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HUD receives scathing audit for oversight in soon-to-be ghost town

A new, scathing report from the Office of Inspector General puts the U.S. Department of Housing and Urban Development in the hot seat for its lack of action taken on the soon-to-be ghost town of Cairo, Illinois.

Back in 2016, HUD announced it would tear down two of the city’s housing developments, Elmwood and McBride, after taking control back from the local housing authority, Alexander County Housing Authority. The move would force the relocation of about 400 residents, many to a new city.

Later, in 2017, HUD Secretary Ben Carson responded to letters from the resident, saying he would do everything in his power to help them remain in Cairo.

But the new report from the OIG shows that the city of Cairo has insufficient housing stock for these displaced families, and nearly 200 families will have to move out of the city.

A HUD spokesperson said that HUD was “stunned…at what we saw, not just in terms of the deplorable living conditions that we encountered but at the poor, even absent record keeping, the staggering backlog of critical repairs, all of this going to the very health and safety of the residents living there.”

The area’s deplorable living conditions included being infested with rodents and bugs, the heating and plumbing not functioning and the high crime in the area.

However, these conditions at ACHA did not occur overnight, the report explained. HUD had been aware of negative conditions at ACHA since at least 2010. Over the span of six years, HUD performed multiple assessments and reviews of ACHA.

The chart below shows the steps HUD had taken since 2010 to address the worsening conditions.

Click to Enlarge

HUD Audit

(Source: OIG)

In fact, ACHA failed HUD’s assessments in every physical condition indicator since 2012. HUD also identified weakness in ACHA’s financial conditions as early as 2013.

What’s more, the report shows that ACHA was generally uncooperative in addressing the negative conditions identified by HUD’s assessments and reviews. Despite HUD’s attempts to bring ACHA into compliance, the negative conditions remained.

Even as far back as 2013, a HUD team reported nine findings shows the deteriorating physical condition of the two housing developments. Here is what they found:

  • The McBride and Elmwood housing developments had ongoing security issues.
  • The plumbing at the McBride housing development was deteriorated and in need of rehabilitation.
  • The former executive director improperly procured a consultant services contract for himself.
  • ACHA awarded retirement packages and offered part-time employment to specific employees with no documented or defined formula or eligibility requirements.
  • ACHA’s nepotism policy was inadequate.
  • An ACHA board member had a nephew and grandson employed by the PHA.
  • The executive director’s son-in-law and the assistant executive director’s husband were maintenance workers at ACHA.

And while these conditions did not improve in 2013, ACHA’s Real Estate Assessment Center, which is responsible for inspecting HUD properties to ensure decent, safe and sanitary conditions, score did increase.

This even led some of the field staff members to voice their shock at the “inflated scores.”

And indeed, a later re-inspection showed the conditions had actually worsened from 2012 to 2013, not improved, as the REAC scores indicated. The report conducted in 2013 for the Elmwood and McBride housing developments showed 112 health and safety issues and estimated that if all units were inspected, 1,134 health and safety deficiencies would be found.

But despite these findings, ACHA did not enter into an agreement with HUD until August 2015, when it was then required to comply with provisions related to fair housing, security of housing and equal employment opportunity.

Eventually, HUD took ACHA into temporary receivership, a last resort option for public housing authorities with the most severe problems, and gave a list of reasons why it had not taken the housing authority into receivership sooner.

  • PIH officials initially allowed ACHA several opportunities to improve instead of using HUD’s authority to declare it in substantial default and take possession of it. In our discussions with PIH officials, they did not seem to be aware of HUD’s authority to take possession of ACHA without first offering it an opportunity to cure deficiencies.
  • ACHA’s official performance scores were not initially low enough to initiate the PHARS protocol.
  • PIH officials disagreed about the extent to which ACHA’s actions and existing documentation were sufficient to place it into receivership.
  • HUD officials claimed that receiverships were costly to administer and could attract negative attention to the agency.
  • HUD guidance and expertise on receiverships were limited at the time.

Among other reasons, HUD explained it was hesitant to take the housing authority into receivership as it could take many years to execute, require four to five full-time employees and cost more than $5 million.

But the OIG said HUD could have and should have done more to oversee ACHA. It also said in its report that while it may be too late for the residences already scheduled for demolition, there are currently 50 more public housing authorities that are designated as troubled.

In light of these events, the report outlines four suggestions for HUD in future dealings with troubled housing authorities:

  1. Create agreements and strategies with other program offices that describe when cross-programmatic reviews and enforcement actions against PHAs are required.
  2. Train PIH officials on the authority and processes for declaring PHAs in substantial default and for taking PHAs into HUD possession.
  3. Update and strengthen the training program for HUD receivers of PHAs.
  4. Update procedures for receiverships to include specific guidance on when initiating a receivership may be appropriate.
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Trulia: ‘Home, sweet home?’ more like ‘lease, sweet lease’

Soaring home prices in large U.S. markets are turning “home, sweet home” into “lease, sweet lease.”

According to research by Trulia, in 100 of the biggest markets in the U.S., buying a home is becoming more of a bum deal, while renting, though not ideal, is becoming more attractive.

For the first time in five years, renting has usurped homeownership as the best economic value in San Jose and San Francisco. In both cities, which are two of the most expensive in the nation, home values have surged past $1 million, while rents have flattened or sunk.

Trulia defines financial advantage as the convergence of quality, a seven-year stay, costs (present and future), and net present value in the top 100 markets in the U.S.

Renting vs. Buying chart

Nationally, in July 2018, the financial advantage of buying a home as opposed to renting hit a six-year low. Buying still saves 26.3%, but cooling rents in 82 of the markets have made renting more competitive. This is a significant drop off from last year when buying had a cost advantage of 35.7%. During this period, rents fell 1.1% while home prices rose 8.1%.

Further driving down savings from buying, rising mortgage rates have contributed significantly to the decrease in the value of home buying.

Not surprisingly, the West Coast, particularly the Bay Area, is the region feeling the most pain in this category. San Jose, San Francisco, Seattle, Portland, Sacramento and Oakland are all near the top of the list in terms of how expensive it is to buy a home.

On the other end of the spectrum, Detroit is the best market to buy in as opposed to renting. This is despite an 18.3% increase in home values which is second only to San Jose’s appreciation.

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Black, Hispanic homeownership rates fall in second quarter

The homeownership rate inched up slightly in the second quarter, but not for all racial and ethnic groups.

The homeownership rate increased to 64.3% in the second quarter, up just slightly from 64.2% in the first quarter and from 63.7% in the second quarter of 2017, according to the latest report from the U.S. Census Bureau.

While this may not seem like much statistically, Chief Economist Danielle Hale pointed out that this represents an additional 1.8 million owner-occupied households over the past year.

The homeownership rate has been steadily increasing, but the chart below shows it has a long way to go in order to catch up with its pre-crisis or even historical levels.

Click to Enlarge

homeownership rate

(Source: U.S. Census Bureau)

“The rise in homeownership in the spring was consistent with the last few quarters, so while there appears to be a slowdown in the growth rate of home sales and prices, it has not slowed rising homeownership,” Freddie Mac Chief Economist Sam Khater said.

“However, homeownership today is a full percentage point below the 50-year average, and this lag reflects the long-lasting scars from the Great Recession and the lopsided nature of this recovery,” Khater said. “Despite years of continuous job growth and a slowly improving economy, it was only last year where we started to see an uptick in homeownership.” 

The white American homeownership rate increased to 72.9% in the second quarter, up from 72.4% in the first quarter and 72.2% in the first quarter last year, other groups did not see that same increase.

The black homeownership rate fell from 42.2% in the first quarter and from 42.3% in the second quarter of 2017 to 41.6% in the second quarter this year. The Hispanic homeownership rate also fell from 48.4% in the first quarter to 46.6% in the second quarter. However, this is still up from 45.5% in the second quarter of 2017.

The homeownership rate for Asian, Native Hawaiian and Pacific Islanders increased to 58%, up from 57.3% in the first quarter and 56.5% in the second quarter last year.

Millennials also continue to increase their share in homeownership as those under 35 saw an increase from 35.3% in the first quarter this year and the second quarter last year to 36.5% in the second quarter of 2018, the highest rate among Millennials in five years.

“Over the past two years, Millennials have been on a home shopping spree, driving a bump in the overall homeownership rate in Q2,” Zillow Senior Economist Aaron Terrazas said. “Homeownership among younger households still remains well below pre-crisis and pre-bubble norms, but those same groups are currently experiencing some of the biggest gains.”

Likewise, the homeownership rate for those ages 35 to 44 years increased to 60%, up from 59.8% in the first quarter and 58.8% in the second quarter of 2017. The homeownership rate for those ages 45 to 54 years increased to 70.6% in the second quarter, up from 70% in the first quarter and 69.3% last year.

The older generations, however, saw slight declines in their homeownership rate. The homeownership rate for those ages 55 to 64 years decreased from 75.4% last quarter and last year to 75.1% in the second quarter. The rate for those 65 years and older also decreased slightly to 78%, falling from 78.5% last quarter and 78.2% last year.

The national homeowner vacancy rate remained steady at 1.5% in the second quarter this year.

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FHFA: Home prices see slight increase in May

Home prices moderately increased in May, rising only 0.2% from April, according to the latest monthly House Price Index from the Federal Housing Finance Agency.

The FHFA monthly HPI is calculated using home sales price information from mortgages sold to, or guaranteed by, Fannie Mae and Freddie Mac. Because of this, the selection excludes high-end homes bought with jumbo loans or cash sales.

Monthly, across the nine census divisions, home price changes from April to May 2018 ranged from 1.5% increase in the East South Central division to a decrease of 0.6% in the East North Central division. Changes were all positive year-over-year, ranging from 4.9% in the West South Central division to 9.1% in the Mountain division.

The chart below compares 12-month price changes to the prior year:

FHFA July 24th
(Click image to enlarge)

Here are the states in each division:

West South Central: Oklahoma, Arkansas, Texas, Louisiana

East North Central: Michigan, Wisconsin, Illinois, Indiana, Ohio

Mountain: Montana, Idaho, Wyoming, Nevada, Utah, Colorado, Arizona, New Mexico

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Monday Morning Cup of Coffee: Are cities finally fed up with Airbnb wiping out local housing?

Monday Morning Cup of Coffee takes a look at news coming across HousingWire’s weekend desk, with more coverage to come on larger issues.

Are cities finally fed up with Airbnb’s decimation of local housing? It’s starting to appear that way, as two major cities have voted to limit or restrict short-term rentals, becoming the latest metros to do so.

Last Wednesday, the New York City Council voted unanimously to significantly restrict Airbnb and other online home rental services. The council passed a bill that seeks to prevent landlords and tenants from illegally renting out apartments for a few days at a time to tourists, a trend that the city says has aggravated the housing crisis by making short-term rentals more profitable than long-term leases.

According to a New York Times article, Airbnb and other home rental services, like HomeAway, would be required to provide the addresses and names of hosts to the city’s Office of Special Enforcement each month, and to specify whether rentals are for a whole apartment or just a room.

From the article:

New York City is Airbnb’s largest domestic market, but under state law, it is illegal in most buildings for an apartment to be rented out for less than 30 days unless the permanent tenant is residing in the apartment at the same time. The new disclosure requirements would make it much easier for the city to enforce the state law and could lead to many of the 50,000 units rented through Airbnb in the city coming off the market. After similar rules went into effect in San Francisco, listings fell by half.

“The vacancy rate in New York City is very low,” the Council speaker, Corey Johnson, said before the vote. “We’re in an affordable housing crisis. We’re in a homelessness crisis. And Airbnb will not give us this data.”

According to the NYT’s reporting, home rental companies will face fines of up to $1,500 for each listing they fail to disclose, down from the $25,000 originally proposed.

A New York City Hall spokeswoman told the paper that the new restrictions have the support of Mayor Bill de Blasio, who has prioritized affordable housing in the city, and he is expected to sign the bill into law.

On the other side of the country, in San Diego, the city council recently voted to outlaw vacation rentals in secondary homes, restricting Airbnb and other short-term rentals to primary residences only.

An article from the San Diego Union-Tribune explains that the action will curtail investor activity in the short-term rental market while also barring residents and out-of-towners from hosting short-term stays in multiple properties other than their residences.

From the article:

One exception was made for San Diegans who have additional units on the same property as their residence, as in a duplex. In those instances only, a resident would be able to get a license for a second vacation rental. While not part of Monday’s action, council members said they would like to revisit the issue of granny flats, which under current rules, could not be used for vacation rentals.

The crackdown on Airbnb-style rentals has the potential to affect as many as 80 percent of the city’s more than 11,000 vacation rentals, estimated Elyse Lowe, the mayor’s director of land use and economic development policy.

Airbnb responded to the vote, releasing a statement to the paper:

“Today’s vote by the San Diego City Council is an affront to thousands of responsible, hard-working San Diegans and will result in millions of dollars in lost tax revenue for the City. San Diego has been a vacation rental destination for nearly 100 years and today’s vote all but ensures activity will be forced underground and guests will choose alternative destinations.” 

Last week, Acting Director Mick Mulvaney announced that the Consumer Financial Protection Bureau has opened a “regulatory sandbox” for fintech companies developing new products and services.  

The bureau’s newly created Office of Innovation, which was created after a dramatic reorganization of the agency, will be led by Paul Watkins, a former lawyer with the Arizona attorney general’s office who set up the FinTech Regulatory Sandbox, a program meant to encourage companies to bounce ideas off state officials.

According to the bureau’s press release, the new Office of Innovation will “focus on encouraging consumer-friendly innovation, which is now a key priority for the Bureau.” The CFPB also announced the work that was previously done under Project Catalyst will be transitioned to this new office.

“The Bureau intends to fulfill its statutory mandate to promote competition, innovation, and consumer access within financial services. To achieve this goal, the new office will focus on creating policies to facilitate innovation, engaging with entrepreneurs and regulators, and reviewing outdated or unnecessary regulations,” a statement from the CFPB said.

In an interview with the Wall Street Journal, Mulvaney said the new office will be looking at different financial tech based on blockchain, private and cryptocurrencies, and microlending.

From the article:

Mr. Mulvaney in an interview said he expects the bureau’s new innovation office to look closely at cryptocurrencies, other financial technologies based on blockchain, private currencies and microlending, or lending by individuals rather than institutions. The office also could help companies explore alternatives to traditional credit-scoring methods, such as considering rent and mobile-phone payments, consumer shopping behavior and social-media activity in credit decisions.

“You can make a strong argument…that new technology actually offers new and innovative ways to protect consumers,” said Mr. Mulvaney, a former Republican lawmaker and longtime critic of the CFPB. “You are moving light years beyond the complaint hotline to where you can really see things happening in real time,” he added, referring to the bureau’s public consumer complaint portal. The database is popular with consumers but not with financial companies, which say it spreads unverified negative information about them.

On Friday, S&P Global Ratings Structured Finance sector released its Residential Mortgage Snapshot for July 2018.

The ratings agency reported that while many mortgage loans continue to be modified, the modification rate has dropped considerably during the past six years. The modifications for Prime, Subprime, Alt-A, and Neg Am loan types can be seen in the graphs below:

mortgage modification chart from S&P global

(Click to enlarge; Source: S&P Global Ratings)

S&P’s report also increased its growth rate forecast for the second quarter to 3.9%, citing healthy economic data for the U.S. economy in May. This is an increase of 50 basis points above its March forecast.

“We see this economic strength continuing for the near term, with a forecasted GDP growth of 3.0% in 2018 and 2.5% in 2019,” the report said.

S&P’s economists also said that the economic statistics have increased its confidence in its Fed forecast, the rating agency says it is continuing to expect four Fed rate hikes for 2018 and three in 2019.

But what about housing inventory? S&P said that housing starts are up from last year and the U.S. housing market is continuing its recovery.

“At the current sales rate, the supply of new homes for sale was at 5.2 months,” the report said. “The median sales price of new houses sold in May 2018 was $313,000. We expect the inventory of new homes for sale to continue to increase and to account for a growing share of housing activity in the coming years.”

Have a good week everyone! 

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HUD dedicates $144 million to revitalize 5 neighborhoods

The U.S. Department of Housing and Urban Development announced it is awarding $144 million to be divided into five communities for revitalization efforts.

The money will be awarded to redevelop severely distressed public or assisted housing, as well as the surrounding neighborhoods. It will be funded through HUD’s Choice Neighborhoods Initiative.

HUD expressed its hope that these grants will transform struggling neighborhoods and distressed HUD-assisted housing.

“Choice Neighborhoods Grants are significant investments to transform struggling neighborhoods and improve living conditions for thousands of families,” HUD Secretary Ben Carson said. “The public dollars we award today will generate major investment to revitalize entire neighborhoods and create more opportunities for those who live there.”

The chart below shows which programs were chosen to receive the funds, how much each community will receive, and the targeted neighborhood.

Click to Enlarge

HUD Neighborhood

(Source: HUD)

The Choice Neighborhoods Initiative uses public and private funds in order to support local community strategies that address struggling neighborhoods with distressed public or HUD-assisted housing.

Under the program, local leaders, residents and stakeholders come together to create and implement a plan that revitalizes distressed HUD housing and addresses the challenges in the surrounding neighborhood. The program helps communities transform neighborhoods by revitalizing severely distressed public and assisted housing and catalyzing critical improvements in the neighborhood, including vacant property, housing, businesses, services and schools.

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Bellwether Enterprise Real Estate Capital hires Ilya Weinstein as vice president

Bellwether Enterprise Real Estate Capital, the commercial and multifamily mortgage banking subsidiary of Enterprise Community Investment, hired Ilya Weinstein as vice president of its New York office.

Weinstein will focus on affordable housing as part of the Bellwether’s Affordable Group, working to increase loan production for affordable housing properties in the northeastern U.S. region.

“We are thrilled to welcome Ilya to Bellwether Enterprise’s New York City office, which serves as a hub for some of our company’s most impactful work,” Bellwether Enterprise President Ned Huffman said in a statement.

“Ilya’s established industry experience in the mortgage lending space and his passion for affordable housing aligns strongly with our mission. We are confident that he will help us further build upon our Affordable Group’s impressive portfolio of work.”

Ilya Weinstein, vice president, Bellwether Enterprise Real Estate Capital

Prior to joining Bellwether, Weinstein was an associate at Wells Fargo Multifamily Capital where he helped originate over $10 billion in Fannie Mae and Freddie Mac loans nationwide. Weinstein also worked as an associate at Red Stone Tax Exempt Funding, and before that held positions in asset management and affordable housing lending at Centerline Capital Group.

“Working with Bellwether Enterprise is an exciting opportunity to find ways to increase affordability in a region with some of the highest costs of living in the country,” Weinstein said in a statement.

“By providing flexible financing solutions to service diverse needs in the affordable housing space, Bellwether Enterprise is consistently able to positively impact communities nationwide. It is an honor to join the Affordable Group…and I look forward to continuing and growing this important work alongside the Bellwether Enterprise team.”

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Redefy names Chris Rediger CEO and moves Jordan Connett to chairman of the board

Flat-fee listing company Redefy Holdings named Chris Rediger its new CEO. Previously president and chief technology officer, co-founder Rediger will be stepping up into Jordan Connett’s former position as Connett becomes the chairman of the board of directors.

Redefy is one of the handful of companies cropping up to take advantage of home sellers’ frustration with the old Realtor model of selling their homes. Through Redefy’s online platform, home sellers can list a property for a flat rate of $3,000. This flat rate comes with consultation, professional property photography and a plethora of the other services agents typically handle.

Chris Rediger, CEO of Redefy

“We understand the frustration many home sellers feel in paying high-cost real estate commissions to agents. Our proprietary platform enables sellers to keep more of their home equity, while ensuring their home receives the maximum exposure during the sales process,” Rediger said in a statement.

Redefy is on the growth path, looking to enhance its technology offering and increase its market share in the emerging online residential real estate market in the U.S. The number of people who found the home they bought online without an agent rose to over 50% in 2016 and shows no sign of reversing course.

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TRELORA elects Monty Moran as chairman of its board of directors

Flat-fee real estate brokerage TRELORA made former Chipotle Co-CEO Monty Moran chairman of its board of directors to push forward its growth initiatives.

“I have been a huge fan of Chipotle for years. Much of what we have built at TRELORA around process and culture was formed from my respect and admiration of the extraordinary culture Monty built at Chipotle,” TRELORA founder and CEO Joshua Hunt said in a statement.

Moran served as co-CEO at Chipotle from 2007-2017 and grew the company from eight restaurants to more than 2,100 restaurants during that time.

“I knew the very first time I met Monty that he needed to be involved with TRELORA. Monty’s love for and commitment to people, his curiosity and his commitment to excellence is at the very core of TRELORA and he is a leader who everyone here deeply respects, trusts and is ready to learn and grow from. Together with our board and entire team, Monty and I are committed to building a company that has long lasting impact in the hearts and minds of everyone we come in contact with,” Hunt added.

Monty Moran Chairman of the Board of Directors at TRELORA

So far, TRELORA has saved consumers $41 million in real estate commissions and has recently opened offices in Seattle with plans to open more offices in growing markets across the U.S.

“I am humbled and proud to accept the role of chairman of the board of TRELORA,” Moran said in a statement.

“Joshua’s incredible vision of caring for people by streamlining, demystifying and simplifying the process of buying and selling homes inspires me, and has attracted a world class management team, top notch employees, and a strong board of directors. TRELORA already has the top-producing agents and has earned the best customer service scores in the entire industry, and I will work alongside this superb team to build on our early success, grow our national presence, and allow more people around the country to benefit from TRELORA’s service,” he added.

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ERA adds Diana Wall as senior vice president of sales

ERA Real Estate announced Tuesday it has named Diana Wall senior vice president of sales.

“Diana is a business builder with a reputation for integrity, smarts and delivering on her promises,” ERA Real Estate President and CEO Simon Chen said in a statement.

“She understands the power of collaboration and communication in driving success across a large real estate network,” he added.

In her new role, Wall will be responsible for strategy regarding the growth of the ERA broker network. She will work with the ERA senior management team help expand the ERA broker footprint.

Diana Wall, senior vice president of sales at ERA Real EstateThis is Wall’s second time to be an ERA employee. Earlier in her career, she was a district sales manager at ERA. Before rejoining ERA, Wall served as the vice president of business development at RE/MAX and vice president of field operations for Project C.U.R.E.

“ERA is all about acceptance and supporting those who want to create a trusted legacy in their community. I want to ensure that we are onboarding brokers who value the ERA vision, see the full potential of our tools and resources and are fiercely determined to grow,” Wall said in a statement.

“What we’re doing at ERA is bigger than all of us. ERA Real Estate understands how interactions with brokers and agents create meaningful paths to home ownership–and change lives–in the neighborhoods they serve. I want to reinforce that.”