What happens if your mortgage lender goes under?

This article is relavent to the Phoenix real estate market and the Scottsdale real estate market. As lenders themselves file bankruptcy, what is the effect on homeowners whose loans they hold?

NEW YORK - Another well-known mortgage lender is in serious trouble. This time American Home Mortgage Investment Corp. may be forced into insolvency after creditors pulled the plug amid a worsening housing slump.

But what does it mean for borrowers when a lender goes bankrupt?

Some questions and answers about whether and how troubles at a lender could affect homeowners.

Question: What happens to my mortgage if my lender goes bankrupt?

Answer: When a lender goes under, it does not mean its assets - in this case home loans - are worthless. The company, under court supervision, would sell the assets and use the proceeds to repay its creditors.

That means your loan would wind up with another financial institution."

Generally, the consumer is not going to be affected," said Ray Hooper of the Consumer Credit Counseling Service of Greater Dallas.

But it is unlikely that your originator still owns your mortgage anyhow.

Q: Wait, so who does own my mortgage?

A: That is nearly impossible to say - and it doesn't really matter to you as a homeowner.

While it is possible the bank you dealt with still has your mortgage on its books, most lenders simply originate loans. They then package them together and sell them to a bank in a bundle.

In many cases, that bank repackages a group of bundles and sells them to the securities markets as mortgage-backed bonds or other complex financial instruments. So your $250,000 loan could be just a small fraction of a $500 million bond, shares in which are held by hundreds or thousands of investors.

In the end, though, "whoever holds the loan is still going to have to honor the terms of the contract," said Lauren Saunders, a lawyer with the National Consumer Law Center.

Q: Is there a chance that I would have to pay back the loan early?

A: No, your mortgage is a binding contract. If it stipulates repayment over 30 years, then you still have 30 years from the start date.

"No one is going to lose their home because the lender goes bankrupt," said Hooper.

Q: If the company goes bankrupt, can I stop repaying?

A: No. As the counterparty to the same contract, you agreed to repay the loan over a fixed period. Since someone still owns that loan, you must honor that contract, Saunders said.

Q: What if I pay a different company than the one I borrowed with?

A: If the company that sends you statements and collects your monthly payments is different from the owner, you are dealing with what is known as a loan servicer. If you have a servicer and the originator goes under, you may not even notice, Saunders said.

The servicer can change for any number of reasons, none of which change the terms of the contract.

Jeremy Herron
Associated Press 2007

Study Shows Record Number of Homes For Sale in Phoenix Area

The Phoenix housing market continues to show weakness, according to a new survey that shows dips in construction starts and prices, and a record number of homes for sale.

Metrostudy -- a Houston-based real estate research firm -- said Phoenix regional housing starts for the 12 months ended Sept. 30 totaled 34,300 units, down 36 percent compared with the 12 months ended Sept. 30, 2006.

Metrostudy said West Valley housing construction starts are down 45 percent from last year. Most of the major new housing developments in metro Phoenix are in the West Valley or in distant suburbs to the city's southeast.

The research group said Arizona Multiple Listing Service figures show 54,200 housing units for sale in the Phoenix market -- a record high.

The study showed 9,500 single-family home sales in the Valley during the third quarter, off 23 percent from the 12,400 units sold during the third quarter of 2006.

Metrostudy, which tracks real estate markets across the U.S., said the average home resale price was $315,289 in September, down 10 percent from the previous month.

The numbers mirror other recent figures showing foreclosures rising in Arizona as housing market conditions remain sluggish.


The Business Journal of Phoenix - by Mike Sunnucks Phoenix Business Journal

BofA exiting wholesale mortgage lending

Another indicator of big lenders restructuring to focus on core services. B of A continues to offer some GREAT, AFFORDABLE loan programs for Phoenix real estate and Scottsdale real estate. -JL

Bank boosts loan production through retail channel
Friday, October 26, 2007
Inman News

Bank of America Corp. will lay off 700 workers as part of a plan to exit consumer wholesale mortgage lending by the end of the year and make more loans through the retail channel.

The layoffs are part of 3,000 job cuts announced earlier this week, mostly in the global corporate and investment banking division. The division was blamed for a 32 percent decline in net income, to $3.7 billion, when Bank of America released its third-quarter results.

The separate decision to exit the wholesale mortgage lending business will affect 700 employees in locations including Brea and Rancho Cordova, Calif., Dallas, and Richmond, Va. Affected employees will have the chance to apply for open positions at the company.

Bank of America said it is expanding its retail lending, including the banking center, mortgage loan officer, Loanline and e-commerce channels. Employment in the bank's consumer real estate division totals about 13,000.

The Charlotte, N.C.-based bank said first mortgage production was up 27 percent in the third quarter compared to a year ago, driven by a 60 percent increase in originations through banking centers and a 26 percent increase in originations by mortgage loan officers.

Bank of America's new "No Fee Mortgage PLUS" loan has produced more than $50 billion in application volume in the six months it's been available on a nationwide basis, the company said in a statement.

According to the outplacement consulting firm Challenger, Gray & Christmas Inc., mortgage and subprime lenders announced nearly 70,000 layoffs in the first three quarters of 2007 (see Inman News story).

Urban Land Institute ranks Phoenix No. 9 in U.S. for real estate opportunities

From American City Business Journals, 10/25/07

The Urban Land Institute released its annual trends forecast this week, with Phoenix rated No. 9 among major U.S. metropolitan areas for real estate investment and development opportunities.

The report, "Emerging Trends in Real Estate 2008," is a mixed bag.

On one hand, the report states: "People and businesses gravitate from lofty California cost structures to the more affordable desert oasis. The area captures back-office operations from L.A. and Orange County businesses and overflow from bursting-out Inland Empire distribution centers."

But then it suggests problems may be brewing: "The city is still one stop away from global pathways, and poorly planned sprawl development spells future trouble. The area needs revamped infrastructure to keep pace with all the growth, including more roads and improved sewage treatment and water systems."

It also questions whether the completion of light rail lines next year will be a boon to the urban environment as it has been in Denver, given that Phoenix "has no defined commercial core."

Phoenix is experiencing a "softening" of the office and apartment markets as a result of the housing glut and a slackening in migration.

The report gives its top ratings to Seattle, New York and Washington. Those metro areas are followed by Los Angeles, San Francisco, Boston, San Diego and Denver. Rounding out the list after Phoenix are Houston, Miami, Chicago, Atlanta, Dallas/Fort Worth and Philadelphia.

The report was released in advance of this week's ULI fall meeting, to be held this year in Las Vegas. The three-day program is expected to draw about 7,000 attendees from around the world.

Arizona, in particular, will be trying to elevate its position in the eyes of national and international investors and developers. The Arizona chapter of ULI has reserved one of the largest spaces in the exhibition area, naming it the Arizona Pavilion. About 25 public and private organizations have ponied up an average of $6,000 each for a presence in the 3,000-square-foot display area, which will tout Arizona as a sound choice for real estate investment.

SunCor Development is one of the participants in the pavilion. President and CEO Steve Betts, also a member of ULI Arizona's board, said his company hopes to benefit from the added exposure.

"We're optimistic that we'll be interacting with leaders and decisionmakers who will be interested in ... relocating their businesses in SunCor office, commercial or retail space," he said.

Wellington "Duke" Reiter, dean of Arizona State University's College of Design, another pavilion participant, hopes for even bigger returns.

"This is a great opportunity for the state to present itself on a national stage. We'll be putting on a really fantastic show," Reiter said.

The ULI meeting is expected to present an impressive show. Queen Noor of Jordan officially will begin the program with a speech Wednesday evening. Kofi Annan, former secretary-general of the United Nations, will wrap things up with a lunch speech Friday afternoon.

In between, participants can take advantage of dozens of presentations, which run the gamut from "Sustainable Development in the Desert" to "Retooling Our Aging Active Adult Communities."

The Correction Continues

The Arizona Regional Multiple Listing Service (ARMLS) released the official stats for September 2007:

Home sales (units)
September 2007: 3,435
September 2001: 4,801

Average sales price
September 2007: $305,800
September 2001: $170,700

Median home sales price
September 2007: $234,900
September 2001: $128,000

The Phoenix real estate market continues to correct. Good for buyers and 'move-up' sellers. Expect the market to soften more as the traditionally-slow holiday season nears.

First Magnus Files Bankruptcy Plan

I find it interesting that the failed lender actually tried to borrow $15M to fund it's wind-down plan! Fortunately, the court denied the request.

Associated Press, 10/16/07

Tucson's First Magnus files bankruptcy plan

Failed mortgage lender First Magnus Financial Corp. expects to repay unsecured creditors, owed a total of $93 million, between $16 million and $32 million under a newly filed Chapter 11 liquidation plan.

First Magnus, which submitted its plan to the U.S. Bankruptcy Court in Tucson, Ariz., on Monday, said it could have up to $32 million left after repaying secured creditors to provide unsecured creditors with a recovery of about 17 percent to 34 percent.

The mortgage lender said its pool of unsecured claims includes about $13.5 million in accrued payroll and related costs, $24.4 million of accounts and notes payable, $35 million owed to First Magnus Capital and $20 million of subordinated unsecured debt owed to insiders.

First Magnus, which sought Chapter 11 protection in August amid a meltdown in the subprime-mortgage industry, said it plans to continue selling off its remaining assets. The company recently won bankruptcy court approval to sell a pool of construction loans to Summit Investment Management LLC for $5.7 million and said it has reached a deal to sell another pool of loans to Steel Mountain Capital Management LLC for $61 million. The company has also found a buyer - Rynoke LLC - willing to pay $1.6 million for a commercial lot in Tucson.

First Magnus shut down operations and laid off nearly 6,000 workers before filing for bankruptcy protection on Aug. 21. The privately held Tucson-based company, which listed liabilities of $812.5 million and assets of $942.1 million in its bankruptcy petition, was forced to quickly sell off its assets after the bankruptcy court denied its request to borrow $15 million to fund its bankruptcy wind-down.

The slump in the U.S. housing market and a growing credit crunch have forced a rising number of mortgage lenders into bankruptcy proceedings this year. First Magnus has blamed "the collapse of the secondary mortgage market" for its decision to shut down and said it "simply could not withstand the liquidity crisis."

"Green" Renovations on the Rise

Older buildings renovating to 'green' initiative
Andrew Johnson, The Arizona Republic

Going "green" isn't easy. That's especially true if you're a property owner or manager trying to retrofit an existing building. Not only can the process take lots of time and money, but it can also be difficult to convince tenants to buy into the idea.

Just ask Diana Rivers, a real estate manager with commercial brokerage firm CB Richard Ellis. She oversees Phoenix Plaza, a Midtown office complex at 2929 N. Central Ave.

Rivers and her team have been making internal and external changes to the property - which includes two 20-story towers, a four-story retail center and an 11-story parking garage - since 2004.

Among other things, the company has upgraded light fixtures and bulbs, installed lighting sensors to remodeled space and added "smart" sensors to the irrigation system on the property.

During the first half of the year, the building's energy usage dropped by about 1.1 million kilowatt hours, or by about $84,000, as a result of the changes. Rivers said the company expects to double that amount by the end of the year.

And while most tenants have responded positively to the initiatives, Rivers said, a few office dwellers have opposed some of them because they say they create a nuisance to their businesses.The situation highlights one of the main obstacles that Rivers and other managers and owners encounter when making properties more eco-friendly.

They say "going green" makes sense because of the energy savings and the long-term economic benefits. And with environmental issues gracing news reports, being eco-friendly also helps from a business marketing perspective. But despite the benefits, getting everyone on board can be a tough sell.

LEED certification

In recent years, there has been much attention given to the steps developers can take to lessen a new building's impact on the environment. But the movement also has inspired owners and manager of existing properties to update older buildings and make them more efficient.

Property owners who want to retrofit older complexes, often use standards set by the U.S. Green Building Council, which oversees the Leadership in Energy and Environmental Design, or LEED, program.

To get LEED certification, buildings must meet standards for on-site chemical use, air quality, energy and water efficiency, recycling and others.

Rivers said she wants the Phoenix Plaza to obtain LEED certification. The property is already one of only 49 in Arizona to have obtained an Energy Star, a distinction given by the U.S. Environmental Protection Agency and U.S. Department of Energy to buildings that take meets criteria for reducing energy consumption.

But getting the property LEED certified isn't necessarily easy. It's both expensive and time consuming.

In fact, an online database maintained by the U.S. Green Building Council shows there are just 24 buildings in Arizona that are LEED-certified.

Still, Rivers and others like the idea of making the properties more efficient, as well as doing something good for the environment.

Development firm Lincoln Property Co. also plans to go through the process to obtain LEED certification for Paradise Village Office Park.

The firm bought the 268,000-square-foot building through a joint venture with Sterling American Property Inc. in May, and has since taken steps to make it more energy efficient.

"It hasn't quite (caught) up with the way that buildings get built today," said Dennis Boles, development manager in Lincoln Property Co.'s Phoenix office. "Things are getting near the end of their life, so we're coming in and taking a look at how do we improve the building and make it a better place . . . aesthetically and environmentally and efficiency-wise."

That includes replacing toilet fixtures, which Boles estimates will reduce the building's annual water consumption from about 3.8 million gallons to 1.5 million gallons, "which is enough to cover an entire football field," he said.

Most of the building's approximately 80 tenants have been open to the changes, and that's primarily because it requires not out-of-pocket expense.

"It's not an additional cost to them," Boles said, noting that the changes are part of a $1 million renovation project underway at the 20-year-old building.

Tenant impact

While the work associated with making a building more energy efficient may cause consternation for some tenants, others say working in an eco-friendly environment fits with their business mission.

That's true for Phoenix-based Sprouts Farmers Market, which houses its corporate headquarters at Paradise Village Office Park.

"Being a natural foods retailer, we're always striving for ways that we can complement a lifestyle that goes along with healthy living," said Patti Milligan, director of nutrition and public relations for the company.

In addition, customers "kind of expect it, to be honest," she said.

Joel Nomkin, managing partner of Perkins Coie Brown & Bain P.A. law firm, agrees.

"In this day and age, it is more than a responsible decision to make every effort to protect the environment. It is a necessity," said Nomkin, whose firm is one of the largest tenants in Phoenix Plaza.

Still, some tenants balk at the eco-friendly improvements because they are either time consuming or because they don't reap direct cost savings from them in their lease rates.

For example, electricity and water expenses are often built into a tenant's lease contract, so they do not necessarily save money even if building management is able to do so by making the property more energy efficient.

That can make it difficult, Rivers said, to get some tenants to participate in the recycling initiatives her team has introduced.

She did point out, however, that the changes do have an impact, because if energy costs increase, tenants have to pay overage charges to accommodate the difference between the current rate and what the rate was at the time they signed their lease.

A reduction in energy consumption can help minimize those charges, which is something Rivers tries to point out to tenants.

Rivers also tries to appeal to tenants' social awareness - as she did when she provided everyone with recycling bins.

"It is an effort to recycle on this property for our tenants," Rivers said. "When I wanted to roll this out we had to position it in such a way that we wanted folks to participate because it was their social responsibility."