The Housing Bubble

The News Sentinel reports from California. “Scott McClarrinon says he was duped. The Galt native thought he was buying into a dream when he and his wife purchased their home at The Villas of Lodi in November 2005. Yet as soon as McClarrinon moved in, his dream and his neighborhood began to crumble.”

“The homes that had been snatched up so quickly at the peak of the housing boom sat empty for months at a time, with their owners nowhere to be found. ‘For sale’ signs popped up throughout the neighborhood, replaced later by ‘for rent’ signs. Green lawns turned to brown, left unkempt in the hot spring and summer months. Tall weeds began to sprout in place of neatly landscaped front gardens.”

“‘There’s just not a lot of homeowners here,’ he said this week, noting that his neighbors now consist of renters, from a trio of exotic dancers next door to a group of five young men nearby who throw loud parties late into the night.”

“McClarrinon and a few of his neighbors acknowledge that they bought their homes at the worst time possible. (Home prices have slumped since 2005).”

“But they also contend that KB Home misled them about what kind of community they were moving into, a now blighted neighborhood they say threatens to drag their home values even further down. They say the home-building giant promised to not sell to out-of-town investors.”

“The company did have buyers sign an agreement requiring them to occupy their homes for at least the first year, said spokesman Craig LeMessurier. ‘It’s our policy to not sell to investors,’ LeMessurier said. ‘But we can’t always guarantee that that’s not going to happen.’”

“He noted the company can’t strictly enforce the one-year occupancy rule either.”

“‘For sale’ signs dot many Lodi and Stockton neighborhoods. And foreclosure rates in San Joaquin County are the highest in the nation, according to RealtyTrac.”

“As of this week, there were 1,952 homes in foreclosure in the county, according to Web site.”

“‘It’s an issue that is really going to take off,’ said Joseph Wood, the city’s top code enforcement officer, noting his Stockton neighborhood has seen signs of the same problem. ‘It already has increased…and will progressively get worse because of the way the market is.’”

“The experience has frustrated McClarrinon along with neighbors Christine and Darin Parvin to no end. The three feel stuck in the neighborhood, unable to make a return on their homes because of the slumping market, but also because any potential buyer would be turned off by the blighted homes that surround them.”

“‘I’m so mad. I’m just mad,’ McClarrinon said.”

The Davis Enterprise. “Davis homeowners have been largely spared from the rising numbers of foreclosures this year. But it’s a whole different story on the other side of the Yolo Causeway, in West Sacramento.”

“Those numbers are still rising, week by week, as cooling home prices, rising mortgage interest rates and competition from home builders take their toll. In other words, there are a lot of stressed-out sellers.”

“‘Right now, we have 273 houses for sale in West Sacramento,’ said Lean Hertel, a Realtor in West Sacramento. ‘Of those 273 homes, 102 are being advertised as ’short sales.’ And 34 are already owned by the bank.’”

“‘Foreclosures seem to be predominant in areas of new construction, where builders have encouraged buyers to come in with no down payment, and they have qualified them (for a mortgage) on marginal income,’ said Herb Cross, VP of Lyon Real Estate.”

“Hundreds of home buyers took the plunge and bought new homes in West Sacramento around the time of the housing market’s peak in 2005. ‘A lot of those people are now finding that the terms and conditions of their loan are changing,’ Cross said.”

“‘Because they got 100 percent financing when they purchased the home, when prices were higher, they find they can no longer obtain 100 percent financing to replace their existing loans, because the price of their property has declined,’ Cross said.”

“‘The developers are hurting, too,’ Hertel said, and some builders are offering $100,000 in upgrades at no charge, if you use their financing. But that can make things even tougher for the individual homeowner trying to move on.’”

“‘You’re competing with the developer’ for the buyer’s attention, Hertel said. ‘And the developer has 15 homes to sell, while you’ve got one.’”

“‘The banks have so many of these short-sale contracts to negotiate and process, we’re struggling to get them through,’ Hertel said.”

“For buyers, it’s a favorable market, Hertel added. ‘Two years ago, I was telling buyers, ‘Here are three houses, pick one, and we’ll do the best that we can do for you.’ Now, it’s ‘Which one of these 20 homes do you like, and what would you like to pay for it?’ Hertel said.”

The North County. “A mortgage broker whose clients are losing more than 100 local houses to foreclosure has agreed to surrender his real estate license, according to filings by a state agency.”

“Real estate agents described Stonewood’s operations from 2004 to 2006 as highly unusual. Stonewood would typically seek out agents whose listed houses had remained on the market for a month or more, agents said.”

“Without arranging for clients to see the houses, Stonewood would then offer as much as $120,000 above list prices, agents said, with fine print later specifying that 10 percent to 20 percent of the sale price would go back to the company as commission.”

“The arrangement seemed to target sellers who might be eager to move on without asking too many questions, agents and neighbors said, noting that a historic boom in local real estate values had just begun to ebb.”

“At least two neighborhoods where the company focused its operations have been hollowed out: On several streets in the Copper Canyon area of western Murrieta and several others in eastern Murrieta, notices of ‘bank-owned property’ are displayed in front-facing windows and alongside ‘for sale’ signs.”

“Between 100 and 150 houses appear to be involved, based on interviews with former owners and a semi-public real estate database.”

“It isn’t clear to what extent the foreclosures could have on home prices in particular neighborhoods, though median prices in Murrieta have fallen about 15 percent since peaking above $500,000 in May 2006, compared to one-year declines of 3 percent to 10 percent in most parts of Lake Elsinore, Menifee and Temecula, according to DataQuick.”

The Record Searchlight. “With more than 2,000 homes up for sale in Shasta County, it’s a market where buyers have the upper hand when negotiating a price.”

“‘We are not seeing too many full-priced offers,’ said Mike Neves, president of the California Association of Mortgage Brokers Greater Northstate Chapter. Home sales in Shasta County this year have been down every month compared with last year.”

“The subprime mortgage market meltdown means 100 percent financing is more difficult to obtain as lenders have tightened underwriting requirements. The tougher rules have shrunk the pool of buyers, said Nicole Dutell, branch manager at The Prime Financial Group in Redding.”

“‘A lot of people who were discouraged when the market was so red hot have not tried again, they have given up,’ Dutell said.”

Some reports from the Washington Post. “Tommy Rice, Arlington County’s real estate assessor, spotted something troubling on his computer when he returned to work after a three-week vacation early this year: a half-dozen residential property transactions with an unusual code, the numeral 1, which indicates a foreclosure.Rice was taken aback, because he had seen that code so infrequently in his 22 years as an assessor in the affluent county.”

“‘It’s rare in Arlington and in Northern Virginia, too,’ he said.”

“Home repossessions are cropping up almost everywhere in the region, regularly occurring on suburban streets unaccustomed to hard times. In Montgomery County, the foreclosure rate has tripled in a year. In Fairfax County, it has quadrupled. In Loudoun County, it has increased tenfold.”

“In Howard County, there was one foreclosure in 2004; there are 157 so far this year. ‘We’re seeing an uptick, and it’s fairly dramatic. It appears to be accelerating, and we haven’t reached the peak,’ said John Rust, commissioner of accounts for the Fairfax County Circuit Court.”

“Bolivian immigrants Marcelo Ortega and his wife bought a brick-front Colonial in Herndon for $549,000 in February 2006. The payments are $4,200 a month, which grew unbearable as residential construction work slowed and Ortega’s income dropped.”

“The couple tried to sell the house, but the value has fallen to $499,000, and they can’t refinance without paying a steep prepayment penalty, something Ortega says they did not know or understand.”

“Their home is being advertised by the lender as a pending foreclosure. ‘We can’t pay for this house. We need to find something less,’ he said.”

“Sitting in his front yard, Emery St. Clair tallied on his fingers seven or eight recent foreclosures that have occurred in the middle-class, 1950s-era subdivision in Manassas where he has lived for 44 years. The houses, with a median value of about $300,000, down 14 percent from a year ago, fell into disrepair, and people started renting out rooms to stay afloat. But they still couldn’t keep up with the payments.”

“‘A lot of people bought these houses way too high, and they’re going that way,’ St. Clair said, shaking his head. ‘People can’t afford to stay in them any more.’”

“Five unrelated people are living in a house facing foreclosure in Manassas. One of the tenants, Cristian Mendes, from El Salvador, said that the owner, who lives in the house, is losing it to the bank because his boarders have lost their construction jobs and can no longer pay rent.”

“‘I’ve been here four months, but I’m looking for another place to go; I have to,’ Mendes said in Spanish. ‘I’ll be on the road.’”

“The door to the front of the house was propped open with a rope attached to the front railing to signify it would accept anyone passing by who wanted to rent a room. Tenants wandering in off the streets have plenty of options in Manassas: At the Global Foods grocery nearby, there were more than 35 handwritten fliers, most in Spanish, offering rooms to rent in homes.”

“‘It’s creating a whole subculture of boarding rooms,’ said Jose Luis Semidey, a Tysons Corner mortgage broker and real estate agent.”

“‘Everybody in the industry knew what was coming when you start loosening the criteria for making loans, allowing anybody to get a loan for anything,’ said Beau Brincefield, an Alexandria real estate lawyer. ‘Sooner or later, the chickens come home to roost.’”

“The Steeds Grant subdivision in Fort Washington projects an air of comfortable affluence. But appearances can be deceiving, as the home mortgage market turns upside down.”

“This is not a community that has had foreclosures in the past, and none of these homes looks distressed. But they are in Zip code 20744, which has the most foreclosures in the Washington area.”

“According to Realtytrac, about 80 homes in that Zip code received notices of pending foreclosures from January through May, almost double the rate from the same period a year earlier.”

“Homes in many price ranges in Prince George’s have been affected. In the past five months, there have been 40 or more foreclosures each in the Clinton, Capitol Heights, District Heights and Temple Hills Zip codes.”

“The rosebushes at the house on Bayshire Lane in Herndon have died. Plastic wrappers and empty crates are visible through the windows of the otherwise vacant house.”

“Watering his own roses and looking across at the empty split-level house across the way, Oscar Alexander says the family that lived there left two months ago lost the house to foreclosure.”

“‘The bank is getting a lot of houses,’ he said in Spanish. ‘Now there’s not anyone to take care of it any more.’”

“The rise in foreclosures is particularly pronounced in Herndon, a town of 22,000 in western Fairfax County. According to Realtytrak, a real estate information firm, 75 houses were advertised as foreclosures in a single Zip code, 20170, up from nine in that same period one year earlier.”

“‘We have a lot of vacant homes out here now,’ said lawyer Michael O’Reilly, the former mayor.”

“He said local residents have become increasingly aware of property owners struggling to keep current on their payments, because many try first to stave off foreclosure by renting out rooms, which he said can lead to overcrowding.”

“‘The community as a whole keeps an eye out for them,’ he said. If homeowners are ‘having trouble making payments, they start renting out rooms, and that’s a problem,’ he said.”

“Now many immigrants who bought homes in Herndon are walking away from the properties, said real estate agent Miguel Martinez. He said the good-paying jobs they had in residential construction have disappeared, and they can’t make the payments any more.”

From CNN Money. “Comstock Homebuilding Companies today announced that it had completed the $47.5 million sale of its 316-unit Bellemeade condominium conversion project in Leesburg, Virginia to an apartment operator based in the Midwest. Comstock had been operating the property as a rental community since ceasing its condominium sales at the project in late 2006.”

“In order to facilitate the sale of the entire 316 multi-family units as an intact rental apartment complex Comstock repurchased the 58 condominium units previously delivered by Comstock to individual condominium buyers for approximately $12.8 million.”

“‘The Bellemeade sale and other land sales accomplished this quarter are part of our previously announced goal of enhancing our balance sheet by reducing our leverage, reducing our long-term interest expenses and relieving short-term liquidity demands,’ said CEO Christopher Clemente. ‘Additionally, we have made significant progress on the Eclipse project and have begun settlements with purchasers of units in the second and final high rise condominium building.’”

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It’s Friday desk clearing time for this blogger. “If there was ever anything real estate agents could agree on, it’s that Sawyer County, (Wisconsin) is a buyers’ market. ‘One of the questions is: Has the bubble burst? Yes, it burst last summer. We saw a turnaround from a sellers’ market to a buyers’ market,’ said Tom Berlage with Area North Realty in Hayward added. ‘Now, easily, the inventory has doubled. It’s like, where are the buyers?’”

“Berlage and other agents receive ‘hotsheets’ regularly, where they are ’seeing prices drop significantly everyday.’ He said that with the higher-end homes, sellers are dropping their prices sometimes by as much as $150,000.”

“Call it a wave of price cuts or a market adjustment, but there is no way to mask the fact that people selling residential real estate locally have been dropping their asking prices in droves. Deal Estate combed through data from the MLS of Northern Illinois and found that one out of three single-family homes sold in the Chicago area so far this month were bought only after the initial asking price dropped at least once.”

“‘What’s happening is that people who priced their homes in early spring are coming down now anywhere from 5 to 10 percent,’ says Mary Duncan, the sales manager at Prudential Elite Realtors in Naperville. Last week, the sale closed on a Naperville house that Duncan had initially listed in early spring for $470,000, then cut to $450,000 and again to $445,000, before selling it for $432,000.”

“Plunging home sales on the mainland have many waiting to see if Hawaii will follow suit. Sam Chang is moving into a rental property because he believes it’s the wrong time to buy real estate. Chang said, ‘right now the math works out that it’s significantly cheaper to rent than to buy the same property.’ He’s not alone.”

“The Pierce County, (Washingotn) Assessor-Treasurer’s Office mailed new property valuations Friday to the owners of more than 248,000 residential properties. Home values overall have been tamed by a flagging real estate market, according to Assessor-Treasurer Ken Madsen.”

“‘The whole market has gone down,’ Madsen said.”

“Home foreclosures in the Northland have followed the national trend. In Clay County, (Kansas) the number rose to 695 in 2006 from 436 in 2005, an increase of 62 percent, according to the Clay County Recorder of Deeds.”

“‘I’m sure many factors play into the increase,’ said Platte County Recorder Gloria Boyer. ‘Including adjustable rate loans, which have now had an increase in interest rates; higher cost of homes; some lending institutions lending more than the value of homes; and people overextending themselves.’”

“If institutional investors rush for the exits, hedge funds will feel pressure to get out of CDOs, perhaps prompting a downward spiral. The broader housing market also presents a potential threat.”

“In Maricopa County, Ariz., which includes Phoenix, houses are entering foreclosure at a rate of more than 50 a day, according to Foreclosure.com, up 60% from last year, as recent buyers are hit by high payments and falling equity.”

“Home prices in the Baltimore metro area? Up 5 percent. In the Washington area? Barely budging. In San Diego, Tampa, Las Vegas and several dozen other metros areas? Down, down, down. But in this corner of Appalachia, home prices have just shot up 17 percent.”

“‘Anytime there is a large price differential between…neighboring regions, then the low-price region eventually catches up,’ said Lawrence Yun, senior economist with the Realtors group. ‘Cumberland is catching a little wave.’”

“Premier Lorne Calvert and Mayor Pat Fiacco love to go on tours to Alberta to recruit people to come to Saskatchewan to work and live. The only problem is that there is no work.”

“I know the real estate market is booming here, but do you know why that is? Is it because of new industry, more jobs, people moving here from other provinces? No, it’s because real estate investors and speculators from other provinces know this is the only affordable place to buy.”

“So, yes, in the short term, prices will go up. But in time, the market will drop because nobody earns enough money to afford these new prices.”

“KB Home has tried to weather the dreary housing market by building smaller, less expensive houses. The most recent loss came in spite of KB Home’s efforts to reduce the size, and, therefore, the price, of most of its homes.”

“Yet buyers have been staying out of the market, in large part because lenders have made it more difficult to qualify for mortgages and because of expectations that home prices will continue to decline.”

“‘There’s a feeling that consumers are not comfortable that home prices are going to stabilize,’ said Steve Johnson, a Riverside-based building industry consultant who focuses on the California market. ‘Consumers are looking for further discounts and further deals.’”

“My Dad was a repo man for GMAC, the lending arm of General Motors. At 3, I couldn’t tie my shoes but knew that if you didn’t pay your auto loan on time, Dad would come to your house at 2 a.m. and steal your car.”

“But what really stuck with me was his disdain for the people from whom he had ‘liberated’ the vehicles, people who had taken out massive loans to pay for cars they knew they could not afford, but who were surprised when he showed up.”

“‘How, exactly, did they think this was going to end?’ he asked.”

“Thanks to my early fiscal training, when my husband and I bought our South End condo in January 2004, we ignored the loan officer who wanted to sell us an interest-only loan for twice the amount we needed and instead got a smaller adjustable-rate mortgage.”

“Boxborough, Topsfield, and West Newbury, three of the wealthier communities in the state, showed the top three largest percent increases in foreclosures in Massachusetts in the past 12 months ending April 30.”

“So how do we fix the foreclosure problem? We don’t. Time does. We help the people we can and punish anyone who preyed on those incapable of making sound financial decisions. And the rest, sadly, will lose homes they probably couldn’t afford in the first place.”

“It’s called common sense, and if you abdicate it, guys like my Dad show up at your house at 2 a.m. Who, exactly, is surprised when this is how it ends?”

The Press Enterprise reports from California. “A Murrieta-based real estate investment company and a broker that sparked a rash of lawsuits and a criminal investigation have agreed to forefeit their real estate licenses, according to a document filed with the California Department of Real Estate. Stonewood Consulting took as commissions the difference between the contract sales price that was reported to the lenders and the price paid to the sellers, according to the complaint.”

“The department said an audit of 10 properties…showed that Stonewood Consulting collected commissions ranging from $75,000 to $115,000 per house, for a total of $969,158.”

“In civil and federal lawsuits, Stonewood Consulting investors claim they were induced to buy multiple houses with inflated mortgages with the aim of raising funds they thought would be invested for them with a guarantee of big returns.”

“Anna Richter, a Rialto resident and Stonewood Consulting investor, said, ‘I am happy their license will be revoked. However, I am extremely disappointed in the bureaucratic slowness of justice. Someone should be arrested by now.’”

The Bakersfield Californian. “The former Crisp & Cole Real Estate firm is being investigated by state regulators, two former employees say. Both staffers say they have given investigators files related to their work at the Bakersfield company.”

“Jayson Costa, a former employee of Crisp’s defunct lending arm, Tower Lending, also said last week he gave files to an investigator in the last month.”

“‘I think they were looking at transactions that were flips, transactions that were done and then sold right afterwards,’ Costa said. The deals were all legitimate, he added.”

The Fresno Bee. “After a month of freewheeling and fractious negotiations, Donald Trump said Wednesday that he would buy the bankrupt Running Horse golf course and residential community in Fresno for $40 million.”

“For the hundreds of investors now owed money by Running Horse and the civic leaders who backed Trump’s bid, Wednesday’s announcement was an encouraging sign of life for the stalled project, where promises of a Jack Nicklaus-designed golf course and 780 high-priced homes had collapsed.”

“Bankruptcy documents show the property is valued at $20 million to $40 million but burdened with up to $70 million in debt, making it unlikely that many of about 300 creditors will be paid back.”

“Kent Northcross, the head of a seven-member unsecured creditors committee, said he was worried the deal wouldn’t make whole many creditors who have lost money they gave to the project’s original developer.”

“‘The thing that is rather discouraging is, nobody is talking about the poor people who sacrificed their life savings, everything they had’ to invest in Running Horse, he said.”

From ABC 30. “The Atwater Fire Department typically gets triple its average number of calls on the Fourth of July, and this year officials have a new concern. Abandoned houses pose a serious fire danger with dry grass and dead shrubs.”

“Fire Chief Ed Banks and Mayor Joan Faul are especially concerned this year because of the number of abandoned homes with dead, dry lawns. Like many Valley cities, foreclosures in Atwater are on the rise. The people who moved out left bone dry lawns behind, creating a major fire hazard.”

“Mayor Faul made another suggestion at a city council meeting this week. She recommended neighbors mow or water the abandoned lawns and keep hoses ready just in case.”

The Santa Monica Mirror. “It happens every year about the same time: For sale signs pop up all around California like toadstools after a heavy rain.”

“The intense boom of the 1995-2005 decade has plainly petered out. Anyone who buys a California home and expects to make a 20 percent profit in less than one year, the same kind of expectation fostered by the dot-com stock balloon of the late 1990s, is in for a serious disappointment.”

“Yes, there have been small declines in some relatively overbuilt parts of this state. It’s also a familiar part of the California real estate cycle. Booms in California generally last eight to 10 years, followed by leveling-off periods of about four or five years.”

“The bottom line: California is not in a real estate crisis and doesn’t figure to be in one very soon.”

“Realtors in the 1970s and ’80s often told their clients that ‘No one ever lost money on California real estate.’ After the bust of the ’90s, this statement is not longer completely correct. But it’s a truism that’s still at least close to being true.”

The Sacramento Bee. “The dust is just settling from that huge home foreclosure auction last Saturday at Cal Expo, and here comes a bigger one. Dallas auction giant Hudson & Marshall will sell 175 bank-repossessed houses July 22 at Sacramento’s Radisson Hotel. Only six days ago Real Estate Disposition Corp. of Irvine auctioned 107 houses from eight area counties.”

“The Dallas auctioneer will unload 410 bank-owned homes on a five-day July swing that includes Concord, Modesto, Fresno and Monterey County’s Seaside. Many belonged to owners who bought at the height of the housing boom with little money down and fell behind on payments as housing values fell.”

The Union Tribune. “San Diego’s index of leading economic indicators dropped sharply in May, mostly because of a weak job growth and sluggish residential building.”

“Four of the six categories that make up the index, a snapshot of the local economy, fell significantly last month, said Alan Gin, an economist with the University of San Diego who compiles the data.”

“‘The slump in housing has begun to affect other parts of the economy,’ Gin said. ‘You’ve got big problems in the labor market.’”

“In May, real estate job losses accelerated, and the labor market weakness has begun to spread to other sectors, including professional and technical services, as well as leisure and hospitality. USD’s economic index has now fallen in 13 of the last 14 months.”

The North County Times. “There is now a slim but real chance of the local economy going into recession, Gin said in the interview, describing his more gloomy outlook as a recent development.”

“Gin pointed to the most recent state unemployment report, which found a year-over-year loss of 6,900 jobs in construction in San Diego County.”

“A number of factors have sent the housing market into reverse. Local residential real estate prices roughly doubled in the first half of the decade. But in the last year or so that trend has ground to a halt.”

“The number of existing homes for sale has risen, sating the once apparently insatiable demand. In turn, that has caused new home construction to fall. And turmoil in the subprime market has caused companies such as Accredited Home Lenders of Carmel Mountain Ranch to lay off employees.”

“The index is a composite of six indicators. Two rose in May. Four fell. ‘The four negative components in the month overwhelmed the two positive ones to produce the largest monthly drop in the Index since August of last year,’ Gin wrote.”

The San Bernadino County Sun. “Estimates listed Fontana as the 21st fastest-growing city in 2006 among cities with populations over 100,000.”

“‘That was before the housing downturn and we were seeing lots of home sales going forward,’ said Mayor Mark Nuaimi.”

“Other California cities joining Fontana on that top 25 list include Lancaster, Bakersfield, Visalia, Irvine, Elk Grove and Palmdale.”

“They’re in our way, big time, on the roads and in our neighborhoods. They’ve driven up our real estate prices, too. Frankly, they’re a bit too fond of suburban McMansions that look like they’re on steroids. And what’s with their attitudes?”

“Yep, that’s the prevailing stereotype of Bay Area transplants to the Sacramento area, including the 150,000 who arrived in the first half of the decade. But what do they think about us?”

“Larry Kinser moved to Citrus Heights in 1988 from Stockton…and thinks people from elsewhere in general are gradually changing Sacramento for the better.”

“‘Sacramento isn’t a cow town anymore,’ he says. ‘I know that. But it’s a slow, slow process. I credit the transplants who’ve driven Sacramento’s ultra-cheap mentality down.’”

“Oh, snap. That’s right. He thinks we’re cheap.”

“The reason for the clogged highways, if you ask lots of Bay Area transplants, is our own darned fault: The housing market lured the transplants here, but now they can’t find work. So they commute.”

“‘Developers have built a lot of homes here,’ says Colin Cooper who works in radio and moved to Roseville from San Carlos in 2002, ‘but you need to have the industry to go along with that.’”

“‘People buy homes here and commute to the Bay Area. My brother commuted to Cupertino. I know people who commute to San Mateo, because that’s where the jobs are. The job market isn’t here for them,’ Cooper said.”

Some housing bubble news from Wall Street and Washington. Bloomberg, “U.S. banking regulators told mortgage lenders to tighten standards for subprime home loans in a belated effort to end abuses that led to a surge in defaults and the highest foreclosure rate in five years. Lenders, in most cases, should verify income levels instead of relying on borrowers’ statements, the Federal Reserve and other banking regulators said in guidelines issued today.”

“They also said banks should account for potential interest-rate increases in scrutinizing whether homebuyers can pay off loans.”

“‘This guidance on adjustable-rate mortgages underscores that the Federal Reserve and other banking regulators expect lenders to make sure subprime borrowers not only can afford their monthly payments while the introductory rate is in effect, but also after the interest rate resets,’ Fed Governor Randall Kroszner said in an e-mailed statement. ‘It is the right thing to do for the borrowers’ sake.’”

“Fraud increased and lending standards fell as Americans borrowed $2.8 trillion for home loans from 2004 to 2006, the largest mortgage boom of any three-year period on record.”

“Banking regulators issued their guidelines even as the market for subprime mortgages is contracting. Subprime loans fell 10.3 percent to $722 billion in 2006 from a record $805 billion in 2005, according to JPMorgan Chase & Co. Credit Suisse Group predicts loans will fall as much as 60 percent this year.”

From Reuters. “Subprime borrowers should not be penalized for refinancing out of a mortgage before the interest rate resets to a higher level, according to a statement of principles issued by the regulators. The guidelines also call for lenders to warn borrowers when a reset is coming and grant them at least 60 days to refinance.”

From MarketWatch. “The new rules do not include a ’suitability standard.’ That is, borrowers will continue to be responsible for making sure that they choose appropriate loans for their needs and circumstances.”

“The regulators noted that they will take action against institutions that exhibit predatory lending practices, violate consumer protection laws or fair lending laws, engage in unfair or deceptive acts or practices, or otherwise engage in unsafe or unsound lending practices.”

“The Fed has been criticized by consumer advocacy groups and some lawmakers for not taking action sooner.”

“American Home Mortgage Investment Corp. forecast a second-quarter loss late Thursday because of rising delinquencies on some of its mortgages.”

“The company, which offers fixed-rate and adjustable-rate mortgages and so-called Alt-A loans, also withdrew its full-year guidance and said it obtained an investment from $9 billion hedge fund firm Marathon Asset Management LLC.”

“Charges related to delinquencies on mortgage loans will be ’substantial’ during the second quarter, American Home explained.”

“American Home shares have been hit hard by a jump in mortgage delinquencies, falling 40% so far this year. The company…has specialized in adjustable-rate mortgages and Alt-A loans, which often require less or no documentation of a home buyer’s income. See story on first-quarter results.”

“American Home said late Thursday that credit problems have mainly been caused by its strategy of offering three-month ‘timely payment’ warranties to investors who bought stated-income loans with high loan-to-value ratios from the company.”

“As more borrowers fell behind on payments quickly, American Home has had to buy back those loans from investors.”

The Journal Sentinel. “Allco Credit Union posted a loss of more than $5.2 million in the first quarter of this year and is facing a wave of delinquent loans, a report by regulators shows.”

“Many of the soured loans are related to mortgage loans. Allco board Chairman Eric Hofhine said in a written statement that ‘Allco has not been immune from the effects of subprime lending.’”

“Allco, which has about 6,600 members and assets of $75 million, was listed in the quarterly report by the National Credit Union Administration, or NCUA, as ’significantly undercapitalized.’”

From Business Week. “It’s white-knuckle time on Wall Street as firms try to prevent the subprime mess from spreading. The hedge fund blowup has suddenly thrown the world’s biggest financial institutions into a game of brinkmanship.”

“A shotgun sale of poorly performing securities would provide Wall Street with a true price for valuing the slumping assets. ‘Nobody wants to officially acknowledge the worthless nature of these products,’ says Peter Schiff, president of Euro Pacific Capital.”

“If Bear’s holdings were auctioned off at, say, 60 cents on the dollar and other firms marked down their so-called collateralized debt obligations (CDOs): complex bonds often backed by subprime loans accordingly, losses would spread. Firms would start dumping their CDOs to get what they could for them. Thus would begin a quick, brutal crash.”

“There’s another force bearing down on CDO holders: credit rating agencies such as Moody’s Investors Service and Standard & Poor’s. If the ratings agencies were to downgrade the CDOs, it would force holders to mark down their values accordingly, potentially igniting the same sort of disaster scenario.”

“Standard & Poor’s, Moody’s Investors Service and Fitch Ratings are masking burgeoning losses in the market for subprime mortgage bonds by failing to cut the credit ratings on about $200 billion of securities backed by home loans.”

“Almost 65 percent of the bonds in indexes that track subprime mortgage debt don’t meet the ratings criteria in place when they were sold, according to data compiled by Bloomberg.”

“Downgrades of CDOs ‘could finally force the hand of ratings-sensitive holders,’ Morgan Stanley analysts led by Vishwanath Tirupattur in New York wrote in a reported dated June 28. ‘Our worry is that this selling would be very unbalanced, with no established taker of risk on the other side, even at current market levels.’”

“More than 15 percent of the mortgages in the securities are at least 60 days delinquent and another 8 percent are in foreclosure, according to the bond trustee.”

“Ratings downgrades in CDOs containing asset-backed securities ‘are inevitable and material,’ the Morgan Stanley analysts said in the report. ‘The shoe is still waiting to drop.’”

“A total of 11 percent of the loan collateral for all subprime mortgage bonds had payments at least 90 days late, were in foreclosure or had the underlying property seized, according to a June 1 report by Friedman, Billings, Ramsey Group Inca. In May 2005, that amount was 5.4 percent.”

“CDOs aren’t required to disclose the contents of their holdings to the U.S. Securities and Exchange Commission and most can change them after the bonds are sold.”

“‘A lot of these should be downgraded sooner rather than later,’ said Jeff Given at John Hancock Advisors, who oversees $3.5 billion of mortgage bonds. The ratings companies may be embarrassed to downgrade the bonds, he said. ‘It’s easier to say two years from now that you were wrong on a rating than it is to say you were wrong five months after you rated it.’”

“‘We remain nervous about the end of the week, when many leveraged investors in the CDO markets will have to mark down their positions,’ debt strategists at Barclays Capital in New York said in a June 28 report. ‘The worry is that this will be large enough to trigger margin calls which, in turn, will cause other liquidations and so on.’”

“Some investors say the ratings companies are waiting too long before downgrading the mortgage bonds and the CDOs that contain them. They noted that S&P and Moody’s maintained their investment-grade ranking on Enron Corp. until days before the Houston-based energy trader filed for bankruptcy.”

The Financial Times. “Dealers and investors who trade US subprime mortgage derivatives have rejected a proposed change to the terms of derivatives contracts from a hedge fund group concerned about possible manipulation of their value by investment banks.”

“Tess Weil, partner at law firm Purrington Moody, said: ‘The fear of a lot of participants is that [Paulson’s] approach goes well beyond securities laws protections and would have the effect of chilling the market just when it needs transparency and efficiency.’”

“Michael Waldorf, a senior VP at Paulson, told the Financial Times that manipulation of mortgage derivatives could occur when banks purchase bad loans out of mortgage-backed bonds.”

“‘Mortgage-backed securities are supposed to be passive vehicles, so injecting cash into them in this way is nothing less than fixing the outcome,’ said Mr Waldorf.”

From Realtor Magazine. “Consumers are hearing a lot in the media about the correction in housing, and they’re understandably concerned about whether now is a good time to get into the housing market. To a great extent, we can thank steady media coverage of the real estate market ‘correction’ for unfounded consumer concerns.”

“But there’s no real correction where consumers are concerned. The media aren’t making the distinction between what’s happening to you, fewer home sales, fewer homes coming online, and what’s happening to consumers, more buying opportunities. But you can make that distinction for your customers.”

Newsday reports from New York. “Sales at Pulte Homes’ nine developments on Long Island are brisk, but the national builder’s local office has shifted its focus from land acquisition and approvals to reaping the proceeds of the projects that are ready to build, consultant Don Eversoll said yesterday.”

“Pulte is not alone. Across the Island, residential developers said, land prices are artificially high. and most are waiting for them to drop. ‘Land prices have been way above what the market should be for the last two years at least,’ said long-time developer Ronald Parr. ‘Up until this point, builders could get away with anything and everything. Now, things are much tighter.’”

“But Parr is convinced it will take ‘another year, maybe more’ for landowners to adjust their expectations. ‘This is not the time for a developer to be out there buying,’ Parr said.”

“The rental market is so ‘vastly undersupplied,’ said AvalonBay VP Matthew Whalen, that inflated land prices have merely led to ‘less bidding wars for sites and some of the competition [for sites] slowing down,’ he said.”

“Parr said more than half of Long Island’s residential developers might have trouble remaining profitable as the market continues to adjust.”

“John Giamarino no longer believes in incentives, at least not when it comes to selling his West Gilgo Beach summer house. His offer to make a year’s worth of mortgage payments for the buyer fell on deaf ears last year, even after he was featured in a Newsday story on incentives being offered in the slowing housing market.”

“After taking the four-bedroom property off the market in November, he put it up for sale again last month with a lower price tag, from $645,000 to $599,000, but no incentive.”

“‘If anything’s going to motivate, it’s going to be price,’ said Giamarino of Seaford.”

“The businessman said he got lots of attention about his house, mostly from locals commiserating with him because they can’t sell their homes either.”

The Boston Globe from Massachusetts. “Housing prices north of Boston continue to head south. The slide started a year ago, when Bay State house sales and prices cooled after peaking in 2005. The spring market didn’t produce a thaw this year, with house sales and prices rapidly declining across Essex County for the first five months of this year, according to the Warren Group.”

“‘The numbers don’t lie,’ said Terry Egan, editor in chief of the Warren Group’s real estate publications. ‘The Massachusetts real estate market as a whole is slumping.’”

“A glut of houses for sale, longer selling times, and rising interest rates have combined to put downward pressure on the market. In the January-May period, the median price plunged 32 percent compared with the same period last year in West Newbury, to $448,500, and fell 25.5 percent in Essex, to $384,275, the Warren Group reported.”

“The old shipbuilder’s house hit the market in November with a $719,000 price tag. Todd and Kristen Walker could not even think of bidding, even when the price dropped to $679,000.”

“But in a soft housing market, they had buyer’s clout. After negotiating with the sellers, the Walkers bought the house for $630,000 in March.”

“‘I think we got a deal,’ said Kristen,. ‘We wanted to be in a top school district. We figure it is worth it for us to be house-poor.’”

“‘It’s a challenging time,’ said Kim Sandler, president of the North Shore Association of Realtors. ‘We’ve had a lot inventory, and some of that old inventory is moving…but a lot of that is due to price reductions.’”

“‘The prices couldn’t continue as they had,’ said Pam Cote, an agent in Beverly. ‘They were going up, up, up for so long, things had to start to come down. We’re seeing that now.’”

The Republican from Massachusetts. “The decline in single-family home sales in the Pioneer Valley last month was sharper than the drop in sales statewide.”

“Two groups both showed sales dropping more steeply in Franklin and Hampshire counties than statewide. Terence F. Egan, for The Warren Group, said the steeper decline in the region ‘almost leads me to wonder whether the market correction, the downturn, is just a step behind in Western Massachusetts.’”

“He said, ‘We saw these kinds of numbers for a lot of the eastern Massachusetts regions throughout 2006.’”

“In Franklin County, sales dropped 20.3 percent to 51 homes sold in the month; in Hampshire County, sales dropped 12.8 percent to 116 homes sold, and in Berkshire County, home sales dropped 20.5 percent in May, to 124 homes sold.”

“‘It would almost seem that the correction has radiated outward from the hub, and Western Massachusetts wasn’t immune from the downturn,’ Egan said. ‘It just hit home a little bit later.’”

“If you’re about to do that last-minute scramble to find a house to rent this summer on Cape Cod, there’s no rush.”

“With home sales in decline, owners of Cape Cod vacation properties are more anxious than ever to rent them for income to cover big mortgage payments or home equity loans. There is so much availability that rental agents and homeowners are jockeying to attract latecomers looking for rentals in July and even into August, the most popular month for vacationers.”

“‘There are too many homes on the rental market,’ said Mary Fritz, a rental agent in Orleans. ‘You can get a deal. People are negotiating.’”

“Even now a three-bedroom in Eastham, minutes from Nauset Light Beach, is unrented for five weeks in July and August, at $1,400 a week, the same price as last year.”

“Property owners are wrestling with several phenomena these days. Investors who snatched up vacation homes at record prices during the recent housing boom are now finding their properties are worth less, making it impossible to sell for a profit. That’s left many owners desperate to rent to meet the mortgage.”

The Philadelphia Inquirer from Pennsylvania. “In the past, both the Philadelphia and South Jersey areas have seen strong housing appreciation, house prices climbed 70 to 80 percent over the last five years.”

“This has been a boon to subprime homeowners who fell behind on their loans because they were able to tap into this increased home equity to refinance their loans or sell their homes at a profit. But double-digit house price growth is a thing of the past, and foreclosures in these markets are climbing.”

“We expect almost 17 percent of Philadelphia area borrowers with recent subprime loans to lose their homes through foreclosure. We expect similar results in the Camden area (which includes Burlington, Camden and Gloucester Counties), where yearly housing appreciation has dropped from 16 percent to 6 percent.”

The Record from New Jersey. “As of a week ago, Remi Cos. planned to put 40 of the 128 units on the auction block Sunday to see what the market would bear. However, by the time proceedings began in a Jersey City hotel ballroom, the list had been cut to 16, and without notice, it was cut to nine after about a half-hour of spirited bidding.”

“The apartments that were sold brought in $3.6 million, about two-thirds of what developers said was their last asking price, but a third higher than minimum prices they had set.”

“Some viewed the sudden end to proceedings as a sign that the condo market is hurting. ‘It’s bad P.R.,’ said Sean Munroe of Ridgewood, who predicted that Sunday’s results would push prices down. ‘There’s a glut of condos here.’”

The Times from New Jersey. “Perhaps no one illustrates the meteoric rise and stunning fall of the real estate market better than Zuhdi Karagjozi.”

“In just a few short years, Karagjozi built his company, Kara Homes, up to be one of the state’s largest home builders. At the height of the housing boom, Karagjozi predicted Kara Homes would hit $1billion in revenue by 2006.”

“Instead, 2006 marked the year the housing market fell into decline, taking Kara’s fortunes along with it. The company, which filed for Chapter 11 bankruptcy protection last fall and left dozens of homeowners in limbo, now plans to emerge without its founder, and without the Kara name.”

“And unsecured creditors, including contractors, vendors and some homeowners, will be reimbursed pennies for every dollar owed.”

“The proposal needs the approval of creditors and the bankruptcy court judge. But Kara lawyer David Bruck said if all goes well, the plan could be confirmed by August, meaning Kara would emerge from Chapter 11 within a year of its filing.”

“Bruck said the plan reflected the harsh realities of the housing market, which has been in a steep downturn for more than a year. Even larger, more diversified public home builders have not been immune. PRed Bank- based Hovnanian Enterprises, the sixth-largest U.S. home builder, said earlier this week it did not expect a recovery even next year.”

“‘The reality is, the market fell away,’ Bruck said. ‘This is the best we can do.’”

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The Union reports from California. “In May, the median price for a house or condominium sold in Nevada County dropped slightly more than 5 percent to $460,000, down from $484,500 in May 2006, according to DataQuick. In Nevada County, an older, three-bedroom house that once would have fetched more than $400,000 now sells for well under that bar.”

“With more than three times the number of houses on the market than a year ago, frustrated sellers are reaching out to buyers with new incentives. Some sellers are paying closing costs and offering to buy down interest rates to sell houses that have been on the market for a year or more. Those who fear foreclosure are slashing their prices.”

“Some sellers of high-end properties have dropped prices by as much as $300,000 after watching them stagnate on the market for more than a year, said Marilyn Seolas of RE/MAX Advantage.”

“Chauncey Poston, president of the Nevada County Association of Realtors, talked with The Union this week about the real estate market downturn and its impact on the local economy. Here are some excerpts.”

“Q: What have been the effects of the downturn in the local real estate market? A: We have over 600 approved of- and yet-to-be-built-homes in Grass Valley, and that is largely due to the downturn in the market. They’re not pulling the permits to start because of the conditions out there. On a larger scale, the economy here in Nevada County and Grass Valley is very dependent on building. All the businesses really take a hit.”

“Q: Compare the number of homes being sold locally to the homes on the market. A: A couple years ago, homes didn’t stay on the market very long at all. We had the whole phenomenon of competing prices, where people would actually bid, but this is not occurring now. I think I heard a figure that there are more than 1,500 listings on the market right now. I can remember when there were only 400. Yes, the supply is way up.”

The Signal. “Sales of single-family homes in the Santa Clarita Valley are down sharply from a year agos. Sales in the SCV are down 21 percent this year compared to last year, according to real estate agent Pam Ingram.”

“The Southern Regional Association of Realtors reports inventory in the Santa Clarita Valley remains high, with 2,240 active listings in the month of May. A total of 179 single-family homes closed escrow during May, 23.5 percent down from a year ago.”

“The apparent violation of the law of supply and demand has created a recent increase in business for Debbie Penny, Realtor and broker in Santa Clarita. However, she says, ‘I don’t trust it’ll last. I don’t see this as being long-term.’”

“The bargain hunters are out there for those anxious to sell, said Ingram. ‘Right now, the buyers are looking for deals,’ she said. ‘They’re looking for the best house for the least amount of money, and unfortunately, the sellers are having to reduce their prices to be in the market.’”

The Desert Sun. “More homes sold across the Coachella Valley in May than any month this year, but sales volume still couldn’t keep pace with year-ago levels, a new report shows. May home sales were down 30 percent compared with May 2006, according to DataQuick.”

“The median price for resale condos dropped 5.7 percent to $349,000, while the median price for a resale home rose 4.7 percent to $450,000. Higher-end homes seem to be selling better than less-expensive homes, and those sales will likely be reflected in June closings, said Blair Alexander, with Pacific Union GMAC Real Estate in Palm Springs.”

“Although aggressive buyer incentives such as free pool packages helped push May new-home sales to 199 from 166 in April, sales volume was down 48 percent compared with May 2006, DataQuick reported.”

“New-home sales in the valley peaked in the third quarter of 2004, said Fred Bell, executive director of the Desert Chapter of the Building Industry Association. ‘We’ve actually been trending down every month since then on housing starts,’ said Bell.”

“The valley’s overall home inventory swelled to 8,896 in mid-May, according to the Desert Area MLS, prompting home builders such as Lennar Corp. to experiment with online auctions in Rancho Mirage, La Quinta and Indio.”

“Other builders competing in a crowded field of about 120 new home developments have slashed prices as the pool of potential homeowners face tightened lending requirements amid subprime mortgage woes and increasing default notices and foreclosures.”

“Sluggish new-home sales in the valley continue to put pressure on prices, which declined 5.1 percent in May to a median price of $375,000.”

The Record Searchlight. “Affordable Furniture & Oak in downtown Redding is closing. ‘The furniture business up and down California and Nevada is way down,’ said owner Jerry Daniels. ‘Since I moved here, six manufacturers have closed their doors. It’s just dead — scary dead.’”

“Daniels blamed the housing slowdown and the high cost of doing business in California for the decline in furniture sales.”

“Home sales in Shasta County have been down every month this year compared with the same month in 2006. In May, home sales dropped 13 percent from a year ago. The median sales price for a home in May was $275,000, down from $290,000 in May 2006.”

“‘The economy in California is really off, the housing market didn’t help at all,’ Daniels said. ‘There’s a glut of housing now. Three years ago, people were buying houses and buying furniture because they had money.’”

The Bakersfield Californian. “The latest sign of an ailing real estate market appeared Wednesday, when Richmond, Va.-based LandAmerica Financial Group Inc. announced the planned closure of its three Kern County title offices.”

“‘To manage our company responsibly, particularly in a slowing real estate market, we must continually find ways to streamline and reduce costs,’ the company said in a statement.”

“The local offices are ‘under-performing,’ the statement said.”

The Sacramento Bee. “A Dallas-based auction company says it will sell 175 bank-repossessed houses in Sacramento next month.”

“Banks and mortgage lenders, taking back houses after owners default on loan payments, are increasingly turning to auctions as a fast way to unload properties. Seattle-based lender Washington Mutual Inc., owns many of the homes being auctioned in July, according to descriptions on the auctioneer’s Web site.”

“Last month lenders took back 969 houses in Amador, El Dorado, Nevada, Placer, Sacramento, Sutter, Yolo and Yuba counties, according to Fair Oaks-based Foreclosures.com. About two thirds, 651 houses, were in Sacramento County alone.”

“Many are owners who bought at the height of the housing boom with little money down and fell behind on payments as housing values fell.”

The Contra Costa Times. “More than 20,000 Contra Costa County residents and 7,000 residents in Alameda and Solano counties will be eligible for property tax relief this September, county officials said Wednesday.”

“The majority of homeowners receiving the reduction in property tax in Contra Costa County will be in San Ramon, Antioch, Concord and Brentwood, said County Assessor Gus Kramer. The number of reductions is 10 times more than last year’s approximately 2,000 homeowners.”

“‘It was a little more than we thought it would be,’ Kramer said. ‘We found the average drop to be about 8 percent,’ he said.”

“‘Most of these people were those who recently purchased homes from the summer of 2005 and since,’ he said. ‘I’d say 90 percent.’”

“Russ Hall, chief deputy assessor for Alameda County, said that after the county reviewed around 35,000 properties, some 6,135 parcels will be given deductions for the coming fiscal year.”

“That number was higher than the 20,000 Hall estimated in May because Hall said they looked at all properties that changed ownership between June 2005 and December 31, 2006.”

“In Solano County, the county assessor and recorder reduced property taxes on close to 1,000 properties, but almost a third came from one subdivision, said Assistant Assessor and Recorder Lance Houser.”

“‘We had 300 properties that we reduced,’ he said. ‘The resale prices gave us the indication it was the hot spot (of the county).’”

“That subdivision, Trilogy at Rio Vista, provided the county easy appraisals when the developer dropped its prices to new home buyers.”

“Houser said the county assessor is already considering if reduction in property taxes will be needed in next year’s taxes. ‘Right now nobody’s sure what’s going on or if the market is going to continue to decline,’ he said.”

“Although Houser said the numbers weren’t available for all areas of Solano County, he ranked Rio Vista as having the highest number of reduced property taxes, followed by Vallejo and Fairfield.”

“Kramer said that homeowners who can expect a smaller property tax bill will be receiving a card in the mail from the assessor’s office by this weekend. But he downplayed any ideas that homeowners would be happy to see the card.”

“‘They don’t mind saving money, but most would rather see their home rise in value than fall,’ he said.”

The Jeffersonian reports from Maryland. “The national increase in mortgage defaults during the last six months has not spared the northeast area of Baltimore County. During the 2002-2006 boom years, as house values kept escalating, home owners could easily refinance, since rising appraisals gave their properties more equity than they had paid in.”

“But in mid-2006, the merry-go-round stopped whirling. ‘Many clients assumed the boom would keep going. But we (professionals) know from history that they never do. They always end,’ said Sherrie Brandquist, a housing counselor.”

“Some home appraisals are going down, and those homeowners find themselves with a house worth less than the amount they owe on the mortgage.”

“Brandquist said the boom times also encouraged a few lenders to make loans that would not pass muster today, as interest rates have risen and lenders clamp down on poorer risks. ‘It was greed at its finest,’ she said.”

“As an example, Brandquist mentioned a person earning $25,000 who was granted an adjustable mortgage for $300,000.”

“Joseph Banick, veteran agent with RE/MAX Elite Realty, said he has noted more clients telling him they could no longer afford their homes and needed to sell. Banick said they were often young couples under 35 living beyond their means and discovering that the ‘well has run dry.’”

“Banick joined the housing counselor in saying the current situation will get worse before it gets better. ‘A lot of people are going to be humbled in the next few years,’ Banick said.”

“The reason? Many adjustable-rate mortgages taken out by home buyers during the boom have passed their first two years at a fixed rate and stand to rise dramatically, often $500 or more per month, Banick said.”

“‘People assumed they could re-finance at a lower fixed rate, but it’s not there anymore,’ said Kevin Goodnight, a salesman who specializes in foreclosed properties.”

“Goodnight noted a statewide total of more than 5,000 bankruptcies awaiting court action. Most of those people will also lose their homes, he said, because filing for bankruptcy only stays foreclosure action for 30 days. Under new bankruptcy laws passed a couple years ago, a person’s house is no longer protected.”

The Frederick News Post from Maryland. “Tougher standards have made subprime loans more difficult to qualify for, and that means they will have little affect on reducing the number of foreclosures in Frederick County. Foreclosures totaled 809 in Frederick County for the 12-month period ending in May.”

“‘It’s been years since I’ve seen those numbers,’ said Michael Kurtianyk, director of residential sales for Tyler-Donegan Real Estate in Urbana. ‘The high numbers are a function of people buying homes above their means, and lenders giving money above their means. Now it’s time to pay the piper.’”

“Foreclosures in the county are at their highest level in 40 years, said Bill Poffenbarger, CEO of Millennium Financial Group in Middletown. ‘The government made it easy to buy houses because the rates were so low over the last six years,’ Poffenbarger said. ‘People were scratching to get into a house.’”

“The key factor during any loan application is when a lender seeks the applicant’s credit score, which ranges from 350, the lowest, to a perfect score of 850.”

“A score of 620 used to qualify a borrower for a subprime loan, Kurtianyk said, but in the wake of foreclosures nationwide, the bottom score has shifted to 640.”

“Frederick County (home) sales locally were up by 34 homes to 264, according to the Maryland Association of Realtors. However, the average price was down. The average price for a home sold in Frederick County in May was $349,718, down from $354,740 in May 2006.”

“‘The market is stabilizing,’ said Terry Fox, president of the Frederick County Association of Realtors.”

“‘We’re seeing a lot of people looking at the lower end of the market, below $500,000,’ said Stephen Mackintosh of Mackintosh Inc. Realtors. ‘At the upper end there is still a glut of inventory.’”

“That inventory is nearly 2,300 homes for sale in Frederick County, up from about 1,800 for May 2006.”

“‘Savvy home buyers are out there looking,’ Mackintosh said. ‘There is a great window of opportunity for negotiation. Sellers are getting realistic with pricing.’”

“The housing market stalled last year after a five-year run of soaring prices and buyers, many of them investors, lined up to acquire property. Higher mortgage rates, a slowdown in sales and the growing problem of foreclosures put the brakes on the market.”

“In neighboring Montgomery County, home sales fell by more than 330 to 1,001 from May 2006 to May 2007. Montgomery has nearly 6,000 homes on the market.”

The Virginia Pilot. “It may finally be a go for Granby Tower. Contractors have been given the green light to start building the 34-story, $180.5 million complex of luxury condominiums, offices and shops, developer Buddy Gadams said Wednesday.”

“The oft-delayed project will be the city’s tallest building, at 490 feet. The only work to date on the project, announced in July 2004, has been the driving of test piles and relocating underground utility lines.”

“Gadams referred questions about when work would begin to Turner executive Christian E. Jahrling, who did not return calls Wednesday.”

“The project has been beset by delays. Most recently, a May 9 groundbreaking came and went with no construction activity. Gadams attributed that delay to finalizing the building’s $145 million loan.” “A $22 million city grant will also help pay for the project, along with Marathon Development’s own funds.”

“When asked Wednesday if the financing was in place for the project, Gadams said he wouldn’t have told general contractor Turner Construction Co. to start work if he didn’t have the money. John Plunkett, a Stonington Capital managing partner, said the presence of the notice-to-proceed e-mail made it ‘probably safe to assume’ that the money deal was done.”

“On May 31, Gadams said about half the project’s 302 residential units, ranging in price from $270,000 to more than $1 million, had been sold. Now the project is getting off the ground amid a national housing slump.”

Some housing bubble news from Wall Street and Washington. Bloomberg, “KB Home reported an unexpected second- quarter loss as sales fell to the lowest in three years and its chief executive officer said a glut of homes is hindering any chance for a rebound in the U.S. housing market. The company posted a cancellation rate of 34 percent. The average selling price slid 8 percent to $271,600.”

The Street.com. “‘Our second quarter results reflect the current oversupply of new and resale housing inventory, a difficult situation compounded by aggressive competition and continued weak demand,’ CEO Jeffrey Mezger said in a statement. ‘Housing affordability challenges and tighter credit conditions in the subprime and near-prime mortgage market have also exacerbated current market dynamics, keeping prospective buyers out of the market, slowing the absorption of excess supply and further delaying a housing market recovery.’”

The Associated Press. “KB reported a loss of $148.7 million for the period ended May 31. The latest period included a pretax charge of $308.2 million to reflect the decreased value of unsold homes on its books, and walking away from deposits on land it no longer wants to buy.”

“‘Given current market conditions, we are not able to provide an earnings estimate for the year,’ Mezger said.”

“Housing revenue plunged 41 percent to $1.3 billion, as unit deliveries slipped 36 percent to 4,776.”

From MarketWatch. “‘Pricing pressure intensified in many of our markets during the second quarter, compressing margins and requiring inventory-impairment charges in certain of our communities,’ Mezger said.”

“KB Home said it was using more price concessions and sales incentives ‘to meet competition.’ Meanwhile, the land charges were driven by ‘marked price reductions in housing markets across the country during the spring selling season.’”

“‘We interpret management’s tone as more cautious likely due to worsening trends toward the end of the quarter,’ wrote Banc of America Securities analyst Daniel Oppenheim. ‘However, we also think the company was aggressive in working to generate orders and likely found that, with the buyer fear at this point, lower prices do not always lead to increased traffic or sales,’ he added.”

“Separately, home builder Beazer Homes USA Inc. said in a filing late Wednesday that Michael Rand has been terminated as chief financial officer, ‘due to violations of the company’s ethics policy stemming from attempts to destroy documents.’”

“Analyst Stephen Kim said Beazer also stands out for its unwillingness to abandon land options.”

“‘We suspect that this unwillingness to walk from land options is due to the very large deposits the company used to hold those options,’ Kim wrote. ‘Thus, we suspect that Beazer may experience belated write-offs and/or a more sluggish margin recovery due to higher cost basis land than its peers.’”

“With many predicting the battered housing market will get worse before it gets better, home builders’ cash flows stand to take a further hit due to rising home-inventory levels and investments in risky land assets, according to analysts at Deutsche Bank.”

“‘Based on our detailed analysis of inventory trends, we do not think investors should be overly optimistic regarding the home builders’ ability to generate cash flow in the next 12 to 18 months,’ analysts wrote in a lengthy report this week.”

“By most accounts, the spring selling season has been a bust and hopes for a housing recovery are firmly on hold.”

“‘With housing prices declining, inventory rising and adjustable-rate mortgages resetting; we believe the probability the situation worsens is high,’ says Edward Maraccini, portfolio manager at Johnson Asset Management.”

The Wall Street Journal. “Caliber Global Investment Ltd., said it will return cash to shareholders after suffering losses from securities backed by U.S. subprime mortgages.”

“The company, managed by London-based hedge fund operator Cambridge Place Investment Management LLP, last month took a $15.1 million impairment charge and canceled its dividend after poor performance on securities backed by U.S. subprime loans.”

From Reuters. “Impac Mortgage Holdings Inc. said on Tuesday that its board has elected not to declare a second quarter dividend on its common shares.”

“‘In light of increased delinquencies, REO and loan losses, we believe it is prudent to aggressively liquidate REOs in this market,’ said CEO Joseph R. Tomkinson.”

“Carlyle Group, the private-equity firm that oversees $59 billion, cut the size of the initial public offering of a fund that invests in bonds backed by mortgages as damage from the slump in the U.S. real-estate market spreads.”

“‘The amount of headwinds in the market right now’ led Carlyle to reduce the offering, CEO John Stomber said.”

“Capital One Financial Corp., the largest independent U.S. credit card issuer, is cutting 2,000 jobs, or about 6 percent of its workforce, amid mounting loan losses and a slowdown in the mortgage industry.”

“Capital One will take a pretax charge of $200 million this year, including $90 million in the second quarter, to pay severance and other expenses, the company said in a statement today.”

“Capital One faced pressure to cut costs as new foreclosures set a record in the first quarter after it acquired GreenPoint Mortgage Funding Inc. through its $13.6 billion purchase of North Fork Bank in December.”

“The subprime mortgage problem will worsen over the next year and the rate of loan delinquencies could rise further, an influential fund manager specializing in mortgage backed securities said on Wednesday.”

“‘The subprime area is a total unmitigaged disaster and it’s going to get worse,’ (said) Jeffrey Gundlach, chief investment officer at the Trust Company of the West, who oversees about $60 billion in assets.”

“Moody’s Investors Service on Wednesday said it expects to downgrade more subprime-related collateralized debt obligations this year and next than it did in 2006.”

“‘Given what’s been said about this market, (and) as we see expectations of cumulative losses increasing, yes, I do expect to see downgrades,’ Yuri Yoshizawa, group managing director at Moody’s, told Reuters.”

The Financial Times. “The glut of credit in global financial markets, combined with excessive leverage, could all ‘end in tears’ when a big transaction finally goes wrong, Stephen Green, chairman of HSBC, warned on Wednesday.”

“His comments highlighted the widespread unease among banking executives after five years of benign credit conditions and the growing amounts of leverage in the financial system.”

“This has been particularly notable in the collapse of the subprime mortgage market in the US, which this year triggered HSBC’s first profit warning.”

“Mr Green said he was also concerned about the difficulty of bailing out institutions affected by a blow-up because risk was now so widely spread throughout the financial system.”

“He said: ‘When your risk has been parcelled up hundreds or thousands of times, it’s much more difficult to orchestrate a reconstruction of a difficult situation and, therefore, the write-off then risks being worse than it needs to be.’”

The Telegraph. “The United States faces a severe credit crunch as mounting losses on risky forms of debt catch up with the banks and force them to curb lending and call in existing loans, according to a report by Lombard Street Research.”

“The group said the fast-moving crisis at two Bear Stearns hedge funds had exposed the underlying rot in the US sub-prime mortgage market, and the vast nexus of collateralised debt obligations known as CDOs.”

“‘Excess liquidity in the global system will be slashed,’ it said. ‘Banks’ capital is about to be decimated, which will require calling in a swathe of loans. This is going to aggravate the US hard landing.’”

“Kia Motors Corp., South Korea’s second-largest automaker, canceled plans for a $500 million bond sale this week, joining at least seven companies abandoning borrowing as investors cut demand for riskier assets.”

“At least eight companies…pulled more than $3 billion of debt sales amid concern that losses from bonds backed by U.S. subprime mortgages will spread to other markets. Caliber Global Investment Ltd., a $908 million hedge fund, said today it will close after losses.”

“‘This may mark a tipping point in the credit cycle,’ said Robert Appleby, who helps manage $2 billion at ADM Capital in Hong Kong. ‘If we see a shakeout, it will be a healthy one because it will prevent deals from being priced incorrectly.’”

“The perceived risk of owning U.S. corporate bonds rose for the fourth day this week, according to credit-default swap traders who bet on creditworthiness. Contracts based on $10 million of debt included in the CDX North America Crossover Index increased $3,000 to $188,000 today, close to a 10-month high of $192,000, according to Deutsche Bank AG.”

“‘For so long, investors have been making excuses to buy,’ said Appleby at ADM. ‘Now they are looking for reasons not to buy. Psychology does change on a dime.’”