Economy Watch: Multibillion-Dollar Mortgage Settlements Unveiled; Office Vacancies Drop in 4Q; Green Street: CRE Prices Almost Back to ’07

By Dees Stribling, Contributing Editor

Bank of America reached an $11.6 billion settlement with Fannie Mae on Monday, bringing the banking giant a step closer to putting the Countrywide mortgage shenanigans of the 2000s to rest (though more litigation on other aspects of bum mortgages remains). Bank of America got stuck with the Countrywide tar baby with its ill-timed 2008 acquisition of that company, which had made a habit of originating loans for borrowers that had no known qualifications for them, then putting those toxic mortgages into securities, many of which became essentially worthless in the face of the housing crash. That practice cost the GSEs, and so ultimately the government, billions.

In the agreement, the bank will pay $3.6 billion directly to Fannie Mac, and spend $6.75 billion to buy back mortgages. Bank of America will also sell the right to collect payments on more than $300 billion worth of residential mortgages to other firms.

A separate $8.5 billion settlement involving mortgage practices involving ten major banks (including Bank of America, Citigroup Inc., JPMorgan Chase & Co., Wells Fargo & Co.) was also finalized on Monday. Under the terms of that deal, the banks agreed to pay cash to government and compensation to homeowners whose homes were foreclosed in spite of problems with the documentation (robo-signing woes, in other words).

Office Vacancies Edge Down in 4Q

Reis Inc. reported on Monday that the U.S. office vacancy rate declined slightly to 17.1 percent during the fourth quarter from 17.2 percent in the third. According to Reis senior economist Ryan Severino, the quarter saw positive office absorption, though not as much as in other recent quarters.

During the fourth  quarter of 2012, a net of 3.691 million square feet were absorbed nationwide, down from 4.819 million square feet during the third quarter and 4.842 million square feet during the fourth quarter of 2011. Still, asking and effective rents both grew by 0.8 percent during the fourth quarter, topping the growth experienced during third quarter, when asking and effective rents both grew by only 0.2 percent.

The supply of new office product isn’t expanding particularly rapidly. According to Reis, 12.025 million square feet of office space was completely nationwide in 2012. That’s a sizeable drop from 2011, when 15.164 million square feet were completed.

Green Street Says CRE Prices Almost Back to ’07

Green Street Advisors reported on Monday that its Commercial Property Index didn’t budge in December. Still, the company estimates that following strong gains in 2012, CRE prices are now on average only a little short of their most recent highs of 2007. Green Street’s index puts Aug 2007 at 100, and the Dec. 2012 reading for the index was 98.1.

“It was another good year,” said Green Street analysts Peter Rothemund in a statement. “Most property types experienced solid single-digit gains. And it would not be surprising to see the upward trend continue. Real estate pricing looks very attractive in today’s low-return world.”

Wall Street edged down on Monday, with the Dow Jones Industrial Average losing 50.92 points, or 0.38 percent. The S&P 500 was off 0.31 percent and the Nasdaq dropped 0.09 percent.