December 18, 2007

It’s A Strange Christmas In California

The LA Times reports from California. “Sales of Southern California houses in November fell by 43% from the year before, while median prices fell 10%. The price decline was the sharpest, and November sales level the lowest, in 20 years, according to DataQuick. The Southern California median home price of $435,000 is on par with what prices were in early 2005, or off 14% from a peak of $505,000 earlier this year.”

The Union Tribune. “San Diego County’s declining housing market marked another milestone last month, when median prices declined 15 percent from their all-time peak in 2005, a quicker and bigger drop than in the recessionary early 1990s, DataQuick reported.”

“Looking at the components of the DataQuick report, all were down from year-ago levels, with the biggest category – single-family resales – dropping to $500,000 for the first time since April 2004.”

“Anxious sellers may be more willing to accept a low offer as they ratchet down their expectations, said Jim Nelson, a Century 21-Award agent. He held the sixth open house in 60 days on a listing in Clairemont Saturday after reducing the price from $650,000 to $600,000.”

“‘Serious buyers are buying, but nobody has made an offer on ours yet,’ he said. ‘I don’t think there are light switches or buttons you can push (to prompt a sale).”

“He plans to recommend that the seller drop the price even more to the mid-$550,000s.”

“DataQuick analyst Andrew LePage said preliminary figures indicate that 22.4 percent of the 1,705 resale houses and condos sold in November had been foreclosed on. A year ago, the foreclosure segment probably amounted to only about 6 percent, he said.”

“Tim Skoglin, an agent specializing in Stonecrest Village just north of Mission Valley off Interstate 15, said the bank foreclosure property price on a two-bedroom home cascaded from $399,000 to $374,000, then to $359,000 with no takers so far.”

“‘San Diego is a bellwether for the bubble itself in prices,’ said James Diffley, group managing director of Global Insight. ‘It would be a good sign for the rest of the country if the adjustment is as we project it, another 5 percent, and not for more than that.’”

“The only unknown that could upset the calculations is the course of the general economy, he said.”

“Just two years ago, Andrea Martin would see a designer handbag or a pricey cocktail dress in a store window and buy it without a thought. ‘Now you think two or three times,’ she said.”

“The Temecula resident said the economy has her so nervous that she’s cutting back on everything.”

“Ashlee Nicolls, 30, said she will continue to buy luxury items such as the Louis Vuitton purse she was toting around as she shopped at Fashion Valley last week.”

“Nicolls and her husband just bought a house in Coronado but haven’t yet sold their current house in Kensington. That means they will have two mortgages until they can unload the old house – something that might be tricky in a struggling housing market.”

“‘My spending hasn’t slowed down at all – even though it probably should,’ she said.”

From ABC 7. “An exclusive Eyewitness News poll, conducted by Survey USA shows 24 percent of Southern Californians are done with their holiday shopping, while 31 percent are about halfway finished. Thirteen percent said they just started shopping, 18 percent have not even begun, and 14 percent said they are not going to buy anything this year.”

“According to the poll, compared to last holiday season only about 24 percent of those surveyed said they would spend more this holiday. Nearly half said they will spend less. Twenty-three percent said they will spend about the same as last year.”

“‘It’s a strange Christmas. Lot of things on people’s minds — gas prices, the word of recession, housing situation, and locally people are concerned about the Writers Guild strike taking an estimated $325 million out of the economy. That hurts,’ said Jack Kyser, a chief economist for the L.A. Economic Development Corporation.”

“To try to attract shoppers, some business, such as Toys ‘R’ Us and some Macy’s stores, are staying open until midnight until Christmas. Many are offering huge discounts. ‘I just can’t believe it. I go in, and they have it on sale right now,’ said shopper Carmen Kooiman. ‘I mean, it’s not even Christmas yet.’”

“When Hoss Ghitkammanee steps out the front door of his Palmdale home, he sees a four-bedroom house much like his own. Instead of festive holiday reindeer on the lawn, however, the place across the street is decorated with a big, red sign spiked into the dead grass, declaring that the property can be bought at an upcoming foreclosure auction.”

“Another vacant house sits at the end of the block, with an eviction notice in its window and a ‘Substandard Property’ poster stuck to the door. The surrounding streets are peppered with ‘For Sale’ signs. Ghitkammanee fears many of those homes will wind up vacant too if their cash-strapped owners don’t find buyers soon.”

“‘It’s starting to degrade,’ Ghitkammanee said of his community.”

“With less than 3% of Los Angeles County’s population, it and neighboring Lancaster account for nearly 20% of the county’s foreclosures.”

“There were 678 foreclosures in Palmdale and Lancaster in the three months ended Sept. 30, compared with 79 during the same period in 2006, according to DataQuick.”

“Ghitkammanee wonders how the value of his home will hold up. One of identical size nearby is listed for $325,000 — $60,000 less than he paid for his. An even larger foreclosed house in the neighborhood is being offered for $282,000.”

“He fears the worst is yet to come. ‘Foreclosures keep popping up,” he said. ‘This is far from over.’”

The Fresno Bee. “The number of homeowners in default is piling up so fast that real estate agents are starting to offer tours of properties that have been returned to lenders. Real estate agents Nora Hall and Terry Babcock last week led a tour of six foreclosed houses for sale in Fresno.”

“‘There are so many foreclosures out there, and it has been a mystery to buyers as to how to find them and go through the buying process,’ Hall said.”

“Foreclosures make up about 12% of the existing houses for sale in Fresno and Clovis, or more than 500 homes, said Anthony Gamber, president of the Fresno Association of Realtors.”

“‘If they are not sold within the first 30 days, lenders are looking at price reductions,’ said Greg Kosareff, a Fresno real estate agent. Kosareff said he receives foreclosure listings from three banks — and competition among them is fierce. ‘They have to get [a price] under the others,’ he said.”

“‘In the last 60 days, I’ve had two or three closings where the property was appraised for more than we sold them for and they were all REOs,’ the industry term for bank-owned properties, Kosareff said.”

“One investor, Tom Hyatt, said prices have fallen to the point where he recently bought his first house since December 2005. It wasn’t a foreclosure, but Hyatt won’t rule out buying one. He said banks, facing year-end financial quotas, are going to become even more determined to sell houses in foreclosure.”

“‘Unfortunately, I don’t know if we’ve seen the bottom of the market,’ Hyatt said.”

The Santa Cruz Sentinel. “Mortgage brokers fear a recession in 2008, according to a survey released Monday. ‘Forty-three percent of our members feel that the real estate market will not fully rebound until 2009,’ said Santa Cruz resident Pete Ogilvie, president of the California Association of Mortgage Brokers.”

“Lenders are cutting prices ‘aggressively” at foreclosure sales, according to, which reported the average discount grew from $9,000 in January to $48,000 in November.”

“The Unsold Inventory Index, which measures the number of the months it would take to sell homes at current rates, is 13 months, up from 12 months in October.”

“Watsonville, hardest hit by defaults and foreclosures, had 16 sales in 90 days, a 41.6 month index.”

“So far, 916 homeowners have received a notice of default, double a year ago, according to the Santa Cruz Record, and 465 properties are in foreclosure, more than triple last year. Some 234 homes have been lost at foreclosure sales.”

“Inquiries at Flat Rate Realty are up 50 percent compared to a year ago, according to agent Karen Renbarger. The company is a full-service agency with discount pricing.”

“‘People are more price-conscious,’ said Dorothy Escobar with Flat Rate. ‘They don’t have a lot of equity, and they’re looking to save as much as they can.’”

The Marin Independent Journal. “Paul Financial Services has filed eight lawsuits in Marin Superior Court since September, saying mortgage brokers breached contracts by providing false information in order to obtain loan proceeds for their clients and profits for themselves.”

“Peter Paul, owner and founder of the firm, said…if his company faces losses because of fraud or misrepresentation, he will go to court. ‘We are attempting to enforce what we believe to be legal contracts,’ Paul said. ‘We will try to collect.’”

“Paul, a 36-year veteran of the mortgage industry, provides a variety of lending programs to high-credit borrowers through brokers, but has stopped accepting new loan applications due to the uncertainties in the market.”

“He said he has not seen so much decline in the value of housing nationwide in his career.”

“‘Money got loose and credit guidelines got loose,’ said Brenda Cantu, a broker with ProMortgage in Corte Madera. ‘For the last five years, lenders have been able to look the other way, but they’re not now. It’s unfortunate that because of the bad apples in this business, everybody is paying the price.’”

“Paul Financial, which until this year funded more than $2 billion in loans annually, has shrunk from a company with more than 200 employees to fewer than 50.”

“‘Wall Street funded half of the mortgages in the country,’ Paul said. ‘The capital markets virtually shut down.’”

“‘You can’t necessarily blame brokers,’ Paul said, adding that borrowers are given stacks of disclosure statements to sign when they close. ‘Someone chose not to read what was put in front of them.’”

“Spencer Scheer, Paul’s attorney, said fraudulent loans have been widespread in past years.”

“‘Equity covered a multitude of sins for a long time,’ Scheer said. ‘Nobody really cared if there was fraud, but when the values of assets dropped, people started looking at their contractual obligations.’”

The Gilroy Dispatch. “An embattled real estate company accused of predatory lending has shuttered its doors, becoming an additional signal of a slumping housing market.”

“On Monday, the Morgan Hill offices of Rancho Grande Real Estate looked like the properties they used to sell. The rooms were dark and bare of furniture, with only the stubs of phone cords projecting from the ground and walls.”

“At ACR Investments, a San Jose-based company owned by the same owners as Ranch Grande, work numbers were disconnected and cell phones were not answered. In addition, the company terminated its contract with its public relations firm, which knew nothing about the closure, former spokesman Juan Lezama said.”

“In Santa Clara County, only 1,200 homes were sold in November, a 40 percent decrease from the same month last year, according to DataQuick.”

“‘It’s absolutely the market,’ said Patty Filice, broker associate with Intero Real Estate Services. ‘When things were hot, people ramped up.’”

“Rancho Grande is not the only business in South County to be hit by the slump. Century 21 Premier, which had employed 90 real estate agents, hurriedly closed its doors in mid-September due to dwindling profits and a large stock of unsold homes. Alliance Title, a nationwide company that handles the financial end of closing home sales, shuttered its offices in Morgan Hill and Gilroy earlier this month, Filice said.”

“Staff at ACR Investments sold a $720,000 Hollister home with $5,200 monthly payments to two couples who made a combined $6,500 per month picking strawberries, Deputy Real Estate Commissioner Charles Koenig wrote in an accusation of wrongdoing. The company should have known that the families could not make these payments and that the home would go into foreclosure - both of which happened - Koenig continued.”

“A similar story surfaced in Gilroy, where couple Maria Alarcon Garcia and Julio Romero saw their $820,000 home go into foreclosure. Though the couple spoke only Spanish, they bought the house by signing forms in English and using the translation of Rancho Grande’s owner, Maria Avila, the couple said.”

“While the couple signed forms, Avila promised the couple monthly payments of $3,200, a tough but acceptable proposition as it constituted more than 90 percent of their income, the couple said. However, the couple saw payments of about $5,300, fell behind and watched as their credit and dreams were shredded.”

“Given the nature of the complaints, ‘One might think that it’s a good thing that they’re not operating any more,’ said California Department of Real Estate spokesman Tom Pool.”

The Euphoric Final Days Of A Gung-Ho Real Estate Market

The Mail Tribune reports from Oregon. “During the euphoric final days of a gung-ho real estate market, Cathy Lemble didn’t see the perfect storm brewing as she signed papers at LandAmerica Lawyers Title. Told by her real estate agent and lender that she was making a good move and further assured by her own experience and the backing of her boyfriend, Lemble bought a 1960s vintage house in Ashland for $425,000, more than triple the $133,000 the previous owners paid eight years earlier. That was Aug. 17, 2005.”

“Then the first hint of what was coming appeared on her doorstep. ‘The first newspaper out of the box had a headline that read, ‘Market flattens for first time in decade,’ Lemble recalls. ‘I thought, ‘This does not bode well.’”

“Two years later, Lemble faces the loss of her house and bankruptcy. The 41-year-old part-time teacher is among the more than 750 Jackson County property owners who have defaulted on mortgage payments this year.”

“‘I had spent my entire life in rapidly escalating markets, in the Bay Area, Boulder, Colorado, and then moving here seven years ago,’ Lemble says. ‘I thought of real estate as the safest investment around; I’m devastated. The bottom line is that I’ve lost every penny.’”

“Getting into the house was ‘a huge stretch made with the assumption that things would continue to go up,’ Lemble says. ‘The real estate broker reassured me at the time I’d be able to refinance and get a lower rate,’ Lemble says.”

“When her boyfriend walked, Lemble knew she was in trouble. She could handle $1,300 a month, but $2,600 was a crushing blow. There were no takers when she put the house on the market in February for $419,000. By summer she dropped the price to $405,000.”

“‘People weren’t looking and the banks weren’t open to a short sale,’ she says. ‘Other people with more equity were able to drop their prices more and I hit the zero equity line really quickly. There was a great sense of despair and it just slid into foreclosure.’”

“Trevor Read is nearly half Lemble’s age and hadn’t previously owned a house, but he knew how easy it was to qualify for ownership. After all, he was a real estate salesman.”

“When he bought a fixer-upper on Janes Road in southwest Medford for $245,000 last year, the 22-year-old thought he had a bargain for his young family. ‘I thought it was a great deal and we put a lot of money into it,’ he says.”

“Read and his wife intended to refinance the $208,970 adjustable-rate mortgage after six months. But the sub-prime lending train wreck quickly derailed his plan. ‘Lenders were going bankrupt and guidelines were changing,’ he says. ‘In January, my 8.5 percent rate went up to 10 or 11 percent.’”

“Monthly payments went from $1,990 to $2,300. The Reads tried to sell the house for $265,000, but there was no response. They lowered the price to $245,000 but couldn’t sell and the property was scheduled for auction at the Jackson County Courthouse this month.”

“‘I’ve learned that you don’t get into a home that you think you can flip or refinance later without having the surety that you can support it,’ says Read. ‘I knew the market was totally squashed and I just had to pack it in.’”

The Oregonian. “Roger Pollock said he wanted to sell a lot of homes at his two-day auction this weekend — and he did just that. Pollock said he sold 141 homes for a total of $65 million at the Oregon Convention Center. Pollock’s Buena Vista Custom Homes had advertised more than 240 homes to sell at auction.”

“Westside homes in Beaverton and Hillsboro sold best, Pollock said. None of the 29 Bend homes sold, and homes that are now rented didn’t sell well, either.”

“Pollock said about 96 percent of the homes he sold went for below the reserve price. The reserve price, he said, was equal to his costs.”

“‘We didn’t make any money on these homes,’ Pollock said. ‘We lost money.’”

The Heraldnet from Washington. “The start of condominium construction on the Everett waterfront will be delayed by at least six to nine months after a major financial backer dropped out because of the nation’s mortgage mess, developer Maritime Trust said.”

“‘They just flat out got out of the construction market and are selling the unit that was going to do our construction loan,’ Maritime’s Bert Mears said Monday. He was referring to Merrill Lynch.”

“‘We’re talking to a couple of other people,’ Mears said. ‘I don’t think anyone wants to push the button until we get some of this (problems in the nation’s housing market) off the front page.’”

“‘It’s extremely important that this project happen,’ said Port commissioner Connie Niva. ‘It’s the beginning of a lot for Everett. It signals that private investment can be successful in Everett. If it looks like we can’t get a quality development done in Everett, that’s a problem.’”

“Mears said he expects the financing problems will mean his company will make less money and may also need to add another private partner. But he said 40 percent of the first 137 units have already been sold. Prices still remain between $400,000 and $1 million for the condos.”

The Tri-City Herald from Washington. “Washington state appears likely to avoid major impacts from the subprime mortgage crunch, but officials still are taking steps to protect homeowners who might face foreclosure. Just over 24 percent of loans in the state in 2006 were high-rate, according to The Wall Street Journal.”

“Benton and Franklin counties are seeing some corrections, but nothing that worries industry officials. Notice of trustee sales are up about 11 percent through November this year, with 739 reported so far compared with 665 at the same time last year.” “Of the 738 notices of trustee sales in 2006, about half actually foreclosed, said Greg Bowers, manager of Benton-Franklin Title Co.”

“The crash seen in areas such as Florida and Nevada followed a period of surging home prices, which never happened in the Tri-Cities, officials said. ‘If it didn’t go up, why should it go down?’ said Dave Retter, broker in Kennewick.”

“‘In the big scope of things, it’s not that big of a deal,’ said Dana Mundy, owner of AmeriChoice Home Loans in Richland. Her company did a few subprime loans, she said, but they’re not a big part of her business. ‘To me, this correction is absolutely necessary,’ she said, because it helps strengthen the field of professionals and eligible home buyers.”

“Eliminating subprime loans cut about 15 percent of potential buyers out of the market, she said. ‘Now we need to educate them.’”

The Vancouver Sun from Canada. “A significant November rebound in Metro Vancouver housing re-sales helped push overall activity above 2006 levels, the Canadian Real Estate Association reported.”

“The association registered 2,952 sales through the MLS, a 22 per cent increase from the same month a year ago. The average unit price topped $577,000 in November, up 11.2 per cent from the same month a year ago.”

“The factors pushing up Vancouver are less clear, according to Douglas Porter, deputy chief economist for BMO Capital Markets. Nationally, however, ‘I would say it is surprising, given all the gloomy headlines we’ve been inundated with about bad news from the U.S. housing market and the U.S. economy in general.’”

“Porter added that sales that are growing faster than new listings being added to market inventories suggest that markets are not becoming unbalanced.”

“However, Porter said Alberta’s formerly ’scorching hot’ markets of Edmonton and Calgary have retreated steeply from 2006 sales figures, and new listings in both cities are headed toward double-digit increases.”

“‘That’s not a friendly combo for prices looking ahead,’ Porter wrote.”

The Calgary Sun from Canada. “Although Calgary’s average house price continues to outstrip the national average, the local market has steadied. It is anticipated that buying a new home will be less competitive next year, said Ted Zaharko, owner of Royal LePage Foothills Real Estate Services.”

“‘Many Calgarians are going to have to change the way they think of our market,’ he said. ‘While it is still strong, sellers cannot expect the same buyer response they saw this time last year.’”

“For Sean Biesbroek, who, in 2008, plans to buy his first home, the forecast for a more stable market comes as good news. ‘Price is the biggest factor for sure, but location is right up there, too,’ said Biesbroek, who is currently renting a home in the northwest community of Edgemont with his girlfriend.”

“Despite the prices stabilizing, Biesbroek said he won’t wait too long to make a purchase. ‘I’d be hesitant to wait too long.’”

The Edmonton Journal from Canada. “Edmonton home prices will recover in the first half of 2008 from their late-2007 slide, says the Royal LePage Market Survey Forecast, released Monday. Broker Ken Shearer predicts that the current oversupply of listed homes will start to tighten in February as more properties are sold and others are pulled off the market.”

“The second quarter of 2008 with more balanced supply and demand plus a predictable seasonal surge should bring most of the year’s price rise, Shearer says.” Edmonton’s one-per-cent price increase from 2007 to 2008 is expected to be the lowest among major Canadian cities. From 2006 to 2007, Edmonton led the country with a 34.5-per-cent average home price increase.”

The Leader Post from Canada. “Regina’s housing market is set to lead the country as the average price of housing is expected to rise by 15.4 per cent in 2008, according to the Royal LePage survey.”

“Mike Duggleby of Royal LePage Regina Realty said it all comes down to supply and demand. ‘There is limited supply and high demand,’ said Duggleby. ‘Resale (inventory) of homes is low, but there is a lot of demand here. Stories of in-migration are true. There are lots of jobs here and people are coming to avoid the high cost of living elsewhere.’”

“According to the survey, first-time buyers are expected to be the most active purchaser group, with many expected to take advantage of the expanding and affordable condo market, which currently makes up for 20 per cent of the Regina real estate market.”

“For the average buyer, Duggleby said he expects a similar trend to last spring when demand increased and houses sold after being on the market for only a short time. ‘Pull the trigger fast, because (the houses) won’t last long,’ advises Duggleby.”

The Globe & Mail from Canada. “Home sales in St. John’s surged 68 per cent from October to November, data from the Canadian Real Estate Association (CREA) show. St. John’s is the latest in a string of Canadian cities including Calgary and Saskatoon to experience big surges in housing sales activity, often on the backs of their booming commodities markets.”

“In fact, Canada seems to have ‘barely blinked’ in the face of the global tightening in the credit markets, along with the real estate woes south of the border, said Douglas Porter, deputy chief economist at BMO Nesbitt Burns.”

“‘At least one Canadian economic train fully decoupled from the U.S. this year – the housing market,’ Mr. Porter said in a report yesterday.”

“‘The entire eastern section of this market is selling hand over fist. I will tell you unequivocally, without one hesitation, that Danny Williams and the oil announcement are what is driving this market,’ said Denise Brophy of Re/Max Realty Specialists in St. John’s. ‘I haven’t seen anything like this before.’”

“A total of 559 resale homes were sold in Newfoundland and Labrador in November, a 72-per-cent increase from the same month last year. Any ‘decent’ home is now subject to a bidding war, and even run-down properties are selling quickly, Ms. Brophy said. New homes are selling as soon as the foundations are laid, she added.”

“Real estate lawyer Bruce Chislett’s three-partner law firm recently purchased the two-storey former town council building in the St. John’s suburb of Paradise, a town in which there are lots of real estate deals taking place.”

“‘We believed it was a good place to win business, and a good time to stop renting and purchase something due to our long-term view of where property values are headed,’ he said.”

“It’s important to keep in mind big jumps in price or activity often take place in smaller cities, said Phil Soper, president and CEO of Royal LePage Real Estate Services.”

“‘In smaller markets like Saskatoon, Regina and St. John’s, it’s much easier to have these huge spikes due to their smaller base,’ Mr. Soper said. ‘Nonetheless this is a dramatic increase that is both culturally important and economically unique.’”

A Very Slow Moving Commodity

Some housing bubble news from Wall Street and Washington. Reuters, “Home building projects started in November fell by 3.7 percent as the pace of single-family home construction was the slowest in more than 16 years, a government report on Tuesday showed. Housing starts plummeted 24.2 percent from a year ago and permits, which are a key gauge of future building activity, tumbled 24.6 percent.”

“Single-family home starts, which account for the bulk of home building projects, fell for the eighth straight month, tumbling 5.4 percent to an annual pace of 829,000 units, the lowest since April 1991.”

“‘It’s continuing in the same direction that it has been for the last 12 to 18 months,’ said Bob Moulton, president of the Americana Mortgage Group. ‘I think the trend will continue because it’s a very slow moving commodity.’”

From Bloomberg. “Housing starts in November were 48 percent below their Jan. 2006 peak, matching the drop in sales of new homes from the record reached in July 2005.”

“A report yesterday added to evidence that housing is far from recovering as 2007 comes to a close. The National Association of Home Builders/Wells Fargo confidence index held at a record low of 19 for a third month in December.”

“In the third quarter, new foreclosures hit an all-time high, the Mortgage Bankers Association said in a report Dec. 6, meaning more homes will be piling up on the market.”

“Moving to contain the damage, President George W. Bush announced a plan this month to freeze rates for five years on some variable rate mortgages. The proposal wasn’t universally embraced.”

“‘At best, it may stop some of the hemorrhaging of the housing market, but it doesn’t necessarily turn things around,’ said Nicolas Retsinas, director of Harvard University’s Joint Center for Housing Studies. ‘The fundamental problem with housing is oversupply.’”

The Associated Press. “If the government really wants to stop home foreclosures from surging, here’s a simple plan: Boost Americans’ income, put more funding toward medical research and insist on marriage counseling for all. And then start buying up land to raise housing prices.”

“As far-fetched as all that may sound, such efforts would do more to curb default rates than the Bush administration’s plan to freeze adjustable mortgage rates in the coming years for a limited number of subprime borrowers.”

“Data from Countrywide Financial Corp., the nation’s largest mortgage lender, backs up this point. The Countrywide data provides stark evidence that this plan will serve at best as a Band-Aid on a gaping wound, as does a new Federal Reserve Bank of San Francisco study that showed changes in home prices are ‘far and away the best single predictor’ of subprime delinquencies.”

“It suggests that once a home’s value falls below the amount owed on a mortgage, borrowers tend to then view the default option as being ‘in the money’ and exercise that option.”

“Current conditions indicate just that. Housing wealth fell in the third quarter for the first time since 1993, by $128 billion, according to Merrill Lynch, as increases in mortgage debt outstripped the value of real estate assets.”

“‘Unless the government is going to establish land banks to prevent continued house price deflation, it really is questionable as to whether this ‘Hope Now’ policy is really going to stop a ‘Foreclosure Later’ environment,’ said David Rosenberg, Merrill Lynch’s chief North American economist.”

“He noted that home prices have dropped 5 percent so far this year and his firm is forecasting another 10 percent decline from current levels in the coming year.”

“Evidence that those who have had their mortgages modified as they moved toward foreclosure still go on to default is adding to such worries.”

“Consider that during a housing boom, re-default rates two years after a loan modification are close to 25 percent in the conventional mortgage market and 40 to 60 percent in the weaker mortgage areas, including subprime and Alt-A, according to Joshua Rosner, managing director at the independent research firm Graham Fisher & Co.”

“If that happens in the best of times, think about what could go on now as prices are tumbling. That means this mess could drag on for years.”

The New York Times. “According to BusinessWeek, the Securities & Exchange Commission and the U.S. Attorney’s office in Brooklyn are looking into an allegation that some Bear Stearns insiders associated with the funds may have been pulling their personal money out of the investment vehicles this spring when the market was in turmoil.”

“The alleged redemptions occurred during a time the funds’ managers were urging other investors to stay put, the report said.”

“It was the first day of November and Coleman Stipanovich’s world was coming undone. Florida school districts and towns had begun pulling their cash out of the $26 billion money market fund he supervised, after they learned it held subprime-tainted debt.”

“Stipanovich, who earned $180,214 in 2006, was in New York in confidential meetings with Lehman Brothers Holdings Inc., the largest U.S. underwriter of mortgage-backed bonds.”

“What Stipanovich hadn’t told his boss, Florida Chief Financial Officer Alex Sink, was that Lehman Brothers was the same firm that had sold the state fund $842 million of mortgage- backed debt in July and August.”

“Those securities defaulted within four months, and totaled more failing debt than any other bank sold the state, Florida records show.”

“The subprime meltdown made front-page news in June, when Bear Stearns Cos. disclosed that two of its hedge funds were collapsing because they were stuffed with subprime collateral. During the next two months, Wall Street firms were quietly peddling mortgage-backed securities to the states.”

“And the states, eager for higher returns, were buying them.”

“Joseph Mason, a former U.S. Treasury official and now a finance professor at Drexel University, says Wall Street had few takers for its subprime-tainted debt. ‘When they couldn’t sell it to more-sophisticated investors, they found less-sophisticated investors like local government investment pools,’ he says.”

“As home prices rose and hunger for high-yield investments grew, Daniel Sadek (of) subprime mortgage company, Quick Loan Funding Corp., found his niche pushing mortgages to borrowers with poor credit. Such subprime home loans grew to $600 billion, or 21 percent, of all U.S. mortgages last year from $160 billion, or 7 percent, in 2001, according to an industry newsletter.”

“Banks drove that growth because they could bundle subprime loans into securities, parts of which paid interest as much as 3 percentage points higher than 10-year Treasury notes.”

“‘I never made a loan that Wall Street wouldn’t buy,’ Sadek says. He worked hard to build the business, he says, and the company did nothing illegal.”

“Investors from Germany to Japan poured about $1.2 trillion into mortgage-backed securities in those two years, according to Global Insight Inc.”

“Now the U.S. economy is paying the bill for that easy credit. Nearly one in six subprime borrowers has missed a monthly payment, sending home prices to their first annual decline since the Great Depression.”

“‘I was working every day, all day, from dusk to dusk,’ says Sadek, who pumped gas and sold cars before creating Quick Loan Funding. Sadek, now 39, got into the lending business in 2002. Staked by banks including Citigroup Inc., Sadek and others in his industry tripled the subprime market in five years.”

“Loan officers were hired and fired all the time at Quick Loan Funding’s 26,000-square-foot call center in Irvine, says Bryan Buksoontorn, who joined the company in 2004. Sadek and his managers would berate the sales staff, many of whom had no experience or training, Buksoontorn says. ‘They would get in your face,’ he says. ‘Why aren’t you ordering appraisals? Why aren’t you selling?’”

“Sadek brought a car salesman’s mentality to mortgages, Espinoza says. ‘It’s the same type of hard sell,’ says Steven Espinoza, an employee from 2003 to 2005. ‘Close ‘em, close ‘em, close ‘em.’”

“‘If we had a prime borrower on the line, we hung up on them,’ Buksoontorn says. ‘We were geared toward subprime because they were easier to close. We were giving them money no other bank would dare to give them.’”

“Sadek says that with the support of Citigroup, which funded the loans, he pioneered lending to homebuyers with credit scores of less than 450. ‘We made most of our money from selling loans to banks,’ Sadek says.”

“A key selling point was the 50 percent rise in home prices nationally from 2001 to 2006, according to the National Association of Realtors. Mortgage salespeople told homeowners that as long as values continued to increase, they could refinance or sell before their interest rates jumped.”

“It wasn’t a lie. Year over year, prices hadn’t fallen since the 1930s, according to the Realtors group. The belief that values would form a stairway even seduced Quick Loan Funding employees who took out 2/28 loans themselves, says Marcus Bednar, a former sales manager.”

“‘They believed everything the borrowers believed, that the market was going to go up,’ Bednar says. ‘It wasn’t just something we were pushing because we tried to rip people off.’”

“Edward M. Gramlich, a Federal Reserve governor who died in September, warned nearly seven years ago that a fast-growing new breed of lenders was luring many people into risky mortgages they could not afford.”

“But when Mr. Gramlich privately urged Fed examiners to investigate mortgage lenders affiliated with national banks, he was rebuffed by Alan Greenspan, the Fed chairman.”

“John C. Gamboa and Robert L. Gnaizda of the Greenlining Institute implored Mr. Greenspan to use his bully pulpit and press for a voluntary code of conduct.”

“‘He never gave us a good reason, but he didn’t want to do it,’ Mr. Gnaizda said last week. ‘He just wasn’t interested.’”

“‘I was aware that the loosening of mortgage credit terms for subprime borrowers increased financial risk,’ Mr. Greenspan wrote in his recent memoir. ‘But I believed then, as now, that the benefits of broadened home ownership are worth the risk.’”

“On Tuesday, under a new chairman, the Federal Reserve will try to make up for lost ground by proposing new restrictions on subprime mortgages, invoking its authority under the 13-year-old Home Ownership Equity and Protection Act.”

“Fed officials are expected to demand that lenders document a person’s income and ability to repay the loan.”

From MarketWatch. “The proposed rules wouldn’t help current borrowers holding a loan but aim to head off another lending crisis like the one that has crippled the subprime mortgage industry.”

“The proposals would prohibit lenders from granting mortgages to borrowers whose only means of repayment would be an increase in the value of the property.”

“It also prohibits lenders from paying mortgage brokers fees for higher-rate loans. Additionally, the Fed proposed prohibiting a creditor from making a higher-priced loan without setting up an escrow account for property taxes and homeowners’ insurance.”

“David Wyss, chief economist at Standard & Poor’s, called the limitations ‘almost irrelevant’ since no one is making subprime loans now.”

“‘We always lock the barn door well after the horse has left,’ Wyss said in an interview on Bloomberg TV. ‘I think what they are hoping is to restore confidence in this category by restricting what loans can be made so investors will start making these loans again,’ Wyss said.”

Not Enough Effort Was Put Into Understanding The Risks

The Journal News reports from New York. “For months Marie Chantale Joseph and her husband, Daniel, have been unsuccessfully trying to refinance their home before their interest rate spikes in April. Already, Daniel, a taxi driver, is working 18 hours a day and on weekends to pay the approximately $4,800 a month they owe, and Marie, a babysitter, works as many hours as she can.”

“Banks they have approached say they cannot better the terms of their two adjustable mortgages: one at 11 percent and another at 8 percent that total $520,000.”

“Marie Chantale says she and her husband didn’t know the financial implications of their mortgage when they bought their home in Elmsford. Their mortgage broker gave them very few details, she said, and they didn’t ask many questions. Their only home-buying experience was in their native Haiti.”

“‘In my country it is different. No one can come and take your home away from you,’ said Marie Chantale, who must pay about $8,000 a month beginning in April, or lose her home to foreclosure. ‘Here, if they know you don’t know what you are doing, they take advantage of you.’”

“‘Earlier, only conventional mortgages were available. Then you had subprime mortgages. Now you have negative amortization, interest only mortgages, balloon payments, and all the ramifications that come with it. These mortgages were meant for the seasoned investors. First-time homebuyers don’t understand the risk. They are setting themselves up for failure.’ said Edna Rivera, executive director of a not-for-profit community-based housing service.”

“Keith Gumbinger…a New Jersey-based publisher of consumer loan information, said borrowers should have informed themselves about the biggest financial investment they are likely to make in their lives.”

“‘It’s not that the mortgage broker held a gun to someone’s head to lend the money,’ Gumbinger said. ‘Brokers don’t have a fiduciary responsibility. It’s the borrower’s responsibility. You can say no and challenge. You can hire a lawyer.’”

“The mid-2000s was a time of plentiful credit, low interest rates and lenders eager to loan money. As part of the hardsell, lenders advertised mortgages like car salesmen advertise cars, in monthly payments. Borrowers responded enthusiastically because it brought their dream of homeownership within reach.”

“Few took into consideration the contingency that housing prices would fall or they wouldn’t be able to refinance.”

“‘When people are closing, they are in such a euphoria,’ said Vedeta Hanley, executive director of a Rockland housing service and referral agency. ‘A lot of people go on faith, and they believe that when I get to the fork in the road, there will be answers.’”

“Beth Blecker, a financial planner, says she had to dissuade clients from pulling their money out of investment portfolios and putting it all in real estate. It was a difficult job, she said, considering the rapidly rising prices of homes in the Hudson Valley and the low interest rates. Even conservative savings programs like IRAs were allowing people to withdraw money to invest in the housing market, she said.”

“‘It’s not just greed, it’s human nature,’ Blecker said. ‘Sometimes it’s just getting caught in the motion. You think you must be stupid if you don’t do this.’”

“Tobie Stanger, a senior editor at Consumer Reports, recalls how real-estate expos around the country attracted potential investors wishing to make a quick buck. Nobody was immune to the lure, she said, and not enough effort was put into understanding the risks.”

“‘Don’t just blame the borrowers,’ said Stanger. ‘People at the top of the food chain, too, didn’t know.’”

The Democrat & Chronicle. “Rochester’s real estate market is continuing its zigzag pattern. Compared with areas such as Florida, Rochester is in good shape. ‘Rochester now proves out to be the hot spot of real estate in the U.S.,’ said Bob Miglioratti of ReMax Plus in Brighton.”

“The market has slowed from its recent peak in 2005, though certain areas such as Brighton remain strong, said John Arquette, general manager of Nothnagle Realtors. But ‘there is an abundance of listings in Greece,’ Arquette added.”

The New York Post. “Dear John: Don’t you think that it would be best for everyone if the price of a house was to go so low as to make it affordable again for normal working people? I mean $700,000 for a crappy house in Jackson Heights, Queens? That’s what we are trying to protect? N.O.”

“Dear N.O.: Would it be good if real estate prices plummeted? Yes, for people, like my son, who are looking to buy into the housing market. But no, homes prices falling greatly would not be too good for people who already own a home, are over-borrowed against it and now face imminent financial danger.”

“Worse, all those millions of folks who did overextend themselves, now threaten the health of the US economy. This has become, as the economists say, a macro-economic issue of the highest level. So, on balance, I’d say that a modest drop in housing prices would be a good thing. A severe drop, not good at all.”

The Eagle Tribune on New Hampshire. “The home at 12 Woodlawn Ave. in Atkinson…is just one of more than 430 in Rockingham County that were foreclosed upon this year because of defaulted mortgage payments.”

“When a home is taken over by the bank, a transfer of deed notice is typically sent to the town clerk. This year, more than any other, those notices are piling up. Newton’s interim Town Clerk Mary Jo McCullough has worked for the town of 4,500 people for several years.”

“‘I’ve got about 20 (foreclosed homes) this year,’ she said. ‘I don’t even think we’ve had 20 collectively in the past five years that I’ve worked here.’”

“And as far as McCullough can tell, there is no particular pattern to the foreclosures. ‘They’re so scattered, they’re in all parts,’ she said. ‘They’re in expensive neighborhoods, they’re in older homes, they’re in places over by the junction, they’re everywhere.’”

“‘Someone will not be able to sell their house for the $350,000 that it’s worth when a bank is selling the same home down the street for $300,000,’ said Mark Oswald, a Realtor in Londonderry. ‘The bank just wants to get out of what they’re owed, which makes it tough for sellers. In the eyes of the buyer, why would I pay ($350,000) when I can get the same house for ($300,000).’”

“Between 2004 and 2007, the number of mortgage holders who were delinquent on their subprime adjustable rate loans more than doubled to about 20 percent, according to the New Hampshire Housing Finance Authority. And by the middle of 2008, the state expects about 900 foreclosures per quarter, tripling the state’s rate from 2004.”

The Boston Herald from Massachusetts. “Carlson GMAC is closing its Woburn headquarters, shuttering 14 sales offices and laying off 50 workers. Just days earlier, mortgage giant Washington Mutual closed all seven of its Massachusetts offices, laying off 53 Bay State workers.”

“‘I think the industry overall is overbuilt for this market, and we have to see some reductions in overhead,’ said Bruce Taylor of ERA Key Realty Services, which has cut some 20 of 300 positions over the past 18 months through layoffs and attrition.”

“The Massachusetts Mortgage Bankers Association estimates the state has lost 10,000 home-loan jobs this year, while the Massachusetts Association of Realtors’ membership has dropped by nearly 2,000.”

“Carlson CEO Judy O’Brien said the closures represent a long-overdue consolidation. But she and others admit the tough real-estate market also played a role in the cutbacks.”

“‘If sales are down, revenue is down,’ said Ruth Pino, a Carlson GMAC branch executive in Gloucester.”

“About 75 mortgage firms with significant Massachusetts operations have either quit the state or gone belly-up. ‘I would have to say 20 percent of (Massachusetts mortgage workers) have lost their jobs over the course of the last 18 months,’ said Kevin Cuff of the Massachusetts Mortgage Bankers Association.”

The Boston Globe from Massachusetts. “The collapse of the residential real estate market has stalled ambitious efforts to turn the Fort Point district into a lively, hip neighborhood of homes, offices, shops, and night life.”

“Instead, with the office leasing market in Boston surging and space scarce, developers are choosing to convert the funky old brick warehouse buildings to office and commercial uses.”

“‘That community with lots of residents is going to take a lot longer to achieve than had been anticipated by the planners,’ said Vivien Li, executive director of the Boston Harbor Association. Li said the area is getting busier, but ‘it tends to be driven by the office workers and people coming to the restaurants.’”

“The sale last week of two warehouse buildings on Summer Street vividly highlights these abrupt market shifts, and symbolizes disappointment within the community that the old Boston Wharf Co. district will not soon teem with life 24/7.”

“Archon/Goldman, the former owners, had initially envisioned converting the two properties into luxury condominiums, launching the area’s transformation into a community where people live, work, and play.”

“As recently as last year Archon/Goldman and others were promoting a vision of Fort Point in which upscale residential units would replace cheap artists studios. Even families would live there. Young professionals could walk to work. The sidewalks would be crowded at noon and night with pedestrians and shoppers, with restaurants and clubs adding to the draw.”

“Valerie Burns, a Fort Point resident, said there’s some unhappiness about the slow development of residences, but no panic. ‘I just think there’s a sense of reality about how fast the neighborhood is going to grow,’ she said.”

“Another property owner, Commonwealth Ventures LLC of Southport, Conn., is pushing ahead with redevelopment of the office space component of Channel Center…while holding back on additional residential it had targeted for the center.”

“On nearby Congress Street, Berkeley Investments recently elected to rehab one building into first-class office space with ground floor retail, while holding off redevelopment of 381 Congress, to see whether the office sector reaches saturation or the condo market recovers.”

“But Berkeley is testing the residential market with 92 luxury condos at FP3. Prices will range between $350,000 and more than $2 million. It will open in the spring, and will have a large restaurant complex.”

“Richard M. Griffin, VP of acquisitions, said the company decided to stick with its original condo plan for the project because the buildings were better suited for residential uses, and that it would have been too much to make all of its 1 million square feet of property commercial space.”

“‘We’re accomplishing what we set out to do in the neighborhood,’ said Griffin.”

“Berkeley has sold about 20 percent of the units, he said.”

“If successful, the combination of Berkeley’s condos, additional office workers, and new entertainment and dining venues could persuade other developers to revive the residential component in the Fort Point neighborhood.”

“‘Once you make the buildings lively at a ground level and add amenities, more than just a Dunkin’ Donut,’ it will attract both residents and workers, said John Miller of Lincoln Properties.”

Bits Bucket And Craigslist Finds For December 18, 2007

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