Multifamily apartment mortgage fraud investigation underway
According to a report in Housing Wire, referencing the Wall Street Journal, the FBI, DOJ, and Inspector General of FHFA are investigating fraudulent activities of developers in New York and Pennsylvania.
The federal agencies handed down indictments after gathering evidence that developers “Frank Giacobbe, Patrick Ogiony, Kevin Morgan, and Todd Morgan conspired to defraud Fannie Mae, Freddie Mac, Arbor Commercial Mortgage, and Berkadia Commercial Mortgage by faking much of the information that the lenders and government-sponsored enterprises count on when issuing or buying the mortgages.”
Here’s how the scam allegedly worked: developers staged apartments to look as though they were occupied by tenants, falsified reports of rent collected, and generally made it appear as though the apartment communities had very high profit potential. That made the projects attractive to lenders, who then allowed the developers to borrow a great deal of money. The questionable loans were then sold to Fannie and Freddie, and packaged as securities.
It’s bascially the same dynamic that the U.S. saw leading up to the residential real estate crash in 2007-2008, which led to a foreclosure crisis affecting millions of homeowners.
Note: In the last recession, many of the properties affected by foreclosure were single family homes governed by HOAs, as well as condominiums, especially apartment-to-condo conversions. When apartment projects fail in the next recession, will institutional investors attempt to revive them as condominiums? Or will unfinished projects be resurrected with the help of taxpayer-funded grants, as affordable housing?
Source:
Inside the scandal that could explode multifamily real estate
WSJ reports on massive multifamily mortgage fraud investigation (Housing Wire, August 17, 2018) Ben Lane
Inside the scandal that could explode multifamily real estate
Housing prices have recovered to 2006 levels in many markets, but experts expect a slow down
The rise in home prices over the past few years, according to a real estate expert from City Lab, is a function of limited supply of new construction and higher demand from first-time and returning to the market home buyers.
At the same time, Brookings Institute research paper concludes that housing remains affordable for most middle-income Americans, with the exception of a few large cities in the Western and Northeastern regions of the U.S.
Speculation in residential market is relatively low, in comparison to the multifamily commercial sector. (See above)
In some hard-hit markets such as Las Vegas, buyers still have not absorbed an oversupply of homes built prior to the last recession.
Not specifically mentioned in either referenced article: developers and large-scale investors across the U.S. are still holding onto millions of undeveloped lots in Planned Unit Developments and Master Planned Communities. And yet, some local governments continue to approve brand new developments with hundreds or thousands of lots, even though it will take another decade or more to finish developments that broke ground nearly two decades ago.
If home buyer demand for new housing drops, what will become of those empty lots and spec homes? And when, if ever, will developers cede control of their massive communities to homeowners?
Sources:
This Housing Price Spike Is Different (City Lab, August 7, 2018) Kriston Capps
https://www.citylab.com/equity/2018/08/home-prices-index/566768/
Housing in the US is too expensive, too cheap, and just right. It depends on where you live. (Brookings Institute, June 21, 2018) Cecile Murray and Jenny Schuetz
Housing in the US is too expensive, too cheap, and just right. It depends on where you live.
Institutional investors continue to buy single family homes, to increase their rental property portfolios
Several factors are leading to an increased demand for rental of detached single family homes. With very little money saved for a down payment, and too much debt to qualify for a mortgage, many families with children cannot afford to buy a home. But they still want more living space, a yard for children and pets, and access to better schools.
And although more Americans are employed this year, many workers want the flexibility to move to a new city or state for a better job opportunity. They’re not prepared to put down roots by committing to a 30-year mortgage.
That’s why private capital management companies such as Cerberus are betting on the single family rental market, and planning to acquire up to 40,000 additional homes.
How will this affect homeowners’ associations in markets with high demand for rental homes? Will HOAs increase rental restrictions to prevent investors from acquiring homes — and political influence — in their communities? Or will struggling HOAs with many empty homes welcome this kind of investment?
Source:
Cerberus plots $500 million expansion of FirstKey Homes single-family rental portfolio | Private capital management company ravenous for single-family rental homes (Housing Wire, August 22, 2018) Jeremiah Jensen
Cerberus plots $500 million expansion of FirstKey Homes single-family rental portfolio
West Virginia family farms converting to ag-businesses operating on common land
It’s a well-known fact that family farmers are being taxed out of existence. Managing hundreds of acres of farmland is hard work, without much reward.
In the 1980s and 1990s, private farmers sold much of their land to developers, resulting in “sprawl.” Much of it turned into association-governed suburban planned developments.
But a few families with financial means to do so have decided the best way to save a family farm is to buy it, then subdivide it and create a rural, association-governed agricultural common interest community they have named Broomgrass.
The owners operate private mini-farms on the common land, hoping to carve out and preserve their own piece of rural utopia. And in case you’re wondering — yes, Broomgrass has deed restrictions and architectural standards for each privately-owned lot and home.
Will this experiment fare any better than the suburban association-governed community?
Source:
Is this West Virginia farming community the model for a utopian way of life?
If one family can’t maintain a farm of 300 acres then maybe multiple families can… and so communal farming is born again in Berkeley, where 11 families living on common land are trialling a new way to preserve rural America (The Independent-UK, August 10, 2018) Audrey Hoffer
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