Arizona Real Estate News Access
All the real estate and mortgage news you need to know in Arizona

June 2010
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Arizona AG’s Office sues mortgage modification companies - Phoenix Business Journal
Filed under: General, Mortgages
Posted by: Lillian Wong @ 3:56 pm

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Recession causes some builders to go under as others profit - Phoenix Business Journal
Filed under: General, Real Estate
Posted by: Lillian Wong @ 3:54 pm

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Regulators more aggressive about enforcement orders for banks
Filed under: General, Finance
Posted by: Lillian Wong @ 3:50 pm

by Russ Wiles The Arizona Republic Jun. 6, 2010 12:00 AM

As weakness lingers in real estate and the economy overall, more Arizona banks are being told to get their operations in order.

Federal and state regulators are marking up banks for infractions ranging from poor management and unsound lending to low capital.

Regulators, including the Federal Deposit Insurance Corp. and U.S. Office of the Comptroller of the Currency, won’t disclose the names of financial institutions on problem lists. They don’t want to incite a run by depositors that could trigger a failure.

But regulators spell out their concerns in various obscure directives such as “cease-and-desist orders,” the most common version.

Since mid-2007, about the time when financial problems really began to surface, regulators have publicly reprimanded 22 Arizona banks, up from just one citation in 2005 and 2006 combined.

The true number is almost certainly higher because regulators don’t always make their orders public.

While some orders get terminated as banks work out their problems or merge with healthier firms, 19 of the 22 remain, fluttering like warning flags in the breeze.

“Every bank that goes under an order doesn’t fail or is expected to fail,” said Tanya Wheeless, head of the Arizona Bankers Association. “A lot of the orders include issues managements might already have addressed.”

But there’s enough of a connection to raise concerns. Of the 22 Arizona banks cited since mid-2007, eight have failed and others continue to struggle.

Many of the dozens of small financial institutions that serve metro Phoenix and outlying communities are saddled by high exposure to real estate. More than 80 percent of the small banks based here are losing money. Their debilitated status could curb lending in general and blunt the economic recovery.

And no Arizona banks have failed in the current down cycle without first having been on the receiving end of an enforcement action.

Growing problem

Nationally, enforcement activity is on the rise.

The FDIC cited 113 banks from January through March of this year. That compares with 57 in the first quarter of 2009, 19 in the first quarter of 2008, 12 in the first quarter of 2007 and five over the first three months of 2006. Of those 22 Arizona banks, nearly all have been cited since the start of 2008.

Also alarming: Banks are having a harder time clearing up problems.

In 2006 and 2007, the FDIC and OCC terminated roughly nine orders for every 10 they issued. So far in 2010, they’re terminating just 1.5 for every 10 issued.

For those Arizona banks with state charters or registrations, the FDIC cooperates with local officials.

“We, like all other states, have a close working relationship” with federal regulators that includes collaboration on exams and supervision, said Lauren Kingry, superintendent of the Arizona Department of Financial Institutions. “We make every effort to agree on final supervision recommendations and guidance.”

Regulators say the sharp uptick in enforcement orders reflects widespread bank problems.

The most vexing issue now for banks is the need to raise more capital, as happens when loan portfolios disintegrate.

This is critical because regulators don’t want to see bank capital dropping too low relative to the value of loans on their books, as capital provides a cushion against bad loans.

Yet it isn’t easy for bankers to lure new investors.

“It’s difficult to raise capital under any scenario but particularly when a bank is given a period of (perhaps only) four months,” Wheeless said.

James Miller, of JPM Consulting in Scottsdale and a former Valley bank executive, said investors are reluctant to ante up cash when regulators can take over a bank at any time, once a cease-and-desist order has been issued.

“That’s a legal document that allows a bank to go into receivership,” said Miller, who also worked as a national bank examiner.

When the FDIC issued a cease-and-desist order for Scottsdale-based Copper Star Bank earlier this year, it didn’t come as a surprise to management.

“Banks need capital - we were well aware of that,” said Romain Voeller, senior vice president at Copper Star. “We certainly knew our loan portfolio had issues, and we were aware of where the problem loans are.”

Voeller said the bank is making progress addressing regulator concerns while also trying to work with its loan customers.

“Our intent is not to take anything back,” he said, referring to collateral. “We want them to keep their businesses going.”

Problem loans

Other key issues cited in enforcement orders include low levels of liquid assets and high concentrations of problem loans - especially those tied to commercial real estate.

Also, high levels of “brokered” deposits, obtained by banks through intermediaries, are worrisome because this money isn’t deemed to be loyal to a bank and thus could be withdrawn suddenly.

Regulators are prodding Arizona banks to diversify their loan portfolios, but that can take years.

And there can be other issues. For example, orders for several banks owned by Phoenix-based Capitol Bancorp, including Sunrise Bank of Arizona and Central Arizona Bank in Casa Grande, require the directors of these banks to divest themselves from the parent company - an unusual stipulation.

Executives at Capitol Bancorp declined to comment publicly for this article, as did officials at many other banks cited recently by regulators.

Some progress

Some bank officials report they’re making progress in complying with regulatory orders.

The OCC signed a directive known as a “formal agreement” with Heritage Bank in Phoenix nearly two years ago.

“We’ve been working through the problem loans and have had success getting them off the books,” Troy Hutton, Heritage’s president, said.

“We’re not out yet, but we can see light at the end of the tunnel.”

Significantly, Hutton said low capital hasn’t been a problem for Heritage, which is owned by a bank-holding company in the Kansas City area. “We’re actually looking (to make) new loans,” he said.

Similarly, Scott Schaefer, president of Meridian Bank, said his firm has made progress reducing its exposure to commercial real-estate loans while boosting its capital positions. Meridian and the OCC last year entered into a formal agreement, which Schaefer called the “least intrusive” type of enforcement action.

“It doesn’t impact our daily business,” he said. “We continue to lend money and attract deposits.”

More latitude?

A common plea by bankers is for regulators to give them more time to solve problems, especially since so many loans and the assets backing them are long-term in nature.

Yet regulators also have been feeling the heat from critics who charge they were late to foresee problems. As such, they’re reluctant to appear soft.

“The swiftness and depth of the financial crisis caught everyone off guard, and it was not surprising that bank regulators are under strong pressure to enhance their oversight actions,” said James Lundy, president and CEO of Alliance Bank of Arizona, during a Phoenix meeting on bank lending hosted by a congressional oversight panel.

“Recently, compliance exams have an increasingly hard edge to them.”

Among various suggestions, Lundy called on regulators to phase in higher capital requirements gradually and to differentiate between real-estate loans extended shortly before the bubble burst from less-risky loans made later.

Necessary oversight

Regulators say these and other concerns aren’t falling on deaf ears, but they also need to protect depositors when banks start to teeter.

Analysts see regulators staying tough in two ways - by pursuing more enforcement actions and by holding off on the formation of new banks.

Miller said, “Regulators don’t want to be opening new bank charters while closing so many others.”

Kingry said he knows of no policy against starting new banks but notes the “probability of success is uncertain” in this environment.

Meanwhile, bankers will keep working to comply with regulatory orders while hoping for help from investors and better economic conditions.

“Maricopa County is our business, the place where we originate 95 percent of our loans,” said Voeller at Copper Star.

“Looking at our (enforcement) order and those of other banks, they’re largely driven by the state of the economy.”

Bank regulators have been issuing a lot more enforcement directives, including “cease-and-desist orders” and somewhat less-severe “formal agreements” over the past year or so, directing banks to raise more capital, revise operating practices, hire new management or take other actions. In some cases, these orders have come prior to an eventual bank failure. Here are the Arizona-based banks affected over the past five years. Three orders have been terminated.

Bank Location Regulatory actions Status
Arrowhead Community Bank* Glendale FDIC order November 2009; order terminated February 2010 Operating
Bank USA Phoenix OCC order September 2009 Failed October 2009
BNC National Bank Phoenix OCC agreement January 2010 Operating
Central Arizona Bank Casa Grande FDIC order February 2010 Operating
Community Bank of Arizona Phoenix FDIC order July 2009 Failed August 2009
Copper Star Bank Scottsdale FDIC order January 2010 Operating
CrediCard National Bank Tucson OCC agreement April 2009 Operating
Desert Hills Bank Phoenix FDIC orders December 2006, July 2009, March 2010 Failed March 2010
First National Bank of Arizona Scottsdale OCC order June 2008 Failed July 2008
First National Bank of Scottsdale Scottsdale OCC agreement January 2010 Operating
First State Bank Flagstaff FDIC order May 2009 Failed September 2009
Heritage Bank Phoenix OCC agreement September 2008 Operating
Legacy Bank Scottsdale FDIC order November 2009 Operating
Meridian Bank Wickenburg OCC agreement June 2009 Operating
Mesa Bank* Mesa FDIC order July 2009; order terminated February 2010 Operating
Mission Bank Kingman FDIC order August 2007; order terminated June 2008 Operating
Mohave State Bank L. Havasu City FDIC order February 2010 Operating
Sunrise Bank of Arizona Phoenix FDIC order January 2010 Operating
Towne Bank of Arizona Mesa FDIC orders March 2008, February 2010 Failed May 2010
Union Bank Gilbert OCC order August 2008 Failed August 2009
Valley Capital Bank Mesa OCC order October 2008 Failed December 2009
Western National Bank Phoenix OCC agreement July 2009 Operating

Note: Arrowhead Community Bank and Mesa Bank now operate as part of Sunrise Bank of Arizona within the Capitol Bancorp network.

More on this topic

Regulators’ most common orders

It’s not uncommon for regulators to order banks to change 15 to 20 aspects about their operations. Here are a dozen fairly prominent issues.

New management. Regulators might ask the board of directors to hire a new CEO or other officers.

Raise capital. This is a common one when a bank’s loan portfolio declines in value.

Capital ratios. Regulators may order banks to raise their capital-to-asset ratios to specific targets.

Sale or merger. Sometimes, regulators want to see the board find a white knight to rescue the bank.

Prohibited lending. Regulators might direct a bank to make no further loans to certain customers.

Liquidity. A bank might be ordered to convert more of its assets into cash equivalents.

Dividend restrictions. Regulators often prohibit banks from paying dividends or bonuses during times of stress.

Plans and budgets. A bank might be ordered to draw up new plans for returning to profitability.

Credit concentration. Regulators now worry about Arizona banks with high loan stakes in commercial real estate.

Allowance for losses. Banks might be ordered to provide more of a cushion to offset possible loan and lease losses.

Growth controls. Sometimes banks get into trouble when they grow too quickly, so regulators watch for signs of stress.

Brokered deposits. When a high proportion of a bank’s deposits comes through intermediaries, that’s a red flag because the money could be prone to quick withdrawals.

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Fulton Homes opposes creditors’ plan
Filed under: General, Real Estate
Posted by: Lillian Wong @ 3:49 pm

by J. Craig Anderson The Arizona Republic Jun. 3, 2010 12:00 AM

Bankruptcy has been good to Fulton Homes, according to documents the company filed in U.S. Bankruptcy Court last week stating that it intends to repay creditors in full, with interest, over the next five years.

The Tempe-based homebuilder is trying to fend off a competing reorganization plan proposed by its creditors, led by Bank of America, that would involve liquidating the company and selling off its remaining assets. The bank claims Fulton Homes owes it more than $163 million.

In two motions filed Friday, Fulton Homes’ attorneys argue that terminating the company’s operations is unnecessary and would be less beneficial to creditors and to the local economy.

“BofA can no longer claim that it will not receive as much as it would if Fulton Homes were liquidated, because BofA will be paid in full, with interest, in a timely manner,” the motion states. “BofA can no longer falsely claim that Fulton Homes’ actions in this case are in bad faith, or designed solely for the benefit of Fulton Homes’ interest holders, because BofA and other creditors will be paid in full.”

According to the homebuilder, which filed for Chapter 11 reorganization in January 2009, a successful effort to reposition the company from a luxury-home builder to a provider of lower-cost homes for first-time buyers has led to a dramatic increase in home sales and net income.

Fulton Homes requested an additional 90 days to finalize its reorganization plan, but more importantly, it asked the court to dismiss permanently creditors’ competing liquidation plan.

Christopher Bayley, a Phoenix attorney representing BofA in the bankruptcy case, expressed skepticism about the builder’s latest vow to repay creditors by Dec. 31, 2015.

Although the company’s sales have improved since it filed for bankruptcy protection, Bayley said, Fulton Homes’ ability to make good on a five-year repayment plan will depend largely on the economy.

“Obviously, there’s a lot of uncertainty when you’re talking about repaying someone over a period of years,” said Bayley, of the law firm Snell & Wilmer LLP.

Phoenix homebuilding analyst Jim Belfiore, president of Belfiore Real Estate Consulting, said Fulton Homes has performed consistently among the Valley’s top-three homebuilders since filing for bankruptcy. The other top builders are Blandford Homes and Meritage Homes.

Although he acknowledged there could be unforeseen challenges ahead, Belfiore said Fulton Homes has successfully lowered the cost of its products and repositioned itself as a leader in the starter-home market, where the bulk of existing buyer demand is situated.

“For Fulton, the bankruptcy has allowed them to remake themselves as a builder,” he said.

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Expert: High-end Valley homes stabilizing
Filed under: General, Real Estate
Posted by: Lillian Wong @ 3:47 pm

by J. Craig Anderson The Arizona Republic May. 28, 2010 12:00 AM

A number of recent reports suggest home prices across the country could be headed for a double-dip. But ASU professor Karl Guntermann offers some good news in the meantime for owners of higher-priced homes in metro Phoenix.

His most recent report also marks a positive milestone for all local homeowners.

The Arizona State University Repeat Sales Index, an indicator of the Phoenix-area market’s economic health that is tied closely to year-over-year changes in home price, has been showing continued steady price declines in the past year for homes above the average same-home sale price, which in April was $135,000.

That decline has begun to taper off, with high-end homes showing clear signs of stabilization, he said.

The index for overall home sales clocked in at 1 point in April, according to preliminary data from Guntermann, of ASU’s W.P. Carey School of Business.

That’s a positive 1 point, after three years of stubborn refusal to emerge from negative territory.

Guntermann said there’s a good chance the index will remain on the upside of zero into the foreseeable future.

That doesn’t mean it will gain much additional ground, however. Guntermann said he is expecting the index to remain relatively flat for the rest of the year with a possible, slight increase.

Some analysts saw signs of weakness in two national housing reports issued this month, one from the National Association of Realtors and the other from S&P/Case-Shiller, whose Home Price Index is calculated in a manner similar to ASU’s method.

Like the other two reports, Guntermann’s also was a mixed bag. It revealed continued weakness in the condominium market, with the index down 19 points from a year earlier.

The index, which rises and falls based on a number of factors, including changes in the market value of homes that have sold multiple times in recent years, has been creeping slowly toward the light since reaching its all-time depth of -35 points in April 2009.

The ASU index has been tracking home prices since 1990.

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Banks tout new short-sale processes
Filed under: General, Real Estate, Mortgages
Posted by: Lillian Wong @ 3:44 pm

by J. Craig Anderson The Arizona Republic May. 26, 2010 12:00 AM

Michael Schennum/The Arizona Republic A home is advertised as a short sale this month in Phoenix. While the short-sale process has been seen as a rocky and difficult experience for buyers and sellers alike, banks now hope speeding the transactions will help alleviate confusion and disappointment.

For a financially struggling homeowner, the decision to pursue a short sale does not come easily.

Homeowners who make that choice generally do so after months of searching and pleading for an alternative that would have kept them in the home.

Even when it goes smoothly, the short-sale process is painful for sellers. When it’s bumpy and slow, the pain is far worse, said experts who met in Tempe this month for an educational conference on short sales.

Far too many short sales have been plagued by false starts, confusion, delays and disappointments, they said.

Phoenix-area short-sellers’ many encounters with insult upon injury stem from a combination of problems, including sellers’ lack of experience with the process and lenders’ initial reluctance to adopt on a mass scale what they had long considered an obscure means of resolving bad mortgage debts.

Scottsdale resident Mary Purvis, 57, said Bank of America finally approved her short-sale application after 10 months of frustration and uncertainty.

But the pain didn’t stop there.

“The sale finally went through last September, but now BofA reported my short sale as a foreclosure on my credit reports, which I have no idea how to fix,” Purvis said.

Big mortgage lenders such as Bank of America and Wells Fargo are still smoothing out the wrinkles in their respective solutions to making short sales faster and more reliable. But they are now taking short sales
very seriously and have made many improvements, one bank representative said.

Just as the average Valley homeowner never imagined losing a home to financial hardship, the average mortgage lender never dreamed the bank would have to set up an assembly line to churn out short-sale approvals.

Purvis did not attend last week’s conference to confront her lender directly, but Charlotte, N.C.-based Bank of America’s Matt Vernon, the bank’s top executive in charge of foreclosures and short sales, was there to face a roomful of like-minded consumers.

Vernon was quick to admit the bank’s flawed handling of short sales, but he said Bank of America has since taken a 180-degree turn.

It has implemented an automated system - the first of its kind - for tracking the progress of short sales and has reduced the average number of days it takes for a short-sale to be approved, from 90 days to just over 50 days.

The bank approved 18,000 short-sale applications in April, Vernon said.

Unfortunately, it received more than 50,000 short-sale applications that month.

“Our system was never designed to handle this kind of volume,” said Rick Sharga, senior vice president and chief economist at RealtyTrac, based in Irvine, Calif., which collects and analyzes nationwide data on short-sales and foreclosures. “Short sales were never intended to be a mass-market product.”

That’s exactly what they have become, said Sharga, who spoke Friday at a Tempe conference organized by the Distressed Property Institute, a San Diego-based business that has developed a certification and training program
for real-estate agents and other buyer and seller representatives in short-sale transactions.

Company founder and CEO Alex Chafen said the institute’s twofold purpose is to teach real-estate professionals how to be more effective at negotiating short sales, while giving homeowners who need representation a way to separate the short-sale experts from the novices.

The company created a special designation, Certified Distressed Property Expert, which it hopes will become synonymous with short-sale expertise.

More on this topic

What is a short sale?

In a short sale, a homeowner seeks to sell the home for less than the amount still due on the mortgage. All lenders with a lien on the mortgaged home must agree to the short sale’s terms, because they will not be compensated for the full amount of the mortgage when the home sells.

Tips for prospective short sellers

• Do not wait until foreclosure is imminent to initiate a short sale.

• The seller’s agent bears the brunt of responsibility for making sure the sale is completed. When choosing an agent, ask for references from previous short-sale clients and other proof of expertise, such as Certified Distressed Property Expert certification.

• Be prepared to prove financial hardship. Lenders usually require the two most recent tax returns, bank statements, loan statements, pay stubs or other proof of income, along with a hardship letter explaining your circumstances, a detailed description of the home’s current condition, closing documents from the home purchase and authorization for your representative to negotiate with the lender.

• Contact the primary mortgage lender for instructions on submitting a short-sale application. Be sure to include every document the lender requires.

• The seller or representative should call the lender every day until a short-sale negotiator is assigned, and then call the negotiator every day until he or she orders an appraisal or broker price opinion of the home’s value.

• With an appraisal and comparable buyer’s offer in hand, negotiate with the lender for approval.

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State trust land sold at auction for $2 million
Filed under: General
Posted by: Lillian Wong @ 3:39 pm

by Peter Corbett The Arizona Republic May. 26, 2010 12:00 AM

Amid some confusion, the head of a Seattle-based firm was the winning bidder Tuesday for 4.7 acres of state trust land in Scottsdale.

Perry Koon bought the parcel northeast of Loop 101 and Frank Lloyd Wright Boulevard for the minimum bid of $2.15 million or $451,681 per acre. His company is Koon-Boen Inc.

Koon could not be reached for comment on his plans for the commercial site he acquired from the Arizona State Land Department.

A second bidder, BYPG Holdings LLC, represented by broker George Haugen, thought it had signaled the only bid during the two-minute auction. But auctioneer Dana Brown recognized Koon’s bid first with the No. 4 paddle.

Haugen and an associate, seated three rows ahead of Koon, apparently thought Brown had recognized their bid with the No. 1 paddle.

Brown called out three times that No. 4 had the bid at $2.15 million before banging the gavel to end the auction.

Just before the bidding closed, Scottsdale broker Jim Keeley asked for a clarification that the No. 4 bidder had the high bid.

Haugen’s group did not realize they had missed their chance to bid until the auction closed and they got up to pay a $285,200 deposit for the land.

Haugen declined comment when asked about the bidding confusion.

BYPG Holdings includes the L.L. and P.A. Van Tuyl Revocable Trust.

State Land Commissioner Maria Baier, who witnessed the bidding, said the proper auction procedure was carried out with the bidders identified by number.

She also noted that developers are showing renewed interest in state trust lands.

Builders largely backed off buying or leasing state land the past two years because of the recession.

“I’m deadly serious when I say that in the last 30 days we’ve had a few large buyers in to see us,” Baier said. “To me that says more about the potential economic recovery than all the economic forecasts.”

It appears builders are ready to build up their land inventory again, she said.

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Phoenix puts property-tax hike on hold
Filed under: General, Real Estate
Posted by: Lillian Wong @ 3:11 pm

by Jahna Berry The Arizona Republic May. 26, 2010 12:00 AM

Phoenix city leaders will wait two years before deciding whether to increase a property-tax rate that has stayed the same for 14 years.

Because of falling property values, the city is collecting less money from its secondary property tax, which is used to pay bond debt.

Those voter-approved bond projects include building police stations and parks and roadwork. If the property-tax slide continues for several years, Phoenix could have trouble making debt payments.

Instead of voting to increase the tax rate, the City Council voted on Tuesday to keep the current fixed combined property-tax rate, which is $1.82 per $100 of assessed valuation. If the property-values problem persists in two years, the council either will vote to change the city’s secondary tax rate, change the primary tax rate or use the city’s general fund to cover debt payments, said Councilman Bill Gates.

The city also voted to delay $200 million in bond projects, refinance some debt and closely monitor the situation.

At Tuesday’s meeting, many residents were prepared to speak out against a proposal that would have raised the property-tax rate beginning in July 2013. Residents are hard-hit and paying too much for taxes, several residents said, noting that the city started a 2 percent food tax and that voters recently approved a 1 percent increase in the state sales tax.

The council is scheduled to take a formal vote on the property-tax levy at its July 7 meeting. Phoenix puts property-tax hike on hold

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