The Housing Bubble

The Wall Street Journal reports from California. “The bedroom community of Corona is a microcosm of the looming devastation for homeowners in California’s so-called Inland Empire. Corona lawyer Nathan Fransen says he has nearly 100 clients trying to avoid foreclosure but none appear eligible for the government rescue package.”

“‘The government has misread California. Most foreclosures here are on loans that haven’t adjusted, meaning that people can’t afford what they have now,’ says Mr. Fransen. He lives in a gated community where he says dozens of million-dollar homes face foreclosure. ‘The plan won’t help much here, and the problem is going to get worse.’”

“Economist John Husing predicts the number of area jobs could decline next year as expansion slows. Mr. Husing is an authority on the Inland Empire. ‘My sense is that the [rescue] plan won’t help,’ Mr. Husing says. ‘A lot of people made dumb decisions.’”

“On Calle Canon Road, residents say they were drawn to the street by the two-story, 4,000-square-foot homes, built on some of the biggest lots in the area. Developer William Lyon Homes Inc. was selling stucco-and-stone-faced models in 2004, starting at around $500,000.”

“Today, four of the 11 properties on one side of Calle Canon Road are abandoned, and some sport big foreclosure-auction notices. At least three foreclosed homes were originally bought by investors who never lived in them, and one was never occupied.”

“Of the scores of houses for sale in the area, about half are in default or foreclosure, real-estate agents say.”

“Karenn and Steve Oropeza arrived at Calle Canon Road in 2004. Public records show they paid $557,000 for a four-bedroom house and took out a $500,000 mortgage.”

“As property values skyrocketed, they refinanced three times, most recently in late 2006, for $835,000, Mr. Oropeza says.”

“The couple say they used some of the money they pulled out of the house for home improvement, such as a backyard waterfall. But Mr. Oropeza says the bulk was used to pay off credit-card arrears. ‘We were in a vicious cycle of refinancing our home to get out of debt,’ he says. ‘We banked on selling the house, but that’s where we failed.’”

“Meanwhile, Mr. Oropeza expected to be transferred to Texas…In June, they bought a 3,600-square-foot home for $283,000 in the Houston suburb of Katy, Mrs. Oropeza says. ‘It was easy. We had good credit.’”

“In the run-up to their move, she says, the couple lived off credit cards to ‘make sure we had cash for the house payments’ in Corona. They packed up in June, and then took their 9-year-old son and 2-year-old daughter on a long-planned Caribbean vacation. They returned to Calle Canon Road, ‘got in our cars and drove to Texas,’ Mrs. Oropeza says.”

“Neighbors Ms. Lefranc and Mr. Saffold are dismayed over the Oropezas’ departure and note that shortly before leaving, the couple bought a new Lexus. ‘I think they took money out of their house and split,’ Ms. Lefranc says.”

“Mrs. Oropeza says that she and her husband recently bought a Lexus and a Chevrolet Suburban with no money down. She denies that the family intended to abandon the house. The choice was straightforward, she says: ‘It was easier to keep the house in Texas than the one in California.’”

“The couple stopped making their Corona mortgage payments in June, triggering a notice of default 90 days later and starting the countdown to foreclosure. ‘We’re sad because there goes our credit, and because people think we are a bunch of flakes who walked away from the house and tried to make money,’ Mrs. Oropeza says.”

The Press Telegram. “The California Association of Realtors’ most recent housing report issued in November showed home sales fell more than 40 percent in October in California from a year ago and the median price of an existing home fell almost 10 percent.”

“The state’s median home price fell below the $500,000 mark for the first time in more than a year to $497,110.”

“Locally, the median in Bellflower fell more than 13 percent to $430,000, Downey’s median fell nearly 17 percent to $503,500 and Lakewood saw an 8 percent drop to $487,500. The median in both Long Beach and Norwalk fell 9 percent, with Long Beach dipping to $450,750 and Norwalk dropping to $424,000, and Paramount saw its median drop nearly 8 percent to $370,000.”

“Another hard-hit local community was Compton, where the median fell $50,000 in a year to $350,000 for October.”

“October also brought bad news in foreclosures. A total of 50,401 foreclosure filings were reported in the state for the month, more than triple the number reported in October 2006.”

The Modesto Bee. “Today, Police Chief Charlie Halford is scheduled to ask the City Council to allocate $102,725 for landscaping and boarding up about 35 houses. That amount is what it would cost to fix up and maintain for a year, 5 percent of the estimated 700 residences in the city in some stage of being repossessed.”

“It took the Police Department months to get the mortgage holder of a house on El Portal Avenue to board it up. Another house, on Grant Avenue, remains unsecured, and police respond to calls there almost daily, Halford said.”

“‘We’ve been told by the mortgage holder that they are planning on boarding it up, but that hasn’t happened yet,’ he said. ‘They came out and measured, but if it is not done in the next week, we’ll probably do it.’”

“Whether the city ends up recouping the money, he said, the $650 cost of boarding it up would pay for itself in fewer police hours spent there.”

The Contra Costa Times. “Affordable housing is becoming easier to find in Dublin as developers adhere to the city’s rules for providing such homes in for-sale developments. However, selling those affordable homes, in some cases, is proving harder to do.”

“For that reason, Dublin is looking at allowing owners of below-market-rate units to rent them out in cases of financial hardship. Some other cities, including Livermore and San Francisco, already have created such provisions.”

“Sellers now say they are having a harder time finding qualified buyers as a result of the market slowdown. Some qualified buyers are thinking twice about whether to go after a below-market-price home. A glut of unsold homes on the market means ‘regular rate’ homes are, in many cases, not much more expensive that the ‘below-market’ units, city reports say.”

The Press Democrat. “Finding a home under a half-million dollars was easier than expected for Steve and Becky Bovee, who landed a good deal on a Santa Rosa house that had languished on the market.”

“The Bovees got the seller to take less than the $424,900 price tag for the three-bedroom, single-story house in Santa Rosa’s Hidden Valley neighborhood, and then even kick in closing costs. The original price was $499,000 when the home hit the market four months earlier.”

“‘It’s better than we expected,’ Steve Bovee said. ‘This was a good time to look. It was more of a buyers’ market.’”

“From falling prices and favorable loan rates to a glut of choices, buyers are well positioned to take advantage of Sonoma County’s slowest real estate market in more than a decade.”

“Not everyone can seize the opportunities. Lenders have tightened requirements with loan defaults at record highs. For many borrowers, that means having $50,000 in cash to make a down payment on the typical home.”

“And many would-be buyers remain wary about the market’s direction with analysts forecasting prices will continue to decline well into next year.”

“Home prices have dropped 10 percent from their 2005 peak, returning the price of the typical Sonoma County home to $515,000, a level not seen since 2004. The price of homes under $500,000 has tumbled even faster, 15 percent or more, because the greatest number of homes for sale are in that range.”

“‘The buyers, they are in control now. They are very well aware of it,’ said Timothy Hedges, broke in Sebastopol. ‘They want at least the idea that they’re getting a good value. Even if a property is priced very competitively, they still want to deal. They want to know they were able to do some negotiating.’”

“But buyers aren’t in a rush. ‘Some look at dozens of homes,’ said agent Randy Tallariti. ‘There’s so many great deals, and they think the market is going to go down, down, down.’”

“More buyers are considering purchasing through short sales, which make up a growing number of listings. About 20 percent of houses on the market are short sales, in default or in foreclosure.”

“‘Very few people are paying asking price,’ Steve Bovee said. ‘That was unheard of two years ago.’”

“Today, they expect the value of their home to decline, but plan on staying in the home long enough for housing to eventually bounce back. ‘I actually foresee us to lose a little value. I think the market is still on its way down,’ he said. ‘But the opportunity presented to us was a good one. We plan on hanging out.’”

The City Paper reports from Tennessee. “The Greater Nashville Association of Realtors has had to report yet another down month in sales. Nashville-area home sales dropped about 19.5 percent in November compared to last November. The median price has been declining since a peak of $196,000 in June, settling at $179,900 last month. Of course, sellers have sold houses in days or even hours and agents in hot areas got accustomed to that. Now the agents talk about the time it is taking. ”

“Brian Taylor, managing broker for Prudential Woodmont Realty’s Nashville office, said it is more important to educate sellers in how to price a house on the front end so it sells instead of establishing a price and lowering after sitting for three months.”

“‘We don’t have the 25 percent premium on housing like we did a year ago,’ Taylor said. He said if it’s not priced right, it won’t sell. ‘I think there are a lot of buyers on the fence looking for a deal.’”

The Daily News Journal from Tennessee. “The house on Gondola Drive was meant to be Jeanette Newton’s last, the home where the nurse turned legal assistant would grow old and retire.”

“But that was before a knee injury forced a job change and an escalating adjustable-rate mortgage pushed her payments up from $828 to nearly $1,200 a month. Now, Newton is in bankruptcy, fighting to save the two-bedroom, two-bath house that she bought three years ago.”

“Six of her neighbors in Chelsea of Priest Lake subdivision have faced similar battles. Five have already lost their homes, and the sixth is on the verge, awaiting an eviction notice. Nashville’s foreclosure rate doubled in 2007, reflecting the depth of the problem.”

“Banks and underwriters should have required higher down payments, steered borrowers away from risky loans and refused to extend credit to buyers who lacked the savings to weather financial downturns, said Kevin Lavender, the former state banking commissioner who warned of a pending foreclosure crisis before leaving office two years ago.”

“‘You have some people who say if the people were greedy enough to sign up for that particular mortgage, they get what they deserve,’ Lavender said. ‘But we have got people slinging pizza by day and selling mortgages by night. We had to know at some point that would be hurtful.’”

The Post Tribune from Indiana. “Portage has grown a reputation in recent years for being a popular place to build a home. During the past eight years, permits for new single-family homes have ranged anywhere from 195 a year to 240 year –until now.”

“Permits in Portage dropped by more than half to just 106, as of the end of November.”

“‘We have a lot more inventory than we need or is healthy,’ said Bob Coolman, president of Coolman Communities Inc.”

“Developers have been building homes without buyers for years, on the hope continued growth would bring in potential homeowners. But that extra building has finally caught up with them, Coolman said.”

“He pointed out that since 1992, demand for new homes reached about 900 a year. But starting in 2002, developers began building about 1,200 a year, leaving more houses than buyers.”

“‘You just have too much saturation,’ Pete Novack, president of the Greater Northwest Indiana Association of Realtors, said. Because housing permits jumped so much during the past few years, a decrease this year still leaves housing permits above levels for 2000 and 2001, he said.”

“‘Builders were throwing up (speculation) homes everywhere,’said Michael Haller, building commissioner for Porter County. ‘Everyone and their brother claimed to be a builder.’”

“A continued downturn in building isn’t good news for builders, Coolman said. But the one group who will benefit are buyers. The glut in new houses mixed with lowered interest rates create near-historic low housing prices, he said.”

“‘This may be the best time ever to buy a house because there’s too much inventory,’ Coolman said. ‘It doesn’t take a genius to figure out it’s a buyer’s market.’”

From Chicago Business in Illinois. “The condo slump has put developer Liviu Mihulet in a tight spot. His lender, Northside Community Bank, filed a lawsuit in August to foreclose on a 32-unit condominium conversion the developer launched in January in West Rogers Park.”

“The bank asserted that the property had declined in value and demanded that Mr. Mihulet put another $500,000 of equity into the project. When he refused, he says, Northside demanded he repay the $3.1-million loan.”

“‘This was an insult,’ says Mr. Mihulet, who is trying to refinance the project.”

“It’s an indignity more developers are facing. As weak condo sales make it harder to pay off construction loans and skittish banks try to reduce their exposure to the depressed market, condo developers are increasingly facing a fate similar to that of the thousands of Chicagoans who may lose their homes to foreclosure.”

“‘In ‘08, we’re going to have a lot more situations to work out than new projects” getting under way, says real estate attorney Steven DeGraff.”

“Mr. DeGraff, a principal at law firm Much Shelist Denenberg Ament & Rubenstein P.C., estimates he now spends 40% to 50% of his time on real estate loan workouts, a lot of them involving condo developers. That part of his practice occupied almost none of his time as recently as midyear.”

“‘The only light that I see at the end of the tunnel is another train coming,’ says Stuart Packer, the developer of a 19-unit condo conversion in West Rogers Park that was hit with a foreclosure suit in July.”

“Mr. Packer owes Hinsdale Bank & Trust Co. $2.2 million on a project he expected to sell out in 12 to 18 months. But 2½ years after he started construction, only four units have sold.”

“A sign of things to come may lie in once-hot neighborhoods like Lincoln Park. In October, LaSalle Bank N.A. filed a foreclosure suit to collect $5.3 million on an overdue construction loan for the Ashton Lofts, a 39-unit project.” “Several condo buyers bailed out of the project as it struggled with construction delays.”

The Bay City Times from Michigan. “Like millions of other Americans, Dave Kozuch of Bay City ran into a bit of trouble making his mortgage payments. About a year ago, the part-time maintenance worker was laid off. Finding $240 per month to pay the note on the $30,000 mortgage he got five years ago, to buy a house wasn’t always possible.”

“Soon, a variety of taxes, fines and insurance premiums sent his $240 monthly payment up to $610.”

“Kozuch says he tried contacting Chase Home Finance to straighten things out. But Kozuch met with frustration. ‘I’d fax something to San Diego, then get a call from Atlanta and a letter from Houston,’ he said. ‘It’s been unreal.’”

“Soon, he received notice the bank was planning to foreclose on his home and sell it at auction. Kozuch is doing all he can to avoid joining a record number of homeowners in Bay County - 378 so far this year - who’ve lost their homes to foreclosure.”

“In the past three years, nearly 1,000 homeowners in Bay County lost theirs that way. Industry experts say Bay County will be among the 10 hardest-hit areas in loss of economic growth spurred by the foreclosure crisis.”

“Kozuch, like many others in his shoes, filed for bankruptcy, which grinds the wheels of foreclosure to a halt. ‘But when I found out how much I’d have to pay each month for my debts through the bankruptcy payments,’ he said, ‘I couldn’t afford that either.’”

“Property values began dropping around 2000 after peaking in many markets, including Bay City. Mike Samborn, president of the Bay County Realtors Association, said the downward adjustment was a needed ‘correction’ to the market - although it’s led many folks to become ‘upside down’ in their mortgages.”

“A look at public real estate records on foreclosed homes in Bay County reveals that the problem exists in inner-city neighborhoods as well as the swankier suburbs. One bank unloaded a home on Woodside Lane, valued at $77,600, for $20,100 last month - less than a fourth of the $84,117 still owed on the mortgage.”

“Another bank sold a home on Eleven Mile Road, assessed at $93,900, for $41,500, a third of what was owed the bank that held the mortgage. And a home on Glen Eagle Drive, valued at $393,900, was purchased after foreclosure for $305,000, more than $50,000 less than what the former owners owed on their primary mortgage.”

“Samborn specializes in foreclosed homes…for the past decade, and he sees a silver lining as housing prices continue to adjust downward. ‘First-time homebuyers get more affordable housing,’ he said. ‘Investors can find deals. And the houses are there, too, for people looking to move up.’”

“The glut of homes on the market may leave the impression houses aren’t selling, but Samborn said sales have been steady over the past three years or so - although prices have been lower, and a larger share of the homes have been through foreclosure.”

“‘There’s a lot to choose from,’ he said. ‘Get yourself properly qualified, and don’t overextend yourself. The sub-prime loans are no longer readily available, but there are still a lot of good loan programs out there.’”

“For one Bay City couple, foreclosure was a double-edged sword. It meant losing the home they raised their children in, but it also yielded a more stress-free lifestyle.”

“They owed more than $50,000 on their mortgage when the bank foreclosed earlier this year. The house, in need of many repairs, sold in November through a sheriff’s auction for a mere $5,000.”

“‘Someone else has those headaches now,’ said the man, who agreed to speak with The Times on condition of anonymity. He’s a private man, and foreclosure carries great stigma.”

“‘The shame and embarrassment is great,’ he said, ‘but sometimes you have to swallow your pride, look at your finances and realize that sometimes, the American dream is unattainable.’”

“He is a white-collar worker. His wife is a blue-collar worker who often finds herself temporarily unemployed. ‘People think if you’ve got problems paying your mortgage that you’re a gambler or a drug addict,’ he said. ‘That’s not always the case. That wasn’t our case. Our family and friends know what happened and understand.’”

“Grown children and grandchildren who required financial help and other personal financial setbacks threw a wrench in the family’s plans to remodel and restore their turn-of-the-century home. The couple refinanced their mortgage a few years back. When an appraiser asked ‘how much they needed,’ they bit off more than they could chew, at a fixed rate of 8.5 percent.”

“Then energy costs shot up. Housing values fell. The wife lost her job. Soon, they could no longer afford to make their mortgage payments. ‘We tried refinancing,’ the man said, ‘but due to extenuating circumstances … we weren’t able to. Things began slipping.’”

“The foreclosure notices began coming in, and after scrambling to get on top of the matter, the couple decided they’d just let it go. They have settled into a spacious, affordable apartment, and are enjoying their new lifestyle.”

“‘We came to a very happy point in our lives,’ the man said. ”We downsized. We got that monkey off our backs.’”

Some housing bubble news from Wall Street and Washington. Bloomberg, “IKB Deutsche Industriebank AG, the German lender bailed out by KfW Group, fell to its lowest in more than a decade on concern about further losses from U.S. subprime mortgage investments. The rescue of IKB may cost the German development bank KfW more than 5 billion euros ($7.2 billion) if market conditions worsen, KfW CEO Ingrid Matthaeus-Maier said in an interview with Sueddeutsche Zeitung newspaper today.”

“The bank has also written down the value of its 38 percent stake by 400 million euros, she told the newspaper.”

The Associated Press. “Securities in Australian property trusts Centro Properties Group and associate Centro Retail Trust crashed Monday after they cut their earnings forecasts because of increased debt financing costs linked to the U.S. subprime mortgage crisis.”

“The losses stripped a total of A$4.78 billion (US$4.12 billion; €2.84 billion) off the market capitalization of the two.”

“‘We never expected, nor could we reasonably anticipate, that the sources of funding that had been historically available to us and many similar companies would shut for business,’ CEO Andrew Scott told reporters in a conference call.”

“‘Centro has been lax with tying down its debt and is now paying the price,’ said Jonathan Kriska, property analyst at Patersons Securities in Sydney.”

From The Age. “Five weeks after telling shareholders the US subprime housing crisis has not had any impact on the operation of Centro’s US portfolio, Centro Property Group is in turmoil.”

“Yesterday, the group announced it had obtained an interim extension until February 15, allowing the group time to negotiate the refinancing of $A1.3 billion in maturing debt, which arose from the group’s exposure to the US subprime mortgage market.”

The Sydney Morning Herald. “Staring down the barrel of at least $2 billion in expensive short-term debt, Centro is facing its version of the St Valentine’s Day massacre. Its financiers have given the tottering property group just eight weeks to put in place new financing to replace borrowings the company sourced from the now-crippled United States commercial credit markets.”

“Centro took a gamble in August that ensuing chaos would recede, when it managed to get away a $US300 million 10-year term issue at ‘reasonable rates’ through a tightening CMBS market, which had been providing about $US80 billion in funding every month.”

“Despite all the overwhelming evidence to the contrary, Centro believed a few days ago that it could find a way to replace its crippling debt, including $2 billion due at the end of the month.”

“‘Up until late last week, we were of the view that our short-term debt obligations could be refinanced on a long-term basis,’ chairman, Brian Healey said.”

“But, in saying that, it appears the Centro board and its executive team were depending more on luck than judgment.”

From Reuters. “National City Corp, the ninth-largest U.S. bank, said on Monday it expects its provision for loan losses for the fourth quarter to be about $700 million. The bank said that home equity loans and non-prime mortgages transferred to its portfolio in the third quarter have shown further deterioration beyond what the company anticipated at the time its September 30 loan loss allowance was established.”

“‘The areas of elevated risk continue to be in the run-off portfolios of First Franklin non-prime mortgages,’ the bank said in its filing.”

“National City sold its First Franklin Financial Corp subprime unit to Merrill Lynch last December, for $1.3 billion, but kept several billion dollars of loans and is winding them down.”

From CNN Money. “National City said it will take $200 million in charges related to mortgages on its warehouse lines that it either sold to investors or transferred to a portfolio in October and November.”

“Total charge-offs, or loans written off as not being repaid, increased to $102 million in November, from $87 million in October. Charge-offs on residential mortgages and home equity products accounted for a combined $51 million during the month, a 13 percent increase from the $45 million in October and more than double the $21 million written off during November 2006.”

“U.S. investment bank Lehman Brothers is facing possible legal action by local councils in Australia who bought collateralised debt obligations (CDOs) from its local unit, Grange Securities, the Financial Times newspaper said Monday.”

“The FT said one Lehman-originated CDO exposed to the U.S. subprime mortgage market was marked down to just 16 cents in the dollar by the bank last month.”

“Mizuho Financial, one of the largest Japanese banks, last week stopped helping create U.S. collateralized debt obligations containing asset-backed securities or high-yield corporate loans. It also stopped trading such securities. Five people were fired.”

“‘Due to changes in the global market for structured-credit products, Mizuho Securities has decided to suspend U.S. asset-backed CDO and CLO activities,’ said Seth Martin, a Mizuho spokesman.”

“Mizuho said Dec. 5 that it would invest ¥150 billion, or $1.4 billion, in its investment banking unit to shore up its balance sheet amid losses tied to rising U.S. mortgage defaults. The unit may post a loss of ¥92 billion for its fiscal year because of subprime-related investments, the bank said.”

“At Mizuho, the group underwrote $4.4 billion worth of CDO deals before the markets seized, according to an industry newsletter. Mizuho, the 18th-largest underwriter of mortgage-bond CDOs during 2006 and 2007, may have retained about half of the debt, which may produce $700 million in losses, according to JPMorgan Chase CDO analysts.”

“Japan’s top three banks are expected to resist a request to put up a total of $15 billion for a U.S.-led subprime rescue fund, a move that could further cloud prospects for the bailout plan.”

“Executives at Japan’s top three megabanks have meanwhile been wondering why they were asked to shoulder such a comparatively large part of the fund, whose size has recently been estimated by media at $30-60 billion.”

“‘It could prove quite difficult for us to put up funds for this,’ said an executive at one of the megabanks, adding that he did not think the fund would be able to sell the commercial paper that would in theory be supported by Japanese credit lines. ‘Logically, it just doesn’t make sense for us.’”

“Nomura Securities bank analyst Keisuke Moriyama said he expected Japan’s top three banks to offer to pay less than the requested amount or even refuse to help altogether.”

“The issue could yet become political, the megabank executive said. ‘What did America do when we had our non-performing loan problem? They just pushed us into the corner. European banks also ran away. Why should Japan now shoulder this burden?’ said the megabank executive. ‘But this is a decision made at a high political level and could end up defying logic.’”

From AFP. “It is time for the banks to fully disclose their US home-loan losses to prevent fear from making a tough credit crunch worse since the central banks have done about all they can to restore confidence, analysts say.”

“Central banks ‘can’t do any more’ to boost confidence in the financial markets, Commerzbank economist Michael Schubert warned, while Bank of America’s Gilles Moec urged the private sector to state clearly ‘who lost what and how much.’”

“Clear statements by finance houses about how much damage the US home-loan crisis has done to their accounts ‘is really the key to the crisis,’ economist Moec stressed.”

“A solution depends on confidence because banks have stopped lending to each other since they do not know the extent of potential losses incurred by the banks they trade with.”

“‘If you are a medium-sized bank trying to borrow for three months in the interbank market you can more or less forget it,’ said Investec Securities chief economist Philip Shaw, who is based in London. ‘I’ve heard of institutions that won’t lend beyond one week, to anybody, it doesn’t matter who the name is.’”

“‘When in doubt, people tend to abstain,’ Moec said. ‘The problem for everyone is they don’t know if their counterpart belongs to the winners or the losers.’”

“Only transparent disclosures could convince market players a potential partner was solvent, the economist explained. ‘It’s beyond the reach of the central bank,’ he said.”

“The Federal Reserve’s plan to provide $20 billion in cash to the world’s money markets failed to reduce the cost of borrowing in euros.”

“The rate banks charge each other for three-month loans in euros stayed close to a seven-year high, rising 1 basis point to 4.95 percent, the European Banking Federation said today. That’s 95 basis points more than the European Central Bank’s interest rate. It was 4.58 percent a month ago.”

“The Fed will today make funds available to banks and financial institutions in an effort to increase the amount of cash available to the banking system.”

“‘It’s going to take a long time for these problems to go away,’ said Nick Stamenkovic, a fixed-income strategist at RIA Capital Markets Ltd. in Edinburgh. ‘These auctions might help stem the pressure until year-end, but the bottom line is until we get a clearer picture of how deep the problems are, the banks are going to hoard cash.’”

“Representatives of five of Wall Street’s dominant investment banks gathered around a blonde wood conference table on a February night almost three years ago. Their talks led to the perfect formula for a U.S. housing collapse.”

“The host was Greg Lippmann, then 36, a fast-talking Deutsche Bank AG trader who aspired to make mortgage securities as big a cash cow for Wall Street as the $12 trillion corporate credit market.”

“Those meetings of the ‘group of five,’ as the traders called themselves, became a turning point in the history of Wall Street and the global economy.”

“The new standardized contracts they created would allow firms to protect themselves from the risks of subprime mortgages, enable speculators to bet against the U.S. housing market, and help meet demand from institutional investors for the high yields of loans to homeowners with poor credit.”

“This is the story of how Wall Street transmitted the practices of southern California’s go-go lending industry and the inflated U.S. real estate market to the global financial system.”

“In Orange County, California, a mortgage lender named Daniel Sadek was among those who took notice of the increase in Wall Street’s appetite for subprime loans. He turned the staff at his firm, Quick Loan Funding, into a subprime mortgage factory. ‘You can’t wait,’ said his ads, aimed at high-risk borrowers. ‘We won’t let you.’”

National Mortgage News. “Alan Greenspan, the former Federal Reserve chairman, has found the roots of the current ‘liquidity’ crisis (which is really the subprime crisis but with a different name).”

“In an recent op-ed piece Mr. Greenspan – once a big fan of ARMs – wrote: ‘The root of the current crisis, as I see it, lies back in the aftermath of the Cold War, when the economic ruin of the Soviet Bloc was exposed with the fall of the Berlin Wall.’ Huh?”

The Philadelphia Inquirer. “On a recent weekday, stress-management guru Loretta LaRoche delivered her message in Hall A of the Atlantic City Convention Center to a standing-room-only audience of men and women who, of late, seem to be some of the most stressed-out Americans of all. Realtors.”

“LaRoche strutted across the stage for 45 minutes wearing feathered boas and silly hats. She cajoled her audience into grinning, laughing, shouting ‘Whoop! Whoop!’ as loudly as possible, then joining hands as she led in a sing-along of ‘That’s Amore,’ with Dean Martin crooning in the background.”

“The Internet is defining seller attitudes, said Roger Turcotte, a New Hampshire real estate broker and educator.”

“‘You meet with a seller and he wants to list at $390,000, even though your market analysis says to start at $345,000? That’s the Internet talking,’ Turcotte said. ‘Before they call you, [sellers] spend hours looking at Web sites, collecting information from sources that aren’t necessarily reliable. You show them the data, and they counter that they are not desperate and they are not going to lower the price.’”

“What should a listing agent do? ‘Walk away,’ Turcotte said. ‘You don’t need the listing that badly, and you know what’s going to happen. Someone else who tells the seller what he or she wants to hear will get the listing, and then the property will stay on the market until the price drops to what the market will bear.’”

“Turcotte blamed a lot of the current market downturn on an overwhelming emphasis on home purchase as an investment, even though the industry’s own rhetoric over the last several years also has focused on it.”

“In fact, the NAR’s 2007 Profile of Buyers and Sellers says the ‘motivation for home ownership often includes an investment component,’ which most of those surveyed believed to offer a better return than stocks.”

“‘We are trapped in a media mess,’ Turcotte said. ‘Eighty to 90 percent of buyers are looking for a lifestyle asset, not a financial one.’”

The Palm Beach Post reports from Florida. “The same issue that forced sellers to pull their properties off the for-sale market now dogs them in the rental market: inventory. There are nearly 35,000 residential properties for sale in Palm Beach County alone, according to Illustrated Properties Real Estate. That’s a staggering four-year supply at the current pace of sales.”

“But even homes renting for $3,500 a month, as in ritzy developments like Wellington’s Versailles or West Palm Beach’s Terracina, might not pay enough to cover the owner’s monthly costs. ‘In many cases, owners are renting for half their monthly costs,’ said Jack McCabe, president of McCabe Research and Consulting in Deerfield Beach.”

“In Palm Beach County, more than 3,500 units have been pulled out of the for-sale condo market and put back into the rental pool, McCabe says, including Mizner Court at Broken Sound in Boca Raton (450 units), Aventine at Boynton Beach (216 units) and San Merano at Mirasol (476 units) in Palm Beach Gardens.”

“Of course, not all renters are frustrated wannabe homeowners priced out of the market. Many can afford to buy a home - 20 percent have incomes above $60,000.”

“They choose to rent to avoid financial risk in an uncertain housing market, says the Joint Center for Housing Studies at Harvard University. Renting also gives them an urban lifestyle at a lower price - certainly lower than home prices in Palm Beach County.”

The Tallahassee Democrat. “Some lenders and mortgage professionals see a tightening of mortgage rules in response to the millions of risky loans made the last few years and the rising tide of mortgage defaults and foreclosures.”

“‘There is certainly a major effort to tighten restrictions on granting credit in the mortgage industry,’ says Ritch Workman, president of the Florida Association of Mortgage Brokers.”

“The proverbial pendulum, he adds, had swung too far toward easy access to home loans. At the height of the credit craze, there were plenty of cases where people were denied credit cards but then could turn around and with the same credit profile qualify for a mortgage.”

From Hernando Today. “Drive down any subdivision and the sea of ‘for sale’ signs swim across your vision like a row of landlocked vessels. If you’re one of those homeowners trying to haul anchor and set sail, you might be wondering what you have to do to get that home out of dry dock.”‘

“Builders and Realtors say it’s still possible to sell homes in a tough market – as long as sellers are willing to make concessions and get out of the ‘make a killing’ mind-set. It boils down to two things: curb appeal and lower prices.”

“Maybe two years ago, you could inflate the asking price for the house, Not anymore. If you’re willing to take less, you should be able to sell. In real estate terms, it’s called ‘realistic pricing.’”

“‘There’s no reason why a nicely prepared home is not going to sell,’ said Harry Willett, president of the Hernando County Association of Realtors. ‘We have a better market than, let’s say Tampa, (because) those homes are really overpriced.’”

“And what the price was even six months ago may not be where that price needs to be today, said local Realtor Mary Ann DeWitt. ‘We’re considerably busier right now than we were 60 days ago,’ DeWitt said. ‘I have a very optimistic outlook for the next year. Every month that passes, we’re another month away from the bottom.’”

“Local Realtor and developer Gary Schraut agrees that while the housing numbers are not good, ‘they’re not as bad as people would want you to believe.’”

“People are comparing the current market to that of 2003-05, when the investor-fueled real estate boom was at full steam, he said. Home prices were artificially driven up by the wild speculation, and it is unfair to use those years as a yardstick and say that the home market is a complete disaster, he said.”

“Hernando County is now reaching the point where it was before the boom hit. ‘We’ve done the (market) correction, and we’re waiting for it to level off,’ Schraut said.”

“‘I think all the speculators are gone. The homes we’re selling now are people looking to put a roof over their family’s head. Some investors are trying to pick up foreclosures, but there aren’t that many of them because they have no one to flip it too fast,’ he said, referring to quick resales.”

“‘It’s not that they can’t sell them, it’s just taking longer and it takes more marketing and more realistic pricing,’ he said. ‘You can’t put a real estate sign out front and say, ‘Buy me,’ at any price. That is over now and we’re back to a real market where it takes real negotiating skills.’”

“Dudley Hampton, president of the Hernando Builders Association, agreed that people cannot judge the housing market by 2005’s standards because ‘that was an anomaly year.’”

“Despite the gloom and doom, Hernando County still boasts some of the lowest prices in the Tampa Bay metropolitan area, he said. ‘People who can afford to buy a home can buy one and get it for an excellent price and get good value for their dollar,’ he said.”

“To get people to buy, some are offering to pay closing costs or even the first year’s mortgage payments, he said.”

“Hampton believes much of the negativity comes from so-called analysts who continue to preach grim housing news. ‘A lot of that has to with the pundits on TV who I personally feel don’t know the difference between a hammer and a hat rack,’ he said. ‘Right now the sexy thing to do is preach doom and gloom about the housing market.’”

The St Petersburg Times. “Big private money from places like New York and Los Angeles has decided our carcass of a Florida housing market is ripe for some plucking.”

“If you’re a home builder, they’ll pay about 70 cents on the dollar to take that excess inventory off your hands. If you’ve lost your house to bank foreclosure, they’ll snag your humble abode for as little as 40 cents on the dollar.”

“One local builder, Dave Seidenberg of Bayfair Properties, said one fund totaling $750-million approached him as it scavenged for quality homes up and down the Gulf Coast of Florida.”

“Seidenberg said the deal is attractive only if he’s closing out a community. Otherwise he risks ticking off regular home buyers who pay more or less full price.”

The Post & Courier. “The overbuilt Florida condominium market got the best of a local development company.”

“James Doran Co., based on Daniel Island, conveyed about 45 acres of land in Orlando back to an investor after officials couldn’t get additional equity funding.”

“The lender, a pension benefit fund for the International Brotherhood of Electrical Workers union, accepted the property’s deed as part of the sale agreement that the two groups worked out before the transaction took place.”

“‘As we all know, Florida is going through a housing downturn,’ said CEO Bob Doran.”

The News Press. “Land preservationists throughout Southwest Florida are suddenly able to go after major properties they couldn’t have touched two years ago when prices were high.”

“Big property owners are coming hat in hand to offer their land to the property tax-funded Lee County Conservation 20/20 Land Program — spurred by the disappearance of speculators and builders who had been buying at a fevered pace.”

“When the home-building industry collapsed, prices plummeted for undeveloped land because builders had no need to start new projects. But the economic slump brings with it a sliver of good news.”

“The lower prices paid off when the county was able to buy the 105-acre Orchid Isles parcel adjacent to the Six Mile Cypress Slough Preserve in Fort Myers for $16.1 million three months ago. The owners had originally asked for $30.4 million.”

“‘We have a plethora of options’ for future purchases, said county Commissioner Ray Judah.”

“The falling value of the county’s real estate has devastated Lee’s residential construction industry, with only 85 building permits issued countywide in November compared to 402 a year earlier.”

“The median price of an existing single-family home has fallen 26 percent from $322,300 in December 2005 to $239,300 in October, the last month available, according to the Florida Association of Realtors.”

“This year, Conservation 20/20 has been swamped with applications, said Lynda Thompson, program coordinator: There’s now a backlog of 49 properties under consideration, of which 11 are in negotiations.”

“‘I’ve never seen this many nominations come through,’ Thompson said.” “One of the most valuable parcels acquired this year was a 400-acre property off Corkscrew Road near State Road 82, purchased for $5.85 million in May,”

“Fort Myers-based real estate broker Ed Bonkowski, who negotiated the sale, said the 20/20 program had been interested in the land for years but hadn’t been able to close the deal until now.”

“The property went for about $15,000 an acre, compared to the $40,000 or $50,000 similar property was going for two years ago when major builders like Beazer and Pulte were going after them. At those prices, ‘and 20/20 probably wouldn’t have gone into that bidding war,’ Bonkowski said.”

“In Collier County, which also has a land-buying program, owners of the 2,500-acre Pepper Ranch bordering Lake Trafford had planned to build houses on the property but recently approached the county about selling it for preservation, said Jennifer Hecker, national resources policy manager for the Conservancy of Southwest Florida, which advises the county on purchases.”

“No purchase price has been reached, but the property is ‘loosely estimated to be worth $40 million,’ Hecker said — much less than it would have gone for during the boom.”

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