May 31, 2007

Everybody Wants A Deal In California

The Sacramento Bee reports from California. “First it was individual homeowners who turned to the auction block to sell fast at a discounted price. Then home builders. Now come the banks. Home loan lenders, stuck with rising numbers of repossessed homes, will auction 242 houses next month to bidders in Sacramento, Modesto and San Mateo.”

“It’s the biggest home auction in Northern California in the wake of a five-year housing boom. The auction especially signals a new sales rival to home builders, investors and individual sellers: the banks.”

“Robert Friedman, chairman of REDC, said buyers typically get a 10 percent to 20 percent discount from asking prices, while banks get quick results. ‘It’s just a business decision. You sell them quickly and take your hit,’ Friedman said. ‘In the long run they do it better by taking this route.’”

“Keith McLane, who runs a separate Carmichael-based home auction firm, said the sheer number of houses being auctioned next month “illustrates the quantity of foreclosures that are out there.”

“ reports that banks owned 661 homes in April in Amador, El Dorado, Nevada, Placer, Sacramento, Sutter, Yolo and Yuba counties. That’s up from 92 in April 2006.”

“Statewide, banks owned nearly 5,500 homes in April, according to the Web site. The same month in 2006 it was 1,111. Many of those still haven’t reached the market, said’s Alexis McGee.”

“Demand is high when they do, said Luann Richardson, a Fair Oaks-based real estate (agent). ‘Everybody wants a deal right now. There’s very strong demand for a deal,’ she said.”

The Santa Barbara Independent. “Why isn’t anyone talking about it? I’m talking about the rapidly oncoming tsunami disaster of 250-300 condos coming to market in the downtown business area this summer and fall and into 2009.”

“One project with six affordables and six market-rates has failed abysmally. The affordables were immediately filled, while the market-rates are still on the market as prices plummet a year after completion.”

“Common wisdom tells us the same is likely to happen to many, if not all, of the high-end units coming to market downtown this year and next.”

The Santa Monica Mirror. “According to Santa Monica City Manager P. Lamont Ewell, Santa Monica’s economy continues ‘to improve modestly.’ With Santa Monica’s varied tax base, the City should be able to withstand economic fluctuations.”

“These mixed economic pictures have caused the City to propose a $16.7 million decrease in expenditures, which is 3.7 percent less than the current year’s revised budget. Property transfer taxes are being projected to decrease by 21 percent due to the increase in foreclosures.”

The Central Valley Business Times. “A slowdown in housing demand in the Central Valley and in the Riverside-San Bernardino area of Southern California is being cited as the reason for a drop in projected new home starts this year.”

“‘Residential permit activity had been projected to be in the 155,000-175,000 unit range for the state. Based on activity for the first few months of the year, we have modified the projection to the 135,000-155,000 range,’ says Alan Nevin, chief economist for the California Building Industry Association.”

“He says because potential homebuyers are sitting on the sidelines, hoping prices will drop further, the market remains soft. The entire estimated drop is in single-family homes.”

The Marin Independent Journal. “A Novato mortgage company has laid off nearly all its employees, becoming the third Marin brokerage in just over a month to issue pink slips. Pro30 Funding laid off about 40 staffers last week, retaining a handful of others while the company cleans out its 22,000-square-foot office.”

“While the mortgage industry has been buffeted by defaults nationwide, particular in the ’subprime’ sector, Pro30 founder Bill Coleman said 99 percent of his clients had good credit records.”

“In many cases, he said, borrowers were defaulting on the loans without making a single payment, perhaps so they could live without housing expenses for six to nine months during the foreclosure process.”

“‘The appreciation started to decline, and people looked at their payments and said they’re not going to make money,’ Coleman speculated. ‘It wasn’t a business issue; it was the fact that the industry turned upside down almost overnight.’”

“The closure of Pro30 Funding follows 36 layoffs this month at Paul Financial LLC, a San Rafael-based mortgage company that had 180 full-time workers San Rafael, Santa Rosa and Irvine.”

“Late last month, Novato-based GreenPoint Mortgage laid off 70 employees, nine of whom worked out of the company’s headquarters. Paul Financial and GreenPoint said they are not subprime lenders, but felt the residual effects of nationwide problems in the subprime mortgage industry.”

“When prices began dropping in many markets in late 2005, borrowers’ options narrowed as banks tightened lending requirements, pushing more people into default and foreclosure.”

“Coleman said he gave employees a warning ‘a while ago that things were not looking good.’”

When There’s Too Much Out There

The Press Register reports from Alabama. “Darlene Hill was making a living in Mobile as a real estate investor when she devised a sophisticated con job against lenders that would net her far more money than just robbing a teller with a gun. By the time her enterprise collapsed last year, according to FBI investigators, she had bilked banking institutions and mortgage companies out of $9 million.”

“And if not for the money that the companies recovered from foreclosures, the total loss would have been a good deal higher, investigators say.”

“Experts contend that the damage extends far beyond lenders. Consumers get hurt, they say, when fraud artificially pushes up housing prices that eventually come crashing down. In extreme cases, entire neighborhoods have been flooded with foreclosure sales.”

“‘It’s never good to have a lot of homes for sale, for any reason,’ said Patty Bergstrom, a spokeswoman for the IRS Criminal Investigation Division in Atlanta, which is recognized as a hot spot for mortgage fraud. ‘It affects a lot of people.’”

“To make things work, Hill needed help. She recruited a mortgage broker named Antonio Harrison of Mobile, who has admitted to submitting fraudulent loan applications. Another participant in Hill’s scheme, Jocelyn Easter of Mobile, worked as a loan closer for Harris Title and later for Hill.”

“John Mechem of the Mortgage Bankers Association, said con artists often employ unscrupulous appraisers to assign bogus values to properties in order to get more money from loans. When the mortgage company eventually goes to foreclose on the property, he said, it finds that the true value is much less than the loan amount.”

The Madison County Journal from Mississippi. “Foreclosures in Madison County have increased 154 percent over the past year, public records show, one indicator of the glut in the housing market, in part because of overbuilding, analysts say.”

“What’s more, defaults on loans and mortgages have increased 177 percent, records show. In every month of this year, the number of foreclosures increased over the same month in 2006, the statistics show.”

“Vickie Graves, a mortgage loan originator in Madison and 24-year veteran of the industry, said…she blamed a general glut in the market that can only be solved by the laws of supply and demand.”

“‘When there’s too much out there, then the market makes that correction,’ she said.”

“Graves said some consumers have over-extended themselves. ‘They’re anxious to get into that $500,000 home, instead of that $250,000 home they need to be in,’ said Graves. ‘Builders, realtors, mortgage people, no one should accept all credit or blame in this case.’”

“Anyone who takes a trip through some of south Madison County’s high end neighborhoods, she said, will be able to confirm the sluggish pace of higher-end home sales. According to the Jackson Realtors Association, the average list price of a home in Madison and Ridgeland is about $358,000. The median price for a home in the South was $181,000 in April, a Realtors report shows.”

“There were 953 homes listed in the Madison-Ridgeland area, more than any other real estate market in metropolitan Jackson, according to the Realtors association.”

“David Breland, a builder in Madison, said that doctors, lawyers and others with no building experience have gotten into the business. ‘They don’t know the ins and outs, and they don’t know how to make a house,’ said Breland. ‘They don’t know until the smoke clears that they’ve lost money on the thing.’”

“Even experienced builders are seeing difficulties. Breland noted that he has had one home on the market for over two years. If builders cannot sell a house within six months, he said, the builder begins losing money on the property.”

“Graves blamed the bad sub-prime mortgage market for some of the problems. These sub-prime mortgage arrangements, she said, were not always in the best interests of homebuyers. ‘Sub-prime lenders are tightening up on what they offer. There are less unique products than six months ago,’ said Graves. ‘Wall Street has tightened up on that.’”

“Madison County Tax Assessor Gerald Barber, a member of the Mississippi Appraisal Board, said that he thinks criminal activity has been a large part of the problem of rising foreclosures.”

“‘Mortgage fraud is huge, billions of dollars are involved,’ said Barber. ‘A lot of foreclosures, in my opinion, are coming from mortgage-fraud related situations.’”

The Dallas Morning News from Texas. “When it comes to foreclosure woes in North Texas, there’s plenty to spread around. While big cities Dallas and Fort Worth have the most home foreclosures, some suburbs, including Arlington, Garland, Grand Prairie and Mesquite, are also seeing large numbers of home loan defaults.”

“In the northern suburbs, Frisco is playing catch up with a 57 percent jump in residential foreclosure postings in the first half of 2007.”

“‘Among the suburban cities in the North Texas region, the city with the highest number of residential postings filed during the first half of 2007 was the city of Arlington with 1,488 foreclosure notices,’ George Roddy, CEO of Foreclosure Listing Service, said in the new report. Garland is second with 967 postings.”

“‘I think it has a lot to do with demographics in those cities,’ Mr. Roddy said, citing the large number of affordable homes, which appealed to first-time homebuyers.”

“Frisco, with 267 postings, had the third-highest gain among North Texas suburbs. In fashionable Frisco, buyers who now face foreclosure may have overreached, Mr. Roddy said. ‘It’s the place to be and where you see big houses,’ he said.”

“Through the first half of 2007, more than 21,000 residential foreclosure postings have been recorded in North Texas. That’s about a 14 percent increase from the same period of 2006, according to Foreclosure Listing Service.”

Contraction To Continue For Longer Than Expected

Some housing bubble news from Wall Street and Washington. “Concerns about inflation trumped worries about the slumping housing market last month in the minds of Federal Reserve officials who voted to hold interest rates steady. While Fed officials said the downturn in housing was turning out to be more severe than expected, worries about inflation continued to dominate the May 9 discussions among Fed Chairman Ben Bernanke and his colleagues, according to minutes released Wednesday.”

“‘Nearly all participants viewed core inflation as remaining uncomfortably high and stressed the importance of further moderation,’ the minutes said.”

From Bloomberg. “‘The correction of the housing sector was likely to continue to weigh heavily on economic activity through most of this year, somewhat longer than previously expected,’ the minutes said.”

“Almost all Fed policy makers consider inflation to be ‘uncomfortably high,’ the minutes added. ‘All participants agreed that the risks around the anticipated moderation in inflation were to the upside; and some noted that a failure of inflation to moderate could entail significant costs.’”

From Forbes. “‘Recent readings on sales and inventories of new homes had been interpreted by the staff as suggesting that the ongoing contraction in residential investment would continue for longer than previously expected,’ the minutes said.”

“The general sentiment was mirrored in Federal Chairman’s Ben Bernanke’s May 17 address, when he said that increased deliquencies and foreclosures would continue to weigh on the market ‘this year and next.’”

From Fitch Ratings. “Fitch Ratings has revised M/I Homes’s (MHO) Rating Outlook to Negative from Stable.”

“The Outlook revision to Negative for MHO reflects the more challenging outlook for homebuilders, the current and expected near term deterioration in certain credit metrics for the company, and pressures from credit tightening, which particularly affect the entry level buyer (a targeted customer at M/I Homes), and high cancellation rates, which add to speculative inventory totals.”

“The housing sector is in the midst of a meaningful, multi-year downturn. MHO has been increasing its sales and marketing efforts, focusing on reducing speculative inventory (enlarged by unusually high cancellation rates), reducing its lot supply, reassessing its land positions, renegotiating option contracts and, where possible, reducing overhead and direct construction costs.”

“During this current downturn MHO, like most builders, has leveraged the financial flexibility of land options, walking away from overpriced lots (forfeiting its deposits). These builders also have reported meaningful charges associated with write downs of land values.”

“MHO was the 21st largest U.S. single-family homebuilder in 2006 as ranked by Builder Magazine.”

The Post Dispatch from Missouri. “Bill Taylor appears to be back in the trenches, battling the nationwide slump in new house sales that’s also affecting local builders.”

“The CEO of 53-year-old Taylor-Morley Homes has sold the equity in his headquarters building, and has scaled back his company’s share to 10,000 square feet from 20,000.”

“‘We have had to let some people go, but so have most builders,’ said company spokeswoman Judi Wayhart. ‘But, he (Taylor) says it was much worse in the ’80s. This is a 53-year-old company, and he’s (Taylor) been through this four times.’”

“‘We don’t know what has made the new house buyer go into his cocoon, because the interest rate is not that bad,’ said Pat Sullivan, executive VP of the Home Builders Association of St. Louis & Eastern Missouri. ‘It’s puzzling. They don’t usually go into the cocoon until the interest rate reaches about 8 percent.’”

“‘One thing is for sure, when the market slows you don’t want to be holding too much land,’ Sullivan said.”

From CNN Money. “Imagine you’re a homeowner, and you discover that instead of the expensive subprime mortgage loan you signed on for, you actually qualified for a prime mortgage with much lower interest rates.”

“‘I reviewed several hundred [subprime] loans recently for our wholesale division,’ said Allen Hardester, regional director of development for mortgage-broker, Guaranteed Rate, ‘and all of them, with one exception, qualified for a prime-rate loan.’”

“Some consumer advocates blame loan officers and mortgage brokers who steer borrowers away from prime loans because they can make much more money from the subprime market. ‘I have a friend who interviewed for a job with my company,’ said Hardester. ‘He told me, ‘I’m not coming to work for you. I can’t make enough money.’”

From Reuters. “Fitch Ratings on Wednesday cut the residential primary servicer rating for subprime mortgages of NovaStar Mortgage, Inc., a unit of NovaStar Financial Inc., citing uncertainties over the company’s profitability.”

From “Ameriquest was a high-flying sub-prime lender during the housing boom, and was accused of predatory lending by state prosecutors. The company now faces a class-action lawsuit from borrowers.”

“Some of the creative ARM products that flourished of late included interest-only and payment-option loans. How prevalent were these loans? Nearly 23 percent of all mortgages taken out in 2005 were interest-only ARMs, and more than 8 percent were payment-option ARMs, according to First American LoanPerformance.”

“In certain once-sizzling markets, the numbers were much higher: For example, 34 percent of all new mortgages in California in 2005 were interest-only.”

The Boston Herald. “A Rhode Island lawyer claims he has found a chink in the legal armor of subprime mortgage giant Ameriquest, one that could give hundreds of thousands of homeowners grounds to wriggle out of their loans.”

“Attorney Christopher Lefebvre said he is representing 200 current and former Ameriquest homeowners in Massachusetts and other states, many now facing foreclosure - who are suing to undo mortgages taken out through the California-based lender.”

“The homeowners he is representing contend they were either not given all the correct mortgage paperwork, or that it was provided in a confusing or misleading way.”

“Lefebrve contends paperwork problems were common during the recent hectic boom in subprime mortgages. ‘People got sloppy,’ he said.”

“Federal bankruptcy regulators Friday urged a bankruptcy judge to expand the scope of a probe of New Century Financial Corp., the Irvine-based subprime lender that failed earlier this year.”

“The U.S. Trustee wants the examiner to have the power to examine New Century’s accounting for 2005 in addition to records from 2006, which were already on the agenda because the company admitted accounting irregularities would require the restatement of reported financial results for that year.”

“HSBC Holdings Plc plans to sell bonds backed by some of the last subprime mortgages made by bankrupt New Century Financial Corp., once its biggest rival in the business.”

“More mortgages that New Century made in its last months before filing for bankruptcy on April 2 will probably turn up in future deals, said Alla Sirotic, a Fitch analyst in New York. HSBC’s bank will be on the hook for repurchases of any loans with defects that normally would have required an originator to buy them back, Fitch’s Sirotic said.”

“‘Where typically in the past we’ve accepted New Century’s’ loan warranties ‘we’re no longer accepting those,’ she said.”

“The numbers looked compelling. Buy this investment-grade collateralized debt obligation and you’ll get a return of up to 10 percent, Credit Suisse Group said.”

“Investors snapped up the $340.7 million CDO, a collection of securities backed by bonds, mortgages and other loans, within days of the Dec. 12, 2000, offering. The CDO buyers had assurances of its quality from the three leading credit rating companies, Standard & Poor’s, Moody’s Investors Service and Fitch Group Inc. Each had blessed most of the CDO with the highest rating, AAA or Aaa.”

“Investment-grade ratings on 95 percent of the securities in the CDO gave no hint of what was in the debt package, or that it might collapse. It was loaded with risky debt, from junk bonds to subprime home loans. During the next six years, the CDO plummeted as defaults mounted in its underlying securities. By the end of 2006, losses totaled about $125 million.”

“The failed Credit Suisse CDO may be an omen of far worse to come in the booming market for these investments. Sales of CDOs worldwide have soared since 2004, reaching $503 billion last year, a fivefold increase in three years, according to data compiled by Morgan Stanley.”

“Many of the world’s CDOs are owned by banks and insurance companies, and the people who regulate those firms rely on the raters to police the CDOs.”

“‘As regulators, we just have to trust that rating agencies are going to monitor CDOs and find the subprime,’ says Kevin Fry, chairman of the Invested Asset Working Group of the U.S. National Association of Insurance Commissioners. ‘We can’t get there. We don’t have the resources to get our arms around it.’”

“Joseph Mason, a finance professor at Philadelphia’s Drexel University and a former economist at the U.S. Treasury Department, says the ratings are undermined by the disclaimers. ‘I laugh about Moody’s and S&P disclaimers,’ he says. ‘The ratings giveth and the disclaimer takes it away. Once you’re through with the disclaimers, you’re left with very little new information.’”

From Nine MSN. “A weakening US housing market is dragging down the world economy, with growth in world gross product, or WGP, expected to fall to 3.4 per cent in 2007 from four per cent last year, the United Nations says.”

“‘Currently, the primary drag for the world economy is a notable slowdown in the United States of America, as its housing sector is falling into a substantial recession and business investment is weakening,’ the UN report said.”

Seeing The Domino Effect In Florida

The Herald Tribune reports from Florida. “Many of Southwest Florida’s home builders continue to struggle with a sluggish market. Pulte Homes announced Wednesday that it was cutting nearly 2,000 jobs nationally in a massive restructuring aimed at saving $200 million annually. The company said that the slowdown has left it with overhead that far outstrips demand for its houses.”

“The cuts mean that as many as 25 percent of the 55 employees in Pulte’s Sarasota-Manatee division will lose their jobs. Other large home builders in the region have made similar job cuts.”

“‘We’ve got to keep up with the competition,” said Steve Kempton, Pulte Homes’ Sarasota division president.”

“‘This is tough, but I don’t want people to think we don’t have confidence in this market,’ said Steve Kempton, Sarasota division president. ‘We’re just trying to right-size our business to position ourselves for long-term success in the Sarasota-Manatee market.’”

“In 2005, Pulte built 560 homes in the region worth about $170 million. The company has five developments in Southwest Florida, ranging from Manatee County town homes to Sarasota County golf communities. Prices range from $218,000 to more than $500,000.”

From TC Palm. “DiVosta Building Corp. executives said Wednesday the company will consolidate its Treasure Coast and Palm Beach operations to an office in Orlando and lay off an unspecified number of local employees.”

“‘My understanding is that DiVosta employees will receive severance packages,’ said Beth Cocchiarella, a spokeswoman for Pulte Homes, the parent company of DiVosta.”

“DiVosta is the fourth largest builder on the Treasure Coast. Since December, the company’s South Florida operation announced three separate layoffs totaling 266 employees.”

“‘We’re resizing the company to better position us to compete in the long-term,’ Cocchiarella said. ‘This is a result of the continued downward trends in the homebuilding sectors.’”

“‘This reflects another step that homebuilders are taking to cut back on production levels,’ said Brad Hunter, who follows housing trends on the Treasure Coast and South Florida for Metrostudy’s South Florida division. ‘As we undo some of the over extension of ‘04 and ‘05, naturally some builders have to cut costs and consolidate parts of their administration.’”

“Jack McCabe, CEO of a real estate consulting firm in Deerfield Beach, said the consolidation of DiVosta’s South Florida division doesn’t bode well for the economy.”

“‘We’re just about to see the domino effects of this,’ McCabe said. ‘What happens next year is you’ll see Circuit City, Best Buy, Brandsmart, all those big box retailers are going to feel that slowdown which was substantially driven by consumer spending and the housing market.’”

“‘With the loss in home values, credit tightening up and people saving instead of spending, there will be a substantial loss of jobs,’ McCabe said. ‘We’re definitely heading into a recession with all this pressure.’”

The Orlando Sentinel. “The Donald bails! Back in March I wrote a column on this pipe dream, a 52-story condo with prices starting in the million-dollar range. Did anyone really think downtown Tampa could support something like this? The real estate agent told me people would be moving in by mid 2009.”

“I said I’d dive in the Hillsborough River from the top floor if that happened. Looks like my bathing suit stays dry.”

“Real estate mogul Donald Trump has pulled out of the $300 million, 52-story Trump Tower condominium project in Tampa, according to a lawsuit filed Friday in U.S. District Court.”

“Companies have been distancing themselves from the project. Eric Fordin, a project director with the Related Group, a Miami developer that considered taking over the project, said Wednesday that ‘we’re not involved in the deal in any way.’”

“Fordin said he was launching a due diligence review for Related Group when ‘all these lawsuits started piling up’ against Trump Tower and SimDag, and the Related Group never entered into any agreements for acquisition or control.”

The Tampa Tribune. “City officials cheered last week when Gov. Charlie Crist approved $2 million for the Riverwalk project. But that euphoria is gone now that the Trump Tower condominium project, which promised to contribute up to $700,000 to build a prominent Riverwalk segment, is on hold while Donald Trump battles the developer in court.”

“‘If they do not build, then we’ve got a key connection that is not being made,’ said Lee Hoffman, the city’s Riverwalk manager.”

“For example, the Heights project developers are contributing $4 million to the project. Developers for Venu, a condo project in the planning stages for Kennedy Boulevard and Ashley Drive, promised to build an $800,000 piece.”

“SimDag LLC, the Trump Tower developer, was to build a 450-foot piece to connect the southern edge of the Brorein Street Bridge to nearby MacDill Park.”

“Mayor Pam Iorio said the city has a couple of options if Trump Tower does not get built. Tampa can build a regular sidewalk connecting the southern and northern ends of the Riverwalk and if a developer for the site comes through later, that developer can build its own Riverwalk segment.”

“‘Not a very appealing option,’ Iorio said.”

“SimDag’s troubles also could affect the Tampa Museum of Art’s new building. SimDag made a three-part pledge to the museum in 2005. The company made its first payment. The company was to make a second payment when the condo was topped off, and a final payment was to coincide with the grand opening.”

“An art museum official said Wednesday that the museum wasn’t counting on the money.”

“Even a power name like Trump may not be enough to save a luxury condo project in Tampa’s sluggish downtown real estate market. It takes money. Money from lenders. Money from buyers. In the end, SimDag LLC couldn’t come up with enough from either source.”

“‘In this real estate downturn, Tampa has been one of the hardest-hit markets in Florida,’ said consultant Jack McCabe. ‘And any time you have a negative stigma like this site has, it takes some time before people are willing to overlook it.’”

“The $300 million Trump Tower Tampa was announced in early January 2005, at time when Tampa’s condo market was coming alive. Developers were proposing new projects every month. If any of them would make it, experts said at the time, it would be the one bearing Trump’s name.”

“Even during the condo frenzy when the Trump tower was announced, lenders typically required developers to sell a set amount of units before getting financing. In the current market, however, some lenders require close to 100 percent sales. Now many lenders aren’t lending for condo towers at all.”

“National City Mortgage, which is involved in several condo towers in downtown Florida cities, has stopped partnering on others for now, said Paul Ramos, state manager for the company.”

“‘Banks may still lend on condo projects, but they want to know what your market is going to be,’ Ramos said, noting that his mortgage division still works with individual condo buyers but limits the number of units it will finance in each condo project.”

“Hillsborough County has enacted a hiring freeze and moratorium on new building construction in anticipation of budget cuts later this year. County Administrator Pat Bean also told employees to expect layoffs.”

“Residents will notice the cutbacks, Bean warned. ‘The loss in funds means citizens may experience limited access to some services and most programs will likely be scaled back substantially,’ Bean wrote.”

“The city of Tampa instituted a hiring freeze in April. Hillsborough government is one of the county’s largest employers, with a work force of about 6,000 people.”

“How long the hiring and new building freezes hold will depend on how much the county’s property tax revenue is cut. Officials estimate the cuts at between $46 million and $217 million. The county this year collected about $800 million in annual property tax revenue.”

“County Commissioner Al Higginbotham said Bean’s moves to freeze hiring and building new projects is prudent. He said commissioners simply don’t know how much money to expect next year. ‘How can we honestly discuss any new projects?’ he asked.”

The Post Dispatch. “Many builders have joined…in laying off people and selling excess inventory at discount prices, or at least trying to.”

“‘The Bank of America in Tampa (Fla.) called me the other day, and asked what kind of discount would you get in the market today,’ said a real estate developer. The developer spoke on condition of anonymity.”

“‘I asked what kind of property, and they said ‘a lot of scattered homesites with almost-finished homes, about three or four subdivisions, about 80 lots.’”

Bits Bucket And Craigslist Finds For May 31, 2007

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

May 30, 2007

Right Now Everything Is Going Down In California

The Sacramento Bee reports from California. “Michael Alexander’s departure from the buyer pool puts him among an estimated 30 percent of potential buyers who have vanished from area model homes and open houses as the real estate season reaches its busiest months. ‘It was starting to look feasible,’ Alexander says. ‘It was really looking feasible. We talked to a Realtor a few weeks ago, and that’s when all the credit issues hit.’”

“John and Celeste Wahlstrom recently toured an Elk Grove condominium complex. Its builder had contracted with an auction company to unload a handful of unsold units. The opening bid for a 1,200-square-foot condo previously valued at $259,900: $149,000.”

“John and Celeste Wahlstrom looked one over for their 22-year-old daughter. The daughter and her fiancé can’t yet qualify for a home loan. ‘We’re thinking of buying and renting it back to them,’ Celeste says. ‘But we’re not in a hurry,’ John says.”

“In 2001, the couple bought a house in Elk Grove and more than doubled their investment before selling it. They’re not having the same luck with the value of their new house, bought in 2005.”

“‘Right now everything is going down,’ says Celeste.”

“In a market with 14,000 homes for sale and prices in Elk Grove not rising, they are feeling no urgency.”

“Downtown (Sacramento) high-rise developer John Saca missed a Friday deadline to buy out his estranged partner, the California Public Employees’ Retirement System, throwing the future of his twin condominium towers into jeopardy.”

“The giant state pension fund now has a week or two to decide whether it wants to take over the stalled, debt-ridden project at the entrance to Capitol Mall and move forward without Saca, CalPERS confirmed Tuesday.”

“Construction on the Towers stopped in January. In February, Saca defaulted on the loan he used to buy the prime site at Third Street and Capitol Mall, once the home of the Sacramento Union newspaper.”

“Contractors who worked on the site have since filed liens totalling about $13 million. ‘It can’t get much worse,’ Saca said Tuesday. ‘There’s a stigma on the property now, and it’s hard to overcome that.’”

The Daily Bulletin. “The median price of a home in California hit $597,640 in April, an all-time high, but the California Association of Realtors’ chief economist says that number is at least a little misleading.”

“Although the median price continues to rise, this reflects the fall-off in sales in the lower priced markets of the state where new home inventories and foreclosures are competing with the existing home market,’ Leslie Appleton-Young said in a release.”

“‘Throughout the state, inventory levels have increased to their highest levels in recent years, giving buyers more time to view a greater variety of homes and sellers who set realistic prices an edge in the market,’ said Colleen Badagliacco, CAR’s president.”

“That has been especially true locally, where the prices would-be sellers are asking have been falling by as much as 10-15 percent.”

“‘There is a lot of strength in the $1 million market in Los Angeles,’ said Jack Kyser, chief economist with the L.A. County Economic Development Corp. ‘That makes the median numbers somewhat misleading.’”

“Kyser said it remains a ‘very tough market’ and probably will for the rest of the year.”

“So for now at least, it’s a market in which homes aren’t being built or sold, but they’re still expensive. Does it make sense? Kyser shrugs. ‘I think it will be 2008 before we see anything that could be called stability in the market.’”

The Orange County Register. “The latest Real Estate Research Council of Southern California data, out today, shows that Orange County home values fell 2.4 percent in the last six months and are down 2.1 percent in total over the past year.”

“Across SoCal, the RERCSC appraisers found home values down 2.3% in a year, the first drop since 1996. By county, Santa Barbara was down 10 percent in a year; Ventura was off 6.7 percent; San Diego was off 5 percent; Riverside was off 3.8″

From Bloomberg. “Taher Afghani was working for discount retailer Target Corp. near San Francisco when friends told him about the riches to be made in California’s Mortgage Alley.”

“Mortgage salesmen like Afghani, many of them based in Orange County, near Los Angeles, lie at the heart of the once-profitable partnership between subprime lenders and Wall Street investment banks that’s now unraveling into billions of dollars in losses.”

“Afghani and other subprime veterans say their job was to reel in borrowers, period. Never mind whether customers needed loans or could manage payments. The sales job was made easier with exotic mortgages such as so- called no-doc loans.”

“‘Heavy sales pressure has been part of the most-egregious lenders for a while,’ says Kurt Eggert, a professor at Chapman University School of Law in Orange, California, who has studied the role of aggressive sales tactics in subprime lending and sued lenders on behalf of elderly borrowers caught up in home equity scams.”

“In California, which accounts for about 40 percent of subprime borrowing in the U.S., no one even knows how many people are originating loans, according to an October 2006 report by the California Association of Mortgage Brokers. That’s because while the state licenses individual mortgage brokers, anyone can work for a big lender under the umbrella of a single corporate license.”

“‘In other words, the corporation can hire a loan originator right off the street and have them originating loans that day without any education, licensing or individual accountability,’ the report said.”

“Afghani says he and fellow brokers dispensed with details about rates and fees and instead talked up how borrowers could use home equity loans to pay down other debts. ‘It was easier than financing a car,’ Afghani says of getting a mortgage.”

“A month after leaving Secured Funding, Afghani took a new job at Irvine-based Solstice Capital Group Inc., another subprime lender. HSBC, the same bank that had been buying loans from Secured Funding, bought Solstice last year for $50 million. Afghani quit in April, vowing to find a new line of work.”

“Enough is enough,’ he says, adding the good times are long gone. ‘I’m so rock bottom I had to move out of my apartment in Irvine and live rent free with my girlfriend.’”

“‘It was tough love and a great learning experience to live within your means and not end up like the individuals on the other side of the phone,’ he says.”

The Bakersfield Californian. “Local real estate appraiser Gary Crabtree announced in a letter Monday that he will no longer provide news media with monthly reports that examine the local real estate market, saying that his business has been damaged because ‘industry insiders don’t want to hear the truth’ about a troubled market.”

“For two years, Crabtree has been providing reports that compile single-family home market statistics, including unsold inventory, existing home prices and new home prices.”

“As a result, local lenders have ceased to give him appraisal assignments, Crabtree said in his letter, citing a similar ‘persecution’ during the real estate recession of the ’90s.”

“In his letter, Crabtree wrote that lenders have been asking appraisers to ‘hit’ values in violation of the industry’s ethical standards.”

“‘That is absolutely true,’ said Ted Faravelli Jr., a spokesman for the California Association of Real Estate Appraisers. ‘I’m ashamed to say that.’”

The Homebuilding Environment Remains Difficult: CEO

Some housing bubble news from Wall Street and Washington. “Builder confidence in the condominium housing market eroded significantly in the first quarter of 2007, according to the latest results of the Multifamily Condo Market Index, released today by National Association of Home Builders. The component of the MCMI that tracks current conditions in the condo market stood at 23.1, down nearly 14 points from this time a year ago.”

“A rating of 50 generally indicates that the number of positive responses is about the same as the number of negative responses.”

“‘There’s heavy excess inventory and now the shakeout in the subprime mortgage market has taken its toll on the for-sale side of the multifamily housing market,’ says NAHB Chief Economist David Seiders. Seiders noted that, in many instances, multifamily developers who had begun for-sale projects are switching gears and delivering new rental apartment communities instead.”

From Reuters. “Citing a difficult market for home builders, Pulte Homes Inc said on Tuesday it would cut 16 percent of its work force, adding to previously announced job cuts. Pulte Homes said it expects a pretax charge in the current, second quarter of $40 million to $50 million related to the job cuts.”

“The company said it aims to reduce costs and improve operating efficiencies amid a ‘challenging operating environment that continues to exist in the U.S. homebuilding industry.’ Responding to the broad housing slowdown, Pulte Homes cut approximately a quarter of its work force in 2006 and earlier this year.”

“‘The homebuilding environment remains difficult and our current overhead levels are structured for a business that is larger than the market presently allows,’ Richard Dugas, Jr., CEO of Pulte Homes, said in the statement.”

“At least three major U.S. home builders suffering from the housing slump may violate contracts that govern bank credit facilities, Standard & Poor’s analysts said on Tuesday.”

“Centex Corp., D.R. Horton Inc. and Pulte Homes Inc. are three of six home builders whose debt rating outlooks were revised on Thursday to negative from stable by S&P. The three are ‘all close’ to breaking covenants, S&P analyst Jim Fielding said on a conference call.”

“The home builders are mostly sapped by excess inventories as cooling home-price appreciation and tightening lending standards curbed sales, the analysts said. ‘We’re operating under the assumption that another shoe could drop (in the U.S. housing market) and become more severe,’ Fielding said.”

From Bloomberg. “After years of easy profits, a chain reaction of delinquency, default and foreclosure has ripped through the subprime mortgage industry, which originated $722 billion of loans last year. Since the beginning of 2006, more than 50 U.S. mortgage companies have put themselves up for sale, closed or declared bankruptcy, according to data compiled by Bloomberg.”

“The pain has only just begun. As home prices sink and mortgage defaults climb, bond investors who financed the U.S. housing boom stand to lose as much as $75 billion on securities backed by subprime mortgages, according to Pacific Investment Management Co.”

“The imprint of ‘Secured Funding’ is all that remains of the corporate logo that once graced the outside of the two-story building. What little remains of Secured Funding, which specialized in home equity loans, or second mortgages, to people with lousy credit, is now housed in a building across the near-empty parking lot, where a receptionist tells a caller: ‘Our wholesale division is closed. We’re no longer doing business with brokers.’”

“‘Even with explanations, most borrowers didn’t really understand what types of loans they were getting,’ says Maureen McCormack, (a) former Secured Funding employee. ‘They just cared about the monthly payment.’”

“Dane Marin, who worked at Secured Funding for a year, says managers harangued everyone. ‘If you weren’t on the phone very long, you’d get an e-mail saying, ‘Get your head out of your ass,’ he says.”

“At times, Secured Funding salesmen broke the rules, according to at least three lawsuits filed last year in federal courts in St. Louis and Milwaukee. In one case, Secured Funding sent the plaintiff a ‘personalized Platinum Equity Card’ offering ‘$50,000 or more in cash’ just for calling Secured’s toll-free telephone number.”

“However the leads came in, Secured Funding’s salespeople made sure the fish stayed on the hook. ‘You would say anything to get the loan through,’ says Cristopher Pike, who worked at Secured in 2005 and ‘06.”

“Many subprime sales techniques are now spilling out in the lawsuits, advocacy reports and Congressional hearings that predictably follow such industry meltdowns. Several lawsuits illustrate the lengths to which the big wholesalers, and ultimately Wall Street, were able to outsource the selling of the loans as far down the chain as possible.”

“Mortgage investors dealing with the fallout of the subprime crisis are facing an old nemesis: rising Treasury yields.”

“As a result, the Treasury market faces increased selling pressure as mortgage investors, who typically use U.S. government bonds or interest rate derivatives to hedge against effects of changing mortgage rates, are instead selling Treasuries to counter the impact of higher rates on their mortgage investment.”

“‘There’ll be pressure to sell more as yields head up,’ said Richard Gordon, fixed-income market strategist at Wachovia Securities. ‘This low volatility environment has left some of these players unhedged.’”

“The mortgage sector may be a catalyst for higher Treasury yields, Deutsche analysts said. More homeowners with adjustable-rate mortgages will likely switch to fixed-rate ones in the coming months when ultra-low teaser rates on their adjustable loans expire, they said.”

“The pressure on Treasury yields would be compounded if the 10-year yield hit 5 percent, some analysts said. ‘There could be some pain at 5 percent,’ said Wachovia’s Gordon.”

Now The Honey Pot Is Dry

A report from the Washington Post. “For years, as the bull market in housing gathered steam, people used their homes as glorified ATMs, pulling out money for all sorts of reasons. The trend helped support continued economic growth and recovery from the 2001 recession. But now people are reining in their spending.”

“For a long time, Paul and Amy Woodhull’s house on Capitol Hill was a honey pot. Through multiple refinancings over nearly a decade, they pulled out money to fix it up, buy a car, pay down credit cards, buy three other properties and improve them, too.”

“Now the pot is dry. With interest rates up and home prices down, they’re reluctant to touch their home equity again. They called their six children into a family meeting recently, and Amy laid down new rules: No more impulse purchases or frivolous shopping trips. ‘We’re going to have to save our pennies,’ she declared.”

“Larry Chartienitz of Chevy Chase, the Woodhulls’ realtor, said that during the housing boom he thought of paying $5,000 on a piece of jewelry for his wife’s birthday or of flying off for a weekend getaway.”

“But after seeing his income drop by half last year, he’s cutting back. For his wife’s most recent birthday, he skipped the jewelry. ‘I wanted to reserve it in case I might need it for something else,’ Chartienitz said.”

“Homeowners gained an average of nearly $1 trillion a year in extra spending money from 2001 through 2005, more than triple the rate in the previous decade, according to a study by former Federal Reserve chairman Alan Greenspan and Fed economist James E. Kennedy.”

“About a third of the free cash gained during this period was used to buy other homes, they calculated. About 29 percent was used to acquire stocks and other assets. About 12 percent went to home improvements. And nearly a fourth, 23 percent, went to consumer spending, including paying credit card bills and reducing other non-mortgage debts.”

“The amount of free cash extracted has fallen sharply since the peak in 2005, to $217 billion in the last three months of 2006, down by almost half from a peak of nearly $400 billion in the third quarter of 2005.”

“‘Without the housing boom, we wouldn’t have spent any of this,’ Paul Woodhull, said as he guided a visitor through his home.”

“The couple also pulled money out of their rowhouse to buy another rowhouse as an investment, and to buy a beach house in Delaware. Later, they refinanced the beach house to buy another one next door. They also refinanced at times to take advantage of falling interest rates, lowering their mortgage payments, which freed up more cash. Grand total: nine refinancings in nine years.”

“‘Jeez, we’ve got all these payments every month,’ said Amy. ‘Now, when I look at sending my son to college in a year, I can’t refinance again. Rates aren’t falling. I’m kind of stuck. What are my options? Sell a property into a down market? I’m really feeling quite caught, like panicked caught.’”

“The Woodhulls, they know they could sell their home if they really needed cash. For now, though, they’re planning to hunker down until the housing market picks up. ‘I would love to put a deck on the roof,’ Paul said. ‘If this thing goes up in value more, maybe we’ll do it.’”

The Roanoke Times from Virginia. “Home prices nationally are declining in a scenario that’s also playing out in parts of the Roanoke Valley, according to sales figures and some real estate agents.”

“In March, the average price of a home dropped 7.4 percent, according to the Virginia Association of Realtors. In April, the average home price rose only slightly, at less than 1 percent to $204,218 from $202,635 in 2006.”

“Agent Pam Washington said she has slashed prices on many properties that initially were on the market for more than $170,000. Her target sales community is Northwest Roanoke.”

“Prices for homes in some areas, such as Botetourt County, may be too high, said broker Luther Burkholder. In Botetourt County, there are at least 71 new and existing homes for sale, all priced at more than $500,000, he said. They’re not selling very quickly, he said.”

“‘We just have so much on the market in Botetourt County,’ Burkholder said.”

“One Roanoke Valley home builder, Fralin & Waldron, has felt some pressure from out-of-towners who are relocating to the Roanoke area and want to bargain for lower prices on new houses. Some have moved from larger cities where they have seen builders slash prices to sell homes faster, said Kathy Gentry, sales and marking manager for Fralin & Waldron.”

“‘We have to really do some counseling with these buyers. We tell them we did not inflate our prices to begin with,’ Gentry said.”

From Bloomberg. “The slump in homebuilding, the deepest since 1990, has so far taken only a modest toll on the U.S. job market. Workers like Francisco Leon may be part of the explanation.”

“Two years ago, Leon, an undocumented immigrant from Guatemala, had little trouble finding construction work five days a week in northern Virginia. Nowadays, the 22-year-old mainly does odd jobs, often only two days a week.”

“‘It was much better two years ago,’ he said, glancing around him at several dozen Spanish-speaking men waiting to be offered day-labor jobs outside a 7-11 store on Jefferson Davis Highway, about 25 miles south of Washington, D.C. ‘There was more work. The money flowed then.’”

The Business Gazette from Maryland. “While the residential mortgage market is ‘tightening up’ across most of the nation, mortgage industry players in Maryland are more sanguine.”

“Still, the home mortgage market is nowhere near where it was two years ago, many say. ‘There’s been a tightening in the subprime market, and Wall Street is not buying loans as much as it did,’ said Charles DiPino, president of the Maryland Association of Mortgage Brokers. ‘That’s hurt some customers.’”

“According to Michael Galeone, executive VP of The Columbia Bank, the subprime market was ‘abused’ during the mortgage boom of two years ago. ‘The subprime market got into trouble as lenders began lending to people with less-than-sterling credit qualifications,’ he said. ‘Sub-prime lending lets you borrow based on the value of your home, maybe up to 125 percent of the value. The trouble happens when the market goes against those people.’”

“‘People bought more than they could afford,’ he said. ‘In the past, they could buy an $800,000 house at 3.5 or 4 percent interest. Then the market shifted and their monthly payments doubled. Many people didn’t have the cash to cover it, and they’re struggling.’”

“Foreclosures in the first quarter of 2007 totaled 2,031 in Maryland, up 88 percent from last year’s first quarter, according to RealtyTrac.”

“‘In the last few years, you had a lot of people who were not really qualified to buy a house buy a house anyway,’ said Cary Reines, executive VP of Mason Dixon Funding in Rockville. ‘Now they’re finding out that they can’t afford to keep them. We’ve seen a lot of that in the last six to nine months.’”

Harsher Times Ahead For Sellers In Florida

The Miami Herald reports from Florida. “A glutted real estate market is spilling into the lodging sector, as recent condo buyers who had counted on flipping for a profit instead face mortgage payments and maintenance fees. ‘They can’t sell them and they need an income coming,’ said Linda Luft, a mortgage broker, whose short-term rental business grew between 20 percent and 30 percent this year.”

“‘Basically, what they’re doing is telling me: ‘Please rent it. Get me anything,’ she said.”

“Housing sales are already down 29 percent from a year ago. And some real estate experts predict harsher times ahead for sellers, with more than 22,000 condominium units under construction in Miami alone.”

The St Petersburg Times. “Two months ago, Nikki DuFore and her husband paid the owner $3,000 and settled into a spacious Tampa home with a big back yard. But their stay may be short-lived. On May 19, they were served with notice that the bank seeks to foreclose because the owner is months behind in his mortgage payments.”

“‘It was a shock,’ DuFore said. ‘We had just moved in, and now we’re already having to look for another place.’”

“It used to be that tenants got all the scrutiny. But in Florida’s topsy-turvy, fraud-plagued real estate market, it’s the property owner who may warrant a closer look.”

“‘We’ve been getting a lot of calls of late, and the amount of these calls is increasing because more people are in foreclosure,’ said Tom DiFiore, head of the housing and consumer unit of Bay Area Legal Services.”

The Star Banner. “Sales of existing homes statewide in April continued to tumble from last year’s levels, and the Ocala area was no different.”

“The 267 homes sold locally last month were down 38 percent from the same period last year and down 33 percent from last month’s total, the Florida Association of Realtors reported.”

“Ocala broker Steven Light said holding back the market are sellers who are looking to unload their homes for prices that were commonplace when the local housing boom was at its zenith, but are no longer realistic in today’s buyers’ market.”

“‘I see people still holding on to 2005 prices,’ Light said. ‘It’s a mindset.’”

“Light said Realtors shouldn’t let sellers dictate what prices the market should bear.

From the Ledger. “April marked another tough month for the local economy with ongoing housing declines and a slight uptick in unemployment, according to The Ledger’s monthly Polk County Business Barometer.”

“The county’s builders had a slow April, amassing 333 permits for new home construction. That made for a decrease of 41 percent from 568 in April 2006. Winter Haven saw its permits sink to 47 from 115 last year, a 59 percent drop.”

“Meanwhile, Polk had 348 existing homes sold last month, down nearly 35 percent from 535 in April 2006. Lakeland’s total fell to 207 homes from the previous year’s 314, a decrease of 34 percent, while East Polk’s 137 homes fell 35 percent from 211 a year ago. Bartow had four homes sold in April, compared to 10 last year.”

“Realtor Shawn McDonough said…that too many homes have lingered on the market for six months or more. ‘That’s the change we could see that would be helpful,’ McDonough told The Ledger.”

The Sun Sentinel. “On Tuesday, when the nationwide index of consumer confidence compiled by The Conference Board rose more than expected, a Florida index of consumer confidence from the University of Florida went in the opposite direction and fell to its lowest level in more than 18 months.”

“Floridians, reeling from record-high gas prices and falling home values, are veering away from the rest of the nation in their outlook for their finances and the economy.”

“‘In Florida, employment is solid, but people’s finances are not,’ said Chris McCarty, director of survey research at UF.”

“‘No doubt retail sales [in Florida] have been declining for some months already,’ said economist Per Gunnar Bergland. ‘Particularly related to construction.’”

“Palm Beach and Broward counties lost almost 12,000 jobs in April from the year before. McCarty expects Florida consumer confidence to track the housing market’s fortunes and gas prices. ‘Until housing has complexly corrected, there’s going to be downward pressure on consumer confidence,’ he said.”

The Herald Tribune. “Smacked hard by regulators, Coast Bank of Florida is under the gun to strengthen its financial condition and its management. The struggling bank faces numerous deadlines, some as soon as next week, to shape up or face further sanctions by federal and state banking authorities.”

“Coast made $110 million in loans to nearly 500 customers of Construction Compliance Inc., a defunct home builder in St. Petersburg. CCI drew millions of dollars from the bank, even though it did little or no work on some of those homes. Many of those customers are now refusing to repay their loans.”

“The bank has other deadlines to charge off or collect on millions of dollars in loans. It also must immediately stop collecting brokered deposits, which typically pay high interest rates, and within 10 days file a plan with regulators to eliminate its reliance on those CDs.”

“The bank has $40.7 million in those deposits it gathered from customers after its loan problems were revealed.”

“Trump Tower Tampa has lost its biggest asset: the Trump name itself. New York tycoon Donald Trump has terminated his contract with SimDag, the Tampa development team behind the proposed $300-million condo tower long touted as west Florida’s tallest and most luxurious.”

“In a lawsuit filed Friday in federal court, Trump sounded like a man whose patience was spent. Investors scooped up many units, but SimDag failed to hook financing. Banks shied from pouring hundreds of millions of dollars into a Tampa Bay area housing market stagnant with thousands of unsold condos.”

“Tampa officials looked to the tower, one of several new condo high-rises, to help revitalize its central business district. But the proposal never shook criticism that its fancy penthouses and gold-trimmed living may have suited Miami and New York but clashed with Tampa’s middlebrow image.”

The Tampa Tribune. “SimDag has not made payments since October and owes Trump at least $1 million, the lawsuit claims. The developers have yet to break ground on the building.”

“The company’s office phone is disconnected. Trump declined to answer questions but said through his assistant, Rhona Graff, that ‘the lawsuit speaks for itself.’”

“Trump Tower was announced with much fanfare in early 2005. But the luxury high-rise project has struggled to go vertical. Construction activity stalled in November. On Tuesday, there was no equipment on the vacant site.”

“SimDag boasted it had sold out of condo units shortly after announcing the tower project, but the company has acknowledged that some buyers have dropped out. SimDag has passed along at least $40 million in construction increases to buyers who had signed up to purchase units.”

“In recent months, two buyers have sued the developer for their deposits. In the lawsuit, filed in January, buyers Louis Ricci and Joe Shultz, both of Walton County, near Pensacola, argue it is impossible for SimDag to build the tower by the December 2008 deadline stated in their contracts.”

“They also complained that they bought, in part, because they thought Trump was involved in the building of the tower and felt misled when they learned SimDag had only licensed the use of Trump’s name.”

“George Galiouridis was among the first buyers to put up a 20 percent deposit. In January, 2005, he reserved a 2,900 square-foot, three-bedroom condo on the 31st floor for $1.1 million. A few months later, he says, SimDag said he would have to pay $200,000 more to convert the sales agreement to a hard-purchase contract, locking in the sale price.”

“When he learned about Trump’s lawsuit, Galiouridis said he wants Trump to take over the project and build the tower himself or push SimDag to return deposits to buyers. ‘This is good news,’ he said. ‘I believe Trump finally realizes that his name and credibility is at stake. He’s said he can build it out of his pocket. I hope he does.’”

Bits Bucket And Craigslist Finds For May 30, 2007

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

May 29, 2007

Between A Rock And A Hard Spot In California

The San Francisco Chronicle reports from California. “Vallejo is the Bay Area’s version of ground zero for the subprime loan crisis. A significant number of residents of the largely blue-collar city of 120,000 have taken out subprime loans. Vallejo home prices fell 8.5 percent from November to March, according to DataQuick. For people who bought in recent months without putting any money down, that means they may owe more on their mortgage than the house is worth.”

“In addition to Vallejo, other Bay Area localities facing the problem are Richmond, Antioch, Pittsburg and parts of Oakland.”

“At nonprofit counseling agency Vallejo Neighborhood Housing Services, the phone has been ringing off the hook for several months, with about 40 people a week calling because they have fallen behind in their mortgage payments, according to Carol Hardy, a housing counselor there.”

“That contrasts with the 12 months that ended in August, during which the agency advised just eight families on foreclosure prevention.”

“The people seeking help have almost identical stories, Hardy said. They bought homes using subprime loans. After a low initial rate, their monthly payments skyrocketed. Meanwhile, home prices in their neighborhoods went down, so they cannot easily sell or refinance. The result is that the homeowners owe more on their homes than the houses are worth.”

“‘They’re between a rock and a hard spot,’ Hardy said. ‘Nobody sat down with them and said if your interest rate goes up just 2 percent, here’s what your house payments will be. These people all of a sudden are getting notices that in 60 days their house payments will go up $600 or $800 a month, and they say ‘I can’t do that.’”

“In Solano County, 116 homeowners received notices of default last March, according to DataQuick. By August, the number of foreclosure notices had almost doubled. By March, it had almost tripled to 338. During the 12 months ended in March, 2,555 Solano households received the notices, according to DataQuick.”

“In Solano County, seven houses were sold at foreclosure auctions in March 2006. The number has built steadily since. In the same month this year, 89 properties changed hands in foreclosure auctions, according to DataQuick.”

“‘Until six months ago, we could almost always save the person’s investment, either by helping them to refinance or explaining that they needed to sell and get their equity out before foreclosure,’ said Martin Eichner, director of a nonprofit HUD counseling agency in Sunnyvale.”

“‘But more and more, the calls we’re getting are from people who bought on a shoestring and have few, if any, options to avoid the foreclosure. They haven’t built up any equity and they put themselves in loans that were essentially doomed to fail with 100 percent financing and/or negative amortization,’ Eichner said.”

“Hardy said she tries to negotiate with lenders to arrange for an extended loan period, but so far none has been amenable. Instead, all of Hardy’s clients have put their homes on the market at the request of their mortgage holders. None of them has received an offer.”

“‘We have very large inventories in Vallejo of houses for sale,’ said Jeff Dennis, president of the Solano Association of Realtors.”

“If the homeowners do sell their homes, it is likely to be what is called a ’short sale,’ where the purchase price is less than the amount owed on the mortgage.”

“Vallejo Neighborhood Housing Services is too overloaded to handle new cases, so it refers calls to a toll-free number run by a nonprofit group that tries to preserve homeownership.”

“‘Calls (from across the nation) have been increasing at an absolutely crazy rate,’ said Tracy Morgan, a VP at the foundation. ‘We’ve been getting 650 calls a day for the last month or two. A year ago we were only getting 75 calls a day.’”

From Bloomberg. “The U.S. housing slump is squeezing Mexican migrant workers from Los Angeles to New York, where permits for new home construction are down 20 percent this year, according to the Census Bureau. That’s reducing the pace of money transfers.”

“In Los Angeles, Miguel Saldivar is struggling to find work. ‘There has been no work for two, three weeks,’ Saldivar said as he waited at the corner of Oxnard Street and Van Nuys Boulevard. He said he sends as much as 75 percent of what he earns back to his mother and brother in Mexico.”

“‘It depends on how many days we work,’ Saldivar said. ‘Now I am making nothing.’”

The Arizona Republic. “Twelve people, suspected of being part of a sophisticated white-collar crime ring led by an ex-convict, have been indicted involving a mortgage-loan scam stretching from Arizona to Nevada to California.”

“‘This was a brazen scheme. To shut it down, a top-notch team was assembled,’ U.S. Attorney Daniel Knauss said. ‘The result is a significant indictment that should put criminals and would-be fraudsters on notice that the investigation and prosecution of loan fraud is a top priority.’”

“The indictment says defendants fraudulently financed 16 properties, as well as 11 luxury cars mostly purchased at Arizona dealerships. One member, Charles Dozzell of California, financed a $124,496 BMW 760 series by falsely saying he was an engineer and made $135,000 a year, according to the indictment.”

The Spring Selling Season Was A Total Fizzle

The Chicago Tribune reports from Ilinois. “In the Chicago area the housing market continues to suffer from an overhang of unsold homes and from price discounting, said Bill Gronow, a partner with Kennedy Builders in South Barrington. ‘We were overheated and the market isn’t bad, but it has returned to normal,’ said Gronow.”

“Chicago-area home builders ‘were caught off guard by the slowness of the spring selling season, which was a total fizzle, said housing consultant Steve Hovany.”

“Normally, by this time, half the new-home sales for a year have occurred, he said. ‘But this year, if the current total number of sales in the Chicago area were to double, the situation still would be quite gloomy,’ Hovany said.”

From Chicago Business. “Chicago-area foreclosures, which set a record last year, are projected to reach full-blown crisis levels in 2007. Cook County is on pace to record at least 30,000 and as many as 36,000 foreclosure filings this year, according to Cook County Circuit Court Judge Dorothy Kinnaird.”

“That would mean a 35% to 62% increase from 2006, when 22,248 filings were easily the highest in county history after having risen 36% from the previous year.”

“The data show foreclosures up in nearly every part of the city and suburbs, from the middle-class South Shore neighborhood (up 55%, to 331 foreclosures, last year) to the well-heeled suburb of Wilmette (up 192%, to 38).”

“‘It’s not just unsophisticated borrowers who got into trouble,’ says David Rose, the analyst who authored the report. ‘It just shows you how risky these (adjustable-rate mortgages) really are.’”

The Times Reporter from Ohio. “For Realtors, property buyers and sellers in Tuscarawas County it’s a matter of whether the glass is half empty or half full. Although the average number of Days on the Market for real estate is at record highs for most areas of the county, others view it as a great opportunity to purchase a home.”

“Realtor Holly Waldenmyer said there always will be sellers who think their home is worth more than what the market shows it’s worth. ‘Sometimes it takes time to convince them that it’s lower than what they recognize. You see some of them on the market for a long time because it takes them time to be realistic.’”

“Real estate broker Craig Barnett added that the average sale price is being hurt by the record number of foreclosures. ‘The houses that are foreclosed on are stigmatized, they sell for less than they’re worth for the most part,’ he said.”

The Columbus Dispatch from Ohio. “Take your pick, home buyers: You have plenty to choose from. There are 18,571 homes listed for sale in central Ohio, according to the Columbus Board of Realtors. That’s about 300 short of the record, set last July, and it doesn’t include many new builds, homes for sale by owners, repossessions or homes that have fallen off the listings without selling.”

“Ken Danter, (who) analyzes the central Ohio real-estate market, offers (an) explanation: So many people bought homes during the area’s housing boom a few years ago that the pool of available buyers has dwindled.”

“‘It’s not a function of this being a bad market,’ Danter said. ‘It’s a function of having such a good market five years ago.’”

“Central Ohio has become so crowded with homes that one major builder, Centex Homes, announced last week that it is pulling out of Columbus to focus on more-successful markets.”

“‘A lot of people are getting closing costs paid for; a lot of the issues are being taken care of by the sellers,’ said Powell agent Chris Anderson. ‘We need these people to pull the trigger. They see no urgency, because it’s a buyer’s market right now.’”

The Detroit Free Press from Michigan. “Danielle Merriweather hasn’t made a mortgage payment since December. But instead of joining the 16,351 Detroiters whose properties were foreclosed on during the first quarter of the year, Merriweather began to work with her lender and agreed to sell her property in what’s called a short sale.”

“She paid $140,000 for the house and owes roughly $127,000. The house is on the market for $125,000 and probably will sell for even less.”

“The ranks of financially strapped homeowners also likely will increase as those with adjustable-rate mortgages find themselves unable to handle the higher monthly payments. ‘I’m getting calls every day,’ said real estate agent Venesha Harris in Royal Oak. Homeowners ‘ask, ‘What can I do?’ It’s desperate times out there.’”

“Even when lenders agree to a short sale, some may not be willing to take much below what they are owned, said Mandy Melone, a Realtor in Livonia. But in some cases, lenders ‘are taking 50 cents on the dollar of what’s owed them,’ said Melone.”

The Cadillac News from Michigan. “In his 23 years as the owner of Johnson and Associates, Keith Johnson has seen the highs, lows and in-betweens that are associated with the real estate market.”

“‘The one cardinal rule is all real estate is local. When you look at southeast Michigan things are completely different. Prices are falling (in southeast Michigan) but they also had a boom year,’ he said. ‘For better or for worse, we just haven’t had a boom year. We’ve had growth, just not a boom year. Now we are just not seeing the normal price growth we have seen.’”

“‘We would love to have more sales going but the market adjusts,’ said Realtor Rick Lantz. ‘This area felt the boom that there was nationally but not to the extent of the East Coast and West Coast or even the Sun Belt.’”

From Minnesota Public Radio. “Real estate statistics show a continued slump in home sales in the Twin Cities. And industry experts say no one should expect a turnaround anytime soon.”

“After years of a housing boom in Minnesota, Zola Thompson wasn’t expecting a soft real estate market when it came time for her to sell.”

“‘I kept seeing this thing going lower and lower, and I really would like to get as much as we can out of it because we’re going to be living on some of this in our old age, and I just wanted to get as much as we could,’ says Thompson.”

“Glen Dorfman of the Minnesota Association of Realtors recommends that sellers accept the market for what it is, and not hold out for a recovery.”

“‘Right now we’re in a frightening time of flat and declining market values, so why not cut losses?’ says Dorfman.”

“Dorfman says market conditions are more likely to get worse than better if, as expected, the rate of foreclosures continues to climb. That would dump even more homes on an already saturated market, pushing prices down further.”

“‘I’ve been saying to everybody who will listen, if you have your house on the market and your realtor tells you to update the living room carpeting, or stage it…then you should do that,’ says Dorfman. ‘And if you need to reduce the price today $10,000 to $20,000, it’s far better to reduce it 10 or 20 than in six months having to reduce it 70 [thousand] or 80 [thousand].’”

“Tom Musil, head of the real estate program at the University of St. Thomas, predicts the market won’t stabilize until late next year. But even then, he cautions not to expect a return to boom times.”

“‘You have to realize the feeding frenzy that we were in from ‘98 to about 2006 is going to be hard to repeat,’ says Musil. ‘We saw tremendous increases in values and in a short period, maybe eight or seven-year period, and when you see houses increase 250 or 300 percent, that’s pretty tough to match.’”