Loan Squeeze Thwarts Small-Business Revival
A year and a half after the financial crisis hit, the U.S. credit machine is still malfunctioning. For a recovery to take hold, hundreds of thousands of small businesses must find the confidence to expand and create jobs. But when they get to that point, the local banks they depend on — worried about borrowers’ financial strength, scrutinized by regulators and slammed by souring real-estate loans — might not be willing or able to provide the credit they need. In 2009, total lending by U.S. banks fell 7.4%, the steepest drop since 1942. In all, the credit pulled out of the economy by banks since the downfall of Lehman Brothers in September 2009 amounts to about $700 billion, more than double the amount so far distributed under President Barack Obama’s $787 billion stimulus program. “It’s a dismal situation,” says Diana Swonk, chief economist at Chicago-based financial-services firm Mesirow Financial. “Banks won’t lend to businesses because they’re afraid they’ll go bad, but that can become a self-fulfilling prophecy.” The dearth of credit for small businesses could have a big effect on prospects for restoring the 8.4 million jobs lost since the recession began. From 1992 through the beginning of the latest recession, companies with fewer than 100 employees accounted for about 45% of net job growth, according to Labor Department data. (www.wsj.com)
Wall Street Journal (3/15/10); Mark Whitehouse
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Nabbing a Bargain-Basement Mortgage Before Rates Rise
As the Federal Reserve winds down its intervention in the mortgage market, rates on home loans are generally expected to rise at least modestly during the rest of this year from today’s unusually low levels. Some analysts believe mortgage rates will jump to around 6% by year end from 5% in recent weeks, while others see only a slight increase. If rates do go up sharply, that will have a big effect on home buyers. Richard Redmond, a mortgage adviser at All California Mortgage in Larkspur, Calif., offers the example of a couple with combined pretax income of $100,000 a year and debt obligations (excluding mortgage) of $500 a month. At a 5% mortgage rate, he figures, the couple could qualify for a loan big enough to buy a $590,000 house, assuming a 20% downpayment. At 6%, that would fall to $540,000. Laurie Goodman, a senior managing director at mortgage-bond trader Amherst Securities Group LP in New York, estimates that the Fed move will add a maximum of about 0.25 percentage point to mortgage rates. “There is a lot of private money on the sidelines,” waiting to buy mortgage securities once the Fed stops gobbling most of them up, she says, pointing to banks, money managers and foreign investors. (www.marketwatch.com)
MarketWatch (3/15/10); James R. Hagerty, The Wall Street Journal
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Investors Are Buying Houses Again
More home buyers are snapping up properties with cash, a trend driven in large part by investors returning to the market after four years of falling prices around the country. The share of home sales involving all-cash transactions was 26% in January, up from 18% a year earlier, according to a survey by the National Association of Realtors® of its members’ most recent transactions. NAR data also show that home purchases made by buyers identified as investors climbed to 17% in January, up from 15% in December and 12% in November. “Flippers, rehabbers, investors…are, in fact, buying,” says Lisa Johnson, with Coldwell Banker Residential Brokerage in Haverhill, Mass. “I’m getting builders who have stopped building and are instead buying up condos and single-family homes to fix them up and sell them. It’s a neat change I haven’t seen in four years.” All-cash purchases also reflect a growing number of investors buying higher-end properties without credit, says NAR spokesman Walter Molony. That’s a sign that some investors see real estate prices as having nowhere to go but up. All-cash offers give buyers a competitive edge on rival offers — even higher ones — that are dependent on financing. Cash deals can close faster and are less likely to fall through. (www.usatoday.com)
USA Today (3/22/10); Stephanie Armour
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Alameda Land-Use Ruling Could Reshape State
When a judge in Alameda County, Calif., this month ruled that the city of Pleasanton must loosen its development rules to allow large amounts of new housing for all income levels, he sent a message that could ricochet around the state. The ruling by Superior Court Judge Frank Roesch found the prosperous city of 68,000 at fault for a voter-approved cap on the number of housing units allowed within its borders. He based his decision on a state law that requires cities to make land available to accommodate their share of regional housing needs — a standard that most municipalities do not meet. Under the state’s Regional Housing Needs Allocation formula, which has been used since 1980 but often ignored, likely growth is determined regionally, with housing needs tied to job creation. Regional planners then break up this amount among cities and unincorporated county areas so housing is located near jobs. Local governments then must demonstrate that they can allow such growth to occur. The decision by Roesch faults Pleasanton for capping its number of housing units at 29,000. There are currently more than 27,000, yet the city’s general plan clears the way for an additional 45,000 jobs by 2025. To meet the state requirement, Pleasanton was supposed to make room for 5,059 units between 1999 and 2006. Instead, the city issued 2,156 housing permits — 43% of the desired amount. Pleasanton’s resistance to housing is typical of the region. (www.sfgate.com)
San Francisco Chronicle (3/17/10); John King
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Program Will Pay Home Owners to Sell at a Loss
Taking effect on April 5, a new program of the Obama Administration could encourage hundreds of thousands of delinquent borrowers who have not been rescued by the loan modification program to leave their houses through short sales, in which the property is sold for less than the balance of the mortgage. Lenders will be compelled to accept the arrangement, forgiving the difference between the market price of the property and what they are owed. Under the new program, the servicing bank, as with all modifications, will get $1,000. Another $1,000 can go toward a second loan, if there is one. And for the first time the government will give money to the distressed home owners themselves, who will receive $1,500 in “relocation assistance.” Under the program, a lender will use real estate agents to determine the value of the home and the minimum to accept. This figure will not be shared with the owner, but if an offer comes in that is equal to or higher than this amount, the lender must take it. Last year, short sales started to increase, although they remain relatively uncommon. Fannie Mae said preforeclosure deals on loans in its portfolio more than tripled in 2009, to 36,968. But real estate agents say many lenders still seem to disapprove of them. (www.nytimes.com)
New York Times (3/7/10); David Streitfeld
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Walls Come Down on Age for Over-55 Communities
An increasing number of developers struggling to find older residents for their 55-plus housing communities have relaxed the age restrictions to attract younger buyers. “The 50-plus buyer has had a double whammy in the last couple of years,” says Brian Gentry, president of Landed Gentry Homes and Communities, based in Burlington, Wash. “They lost the ability to turn their house into cash, and a lot of them have taken a pretty big hit in their portfolios.” His company found more success with multigenerational developments, he says. It built enclaves for younger adults in a Mount Vernon development initially aimed at older buyers. Among other recent age-restriction changes, Somerset Development was building 173 homes for older adults at Pine River Village in Lakewood, N.J., when the market tanked. “We started right as the market was cooling off, sold about 20 homes, and the market just died,” says Ralph Zucker, Somerset president. He went to the 26 residents at the time for approval and then to Lakewood Township officials for a zoning change. Now, about half of the homes will be for all ages in a separate development. (www.usatoday.com)
USA Today (3/22/10); Haya El Nasser
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