The Housing Bubble

The Daily News reports from California. “Now that some of the dire fears about adjustable-rate mortgages and sub- prime loans are proving true, lenders and nonprofit groups are rushing to come up with ways to slow down the defaults and foreclosures. But there’s also a growing call from mortgage brokers and other market watchers for struggling buyers to take some personal responsibility for their decisions.”

“Noemi Estrada became a homeowner in 2004 after securing an adjustable-rate mortgage to finance a $175,000, one-bedroom town home in Pacoima. The trouble started when Estrada received her first statement and noticed that the $600 payment she was being asked to make would cause her principal to keep on growing.”

“On top of that, her payments began climbing immediately, by $10 to $20 each month. Estrada had unknowingly signed on for a ‘neg am’ loan. Today, her payments are $800, and she already has one notice of default on her record. Estrada claims that the mortgage broker who sold her the loan lied to her about the terms.”

“‘If I knew all this would happen, I would go back and live in my mom’s house,’ said Estrada. ‘Right now, I’m about to lose my house. But if I let the bank take it, it would ruin my life.’”

“‘We’re going to give somebody a crutch all because they couldn’t spend a day in a seminar to find out about the loan products, and now they’re saying, ‘Nobody told me there was education,’ said Richard Pittman, director of a credit counseling nonprofit based in Commerce.”

“‘Come on, get your paycheck out and look at it next to your loan statement. You didn’t realize the $4,000-a-month payment was going to take 92 percent of your paycheck? … There’s a point to tough love, when you say this is a learning experience,’ Pittman said.”

The Ventura County Star. “Roxie Bajwa had an exciting Saturday. The Porterville resident made a trip to the Los Angeles Convention Center for an auction of foreclosed homes. She left with a new home in Port Hueneme.”

“‘I’m excited nervous and excited,’ she said just after placing the winning bid of $465,000 for the three-bedroom, two-bathroom house. ‘My husband wanted to go a little lower, but I didn’t want to let it go,’ she said.”

“Once someone won the highest bid, that person was taken to the area where they would work on financing and escrow documents. If something went wrong at that point if someone couldn’t qualify for the loan or didn’t have the down payment the deal would fall through, and the auction house would bring it back up for bid.”

“Prices often grew cheaper each time a home came up. A Compton home that originally sold for $285,000 later went for $235,000, then $220,000.”

“Frank and Mahi Hariri of Glendale placed a winning bid of $335,000 for a home in Santa Paula originally built before 1900. They found out afterward, however, that the home has several code violations. All homes in the auction are sold ‘as is.’ They backed out of the deal.”

“‘If I buy a property, I want to live in it,’ Mahi Hariri said.”

The Orange County Register. “Daniel Sadek played Orange County’s subprime lending boom like a card shark dealt the ace and jack of spades. Just five years ago he was selling cars. Then, in January 2002, he anted up $250 for a state lender license and started selling home loans through his company, Quick Loan Funding.”

“Quick Loan Funding’s name still crowns a Costa Mesa office tower. But Sadek, like the subprime lending industry, is holding a bad hand. His staff, once 700 strong, has shriveled to about 125. Monthly loan volume plunged to $30 million from a record $218 million in December 2005.”

“‘I’ve sold all my cars to keep the company going,’ says Sadek. ‘Every property I own is mortgaged to the max.’”

“Dinora Nava-Oleson of Yucaipa learned about Quick Loan through a late night TV infomercial in the summer of 2005. At the time she was desperate to refinance $524,000 in debt.”

“Within days of her call to the company, Nava-Oleson was offered a $530,000 loan to consolidate all her debts and refinancing costs. The papers she signed in September 2005 raised her total mortgage to $543,000, the total boosted by loan fees and a 9.75 percent interest rate. The rate was fixed for 30 years. Monthly payments were $4,678.45.”

“‘My attitude was just get me out of my mess and I’ll deal with the rest later,’ Nava-Oleson says. ‘I admit I’m partially to blame. But at the same time I don’t believe people should be taken advantage of.’”

“Nava-Oleson sued Quick Loan for predatory lending last year. Nava-Oleson settled the case to avoid foreclosure on her home, after working out a deal with two companies that had assumed Quick Loan’s mortgage. Quick Loan was not a party to the settlement.”

“Sadek says Quick Loan had to buy back $29 million in loans that defaulted in the first two months. That’s a number that’s likely to grow. Today he is $16 million in debt, he says. Sadek says he raised $13 million for Quick Loan by selling his cars and refinancing his Newport Coast mansion, an Irvine penthouse and a Las Vegas condo.”

“He believes the company is a good bet. ‘Tough times don’t last,’ he says. ‘Tough people do.’”

The Fresno Bee. “Fresno County’s unemployment rate rose slightly in April. A drop in financial services jobs related to home lending indicated that the negative effects of the housing slowdown will still be felt in the region in the months to come.”

“Fresno County lost 200 financial services jobs between April 2006 and last month. Doug Heffner, president of the Central Valley chapter of the California Association of Mortgage Brokers, said he thinks jobs will continue to be lost in the home lending and real estate finance sectors in the months to come.”

“‘We’re seeing a lot of mortgage brokers shrink their work force,’ he said. ‘I think that will accelerate in the coming months. I think we’re just starting to see the tip of the iceberg in this area.’”

“And continuing job losses in real estate-related activities could be a drag to the region’s entire economy, he warned. ‘For the last few years, real estate has been driving this market economically,’ he said.”

The Press Enterprise. “Families stood shoulder to shoulder at a busy Temecula intersection Saturday to warn passersby that they are facing financial ruin because of an ongoing investment mortgage scheme and to call for authorities to shut down and arrest the culprits.”

“‘We want them put out of business,’ said Mory Simmons from San Diego. Simmons, like most of the approximately 40 people at the rally, said they have homes in foreclosure because investment counselors persuaded them to take on far more mortgage debt than they can afford to pay.”

“Anna Richter of Rialto, said the victims, who have organized and formed their own Web site, chose to stage their first rally in Temecula because most of the properties caught up in the alleged fraud are in southwest Riverside County.”

“‘We want to get the word out to the Murrieta and Temecula communities that is why they have seen so many foreclosures and short sales,’ in which homes are sold for less than the debt owed on them, Richter said.”

“According to a lawsuit that Richter and another Rialto woman filed earlier this year, the defendants were not licensed financial planners or registered securities brokers but still put together investment groups in California, Arizona, Texas, Nevada, Washington and Oregon.”

“The suit claims that the defendants told prospective clients that by investing in real estate, stock and Iraqi currency, they could realize gains of up to 300 percent. But the suit says the promised profits never materialized.”

Newsday reports from New York. “The Oceanside splanch had been listed for eight months. There were about 25 showings and three offers. Then the buyers the owners were looking for showed up. ‘We were curious why the house was on the market for so long,’ says Danae Schneider. ‘We didn’t think anything was wrong with it,’ she says. ‘We just thought it wasn’t priced correctly.’”

“The agents first listed the 3,800- square-foot home for $929,000. After a month, the price was dropped to $875,000. Two weeks after seeing the house in October, Schneider and her husband, Jason, made an offer. They bought the house for $830,000 and moved there in February.”

“For Dominick Cusumano,r who closed on his house in Garden City in February, knowing that it had been on the market for almost a year was valuable fodder in the negotiation process.”

“The property was first listed with Coach Realtors Fennessy Associates in May 2006 for $1.85 million, where it remained until August, when it was co-listed with Dougall C. Fraser Jr. Inc. from September to December for $1.795 million. When Prudential Douglas Elliman received the listing next, the price was reduced to $1.62 million.”

“The house closed at about $200,000 less than the asking price (the sellers’ real desired price, says Daniel Guerrier, the agent who brokered the deal). ‘Garden City was overpriced two years ago,’ says Cusumano. ‘Now it’s more reasonable.’”

“Some 9,200 single-family homes are for sale in Nassau and about 13,000 in Suffolk. If nobody else listed, it would take about 10 months to sell the current inventory in Nassau and about 13 months to sell the current inventory in Suffolk.”

“Barbara Malley originally listed her updated ranch in East Setauket for $489,000 in October, but she has since come down to $469,000. Her listing agent and others say the asking price is fair.”

“Still, Malley says she has not received any offers. ‘I don’t want to wait until the house has been on the market for a year. If it is not sold by July, I’ll rent it,’ she says. She recently began to advertise in the city, and she’s considering putting her home up for auction.”

The Journal News. “The subprime lending crisis continues to shake the Lower Hudson Valley, as lenders stepped up foreclosure actions in April and two more troubled mortgage companies in the area reported more than 300 job cuts.”

“Lenders started 181 foreclosure proceedings last month in Westchester County, up 50.8 percent from April 2006. Putnam County had 41 actions last month, up from 22 in April 2006.”

“In Rockland, courts approved 94 judgments against property owners through the end of April, up 91.8 percent from the comparable period a year earlier.”

“The higher incidence of foreclosure, however, reflects the more difficult position that borrowers with less-than-perfect credit have found themselves in, and in numbers that have grown since last year. ‘The mortgage landscape for subprime lending has changed drastically in the last few months,’ said Michael Ettlemyer, spokesman for GE Money of Stamford, Conn.”

“GE Money owns WMC Mortgage Corp. of Burbank, Calif., which opened an office in Orangeburg in 2004. This spring, the Rockland office eliminated 171 jobs, with 98 remaining, Ettlemyer said.”

“WMC is one of two subprime mortgage companies that notified the state Labor Department this spring that they were cutting staff. The second, Fremont Investment & Loan in Anaheim, Calif., closed its office in Elmsford several weeks ago. A Labor Department report said 169 jobs were lost.”

“Despite the bad news, the trouble is unlikely to slow the regional economy, said Bruce Mason, chief economist and senior VP at Union State Bank in Orangeburg.”

“‘This is not affecting jobs. Jobs are not going down here or deteriorating in any significant level. The people are still employed,’ he said. ‘What it is going to affect is the real estate prices…These people aren’t buyers anymore. They’re sellers.’”

From New York Business. “New York state Gov. Eliot Spitzer on Friday announced an interagency task force aimed at combating predatory lending practices throughout the state.”

“‘Lending practices that prey upon the public cannot and will not be tolerated,’ Mr. Spitzer said in a statement. ‘This task force will take a comprehensive look at the sub-prime lending industry, and recommend steps to protect borrowers.’”

“Late last month, New York City Comptroller William Thompson launched a foreclosure hotline to help consumers that are falling behind on mortgage payments. The city is facing more than 15,000 foreclosures, according to data from the Neighborhood Economic Development Advocacy Project.”

“The AG’s office confirmed that it issued a subpoena to Manhattan-based real estate appraiser Mitchell, Maxwell & Jackson Inc., saying it was ‘part of an ongoing investigation.’”

“Jeffrey Jackson, co-founder of the firm, said the company is not a target of the probe, but is cooperating with the AG. ‘My take on what they re looking for is loan officers or mortgage brokers trying to influence us so they can make loans,’ said Mr. Jackson.”

The News Press reports from Florida. “Area banks are racking up millions of dollars in bad debt, thanks to the softening real estate market in Southwest Florida. Five Southwest Florida banks had a combined $57.5 million in outstanding construction and land loans that weren’t being paid, according to the Federal Deposit Insurance Corp. for the first quarter of 2007.”

“That’s a 207 percent increase over the $18.7 million the same banks had a year earlier.”

“The median price of an existing single-family home in Lee County has fallen from an all-time high of $322,300 to $268,000 in March, according to the Florida Association of Realtors. Meanwhile, the number of homes on the market has quadrupled to about 15,000 as the number of single-family home sales has spiraled down, 636 in March compared with 1,084 in December 2005.”

“Karen Dorway, president of Boca Raton-based BauerFinancial Inc., said, the increase in bad debt was incurred from ‘people who were trying to get in on the upswing. People without the expertise or the knowledge were trying to get in and taking out some of these loans with the expectation that ‘I’ll simply sell it for a profit.’”

“John Perry and his wife bought four properties, two in Lehigh Acres and two in Cape Coral, when the market was hot two years ago and now find themselves in trouble on all but one of the deals. They bought three of the homes from First Home Builders and the fourth from Paul Homes.”

“Perry said the lenders ’should have definitely given some credence to our financial report, even though we had great credit.’”

“The lenders still should have known the Perrys didn’t have the resources to make payments on the houses, he said. ‘We have no means of making the mortgage payments on these properties,’ he said. ‘We’ve gone to the extent of putting our own personal home in St. Louis on the market. If push comes to shove and we have to pay something, I want that flexibility.’”

“Karen Quanstrom, a loan officer specializing in construction loans for SunTrust Bank’s Fort Myers branch, said she has little sympathy for people like the Perrys.”

“‘Most of these people are in trouble now because they didn’t plan for a worst case, they planned for a best case,’ said Quanstrom, speaking for herself, not as a representative of SunTrust. ‘They want to come back to the Realtor, the broker, the lender, and lay blame.’”

The Sun Sentinel. “Thousands of homeowners in Broward and Palm Beach counties can’t make their monthly mortgage payments and are getting sternly worded letters from lenders who threaten to seize their properties and resell them, likely at a loss.”

“‘It has the potential to get very ugly,’ said David Levin, a housing consultant in Palm Beach County.”

“The number of people facing foreclosure has been building since January. In April, the number of consumers behind on their mortgage payments in Broward County ballooned to 1,135, compared with 248 a year ago, according to a Plantation research firm. The number of people with late payments also rose sharply in Palm Beach County, from 174 to 814.”

“Many of the people who bought in the western suburbs were short-term investors looking to ‘flip’ properties for quick profits, said Shiela Kiniry, state director of the Florida Association of Mortgage Brokers. Now they’re stuck with properties they can’t sell and, in some cases, wilting under the strain of paying two mortgages.”

“‘I have to believe a lot of those people wanted to jump on the bandwagon while they still had the chance,’ Kiniry said. ‘It seemed wonderful when they put their money down. Unfortunately, the market’s not the same now.’”

The Palm Beach Post. “Land formerly planned for the Opera Place condominium in West Palm Beach will not be sold to an investor group after all. Some residents who thought the project’s 26 stories too tall for downtown.”

“Well, folks, no need to worry about that too-tall building now. The deal’s off. Now we proceed to the next stage in the process: Lawsuits.”

“No outcome yet from a trial last week pitting the Marina Grande condo against buyers who have changed their minds about living at the colorful new Riviera Beach project.”

“D&T Properties bought a condo at Marina Grande but now wants out of its contract, claiming maintenance costs are higher than it was first promised.”

“Marina Grande is fighting back by saying buyers are making excuses to get out of their contracts because the flippers’ market has died.”

“D&T’s is one of two dozen lawsuits by Marina Grande buyers trying to get out of closing on their pre-construction purchases. The lawsuits are part of a trend of home buyers running to the courts to get out of pre-construction contracts on houses, townhouses and condos throughout South Florida.”

The Naples News. “Not being able to pay the bills is rarely a cause for celebration. But after a first try at home ownership landed a San Carlos Park couple in a deep financial bind, Amanda Stark and Bill Berr were willing to try anything to shave away at their debts, even partying.”

“They’re throwing a benefit bash this weekend in the yard of their two-story, yellow-painted home they’re fighting to keep.”

“The route the family is taking, a please-help-us party, might be unusual, but the circumstances are not. The family’s most pressing worry right now is the $3,500 they owe Lee County in past-due property taxes. That debt could eventually force a sale of their home. They’re also struggling to keep up with $1,800 monthly mortgage payments.”

“‘We’re just trying to do everything we can,’ Berry said. ‘We’re not giving up.’”

“They bought their 10-year-old home when prices were high in June 2006, eager to leave behind a rental in Cape Coral. They paid $241,000 for the 1,980 square-foot home, many times the $65,000 the property was worth a decade ago.”

“With that history of appreciation, Berry and Stark said, they never expected the value of a home so near a university and new development would decrease. The fact the home was appraised that summer for $40,000 more than what the seller took for it might have been a sign, but at the time, Stark said, ‘We thought we were getting a good deal.’”

“If they put their home on the market today, though, a real estate agent told them Friday, they’d likely face a $25,000 loss.”

“Things would be easier, maybe even fine, if only Berry still made up to $6,000 a week as a carpenter. These days, though, with the slowdown in new construction, a very good week for Berry would bring in half of that amount.”

“‘And I’m no slouch,’ Berry said. He’s at the point he half-wishes for a hurricane or two this season so the work would pick up, he said.”

“The terms they borrowed under aren’t helping, either. It’s an 80-20 arrangement, a deal that allowed the couple to avoid a down payment. But it comes with an adjustable interest rate that will start taking their monthly payments even higher next summer.”

“The family knows of at least one other couple in the area who have fallen about six months behind in their mortgage payments, and the San Carlos Park neighborhood is full of ‘for sale by owner’ and ‘for rent’ signs. There are four such signs on their block.”

“Stark said she isn’t sure why they’re selling, but she has her suspicions. ‘People don’t really talk about it,’ she said. ‘I think the reason I’m more comfortable talking about all this and putting it out there is that I think I’m not alone. In fact, I know I’m not alone.’”

What do you see in your housing market this weekend? Rising foreclosures? Motivated sellers? “Fort Wayne and other historically stable housing markets in the Midwest probably will not experience wild swings in housing prices, though home prices are trending downward, according to experts.”

“David Augustyniak, owner of RealtyFlex Corporate LLC in Fort Wayne, said prices are dipping because some sellers are growing more desperate. Desperation drives prices down.”

“‘If you’ve got 12 like-type listings, someone is going to be more desperate to sell than the others, and the trend is going to follow the cheapest price. This establishes a new base and comparables,’ he said.”

“One factor affecting housing prices across the country and locally is the fallout from the low-cost refinance boom of the recent past. Overaggressive lenders and appraisers have produced a lot of home equity ‘that isn’t really there,’ Augustyniak said.”

“Augustyniak said he heard from a title company that six out of 10 homes sold now are short sales, meaning the outstanding debt is greater than what the property is worth.”

New investigations? “New York State is investigating Manhattan real estate practices, seeking information about whether brokers pressured appraisers to inflate property values as prices doubled in the last five years.”

“Attorney Y. David Scharf said the subpoena called for information about ‘mortgage lenders, mortgage brokers, real estate brokers and sales persons and appraisal management companies.’”

“Appraisers frequently face pressure to revise their findings, said Jonathan Miller, president of Miller Samuel.”

“‘I would seriously doubt that there is one appraiser in the United States that has not been on more than one occasion pressured to make a number,’ Miller said.”

A local economist? “Alan Garner, an economist with the Federal Reserve Bank of Kansas City, said that despite troubling news about foreclosures and home-price appreciation rates, the state’s real estate market was headed for brighter days.”

“Garner noted ’serious concerns’ about the economy overall, and said ‘the housing market is the source of many of those concerns.’”

Local earnings power? “The median income of Realtors last year was $47,700, down from $49,300 in 2004, according to a newly released survey of members of the National Association of Realtors.”

“Realtors with two years of experience or less earned a median of $15,300. That hardly pays the cell phone bills and fills the tank with gas.”

Signs of speculation? “Real estate flippers watch out, local developers are cracking down. Seattle condominium market expert Warren Ballard says it creates annoying competition for developers.”

“‘If the developer has remaining inventory to sell, then the flippers come in essentially competing with the developer,’ he said. ‘So the developer has a lot of incentive to try to keep flippers out of the game.’”

“Ballard says out-of-control investor flipping artificially inflates property values, ultimately leading to a market crash.”

“‘The big crashes that we’ve seen in the real estate market in Florida, San Diego and Las Vegas can all be directly attributed to flippers,’ Ballard said.”

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