Saturday, February 7, 2009

Underwater Homeowners: You Have Company

Tough couple of weeks in the world of jumbo loans as prospects expect excellent rates in the 5-6% range but find out they don't qualify because they don't have the required equity anymore in their homes. We have seen this consistently now throughout the country. About half the people we talk to don't have the 20% equity to qualify for the best rates or worse they don't have any equity at all because they bought between 04-06 or they used their home as an ATM. Recent stats from Data Quick and Fannie Mae believe that 20% of home owners are currently underwater(home is worth less than the mortgage(s)).

Values appear to be rewinding across the country to 02-03. Of course they are not alone with the massive deflation of real estate prices:

Few deals better exemplify the excesses of the commercial real estate boom than
the dismemberment of the Equity Office empire, and fewer still better underscore
their bitter consequences.

Buyers purchased buildings at what, in retrospect, were vastly inflated prices. Lenders provided lavish, even excessive, financing based on unrealistic expectations of rising rents. And now that values are tumbling, vacancy rates are rising and credit has become impossibly tight, many on both sides are struggling against default, foreclosure or bankruptcy.

The impact could ripple beyond the companies that bought Equity Office buildings and the investment banks that financed them. If the owners cannot make their loan
payments, it could create a financial crisis for the pension funds, hedge funds
and insurance companies that hold securities based on Equity Office

The list of Equity Office buyers reads like a Who’s Who in American real estate. In Stamford, Conn., RFR Properties, a partnership headed by Michael Fuchs and Aby Rosen, who owns Manhattan landmarks like Lever House and the Seagram Building, spent $850 million to buy seven Equity Office buildings that analysts say are now worth less than their mortgages.

In Los Angeles, the founder of Maguire Properties, one of the largest commercial
landlords in Southern California, was forced to step down last year as the
company struggled with crushing debt from buying 24 Equity Office buildings.
And in New York, the real estate mogul Harry B. Macklowe lost seven Equity Office towers he bought from Blackstone, along with much of his empire, after he was unable to refinance the $7 billion in short-term, high-interest debt he used to buy them.

“Those who bought from Blackstone have not fared well at all,” said Michael Knott, a real estate analyst at Green Street Advisors. “Blackstone was a huge winner at the time, although the value of what they still hold has fallen probably 20 percent.”

From: NY Times