Entries Tagged 'Bankruptcy' ↓

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If you are going to play in the real estate investment business your appetite for risk is greater than the  average bears. So it is no surprise that real estate investment companies, builders, and suppliers are starting to fail as Florida tries to recover from the housing bubble.

Real estate is a very capital intensive business and when there is a downturn it  is very easy to get exposed. But there is a flip side to the equation, these same folks typically are not going into the deals with blind optimism. Most have paid the lawyers to protect themselves as much as possible in the case of failure and will be back on their feet quickly.

Because as we know, great rewards come with taking risks.

Of the 22 companies that filed for bankruptcy protection since late October, 16 are real estate related. Of those, seven are builders or developers and nine are suppliers or subcontractors. The largest filing of the batch is that of Longhorn Development and Forefront Construction, a pair of Port Charlotte companies headed by home builder Jeffrey Lauro.
Court records show that Longhorn paid $8.2 million for 34 vacant lots and the Eagle Golf Course in Port Charlotte in early 2007. But by the end of the year unpaid sellers and mortgage holders began to file liens for want of payment, eventually forcing Lauro to file for bankruptcy protection.
Before starting Forefront, Lauro was a full-time real estate investor, the company’s Web site says. via HeraldTribune.com

Nuemann Homes, one of the largest homebuilders in the Midwest and Denver has declared bankruptcy. The company has been building in some of the worst markets in the country including Detroit and Denver so this can not be big surprise to anyone.

In fact, Nuemann probably gets what it deserved. They acquired Tadian Homes in 2005 at the peak of the housing boom. Normally this could be excused, but Tadian builds in Detroit which was (and is) mired in a housing collapse of epic proportions. And whomever sold the idea, “Hey, the auto industry is laying off hundreds of thousands, lets go grab a bunch of market share in Detroit” should both be shot and hired at the same time. Shot because their business sense is so wrong, but hired because they must be a heck of a salesman.

Add to that being a major player in Denver which is another city hard hit by the housing slowdown you have the recipe for disaster.

Neumann said it will file for Chapter 11 bankruptcy and that its lenders have agreed to provide limited additional funding so that its assets can be evaluated and sold. It also said the earnest money of customers whose new homes haven’t started construction is safe in escrow. Neumann said it will ask a bankruptcy judge to approve refunds from those accounts…
“The market downturn in the Chicago and Denver housing markets [is] now in excess of 50 percent, with home prices dropping from 10 percent to 25 percent in some sub-markets,” Kenneth Neumann commented in the fax. “Even after the significant help we have received from our lenders this year, the company can no longer weather this storm.” via CHICAGO SUN-TIMES

The wild ride that New Century Financial Corp is about to enter a new chapter, and that chapter will be the form of bankruptcy it will enter sometime this week according to experts. The lending company that was a leader in subprime lending had it’s credit cut off the past few weeks as word of the high rate of foreclosures and loan defaults that were coming back at the company.

The sour loans combined with the loss of borrowing power and a federal investigation are putting this high flying New Century into bankruptcy protection.

New Century was one of the fastest-growing mortgage lenders until recently. Its loan originations jumped to $59.8 billion in 2006 from $6.3 billion five years before. But the company announced in early February that it would need to restate earnings for the first three quarters of 2006, partly to reflect the higher-than-expected costs of defaults. New Century also said it expects to report a loss for all of 2006 but couldn’t yet quantify that loss. In addition, the company has announced that it is the subject of a federal criminal investigation into its accounting and trading in its shares.
In early March, New Century stopped making loans because too many creditors had cut off funding. Since then, the company’s top officers have been closeted with lawyers and other advisers in an effort to sell assets and appease creditors, while state regulators have rushed to clamp tighter controls on the company.
New Century shares traded Friday on the Pink Sheets at $1.06, giving the company a market value of around $60 million, down from last year’s peak of about $2.9 billion. via WSJ.com

Update: 11:00 AM  According to reports from Bloomberg New Century did file this moring for bankruptcy protection in Delaware.

Ken Harney has to be my favorite real estate writer in the media. He is dead on this week with his column on the upside down nature of escrow in the lending arena.

According to some industry estimates, a majority of subprime mortgages closed during the housing boom years carried no escrows for property taxes and hazard insurance.

That is in stark contrast to the prime mortgage market for consumers with good credit, where mandatory escrow accounts are routine.

“It’s an upside-down world,” said Mike Calhoun, president and chief operating officer of the Center for Responsible Lending, a consumer advocacy group based in Durham, N.C.

“The people you’d think need an escrow the most aren’t required to have them, and the people who need them the least are forced to use them.” via the Baltimore Sun

Think about it for a second, how can you place the most onerous restrictions on borrowing on those who can (and plan on) afford the additional upfront costs, while letting those who are at the greatest risk have the most lenient terms.

Are you getting the feeling that the whole subprime market was created to fail for the borrowers?

The subprime market is hitting the final stages for a while as the Wall Street financiers are cutting off access to capital and placing expensive restrictions and contingencies when they lend at all. Wall Street is a brutal place where your best friend will also cut your heart out in a second if there is enough in it for them, but it also is the engine of capitalism.

These folks are there to do one thing, make money. And they do it well. Wall Street created a lucrative income stream while interest rates were low by created securitized mortgages and lending to those willing to pay a higher interest rate. The additional income from the brokerage of subprime mortgages hit 2.3 Billion last year.

Now that interest rates are up and the risk is also increased, these investments do not make sense for Wall Street to participate in and we are seeing the market shut down. When seen from a Wall Street perspective, the whole subprime market meltdown makes logical sense.

For those trapped in the reprecussions of it the lesson is brutal.

By extending generous credit to subprime lenders, Wall Street firms financed the borrowing binge that helped fuel the housing boom. Those firms now are turning off the money spigot. They see more borrowers having trouble paying off those mortgages in a slowing economy, which has made investors less willing to pour money into the sector.
More than two dozen subprime mortgage lenders have closed shop, and there is concern that the defaults could spread to other types of risky loans and to less-risky mortgages, exacerbating the housing market’s slowdown and possibly weighing on the economy. Accredited Home Lenders Holding Co., a subprime lender, recently was forced to sell $2.7 billion of loans at a big discount to meet lenders’ demands for more collateral.
Worries about defaults in slightly less-risky mortgages also have hit shares of companies that specialize in them, including Impac Mortgage Holdings Inc., where loans with overdue payments more than doubled last year, and IndyMac Bancorp Inc.
Subprime lenders sell many of their loans to Wall Street banks, which package them into securities to be sold to bond investors. The appetite for these bonds grew when interest rates were falling and investors wanted high-yield alternatives. The riskier the customer, the higher the interest rate, so subprime bonds were in demand. via RealEstateJournal

Silicon Valley has for years been the most expensive housing market in the country and has followed the trends of the technology industry as much as the housing industry. And it looks like this trend has nit changed. With a 14 percent decline in sales, the Valley showed an average selling price of 722,000 dollars per home, a new all-time high for the region, and a 14 percent increase over the past year.

In another milestone, the median price of condos sold hit the $500,000 mark in the county for the first time. That’s up 22 percent from February 2005.The number of new and existing houses and condos sold in the county, meanwhile, dropped 14 percent compared to a year earlier, with 1,614 homes changing hands. The figures were released Thursday by DataQuick Information Systems, which obtains the data from public records of completed home sales.

Though it may seem counterintuitive that sales volume dropped while prices rose, it’s a normal phenomenon for a real estate market coming out of a frenzied period, said John Karevoll of DataQuick.Sales are “showing a downturn in volume, but not nearly enough to tug prices down. If we continue to see a 15 percent decline in sales and it goes on for another year, then we’ll see some downward pressure on prices. But not with today’s numbers. via MercuryNews.com

The credit agencies have developed a new tool to determine the likelyhood a consumer having a bankruptcy in the future. They have been using this tool for the past few years without informing the consumers of it. Now it is starting to come out in public.

A July study by Experian is giving consumers some insight . The study ranked the states with the highest propensity to have consumers file for bankruptcy within the next year. The top five are:

1. Texas
2. Nevada
3. New Mexico
4. Louisiana
5. Arizona

Economist Mark Lauritano of Global Insight in Massachusetts says from a broad economic view you can see the reasons why Texas would be at the top of the list.
“Based on studies we’ve done: It’s a relatively young state, people are moving to Texas, there’s a lot of immigration from south of the border, it has a below average income and it has a relatively low homeownership rate,” says Lauritano. Bank Rate .