February 28, 2007

“The High Cost Of Low Interest” In California

The Ventura County Star reports from California. “Home prices and sales continued to slide last month. The county’s median price for existing single-family homes was $664,400 in January, down 2.6 percent from the same month last year, the California Association of Realtors reported. January sales were down 18.3 percent year-over-year, CAR said, continuing a year of monthly double-digit declines. December’s sales were down 24 percent from the same month in 2006.”

“Oxnard Agent Carolina Alvarez said she has started offering $1,000 ‘referral gift certificates’ to boost sales. ‘The market is kind of stable right now,’ said Alvarez. “Sales have gone up a little bit, especially if a buyer is willing to take $5,000 to $10,000 less than their asking price.’”

“The real estate market traditionally picks up in the spring, but broker Joe Virnig, president of the Ventura County Coastal Association of Realtors. said waiting until then to put up a ‘For Sale’ sign might not be the best strategy.”

“‘I always think if you’re a seller, it doesn’t really matter. You can wait for a busier time,’ he said, ‘but there are going to be more buyers and sellers out there. It’s not like there’s going to be a bunch more buyers out there and the same number of sellers.’”

The San Francisco Chronicle. “California housing prices barely edged up as the number of homes sold fell last month, signs of a sputtering real estate market, according to a report released Tuesday.”

“Economists said reports point to a stagnating housing market. ‘The important thing to recognize is that prices are basically at a zero-percent growth rate,’ said economist Christopher Thornberg. ‘Whether it bumped up or down, it’s all within the range of noise for this kind of data.’”

“‘The resale market is going to take longer as sellers hold on and hold on,’ Leamer said. ‘They don’t have the same kind of pressure that builders have.’”

From KCRA 3. “With interest rates on the rise and the real estate market in a slump, adjustable mortgage rates are skyrocketing, and the high cost of low interest is turning the American dream into a nightmare for some.”

“After five years of an adjustable rate mortgage, one couple sold their home and wound up owing $15,000 after they sold. The couple’s real estate agent said they were paying the lowest option every month.”

“Agent Mike Toste said families are drawn in by the low payment option, not realizing they’re only paying interest on their loan. ‘They get into these loans and they end up falling delinquent because they just can’t afford them anymore. They’re not going up $200 to $300, but $800 to $900, sometimes $1,000 a month,’ Toste said.”

“Real estate records in Sacramento County show more than 7,000 foreclosures in 2006 alone.”

“‘Out of about 310 active homes for sale in Antelope, there are 57 homeowners that have their properties listed as short sales,’ said Toste.”

“‘The unfortunate thing about that is people are borrowing from retirement accounts and exhausting every last penny they have to try and keep this mortgage current. They’re just running right into the wall because eventually…they’re forced to sell their home,’ Toste said.”

“Borrowers are not the only ones facing financial hardships. Several large lenders who specialized in sub-prime loans are also facing tough times.”

The LA Times. “Several other of these sub-prime lenders have seen their shares hammered after disclosing heavy losses this month, including New Century Financial Corp. of Irvine. Others have filed for bankruptcy protection, including Ownit Mortgage Solutions of Agoura Hills and ResMae Mortgage Corp. of Brea. And a host of mortgage companies, including No. 1 lender Countrywide Financial Corp., have announced layoffs.”

“All mortgage lenders will ‘have to reduce their workforces even further to adjust to the slower volume of loans and reducing their losses,’ said Esmael Adibi, director of the Anderson Center for Economic Research at Chapman University in Orange. ‘This industry was the major engine of growth in Orange County and unfortunately will be a big drag on the overall job growth in 2007 and 2008.’”

“ACC Capital Holdings Inc., the Orange-based holding company for Ameriquest and Argent Mortgage Co., is an example of the heavy damage sustained over the last two years by sub-prime lenders. As the market boomed, the Ameriquest companies had become the biggest sub-prime lenders of all.”

“Last year, after it paid $325 million to settle predatory lending charges in 49 states, it had fallen to seventh place among sub-prime lenders.”

“Its most recent financial statements couldn’t be obtained. But analyst Matthew Howlett of Fox-Pitt Kelton said he had spoken with potential buyers who were put off by what they termed huge recent losses and the potential for more deficits.”

The Orange County Register. “About three years ago, Bob Ralston got the urge to make his own marketing decisions and go after real estate deals wherever he could find them. With a booming housing market and a new broker’s license under his belt, he launched Ralston Realty on the Whittier-La Habra line.”

“Then, things got tougher when the housing market slipped into a deep slump. At the end of last year, Ralston Realty shut down, and Ralston went back to being a salesman in Brea.”

“‘The slowdown made me realize how much I missed being part of a larger group of people,’ said Ralston of La Mirada. ‘To open the door and be the only one in there (made) it hard to be motivated all the time.’”

“The demise of Ralston Realty is just the latest fallout from a downsized housing market that’s seen home sales fall 27 percent and commissions decrease about 20 percent last year. As a result, some real estate offices are closing. Some offices are being combined. And some independents, like Ralston, went back to work for someone else.”

“Office mergers and shutdowns have been occurring across the region and throughout the nation as well. Los Angeles County saw the closure of at least six residential brokerages in the spring and summer, from Agoura Hills to Rodeo Drive, the Los Angeles Business Journal reported.”

“Belt-tightening became necessary only when the market slowdown began cutting into company revenues, said leaders for both the Coldwell Banker and Prudential chains. ‘When the market is really good, you overlook the fact that it’s not efficient,’ said Betty Graham, president (of) Coldwell Banker Residential Brokerage of Greater Los Angeles and Orange County. ‘But when business goes a little flatter, you have a duty (to be more efficient).’”

“After weathering a 50 percent drop in sales in the past 12 to 18 months, broker Jerry Kelly in Westminster says he may have to refinance rental properties he owns to keep his business going. ‘You have to pay your bills whether you have income or not,’ Kelly said.”

“The Real Slide From Euphoria”

The East Valley Tribune reports from Arizona. “New-home sales continued to drag in January. Some 3,746 new homes were sold in January, down 7.1 percent from the same period in 2006, the latest housing market report from real estate analyst RL Brown shows.”

“Permits were also down year over year, with builders pulling 2,876 last month, compared with 4,423 in January 2006. But, Brown said, the number of permits has been increasing slightly the past three months.”

“‘It’s an encouraging sign,’ he said. ‘It appears that the real slide from euphoria has bottomed out.’ Builders have been cutting prices and readjusting their products, offering fewer extras like granite counter tops to make homes more affordable, Brown said.”

“‘I think the next move we’ll see more and more builders cutting the square footage in houses,’ he said. Builders are expected to pull about 40,000 permits for new homes in 2007, compared with 63,000 at the height of the housing boom two years ago.”

“Brown’s report estimates that builders need to unload 12,000 to 14,000 houses built on speculation still on the market throughout the Valley.”

The Las Vegas Business Press. “The writing was on the wall for months. Employees at Silver State’s loan pricing office in Addison, Texas (the division that packaged and sold loans to investors through securities traders), were seeing second-lien loans being sold for losses of millions of dollars. Employees warned company executives that things would have to change, and fast. They were consistently rebuffed, they say.”

“Last month, Silver State CFO Tom Edington abruptly resigned, citing personal reasons. Again, employees were told there was no need to worry.”

“‘We were told everything’s fine. That the owners have deep pockets,’ said one, a five-year veteran of the mortgage business, who now finds herself out of a job. Between 800 and 1,000 employees worked for Silver State nationwide.”

“The day before Silver State closed its doors, pricing-support unit employees finally got the confirmation in a company-wide e-mail that the end was near, despite management’s calm denials throughout the previous weeks.”

“Michael Stoddart, the company’s CEO, wrote on Feb. 13: ‘I know everyone is out there wondering if we are closing our doors today. The honest answer is maybe. We will either get capital infused today from a long term partner, to make sure we (have) cash flow and have breathing room, or we will close our doors if it does not happen.’”

“Silver State closed the following day. Employees have not received any further communication from the company, not even their final paychecks or payment for accrued vacation time.”

“Another Addison-based employee, who also wished to remain anonymous in hopes of getting paid for her last two weeks there, said she understands that employees in the Las Vegas headquarters were so upset that computers and other office equipment were stolen, and Silver State’s owners were threatened.”

“‘I heard the owners were told not to come to the office, that they received death threats,’ the Texas employee said.”

“Silver State joins a host of high-flying companies, 22 have gone bankrupt since December, that took advantage of expansion in the credit market in 2001 to offer loans to a wide variety of borrowers who would be denied credits in less-robust economic times.”

“Scott Bice, commissioner of Nevada’s Mortgage Division, which is investigating Silver State’s collapse, says he remembers seeing outrageous loans being made by alternative lending companies. One borrower, he says, took out a $1 million loan with no down payment and received the money despite having a very low credit score.”

“‘Because of the (high) default rates, the market has changed,’ Bice reported. ‘Loans you could get six months ago are no longer available. The credit market has tightened up.’”

“Silver State not only made such loans, it also served as a clearing house for other mortgage brokers. The company packaged the loans and sold them to investors as mortgage-backed securities. At one point, the company held $500 million in home loans. But when the housing market began to slow, borrowers started defaulting and investors forced Silver State to buy back the loans, which then could not be resold without significant losses.”

“‘Who wants to buy a loan they know will be defaulted on,’ one of the Addison employees asked, summing up the general feeling among employees handling this part of the business.”

“Three months ago, Silver State’s big institutional investors, among them Bear Stearns, began to jump ship and refused to buy any more loans, an employee in Silver State’s loan pricing division says. Washington Mutual was eventually forced to pull the plug before it too lost significant amounts of money.”

“Stoddart detailed why the company was going under in his e-mail to employees. ‘Our issues have to do with stale loans. These stale loans are in an under-curtailed position, making the warehouse lines freeze our incoming cash flow until the loans are purchased.’”

“Stoddart told employees the company needed an immediate infusion of $5 million. He acquired a $3 million guarantee. It wasn’t enough.”

New Home Sales, Prices Down

Some housing bubble news from Wall Street and Washington. “Sales of new homes plunged 16.6% in January to a seasonally adjusted annual rate of 937,000, the Commerce Department reported Wednesday. It was the lowest sales pace in four years, and was the biggest percentage decline in 13 years. Sales were down 20.1% compared with January 2006.”

“The inventory of unsold homes fell to 536,000 from 537,000, representing a 6.8-month supply at the January sales pace, the highest since a 7.2-month supply in October. The number of completed but unsold homes rose to 175,000, up 47% from a year earlier.”

“Regionally, January sales fell a record 37% in the West, 19% in the Northeast, 10% in the South and 8% in the Midwest. Most of the pain has been felt in the largest markets: the West and South. New-home sales are down more than 50% year-on-year in the West, the largest percentage drop in the region since 1981. In the South, sales are down 11% in the past year. Sales are down 2% in the Northeast and are up 1% in the Midwest.”

From CNN Money. “The median price of a new home fell 2.1 percent from a year earlier to $239,800. The latest median price is down 6.7 percent from the record high reached in April 2006.”

“The prices have seen downward pressure from the glut of completed homes on the market available for sale. The report shows a record 175,000 completed homes for sale in January, the eighth straight month that reading has risen to a record level.”

“The median time it takes a completed home to sell now stands at 4.8 months, the longest wait for builders since July 2001, when the nation was in a recession.”

From theStreet.com. “At a pace of 937,000 in the month, home sales fell from the revised December rate of 1.12 million, the Commerce Department said Wednesday. The sales were down 20% from a year ago.”

“Phillip Neuhart, an economic analyst with Wachovia, cited the buildup of completed homes in inventory as a troubling sign for the housing market. ‘There are more homes in the inventory that are actually completed, not under construction anywhere, that are empty,’ Neuhart says.”

“During January, 32% of the new homes for sale at the end of the month had already been constructed, up from a low-20% range during the housing boom, Neuhart says.”

From Reuters. “Fremont General Corp., one of the largest U.S. mortgage lenders for people with poor credit histories, said on Tuesday it will delay releasing fourth-quarter results, and not file its 2006 annual report by the March 1 deadline.”

“‘Most investors understand that the subprime industry is under siege after 17 interest-rate hikes, an inverted yield curve, and flat home prices that have reduced refinancing options,’ said analyst Richard Eckert.”

“Anticipating a rise in defaults, Fremont began tightening its lending standards in last year’s second quarter. It had expected to see benefits, as measured by the impact on loan loss reserves, by the current quarter. Earlier this month, Fremont stopped offering second mortgages that can help borrowers afford homes when their primary lenders won’t cover the entire purchase price.”

“‘It can take several quarters for tightened lending standards to work their way through the system,’ Eckert said.”

The LA Times. “Fremont General has beefed up loss reserves and backed away from its riskiest lending practices over the last year. As home prices soften and lenders adopt more stringent standards, consumers who once used ’serial refinancings’ to extract cash and get new low ‘teaser’ rates are finding themselves stuck with loan payments that will soon shoot higher.”

“With foreclosure rates on the rise, some analysts warn that woes in the sub-prime industry could spread to the prime market and affect the entire economy. ‘More people who already own their homes and can’t refinance are likely to lose them,’ said analyst Zach Gast. ‘Think how that’s going to ripple through the economy,’ he said. ‘It could really affect home prices.’”

“The effects of mortgage layoffs already are being seen in employment data for Southern California. In Orange County, ground zero for the sub-prime industry, year-over-year figures for financial services employment showed job losses beginning last summer for the first time since late 1999 through mid-2000, after the last big industry retrenchment.”

“With short-term interest rates back up, big banking firms are charging more for money to loan. Also, they are paying less for loans and forcing the original lenders to buy back huge numbers of new loans that have fallen quickly into default, analyst Matthew Howlett said. Such early-payment defaults occurred at a faster pace in 2006 than ever before.”

“‘You’re relying on people who are willing just to run any time there are fears of credit losses,’ he said. ‘It’s a weakness in the business model.’”

The New York Times. “In a sign of that wariness, Freddie Mac, one of the largest buyers of mortgages, said yesterday that it would tighten lending standards and stop buying certain kinds of risky home loans.”

“Even as the market was growing in recent years, the agencies were pulling back; they bought $119.8 billion of subprime bonds in 2006, down from $169.4 billion in 2005 and $175.6 billion in 2004, according to a trade publication.”

“But Freddie’s announcement is confirmation to other investors in mortgages that a segment of the market that was once Wall Street’s darling finds itself in the doghouse. ‘Freddie is giving its stamp of approval to what the market has already done,’ said Dwight Jaffee, a real estate finance professor at the University of California, Berkeley. ‘Already consumers were going to be finding these loans harder to get.’”

“‘You have to come back to the question: Do you want someone that is in a difficult situation now to get themselves into an even more difficult situation later on because they have postponed a day of reckoning?,’ Richard Syron, Freddie’s CEO said.”

“Concerns about the deterioration of the subprime market have weighed on financial stocks. Those concerns persisted yesterday amid a sharp sell-off in stock markets around the world.”

“The U.S. central bank has some concerns about the domestic subprime mortgage market and is monitoring it closely, Federal Reserve Board Chairman Ben Bernanke told the U.S. House Budget Committee on Wednesday.”

“‘Our assessment is that there’s not much indication that subprime mortgage issues have spread into other mortgage markets,’ Bernanke said.”

“When asked by one lawmaker whether a liquidity crunch was what roiled Tuesday’s global equity market, Bernanke replied: ‘No, I don’t think so.’”

From MarketWatch. “Bernanke said the economy could even strengthen if the housing market hits bottom and the inventory correction eases in the factory sector. He said worries about the subprime mortgage market was one factor in the unease in financial markets, but said he did not think the trouble in the sector was having a significant impact on the U.S. economy.”

“Reacting to increased foreclosures of mortgages in the subprime market, a subcommittee of the House Financial Services Committee will hold a hearing next Tuesday to examine possible predatory lending practices, Rep. Carolyn Maloney announced Wednesday.”

“‘The trend of increased foreclosures is certainly troubling, and it is important to understand the potential root causes,’ said Rep. Maloney in a press release.”

“Sellers Are Willing To Compromise” In Massachusetts

The Massachusetts realtors report the sales for January. “After more than a year of declines, sales volume of detached single-family homes for the month of January was up over 12 percent compared to the same time last year. This is the first time there has been a double digit increase since January 2005. ‘We are encouraged about the way January has started off,’ said MAR President Doug Azarian of Falmouth. ‘As sellers continue to price their homes correctly, we should begin to see demand pick up.’”

“Median sales prices for detached single-family homes declined only 2.4 percent compared to January 2006. Residential properties did stay on the market an average of 142 days in January 2007 compared to an average of 104 days in January 2006.”

The Boston Globe. “The number of single family homes sold in the Bay State last month was 3,304, up 5.1 percent from 3,144 from January 2006, reported the Warren Group. Meanwhile, median prices for single families dropped from $325,000 in January 2006 to $314,000 in January 2007, continuing a trend of declining prices that has been in effect since May, the Warren Group said.”

The Boston Herald. “‘Things may be stabilizing here, but it’s too early to call a turnaround,’ said John Bitner, chief economist at Eastern Bank in Boston. ‘Buyers have been holding off because they’ve been concerned that real estate prices have been coming down, though that maybe has exacerbated the weakness in prices.’ Prices have been declining since May 2006.”

The Telegram. “The condominium market in Worcester County had a rough month, seeing sales drop 22.16 percent, from 176 in January 2006 to 137 last month, The Warren Group said. The median price of a condominium in Worcester County fell 13.32 percent, from $219,200 in January 2006 to $190,000 last month, the data show.”

“‘I think it’s pricing, that sellers are getting used to the idea that houses are not worth as much as before, and they’re willing to compromise,’ said Timothy M. Warren Jr., CEO of The Warren Group.”

“Meanwhile, foreclosure filings jumped more than 100 percent in January, as Massachusetts homeowners struggled to hold onto their homes, ForeclosuresMass.com reported. Some 2,207 foreclosure filings were made in January, or about 110 foreclosure filings every business day, the report said. That is an increase of 105 percent from the same period a year earlier, when 1,076 filings were made.”

“In 2006, lenders filed 19,487 notices against homeowners, surpassing filings made in 1992, during the depths of a recession. The filings ‘are scary,’ said Alan Pasnik, an analyst for Warren Group. ‘They’re essentially double what they were.’”

“The mortgage banking industry has said the primary reason filings are on the rise is an explosion in mortgage volume driven by the housing boom, which pushed home sales to record levels in Massachusetts and nationwide.”

“‘The flood of foreclosures in Massachusetts is not only continuing; it has reached a new high,’ company president Jeremy Shapiro said. ‘The fact we are starting the year with the highest number of foreclosures we’ve ever recorded for a single month is more than significant - it’s ominous.’”

“ForeclosuresMass.com continues to attribute the increase to a ‘perfect storm’ of factors. The pressures put on property owners include rising interest rates over the past few years, an increase in sub-prime and other ‘exotic’ loans, the affect of adjustable rate mortgages, rising home heating costs, substantially increased gasoline prices, and the slumping Massachusetts housing market, which leaves homeowners trapped in houses they cannot afford.”

The Daily News Tribune. “‘People are starting to price their houses right from the beginning, or if they’ve been on the market a while, they are starting to make the appropriate reductions,’ said Jane Evans, Realtor in Waltham.”

“Finding a perfect match between a buyer and a seller is all about positioning—by way of price, but also by what buyers want today.”

“In the recent past, a kitchen renovation was high on buyers’ wish lists. And although it’s still nice to have a kitchen with stainless steel appliances and granite countertops, the ‘wow’ factor has subsided a bit, said Gary Rogers, Realtor in Waltham.”

“Also, sellers may want to be careful with putting a lot of money into a big renovation because it may not mimic the taste of a potential buyer, said Steve Stratford, Realtor in Lexington. ‘Make what you have as presentable as possible,’ Stratford said.”

“People don’t mind putting in new kitchen cabinets now that the housing prices are more palatable, Evans said.”

“In addition to following the buyer trends in the real estate market, some sellers in the recent past have tried to use gimmicks to sweeten their deals, such as offering a flat-screen TV or plane tickets to a tropical destination with the purchase of the property. ‘You’re better off offering cash or home warranties to get buyers’ attentions,’ Evans said.”

“‘Gimmicks don’t work,’ Rogers said. ‘What does work is properly pricing your house, staging it and making it accessible for showings when the buyers want to see it.’”

Bits Bucket And Craigslist Finds For February 28, 2007

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

February 27, 2007

Inventory Driven Up By Sales Decline: CAR

The California realtors report on January sales. “Home sales decreased 12.6 percent in January in California compared with the same period a year ago, while the median price of an existing home increased 1.9 percent, CAR reported today. ‘On a regional basis, sales fell an average of 13 percent, while median prices declined in all areas except Los Angeles, the San Francisco Bay Area, and Riverside/San Bernardino,’ said C.A.R. President Colleen Badagliacco.”

“‘The unsold inventory of existing homes jumped to 9.1 months in January, after hovering around the long-run average of 7 months since mid-2006,’ said C.A.R. Chief Economist Leslie Appleton-Young. ‘There was a slight increase in statewide listings last month. The increase in the unsold inventory index was driven primarily by the sales decline.’”

The Record Searchlight. “After a spike in December sales that punctuated a late-year run on homes, Shasta County buyers backed off last month. The lull in transactions resulted in the slowest January in the 13 years DataQuick has tracked Shasta County…a 27 percent drop from January 2006.”

“Home values are down about 12 percent from a year ago. The median sales price paid for a Shasta County home in January, according to DataQuick, was $256,750, down from $293,000 in January 2006.”

“‘I think the sheer volume of buyers is not there,’ said (realtor) Ron Largent in Redding.”

“The decrease in sales in Shasta County in January played out across the state. DataQuick reported six counties in Southern California had their slowest January since 1998. In the San Francisco Bay area, home sales fell for the 24th straight month.”

“Those numbers don’t bode well for a market that has largely depended on Bay Area and Southern California equity refugees and investors. They helped revive Shasta County’s real estate market at the turn of the century, which sent home values rocketing through 2005.”

“The median sales price of a home in Shasta County in 2002 was $152,000. It shot up to $285,000 in 2005, Largent said. ‘We don’t have the investors we had in 2005,’ Largent said.”

The Orange County Register. “California Realtors says Orange County’s median sales price for a detached, single-family homes was $688,610 in January, off 0.6% from December and down 1.5% in a year. Realtors say sales volume is down 14% from a year ago.”

The Record.net. “The number of building permits for the construction of single-family homes in San Joaquin County was down from the previous January, according to the latest figures from the Construction Industry Research Board.”

“The number of permits pulled last month in the county totaled 159, the board reported. That’s the lowest number of single-family home permits pulled in any month as far back as 2000.”

“Rick Baldonado, director of Hanley Wood’s Northern California and Northern Nevada region, said the market slowdown is a correction. ‘Everybody knew you just cannot sustain that kind of growth,’ he said. ‘We’re getting back to the real home buyers now versus speculators, investors.’”

“Baldonado said final numbers aren’t in statewide yet for January, but it looks as if building permit numbers for single-family homes will be up slightly statewide.”

“Most of the January permits pulled, more than 90 percent, were for Stockton, Manteca, Lathrop and unincorporated parts of San Joaquin County, according to the report.”

The Merced Sun Star. “Local housing prices dipped in the last quarter of 2006, but Merced remains one of the least affordable markets nationwide, according to new figures. Merced’s median home price fell to $325,000, down from $363,000 during the same period in 2005. The median price peaked at $376,000 in the second quarter of 2006, according to NAHB statistics.”

“Merced County Association of Realtors President Scott Oliver called the price drop a sign that sellers of older houses are becoming more realistic about the competition they face from new housing inventory.”

“‘The sellers have gotten the message now that they have prices a little high,’ Oliver said. ‘(They) fought reducing their prices for about four to six months.’”

“As new subdivisions remain flooded with empty inventory, builders are offering more and more incentives to sell houses, Oliver said. Price cuts, discounts on landscaping, even free swimming pools are among the perks he’s seen lately, Oliver said.”

“In response, sellers of ‘resale units’ are finally lowering their asking prices, he said. Last month the average sales price for a house within the city of Merced was $310,209, Oliver said. In January 2006, the average sales price for the same area was $379,561.”

Sales Pace “Remained Slow” In January: FAR

The Florida realtors have the January numbers out. “The pace for Florida’s existing home sales remained slow in January, according to the Florida Association of Realtors. Statewide, sales of single-family existing homes totaled 9,382 last month compared to 12,906 homes sold in January 2006 for a 27 percent decrease.”

“Sales of existing condominiums in Florida also decreased last month, with a total of 3,007 condos sold statewide compared to 4,279 in January 2006 for a 30 percent decline, according to FAR.”

The Herald Tribune. “Sales of existing homes dropped 8 percent in the Sarasota-Bradenton market during January, which was one of the best performances statewide. But prices dropped 20 percent in the two-county market, the biggest decrease in the state. The median sales price was $284,400 during January compared with $353,500 during the same 2006 month.”

“The Charlotte County-North Port market reported a 20 percent drop in sales. The median sales price in Charlotte County-North Port during January was $199,400, a drop of 12 percent from $227,400 durign the same month in 2006.”

The News Press. “The number and prices of homes sold in Lee County fell in January compared to a year ago, according to statistics released today. According to FAR, the number of single-family homes sold with the assistance of a Realtor fell 34 percent in January to 492 from 751 a year earlier. The median price fell 7 percent, from $287,200 to $266,900.”

“For condominiums, the price fell 9 percent from $313,800 to $285,000 while the number of sales dropped 40 percent from 229 to 138.”

“Charlotte County’s price for single-family homes fell 12 percent from $227,400 to $199,400 while the number of sales fell 20 percent from 194 to 155. For condominiums, Charlotte showed a drop of 5 percent from $185,000 to $175,000 while the number fell 56 percent from 45 to 20.”

From MarketWatch. “Two home builders with operations in Florida said they’re seeing quarterly losses driven in part by the Sunshine State’s ailing housing market.”

“Hovnanian Enterprises Inc., one of the nation’s largest builders of homes, said Tuesday it expects to post a loss after charges for its fiscal first quarter ended Jan. 31. Hovnanian said it expects to book about $90 million in charges related to operations in Fort-Myers-Cape Coral, Fla., ‘due to a continued decline in sales pace and general market conditions, as well as increasing cancellation rates, during the quarter.’”

“Hovnanian said net contracts in its fiscal first quarter fell 23% from a year earlier. The company said the Fort Myers-Cape Coral market ‘continues to face increasing resale listings, including many home listings that were recently constructed and purchased by investors.’”

“Cancellations were 36% of gross contracts in the first quarter, or 29% excluding Fort Myers-Cape Coral.”

“Analyst Daniel Oppenheim said the expected charges are related to Hovnanian’s August 2005 acquisition of First Home Builders, a move to position itself in the Fort Myers-Cape Coral market. First Home builds in western Florida and provides financing.”

“Oppenheim, in a note, estimated the $90 million expected charge represents nearly the entire purchase price of the First Home Builders acquisition, which speaks to the ‘continued deterioration in the market.’”

“A tough Florida housing market also hit WCI Communities Inc. The tower and home builder said Tuesday it swung to a loss in the fourth quarter of $64.6 million, or $1.52 a share, as it booked real estate inventory impairment losses of $91.4 million.”

“The Bonita Springs, Fla.-based company said margins were hit by greater use of incentives and discounts due to rising inventories of unsold new and existing homes in its markets. ‘Our Florida markets, which account for approximately 85% of our business, experienced the greatest slowdown during 2006,’ said CEO Jerry Starkey.”

“In WCI’s tower business, the CEO said defaults and construction delays negatively impacted earnings. The net number of new tower orders for the fourth quarter was negative 22, as defaults of 27 were greater than gross new orders of five, WCI said.”

“Meanwhile, in the traditional home-building operations, revenue fell from a year earlier as 22% of buyers scheduled to close defaulted in the fourth quarter.”

From Reuters. “‘Because of the lack of visibility on demand, cancellations that we’ve experienced … we’re withdrawing the guidance that we provided previously and believe that the most important metrics for WCI to focus on during 2007 is cash flow and debt reduction,’ Starkey said.”

The St Petersburg Times. “In January, Tampa Bay area home sales plummeted 41 percent from a year earlier. Catastrophic? You wouldn’t think so if you counted all the Realtors still on the job. In Pinellas, Pasco and Hillsborough counties, only about 10 percent of Realtors have failed to renew their licenses and memberships.”

“‘The Florida Association of Realtors expected a 20- to 30-percent reduction. We got nowhere near that. We think most Realtors are remaining optimistic,’ said Heidi Beisner, president of the West Pasco Association of Realtors.”

“Not everyone abhors a thinning of the herd. Realtors like Beisner rate quality as important as quantity. And quality tended to slip in the 2005 housing gold rush. ‘Some people who had gotten lucky at first but didn’t have a lot of experience have left,’ she said. ‘It’s always good to know you’re dealing with a real professional.’”

“Southwest Florida’s large unsold-home inventory has crippled the new-home building industry and forced other builders to desperate measures. ‘I’ve got half the work I had a year ago,’ said Cape Coral’s Jack Organo, owner of Bennett Marine Contracting & Construction. ‘The phone just doesn’t ring as much anymore.’”

“When the housing market started to nosedive late in 2005, dock builders started sinking as well. ‘Our business is down exactly 58 percent,’ said Chris Mynhier, of Boat Lift U.S.”

“‘What we are going through is almost identical to what home builders are going through,’ said Organo.”

“A sagging real estate market is driving another market: unfinished single-family homes with weed-infested lots. There are 4,914 single-family homes for sale in Cape Coral, according to the MLS, said broker Scott Marinelli.”

“The falling price of homes in the Cape has contributed to the problem, said Paul Dickson, city building official. Investors who built homes now could be walking away from the homes they hoped would give them $30,000 or more in profit, he said.”

“A city-painted message warns people to stay away from the unfinished home at 1904 S.W. 54th St., which is about a half-mile from Cape Harbour’s two high-rise condominium towers at the southern end of Chiquita Boulevard.”

“‘Notice unsafe building city of Cape Coral’ is scrawled in red spray paint across the front and sides of the hulk.”

“The empty canal-front lots on the street list at more than $500,000. Off-water homes have been assessed at more than $300,000 in the neighborhood, stated (a) property appraiser’s Web site. ‘This house just turns people away,’ neighbor Bill Long said. ‘It brings down all our values.’”

“Robert Schaeffer also says the property values in his Southwest 12th Avenue neighborhood have been affected by the downward trend in home sales. ‘My neighborhood is far less than a few acres in size; however, look at what the neighbors have to face,’ Schaeffer said. ‘There are now a total of 41 homes for sale, rent or vacant in our neighborhood.’”

“Drive through Schaeffer’s neighborhood and it is a patchwork of nicely kept single-story, stucco homes and an overgrown mess surrounding vacant homes.”

“‘My neighbors are sick and tired of the way our neighborhood looks and sadly it is now typical of so many other neighborhoods in Cape Coral,’ Schaeffer said. ‘We want our neighborhoods to look like they did five or six years ago and not like a slum filled with abandoned homes and overgrown properties.’”

Home Sales, Price Declines Encouraging

Some housing bubble news from Wall Street and Washington. “Total existing-home sales were 4.3 percent below the 6.75 million-unit level in January 2006. Total housing inventory levels rose 2.9 percent at the end of January to 3.55 million existing homes available for sale”

“Median home prices fell for a sixth straight month. The January decline was the third-biggest drop in history.”

“‘For the last several months I have been hemming and hawing on whether we have reached bottom,’ said David Lereah, chief economist for the Realtors. He said that the January report was an encouraging sign that the bottom for sales activity was reached last September.”

“But he cautioned that the warm weather in December boosted home closing in January, the activity that is tracked in the Realtors report. He said there could be a bit of a payback in coming months.”

“Prices of single-family homes across the nation were flat in December, the worst results since slight price declines seen in early 1996, a housing index released Tuesday by Standard & Poor’s showed.”

“S&P index committee chairman, David Blitzer, compared the decline to that of the early 1990s but said this one could be even more pronounced. ‘By most measures, the current slide is steeper,’ he said. ‘It could outdo the 1989, ‘90, ‘91 event. I don’t see any signs that we’ve hit bottom and are about to turn up,’ Blitzer said.”

From MarketWatch. “Government-sponsored mortgage marketer Freddie Mac is the latest company to weigh in on the growing concern over lending to unqualified homebuyers, saying Tuesday it’s tightening its standards for buying mortgages held by such borrowers.”

“Freddie Mac said Tuesday that it would stop buying those mortgages that have ‘a high likelihood of excessive payment shock and possible foreclosure.’ Freddie Mac also said it would limit the use of loans that don’t require income verification or other documentation, and will recommend that lenders collect adequate escrow for taxes and insurance payments.”

“The firm said its new requirements cover mortgages known as 2/28 and 3/27 hybrid ARMs, which currently make up about three-quarters of the subprime market. Specifically, Freddie Mac said it will require that borrowers applying for these products be underwritten at the fully indexed and amortizing rate, as opposed to the initial ‘teaser’ rate.”

“The company also will limit use of low-documentation loans, so-called ‘no income verification’ products in combination with the 2/28 and 3/27 hybrid arms. In addition, the company won’t purchase ‘no income, no asset’ documentation loans and will limit so-called ’stated income, stated assets’ products to borrowers whose incomes derive from hard-to-verify sources, the firm said in a press release.”

“‘There will be a reasonableness standard for stated incomes,’ Freddie Mac concluded.”

The Wall Street Journal. “David Radley wants to borrow $180,000 to buy a house he rents in Appleton, Wis., but he can’t afford a down payment and has a low credit score.”

“Finding such a loan was a snap until recently. Now mortgage broker John Waite says Radley needs to pay off old bills and put down at least 5 percent to qualify. Though Waite’s motto is, ‘We say yes’ when the banks say ‘no,’ ‘he is saying ‘later’ more frequently these days.”

“Investors’ loss of confidence is reordering the mortgage business. ‘A lot of loan programs that have been available for the past several years … are going away,’ says Jack Pevey, president of Integrated Mortgage Services Inc. in Denver. ‘It’s going to keep a lot of people out’ of the market.”

“No-money-down loans to borrowers with low credit scores ‘are going to be a thing of the past real soon,’ says Bob Moulton, president of Americana Mortgage Group.”

“‘We’re probably reverting back to guidelines that were in place’ four years ago, NovaStar President Lance Anderson says. The new guidelines wouldn’t have allowed as many as 25 percent of last year’s loans without more documentation or bigger down payments, he added.”

The Financial Times. “Repayment problems involving ’subprime’ US mortgage borrowers could have knock-on effects in the broader $8,000bn mortgage market and beyond.”

“The latest concerns centre on the Alt-A market, in which consumers with slightly better credit than the weakest subprime borrowers can obtain loans with loose terms - such as no proof of income. Late payments and defaults on such loans are running at four times the historical rate.”

“‘The delinquency numbers for the 2006 Alt-A originations are materially worse than a lot of people would have expected,’ said Charles Sorrentino, mortgage analyst at Merrill Lynch.”

From Inman News. “The Wall Street end of the mortgage business is entering an episode of distress at this moment, and we will see pricing and availability do some strange things in the next week or two.”

“The party most vulnerable to the retreat of housing exuberance is not housing, it’s the mortgage profiteers, at this moment the Wall Street co-dependents even more so than their Main Street lender-accomplices. As of Friday there are not enough buyers of subprime risk to cover loans recently closed or in process.”

“Trash, like other things, rolls downhill: Alt-A loans are closer to junk than trash, but high loan-to-value-ratio Alt-A loans are still trash.”

From theStreet.com. “Alt-A loans include option adjustable-rate mortgages, negative amortization loans and other nontraditional loans. These loans are made to homebuyers whose credit is generally better than that of subprime borrowers but worse than that of prime borrowers, on the basis of FICO credit-quality scores.”

“‘Everyone says these problems are contained in subprime,’ said Carl Tash, a portfolio manager of a long/short real estate securities hedge fund. ‘If you think about it logically, what is the difference [between subprime and Alt-A] ? Some arbitrary difference in FICO scores.’”

From USA Today. “Former Federal Reserve Chairman Alan Greenspan said Monday it is ‘possible’ the U.S. economy might fall into recession by the end of the year.”

“Greenspan also said he has seen no economic spillover effects from the slowdown in the U.S. housing market. ‘We are now well into the contraction period and so far we have not had any major, significant spillover effects on the American economy from the contraction in housing,’ he said.”

From Bloomberg. “Federal Reserve Chairman Ben S. Bernanke during his semi- annual monetary policy report to Congress said there are ‘tentative’ signs of stabilization in housing, and the slowdown hasn’t hurt other sectors of the economy to ‘any significant extent.’”

“Still, it is ‘too early to say this problem is over,’ Bernanke said. ‘Even if housing demand falls no further, weakness in residential investment is likely to continue to weigh on economic growth over the next few quarters.’”

“New orders for U.S.-made durable goods plunged 7.8% in January as nearly every category of manufactured goods declined, the Commerce Department reported Tuesday. This is the third drop in the past four months and the sharpest decline since July 2005.”

“‘With capital spending having been down in the fourth quarter, this trend is not something that makes one comfortable about the strength of the economy,’ said economist Joel Naroff. Economist Ian Shepherdson went so far as to say the factory rector was in a ‘recession.’”

The Globe & Mail. “For decades, the U.S. Congress and a string of presidents have struggled to make the dream of home ownership a reality for more Americans. Prodded by Congress, regulators operated on the principle that more mortgage cash couldn’t possibly be a bad thing. Bad credit history? No down payment? No problem.”

“Susan Wachter, a real estate professor at the University of Pennsylvania’s Wharton School of Business, estimates nearly two-thirds of all home loans since 2003 have been ‘aggressive.’ But all this easy money hasn’t been without consequence.”

“Fannie Mae and Freddie Mac have seen a host of new players come into the market, offering big returns and steep risks. These subprime securities have become popular with the hedge funds, which are unregulated. No one knows with any certainty where all these subprime securities are stashed away.”

“Whatever happens, Washington’s fingerprints are all over this. It is, after all, exactly what they wanted.”

“Speculators Caught By Abrupt End Of The Boom”

The Journal Sentinel reports from Wisconsin. “Fields of dreams are scattered across metro Milwaukee, platted subdivisions awaiting the end of the home-building slump. Only one in four vacant land parcels for sale in the four-county region sold last year, a ratio that went to one in eight in January, MLS figures show.”

“Real estate appraisers say some speculators got caught by the abrupt end of the 2001-’05 building boom. ‘It’s like musical chairs. These people kept developing, leveraged to the hilt, as the market changed. Now the boom is over, and they’re stuck without a chair,’ said Steven G. Stiloski, president of the Appraisal Institute’s Wisconsin chapter.”

“Real estate industry veterans say it’s not them stuck without a chair. ‘We’re not that stupid. We knew this was coming,’ said Mark Lake, director of development at Redmond Residential of Wisconsin.”

“His Waukesha firm is marketing two subdivisions, Emerald Ridge and Hines Meadows, both in Saukville, on MLS ’simply so Realtors and buyers know the subdivision is there. Those lots haven’t been developed yet,’ he said. ‘When the time is right, we’ll build.’”

“‘This is nothing compared to 1980-’84, when the market was so slow you couldn’t give lots away,’ said Bill Carity, owner of Carity Land Development in Brookfield. ‘But there’s no question that certain markets have been overbuilt. I’ve never seen so much land for sale.’”

“Stiloski said he’s never seen so much buildable land before on the MLS system. ‘Me neither,’ said Michael Brachmann, president of Independent Fee Appraisers in Menomonee Falls. ‘I haven’t heard of any subdivisions going belly up yet. But if somebody bought at the top (of the boom), it wouldn’t surprise me. The carrying costs are going to eat them alive.’”

“Developers and appraisers said they know of land holders in financial distress but wouldn’t name them. Wally Neumann said the Summit property on which he advertised a ‘drastically reduced’ price proved to have only five salable lots instead of the envisioned nine. The price reduction ‘has nothing to do with a soft market,’ he said.”

“Regardless of where the building downturn is hitting, the underlying economics are undeniable, said Glendale appraiser Robert S. Schley Jr. ‘Not only has supply increased, but demand has slackened. Economics 101 tells you that if we don’t soon return to equilibrium, prices will fall,’ Schley said.”

“‘I’d say most areas here have been flat since the fall of ‘05,’ he said. The market’s direction should be known by spring, he said.”

The Detroit News from Michigan. “Alan and Alyson Wirgau live in a cute ranch on a quiet suburban street. There’s a new roof above their heads, a new deck in back and a For Sale By Owner sign in front. Instead of weighing offers, the family is weighing an option that seemed unthinkable a year ago: If they don’t sell their home soon, they may turn down the heat, load their possessions in a U-Haul and drive away.”

“With a job in Indianapolis and dim prospects for selling their home, the Wirgaus are considering handing the keys back to the bank and walking away from their home.”

“That process, called a deed in lieu of foreclosure, is an agreement to give up all ownership rights in a home or piece of property to the lender.”

“It’s not a good option for anyone, but it’s often better than the alternative. Homeowners’ credit ratings are hurt, but not as much as in a foreclosure; the lenders lose money on homes now worth less than the outstanding loan, but lose less than the cost of a foreclosure proceeding.”

“‘Nobody knows you can even do it,’ said Ann Howard, a bankruptcy attorney in Southfield. ‘I’m seeing people coming in and saying, ‘What do we do about our house?’ Their (mortgage) rate changed, they’re not getting the overtime they used to, they’ve taken a job out of state.’”

“In normal times, they’re the homeowners who would write ‘motivated seller’ in their house ads and sell for a few thousand less. But with no buyers and property values declining, homeowners who have to sell fast find themselves in unchartered financial territory.”

“Two years ago the Wirgau family’s 1,500-square-foot home was valued at $210,000. Today, it’s for sale at $180,000, just enough to pay the mortgage and the closing costs. No one has made an offer in the three months it’s been on the market. At the full asking price, ‘we’d just break even, and I’d bend down and kiss their (the buyers’) feet,’ Alyson Wirgau said.”

“Lenders who frowned on such deals as well as short sales now are routinely agreeing to both. For lenders, the choice often is between losing a little money now or a lot of money later. ‘The banks don’t know what they’re going to get back,’ Howard said. ‘If people are willing to hand the house over, then it’s less likely the bank will get possession of a house that is completely trashed.’”

“With home prices continuing to fall, the sooner a lender can sell the distressed house, the less money the lender loses, said Michael Kus, spokesman for the Michigan Association of Community Banks. ‘It’s the busiest department in the banks now, short sales and deeds in lieu,’ Howard said. ‘They have people devoted to it.’”

“‘People choose between trying to salvage some of their credit rating versus living in the house for free,’ said Southfield bankruptcy lawyer Stuart Gold. ‘Some banks are even paying people to give their houses back, even on a short sale. They’ll pay them $500 to help on moving expenses to get them out of the house.’”

“The Wirgaus don’t know what they’re going to do. They’re considering lowering the price of their home and dipping into their savings to pay the bank the difference. Even then, there’s no guarantee that their house will sell. In July, the family’s adjustable rate mortgage will jump from 5.25 percent to 8.25 percent, costing another $250 a month. A property tax bill of $2,800 will be due.”

“‘If we’re not out of here by then, something’s gotta give,’ Wirgau said. ‘I’ve covered all the angles. I hope it doesn’t come to that but it may be worth starting over.’”

Bits Bucket And Craigslist Finds For February 27, 2007

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

February 26, 2007

“An Imbalance Between Supply And Demand”: Las Vegas

The Review Journal reports from Nevada. “John Riordan doesn’t like to use the term ‘bottom out,’ so he’s saying the high-rise luxury condo market in Las Vegas is turning around. Riordan said the buyer demographics at Turnberry Towers are similar to those at Turnberry Place, the four-tower, 780-unit condo community that Turnberry built on Paradise Road. They’re mostly from Southern California and second-home buyers.”

“‘It’s a much younger buyer,’ he said. ‘The market’s much broader. When we first started, the average age was early 60s. Now I’d say the average age is mid-40s. Obviously, when you have a lower age, you’ve got more people, a lot of baby boomers.’”

“Not only has the market turned back up, but buyers are more serious and qualified and they’re here to buy, Riordan said. ‘Our typical buyer is an entrepreneurial person who typically tends to be ahead of the market as far as understanding real estate and getting ahead of the curve,’ he said.”

The LA Times reports on Las Vegas. “In a morphing city where hotels and casinos are built and razed and built again, a massive new development seeks to make a lasting mark on the city’s skyline. Project CityCenter, MGM Mirage’s 76 acres of densely packed condos and hotels may finally put Las Vegas on the architectural map and usher in a cosmopolitan reincarnation of the town better known for kitsch and over-the-top theming.”

“‘This takes the Las Vegas evolution to the next level,’ said Terry Jicinsky, vice president of marketing for the Las Vegas Convention and Visitors Authority.”

“After just two weeks on the market, 90% of the condominium units in one of the project’s condo-hotels have been sold, with prices starting at $1.5 million. ‘People think we’re out there on a curve, but to be original and to be smart is better than to be faux,’ said Tony Dennis, executive vice president of CityCenter’s residential division.”

“Unlike the rest of the Strip, where hiking from one casino to another can be a workout, density at Project CityCenter will rival that of Manhattan. Project CityCenter is just one in the wave of proposals to hit Las Vegas. In all, about 70,000 condo and condo-hotel units are planned and 10,740 are under construction.”

“So far, the market has been unpredictable. Thirteen projects have been canceled or suspended in the last few years, said Brian Gordon, a principal at a Las Vegas-based economic and real estate research firm. ‘We’re facing an imbalance between supply and demand,’ Gordon said.”

“More than 1,350 people have also made reservations for the Vdara Condo Hotel and Veer Towers by putting down as much as $15,000. Jason Fox, a 26-year-old mortgage broker in Las Vegas, has already made a reservation to buy a condo at Veer Towers, even though it doesn’t go on sale until April.”

“‘I’m definitely buying one,’ Fox said. ‘I’m going to get the largest unit they have in the highest floor. I’m always on the phone with the saleslady trying to hook it up.’”

“Fox said he wasn’t scared off by traffic scenarios that show an additional 2.3 new cars for every new room. As it is, getting from one end of the Strip to another can be a bumper-to-bumper, time-wasting endeavor, considering that regional transportation officials estimated that Las Vegas Boulevard reached its auto capacity in the mid-1990s.”

“‘Traffic will be a nightmare, but I’m all about living there,’ Fox said. ‘I like to go out and have fun on the weekends. If I’m going to party down on the Strip, I don’t want to get drunk and get a DUI.’”

“A $7 cab fare will get him anywhere on the Strip, compared with $50 for a trip to the suburbs, Fox said.”

“Although he thinks many projects won’t materialize, he expects the value of the ones that do to accelerate quickly. ‘I am very excited about the Manhattanization of Las Vegas,’ Fox said.”

“The architecture world is taking notice of the headlining designers, including Daniel Libeskind. ‘This will change the notion that Las Vegas is just a place to shop, go to a hotel and be entertained,’ Libeskind said. ‘I think it’s really going to become a metropolis, a city. It’s no longer just an illusion or a nostalgia.’”

Setting Folks Up For A Fall

The US News and World Report looks at Colorado. “In pursuing the American dream, Hector Garcia figured he was doing everything right. He bought his first house 4 1/2 years ago in Denver’s Montbello neighborhood. Garcia took out a 30-year, fixed-rate mortgage at 6.5 percent interest, bought a three-bedroom home for $207,000, and began fixing it up.”

“But two years ago, interest rates reversed course, sales slowed, and developers began discounting the homes they’d built nearby. Buyers with adjustable-rate loans saw their monthly payments rise. Some fell behind and were forced to sell or face foreclosure.”

“The worst result is the sort of vicious cycle of ‘for sale’ signs, foreclosures, then more ‘for sale’ signs that is all but devastating Montbello. Bank-owned properties now represent more than 80 percent of all homes on the market there, putting even seemingly stable homeowners like Garcia up against a financial wall.”

“‘I just can’t take it anymore,’ he says of his street’s overgrown yards, abandoned houses, and declining property values. ‘I put so much into this house and this community, but I don’t have no equity.’”

“Garcia’s house two years ago ‘would have gone for $210,000, maybe more,’ says David Cabrera, the real-estate agent whom Garcia hired last fall to sell the home, now priced at $195,500. ‘But nobody’s buying now with all the foreclosures.’”

“Denver City Council President Michael Hancock Hancock is considering a ’second chance’ program in which an investor group would buy foreclosed properties in bulk, rent them back, and eventually sell them to those who have been foreclosed on.”

“Some worry, however, that such a plan would only set folks up for another fall. ‘Homeownership has been sold to many people as the equivalent of a Powerball ticket,’ says Jacky Morales-Ferrand, who directs the city’s housing development division. ‘But the truth is that not everyone can afford a home when the roof needs to be fixed or the plumbing breaks. Most of us won’t win that Powerball ticket.’”

“Some expect things to turn around eventually. That’s not likely to be soon enough for Garcia, who has yet to receive an offer. ‘”I feel bad,’ he says. ‘Everyone thinks they want to get a house to get money for the family. But I need to have a life, too.’”

A report from from the Arizona Republic. “Regulators have shut down Mesa-based Eagle First Mortgage and its more than 75 Valley branches, citing illegal lending practices. The Arizona Department of Financial Institutions pulled the license of the mortgage firm and its broker, David Sanchez, last week. Regulators described more than 100 illegal money transactions, loan activities and hiring practices.”

“A wave of mortgage fraud started spreading across the Valley last year that could cost lenders millions of dollars and erode values and confidence in Arizona’s real estate market and economy.”

“Most of the fraud is coming from cash-back deals that involve obtaining a mortgage for more than a home is worth and pocketing the extra money. But there are other types of fraud such as faking and forging documents and lying about income and other personal information for loans.”

“Chris Mozilo, president of the Arizona Mortgage Lenders Association, could not comment on the Eagle First case because he did not know the details. But he said the Department of Financial Institutions is doing a good job with limited resources ‘cleaning out the bad actors’ in the mortgage business.”

“As part of the department’s investigation, Eagle First agreed last month not to take on new business. A statement on the firm’s Web site, last updated in January, said nothing of its closing. The site says, ‘We successfully finance 98 percent of our applicants.’”

“A consent order from the Arizona Department of Financial Institutions cites reasons for shutting down Eagle First including: It made almost $2.5 million in payments to unlicensed mortgage firms and contractors that were owned by its own branch managers, which is against the rules for licensed mortgage brokerages.”

“For example, it paid $418,646 to CM Vermex mortgage owned by the manager of one of its branches and $373,100 to Casa Latino Mortgage owned by the manager of another branch.”

“A $19,000 payment was made to an employee of Scottsdale Title, but there was no invoice for it. Employees were paid as both real estate agents and mortgage brokers without disclosing their dual roles and multiple commissions.”

“Failed to check to see if 95 employees had felony convictions. Such a check is required by licensed mortgage brokers. The brokerage let borrowers sign documents when key information and disclosures were blank.”

“A false statement or misrepresentation was made. For example, a manager of an Eagle First branch took a loan application last February that listed the borrower’s monthly salary at $2,860. A month later, she took another loan application from the same person and listed the salary at $4,959.”