Fed Chairman Ben Bernanke

Thanks to “extraordinary market conditions” the Federal Reserve officially approved banks’ strategy to rent out foreclosed homes yesterday, the Wall Street Journal reported. Outside those conditions, lenders have to demonstrate a legitimate effort to sell repossessed properties. But recognizing the state of the rental market and the sales market, the Fed and banks have been strategizing for months on how to rent out the bevy of foreclosures backlogging the market. [more]

Though the federal government has repeatedly attempted to work its way out of the housing market, Federal Reserve Chairman Ben Bernanke yesterday called for more public support for the market, which he said was a critical component of a broader sustained economic recovery. Outlined in a 26-page paper the Fed sent to Congress, Bloomberg News reported that support could include cutting mortgage obligations for U.S. homeowners, making taxpayer-supported Freddie Mac and Fannie Mae more susceptible to losses. [more]

Federal Reserve Chairman Ben Bernanke has said that housing market reform still remains unfinished business despite recent efforts to overhaul the financial industry, according to the Wall Street Journal.

“We have to get our housing finance system back into working order,” Bernanke said, speaking at a House Financial Services Committee hearing.”It would be helpful if we could begin to get some clarity about that.”

Bernanke said that the housing market could recover with major changes, though the cost of mortgages will most likely rise as the government steps back, withdrawing subsidies from Fannie Mae and Freddie Mac. [more]

In his second ever press conference as chairman of the Federal Reserve, Ben Bernanke was asked a question about the housing market, and the Wall Street Journal published his response. Bernanke said that while lower mortgage rates and falling housing prices have helped some homebuyers, those falling prices present a double-edged sword: people are afraid of “buying into a falling market.” That’s why he called on lenders to either modify loans where appropriate, or speed the process of foreclosure, so that owners’ confidence is restored and those homes weighing down on prices are taken “out of the pipeline.” Once those homes are off the market, Bernanke implied, housing prices will no longer appear so low and stability will be restored to the housing market. [WSJ] [more]

From the March issue: Inflation fears are spurring Manhattan property purchases, real estate brokers say. The rise of currencies in Asia, Europe and Australia, coupled with unrest in the Middle East and a second round of federal government intervention domestically, is prompting both American and international buyers to dive into the Manhattan real estate market.

“We are seeing decisions being made in conjunction with protection from inflation more than at any other time [in recent years],” said Julia Hoagland, a senior vice president at Brown Harris Stevens.

Real estate has been traditionally seen as a hedge against inflation, and these days, “it comes up a lot in conversation,” said Hoagland, a former Wall Streeter with a number of clients who work in finance. [more]

Federal banking regulators are examining whether the nation’s largest mortgage companies — including Bank of America and Ally Financial’s GMAC — cut corners on their own procedures when they foreclosed on people’s homes, Federal Reserve Chairman Ben Bernanke said today. Preliminary results of the review are expected to be released next month, according to CNBC. “We are looking intensively at the firms’ policies, procedures and internal controls related to foreclosures and seeking to determine whether systematic weaknesses are leading to improper foreclosures,” Bernanke said. “We take violation of proper procedures seriously.” See video above for more. 

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The Federal Reserve is set to purchase its final round of existing commercial mortgages today, according to Dow Jones, marking the end of this part of the Term Asset-Backed Securities Loan Facility, or TALF, and raising questions over whether the commercial market is strong enough to go it alone. Although by some experts’ accounts the Fed has played a relatively small role in this sector, Darrell Wheeler, head of commercial mortgages with Amherst Securities, said that the program lifted market morale. “TALF provided psychological support for the market,” Wheeler said. “It served its purpose at the time it was needed.”

Commercial real estate losses are the biggest worry for the country’s banks this year, though the damage is expected to be concentrated amongst smaller lenders, according to a review by U.S. bank examiners. “Hundreds of banks will fail or will be resolved over the course of the cycle,” said Eugene Ludwig, former Comptroller of the Currency and Chairman of financial consulting firm Promontory Financial Group. While the financial system is unlikely to collapse under the weight of commercial real estate debt, loan defaults on malls, hotels and multi-family housing will slow the recovery process, analysts said, because the smaller lenders who made the bulk of these loans will be forced to tighten credit in order to absorb losses. Federal Reserve Chairman Ben Bernanke has said tight credit is a “formidable headwind” on the road to recovery. The Fed plans to complete its purchase of $1.43 trillion in mortgage-backed securities and residential mortgage debt by the end of March, though some analysts cautioned against an end to that program, especially if mortgage interest rates rise above 6 percent. [Bloomberg via Businessweek]

On Manhattan’s East Side, Fannie Mae has granted its official approval
to 211 East 51st Street, HJ Development’s 14-story luxury condo
conversion. Also, Believe High Schools Network, a charter school organization, is
expanding and relocating to 33 Nassau Avenue in the Greenpoint area of
Brooklyn. Meanwhile, at the annual meeting of the American Economic
Association yesterday, Federal Reserve Chairman Ben Bernanke suggested
a comprehensive review of past monetary policy in order to avoid
future housing bubbles. Click here for more. TRD [more]

As the fall of 2009 comes to a close, many of the commercial real estate lenders continue to limit their exposure to financing for real estate. The buzzword for 2009 is “extend and pretend,” whereby a bank extends the term of a loan to a later date. The legendary Samuel Zell, chairman of Equity Group Investments, the keynote speaker at the NYU Capital Markets conference Nov. 19, stated that “our government has become the bailout city. If a loan is kept current, banks will ‘pretend and extend.’” No one is surprised by the “pretend and extend concept,” especially if you had the opportunity to gain insight from the Federal Reserve’s October 2009 Senior Loan Officer Opinion Survey on Bank Lending Practices and hear the comments made by Ben Bernanke, chairman of the Federal Reserve, in a speech at the Economic Club of New York Nov. 16. The Fed’s Opinion Survey addresses changes in the supply and demand of loans to businesses and households over the past three months. The results were based upon responses from 57 domestic banks and 23 U.S. branches and agencies of foreign banks. [more]