Homeowners with roofs over their heads are applauding Congress’ passage of a housing stimulus bill as the most important legislation affecting real estate since President Franklin Delano Roosevelt created the Federal Housing Administration during the Great Depression.

With home prices down 16 percent nationwide from their 2006 peak, and with foreclosures at a record high, lawmakers have been working on the housing bill for months in an effort to help homeowners and bolster the overall market.

The legislation is the centerpiece of Congress’ efforts to bail out as many as 400,000 troubled American homeowners. The law offers affordable, government-backed mortgages to homeowners at risk of foreclosure and strengthens the battered secondary mortgage market agencies Fannie Mae and Freddie Mac with a temporary rescue plan.

“Realtors are in the business of building communities, and our 1.2 million members understand that this legislation will go a long way in helping people buy and keep their homes,” says Dick Gaylord, president of the National Association of Realtors.

The Illinois Association of Realtors say the Housing and Economic Recovery Act of 2008 will help stabilize the Illinois housing market, boost buyer confidence and offer a lifeline to many facing foreclosure.

“This legislation, and particularly the tax credit, will help first-time home buyers who’ve been on the sidelines waiting for the economy to improve to take that important step up to homeownership,” says IAR President Kay Wirth. “The significant provisions of this bill should bring some stability back to the housing market in Illinois and across the country.”

First-time home buyers have until June 30, 2009 to take advantage of the $7,500 tax credit. They also can benefit from the large selection of homes available on the market and affordable mortgage interest rates, Wirth notes.

Under the legislation, the FHA will be allowed to insure up to $300 billion in new 30-year, fixed-rate mortgages for at-risk borrowers in owner-occupied homes if their lenders agree to write down loan balances to 90 percent of the home’s current appraised value.

The law will permanently increase the cap on the size of mortgages guaranteed by Fannie Mae and Freddie Mac to a maximum of $625,500 from $417,000. The FHA maximum loan limits for high-cost areas would also increase to a maximum of $625,500. Higher loan limits will make it easier for borrowers to get mortgages, because those mortgages are more likely to be traded if they are considered conforming.

The new law eliminates a program that has allowed sellers to provide down-payment assistance for FHA loans. The law would also increase the down-payment requirement for borrowers getting FHA loans to 3.5 percent from 3 percent.

The law also gives states $4 billion to buy up and rehabilitate foreclosed properties.

Ironically, some of the biggest cheers came from the rental-apartment sector of the real-estate industry because the legislation limits several homeownership incentives and balances new home-buying incentives with expanded rental housing perks.

Two apartment advocates — the National Multi-Housing Council and the National Apartment Association — applauded the banning of seller-financed down-payment programs, the boost in the minimum down payment for FHA-insured loans, and limiting the tax credit for first-time home buyers to one year. The credit is only available to households below certain income levels, and it must be repaid.

The law also expands and improves the Low-Income Housing Tax Credit program and temporarily increases the tax-exempt private-activity bond cap for multi-family and mortgage-revenue bonds by $11 billion for 2008.

Real-estate columnist and media consultant Don DeBat has written about Chicago-area housing and mortgage markets since 1968. He is chief executive officer of DeBat Media.

With “Operation Malicious Mortgage” in full swing, predatory lenders are now focused in the crosshairs of the Department of Justice and the Federal Bureau of Investigation, government sources say.

The national investigation of mortgage-fraud schemes – the culmination of substantial coordinated efforts in recent months to identify, arrest and prosecute mortgage fraud violators throughout the United States – so far has led to charges being filed against more than 400 defendants.

The FBI estimates that about $1 billion in losses were inflicted by the mortgage fraud schemes employed in these cases.

Locally, Illinois Attorney General Lisa Madigan is suing mortgage lender Countrywide Financial for fraud. The civil lawsuit, filed in Cook County Circuit Court, alleges that Countrywide violated the state’s consumer protection statues by making unaffordable loans and failing to give adequate disclosures to borrowers.

So those greedy predatory lenders – the jackals who caused much of the sub-prime mortgage crisis in Cook County and across the nation – caused thousands of foreclosures and helped create the current real estate recession. Many may soon pay for their actions.

With the real-estate market left in ashes, experts say it may take years for some city neighborhoods and suburbs to recover. But what protection do borrowers have against a future wave of mortgage fraud?

Hopefully, a new Illinois law may help. Under the Anti-Predatory Lending Database pilot program, borrowers applying for a mortgage on one- to four-unit, owner-occupied, residential property in Cook County will be assisted in understanding the terms and conditions of their loan.

“Every mortgage recorded on or after July 1, 2008, in Cook County must have either a Certificate of Mortgage Compliance or a Certificate of Mortgage Exemption attached to it,” said attorney Arden K. Miner, senior manager of underwriting and escrow for Attorney’s Title Guaranty Fund. “The mortgage will not be recordable without the certificate.”

The purpose of the program is to reduce predatory lending practices by assisting the borrower in understanding the terms and conditions of the loan for which he or she has applied. The law, which does not apply to loans on property outside of Cook County, does not prohibit any type of loan, such as adjustable-rate mortgages, or ARMs.

Non-owner occupied property, commercial real estate, residential property containing more than four units and government property is exempt from the law.

As part of the program, mandatory housing counseling by a Department of Housing and Urban Development-certified agency is required in a purchase transaction involving first-time home buyers, or if the borrower is refinancing a primary residence.

Borrower counseling also is required if the mortgage permits interest-only payments, if the loan may result in negative amortization, or the total points and fees payable by the borrower at or before the closing exceed 5 percent of the loan amount.

Counseling also is required if the loan is an ARM which allows adjustments of the interest rate in the first three years, or if the loan includes a prepayment penalty. If counseling is required, the borrower will be notified and given a list of all participating counseling agencies.

Mortgage closers and title companies will generate the certificate of compliance or exemption at closing and be required to enter the information into an online database maintained by the Department of Financial and Professional Regulation.

At the closing, the $200 fee for a Certificate of Mortgage Compliance or the $100 fee for a Certificate of Mortgage Exemption will be split equally between the title company and ether the independent closer or the member closing firm and added to title insurance charges.

Real estate columnist and media consultant Don DeBat has written about Chicago-area housing and mortgage markets since 1968. He is chief executive officer of DeBat Media.

The forecast for summer house-hunting in the Chicago area is pretty clear: The market has some of the best selection of well-priced, new and resale homes and condo choices in years.

The only clouds on the horizon are the threat of higher mortgage rates for luxury home buyers and those who wait to buy, and tougher loan qualification standards for everyone, experts say.

After about eight months of relatively stable, 6-percent home-loan rates, benchmark average 30-year fixed mortgages jumped to 6.32 percent in mid-June from 6.09 percent a week earlier, according to Freddie Mac’s Primary Mortgage Market Survey.

Last year at this time, 30-year fixed mortgages averaged 6.74 percent. The last time the benchmark-loan rate was higher was the week ending Oct. 25, 2007, when it averaged 6.33 percent.

However, buyers of luxury homes in the Chicago area should expect to pay more. In early June, most lenders were charging 7.5 percent to 7.75 percent on 30-year fixed jumbo mortgages, those larger than $417,000.

Experts say Freddie Mac and Fannie Mae’s reluctance to boost the jumbo-loan limit on mortgages they buy in Chicago to the $729,750 now allowed in other high-cost areas such as sections of California, Arizona, Colorado, Florida and the East Coast likely will have a slowing effect on the market for luxury homes.

Some luxury home buyers are side-stepping the low jumbo mortgage limit here by opting for a higher down payment and taking out two loans, one for $417,000 and a second for a line of floating credit for the balance.

“Mortgage rates jumped after a number of Federal Reserve Board officials expressed concern over a threat of inflation,” said Frank Nothaft, Freddie Mac vice president and chief economist. Some analysts believe the Fed will raise rates more aggressively over the year than previously thought, he said.

Interest charges on 15-year fixed mortgages also jumped to an average of 5.93 percent from 5.65 percent a week earlier. However, year ago at this time, the 15-year loans averaged 6.43 percent. In late October 2007 they declined to an average of 5.99 percent.

Meanwhile, one-year Treasury-indexed ARMs inched up to an average of 5.09 percent in mid-June from 5.06 percent a week earlier. At this time last year, the one-year ARM averaged 5.75 percent.

Not only are mortgage rates higher, but in the wake of the sub-prime loan shakeup, about 60 percent of domestic loan officers toughened standards on prime mortgages, according to a new Fed survey.

Analysts also are worried about a glut of unsold homes nationwide. However, serious house hunters who have a good credit score should look at the summer market as cherry-picking time.

Another positive sign is passage of housing bills by Congress that gives the Federal Housing Administration $300 billion in new lending authority and relaxes the standards to provide government-insured, fixed-rate mortgages to debit-ridden homeowners.

The legislation also gives states $10 billion in tax-free municipal bond authority for loans to first-time home buyers, construction of affordable rental housing and refinancing mortgages.

Real-estate columnist and media consultant Don DeBat has written about Chicago area housing and mortgage markets since 1968. He is chief executive officer of DeBat Media.

Foreign investment and financing dollars from countries such as Ireland, Germany, China and Kuwait may be the muscle that pulls Chicago’s new-construction condominium market out of its slump, experts say.

“Several downtown condominium developments currently in the pre-construction marketing stage are finding a smaller pool of lenders interested in financing their projects,” says appraiser Gail Lissner, vice president of Appraisal Research Counselors.

“Equity requirements along with pre-sale requirements are reported increasing, as the mood in the lending community and its appetite for risk has undergone adjustments this year,” she says.

However, several other Chicago condo projects are moving forward thanks to foreign backing or money from overseas.

Backed by Irish developers, Lexington Park Condominiums, a 35-story new-construction high-rise development on the northeast corner of Michigan Avenue and Cermak Road in the South Loop, appears to be on a sales and construction roll.

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Despite the gloomy national survey reports on falling property values that show lower home prices in 77 markets, prices of residences rose in 73 markets countrywide. And Chicago was one of the good real-estate news stories of 2007.

Yes, fewer homes and condos were sold here last year than in 2007, but prices – especially in high demand North Side neighborhoods – rose, in some cases substantially, according to David Hanna, president-elect of the Chicago Association of Realtors.

Overall, the median price of condominiums in the city rose a solid 5.8 percent in 2007, although the number of units sold fell 10.4 percent. Meanwhile, the median price of single-family homes eked out a thin one-half of 1 percentage point rise, while the number of units sold fell 24 percent.

So what neighborhoods were the big winners in 2007? Surprisingly, the Loop, a relatively expensive neighborhood, led the condo-price appreciation downtown with an impressive 42 percent median gain to $397,250 for the 1,046 units sold.

In 2008, two successful Loop projects – 235 Van Buren, a new-construction project by CMK Development, and 200 North Dearborn, a conversion by American Invsco – should continue to lead the downtown boom, experts say. The two projects, one in the Financial District, the other near the Theatre District, accounted for nearly 550 sales last year.

Other hot city neighborhoods that posted rising condo prices last year include: quiet Montclare on the Far Northwest Side with a gain of 29.8 percent to a median price of $235,000 on 41 units sold; emerging Kenwood on the Mid-South Side with an increase of 24.40 percent to $279,900 on 198 units sold, and leafy Forest Glen with a 23.7 percent gain to $365,000 on 13 units sold.

High-priced North Side neighborhoods posted solid gains in 2007, according to CAR, and the market on the emerging Near West Side also was strong. Highlights include:

• Gold Coast and Near North Side. Condominium values appreciated a solid 9.53 percent, posting a median price of $392,000 for 3,131 units sold, while median single-family home values rose 2.57 percent to $1.995 million on 36 sales.
• Lincoln Park. Median condo prices rose 7.6 percent to $413,400 on 1,447 units sold, while home prices rose 4.1 percent to $1.5 million on 183 sales.
• Lakeview. Condo values increased 5.5 percent to a median price of $333,400 on 2,331 units sold, while home prices rose 11.11 percent to $1.15 million on 129 sales.
• Near West Side. Median condo prices rose 7.1 percent to $326,582 on 1,575 units sold, while home prices rose a hefty 32.4 percent to $450,000 on 47 sales.
• North Center. Condo values inched ahead 1.7 percent to a median price of $380,000 on 495 units sold, while home prices rose 4.86 percent to $849,500 on 192 sales. Belle Plaine Commons, an affordable 92-unit condo development targeted to buyers age 55 and older, posted strong sales in 2007, according to Rena Appel of North Center Associates, the developer.
• Lincoln Square. Median condo prices rose 9 percent to $280,450 on 574 units sold, while home prices declined 3.4 percent to $625,000 on 103 sales. “The restaurant, retail and nightlife attractions of this neighborhood have sparked demand for condos along Lincoln Avenue,” said developer Richard Lettvin, who is marketing the Lincoln Crossing development.
• Albany Park. Condo values rose 5.7 percent to a median price of $222,500 on 247 units sold, while home prices skyrocketed 25.9 percent to $480,000 on 91 sales. “A strong condo-conversion market exists in the neighborhood for renovated units in walk-up buildings,” said Charles Huzenis of Jameson Realty Group.
• Logan Square. Median condo prices slipped 0.8 of 1 percentage point to $305,000 on 653 units sold, however home prices posted a solid 12.3 percent gain to $677,500 on 162 sales.

Real estate columnist and media consultant Don DeBat has written about Chicago-area housing and mortgage markets since 1968. He is chief executive officer of DeBat Media.

By Don DeBat

With Chicago homeowners reeling from the largest property tax increase in the city’s history, it may be time to consider an overhaul of Cook County’s antiquated property tax assessment system, real estate experts say.

Even Mayor Richard M. Daley admits property tax reform is needed, and recently he urged the creation of a panel of experts to overhaul the assessment system that penalizes long-term homeowners when a new neighbor buys a home for an inflated price.

With home prices declining in some city neighborhoods because of the real estate recession and high foreclosure rates, Daley also demanded the Cook County Assessor James Houlihan begin an “immediate correction” of property assessments in areas hardest hit by the 2006 reassessment.

How should the current triennial property tax assessment system be changed? According to the Tax Reform Action Coalition (TRAC), a consumer tax watchdog group, one solution could be acquisition-based assessing – a method of assessing property taxes tied directly to the actual purchase price of a property.

Acquisition-based assessing puts a limit on assessments increases until a property is sold. While you own your property, your assessment cannot go up more than 2 percent a year. So homeowners will never be slapped with assessment increases of 30 percent to 120 percent while they own the property.

TRAC predicts that if an acquisition-based assessing system is adopted, an established homeowner’s assessment will stabilize because it is not tied to the price a neighbor receives when he or she sells their property.

The assessment increases are limited to 2 percent per year. Acquisition-based assessing applies to all types of properties – commercial, industrial, residential, owner occupied or not.

When a property is sold under an acquisition-based assessment, it will be reassessed based on the actual sale price: a clear and understandable number.

In the following year the new property owner’s assessment increase will be limited to 2 percent just like everyone else. There will be some adjustments for commercial and industrial properties like the Sears Tower because they don’t come up for sale very often.

TRAC outlined the following benefits of acquisition-based assessing:

• Your real estate taxes will be predictable, allowing for long-term planning for you and your family.
• You won’t be taxed on so-called increases in your property value – or unrealized capital gains – that are based on your neighbors’ sale price.
• Communities become more stable. Long-term owners will be protected. Even if new comers begin to drive up prices, current residents will not be forced from their homes by huge increases in their property taxes that are beyond their control.
• New buyers will know what their future taxes will be before they buy the property. Fairness is maintained between neighbors with similar properties because the new purchasers will have chosen to buy with full knowledge and acceptance of the tax differences.

How will this new assessment plan affect the amount of money going to city and county government from property taxes? According to TRAC, it will have no effect whatsoever.

Chicago and the Cook County Board are both “home rule” bodies, meaning that they have the power today to raise your property tax rates by a simple majority vote in the City Council or County Board.

TRAC says politically raising property tax rates has been the “third rail” of local political reality, and the two bodies have chosen to raise user fees – parking ticket fees, amusement, sales tax, hotel tax and lease taxes.

These taxing bodies have also benefited from huge increases in assessments every triennial, which gives them a windfall of new cash until the next reassessment.
For more information on the Tax Reform Action Coalition, call 312-458-9202, or visit www.trac-il.org.

Real estate columnist and media consultant Don DeBat has written about Chicago-area housing and mortgage markets since 1968. He is chief executive officer of DeBat Media, Inc.

The home front

Looking forward into 2008, a group of veteran Chicago developers, brokers, lenders and investors see a gradual recovery coming for some sectors of the Windy City’s real estate market.

The outlook is good for 30-year mortgage rates at 6-percent or less, and the retail and apartment rentals should post strong numbers, according to a forecast by a panel of experts at the recent Lincoln Park Builders of Chicago Real Estate Forum.

However, the experts say it may take until 2009 before the over-built new-construction condo market in downtown Chicago rebounds. More than 6,000 unsold inventory units were on the market downtown in the third quarter of 2007, according to the latest report from Appraisal Research Counselors.

Affordable mortgage money should help reduce this inventory, experts say. In mid-January, the benchmark 30-year fixed mortgage rate average fell to 5.87 percent from 6.07 percent. A year ago, the 30-year average was 6.21 percent.

Although interest rates are extremely affordable, the fallout from the subprime mortgage crisis has caused the nation’s mortgage industry to go through a “state of siege” and that likely will last two more years, said mortgage broker David Hochberg of Townstone Financial.

“Over the last five years, the residential lending market was like the Wild West,” Hochberg said. “Now, 6-percent home-loan rates are available, but many lenders are not approving loans. No-doc loans are out, and lenders are saying that mortgage applicants with a credit score in the low-500s seeking a zero-down payment loan will be rejected.”

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City Homes

The American dream of buying a single-family home once was all about enjoying family life – raising kids, baking apple pie or sitting by a crackling fireplace.

When did the goal of homeownership shift from putting a roof over the family’s head to the greedy practice of “flipping,” moving every few years to cash in on rapidly appreciating real estate values? In 2004, Freddie Mac reported that home resale prices had appreciated 29.7 percent during the previous five years. In the frenzy of that growth, some American homeowners became feverish flippers.

To keep up with the Joneses, buyers bought and sold their way to larger, more impressive estates. Enter the multi-level McMansion, with its five bedrooms, 5.5 baths, and three-car garage. (more…)

City Homes

It is likely that 2007 will go down in history as the year of gloom and doom in real estate, with headlines dominated by reports of falling property values, the sub-prime loan debacle, skyrocketing foreclosures and waning consumer confidence.

A page-one story in a recent Sunday edition of The New York Times forecasted that the median price of American homes is expected to fall 1 percent to 2 percent this year “for the first time since federal housing agencies began keeping statistics in 1950.” That is gloomy news.

However, good news followed, like the Calvary charge in a Hollywood western. A few days later, President Bush proposed changes in the Federal Housing Administration’s mortgage insurance program that would allow thousands of sub-prime borrowers to refinance with FHA loans and avoid foreclosure. (more…)

City Homes

Launching a development in today’s slower real estate market requires some creativity. To kick off sales at 200 North Dearborn Private Residences, condo converter Nicholas S. Gouletas held a one-night-only sales event with the feel of a Greek wedding – at which he sold $25 million worth of units in one hour.

"We are going to make history today," said Gouletas, CEO and president of American Invsco. Then, he sat back and watched as 80 condominiums sold – including 55 units during the first minute of action – at his "One Night, Best Price" event for the 47-story high-rise conversion in Chicago’s Loop. (more…)