June 28, 2009: In this era of reduced real estate expectations and tighter lending it's nice to know that taxpayers, via the Federal Housing Administration (FHA), will be helping folks buy luxury condos deep in the heart of Jersey City, New Jersey. With a mere 3.5 percent down “qualified buyers”* can use loans supplied by FHA backed lenders to buy units at cut rate auction prices at the Beacon, a massive multi-building complex in the Bergen-Lafayette district. The Beacon is set like a jewel in a neighborhood (Bergen Hill) where almost 30 percent of the residents live below the poverty line and service jobs are the main source of employment. For some 40 years the nabe has been called inner city. Now it's called “improving”.
Need proof of improvement? A Beacon resident reports breathlessly on a online real estate forum that Montgomery Gardens, the high-rise public housing project next to the Beacon, will be gone in a few years and “they've stopped renewing leases”. Last September, the Jersey City Housing Authority announced that they've started seeking demolition experts for the Montgomery.
Prices for the Beacon's auction units formerly ranged between $380,000 and $700,000. (At housing bubble height a penthouse allegedly sold for 2 mil.) The suggested starting point is $150,000 to $250,000. Half to be sold regardless. Beacon developer George Filopoulos of Metrovest Equities says this isn't a distress sale “ but a sophisticated approach to reinforcing value for prospective buyers”**.
Even if the housing project doesn't git immediately, wannabe Beaconites shouldn't fret about location location location. While Montgomery Gardens, as well as low-built public housing nearby, are crime stat clusters the Beacon is a tight little island. Valet parking protects Beaconite cars from Jersey City's famous jackers and a Beacon-run shuttle bears residents to transportation into Manhattan. (Sans shuttle, Beaconites would have to hike through several improving neighborhoods.) At night, after the shuttle brings them home, Beaconites don't have to hit the improving streets in search of entertainment or grub. Beacon amenities include an “Aqua Grotto” of hot tubs and saunas, a billiards hall, and an on-site supplier of “mouthwatering desserts and assorted conveniences”. Roof top dining is coming soon. Presumably at tables.
Meanwhile, at street level, Jersey City cops peel in and out of the motorcycle garage that Metrovest Equities rents to the city for a dollar a year.
Generosity flows both ways. The Beacon, which began to take shape about 5 years ago and is still in the process of full realization, has received a series of property tax abatements. As the housing bubble deflated George Filopoulos wanted the city to re-cast the abatements to reflect a projected expansion of rental units**. Banks just weren't cutting condo loans. Last September, Filopoulos dropped his alteration request and apparently the plan for more rentals. Saying the federal takeover of mortgage giants Fannie Mae and Freddie Mac heralded an “improved lending landscape for qualified buyers” to obtain up to “95 percent financing”.
In other words, the risks banks rejected would be born by taxpayers.
It also sounds as if Filopoulos knew Fannie Mae and Freddie Mac would soon be snapping up low down-payment FHA backed mortgages for condos. Fannie Mae and Freddie Mac don't originate mortgage loans; they buy, hold, or market them. Before Wall Street investment banks joined the game Fannie and Freddie were the top enablers of EZ lending. Post meltdown Fan and Fred are coming back strong. Only now they're full government poodles not merely government sponsored enterprises (GSEs). No need for taxpayers to worry tho; if FHA buyers with low down-payments prove as unreliable or fraud prone as subprime buyers with low-down payments, FHA insurance will cover lender losses on the mortgages Fannie or Freddie will presumably be buying, holding, or marketing.
Oh. Wait. The FHA, a sub-agency of the Department of Housing and Urban Development (HUD), is backed by taxpayers too.
Stop squirming Peter-- I need to pick your pocket to pay Paul.
George Filopoulis and Metrovest Equities, a full service real estate investment firm based in New York City, have a history of working with HUD. Good thing Metrovest didn't expand rentals at the Beacon. (They may even be cutting back. Tenants report being given burn notices.) The FHA isn't allowed to do loans in condo developments more than 30% rental and Fannie and Freddie don't go for mortgages when less than 70% of units are owned. (Though Congressman Barney Frank, chairman of the House Financial Services Committee, is seeking to change the latter restriction on the American Dream of Home Ownership.)
The FHA's 3.5 percent down-payment solution to the national condo glut is a prize sought by many developers. It's not just the low down-payments; it's the speed with which FHA buyers can get mortgages. In as little as two weeks. And in certain circumstances, those eligible (at least on paper) for the first time home buyer tax credit of $8000, might be able to apply it to the 3.5 percent down-payment. A $250,000 mortgage with $750 down! A $150,000 one with no down-payment at all! In two weeks! How subprime is that?
Speaking of which, Bank of America (BofA) is one of two banks supplying FHA mortgages for Beacon auction units. BofA, now considered like unto a government poodle, is doing a lot of FHA business. Countrywide Financial, the king of subprime lending, was absorbed by BofA. (As was subprime investment peddler Merrill Lynch.) Countrywide was the largest provider of loans bought by Fannie Mae. Timothy Mayopoulos, Fannie Mae's new Executive Vice President, General Counsel, and Corporate Secretary was formerly an Executive Vice President at Bank of America. Talk about tight little islands.
Meanwhile, at street level, George Filopoulus peels off political contributions. His wife donates lock step. Since 2004, lion share recipients include the Democratic National Committee (DNC), the New Millennium Political Committee (a PAC popular with developers operating in Jersey City and the rest of Hudson County), former Senator Hillary Clinton and Congressman Charles Rangel of New York, and Senator Robert Menendez of New Jersey. New Millennium is based in Hudson County and affiliated with Robert Menendez. Senator Menendez serves on the U. S. Senate Committee on Banking, Housing, and Urban Affairs, and is a chair of its Housing, Transportation and Community Development subcommittee.
But back to the Beacon. As said, a work in progress. The Beacon is actually a redevelopment of a massive medical center built in the 1930's by Jersey City Mayor Frank Hague. The Notorious P.R.I.G. While cracking down on girlie shows corruption was him. Hague was the sine qua non for Hudson County's still flourishing machine patronage system. In exchange for delivering Jersey City-- one of the state's largest cities-- to FDR at election time Hague got tons of Works Progress Administration (WPA) funds. Via federal appointment of his cronies to state positions Hague came to control WPA spending in all of New Jersey. The Jersey City Medical Center, which included state of the art maternity facilities, was one of the projects into which the funds flowed. The center eventually proved overbuilt and a financial drain to operate. But to give the devil his due, the taxpayer-jacked house Hague built bore social relation to the surrounding community and represented an ideal of improvement for all. In Hague's own words the center was “to provide medical care to the residents of Jersey City without regard to the ability to pay.”
As for Montgomery Gardens, the Beacon's public housing neighbor supposedly slated for destruction, speculation is rampant as to what will happen to the site post demolition-- and to the residents of its 520 units. Some say George Filopoulus and Metrovest will turn the site into a parking lot. Or a supermarket. The city has mumbled something about mixed income housing. Residents of Montgomery Gardens are welcome to apply and will be accepted if they meet income requirements. Meanwhile, folks in struggling neighborhoods not blessed with a Beacon are worried a crime stat surge is headed their way.
Carola Von Hoffmannstahl-Solomonoff
*Luxury Condos, All Bids Considered, Antoinette Martin, New York Times, 06/14/09
**Luxury Condos Go Up For Auction, Press Release, Metrovest Equities, 06/01/09
***On second thought, Beacon to go rental, Ken Thorbourne, Jersey Journal, 09/10/08, posted at Wired JC
Carola Von Hoffmannstahl-Solomonoff
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