The Housing Bubble

The Press Democrat reports from California. “‘For Sale’ signs planted in lawns along Banjo Drive mark the dashed dreams of families in this block-long stretch of two-story homes bordered by neat landscaping and walkways leading to parks and schools. Once a symbol of Sonoma County’s housing boom, Bellevue Ranch is now emblematic of hard times in neighborhoods across the region.”

“More than 20 of the 35 homes for sale in Bellevue Ranch are on the market either because banks took them back or owners must sell to avoid foreclosure.”

“Owner Maria Hernandez paid $655,000 for the four-bedroom house in November 2005, financing the entire purchase of her family’s first home. The combined monthly loan payment jumped from $3,780 to $5,058 three months ago and she hasn’t made the payment since. The house is now for sale at $489,000.”

“Two doors down, the owner bought for $590,000 in November 2006, benefiting from the first months of a countywide price decline that has continued. But they no longer can afford the payment option loan taken out to finance the entire purchase. The house is on the market for $440,000.”

“Three years after buying his Barndance Lane home three blocks away from Banjo, Gregg Groff holds out hope he won’t be forced to sell to avoid foreclosure. But with five homes for sale within a block of his house, Groff is concerned his home will go down in value to a point where he has little choice but to sell.”

“‘When the market started going south, everyone started selling. You want to run out in the street and say ‘Don’t do it’ because you know you’re going to be screwed,’ Groff said.”

“Groff has a payment option mortgage, a once-popular subprime loan. He can’t pay the $3,300 interest-only amount and makes the $1,600 minimum monthly payment, which adds to his mortgage debt. A ‘For Sale’ sign could be going up on Groff’s front lawn if prices in the neighborhood fall closer to the $545,000 he paid for the four-bedroom house.”

“He and his wife financed the entire purchase with a subprime loan. Rather than make a down payment, they put the money into landscaping, hardwood flooring, bathroom upgrades, as well as a new motorcycle and car.”

“‘We gambled because the way everything was going it seemed safe. We were riding the market,’ he said.”

“Then they refinanced into the payment option loan with a plan to make the minimum payment and build back their savings. ‘And that basically was the big mistake,’ Groff said.”

“Jesus Sandoval works two jobs to pay his mortgage, but still worries he might eventually have to move his family back into the type of moldy apartment they once called home.”

“Sandoval and his wife, Monica Gonzalez, paid $435,000 for the three-bedroom home in June 2004, taking out two loans to finance the entire purchase. Two years later, their monthly payment set to jump to $3,800, the couple needed to refinance. But interest rates had risen and there was not enough equity in the home to refinance into a single, longer-term loan with a lower rate.”

“The couple mostly makes the interest-only payment of $2,800 on the two loans. When money is tight, they pay the minimum amount of $1,200, with the difference between the two added to the mortgage balance.”

“‘If someone would have told us this could happen, maybe we don’t buy the house,’ Gonzalez said.”

“‘We are cutting down on groceries and going out. We’re going to cut on Christmas gifts. We used to have parties for birthdays. This time, just a cake and a small present,’ Gonzalez said.”

“Sandoval needed to refinance a year ago. Home values were falling and interest rates had climbed. The couple managed to refinance by taking out a riskier loan that offers different payment options, including an interest-only choice they can usually afford. But the payments have been rising, $100 every six months.”

“‘I thought it was good. Now I see this sucks,’ Sandoval said. ‘It’s more expensive. When I send just the minimum payment, the rest goes to my mortgage, so you’re going to owe more money to them. Now we’re in a really black hole and I don’t see the end.’”

“The move from a cramped apartment to a spacious town home thrilled Maria Favela and her children. But joy turned to disappointment 15 months later when the single mom was forced to sell because she no longer could afford the mortgage.”

“Favela managed the $410,000 purchase by financing the entire price, taking out two high-risk loans. Favela said she was shocked her monthly payment was $2,400 and unaware it would rise to $3,400.”

“From the beginning, Favela struggled to pay her mortgage on her $45,000 annual income. ‘It was really tight. I was using money I had in the bank. I was working a lot of overtime to make the payments,’ she said. ‘Sometimes I didn’t have a day off for a month. It was really, really hard on my family. I saw them sometimes for dinner, sometimes just bedtime and then go to work and they stay with relatives.’”

“‘My payment was so bad. I never would have done it if I had known how much the payment really was,’ said Favela. ‘I was telling everyone I was so scared. I said maybe I don’t want the house anymore.’”

Inside Bay Area. “David Newman isn’t an economist, but from his vantage point as a pawnbroker, he sees an economic underbelly most people don’t see. ‘Times are getting harder, and more people are hurting these days,’ said Newman, manager of Cash Loan Inc. pawnshop in South San Francisco.”

“Newman often sees people come in with a stack of bills that need to be paid. They’re carrying jewelry, guitars, power tools or other personal property they can pawn, and get a loan on. Many are strapped by rising gas prices, mortgage payments and other costs. They need a quick loan to help pay the PG&E bill or that expanding house payment.”

“‘Loans are definitely a little stronger these days,’ said Jacob Notowitz, a second-generation pawnbroker in Millbrae. ‘There’s a home-loan crunch, and people can’t refinance.”

“People often use his shop to get loans to make up the difference as ‘home loans re-set,’ Notowitz said.”

The San Francisco Chronicle. “In the 37 years William Horstman has been practicing in San Francisco as a therapist, he’s never seen patients spend more time worrying about their home values - and their personal sense of wealth - than they do today.”

“For people more immediately caught in the crisis, the emotional effects are intense, said therapist Vivian Hankin, a marriage and family therapist based in Berkeley. Two of her clients have moved out of the area because they couldn’t afford to keep their homes.”

“‘They were just devastated because they couldn’t keep their houses,’ she said. ‘They had to go back and find less-expensive places to live in the country. And they still have to worry about how to make it because they have to get new jobs and have to get new friends. They have to start all over again.’”

“Other clients, she said, are stuck with the dreaded double-mortgages, having bought a new house and being unable to sell their old one. ‘They’re so scrunched for money that they’re talking about being afraid to buy anything, even shop for groceries,’ she said. ‘Some are even cutting back on medications prescribed by their family doctors or psychiatrists.’”

“Many clients, she said, have dropped out of therapy because priorities have changed: ‘They have to be food, shelter, utilities, the basics. Anything beyond that isn’t possible.’”

The Los Angeles Business Journal. “For the first time since the long national housing slide began, the median price of a house that sold in Los Angeles County was lower than the same month a year before, according to new figures on home sales in October. The number of homes that changed hands plunged as well.”

“The median price dropped to $525,000, a 3.7 percent fall from October 2006 when it was $545,000 – and 9.5 percent off this September’s $580,000, according to HomeData Corp.”

“‘It is a very tenuous market and over the next few months I expect more price declines,’ said Mark Cohen, who heads the Beverly Hills-based mortgage bank and brokerage Cohen Financial Group. ‘I hope I’m wrong, but that’s the way I’d bet. A couple of deals fell out of escrow today. It’s no fun.’”

“In upper-middle-class Agoura Hills, the 91301 ZIP code had a year-over-year price decline of 13 percent to $600,000. In the City of Commerce 90040 ZIP code, one of the county’s most inexpensive, the median fell 14 percent to $389,000. Even in tony Malibu, the 90265 ZIP code saw a 31 percent price drop to $1.23 million.”

“Sales have slowed so much that it would take nearly 19 months to deplete the supply at the current rate of sales, according to the state Association of Realtors. That figure is far higher than the 7.8-month supply of a year ago.”

The Union Tribune. “Miguel Albarran’s adjustable mortgage is a ticking time bomb. Each time it goes up, he feels the pressure build on his family budget. The payment is set to rise again in December, this time by $1,100 a month, putting a potentially unbearable strain on his family of five in Vista.”

“Albarran, who makes $63,000 a year, bought his 1,550-square-foot, three-bedroom home in Vista two years ago. He paid about $478,000 and financed the purchase with a conforming first mortgage of $95,000 and a second, ‘jumbo’ mortgage of $382,000.”

“A bill already passed by the House, HR 1427, would reform Fannie Mae and Freddie Mac and allow the two to securitize loans of up to $625,000 in expensive housing markets. A similar bill has stalled in the Senate Banking Committee.”

“Robert Rivinius, CEO of the California Building Industry Association, says the stakes in this complex debate are high for California.”

“‘Homeownership in California is only 56 percent, and the rest of the nation is 69 percent,’ Rivinius said. ‘So the homeownership rate is lower than (that of) the rest of the country, and if we don’t raise the limit, things will never improve.’”

The Press Telegram. “For rent: A newly built $2.3 million, three-story home with 270-degree views of the ocean and most of the L.A. Basin. Rent, don’t sell. That’s the advice some Realtors are giving sellers who are unhappy with the lackluster offers they are getting for their homes.

” “Among the swelling sea of ‘for sale’ signs around the region, ‘for rent’ signs are popping up in growing numbers. That may be a sign that some people plan to dig in and wait out the real estate doldrums by offsetting those large mortgage payments with rental income.”

“‘In this slower market a lot of sellers are getting creative,’ said Mike Murphy, with Re/Max Realty College Park. ‘This year I’ve rented 17 houses that haven’t sold.’”

“As many as half the homes Murphy has rented were near the lower end of the market’s price range. ‘If you have a $350,000 condo and don’t need to sell it, then don’t sell it,’ Murphy said.”

“One property Murphy just put up for rent is a 4,000-square-foot home near the top of Signal Hill at 2252 Molino Ave. And a $2.3 million price tag that apparently makes buyers a bit shy.”

“Murphy has put the home up for lease for $5,500 per month. That’s probably a steal for a family with deep pocketbooks and a fear of buying in this market.”

“‘For people who don’t need to sell right now, it might be a good move,’ said Colleen Badagliacco, president of the California Association of Realtors. ‘I think you may see more of that. For some people in the marketplace, it may be a very savvy move because most communities have a shortage of quality homes for rent, so you can get a premium.’”

A report from the Arizona Republic. “The number of Valley homeowners losing their homes to foreclosure has shot up 566 percent so far this year, a result of the housing market’s slowdown and rising interest rates on a variety of risky mortgages. Through October, there were 7,139 foreclosures, according to Information Market. That compares with 1,072 foreclosures for the same period last year. Last month alone, 1,396 Valley homes fell into foreclosure, compared with 934 in September.”

“‘The foreclosure problem in Arizona is only going to get worse,’ said Fred Karnas, the new director of the Arizona Department of Housing.”

The Arizona Daily Star. “Sean Kennedy and his wife, Katy, worked for about a year at Tucson-based First Magnus Financial Corp. before the company laid off most of its employees Aug. 16.”

“Now Katy Kennedy is a La-Z-Boy salesperson, and Sean Kennedy is working odd jobs including occasional shifts at his family’s Dairy Queen while he looks for more permanent employment. The couple earned about $70,000 combined at mortgage lender First Magnus but are now making do with significantly less and have dipped into savings to help make ends meet.”

“Four of the 12 former workers interviewed for this story are still looking for permanent jobs. Of those who found jobs, two said they are earning less than they did previously. Five said they are making about the same but declined to be specific. Just one reported finding a better-paying job.”

“The Kennedys, for instance, both had jobs related to First Magnus’ practice of selling loans to investors on the secondary market. Such jobs would be difficult to find in Tucson, local industry experts said.”

“‘It’s hard when the market is flooded with everybody at once and everybody has the same qualifications or better than you,’ Sean Kennedy said.”

“Janice Boyd, also a former processor, said she is taking ‘a little break’ after months of job hunting by attending job fairs and applying to insurance firms and local government offices. But she’s staying away from the mortgage industry, she said.”

“‘I’m not looking for mortgage jobs,’ she said. ‘Not the way things are going right now with the mortgages, no.’”

“Pima County’s Development Services Department added $1 million in new staff costs over the last six months, despite running a projected deficit of up to $5 million. The department…has seen its revenues plummet along with new housing starts and now is struggling to find ways to cut expenses.”

“Development Services Director Carmine DeBonis said he did not anticipate the severity of the slowdown or how long it was likely to last when he was making hiring decisions earlier this year.”

“‘Hindsight always is 20/20,’ he said. ‘At the time we came up with the budget, no one anticipated the drop-off in the residential market that occurred.’”

“To meet its $15 million budget, the department needs to earn $1.3 million a month through permits, inspections, plan reviews, zoning and comprehensive plan changes and subdivision fees. But the county processed just 8,500 residential building permits last year, the lowest level since 2002, and permits may not break 5,000 this year.”

“In September, the department processed just 105 residential permits. Monthly revenue has dropped to less than $900,000.”

“Some builders and real estate experts questioned how the department could not have foreseen the decline. Duane LeGate, president of HouseBuyerNetwork.com, said he realized the downturn was coming in June 2006 when his company saw a huge increase in the number of distressed properties for sale, and it was apparent to most observers by January 2007.”

“The slowdown was clear by January or February, said Tom Doucette, owner of local builder Doucette Communities. ‘It seems they ignored the signs of what was happening,’ Doucette said. ‘They hear the development community say things are bad, and they think we just don’t want to pay more fees.’”

“If the department saw continued activity through the first half of 2007, Doucette said, some of it may have been national builders continuing to request permits in the hopes the slowdown would be temporary. But local builders already had scaled back their activities.”

“Doucette said he, like many builders, already has laid off employees and may have to lay off more. He questioned why the department would consider raising fees instead of letting staff go.”

“‘What are these people going to sit around doing when nobody is applying for permits?’ he asked.”

The Review Journal from Nevada. “Consumers will have to wait a little longer than expected to buy into a major green-housing project. Pulte Homes has pushed back the opening of its Reverence community in Summerlin from July 2008 to sometime in 2009.”

“Company officials wouldn’t elaborate on the reasons behind the deferred opening beyond pointing to general delays in the land-development schedule.”

“Ken Perlman, VP of Sullivan Group Real Estate Advisors, said a development-related halt in activity at Reverence could benefit the project in the long run. Given the sluggish housing sector, sales of new homes fell 43.7 percent in September when compared with the same month a year ago, according to SalesTraq, opening later than planned could buffet the neighborhood from further fallout in a down market.”

“‘Instead of trying to jump-start a project in this kind of economic period, it makes excellent sense to work through (development) schedule issues as the market begins to sort itself out,’ said Steve Bottfeld, an analyst Marketing Solutions.”

The Las Vegas Buiness Press from Nevada. “Centra Properties, a local developer responsible for $3 billion worth of projects, has liquidated nearly all of its Las Vegas area assets.”

“Centra Point’s recent sale marks the latest in a series of company divestitures stretching back to 2005. In May 2005, Centra unloaded 25 acres to the Edge Group for $202 million. It marked a 62.8 percent premium over the original purchase price just two years earlier. The site was the location of the failed $3 billion Las Ramblas condo-hotel-casino complex that was canceled amid a high-rise market downturn.”

“‘Realistically, you cannot buy property at today’s retail prices and still build things, unless your have a competitive advantage,’ said Jeremy Aguero, principal of Applied Analysis. ‘Developers must now have cash on hand in order to make projects happen. Banks and Wall Street are tightening lending requirements. As a result, we’re dealing with a new reality that’s going to be around for a while.’”

“CB Richard Ellis brokerage is reporting 7.7 percent apartment vacancy for Las Vegas in September, down from 7.9 percent in August. The Class A segment showed 6.7 percent vacancy for 28,500 units reporting; the middle market (40,000 units) had 8.3 percent vacancy; and the bottom end (27,000 units) reported 7.8 percent vacancy.”

“‘We’re certainly being impacted by the number of single-family homes being rented,’ CB Richard Ellis apartment specialist Spence Ballif said. ‘Apartments are really getting back to stressing what they offer, the amenities and services and how quickly things get fixed. If you’re renting a house from an out-of-town investor and something breaks, good luck getting it fixed.’”

In Business Las Vegas from Nevada. “The supply of single-family homes in Las Vegas and slowing job growth are preventing apartment owners from raising rents as much as they did a year ago.”

“The reason for the slowdown in rent growth was increased vacancies. The occupancy rate dropped to 93.5 percent in the third quarter, down from 95.8 percent in the third quarter of 2006, Applied Analysis reported.”

“Aguero said the record level of existing-home inventory would begin to whittle down by then. As for prices, he said new-home prices, which have fallen 15 to 22 percent from their peak, don’t have much farther to go unless there is a broader correction to the market.”

“The Bureau of Land Management is considering whether to abandon its policy of refusing to sell land for less than its appraised value. Only one of 31 BLM parcels sold at the lackluster auction Nov. 1, which was the worst this decade by BLM standards.”

“The auction placed 167.5 acres up for grabs in Henderson, the southwest and other areas. Only the sale of one 15-acre site kept the auction from being a shutout.”

“Juan Palma, BLM’s Las Vegas field manager, he said it is possible that at the BLM’s next auction, tentatively scheduled for April, it may for the first time, allow bidding to start below the appraised value.”

“Bidders would be required to meet the reserve price, which is the appraised value, Palma said, but the more open bidding process would give insights as to the level of interest in the federally owned land and its current market value.”

“That could ultimately lead to changes that would allow property to be sold for less than appraised value, he said.”

“Palma said that with a slowdown in the housing market and softened demand for land in the Las Vegas Valley, the appraisals lag behind the current market and tend to look at what the land was once worth.”

“Palma…noted that with the housing slump and the appraisals’ failure to capture declining values, auctioned land is priced to the point where there are no bidders, Palma said.”

“‘When the market is in an upswing, the appraisal system works, but when the market is not going down, the appraisal system doesn’t work,’ Palma said.”

“Craig Cherney, director of Western operations of a private equity and land acquisition group, said it is not surprising that parcels didn’t sell at the auction in a market where prices continue to decline.”

“‘There is no demand, and basically it is a supply and demand problem,’ Cherney said. ‘There is overhang in the private real estate market and until that is burned through, there is going to be little demand from public and private homebuilders.’”

“Cherney said he doesn’t believe going to a process of accepting bids lower than appraised value while setting a reserve price will generate more interest in the bidding process. If the buyers know they have to meet the reserve price, they’re not going to take a half a day to go bid on properties they know they won’t buy.”

“What would work, Cherney said, is an auction that starts at appraised value and ratchets down in increments to a point that bids are made. Then, the price can go up from there, he said.”

Some housing bubble news from Wall Street and Washington. The Guardian, “Construction firm Taylor Wimpey is looking for white knight to rescue it from a disastrous $30m-plus investment on Florida’s Gulf of Mexico coast. The company has abandoned its efforts to develop any kind of property on 2.5 acres of edge-of-the-water prime real estate at Clearwater Beach and is looking for a buyer for the land.”

“The developer bought the hurricane-damaged, 217-bedroom Adam’s Mark Hotel in mid-2005 at a top-of-the-bubble price of $31.5m (£15.12m). Now the company has decided that the Florida condo market is completely overbuilt – it is believed there are 800 condos on the market in the Clearwater Beach vicinity alone.”

“News of the Clearwater Beach debacle follows a few days after Taylor Wimpey gave downbeat estimations of its US operations and cut the value of its bank of US plots by $360m or 15% from $2.4bn.”

The Independent. “House sellers were this weekend warned not to put their houses up for auction as they are unlikely to sell because of the state of the housing market.” “According to new figures obtained by the Sunday Independent, three out of four houses up for auction this year have had to be withdrawn because of lack of interest.”

“Dublin estate agent Peter Wyse said: ‘Last year, 80 per cent of auction houses were sold at or just after auction. This year, it is the total opposite with 80 per cent of houses being withdrawn because of lack of interest. We are advising people not to use auctions right now.’”

“Elsewhere, as many as 35,000 home owners are set to fall into negative equity after a new report warned house prices will plummet by eight per cent next year. The bad news emerged from a report by Goodbody Stockbrokers that the average value of homes would drop by five per cent this year, meaning a drop of 13 per cent in just two years.”

“Goodbody chief economist Dermot O’Leary said the slide into negative equity would affect mainly those who took out 100 per cent mortgages, which were first introduced in 2005. However, Mr O’Leary played down the potential impact on homeowners.” “He said: ‘It only becomes a problem if the mortgage becomes unaffordable.’”

“Construction activity fell for the fifth month running in October when the sector declined at a marked rate. The latest fall has been linked by firms to weaker new orders, according to new figures from Ulster Bank.”

“While the employment indicator only really began to fall in July, the decline accelerated in October with the index just above the low of March 2003.”

“‘A sharp reduction in supply remains the best guarantee builders have that prices can be maintained. In the past 10 years, new house prices rose by 300pc. So far this year, they have fallen by a little more than 3pc,’ said Pat McArdle.”

The Financial Post. “Canadian Imperial Bank of Commerce’s writedowns related to the U.S. housing market are now estimated at $753-million, the bank said, as banks around the world continued to rack up tens of billions in losses from the panicked credit markets.”

“CIBC has written down 44% of its $1.7-billion U.S. residential CDO and RMBS portfolio, and there could be more losses to come. ”

“‘We continue to see future risks to CIBC given recent explosive growth in more exotic credit instruments,’ said Blackmont Capital analyst Brad Smith.. ‘We expect losses may continue to emerge regarding CIBC’s CDO portfolio.’”

From Bloomberg. “Losses from the falling value of subprime mortgage assets may reach $300 billion to $400 billion worldwide, Deutsche Bank AG analysts said.”

“Wall Street’s largest banks and brokers will be forced to write down as much as $130 billion because of the slump in subprime-related debt, according to a report today by New York- based credit analyst Mike Mayo,. The rest of the losses will come from smaller banks and investors in mortgage-related securities.”

“Deutsche Bank’s Mayo expects writedowns at HSBC, UBS AG, Royal Bank of Scotland Group Plc and Barclays Plc to be ‘ballpark $5 billion or so’ each, he said.”

“About $1.2 trillion of the $10 trillion of outstanding U.S. home loans are considered to be subprime, Mayo said in the note. Loss rates on about $200 billion of securities based on derivatives linked to subprime debt will run to as high as 80 percent, Mayo wrote.”

“Citigroup Inc.,Bank of America Corp. and JPMorgan Chase & Co., the three largest U.S. banks, reached an agreement on the structure of an $80 billion fund to help revive the market for short-term debt, a person familiar with the talks said yesterday.”

“The banks are pushing to have the fund in place by year-end because SIVs are unable to get short-term credit to finance their higher-yielding investments. The plan still has to win the confidence of investors.”

“‘The whole thing is flawed,’ said Josh Rosner, whose New York-based firm analyzes structured finance and real estate investments. ‘As opposed to recognizing losses, we’re trying to roll those losses into the future, regardless of the sanity or safety and soundness of doing that.’”

“The asset-backed commercial paper market has been shrinking for 13 straight weeks in the U.S. and last week declined the most in two months. The net asset value of SIVs has fallen to 71 percent of initial capital from 102 percent in June, Moody’s said last week.”

“International Securities Trading Corp. in Dublin said today it’s writing down at least 70 million euros ($102 million) from holdings of SIVs.”

“A SIV needs the approval of three-quarters of its senior debt holders before it can sell assets to the fund, analysts say. The structure for the super-SIV that the banks agreed to Nov. 9 may lower that requirement, according to the person briefed on the discussions. The fund may also impose fees of as much as 100 basis points, or 1 percentage point, the person said.’

From Fortune Magazine. “Two things stand out about the credit crisis cascading through Wall Street: It is both totally shocking and utterly predictable.”

“Wall Street always rides a wave until it crashes. As the fees roll in, one firm after another abandons itself to the lure of easy money, then hands back, in a sudden, unforeseen spasm, a big chunk of the profits it booked in good times.”

“‘The fee engine becomes so huge that these products take on a life of their own,” says Tiger Williams, CEO of a leading financial services firm for hedge funds. ‘Everyone rationalizes that it’s safe because they’re making so much money. But it’s far from safe.’”

“Even after the record $8.4 billion writedown for bad debts at Merrill Lynch & Co., the unprecedented ouster of three chief executives within five months and the elimination of $84 billion of market value at the five largest securities firms, Wall Street still is poised to report its second-most profitable year.”

“And 2008 may be better.”

“‘As the bombs are dropping and the mines are exploding, it’s a bit of a surprise,’ said Kenneth Crawford, who helps oversee $950 million at St. Louis-based Argent Capital Management LLC, which holds Morgan Stanley and Merrill shares.”

“Les Satlow, who oversees $450 million at Cabot Money Management, said he’s more bullish on prospects for investment banks than commercial banks. ‘The securities firms have less exposure to the consumer and greater exposure to overseas capital markets, which have a reasonable chance of remaining solid,’ Satlow said.”

From Reuters. “Blackstone Group president and chief operating officer Hamilton James said on Monday that the subprime mess that hit Wall Street banks appears to be getting worse. ‘The subprime black hole is appearing deeper, darker and scarier than they thought,’ James said, referring to investment banks.”

“But James added that Blackstone is starting to ‘go long’ the subprime market, after a successful bet against the sector that played out over the last 18 months. ”

From MarketWatch. “Embattled mortgage lender Countrywide Financial Corp. in a regulatory filing conceded that if its credit ratings fall below investment grade, its access to the public corporate-debt markets ‘could be severely limited.’”

“As of Sept. 30, up to $5.5 billion of Countrywide’s custodial deposit accounts on deposit with the bank could be affected if the credit rating fell into junk status, according to the filing.”

“The company said 4.9% of subprime mortgages were pending foreclosure at the end of the third quarter, up from 2.9% a year earlier.”

“To this day, Countrywide’s CEO Angelo R. Mozilo says his beleaguered company did nothing wrong during the loose-lending craze that is now unraveling nationwide with record foreclosures and mountainous losses. Instead, Mr. Mozilo considers himself and his company to be victims of financial forces beyond their control.”

“At a conference sponsored by the Milken Institute about two weeks ago, for example, he explained that borrowers forced lenders like Countrywide to lower their mortgage standards. The industry faced special pressure from minority advocates to help people buy homes, he said. Now, the government must help by increasing loan limits at government-sponsored enterprises like Fannie Mae and Freddie Mac, he added.”

“‘No one, including Mr. Mozilo, could have foreseen the unprecedented combination of events that led to the problems borrowers, lenders and investors face with many of these loans today,’ said Rick Simon, a Countrywide spokesman.”

“‘The biggest self-inflicted wound here is they should have pulled back in ’05 and ’06 when you had these competitors doing all sorts of crazy things. Angelo talked about the danger but somehow went for the market share gains anyway,’ said Sy Jacobs, a former banking analyst and founder of a New York investment fund.”

“For Countrywide…this remains one of the burning and still unanswered questions. Why did the company’s chief, who routinely warned of his rivals’ lax lending practices well before the mortgage market cracked, ultimately allow Countrywide to ardently embrace those practices?”

“‘People who get themselves in trouble are good at self-hypnosis. That is why they are such good salesmen — they convince themselves about the story,’ Bruce C. N. Greenwald, a finance professor at Columbia Business School, said. ‘He was not selling houses. He was selling a dream. And he had lived in a world where there had been no defaults for so long that he didn’t believe they could happen.’”

“Central to Mr. Mozilo’s…strategy was…to constantly snare market share from rivals. While this strategy benefited Countrywide throughout much of its history, when mortgage lending was a more plain-vanilla affair, it turned perilous during the past three years. By then, competition among mortgage bankers was so fierce that the only way to gain share was to loosen underwriting standards.”

“‘To the extent that more than 5 percent of the market was originating a particular product, any new alternative mortgage product, then Countrywide would originate it,’ said a former financial executive at Countrywide who was granted anonymity because he was concerned about legal action from the company. ‘Apply that principle to anyone’s business and it would get you in so deep — it’s the proverbial race to the bottom.’”

“When an appraiser hired by your mortgage company confirms that the house you bought is worth what you paid, that’s reassuring. But what if the appraiser was pressured to fudge the number?”

“Perry Turner, an appraiser in the Richmond, Va., area, said pressure to inflate values is so widespread that ‘it amounts to organized fraud by loan officers based on their need to generate fees and close deals, and then pass the loans on to Wall Street’ where they get packaged into the mortgage bonds that are now experiencing heavy default rates and losses to investors.”

“‘And they all think they’re never going to get caught,’ said Turner.”

National Mortgage News. “Loan abuse story of the week: ‘I attended a mortgage event in Chicago last year and sat at a lunch table with some LOs from California. Two men were bragging how they made up to five points on subprime payment-option ARM deals. My processor was with me and it made both of us sick.’ — Kathy from Washington.”

The Palm Beach Post reports from Florida. “The buyers’ remorse crowd keeps growing. Pre-construction buyers of the luxurious 2700 North Ocean Boulevard condominium being built on Singer Island…are making last-minute attempts to undo their million-dollar purchases just as the condo nears completion and closings are on the horizon. High-profile developer Dan Catalfumo is disinclined to let anyone out of the deal.”

“‘Bring it on,’ Catalfumo said in an interview last week. ‘I’ll see them at closing. They’re not getting out.’”

The Sun Sentinel from Florida. “Levitt and Sons of Fort Lauderdale became the nation’s largest builder to file for bankruptcy as the housing market continues to crumble. The storied company filed for Chapter 11 protection from its creditors in U.S. Bankruptcy Court in Broward County. It lists assets of less than $1 million and debts of more than $100 million.”

“Angelo Palermo is renting an apartment in Pembroke Pines while waiting for his $380,000 house in Port St. Lucie to be finished. He isn’t optimistic about recovering his $38,000 deposit.”

“‘My attorney told me it looked like they were going to go into bankruptcy,’ Palermo said. ‘But if they go into bankruptcy, I’m at the bottom of the list for collecting money.’”

“Three years ago, home builders held lotteries to deal with hordes of people, mostly short-term investors, overwhelming their sales centers. Today, with housing markets crashing, builders practically beg for buyers.”

“‘During the boom, you were developing strategies to manage demand,’ said Jill DiDonna, a VP of Sunrise-based GL Homes. ‘Now your whole modus operandi is trying to stimulate demand. It’s come 180 degrees.’”

“Q: Can builders afford to keep offering deep discounts?”

“A: Buyers’ psychology today is that they expect to get good deals. We just sold 40 homes in Vero Beach. We knocked anywhere from $60,000 to $100,000 off the price of the homes. If a house is selling for $300,000, and it cost you $250,000 to build, and you have to sell it for $225,000, at least you have some cash flow coming in. Something is better than nothing.”

From Florida Today. “Mortgage foreclosure filings in Brevard County reached a new monthly record, with 590 in October, according to the Brevard County Clerk of Courts, which records foreclosure cases.”

“The deluge brought the total for this year to 3,908 filings from January through October, more than double the 1,868 filings in all of last year, and more than triple the 1,144 filings in all of 2005, data from the Clerk of Courts office shows.”

“Ritch Workman, president of the Florida Association of Mortgage Brokers said the past housing price increases represented ‘unsustainable growth.’”

The News Journal from Florida. “The inventory of unsold homes in the Escambia-Santa Rosa area remains at record highs. As of Nov. 1, there were some 10,000 dwellings for sale, counting all single-family houses, condos and townhomes on the two-county MLS and those for sale by owner.”

“‘What we’re looking at is a huge inventory that’s unprecedented for this area,’ said Al Muller, president of Metro Market Trends. ‘There are fewer buyers in the market, the speculators and investors are gone and people with poor credit are not buying. This tells me is that prices need to keep heading down.’”

The St Petersburg Times. “Mark Kowalick always knew that if he didn’t like where he was working, he could drive down the street near his New Port Richey neighborhood and find another job. At 39, he has been pouring concrete about half his life. It’s what he does.”

“Or used to do. He has been laid off for nearly a year, a victim of the housing slump. And there’s nothing down the street anymore.”

“It’s so bad, Kowalick said, that pawn shops have stopped buying the tools contractors use because they’re overstocked, and some of his friends have been forced to sell their most prized possession: their pickup trucks.”

“‘Nobody talks about what’s happening to us,’ he said. ‘It’s unbelievable that I’m reduced to this. I used to own my own concrete business.’”

“On Wednesday, Kowalick applied for a job that is housing-related, sort of, as a cook at a local International House of Pancakes.”

“‘This is the first time since I was 12 that I haven’t worked,’ he said. ‘Five years ago I could quit this morning and have job this afternoon. Now I don’t even know anybody who’s pouring concrete.’”

The Naples News from Florida. “At a time when a high county assessment of a home’s ‘market value’ can seem like rude contrast to the trends in the region’s real estate market, property owners have sent in a record 3,727 property value petitions.”

“Frustration with the sagging market is one explanation Lee County Property Appraiser Ken Wilkinson has for why there has been a spike in the number of challenges to his office’s work this year.”

“‘It’s true the values are continuing to go down,’ Wilkinson said, adding he’s seeing the steepest decline in the prices of vacant lots in the county.”

“Bonita Springs resident Rhea Corrion made the trip to Fort Myers last month. In the county’s view, the vacant lot she and her husband own in the city’s downtown was worth more than $149,000. She doesn’t dispute that’s what many would like the land to be worth, she sees other lots listed for about that price.”

“‘But they’re not selling,’ she said. ‘The values should go up a little bit, not 81 percent.’”

The News Press from Florida. “Despite reduced tax rates, John Van Voorhis’ 2007 taxes increased 4 percent because his property assessments spiked when speculators bought nearby property at high prices. The 2007 assessed value of his first duplex increased by 37 percent to $334,230; his second duplex’s fell 0.8 percent to $283,300; and his third duplex’s rose by 14 percent to $241,820.”

“He said the property appraiser is not taking into account those speculators are trying to resell their property at lower prices than his assessed values. ‘Now you tell me my assessment is fair market value,’ he said.”

“George Khoury bought a house in Fort Myers four years ago to escape Toronto winters. After seeing his 2007 property tax bill, he’s contemplating fleeing Florida. His taxes shot up 40 percent from last year, mainly because his assessment increased 47 percent, from $440,540 in 2006 to $647,380.”

“If his assessment doesn’t go down, he will try to sell his house and leave. ‘We’ll go to Arizona or South Carolina. There’s absolutely no reason to take this kind of abuse,’ Khoury said. ‘If I pass this around in Canada to the other Canadians who come down to Florida, it’s going to scare the living daylights out of them.’”

“Mary Middleton’s been a real estate agent for 21 years, five years before becoming a licensed appraiser. A Fort Myers native , Middleton from her south Fort Myers home and has a staff of two other appraisers. It was late 2006 when the plunging residential market began to be felt at Middleton Appraisal, she said.”

“‘I’ve been doing this for 16 years and this year’s the worst in all of those years,’ Middleton said. ‘That’s because the schools were turning them out, 70 appraisers a week, so the market was flooded on top of that.’”

“Middleton believes appraisers who grossly inflated the value of homes they examined during the residential real estate explosion have given the profession a black eye. ‘We’re supposed to be protecting the lender, but I always say I’m here to protect the buyer,’ she said. ‘Let’s say you’re buying a house for $350,000, but it was really only worth $300.000. Wouldn’t you be angry?’”

“Q: Why are appraisals receiving some of the blame for the prevalence of upside down loans?”

“A: Ultimately I think it’s the lender. For instance, let’s say the sales price was $300,000 and let’s say the mortgage broker said can we get $360,000 because they don’t want to have to put any money down. There were appraisers that could find that (additional value) and on top of that, there were lenders that accepted it. Even though the sales price was $300,000, they would still accept a sales price of $360,000.”

“A house on paper, that’s not built yet, these appraisers knowingly would use a home that’s worth $50,000 more as a comp (comparison) instead of homes of equal value. So that’s how they would get their values and we didn’t to do that. We would just say we can’t do that. So they, of course, made a lot more money, while we complained.”

“It’s the underwriters, the lenders. That was criminal for those lenders and underwriters, but they wanted those loans because they wanted to pass them off and make money from the secondary market.”

“It does bug me when they blame the appraiser. But every lender has a blacklist of appraisers. Do you think they turn them in to the state? No way. They just don’t use their appraisals anymore.”

The Beaufort Gazette from South Carolina. “Beekman Webb put a classified advertisement in the newspaper a couple of weeks ago for a carpenter’s assistant and ‘had about 50 calls in three days.’”

“‘I was just covered up, and I was the only ad in the paper at the time looking for carpentry help,’ said Webb, who has his own Beaufort-based construction company. ‘I had people from Hilton Head (Island) that told me they’d been in business for 15 years with a bunch of employees and now they’re just looking for a job as a carpenter,’ he said.”

The Post & Courier from South Carolina. “Margaret and Warren Ostergard are ready to try something different. Their three-bedroom, upscale townhouse at The Albemarle in West Ashley, listed at $594,900, hasn’t attracted much interest since it was put on the market a year ago.”

“But the Ostergards, who work for Weichert Realtors-Dean-Kelby in Mount Pleasant, say being flexible and open to a different kind of transaction — a lease-option contract — could help them catch a buyer’s eye.”

“The fallout from today’s real estate slowdown has opened a gap between buyers and sellers.”

“Mortgage lenders have tightened their standards, cutting a portion of aspiring but riskier homebuyers out of the market because of their less-than-perfect credit scores. At the other end, many homeowners have had trouble selling their houses, leaving some with second-mortgage payments for other properties — some of them far from Charleston.”

“For some buyers and sellers, one solution is a contract known in industry parlance as a ‘lease to purchase option’ agreement.”

“The lease-option concept is a by-product of the boom years, when speculative investors acquired options to buy homes, waited for real estate values to appreciate and sold their options for a profit, said Rachel Lindsay, CEO of P&L Management Properties in Summerville.”

“Since then, she said, the idea ‘has been plagiarized and altered to meet a different kind of demand.’”

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