The financial world is gradually relaxing from immediate fears of Japan and the Middle East. As stocks recover some of their fright losses, bonds are as usual the reverse: the 10-year Treasury note is back up to 3.4 percent (from 3.55 percent pre-panic, and 3.15 percent in panic mode); mortgages didn’t move much and are still hanging in just below 5 percent.

The failure of these markets to snap all the way back is a reasonable reflection of new economic data. February orders for durable goods surprised on the far downside: Expected to rise 1.1 percent, they fell 0.9 percent, and there was no distortion by volatile sectors.

Housing data are numbing. Sales of existing homes were forecast to fall 4.5 percent in February, but dumped 9.6 percent, the median sales price down to the $156,100 last seen in 2002.

The guesstimate for sales of new homes was a rise of 1 percent, and instead they collapsed 16.9 percent from January, falling 15 percent year-over-year to an annual rate of 250,000 units, the lowest since records began.

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Real estate agents and mortgage brokers should be able to use online coupon services like Groupon to generate leads, although building a large enough subscriber base will present challenges, according to “social commerce” consultant Pat Kitano.

Kitano, the founding principal of Domus Consulting Group, blogs that a “real estate Groupon” would have the same mission as other online lead-generation techniques — “driving the active client out of the woodwork” — by offering cost savings.

He notes that there’s already a collective buying platform for real estate, HouseTipper, that works like Groupon. HouseTipper says it negotiates discounted deals with developers, real estate agents and property managers. A minimum number of vouchers must be sold before the deal is “tipped,” the consumer is charged, and coupons sent by email.

HouseTipper presents an example of how a real estate group coupon deal might work: A listing agent offers homeowners the opportunity to lock in a 4 percent sales commission on an exclusive listing contract, by purchasing a $25 voucher that’s good for six months.

While Kitano writes that “no consumer would purchase this kind of offer without due diligence,” he thinks that it could pull potential clients into a conversation. Those who actually decide to pay the $25 would have an incentive to follow through and list with the agent, he writes.

But having to pay upfront might dissuade many potential clients, Kitano thinks. So another approach might be to offer a free service, such as a home inspection, and have the agent pay the coupon provider. The consumer would provide contact info, which would be passed along to the real estate agent only if the agent agreed to pay a specified fee, such as $25, after seeing the prospective client’s social media profile.

The challenge with either approach is that the number of people in the market for real estate is smaller than, say, the number of people who are planning to eat out at a restaurant, Kitano writes. That means it might prove difficult to build a big enough subscriber base for a “real estate Groupon,” because coupon providers need to aggregate a large number of small fees to cover centralized operating expenses.

The solution, Kitano says, might be for coupon providers to create deal syndication networks with real estate sites like Trulia or Zillow, real estate brokerages, and hyperlocal networks.

“Based on my work with the real estate industry, I see enthusiastic demand for real estate Groupons from Realtors, as well as mortgage brokers, insurance and other real estate-related services,” Kitano writes. “And why not? Realtors will try any free or cheap marketing opportunities that enhance their lead quality.”

       

      

 

    

   

   

 

      

 

   

  

 

  

A mortgage recast is an adjustment in the monthly payment that makes the payment fully amortizing. The recast will be a payment increase when the existing payment is less than fully amortizing, and a payment decrease when the existing payment is more than fully amortizing.

For example, let’s say your home loan has a balance of $100,000 at 5 percent with 300 months to go and a payment of $450 that, if continued, will not pay off the balance. The payment recast is an increase to $584.60, which will fully amortize the balance over 300 months. However, if the current payment was $650, the recast would be a payment decrease to $584.60.

Payment-increase recasts occur on two kinds of mortgages. One carries an interest-only option, where the required payment for some initial period, often 10 years, covers only the interest. The payment-increase recast occurs at the end of the interest-only period.

The second type of mortgage open to a payment-increase recast is the adjustable-rate mortgage (ARM) that allows payments that are less than fully amortizing. These ARMs sometimes have recasts at specified intervals, often every five years, or the recast may be triggered by the loan balance reaching some limiting value, such as 110 percent of the original loan amount. This can happen at any time, or it may not happen at all.

Payment-increase recasts are designed to protect the interest of the lender by making sure that the loan will pay off as scheduled. All interest-only loans and all ARMs that allow payments that are less than fully amortizing have explicit provisions for recasts in the loan contract.

Provisions for payment-decrease recasts, in contrast, which are designed to meet the needs of borrowers, are not included in loan contracts. The lender can agree to a recast; can agree subject to a charge, which can range from nominal to extortionate; or can refuse it. I have encountered all three such responses.

The borrowers who request recasts usually have fixed-rate mortgages (FRMs) on which they have been making extra payments in order to pay off before term, and then unexpectedly encounter a financial reversal. With their income reduced, their objective shifts from paying off early to reducing the payment, for which purpose they need a recast. They deserve it, and the cost to the lender is nominal, but some lenders will take advantage of them just because they can.

The borrower’s right to a payment-reducing recast ought to be mandatory for all home mortgage contracts. Borrowers should not have to grovel for what can be critically important to them and of little consequence to lenders. Making recasts into a right would have the side benefit of encouraging borrowers to make extra payments as a form of contingency insurance.

Note that payment-reducing recasts are needed for fixed-rate mortgages much more than for ARMs. The reason is that when the interest rate is adjusted on an ARM, the payment is automatically recast. On ARMs that reset the rate every year, no additional recasts are needed. On ARMs with initial rate periods of 5-10 years, however, the need for a recast can arise in the early years just as it does on FRMs.

Today, borrowers are motivated to make extra payments primarily by the hope of getting out of debt sooner. With a right of recast made explicit, they will also view extra payments as a worst-case backstop. The more you pay when you have the means, the larger the payment reduction you can command in an emergency. I can’t think of an easier way to motivate consumers to save more.

The writer is professor of finance emeritus at the Wharton School of the University of Pennsylvania. Comments and questions can be left at www.mtgprofessor.com.

 

 

  

 Peter M. Ill, a longtime Dominion Enterprises executive described by the company’s president as “the father of our Internet efforts,” will leave the company in May.

Ill, who was in charge of Dominion’s Internet business from 1997 through 2004, is credited with developing the company’s Internet portals for homes, apartments, employment and autos.

Under his leadership, Dominion’s electronic media division grew revenue from $1.1 million to $74.7 million and its staff from 17 to 763, said Dominion Enterprises President and Chief Operating Officer Jack Ross in a memo announcing Ill’s departure.

Ill helped the company acquire a number of other businesses, including Homes.com, eProspecting, eNeighborhoods and 123Movers.com.

He was named president of Dominion Homes Media in 2007, with responsibility for Harmon Homes, Homes.com, Agent Advantage, Advanced Access, Best Image Marketing and eNeighborhoods. All told, Ill was with Dominion Enterprises and its predecessors for 23 years.

“Peter has made many significant contributions to our company, including helping key Dominion Enterprises’ successful migration from print to Internet,” Ross said in the memo. “He will be remembered for his high energy, intelligence, eagerness, versatility and positive way with his people.”

In a statement, Ill said “it’s a good time to depart, knowing that the strength of our team and its leadership will drive success … for years to come.”

The company’s remaining managers include Jason Doyle, Andy Woolley and Lawrence Schoeffler, and Ill noted that the company plans to introduce new products in coming months.

According to the latest numbers from Web metrics firm Experian Hitwise, Homes.com was the eighth most popular real estate portal in February, and ForRent.com, another Dominion portal, ranked 15th.

   

Andrew Cuomo, New York attorney general. Photographer: Andrew Harrer/Bloomberg

New York Governor Andrew Cuomo and top lawmakers agreed on a budget that eliminates next year’s $10 billion deficit by sticking close to the governor’s proposals for spending cuts without new taxes, they said.

The agreement for the fiscal year that begins April 1 would add $250 million of spending to Cuomo’s proposed $132.5 billion plan. Even with the increase, total outlays would decline 2 percent, the first such drop since at least 1995. Lawmakers, who Cuomo said faced a choice between accepting his plan or shutting down government, may be on a path to achieve New York’s first early budget since 1983.

Cuomo, a 53-year-old Democrat, made the announcement yesterday in Albany, the state capital, after meeting with Assembly Speaker Sheldon Silver , a Democrat from Manhattan, and Senate President Dean Skelos, a Republican from Long Island.

“Well done, my friends,” he said as he reached for handshakes at the end of the press conference.

The agreement “transforms the way we do business,” Cuomo said. Lawmakers agreed with Cuomo’s proposals to limit future spending growth on Medicaid to U.S. medical-cost inflation, starting in April 2012. School aid would grow no faster than personal income among the state’s residents.

Cuts to City

Silver said he expects Democrats in the Assembly will support the budget, even though they lost their bid to extend an 8.97 percent tax on millionaires due to expire Dec. 31. Cuomo and Skelos opposed any new taxes.

New York City Mayor Michael Bloomberg said the plan cuts state aid “more than ever before” and that the amounts added in the agreement “are merely a fraction of the $600 million necessary to avoid additional layoffs and cuts in the city’s budget.” The state granted no revenue-sharing money to the city for the second consecutive year, while aid to other cities was reduced 3 percent.

The mayor is the founder and majority owner of Bloomberg LP, owner of Bloomberg News.

Medicaid and aid to local schools, the two biggest parts of the state budget, are expected to increase about 4 percent under the new formulas, Cuomo has said. Next year, before the controls apply, Cuomo’s budget called for Medicaid and school aid spending to fall $2.85 billion each from levels called for by existing law. Education aid in the coming school year would have been $1.5 billion below last year’s level.

The agreement calls for the elimination of 3,700 prison beds, while adding about $272 million to Cuomo’s proposed aid to local school districts and other education programs, and smaller amounts for senior citizen centers, higher education and other programs.

Revenue ‘Looking Good’

Budget Director Robert Megna said no new total amounts for state spending or the size of the budget were available, and it wasn’t yet known exactly how the state would pay for the increased outlays. Cuomo’s budget, including federal aid, was 2.6 percent lower than last year, a decline that was trimmed to 2 percent, according to the announcement of the budget plan.

“Revenue right now is looking good enough that we probably finance the increase from that,” Megna said.

While a budget agreement is in place, state officials are still negotiating with labor unions for about 130,000 workers whose contracts expire March 31. If unions don’t agree to savings of $450 million, Cuomo has said he may fire 9,800 employees.

Tax Cap

Other issues still to be resolved by lawmakers and Cuomo include passage of a state-imposed cap on local property taxes and extension of rent-control laws for New York City and nearby counties. Cuomo favors both measures. Republicans in the Senate have already approved a cap on property-tax growth at the lower of 2 percent or inflation, while Democrats want rent controls to remain and be enhanced.

Whether the Legislature approves the budget early, before the March 31 end of the fiscal year, depends on how soon bills are drafted and printed. Last year’s spending plan wasn’t approved until Aug. 4, after former Governor David Paterson pushed through bills that lawmakers had to approve or face a government shutdown.

A “message of necessity” by the governor may be required to get approval before March 31, Cuomo said. That action would remove the requirement that bills be on lawmakers’ desks at least three days, or parts of days, before voting.

Removing the property-tax cap and rent controls from the budget negotiations “has been a huge help getting not only an on-time budget, but an early budget,” said Senator George Maziarz, a Republican whose district stretches from Niagara Falls to Rochester.

To contact the reporter on this story: Michael Quint in Albany, New York, at mquint@bloomberg.net.

To contact the editor responsible for this story: Mark Tannenbaum at mtannen@bloomberg.net

You Should Probably Get A Studio

Sunday, March 27, 2011, by Bilal Khan

You Should Probably Get A Studio

According to the Times, it’s the best time to get a studio, with their prices being the lowest they’ve been in a while. According to Douglas Elliman, “the average price for studios dropped to $404,326 in 2010, from a high of $500,479 in 2008“. This also means it’s a pretty bad time to be a studio seller in the competitive market. Sellers, step your game up! [NYT]

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