Beverly Hills Selling Spree

Jennifer Aniston nabs $36 million; high-end homes are moving in the wealthy enclave

By JULIET CHUNG OCTOBER 28, 2011 for WSJ.com

In August, fashion designer Vera Wang bought a midcentury modern-style home in Beverly Hills for $9 million from real-estate investor and designer Steven Hermann. He'd bought it for $5 million in 2008, then spent more than $3 million on a gut renovation.

In nearby Holmby Hills, Lions Gate Entertainment Chief Executive Jon Feltheimer and his wife, Laurie, recently sold a five-bedroom home that they had bought in 2009 for $9.8 million. A family spokesman said the Feltheimers intended to build a new home but sold after deciding the process would be too time-consuming. They got $14.4 million, from Russian soccer player Gurgen Khachatryan.

At a time when luxury homes are making up an increasingly large share of foreclosures, an unexpected number of high-end owners in and near Beverly Hills are demanding—and in some cases getting—millions more for properties they've recently bought.

Brokers say the appetite has remained remarkably healthy for prime property in this area, particularly for renovated homes. For the year to date ended Thursday, 25 homes in the greater Beverly Hills, Bel Air and Holmby Hills area had sold for $10 million or more, according to Jeff Hyland of Hilton & Hyland, a Christie's International Real Estate affiliate. That's more than the 16 and 21 sold over the same period in the hot years of 2006 and 2007.

Last summer, Jennifer Aniston sold her nearly 10,000-square-foot Beverly Hills home, which she bought in 2006 for $13.5 million, for $36 million. The actress set a local price-per-square-foot record—$3,600—with the sale. Designed by late architect Harold W. Levitt, the home recalled Bali and featured five bedrooms, extensive stonework and a bridge over a koi pond. A spokesman for Ms. Aniston didn't respond to requests for comment.

Not far from Ms. Aniston's former home is another house designed by Mr. Levitt that's been heavily renovated to include Asian influences. The house went on the market in June asking $14.9 million; it's now asking $10.9 million. Owner Tim Mulcahy says he bought the house speculatively, paying $4.6 million for it last year and spending a further $3.5 million on the renovation. Mr. Mulcahy says he's aware there's a housing downturn but calls Beverly Hills a unique market. "I don't feel I've lost money; I feel that I will have some gain," he adds.

In Beverly Hills' gated enclave of Beverly Park, a European businessman bought a 20,000-square-foot contemporary, sight unseen, for $16.5 million last fall. Now, he is asking $25 million for the house—without having done any work on it.

"We thought, 'Let's throw it up on the market and see what happens,' " says the broker, Josh Altman of Hilton & Hyland, of the home, which sits on nearly seven acres and has a dining room with a grotto and waterfall. The attempted sale makes sense, Mr. Altman says, because he was able to get his client a good price on the home and because similar super-size homes in the area are scarce.

Also testing the waters: Paramount Chairman Brad Grey, who, after buying a home in Holmby Hills in the winter for $18.5 million, put it back on the market in September for $23.5 million. Mr. Grey never intended to sell the property, says his broker, Stephen Shapiro of the Westside Estate Agency. He adds that Mr. Grey decided to sell after renovating another property he owns nearby.

Write to Juliet Chung at juliet.chung@wsj.com

It's Time to Buy That House

By JACK HOUGH
U.S. house prices have plunged by nearly a third since 2006, and homeownership rates are falling at the fastest pace since the Great Depression.

The good news? Two key measures now suggest it's an excellent time to buy a house, either to live in for the long term or for investment income (but not for a quick flip). First, the nation's ratio of house prices to yearly rents is nearly restored to its prebubble average. Second, when mortgage rates are taken into consideration, houses are the most affordable they have been in decades.

Two of the silliest mantras during the real-estate bubble were that a house is the best investment you will ever make and that a renter "throws money down the drain." Whether buying is a better deal than renting isn't a stagnant fact but a changing condition that depends on the relationship between prices and rents, the cost of financing and other factors.

But the math is turning in buyers' favor. Stock-oriented folks can think of a house's price/rent ratio as akin to a stock's price/earnings ratio, in that it compares the cost of an asset with the money the asset is capable of generating. For investors, a lower ratio suggests more income for the price. For prospective homeowners, a lower ratio makes owning more attractive than renting, all else equal.

Nationwide, the ratio of home prices to yearly rents is 11.3, down from 18.5 at the peak of the bubble, according to Moody's Analytics. The average from 1989 to 2003 was about 10, so valuations aren't quite back to normal.

But for most home buyers, mortgage rates are a key determinant of their total costs. Rates are so low now that houses in many markets look like bargains, even if price/rent ratios aren't hitting new lows. The 30-year mortgage rate rose to 4.12% this week from a record low of 3.94% last week, Freddie Mac said Thursday. (The rates assume 0.8% in prepaid interest, or "points.") The latest rate is still less than half the average since 1971.

As a result, house payments are more affordable than they have been in decades. The National Association of Realtors Housing Affordability Index hit 183.7 in August, near its record high in data going back to 1970. The index's historic average is roughly 120. A reading of 100 would mean that a median-income family with a 20% down payment can afford a mortgage on a median-price home. So today's buyers can afford handsome houses—but prudent ones might opt for moderate houses with skimpy payments.

For example, the median home in the greater Phoenix market, including houses, condos and co-ops, costs $121,700, according to Zillow.com. With a 20% down payment and a 4.12% mortgage rate, a buyer's monthly payment would be about $470. Rent for a comparable house would be more than $1,100 a month, according to data provided by Zillow.com.

Of course, all of this assumes mortgages are available—no given now that lending standards have tightened. But long-term data on down payments and credit scores suggest conditions are more normal than many buyers think, according to Stan Humphries, chief economist at Zillow. "If you have good credit, a job and a down payment, you can get a mortgage," Mr. Humphries says. "There's more paperwork and scrutiny than five years ago, but things are pretty much like they were in the '80s and '90s."

Not all housing markets are bargains. Mr. Humphries says Zillow has developed a new price/rent ratio that uses estimates for each individual property rather than city medians, to better reflect the choices facing typical buyers. A fresh look at the numbers suggests Detroit and Miami are plenty cheap for buyers, with price/rent ratios of 5.6 and 7.7, respectively. New York and San Francisco are more expensive, with ratios of 17.6 and 17.2, respectively. The median ratio for 169 markets is 10.7.

For investors seeking income, one back-of-the-envelope way of seeing how these numbers stack up against yields for other assets is to divide 1 by the price/rent ratio, resulting in a rent "yield." The median market's rent yield is 9.3% and Detroit's is 17.9%.

Investors would then subtract for taxes, insurance, upkeep and other expenses—costs that vary widely. But suppose total costs were 4% of the purchase price. That would still leave a 5.3% rent yield in the typical market. With the 10-year Treasury yield at 2.2% and the Standard & Poor's 500-stock index carrying a dividend yield of 2.1%, rents for residential housing in many markets look attractive.

A few caveats are in order. First, not all transactions are average ones. Even in low-priced markets, buyers should shop carefully. Second, prices could fall further. Celia Chen, a senior director at Moody's Analytics, expects prices to drop 3% before bottoming early next year and rising slowly thereafter. "If the economy slips back into recession, however, we could easily see a 10% drop," Ms. Chen says.

And property "flipping" can be dangerous even when prices are rising. That is because, absent a real-estate boom, house price gains simply aren't that exciting. Research by Yale economist Robert Shiller suggests houses more or less track the rate of inflation over long time periods.

Houses aren't the magic wealth creators they were made out to be during the bubble. But when prices are low, loans are cheap and plump investment yields are scarce, buyers should jump.
—Jack Hough is a columnist at SmartMoney.com. Email: jack.hough@dowjones.com

Coldwell Banker: Inside Malibu's Famous $75 Million Mansion

Coldwell Banker's Chris Cortazzo presents a tour of the home where 'True Blood' and 'Funny People' were filmed.

Report: Fannie Mae, Regulator Missed Foreclosure Abuses

Original Post: http://blogs.wsj.com/developments/2011/10/03/report-fannie-mae-regulator-missed-foreclosure-abuses/

By Alan Zibel and Nick Timiraos

Mortgage titan Fannie Mae and its federal regulator failed to pay enough attention to mounting evidence of abuses at foreclosure-processing law firms until the issue gained broad public attention last year, a federal watchdog says.

The inspector general of the Federal Housing Finance Agency, in a report being released Tuesday, questioned Fannie Mae’s oversight of law firms that conduct foreclosures on its behalf.

Fannie uses a network of law firms to handle foreclosures for the banks and other mortgage servicing companies that collect payments on loans backed by Fannie. The network arrangement allows Fannie to negotiate discounted rates with approved firms, which in turn can lock in business from the nation’s largest mortgage investor.

The inspector general’s report indicated that the FHFA had a growing awareness of potential foreclosure-processing problems in June 2010, when it conducted a two-day field visit to Florida. The FHFA, according to the inspector general, found that “documentation problems were evident and law firms…were not devoting the time necessary to their cases due to Fannie Mae’s flat fee structure and volume-based processing model.”

After that Florida trip, FHFA staff told Fannie officials that its attorneys were “increasingly unprepared when they enter the courtroom,” leading to a larger backlog of foreclosures.

But the warnings weren’t enough to head off widespread document problems that surfaced months later. In September 2010, banks suspended foreclosures after it emerged that they were using so-called robo-signers to process hundreds of documents without verifying their contents. Fannie and its smaller sibling, Freddie Mac, terminated one of their main Florida law firms last November after uncovering widespread abuses.

In a review completed by the FHFA this past January, the regulator concluded that Fannie Mae could have reacted to foreclosure deficiencies sooner. It also found that Fannie had “inadequate” controls and monitoring of its legal network.

Homeowners “shouldn’t have to worry whether they will be victims of foreclosure abuse,” said Steve Linick, the inspector general. The failures by FHFA and Fannie to provide proper oversight of foreclosure attorneys represent a “breach of the public trust and an assault on the integrity of our justice system,” said Rep. Elijah Cummings (D., Md.), who made the initial request for the inspector general to conduct the report.

An FHFA spokeswoman said that the FHFA is “concluding our supervisory work in this area and we will direct the enterprises to take whatever action is warranted once we are done.” Fannie Mae declined to comment on the report.

Fannie last year hired an outside law firm to do compliance for its legal network and to conduct a review of its largest Florida law firms. But the inspector general faulted those reviews for being too narrow in scope and said they “missed the opportunity to confirm and provide a better understanding of the allegations of foreclosure abuses.”

The report also said that the FHFA should have a formal process to share information about “problem law firms.” For example, the report said Freddie Mac last year terminated a law firm that processed over 43% of Fannie Mae’s foreclosures in Florida and voluntarily told Fannie it had terminated the firm, in part due to foreclosure processing abuses. Fannie decided to retain the firm, the report said, in part because it concluded that the cost of transferring its files to a new firm “would be substantial.”

The report also noted that Fannie had been aware of potential problems with legal filings in foreclosures since late 2003, when a Fannie Mae shareholder notified the company of potential abuses. An outside law firm, Baker & Hostetler LLP, conducted an independent review for Fannie in 2006 in response to the shareholder’s allegations. The report’s findings were first reported by The Wall Street Journal in March.

The 2006 review found no evidence that homeowners had been improperly placed in foreclosure, but it said that foreclosure attorneys working on Fannie’s behalf in Florida had “routinely made” false statements in court in an effort to more quickly process foreclosures, among other warnings.

Fannie officials also told investigators in 2006 that the company had opted against performing regular reviews of its foreclosure attorneys because the company’s lawyers felt the firm would be better insulated from responsibility for misconduct. The report said the approach was under review at the time, and Fannie in 2008 revamped its attorney network.

A Fannie spokeswoman said the company took a series of steps to address specific issues identified by the 2006 report.

• Fannie Mae,
• Federal Housing Finance Agency,
• Foreclosures