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The Commercial Real Estate Bubble By: Adam Levitin & Susan M. Wachter

The Commercial Real Estate Bubble By: Adam Levitin & Susan M. Wachter


The Commercial Real Estate Bubble

Adam J. Levitin

Georgetown University Law Center

Susan M. Wachter

University of Pennsylvania – The Wharton School – Real Estate Department

February 7, 2012

Georgetown Law and Economics Research Paper No. 1978264

Georgetown Public Law Research Paper No. 1978264

Abstract:     
Two parallel real estate bubbles emerged in the United States between 2004 and 2008, one in residential real estate, the other in commercial real estate. The residential real estate bubble has received a great deal of popular, scholarly, and policy attention. The commercial real estate bubble, in contrast, has largely been ignored.

This Article explores the causes of the commercial real estate bubble. It shows that the commercial real estate price bubble was accompanied by a change in the source of commercial real estate financing. Starting in 1998, securitization became an increasingly significant part of commercial real estate financing. The commercial mortgage securitization market underwent a major shift in 2004, however, as the traditional buyers of subordinated commercial real estate debt were outbid by collateralized debt obligations (CDOs). Savvy, sophisticated, experienced commercial mortgage securitization investors were thus replaced by investors who merely wanted “product” to securitize. The result was a noticeable decline in underwriting standards in commercial mortgage backed securities that contributed to the commercial real estate price bubble.

The commercial real estate bubble holds important lessons for understanding the residential real estate bubble. Unlike the residential market, there is almost no government involvement in commercial real estate. The existence of the parallel commercial real estate bubble presents a strong challenge to explanations of the residential bubble that focus on government affordable housing policy, the Community Reinvestment Act, and the role of Fannie Mae and Freddie Mac. Instead, the changes in commercial real estate financing closely mirror changes in the residential real estate financing, which shifted from regulated government-sponsored securitization to unregulated private securitization. This indicates that changes in the securitization market contributed to the problems in both the commercial and residential real estate markets.

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Housing in the New Millennium: A Home Without Equity is Just a Rental with Debt – JOSHUA ROSNER

Housing in the New Millennium: A Home Without Equity is Just a Rental with Debt – JOSHUA ROSNER


Housing in the New Millennium: A Home Without Equity is Just a Rental with Debt

Joshua Rosner
Graham Fisher & Co.

June 29, 2001

Abstract:     
This report assesses the prospects of the U.S. housing/mortgage sector over the next several years. Based on our analysis, we believe there are elements in place for the housing sector to continue to experience growth well above GDP. However, we believe there are risks that can materially distort the growth prospects of the sector. Specifically, it appears that a large portion of the housing sector’s growth in the 1990’s came from the easing of the credit underwriting process. Such easing includes:

* The drastic reduction of minimum down payment levels from 20% to 0%
* A focused effort to target the “low income” borrower
* The reduction in private mortgage insurance requirements on high loan to value mortgages
* The increasing use of software to streamline the origination process and modify/recast delinquent loans in order to keep them classified as “current”
* Changes in the appraisal process which has led to widespread overappraisal/over-valuation problems

If these trends remain in place, it is likely that the home purchase boom of the past decade will continue unabated. Despite the increasingly more difficult economic environment, it may be possible for lenders to further ease credit standards and more fully exploit less penetrated markets. Recently targeted populations that have historically been denied homeownership opportunities have offered the mortgage industry novel hurdles to overcome. Industry participants in combination with eased regulatory standards and the support of the GSEs (Government Sponsored Enterprises) have overcome many of them.

If there is an economic disruption that causes a marked rise in unemployment, the negative impact on the housing market could be quite large. These impacts come in several forms. They include a reduction in the demand for homeownership, a decline in real estate prices and increased foreclosure expenses.

These impacts would be exacerbated by the increasing debt burden of the U.S. consumer and the reduction of home equity available in the home. Although we have yet to see any materially negative consequences of the relaxation of credit standards, we believe the risk of credit relaxation and leverage can’t be ignored. Importantly, a relatively new method of loan forgiveness can temporarily alter the perception of credit health in the housing sector. In an effort to keep homeowners in the home and reduce foreclosure expenses, holders of mortgage assets are currently recasting or modifying troubled loans. Such policy initiatives may for a time distort the relevancy of delinquency and foreclosure statistics. However, a protracted housing slowdown could eventually cause modifications to become uneconomic and, thus, credit quality statistics would likely become relevant once again. The virtuous circle of increasing homeownership due to greater leverage has the potential to become a vicious cycle of lower home prices due to an accelerating rate of foreclosures.

Presented: 2002 Mid-Year Meeting American Real Estate and Urban Economics Association National Association of Home Builders Washington, DC May 28-29, 2002.

[ipaper docId=77849340 access_key=key-a7jp2xnwsvk0bxa0r7r height=600 width=600 /]

 

© 2010-15 FORECLOSURE FRAUD | by DinSFLA. All rights reserved.



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Obama administration to solicit bids to rent out foreclosed properties held by Fannie, Freddie, FHA

Obama administration to solicit bids to rent out foreclosed properties held by Fannie, Freddie, FHA


Mark my words this is yet another DISASTER waiting to happen. Taxpayers will be on the hook for this … wait and see if this plays out.

Anything to slow the process down to see what profits can be diverted to the mega rich! After all Fannie Mae Sells Homes For $200 To Investors, Driving Property Values WAY Down, so who cares anyway.

WSJ-

The Obama administration will announce plans Wednesday to seek investors’ ideas for turning thousands of foreclosed properties owned by government-backed entities into rental homes, according to administration officials.

The move is intended to put a floor under declining home prices by creating a way to deal with hundreds of thousands of potential foreclosures in coming years.

Mortgage giants Fannie Mae and Freddie Mac sold a record 100,000 homes during the second quarter. Together with the Federal Housing Administration, the entities owned about 250,000 homes at the end of June, or around half of all unsold, repossessed properties. Another 830,000 homes …

[WALL STREET JOURNAL]

© 2010-15 FORECLOSURE FRAUD | by DinSFLA. All rights reserved.



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FORECLOSURE CRISIS by The Daily show with JON STEWART

FORECLOSURE CRISIS by The Daily show with JON STEWART


Foreclosure Crisis

The banks admit to not reading the fine print on the crappy mortgages the American taxpayers now own.

The Daily Show With Jon Stewart Mon – Thurs 11p / 10c
Foreclosure Crisis
www.thedailyshow.com

DinSFLA

Daily Show Full Episodes Political Humor Rally to Restore Sanity

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© 2010-15 FORECLOSURE FRAUD | by DinSFLA. All rights reserved.



Posted in assignment of mortgage, foreclosure, foreclosure fraud, foreclosures, forgery, robo signers, STOP FORECLOSURE FRAUDComments (0)

Homebuyer tax credit: 950,000 must repay

Homebuyer tax credit: 950,000 must repay


LMFAO!! Yet Another Bomb! Thank you for the rise in Real Estate sales…How do you say “bait and switch”! Were these disclosure properly made?

Can’t wait to see the outcome of these sub-prime mortgages when most of the 950K were counting on this!


Les Christie, staff writer, On Thursday September 9, 2010, 2:40 pm EDT

Nearly half of all Americans who claimed the first-time homebuyer tax credit on their 2009 tax returns will have to repay the government.

According to a report from the Inspector General for Tax Administration, released to the public Thursday, about 950,000 of the nearly 1.8 million Americans who claimed the tax credit on their 2009 tax returns will have to return the money.

The confusion comes because homebuyers were eligible for two different credits, depending on when their homes were purchased.

Those who bought properties during 2008 were to deduct, dollar for dollar, up to 10% of the home’s purchase price or $7,500, whichever was less. The catch: The money was a no-interest loan that had to be repaid within 15 years.

Had they waited to buy until 2009, they could have gotten a much sweeter deal. Congress extended the credit and made it a refund rather than a loan.

Continue Reading…YAHOO

© 2010-15 FORECLOSURE FRAUD | by DinSFLA. All rights reserved.



Posted in Bank Owned, breach of contract, conflict of interest, FHA, foreclosure, foreclosures, mortgage, note, Real EstateComments (0)

Graphed: U.S. Foreclosures and Home Repossessions, 2005 to 2010

Graphed: U.S. Foreclosures and Home Repossessions, 2005 to 2010


by Choire posted TheAWL

It’s hard to get a sense of what’s going on in America with foreclosure filings, the number of homes being foreclosed on and the actual number of houses being taken back by banks. The newspapers are confusing! Are they “down”? Are they “up”? So we dug up the actual numbers for each year since 2005, up to the projected numbers for 2010. A “foreclosure filing” can be a number of things, including notice of default, auction or seizure—which is why the actual number of houses receiving these notices is a useful number to know.

Foreclosures

Respectfully,

DinSFLA

stopforeclosurefraud.com

Posted in foreclosure, foreclosure fraud, foreclosures, STOP FORECLOSURE FRAUDComments (0)


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