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February 9, 2010 |
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| October 31, 2008 |
By: Eric Kalis |
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s momentum gains for a U.S. government-sponsored plan to bail out distressed residential property owners, several South Florida congressional candidates caution any program should benefit primary homeowners and exclude speculators or owners of vacation homes.
As foreclosures remain at record levels, the Federal Insurance Deposit Corp. and the U.S. Treasury are working on a plan to offer about $500 billion in guarantees for troubled mortgages. The program, which likely would require lenders to modify loans based on the borrower’s financial health, could help as many as 3 million homeowners.
U.S. Senate committees are considering FDIC chairman Sheila Bair’s proposal to have the agency and Treasury work together to modify loans for homeowners facing foreclosure and have the federal government guarantee the modified loans against default to allay concerns from lenders. Under the plan, the government would be particularly busy in Florida, which ranks second in the nation in homes in some stage of foreclosure, according to the data firm RealtyTrac.
Nearly 69,000 foreclosure cases have been filed this year in Miami-Dade, Broward and Palm Beach counties, including 7,165 in September, according to research by the Daily Business Review. It is unclear how many are primary residences and how many were purchased for investment purposes.
Although details have yet to be hammered out, there’s no indication whether the plan being discussed in Washington will target primary homeowners or will include all residential properties with troubled mortgages.
But as next week’s election of a new president and Congress approaches, several regional candidates for the House of Representatives say second-home owners and speculators who hoped to make a quick profit during the days of escalating home values do not deserve government assistance.
A contempt for speculators is especially evident among Democrats challenging incumbents. Annette Taddeo, who is seeking to oust U.S. Rep. Ileana Ros-Lehtinen, R-District 18, and former Hialeah Mayor Raul Martinez, who is running against U.S. Rep. Lincoln Diaz-Balart, R-District 21, say they oppose a mortgage bailout or foreclosure moratorium that includes owners of vacation homes and investors.
Joe Garcia, a former executive director of the Cuban-American National Foundation running against U.S. Rep. Mario Diaz-Balart in District 25, also agrees that different types of borrowers should not be lumped together in a bailout plan.
Phone calls to Mario Diaz-Balart were not returned.
One Republican challenger, U.S. Army veteran Allen West, District 22, also wants primary homeowners separated from vacation homeowners and speculators in the mortgage bailout package.
West’s opponent, Democratic incumbent Ron Klein of Boca Raton, did not return phone messages before deadline.
“We need to sit down and assess who were the true victims of unfair lending and who was being unscrupulous,” West said. “Any victims deserve assistance from the federal government, but we cannot reward bad behavior with a blanket policy that just throws money at something without the right precision.”
Incumbents are generally less willing to take a firm stand on a possible mortgage bailout, citing a need for more details on any proposal.
In an e-mailed statement, Ros-Lehtinen wouldn’t elaborate on whether she supports a bailout or a foreclosure moratorium for all distressed residential borrowers, or just those who are having trouble paying mortgages on primary residences.
“I have always been a strong advocate for the middle-class families of South Florida, and I am committed to providing them with the support they need during this period of economic uncertainty,” Ros-Lehtinen said. “South Floridians elected me to Congress to defend their interests, and I remain dedicated to helping struggling homeowners to stay in their homes.”
Ros-Lehtinen did not respond to requests for further comment.
Lincoln Diaz-Balart did not return phone calls seeking comment.
Alcee Hastings, D-District 23, said in a written statement he supports a moratorium on foreclosures, but didn’t directly address the imminent Treasury/FDIC proposal.
“There’s a lot on the table, so we’ll have to see how it all works itself out,” Hastings said. “But any stimulus package after the election needs to address home foreclosures and the restructuring of subprime mortgages.”
Hastings’ Republican opponent, physician Marion Thorpe, did not respond before deadline to a message seeking comment. A Thorpe campaign spokesman said Thorpe strongly supports a moratorium on foreclosures.
U.S. Rep. Kendrick Meek, D-District 17, did not return phone calls seeking comment. He is running unopposed for re-election.
The feds are also considering guaranteeing a second home loan, such as home equity lines, according to Bloomberg News. The plan would cover institutional mortgage holders, including banks, savings and loans and hedge funds.
The mortgage bailout that is taking shape could involve using $50 billion from the recent $700 billion financial sector bailout to guarantee about $500 billion in mortgages. Modified mortgages with lower interest rates over five years could also be part of the plan.
The proposal would be similar to July’s takeover of California-based mortgage lender IndyMac Bank, said Ken Thomas, an independent banking consultant based in Miami.
Since July the FDIC has modified more than 40,000 delinquent IndyMac loans. The FDIC would manage a larger homeowners bailout program.
“With the IndyMac model, the government took someone who cannot afford a $300,000 mortgage but could afford to pay $1,000 a month,” Thomas said. “They would reduce the amount owed to [38 percent] of the borrower’s income and the government would eat the difference. That program had success.”
To be considered “affordable,” a monthly mortgage payment must not exceed 38 percent of a borrower’s income, according to the FDIC.
For a mortgage bailout proposal to earn Martinez or Taddeo’s support, they say the plan must make a clear distinction between primary residents and investors. Including a provision in modified mortgages that the borrower must live in the home for a period of 5 to 10 years would prevent flippers from being bailed out, Martinez said.
“I suggest you bring the bank and person about to lose their home together, with the government acting as a mediator,” he said. “The government steps in and agrees to lend the homeowner the money needed if the person agrees to live at this property for 10 years; it could be five or seven [years]. I would limit it to homesteaded property owners and force anyone who sells the home early to give 50 percent of the profits back to the government. You have to eliminate the speculators.”
Besides excluding speculators, the package would have to separate primary and part-time residents, Taddeo said.
“A lot of details need to be worked out, which is my big concern,” she said. “We need to figure out who really is a primary homeowner versus a vacation homeowner. We must move very carefully into all of these proposals.”
Determining whether a borrower is a primary resident or short-term investor often depends on the individual loan. Some loan packages include borrower disclosures that indicate whether the property is a primary residence or will be a second home or used as a rental property.
However, the disclosure depends on the honesty of the borrower.
How the plan ultimately shakes out will be partly determined by Tuesday’s presidential election. Republican nominee John McCain’s plan is for the federal government to buy subprime, adjustable-rate mortgages that are in foreclosure and convert them to conventional loans. Funds from a $300 billion Federal Housing Administration Fund created last summer would go toward that end.
Democratic presidential hopeful Barack Obama has included a 90-day moratorium on foreclosures as part of his broader program to address the economic downturn.
Hastings, Taddeo, Martinez, West and Garcia all said they would support a foreclosure moratorium.
A moratorium would have to be combined with incentives such as Community Development Block Grants — a key component of the Foreclosure Prevention Act that became law on Oct. 1 — so local governments and lenders can immediately work with homeowners to avoid foreclosure, Martinez said.
“I would support it provided that an individual benefitting from a moratorium has a way of coming to the [lending] agency or city to refinance,” Martinez said.
“If you put a moratorium in place and do nothing, what will happen in 90 days? I don’t want to be faced with the same situation in 90 days.”
Any moratorium should be packaged with other measures such as renegotiating loan terms and interest rates to keep borrowers from walking away from their homes, Garcia said.
“I don’t think a moratorium is a bad idea as long as it is not done in a vacuum,” he said.”
Republican Edward Lynch, who is running against Robert Wexler for the District 19 seat, said the federal government should require that banks receiving bailout money to modify loans and do whatever else it takes to keep homeowners in their houses.
“The federal government should get involved to the point where they say, ‘if you are not willing to bend, you go out of business, because you are not going to get any assistance from us,’ ” said Lynch,
Rep. Wexler did not respond to two requests for comment.
Lynch endorses a foreclosure moratorium to give banks time to work out loan modifications.
A short-term moratorium would have little effect on the foreclosure crisis besides educating the public on the options delinquent borrowers face, said Scott Coloney, founder of Fort Lauderdale-based Foreclosure Response Team. Coloney launched the company — which expedites short sales and loan modifications by working with lenders on behalf of both borrowers facing foreclosures and Realtors — six months ago as a response to market conditions.
Bankruptcy court judges generally grant requests from borrowers facing foreclosure to delay proceedings for up to three months, Coloney said.
“I have not seen any judge not give the 90-day extension,” he said. “In my opinion, there’s almost an unwritten moratorium on foreclosures right now. [Obama] needs to do a good job of telling people they can do a loan modification, short sale or pay their mortgage on time. Anything short of that, and they will get foreclosed on.”
Not providing a moratorium to all distressed homeowners — regardless of how they use the property — could hurt the property values of surrounding homes, Coloney said.
“Let’s say we are neighbors, and I bought the house next door as an investment,” he said. “If I wasn’t able to flip the home, would it be better off sitting there growing weeds and affecting [the value of] your home? Now the house won’t qualify for financing. It seems to me the answer — besides modifying the loan or doing a short sale — is to do [a moratorium] across the board.”
Local government officials have pushed their own proposals. North Miami Mayor Kevin Burns proposed a four-month foreclosure moratorium throughout Miami-Dade County, an idea that drew criticism from the state’s banking industry leaders.
Burns’ idea is not feasible because national lenders are governed by federal regulators and would be exempt from a county moratorium, said Alex Sanchez, president and chief executive of the Florida Bankers Association. That would put state-chartered banks at a competitive disadvantage
The banking industry likely would oppose a national foreclosure moratorium, Thomas said.
“No banker would want to do something like” a moratorium, Thomas said. “But the first responsibility banks have is to their shareholders. If the government is one of the biggest shareholders, they have to listen. They can’t just blow them off.”
Eric Kalis can be reached at (305) 347-6651. This story includes reporting from Bloomberg News.
Reader's comments
Harlan Miller said: I do not have the statistical data, but I would be interested in knowing what percentage of homes owned in Florida are either investor owned or second homes. I would guess that it is a pretty significant number. I understand that the individuals running for office are trying to win votes which only come from residents of the state of Florida, but completely shutting out relief for the investor or second home owner will have a very significant negative impact on the homestead owner as well. I would guess that a large number of the foreclosures in this state are going to be investor or second home properties. Rather than making decisions based on getting votes, it would be great to see a candidate actually do some work and research what is really taking place. They might find that the greatest impact on local municipalities in lost taxes and increases in blighted properties will come from the foreclosed rental or second home. Another point that these representatives overlook is that the owner of a second home or investment property pays a much higher property tax which generates revenue for their district. Shunning these owners and not giving them at least some relief could snowball. Florida is a state largely driven by tourism and I think last year was the first year that more people moved out of Florida than in. A large part of why these people move here is to work in jobs that are created by the mass migration of second home owners who call Florida home for part of the year. High taxes, extreme insurance costs, and lack of support might just drive these revenue producing individuals into looking at other areas of the country to spend their hard earned dollars. If I were a southern state wanting to generate a large revenue stream, I would be marketing to these "snowbirds" and offering incentives to bring much needed money even if it is only for 406 months. Again, statistically I am not sure how much revenue is generated and jobs created because of the part time resident and/or the investor, but I would appreciate one of your analysts delving into this statistical data and doing an article on the impact of these owners who are being shunned by these representatives trying to win votes. Sincerely, Harlan Miller West Palm Beach Resident and investor Oct. 31 at 9:11 a.m.
Gordiana Hernandez, Miami Beach investor said:Some people, like me, buy their retirement home while they are working, to have it ready and possibly paid for when they retire. I pay taxes on my retirement home just like anyone else, and have the same obligations with my retirement home as a primary resident, in fact, my taxes are higher because I cannot claim homestead exemption on my second home. If the investors are going to be penalized, it will also hurt the industry. My investment until I use it as my retirement home is serving as temporary housing for those that come to the Miami area to visit for whatever reason. These visitors leave their money here and the longer they stay, the more money they pour into our area. They could not stay long if these investment properties being marketed as vacation rentals did not exist. I believe there should be more than one plan, one for primary residents and one for second home owners or investors, but everyone should have the right to get assistance. Oct. 31 at 9:49 a.m.
Ross Milroy, miamiangelproperties.com said: This article states that in the "successful" IndyMac model, the mortgage payment and principal balance was written down to represent a payment of 38% of the borrowers income. My many friends that worked for IndyMac and other Alt A lenders will attest to the fact that practically two-thirds of all mortgages in south Florida were underwritten as "lo-doc" "no doc" "stated income" and other liar loan programs. So my question is, how does one write down a mortgage to represent 38% of a borrower's stated income? If taxpayers are to "help" struggling borrowers, how is it that we should be assisting those that "stated" their income and got in over their heads to begin with! We need to talk about this issue as well. Oct. 31 at 11:29 a.m. said: It is not fair to those who bought what they could afford and are making their payments to bail out those who bought what they couldn't afford and now we're going to reduce the principal owed to 38% of their income, no matter what it is... I don't think that's much of an idea. And any bailout should exclude those who took out second's. ... they got their money out of the house and, in many cases, spent it on goodies...they should now repay their principal interest, and loan (2nd). Or are we going to give them a free loan too....? Nov. 3 at 8:30 p.m.Bob Baldwin said: This is garbage. Let the market work itself out and enough with all of these bail outs. I was responsible, I knew we couldn't afford to buy at these ridiculous prices. Many others should have known, or did know, and like many other Americans, bit off more than they could chew, trying to live a lifestyle their income couldn't support. What about the guy who bought a hummer with a HELOC? Does he get to keep his hummer too? Those of us who live within our means will be forced to continue renting because the government is going to save the day with our hard earned money and prop up the housing market, shutting those of us out since we'll have to fund this nonsense, and rewarding bad behavior yet again. What a joke our country has become. We are long overdue for a long, hard look in the mirror. Nov. 3 at 8:29 p.m.
Jason D of Idaho said: Investors with rental property are not rich crabby landlords.... I read more than one story of renters being evicted by the sheriff because of foreclosure. These renters have most likely lost their deposit and now are just as likely to have the same result when they move to their next rental.... If an investor with a rental property would benefit, then so will the renters. Refinancing all mortgage owners would be the best action. Nov. 3 at 11:35 p.m. |
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