes this date different from previous pay dates is that a large number of projects will be making their first payment from current assessments, i.e. these are the projects begun in late 2006 or 2007 which have run out their self funding time period and have no prospects of finding buyers within the economic lifetime of the developer. These are projects that have no sales momentum and are hugely overvalued. In short, these are the really ugly ones. Worst of all, since they have missed no interest payments so far, they are often selling at vastly inflated prices that will see steep declines in the coming months. Thus, the next few months will see a pick up in availability and sales of CDD bonds, but at ever declining prices. We can also expect that entire projects will be going on the auction block or into Chapter 9 bankruptcy before year end.

We have identified approximately 70 such projects on our website (www.floridacddreport.com) which face this harsh reality and represent a hazard for anyone who has not visited these projects and assessed their long-term viability. Another hazard facing investors is the upcoming sale of tax certificates. May 1 kicks off Florida’s annual tax cert sales cycle and this year should be a bumper crop. The problem for the various municipalities, however, is that buyers are aware of the hidden danger of buying certs on properties in a failed CDD. Such certs are on par legally with the CDD bondholders. Hence, the cert holder faces paying 100 cents on the dollar for a claim which is on par with a bond selling for 40 cents on the dollar. This is hardly conducive to attracting cert bidders. Worse still is that it may not be clear to a cert buyer whether he is bidding on a claim within a CDD or not, so the hazard is unclear.

We understand that the state is trying to remedy the cert sale problem through a bill currently before the legislature which would prioritize the cert claim. We don’t know whether this will be applicable to certs being sold this May 1, but there is little doubt it could be a real blow to the price of CDD bonds. In any case, the next few months should be very interesting.
 
http://www.floridacddreport.com/story.cfm?id=37

[Lil B]

Map of CDD's watch list and defaults located in Port St Lucie and surrounding area.

http://maps.google.com/maps/ms?ie=UTF8&hl=en&t=h&msa=0&msid=117071400398248667952.000478bf723969b0f1af0&ll=27.392828,-80.420708&spn=0.285912,0.121536&output=embed

http://www.floridacddreport.com/cdd_s.cfm

By viewing the map, it appears that Newport Isles (Portofino Isles) is one of the CDD's on the list of being in default.

[Kerry]

I saw that.  Is that the neighborhood that Rexy always points to?

[Lil B]

It's the development that is on Gatlin by the Super Walmart.

[Huggs]

Well, you might be interested in these links to an audit on CDD health.  It was done on 66 municipalities and CDD's with the budget year ending September 2008.  The report was just released on the overall health.  There are a few that are from St. Lucie County.

http://www.myflorida.com/audgen/pages/pdf_files/2010-113.pdf

This one is a bit old, but it comes from Oppenheimer.  It addresses Portofino (Newport Isles).  

https://www.oppenheimerfunds.com/digitalAssets/6497a3d5236ed010VgnVCM100000e82311ac____-4.pdf

This is the current Oppenheimer report - as of February 2010.  There are many in this report that are within the City of Port St. Lucie

https://www.oppenheimerfunds.com/digitalAssets/656a84115ac1c010VgnVCM100000e82311ac____-4.pdf

[Carl]

I looked through the first report. About halfway through it
dawned on me I was reading data no more recent than
September 2008. Given the current state of affairs and
the volatile real estate/financial markets, that date is
history. The fan was spinning fast in 2009 and a lot hit it.

I hope the current Oppenheimer offers a more accurate
picture; I am certain is it not going to be rosy.

Meanwhile the USA goes $200 billion further into debt
every month, but they say the economy is improving. 

[Lil B]

Map of CDD's watch list and defaults located in Port St Lucie and surrounding area.

http://maps.google.com/maps/ms?ie=UTF8&hl=en&t=h&msa=0&msid=117071400398248667952.000478bf723969b0f1af0&ll=27.392828,-80.420708&spn=0.285912,0.121536&output=embed

http://www.floridacddreport.com/cdd_s.cfm

By viewing the map, it appears that Newport Isles (Portofino Isles) is one of the CDD's on the list of being in default.

There's a $407,574.90 lien on the Portofino Isles CDD
http://oncore.slcclerkofcourt.com/oncorewebnew/showdetails.aspx?id=4271386&rn=4&pi=0&ref=search

[Lil B]

REPORT TO THE FLORIDA STATE LEGISLATURE ON CDDs

REPORT ON THE STATUS OF FLORIDA COMMUNITY DEVELOPMENT DISTRICT BONDS
(Submitted by Income Securities Advisor Inc.)

Since 2008, Florida CDD bonds have suffered a dramatic decline in value due to the nationwide collapse of the housing market.  As of March 1, 2010, 122 districts have defaulted on $2.997 billion in bonds.  A further 78 districts representing $2.705 billion are on our watch list of bonds likely to default in 2010.  To put this into perspective, we have been tracking municipal defaults since 1980 and have accumulated histories for over 3,200 defaults since then.  We can say without hesitation that in the last 30 years, Florida CDD defaults is the single biggest default wave in the history of municipal bonds.  California, Texas, Colorado, Arizona and Nevada have had similar events, but their magnitude does not approach what is happening in Florida. 

It would be easy to attribute the problem to Florida’s size and to the nationwide problem in housing, but this would ignore that there may be structural problems with the CDD enabling legislation.  Some of these problems are similar to those faced by the other states cited above and it would be worthwhile for Florida to study those default cycles and see what actions were taken.  This is especially relevant for Texas and California since their default waves took place many years earlier and only a modest recurrence is being experienced in the current housing meltdown.  Clearly, some corrective actions were taken from which Florida could learn.

While the state and its municipalities are not liable on any of these bonds issues, they do have an effect on the perception of the state as a safe place to invest.  Florida does not have a large body of captive investors buying its bonds to avoid high state and local income taxes.  Added to this, dirt bonds are normally considered safer because they have such strong collateral backing, i.e. the tax assessments on the land has a higher priority than even the first mortgages.  This perception will be sorely tested before this crisis is over since a reduction of the bond assessments per lot is one remedy for completion of most CDD projects.  While Florida has had a number of real estate meltdowns over the last 50 years, they have always been remedied by vigorous growth.  That growth cannot be counted on to resolve the current crisis, so some projects will inevitably fail and others will only revive with shared concessions. 

The audience of buyers for CDD bonds have principally been large mutual fund families.  These buyers will look for the state to tighten its standards for CDD bond issuance in the future or demand significantly higher rates of return to offset the perceived higher risk.  They may also look to the state to provide other remedies.  The state has both an interest and an obligation to address these issues, both to reassure the bond market and to help resolve the current crisis. 

This report is submitted by Income Securities Advisor, Inc., a Florida based publisher of various investment advisory newsletters; the Forbes/Lehmann Income Securities Advisor, the Forbes/ISA Closed End Fund & ETF Report and The Distressed Debt Securities Newsletter.  ISA maintains a website on all Florida CDDs at www.floridacddreport.com and maintains the only historical database of all municipal and corporate defaults since 1980.  Richard Lehmann is the publisher of these newsletters, a registered investment advisor and a columnist with Forbes magazine.
 
http://www.floridacddreport.com/story.cfm?id=31

[Kerry]

As of March 1, 2010, 122 districts have defaulted on $2.997 billion in bonds.

  So let me get this straight, not only did the village idiots we wind up with as politicians think (?) this was going to last forever and was a good thing, but so did the Mutual Fund Managers??  Those I consider enablers for allowing the developers and their political stooges to ruin communities.  I got no pity for them.

[Lil B]

Housing Experts Predict More Homeowners Falling Into Foreclosures

By Kimberly Miller and Laura Green
Palm Beach Post Staff Writer
June 3, 2010

AUSTIN, Texas — Real estate experts predicted this week that 3.5 million homes nationally will go into foreclosure this year as risky adjustable-rate mortgages written in 2005 reset and unemployment continues.

That's up from 2.8 million homeowners who faced foreclosure in 2009, and sets a pace that isn't likely to plateau until late 2011, said RealtyTrac Senior Vice President Rick Sharga.

Sharga spoke Wednesday in Austin, Texas, during the 44th annual National Association of Real Estate Editors conference.

"The second wave of toxic loans is about to hit," said Sharga, whose Irvine, Calif.-based company tracks foreclosure filings.

Sharga's panel of speakers, which included a Bank of America representative and Arizona-based mortgage modification executive, painted a bleak picture for anyone who thought the worst of the real estate meltdown is over.

Not only will unemployment and rate resets drive foreclosures, but the panel said more people may decide that strategic defaults are "hip." A strategic default is when homeowners who owe more on their loan than the home is worth stop paying the mortgage, even if they can afford it.

About 44.3 percent of homes in Palm Beach, Broward and Miami-Dade counties are underwater, according to a report released last month by real estate analysis firm Zillow.

At the same time, the Mortgage Bankers Association reports that one in five Florida homeowners is either seriously behind on a mortgage payment or in foreclosure — ranking Florida No. 1 for failed or seriously delinquent home loans.

Starting this year or next, a new class of Floridians is expected to face foreclosure, said Brad Hunter, chief economist of MetroStudy in Palm Beach Gardens.

The first wave of foreclosures disproportionately hit lower income borrowers who bought into mortgages they could not afford.

"The new story is going to become it's no longer people from the lower echelon of society that are having trouble keeping up with their adjustable-rate mortgages. It's now people who might have prime mortgages that are middle class or upper middle class or even upper class members of society who are having trouble paying their mortgages," Hunter said.

Adding to the problem, Hunter points to something called a negatively amortizing loan, in which the payment goes up rather than down each month. Such loans allowed borrowers to pay a fraction of the interest they owed each month until the loans recast and monthly payments easily doubled.

Florida is home to $97.5 billion worth of those option adjustable rate mortgages, Hunter said.

People who walk away from underwater mortgages seriously damage their credit, and the bank can still go after them for the unpaid balance, but some borrowers are saying the risks are worth it to get out of a bad investment, said Travis Olsen, COO of Scottsdale, Ariz.-based Loan Resolution, LLC.

"As those option ARMS adjust, people are going to realize it's just not worth it," Olson said. "This has been an economic ice age."

Still, just 48 percent of the homes RealtyTrac counts in its foreclosure database are underwater — a statistic that Sharga says shows that subprime loans and unemployment are still the biggest drivers of bank takeovers of residential properties.

Another issue that will continue to mar a real estate recovery is the hundreds of thousands of bank-owned properties that have yet to hit the market. Sharga estimated that just 300,000 of 800,000 bank-owned homes nationally are listed for sale. The unlisted properties are the "shadow market" that analysts have been warning could drag down prices.

"Last year banks slowed down auctions to manage inventory," said Sharga, who added that short sales — where the bank agrees to accept less than what the house is worth — will help reduce shadow inventory.

But, he warned, they won't be enough to solve the "foreclosure problem."

"Bank owned properties will stay at high levels through 2013," Sharga said.

http://www.palmbeachpost.com/money/real-estate/housing-experts-predict-more-homeowners-falling-into-foreclosures-725875.html

[Carl]

This is very bad news, in that it has the potential to trigger
the second part of a double-dip recession, with the second
part being much worse, or much longer, or both.

If you can't get a job AND you can't sell your house to move
where the jobs are (they are not here) then you are what
we call between the proverbial rock and the hard place.

Have a nice day.

[Lil B]

Down and Dirty: $3 Billion in 'Dirt Bonds' Are in Default

7/1/2010
Florida Trend

Searching the debris field left by the crash of the real estate market in Florida, investors Armando Codina and Jim Carr found a salvageable project. Monterra, in south Broward County, had location - equidistant from I-75 and I-95, a short hop to Miami. Hollywood-based home builder Tousa had bought the site, a dairy farm, in the boom and envisioned 1,610 homes.

To finance construction of streets, water pipes and other infrastructure, Tousa used a vehicle fairly common in new developments in Florida. With the county's blessing, it created for Monterra a community development district, a quasi-governmental entity that can borrow money in the bond market and tax its property owners to pay the bonds off.

The Tousa-controlled district "one of 73 formed in Florida in 2005" sold $129 million in bonds. Developers make the initial payments on CDD bonds, known as "dirt bonds," with homeowners assuming a bigger share of the debt service as they buy homes.

But real estate collapsed, Tousa went bankrupt in 2008 and the bonds, like plenty of dirt bonds in Florida, tumbled in value. Codina and Carr bought the Monterra bonds at a discount, along with the land backing them as well as the mortgage on that land. Now, with their low basis in the property, they are turning a profit by selling new homes for prices competitive with what foreclosed homes, short-sale deals and other new homes in the area fetch.

Builder Jim Carr and business partner Armando Codina bought the community development district bonds for the Monterra development in Cooper City at a 29% discount.

In the tangled world of current real estate finance, not all dirt bond disasters are likely to work out so neatly.

As of May, Florida had 125 districts in default on more than $3 billion in bonds, the single biggest muni bond default wave in at least 30 years, says Richard Lehmann, a Forbes columnist and publisher of Miami Lakes-based Distressed Debt Securities. He says another 70 districts are teetering toward default. Troubled Florida community development districts became such a hot topic that last year he launched floridacddreport.com just to track them.

Another firm, Bedford, Mass.-based Interactive Data, says $2.4 billion, or more than 40%, of the $5.6 billion in dirt bonds it monitors, failed to make interest payments in November or had to draw against reserves to do so. "That's certainly an unprecedented state of affairs," says Mark Heckert, senior director of evaluated services for Interactive.

Nearly all the bonds were issued from 2004 to 2007 and represent projects across Florida, though a quarter are in the Tampa area.

Too many districts?

Community development districts, which originated in the 1980s, grew to become a well-established and useful mechanism in real estate development in the last two decades. Local governments reaped a growing tax base without having to fund infrastructure. Developers, through the bond sales, borrowed at competitive rates, got good terms and kept control of projects. (Developers generally control districts for six years, as long as they own a majority of the acreage.) Bond buyers, large mutual funds, had a safe, tax-free investment.

Until the recession, the districts were usually all upside in fast-growing states such as Florida. Now, while mature districts - bond repayment typically stretches over 30 years - have little financial trouble, bubble-era districts can't make their bond payments as developers and builders fail or bail.

Lehmann says the Florida Legislature should address whether counties let developers create too many districts. He also says Florida should follow other states in regulating how bond proceeds are spent. Bond investors burned in the current crash will want higher rates to offset the risk of financing future Florida development.

But for now the problem is how to mend distressed districts. The historic answers "population growth and rising land values" don't look promising in an economy rife with high unemployment, high insurance rates, rising property taxes, dwindled in-migration and all those competing fire-sale foreclosed homes.

"It's getting crunch time for a lot of these districts," says analyst Andrew Sanford of Naples-based ITG Holdings, a debt-workout specialist. In some, development has halted, scaring away buyers and leaving not much in the way of lots ready for homes and sales. Other projects, conceived in an era of high growth and speculation, no longer make sense. Restarting projects, he says, is "an uphill battle with a lot of risk associated with it."

Reducing the bond debt each lot owes is the key to resuscitating developments and districts. But that requires complex negotiations that must satisfy dirt-bond holders, developers or whoever now has title to the land, and perhaps a new developer or builder. Bond holders are motivated, says public finance attorney Bill Capko. "Most of the bond holders don't want to be in the situation of being the property owner," says Capko, a shareholder in the West Palm Beach office of Lewis, Longman & Walker, a firm that is general counsel for the Florida Association of Special Districts.

Brian Stock, CEO of family-owned Stock Development in Naples, says he has met with "good cooperation" in working with bondholders in the last year and "made a lot of progress" restructuring the $43.1 million in dirt bonds outstanding on his company's Paseo, a 444-acre project in Fort Myers. Stock has stuck with the project, selling 330 of a slated 1,138 units since opening in 2005. "We're having a good selling season this year so far," Stock says.

Troubled dirt bonds are of particular concern to the banks that hold mortgages on distressed projects. The reason: Dirt bond assessments, like property taxes, take precedence over all other claims on the land as collateral, including first mortgages. Almost by definition, when dirt bonds trade at a discount, the mortgages on the same property are worthless.

Capko is optimistic about a turnaround, as is attorney Alan Koslow, a Becker & Poliakoff shareholder in the firm's government law group in Fort Lauderdale. "With every financial distress situation there's a window of opportunity for somebody else," Koslow says.

It takes liquidity and acumen. Codina and Carr had both when they seized the opportunity presented by Monterra and Tison's Landing, a 218-acre project in north Jacksonville now named Yellow Bluff Landing. They paid 71 cents on the dollar for Monterra's bonds and bought Tison's $36.9 million in bonds for 28 cents on the dollar. Carr is a longtime south Florida builder and in-fill specialist, while Codina is a large-scale commercial developer who serves on the boards of American Airlines and Home Depot and was the largest private shareholder at Flagler Development, one of Florida's largest commercial property firms.

Codina warns that the Monterra and Tison deals were tough to pull off. Those two projects, he says, were attractive investments, unlike many other districts. Says Codina, "The ones that got built in the places they never should have, I wouldn?t buy them at any price."
 
http://www.floridacddreport.com/story.cfm?id=47

http://www.floridacddreport.com/cdd_map.cfm

Here's a map to get a better idea of where the "default" and "watch" areas are
http://www.cityofpsl.com/cra/pdf/Development_in_the_Spotlight.pdf
(page 3 & 4)

The "watch" area listed on the "default" and "watch" area map is in the vicinity of the Verano Community Development District (CDD)

Here's a "birds eye" view
http://www.developeronline.com/wp-content/uploads/2009/05/aerial-feb-2009.jpg

http://www.developeronline.com/a-sustainable-core/

[Lil B]

Community Development Districts at a Crossroads

Financing for large-scale projects to remain scarce, cost more, as dozens default on bonds

Orlando Business Journal
by Bill Orben

Local developers have found it difficult to get financing for projects lately — but they may be in for an even bigger shock as the economy improves.

When large-scale residential development returns to Central Florida — which experts predict is at least two to three years away — the low-cost financing model developers enjoyed for the past 30 years may not.

Developers no longer may be able to issue municipal bonds to fund infrastructure without paying a higher interest rate or putting more of their own money into a project.

That’s because the dozens of defaults on bonds issued by community development districts (CDDs) in Florida have scared away investors, and experts said the only way to attract them back is to mitigate their risk.

Richard Lehmann, a Forbes columnist and operator of a website that tracks community development district bonds, estimates Florida is littered with 153 CDDs, including 17 locally, that issued nearly $4.6 billion worth of municipal bonds teetering on collapse. Of the

$6.32 billion worth of CDD bonds outstanding, 73 percent are in default, he said.

State law allows developers to create CDDs, which can issue municipal bonds to pay for streets lights, roads, sidewalks and other infrastructure in a development.

The interest rate paid on that debt was about two to three points less than traditional bank financing. That means a savings of $15,000 to $30,000 per housing unit.

In the coming years, developers could be faced with the choice of paying a higher interest rate to mitigate an investors’ perceived risk on a bond issue, spending some of their own money to start work on the project or demonstrating the viability of a project through having some orders for homes.

Investors’ appetite for bonds issued by CDDs will depend on what they recoup from the latest round of issues involving failed communities, said Richard Perez, a partner with the Miami office of Holland & Knight LLP who helped CDDs issue bonds. “The cost of development will go up.”

Although those first few future bond issues likely will carry a higher interest rate, tighter lending rules will mitigate the risk most investors believe they face, said William Rizzetta, president of Rizzetta & Co., a Tampa-based firm involved in more than 240 bond issues that manages 120 CDDs.

“Lending will be more conservative,” he said, adding that banks and investors will have to decide how much progress they will require in a development before lending money for the project.

The developer will be much “farther down the road” in developing a project for a bond issue to become feasible to investors, said Jay H. Abrams, who follows municipal bonds for Boca Raton-based FMS Bonds Inc.

Developers also can substantiate their confidence in a project by putting their own money in it, getting the infrastructure ready and selling lots to builders, Rizzetta said.

http://www.bizjournals.com/southflorida/othercities/orlando/stories/2010/06/28/story3.html?b=1277697600%5E3552671&s=industry&i=banking_financial_services

[Lil B]

Credit Analysis: Community Development District Bonds

While much of the price declines among high-grade bonds have been recouped this year, that has not been the case with another segment of the market, Community Development District bonds.

Fast-growing states like Florida, Colorado and Texas have all adopted legislation allowing the use of “special districts” to help meet the infrastructure needs of residential and industrial growth. In each case, a local unit of government is created that has as its primary purpose the issuance of bonds to fund the roads, water, wastewater plants and other projects needed to build homes, retail centers and industrial parks.

Here’s how they work: A real estate developer identifies a piece of land to develop into a new housing project. To build this project, including the roads, water service, clubhouse and other amenities, the developer needs to find a source of funding for all the things that make the housing project a community. The city or county in which the development is to be built doesn’t want to increase taxes or fees on existing residents since they wouldn’t benefit from the new infrastructure. If existing residents were to bear the costs of these improvements, they would likely reject the project.

Another choice the developer could make would be to build the cost of the common infrastructure into the prices of the homes that will be built. However, this approach could make the cost of housing too high for the targeted potential home buyer, i.e., first-time purchasers or retirees, while making the cost of housing uncompetitive with rival housing developments.

Instead, the more popular approach since the late 1970s has been to create a governmental district whose boundaries are coterminous with the housing project to be built. This special district serves as the entity to issue debt for, build, and then own the infrastructure necessary for development of the housing project. The bonds are repaid by the residents who directly benefit from the infrastructure improvements, and not by those who live in other neighborhoods. Further, by spreading the bond payments over many years, subsequent homeowners who will benefit from the project’s roads and wastewater system also share in paying the cost for the benefits they receive as well.

Florida’s Community Development Districts

Florida currently has 1,628 special districts, of which 574 are community development districts (CDD). Other districts include business improvement districts, downtown redevelopment districts and similar special-purpose units of local government.

CDDs have certain common characteristics. They are governed by a board that is initially appointed, but once the community is built out, is elected by residents. Bonds are typically issued in sufficient amount to cover the cost of improvements needed to support housing and/or commercial construction. A specialized engineering firm determines how much the “special assessment” needs to be on an annual basis for each living unit or commercial space, sufficient to meet annual debt service on the bonds. Finally, a maintenance assessment is also set for each parcel to provide for on-going maintenance of the financed infrastructure.

In Florida, once the land within a CDD is platted, the annual special assessments for each home site are recorded by the county tax collector on the county tax rolls and are collected alongside property taxes due on each property. Unlike property taxes, special assessments are fixed in amount and cannot change. They are set at the amount necessary to retire their associated debt. Like property taxes, special assessments must be paid in full and rank in priority with property taxes, ahead of all other debts, including any outstanding mortgage. Special assessments and property taxes are levied against the property itself, not the property’s owner. Therefore, the remedies for unpaid taxes and assessments are the same and look to eventual satisfaction through a foreclosure sale of the home, if all other measures fail.

Typically, both property taxes and special assessments are levied in November each year and are due by the following April 1. Delinquent taxes and assessments are recouped later that spring through a sale of “tax certificates” by the county tax collector.  A bidding process begins at an interest rate of 18% and is bid down to the level necessary for the sale to take place. The sale results in a winning bidder paying the overdue taxes and assessments, and eventually collecting interest for “loaning” the overdue taxes and assessments to the county. After two years – and before seven years have passed – the  property will be put up for auction by the county to repay tax certificate holders the amounts they lent the county, plus interest. At any point prior to an auction, the homeowner can redeem the property by paying off the tax certificates outstanding plus interest due.

The attractiveness of bonds issued by community development districts is exemplified by the strong legal process outlined above that serves to protect the security granted to bondholders. Since delinquent special assessments, needed to pay debt service, are recouped in a timely fashion by the sale of tax certificates, bonds backed by special assessments on built out (or nearly built out) communities rarely default. Both the high rate of interest borne by tax certificates and the possibility of property foreclosure together makes the market for tax certificates attractive in itself. Today, CDD bonds, upon build out, are receiving ratings in the “A” category by Standard & Poor’s, reflecting the strong payment track record they have enjoyed.

http://www.fmsbonds.com/News/~article.asp?id=289

[Lil B]

Finding 'Diamonds' in the Dirt

As investors know, the credit crisis that unfolded in 2008 wreaked havoc with virtually every asset class. Municipal bonds were no exception.
 
Although the lion’s share of municipal bonds continued to pay a steady stream of tax-free income, their market values were bludgeoned by forced selling from hedge funds, leveraged bond funds and other troubled institutional investors.

Fortunately, in the first two months of 2009, a good portion of the price declines in the high-grade sector of the market has been recouped. However, another market segment, Community Development District bonds, were also unfairly punished, but they have not kept pace with the recent rise in prices and merit serious consideration from muni investors seeking hidden value.

Also called “dirt bonds” by muni traders, the name does not conjure up the most appealing image, but with a little homework, investors have the opportunity to uncover “diamonds” in the dirt.
 
They are termed dirt bonds because their proceeds pay for the infrastructure on raw land in preparation for development. (Until the land is ready and homes are built, the developer is responsible for the interest payments on the bonds.)
 
Once the homes are built, a special assessment fee is automatically added to the homeowner’s property tax bill, which is on parity with the property taxes and remains in place until all interest and principal has been repaid to the bondholders.

Now for the homework
 
Due to the disruption in the housing market, several of the dirt bonds issued in the last few years have remained just that . . . dirt.
 
If there are no houses, there are no special assessments. This poses a potential problem for bondholders.

Our research

We focus on bond issues in which the communities are fully built out because many of these bonds were “lost in the shuffle” and can represent exceptional value.
 
In the past, most dirt bonds were issued as non-rated securities and would be privately placed in large institutions where they would be held to maturity. During the past year, as part of their deleveraging effort, banks were forced to sell large quantities of these bonds, severely depressing the market for these securities.
 
At FMSbonds, we saw this as a unique opportunity for our clients to participate in a market that had previously been the exclusive domain of institutional investors.
 
We asked our Chief Credit Analyst, Dr. Jay Abrams, to initiate an extensive research program on these credits to enable us to compile a list of recommended issues of stable communities that are sufficiently built out.

The yield advantage

Today, yields on dirt bonds range from approximately 6.50% for “A” rated bonds to 7.50% or more for non-rated bonds. The majority of these bonds also contain mandatory sinking funds that regularly produce reinvestable proceeds. If the bonds are purchased at a discount, these sinking funds produce yields that far exceed their yield to maturity.
 
We see this as an excellent opportunity for investors to increase the tax-free cash flow of their portfolios with bonds that possess many of the positive credit characteristics associated with general obligation bonds.

http://www.fmsbonds.com/News/~article.asp?id=290

[Lil B]

Bankruptcy Filings Continue to Rise in June
http://southflorida.bizjournals.com/southflorida/stories/2010/07/05/daily7.html?s=industry&i=bankruptcies

South Florida Bank Repossessions up 83%
http://www.bizjournals.com/southflorida/stories/2010/07/12/daily12.html?ana=from_rss&utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+bizj_southflorida+%28South+Florida+Business+Journal%29

[Carl]

Brief Update:

The Subject is: About half of U.S. mortgages seen underwater by 2011

The latest Update is: About 44.3 percent of homes in Palm Beach,
Broward and Miami-Dade counties are underwater, according to a
report released last month (May) by real estate analysis firm Zillow.

Look like we're going to beat that 2011 deadline, folks. Good work!! 

[Lil B]

CDD Watch/Default map

Very large area outlined in red on the watch list. Borders Crosstown Parkway, Glades Cut-off, Range Line Rd, C24 canal to I95.

Portofino Isles (Newport Isles) is outlined in red on the default list. Borders Newport Isle Blvd, Rosser Blvd, Jamesport - Cape Code Dr, Marshfield Ct, Marblehead Way, Bingamine PL to Gatlin Blvd.

The development on St James Blvd is on the watch list. Borders Selvitz Rd, Peachtree Blvd (E Blanton Rd), St James Golf Club

http://maps.google.com/maps/ms?ie=UTF8&hl=en&t=h&msa=0&msid=117071400398248667952.000478bf723969b0f1af0&ll=27.392828,-80.420708&spn=0.285912,0.121536&output=embed