The Housing Bubble

The San Francisco Chronicle reports from California. “Mortgage woes have moved upstream, landing even in tony neighborhoods. For instance, a multimillion-dollar deal in Larkspur went belly-up last week when the lender yanked the financing at the last minute. ‘The loan was approved and locked in. People were ordering moving trucks, everyone was feeling euphoric,’ said Bill Hogan, a Realtor in Greenbrae.”

“On Thursday, the couple buying the house learned that their lender was rescinding their loan because they were making only a 10 percent down payment. ‘This was not a subprime loan; this was fully documented, people with outstanding credit who own a $5 million home now and didn’t need to sell it to buy this one,’ Hogan said.”

“The buyers could have gotten a mortgage at a substantially higher rate, just under 8 percent, Hogan said, but ‘they crunched the numbers and said, ‘Hell, no, maybe this is a sign for us to get out.’”

“The buyers walked away from the deal, forfeiting their $73,000 deposit. The home is back on the market for $2.2 million, its original asking price.”

The Sacramento Bee. “Remember the old days of down payments and fixed-rate loans? They’re back. Troubled times in the nation’s mortgage business are driving a back-to-basics movement for aspiring Sacramento-area homebuyers, say mortgage lenders, real estate agents and home builders.”

“‘I get 50 notices a day (from sources of mortgage funds) saying, ‘We changed this. That program is no longer available. This has restrictions,’ said Jon Dobbel, Elk Grove branch manager for Gold River-based Summit Funding.”

“Sacramento buyer Amy Chan recently locked in a loan with no down payment to buy a new house in Lincoln. After she signed a contract to buy the house from Pulte Homes, the lender backed out, says grandson Richlin Chan. That set the stage for a dispute between the builder and the would-be buyer about Chan’s deposit.”

“Richlin Chan says Pulte kept $5,000 of a $10,000 deposit because Amy Chan wouldn’t put 5 percent down to get the loan and complete the sale.”

“‘Wall Street created all this,’ said Vitek’s Kaempfer, a California Association of Mortgage Brokers board member. ‘Now they’re eating it. Now somebody on Wall Street will get creative and come up with something new for all this.’”

From KCRA.com. “A new report says Stockton’s foreclosure rate is the worst in the country, and Sacramento is not far behind. Homebuilding in the Central Valley skyrocketed in 2000 and home prices doubled over a period of four years, thanks in large part to Bay Area commuters.”

“‘It was a cheaper source of housing, the investors, there was a lot of greed in the market, everybody got very greedy, and everybody wanted to make a quick buck,’ said Matt Davies of Partners Real Estate.”

“One foreclosed property in north Stockton has been on the market for 208 days, it’s dropped in price from $304,000 to $233,000, a $71,000 price difference.”

The Bakersfield Californian. “Bakersfield homeowners are falling behind on their mortgage payments at a rate outpacing borrowers in nearly every other city in the nation, according to a new report released Tuesday.”

“RealtyTrac’s report came as little surprise to Watson Realty ERA agent Jesse Atondo, who says 10 to 15 local families come to him with mortgage problems every week. ‘I’m not only a Realtor,’ Atondo said, ‘I’m a counselor now. These people come crying.’”

“Lenders and real estate agents took advantage of uneducated consumers, he said. ‘There were a lot of Realtors that were encouraging — especially Latino clients — to buy houses they couldn’t afford,’ Atondo said. ‘They’ve left a mess.’”

The LA Times. “With a global credit crunch starting to curtail loans to even the most creditworthy borrowers and the specter of inflation pumping up prices of consumer goods, local real estate watchers predict that even pricey areas could soon start to see prices tumble.”

“The thought of the housing market weakening further overwhelms sellers such as Gretchen Rolfe, a Mission Viejo psychologist. She says she has little choice but to sell the home she has owned for three years after her monthly mortgage payment jumped about 25% last spring and her refinancing options dried up.”

“Now she has set a price range, $725,000 to $775,000, to let any potential buyer know she will be a willing negotiator. With the higher cost of borrowing, she figures, a prospective buyer who had been considering homes in the $800,000 to $900,000 price range might now select her house instead because they can afford less.”

“‘Aside from running outside naked, I don’t know what to do to reach the people who might want to find this house,’ she said.”

“Jeffrey Lane is prepared to spend upward of $1 million on a condo in West Los Angeles, but he is in no rush. ‘I’m waiting to see if prices come down,’ said Lane.”

“Such behavior has Michael Carney, director of Cal Poly Pomona’s Real Estate Research Council, predicting that Southern California home values are likely to fall 5% a year through 2009 before demand starts picking up, ‘assuming that fear doesn’t overtake everything,’ he said.”

“That’s a tall order for Rolfe, who foresees the evaporation of what little equity she has in her home the longer she stays. ‘I’m pulling more out of my pocket every month I’m in the market,’ she said. ‘I can’t wait two more years.’”

The Daily Pilot. “According to statistics released Tuesday, Corona del Mar saw its number of transactions leap from eight to 18 between July 2006 and last month, while Newport Coast plunged from 12 to five. Median sale prices fell in most areas.”

“Joseph Miner, the president of All Cities Realty in Costa Mesa, said most of the brokers he knew were struggling to complete sales. ‘I don’t know what the numbers show, but the market itself is very slow,’ he said. ‘Basically, if you talk to any real estate agents or brokers across the coast, it’s slow. They’ll tell you the phones don’t ring.’”

The Orange County Register. “Last month, Orange County home sales fell to their lowest level in 11 ½ years as lack of easy credit reduced an already shrunken pool of potential home buyers. And sales in August could drop even more.”

“‘None of us anticipated the total retreat of the mortgage market and the impact it’s had on the housing market,’ said Patrick Veling, president of Real Data Strategies Inc. of Brea. ‘No single analyst would have forecast this.’”

“It also was the lowest number of sales for a July in the 20 years that DataQuick has been gathering real estate statistics, and the 12th slowest month in two decades. July typically is the fourth busiest month of the year.”

“Prices appeared to be buoyed by stronger sales in pricier neighborhoods where buyers are less dependent on risky subprime loans or other exotic mortgage products. For example, the 24 Orange County ZIP codes where prices rose last month had median prices well above the 59 ZIP codes where prices fell, DataQuick figures show.”

“In Placentia, for example, prices are off by 5 to 8 percent from last year, said Don Palmer, an agent in that city. ‘In Placentia, like everyone else, we have a lot of listings. The ones that are selling … are the ones in the best condition (at) the higher end,’ Palmer said.”

“Each time an escrow is opened, ‘we hold our collective breath – to make sure that the buyer can get lender approval and that the lender can perform,’ said Debi Peters, a certified senior escrow officer in Laguna Niguel.”

“‘On the transactions that I have on my desk, I’ve had people say to me, ‘I thought we had a loan program that would work for me,’ only to find out that it’s suddenly not available anymore,’ she said.”

The Daily Bulletin. “Real estate agents in the Inland Empire have more to be nervous about than falling prices and sales caused by supply and demand.”

“In a region where home foreclosures keep climbing, banks are steering more toward immediately putting foreclosures up for auction - cutting out the middle-man reseller and dropping neighborhood prices faster than expected.”

“‘(Auctioning) is a way for them to liquidate the properties quickly, and it does drive the prices down,’ said Pete Gliniak, a bankruptcy and pre-foreclosure expert for, (who) works with homeowners across the Inland Empire. ‘The banks are realizing that the market is saturated.’”

“The Dataquick report noted that ‘pockets’ of foreclosures are emerging in the Inland Empire area, and foreclosure resales accounted for 8.3 percent of July’s new and existing home sales. This number is up from 7.7 percent in June.”

“Auction prices for a home can start anywhere from 35 percent to 50 percent of the value of that house on the active-selling market, Gliniak said.”

“Real estate agents know this, but some are reluctant to acknowledge that home prices will most likely keep dropping as banks and lenders take foreclosures straight to the auction house, said Tim Adams, an agent, a bonded auctioneer and a member of the Inland Valley Association of Realtors.”

“‘There are still a chunk of Realtors in the denial process,’ he said. ‘As agents, we want to do anything to maintain values and hold strong. The sad truth is that at some point, the banks will out-maneuver the (foreclosure) sellers if the sellers aren’t moving fast enough with selling.’”

“‘As the market gets flooded with repos, the banks have to say, ‘OK, we’re getting too much (liability) on the books here.’ Adams said. ‘With the amount of foreclosures that are mounting, it’s going to present a huge opportunity to investors.’”

“He said the next year will present an interesting scenario for area real estate agents. Balancing opportunity with challenges will be part of that.”

“‘Yes, all of us as Realtors want to see the highest possible value for the properties, but there are circumstances beyond our control that are driving the market into a direction that we don’t like to see,’ Adams said.”

The Daily Press. “The Victor Valley residential market hit a new low in July as sales of existing single-family homes slumped 51.6 percent compared to the same time last year, according to market research by Larry Trombley.”

“The average price plunged 10.7 percent over the same period, said Trombley, a Realtor with Century 21 Rose Real Estate in Hesperia.”

“Freighted with dead ballast, the residential market currently has a huge inventory of unsold homes, Trombley observed. Of the 4,199 existing houses for sale in the Victor Valley in July, only 196 closed escrow, or 4.7 percent.”

“By comparison, more than 50 percent of existing homes on the market were sold in July 2005.”

“Builders in the High Desert are averaging just under two sales a month for each development community, which is less than half the rate of market absorption during this time last year, said Mike Dwight, VP of Frontier Homes in Hesperia.”

“‘It’s not as much fun as it used to be,’ Dwight dead-panned. ‘The price of new homes climbed beyond the reach of the working-class buyer, and we have a substantial number of folks waiting for prices to come down further,’ he said.”

“‘A lot of agents are doing real estate part time because the market is slow,’ said Dana Gordon, one of the owners of Golden Real Estate in Hesperia, who recently went to work as a retail sales associate while he continues to run his company.”

“‘We could probably continue to get by, but I wanted to have some steady income,’ he said.”

The Chicago Tribune reports from Illinois. “The residential real estate industry is bracing for more complications and the potential for collapsed sales agreements because of global credit crunch fears. Last week, North Side broker Beth Ryan said a seller she represents accepted $25,000 less for his $500,000 house after another offer fell through when the would-be buyer was shut out of a mortgage.”

“‘Their credit score was 580 and, as of last Tuesday, their broker said they could have gotten a loan approved for 3 percent down,’ Ryan said. ‘But then standards tightened and he said no one would touch that deal.’”

“‘If you have [a preapproval] from last week, you can rip that up’ because conditions are changing daily, said mortgage broker Kit Mueller.”

“Chase, Chicago’s biggest bank by deposit market share, said last month it has seen a rise in delinquencies in home-equity loans.”

“‘We tightened up underwriting standards,’ Chief Financial Officer Michael Cavanagh said in a conference call. That includes raising minimum FICO score requirements, taking a closer look at loans that allow for less-documented finances, and lowering loan-to-value maximums.”

“Barton Pitts, president of Professional Mortgage Partners in Downers Grove, said the bankruptcy announcement of American Home Mortgage Investment Corp. this month changed the picture for jumbo loan borrowers.”

“When American Home went under, Wells Fargo said it was raising its rates dramatically on jumbo-fixed loans, by about a point and a half, from say 6 1/2 percent to 8 percent.”

“‘That shook up the jumbo markets. Everybody was saying, ‘What does Wells Fargo know that we don’t know?’ Pitts said. ‘The other traditional lenders said, ‘We’re out of here.’”

The Daily Herald from Illinois. “The number of homes and condominiums sold during the second quarter continued to slide in the Chicago region, according to a report released Tuesday by the Illinois Association of Realtors.”

“In the Chicago metro region, total home sales were down 19 percent to 29,061 compared to 35,889 last year. The toughest hit was Lake and McHenry counties, which had 25 percent drops this year compared to about 7 percent drops in the second quarter last year.”

“The crisis in the subprime mortgage industry has forced many lenders to strengthen requirements on who gets mortgages, said Marve Stockert, executive director of the Illinois Association of Mortgage Brokers in Lombard.”

“‘Those people with questionable credit scores are now having a tougher time getting mortgages,’ Stockert said. ‘Their options are quite limited now. Some lenders are looking for higher scores and other requirements. So the longer it’s a buyer’s market, the longer those houses will sit there.’”

From Quad Cites Online in Illinois. “Across the country, lenders large and small are pulling in the welcome mats for those borrowers with less than perfect credit. ‘What I see happening out there is mortgage lending was loosened a lot,’ said Kristal Schaefer, a mortgage loan officer at Quad City Bank and Trust Company. ‘That made it easier for people with credit issues. The sub prime industry came in and said, ‘We’ll take those loans. Not a problem.’”

“‘It’s bad,’ Ms. Schaefer said. ‘I’ve had people come to my desk, and they break down and cry. They’re frustrated. They were either given bad advice from a previous lender or bit off too much.’”

“The new figures from the National Association of Realtors underscored the severity of the current housing slump, the worst downturn in 16 years.”

“The median price in the Davenport-Moline-Rock Island statistical area was down 11.3% from the second quarter of 2006 to the second quarter of 2007, according to the report. The spring 2007 median price was $103,000, versus 116,500 in spring 2006.”

“The median home price for Davenport-Moline-Rock Island was $107,800 in 2004; $117,900 in 2005; and $119,700 in 2006.”

The Journal Sentinel from Wisconsin. “Wisconsin’s foreclosure miseries deepened in July, new figures show. Creditors brought 1,662 new court actions against defaulting homeowners last month - 38% more than a year earlier, ForeclosuresWI.com reported Tuesday.”

“That brings this year’s toll of families facing loss of their homes to 10,891 - 25% more than the first seven months of last year. ‘The foreclosure business is booming,’ company President Robert Jansen said.”

“Wisconsin’s problems echo the nation’s, as aggressive lending practices during the 2001-’05 housing boom backfire. People are trapped by increases in adjustable-rate mortgages, tougher standards in the humbled mortgage industry and a dearth of buyers in an inventory-glutted housing market, Jansen said.”

The Capital Times from Wisconsin. “Homeowners with for sale signs in their front yards may be starting to get nervous as weeks go by without a sale, but many local real estate experts maintain the local market isn’t as bad as it’s made out to be.”

“Agape Hammond wishes the balance would tip a bit more in her favor. She and her husband put their home on Madison’s for-sale-by-owner Web site in April. Hammond said she realizes it’s not a good time to sell, but they had no choice. The couple and their baby are preparing to move into a bigger house owned by family members.”

“‘There are so many reports out there that say we are in the biggest slump since the 1950s. No, I don’t think it’s the best time,’ Hammond said.”

“‘It seems like people are really out there looking. There are just as many people interested, maybe, in buying, but they are looking a lot longer, because they are so hesitant to buy because of the market being iffy the way it is,’ she said.”

“They’ve already reduced the price by $5,000 to $214,900. She said they get a lot of people coming by to look, but she gets the sense that they are also looking at 20 other houses and in the end may not buy at all.”

“‘People are being really picky right now,’ she said. ‘There used to be a time when people looked at buying a house as a really good investment and a stepping stone to the next level, and now they are kind of looking at it as this is where I have to stay for the next 10 years.’”

“The number of properties offered for sale now in Dane County are considerably more than they were in 2005. In June of 2005, there were 3,000 active listings that hadn’t sold. In June 2007, there were 5,400.”

“Robert Verhelst’s 2,100-square-foot house has three bedrooms, two bathrooms, and he and his wife, Krista, are asking $239,000. They have done well with open houses and have had two offers, both below what they were looking for.”

“‘I think people are thinking, since there are so many houses on the market right now, that houses will go for lower than the value of the house,’ Robert Verhelst said.”

“Sheridan Glen, who manages First Weber’s Capitol office, is also seeing buyers driving for low prices. It used to be, particularly on new construction, that the price was the price and that was it, Glen said.”

“Now, virtually everybody who has new condos for sale downtown is having to be flexible on price and be willing to negotiate…or just simply reduce the price. ‘Those things are all on the table now and they weren ‘t a year and a half ago,’ he said.”

“In the current marketplace, anyone who has owned a condo downtown for less than three years is unlikely to see it appreciate above what the purchase price was three years ago, Glen said, noting that there is a good chance that they won’t break even after paying real estate commissions. ‘I’m telling my clients that if you don’t have to sell, don ‘t sell.’”

The Star Tribune from Minnesota. “In Minnesota, spillover from Wall Street’s difficulties is likely to be compounded by recent changes in state law aimed at protecting consumers against unscrupulous lenders and expensive, exotic mortgages. While those changes, which went into effect Aug. 1.”

“‘We’re in the eye of the storm,’ said mortgage banker Ronny Loew, who thinks the situation could get worse before it gets better. ‘Underwriting guidelines are changing fast and furious.’”

“Deb Greene, president of the Minneapolis Area Association of Realtors, is optimistic that the mortgage market troubles aren’t deep enough to affect the broader housing market. ‘We’re in our recovery,’ Greene said. ‘It’s a U-shaped recovery and I don’t think we’ve totally hit bottom yet, but we are on our way up.’”

From Minnesota Public Radio. “Joe and Pam Sutton have lived on this hobby ranch in rural Hubbard County for seven years. They built the home themselves. For a while, times were good for the Suttons. Joe had plenty of work as a self-employed construction contractor. But Joe says the housing market took a dive a few years ago.”

“The couple put their house up for sale in 2004, but even at a drastically-reduced price, they couldn’t find a buyer. Joe says things came to a head about a year ago.”

“The bank foreclosed on the house this summer; the Suttons have to be out in six months. Pam says their credit will be ruined for awhile and they’ll probably have to rent until they get back on their feet.”

“Experts say the Sutton’s story is being repeated across the state at an alarming rate. The new study from the Greater Minnesota Housing Fund shows there were more than 11,000 foreclosures statewide last year, nearly double what was previously reported by a national study.”

“‘The part that is of major concern is that we see a trend that is increasing fairly dramatically. And we don’t really know right now what the future holds if you go out a year or two from now,’ says Tim Flathers, with the Headwaters Regional Development Commission in Bemidji. ‘Are we just at the tip of the iceberg? I’m not sure. There could be a lot more people out there that are in a precarious situation right now.’”

The Shakopee Valley News from Minnesota. “For the last two years, home sales and prices have been in relative decline for the Twin Cities housing market. Like 24 of the previous 25 months, newly signed purchase agreements (pending sales) for July were below the number signed in July of the previous year—confirming that the market is still experiencing a decline in buyer activity.”

“‘Make no mistake, our market is still in decline and the correction must hit bottom and rebuild before we see any signs of bouncing back,’ said Deb Greene, president of MAAR.”

“‘Sellers need to understand that they aren’t just competing with the home for sale down the street,’ said Greene. ‘With almost nine houses on the market for every buyer, the competition is fierce. Sellers should carefully plan how to make their property and asking price competitive.’”

The Pioneer Press from Minnesota. “Summer vacations and weekend getaways up north didn’t help sluggish Twin Cities home sales last month. Closed sales fell 7 percent in July from the same period last year.”

“Inventory of existing homes for sale continues to be at a record high in the metro area, with nearly 11 percent more houses for sale, or 34,722 overall. In this buyers’ market, there are 8.57 houses on the market per buyer currently versus 6.65 last year and 3.68 in 2005, according to the Minneapolis Area Association of Realtors.”

“Meanwhile, the new construction market remains in a bust. This week, the Builders Association of the Twin Cities reported 440 building permits issued in July, a five-year low.”

“As for sellers, agent Brad Palecek divides his 25 listings into two camps. In one are sellers so motivated that they’ll check out competition, do repairs and drop their prices as needed. In the other are sellers willing to keep their houses on the market for months rather than changing strategy. Now he’s getting choosier about houses he lists.”

“‘The burden is really falling into the sellers’ laps to make sure their houses are priced competitively, that they can show their home competitively, because this is not the market for unrealistic sellers,’ Palecek said.”

Some housing bubble news from Wall Street and Washington. Associated Press, “Sales of existing homes fell in 41 states during the April-June quarter while home prices were down in one-third of the metropolitan areas surveyed, a real estate trade group reported Wednesday. The new figures from the National Association of Realtors underscored the severity of the current housing slump, the worst downturn in 16 years.”

“The states suffering the biggest drop in sales in the second quarter, compared to the same period a year ago, were Florida, down 41.3 percent, and Nevada, down 37.5 percent. Other states with big declines were Arizona, down 23.4 percent; Tennessee, down 21.5 percent; Maryland, down 21.1 percent, and California, down 19.8 percent.”

“‘Recent mortgage disruptions will hold back sales temporarily, but the fundamental momentum clearly suggests stabilizing price trends in many local markets,’ said Lawrence Yun, senior economist for the Realtors.”

“Shares of Dominion Homes Inc., which sells homes and offers mortgage financing services, dropped to a new year low Wednesday after the company reported a wider second-quarter loss. Revenue, meanwhile, fell 49 percent from the second quarter of 2006. The company said the declining revenue was mainly due to fewer home deliveries and lower average delivery prices.”

“‘While our results are disappointing, they are not surprising given the sustained national housing slump,’ said CEO Douglas G. Borror. ‘Our 2007 planning anticipated that the housing downturn in our markets was reaching its final stages. We now see no sign of recovery before mid-2008,’ he added.”

“Condominium builder WCI Communities Inc. on Tuesday raised the amount of the impairment charges it expects to record in the second quarter. WCI also postponed its second-quarter earnings release, scheduled for Thursday, to Aug. 22.”

“‘The later reporting date will allow WCI to complete its review of real estate inventories and other assets for possible impairment charges,’ the company said in a statement.”

From Reuters. “Countrywide Financial Corp shares fell on Wednesday after the largest U.S. mortgage lender was downgraded to by a Merrill Lynch & Co. analyst, who said bankruptcy may be possible if liquidity worsens.”

“‘If enough financial pressure is placed on Countrywide, or if the market loses confidence in its ability to function properly, then the model can break, leading to an effective insolvency,’ wrote analyst Kenneth Bruce, according to a person who has seen the report. ‘If liquidations occur in a weak market, then it is possible for Countrywide to go bankrupt.’”

From MarketWatch. “Real estate investment trust Impac Mortgage Holdings Inc. said it has suspended funding on so-called Alt-A loans due to liquidity problems in the mortgage markets.”

“‘In light of the continued and widely publicized volatility in the secondary and securitization markets, we have suspended funding on loans previously referred to as Alt-A loans and currently do not have any plans to originate these types of loans in the near future,’ the company said in a press release.”

“‘During the second quarter, the secondary and securitization mortgage markets have deteriorated, become more unpredictable and volatile, making it more difficult to sell loans and securities to investors,’ the company said in a statement.”

“‘In addition, because housing prices have declined, default and credit losses have increased; investors are requiring higher returns, reducing the prices of mortgage loans,’ Impac said.”

“An affiliate of powerful leveraged buyout firm Kohlberg Kravis Roberts & Co. said on Wednesday it will lose about $40 million from selling $5.1 billion in residential mortgages and warned an additional $200 million hit could be coming.”

“KKR Financial blamed the estimated $40 million loss on ‘unprecedented disruptions’ in the residential mortgage market, which have reverberated from the United States to banks in Europe and Asia.”

From Bloomberg. “The U.S. subprime mortgage crisis will cost credit investors about $150 billion in losses worldwide, according to Calyon, the investment banking unit of Credit Agricole SA, France’s third-largest bank by market value. Foreclosures may reach 20 percent of the $1.3 trillion of subprime mortgages outstanding, according to a research note today. Assuming investors can recoup half their investments, losses would be $130 billion, it said.”

“A further $20 billion could also be lost from the $1 trillion of outstanding Alt-A mortgages offered to borrowers with better credit who fell just short of typical standards.”

The Wall Street Journal. “The seizing up of some debt markets because of the subprime-mortgage shakeout has left some investment funds wondering how to value their holdings.”

“Last week, France’s BNP Paribas SA said it would stop the flow of money into and out of three of its investment funds because it couldn’t ‘fairly’ value securities in the funds.”

“When the bank, for example, recently tried to sell about $60 million of bonds backed by U.S. mortgages, it couldn’t find any buyers. Among the brokers it called, ’some of them weren’t even answering the phone,’ says Alain Papiasse, head of BNP’s asset-management and services division.”

“The oft-repeated problem is that the funds, and even some companies, can’t get prices for many debt securities and derivatives with direct or indirect links to loans made to homeowners with spotty credit histories. Given that, they ask, how are they supposed to mark holdings to market when there is no market?”

“One answer is that everything has a price, if it is low enough. That is tough for many managers to swallow if they think the long-term value of a holding isn’t impaired. Trading at such a price is also a difficult prospect if a manager wants to avoid selling into a distressed market.”

“But if there are no buyers to be found, there may be an even worse alternative. ‘Then the price is zero,’ says Jack Ciesielski, editor of the Analyst’s Accounting Observer newsletter. ‘If there’s a bid out there, then there’s a price. Take your pick.’”

“Marking holdings to zero would be an extreme move. BNP’s Mr. Papiasse says the problem was that there simply was no market or price for the assets.”

“To see how funds have marked down their holdings, consider Regions Morgan Keegan Select High Income Fund. It invested $13.5 million in one bond based on a series of mortgage-backed securities issued in 2005 called Terwin Mortgage Trust. By the end of March, the fund listed the bond’s value as $5.9 million, according to its most recent portfolio report to regulators.”

“The value of new subprime securities coming onto the market plummeted 73% in July to $7.1 billion from $25.9 billion in June, according to FBR.”

“Moody’s Investors Service and Standard & Poor’s, the arbiters of creditworthiness, are losing their credibility in the fastest growing part of the bond market.”

“The New York-based ratings firms last month gave a new breed of credit derivatives triple-A ratings, indicating they were as safe as U.S. Treasuries. Now, investors are being offered as little as 70 cents on the dollar for the constant proportion debt obligations.”

“Ratings firms ‘used to be seen as good, objective folks dressed in white, who you could count on to give reliable opinions,’ said Christopher Whalen, an analyst at a research firm that writes software for auditors to determine if banks are accurately valuing their assets. ‘But when they got involved in structuring and pricing these deals, I think they crossed the line. They have lost a lot of credibility.’”

“Bonds backed by mortgages to people with poor credit fell by more than 50 cents on the dollar in June before the companies started to slash their ratings. The firms say they determine the risk of default rather than prices.”

“Frankie Van Cleave says she has paid all her bills on time for more than three decades. But neither solid credit nor her track record running a number of businesses is sparing the 70-year-old from the turmoil in the home-mortgage market.”

“Several mortgage brokers had courted her to refinance a $1 million adjustable-rate mortgage she currently carries on her home. But most of them ‘dropped me like a hot potato’ last week after two appraisals came in below $900,000, she says.”

“Her bank of three decades won’t help her after her monthly mortgage payments recently ballooned to nearly $8,200, so Ms. Van Cleave is working 80 hours a week as a technical writer to make ends meet.”

“‘A good credit record doesn’t count for anything now,’ Ms. Van Cleave says of her futile refinancing effort. ‘If you don’t have assets, forget it.’”

“‘We thought the dust was going to settle, but instead, it just blew up,’ says Mitchell Reiner, president of Mortgage Associates, a Los Angeles-based lender that does business in 48 states. ‘Everyone is being affected.’”

“‘Banks want to see that you have a vested interest in the property,’ says mortgage broker Mark Cohen of the Cohen Financial Group in Beverly Hills, Calif. ‘Everybody thought the damage would be contained to the subprime market but it has spread to A-paper [products].”

“Ms. Van Cleave doesn’t have cash for a refinancing down payment, and she faces a problem hitting more consumers: Appraisers say her home is worth less than her current $1 million mortgage.”

“Ms. Van Cleave concedes she took a risk, borrowing close to the appraised value of her home two years ago, at the market’s peak, to help fund a start-up company that sells a patented fishing-rod holder. She opted for a two-year ARM, with a piggyback mortgage at nearly 12%, and planned to refinance.”

“But the start-up hasn’t taken off, and even as she saw the credit market tightening, she couldn’t afford the penalty to refinance her loans early…Ms. Van Cleave rejects the first two appraisals, saying that one report has factual errors and neither makes fair comparisons with other homes. She believes she is a victim of appraisers who are being pressured by lenders and are ’so afraid they’re going to lose business or have their license taken away.’”

“To Washington state appraiser Bill Hanson, the shift is dramatic. Lenders are demanding more comparable home prices and ‘asking for unrelated information, such as permit numbers for remodeling work,’ he says. ‘Before they would ask: ‘Is the home still there and does the roof leak?’”

From Marketplace. “Kai Ryssdal: Steven Miller, this might sound like a really basic question, but how can it be that they can’t value the assets they have? Miller: Normally…you’d look at where things are trading on an exchange in an actively bid market. But in these markets for structured finance assets…you often have to look beyond the simple price and go to a model, or some sort of complicated analytical tool, to be able to value them.”

“Ryssdal: Because of the credit crunch or liquidity squeeze, or whatever you want to call it, not many people, not many groups are bringing new mortgages to the market. So you guys have no way of figuring out what they should actually be worth in a functioning market.”

“Miller: That’s right.”

“You didn’t have to be Warren Buffet to know that giving people loans for houses they couldn’t afford might come back to bite the economy. And, as Lisa Napoli reports, we all really should have known better this time around.”

“The pundits had the same 20-20 vision back in March of the year 2000, after the tech bubble started to burst. The get-rich quick mentality that has fueled the housing run-up is not terribly different from the dot-com fever at the turn of the century.”

“Financial columnist and author Carolyn Baum says that’s created a perfect climate for run-ups. Carolyn Baum: ‘Both bubbles were a response to periods of low interest rates. Bubbles do not end well. They don’t. Whether it’s tulip bulbs, real estate, they don’t end well.’”

“Greed followed by fear. Economists say the markets are propelled by this cycle. But this time, the bust of the bubble could have a wider and more devastating economic impact. After all, houses are very different from dot-com companies or tech stocks.”

“Steve Pearlstein of the Washington Post: ‘That was just, you know, a lot of money that never was really there just disappeared, it evaporated. But that was investment money. This is about where people live, literally.’”

“Or in a growing number of cases in this housing market, about where they used to live.”

The Charlotte Observer reports from North Carolina. “The slowing flow of money for mortgage loans is starting to affect people with good jobs and good credit. Charlotte-area brokers say a much broader swath of people are facing barriers to borrowing. ‘Lenders are looking for reasons why a loan should be turned down,’ said Kyle Kilpatrick, an executive VP at online broker LendingTree.”

“Jeff Kennedy of Southern United Mortgage in Charlotte said a lender recently called to ask for documentation on a borrower’s income for a loan it had approved two weeks earlier. ‘That’s something that’s never been done before,’ Kennedy said.”

“Cantey Tull, of Tull Mortgage in Charlotte, said she heard from a woman who was driving to close on a home when her broker called to say the loan was no longer available. She wanted to make a 5 percent down payment and the lender had decided her credit score was no longer good enough. She needed to make a larger down payment.”

“‘Two weeks ago she could have’ qualified, Tull said. ‘Now she couldn’t.’”

“‘With a rate increase from 6.75 percent to 7.5 percent, the buyer’s buying power just dropped by 10 percent,’ said Frank Borges LLosa, a broker at FranklyRealty.com. ‘That $600,000 buyer will now have to look at buying a $550,000 place or paying 10 percent more per month for the same house versus last week.’”

From WKRN.com in Tennessee. “Gary Cecere and his fiancée Heidi found their dream house in upstate New York. The couple had a mortgage lined up, their homeowner’s insurance and contracts. Then, that all changed.”

“‘We started packing up and getting happy about it and then Monday comes and we get this call and they pulled it,’ said Gary Cecere.”

“The bank suddenly pulled out on the package of two mortgage loans that they needed to buy the $410,000 home. Banks are now tightening their standards, offering fewer loans and for those with mortgages, costly interest rates are forcing homeowners into foreclosure.”

“Marina Peed, the Impact Group president, said, ‘The range of folks that are struggling keeping their mortgages now is unprecedented.’ In one Georgia community, 80 homes are in foreclosure.”

“For the Cecere’s, visiting the home that could have been, brings up pain and anger. ‘You’re just left at the mercy of the banks, basically,’ said Gary Cecere.”

Reuters reports on Florida. “Until two years ago, middle-class retirees vied with property speculators for houses and apartments in Cape Coral, a town near Fort Myers on Florida’s sun-drenched Gulf Coast. Now almost every other house on some of its streets has a for-sale sign outside.”

“With a bloated inventory of unsold homes and a growing number of homeowners forced by mortgage delinquencies to sell — thanks to the subprime crisis and ensuing credit crunch — southwest Florida’s once warm clime for property has turned stone-cold.”

“There was a nearly 27-month supply of existing single-family homes on the Fort Myers market last month compared to a three-month supply at the height of the local boom in housing in August 2005, according to Denny Grimes, a top real estate agent in Fort Myers.”

“At the same time, more than 40 percent of single-family homes were listed at prices below $250,000 versus just 18 percent at the market peak. ‘There’s a lot of blood in the water and there’s a lot more to come,’ Grimes said.”

“Making things worse, Grimes said builders were still churning out new housing units at big discounts in and around Fort Myers, where many investors bought houses during the recent boom market without ever considering the long-term cost of holding properties.”

“Fort Myers ‘is by far the worst housing market that we’re in,’ J. Larry Sorsby, chief financial officer of home builder Hovnanian Enterprises Inc., told Reuters. Hovnanian bought the largest home builder in the Fort Myers in August 2005 just as sales in the city were starting to dry up.”

“‘They were the last one aboard the Titanic,’ Grimes said.”

The Financial Times Deutschland on Florida.”Along with bubble property markets across America, west Florida has seen its luxurious lifestyle shaken. The Sarasota district has experienced the biggest drop in house prices in the country, with foreclosures spiking after a drop of almost 15 per cent in the year to March.”

“Florida is the ‘canary in the cage,’ according to Jan Hatzius, chief economist at Goldman Sachs.”

“‘People were buying places figuring they would put in a new kitchen and then flip them. It was greed. We were all in the same game. We were selling a piece of paradise,’ says Christina Neff, a real estate agent in Siesta Key. ‘Flippers are behind what is happening.’”

“Claude, one of many so-called Canadian ’snowbirds’ who winter in Florida, said he had a good credit rating but opted for a subprime loan because the low initial rate made a short-term investment more profitable. He says he is now ‘trapped’ with an unaffordable mortgage and a depreciating beachfront property.”

“Real estate agent Dorothea Sandland says: “A lot of buyers took out second mortgages, risky loans or even special bonds because they thought they could get rid of the property very quickly.”

“‘I’m looking at condos coming to market that were bought for $259,000 when there are brand new ones next door selling for $180,000,’ says Ms Sandland.”

The Herald Tribune from Florida. “A survey by Attorneys’ Title Insurance Fund suggests that the current Florida real estate market is rather Dickensian.”

“The best of times: 63 percent of the 1,415 Florida homeowners surveyed by the big title insurance underwriter expect that the value of homes in their community will remain the same or rise in the next 12 months. Thirty-six percent think prices will rise, 37 percent that they will fall and 27 that they will stay the same.”

“The worst of times: 80 percent agreed that now is a bad time to be selling a home and worry about their ability to sell their property if they needed to.”

“That lends credence to the notion that prices in the market might not have bottomed out yet, the question that is on the minds of everyone from homeowners to Southwest Florida’s top real estate gurus.”

The Tampa Tribune from Florida. “For every 79 households in the Tampa Bay area, there was one foreclosure filing during the first six months of this year, according to a new report released Tuesday.”

“With 10,173 homes falling into foreclosure in the period, the Tampa-St. Petersburg-Clearwater area ranked 24th among the 100 largest U.S. metro areas tracked by RealtyTrac.”

“Mike Alea, owner of Brandon-based Elite Mortgage Network, a residential lender, said the Tampa Bay area must feel this kind of pain before the market can rebound. ‘The market is just correcting itself right now,’ Alea said. ‘Housing prices went up too much too quickly. If you have cash, it’s a perfect time to buy.’”

The Bradenton Herald. “Less than eight months into the year, Manatee County already has broken its record for most foreclosures, yet a national company ranks the area as the lowest risk large market.”

“From January to July alone, 1,110 foreclosures had been reported in Manatee County, according to the clerk of court’s office. The previous high was in 2002, when the county saw 901 foreclosures recorded for the entire year.”

“While lenders have definitely tightened the purse strings on higher risk loans, the traditional loans are still out there, said Michelle Daniels, broker at Intercoastal Lending Group. Freddie Mac and Fannie Mae loans also are still an option for qualified buyers purchasing homes that cost less than $417,000.”

“‘I think what we’re going to see is going back to the day of people having to get loans on their own merits,’ said Marci Walker, a managing partner at Blue Skye Lending in Lakewood Ranch.”

“Falling property values have left some owners who purchased their home using adjustable rate mortgages in a bind. Many have negative equity in their homes due to their mortgage. ‘It’s sad that rates are still so good and it should be a good refinancing market, but a lot of those people won’t qualify now,’ Walker said.”

“Anthony DiMauro, assistant VP of mortgages for Fifth Third Bank, and other local mortgage professionals say it is a good time to buy, especially for those with decent credit and money to put down.”

“‘The people who have a good job and pay their bills on time and are financially responsible, they are having no problem getting homes,’ DiMauro said.”

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