The Housing Bubble

CBS 5 reports from California. “A new survey shows Bay Area home listings jumped at one of the nation’s highest rates. Investors are placing properties on the market, trying to sell them before the busy summer selling season. And more homeowners, desperate to avoid foreclosure are placing their homes up for short-sale meaning they are being sold for less than the mortgage.”

“Anthony Germono is a real estate investor finding discounts among homes in foreclosure. ‘We are looking to get something on 80 cents on the dollar or less,’ Geronimo said.”

“These days there is a record amount of inventory to chose from. And, there’s an increase in properties listed by investors and families who are on the verge of losing their homes because of higher interest rates on adjustable mortgages. Realtor Andrew de Vries says these sellers are motivated.”

“‘If you can help those folks sell their property before it goes into default, it will actually help their credit,’ de Vries said. De Vries advises buyers to be sympathetic, because sellers don’t need to be kicked while they’re down with obscenely low offers.”

The Contra Costa Times. “As 1.1 million homeowners face foreclosure and financial ruin after the subprime mortgage market meltdown, a question remains: ‘Who is going to solve this mess?’ For those expecting a bailout from a federal subprime lender, they may be waiting awhile, experts say.”

“East Bay subprime borrowers who were more than 60 days late with their mortgage payment rose from 4.29 percent to 12.23 percent in February year-over-year. That number rose from 4.04 percent to 12.94 percent in Solano County year-over-year, Bob Visini of First American LoanPerformance said.”

“‘People have bought houses they can’t afford, period,’ said economist Christopher Thornberg. ‘So unless the government is going to give them $100,000 to $200,000 each, what option do they really have?’”

“Aside from lawsuits, there are few legal solutions for most homeowners defaulting on their mortgage, said Tara Twomey, counsel for the National Consumer Law Center.”

“One option is filing for bankruptcy, which can give the homeowner some time to deal with an imminent foreclosure, she said, but that is not a solution. And bankruptcy Chapter 13 does not allow for the modification of real estate debt, Twomey said.”

“‘If your mortgage wasn’t affordable the month before bankruptcy, it probably won’t be affordable the month after,’ she said.”

The Marin Independent Journal. “A prominent real-estate economist predicts that troubles will persist in the California housing sector throughout the year, but she said Marin’s unique market is weathering the downturn better than other areas.”

“‘It’s God’s country, what can I say,’ (said) Leslie Appleton-Young, chief economist for the California Association of Realtors. ‘When is the 30 percent decline in Marin County’s market going to happen? Not in my lifetime.’”

“Marin’s foreclosure activity nearly doubled in the fourth quarter of last year. By comparison, notices of default were up 134 percent in the nine-county Bay Area over the same period, DataQuick reported.”

“Statewide, default notices increased 145 percent year-over-year. In Merced, Placer and Santa Barbara counties, the increase exceeded 250 percent.”

“Recent foreclosure activity has apparently been brisk in Marin. According to Yahoo, dozens of foreclosures have been listed in Marin in the past two weeks alone.”

“Local real estate agents said they were encouraged by Appleton-Young’s talk. Vicki Buckle-Clark, an agent with Pacific Union in Greenbrae, described the market as ‘extremely unique.’”

“‘We can’t be lumped together with all the California statistics and the nationwide statistics,’ she said.”

The LA Times. “Americans are worried about the economy and believe that a recession is looming, but their faith in real estate remains fierce, according to a Los Angeles Times/Bloomberg poll.”

“Scott Richard Wallace, a San Diego carpenter, doesn’t share that view. ‘Housing is always a good investment,’ he said in an interview after the poll. ‘I don’t see it ever losing.’”

“Housing experts were a little puzzled by the enthusiastic attitude of some respondents.”

“‘Mortgage credit is clearly tightening, affordability is not good and there are a record number of unoccupied homes for sale,’ said Scott Simon, a mortgage-bond fund manager for Pacific Investment Management Co. in Newport Beach. ‘We think prices should be down a few percent this year and, if we are wrong, it will be worse than that.’”

From News 10. “More than 100 units in a Sacramento-area condominium complex are headed into foreclosure in what appears to be a case of bad timing.”

“The company began converting the 242 units to ‘luxury’ condominiums. According to county records, sales started strong in October 2005 with 76 units sold in the final three months of the year.”

“But sales tapered off in 2006 and in the first three months of 2007 the group sold just one unit. The unpaid dues and penalties on each unit exceed $4,000, which indicates the company owes at least $750,000 in assessments.”

“Rollingwood condominium owners contacted by News10 were unaware that most of their neighboring units appear headed for public auction. ‘There goes the property value,’ said Sharon Morton, who paid $239,000 for her two-bedroom condo last fall.”

The LA Daily News. “Los Angeles is Southern California’s least overvalued residential real estate market while the Inland Empire is the third most overvalued in the nation, a market tracker said Tuesday.”

“When housing is overvalued, renting is a better economic option, the study notes.”

“The situation is a little more dicey in the Inland Empire, though. Jack Kyser, chief economist at the Los Angeles County Economic Development Corp., said there was a land rush out there because of affordable prices but a lot of homes are on the market now.”

“‘A lot of investors bought second homes with the thought they would rent them out,’ he said.”

“‘Their prices (the Inland Empire) were running up and knocking them out of the affordable market. So maybe they will be coming back into the affordable range,’ Kyser added.”

“The study also looked at the relationship between changes in apartment rents and housing prices. For example, from 1990 to 1999 home prices in the Los Angeles area fell by 0.3 percent and rents increased 2.1 percent.”

“But from 2000 to 2006, home prices rose an annual 16.9 percent and rents moved up 7.6 percent. This growing spread suggests an overvalued housing market and that means renting is a more attractive economical option at this time.”

The Journal Sentinel reports from Wisconsin. “Milwaukeeans’ love of discounts is on full display in this year’s housing market. ‘With flooding inventory out there, it’s not uncommon to see offers at 10 percent below asking price,’ said Greater Milwaukee Association of Realtors President Dave Schmidt Jr.”

“Double that price cut if the property is in danger of foreclosure, said Robert A. Jansen, of (a foreclosure) listing service.”

“‘We’re seeing many people writing offers at 10 percent to 20 percent below asking price. Buyers are less afraid to insult sellers,’ said Roy Scholtka, broker in West Allis.”

“Buyers are picky. And with 10,246 new listings hitting the market so far this year, they can afford to be, said (broker) Dave Schmidt. ‘Listings are up 13 percent over last year and 50 percent over 2005,’ Schmidt said.”

“‘Everybody I talk to is wondering, ‘Why isn’t my house selling?’ It’s because they’re still thinking they should be getting 5 percent price appreciation a year,’ said Donald J. Moore, president of Houses .com in Elm Grove. ‘You should be happy if you can get ‘04 prices.’”

The Detroit News from Michigan. “The national meltdown of the subprime mortgage market is causing its share of Michigan casualties, as major lenders have closed and smaller ones are struggling with a lower volume of loans.”

“Industry experts say the businesses most affected locally are the small loan writers and brokers who sprang up during the refinancing boom earlier this decade and are now closing in scores.”

“‘This is a major credit event caused by lax standards, unusually aggressive mortgage lenders and apparently some fraud,’ said Dennis Capozza, a professor of finance at University of Michigan.”

“When the housing market is strong like it was five years ago and home prices are rising, people don’t often default on loans because they are able to sell their houses to get out from under a mortgage, Capozza said.”

“But now, he said, ‘we’re moving in the other direction. If you can’t sell your house, you may have to give it back to the lender.’”

The Journal Gazette from Indiana. “Sales of existing homes in Allen County last month dropped nearly 33 percent from March 2006, according to the Fort Wayne Area Association of Realtors.”

“The declining sales partly reflect the fact that this is a buyer’s market, said broker Jerry Morrow. A large number of homes remain on the market, and foreclosures added to the abundant inventory.”

“‘The market’s just saturated with listings,’ he said.”

The Terre Haute News from Indiana. “The Indiana Secretary of State’s office is leveling allegations against a Terre Haute mortgage loan company, a Sullivan title company and several individuals.”

“The Secretary of State’s office alleges that Affordable Lending knowingly processed false loan application documents on behalf of two property buyers. The two buyers bought 23 different properties around Terre Haute in 2005 and 2006, according the complaint.”

“‘Our point is that [borrowers] lied … and we believe that the brokers helped them lie,’ Secretary of State Todd Rokita said.”

“The complaint alleges that the borrowers claimed several different properties as ‘primary’ residences on loan application documents. Primary residences usually receive loans on more favorable terms than investment properties.”

“The alleged fraud was discovered, Rokita said, when the mortgages were sold on the secondary loan market and, ‘by coincidence,’ some of them ended up at the same secondary loan buyer. These buyers noticed some of the mortgages had the same buyers listed as owning more than one ‘primary residence,’ Rokita said.”

“‘That’s what tipped us off,’ he said, adding investigators then ‘dove into the broker’s office and looked through all his files to put all the pieces of the puzzle together.’”

The Kansas City Star. “Chandler McCray, the president of McCray Lumber & Millwork Co. of Overland Park, has had to lay off 50 employees since new-home construction began to drop last year.”

“‘We started feeling the slowdown as far back as last summer,’ McCray said. ‘When it really slowed down or stopped was since the beginning of the year. Our sales are off 40 percent.’”

“With roughly one of every 10 jobs somehow connected to the housing industry, experts warn that the current market slowdown could affect people you ordinarily would not consider.”

“L. Randall Wray, a professor of economics at the University of Missouri-Kansas City, said Americans have weathered ups and downs in the real estate market before, but never at a time when so many were overextended on their credit.”

“Wray said a recent report by The Wall Street Journal online, citing statistics prepared by First American LoanPerformance, indicated that 14.1 percent of all mortgages in Kansas City were subprime loans. Of those subprime borrowers, 14.2 percent were delinquent.”

“‘I don’t think Kansas City will be left alone,’ Wray said. ‘When homes foreclose, this depresses prices in a market where they already are going down. It’s true real estate goes up and down, but we’ve never had a decline in values when the housing market is so indebted.’”

Some housing bubble news from Wall Street and Washington. CNN Money, “The National Association of Realtors said Wednesday it expects its measure of home prices to fall this year for the first time since the group began tracking sales nearly 40 years ago. In its latest monthly forecast, the group said it expects a 0.7 percent decline in the median price of an existing home sold this year. A month ago it had been projecting a 1.2 percent increase.”

“The Realtors noted the problems in the subprime mortgage market had led it to cut its sales forecast.”

“Tighter lending criteria and fallout from the subprime loan debacle will lead to a healthier housing market with greater assurance that owners can handle mortgage adjustments, but higher loan standards will slow the housing recovery, according to the latest forecast by the National Association of Realtors.”

“David Lereah, NAR’s chief economist, said the changes are necessary for the long-term health of the housing market. ‘We want to people to be able to stay in their homes with mortgage terms they understand and can handle,’ he said. ‘Simply stated, a loan with the lowest monthly payment probably isn’t in your best interests, borrowers need to understand worst-case scenarios. If you’re in a mortgage you aren’t comfortable with, now is an excellent time to refinance, if you can, with historically low rates on safer conventional loans.’”

From MarketWatch. “The chief executive of KB Home, one of the nation’s largest home builders, said Tuesday he expects the housing slump to worsen, even though sales have improved in some areas of the U.S.”

“‘I think we’re still early in the cycle here,’ Jeffrey Mezger said. ‘I think it’s going to be tougher for a little while before it gets better, but there will come a day when it gets better, because the underlying demographics in job growth are there.’”

“Last year, 13% of the homes sold by KB Home were purchased with subprime loans, he said, adding that the homes represented an even lower percentage of overall revenue.”

“‘We don’t know how it’s going to play out,’ Mezger said. ‘You hear the doom-and-gloomers saying there will be 2 million foreclosures and the buyers going away. We don’t think it will be anywhere near like that, but in the short-run, it will have an effect on things.’”

“He said his company is doing well in states such as North Carolina and South Carolina, but the market in Texas is softening. ‘Each marketplace will get back into balance at its own pace,’ he said.”

From MSNBC. “In an interview with MSNBC.com, inspector general for the Department of Housing and Urban Development Kenneth Donohue reviewed the scope of his office’s work, the root causes of the jump in fraud and abusive lending practices, and his concerns about proposed changes at the FHA in response to the turmoil in the subprime mortgage market.”

“Q: What has happened to the mortgage lending process that created these problems?”

“A: ‘What I found, like I found in the savings and loan industry, is there are those out there that are going to do what they possibly can to bring in the business.”

“The (mortgage) industry was trying to create additional homeownership. And that’s very nice, and I think that’s a great thing to allow people homeownership. But at what cost? … I think what happened is that people — unscrupulous people — took advantage of that, and what they did was go out and solicit prospective buyers.”

From Bloomberg. “National City Corp., Capital One Financial Corp. and SunTrust Banks Inc. may report lower first- quarter profits as the worst housing slump in more than a decade reduces income from mortgages.”

“‘We could see other similar earnings shortfalls,’ said Mark Batty, an analyst at Philadelphia-based PNC Wealth Management, which oversees $50 billion and owns shares of Wells Fargo & Co. and Wachovia Corp. Wells and SunTrust reduced mortgages requiring little money down or proof of income, he said. ‘We’ll see whether they moved fast enough.’”

“‘Nobody wants these loans right now,’ said Steven Picarillo, an analyst at Dominion Bond Rating Service in New York. ‘Why take a 30 percent haircut on these loans just because they have the word ’subprime’ on them?’”

The Associated Press. “Alt-A lenders have taken hits in the market in recent days. Guy Cecala, publisher of Inside Mortgage Finance Publications, said a ‘backlash’ from the subprime market meltdown is part of the equation.”

“‘While you’re starting to see some deterioration of the quality, it’s not so much that investors should be dumping (mortgage-backed securities),’ he said. ‘But nobody wants to own a security that goes down in value, whether because of public perception or the reality of the market.’”

“Glenn Costello, a managing director with the Fitch Ratings agency, said that some of the Alt-A lenders were trying to distinguish themselves from others. ‘But the fact remains that for some of the riskier products they originate, there’s a lack of demand for them’as investors get pickier about the market, he said. ‘Investors just aren’t willing to pay what they used to.’”

From Morningstar. “When a bank sells a mortgage it attaches a temporary money-back guarantee. Basically, a bank guarantees that borrowers will pay on time for the first 90 days after the loan is sold. If they don’t, the bank will repurchase the loan. When it repurchases the loan, the bank will have to write it down to fair market value and take a loss.”

“We are already seeing this occur in the market. Fulton Financial recently announced that it would need to repurchase 8.9% of the $247 million in Alt-A loans it sold into the secondary market. Fulton recorded a $5.5 million loss on the repurchase. Based on this information, the fair market value of these loans is just 75% of their original value.”

The New York Post. “The collapse of subprime mortgage giant New Century Financial, which created more than $220 billion in shaky home loans, is growing into one of the biggest bankruptcy tangles ever to hit Wall Street as shocking new claims of insider windfalls and hijacked millions emerge.”

“At least 95 lawyers have fought all week in the Delaware bankruptcy court to alter New Century’s own breakup blueprint, which has triggered several red flags.”

“When Buck Meyer thinks about the $300,000 he lost after he bought a subprime mortgage lender’s bonds, he doesn’t hesitate to denounce financial titans Bear Stearns Cos., Credit Suisse Group, JPMorgan Chase & Co. and Morgan Stanley.”

“Like the thousands of people who snapped up American Business Financial Services Inc.’s notes yielding 10 times the going rate on Treasury bills, Meyer had no idea that the company was on the verge of bankruptcy.”

“‘At what point did it become a Wall Street Ponzi scheme?’ said Meyer, who almost wiped out the nest egg he received from selling his home in Doylestown, Pennsylvania, six years ago.”

“Whether Wall Street’s best and brightest were reckless in their pursuit of profits and somehow responsible for the consequences will be decided in a Philadelphia court. That’s where the four top brands of finance are accused of creating an ‘illusion’ that American Business was a safe investment, according to a lawsuit filed on behalf of Meyer and more than 20,000 other individuals who held about $600 million of the company’s bonds when it went bankrupt in 2005.”

“Anyone searching for someone to blame has an obvious target in the New York-based securities industry, which, according to estimates by Bear Stearns, earned $540 million last year turning subprime home loans into bonds.”

“‘There is the potential for a lot more of these cases to be filed as the subprime lenders continue to fail,’ said Charles Tatelbaum, a Florida lawyer who has represented creditors in some of the U.S.’s largest bankruptcy cases. ‘I’d expect to see companies like Bear Stearns and JPMorgan running for cover by negotiating quick settlements.’”

“Retiree Joseph Funk lost $70,000 in American Business notes. He says he became too confident and too greedy as the high-yielding notes continued to pay. Funk says the Wall Street firms were greedy too, yet didn’t pay a price for it.”

“‘These people are supposed to be the great financial minds of the world so they must have had some inkling that this was coming,’ said Funk. ‘They got their money out before the little people.’”

The Star Ledger reports from New Jersey. “In New Jersey, the numbers are skyrocketing, according to an Oradell-based company that lists foreclosed properties. ‘For years, we were averaging about 70 (lis penden) filings a day,’ said VP Cynthia Ehrlich. But since September, that number has ballooned to 140 filings a day, she said.”

“In February, New Jersey rang up 4,448 foreclosures in a single month, up nearly 36 percent from the same time last year.”

“‘We were in Alpine the other day, and the homeowner has a $2.9 million home and he has an $11,000-a-month payment on his house and his payment is going up to $17,000 a month,’ said Craig Laube, president of American Foreclosures. ‘Oh, and by the way? He is a Realtor, so it happens to everybody and it happens everywhere.’”

“(Realtor) Joyce Aponte who runs (a) foreclosure division, said banks are willing to do deals, including ’short sales.’ ‘In the last 10 years, I have done maybe five short sales, but this year and last year, I’m doing 8-10 a month,’ she said.”

The Herald News from New Jersey. “A risky mortgage market that boomed starting in 2000 is now crumbling. The ripple effects are far-reaching, and they are starting to show in New Jersey.”

“By 2004, at least a third of mortgages issued in nearly all of Paterson and Passaic were subprime. In much of Haledon and Prospect Park, between 22 and 33 percent of home loans were untraditional. And 16 to 22 percent of loans were subprime in stretches of Clifton, Lodi and Garfield.”

“At the end of 2006, about 13 percent of subprime loans in New Jersey were past due, according to a Mortgage Bankers Association survey. ‘Our office receives a minimum of four (foreclosure notices) daily,’ said Bill Maer, a Sheriff’s Department spokesman.”

“Last month, a somber mood prevailed at a mortgage bankers conference in Atlantic City, said Wendy Nastasi, a Pompton Plains broker who attended. ‘Everyone was there looking for jobs,’ Natasi said. The mortgage industry shed more than 6,000 jobs in the first three months of 2007, nearly double last year’s totals, a national study showed.”

“With the fraud, banks are making it harder for all prospective homeowners to get loans. ‘Lenders have raised the bar,’ said realtor Mary Ann Sgobba, the . ‘Certain credit scores are not going to acceptable now.’”

MSNBC from New Jersey. “Mark and Kerrie Russo, a Jackson, N.J., couple, are struggling to hang on. Less than a year after buying a home in 2005, a local mortgage broker began sending letters offering to refinance their loan.”

“What the broker didn’t explain, Kerrie Russo says, is that this was a ‘negative amortization’ loan. Russo says that when she called the broker to complain, she was told that because she failed to read the fine print, the responsibility for getting in too deep was hers.”

“After coming up with about $14,000 to get out of the downward spiral into yet another loan, Russo says she’s learned an important lesson. ‘I have learned a new term called ‘predatory lending,’ she said. ‘And that is what I am a victim of.’”

The Morning Call from Pennsylvania. “The average price of an existing home in the Lehigh Valley fell slightly in March as the rising number of houses for sale gave buyers more choices and power to negotiate prices.”

“The number of properties listed for sale rose 31 percent, compared with February, according to statistics released this week by the Lehigh Valley Association of Realtors. The large inventory of available homes has concerned economists, who say the law of supply and demand may slow the rate of appreciation and depress prices.”

“New listings outpaced home sales by nearly two-to-one last year, according to the Realtors association. Similar trends have continued during the first quarter of this year. In March, the number of homes sold fell for the 10th month in a row, declining 16 percent.”

“The total number of homes for sale last month in the Valley was up 45 percent, compared with the same period in 2006.”

“Sellers, by most accounts, have been slow to grasp the shift. ‘A lot of them think we are still in 2005,’ said Jeffrey Burnatowski, who’s been a real estate agent since 1983. ‘There are only so many buyers out there. And there are so many properties continuing to come on the market.’”

The Baltimore Sun from Maryland. “Home sales across the Baltimore metropolitan area tumbled nearly 10 percent in March from a year earlier. In Baltimore and the five surrounding counties, 2,866 homes sold, compared with 3,170 sales in March 2006.”

“The number of homes put on the market for the month continued to far outpace the number of sales contracts signed, a sign that the market is continuing to favor buyers.”

“While 6,324 homes were listed for sale in the region in March, just over half that number, 3,594 - went under contract, the statistics showed. Altogether about 16,000 homes were for sale, up from 12,000 a year earlier and 5,600 in March 2005, during the housing boom.”

“‘What buyers are looking for has changed dramatically. Two years ago [as prices rose rapidly] buyers were willing to make big bets on homes and they want to buy as much as they could finance. But today, the focus for buyers is value,’ said Anirban Basu, CEO of Baltimore-based Sage Policy Group Inc.”

“Joe and Carolyn Fuscaldo, who are selling their three-bedroom in Towson, have become so convinced that interest is picking up that they have decided against accepting any offers contingent on a buyer selling his own home.”

“The Fuscaldos were encouraged by an offer for their asking price of $449,000 made within a week of listing the house in February. The contract, which had a contingency clause, fell through when the buyer’s house didn’t sell in 30 days.”

“Kellie Langley, the real estate agent who listed the Fuscaldos’ house, said March has been a mixed bag. ‘I had a couple of listings that were put on and sold right away for full asking price, and that was great. A couple of other agents experienced the same thing, and we got excited like, ‘It’s back.’ But I’ve had a couple [of homes] that are lingering as well.’”

“Some real estate agents said the market showed signs of picking up in March, though many sellers are still pricing their homes as if the market hadn’t cooled.”

“‘Buyers are taking a little longer to make up their minds,” said Noah Mumaw, a real estate agent in the Cross Keys area of Baltimore. ‘They are more educated and want to see everything out there. There is so much stuff on the market, it takes a while to see everything. There is a lot on the market that is overpriced and slowing the market down.’”

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