The Housing Bubble

The Contra Costa Times reports on a recent poll. “The random telephone poll taken from Jan. 16 to Jan. 23 shows that 40 percent of responders have seriously considered leaving the Bay Area. Of those, 70 percent said the high cost of housing was a major factor leading them to dream of cheaper pastures.”

“Fifty-three percent of those polled in Marin, Sonoma, Napa and Solano counties said clogged freeways and sky-high home prices have them thinking about the color of the grass on the other side of the East Bay hills, according to the survey conducted by the Bay Area Council.”

The realtor association reports on what may be some relief. “The median price of an existing home in California in January increased 13.8 percent and sales decreased 24.1 percent compared with the same period a year ago, C.A.R. reported today. The January 2006 median price increased 0.5 percent compared with December’s $548,640 median price.”

“‘The California real estate market is beginning to experience the soft landing that we expect to be the underlying dynamic driving the housing market this year,’ said C.A.R. Chief Economist Leslie Appleton-Young. ‘The number of homes for sale has risen to a six-month supply, which will translate into a slower rate of price appreciation than we experienced in 2005.’”

“In a separate report covering more localized statistics generated by C.A.R. and DataQuick, 93.2 percent or 355 of 381 cities and communities showed an increase in their respective median home prices from a year ago. Dataquick, which produces a separate, more inclusive, price survey, says the median price in California in January was $452,000. That was down 1.3 percent from $458,000 for December.”

“If Central Valley real estate agents looked a little lean and hungry in January, it might because the sales pace was down 31.9 percent from December and down 23.9 percent from January of 2005. Prices in the Central Valley also fell in January to a median of $347,070. That’s down 2.5 percent from December.”

“‘We have now seen three months in a row where sales have dropped more than expected,’ said Robert Kleinhenz, an economist with CAR. ‘At least some home buyers have adopted a wait-and-see attitude.’”

“‘Mortgage brokers are not as busy, real estate brokers are not as busy,’ said Kevin Clay of a San Carlos-based real estate and financial services firm. ‘There seems to be a decrease in activity overall.’”

“The inventory of homes for sale could swell as new homes nearing completion come on the market, and as home owners who believe mortgage rates will head higher rush to list houses before financing tightens, said Bob Edelstein, co-chair of the Fisher Center for Real Estate and Urban Economics at the University of California, Berkeley.”

The Florida realtors have their January numbers out. “Coming off several years of blistering home sales at a record pace, Florida’s housing sector followed the national trend in January and showed signs of some market adjustments, according to FAR. Realtors from across the state report that more homes are available for sale, improving what had been tight inventories in many markets.”

“Statewide, sales of single-family existing homes totaled 12,815 in January compared to 15,745 homes sold a year ago for a 19 percent decrease.”

“Sales of existing condominiums in Florida also decreased last month, with a total of 4,456 condos sold statewide compared to 5,461 in January 2005 for an 18 percent decline, according to FAR. This release marks the first time that FAR has reported monthly condo sales in the state’s metropolitan statistical areas.”

Not mentioned in the release, but viewable in the tables at the bottom of the link is that of the 20 regions, all but 2 had declining sales, year over year, with several down 20-40% plus.

Comparing previous month numbers, from December 2005 to January 2006, Fort Myers-Cape Coral SFH median price dropped $35,100 to $287,200. Fort Walton Beach SFH median was off $16,600 to $225,500 and Pensacola’s median SFH was down $12,600 to $158,100.

There may be a reason they split the condos from the detached homes; besides similar sales volume decreases, some median prices saw yoy declines. Fort Walton Beach median condo prices were down 57% and Pensacola was off 61%.

Another mortgage REIT has called off a press conference. “Saxon Capital, Inc., a residential mortgage lending and servicing real estate investment trust (REIT), today announced it is delaying its 2005 fourth quarter and year end earnings press release and related conference call. The Company expects to report its complete operating results on or before March 31, 2006.”

“Management is reviewing the..derivative transactions used in its hedging strategy to manage interest rate risks from 2001 to the third quarter of 2005. If the Company determines that it did not meet the requirements of SFAS 133, a restatement of results from 2001 to the third quarter of 2005 may be required. ‘We are disappointed in this delay, but need more time to review these complex accounting issues before reporting our results,’ said Michael Sawyer, CEO of Saxon. Robert Eastep, CFO of Saxon said, ‘In light of recent scrutiny as to the application of hedge accounting, we are reviewing our accounting treatment of our derivative transactions related to our hedging strategy to ensure that our financial statements adhere to SFAS 133.”

“The Mortgage Loan Operations segment originates, purchases, and securitizes primarily nonconforming residential mortgage loans.”

From Market Watch. “The FDIC reported that industry net income of $32.9 billion fell 5% from the record set in the third quarter. ‘What we see is a banking industry that is fundamentally strong but continues to face some important challenges ahead,’ Martin Gruenberg, the FDIC’s acting chairman said.”

“Among the highlights of the FDIC report, growth in residential mortgage assets increased by $24 billion, the smallest quarterly increase in two years. Also, the net interest margin fell to 3.49% from 3.5% in the fourth quarter, a 15-year low also seen in the second quarter. ‘As short-term interest rates rose more rapidly than longer-term rates, the difference between them has narrowed,’ the FDIC said.”

“‘The narrower spread has made depository institutions’ traditional business of taking deposits and making loans less profitable, as banks and thrifts tend to make longer-term loans and fund them with shorter-term deposits.’”

“In the wake of the prime lending sector’s refinance contraction, the nonprime sector has picked up and become more mainstream, accounting for 28% of total loan originations, according to a panel member at the MBA Expo in Phoenix. Michael Drawdy, senior vice president at Countrywide Financial Corp., said half of subprime ARMs will be due in the summer and over the next 14 months. ‘There will be some people who can’t pay for an ARM change,’ Mr. Drawdy said.”

“‘That is why you must make sure there is a system in place for collections, to make sure borrowers know their options.’ Panelists talked about repayment plans and ARM modifications aimed at helping borrowers stay in their homes. Over the next 12-24 months, there is a potential for severe delinquencies, they said.”

The Massachusetts realtors have some numbers out. “The sales decline of 32.5 percent that took place between December and January is not unusual and generally reflects seasonal changes that occur in the local housing market each winter as cold weather settles in and the holiday season occupies consumers’ time.”

“Active listings for detached single-family homes rose steadily over the last month to 24,331 this January, rising 7.7 percent from December when there were 22,593 listings.”

“The condominiums sales decline of 25.2 percent that occurred from December and January is not unusual and reflects seasonal changes in the local housing market. The condo inventory levels continue to rise. Active listings have increased 25.4 percent in the past year, up from 9,436 units in January 2004 to 11,837 this January. Also, compared to a month earlier, condo listings have increased 16.3 percent from December.”

“Selling prices for detached single-family homes rose steadily last month to a statewide median price of $340,450 in January, but it appears the rate of price appreciation may be starting to moderate. In fact, over the past 12 months, the median selling price increased just 7.4 percent, the smallest gain in year-to-year price appreciation since last January when the price rose 7.5 percent over January 2003. The all-time monthly high median price remains $360,000 set in June 2004.”

The statewide median price for single family homes was $350,000 at the end of 2005. The median at the end of 2004 was $345,000.

The Boston Globe has this update. “The recent slowdown in the state’s housing market deepened in January as sales of single-family homes fell to the lowest level for that month in a decade, MAR said Tuesday. The 2,345 home sales statewide in January represented a 21 percent drop from sales in the same month a year earlier, and marked the lowest January total since 2,332 homes were sold in the first month of 1996.”

The NAR has the existing home sales numbers out. “Total existing-home sales; including single-family, townhomes, condominiums and co-ops, declined 2.8 percent to a seasonally adjusted annual rate1 of 6.56 million units in January from an upwardly revised pace of 6.75 million in December. Sales were 5.2 percent below the 6.92 million-unit level in January 2005.”

“David Lereah said sales are tracking the trend in the association’s Pending Home Sales Index. ‘Our leading indicator, based on pending sales, has been trending down since hitting a record last August,’ he said. ‘In the wake of interest rates peaking in November, I expect we are in a bit of a trough that may be followed by a modest rise and then a general plateau in the level of sales activity.’”

“Total housing inventory levels rose 2.4 percent at the end of January to 2.91 million existing homes available for sale. Single-family home sales dipped 1.5 percent to a seasonally adjusted annual rate of 5.77 million in January from an upwardly revised 5.86 million in December, and were 4.8 percent lower than the 6.06 million-unit pace in January 2005.”

“Total existing-home sales in the West declined 3.5 percent to a pace of 1.37 million in January, and were 14.4 percent below January 2005. In the Midwest, existing-home sales dropped 7.7 percent to an annual pace of 1.44 million in January, and were 3.4 percent below a year earlier. Existing-home sales in the Northeast fell 10.0 percent to annual sales rate of 990,000 units in January, and were 13.2 percent lower than January 2005.”

“The decline in total sales was driven by a 1.5 percent decline in the pace of single-family sales and a 10.6 percent drop in condo sales in January.”

Some housing bubble news from homebuilders on Wall Street. “Dominion Homes, Inc. today announced financial results for the three and twelve months ended December 31, 2005. The Company’s year-end backlog for 2005 was the lowest in several years and reflects a slowdown in home sales that began during the second quarter of 2004 and continued throughout 2005. The Company’s land position..became disproportionate to the lower demand for its homes experienced during 2004 and 2005. As a result, the Company began to aggressively reduce its land position during 2005.”

“The Company’s CEO, Douglas G. Borror, commented ‘We are offering selective discounts on our homes to improve sales that are expected to reduce our gross margin for the year. Due to our low backlog at the end of 2005 and the anticipated reduction in our gross margin, we do not expect to be profitable for the first quarter of 2006.’”

And from Standard Pacific. “New home orders companywide for the year-to-date period ended February 26, 2006, excluding joint ventures, were down 13% from the level achieved a year ago. This slowing of sales activity is particularly evident in markets which have experienced significant price increases and investor-driven demand in recent years, such as California and Florida.”

“New home orders were down 24% year over year in Southern California on a 29% increase in active selling communities. The lower level of sales activity in Southern California was due to: (1) a softening in buyer demand, most notably in San Diego and, to a lesser degree, in Orange County, (2) reduced product availability, particularly in our Los Angeles division, and (3) an increase in the cancellation rate.”

“In Northern California, new home sales were down 60% on a 12% lower active community count. The Company saw a noticeable slowing of demand in Sacramento in the second half of 2005. New home orders were down 37% in Florida on a 12% decrease in community count. A number of factors contributed to the year-over-year decrease in Florida order activity: (1) reduced product availability in certain divisions, particularly in Orlando and Jacksonville, (2) a softening in buyer demand, most notably in South Florida and Southwest Florida, (3) continued intentional slowing of orders to better align production and sales, particularly in Tampa, and (4) a modest increase in the cancellation rate.”

“The Company’s cancellation rate for the year-to-date period ended February 26, 2006 was 26%, up from the year earlier rate of 18%.

“Nearly half the new homes put up by builders aren’t being sold as expected, the report shows. At the current sales pace, there were enough new homes on the market to satisfy demand for the next 5.2 months, the fattest inventory glut since November 1996.”

A recent report from Santa Barbara. “The housing market in Santa Barbara County has gone from hot to lukewarm, and it’s likely to stay on the cool side over the next few years, according to state and local economists. ‘The boom is over. But the market won’t collapse, and we don’t expect home prices to decline,” said Mark Schniepp.”

“Sales of existing homes countywide fell by about 13 percent last year, the biggest drop since 1995, Mr. Schniepp. On the South Coast, known as one of the most expensive housing markets in the nation, total sales last year also fell in the 13 percent range. And the number of homes available for sale climbed to the highest level since 1998, he added.”

“Chris Thornberg, senior economist at the UCLA Anderson Forecast, also presented his real estate projections, which he titled ‘Chill in the Air.’ ‘When you see sales starting to fall, that’s the signal of the end (of the boom),’ said Mr. Thornberg, who for years has insisted that California was enveloped in a housing bubble.”

“Home sales have fallen not only in Santa Barbara County but throughout California. ‘In California, there is no growing market except in Riverside,’ Mr. Thornberg said.”

“But does a peak in sales signal that home prices will fall, and does that mean the housing bubble will burst in the same way as the stock market? No, Mr. Thornberg said. ‘You can’t day-trade housing like you can stocks,’ he explained. ‘The bubble pops not on the price side but on the activity side.’”

“Instead of homeowners unloading their properties at fire-sale discounts, most will deal with a soft market by ‘going into a bunker mentality.’ They’ll pull back on selling and buying homes, and they’ll stop talking about how much their properties are worth, Mr. Thornberg said.”

“Both Mr. Schniepp and Mr. Thornberg said..the fate of 2007 depends on whether the housing market deflates slowly or takes a sharp dive. Santa Barbara County and the rest of California have grown heavily dependent on the real estate sector over the last five years to keep the economy afloat. ‘A large portion of employment in the county is real estate-related,’ said Mr. Schniepp. ‘About 10 percent of all jobs in our area are somehow related to real estate, not counting retail sales for goods that go into houses.’”

The media reacts to todays housing report. “The pace of new home sales slowed in January, according to a government report Monday that included the latest sign of a growing glut of new homes on the market in some areas. The Commerce Department said Monday that sales of single-family homes decreased 5% to a seasonally adjusted annual rate of 1.233 million, from a rate of 1.298 million during December. Sales dropped 7% in November, rose 7.7% in October, and sank 2% in September and 7.1% in August. With sales falling and starts climbing, there were an estimated 528,000 homes for sale at the end of January, a record level.”

“‘The decline in new home sales in January makes it clear that there is some real softening in the housing market,’ said (economist) Joel Naroff. ‘Let’s face it, the weather in January was as good as it gets yet demand fell. The housing market is coming back to earth,’ Naroff said. ‘While there is no free-fall, when the big push comes in the spring and buyers see they have some power for the first time in years, there could be some major impacts on prices.’”

“David Seiders, chief economist at the National Association of Home Builders, said surveys showed that the number of builders who are throwing in various amenities for free in order to move homes has risen to 41 percent. He said a lot of this year’s change will reflect less speculative investor activity and more sales spurred by people desiring to live in the homes. ‘Hopefully, that is all that is developing here,’ Seiders said.”

“Raymond James and Associates analyst Rick Murray said his checks with builders showed that they believe business has slowed on a year-to-year comparison. The more worrisome feature is the inventory level, which is ‘off the charts,’ Murray said.”

“Bank of America analyst Daniel Oppenheim projected new home sales will fall further to a 1.1 million pace in 2006. ‘We expect new home sales to slow based on the weaker trends that we see in the market, and we think the decline in sales will lead to an even more significant slowdown in home price appreciation, the key driver of margin and earnings growth in recent years,’ Oppenheim wrote. Bank of America also has a ‘Cautious’ view on the sector, based on slowing traffic trends, price appreciation and inventory levels.”

“David Seiders said it is too soon to say there is a glut of new homes on the market. ‘There’s been a definite upswing in the inventory level for some time,’ said Seiders.’ Even the report’s figure on median time it took for completed homes to be sold rose to 4.5 months from a median of 4 months throughout 2005, a number that wasn’t affected by the warm January weather.”

“Home builders have reported an increased number of orders for new homes being cancelled in recent months, raising concerns that buyers who were looking to real estate for an investment rather than their own housing needs are pulling out of the market. Such cancellations could put downward pressure on prices in some formerly hot markets.”

“Home builder Toll Brothers warned last week that it is seeing greater supply than demand of new homes in a number of markets, and it pointed to the drop in interest by investor-buyers. ‘Speculative demand has ceased and speculators are now putting their homes back on the market. The result has been more supply than demand in some regions,’ said the company’s earnings statement. ‘Markets such as metro Washington, D.C.,..will need to work through their excess supply before the imbalance once again tips in our favor.’”

Reuters reports on Fannie Mae’s portfolio. “Fannie Mae, the largest U.S. home funding company, on Monday said that its mortgage portfolio fell by an annualized 3.1 percent in January after expanding 21.4 percent in December. The retained mortgage holdings ended last month at $725.3 billion, as the portfolio resumed the shrinking pattern seen in every month last year except December.”

“Congress continues to battle over the size of the combined $1.4 trillion portfolios of these two federally chartered companies, which buy mortgages from lenders and repackage them to sell as securities or keep for themselves. Last week a long-awaited investigatory report spearheaded by former Republican New Hampshire Sen. Warren Rudman found no major new accounting problems at Fannie Mae. Industry experts said the report nonetheless kept the focus on the company’s activities.”

USA Today takes a look at the bigger picture. “The internal report, commissioned by Fannie Mae and conducted by former senator Warren Rudman and the Huron Consulting Group, sketches a positive portrait of Fannie Mae’s board, clearing them of direct responsibility for the company’s accounting troubles.”

“However, independent consultants contacted by USA TODAY say Fannie Mae directors were let off too easily by the report. In the post-Enron era, with stricter anti-fraud, governance and pay practices, the board should have been more aggressive in its watchdog role, they say. ‘In today’s world, it’s very, very hard to comprehend that the board didn’t know anything, that they felt misled,’ said Frank Glassner.”

“Greg Taxin, CEO of (a) corporate-governance research firm, contends the directors are guilty of ‘tolerating a corporate culture and an organizational structure’ that harmed investors. ‘The first responsibility of a board is to protect shareholder capital,’ Taxin wrote. ‘This board, in my view, failed to do that adequately.’”

“There might have been conflicts and close ties among directors and corporate officers ‘that blinded the board from what was going on,’ said Charles Elson, head of the University of Delaware’s Weinberg Center for Corporate Governance. ‘The big question is: Was this a failure of internal controls, or a failure of the board itself?’ Elson said. ‘How did something this large escape their notice?’”

“Among other governance issues, the report questioned Fannie Mae’s pay practices in recent years. The investigators found Fannie Mae set corporate earnings targets ‘at achievable levels’ it knew executives could reach. Once they hit those targets, they received higher salaries and bonuses from a bonus pool of millions of dollars.”

Business Week did an interview with some housing industry professionals. “I caught up with three housing heavyweights, CEO Angelo Mozilo of mortgage lender Countrywide Financial, CEO Bruce Karatz of KB Home, and real estate bear Professor Bob Shiller of Yale University, and asked how worried we should be.”

“How would you characterize the housing market right now? MOZILO: The market has turned. The psychology of the buyers for single-family homes has clearly changed. We are seeing it from the flow of loan applications. If I had to pick a time, I would have to say it turned in January.”

“SHILLER: The real question is: Will it be a soft landing, or will prices come down substantially? It’s hard to say because this is the biggest housing boom that this nation has ever seen, so we are in uncharted territory. I worry about a big fall because prices today are being supported by a speculative fever.”

“How severe are the price declines you are expecting? MOZILO: I would expect a general decline of 5% to 10% throughout the country, some areas 20%. And in areas where you have had heavy speculation, you could have 30%. We will see…sellers back off from the prices they have been demanding. A year or a year and half from now, you will have seen a slow deterioration of home values and a substantial deterioration in those areas where there has been speculative excess.”

“SHILLER: In Los Angeles in the last cycle, prices peaked in 1989 and bottomed out in 1997. In that interval, L.A. lost 40% of its real value. I can see that happening there again or in any of the cities that have had tremendous price increases, and there are quite a number of them in this country. I think a pullback of as much as 40% is plausible in many places.”

“KARATZ: I don’t see a fundamental slowdown other than in the hottest markets. Things don’t continue through the roof forever. In some markets, 10% to 15% of buyers were speculators. You take them out, and the market drops 10% to 15%, and it takes three to four months for whatever overhang there was to be sold.”

“Where are the most vulnerable areas? MOZILO: Miami and Fort Lauderdale. Las Vegas is another area where there is heavy speculation. That means people were buying three, four, five condos at a time and thinking they can flip them. Those are the spots we have identified where… we will only make loans when we know the person will live [in the housing].”

“SHILLER: The most spectacular cases are Phoenix and Las Vegas. They soared so suddenly. But others [are vulnerable, too,] such as San Francisco, San Diego, L.A., really much of California.”

The Honolulu Advertiser reports on Hawaii’s housing bubble. “In January, the median list price of a single-family home was $699,000, according to the Honolulu Board of Realtors. Last year, the high point for single-family list prices came in October, when the median list price was $698,000.”

“While sellers continue to list at high prices, the homes aren’t moving as fast as they used to and the inventory is growing. January saw 738 new single-family listings,. The number of new single-family listings in one month topped 700 in August for the first time since the Board of Realtors began keeping records in 1986.”

“‘The inventory has risen considerably,’ said Bryn Kaufman, a real estate agent in Kailua. ‘The fact that some sellers are starting to reduce prices and accept lower offers is helpful. It started to happen right near the end of last year and it’s working its way into this year. A lot of people priced into the upswing in the market and now they’re overpriced.’”

“Out of 1,627 single-family homes for sale, 533 have seen price drops, Kaufman said. For homes that have been on the market six months or more, the average price was $2.5 million, Kaufman found.”

“Alicia and Jon Sturnick of ‘Ewa Beach dropped the asking price on their Ocean Pointe house by $15,000 and are starting to get the uneasy feeling that they missed the peak of O’ahu’s latest housing boom. ‘If we had put it on the market earlier, we would have definitely sold it already,’ Alicia Sturnick said. ‘I knew the market would slow down but I didn’t know it would happen so soon.’”

“The Sturnicks, like many others interviewed, have dropped their price and continue to hope for any kind of offer. But in their Ocean Pointe neighborhood, they have found that 52 other homes are also for sale. Several other single-family homes are brand new and priced in the same range. ‘I think I missed a very profound peak,’ Jon Sturnick said. ‘I’m a little bit disappointed. But I know our house will sell and the price will go up.’”

“Raul and Nancy Dollente originally listed their Kapolei house at $581,000, ‘then we dropped it to $579,000, then $565,000,’ he said. ‘Now we’re going $555,000.’ I’m not really sure how long we’ve had it for sale,’ Raul Dollente said. ‘Since October? It’s been so long already.’ The assessed value is $581,000. ‘Somehow it will be sold,’ Raul Dollente said. ‘I just don’t know when.’”

“Kari Waldhaus and her husband, Jack, bought their three-bedroom, two-bathroom house on Kakoo Place in upper Makakilo in 2004 as a rental home. After renting the house for a year and cleaning out the smell of the renters’ Great Dane and bulldog, the Waldhauses put their house on the market in October for $549,000.”

“They had one offer below their asking price that fell through. After that ‘nothing happened,’ Kari Waldhaus said. ‘Then in November we dropped the price to $515,000 and offered a credit back for closing costs. Thirty days later we dropped it to $499,000. We were thinking that getting it under $500,000 would make it sell. We were wrong. Now the house has sat vacant for five months. That house has a negative cash flow. Not fun.’”

“The house and property are assessed at $506,400. Kari asked whether she and her husband should invest more money in improvements, but her agent said that would only drive up the sale price or their costs, which they might not recoup. So the Waldhauses are left with an empty home and the nagging suspicion they missed O’ahu’s real estate peak.”

“‘We should have gotten in in July or August when things were flying off the market,’ Kari Waldhaus said. ‘I read and pay attention to the market and everybody thought it would be a gradual thing. But it’s like somebody flipped a light switch and people stopped buying.’”

The new home sales numbers are out. “Sales of new homes in the United States fell 5% to a seasonally adjusted annual rate of 1.233 million in January, the lowest in a year, the Commerce Department said Monday. The number of new homes on the market increased 2.5% to a record 528,000, representing a 5.2-months supply at the January sales pace. The months’ supply is the largest in nine years.”

“The growth in inventories and the slower pace of price appreciation are factors suggesting the booming housing market of the past four years is losing steam as mortgage rates rise and affordability falls. Homebuilders remain relatively upbeat about market conditions, however. Nearly 20% of the homes on the market at the end of January had not been started in construction. Another 58% are under construction.”

“Sales fell in three of the four regions, with the West, climbing 11.3% to buck the trend. Sales fell 10.3% in the South, 10.8% in the Midwest and 14.9% in the Northeast.”

” “The biggest decline was a 14.9 percent decrease in sales in the Northeast, which followed an even bigger 23 percent plunge in sales in December. Some economists have expressed concerns that once home sales start to slow, the big price increases of recent years could turn into sharp declines in a similar pattern to how the speculative bubble in stocks burst in 2000.”

A mortgage REIT has some news for Wall Street. “ECC Capital Corp., a mortgage finance real estate investment trust, said on Monday it would not pay a first-quarter dividend on its common stock, citing losses in its mortgage banking segment.”

“‘Given current conditions in the whole loan market and the operating losses in our mortgage banking segment, we plan to retain capital and liquidity in order to provide greater flexibility in the disposition of our held-for-sale loan portfolio and for the prudent operation of our business,’ Shabi Asghar, ECC Capital’s president and co-chief executive, said.”

“The company, which is required to distribute at least 90 percent of its REIT taxable income each year, said future dividends will be at the discretion of its board of directors and will depend on the performance of its mortgage banking segment, desire to maximize corporate liquidity, maintenance of REIT status, and other relevant factors.”

“Earlier in 2006, the company announced plans to lay off 440 employees, or 27 percent of its work force, and consolidate seven wholesale loan processing centers into three.”