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In California and throughout the country a substantial number of people have found themselves saddled with adjustable rate mortgages that have reset to interest rates significantly higher than at loan origination. In many cases the borrowers cannot afford the new payment amounts. Also, in many cases, the borrowers really didn’t know what they were getting into.

It is a common, and not altogether inappropriate, reaction to such situations to think or say, “Too bad. You shouldn’t have signed something if you didn’t understand it.” But what if the borrower claimed that the documents are forged? Well, you’d think that would be an easy claim to refute, especially if the signatures were notarized.

But the forgery claim might not be as easy to dismiss as it appears. This is because forgery can occur even when the signature on the document is authentic. A recent opinion in the case of The People v. Paul Stephen Martinez (California Fourth Appellate District, Division Two) is instructive in this regard.

Defendant Martinez had offered to help Ruth Michiel when she ran into financial difficulty. She feared that two houses that she owned might go into foreclosure. At Martinez’s direction, Ms. Michiel signed a number of documents. Later, she discovered that a trust deed in the amount of $25,000 and secured by one of the properties had been recorded in favor of Martinez. The trust deed bore her signature. At trial, Ms. Michiel did not deny signing the trust deed, but she denied doing so knowingly.

Among other things, Mr. Martinez was found guilty of forgery. The decision was appealed. His defense against the forgery charge was that “there was no evidence that her signature was not genuine and no evidence that he used any affirmative misrepresentations … to procure her genuine signature.” The court disagreed with his claim regarding misrepresentation. Testimony had showed that he provided her “with a number of documents to sign to try and help [her] with [her] financial problems.” But, more importantly, the court held “he could be convicted of for gery even in the absence of any such affirmative representations.” [my emphasis]

The court referred to an earlier (1967) case, People v. Parker, where defendents had been found guilty of forgery even without any misrepresentation. The defendents in that case had been sellers of aluminum siding. The documents that they gave buyers to sign included a trust deed on the property. The defendents had not misrepresented the trust deeds; they simply included them, without disclosure, in the documents to be signed. That court said, “The crime of forgery is committed when a defendant, by fraud or trickery, causes another to execute a deed of trust or other document where the signer is unaware, be reason of such trickery, that he is executing a document of that nature.”

In fact, there are a number of other California decisions that would tend to support the ruling in People v. Martinez.

We haven’t heard anything about similar forgery claims in sub-prime mortgage situations. But, in light of the ruling in People v. Martinez, it would be no surprise to learn that such charges are being filed against some lenders.

by Bob Hunt

Some of the country’s biggest commercial real estate players are asking the government for help, as their $6 trillion industry of hotels, office buildings and shopping malls faces a record amount of debt coming due in the next few years.

Trade association executives said that in the past few weeks they have met with members of President-elect Barack Obama’s transition team, congressional leaders, and officials at the Treasury Department and Federal Reserve to make their case for assistance.

In the next three years, they pointed out, an estimated $530 billion of commercial mortgages will come due for refinancing — with about $160 billion due next year, according to Foresight Analytics, based in Oakland, Calif. But with the credit markets virtually collapsed, thousands of those properties could go into foreclosure or bankruptcy if owners are unable to get new loans.

“If you can’t get a loan and you owe the bank the money, you have to find the cash to pay the loan back or you default on the property,” said Steven A. Wechsler, who has been lobbying as president and chief executive of the National Association of Real Estate Investment Trusts, a D.C. association with 3,000 members. “Banks’ jobs are to make loans, not own real estate. That’s something we’d like to avoid. It could be a downward spiral that’s driven by a compromised system of credit delivery. Some constructive step by federal policymakers would be wise and appropriate to be able to free up the market.” The Wall Street Journal reported on the lobbying efforts this week.
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The real estate industry is going to the government for help because “they can,” said Jim Sullivan, a managing director at Green Street, a real estate research firm in Newport Beach, Calif.

“They see what everybody else has gotten,” he said. “Real estate is a capital-intensive business and there is no capital. They’ll take cheap money from whoever is giving it out, and now there’s only one source — the government.”

The trade associations are asking that their members be included in a $200 billion lending facility that was created by the government to support the market for consumer debt such as car loans, student loans and credit cards. In a recent letter to Treasury Secretary Henry M. Paulson Jr., industry leaders from a dozen groups described the troubled situation. “The paralysis of credit, which began in the short-term market, has coursed through the system and it now severely affects longer-term credit, especially secured and unsecured commercial real estate loans,” they wrote.

When Paulson announced the $200 billion initiative, he noted that it could possibly be expanded to aid the commercial real estate market.

The real estate groups say they aren’t asking for direct bailouts for their members, but rather for credit market support. “This is the same thing they’re doing for car loans and student loans. We’re asking them to help restart the credit markets for commercial real estate mortgages,” said Jeffrey D. DeBoer, president and chief executive of the Real Estate Roundtable, a major industry trade group.

“Banks can’t possibly absorb, manage and turn around properties at this scale if they come back to the lenders,” he said.

The commercial real estate market boomed in the last few years, fed by easy credit. But starting in mid-2007, the credit crisis essentially froze the securities market.

The amount of new commercial mortgage-backed securities — loans that are sliced, packaged and sold as bonds — fell from $200 billion in 2007 to only $12 billion in the first six months of the year, Wechsler said. “We’ve gone from 55 miles per hour to zero,” he said.

When money was flowing, investors drove up the prices of real estate, betting that rents and occupancy rates would keep going up. But cash from properties is falling as more space becomes available and rents drop, making it harder for owners to repay their debts.

While delinquency rates are low, they increased by one-third in November to 0.96 percent and could rise to more than 3 percent by the end of next year, according to figures from Deutsche Bank. Atlanta, Detroit, New York and Tampa are among the markets showing signs of rising defaults. In the Washington region, defaults are below the national average.

“It won’t help the economy if commercial real estate continues to fall like residential,” said Lisa Pendergast, managing director of commercial real estate finance at RBS Greenwich Capital Markets. “Then ultimately it will cause the recession to lengthen and deepen.”

Donald Trump is trying to unload the lower floors of the 92-story Trump International Hotel & Tower.

The New York developer has hired a broker to market the building’s four-level retail space overlooking the Chicago River, set to open next summer with room for 20 shops and restaurants.

Mr. Trump won’t disclose an asking price, but an offering memorandum obtained by Crain’s suggests the space could fetch $115 million to $130 million.

The move is a long shot given the condition of the real estate and financing markets, especially since Mr. Trump has no retail leases signed yet. And it’s the latest signal of strain at the city’s most high-profile new development, which will be the nation’s tallest residential building.

Typically, a developer leases retail space before selling it to increase the property’s value and appeal to more buyers. But Mr. Trump may be willing to forgo future profits for cash now — particularly with condo sales stalled at his project and citywide.

“In this kind of slow residential market, he’s got to be looking to get revenue to pay down his construction loan,” says Daniel McLean, chief executive of Chicago-based MCL Cos., who has built condos, retail space and a hotel at nearby River East. “I’m sure he’s under pressure to pay down his loan.”

Mr. Trump, whose funding for the massive project at 401 N. Wabash Ave. comes primarily from a $640-million loan from Deutsche Bank A.G., says he’s not strapped for cash. He insists that condo sales are steady and that the project is on track, saying he’s merely exploring a sale of the retail space in response to interest from potential buyers.

“We’re just looking to see whether or not there’s value there,” Mr. Trump says. “I think it’s unlikely I’ll do it. . . . If the right price came along, it’s something we’d consider.”

Meanwhile, Mr. Trump says talks are under way with seven potential tenants for some of the roughly 83,000-square-foot retail space, including a few “very fine” restaurants. He declines to name them.

Local real estate experts agree the site is prime for restaurants but question whether the project would garner rents as high as the $75 to $225 a foot suggested in the offering memo, which would be in line with some rents along tony Oak Street but less than the $300-to-$450 range on Michigan Avenue.

“Traditional retail is going to be tough there,” given Trump’s distance from the Mag Mile and the unusual layout of the retail space, says Larry Freed, president of Chicago-based Joseph Freed & Associates LLC, which is developing the new mall at Block 37. “From a restaurant standpoint, it’s good, dramatic space.”

Executives with the firm marketing the property, CB Richard Ellis Inc., decline to comment. Local brokers for the Los Angeles-based company also were hired by Trump in May 2007 to lease the retail space.

According to the sales memorandum, a buyer would be able to build out and reconfigure the space. That would allow a new developer to scrap plans for small spaces that seek to lure upscale apparel stores and jewelers and instead replace them with bigger spaces that would accommodate more restaurants or a grocery store.

While Mr. Trump says he has sold off undeveloped retail space before, such a move on this project would seem out of character for the image-obsessed developer.

“Retail can dictate the image of a building,” says David Stone, president of Chicago-based retail brokerage Stone Real Estate Corp. “When you sell retail like this, you can lose control of the image of your building.”

©2008 by Crain Communications Inc.

Here’s some potentially good news for investors from the Federal Housing Finance Agency, which oversees Fannie Mae and Freddie Mac.

James Lockhart, who runs the agency, says there’s been some “re-thinking” underway on the controversial limits on the numbers of rental properties investors can own if they’re seeking new financing.

Both Fannie Mae and Freddie Mac have imposed a four-unit limit, reversing their previous investor maximum of ten units.

The rationale for the change, according to the agencies, was their belief that investors who own higher numbers of rental condos and houses pose a greater risk of default, foreclosure and loss for the companies.

The restriction effectively shut out many small investors from Fannie’s and Freddie’s standard programs — and pushed them into much higher-cost financing from so-called “hard money” lenders.

In a letter to Charles McMillan, president of the National Association of Realtors, Lockhart said, “While no final decisions have been made, I can share with you the fact that the issue of raising the selling guide ceiling on investors loans is under active consideration at one of the (corporations), and reflects an appreciation of the role for investors in the housing recovery.”

Realty Times obtained a copy of Lockhart’s letter to McMillan, which was intended to respond to issues raised at the Realtors’ annual convention in Orlando in November, where Lockhart spoke to two sessions. Lockhart did not disclose which company may soften its rule, but when one changes its standards, the other typically follows suit.

Lockhart addressed another issue of concern to investors and other buyers of condo units: The negative impacts of growing numbers of foreclosed units and bank-owned REO in condo projects.

Under current rules, Fannie and Freddie generally avoid loans in condominium developments where less than 51 percent of the units are owner-occupied. The problem is that both companies define REO and foreclosed units as non-owner-occupied, even though they are temporarily vacant and not owned by investors.

Lockhart said in his letter that “at least one” of the two corporations — either Fannie or Freddie — “is considering a clarification of the 51 percent (rule) that would exclude REO units from being counted as investor units … in the owner-occupancy ratio.”

Lockhart offered no timetables for either of these key potential policy improvements, but investors may well see one or both changes within weeks.

At the very least, it’s good news that the top executive regulating Fannie and Freddie recognizes the significant roles investors can play in helping the industry dig out of the current mortgage mess.

Private mortgage insurance helped save families from foreclosures this year, claims Genworth Financial. The company recently released its Foreclosure Prevention Scorecard that touts that more than 11,000 homeowners were helped in the last 12 months.

The top 10 states where a form of a “workout” — (repayment plan) or loan modification — to avoid foreclosure occurred were Texas, Florida, Georgia, Ohio, Pennsylvania, Michigan, North Carolina, Illinois, New York, and Indiana.

“Foreclosure doesn’t benefit anybody. As a mortgage insurer, we’re trying to do our best to work with the borrower and keep that person in the home as well as work with the mortgage servicer and the investor so that all parties win,” says Alan Goldberg, Vice President Homeowner Assistance Program at Genworth Financial Mortgage Insurance.

Some borrowers believe that private mortgage insurance doesn’t benefit them, but the company’s Scorecard shows differently.

Chris Antonello, Senior Vice President of Marketing, Genworth Financial Mortgage Insurance discussed the Scorecard with me. It revealed that workouts increased 56 percent over the same period last year. Nationally, homeowners were helped mostly by repayment plans and loan modifications. Repayment plans accounted for 50 percent of all workouts, and loan modifications 32 percent. Antonello says that, nationally, 89 percent of homes were rescued. “Basically nine out of 10 homeowners that we deal with are able to stay in their home. The balance are people who either have to go through a short sale or deed in lieu — they do leave the home but it’s only 11 percent,” says Antonello.

“We’re also trying to highlight that a significant amount of these borrowers have monthly payments of under $1,000 which is important because people who need the help are getting it,” says Antonello. The scorecard shows that 53 percent of those helped have monthly payments under $1,000.

Goldberg says Homeowner Assistance Program works directly with the mortgage servicers and the borrowers when there is a problem. “If the mortgage servicer hasn’t put the borrower on a workout by the fourth month of delinquency, we start contacting the borrowers — and we have a whole campaign where we send them written material and a calling campaign to let them know that workout assistance is available and that we can help them avoid foreclosure.”

Goldberg’s team seeks to create a repayment plan that works for all or a loan modification.

“If borrowers cannot afford the house, then we help them to sell the house and still avoid foreclosure,” says Goldberg. He adds, “If they’re upside down, we would reduce the payoff on the loan, effectively paying the claim, so the difference between what the home sold for and what the payoff was, would be up to the amount of the loss assuming it didn’t exceed the amount of the coverage that we had.”

“It’s very important that we reach out to people who are struggling to let them know that mortgage insurance does provide this benefit. As they’re going through hard times, the more people we can save and keep in their homes the better and at the same time as they make new decisions they should consider mortgage insurance,” says Antonello.

For those who are looking for either a new loan or to buy a home, Antonello says he hopes the same mistakes aren’t repeated. “Part of what drove the problem was that it was en vogue to avoid private mortgage insurance. Instead a lot of people did piggyback loans — the 80-10-10 or 80-20 — so they were highly leveraged and now, when they’re running into a situation, they don’t have somebody like [Genworth and Homeowners Assistance] trying to help them,” says Antonello.

Antonello says, “One of the things with private mortgage assistance is that it not only gets you into the home sooner but it keeps you in the home and it’s less risky than other alternatives that are out there and we provide this service so that, if you do run into a problem, our Homeowner Assistance Program comes at no-added cost — it’s free protection — it’s already built into the premium that the borrower pays.”

RISMEDIA, Dec. 11, 2008-(MCT)-In a development cheered by mortgage brokers, interest rates have dipped to their lowest levels in years, providing what some say is a glimmer of hope in this dismal housing market.

Brokers across Charlotte have seen a spike in business since Nov. 25, when the Federal Reserve announced plans to buy up to $600 billion in toxic mortgage assets.

The move prompted interest rates to fall — to around 5.5% this week — and that could translate to lower monthly mortgage payments and an incentive for home shoppers who are debating whether to buy, brokers say.

“We’re saying to Realtors, ‘Hey, if you’ve got people sitting on the fence, you may want to let them know that,’” said Doug Bell, managing partner of First Trust Mortgage, where brokers are receiving 35 to 50% more calls than usual.

Charlotte-area rates for a new 30-year, fixed-rate mortgage ranged from about 5.25 to 5.75% Monday, according to Bankrate.com. The national average was 5.65%, down from almost 6.5% as recently as October.

It’s welcome news for brokers and others with a stake in the housing market, which has taken a hit this year as the economy tanked.

Home sales and prices in the Charlotte area have dropped in recent months, but the region is still faring better than most others.

Area home prices declined 3.5% for the 12 months through September, according to S&P/Case-Shiller home price data released late last month. Other regions, such as Las Vegas and Phoenix, saw double-digit declines.

Sales of Charlotte-area houses, townhouses and condos fell almost 31% in October, compared with October 2007, according to figures released last month from the Carolina Multiple Listing Services. That marks the 17th consecutive month of double-digit declines.

The market is bracing for further struggles, too. The unemployment rate continues to inch upward, and bank consolidations could lead to more layoffs. Other troubles include rising foreclosures, tight credit and the weak economy.
Falling interest rates aren’t “going to turn the economy around all by itself, at least not immediately,” Wachovia economist Mark Vitner said. “But this will help.”

Lower mortgage payments will ease the burden of debt for homeowners who refinance, eventually leading to better credit and looser lending, he said. In addition, if more people are willing to jump into the housing market, they could drive up home prices and fuel the economy.

Interest rates haven’t been this low for a sustained period of time in the past decade, Vitner said.

Some consumers are waiting to refinance or buy a home, thinking rates could fall as low as 4.5%, but he said that’s not imminent and that if people are in a good position to refinance or buy, they should do so.

“You’re not going to be unhappy” with the current rates, he said. “It’s very rare that rates are this low.”

First-time home buyer Darren Russo started looking at houses three months ago, when mortgage rates hovered around 6.5%. By the time he closed on his new townhouse in Concord last week, he was able to get a 5.625 rate.

Russo, a 35-year-old minister, paid $161,000 for the home — $10,000 less than the asking price, he said.

“I got the place I really liked for a price I could really afford,” he said.

Mortgage brokers say they’re getting more calls about refinancing than buying. Allen Tate Mortgage has seen an uptick in inquiries since the rates fell, company President Chris Cope said.

At online mortgage broker LendingTree, inquiries are up 10 to 15% in the past two weeks, chief economist Cameron Findlay said. Much of that interest is for refinancing, especially from borrowers with adjustable-rate mortgages who want the stability of a fixed rate.

At First Trust, the lower rates are a needed boost at a time when business has been sparse because of the economy and the annual holiday slowdown, said Bell, the managing partner.

He and his staff have been reaching out to former customers, financial planners, accountants and real estate agents to spread the word about the lower rates, as well as fielding calls from homeowners across the financial spectrum.

Some are simply looking for lower rates. Others want to pay down “jumbo loans,” which come with higher interest rates, to the $417,000 limit to qualify for the lower 30-year, fixed rates. Still others have refinanced to consolidate loans and take cash out of their homes to pay down credit card debt.

Brokers and economists predict the dip will continue for at least a few months, until the economy shows the first signs of a turnaround.

“I think the government will do everything it can to keep rates low until that recovery is well under way,” Bell said. “It’s just so crucial to the economy.”

“The worst that happens to you can be the best thing for you, if you don’t let it get the best of you.” –Will Rogers

There’s certainly no doubt that we’re currently in the midst of one of the most challenging real estate markets in decades, but if the authors of the book “Shift: How Top Real Estate Agents Tackle Tough Times” are to believed, this also marks a time of great opportunity.

Written in a fairly elementary format by Keller-Williams Realty co-founder Gary Keller and colleagues Dave Jenks and Jay Papasan, the book acts as both a primer for newly minted agents as well as a supportive roadmap for veteran agents in need of an attitude tune-up.

Although Keller and his co-authors — who also wrote “The Millionaire Real Estate Agent” and “The Millionaire Real Estate Investor” — take almost 300 pages to discuss themes that at first glance could have potentially been abridged to 100, as I read through the book I found myself scribbling in the margins and marking pages for further study, thereby making it as much a workbook as a future resource for ideas.

And therein lies the power of the book’s structure: by forcing readers to think through simple themes on everything from managing expenses to maximizing the conversion of leads to the signing table, Keller and team have created a to-do list that could suit a range of sales-related industries.

Whereas the first part of “Shift” focuses on a macro-economic overview of the how, why and when real estate shifts happen — both in terms of sellers’ and buyers’ markets — the second part is where the “workbook” begins in earnest.

Offering “12 Tactics for Tough Times” for readers in a hurry to put the advice to good use, the authors walk us through the various facets of running a real estate business, including being realistic; right-sizing staffing levels; using appropriate marketing techniques (including a take-no-prisoners approach to the Internet); pricing ahead of the market; creating urgency for buyers; mastering creative financing techniques; becoming experts on short sales, REOs and foreclosures; and bullet-proofing transactions by making yourself the last line of defense against flaky agents, dishonest lenders and skittish buyers.

For example, you might have the best-looking Web site among your peers but it’s only useful if you’re actively converting Internet traffic to registrations and appointments (this falls under “Tactic No. 4: Lead Generation”). If your investment in technology is to “earn its keep,” then you’ve got to pepper your site with reasons for visitors to register and provide you with the information you need to land that first appointment, according to “Shift,” which provides a variety of suggestions on building such a productive Web presence. The book offers a graphical overview on the role of the Internet as a part of a larger marketing strategy.

Perhaps you’re frustrated that potential sellers and buyers are left waiting for the credit markets to thaw out further before jumping back into the market. This is addressed under “Tactic No. 10: Expand the Options for Creative Financing,” which includes a detailed overview on the three areas of creative financing (oriented towards sellers, buyers and lenders).

That leads into “Tactic No. 11: Master the Market of the Moment — Short Sales, Foreclosures and REOs” as an example of using a distinct market shift to your advantage. It’s in this chapter that the authors offer detailed steps on how to become the local expert on such transactions, which in some regions now claim more than half of all closings. Yet because these types of deals have a higher-than-average probability of falling apart, agents should pay special heed to “Tactic No. 12: Bulletproof the Transaction — Issues and Solutions” if they hope to turn today’s financial lemons into tomorrow’s lemonade.

Finally, the authors wrap up by declaring real estate market shifts as genuine gifts to those who are prepared for them. “Whether it is in response to the market or their own goals, high achievers are always changing,” it advises. “And they know that to triumph in any situation they must always do one thing — shift.”

Of course, any shifts also must involve a decidedly old-fashioned activity to work — simple, hard work on a regular basis, the book suggests, quoting Thomas Edison: “Opportunity is missed by most people because it dresses in overalls and looks like work.”

For Keller Williams Realty — which was founded in 1983, started franchising in 1990 and has gradually grown into the fourth-largest residential brokerage in North America — the book “Shift” is just one part of a multi-pronged approach focusing on keeping its sales force competitive and optimistic.

As the real estate market began to shift over the past two years, the company invested $1 million in its “Operation Heart to Heart 2″ initiative to assist agents manage a changing market, which includes the launch of the AgentMountain.com Web site, the “Thriving in a Shifting Market” national seminar tour, and 12 guidebooks for agents.

Keller Williams’ corporate culture focuses on constant education for agents, and the company shares profits with associates. The company has 690 affiliated offices and 73,000 sales associates in the U.S. and Canada.

In the latest annual Real Trends 500 industry survey, nine Keller Williams offices ranked among the survey’s top 100 brokers for total closed transaction sides in 2007. And eight Keller Williams offices ranked among the top 100 brokers for total transaction volume in 2007.

Also, the company had the second-highest number of offices listed in the Real Trends 500 report and had more offices listed than other franchise brands in an annual Power Broker Report by RISMedia that listed 700 top offices.

Modifying the mortgage terms of delinquent homeowners is one of the most debated concepts in Washington right now.

FDIC chairwoman Sheila Bair wants massive, across the board modifications — slashing hundreds of thousands of borrowers’ interest rates and monthly payments NOW — long before they fall into foreclosure.

House Financial Services committee chairman, Barney Frank, is threatening mortgage lenders with tough new regulations if they don’t modify customers’ loan terms quickly enough to keep them out of foreclosure.

Even the Bush administration has jumped on the bandwagon, calling for widespread loan fixes, even offering $800 cash incentives when loan servicers do so.

But here’s a politically sensitive question: How well do modifications really work?

Rob Dubitsky, a top researcher for Credit Suisse Group, says they’re not as effective as you might think.

In a study of reports from 19 major mortgage servicers, Dubitsky found that one third of all borrowers who received modifications fell back into serious delinquency within eight months, according to the American Banker trade publication.

For borrowers who received what Dubitsky called “traditional” medications to their mortgages — rate cuts or reworking of terms that added late fees and back payments onto borrowers’ principal balances — fully 44 percent RE-defaulted within eight months.

They either had to be given new and easier loan terms … or they simply went to foreclosure.

Only outright reductions of loan balances — something most lenders are reluctant to do – reduced the re-default rate significantly. But even then, Dubitsky found nearly one in every four borrowers later fell behind on payments.

None of this is a big surprise to long-time professionals in the default mitigation business. Joe Smith, president and CEO of Default Mitigation Management of Newport, Kentucky, says wholesale modifications — as advocated by FDIC’s Bair – are likely to lead to higher rates of later re-defaults and foreclosures.

Smith’s firm advocates more hands-on, individualized techniques to cure delinquencies, often involving counseling. Mass modifications without individualized underwriting and personal finance counseling, he says, “just pushes the problem down the road.”

But don’t hold your breath waiting for anybody in Washington — and certainly not the incoming Obama administration or Congress — to throttle back on their mass modification programs anytime soon.

And don’t expect them to do what’s politically much tougher: Ask banks to bite the bullet up front — write down principal balances early on so they don’t have to RE-modify vast numbers of mortgages – maybe over and over again — to keep owners out of foreclosure.