March 31, 2007

“An About Face” In California

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.’”




“What Is The Likelihood Of A Bail-Out?”

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 Other Shoe Hasn’t Dropped Yet” In Florida

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.’”




Bits Bucket And Craigslist Finds For March 31, 2007

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