US real estate is doing poorly; everyone knows that; and it is not getting any better according to the latest statistics announced this week. Fortunately the demographics of relocating employees tend to shield them from the worst aspects of the market, but of course they are also negatively affected. In this market, pre decision counseling certainly makes sense.
The Foreign Corrupt Practices Act has always presented lawyers and compliance personnel with a difficult target because so many investigations under it are settled before courts can rule on its reach and scope. It looks like the Department of Justice will provide some guidance regarding its interpretation of the law in 2012, 23 years after Congress asked it to do so.
The Rest of the Story:
US Real Estate.
Nationally, US median home prices continued their downward trend in over 75% of metropolitan markets, according to a just released study by the National Association of REALTORS®.
The third quarter results, however, do show an increase in prices in 39 of the 150 MSAs studied. Last quarter, 41 metropolitan areas posted an average gain, according to NAR’s calculations.
Looking at the effect of the sale of distressed properties, according to CoreLogic single-family home prices declined nationally 4.1% from a year earlier and 1.1% excluding distressed sales. Overall, home prices in September were down 31.2 percent from peak levels in April 2006 and 21.9% excluding distressed sales. The national delinquency rate for borrowers 60 days or more past due on their mortgages increased during the third quarter for the first time since 2009, according to the credit reporting agency TransUnion.
The largest price declines were in Mobile, Ala. (-17.7%), Phoenix, Ariz. (-17.6%), Allentown, Pa. (-17.5%) and Salt Lake City (-15.3%). Price increases were found in Grand Rapids, Mich. (23.7%), South Bend, Ind. (19.8%), Palm Bay-Melbourne, Fla. (17.7%) and Youngstown, Oh. (13.1%).
Adding all of the changes over the whole country, the median national home price fell from $177,800 in the third quarter to $169, 500 last quarter, a 4.7% decrease, according to NAR.
Not surprisingly, home sales also fell to an annual rate of 4.88 million, a slight decrease from the second quarter, but a significant gain from the 4.17 million a year ago. Forty five states and the District of Columbia posted double digit gains in sales over the past year, showing that the easing in prices is likely the result of distressed sales. NAR estimates that fully 30% of sales consists of those properties.
Interestingly, the number of mortgage modifications arranged under HAMP (the Home Affordable Modification Program, a federal program run by HUD) increased significantly to over 40,000 – an increase of about 50% from the previous month, and those arranged under the HARP (Home Affordable Refinance Program, another federal program applicable only to mortgages guaranteed by Freddie Mac or Fannie Mae) increased slightly.
Neither of these mortgage modification programs has been particularly successful over the past two years in helping refinance the estimated 1 million plus houses that are now in distress, i.e. that have mortgage payments over 30 days in arrears. To try to combat this trend and increase modifications for those who still have jobs, the Administration and the FHFA just announced a plan to revamp these programs to try to decrease the paperwork and administrative burden that have been accused as a primary cause of the small number of modifications that have occurred – about 800,000 out of as many as 2 to 3 million that may qualify. The administrative changes will likely consist of lowering the loan to value ration required for the refinance and perhaps eliminating the need for a full appraisal on the property. In addition, the requirements regarding missed payments may be relaxed; in any case it is estimated that these changes will only increase the number of eligible participants from 3% to 5%. Helpful, but not the silver bullet for the housing market.
How bad is the overhang of available properties related to current demand? Freddie Mac’s third quarter report gives an idea. During that period the GSEs sold 25,300 repossessed houses, a slight decrease from the previous month. They repossessed an additional 24,300 houses, however, during that period; thus the bad news is that based on these figures, it is estimated that it would take the GSEs about 15 years to unload their existing inventory.
According to the latest estimates, it takes 761 days to complete a foreclosure in a judicial foreclosure state, and 580 days in nonjudicial states. This time lag will have two effects on the recovery; on one hand it will help smooth the effect on market absorption of the foreclosed properties, thus helping ease price fluctuations, on the other hand it will probably lengthen the recovery as foreclosures continue to come on to the market years after the mortgage fell delinquent. With the federal settlement (still in the works, apparently) regarding robosigning, and the state actions such as the recent Nevada law banning foreclosures with any robosigned documents, foreclosures will continue to play a part in the housing market for at least several more years.
Of course, when the market picks up, the delta will likely decrease, lowering the time it takes to unload the repossessed properties. But it will certainly take some time as the market rises, which points to a slow recovery in the housing market, whenever it comes.
In the meantime, the rental market – made up primarily of multifamily units, has seen a steady increase as demand increases from displaced homeowners. About 1.4 million families moved into rentals over the past year alone. Renters now make up more than 40 million households, nearly one third of all US households. This increase in demand is beginning to cause upward pressure on rents in many areas, and will likely spur a significant building boom in the near future.
What do these figures portend for the employee mobility industry? Not much change, actually. The housing market continues to hug the bottom, driven by the huge shadow inventory of distressed housing and the increased underwriting standards that are slowing down both purchases and sales.
Fortunately the relocation housing market tends to concentrate in the higher income urban and semi urban areas that are faring better than the averages. This market tends to be better in terms of selling period (days on market) and price diminution. That being said, even in these markets there is certainly nothing like recovery to the pre-bubble markets, and there will likely not be so for several years. More transferees will likely be looking at short sales an or rentals, both on the destinations and departure sides of their moves, and this will require counseling. Pre decision counseling by the employer or RMC should become a part of the homesale process at least until the housing market clears up.
FCPA Guidance? As the employee mobility industry globalizes, the need for understanding of and compliance with the Foreign Corrupt Practices Act (FCPA) has become critical. Even those companies that do not actual provide services over national borders can be affected, either through contracting with foreign companies, or through the compliance activities of their customers. I have written on the FCPA and its reach in our industry, and it continues to be good advice for all companies to understand what if any interface they have with this anti-bribery and record keeping law.
One difficult fact about the FCPA is that while there have been many prosecutions, fines and jail sentences handed out as a result of recent DOJ and SEC investigations, there are many grey areas of the law that make compliance difficult. Usually unsettled areas of criminal laws are settled by court cases, and lawyers and compliance personnel can review the facts in those cases to find the areas of the law-fact interface that the prosecutors and courts believe are prohibited.
Unfortunately, many current FCPA cases are quickly settled after the DOJ or SEC begins to investigate allegations-- or even suspicions -- of wrongdoing. These settlements most often result in large fines and agreements to beef up compliance mechanisms. Sometimes, the prosecutors simply dragnet an industry because of allegations against a single company. Settlement is often a good choice because of the millions of dollars it requires to defend a large case, and win or lose, the reputational damage a company is likely to suffer.
Because of this uncertainty and lack of understanding of the reach of the law, the US Chamber of Commerce has been lobbying Congress to modify it for clarity. Interestingly, a 1988 amendment to the law ordered the DOJ to provide some guidance regarding it. Recently the UK Justice Minister provided guiding principles for the application of the UK Bribery Act; the law did not take effect until they were issued. The FCPA was adopted in 1977 and has been enforced since then in accordance with the changing philosophies of the prosecutors.
There may be some help on the way. Yesterday, the Assistant Attorney General announced at a conference that the Justice Department is working on guidance to be released next year. When this occurs it will be good news for compliance personnel, allowing them to fine tune their programs to the interpretations of the prosecutors.