The Housing Bubble

The Orange County Register reports from California. “Realtor Mary Fry said the past month’s turmoil in the subprime mortgage industry is shaking up one of her deals. When the buyers went into escrow on the purchase of two homes in Placentia, the lender required that they have three months of loan payments in the bank. Now, the lender wants the buyers to have a six-month reserve before approving the loan.”

“‘The lender is looking for more protection (against) the buyer defaulting,’ said Fry, an agent in Yorba Linda. ‘Some challenges have surfaced while in escrow.’”

“Agents say a reviving market made an about face in recent weeks either because buyers are being scared off by the bad publicity from the subprime mess or because they no longer can get financing for a purchase.”

“The number of new escrows fell to 2,195 for the 30 days ending on March 22, down 24 percent from the year before and the second yearly decrease in a row, according to broker Steven Thomas in Aliso Viejo. One week after that, escrows fell even further, to 2,079.”

“Mike Hickman, president of Seven Gables Real Estate, reported that his company had about six deals fall through companywide out of about 100 transactions in a week, because borrowers couldn’t qualify for loans or because their loans were offered by lenders that shut down. While that’s just 6 percent, if that occurs countywide, the effect could be significant, he said.”

“Cases in which buyers got 80 percent of the loan from one lender, then 20 percent from a second have vanished, one agent said. Some 100 percent loans still are allowed, but they’re more scarce, and only available to borrowers with high credit scores.”

“‘The idea is all the ‘dumb money’ is out of the market,’ said Ken Straw, broker in Lake Forest, using a slang term for subprime loans. ‘Right now, things are pretty quiet because … all these people wanting 100 percent financing (can’t get it).’”

“Those who have seen signs of a slowdown are disheartened since buyer inquiries and open house attendance seemed to have picked up after the first of the year. Thomas called the change ‘an about face,’ which he attributes mainly to fears about the market generated by bad publicity.”

“‘Some buyers who are able to purchase are sitting on the fence,’ he said.” “Hickman said one buyer canceled a contract and walked away from his deposit out of fears about buying a home right now. ‘I think there’s a lot of misinformation,’ Hickman said.”

“Brea mortgage broker Jack Williams, president of the California Association of Mortgage Brokers, worries that the effect could be more significant in Orange County when you take into account all the local jobs lost in the subprime industry. He said it could create a situation similar to the early 1990s.”

The Orange County Business Journal. “After rebounding for the first quarter, sentiment among the group slipped for the second quarter, according to California State University, Fullerton’s quarterly business expectations survey.”

“35% of executives said they believe subprime problems will have a severe or high impact on the economy, hitting office landlords and taking away a group of buyers for homebuilders.”

“‘The subprime business affects consumers,’ said Paul Mittmann, vice president of a privately held commercial real estate manager and developer in Irvine. ‘In an economy where 66% is based on consumption, one doesn’t have to do a whole lot of math to figure out that it’s going to affect it.’”

The Voice of San Diego. “Bureau of Labor Statistics indicates that San Diego added 19,900 jobs between February 2006 and February 2007. However, the housing boom sectors continue to drag down overall employment growth at an increasing pace.”

“Annual construction industry losses amounted to 6,100 jobs, which represents a 6.6 percent shrinkage of the sector. The financial activities sector, in which the BLS includes real estate and mortgage-related activity, lost 2,600 jobs or 3.1 percent.”

“The retail industry also lost 2,600 jobs, which represents a retail sector contraction of 1.8 percent. A year-over-year contraction of 1.8 percent in retail employment is notable because consumer activity is such a big part of both the local and nationwide economies.”

“Losses in the housing boom beneficiary sectors were steep enough to cut overall job gains by more than half.”

Inside Bay Area. “Construction employment losses linked to the faltering housing market may slow the East Bay job market, university researchers warned. More than 3,000 construction jobs are expected to vanish in the East Bay from 2007 through 2009, according to a new report from the Business Forecasting Center at University of the Pacific.”

“‘The weakness in housing is slowing job growth,’ said Sean Snaith, a consultant for the Stockton-based forecasting center and a University of Central Florida economist.”

“‘The East Bay will be weaker than it has been the past year and a half,’ Snaith said. ‘The East Bay bucked the trend for a while and was stronger than the rest of the state. But the area’s economy is finally cooling off.’”

“The construction slump could hound the East Bay and California for a while, said Chuck Williams, dean of UOP’s Eberhardt School of Business. ‘New-home developers have to work through their inventory and it will take them some time to do that,’ Williams said.”

From News 10. “With home sales slowing down, mortgage defaults and foreclosures are hitting record highs, and all indications are that the dark side of the housing boom could get worse.”

“‘The sky is not falling yet and if we work together, we can prevent that from happening,’ said Mary Harman from the California Association of Mortgage Brokers. ‘We are trying to provide solutions to correct things.’”

“‘There is a certain amount of responsibility that needs to be assumed by everybody in order for us to correct this and get the state to get back on the right track,’ said Harman.”

“California has the second highest number of foreclosures in the country, trailing only Florida. Some experts believe the problem is too many people getting into homes that they couldn’t afford.”

“‘People have gotten over their heads so the mortgage payment itself is higher than they can afford,’ said Mike Himes, Director of Homeownership Services for NeighborWorks in the Sacramento region. ‘Most of us heard, ‘Get into this loan and in two years you can refinance,’ but they don’t know what that really means.’”

Readers suggested a topic around developments since housing bail-outs were proposed. “My thoughts are that getting behind some sort of bailout that would enable FBs to refi is a win-win for politicians and financial companies. If they can get Mr. Future Trailer Park Guy in a new mortgage that he could actually afford, maybe a 50 year mortgage, a guy like that would jump at it.”

“What is the likelyhood of a bailout like this taking form? Would it take too long to get through the Congress to make a real difference?”

A reply, “I think there’s every reason to believe some kind of bailout will be attempted. This is why every single one of us needs to write, e-mail, fax and phone at least one politician and one newspaper editor/journalist. They need to hear what the consequences of their actions would be.”

One pointed to Ohio. “Look at the proposed details of that Ohio bailout. I believe they would allow ‘owners’ (and I use the word loosely) to refinance into a 30-year fixed rate at 6.75%. How does that help the FBs? They can’t afford an interest-only payment. How are they going to afford a fully amortizing loan at 6.75%?”

One replied, “I can get on board with this type of ‘bailout.’ Sure, many won’t be able to afford 30-year @ 6.75%, but some will. So it helps those who are more financially sound (note that doesn’t have to mean wealthier - it means those who are careful with their finances) and weeds out those who, well, aren’t. Not everyone can be ’saved.’ Propose something like this to them and, if they can’t handle it, then it’s time for them to sign a lease.”

One answered, “Except this still inappropriately prices risk, and even worse, the government is the one setting the price. Let the market decide who can refinance into a fully amortizing mortgage, and at what rate.”

Another added, “My idea about a bailout would be that the lenders give the bailout. If the lender thinks that they can save a loan by a re-write verses foreclosure then it’s the lenders or bagholders choice.”

“This is a issue between the lender and the borrower. The lender or borrower should not be forced into a re-write either. Many of the borrowers had no intentions of ever living in the property, so how can someone like that be saved from foreclosure? In prior real estate cycles Lenders would agree to short sales and sometimes extend some grace periods to people in trouble or work with them so I see no reason why it should not be the current lenders problem rather than the taxpayers.”

One doesn’t think it’s an issue. “The do nothing Congress will be on vacation soon, and the war spending bill will be front and center. The spring buying season (March 15 thru July 1) will be toast before anything can be proposed. Too little, to late.”

The LA Times. “Borrowers, don’t hold your breath for a bailout. The modest federal and state aid proposals advanced so far suggest that most people struggling with onerous loan payments are unlikely to get government assistance.”

“The Bush administration has ruled out a blanket program to help homeowners stave off foreclosure, reasoning that it’s ‘not an appropriate role for the federal government,’ White House spokesman Tony Fratto said.”

“And at the state level, ‘there is only a limited amount we can do for people who are affected right now,’ said (California) Assemblyman Ted Lieu, chairman of the Assembly Banking Committee.”

“Some of the country’s largest mortgage lenders, including Countrywide Financial Corp. and Wells Fargo & Co., met with Lieu this week to discuss a private effort to keep at least some foundering California borrowers in their homes, participants in the meeting said Thursday.”

“‘We discussed a potential billion-dollar, privately financed bailout to prevent foreclosures,’ said Robert Gnaizda of the Greenlining Institute, a fair-lending advocate.”

“No commitments were made, however. A Wells Fargo spokeswoman said the bank had previously discussed the possibility of a private assistance fund with Gnaizda, but had heard too few details to be able to say whether such a plan might work. A Countrywide spokesman declined to comment.”

“None of the three Democrats has offered more than general ideas for aiding borrowers, and none has called for a massive federal assistance program. ‘Dodd has been extremely clear that he is not talking about any kind of bailout,’ a spokesman for the senator said.”

“One problem with even suggesting a broad-based rescue plan for homeowners who are underwater is that any bailout of borrowers also would be viewed as a bailout of their lenders, potentially including some lenders that allegedly preyed on home buyers during the housing boom.”

“Using tax dollars to keep people from losing their homes would be ’socializing’ lenders’ losses, meaning society as a whole would be footing part of the bill, said economist Paul Kasriel.”

The Herald Tribune reports from Florida. “Conceived in the halcyon real estate days of 2003, The Azure was aimed at capitalizing on Sarasota’s rising status as the new Gulf Coast haven for the cultured and wealthy. Only now, the one acre of Lido Key that was to become The Azure sits empty, and for sale for $11.5 million.”

“‘It came down to there were too many units on the market, and nothing was moving very quickly,’ said Kevin Daves, the founder behind the Azure.”

“As the rush that was Southwest Florida’s real estate market slows to a crawl, The Azure isn’t the only condominium project either in jeopardy, for sale or just plain shelved. At least a dozen other high-profile local residential projects are either being revamped, delayed or scrapped.”

“The problem is one of ‘threshold,’ the number of units a developer must sell before accessing bank loans and beginning construction. ‘You’d better have a pretty strong market if you’re planning to start a large building,’ said (developer) Tom Brown.”

“The typical threshold for new condo projects is 50 percent. For a building with 100 condo units, that means 50 contracts.”

“‘With most lenders today, you not only have to have pre-sales, you have to prove your pre-sales,’ said N.J. Olivieri, president of Sarasota-based Horizon Mortgage Corp. ‘They’re now looking at who the buyer is, do they have the financial wherewithal, are they going to be an investor only. In that respect, the market has dramatically changed.’”

“Murray Klauber pulled the plug. He opted out of a ground lease at the Tampa port on Thursday, the same day he was expected to sign the deal. He had entered an operating agreement with a five-star hotel.”

“Yet after working with his lender and others, he realized the project was going to cost too much, and that the condo market is too soft.”

The News Journal. “Flagler County has gone from the fastest-growing county in the nation to the county with the state’s third-highest unemployment rate.”

“Layoffs in the construction industry continue to plague Volusia and Flagler. The slump in the housing market has hit not only Realtors and home builders, but has had a trickle-down effect to other businesses.”

“Colleen Kuhn with the staffing service Robert Half International Inc. blamed Flagler’s high unemployment on the drop in new home sales. ‘They were really hit,’ said Kuhn. ‘Home builders were stuck with a lot of inventory.’”

“‘The effect rolls down. We’ve gotten calls from employees in everything from air conditioning to the financial and clerical sectors,’ she said.”

The Tampa Tribune. “The meltdown in the nation’s subprime mortgage industry hit the Tampa Bay area hard Friday, as two subprime lenders announced nearly 400 layoffs in Tampa.”

“A third mortgage lender, H&R Block Mortgage Corp., also announced 141 job cuts, but a spokesman said they were not tied to the subprime industry troubles. All told, the three companies announced 534 layoffs Friday.”

“First NLC Financial Services, a Deerfield Beach-based company, offered no explanation for its layoffs Friday. According to a recent regulatory filing, First NLC suffered an operating loss of $18 million last year. It attributed the loss to the increased frequency of early loan defaults and an increase in the severity of the defaults, regulatory documents show.”

The St Petersburg Times. “Option One Mortgage said it will close its Tampa facility and lay off all 141 workers there by June 2, including 76 loan officers. Parent company H&R Block of Kansas City, Mo., said Friday that plans to sell the money-losing unit by today had been buffeted by ‘recent events in the subprime mortgage industry.’”

“News of the impending closures came just two weeks after Fremont Investment & Loan announced it would shutter its two Tampa offices, lay off 301 workers there by May 18 and seek a buyer.”

“In letters to Fremont customers, Advantage One Mortgage Corp. warns that Fremont’s problems ‘could affect how or to whom you make your payments.’ ‘As (Fremont’s) value is tumbling,’ Advantage writes, ‘the future seems quite uncertain.’”

The News Press. “Homebuilder Centex filed notice with the state Friday that it has eliminated 141 jobs, effective immediately, from Naples to Sarasota.”

“That amounts to half of the company’s work force in the region; the cuts are across the board, from construction crews to office staff, said Ken Smalling, a corporate spokesman.”

“‘We had to decrease volume to match the declining demand,’ Smalling said. ‘We had to adjust to the market.’”

“Projects where Centex is building include TwinEagles, a 1,115-acre community in North Naples; The Quarry, a 1,700-acre development in North Naples; Hawthorne, a community in Bonita Springs; and Lely Resort & Country Club in south Naples.”

“Centex isn’t alone in laying off workers. Last year, Bonita Springs-based WCI Communities Inc. eliminated almost 600 workers and First Home Builders, Lee County’s largest builder of single-family homes, laid off about 75 workers.”

“Michael Reitmann, executive vice president of the Lee Building Industry Association, said the recent wave of layoffs by homebuilders is a result of a slowdown in the construction industry. ‘It’s a delayed reaction to what the market actually is.’”

The Naples News. “‘It’s a reduction in force due to the significant market slow down,’ said Tim Ruemler, Centex division president for Southwest Florida.”

“‘I just know a lot of people have been laid off in our business,’ Ruemler said.”

“It’s happening statewide. In December, Divosta Building Corp. announced it was letting go 218 employees at its Palm Beach Gardens headquarters. That was after it laid off 135 employees in its Sarasota office.”

“Ross McIntosh, a Naples real estate broker, said the layoffs are much greater than what people realize because they’ve been done quietly. ‘It is very widespread and it’s very deep,’ he said.”

“Some companies have halted projects indefinitely, McIntosh said. ‘This is a very, very bad time to be starting projects,’ he said. ‘We have so many existing projects that are already having a tough time.’”

“Builders pulled nearly 30 percent fewer permits for single-family and multifamily residences in Collier County in 2006, compared to 2005. Lee County saw a more than 36 percent decline last year, according to the U.S. Census Bureau.”

“‘There have been no significant signs of improvement,’ Ruemler said. ‘It’s still a depressed market.’”

“The layoffs didn’t surprise Brenda Talbert, executive vice president of the Collier Building Industry Association. ‘Startling, no,’ she said. ‘Unfortunate, yes. Every builder company I’ve been talking to has been saying they are tightening their belts,’ Talbert said.”

“The cutbacks will have a long-term ripple effect, she said. ‘Housing and construction is one of the largest industries in Florida and this is harsh,’ Talbert said. ‘It’s going to have a roll-down effect on everything else in the economy. It’s going to affect the guy who sells furniture, carpet and window treatments.’”

“In other words, she said, the other shoe hasn’t dropped yet.”

“The good news is that now is a good time to buy a home, Talbert said. With the busy season nearing an end, builders are eager to make a deal. They’re offering a variety of incentives and discounts. Come Easter, most of the winter residents are heading home. ‘We don’t have a lot of time,’ McIntosh said. ‘The push is on.’”

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

It’s Friday desk clearing time for this blogger. “Dawn Erwin has had a tough time since moving to Maryland. Her husband has a new job and the Erwins want to sell their home. They put a Realtor sign up on Jan. 2 and have had 15 people interested in their house, but so far no takers. ‘First I couldn’t get into the house, and now I can’t get rid of it,’ Erwin said.”

“‘A buyer might be able to get a home for $400,000 that was worth [$450,000] a year ago,’ said Bill Hocker, branch manager at Countrywide Home Loans in Waldorf. ‘The buyers have the luxury of asking for more.’”

“(Orange County) home prices are 2.7% below last year’s peak of $642,500. Sales activity is down 21.1% from a year ago, meaning that March will surely be the 18th straight month that less homes were bought than a year ago.”

“Centex Homes has cut half of its work force in Southwest Florida, from Naples to Sarasota. The slowdown in the real estate market is to blame for the cuts, said Tim Ruemler, Southwest Florida division president.”

“Last week, I happened across a pitch letter from Countrywide. ‘Wouldn’t you like to have extra cash at the end of every month?’ cooed the come-on. ‘We know how hard you work for your money, and that’s why we’re inviting you to apply for a 40-year loan that offers one of the lowest monthly payments available.’”

“I thought it was awfully sweet of Countrywide to think of me. I do work hard for my money. And I sure would like to have a little more cash at the end of every month. How did the folks at Countrywide know all that? They must be geniuses or something.”

“Like some fool, I locked in a 4.5 percent, fixed-rate, 15-year mortgage a few years ago when I had the chance. What was I thinking? Instead of being free of mortgage debt at 57, I could keep making payments until I’m 85.”

From Minnesota. “Compared to the first quarter of last year, mortgage foreclosures in Dakota County have grown by 204 percent. According to County Recorder Joel Beckman, 299 mortgage foreclosures have been recorded from Jan. 1 to March 21. ‘We’ve had more filed so far this year than we have in the last two years combined,’ said Beckman.”

From Connecticut. “In recent years, many people have been able to purchase properties with little or no money down. So when property values drop or stagnate, owners with little equity in their properties are more likely to stop paying their mortgages and go into foreclosure.”

“Some lenders also had stopped verifying applicants’ incomes. ‘It was just a time bomb waiting to go off,’ said Greater Bridgeport Board of Realtors president, C. Obiora Nkwo. High-end homes in towns such as Easton and Greenwich appear to be getting hurt more than the affordable housing stock found in Bridgeport, Nkwo said.”

“The wave of mortgage foreclosures feared across the country hasn’t hit West Virginia yet, but it might not be far off. Just over 19 percent of such loans on West Virginia mortgages were late, and nearly 4 percent were in foreclosure in the fourth quarter, the MBA says.”

From Oregon. “The housing boom of recent years, in Portland and nationwide, has been driven in part by a rising trend of home mortgages to buyers with poor credit. Now, as housing prices have stalled or even declined in many cities, the cost is becoming clear.”

“‘The fees are excessive, the interest rates are excessive,’ said Kevin Sheehan, Portland office director for a nonprofit housing counseling service. ‘They get into it because they see home prices are going up and think, ‘If I don’t buy now, I’ll never be able to buy.’ A couple months down the road, they just can’t afford it anymore.’”

“Michigan is being hit hard overall. At last count, at least six Hillsdale County homes a week go to the sheriff’s sale at the courthouse at 10 a.m. each Friday morning. State Rep. Steve Tobocman said state House leadership will be working with mortgage lenders to…have state support for a second mortgage for up to six months.”

“‘Holy Cow! Holy Cow!’ exclaimed Scott Gray, a credit counselor in Tecumseh. ‘(Politicians ) want people in trouble to borrow more money? And have a second loan to pay off when they get a new job?’ Gray said.”

“A few years ago, I was visiting with the top dog at one of the country’s largest mortgage companies. I remember that I questioned him about the surge in home lending to people with bad or no credit and marginal income levels, folks who traditionally wouldn’t qualify for a mortgage.”

“I said that based on what I saw in the late 1980s crash in Texas, many of those buyers with little or no equity would walk away from their houses the first time a cloud passed over their financial horizon.”

“Sure enough, the mortgage company CEO agreed. But he insisted it would be worth the industry suffering those foreclosures if it meant millions of people could own a home who otherwise wouldn’t be able.”

“As it turns out, what we both predicted has come true.”

In Business Las Vegas reports from Nevada. “February’s new-home closings fell to their lowest point this decade as prices tumbled 5 percent from January, but the Las Vegas housing industry had a bit of a silver lining as housing starts reached their highest level since August, according to SalesTraq.”

“There were 1,441 new-home closings in February, a drop of nearly 50 percent from February 2006 and a decline of 30 percent from January’s 2,052. That’s the lowest monthly total this decade. In the resale market, the 2,594 homes sold in February was the lowest total since April 2001.”

“‘I think it’s always disappointing to see dismal results, and let’s face it, those sales figures are disappointing,’ said Las Vegas housing analyst Steve Bottfeld.”

“Bottfeld noted that home closing figures are a look at the past because it can take 60 to 180 days to close. None of the new numbers reflect the recent events in the subprime lending market in which it’s tougher for people with lower credit scores to obtain mortgages.”

“With the decline in home sales, prices came down in February with the median price at $321,555, a drop of 5 percent from January’s price of $339,253. The new-home price is the lowest since March 2006 when it was nearly $320,000.”

“The home prices don’t include the incentives that some builders are offering and have yet to disappear. Meritage Homes recently had a 48-hour weekend sale in which it was offering $60,000 in incentives for homes in Mountain’s Edge.”

“‘The next month or two will tell the tale of 2007, whether or not this is a real or false bottom,’ Bottfeld said.”

“The number of foreclosure filings jumped 24 percent between January and February, giving Nevada the nation’s highest foreclosure rate for the second consecutive month, according to RealtyTrac.”

“The 3,124 foreclosure filings in February were 77 percent higher than February 2006. Nevada has one foreclosure filing for every 278 households, which is three times the national average.”

“(The) National Association Of Home Builders said it expects single-family housing starts in Nevada to drop 28.5 percent in 2007, from 28,500 to 20,400.”

“‘The Las Vegas metro area turned in a similar performance (to Phoenix),’ the association said in its report. ‘Prices rose rapidly, the investor share doubled and housing starts climbed well above pre-boom levels. In 2005, the investor share of mortgage originations was over 20 percent, up from 9 percent in 2000. In 2006, Las Vegas joined Phoenix among the 20 largest housing market declines.’”

“NAHB Chief Economist David Seiders attributed the boom to an excess demand driven by low interest rates coupled with aggressive mortgage lending practices, a combination that…attracted speculators and investors. That in return put pressure on sales, prices and production that has resulted in corrections in 2006 and 2007.”

The Las Vegas Business Press. “All those ‘For Sale’ signs on houses across the valley are indicators of the glut of inventory facing both Clark County and the state. Until the residential market rebounds, local taxable sales could see more of what Applied Analysis Principal Brian Gordon termed ‘a decline.’”

“‘If we look at it on a per capita basis, it is a decline,’ he said of the Clark County number.”

“The state’s February employment numbers reflected an annual growth of about 32,500 jobs, which was around half of the number reported in each of the last three years, according to Gordon.”

“Gordon attributes the annual decline to a lagging housing market and a gap in major resort construction on the Strip. Planned projects, such as MGM Mirage’s Project CityCenter, Echelon Place, Encore and the Trump Tower are still too far off to have a significant impact on employment, Gordon says.”

“The decline in the residential sector has also impacted real estate brokers and agents, he continued. That job and income loss has been showing up in local spending figures. ‘It is significant. We have seen the amount of spending on taxable sales items is down on a per capita basis in Clark County,’ he explained. ‘Now we see it being reflected in the latest employment figures.’”

The Nevada Appeal. “Sales tax collections continued to lag behind projections used to build the budget for January. The slump in the housing and construction industries accounted for much of the problem. Sales of building materials and supplies fell 22.4 percent to $212.8 million. Furniture sales were down 60 percent to $89.3 million and taxable sales from building construction down 38 percent to $11.9 million.”

“Motor vehicle sales were off 10.8 percent to $434.7 million and food services and drinking establishments 16 percent to $592.6 million for the month.”

“Lyon County suffered a major drop in building materials sales from $5.6 million to $2.8 million and furniture sales went down 40 percent to $849,793. But Lyon’s amusement, gaming and recreation category also took a big hit in January as taxable sales fell from $1.3 million to $345,084. Overall the county was down more than 23 percent compared to the previous January.”

From KUTV 2 in Utah. “According to one research group, the state of Utah is the worst in the country when it comes to home mortgage fraud. In Utah for some reason people have fallen hard for mortgage fraud and the con men and women have gotten away with it.”

“Sean Anderson was sold on a deal to build a house and earn fast equity. ‘It sounded like a great deal,’ says Sean. ‘They hooked us up with the mortgage company, hooked us up with the appraisal, which came in at $464,000. And I built the house for $425,000.’”

“Sean was told he could use the equity to make the payments. What he didn’t know was the agent and lender used an inflated appraisal. ‘I can’t make the payments,’ says Sean. ‘There was no equity. Right now I’m into this over $100,000.’”

Some housing bubble news from Wall Street and Washington. “Beazer Homes USA Inc. said late Thursday that it got a grand jury subpoena demanding documents relating to its mortgage origination business. Several major home builders also operate finance companies to help customers buy their houses. Those businesses and the broader home-lending industry have been under scrutiny lately as defaults among the riskiest of those loans, called subprime, have spiked.”

“Lerach Coughlin Stoia Geller Rudman & Robbins LLP today announced that a class action has been commenced on behalf of purchasers of Beazer Homes common stock during the period between July 27, 2006 and March 27, 2007.”

From Bloomberg. “U.S. homebuilders may trigger a ‘correlation crisis’ similar to the credit sell off in 2005 when Ford Motor Co. and General Motors Corp. lost their investment-grade credit ratings, according to Bank of America Corp.”

“‘We see increasing risk signals that remind us of the run- up to the 2005 correlation meltdown,’ the analysts wrote. Investors may demand a higher premium for holding the equity tranche related to the benchmark investment-grade credit- default swap index, should the cost of contracts on homebuilders in the index rise, the analysts said.”

“‘We would not be surprised to see a potential dramatic increase in the premiums required by equity tranche holders to hold first-loss risk,’ the analysts wrote. ‘A reversal in the current demand for equity tranche protection could send investment-grade index spreads significantly wider.’”

From CNN Money. “On Tuesday, Lennar CEO Stuart Miller told investors on the company’s conference call that some markets were still seeing declines, according to Reuters. That comment and other recent signs probably mean the industry is still a long way from the bottom, said Morningstar analyst Parrish Glover.”

“‘There’s a reason why D.R. Horton’s CEO said, ‘07 is going to suck’, Glover told CNNMoney. ‘We’re not even expecting a recovery in the next 18 months. Even for the next three to five years, we’re not looking at an especially robust market.’”

“‘This kind of bull market that’s deflating is something that comes around once every 20 years,’ he said.”

From Reuters. “‘2006 may prove to be the worst subprime vintage ever,’ said Roelof Slump, a U.S.-based managing director for (Fitch Ratings), adding that he expects losses of between 6% and 8% in the value of these bonds.”

“Slump told Reuters that problems in the subprime housing market could have an impact on the overall housing sector in the United States. ‘We do believe that the very same things that are happening in the subprime market are likely to be happening in the Alt-A market, again driven by home prices.’ he said.”

The Financial Times. “Credit Suisse has filed lawsuits against at least three US subprime mortgage lenders, marking an escalation of efforts by Wall Street banks to use legal action to purge themselves of bad housing loans.”

“DLJ Mortgage Capital, a unit of Credit Suisse, is separately suing the three mortgage companies. EMC Mortgage Corp, a unit of Bear Stearns, has filed at least one $70m lawsuit against a lender. Other suits are expected. The legal action comes as Wall Street seeks to limit damage from the subprime collapse.”

“In one instance, cited in the case against Infinity Home Mortgages, DLJ claims it bought four mortgage loans totalling $838,000 made to an individual borrower for three properties on the same street in Irvington, New Jersey. DLJ bought the loans from Infinity between March and April 2006, and claims that the individual failed to make payments on three of the mortgages in May.”

“‘I can’t believe there is a soul that has been dealing in mortgage sales to Wall Street that hasn’t run into early payment default problems,’ Sunset Direct Lending CEO Bob Howard said. He added that Sunset was no longer making new loans.”

“The long list of participants in the subprime mortgage crisis will not go unscathed in sharing the pain but should work together to find solutions to the problem, a U.S. banking regulatory official said on Wednesday.”

“‘I believe there is more than enough blame to go around,’ Sara Kelsey, general counsel of the Federal Deposit Insurance Corporation, said.”

“The pain starts with borrowers and then mortgage brokers and bankers to brokerage firms, parties involved in securitizing mortgages, domestic and foreign investors, and insurance companies, she said.”

“The list also includes pension funds, mutual funds and hedge funds, as well as banks that provided money to each of the market participants, she added.”

“She said data suggest 52 percent of subprime mortgages are originated by independent mortgage banking companies, 23 percent by banks and thrifts, 13 percent by mortgage banking subsidiaries of bank and thrifts and 12 percent by mortgage banking units of bank and thrift holding companies.”

“The Federal Reserve encouraged this but also has hiked interest rates. ‘I believe that the hard lesson we are all learning from the current situation will involve shared pain, all along the line,’ Kelsey said.”

“NAR Chief Economist David Lereah predicted that tighter underwriting practices may cause total home sales to fall by about 100,000 to 250,000 nationally, or no more than 3 percent a year over the next two years.”

“Lereah warned against overreaction to the situation. ‘Tougher lending standards imposed by the marketplace and the regulators are necessary, but we need to be mindful of overcorrection. Responsible lending practices are what the doctor ordered, not practices that cause a credit crunch,’ Lereah said.”

The Boston Herald. “Amid outrage on Beacon Hill over a tidal wave of home foreclosures, leaders of the Bay State’s embattled mortgage industry are quietly doing a little housecleaning. The Massachusetts Mortgage Bankers Association has ejected a trio of now controversy-tarred, and financially troubled, subprime lenders from its membership rolls.”

“‘It’s more the case we want to protect ourselves,’ Charlie Nilsen, head of the Massachusetts Mortgage Bankers Association’s communications committee. ‘When we talk to regulators, our integrity, our credibility is really important.’”

“Community activist Jenelle Dame has a secret weapon to hit back at the predatory lenders blamed for putting millions of Americans at risk of losing their homes: she calls in the sharks.”

“‘We go to their office and bring people and signs and little plastic sharks, like loan sharks. We put sharks all around their offices,’ said Dame, an organizer in Cleveland, Ohio, which had the nation’s highest foreclosure rate last year.”

“Florida’s tax receipts are falling for the first time since 1975 as a slump in construction and home sales dims the economy of the Sunshine State.”

“States from New Jersey to California are getting pinched, just a year after many enacted the biggest spending increases in almost two decades. ‘A lot of states are starting to worry,’ said Iris Lav, who follows state budgets for a nonprofit. ‘We have yet to see the effects of the bursting of the property bubble.’”

“Philadelphia Federal Reserve Bank President Charles Plosser on Friday cautioned against seeking quick policy solutions to pressing problems like rising defaults in subprime mortgage markets.”

“Speaking at a Fed conference on community development, Plosser never referred directly to the issue of subprime lending defaults but left little doubt he was talking about calls for action to deal with the problems the sector faces.”

“‘While the symptoms of economic and financial hardship can be stark and dramatic at times, the causes are often subtle and complex,’ Plosser said.”

“‘Bold headlines, graphic news stories are tempting to generalize and may evoke calls for immediate policy response,’ he added. ‘But public policy driven by headlines rarely turns out to be good public policy.’”

“‘We must remember that markets are a powerful source of innovation. Our development efforts should not necessarily focus on thwarting or overriding market mechanisms, but rather they should focus on taking greater advantage of it,’ Plosser said.”

The Bradenton Herald reports from Florida. “Condo buyers are getting a warm welcome these days with 2,246 condos actively listed for sale in Manatee County. A caveat might be: If you’re selling condos, you’d better have them competitively priced or they won’t sell, according to developers and real estate sales agents.”

“A broker who sells waterfront condos and single- family homes on Anna Maria Island and Longboat Key was unenthused Monday about the market. ‘All of the listings are coming down in price. They’re not even moving even though they’re coming down,’ said Phillip Saadi, a broker in New Tampa. ‘Why? I don’t know.’”

The Herald Tribune. “Warren Hickernell looked like the boldest contrarian in the Southwest Florida real estate market last year. He spent millions changing motels and apartment buildings into condominiums long after the conversion trend seemed spent.”

“But with banks foreclosing on six of his 18 conversion projects, demanding repayment of more than $17 million, Hickernell now looks like a gambler whose luck ran out after he kept letting it ride on red.”

“In December 2005, Hickernell bought the 46-unit Bermuda Apartments in Sarasota from Daniel Prewett for $10.23 million, court records show. Prewett had paid just $5 million nine months earlier.”

“‘Hickernell had to have a lot of courage to pay that much at that time,’ said Kent Davis, a former Anna Maria Island motel owner. ‘Everyone knew the market was dead in late 2005. No one expected a happy ending at that point. It was game over.’”

“Backed by the RBS Companies of Brighton, Mich., and other investors, Hickernell spent nearly $20 million to buy five apartment complexes during the first six months of 2006.”

“Court records show that Hickernell and his partners defaulted on their first loan on June 30, 2006, just three days after a different Hickernell-led investment team had spent $6 million to buy the 41-unit Three Fountain Apartments in Sarasota.”

“The default was on a $1.884 million loan from the Bank of Commerce that was used to buy the Pearl Beach Inn in July 2004. The bank foreclosed on Pearl Beach six months later.”

“Meanwhile, three investors contacted by the Herald-Tribune say Hickernell has not informed them about his financial struggles. ‘We heard he had a problem with one property,’ said Boca Grande resident William Decklever. ‘We didn’t realize he was having trouble with five.’”

“In the latter half of 2006…two California investors, John Couch and Christopher Woods, appeared on the scene and bought five Bermuda condo units at an average price of $659,200, nearly twice the average per unit price paid by the first three buyers.”

“Richard Dear and other experts contacted by the Herald-Tribune are convinced that the two Californians paid way too much. ‘I would not want to be the lenders holding the mortgages on those properties,’ said Dear, a Siesta Key vacation resort owner and friend of Hickernell’s.”

The Orlando Sentinel. “In the midst of showing a house for sale, real-estate agent Debbie Frucci got an unexpected visit, from a police officer.”

“The problem: her open-house signs. Placed in the public right of way, the signs violated Winter Springs city rules. So the signs came down, and the open house got shut down. ‘There was no sense in doing it if people didn’t know where to go,’ Frucci said.”

“Open houses have become increasingly important in the softening real-estate market. But most of the signs, whether those placed by real-estate agents, new-home builders or homeowners, are there illegally, and local governments are cracking down. A coordinated, statewide sweep six months ago collected more than 7,000 signs in just Orange and Seminole counties.”

“‘A lot of our members weren’t having to do open houses, the market was so hot,’ said Frankie Elliott, VP of government affairs for the Realtor association. But things have changed. There’s more than a year of inventory on the market, according to association data.”

“‘Now, you’re having to go back to the way the old market was,’ Elliott said. ‘You don’t want to spend four hours sitting in a house and have no one come by because your signs have been taken.’”

“Even real-estate veteran E. Everette Huskey found himself with virtually no customers at an open house when his sign advertising the event got removed from along Wekiva Springs Road. ‘They’re hurting the Realtors,’ he said. ‘They’re hurting the homeowner.’”

“‘The Realtors are being thrown in a big pot, if you will, with all the other people that put out a gazillion little signs [such as] ‘Lose 30 pounds in 30 days,’ said Jeff Bales, a Lake Mary real-estate agent.”

“Gloria Beharry owns the house Frucci was trying to sell. Now paying taxes and mortgages on two houses since she moved to a bigger home, Beharry wants to sell fast. ‘If the house had more exposure,’ she said, ‘it would help a lot.’”

The Sun Herald. “This deal is dead. Developer Mark Flannagan allowed the March 28 closing date to pass, effectively ending his intention to purchase the 12-acre tract of land comprising Shady Haven Mobile Home Park for $7.8 million in order to build a condo complex there off Old Englewood Road.”

“‘Our contract is now dissolved,’ said park co-owner Mary Allseits. ‘That’s about all I know. We are no longer under contract with Mark Flannagan. He did not go through with the deal.’”

“‘We’re going to return to business as usual until we decide something further. For right now, though, we’re just going to be running Shady Haven as we always have,’ Allseits said.”

“This came as a reprieve to Shady Haven resident Dolly Fetcko. ‘It means we can breathe a little bit easier, at least for another year or so,’ Fetcko said.”

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

And send in your housing bubble photos to:

hbbphotos@gmail.com

The Union Tribune reports from California. “Homeowners throughout San Diego County are defaulting on their loans and losing their properties to foreclosure at an increasingly rapid pace. In the first two months of the year, there were four times more default notices issued in the county than in the first two months of last year, while foreclosures tripled over the same period, according to DataQuick.”

“‘It’s disconcerting,’ said Bob Visini, spokesman for LoanPerformance. ‘Everything seemed to be going well and then six months into 2006, we already saw the warning signs.’”

“At the end of last year, Visini said, 9.6 percent of all outstanding mortgage loans in San Diego County were subprime and of those, 11.3 percent of owners were at least 60 days late in making payments.”

“The area with the highest local default rate this year was San Ysidro ZIP code 92173, and February ranked San Ysidro 15th among 1,100 ZIP codes statewide having 1,000 or more homes. Also in South County, three Chula Vista ZIP codes were among the 10 worst-performing San Diego-area communities.”

“Javier Garcia of Virtual Realty & Loan said he has one client whose business reverses are forcing her to sell her Otay Ranch house for about $399,000, which is $60,000 less than the outstanding loan amount. She will have to deal with the tax consequences of the forgiven debt from her lender.”

“Scott Vinson, chief executive of Coldwell Banker Royal Realty, said he is handling 11 foreclosure listings for Countrywide Financial in Otay Ranch.”

“Sergio Rivera in Vista, who moved from selling cars to real estate last year, said the sale of nondistressed property will take longer and often involve a lower price if a neighbor’s home went to foreclosure. But then the buyer may be getting a bargain.”

“‘Every time there’s drama, there’s opportunity,’ Rivera said. ‘This is going to be an excellent time for a lot of people and terrible time for a lot of people. It depends on your point of view.’”

Inside Bay Area. “The number of foreclosures and ’short sales’ of homes equals nearly 10 percent of the total number of homes for sale in San Joaquin County, according to the Central Valley Association of Realtors.”

“Dale Gray, CEO for the association, said out of 4,340 total, there are 317 home sale listings for short sales, where the home is sold for less than is owed to the bank, or foreclosure, a home that has been repossessed by the bank and put up for sale again through a broker. And the number may continue to grow.”

“‘They are up and we are hearing that from a lot of areas in the United States,’ Gray said. ‘A lot of these sub-prime loans… puts (the homeowner) over 100 percent of the value of the house and some of the adjustments are coming home to roost.’”

“The median sales price for a home in Tracy has hovered around $520,000 for the better part of the past year. In Manteca, the median sales price has dropped to $362,250, one of the lowest points in the past three years.”

The Contra Costa Times. “In the first two months of the year, single-family home-building activity in the East Bay and Peninsula picked up a bit but the state saw a big decline from a year ago, an industry report released Wednesday said.”

“Statewide, 13,007 single-family housing permits were pulled, a 31 percent drop from a year ago.”

“‘March and April will really tell the tale for the whole year,’ (said) Alan Nevin, the association’s chief economist.”

“San Joaquin County saw a decline in both single-family and multifamily starts issued for apartments, condos and townhouses. There were 384 single-family starts, a 37 percent drop, and 46 multifamily starts, a 45 percent decline.”

“The East Bay and San Francisco metro area were in line with a 37 percent statewide decline in multifamily permits.”

The Fresno Bee. “Permits increased 18% from January to February in Fresno County. In Madera County, permits edged up 1.9% in February. The area of Hanford/Corcoran saw a 63.4% increase that month.”

“Visalia was among those regions that experienced a decline. Permits fell almost 34% there, to 54 from 110. Los Angeles fell 23.5%, Bakersfield tumbled almost 22%, Riverside/San Bernardino slid 14.1%.”

The North County Times. “In yet another signal of the weakening housing market, home builders sharply scaled back construction in the San Diego region in February.”

“The number of permits pulled by developers ready to start building fell to 539 in February, from 819 in January, a decline of 34.2 percent, and a steep drop of 54.3 percent from February 2006, when 1,180 permits were pulled.”

“Many of the builders with projects in North County are big national developers, such as Lennar Corp. and D.R. Horton, which have reported substantial losses in 2006, said Alan Nevin, chief economist for the builders association. So they are reluctant to start construction on a new phase or a project unless they can get nonrefundable deposits from buyers.”

“‘They still don’t have evidence enough of strength in the market,’ Nevin said. ‘They’re just plain afraid.’”

The Daily Bulletin. “Housing starts fell significantly in February, but at least one builder says the market is actually stronger than it appears. ‘Affordability is the big issue right now,’ said Scott Laurie, president of Pomona-based KB Home Inland Valley. ‘We have a great economy, with job growth and population growth. Unfortunately, over the last few years, incomes did not move up with home prices.’”

“‘When you add in the problem in the subprime mortgage market, it makes the situation more confusing. The buyers’ perception right now is that they may have trouble getting a mortgage,’ he said.”

“There’s also a perception on the part of some people that a big correction is coming in home prices. ‘New home prices have fallen,’ Laurie said. ‘But if there are people waiting for a big correction, they could be waiting for 20 years.’”

“‘The main issue is affordability, said regional economist John Husing of Redlands. ‘It is all about the price point right now.’”

The Bakersfield Californian. “(Economist) John Husing said the housing market has created a bubble, but that the bubble won’t burst. Husing predicted investor home sales and foreclosures brought on by subprime home loans will increase supply and lower prices of residential real estate. He said the Southern California real estate market won’t start to improve until early 2008.”

From KFSN TV. “Local realtors say the housing market is simply coming back down to reality after a period of inflation in Merced. Jim Noumov put his four bedroom home on the market about six months ago. His asking price is $649,000.”

“He says, ‘The realtors say your house is worth your asking price, but you’re overpriced for the market. We’re currently looking at anywhere from $50 to $100,000 overpriced from where the market was to where it is right now.’”

“Jim knows his selling experience would have been much different just one year ago. He says, ‘There would probably have been 2 or 3 people waiting at the door bidding on the house.’”

The San Francisco Chronicle. “Californians see tougher economic times ahead and are losing confidence in the ability of their political leaders to deal with the state and nation’s growing problems, according to a poll released Wednesday by the Public Policy Institute of California.”

“The poll found that half of all adults and nearly as many likely voters now believe bad economic times are ahead for California in the next year, up from 39 percent just two months ago.”

“The loss of confidence ‘is a big change in a couple of months,’ said Mark Baldassare, president and pollster for the policy institute. ‘It reflects anxiety about the stock market, the slowdown in the housing market, rising gas prices and concerns about possibility of home foreclosures due to subprime loans.’”

From Bloomberg. “California Attorney General Jerry Brown is investigating the collapsing subprime mortgage industry in the state, the largest U.S. market for high-risk home loans.”

“Gareth Lacy, Brown’s spokesman, said yesterday that the attorney general has an ‘active and open investigation’ that’s a continuation of probes into predatory lending practices that began a couple of years ago. Lacy wouldn’t say which companies may be targeted or how far the probe has progressed.”

“‘I think it’s appropriate for the attorney general to take a look, especially if there’s been abuses in lending practices,’ state Senator Mike Machado said. ‘There’s a lack of scrutiny over the practices and the brokers engaged in originating some of these loans.’”

A housing report from the Arizona Republic. “Permits for new-home construction are on the rise in Maricopa and Pinal counties, jumping 26 percent in February compared with the previous month and building on two straight months of gains. The skyrocketing prices of the housing boom scared away buyers and many walked away from contracts, leaving some builders with cancellation rates of 30 to 40 percent. ”

“It’s unclear exactly how many spec homes are on the market. Some analysts say the number could be more than 10,000.”

“Doug Fulton of Fulton Homes hopes the surge in permits isn’t just big public home builders cranking up local production so they can book 2007 sales. ‘I would like to see permits go down,’ he said. ‘What are you doing? You are just generating more inventory. I don’t like to see permit increases any more than I like to see additional homes listed on the MLS. It’s a supply-and-demand issue.’”

“RL Brown’s report noted that the number of closed sales was the lowest since May 2003. He said most new houses being sold in the Phoenix area these days are spec homes.”

The Explorer News from Arizona. “Like many in the formerly booming real estate market, Bob Bates decided to refinance his family’s 1,300-square-foot Marana home on an adjustable rate mortgage, using the extra cash to pay off vehicles and catch up on bills.”

“But when a slew of car accidents and health woes pushed his $33,000 annual income to the wall, the 41-year-old construction worker pursued the familiar option.”

“Despite being late on payments at the time, Bates sought out and was approved for his second refinancing last year, during the lending frenzy to those with marginal credit scores.”

“‘It made sense and I was desperate anyways,’ Bates said. ‘I was shocked they were even going to do it. If I couldn’t make my payment at $800 a month, what made them think I could afford $1,300 a month?’”

“Bates planned to fix up the 15-year-old cul-de-sac ranch house and sell it within months. Then came a nationwide sea change in the housing industry. Now, months behind on his mortgage, Bates stares down the barrel of foreclosure.”

“‘Who would’ve thought the market did what it did with houses,’ Bates said. ‘Nobody’s buying and it’s like, ‘Oh Jeez.’”

“Lenders are tightening their standards, which could have ripple effects in the market. Northern Pima County’s new construction market depends heavily on that population and could stand to lose up to 20 percent of its clients, according to David Modisett, who owns a local home financing company.”

“Property values across the board could also be jeopardized, as neighborhood prices dip when sellers look to unload discount-rate properties. ‘Those areas that have the high foreclosure rates are going to be the ones that have declining values,’ Modisett said. ‘This next year’s going to be pretty volatile, no question about it.’”

“Long Realty Vice-President Janell Jellison said the public perception of a sour market is creating drag on sales. ‘It’s stalling out the market is what it’s doing,’ Jellison said. ‘Everybody’s sitting there going ‘Well, maybe the sky is falling in, so I just won’t do anything.’”

“That mindset is obvious during a drive through many planned subdivisions, including Marana’s Gladden Farms. The community boasts nearly 100 homes for sale, many built on speculation, still waiting, empty of furniture, for their first occupants.”

The Benson News from Arizona. “While there may be a national housing slump, local experts believe Benson’s housing and land sales have gone from crazy to normal.”

“‘Land sales have taken sort of a nose dive right now because landowners have priced themselves right out of the market,’ said local Broker Mary Ann Scott. ‘The market right now is being called a corrective market.’”

“‘It was almost like a panic-buying mode in 2005,’ she said. ‘People were coming in from everywhere and buying whatever they could get their hands on. Compared to prices in California, even the overpriced land looked fabulous to them.’”

“In 2005 and 2006, because Benson’s open land became popular for housing developers and investors, undeveloped land was being sold for up to $12,000 an acre. Will White of Arizona Land Advisors in Tucson said prior to the boom, land cost about $4,000 an acre.”

“Some of the problems in the market were also caused by investors, broker John Davis said. ‘The investors would come in and buy the homes and turn around and sell them,’ he said. ‘The homebuilder had to start competing with investors. Buyers didn’t want to wait six months for their home to be built, so they would buy the one that was ready.’”

“Once the investor inventory decreases, Davis said home sales and construction will continue to go up. ‘Sure it’s not the crazy free-for-all market anymore, but it’s OK. For this area, you could say the market went from incredibly crazy to normal,’ he said.’”

The Sun News from New Mexico. “Do you want to buy a home in Las Cruces? The good news is that there are more homes on the market than in years past. Even though 2006 was another record-setting year for home sales in Las Cruces with more than 2,300 homes sold, the first quarter of 2007 reflects a major step back from that pace.”

“According to Annette West, a Las Cruces real estate agent, 352 homes have been sold so far this year. Through March of last year, 507 homes had been sold. ‘That’s a big change in volume,’ West said.”

“The housing slump reported in other parts of the nation is affecting Las Cruces, experts said. The record-setting pace of the past several years was fueled in part of out-of-town buyers. Many potential newcomers are now having difficulty selling their old house, which makes it difficult for them to buy a new house here.”

“Michael Tassler and his wife moved to Las Cruces from Virginia and bought a house last year. ‘Our home back there is still on the market,’ Tassler said.”

“Luckily his wife’s company helped with the move and bought the house in Virginia although it remains unsold.”

“Tassler said that his home in Virginia is slightly smaller than the one he purchased in Las Cruces, yet it is on the market for significantly more than he paid for his new house. ‘Compared to some other markets, the prices are really good here,’ he said.”

“He said he has acquaintances in California who consider prices in Las Cruces to be ‘dirt cheap.’”