The Housing Bubble

The Press Enterprise reports from California. “Unable or unwilling to sell their homes at declining prices, homeowners in Riverside and San Bernardino counties are converting them to rentals, glutting the market and causing rents to fall for the first time in years, according to Inland property managers. There are so many Inland homes for sale, that even if no more come on the market, it will take more than two years to sell the houses available, according to the California Association of Realtors.”

“John Denver, owner of Perris-based John Denver Realty, said most will take a financial loss as landlords, because the monthly mortgage payments are greater than the rent they can get. Bill Santoro, owner of a rental management company with properties throughout most of Riverside County, said the monthly shortfall averages $500. Denver said he is seeing some landlords taking monthly losses of as much as $1,000.”

“‘It is a good time to be a renter and a lousy time to become a landlord,’ said Denver.”

“Denver said today a $300,000 house purchased with a 7 percent down payment would likely require a monthly mortgage payment of $2,500. The same house, he said, can be rented for $1,300 a month, ‘and the owner has to do the repairs.’”

“Rob Dunn, a commercial construction manager, said that a year ago he noticed construction work was slowing in California and took a job in Denver. He and his wife put up for sale the five-bedroom, 3,600-square-foot house that they had bought four years earlier in the Victoria Grove community of Riverside.”

“He said they initially priced the house at $50,000 below market and between December and June they dropped their asking price from $700,000 to $620,000. There were no takers.”

“‘It wasn’t a matter of what your price was. Nobody was looking,’ Dunn said. Finally, in June, they got their first offer. But it was contingent on the buyers selling their own house in Orange County, which didn’t happen.”

“So 11 months after putting the Riverside house up for sale, the Dunns, who have already moved to Colorado, found tenants to rent their Riverside house for $1,975 a month, or about $500 a month less than the mortgage payment.”

“The Dunns’ real estate agent said a year ago the same house would have leased for $2,100 a month.”

“Dunn said the cost of keeping the Riverside house has put the family in a financial bind. They have bought a much smaller house in Denver, rarely eat out and have no money for golf, skiing or health club memberships.”

“‘We haven’t been to a movie since January,’ he said, and his wife worked over the Thanksgiving holiday to help make ends meet.”

“Kevin O’Neill, director of property management for ReMax All Stars Realty in Riverside, said that office lowered rents by 5 percent to 10 percent in the last 90 days to be more competitive.”

“Rich Merlin, owner of Inland Empire Property Management, which handles rental houses in Riverside and San Bernardino counties, said he has begun to offer a half month of free rent on his listings.”

“He said the rental market typically follows the for-sale market in down cycles. He recalled that during the recession of the mid-1990s landlords similarly were forced to use incentives.”

“The dying landscapes are sprinkled across every neighborhood in Murrieta. Some of the backyards have stagnant pools. Others have shattered windows.”

“‘These foreclosures have created a phenomenon,’ said Mayor Doug McAllister. ‘They always created an issue, but this time it’s worse. We don’t want these dead lawns and stagnant pools creating even bigger problems.’”

“Murrieta is joining a growing list of Inland-area municipalities trying to deal with foreclosed homes by targeting the banks or financial institutions that take over the properties. The city of Riverside passed a blight ordinance last week.”

“‘Banks need to maintain property just like everyone else,’ said Riverside Councilman Frank Schiavone. ‘They can’t just sit vacant and go to hell and let the neighborhood go to hell.’”

“‘The need for new legislation often arises from poor moral choices,’ Murrieta Councilwoman Kelly Bennett said. ‘This is the result of irresponsible homeowners, including lenders, who weren’t paying attention to what their choices can do to a community.’”

“Doug Leeper, Chula Vista code enforcement manager, said this cycle of foreclosures is different from those in the 1990s. He said this time people are moving out before lenders actually foreclose on a home. In the past, authorities usually had to force out the homeowners.”

“Chula Vista has 800 lender-owner properties in foreclosure. Some are marked by dead lawns. Others, often with million-dollar price tags, have stagnant pools and wide-open doors.”

“Leeper said most banks have worked with the city. But some national lenders have balked or even threatened lawsuits. ‘They think we are overstepping our boundaries,’ he said. ‘I just tell them, ‘OK you have your lawyers, we have ours.’”

“A lot of homes had lenders that flipped loans, so the names on the title reports are often outdated.”

“‘We call the lender and they tell us they sold it to another mortgage company,’ he said. ‘You finally reach that company and they tell you they sold it two weeks ago. They aren’t required to record that with the county recorder. Some of these loans have been sold four times.’”

The Bakersfield Californian. “The east Bakersfield streets bordering Martin Luther King Jr. Park are the metro area’s ground zero for subprime lending between 2004 and 2006. In 2006, 40 percent of home loan dollars that originated in Kern carried high interest rates.”

“Homeowner Isabel Shaff lives across the street from an empty, bank-owned home. Her area is already poor and rundown, she said. She worries that more foreclosures could make things worse.”

“‘I know this thing has just barely started,’ Shaff said.”

“At a recent foreclosure-prevention seminar organized by the credit union, Randy Petersen, VP of Kern Schools Federal Credit Union, was struck by sky-high rates some borrowers paid on home mortgages.”

“As prices escalated during the real estate boom, he said, many bought out of fear they might be unable to afford a home later. ‘There were lenders that made it possible to get in with little or nothing down,’ Petersen said. ‘And they charged the points or interest rates commensurate with that risk.’”

The Modesto Bee. “Like a great white shark lurking beyond a sunny, sandy beach, the first installment of this year’s property taxes looms amid the holiday decorating and shopping. The deadline is Dec. 10.”

“The deadline is a nonevent for renters and those homeowners who have an escrow account for the tax. Less than half of the property taxes in the county come from escrow accounts held by mortgage companies, said Stanislaus County Treasurer and Tax Collector Gordon Ford. And those who handle their own tax bills are getting some extra nudging from mortgage holders this year.”

“With the high level of home foreclosures in the past year, lenders are finding themselves stuck with delinquent property tax bills when they repossess a home.”

“‘One of the bigger changes we are seeing is lenders squeezing people to make sure they are current on the property tax,’ Ford said. ‘Mortgage companies don’t want to be caught behind on taxes.’”

“About 6.6 percent of the county’s property owners were delinquent at the end of the last fiscal year, Ford said. That’s higher than it has been in past years, probably because of the high number of home foreclosures, he said.”

“In 2003, at the height of the real estate boom, the delinquency rate was 1.7 percent, according to Ford. It was around 2.5 percent in 2004 and 2005, rose to 3.4 percent in 2006 and nearly doubled for 2007.”

“Stanislaus County doesn’t foreclose on properties for delinquent taxes until they are five years in arrears, Ford said. ‘If they are a year or two late, it doesn’t disturb us,’ he said. ‘We collect with interest later.’ And penalties.”

The San Mateo Daily Journal. “Home prices in San Mateo County have dropped slightly from an average of $975,000 to a little more than $900,000. ‘We’ve seen some slowdown. We are watching [transfer tax] on a monthly basis. If we find it goes down consecutively for a few months then we’ll be concerned,’ said Hossein Golestan, finance director for the city of San Mateo.”

“Foreclosures are up 28 percent and the volume of homes on the market is down 30 to 35 percent, said Jeff Craighead, president of the San Mateo County Association of Realtors. ‘There is still plenty of money out there, you just have to qualify for it,’ Craighead said.”

“Meanwhile, homes are becoming harder to sell.”

“The county Assessor’s Office usually releases preliminary assessed property values at the end of January. Any downward adjustment in assessed property values could signal to finance directors that it is time to tighten the city’s budget. ‘It’s wait-and-see,’ said Redwood City Finance Director Brian Ponty ‘We’re not seeing the robust increases we’ve seen in the past.’.”

The County Sun. “The Inland Empire is ground zero for the housing meltdown. But you’d never know it by looking at a new federal program that seems to slight California homeowners.”

“Figures provided by the Federal Housing Administration show that California homeowners make up only 3 percent of total loans offered nationwide under a new bailout program designed to help them avoid foreclosures.”

“Inland Empire borrowers make up just under 1 percent, in an area that reports the third-biggest number of foreclosures in the nation. Experts say California’s higher- than-average loan amounts confound the issue.”

“‘We have people calling, but when you look at what their real income is and what their debts are, it doesn’t pencil out,’ said Will Herring, a local mortgage broker and board member of the California Association of Mortgage Brokers, Inland Empire Chapter. ‘They don’t conform to FHA guidelines.’”

“So far, 290 subprime borrowers - 13 of them in default - throughout San Bernardino, Riverside and Orange counties have secured refinancing through the program.”

“Herring said one of the program’s guidelines recommends borrowers have a debt-to-income ratio no higher than 43 percent, which is shutting the door on several consumers. Most inquiries he receives are by homeowners who originally stated they had a 50 or 60 percent debt-to-income ratio when they applied for their subprime mortgages.”

“Jerry Mayer, program support director at the FHA’s field office in Santa Ana, said that number couldn’t be broken down by county because of computer glitches. ‘If I had to make an educated guess, then I’d say that 80 percent are in the Inland Empire,’ he said.”

The Daily Breeze. “Its figurative hat in hand, California went to the feds hoping for some help in coping with the worsening housing market.”

“And Tuesday, the feds brushed that request aside. James B. Lockhart, director of the Office of Federal Housing Enterprise Oversight, said the conforming loan limit for the continental U.S. will remain at $417,000 in 2008 - the level it’s been since 2006.”

“Despite falling prices, the Realtors association reported that just 24 percent of households could afford to buy an entry-level home in California during the third quarter, unchanged from a year ago.”

“In California, an ‘entry-level’ home costs $482,910, the association said. A family would need an annual income of $99,590 to buy it with 10 percent down, and an adjustable interest rate loan of 6.56 percent.”

“The High Desert, which includes the Antelope Valley and is being hit hard by foreclosure, is also the most affordable area in the state. Here, 48 percent of households could afford the entry level house, 10 percentage points better than a year ago.”

“And in Los Angeles County, where foreclosures are spiking but prices remain high, just 20 percent of households could afford an entry-level home.”

“‘It’s definitely not going to help our market,’ said Leslie Appleton-Young, chief economist at the California Association of Realtors. ‘We’ve been pushing for a long time to get California into the high-cost category. It would be very helpful.’, referring to higher conforming loan limits.”

Fox 23 reports from Oklahoma. “If you’re thinking about buying a home, right now might be the time. Realtors say we’re in a buyer’s market. But just as fast as homes are being sold here in Tulsa, they’re also being foreclosed. For a lot of people owning a home is an American dream, but realtors say many new homebuyers jump into it without knowing everything they need to know.”

“They say many people buy more than they can afford and don’t realize it until it’s too late. ‘For almost every homebuyer, that first home ought to be a fixed rate loan.’ said realtor Dennis Becker, and he says while the interest rate may start out lower on an adjustable loan, in a few years it could triple the amount of fixed loan. ‘Buy less than you can afford.’”

“If you think you’re not affected because you’re not buying a home now, think again. ‘Then credit companies and mortgage companies start tightening up their credit requirements,’ Dennis says.”

“The foreclosure rate is actually up here in Green Country. In September, more than 1,600 homes were foreclosed on, pushing the year to date number to more than 12,000 foreclosed homes.”

From KTEN News in Oklahoma. “For Durant real estate broker, Renea Roberts, selling houses comes easy. She’s helped at least 75 percent of homeowners in a Durant addition find a place to live in what she says is a good time to invest.”

“‘This is one of the things that is bringing people to Durant,’ says Broker, Renea Roberts, ‘because they can buy an affordable home like this one and put some money in the bank.’”

“Nationally, home prices are dipping, with the worst slump in California. That’s why realtors are seeing many move to Durant from all over the country.”

“‘It was just amazing that what we would get for it here, they come here, bought a nice, big home and still had money left,’ says Terry Brooks, realty sales associate.”

“‘You also have some of the baby boomers, who are getting ready to retire from the East Coast, West Coast and up north that have been up there, making a larger income,’ says Brooks. ‘And they’re coming up here to retire, and they’re able to pick up property for cheaper and live better.’”

The Norman Transcript from Oklahoma. “Norman Board of Realtors President Jayme McLaughlin said while the national media has been reporting a terrible real estate market, the local market is doing just fine.”

“‘While we may be feeling the ripple effect from the media coverage of the markets that are having a tough time, we are not having the same problems as California, Arizona or Georgia,’ McLaughlin said.”

“‘This is a CNN phenomenon that Norman and Oklahoma are getting caught up in,’ said Jonathan Leavey, executive VP of American-First Abstract Co. in Norman. ‘We should be conservative, but not panicked. To me, if you look at the national media, they are crying fire down the block but saying the fire is here, as well, and they are panicking people.’”

“McAuliffe said people are seeing the national reports and are afraid. ‘We are not crumbling in Norman, Okla.,’ he said.”

“McLaughlin said homes are sitting on the market longer, but buyers are not feeling any pressure to hurry their decisions. ‘But homes that are priced at or just a tad below market value are moving from ‘just listed’ to ’sold’ in about 45 to 60 days,’ she said.”

“She said homes priced at more than $250,000 are taking six months to two years to sell. The median range for Norman sales is $157,000.”

“McLaughlin said there is always an ebb and flow to the market. ‘The last couple of years were incredible and so we now find ourselves in a more normalized market,’ McLaughlin said.”

“Dee Taylor, past president of the Norman Board of Realtors, said there is a slowed investors market because the home equity market has slowed down. But even though the market may be a little slower now, Taylor said owning a home is a smart move.”

“‘It’s still one of the wisest investments people can make,’ Taylor said.”

“With the market slowing down, some buyers may have unrealistic expectations. ‘I think buyers are hoping to snag the deal of the century,’ said McLaughlin. ‘They want cheap prices when they buy and high prices when they sell.’”

The Denver Post from Colorado. “The mansion at 801 Race St. has stood empty for a year. The Denver landmark was acquired two years ago by a licensed real-estate agent, remodeled and offered for $2.25 million. It didn’t sell. The price dropped to $2.15 million. It didn’t sell.”

“Then a real-estate speculator stepped in, and the house sold for a reported $3 million in 2006. Michael Campbell, a flamboyant real-estate buyer who carried a teacup poodle to house closings, died of an alcohol overdose this year. At the time of his death, he was being pursued by federal and state fraud investigators.”

“As a speculative buyer, Campbell, like many others, repeatedly took advantage of the easy-loan era that collapsed this year into the subprime-lending crisis. From 2004 to 2006, he purchased at least 12 houses in Colorado in his name for a total of $8.2 million.”

“Campbell signed deeds promising that at least nine of these houses would serve as his principal residence, enabling him to qualify for lower interest rates than an investor. He also had a knack for taking cash from the closing table instead of putting money down by inflating sale prices to boost loan amounts.”

“Real-estate listing records show he bought one house for $350,000 above the original asking price and another for $251,000 above the original asking price. Nine of the 12 houses were soon foreclosed. Two others were foreclosed after he sold them to another investor.”

“In February 2006, a financial statement Campbell sent to a mortgage broker…showed he owned 11 houses, a Jaguar and a Chevrolet Tahoe, held $250,000 in bank accounts and boasted a net worth of $2.7 million.”

“Nine months later, in (a) lawsuit, Campbell said he hadn’t filed income-tax returns in two years, was making no money from his properties.”

“The day before he said that, he had his hands in the $3 million purchase of the mansion at 801 Race St. The house had sold for $1.3 million in December 2005 to Jeffrey Hammerberg, a licensed real- estate agent who remodeled it and tried to resell it four months later for $2.25 million.”

“When it didn’t sell, Hammerberg lowered the price by $100,000. It still didn’t sell. Yet in August 2006, real-estate listing records show, Hammerberg raised the price to $3.1 million. The house sold for a reported $3 million in November 2006.”

“Raising the price from $2.15 million to $3 million made it possible to borrow more money. Eighty percent of a purchase price is a typical loan amount. New Century Mortgage, a leading subprime lender that went bankrupt this year, provided $2.4 million, which was 80 percent of the reported sale price.”

“Ronald Low, a spokesman for New Century, said the company uses various measures to guard against mortgage fraud, including examining borrower qualifications and verifying appraisal values on a representative sample of its loans. New Century would not discuss details of the 801 Race St. loan.”

“Housing-industry experts say there is plenty of blame to go around. Everyone collected fees, creating what Jonathan Tiemann, a California investment adviser, describes as a pyramid of little golden crumbs.”

“‘The machinery had been set up so the mortgage would be sold to other parties. At every step of the way, somebody got a fee and then figured they would be able to pass the risk on to someone else,’ he said. ‘Greed was a very important factor. All the players were pursuing an opportunity to profit from an ever-increasing volume of transactions. The game just had to keep going.’”

“A decade ago, these lenders occupied a tiny corner of the mortgage market. Jim Spray, a veteran Colorado mortgage broker, remembers that the first emissaries of this new industry showed up about 1995, seeking his rejects.”

“‘You don’t need to throw those loans in the trash can anymore,’ they advised. ‘Send them over to us. We’ll get them approved and funded.’”

“As the subprime business mushroomed, the loan quality ‘just got worse, progressively worse, until it imploded,’ Spray said. ‘I should have tried to get my cat a mortgage. I’m sure I could have.’”

“In 2000, subprime mortgages represented 2.4 percent, or $115 billion, of the $4.8 trillion in residential mortgages outstanding in the U.S. By mid-2007, they accounted for 14 percent, or $1.5 trillion, of a $10.75 trillion market.”

“Starting in the early 1980s, mortgages were increasingly combined and sold as bonds backed by house payments, said Sue Allon, founder of Denver-based credit-risk manager Murrayhill Co. A financial innovation in the early 1990s — structured finance — changed everything, Allon said.”

“Wall Street ingenuity repackaged subprime loans to attract investors by slicing them into securities with different levels of risk. The genius of this strategy was that it opened a giant cash box to the mortgage market by allowing mutual funds, pension funds, insurance companies and university endowments to buy the highest-rated bonds.”

“‘Securitization became a driver for new mortgage-product development, which increased homeownership and home prices,’ said Joseph Mason, an associate professor of finance at Drexel University who has studied risk in mortgage markets.”

“The subprime models, however, didn’t account for the day when home prices would stall and then fall, leaving subprime borrowers trapped with rising payments, said Sam Khater, a senior economist with First American CoreLogic.”

“‘The environment has always been very strong price appreciation. They never had the test of a tough market,’ Khater said.”

“For one lender that went out of business, ‘we were doing 100 percent loans for a wage earner with a 600 (credit) score and stated income,’ said Account executive Susan Mann, whose last employer was Option One.”

The Greeley Tribune from Colorado. “Bruce Disselkoen, past president of the Weld County Apartment Association, said many property managers have noticed a recent downturn in the market and are at least partially blaming the high number of foreclosures in Greeley.”

“He said that people who can’t sell their houses are temporarily renting them out until they build some more equity. Also, there has been an increase in the activity of investors who are buying cheap foreclosure properties and turning them into rentals until the market improves and they can be sold for a profit.”

“‘There’s a flood of more stuff on the markets,’ Disselkoen said.”

“That glut of properties is driving down prices and also luring people out of apartment buildings — because they can now afford to rent an entire house for the same price they were paying for an apartment, he said.”

The Aspen Times from Colorado. “The credit crunch that’s caused a slump in the national real estate market might be having an indirect effect in Pitkin County. Then again, local sales might be experiencing an inevitable cooling after a super-heated first half of the year, according to local real estate agents.”

“Whatever the reason, the dollar volume of sales in Pitkin County fell nearly 37 percent in October, a new report by Land Title Guarantee Co.”

“Michael Russo, managing partner at Aspen Sotheby’s International Realty…said some would-be buyers in Aspen might have wanted to wait to see if prices of real estate would be affected by national conditions. ‘They wonder if they can buy more for less,’ he said.”

The Daily Sentinel from Colorado. “A sizzling Grand Junction housing market that posted a 65 percent gain in home prices in the last five years could be giving back a large portion of those gains in 2008.”

“That’s because the median price of a home in the region is projected to decrease 9.9 percent next year, according to a housing forecast laid out in the December issue of Money magazine.”

“There are some within the industry who think Grand Junction housing prices are headed lower. ‘I think you are going to see real estate housing prices soften, primarily in existing houses,’ said Denny Granum, president of Monument Homes in Grand Junction. ‘I can’t see a huge decline in new home prices because costs are what they are unless, for whatever reason, those costs soften.’”

“Granum, whose company specializes in building high-end homes priced upward of $550,000, said would-be buyers seem to be willing to ’sit back and wait and see what happens with the national economy’ before laying out their cash.”

“‘They are saying, ‘I think I’m going to give it a little time,’ he said.”

“‘My best guess is we are going to have some sort of price correction,’ said Ron Sechrist, a longtime area real agent and a broker associate in Grand Junction. ‘How long it is going to last or how much it will be … I can’t say … But there are a lot of people out there just waiting.’”

Some housing bubble news from Wall Street and Washington. CNN Money, “In another sign of the collapse of the market for new homes, builder Lennar Corp. has dumped a portfolio of 11,000 properties for 40 percent of their previously-stated book value. Lennar, the nation’s largest builder in terms of revenue, is selling the properties to a joint venture it has established with the real estate arm of Wall Street bank Morgan Stanley.”

“It is selling the properties for $525 million, even though it said their book value as of Sept. 30 stood at $1.3 billion.”

“The sale raised the possibility that Lennar’s results in the just closed quarter could again be hit by a large charge for the reduced value of its holdings. Lennar took a $847.5 million third-quarter hit for valuation adjustments and writeoffs of options.”

The Wall Street Journal. “‘There is a lot of money out there right now trying to do deals like this,’ says John Burns, who consulted with Morgan Stanley on the sale. ‘The problem has been the gap between what the buyers are willing to pay and what the sellers are willing to accept. This sends a strong message that somebody is willing to part with land at a significant loss.’”

“Tax considerations are pressing builders to do deals that involve losses. The builders can only claim losses on land that has lost value once the assets are sold.”

“When the housing market sank, the builders got stuck holding the land. The land that Lennar sold includes 11,000 home sites in California, Colorado, Florida, Illinois, Maryland, Massachusetts, Nevada and New Jersey. At the end of its fiscal third quarter, Lennar owned 86,412 lots.”

“‘Land is a nonearning asset. The builders have to get it off their balance sheet’ says Jeffrey Gault, CEO of a land investment company that has raised $350 million to buy land from builders across the country.”

From Bloomberg. “Moody’s Investors Service is preparing the biggest credit rating cuts since subprime mortgages contaminated the bond market, foreshadowing losses for investments that pay Florida teachers and money market funds.”

“Moody’s may lower ratings on $105 billion of debt sold by structured investment vehicles after the average net asset values of SIVs sponsored by firms including New York-based Citigroup Inc. declined to 55 percent from 71 percent a month ago, Moody’s said in a statement Nov. 30. The assets were valued at 102 percent in June.”

“‘In recent weeks, Moody’s has observed material declines in market value across most asset classes in SIV portfolios,’ the ratings company said in the statement.”

“Values on Citigroup’s six SIVs under scrutiny fell as low as 56 percent, Moody’s said. Orion Finance Corp. has a net asset value of 54 percent, down from 61 percent on Sept. 5.”

“An analysis for The Wall Street Journal of more than $2.5 trillion in subprime loans made since 2000 shows that as the number of subprime loans mushroomed, an increasing proportion of them went to people with credit scores high enough to often qualify for conventional loans with far better terms.”

“In 2005, the peak year of the subprime boom, the study says that borrowers with such credit scores got more than half — 55% — of all subprime mortgages that were ultimately packaged into securities for sale to investors, as most subprime loans are.”

“The surprisingly high number of subprime loans among more credit-worthy borrowers shows how far such mortgages have spread into the economy — including middle-class and wealthy communities where they once were scarce.”

“They also affirm that thousands of borrowers took out loans, perhaps foolishly, with little or no documentation, or no down payment, or without the income to qualify for a conventional loan of the size they wanted.”

The Arizona Republic. “It’s hard to talk about the mortgage meltdown without mentioning Countrywide Financial Corp. The nation’s largest residential lender, with 22 retail offices in Arizona and a major operations center in Chandler, has become a poster child for the crisis.”

“But senior Countrywide officials in Arizona insist the company remains viable for the long term. ‘It sounds like an oxymoron to say we’re growing while laying people off,’ said Lisa Farrar, a Phoenix-based executive VP for Countrywide.”

“‘The recent layoffs were designed to right-size the company to what’s happening in real estate,’ Farrar said. ‘We’re geared to grow in a smaller market.’”

All headline News. “Analysts say that problems in the nation’s fractured housing market is so far-reaching that a proposed Bush administration-backed plan will not help borrowers or bankers from escaping increasing foreclosures and defaults.”

“Christopher Thornberg, a principal with Beacon Economics in Los Angeles said in an AP report, ‘It’s not the mortgage that’s the problem,’ adding that homebuyers paid too much for their homes in a soaring market and now they are facing the dire consequences.”

From Fortune. “The weekend papers were full of reports about the Treasury Department and Federal Reserve Bank meeting behind closed doors with mortgage lenders, servicers and investors to work out a plan for a voluntary freeze in interest rates for some subprime borrowers.”

“As I read, though, a niggling thought took over my brain: If anyone is getting their rate frozen on their adjustable-rate mortgages, I want mine frozen too.”

“The harm I suffer by this measure is philosophical. The impact on others is clearer. A group called the American Securitization Forum, which represents hedge funds who bought repackaged subprime loans, appears to be resisting the most the ‘voluntary’ freeze proposal because its members stand to lose a lot.”

“A rate freeze would cut into their returns. Who’d be helped? Lenders and servicers who can keep collecting on the mortgages they sold.”

National Mortgage News. “The big event in Washington is the Office of Thrift Supervision summit on the mortgage mess…officially, OTS is calling it National Housing Forum. The there is plenty of talk in the media about Treasury unveiling a big plan where servicers will ‘reset’ subprime ARMs.”

“One mortgage executive told us that the big problem is payment-option ARMs where the consumer has a rate of 3%. A rate that low cannot be artificially maintained by servicers. In other words, if Treasury thinks a servicer (or end investor) will roll over a 3% rate, the government is dreaming.”

“One industry veteran — requesting his name not be used — raised another issue: ‘OK, so you keep the rate the same for the subprime borrower. Then the prime borrower who has been current all along and who also has an ARM says, ‘Hey me too. Keep my rate the same.’”

“This industry vet said Treasury has to either come up with a plan where all ARM rates are frozen or none are. ‘Think about the lawsuits,’ he said.”

“Loan Abuse Story Of The Week: ‘We had a client come in to us a month after closing with another broker because she thought she was ripped off. The client was recently divorced and had to refi her ex-husband off the deed and mortgage. She had not worked for several years being at home raising the kids.’”

“‘We reviewed her closing docs and realized that this other broker put her in a stated-income subprime loan, created a job for her as an attorney working for the closing attorney’s firm, and the attorney verified her employment. They charged her one point on the front and two on the back (YSP) on a $600,000 loan.’ — R.S., Mass.”

The Seattle Times. “Frances Taylor was 93 when she took out a high-cost, high-interest mortgage against her home of more than four decades. Within months, her lender foreclosed. More than one in three borrowers in King County who got loans from the same lender that foreclosed on Taylor were 50 or older, and one in seven was 60 or older, according to a Seattle Times analysis of more than 4,000 loans by Ameriquest Mortgage.”

“Not only that, nearly all of those borrowers already owned their houses.”

“Taylor refinanced her home three times in just three years. Those loans stripped away more than $50,000 of her home equity in fees alone and eventually obligated her to mortgage payments that were nearly three times her monthly Social Security check of $761.”

“Her loans, like many subprime mortgages, came with hefty fees, prepayment penalties, and interest rates that adjusted upward.”

The Sydney Morning Herald. “The prospect of home owners being hit with another interest rate rise increased yesterday after the newly merged Bendigo and Adelaide Bank became the first lender to push up borrowing costs by an extra 0.25 percentage points.”

“The cost of these loans has soared in recent weeks after the financial damage caused by the subprime loans meltdown in the US. In particular, the Commonwealth and NAB have both warned they will soon pass on these higher costs to customers.”

“Analysts at Goldman Sachs said yesterday that market rates on 90-day and 180-day bills were now up to a half of 1 per cent higher than the RBA’s official cash rate of 6.75 per cent. ‘It’s purely because the global cost of funds has increased and we’ve been absorbing it since August and we’ve just had to pass some of it on,’ said a bank spokesman.”

“The cost of borrowing pounds for a month surged by the most in more than 13 years. The London interbank offered rate that banks charge each other for such loans due after the end of the year rose 63 basis points to 6.72 percent, the highest since December 1998, the British Bankers’ Association said today.”

The Associated Press. “Mortgage financier Freddie Mac said Monday it will not sell a reference mortgage bond in December. The company did not provide a reason for the move.”

“The market for mortgage-backed securities has withered in recent months amid a worsening housing slump and a spike in defaults on subprime mortgages. Some $360 billion in subprime mortgages are slated to reset next year, leaving investors leery of buying any mortgage-related securities.”

From Reuters. “Fannie Mae, the largest U.S. home funding company, on Monday said it plans to sell $3.0 billion of three-month benchmark bills due March 5, 2008, $1.5 billion of six-month bills due June 4, 2008 and $1.0 billion of one-year bills due Nov. 28, 2008 on Wednesday in a Dutch auction.”

“In such uniform price auctions, successful bidders pay only the price of the lowest accepted bid rather than the actual price as in a conventional multiple-price auction.”

Minnesota Public Radio. “Ray Kvalvog thinks it’s a no brainer. Farmland is the best investment going. ‘We’re kind of in the heyday of farming right now. It’s about as good as it’s probably ever been and is going to get for awhile,’ says the Fargo farmer and real estate investor.’”

“Kvalvog is among more than 30 people crowded into a large room at Pifer Auction Service in Moorhead. Ray Kvalvog is the top bidder at $2,500 an acre. He says he wouldn’t have been surprised to see the land reach $3,000 an acre. Last week he paid $5,000 an acre for land near Austin, Minnesota.”

“Kvalvog says he owns about 10,000 acres across Minnesota and Eastern North Dakota. And despite the rising prices, he’s still buying. Kvalvog says he expects only about a five percent annual return on his land investment. But he says the land value is rising by up to 20 percent a year and he expects that trend to continue.”

“Farmland values increased 14 percent nationwide in the past year. Experts say high quality farmland has increased in value much more rapidly.”

“Farmland prices exploded in the 1970s driven in part by speculative investors. Those high land prices played a role in the farm crisis of the 1980s.”

“Knowing that history makes the rising land prices a little unnerving for North Dakota State University Agricultural Economist Skip Taylor. ‘It never ends well,’ says Taylor of rapid rises in farm land prices. He says rising land prices in the 70s were oftne driven by emotion, not logic and he worries this may be the same scenario.”

“University of Minnesota Economist Steve Taff agrees there are many reasons for caution. But Taff is not convinced the land market is overheated.”

“‘Some days I can convince myself there’s no sign of the bubble bursting, unlike in the housing market,’ says Taff. ‘Because I don’t think the land market shares some of the risk prone behavior of the housing market in the past several years.’”

“Taff says land prices can be driven as much by psychology as by economics. ‘They’re fortune tellers, they have to be. They have to think about how this is going to be not just this year or next year, but in 2010 and maybe 2015,’ says Taff. ‘It’s not a science, it’s an art that everybody has to be engaged in.’”

The St Petersburg Times reports from Florida. “When Laura Roorda’s father died in March, a real estate agent advised her to put his Hernando Beach house on the market for $345,000. By the time she and her brother had it cleaned up and ready to show in July, the agent had bad news: $299,000 was the best for which they could hope. After five months without an offer, Roorda dropped the price to $259,000.”

“Faced with payments on a second mortgage, Roorda now fears she may have to go lower. ‘I don’t want to lose everything my dad worked for. I don’t want to say, ‘Five dollars and it’s yours,’ but I know I’m losing a lot of sleep about it,’ said Roorda, of Palm Harbor.”

“After the Suncoast Parkway opened in 2001, the relatively cheap property in Hernando Beach was a magnet for investors. ‘Prices doubled, and that’s not a normal appreciation in value,’ said Gladys Moore, a Hernando Beach resident and an agent . ‘All of a sudden it’s overpriced, and prices have just had to come down.’”

“The average sale price for houses continued to climb, from $324,000 in 2004 to $419,000 in 2006, records from the Hernando County Property Appraiser’s Office show.”

“But some sales may have been artificially inflated, said agent John Callaghan. He and other Realtors said they have seen at least a half-dozen cases of apparent mortgage fraud. Buyers took out mortgages for at least $200,000 more than the list prices so they could walk away with the excess, he said.”

“In a community as small as Hernando Beach, with about 1,500 lots, ‘that’s enough to warp the market,’ Callaghan said. ‘We’re in the middle of a zoo here.’”

“I’ve got a friend of a friend in Pinellas County. He’s almost a year behind on his mortgage payments.”

“You’d think he’d be pitched off his balcony and shaving his hobo’s stubble in a gas station men’s room at this point. You’d be wrong. He’s still enjoying his waterfront view without coughing up a condo payment for months.”

“The sheer scale of mortgage defaults in the Tampa Bay area seems to be turning our lions of the banking industry into bleating lambs: ‘Pleeeeassse Paaaay Meeeee!’”

“For enlightenment, I visited the daily auction of foreclosed properties at the courthouse in Tampa. Among the 15 or so properties up for auction that day, a good number were seized from homeowners who defaulted in 2006 and early 2007.”

“The day I was there, not one auction home sold. No investors attending the auction were enticed by minimum bids they felt the banks had set too high. More than one Realtor has told me that, contrary to expectations, many of the bank-owned houses are overpriced.”

“Bankers…don’t just want to give away a house for peanuts. But they also can’t afford to add to the glut of bank-owned property. That explains the generosity toward my friend of a friend. Don’t expect the free lunch to last forever. The housing slump will eventually end. On that day the lions will get their teeth back and the deadbeats will have to beat a retreat from their free lodging.”

From Bloomberg. “A newly formed advisory panel composed of Florida school and local government officials with money frozen in a state-run investment pool has said it will not accept a return of less than 100 percent of their investment.”

“‘The very fact that you’re out here talking to us about taking less than 100 percent is in my mind unacceptable,’ said MaryEllen Elia, superintendent of Hillsborough County Public Schools. ‘You need to figure out how to make the taxpayers in Florida whole. It isn’t going to be fixed by asking us to take less than what we put in there.’”

“Florida schools and towns with money frozen in a state-run investment account are unlikely to get their cash back tomorrow, when officials meet to discuss a crisis prompted by withdrawals that drained almost half of the fund’s $27 billion in assets, a policy officer said.”

“‘If we reopen the window without limitations on Tuesday, and we see behavior like we’ve seen up to now, there’s simply no way to meet that demand without having a fire sale on assets,’ said James Francis, senior policy officer for the State Board of Administration, manager of the Local Government Investment Pool.”

“Kevin SigRist, deputy executive director of the State Board of Administration, said the board can’t promise to make pool participants whole, because of the pool’s ‘problematic’ securities. ‘We have securities in the pool that clearly have credit risk associated with them,’ he said.”

“‘We don’t ever want to be in a situation here at the SBA where we are somehow issuing guarantees or suggestions that everyone will get dollar for dollar,’ said SigRist.”

The Palm Beach Post. “A sobering quarterly economic report for Palm Beach County, released Wednesday by the Economic Development Research Institute in West Palm Beach, sees the slumping housing market as a harbinger of bad things to come.”

“‘The unfolding economic slump in Palm Beach County is most notable and visible in the county’s labor markets and housing sector,’ says the report.”

“In the county, 31,009 residents are currently requesting unemployment benefits - up by 4,551 individuals since June. Retail sales are down 3 percent from last year at an estimated loss of $51 million. Professional and business services ended with a loss of 2,800 jobs for the third quarter.”

“Among households, 18,507 out of 474,175 - almost 4 percent - entered some stage of foreclosure activity this year. The county is on track to register the lowest level of housing starts in at least 15 years.”

“Realtor Sarah Howard, the former ‘Queen of Flagler Drive,’ has swept up her scepter and crown and moved to Winston-Salem, N.C. ‘It’s a wonderful area, with lots of homes of character, just like West Palm Beach,’ she says by e-mail. ‘The difference is pricing. People can really get a good buy here.’”

“‘I hear I got out at a good time,’ Howard says. ‘All my Realtor friends are telling me it’s really tough down there now.’”

The Orlando Sentinel. “If Central Florida’s economy has a heart of darkness in the waning weeks of 2007, it is beating inside the housing industry, where plunging home sales have led to widespread retrenchment and draconian job cuts.”

“Employment is often a lagging indicator of a coming economic cycle. Job losses in one part of the economy tend to spread to others. ‘Consumers have lost much of their discretionary spending power,’ said Bob Allsbrook, chief economist for Regions Bank in Birmingham, Ala. ‘That’s particularly true in Orlando.’”

“Although talk of a serious financial downturn is spreading, there isn’t consensus. University of Central Florida economist Sean Snaith predicts a housing-market recovery next year that would blunt the downturn’s effect on other sectors.”

“‘We are in for a couple quarters where there won’t be much good news for the real-estate industry,’ Snaith said. ‘But I think 2008 will be the year we put the housing situation behind us.’”

“Although housing prices have dropped and the number of unsold houses on the market is at a record high, Snaith says the market will begin to improve by the middle of next year.”

“‘There’s no shortage of Chicken Littles predicting a recession and worse,’ he said. There are signs the economy could take a spill, Snaith acknowledged, but he doubts Central Florida will suffer greatly. ‘I think we will see unemployment go up slightly,’ he said.”

“In little more than a year, the once-swaggering industry has lost confidence in the near-term future. ‘We are looking at a 50 [percent] to 60 percent work-force reduction for home builders,’ said Steve O’Dowd, president of Engineered Homes in Winter Park. ‘That is moving through the whole supply chain that feeds the industry. That could have a massive affect on the economy.’”

“Central Florida has a record inventory of pre-owned homes for sale but that’s not stopping builders from unleashing a flurry of town-home lots and construction.”

“Local builders have about 2,000 town-home units under way in a three-county Orlando area and are ’sitting on a supply of more than 10,500 developed town-home lots in over 100 active communities,’ according to a new report by Charles Wayne Consulting Inc. in Orlando.”

The News Press. “It was January 2005 when Tracy Emerson moved to Fort Myers. She rented an apartment and, after a year, contacted a real estate agent to help her look for a home. It was just after the peak of the frenzied real estate market in Southwest Florida. She didn’t like anything she thought she could afford, so she continued to rent for another year.”

“‘Then I moved in with my aunt last January so I could save some money to put down on a condo,’ Emerson, 26, said. ‘It was supposed to be temporary.’ She’s still there.”

“‘Renting is a waste of money,’ Emerson said. ‘I’m throwing money out the window and it’s not getting me anywhere. I want to buy a place. I’m not building any equity by renting.’”

“Like many young people, Emerson dreams of owning her own home. Prices have come down dramatically since she began looking at property, so that dream may soon become a reality. Even so, she remains apprehensive about buying.”

“‘I don’t want to be in charge of maintenance, cutting grass, things like that. When you own a condo, there are no worries about the maintenance of the exterior,’ she said. ‘But I also don’t want to pay the condo fees. As a young, single person, I don’t have anyone to share those expenses.’”

“Broker Janet Rushin said buying young is better because younger people can get a bigger jumpstart on building equity and credit history. ‘But with rentals being so competitive now, many are renting,’ she said.”

“For Emerson, that is why she hasn’t bought a home yet. ‘Renting is cheaper than owning,’ she said. ‘It’s great for the short-term, but I definitely don’t want to do it forever.’”

“Almost 30 months after Lee County’s real estate peak, one of the most frequent questions I’m asked is ‘when will things return to normal?’”

“The answer, I explain, depends on the specifics of the question and their definition of ‘normal.’”

“‘Return to where?’ I always ask. As discussed many times, the 2003-2006 real estate frenzy was artificial, caused by a combination of low mortgage rates, amateur real estate investors buying properties to ‘flip’ and lenders who would gladly make the needed loans.”

“Recently I consulted for a ’short sale’ on a waterfront single-family home in Cape Coral. The lot was purchased in 1987 for $11,000 and sold in 1999 for $26,000. This 7.42 percent compounded annual rate of appreciation was normal.”

“In 2001 the lot owners built a house, which they sold in November 2005 for $700,000. It then ‘flipped’ in April 2006 for $1.2 million and again in October 2006 for $1.9 million. This was NOT normal.”

“Today, the fair market value of that property is approximately $500,000.”

“On Nov. 20, The Greater Fort Myers and the Beach MLS showed 18,596 single-family homes and condos available for purchase and 444 sold in October 2007. At this rate it will take just under 42 months for the present supply to reach zero.”

“Southwest Florida is in the precarious position of having only two economic legs: tourism and home building. I don’t think I could write anything new about our current local home building situation. Out of necessity, it’s almost come to a grinding halt. Due to trickle-down economics, this has affected more than just the trades. When tradesmen aren’t working they don’t buy new vehicles, eat out, buy new tools, furniture etc.”

“In turn, when retailers, distributors and manufacturers see their sales decline, they reduce spending and often lay off workers or reduce employee hours. And so it continues.”

“At times like this I’m reminded of the words of Longfellow, who said ‘The best thing one can do when it’s raining is to let it rain.’ Many of us just have to endure through this down economy.”

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