January 31, 2007

“Homeowners Discover A Hangover Settling In”

The Daily Bulletin reports from California. “The number of homes entering the first stage of the foreclosure process in San Bernardino County jumped 140 percent in the October-to-December period last year to 3,538, compared with 1,473 in the fourth quarter of 2005. It was even worse in Riverside County, where the number of default notices nearly tripled from 1,607 in the last quarter of 2005 to 4,528 last quarter, according to DataQuick.”

“Since the intoxication of the real estate boom and easy loans has passed, many homeowners have discovered a hangover of sorts settling in. ‘In the next couple of months, I’m going to be forced out of this home,’ said Eastvale resident Hector Gomez, who had a notice of default filed against him last month. ‘I’m a first-time home buyer, and these people know the system and they’ve taken me for a ride.’”

“As prices soared, lenders were all too willing to offer 100 percent financing or other creative loans. But the urge to get in before it was too late was overwhelming for many.”

“‘Buyers got nervous things would get out of reach,’ said Bobbie Kay Forbes, a Realtor in Grand Terrace. First-timers with no down payments were offered 100 percent financing, reserved in the past for high-income families only, she said.”

“Gomez said his mortgage payments turned out to be much more than his income and certainly higher than he and his loan officer had agreed upon. When Gomez contested the amount, he was directed to the contract, which he had signed.”

“‘It’s in the documents, but it’s hidden. … They used my ignorance against me, and they abused my trust,’ said Gomez, who said he also lost his job due to the stressful ordeal. ‘They take advantage of people hungry for their own home,’ he said.”

“Bill Velto, manager of Tarbell Realtors in Upland, said he attributes the climb in homeowners defaulting on payments to ‘unscrupulous lenders’ over the past several years. ‘You don’t even have to be licensed to do loans in the state of California,’ Velto said. ‘The banking industry got too loose with their guidelines and let people use 50 or 60 percent of their income on house payments,’ Velto said.”

“Gomez said he is busy trying to keep his family’s dream house. The idealism he felt when purchasing his house less than a year ago has since given way to frustration. ‘I’m trying to say I can’t pay this amount and I need you to give me options,’ Gomez said. ‘The only way the bank will help me is if I come up with large amounts of money or I’ll get no equity out of the home.”

“‘If a person is not able to afford a home, they shouldn’t have gotten it in the first place,’ he said.”

“Nearly half of all Americans believe the housing market is poised to go from bad to worse over the next few years, according to a new survey.”

“Leo Nordine, a Redondo Beach, Calif., real estate agent specializing in bank-owned properties, says the sentiment jibes with what he’s seeing in Southern California’s once-scorching real estate market. ‘I’ve been through a couple of these cycles already,’ Nordine says. ‘And I think this next one will actually be worse. The buyers are controlling the market now.’”

“Nordine thinks the Southern California market will decline over the next few years, with prices eroding about 10% each year. As prices have softened, he says, many sellers are already pulling their houses off the market.”

“Meanwhile, another market is heating up: Nordine gets about one new listing a day from banks that are foreclosing on properties. ‘We’ve become a debtor nation,’ he says.”

The Ventura County Star. “Faced with a tough year in the housing market, Countrywide Financial Corp. is striving to find ways to become leaner and more efficient — including continuing to move jobs out of California. The Calabasas-based company is the nation’s largest mortgage company, with about 5,850 employees in Ventura County and Westlake Village.”

“‘We’ve been very diligently working on moving employees out of California,’ CEO Angelo Mozilo said.”

“The company made significant job cuts this year as the housing market slowed. Countrywide spokesman Rick Simon said after the earnings call that he could not comment on job movements. ‘Certainly, the company’s long-known policy of focusing its growth at corporate facilities outside of California is still in force,’ he wrote.”

The Recordnet. “Dolly Cruz, a Bay Area investor who a year ago bought a single-family home in Lathrop’s Mossdale Landing development for $625,000, figures if she had to sell now, she would lose $100,000.”

“The house is rented out at $1,500 per month - not even enough to cover the mortgage payment, she said, but she is still confident in the long-term real estate market and isn’t upset about the slowdown.”

“‘Even though the price is down, you’re not losing anything if you’re not selling it, is the way I look at it,’ Cruz said.”

“The Dump In The Market Put Us Behind The Eight Ball”

A housing report from the Arizona Republic. “Valley housing analyst RL Brown said Chandler will see more high-density housing as well as developers building on the smaller lots they ignored before. Construction of high-density housing has begun. Condos are being built downtown and at Fulton Ranch.”

“Not only are builders running out of space, but the glut of existing homes for sale has been dampening the market for new homes, said Hank Pluster, interim long-range planning manager.”

“In recent months, prices have been falling or staying flat, depending on the area of the city, according to Realty Studies and Bill Ryan, a broker in Chandler. ‘If you bought in mid- to the end of 2005, you probably have experienced a loss in value,’ he said.”

“As gasoline becomes more expensive, homes closer to the heart of the Valley have become more popular, as opposed to those in Queen Creek and especially Johnson Ranch east of there. ‘The farther out you go, the harder they have been hit,’ said Gina McKinley, a Chandler resident and real estate agent.”

The East Valley Tribune from Arizona. “Developers took out 2,275 building permits for homes in December, a 55 percent drop from the same period the year before, according to analyst RL Brown. New home sales also sagged last month, down 26.6 percent from December 2005.”

“‘2006 activity will cause the industry to pause and rerecognize that housing in this market area has to be affordable,’ Brown said.”

“The dramatic run-up in prices during last year’s housing frenzy was not sustainable, he said. Home sellers will need to price homes according to today’s market or withdraw their listings, Brown said. Builders must also be more realistic if they plan on staying in business, he said.”

“‘I think 2007 is the year that everybody needs to be very careful and watch,’ he said.”

The Reno Gazette Journal from Nevada. “The median price of an existing single-family home in Reno-Sparks fell again in the fourth quarter, continuing a trend of falling prices and sales throughout 2006.”

“During the fourth quarter, the median price fell to $314,250, down 11 percent from the same quarter in 2005 and down from $324,500 in the third quarter, according to the report by the Northern Nevada Regional MLS.”

“And the number of sales continued to show weakness, slumping to 929 during the last three months of 2006. That’s down 22 percent compared with the fourth quarter of 2005, according to the report.”

“Reno, which has the most expensive homes of the three areas, had a median price of $375,000 during the quarter, down 9 percent for the fourth quarter of 2005. Sales in Reno fell 25 percent to 489 during the quarter, according to the report.”

“Sparks’ median price dropped 10 percent to $295,000 on 267 sales, down 17 percent. The North Valleys’ median was $257,000, down 12 percent, while sales dropped 20 percent to 173 for the three months.”

“‘2007, we’ll see some further weakness in prices mainly because people are getting squeezed by the creative financing that they used to buy some of these houses,’ said Tom Cargill, economist at the University of Nevada, Reno. ‘Though we’re not near as bad as Las Vegas, there is still a speculative element here that has driven up prices.’”

The Wall Street Journal on Las Vegas. “As the number of borrowers falling behind on their mortgage payments climbs to the highest level in five years, the mortgage industry is trying new strategies to help bail them out. The rise in bad loans is leading to a pick up in so-called short sales. Sheldon Klain, a manager in Dallas, wound up saddled with loans on two homes last year and now is trying to arrange a short sale of one of them.”

“Mr. Klain got into trouble after he moved to Dallas from Las Vegas to take a new job. He bought a home in Dallas, thinking he had found a buyer willing to pay $475,000 for his Las Vegas home. The sale fell through at the last minute and Mr. Klain found himself stuck with two homes and behind on payments on the Las Vegas house.”

“Mr. Klain says his Las Vegas house is valued at $419,000, according to a recent bank appraisal, well below the $440,000 he owes on the property. ‘The dump in the market put us behind the eight ball,’ he says.”

“There can be downsides for borrowers to short sales. Under certain circumstances, the debt forgiven by the bank may be taxable to the borrower. What is more, convincing a lender to go along with a short sale can be difficult, and borrowers who have a mortgage and a home-equity loan may have to negotiate with two lenders or two departments of the same bank.”

“‘There are all sorts of log jams,’ says John Izzo, the agent handling the sale of Mr. Klain’s Las Vegas house. Mr. Izzo says he is currently working on 19 short sales, but figures just ‘one in five might be successful.’”

“Some Will Succeed And Most Will Not”: CEO

Some housing bubble reports from Wall Street and Washington. Origination News, “Countrywide CEO Angelo Mozilo estimates that 40 to 50 subprime firms are going out of business each day, a trend that likely will continue all year. During a conference call discussing Countrywide’s earnings, Mr. Mozilo, in response to a question, said analysts are seeing reports of two to three firms failing each day, but that the number is much larger.”

“Addressing the carnage in the subprime sector, Mr. Mozilo said, ‘I think we have a way to go on that.’”

The LA Times. “Bottom-fishing in especially turbulent waters, several Wall Street firms have purchased specialists in ’sub-prime’ loans to risky borrowers — a business that Mozilo said Countrywide has backed away from as loan delinquencies have shot up.”

“‘In terms of the Wall Street houses, some will succeed and most will not,’ Mozilo said, citing as an example of the latter Merrill Lynch & Co.’s loss of a $100-million investment in Agoura Hills-based sub-prime lender Ownit Mortgage Solutions Inc.”

“When Merrill cut off funding in December, Ownit filed for bankruptcy protection. The filing showed that Merrill also held $93 million in soured loans it had purchased from Ownit.”

“JPMorgan Chase & Co. is cutting its exposure to subprime mortgages amid deteriorating industry conditions that are proving troublesome to a growing group of lenders.”

“JPMorgan CEO James Dimon said in an investor presentation Tuesday that the company has sold off most of the mortgage loans it made last year to people with weak credit histories. He said mortgages are the one area of subprime lending where ‘we really see something taking place that looks like a recession.’”

“JPMorgan said in the presentation that ‘loss severities’ in subprime mortgages have started increasing, and that delinquencies of subprime loans originated last year are higher than the 2005 and 2004 vintages were at a comparable age. In the fourth quarter, JPMorgan saw net charge-off rates on subprime mortgage loans leap to 0.6 percent from 0.1 percent a year earlier.”

“When it released its fourth-quarter earnings earlier this month, JPMorgan boosted its retail bank’s provision for loan losses to $262 million from $158 million a year earlier, due in part to what the bank described as ’some deterioration in subprime mortgage.’”

From Reuters. “Tighter mortgage underwriting to the riskiest homebuyers has helped improve loan quality but has far to go before defaults are reduced to acceptable levels, according to some of the biggest subprime issuers.”

“Lenders including New Century Financial Corp. and Accredited Home Lenders Holding Co are scrambling to reduce the number of early defaults on their loans that surged at rapid rates in 2006. Investors are increasingly forcing lenders to buy back the loans, hurting profits and prompting originators to improve quality at the expense of volume.”

“‘We haven’t seen the turnaround yet,’ Brad Morrice, CEO of Irvine, California-based New Century, told investors. New Century has a rate of ‘first payment defaults’ of about 2-1/4 percent, up about a percentage point from two years ago.”

“At Accredited, bonds supported by loans to borrowers who stated, rather than proved, their incomes dropped to 23 percent from 37 percent over the course of 2006, Stuart Marvin, Accredited’s executive vice president of finance, told investors. Sacrificing volume to tighter underwriting has become a necessary choice, he said.”

“Other Wall Street analysts expect efforts by lenders will have only a small impact since too many loans are still being made to people who can’t afford them. Lenders changing their underwriting criteria is ‘like moving the deck chairs on the Titanic,’ (said) Chris Flanagan, head of asset-backed securities research at JPMorgan.”

“‘It’s incredible to me that there’s a notion of a significant tightening’ in underwriting, he said.”

“Morrice at New Century said the company hasn’t completed changes to underwriting standards to reverse the rapid rise in defaults from low rates in 2003-2005. ‘We suspect things are going to get somewhat worse before they get better, and we are planning accordingly,’ he said.”

The Baltimore Sun. “Black & Decker Corp. reported yesterday that the housing slump continued to cut into sales and earnings and said more restructuring could be on the way.”

“Nolan D. Archibald, Black and Decker’s CEO, told analysts during a conference call that the housing slowdown resulted in fewer orders from key retailers, which forced the company to scale back production to keep inventories in check.”

“‘As we had announced in December, we faced a very difficult market environment in the quarter, resulting in a significant decrease in sales and earnings,’ he said.”

From MarketWatch. “3M Co. said Tuesday that downturns in the housing and automotive markets chilled fourth-quarter earnings growth, and shares of the blue-chip conglomerate lost more than 5% as its outlook disappointed investors.”

“‘The dramatic slowdown in the U.S. housing and automotive markets had a significant negative impact on sales and gross margins in a handful of our divisions,’ CFO Patrick Campbell said.”

“U.S. Treasury Secretary Henry Paulson said on Wednesday that he is working to create a strong regulator for mortgage finance companies Fannie Mae and Freddie Mac.”

“‘I was encouraged by some of the progress late last year we made,’ Paulson said. ‘We’ve got a lot further to go.’”

Speculators “Bemoaning Their Fate” In Florida

The TC Palm reports from Florida. “Affordable housing, welcome to Vero Beach. Centex Corp., is offering new single-family homes in the VeroLago subdivision starting at $158,990. The three-bedroom, two-bathroom home was first offered at $218,000 in November.”

“Don Santos, past president of the Treasure Coast Builders Association, said the new price points will certainly attract more traffic into the model homes, which could translate into buyers. ‘I think in today’s market, price is the determining factor on whether or not someone buys a home or not,’ Santos said. ‘I think they’ve realized that they if they want to continue selling homes, they have to come down in prices.’”

“(Broker) Sally Daley in Vero Beach agreed, but questioned if flippers and speculators who bought during the boom years will also be willing to lower their prices. ‘Only time will tell as both investors and developers have shown a willingness to offer both incentives and aggressive pricing to sell their properties,’ Daley said. ‘There are a ton of investor-owned properties currently on the market that are direct competition for new developments like this.’”

“Helene Caseltine, development director at the Indian River County Chamber of Commerce who has pushed for more work force housing in Vero Beach sees the pricing as a positive. ‘I think it’s a step in the right direction,’ Caseltine said. ‘I think it’s great, but I hope it’s just the beginning.’”

The Herald Tribune. “The idea of buying houses in Southwest Florida with no money down and making tens of thousands of dollars by selling them before construction was even done obviously appealed to a lot of investors nationwide.”

“Hundreds of investors from California to New Jersey jumped at the opportunity to sign contracts with St. Petersburg-based Construction Compliance Inc. and Enchanted Homes and Advantage Builders of America in Fort Myers. But with the real estate market in general retreat, CCI is now in deep trouble.”

“Advantage’s customers are not satisfied. They say Advantage did not begin building their homes as planned, and officials at the Fort Myers company have been unreachable.”

“Bruce Steifman of Old Bethpage, N.Y., found out about Enchanted Homes from a representative of Seashore, a company that made a presentation to his Long Island real estate investment club. For a reservation fee of $12,000, Seashore representatives promised to handle everything about Steifman’s investment.”

“The problem, Steifman said, is that when he contracted with Seashore and Enchanted in early 2006, it looked like the real estate market in Southwest Florida was still strong. ‘Most investors took $12,000 out of their pockets and expected to make $50,000,’ Steifman said. ‘They figured they would never have to close. But now, because the market has turned, there’s an abundance of inventory and houses are not worth what they were.’”

“‘I’m caught in it, too, but I don’t think anyone misrepresented anything,’ he added.”

“Both Seashore and Enchanted met their obligations, Steifman said. The only company that the New York investor is worried about is Coast Financial Holdings, the Bradenton-based holding company of Coast Bank. ‘I’m just going to pay off my loan to Coast and get some sort of creative financing,’ Steifman said.”

“‘My house got finished,’ said Craig Rymal, a Bluffton, S.C.-based home builder, who contracted with Enchanted to build two houses in Cape Coral. Like other Enchanted investors, Rymal was hoping to sell his houses at a profit, but he is prepared to rent them for a while. ‘The market is just as slow up here in South Carolina.’”

The Sun Times. “It was late November in 2005, and Dan and his wife saw what they thought would make a good holiday gift to themselves within a year or so. They picked out a condo they liked, that seemed like it would return a handsome profit in short order.” “After running the numbers over and over for the next few weeks, they convinced themselves that they had made the right decision. So they bought three more virtually identical condos in the same location.”

“I was telling Dan’s tale to Connie, my friend and a real estate investor. ‘Once you convince yourself that you have made the right decision,’ said Connie, ‘it is natural to try to multiply that.’”

“In one condo association I studied, at least four couples made the same move that Dan and his wife did. They each bought four condos. Others bought three of the same; still others bought two of the same. Now there are 48 of those you-can’t-miss-with-these condos on the market at the same time.”

“I have a good friend and client who is an astute investor. His name is Red. ‘Most people run into a problem because they buy one piece in one market. If the market goes sour, or it happens to be a questionable buy, they get hurt,’ said Red. Maintenance costs, interest on the mortgage, taxes, lawyer’s fees and real estate commissions start eating quickly into the hoped-for profit, Red said: ‘Soon these investors have a loss on the books and are bemoaning their fate.’”

“‘With two partners, I bought two pre-construction homes in Lee County. We were supposed to close this month and decided that the market had declined so badly we would be better to walk away from our down payment than to hang tough and maybe have a bigger loss down the road,’ Red said.”

“What’s Red’s opinion of the Naples market now? ‘This is a fabulous time to buy in Naples, because the forecasts for continued growth are positive and the prices are low,’ Red said.”

“True Vulnerability” Lies In High Prices

The Journal News reports from New York. “The median price of a single-family house declined last quarter in Westchester County for the first time in nearly 12 years, and further price declines can be expected early this year, the Westchester-Putnam MLS said yesterday. Buyer resistance to relentlessly escalating prices finally broke through the market in 2006, the MLS concluded in its quarterly report.”

“Inventories rose and sales dropped for every type of housing in Westchester and Putnam in the fourth quarter of 2006, year over year. Westchester’s median house price of $630,000 was down 3.4 percent from a year earlier. Condominium median prices dropped by 2.3 percent to $375,000. Year-end inventories of all housing types grew by 20.9 percent in Westchester and 14.9 percent in Putnam.”

“Many sellers today are demanding prices that their neighbors had obtained during home sales of a year earlier, said P. Gilbert Mercurio, CEO of the Westchester-Putnam Board of Realtors. In the meantime, some buyers ‘think there are fire sales going on,’ he said. ‘They’re waiting each other out,’ he added.”

“Clare Santora said she put her three-bedroom raised ranch in Cortlandt on sale in late September for $469,900. She has since dropped the price to $440,000. One buyer backed out of a deal in the fall, she said.”

“‘Most of the problem I’m having is people think the taxes are too high,’ said Santora. With the state STAR tax-relief program, the taxes are $8,900, she said.”

“Agent Cathy Duff-Poritzky said sales strategies have changed. ‘It’s not 2005 or 2004, when things were flying off the shelves. I think it’s a very normal market,’ she said.”

“Nicholas Misch, an associate broker in Yorktown Heights, said buyers are waiting on the sidelines for now. ‘Obviously the market’s lost a lot of steam. It’s a good thing,’ he said.”

“The good news is that the Lower Hudson Valley hasn’t experienced the overconstruction of new housing that has led to boom-and-bust cycles in areas such as Florida, California and Nevada, the report said. The region’s ‘true vulnerability’ lies in the high prices that housing commands.”

The Republican from Massachusetts. “Real estate is considered a somewhat reliable investment: homeowners expect to buy low and sell higher, but the equation isn’t foolproof.”

“Consider, for example, the fate of homeowners who are forced to sell a house purchased in the midst of a real estate boom that later went bust. They’re faced with the predicament of having bought high, and being forced to sell for lower than the balance on their loan.”

“With the median price of a single-family home increasing annually for 12 years, many people who were priced out of the market were enticed in with attractive loan offers including adjustable-rate and interest-only mortgages. Unfortunately, for many it was a ticket to a foreclosure auction.”

“Foreclosure petitions soared nearly 70 percent in the Bay State in 2006, capping the end of the worst year for the state’s housing market in over a decade, according to figures compiled by The Warren Group. And foreclosures are expected to climb again in 2007.”

“It’s a phenomenon that seems to occur every decade or so, and, for many Massachusetts homeowners, the time is now.”

The Daily Democrat from New Hampshire. “Dickinson Development Corp.’s waterfront plans are built on a foundation of high-end residential housing units expected to sell for a much greater amount than the current Dover market sees.”

“The current draft of the proposed development still includes the roughly 180 residential units, but their makeup has changed and the price has gone up. The plan now includes townhomes, condos and flats, which will range in price from $379,000 to $700,000.”

“During an interview at Foster’s Daily Democrat last week, Mark Dickinson, company president, said the condos would start in the $400,000 range but during a phone interview today Dickinson said the price was $379,000. Dickinson said the earlier reporting of figures was incorrect.”

“‘The residential pricing of $265 per square foot is a reasonable estimate, but one subject to considerable deviation,’ the August report said. ‘This is because, despite a thorough investigation of the local and comparable markets, only relatively indirect market comparables with prices ranging well above and below the estimated level were uncovered.’”

“The city’s consultant’s report noted that should pre-selling the units not achieve the targeted prices, ‘the development could be delayed or abandoned with the loss only of up-front risk capital.’”

“According to the city’s assessing office, the average assessed value of condominiums in the city is increasing, but has yet to top $200,000. The most current data comes from 2007, where the average condominium rings in at $175,326. Consultant Barry Abramson’s report notes Dickinson’s condo prices are ‘well above the prior top of the market in Dover.’”

“President Mark Dickinson agrees there is currently nothing comparable in the city of Dover. ‘We are definitely creating a market,’ Dickinson said.”

“Dickinson’s report calls into question the quality of the construction. ‘We consider the pro forma’s construction cost estimates, especially for the residential component, at $100 to $118 per square foot of gross habitable building area, to be lower than we would expect,’ the report said. ‘This raises a question about the quality of construction.’”

Bits Bucket And Craigslist Finds For January 31, 2007

Please post off-topic ideas, links and Craigslist finds here.

January 30, 2007

“You Ride The Wave Until It Dies” In California

The Fresno Bee reports from California. “In the first half of this decade, Silicon Valley residents sought refuge by the thousands in the central San Joaquin Valley. The wave of high-income refugees from the Bay Area and Southern California helped fuel the San Joaquin Valley’s real estate boom, in which home prices more than doubled in a five-year period.”

“Last year, however, the flow screeched to a halt, local market watchers say. ‘There’s probably not as much panic about moving out of the Bay Area now because housing prices there are stabilizing,’ said London Properties CEO Dan Conner. ‘The panic of getting out of there and getting something affordable is not there anymore.’”

“Clovis Community and Economic Development director Michael Dozier conducted surveys of new residents in 2003 and 2006 and found big changes that bear out Conner’s point.”

“In 2003, three out of 10 newcomers to Clovis who responded to Dozier’s survey said they had moved there from the Bay Area. In 2006, only one out of 10 said they came from the Bay Area.”

“Rama Ambati, a relocation specialist, said that she used to get at least 25% of her customers from the Bay Area. Now, she says, ‘it has dwindled off.’”

“Guarantee Real Estate owner Joan Eaton said that a second factor in recent years was the number of outsiders buying homes here as an investment, sometimes with no intention of ever moving here. Those numbers aren’t reflected in the IRS data, which track where people file their tax returns. But it still added fuel to the boom.”

“‘During those years, we had increasing numbers of home buyers from outside the area,’ Eaton said.”

The Sierra Sun. “Despite rent increases across most of the West, landlords in North Tahoe and Truckee say residential rent has remained stable to keep housing occupied.”

“‘It is hard to fill up properties when [landlords] are aggressive on the price,’ said Tyler O’Neal, property manager on the North Shore. ‘People couldn’t afford to live and work here. A lot of owners try to accommodate the renters. They might come down on the rent to get the right person in there.’”

“Area property managers interviewed said that they encourage landlords, who are mostly second homeowners, to be reasonable with prices because it is expensive to live in Tahoe and Truckee.”

“‘If you price yourself out of the market, you won’t have anyone,’ said Ken Degney, owner of Assist 2 Sell in Kings Beach and Incline Village.”

“Debbie Milani, property manager in Tahoe City, said there used to be a ‘waiting list of renters’ seeking a long-term rental, but that now it takes longer to fill up vacant rentals. ‘Our workforce here is dwindling,’ Milani said.”

The Daily Press. “It’s no secret that construction has slowed on new homes in the Victor Valley and workers are feeling the pinch. ‘Since the beginning of the year, our lobby’s been full,’ said Robert Lovingood, president of (a) local staffing firm. ‘We have a steady stream of people looking for work…especially those in the construction trades.’”

“Few semi-skilled workers, especially those who have been working on mass-produced tract homes, are equipped to transfer over to commercial work. ‘They’re programmed to do one thing in every house,’said Chris Cox of Cox Plumbing. ‘They’re set up to do one particular phase of plumbing, and that’s all they know. It’s electricians, it’s framers, it’s everything. They only get the opportunity to do just ceiling fans, just switches and plugs.’”

“For workers who know houses, life is bound to be tough at least until summer, possibly another year, said economist John Husing. ‘You have to work off the inventory of new homes that was just completed,’ he said. ‘A lot of builders kept right on building up until December because they didn’t want vacant lots on their books.’”

“Another factor, Husing said, is homeowners who got into interest-only loans and cannot refinance because their homes did not appreciate enough. Third, speculators who tried to flip houses one-too-many times are trying to get out of the market.”

“Those three factors have put inventory of both new and existing homes at its highest point in years. For existing homes, the amount of homes for sale in the Victor Valley tripled in December 2006 compared with December 2005; from 1,123 homes to 3,455, according to the local MLS. And existing homes are competing with new homes as buyers hunt for bargains.”

“Some construction workers are transferring over to warehousing work, said Gloria Stanton, manager of the Victorville office of Select Personnel Services. ‘I’m hearing, I’ll do anything,’ she said, not only from construction workers but from educated professionals such as paralegals and accountants.”

“Cox said out of 10 housing contractors he used to work for, he is only working for two at the moment. ‘It’s a cycle. It’s like anything else,’ he said. ‘You ride the wave until it dies and wait for it to pick back up.’”

“Price Declines Show No Sign Of Slowing Down”

Some housing bubble reports from Wall Street. “Countrywide Financial Corp. said the U.S. housing slowdown caused fourth-quarter profit to decline 3 percent, and projected 2007 earnings that fall short of most analysts’ forecasts. The largest U.S. mortgage lender said it expects a ‘challenging’ 2007 as loan demand and margins fall and homeowners miss more payments.”

“CEO Angelo Mozilo said 2007 ‘will likely be the trough year of the current housing cycle,’ but that Countrywide may benefit as weaker lenders exit the market. He also said Countrywide has ‘made progress’ in plans announced in October to lay off more than 2,500 employees to help slash annual costs by more than $500 million.”

From MarketWatch. “Looking to 2007, Countrywide said it expects continued pressure on margins as mortgage origination volumes decline. The Calabasas, Calif.-based company’s also preparing for increased borrower delinquencies and continued credit deterioration. ‘The company believes the industry will experience continued pressure on volumes, margins and housing prices, as well as increased defaults and foreclosures,’ Countrywide said.”

“The company missed its loan servicing target by about $200 million because of a residual write down of $74 million, higher than forecasted hedge losses of $44 million and steeper than forecast amortization expense (realization of cash flows) of $94 million.”

The New Zealand Herald. “A town of less than 800 people is set to lose 99 jobs, after a sawmilling company announced yesterday it would close. The United States-owned mill focuses on producing housing materials for the American market.”

“Mill site manager John Crane said the company’s hand had been forced. ‘It is just a fact that the market has caved in, in the States, and the higher dollar has translated to lower US dollar receipts,’ he said.”

The Associated Press. “Building supplies company USG Corp. said Monday an expected drop in new housing construction will dampen 2007 earnings. USG, which supplies homebuilders with gypsum wallboard, rode the housing boom that peaked in 2005 to big profits last year, but demand has eroded as the housing market remains flush with a glut of unsold inventory.”

“‘The drop in housing starts will further reduce wallboard demand from the near-record levels achieved in 2006,’ the company said. ‘It is too early to determine where demand levels will find a firm foundation or how our competitors will respond to the current imbalance between supply and demand.’”

“Subprime mortgage lender Fremont Investment and Loan on Monday said it severed ties last quarter with some 8,000 brokers whose loans were responsible for some of the highest delinquency rates in the industry.”

“Such moves to improve loan quality have helped trim the number of early defaults on Fremont mortgages to a 3 percent rate from almost 6 percent in mid-2006, (said) Mike Koch, a Fremont VP. The so-called early payment defaults were close to 1 percent in 2005.”

“The brokers ‘released’ were ‘highly correlated’ to the sudden rise in defaults on Fremont loans, he said in response to questions from investors.”

“A surge in defaults across the industry from low levels in 2003-2005 came as subprime underwriters loosened standards to help maintain volume in a shrinking market. The loans, most destined for the $575 billion home-equity, asset-backed bond market, are being returned by investors at an alarming pace.”

“Koch was reluctant to call the brokers ‘bad’ because some may have simply specialized in loans that Fremont has cut back on, such as eighty-twenty loans. However, some of the brokers were ‘pushing appraisals’ to make a home appear more valuable, he said.”

From Broker Universe. “If there is one lesson that mortgage brokers can take away from the SourceMedia Mortgage Fraud Conference is that they will be under greater scrutiny from their wholesale investors in this area. Part of this is just a natural consequence of the numbers.”

“Fraud losses topped $1 billion in 2005, noted Jeffrey Taylor, the managing director of Digital Risk LLC. He quoted data from the Federal Bureau of Investigation, which showed 80% involves collusion by industry insiders.”

“A pair of panels encouraged mortgage lenders to go after parties through the legal system to recover monetary damages for mortgage fraud.”

“There are a number of potential legal causes for lenders to go after any third party in the transaction, including unjust enrichment, said Bob Simpson, the president of IMARC. ‘If you are not doing anything to recover that loss, you are letting them get away with it,’ he said.”

“The number of vacant homes waiting to be sold surged 34% to 2.1 million at the end of 2006 compared with the end of 2005, by far the fastest increase ever recorded, the Census Bureau reported Monday.”

“A year ago, 1.57 million homes were vacant and awaiting a sale. The vacancy rate for owned units jumped to a record 2.7% from 2.0% a year earlier. From 1965 to 2005, the homeowner vacancy rate had never been above 2%. The long-term average is 1.4%.”

“‘We have more than a million housing units of excess supply,’ said James O’Sullivan, an economist for UBS. ‘If you are looking for evidence that the worst is over for housing, you’re not going to find it in this report. This argues that housing starts need to go down more.’”

“Home-price appreciation weakened to its slowest pace in more than 10 years in the 12 months ending in November, MacroMarkets and Standard & Poor’s reported Tuesday. Home prices fell in 17 of 20 cities in November compared with October.”

“The last time prices were rising so slowly was in late 1996, at the end of a six-year period of flat or falling prices. A year ago, home prices were rising about 16% year-over year.”

“‘Countrywide, home-price declines appear to show no signs of slowing down,’ said Robert Shiller, chief economist for MacroMarkets, in a press release.”

Price Drops “A Function Of The Market” In Florida

The St Petersburg Times reports from Florida. “Bulldozers and cranes are again making noise along Clearwater Beach, as builders work to complete major condominium projects they started years ago when the market was booming. They’re discounting prices for early bird buyers, offering upgrades at cheaper rates and throwing in other incentives.”

“From his newly remodeled sales center, businessman-turned-developer Uday Lele says he’s cutting 20 percent off the price for the first 50 buyers in his massive Enchantment beach development. That’s a hefty discount, he says, for a condo that can cost up to $2-million.” “Also, Lele says, he’ll throw in an extra parking space, another $50,000 to $70,000 savings.”

“Steve McAuliffe, with JMC Communities, says his company is offering pre-construction costs for condos at the Marquesas Ovation in St. Petersburg. The VP of sales and marketing says the first 74 units at Marquesas will cost buyers $70,000 to $200,000 less if they buy now.”

“JMC is also offering pre-construction rates and ‘decorator allowances upwards of $100,000′ for condos at Ovation.”

“This is a far cry from two years ago, when sales were so hot that buyers were flipping units, sometimes a day after buying them. ‘At this point, it’s a function of the market,’ said (developer) Kirit Shah. ‘When the market is soft, some developers discount it further.’”

The Bradenton Herald. “The stories are from homebuyers and investors caught in the failure of Coast Bank and Construction Compliance Inc. home loans in southern Sarasota and northern Charlotte counties. Like the story of a Bradenton man and his partner who were approached by American Mortgage Link to buy investor packages that included the house, lot and mortgage through Coast Bank.”

“Last summer, he received a letter in the mail from one of the subcontractors about nonpayment. He called Coast Bank and told them not to give the developer any more draws on the project. Bank officials assured him that he didn’t need to worry.”

“The next thing the investor realizes is that more money has been handed out by the bank to CCI, despite his warnings. Today, he has a home that is 95 percent complete but has at least four liens filed against it by subcontractors who haven’t been paid by CCI. This month he made a $1,600 interest payment on his unfinished house.”

“‘At the time I thought it was going to be a good deal,’ he said. Today, his three-bedroom, two-bath home sits empty, awaiting completion and a buyer.”

The Herald Tribune. “Just a week before Bradenton-based Coast Financial Holdings revealed $110 million in problem loans involving Construction Compliance Inc., the bank handed the St. Petersburg home builder’s founder $413,100. The loan to Jesse B. Battle III was a second mortgage on an undeveloped residential lot in St. Petersburg.”

“Battle’s $413,100 second mortgage was made against a 6,400-square-foot parcel in St. Petersburg that the home builder bought in April 2005 for $199,500, Pinellas County property records show. Battle originally financed the purchase of the land with a $199,500 loan from Coast. He paid that loan off in early 2006, and replaced it with a $499,950 loan from Coast.”

“On Jan. 12, Coast handed Battle another $413,100, raising his total debt on the property to $913,050, records show. The Pinellas County property appraiser values the property at $185,200.”

“Port Charlotte attorney Glenn Siegel and others representing customers of Coast and Construction Compliance Inc. say that Coast ‘had a fiduciary duty to ensure that work was done before they distributed payments’ to CCI.”

“Coast also could have problems if it chooses to foreclose on properties, said Siegel, who besides homeowners represents subcontractors with $1 million owed to them by CCI.”

“Foreclosure, the bank’s ultimate tool if a borrower stops paying a loan, must be an ‘equitable proceeding.’ If the bank failed to monitor its loan disbursements, foreclosure could be barred, Siegel said.”

“Basically, the borrower could say to the bank: Why should you get my property since your lack of internal controls contributed to the creation of this debt?”

“Meanwhile, other lawyers said it would be difficult for their clients to accept the plan outlined by Coast last week to transform some of the borrower’s construction loans into longer-term mortgages.”

“Port Charlotte attorney Thomas Carrero is representing about 25 investors, many of whom are elderly or retired and not in a position to assume long-term obligations. ‘Some have no choice; they can’t accept a hit like that,’ Carrero said.”

The Sun Sentinel. “Given how slow South Florida’s housing market is, sellers should prepare to make huge concessions on price and commission, lest they want the properties to sit unsold for months, said (realtor) Stephen Bartlett. ‘I think this is going to be the norm from now on,’ Bartlett said.”

“Many sellers have tried to attract the attention of agents in this soft market by offering large commissions, bonuses, cruises and other perks. Some agents share those perks with their clients. But Debbie Anderson in Coral Springs and other agents say they doubt 10 percent commissions will become more common. ‘Sellers need to be giving incentives to buyers, not their agents,’ Anderson said.”

“Everybody Was Thinking Easy Money”

The New York Post. “The number of New Yorkers forced into foreclosure is skyrocketing, especially in Nassau County, where foreclosures have jumped a stunning 82 percent in the past year. According to RealtyTrac, the number of city foreclosures went up 15 percent in 2006 from the year before, while Long Island jumped 55 percent. The national rate surged by 42 percent.”

“‘People in general are living outside of their means,’ said wealth manager J.J. Burns. ‘This generation wants everything now. People are not saving for the rainy day.’”

“In the city, Staten Island led the pack with a 47 percent rise in foreclosures, usually initiated by banks when homeowners can’t pay their mortgages. Foreclosures in Brooklyn and The Bronx rose about 25 percent each and Manhattan saw a 4 percent increase.”

“Foreclosure increases are higher in the suburbs - Westchester jumped 44 percent, Suffolk County shot up 32 percent and Nassau County rose a shocking 82 percent.”

The Boston Globe. “Petitions to foreclose on Massachusetts homeowners rose nearly 70 percent in 2006, and the number of distressed properties that went to auction increased 46 percent, a report said today.”

“In Suffolk County, which includes Boston, petitions to foreclose jumped 79 percent in 2006, the report said. In 2006, mortgage lenders filed 18,926 petitions to foreclose, compared with 11,155 in 2005, the Warren Group said; lenders announced 6,729 foreclosure auctions in 2006, versus 4,620 in 2005.”

“‘As housing prices decline, people who had borrowed 90, 95, or even 100 percent of the value of their home now find themselves owing more than their homes are worth,’ the Warren Group’s chief executive, Timothy Warren Jr., said.”

The Boston Herald. “Banks auctioned off nearly twice as many Boston homes for mortgage nonpayment during 2006 as they did in 2005, new figures show. The Warren Group reported yesterday that lenders advertised 1,007 foreclosure auctions in 2006 for Suffolk County, which primarily consists of Boston. That’s up from just 521 auctions in 2005. ‘This certainly indicates a lot of pain for (Boston) residents,’ Warren Group CEO Tim Warren said.”

“Warren attributed the increased auction activity to 2006’s chilly housing market. He said that during the recent housing boom, people who got into financial trouble could easily refinance or sell properties and avoid foreclosure. But no more.”

“‘You can’t take out another home-equity loan when prices are falling, because there isn’t enough equity left to solve your problems,’ Warren said.”

“Advertised foreclosure auctions also rose sharply in other Eastern Massachusetts locales during 2006. Warren reported big gains for Middlesex County (up 58.2 percent), Bristol County (54.3 percent), Worcester County (53.8 percent) and Essex County (52.2 percent).”

The Telegram. “The decline in housing sales and prices followed a red-hot housing market in Massachusetts, when the median price of single-family homes had increased for 12 consecutive years. The booming housing market, combined with low interest rates, enticed many people to buy homes through attractive loan offers.”

“When the housing market fell and interest rates went up, many homeowners were caught in the middle, said Barry Bluestone, dean of Northeastern University’s School of Social Science, Urban Affairs and Public Policy. ‘There were significant numbers of people who were able to get mortgages who wouldn’t have qualified before,’ said Bluestone.”

The Standard Times from Massachusetts. “In New Bedford, there were 422 foreclosure petitions in 2006, a 128 percent increase from 2005, when there were 185.”

“In explaining why more people are in danger of losing their homes, analysts and mortgage brokers pointed to a complex ‘perfect storm’ of factors. They cited rising interest rates that keep new lenders from entering the market and make it harder for current homeowners to sell. Meanwhile, home values and sales have been depreciating since 2005, leaving homeowners who signed adjustable rate mortgage agreements two years ago paying higher rates and stuck with houses they now cannot afford.”

“Paul Matos, owner of SouthCoast Mortgage, said many homeowners who purchased houses from 2003 to 2005 expected to turn around and sell their houses for big profits. ‘Everybody was thinking easy money,’ he said. ‘Everybody was buying houses. It was absolutely crazy. People were buying houses that were worth $35,000 (more) a year later, and all they did was mow the lawn.’”

“But when the housing market ground to a halt in late 2005, Mr. Matos said many homeowners were stuck with houses they obtained through adjustable-rate mortgage agreements that now have higher monthly payments. ‘It happens when people get into adjustable rates,’ he said. ‘The market corrects, and you no longer have the equity.’”

“Eric Gedstad, a spokesman for a statewide affordable housing bank, pointed to what he labeled ‘exotic’ mortgage packages popular during the housing bubble. ‘Several years ago when the housing market was strong, these products were more manageable. People could refinance them and get a new loan,’ Mr. Gedstad said.”

“‘Now, we’ve got this perfect storm that is brewing in the mortgage industry and with home prices falling, people who took out these riskier mortgage loans can’t escape them the way they used to,’ Mr. Gedstad said.”

“He noted one particular example — known as ‘negative amortization,’ that has come back to haunt thousands of homeowners. ‘With a lot of these types of loans, a lot of people didn’t know what they were getting into,’ Mr. Gedstad said. “The mortgage loan process is very confusing. There is a lot of paperwork, and frankly, a lot of people don’t read the fine print.’”

“Jeremy Shapiro, president of ForeclosuresMass.com, said many homeowners overextended themselves during the housing bubble. ‘Homeowners looked at their options, and said, ‘Heck, if I go for the adjustable rate, I’ll have a bigger home,’ Mr. Shapiro said.”

The Eagle Tribune from Massachusetts. “Police Chief John Romero has launched an investigation into mortgage broker scams, focusing on the involvement of local lawyers who he says took ‘under-the-table money’ from home buyers who got duped into taking out loans they couldn’t afford.”

“‘We are looking into a situation brought to us by members of the legal profession, which involves a few unscrupulous lawyers who were just out to make a quick buck,’ Romero said.”

“The ‘kickbacks’ Romero was referring to were checks totaling up to $20,000 written by the lender to the home buyer, which were immediately cashed and turned over to the broker and lawyer involved in the suspected scam. Those brokers and lawyers, police say, charged the fee to assist loan applicants with fudging financial information, like monthly income and expenses, so poor people could qualify for home loans.”

“‘These unscrupulous lawyers and mortgage brokers are finding people who in some cases are desperate to get a loan,’ said police Detective Michael Simard. ‘They switch them to a high-interest, hard-money loan. They claim it’s only going to be for a short time, and it’s not going to cost them a lot of money, when in reality, it does. When the loan is applied for through the lender, the mortgage broker and lawyer will overstate the needed amount. That’s where their cash profit comes in.’”

“‘Something that can only be described as a cash kickback is certainly severe and would raise eyebrows. You hear whispers about things like this, but it’s a very hard thing to prove,’ said Boston lawyer David L. Yas, publisher of Massachusetts Lawyers Weekly. ‘For a lawyer to be collecting a kickback like this, it boggles the mind to think that’s happening. As long as there is a nefarious sect of the bar of lawyers - which is a very small minority - there will be practices like this.’”

“‘With all of the foreclosures going on in Lawrence right now, we’re concerned about the potential for arson,’ police Capt. Michael Driscoll said. ‘A lot of the arson in the ’90s was attributed to people who could no longer afford their properties and were looking for a way out. We don’t want to return to that kind of situation.’”

Bits Bucket And Craigslist Finds For January 30, 2007

Please post off-topic ideas, links and Craigslist finds here.

January 29, 2007

“We Are In For Some Changes”: California

The Nevada Appeal. “Carson City’s housing market has worked against Donaldo Palaroan. He bought his Silver Oak subdivision home in 2004, when every other California refugee was trying to get in, which fired up the market. Palaroan tried to sell in 2006, the year the bubble burst.”

“He and his wife had wanted to upgrade to a bigger home. Now it’s a dream deferred. ‘We backed out of the idea of moving into another home until this one sells,’ he said.”

“They’ve had their Taylor Way home listed on For Sale By Owner.com for $464,900, which they’ve reduced by $10,000 since October. They bought it for $347,000 in 2004; prior to that it was flipped by two other owners within four years, according to assessor records.”

“‘I think (prices) are pretty close to bottoming out,’ said broker/associate John Vettel. ‘Everybody knows a sustained rate like that can’t continue. Already we’ve had indications that the market is receding.’”

“The average price in 2006 of $345,200 may seem high, but there were many properties priced much higher than that, and those are the ones that languished on the market.”

The Santa Cruz Sentinel. “Two lenders specializing in ’subprime’ mortgages that made loans in Santa Cruz County have shut down, and a third stopped taking applications Wednesday, signs of trouble in the industry.”

“Ownit Mortgage Solutions, of Agoura Hills shut down Dec. 5 and filed for bankruptcy Dec. 28. Mortgage Lenders Network USA of Middletown, Conn., which was issued a cease and desist order Jan. 24 by Connecticut banking officials.”

“Mandalay Mortgage of Woodland, which notified customers Jan. 24 with an online announcement that it would no longer accept applications. All three did business in Santa Cruz County.”

“Ownit made about 200 loans locally over the past three years, according to the Santa Cruz County Recorder’s Office. Ownit was known for 100 percent financing. Bankruptcy records indicated Ownit had millions in loans where borrowers missed payments within the first four months.”

“Santa Cruz mortgage broker Jim Chubb said he knew the local Ownit representative, a Prunedale man who lost his job in December and was owed $12,000 in commissions. ‘His life’s crumbled,’ Chubb said.”

“Chubb attributed the company’s problems to mortgage agents making overly competitive loans. ‘I think they didn’t do enough to verify borrower cash flow,’ he said. ‘They abused the guidelines and lenders allowed it’”

“‘When you look at the fact that one out of 10 sub-prime loans are currently in default, what is that telling you?’ said Vickie Thivierge, a lending industry veteran in San Jose. ‘It basically says we are in for some changes.’”

The Press Enterprise. “Zillow and sites like it ar satisfying people’s obsession with housing prices and their curiosity about just what their friends and acquaintances paid for their property.”

“Realtor Mindy Zink warns homeowners not to put too much stock in Zillow. It is not accurate, she said, and is merely designed to generate revenue by selling advertising to real estate agents. The site’s overvaluations are harmful to home sellers, making them think their property is worth more, Zink said.”

“‘If people that are nearing foreclosure actually buy into it (and) list it too high, they may actually go into foreclosure when the property could have sold earlier and saved them money and heartache,’ she said.”

“Zink had one client whose home was listed at $320,000 on Zillow. But based on comparable sales, it was worth about $230,000, she said.”

“‘It has not sold after three months, listed at $230,000, many open houses, advertisements and probably 30 showings,’ she said. ‘If I had put it anywhere near what Zillow stated, it would not have gotten the showings it had.’”

“Riverside real estate agent Dan Sewell uses Zillow as a reference point for pricing every property he handles. But the recent shift from a seller’s market to a buyer’s market skewed zestimates, placing prices too high for the glut of available inventory that has forced sellers to price homes more competitively, he said.”

“Moreno Valley appraiser Dave Whipple used Zillow once out of curiosity, plugging in the address of a home in Perris that he was going to evaluate. The estimated value on Zillow was $383,000, even though the highest comparable property was $287,000, he said.”

“Kevin Myrick, whose 3,430-square-foot house in Menifee is estimated at $636,588 on Zillow, is a Zillow loyalist, however. When an appraiser valued his house at $75,000 less than the zestimate, he was so outraged that he withdrew a loan application. ‘I trust Zillow more than I do the appraisers,’ he said.”