Housing

[Thailandnotes]

http://www.counterpunch.org/2015/08/...amily-reunion/

At ground level many readers may be surprised to learn that in California in 2015 there are twenty-six foreclosed or soon to be foreclosed houses that aren’t for sale for every foreclosed house currently for sale (source: Zillow). Nationally, the ratio is about 10:1 foreclosures not for sale to every foreclosed home that is for sale. The problem isn’t simply that bankers created a temporary economic downturn in 2007 that government was forced to address through bailouts. Eight years later poor and formerly middle-class neighborhoods in large and mid-sized cities across the U.S. are being turned into zombie housing ghettos where housing won’t ‘recover’ for their citizens in their lifetimes...

Social resolution would be for the government to hire the unemployed at living wages with benefits to fix the lower-end housing stock and use it as low-cost public housing possibly giving it outright, or through an income based rent-to-purchase program, to the poor and dispossessed and charge the difference, if there is any, to the banks. The point isn’t to suggest better public policies that stand no chance of being implemented, but rather to contrast the possibilities against the path chosen to make the point that liberals and progressives in academia and public office are talking out of their rears in suggesting that monetary policies that only benefit the wealthy are better than nothing.

A quick guess given emerging circumstances in the global economy is that we are weeks, months, or at best a year or two from renewed crisis that will bring to the fore the folly— and class interests that have been served, by the public policies put into practice since crisis began in 2007. The interest here isn’t in improving public policies to ‘reform’ the current system of political economy. It is to gain and effectively communicate clear understanding of the social-economic mechanics of this epoch. What is clear is that economic paths have diverged in the last forty years and continue to do so. The eternal view from the center-left is that history has ended, that sequential crises of increasing intensity are accidents following which repairs must be made. Meanwhile, the trajectory for increasing numbers of people is persistent diminishment of circumstance.

[don]

Re: Housing

At ground level many readers may be surprised to learn that in California in 2015 there are twenty-six foreclosed or soon to be foreclosed houses that aren’t for sale for every foreclosed house currently for sale (source: Zillow). Nationally, the ratio is about 10:1 foreclosures not for sale to every foreclosed home that is for sale. The problem isn’t simply that bankers created a temporary economic downturn in 2007 that government was forced to address through bailouts. Eight years later poor and formerly middle-class neighborhoods in large and mid-sized cities across the U.S. are being turned into zombie housing ghettos where housing won’t ‘recover’ for their citizens in their lifetimes...

more from our House of Mirrors Debt-Trap economy . . . .

[GRG55]

Re: Housing

more from our House of Mirrors Debt-Trap economy . . . .

Honestly don, ya gotta get with the program

The Opinion Pages | OP-ED COLUMNIST

Debt Is Good

AUG. 21, 2015



Rand Paul said something funny the other day. No, really — although of course it wasn’t intentional. On his Twitter account he decried the irresponsibility of American fiscal policy, declaring, “The last time the United States was debt free was 1835.”

Wags quickly noted that the U.S. economy has, on the whole, done pretty well these past 180 years...

[don]

Re: Housing

Honestly don, ya gotta get with the program

The Opinion Pages | OP-ED COLUMNIST

Debt Is Good

AUG. 21, 2015



Rand Paul said something funny the other day. No, really — although of course it wasn’t intentional. On his Twitter account he decried the irresponsibility of American fiscal policy, declaring, “The last time the United States was debt free was 1835.”

Wags quickly noted that the U.S. economy has, on the whole, done pretty well these past 180 years...

An Internet Mortgage Provider Reaps the Rewards of Lending Boldly

By PETER EAVIS


You have substantial assets, but your income is erratic and your finances are what in polite company would be called “complex.” Your credit history may contain a smudge or two. Yet you would like to buy one more luxury apartment.

Major banks like Wells Fargo and JPMorgan Chase are not eager to give you the $3 million mortgage you need, nor are any traditional banks that specialize in making big-dollar home loans to higher-income clients.

If that’s your profile, Gregory Garrabrants may be your man.

As the leader of Bank of Internet USA, based in San Diego, Mr. Garrabrants has been issuing big mortgages to high earners whom other lenders might not necessarily welcome with open arms. But because its financial performance has, in many ways, been spectacular,

Bank of Internet has been turning heads — and setting off alarm bells as well. The bank has made loans to people who were later found to have run afoul of the law, and Mr. Garrabrants has had to reassure investors that the bank has good relations with regulators.Bank of Internet’s loans have increased fivefold, to nearly $5 billion, over the last five years — an almost unheard-of rate of growth for these tepid times in banking. Its losses from bad loans are practically nonexistent, and profits are surging, in part because it charges a much higher interest rate than the bigger banks operating in the same market.

“I am passionate about what we do here, and I believe in it,” Mr. Garrabrants said in one of several telephone interviews in recent weeks. “We are proud of what we are doing here. We try to really run a good, ethical shop, and I want people to know that.”

The bank’s stock has risen a staggering 1,600 percent since Mr. Garrabrants came on board in 2007 as chief executive of BofI Holding, the parent of Bank of Internet, with fortunate timing: He left IndyMac, a large lender that collapsed under the weight of its mortgage losses less than a year later.

Now that much of the mortgage industry involves little more than churning out government-backed cookie-cutter loans, Bank of Internet is an intriguing reminder of the money that can be made when a bank dares to take a chance on borrowers and then keeps those loans on its books. And in an environment of prim conformity after the housing bust, it may be viewed as a fascinating test case: Can bankers venture beyond the guardrails to make riskier loans without getting into serious trouble?

Some investors are already betting that Bank of Internet’s amazing run will fizzle. Short-sellers, who try to profit from a decline in a company’s shares, have increased their wagers against Bank of Internet in the last 12 months.

They contend that the bank is attracting people who simply can’t get cheaper loans — borrowers who may be more risky. Bank of Internet also makes large mortgages to wealthy foreigners, a practice that requires meticulous controls to comply with federal regulations aimed at stopping money laundering. The bank’s critics wonder whether its compliance department is up to the task, though Mr. Garrabrants vigorously defended its practices. They also take issue with the bank’s funding, contending that the lender is too dependent on customer deposits that could evaporate if turbulence returns to the banking world.
“The reality is you are getting a 2005-style jumbo mortgage lender (with other odd high-risk loans) funded primarily by high-cost brokered deposits,” John Hempton, the manager of Bronte Capital, wrote on his blogin April.

To naysayers like Mr. Hempton, then, Bank of Internet is not that different from some of the go-go lenders — like Countrywide Financial, Washington Mutual and IndyMac — that made mortgages to wealthy people with complicated finances before the financial crisis of 2008.

Mr. Garrabrants, who has also worked at Goldman Sachs and McKinsey & Company, says the critics are spreading disinformation — and losing money — as they bet against his firm’s soaring stock.

“Here’s the problem for them: They are going into an earnings juggernaut that has none of the things that they’re talking about,” Mr. Garrabrants said. And he says the bank is as judicious as any other lender in picking its borrowers. “It’s about being thoughtful about what risks you take and watching them and being careful,” he said, adding that Bank of Internet’s deposits are a reliable source of funding.

Bank of Internet USA has always been something of a curiosity. It was formed 16 years ago during the first dot-com boom, and, as its name suggests, it has no bricks-and-mortar branches, eliminating many costs. Its website isn’t flashy. And the bank attracts money by offering relatively high deposit rates. In turn, much of that money is used for mortgage loans. The bank relies heavily on independent mortgage brokers to bring it borrowers, but the last housing boom showed that it can be hard to control the quality of loans that come in from mortgage brokers.

Even so, its broker network is helping Bank of Internet grow like a weed. It holds $2.72 billion of “single-family” mortgages, for example, up 215 percent from $864 million in mid-2012. Mr. Garrabrants says the average interest rate on its mortgages is just below 5 percent, far higher than the rates charged by banks that also focus on wealthy borrowers. For instance, the average rate on mortgages at First Republic Bank, which also caters to a wealthy clientele, was 3.01 percent in the second quarter, according to the bank’s financial filing.

Bank of Internet’s profits are surging, and Mr. Garrabrants disputes the argument that he is scooping up less dependable borrowers that are willing to pay more because they can’t get cheaper loans elsewhere. Many borrowers, he said, are willing to pay higher rates because his bank can provide carefully thought-out loans that fit its customers’ needs more quickly than other lenders. In addition, other banks’ screening processes sometimes exclude well-heeled borrowers who are safe bets, he said.

Steve McRory, a Florida mortgage broker who works with Bank of Internet, said, “They are doing what they can to cobble and stitch together income to make sure the borrowers have the ability to repay the loans, versus just saying no.”

Still, Bank of Internet has lent money to some unsavory characters. For example, in 2012 it issued a $5 million mortgage to Purna Chandra Aramalla on a house in Sands Point, an affluent section of Long Island, according to local property records. In 2013, federal law enforcement authorities in New York charged Mr. Aramalla with Medicare and Medicaidfraud. In March, he was sentenced to three years in prison.

In mid-2014, Bank of Internet lent $1.05 million to Frederic Elm for a house in Fort Lauderdale, Fla., property records show. In January, the Securities and Exchange Commission accused Mr. Elm of running a “Ponzi-like” scheme that had raised $17 million since November 2013. Mr. Elm partly settled with the agency in June.

And in 2012, Bank of Internet issued a $1.26 million mortgage to Deepal Wannakuwatte, a Sacramento businessman who received a 20-year prison sentence last year for operating, for more than 10 years, what the F.B.I. called a Ponzi scheme.

Mr. Garrabrants defended his practices in an email. “It is unfair to characterize our borrowers’ profiles as different than other banks that serve high-net-worth customers,” he said. “You would easily be able to find lawsuits and an occasional legal issue if you scanned First Republic or another bank with high-net-worth borrowers as well.”

Bank of Internet has lent to people who have failed to pay loans made by other banks. For instance, last year it made a $4.8 million mortgage on a home in Coral Gables, Fla., that belongs to John H. Ruiz, a prominent Miami lawyer. SunTrust, a large regional bank, is currently suing Mr. Ruizand his wife, asserting that they failed to make payments on a nearly $3 million promissory note.

Mr. Ruiz said that Bank of Internet was aware of the SunTrust dispute when it made the mortgage. In a text message, Mr. Ruiz said he was happy with his loan from Bank of Internet, and added, “Because of the economic downturn, everyone can benefit from a lender like BofI that understands the challenges in the marketplace.”

In certain cases, and after careful scrutiny, Mr. Garrabrants said, Bank of Internet may decide to lend to people who have defaulted on past loans. He declined to comment specifically on its loan to Mr. Ruiz.

If Bank of Internet’s borrowers do have problems later, the bank, in theory, has an important fallback. Just over half of its single-family mortgages do not exceed 60 percent of the value of a property, and an additional third do not exceed 70 percent, according to the bank’s filings. That means that if it repossessed and sold such properties, their value would have to fall 30 to 40 percent for the bank to take losses. “I don’t think they’ve ever had a single dollar charged off on any single-family residential mortgage that they’ve originated,” said Bob Ramsey, a bank analyst at FBR Capital Markets.

But with certain customers, Bank of Internet could end up with less protection. That could happen when it lends more than once to the same borrower, a practice that shows up in public real estate records. In such cases, Mr. Garrabrants said, Bank of Internet might require that borrowers pledge types of collateral other than just real estate.

Still, in rocky economic times, steep declines in home prices might whittle away much of the cushion that Bank of Internet builds into its loans. And it is not clear that the bank has enough financial protection against loan defaults. Its reserve for bad loans, for instance, is equivalent to 0.54 percent of its loans, according to an analysis of data in the bank’s filings. That number is slightly below the percentage for First Republic, which, in general, appears to have safer borrowers.

Then there are questions about Bank of Internet’s marketing of itself as a lender to “foreign nationals.” It does not disclose exactly what proportion of its loans are made to foreigners. When asked, Mr. Garrabrants said it was “nowhere near the majority.” Banks that do this sort of lending can expect extra scrutiny from federal regulatory agencies, which have punished banks for not properly applying bank secrecy and anti-money-laundering laws when vetting their international customers.

In recent months there has been unrest in the division of Bank of Internet that deals with regulatory compliance. Earlier this year, a senior internal auditor, Jonathan Ball, and another employee in the division, Matt Erhart, left the bank. Mr. Ball did not respond to requests for comment. Mr. Erhart’s lawyer, Carol L. Gillam, said that she had communicated with regulators, including the Office of the Comptroller of the Currency, the bank’s primary regulator. She declined to provide details.

Regulators have not publicly warned or penalized the bank for its lending to foreign nationals, and Mr. Garrabrants often sounds exasperated when defending that business. In his view, short-sellers had sought to stir up concerns about those loans to try to persuade regulators to stop Bank of Internet from acquiring parts of H&R Block’s banking unit. The deal was concluded this month.

And, according to Mr. Garrabrants, regulators have inspected Bank of Internet’s processes for vetting loans to foreigners — and given the bank positive feedback. “We’ve had full regulatory review of that process and specific compliments on it,” he said, noting that the review took place after the two internal auditors left. “It is beyond a nonissue.” The Office of the Comptroller of the Currency declined to comment on Bank of Internet or any interactions with the bank.

Bank of Internet recently closed another fiscal year, reporting net profit of $83 million, nearly 50 percent higher than in the previous one. Those earnings were equivalent to 18 percent of the bank’s shareholder capital, an astonishing return in these humdrum times in banking.

“It’s a great business,” Mr. Garrabrants said, “and the sole thing that keeps us from growing it more is that we’re just trying to make sure that we don’t make mistakes.”

[don]

Re: Housing

Speaking of Chinese empty nests . . . .

A Sprawl of Ghost Homes in ... Aging Tokyo

By JONATHAN SOBLE

YOKOSUKA, Japan — Ever since her elderly neighbor moved a decade ago, Yoriko Haneda has done what she can to keep the empty house she left behind from becoming an eyesore. Ms. Haneda regularly trims its shrubs and clips its narrow strip of grass, maintaining its perfect view of the sea.

The volunteer yard work has not extended to the house two doors down, however. That one is vacant, too, and overgrown with bamboo. In fact, dozens of houses in this hillside neighborhood about an hour’s drive from Tokyo are abandoned.

“There are empty houses everywhere, places where nobody’s lived for 20 years, and more are cropping up all the time,” said Ms. Haneda, 77, complaining that thieves had broken into her neighbor’s house twice and that a typhoon had damaged the roof of the one next to it.

Despite a deeply rooted national aversion to waste, discarded homes are spreading across Japan like a blight in a garden. Long-term vacancy rates have climbed significantly higher than in the United States or Europe, and some eight million dwellings are now unoccupied, according to a government count.

Nearly half of them have been forsaken completely — neither for sale nor for rent, they simply sit there, in varying states of disrepair.

These ghost homes are the most visible sign of human retreat in a country where the population peaked a half-decade ago and is forecast to fall by a third over the next 50 years. The demographic pressure has weighed on the Japanese economy, as a smaller work force struggles to support a growing proportion of the old, and has prompted intense debate over long-term proposals to boost immigration or encourage women to have more children.

For now, though, after decades in which it struggled with overcrowding, Japan is confronting the opposite problem: When a society shrinks, what should be done with the buildings it no longer needs?

Many of Japan’s vacant houses have been inherited by people who have no use for them and yet are unable to sell, because of a shortage of interested buyers. But demolishing them involves tactful questions about property rights, and about who should pay the costs. The government passed a law this year to promote demolition of the most dilapidated homes, but experts say the tide of newly emptied ones will be hard to stop.

“Tokyo could end up being surrounded by Detroits,” said Tomohiko Makino, a real estate expert who has studied the vacant-house phenomenon. Once limited mostly to remote rural communities, it is now spreading through regional cities and the suburbs of major metropolises. Even in the bustling capital, the ratio of unoccupied houses is rising.

Yokosuka is on the front lines. Within commuting distance of Tokyo and close to naval bases and automobile factories, it attracted thousands of young job-seekers in the era of roaring economic growth that followed World War II. Land was scarce and expensive, so the newcomers built small, simple homes wherever they could.

Today the boom is relentlessly reversing itself. The young workers of the postwar years are now retirees, and few people, their children included, want to take over their homes. “Their kids are in modern high-rises in central Tokyo,” Mr. Makino said. “To them, the family home is a burden, not an asset.”

Japan’s birthrate has been stuck below the level needed to maintain the population since the 1970s, as young people postpone marriage and many women put off having children as they enter the work force.

The city of Yokosuka is trying to change that, by encouraging owners of abandoned houses to tidy them up and put them on the market. It has established an online “vacant home bank” to showcase houses that commercial real estate agents will not touch. Land prices in Yokosuka are down by 70 percent since their peak at the end of the 1980s.

The houses are a steal for the rare souls who will have them. But just one has been sold through the home bank so far, a 60-year-old single-story wooden home with a patch of garden that was listed for 660,000 yen, or $5,400. Places farther up the hill can be had for the equivalent of just a few hundred dollars. Four have been rented, including one to students in a nursing-care program at a nearby college who receive a discount in return for checking up on elderly people in the area.

Other towns have tried their own creative solutions, including offering cash payments to outsiders who move in and buy unoccupied homes. A few have succeeded in attracting pockets of artists and freelance workers, who stay tethered by the Internet to their urban clients.

There is even a sprawling art project, the Echigo-Tsumari Art Field, which has taken unoccupied buildings in a cluster of towns northwest of Tokyo and turned them into contemporary artworks. Visitors can spend the night in a “Dream House” designed by the performance artist Marina Abramovic, with coffin-like beds and tinted lights designed to elicit dreams, or tour other buildings that have been intricately carved, painted or filled with sculptural installations.

“They may not be used for their original purpose anymore, but preserving them physically is important,” said the project’s founder, Fram Kitagawa. “The key is to preserve them in a positive way.”

Raw numbers suggest there is a limit to how many homes can be rescued through reuse, however. Japan’s population of 127 million is expected to drop by a million a year in the coming decades. Efforts to increase its low birthrate have been only modestly successful, and the public has shown no appetite for mass immigration. “We have too much infrastructure,” said Takashi Onishi, an urban planning professor and the president of the Science Council of Japan. The government, he believes, will eventually have to cut services like water and road and bridge maintenance in the most depopulated areas. “We can’t maintain it all. We’ll have to make those hard choices.”

The most blunt solution for abandoned houses is to tear them down before they become hazards or their neighborhoods earn an irreversible reputation for blight. But owners can be hard to track down, and are often reluctant to pay demolition costs.

The house that Ms. Haneda tends is owned by the family of Mioko Utagawa, 74, who lives a 10-minute walk down the hill. Ms. Utagawa’s husband bought it for an aunt in the 1970s after she divorced and moved here from Tokyo. Now she is in a nursing home. The family has been paying her modest property taxes but has otherwise left the house alone. The interior is a musty wreck; a small addition that once housed the bath has been ripped out, and the bathtub sits upturned on the faithfully manicured lawn.

“Even if we fixed it up nobody would want it,” Ms. Utagawa said.

The Utagawas recently agreed to have the house demolished, after the city offered to subsidize the estimated 3 million yen cost, under a municipal program introduced last year to deal with hazardous or hopelessly unsellable homes. It is scheduled for destruction this fall. Noriyuki Shima, the director of the city’s planning department, said cost considerations meant the city was targeting only the worst-affected neighborhoods.

“Giving public money to demolish a private house isn’t something we can do lightly,” he said.

The new national law, which came into effect in May, could help more municipalities cull their vacant houses. Among other changes, it removed a perverse incentive that has contributed to the problem. A tax break introduced decades ago to encourage home construction sets property tax rates on vacant lots at six times the level of those on built-up land. That means that if an owner demolishes a home, the tax rate soars — a big reason many let even crumbling houses stand.

Now the government can revoke the preferential tax treatment for houses whose absentee owners are letting them fall apart. But some critics say Japan needs a more fundamental shift in its approach to housing, which has long prioritized new construction over reuse.

Hidetaka Yoneyama, a housing specialist at the Fujitsu Research Institute, a think tank, said that until recently, homes in Japan were built to last only about 30 years, when they were then expected to be torn down and rebuilt. Building quality is improving, but the market for secondhand homes remains tiny. Developers are still building more than 800,000 new homes and condominiums a year, despite the glut of vacancies.

“In the high-growth era, everyone was happy with this arrangement,” Mr. Yoneyama said. But in 20 years, he calculated, more than one-quarter of Japanese houses could be empty. “Now the tables are turned. The population is declining and no one wants to live in these old houses.”