December 11, 2007

An Often Unsung High Note In California

Inside Bay Area reports from California. “In Alameda County, 9,454 homeowners are in some stage of foreclosure this year. Either they have defaulted on their mortgages or received a notice of trustee sale of their home from the bank, according to statistics. Jose Vizcaino was lured by the American dream of owning a home. After 12 years in the Bay Area, he was finally able to buy a house at the beginning of the year when he purchased one in El Sobrante for $502,000.”

“‘It’s like, ‘Wow, this is my first place,’ he said. ‘They say sign here and sign there and you don’t pay attention.’ In retrospect, he wishes he scrutinized the documents.”

“After a short time, Vizcaino’s manageable 8.9 percent interest rate ballooned to 11 percent. He’s now four months behind on payments. ‘I’m close to foreclosure. I don’t see many opportunities’ for getting out of it,’ he said. Homes in his neighborhood that once sold between $700,000 and $800,000 are now selling for $500,000, he noted, as neighbors begin foreclosure proceedings.”

“Vizcaino said he might not have bought his home if he had known it would become so difficult to afford. ‘This is a nightmare,’ he said.”

“Melissa Fulton and her 5-year-old daughter are saddled with some big problems: foreclosure on a $490,000 mortgage on an El Sobrante house and need of a job.”

“‘Unfortunately, I lost my job through all of this,’ Fulton said, describing the year-long negotiations with her lender. ‘I was dealing with Countrywide; they were calling every day and I lost my job because of that, because of those calls.’”

From CBS “Solano County has one of the highest foreclosure rates in California. Home values are on the decline. The troubles in the real estate market have a ripple effect on consumers and the pain can really be felt at the Solano County tax collector’s office.”

“That’s where Rosie Santos lined up to fork over $4,000 in property taxes. ‘We had to cut back on everything,’ said Santos. ‘We just cut back on stuff. This Christmas we are picking names and giving adults only one gift.’”

“Her new home has declined in value because homes around her are selling for less. ‘It’s a brand new home we bought in February. It’s almost 2,000 square feet,’ said Sanots. ‘We just hope the value goes up again.’”

“Tax Assessor Marc Tonneson said he granted 900 tax bill reductions which amounts to 90% of those that applied. He says most applications are coming from developments where homes once valued at $500-700,000 are going for more than $100,000 less.”

“Tax Collector Charles Lomeli tries to greet homeowners with a friendly face. He walks the long line of residents who have come to pay their bills in person. Many have personal stories of hardship. ‘The economy is bad. You are seeing foreclosures and people can’t afford to pay,’ said Lomeli.”

The Christian Science Monitor. “The row of homes on St. Salazar Circle marks the furthest advance of Modesto’s housing boom – and the start of its scorched-earth retreat. Brown, unwatered lawns of foreclosed homes compete with the green grass of neighbors still hanging on. Some of the structures, although new, are missing outdoor equipment like air conditioners, taken by metal thieves. One in 4 houses of the neighborhood stands empty.”

“New neighborhoods like the one surrounding St. Salazar Circle, the home-loan crisis has hit the hardest. Built during the height of the housing boom, they have the newest residents who paid the highest prices with the most exotic mortgages. After seeing prices rise 10 to 20 percent each year, they’re now seeing prices slide downward.”

“‘Right now, our dreams are being crushed,’ says Marisol Ramirez, who bought a home on St. Salazar last year for $370,000. Now, it’s priced at $300,000 and the Ramirezes are likely to lose it.”

“Now they are weighing whether to rent around Modesto or just return to Mexico. ‘I stay up at night with the fear that they’ll come and take me out of the house with my children,’ Ms. Ramirez says.”

“Vacant homes surround her: the next-door neighbor, the house at the end of the block, three in a row behind her on St. Charlotte Ave.”

“More than 5,700 homes in Modesto’s Stanislaus County are actively under foreclosure or have already been turned back to the bank, according to RealtyTrac. In Modesto, investors made up roughly a third of buyers in recent years, says John Hillas, a local appraiser.”

“Each day at the stroke of noon, Dean Roots arrives at the courthouse steps to read the 40 or so new homes put on the block. For months now, no more than a half-dozen onlookers have turned out for the ritual. On most days, no one even bids.”

“‘I try not to think about it because a lot of these people have brought it on themselves,’ Ms. Roots says.”

“Back on St. Salazar, Samuel Mendoza checks out a vacant home for sale. His older brother, Daniel, tags along. Daniel’s home is currently under foreclosure, so his family will be moving in with Samuel when he buys.”

“Samuel has many suddenly affordable options – an often unsung high note in the housing crisis.”

“Several homes have already been purchased on nearby San Ramos, a sign that the neighborhood may be starting to stabilize. As Gabriel puts it, sometimes a ‘neighborhood has to convulse, it has to turn over.’”

“Samuel likes the home on St. Salazar, but he’s not about to make a rushed, ill-informed decision. ‘We’re going to learn from my mistakes so he doesn’t go through the same thing,’ says Daniel.”

From Business Week. “Katherine Zupan, who owns My Very Own Room in Merced, used to help residents stage homes—that is, decluttering, cleaning, and preparing properties for quicker sales and higher closing prices.”

“But she no longer feels comfortable taking business from Merced sellers who appear to be calling her out of desperation. ‘It’s hard even for a staged home to stand out from the rest of the homes when new home prices are comparable to resale homes,’ Zupan says.”

The San Francisco Chronicle. “On the same day a real estate trade group reported the housing market is on the verge of stabilizing, experts on California’s economy say the state could see a more dramatic and prolonged downturn than other parts of the country, in part because more recent buyers relied heavily on risky loans here.”

“‘We disproportionately enjoyed much higher home price appreciation over the last several years with the uses of subprime and Alt-A loans,’ said Esmael Adibi, director of the Anderson Center for Economic Research at Chapman University in Orange. ‘This is going to come to haunt us.’”

“Adibi is forecasting a 9 percent decline in average home prices on the statewide level in 2008. And he said an additional 15 to 20 percent drop in 2009 would not be out of the question.”

“In the last steep housing downturn, Adibi said, it took 54 months for San Francisco home prices to fall from peak to trough; in San Jose it was 60 months, and in Oakland it was 51 months. To get back to the previous peak price levels took another 3 years, roughly.”

“The statistics compiled by San Jose real estate firm owner Richard Calhoun seem to show a buyers’ market still tumbling farther. The median asking price for a single-family house in San Mateo County, for instance, has fallen from $948,000 in November 2005 to $767,000 this November.”

“‘There’s no one answer as to when the bottom of the market is reached and what stability is,’ said Christopher Thornberg, an economist with Beacon Economics. ‘Are we talking price stability, construction stability, sales stability, foreclosures stability? It’s a question of what you’re looking for.’”

“‘These corrections are so long and there are so many different parts to the cycle. The classic case was going into the collapse. Sales started falling in late 2005, prices started falling in the third quarter of 2006, foreclosures are spiking up now, and it will impact consumer spending next year,’ he said.”

The North County Times. “Local median home prices and the sales volume in November dropped from last year, and analysts said they expect North County year-over-year prices to continue falling until late 2008.”

“‘There’s buyers out there, but they’re just not buying. They’re sitting on the fence, waiting for (prices) to drop more. They’re going to see it drop and then they’ll wait for it to drop some more,’ said Chuck Smiar, a Realtor in Escondido. ‘They all think it’s going to go to zero, and they’re going to be in for a surprise.’”

The County Sun. “Economists agree that the housing market hasn’t hit bottom yet, but how much more will home prices fall? Another 15 percent to 25 percent price drop in 2008 alone isn’t unfathomable, housing analysts say.”

“‘We still have a long ways to go until (the housing market) bottoms out, and it’s going to fall harder in California,’ said David Olson, president of Wholesale Access Mortgage Research and Consulting. ‘Once you get a bunch of foreclosures, then the whole street goes down.’”

“Changes in mortgage rates will mean more foreclosures and as much as a 30-percent price drop in home value in the Inland Empire, he said.”

“In California, more than 78,000 subprime adjustable-rate mortgages worth about $27 billion are scheduled to reset between January 2008 and January 2017, according to LoanPerformance. A majority of those loans will reset between now and December 2008.”

“And there’s almost three times the number of prime adjustable- rate loans in California as there are subprime, which worries economists and bankers. The bulk of these 325,000 loans - worth about $120 billion - will reset between early 2008 and early 2013.”

“‘The peak is here in the fourth quarter of 2007,’ said economist Ryan Ratcliff about subprime mortgage resets. ‘But there’s a whole other peak coming a year from now.’”

“‘You’re not going to get a big bounce back with housing,’ said Edward Leamer, economist with the Anderson Forecast. ‘What we’ve done is increased the value of our land about $5 trillion (nationally). We think we’re wealthier than we really are.’”

The Daily Bulletin. “Regional economist Jack Kyser said the overall job market in the Southland is looking shaky. Kyser said continuing problems in the housing market would have an impact on numerous sectors.”

“‘I don’t think we’re past the worst of the financial market problems at all,’ he said. ‘We’re going to see a lot more foreclosures in 2008, and we still don’t know when the housing market will turn.’”

The Desert Sun. “California consumers are quite pessimistic about the economy and as a result they plan on cutting back spending. Economist Esmael Adibi said the drop in consumer sentiment is ‘the largest quarterly drop in the index’ since it began in the third quarter of 2002.”

“He said that in the fourth quarter of 2006, the spending index stood at 103.5. In this fourth quarter, it plunged to 71.8, down 25 percent from the third quarter. Adibi said any index level below 100 ‘reflects a higher percentage of pessimistic consumers as compared with those who are optimistic.’”

“Adibi…forecast the increase in consumer spending in 2007 was primarily triggered by homeowners cashing out their home equity gains by refinancing their mortgages. With fewer opportunities for refinancing, ‘the resulting negative hit on consumer spending will be considerable,’ he said.”

From CNN Money. “In California’s San Joaquin Valley, Christina Perret said the foundering housing market has caused sales to sag at her three high-end women’s fashion clothing shops and forced her to reconsider her stock. Perret’s gotten rid of racks of flashy tops with plunging necklines that were favorites with real estate agents, substituting a line of conservative sweaters popular with farmers’ wives.”

“‘We’re going after the wives of dairymen and women in agriculture because their economy is so much more stable,’ said Perret. ‘Even moms who come in shopping with their daughters for prom aren’t wanting to spend as much now. They want to buy dresses for $200 max and know their daughters can wear it at graduation next year.’”

“Sal Arroyo, who manages a Western wear store in Fresno, California, said selling $300 ostrich-skin boots is a challenge, since sometimes as few as 10 shoppers come in each hour. ‘Money’s really tight and that’s hard for us,’ Arroyo said.”

August Happened, And The Props Were Gone

A report from the Edmonton Journal in Canada. “Edmonton home prices dropped an average of 6.5 per cent in November from October. Edmonton house prices now are down $50,000 from their May peak of $426,028. The volatile mixed category of duplexes and rowhouses plummeted 15.4 per cent to $311,193. ‘The current market is very price-sensitive,’ Carolyn Pratt, president of the Realtors Association of Edmonton, said today. ‘If property is not priced right for this market, it may languish in the listings.’”

“Edmonton-area housing starts fell to 1,091 units in November 2007, down 42.1 per cent from November 2006. ‘Builders have been reacting to concerns about the size of new and resale inventories and their impact on prices,’ said Richard Goatcher, senior market analyst at Canada Mortgage and Housing Corp., which released the figures.”

“‘Overall, the Canadian housing sector continues to outperform expectations, and is in stark contrast to its U.S counterpart where the recession in the housing sector continues unabated,’ said TD Securities strategist Millan Mulraine.”

“However, the signs of economic strength and optimism were released as Bank of Canada governor David Dodge was warning that the credit crunch has intensified, adding to the risk posed by the weakening in the U.S. economy, of an economic downturn.”

“‘These tighter credit conditions have come as financial market difficulties have intensified over the past few weeks and as bank-funding costs have increased globally,’ Dodge said. ‘At the same time, there is an increased risk attached to the prospects for demand for Canadian exports because the outlook for the U.S. economy, particularly the U.S. housing sector, has weakened.’”

The Calgary Sun in Canada. “Despite a plunge in housing starts in the region, experts say Calgary’s economic boom is far from over. The federal housing agency, the Canada Mortgage and Housing Corporation, reported a 48% drop in housing starts between last month and November, 2006.”

“Total housing construction in Calgary is so far down by 17% this year over last. Last month, 776 homes were started in the Calgary area, down from 1,497 the previous November.”

“Even so, the pace of construction remains hectic, said Deep Shergill, president of the Calgary Region Home Builders Association.”

“‘Most of the builders are still building at or near capacity,’ said Shergill, adding the sector’s labour squeeze continues. ‘There’s just no way we could maintain that kind of pace we’d seen.’”

“Multi-family housing starts in the city dropped a whopping 76% last month compared to November, 2006.”

“Lai Sing Louie, a senior analyst with the CMHC, said some of the overall slowdown is caused by more used listings diverting buyers. ‘There’s still lots of supply in the re-sale market,’ he said.” “In Alberta’s seven largest centres, housing starts in November, 2007, were down 38% from the same month last year.”

The Tri-City Herald from Washington. “Joseph McKenzie and Mary Vines did their homework and found the home they wanted in Pasco. The couple checked out nearly 20 houses before settling on the seventh house they looked at. McKenzie said the couple found what they wanted, and stayed within their budget.”

“Although McKenzie and Vine weren’t worried about housing market troubles, local officials are concerned that bleak national reports are negatively tainting local perceptions of the Tri-City market.”

“And locally, the housing picture looks relatively rosy, officials say. ‘Markets are local. Just because it’s a national trend doesn’t mean it’s going on in your neighborhood,’ said Marchell Mascheck, a Realtor in Richland. ‘We haven’t followed the national trend in many years.’”

“She and other local industry officials say it’s actually a good time to sell a home in the Tri-Cities because the market is balanced between sellers and buyers.”

“‘So many people are sitting on the fence; why wait?’ said said Dana Mundy, owner of AmeriChoice Home Loans in Richland. ‘All the way around our market is very strong.’”

“Even though credit restrictions are tighter after the national meltdown of the subprime mortgage market, Mascheck said it will help potential homeowners be stronger buyers. ‘People are going to be better prepared,’ she said. ‘They’re going to enjoy owning a home much more.’”

“Unlike other regions, the Tri-Cities didn’t experience a housing bubble a few years ago. And the Tri-Cities has never had a glut of homes on the market, builders say. In Boise during the housing boom in 2005, for example, investors could buy a home and sell it for 10 percent to 20 percent more in six months, said Jeff Losey, executive director of the Home Builders Association of Tri-Cities.”

“But when the market slows, as it did earlier this year, those investors are left with houses that won’t even sell for their purchase price.”

“Mundy said she thinks the balanced market could tip in favor of buyers if a large number of foreclosed homes come on the market.”

“Though notice of trustee sales have increased by about 11 percent this year, locals aren’t experiencing the same phenomenon as the rest of the nation. The Benton-Franklin Title Company has reported 739 notice of trustee sales through November of this year, up from 665 in the same time frame in 2006.”

“‘It’s going to hit us here, it’s just not going to slap us around like it has other areas,’ Mundy said.’”

Business Week reports on Washington. “Even the nation’s hottest markets are slowing. In the Pacific Northwest, where many markets have been bucking the national trend, the pace of sales transactions and price appreciation is dropping off.”

“In Wenatchee, real estate agents acknowledge the softening. ‘We’ve had a little bit of a slowdown but nothing compared to what we’re seeing in the rest of the country,’ says Lisa Day, a Realtor in Wenatchee. ‘In my market, prices have gone up and they’ve plateaued. You’re seeing a little bit of a plateau now.’”

The Kitsap Sun from Washington. “Kitsap County had more homes and condos for sale last month than November a year ago and the median sale price dropped $19,000, or 6.69 percent, during the same period, according to Northwest MLS.”

“Inventory is up 25.33 percent from this time last year and pending sales have declined 27.53 percent during the same time period.”

“But real estate professionals are trying to emphasize that the drop in prices shows that real estate trends, including those in Kitsap County, are starting to return to normal for the time of year rather than signaling a problem.”

“‘As expected, Kitsap’s housing market has adjusted to the slow down in job growth, stricter credit requirements, and the traditional slower winter season,’ said Mike Eliason, executive of the Kitsap Association of Realtors. ‘In comparison to real estate markets throughout the nation, however, Kitsap is still relatively strong.’”

“In November 2006, the median sale price of a home was $285,000. That median dropped significantly last month to $265,000. The decline is a positive for those wanting to own homes, because the new median home price is beginning to align with income levels of Kitsap residents.”

The Columbian from Washington. “The Columbian’s business editor, Julia Anderson, in her Dec. 2 column, asked a question about the Clark County real estate market. She put forward the proposition that ‘a psychological standoff continues in Clark County between buyers who think house prices should be dropping on weaker sales and sellers who are convinced their homes are not overvalued.’”

“I agree that the Portland-Vancouver metropolitan area housing market has done better than most housing markets in the nation. However, there is no denying that (1) it is a buyers’ market, (2) housing starts and sales are significantly down, and (3) the homes-for-sale inventory is at a record high.”

“There is also no doubt that there may be worse to come. All of the housing indicators point to the fact that the downturn in the housing market is now worse in Clark County than it is on the other side of the river in Oregon. And my question to The Columbian and others is, ‘Why is this so?’”

“The historical fact is that a home in Clark County has always been cheaper to build and sell than on the Oregon side of the river. So what happened? The only answer I can come to is that the Clark County market became so super-heated that the downturn became even more dramatic.”

“People were buying and ‘flipping’ houses to such an extent that some local home builders here required buyers to live in the home for a period of time before they could sell.”

“In the past, it seemed that the Portland-Vancouver metropolitan area was the first into a recession and the last out. This time we may be lucky. We may be last in and first out. And that would be refreshing.”

The Oregonian. “University of Oregon economists say that a collection of falling monthly economic indicators suggests that a statewide ‘recession is likely imminent.’”

“Oregon initial unemployment claims rose in October to the highest level since November 2006. Residential building permits issued in the state dropped to the lowest level since September 2000.”

“Economists cautioned that the ‘general rule’ merely signals, but by no means guarantees, that a recession is coming. But their report highlighted October’s negative results, and said: ‘A decline of this breadth and magnitude preceded the 2001 recession and suggests a weak economic environment in the near term.’”

The West Linn Tidings from Oregon. “There’s good news and bad news for the local housing market: 2008 doesn’t look so hot. On the other hand, things should bounce back in 2009.”

“That was the message delivered to builders, real estate professionals and other interested parties at last Thursday’s annual housing forecast put on by the Home Builders Association of Metropolitan Portland.”

“‘You’ve got to talk to your consumers before you start building,’ said David Ludwig, of Vista Market Intelligence, to the builders in the room. It will be ‘another slow year in 2008, possibly down slightly from 2007 levels.’”

“Former U.S. Bancorp economist John Mitchell titled his presentation ‘Momma said there would be times like this – but not very often!’”

“We’ve had it pretty good for a while now, Mitchell reminded the roomful of professionals. For the building industry, he said, the last few years have been ‘the stuff of legends.’”

“Home ownership rates climbed from 1998 to 2006, when they peaked at 69 percent. Prices also peaked in ‘06, when residential permits were strong, financing conditions were good and homes were relatively affordable.”

“‘And then August happened,’ he said. ‘The props were gone.’”

“‘What’s likely to happen? I’m still willing to bet we’re going to make it through without a recession,’ said Mitchell. ‘There’s an inventory problem that has to be worked through, he said, adding, ‘It’s not going to happen instantly. It’s going to take time.’”

The Gazette Times from Oregon. “It’s the best of recent times to be a qualified buyer in the Corvallis housing market. But sellers are waiting a bit longer now than they did a year ago to find that buyer.”

“‘It’s pretty obvious that there are fewer buyers than sellers,’ said Alan Dietch, a local agent. ‘People are reluctant to lower their prices, but there are lots of options for new buyers.’”

“In 2005, there were 949 real estate transactions, compared to 867 in 2006. So far this year, 816 sales have been recorded.”

“The median selling price for Corvallis homes in November was $275,000, down from almost $300,000 last month. A year ago, the Corvallis median selling price was $320,250.”

“‘What we’re seeing is that houses still are selling,’ said Doug Burton, president of the Willamette Association of Realtors. ‘Prices are not appreciating, but they’re not really falling, either.’”

“The number of houses sold in November also dropped. Ownership changed on 41 houses in November of last year compared with 33 this year. That still was an improvement over October. With 30 houses sold, it was the slowest month in total sales this year.”

“New homes accounted for about a fourth of the 33 houses sold in Corvallis in November, and most of them sold for more than $300,000.”

The World Link from Oregon. “Economists appeared to be determined to be upbeat at the Bay Area Chamber of Commerce’s 15th-annual Bay Area Economic Outlook Forum. They overlooked the immediate problems in the Bay Area, and, instead, focused on the future.”

“‘The big picture is, we’ve got the drag from housing, but there’s a lot of other stuff going on,’ said Keynote speaker, former U.S. Bank Economist John Mitchell.”

“Coos County has not experienced the battering from the housing crisis as much as counties have in other states, but Oregon Employment Department Regional Economist Guy Tauer, said that houses for sale in the county have been on the market for an average of 109 days this year as compared to 86 days last year.”

“‘We’ve had slower growth, but it’s not like we’re falling off the cliff in Coos County,’ he said.”

“Mitchell said high rents can be blamed on a change in housing conditions. Prior to recent restrictions on mortgages, just about anybody could purchase a house so people weren’t looking at buying rentals, he said.” “‘If you could fog a mirror, you could get a house,’ Mitchell said.”

Quietly Turning Into A Major Bust

Some housing bubble news from Wall Street and Washington. Bloomberg, “Washington Mutual Inc., the biggest U.S. savings and loan, will write down the value of its home- lending unit by $1.6 billion in the fourth quarter and cut about 6 percent of its workforce as mortgage-market losses increase. It plans to shutter 190 of 336 home-loan centers.”

“Washington Mutual offered a bleak assessment of the mortgage market, estimating that industrywide home loan originations will probably shrink 40 percent in 2008 to $1.5 trillion, down from about $2.4 trillion this year. The company said it plans to cease lending through its subprime mortgage channel.”

The Seattle Times. “Seattle-based WaMu, one of the nation’s largest home lenders, announced a major restructuring of its mortgage-related businesses Monday and all but wrote off 2008 as a lost cause. WaMu said it expects to put aside anywhere from $7.2 billion to $8 billion next year for bad loans, compared with an estimated $3.1 billion to $3.2 billion this year and $816 million in 2006.”

“‘We had no clue this was coming,’ said one Seattle-area loan consultant who has worked at WaMu for five years. ‘We’ve heard some of the people in higher positions are losing their jobs, managers who that never would have happened to in the past. That has us scared.’”

“Another Seattle-area loan consultant said she joined WaMu in March, seeking job security, but was laid off on Monday. ‘I think it’s heartless,’ she said by phone while packing her belongings. ‘I guess this industry doesn’t have any security.’”

The Associated Press. “H&R Block Inc. said in a preliminary earnings report Tuesday that it…continued to wrestle with its disintegrating mortgage arm.”

“The company said its discontinued operations had a pretax loss of $551.2 million, including $367 million in operating losses and losses on sales of mortgage assets, $123 million to adjust the value of remaining mortgage origination and servicing assets and $61 million in costs for restructuring Option One Mortgage Corp loan origination operations.”

“‘We continue to move resolutely to end our participation in the subprime mortgage business,’ Chairman Richard Breeden said in a news release. ‘While we incurred a painful loss in exiting these positions, we determined to take our lumps and move forward.’”

From MarketWatch. “MBIA Inc.’s decision to raise up to $1 billion in new capital and set aside at least $500 million to cover expected mortgage-related losses puts pressure on rival bond insurers to do the same, analysts said on Monday.”

“‘This announcement puts more pressure on the other guarantors to both raise capital and recognize larger (actual and mark-to-market) losses,’ wrote Ken Zerbe, an analyst at Morgan Stanley.”

“The tumor in the financial markets known as structured investment vehicles is shrinking, reducing the urgency for a bailout sponsored by the U.S. Treasury.”

“HSBC Holdings Plc, bond insurer MBIA Inc. and other companies are arranging their own rescues. The steps are diminishing the threat that SIVs will dump holdings and further roil credit markets contaminated by losses in securities related to subprime mortgages.”

“‘Every day that goes by we are seeing more SIVs being reorganized to avoid a fire sale,’ said Priya Shah, a credit analyst at Dresdner Kleinwort Group Ltd. in London. ‘The longer the SuperSIV takes, the less of a need there will be for it.’”

From Reuters. “Investor Warren Buffett on Tuesday told CNBC television that a plan by some large banks to create a fund to buy tarnished mortgage securities is unlikely to cure what ails financial markets.”

“‘You can’t turn a financial toad (into a prince) by kissing it or by securitizing it or by transferring its ownership to somebody else,’ he said.”

“Mortgage finance giants Fannie Mae and Freddie Mac are changing their criteria for purchasing delinquent home loans they’ve guaranteed, in order to reduce the number they buy from investors, the companies said Monday.”

“Fannie Mae’s intention to match Freddie Mac’s move was reported online late Monday by The Wall Street Journal, which cited concerns among some financial analysts that the companies could use the new policy as a way to delay booking credit losses.”

“Freddie Mac and Fannie Mae, the other housing-related government-sponsored enterprise, after record preferred stock sales have about $6.5 billion and nearly $9 billion, respectively, in excess capital to help absorb losses through 2008, said Rajiv Setia, a strategist at Barclays Capital in New York.”

“But prospects linger that the companies will have to raise more capital if market conditions worsen, he said.”

“‘Fannie Mae and Freddie Mac are not expecting market conditions to improve any time soon, and they are now ready for credit losses to rise,’ Setia said on a conference call. ‘Secondly, neither is expecting to get capital relief from OFHEO any time soon.’”

The Denver Post. “Fannie Mae, the country’s largest backer of mortgages, is knocking 5 percentage points off the amount it will finance in areas with declining prices. Borrowers in such areas also can expect to pay an interest rate about an eighth of a percentage point higher than in areas where home values are holding up better, lenders said.”

“Jerry Kaplan, VP of capital markets with Cherry Creek Mortgage in Greenwood Village, said he hasn’t ever seen Fannie Mae tighten up like this.”

“Lou Barnes, owner of Boulder West Financial Services in Boulder, said the move makes mortgages tougher to get in areas that need them most, making a more severe downturn likely. ‘In every credit panic, the government must maintain a good supply of new credit,’ Barnes said. ‘The authorities have failed since the crunch onset in August.’”

“A borrower previously eligible for a 100 percent or no-money-down loan with a lender working through Fannie Mae will now have to come up with a 5 percent down payment starting in mid-January. A borrower using a loan with a 10 percent down payment will have to come up with 15 percent soon.”

“Wholesale lender Flagstar Bank has already put Adams, Arapahoe, Broomfield, Clear Creek, Denver, Douglas, Elbert, Gilpin, Jefferson, Park and Weld counties on its list of areas with declining values.”

“Those counties join others in California, Florida, Ohio, Michigan and Virginia, among other states, it expects will be on the list of declining areas.”

“Kaplan said the bigger down payments and higher interest rates in some areas are a small price to pay to make sure there is liquidity in the market. ‘What would our economy be like if Fannie Mae and Freddie Mac were not around?’”

“Commerzbank AG CEO Klaus-Peter Mueller said banks may make further writedowns after UBS AG yesterday said it will reduce the value of U.S. subprime mortgage investments by $10 billion.”

“‘The prices for subprime products drastically declined again in November’ and that’s why UBS had to write down the value of investments, Mueller said in an interview at a conference in Frankfurt today. ‘In such a market phase, further writedowns can be expected for the entire industry.’”

The Wall Street Journal. “Columbia Management is shutting its Columbia Strategic Cash Portfolio, it told clients late last week, after facing major withdrawal requests from large investors. The fund, which held $34 billion at the end of November, has been split in two.”

“The fund’s closure spotlights spreading uncertainty among investors as they yank money out of ‘enhanced’ cash funds like Strategic Cash Portfolio. Funds like these are designed to carry slightly more risk than money-market funds.”

“Enhanced cash funds have grown in popularity as investors sought slightly higher yields amid historically low interest rates. They achieved added returns partly by investing in complex securities backed in part by mortgages and other assets. However, many of these, even those with high credit ratings, have collapsed in price.”

“A report yesterday by Standard & Poor’s found that about 30 U.S.-oriented enhanced cash funds rated by S&P had lost a total of $20 billion, or 25%, of their assets, in the third quarter. In one of the more dramatic instances, one fund (which S&P declined to identify) saw its assets under management shrink by 98%, or $2.5 billion.”

“Issuance of securities tied to U.S. subprime residential mortgages may level off next year after falling further, Standard & Poor’s said on Monday.”

“S&P said in its report that it rated $26.3 billion of subprime residential mortgage-backed securities in the third quarter of this year, down 64 percent from the second quarter and 73 percent from the third quarter of last year.”

“Loans originated in 2006 and the first half of 2007, however, are likely to continue to underperform loans made in other years.”

The Herald Tribune. “How did the state’s money market fund for the use of schools, fire departments, county and city governments end up owning $2.3 billion in junk? According to two avid observers of the mortgage debt scene, the failures of the Local Government Investment Pool are but the latest example of an inherent conflict of interest: Bonds, notes and commercial paper get their safety ratings from firms that are paid by the issuers.”

“‘The run on the Florida fund is a primary example of the divergence of interest between issuers and investors,’ says Sean Eagan, managing director of Eagan Jones Ratings Co. of Haverford, Pa.”

“‘Generally speaking issuers want the highest rating possible, whereas investors, in contrast, are looking for timely accurate ratings,’ Eagan said. ‘They want to get to the truth quickly.’”

“For their part, both Standard & Poor’s and Moody’s say their rapid downgrades of the state fund’s investments speak to the unprecedented degree of pain that the housing market has caused the investment world. ‘What we have said repeatedly is that because of the unprecedented market dynamics of the past five months, there have been unprecedented downgrades,’ said Mimi Barker, a spokeswoman at Standard & Poor’s in New York.”

“The Local Government Investment Pool owns $170 million worth of an Axon Financial Funding security that matures April 25, 2008. In roughly a month, Standard & Poor’s changed its trading on that security from ‘AAA’ to ‘D,’ Eagan notes.”

“‘In our opinion, there is no worse a failure than this,’ Eagan said. ‘From Triple A to D in one month. If we had an analyst doing that, that analyst would be out the door in two seconds. There is no way these SIVs should have been rated at the Triple A level.’”

“Moody’s cut its AAA rating of Axon as a corporation by nine notches in one fell swoop on Oct. 23.”

Fin Alternatives. “Will losses from securities backed by subprime mortgages lead to litigation against my hedge fund and its managers? If so, will my directors and officers (D&O) insurance policy or other lines of coverage protect my firm and its individual directors and officers?”

“Already, at least 30 securities litigations have been filed against the subprime lenders, investment banks and now hedge funds that placed highly leveraged bets on packages of subprime mortgage derivative products. Investor-plaintiffs have even begun to prey upon directors and officers in their individual capacities, alleging untoward conduct and egregious mismanagement.”

“Will insurance companies cover the losses arising from the subprime debacle? In some cases, yes. According to Reinsurance broker Guy Carpenter, total subprime-related losses for D&O insurers alone could top $3 billion.”

“However, those firms that do obtain defense and indemnification from their insurance providers are likely to have to fight for that coverage every step of the way.”

The “One of the biggest residential development projects in Arizona history is quietly turning into a major bust.”

“The question now is whether the big homebuilders involved in the deal, Toll Brothers and Meritage Homes are properly marking down their land investments in the much-heralded venture.”

“With the once-hot Phoenix market crash-landing, it now appears that Toll Brothers and its partners ended up paying too much for the land, on which they likely cannot build today for a profit.”

“At the time of the purchase, Toll Brothers, the general partner of the joint venture, trumpeted the deal as the ‘most expensive’ land transaction in Arizona history, citing research from the Arizona Republic.”

“The fact that Simon Property wrote off its entire investment in the project is turning some heads. As the company now likely pulls its retail development, some wonder whether the project will ever get built.”

“‘My understanding is the venture itself, the whole group, is not thinking it is going to work at this time,’ says RBC Capital Markets analyst Rich Moore, who covers Simon Property and other real estate investment trusts. ‘It is rare for a developer to write something down unless they feel pretty certain it is not going to work.’”

“Regardless of whether the homebuilders abandon the project, the Simon Property writeoff raises questions about whether the companies are being conservative enough in their valuations of land holdings.”

“‘Builders are not being aggressive enough, generally speaking,’ says an analyst who was on the Toll call last week. ‘They are not doing what Simon did.’”

“Stephen East, a homebuilder analyst with Pali Capital, says he visited the market a month ago and was surprised at the ’sheer amount of property.’ ‘There is such a massive oversupply,’ East said.’”

“In early 2006, when the deal closed, ‘the market had begun to slow down, but I don’t think anyone had bought into that idea yet,’ says Jay Butler, director of realty studies at Arizona State University. ‘People were still buying land with the idea that Phoenix would grow forever.’”

It Was Like A Light Switch Went Off

The Post & Courier reports from South Carolina. “Prospective home buyers awaiting a sign that prices are on the way down in Charleston could be in luck. Local home prices took their biggest monthly slide in recent memory in November, suggesting that more sellers are willing to offer discounts to close deals amid a sluggish market.”

“Sales volume also fell last month, dropping nearly 19 percent compared to November 2006, according to figures from the Charleston Trident Association of Realtors. The decline extended a downturn that started in Charleston nearly two years ago.”

“‘Reality is setting in that prices were somewhat inflated in some areas,’ said Bruce Mullen, an agent with Prudential Carolina Real Estate.”

“He said in many cases sellers have been basing their asking prices on values established while the market was still climbing. ‘People were riding on the wave of the boom from a few years ago,’ Mullen said.”

“In Mount Pleasant, the median price for November fell by 35 percent. And in other areas, like the outskirts of West Ashley and Summerville, nearby new construction has pushed resale values down.”

“In North Charleston, Jamie Herman and her husband have decided to reduce the asking price of their three-bedroom home in Wescott Plantation by more than $20,000 to $224,500.”

“‘It’s frustrating because there are so many new houses going up, and they’re practically being given away,’ said Herman, whose husband is being transferred.”

“‘Timing the market is difficult,’ said David Kent, president of the Charleston Trident Association of Realtors. ‘No one knows when the top is. No one knows when the bottom is. So now’s as good a time as any.’”

The News & Observer from North Carolina. “With the once-booming Triangle housing market cooling off, home owners and builders are resorting to new tricks to survive the slump. They’re offering extras from cars to video games. They’re swapping homes with frustrated sellers in other markets. They’re doing more lease-to-own deals.”

“‘These things really went away for the whole five years of the housing boom,’ said National Association of Realtors spokesman Walter Molony. ‘But people have always used creative approaches to draw attention to their houses in softer markets.’”

“Last month, builder David Dail said whoever bought a $395,000 home in The Preserve at Longbranch Farms in East Raleigh by Monday could choose a new Ford Fusion or a $19,000 discount. As of Monday afternoon, there were no takers.”

“Jetta and John Mohan tried unsuccessfully for five months to sell their house outside Fuquay-Varina. Soon after they changed to a lease-purchase option, they found a buyer. They required a $10,000 deposit and $200 of the rent goes toward the purchase of the $195,000 house a year from now.”

“‘We’d rather have sold it but…we couldn’t afford to have it sit empty,’ said Jetta Mohan, who moved with her husband to Wilmington last year. ‘With the slowdown, there are houses for sale everywhere.’”

“After six months, Eric Rothman hadn’t had any luck selling his North Raleigh home despite cutting the price and offering to throw in a new privacy fence. Two weeks ago, the Raleigh personal trainer upped the ante: He promised a Nintendo Wii to any broker who finds a buyer.”

“‘In this market you’ve got to try and make your house stand out from everybody else,’ said Rothman, who had bought the hard-to-find videogame to play with his 6-year-old son.”

“According to the Triangle MLS, the October inventory of 13,534 unsold homes was 23.4 percent higher than a year ago. That helps explain why Rothman offered a videogame to help sell his house.”

“Two weeks after offering the Nintendo Wii, Rothman still hasn’t found a buyer for his house. Not so the Wii. An acquaintance offered double the $249 retail price, and Rothman sold the game over the weekend.”

“‘I got an offer I couldn’t turn down,’ Rothman said.”

The Charlotte Observer from North Carolina. “Starter homes went up at a dizzying pace in the last decade, particularly across northern Charlotte. Land was available and demand was high, as newcomers poured into the city and investors bought homes to rent. Relaxed lending standards also created a new pool of buyers with moderate incomes and shaky credit histories.”

“Planners approved subdivision after subdivision of starter homes, from Catawba River Plantation in the west to Stewarts Crossing in the east. The houses are close together and look similar, with vinyl siding in neutral colors.”

“The best of them show subtle signs: Vacant houses. Overgrown weeds. Trash piled at the curb.”

“The worst of them already resemble decaying urban neighborhoods that keep police and housing inspectors busy — and cost Charlotte millions to repair.”

“Windy Ridge is 5 years old, but already 81 of its 132 homes have lapsed into foreclosure. Dozens stand boarded up or vacant, with windows smashed and doors kicked in. Vandals have ripped copper wire from walls. Vagrants and drug users frequent the empty houses, next door to families who thought they’d invested wisely in their northwest Charlotte suburb.”

“In east Charlotte, Laurie Talbot was recently awakened by gunfire in her 7-year-old subdivision. ‘I thought I’d bought a home in Pleasantville,’ says Talbot, who moved from New York last year. ‘I never imagined in my wildest dreams that stuff like this would happen.’”

“She can’t get out, she says. ‘With all the foreclosures…there’s no way I could sell my house for what I have in it.’”

“Overall, the Observer found more than 50 neighborhoods with elevated foreclosure rates of 15 percent to 61 percent. Virtually all of them are new starter-home subdivisions.”

“In Sinclair Place, Thomas Bautista says he’s repeatedly called for code enforcement in his northern Charlotte subdivision. The house next door is dark and vacant, in foreclosure and scheduled for sale Tuesday.”

“Still, thieves broke in twice next door. Over the summer, Bautista finally paid a yard man $110 to cut the four-foot-tall grass because he kept seeing snakes, near where his children play.”

“He tried to sell in 2005 but learned from Realtors that his $112,000 home would command only $97,000. ‘This house has been a real pain,’ says Bautista, a Huntersville police officer who parks his patrol car on the street when he’s off duty.”

The Roanoke Times from Virginia. “At Old Virginia Brick’s plants in Salem and Madison Heights and at the General Shale Brick plant near Coyner Springs, managers and employees have been gut kicked by the effects of the nationwide slump in the construction of new single-family homes.”

“After the real estate bubble burst, the trickle-down began affecting local folks with calloused hands and the regional employers who sign their paychecks. Production lines have shut down, work hours have been cut and layoffs announced.”

“Gary Saunders is president of Timber Truss, a homegrown company that won a small business award this year from the Roanoke Regional Chamber of Commerce. In late November, Saunders said his company’s sales started falling about a year ago, following years of exceptionally good market conditions.”

“‘It was like a light switch went off,’ he said. ‘It just never came back.’”

“Corky Clifton is sales manager for General Shale’s brick plant in Botetourt County. Clifton said the plant’s sales have been off ‘in the neighborhood of 25 [percent] to 30 percent.’”

“As a result, General Shale, headquartered in Tennessee, has closed one of two production lines at its plant on Webster Road and laid off about 30 to 35 workers. ‘We ship all over the Southeast and East Coast. We are feeling it in all of our markets,’ Clifton said.”

“Product demand in Northern Virginia has been especially slack, he said. ‘That market has probably hurt us more than any.’”

“Saunders said he is afraid relentlessly negative and ‘over-reported’ coverage about the subprime debacle and other housing-related crises is scaring people. The fear blinds them, he said, to the opportunities created by the crisis.”

“‘Right now is probably the best time to build a house,’ Saunders said. Sought-after contractors who were once hard to hire are more readily available, he said. In the absence of demand, Saunders added, the costs of many building materials have dropped, as have rates for 30-year fixed-rate mortgages.”

The Baltimore Sun from Maryland. “Home sales in metropolitan Baltimore tumbled again in November, the third consecutive month that sales have dropped about 30 percent. Prices also fell slightly.”

“The string of declines - volume fell 31.74 percent in October and 29.72 percent in September - is the most severe recorded by Metropolitan Regional Information Systems, which began tracking sales through the multiple-listing service in 1999. The region’s biggest decline was in Anne Arundel County, where sales skidded nearly 42 percent.”

“Home prices were down in four of the six jurisdictions, the most in Carroll - nearly 7 percent - and Howard, down 6.3 percent. Average home prices rose 3.6 percent in Anne Arundel and 6.47 percent in Baltimore County.”

“‘By and large, we remain very much in the midst of our local housing downturn,’ said Anirban Basu,CEO of Sage Policy Group, of Baltimore.”

“‘Right now, many buyers remain disengaged from the market, with some simply nervous about the value of their existing property and not looking to acquire more. Buyers have felt asking prices are too high…and have felt prices are set to fall. And sellers have not recognized much of that in their asking prices until recently,’ Basu said.”

“‘There are some buyers - not as many as there were two years ago. But for the most part, people have just stepped back and are waiting - it’s unclear what they’re waiting for,’ said Jane Rowley, a real estate agent in Federal Hill. ‘There’s that expectation that [prices] are going to go down, or have gone down, and that sellers will accept very low bids. That’s not actually what’s happening.’”

“There were 19,502 active listings last month…nearly double that of two years ago. The MRIS statistics pointed to signs that sellers are softening their prices. The average listing price of homes that sold in Carroll, Harford and Howard counties was lower than a year earlier.”

“And sellers overall accepted 91.75 percent of their asking price on average, down from not quite 94 percent the year before.”

“Moin Hussaini, who recently got married and moved to Los Angeles, has had no offers on his three-bedroom townhouse in Baltimore Butcher’s Hill, which was put up for sale in August. He’s hoping a $10,000 price reduction, to $345,000, will prod an offer.”

“‘I actually think it’s a fairly decent time to buy,’ he said. But ‘people are just not looking at it, which is frustrating. But I’m fully prepared to rent it out if I need to.’”

Bits Bucket And Craigslist Finds For December 11, 2007

Please post off-topic ideas, links and Craigslist finds here.