The Housing Bubble

The Mercury News reports from California. “Starting in 2003, thousands of Silicon Valley residents desperate for a house, two-car garage and back yard made the hour-plus commute from the job-rich Bay Area over the Altamont Pass to Mountain House, where home prices started in the low $300,000s. But then the real estate boom went bust.”

“Last month, DataQuick reported that San Joaquin County mortgage holders were among the most likely in the state to default on their payments. ‘It is as bad as it looks,’ said Susan Patteson, an agent and a Mountain House resident since late 2003. ‘Homes that two years ago sold at the peak of the market now sell for $200,000 less. We rode the high; now we’re suffering the low.’”

“A sure sign of decline at Mountain House is a dying lawn. A closer look reveals trash, ad fliers shoved under the door, and the clincher: a foreclosure notice or, worse, auction announcement, taped to the window.”

“These are the same homes that in 2004, 2005 and as late as June 2006 were sold by lottery to crowds of 300 pre-qualified buyers, many of whom camped overnight just for the chance to own a home.”

“‘The loans are worth more than the house,’ said Jim Lamb, a Realtor who lives in Mountain House.”

“The biggest problem for home sellers in Mountain House is they must compete with brand-new houses still going up. Meanwhile, builders are slashing prices, offering upgrades at little or no cost, and promising to fix anything that goes wrong with the house in the first year.”

“Among the homeowners who are hurting is John Basso. Basso paid $503,000, and spent more than $100,000 on upgrades and a pool.”

“Then earlier this year, Basso was transferred to Austin. The house went on the market in June for $675,000, then $649,950, and now it’s dropped to $624,950. ‘We’re not trying to get every dollar out of it,’ he said. ‘We’re just trying to complete the transaction.’”

“With a glut of houses on the market, why are they building at all? The developers have little choice. They paid millions of dollars to buy the home sites and are obligated to pay for the streets, sewers, water treatment plants and schools before houses can be built. The only way to recoup their costs is to sell homes.”

“As far as Mountain House resident and Realtor Patteson is concerned, it’s a no-win situation. ‘If they stop building, the town stops growing. If they continue building, our resales are low,’ she said.”

The Fresno Bee. “Broker Tad Tadich isn’t surprised that trying to help homeowners escape foreclosure has grown to make up about half his business. After all…Central Valley cities including Stockton, Sacramento, Bakersfield and Fresno have some of the highest foreclosure rates in the nation.”

“Tadich sees an increasing number of prime borrowers forced into foreclosure, and he doesn’t see that trend going away anytime soon. ‘I think the prime borrowers are going to be the issue in the coming year,’ he said.”

“Tadich said many could be affected. ‘There were lots of people who had excellent credit who were using conventional underwriting techniques to obtain loans that had blow-up features in them,’ he said.”

“Doug Heffner, owner of Integrity Lending Group in Fresno, said most prime borrowers in the Valley tend to be more conservative compared with those in the Bay Area or Los Angeles, who may have been forced by higher property values to take on more risky loans.”

“‘My concern would be more with the overall real estate market,’ he said. If the foreclosure epidemic continues to drive down home prices, more people who may have used their home equity to finance affluent lifestyles may find themselves in trouble, he said.”

The Orange County Register. “O.C. real-estate and lending job counts are off 5,200 in the year ended in July, by this blog’s math. That is the biggest year-over-year drop in these property-related businesses since June ‘93.”

“Local finance jobs, largely mortgage work, have been hard hit, down 3,800 positions, or 7%, in a year. Payrolls in these industries are down 14% from their peak and to a level last seen in December 1993.”

The Voice of San Diego. “On a hushed street in the middle of a neighborhood that didn’t exist a few years ago, foreclosure is a constant neighbor. Little Lake Street in Chula Vista is one of many spots countywide where next-door neighbors are simultaneously drowning in their mortgages.”

“In the last few months, foreclosure has hit 1326 Little Lake Street. And the house across the street: 1327. And next door: 1330. And 1346, and 1401, and 1406, and 1413, and 1425, and 1448. And others.”

“Eager would-be homeowners once waited in line to purchase a place here. But now, a big wave of trouble has washed over Little Lake Street. Buyers borrowed loans at terms they can no longer — or couldn’t ever — handle. And they overwhelmingly used loans to cover 100 percent of the purchase price.”

“Little Lake homeowner Keith Vincent and his wife aren’t in trouble on their mortgage, he said, but the weed of uncertainty on the street grows taller daily. He used to count the signs, he said, but he’s lost track.”

“‘The signs and the burnt-out lawns tell you who’s going,’ Vincent said. ‘It’s not easy to swallow.’”

“The homes that have sold since 2005 on the resale market sold for an average of $336 per square foot. But the homes that are currently for sale are listed for an average of $285 per square foot.”

“And throughout the new developments, builders stuck with new unsold homes have dropped prices and added incentives, making those new homes more attractive than the ones that have already been lived in.”

“‘The Chula Vista 91913 is horrible,’ said Kristian Peter, a longtime Chula Vista Realtor who sells homes that have been repossessed by banks. ‘Right now it’s a flood and it’s only getting [worse].’”

“The trouble’s not contained there. In a county brimming with homeowners in trouble, there are more streets like Vincent’s. In the first six months of 2006, the ZIP code with the most homes in foreclosure had just 35. But in the same period this year, foreclosures slammed 92057 in Oceanside, affecting 512 houses near the so-called back gate of Camp Pendleton.”

“With 512 properties in foreclosure among a housing stock of 16,000-some houses and condos, according to DataQuick, the 92057 code has nearly 32 in 1,000 homes in foreclosure, nearly three times the county average.”

“Peter said it’s no wonder there aren’t more buyers able to absorb some of the unsold home inventory. And there’s not much to stop the neighborhood’s property values from declining past the point they’re at currently, he said.”

“‘People’s eyes start to glaze over when they see ‘foreclosure,’ he said. ‘But there’s no such thing as a good buy right now in San Diego.’”

“Vincent, the homeowner on Little Lake Street, says he tries to be optimistic. But more new homes are on the way, with construction workers and cranes still scattered throughout Eastlake and Otay Ranch, Vincent fears his home could lose much more value in the coming months and years.”

“Who knows, ’cause they’re building as far as the eye can see,’ he said.”

The Press Enterprise. “About 1,500 people converged at the Ontario Convention Center on Sunday to attend an all-day auction of homes repossessed by lenders. All were anxious to discover how much of a deal could be had now that foreclosures have burgeoned to a record level in Riverside and San Bernardino counties, where they are up eight-fold in a year, according to DataQuick.”

“Kathy Van Pelt paid $210,000 in cash, including a 5 percent auction fee, for a doublewide mobile home and a two-car garage with an apartment over it in Wildomar. Van Pelt said she bought the place for her adult grandchildren who now stay with her Menifee.”

“Van Pelt said she hopes the property will increase in value and become a nest egg for her retirement. ‘I am so excited about this because it seems like it is a new beginning,’ she said. ‘It looks like a good time to buy when values are down,’ she added.”

“Pete Nyiri, (who) specializes in selling repossessed homes, had 25 listings in Sunday’s auction, said each property’s reserve price is ‘the market value less whatever (the lenders) feel they will let it go for. You have to let the consumer win a little bit or they won’t go to the auction. It will get a bad rap.’”

“He said that in the days before the auction, a prospective bidder has limited time to assess the houses, all of which are sold ‘as is.’ For assistance, he said, a bidder can hire an appraiser or bring along a real estate agent. ‘The buyer does have the ability to do their due diligence and they have nobody to blame but themselves if they pay more than it is worth,’ he said.”

“Investors interviewed at the auction said that as the months pass and lenders overloaded with foreclosed properties grow more desperate, the prices at auctions will get more tempting. ‘We were here to buy, but there is nothing here worth buying yet,’ said Greg Norris, a vice president with The Norris Group.”

News reports from from Oklahoma. “There’s a cooling trend, but not a cold snap, in Oklahoma City home values, once hot but apparently never as overheated as in many big cities’ bubbly housing markets. Realtors said the excess of homes on the Oklahoma City-area market is causing it to take longer to sell houses. Home buyers are driving harder bargains, but most sellers aren’t overreacting by slashing their asking prices, Realtors said.”

“‘Buyers are looking for a bargain and they want to see everything out there. Used to, I could pull the top 10 houses, the top 10 neighborhoods. Now they want to see everything,’ said Karen Blevins, a Realtor in Oklahoma City and Edmond.”

“There’s more of everything to see. July ended with 9,328 houses for sale in the Oklahoma City area, a 5.6-month supply based on average monthly sales the past 12 months. That’s up from a 4.8-month supply at the end of 2006.”

“It’s a buyer’s market and buyers know it, said Linda Finch, a Realtor in northwest Oklahoma City. Sellers’ asking prices are starting points, but just starting points, for negotiations, as far as buyers are concerned, she said.”

“Blevins said buyers…expect to get something at the closing table: closing costs, which can be between $3,500 and $4,000 on a $150,000 home.”

“Sellers are bringing the cash, Blevins said, but ‘they’re being a little more patient than they used to be. They have to be more patient to get their price.’”

“Cross-town buyers are usually sellers, and ‘They want it both ways,’ she said, top dollar for the house they’re selling, the best price for the one they’re buying. They don’t usually win on both ends, though. It’s a buyer’s market, so they win on the buying end, she said.”

“Finch’s advice to sellers: Spend a little money to make improvements and add value to a home, as a cushion against buyers’ expectations of a price discount.”

The Star Telegram from Texas. “Foreclosures have been surging for five years in North Texas, and almost nobody cared. Now suddenly the problem is part of a global financial crisis.”

“It’s easy to blame California, Florida and Nevada, where the housing bubble is going pop. But this is a bill that we ran up, too, and it had to be paid sometime. ‘It’s going to be a cold winter,’ says John Baen, a real estate professor at the University of North Texas, who predicts tough times ahead for housing and the broader economy.”

“Foreclosures aren’t the cause of the trouble; they’re a symptom of scores of bad home loans and years of overbuilding. In this area, rising foreclosures were sending a signal to the market three or four years ago, but they were ignored, with few consequences. And that says a lot about how the housing market became so overheated.”

“In North Texas, foreclosure postings have tripled since 2001, according to George Roddy, of Foreclosure Listing Service. Yet the local economy has shrugged them off as a nonevent.”

“Until recently, the housing market was on a tear. When loans were easy and cheap, home builders kept adding volume in Texas, even as defaults climbed. The area lost 80,000 jobs in the 2002 recession, yet home starts continued to surge, notes Ted Wilson of a Dallas real estate research firm.”

“‘By 2003, we thought there’d be a decline in housing starts,’ Wilson says. ‘But builders said they could qualify anybody for a house, and they were making huge profits on the East and West Coasts. They wanted to use Texas to increase their unit counts.”

“That strategy is over. Home builders have suffered crippling losses, and many subprime lenders have gone under. In the Fort Worth area, residential building permits dropped 34 percent in June; on the Dallas side, building-permit activity is running at levels last seen 10 years ago.”

“Wilson says that many local builders have laid off workers, and mortgage companies presumably have cut back, too.”

“Through the first nine months of the year, foreclosure postings rose 12 percent for North Texas and rose 14 percent in Tarrant County. In the latest postings, the average loan originated in 2003, according to Roddy. And an even greater number of risky loans were made in ‘04, ‘05 and ‘06.”

“‘Do the math, and that means we have two to three more years of this left,’ Roddy says.”

“In North Texas, the largest concentration of foreclosures involve starter homes and subprime loans to people with poor credit. ‘We increased homeownership a whole bunch in the past five years,’ says Baen, the UNT professor, ‘but the great American dream became a nightmare for a lot of these people.’”

The American Statesman from Texas. “Plans for a $4 billion, 3,500-acre development in Leander that would have clustered homes with parks and commercial developments, as well as more than doubled the city’s population, have folded.”

“Florida-based Avalon Park Group Management Inc. terminated an agreement with the city and a local developer last week, citing a weak national homebuilding market.”

“‘It wasn’t the right time to go with a project of this magnitude considering the overall market,’ Beat Kahli, CEO of Avalon, said. Kahli said the project would have depended on national homebuilders, most of which are struggling because of the jittery market.”

“The development would have clustered more than 10,000 buildings with park and commercial developments between Crystal Falls Parkway and Lakeline Boulevard. It was similar to the city’s 2,300-acre residential and commercial development that centers around a rail line that will run from Austin to Leander.”

“The $4 billion project would have been a record for Leander. Avalon officials originally requested between $240 million to $300 million in incentives, but the city only offered $120 million, which would have been another record, Leander Mayor John Cowman said.”

“The collapsed deal is a blow to Leander, which could have gained an increased tax base from the development, but city leaders say other projects are in the pipeline. Bill Hinckley owns the 3,500 acres that would have been developed by Avalon.”

“Hinckley said three new communities are being planned on the 3,500 acres, and, with roads such as the 183-A tollway in place, the area is ripe for development.”

“Despite national home market problems, the Austin area is still a hot spot, said Mark Sprague, Austin partner of Residential Strategies Inc. Sprague said new jobs being created by high tech companies, such as Samsung, as well more people moving into the area, have cushioned it from feeling a major ripple from the national market.”

“‘We’re in a great bubble here in Austin,’ he said.”

Some housing bubble news from Wall Street and Washington. Associated Press, “Countrywide Financial Corp., the nation’s largest mortgage lender, has begun laying off staff as part of its effort to ride out the credit crunch that has rocked the home loan industry, according to a report published Monday. Countrywide is the largest mortgage lender by volume, accounting for more than 13 percent of the loan servicing market as of June 30, according to the mortgage industry publication Inside Mortgage Finance.”

From Reuters. “NovaStar Financial Inc, a subprime mortgage lender, said on Friday it will fire about 500 employees, or 37 percent of its work force, as it reduces home loans, given tough capital markets conditions.”

“NovaStar has said second-quarter loan volume fell 73 percent from a year earlier to $773.7 million, and that third-quarter volume should be ’substantially’ lower.”

From Bloomberg. “Thornburg Mortgage Inc., forced to stop taking home-loan applications last week because of a cash crunch, sold $20.5 billion of mortgage-backed securities at a discount to pay down debt it couldn’t refinance.”

“The company will post a loss of $930 million on the sale in the third quarter, resulting in a probable net loss for the full year, President Larry Goldstone said. Thornburg specializes in adjustable-rate ‘jumbo’ loans of more than $417,000 to people with good credit.”

“‘Investors’ confidence in the mortgage financing space is not doing well,’ said Larry Goldstone, in an interview with CNBC television on Monday.”

“Luminent Mortgage Capital Inc, which has struggled with liquidity problems because of mortgage investments, on Monday announced a bailout in which it would sell a majority stake in itself at a deep discount.”

From Dow Jones Newswires. “Luminent shares plunged last week after the company said eight of its creditors have declared defaults under lending agreements.”

“Luminent said the lenders alleged that the company has failed to meet margin calls or repurchase financial assets under these agreements. The lenders are now demanding immediate payment of roughly $1.6 billion, the company also noted in its filing with the Securities and Exchange Commission.”

From MarketWatch. “Mortgage-buyer Fannie Mae will skip a benchmark debt offering for the first time since May 2006, the company said Monday. Fannie is permitted to pass twice a year on the offerings.”

“On its web site, Action Economics said the move ’suggests that demand [for] even high-rated mortgage paper is scant at the moment and impacting funding plans at the agency.’”

The New York Times. “As far back as 2001, advocates for low-income homeowners had argued that mortgage providers were making loans without regard to borrowers’ ability to repay. Some of these players now find themselves in a dual role as enabler and victim, like the legions of individual borrowers who were convinced that their homes could only keep rising in value and were confident that they could afford to stretch for the biggest mortgage possible.”

“‘All of the old-timers knew that subprime mortgages were what we called neutron loans – they killed the people and left the houses,’ said Louis Barnes, a partner at a mortgage banking firm in Lafayette, Colo. ‘The deals made in 2005 and 2006 were going to run into trouble because the credit pendulum at the time was stuck at ‘Easy.’”

“Solent Capital Partners LLP, the $8.8 billion U.K. hedge fund manager, may be forced to sell assets in a unit that invests in mortgage-backed securities after lenders refused to provide it with short-term funding.”

“Companies are finding it ‘difficult to get the cheap funding they’re used to,’ said Priya Shah, a structured credit analyst at Dresdner Kleinwort in London. ‘We will see more of these.’”

“SachsenLB, the second German bank to be hit by difficulties stemming from the U.S. subprime mortgages crisis, must be sold as part of a state-led rescue deal, sources familiar with the matter said on Monday.”

“The potential sale is the first clear signal the subprime mortgage collapse could accelerate the consolidation of government-owned banks in Germany.”

The Telegraph. “Switzerland’s top banker has warned of massive losses from the unfolding credit crisis. Jean-Pierre Roth, president of the Swiss National Bank, said market turmoil was far from over as tremors from the sub-prime debacle continued to rock the world.”

“‘We’re certainly not at the end of the story. There are question marks surrounding the development of the American economy,’ he said. ‘Something unbelievable happened. People who had neither income nor capital got credit with very attractive conditions. Now reality is striking back,’ he said.”

“German banks’ assurances that they hold only top-rated debt securities amid credit market turmoil may not shield them from expensive asset writedowns. Credit rating agencies have already downgraded hundreds of mortgage-related securities and warned more could follow.”

“‘High ratings alone are no guarantee that something is good,’ Joerg Schneider, chief financial officer at German reinsurer Munich Re, said earlier this month.”

“The correlation of U.S. subprime mortgage risks may be much bigger than originally assumed across ratings grades because a higher share of debtors could be affected by a decline in house prices, he said.”

“‘I have potential impairments of some AA- and AAA-rated assets in my worst-case scenario,’ Schneider said.”

“U.S. legislators will ask rating agencies why they made ‘mind-boggling’ decisions to award investment grades to questionable mortgage-backed securities, Senator Richard Shelby said on Monday.”

“There will be hearings…, there will be calls for more regulation,’ Shelby told a news briefing in Brussels. ‘How did they reach the conclusion that these packages of subprime questionable loans could be deemed…investment rate bonds?’ he said. ‘It’s just mind-boggling.’”

“Shelby said banks would increase their mortgage rates in the coming weeks, exacerbating a credit crisis that has snowballed in recent weeks as defaults on risky U.S. subprime mortgages hit banks across the globe.”

“‘I think it will get worse before it gets better,’ he said. ‘There will be firms that will not survive, I don’t think we should bail them out.’”

“The Fed’s discount rate cut on Friday and injection of billions of dollars into the banking system earlier in the week alleviate only some of the stress. Wall Street observers say there is still plenty of risk out there, and the aftershocks from the failure of billions of dollars in subprime loans have yet to be felt.”

“‘What the Fed did was about consistent with putting a Band-Aid on a gunshot wound,’ said Chris Johnson, founder of Cincinnati-based Johnson Research Group. ‘You have a situation where the subprime concerns have spread, and there are still a lot of things going on in this market that are just wrong.’”

The LA Times. “Pep talks were not on the agenda this weekend as beleaguered mortgage industry professionals attended an exposition in Long Beach. After all, the keynote speaker was William Dallas, whose Ownit Mortgage Solutions Inc. was one of the first lending companies to fold last year amid a sharp downturn in the housing market.”

“‘People ask me why I don’t get back into the mortgage business,’ he told a crowd of about 200 on Saturday. ‘Because I’m not stupid.’”

“‘As brokers and originators, we need to decide what to do,’ he said. ‘Everybody likes a murder, everybody likes a tragedy. And this is clearly a tragedy today.’”

“It was a theme echoed repeatedly at the expo, where strategic financing and charting a course for the future were popular catchphrases. With about 1,500 attendees and 220 exhibitors, the event capped off a three-day convention of networking opportunities and workshops with titles such as, ‘Shut Up, Stop Whining and Get a Life!’”

“‘The general mood of the convention is ‘upbeat-stunned,’ said Peter Ogilvie, president of the California Assn. of Mortgage Brokers, on Saturday.”

“Patrick Griffith, a senior loan officer from Hermosa Beach, said he came to the expo to ’see what lenders are still out there, see who’s left.’ ‘It’s just got to shake out,’ Griffith said. ‘Real estate is always cyclical. Every 10, 12 years the same thing happens.’”

“But he said the current cycle is worse because of the ‘exotic loan products’ that flooded the market during the housing boom, making it easy for those with low credit scores to gain approval for loans.”

“‘We have yet to see the worst,’ he said. ‘It’s just starting now.’”

“John Phung of Irvine said he didn’t think the market would ever return to what it was just a few years ago. These days, the loan originator said he closes just one or two loans a month and that the Newport Beach-based mortgage brokerage where he works has cut back on promotions.”

“Phung said he and his wife, a mortgage broker, have been focusing on ‘just making ends meet.’ ‘This is the first time we’re experiencing hardship,’ he said. ‘We’re trying to take it in stride and hope for the best.’”

“On Sunday, Dallas agreed that the mood at the convention had been subdued. ‘It was almost like a going-out-of-business sale,’ he said. ‘It was as somber as I’ve seen.’”

CNN Money reports on New York. “What could the collapse in the subprime mortgage market possibly have to do with whether Dr. Jeffrey and Madeline Stier get full price for their four-bedroom house in the wealthy New York City suburb of Larchmont? It’s clear that what’s happening in the subprime market…has for now prompted many high-end homebuyers to either trim their offers or stop shopping altogether. ‘It’s the hysteria on Wall Street,’ Jeffrey Stier says. ‘It’s frightening people.’”

“Six months after the Stiers first listed it for sale at $2.5 million, a price only slightly above what comparable homes had been selling for, the house remains unsold. Tired of waiting, the Stiers finally capitulated and recently dropped their asking price to $1.99 million.”

“The market’s psychology has changed more than the fundamentals, argues Phyllis Radding, a veteran agent who is selling the Stiers’ home. ‘All the negative articles in the press have made buyers more cautious,’ she asserts.”

“The shakeout has already begun, maintains Diane Saatchi, a real estate agent who specializes in multimillion-dollar vacation homes. The head of the East Hampton, N.Y., office of the Corcoran Group, Saatchi says it’s no coincidence that several of her sellers agreed to lop hundreds of thousands of dollars off their asking prices the same week that jumbo rates pushed past 7%.”

“She’s now predicting a 20% price decline for all but the most expensive Hamptons homes (the superrich don’t care about mortgages). Says Saatchi: ‘More and more, this feels like a correction.’”

The Times Herald Record from New York. “The subprime market crunch has hit home in the mid-Hudson Valley. Empty homes formerly occupied by subprime buyers already dot our region. Know this: The impact of living with a subprime mortgage is here and it’s real.”

“Marco and Marissa Meza, a couple from California, snapped up a brand-new colonial in the Town of Wallkill for $319,000 in 2003. It had all the amenities a new homeowner could want.”

“The builder, Gary Swanson of GJS Construction Corp., said it was the strangest closing he’s ever experienced in his years of building and selling houses. ‘When I went to that closing I didn’t think they were going to have enough money to buy the house,’ he said.”

“Still, months into the closing process, Marissa Meza asked Swanson to quote a price for a circular driveway. He told her $5,000 and ended up building it for her. Then, Meza asked him to quote a price for a finished basement. His $15,000 estimate was apparently too high for her. But Meza had another builder do the work.”

“‘These people should have bought a house $100,000 less than the house they bought,’ Swanson said. ‘They can’t afford a house, and here they want a circular driveway. People just think they need these extravagant-type houses,’ he added.”

“Within a year of buying the house, the Mezas had refinanced with Countrywide Home Loans Inc. for a $304,000 mortgage. They also tapped Countrywide for a $38,000 home equity loan. In April 2006, they refinanced again, this time with Wells Fargo, for a $396,000 mortgage. The loan was clearly a subprime one and their initial interest rate rose to 8.375 percent.”

“By August, they stopped paying their bills. Wells Fargo started foreclosure proceedings in March 2007. Marco and Marissa Meza moved back to California. They did not respond to a request for an interview.”

The Buffalo News from New York. “Thomas and Jeaneen Maglietto, who religiously watch TLC’s Flip This House show, decided to buy a second house a few blocks away to use as a rental property.”

“The couple went to Alexis Funding and, on Wednesday, got prequalified for a mortgage from Arizona-based First Magnus Financial Corp. for the $65,000, two-unit house. The price would have been 90 percent financed, with the Magliettos putting about $6,000 down.”

“But the next day, with no warning, First Magnus abruptly shut down. And all the remaining lenders Alexis used now want the couple to put down at least $10,000.”

“‘We really can’t come up with $10,000 or $12,000 for a rental property,’ said Thomas Maglietto. ‘We were looking for someone to work with us. Now everyone wants my first-born, and I’m not willing to do that.’”

“‘It’s almost like Alice in Wonderland. You’re just dropped in a whole new set of circumstances that can change as soon as the fax machine rings or an e-mail comes out,’ said Michael J. Meyer, senior loan officer in Williamsville, who was filling out a client’s paperwork for a home equity loan when the bank pulled out of the business. ‘I’ve never seen this much collapse of a product.’”

“‘I haven’t seen changes like this so drastic, so suddenly,’ said Frank Fialkiewicz, senior sales manager for American Equity Services in Cheektowaga. ‘The public doesn’t understand that things are changing by the hour, by the day.’”

The Boston Globe from Massachusetts. “The escalating mortgage crisis is expected to further depress house sales and prices in Massachusetts during the fall selling season as some potential buyers’ loan applications are rejected or buyers delay making a purchase to see whether prices fall farther.”

“‘This is an amazing scene developing, and it could have a serious impact on people’s confidence to go ahead,’ said Barry Nystedt, a real estate agent in Newton.”

“Pat Magnell, a buyer’s agent in North Andover, said that buyers’ awareness of the industry’s problems was raised last week because Countrywide is so well known, in contrast to the dozens of obscure lenders that failed over the past year. She said a raft of sellers are reducing their prices.”

“Buyers ‘are aware they have more choices, and down the line, their choices may increase exponentially so they’ll wait,’ Magnell said. ‘Can you blame them?’”

“Mark Gibbons, an agent in Stoughton, said a client who was selling a house turned down an offer at the list price, in favor of a bid that was $15,000 lower because that buyer was more certain to obtain a mortgage.”

“‘The dollars weren’t as important as the confidence in the actual closing happening,’ Gibbons said.”

“One of mortgage planner Robert French’s clients, who earns about $700,000 a year and has a high credit score, was recently unable to get a stated-income mortgage. These loans became popular during the housing boom because it does not require borrowers to provide a copy of their W-2 tax form to the lender.”

“Stated-income loans, French said, are ‘just disappearing.’”

The Connecticut Post. “At her two-bedroom condo on the East Side of Bridgeport, Donna Pearce is anxious and a bit angry. The nanny has fallen behind on her mortgage payments and blames her mortgage broker for selling her a loan that she could not realistically afford.”

“‘When she [loan writer] came to me with the loan saying I was approved, the interest rate was extremely high,’ Pearce said. ‘But she said not to worry about it because ‘in six months you will be able to refinance.’”

“Pearce, who earns $525 a week, put $3,000 down on the $135,000 condo and accepted the deal. She figured that she could squeeze by paying $1,300 a month for the first six months and then refinance and lower her monthly payment. Six months later, Pearce found that she did not have enough equity in the condo to refinance nor the money to cover substantial penalties for refinancing.”

“Moreover, she learned that the 13.05 percent interest rate could rise to 15 percent within two years.”

“‘Right now I am in default,’ she said. ‘You trust the person you think is working for you that you will get lower rates and be able to pay the mortgage only to find out there are hidden glitches you don’t know about,’ she said.”

“Pearce does not believe Congress should bail out Wall Street. ‘It’s folks like me that should be bailed out,’ she said. ‘These banks that did this to people deserve what they are getting. They should be made to pay for hurting people like myself.’”

The New York Times on Connecticut. “Three years ago, Martin and Jennifer Cossette bought into the dream of homeownership,— the quintessentially American ideal of personal striving and family stability celebrated by politicians, promoted by Madison Avenue and financed by Wall Street.”

“The modest Cape Cod-style house, in Meriden, Conn., had three bedrooms, and a backyard for their young son. Like so many families, they stretched to buy their first home. In the red-hot housing market at the time, they put no money down and got a mortgage for its entire $180,000 price tag.”

“They had qualms but too few, as reassuring lenders spoke of rising housing prices, falling interest rates and easy access to future loans.”

“None of it turned out that way. There were unforeseen expenses. Bills mounted and credit card debt got out of hand. They refinanced in late 2005, folding other debts into the mortgage, but that proved to be only a stopgap.”

“Earlier this year, the Cossettes filed for bankruptcy under Chapter 13, used by wage earners who want to hold onto their homes. But the monthly payments on the $230,000 mortgage were $1,800, 40 percent higher than the first mortgage, and headed even higher. So they decided to let the house go.”

“‘We were totally naïve,’ said Mr. Cossette.”

“Joseph and Lu-Ann Horn bought their 1,200-square-foot, three-bedroom home in South Windsor, Conn., in 2002, paying for nearly all of it with a $150,000 loan. The mortgage was a 30-year loan with a fixed rate of 7.5 percent. Two years later, they decided to refinance to pay off their truck and their credit card debt and to buy a $4,000 motorcycle.”

“The new mortgage was for $198,000, at a fixed rate of about 8 percent for two years and variable rates afterward. The monthly payment was about $1,600. The mortgage broker, Mr. Horn said, told them not to worry about the variable rate because they could refinance in two years and lock in a fixed rate again.”

“‘They basically put us in a loan that they knew we couldn’t pay,’ Mr. Horn said. ‘We never should have done it.’”

“When the fixed rate expired last year, the Horns found no willing lenders. The interest rate has jumped and the monthly payments rose to nearly $2,200, Ms. Horn said. ‘It just goes up and up,’ she said.”

“Mr. and Ms. Horn make about $70,000 a year, but with two children and other expenses they fell behind on the mortgage. They have been served with foreclosure papers, and have filed for Chapter 13. ‘We’re fighting to hold onto the house now,’ Ms. Horn said.”

“For Mr. Cossette, who is now a renter, homeownership no longer has much allure. ‘You put your life’s sweat into a piece of real estate that may or may not go up in value,’ he said. ‘So I don’t have a house. That’s O.K. with me.’”

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