The Housing Bubble

It’s Friday desk clearing time for this blogger. “Orlando’s existing-home market ended 2007 with a nine-year low in annual sales and a record decline in December’s median price compared with a year earlier. Local Realtors, hammered by months of slumping sales, cheered the dramatic decline in median price as a long-awaited sign that sellers are sobering up after years of booming sales and fast-rising prices. The Realtors still had a staggering 24,298 homes listed at the end of December in their core market.”

“Mike Okaty, who lives in pricey Baldwin Park in northeast Orlando, expect prices and sales to fall even further before buyers return to the market. ‘It’s a long way from over,’ he said of the slowdown.”

“Okaty said he is canceling a home-purchase contract today because the two offers he received for his existing home were too low. They were the only bites he got in seven months. The offer he had made on another home in Baldwin Park was contingent upon him selling his current dwelling, but now that’s not going to happen — at least not for a while.”

“‘I guess I’m still a little in denial,’ Okaty said.”

“The number of homes sold in Anne Arundel County dropped nearly 17 percent last year from 2006, a less drastic decline than the previous year.”

“Greg McBride, chief financial analyst for Bankrate.com, recalled when Treasury Secretary Henry Paulson recently said a correction in the housing market was ‘inevitable.’ ‘After the run-up in prices and the record number of homes sales that took place early in the decade, the past couple of years have been payback time,’ he said.”

“Santa Fe’s real estate market experienced a major slowdown in the fourth quarter of 2007, according to information from the Santa Fe Association of Realtors. The biggest drop was in the number of homes sold in the city in the fourth quarter. That number fell from 221 in the fourth quarter of 2006 to just 141 — down 36 percent — in the same period of 2007.”

“The city’s median sales price also took a tumble, dropping to $350,000 from $375,000, a decline of almost 7 percent.”

“Baro Shalizi, president of the SFAR, said the slowdown in sales isn’t unexpected. ‘The real estate market is cyclical,’ he said. ‘It always has been. The market is doing what a healthy market does to correct itself.’”

“The New Year’s housing market in Ho Chi Minh City was off to a strong start Monday as around 3,000 prospective buyers scrambled to Nha Be District register for units in a new apartment block.”

“From October to November last year, at least three property frenzies were reported in HCMC. Le Hoang Chau, vice chairman of the HCMC Real Estate Association, attributed the city’s ongoing property fever to…speculators stepping in to buy apartments, hoping to resell them to foreigners and rake in huge profits.”

“Finally, Chau attributed the galloping price hike of construction materials to the property frenzy.”

“While South African house prices rose by more than 10 percent year-on-year in nominal terms, the inflation-adjusted figures were substantially lower, according to the Global Property Guide.”

“The review said annual house price growth peaked at 33 percent in 2004. Since then, growth had been decelerating. ‘South Africa is rapidly cooling, after more than five years of double-digit house price increases,’ said the review.”

“‘I don’t think house prices have taken a slump or that we are anywhere close to a halt,’ said property agent Bruce Mostert. ‘However, it has slowed down somewhat over the past few months.’”

“Agents are keen on the soft-landing theory. But not everyone believes them. Pessimists such as economist Rodney Dickens are talking more of ‘the hell that can unfold after house-price booms,’ referring to the need for a 40 per cent drop to get some balance back in the market.”

“‘Scoff at this if you will, but it is an interesting coincidence that this roughly matches how much the New Zealand median house price would have to fall to get the gross rental yield on the average rented dwelling back up to the historical average level,’ said the former ASB research chief.”

“Anecdotal evidence of a flattening market includes the sheer volume of For Sale signs and honest but anonymous responses to the BNZ’s monthly confidence surveys where agents admitted some open homes did not get a single visitor.”

“A change has taken place in recent months in the market for luxury apartments, says Eljas Repo, editor in chief of a specialist publication for real estate investors. ‘Price levels have come down, and buyers have become more cautious.’”

“Eljas Repo says that the unsold apartments in Eiranranta are clearly speak of a change in the market for high-priced homes. NCC’s regional director Juhani Korkiamäki nevertheless remains confident that the dwellings in the building, which is scheduled for completion in the summer, will find buyers.”

“However, 25 of the 57 apartments built by NCC remain unsold. ‘It is somehow related to economic uncertainty,’ he says, making reference to the problems linked with the subprime loan crisis in the United States. The cyclical turnaround in Finland is also being discussed more than before.”

“Once upon a time, a former storage room the size of a walk-in closet went on the market in London’s exclusive Knightsbridge neighborhood for $335,000. With only 77 square feet of space and no electricity, the dilapidated ‘home’ drew multiple offers.”

“Those were the heady days of 2006, when property sellers and their agents could pretty much name their price. But now, home prices are slumping and fears of a recession in Britain are rising.”

“Interest rates on the conventional 30-year fixed rate mortgage are at their lowest in more than two years. But would-be buyers in the Twin Cities are skittish about falling values and are sitting on their hands until the market strikes rock bottom, they say.”

“In other words, declining rates haven’t been enough to kick buyers off the fence yet. ‘I met with a loan officer yesterday, and he said, ‘Where is everybody?’ said Realtor Katie Draz.”

“RealtyTrac listed 683 properties in Lincoln that as of Wednesday were either in the foreclosure process or already had been foreclosed upon. Foreclosures were up 84 percent in Nebraska through the first six months of last year.”

“‘In my 22 years of doing foreclosures, I would say this is the peak of foreclosure activity,’ said Eric Lindquist, an Omaha attorney who represents lenders in foreclosure cases.”

“Several readers have asked what caused the last housing slump longer than the current one, when the market declined for 11 straight quarters from 1956 into 1958.”

“The answer has some surprising resonances with our present predicament.”

“Housing slumped in 1956 after the federal government tightened mortgage lending standards, according to a 1960 book by the late UCLA professor Leo Grebler, ‘Housing Issues in Economic Stabilization Policy.’”

“The government was concerned that ‘easy credit’ was fueling a housing bubble, driving up prices and encouraging builders to flood the market with new homes. Grebler found that 45 percent of home buyers who used a mortgage insured by the Veterans Administration…made no down payment. Often, their closing costs also were rolled into the loan.”

“They were buying homes without paying any money. Ah, history. It just keeps repeating itself.”

“Back then, the government cracked down. Hitting the brakes certainly stopped the car. New construction, sales and prices all crashed. The result was a housing slump that lasted almost three years.”

“It is probably anti-climactic to say there are problems in the housing industry, but when it comes home to roost it is much more troublesome. There are people out of work or having to travel to find work, which affects how much they can spend.”

“Of course, this is a problem around the country as the impact of overbuilding, badly planned loans, foreclosures and wild speculative investment come back to haunt everyone.”

“Until the housing bubble burst, there were still ‘experts’ telling us that homes were not overvalued. Now we know that was self-serving, a way to keep the gravy train running.”

“As was reported Tuesday, there were some poor homeowners who bought at the height of prices who are now stuck with overvalued homes worth less than they’ve agreed to pay. It should come as no surprise if some of them decide it is worth it to abandon the properties to foreclosure.”

“Of course, when they do abandon their homes they just make the situation worse.”

“It would have been better if private industry nationwide had made better decisions. Unfortunately, there was an atmosphere of grabbing profits as fast as possible. The good news is that this is just another example of the cycle of business. Taking profits without regard to the future is nothing new.”

“In the meantime, the country and the county are stuck with too many overpriced homes as developers overbuilt. Construction workers have to find other jobs, and the rest of us have to tighten our belts.”

“Given all of the above, and the outrageous cost of living today, pundits should not be so surprised at what is happening in the stock market or in retail sales. What did they expect to happen?”

The San Francisco Chronicle reports from California. “During the recent boom, new housing got an even bigger price bump than existing ones because people often wanted the best, and, with a Icarian faith in the market’s eternal flight, buyers were willing to pay more and more to get the best. Now, with the downturn in the market, developers have scrambled to respond. The result? Some experts say that the price of a new house is now cheaper than an equivalent existing house.”

“‘I think that’s true,’ says Joseph Perkins, president and chief executive officer of the Home Builders Association of Northern California. ‘New housing is a better deal for prospective home buyers because builders are responsive to the marketplace, whereas some sellers still haven’t responded to the marketplace and they’re trying to sell their homes for prices from two years ago. But home builders need to move inventory and get on to the next project.’”

“Cheryl O’Connor, VP of Warmington Homes, which has built 300 homes in the Bay Area and Sacramento, agrees. ‘In the Bay Area, historically, new homes were priced above resale (existing homes) — but in the past couple of years, new home builders have had to be more aggressive.’”

“The result, she says, is that the price of new homes is about 10 percent less than that of existing homes with the same square footage. ‘I’ve been in the business 30 years, and I’ve never seen that before.’”

The Sacramento Bee. “Statistics released today by the Gregory Group show builders closed 2007 with just 1,320 fourth-quarter sales in El Dorado, Placer, Sacramento, Sutter, Yolo and Yuba counties. It was the lowest quarterly tally since the Gregory Group began counting sales in the fourth quarter of 1999. Sales for the full year were the lowest in a decade.”

“Average sales prices also fell 10 percent during 2007, adding to anxiety about a new year in which credit remains tight and recession is considered possible. The region’s fourth-quarter average sales price was $426,710. It was $474,482 the same time last year.”

“Builders reported 4,495 sales the first half of 2007. But sales fell to 2,913 in the second as tighter credit blocked many buyers, while others with good credit took deals from banks shedding newly foreclosed properties.”

“More simply waited, fearing a new home might lose value the minute they received the keys.”

“‘The thought of actually saving up a down payment, qualifying for a 30-year fixed loan I can actually afford and then buying a house that loses value is one of the scariest visions I can drum up,’ said Chad Stellmacher, a Sacramento renter.”

The Modesto Bee. “Thousands of Central Valley families are losing homes to foreclosure because: a) They lied about their incomes to secure unrealistic loans. b) Unethical loan officers took advantage of families by signing them up for risky loans they could not afford. c) Their adjustable rate mortgages are resetting, resulting in much higher mortgage bills.”

“But all of those factors might be overcome if not for plummeting property values, the experts said. ‘Foreclosure is the freight train that runs over the homeowner,’ said Jeff Schrager of the No Homeowner Left Behind nonprofit organization based in Fresno. ‘I submit that we have a local disaster here. People are losing their homes on a daily basis.’”

“Event organizers had no idea that the foreclosure crisis would become a significant theme when they began planning Thursday’s housing symposium a couple of years ago. Back then, the real estate market still was riding a wave of record property value increases. Groans rose from Thursday’s audience of several hundred when presenters spoke of stated-income loans, called by some ‘liar loans.’”

“‘Which side of the table was lying?’ asked John Olson of the Federal Reserve Bank of San Francisco, rhetorically. ‘Maybe both were. Some people inflated their incomes. Some borrowers were defrauded, with brokers writing in the incomes they wanted.’”

“Foreclosure sales throughout California reached an all-time high this week with a tenfold increase in properties sold at public auction, compared to a year ago.”

“Many economists in recent months have predicted a deepening disaster because of the 1.8 million subprime mortgages expected to reset in coming months. But Olson said the blame is shifting. ‘We’re finding that it’s not resets, but it has much more to do with declining home prices that prevent people from refinancing or selling,’ he said.”

The Daily Press. “Nearly 50 percent of the High Desert homes sold in December were owned by banks, according to new figures released Thursday.”

“‘The realty of it is that we have so many bank-owned properties, that’s what is selling because they are the least expensive,’ said Larry Trombley of Century 21 Rose Realty, who compiled the data.”

“There are many more homes than buyers, said broker Caroll Yule. Banks are now adjusting their prices in accordance with this reality.”

“‘What we’ll see in the next few months of continued adjustment is the sellers that have a strong desire to sell their homes are going to continue to price aggressively, and those will be the homes that sell,’ Yule said.”

“The median home price has been dropping by about 4 percent monthly, she said. December home prices dropped about 7 percent from November, and about 27 percent from December 2006, according to the data.”

The Record Bee. “A wave of home foreclosures has rippled across the U.S., and Lake County is not untouched. In the third quarter last year, notices of default for home owners in Lake County numbered 129, up 20 over the previous quarter.”

“That number is 92.5 percent higher than the same time last year, in which there were 67 notices, according to DataQuick.”

“According to real estate agents and industry experts, the current quandary is the result of appealing ‘teaser’ rates that led to a sharp increase in lending in 2004 and 2005. The rates reset much higher in 2006 and 2007.”

“‘The sub-prime rates, those are the key ones,’ said Middletown real estate agent Cynthia Smith. ‘People didn’t read the little writing that said in three to five years, instead of paying $2,000 per month, it’s going to be $5,000.’”

“Suddenly, buyers who would not have qualified for mortgages at the reset rates found themselves with a home they are unable to pay for or to sell, Smith said.”

“‘These are record foreclosures. If someone’s house was worth $500,000, and now it’s only worth $395,000, people aren’t going to be able to pay the $500,000 the banks are owed. The banks are putting the price on the court house steps, they’re not selling, and that means the banks are getting them back,’ Smith said.”

“While the situation is the worst she’s seen in her 10 year real estate career, Smith thinks it will pick up soon. ‘It’s one of those up and down things, we just have to ride the roller coaster.’”

The Union Tribune. “According to a DataQuick…66 ZIP code areas surveyed in the county, based on a three-month rolling average of median single-family resale home prices, have dropped from their peaks, which occurred at different times over the last four years.”

“The steepest drop has been in South County, which is down 22.3 percent. Central San Diego has fallen the least, down 6.6 percent.”

“(In) DataQuick’s worst-performing neighborhood, San Diego’s 92103 ZIP code that includes Hillcrest, Mission Hills, Bankers Hill, Park West and Middletown…prices peaked at $961,583 last February. By November, prices were down 41 percent to $567,500.”

“Area real estate agents said this is not evidence that values have collapsed in this storied collection of walkable neighborhoods but that buyers had changed their expectations. People who couldn’t afford a $1 million home simply found something more modest at a lower price.”

“In Spring Valley (ZIP code 91977), another factor may have been at work to explain its 28.2 percent price drop off the peak to $352,700.”

“Robynne Hanus of Keller Williams said a raft of investors scooped up dozens of properties during the boom, and many are now are facing defaults and foreclosures. There are nearly 300 bank-owned properties on the market, according to RealtyTrac.”

“‘There are lots of non-owner-occupied properties down there,’ Hanus said, ‘and investors are going, ‘Oh, man, I can’t get tenants for this property based on the amount I owe on the mortgage.’”

“Hanus is representing one Riverside County investor who bought a 1,580-square-foot home on San Miguel Avenue for $534,000 in late 2006 and, facing default, is hoping to arrange a short-sale at $350,000.”

“Lori Staehling, incoming president of the San Diego Association of Realtors, said the current market is filled with buyers sitting on the fence. ‘So much is driven by people’s thinking,’ she said. ‘Everybody wants to buy at the bottom of the market. But you never know what the bottom is until you’ve gone past it.’”

Some housing bubble news from Wall Street and Washington. MarketWatch, “Bank of America Corp. said Friday it’s purchasing Countrywide Financial Corp. for $4 billion. The stock-swap deal will put an end to the independence of the troubled California lender headed by Angelo Mozilo, and represents an increase from the bank’s August investment of about $2 billion. ‘We believe this is the right decision for our shareholders, customers and employees,’ said Mozilo.”

From Reuters. “Mozilo pushed the once dominant U.S. mortgage lender into a liquidity crisis by relaxing lending standards on risky subprime loans. In 2006, Countrywide originated $461 billion worth of loans. Nearly $41 billion of that activity was in the subprime market.”

“Early in the housing downturn, Mozilo said Countrywide would take advantage of the situation by expanding its market position. In May, Mozilo and many other leaders in the mortgage industry still seemed to be in denial over the depth of the subprime lending crisis. He said that he planned to add 2,000 sales jobs. But that boast fizzled.”

“He was in no mood for soul-searching about what went wrong as industry executives gathered in Manhattan for a Mortgage Bankers Association conference. ‘You’ve got to be careful here about blaming ourselves too much,’ Mozilo told the gathering.”

“The real culprits, he argued, were the Federal Reserve and its series of interest rate hikes, crooked real estate speculators, falling housing prices and regulators’ attacks on interest-only and other risky subprime mortgages.”

“Unmentioned by Mozilo were the industry’s loose lending policies and mortgage products such as ‘liar loans,’ which gave borrowers money at higher rates without verifying their income.”

“But last April, in a speech in Beverly Hills, California, Mozilo conceded Countrywide lost its compass and chased risky customers as competition in that market increased. Names like Ameriquest, New Century, NovaStar Financial and Ownit Mortgage Solutions set a new lowered standard, changing the rules of the game, Mozilo said.”

“‘Traditional lenders such as ourselves looked around and said, ‘Well maybe there’s a (new) paradigm here,’ Mozilo said. ‘Maybe we’ve just been wrong. Maybe you can originate these loans safely without verifications, without documentation,’ Mozilo said.”

The New York Times. “As the mortgage mess grows, we are learning more and more about just how sloppy things were in the mortgage-issuing business as loans were churned out, carved into securities and sold off.”

“Judges have blocked some foreclosures with rulings that purchasers of mortgages could not prove that they owned them. The buyers of the mortgages complain that it is unfair to ask them to have complied with detailed rules.”

“And now the banks are begging the accounting rule makers to allow them to ignore a rule that has been on the books for almost 15 years. They explain that they never had any idea that they would have to restructure a lot of home mortgages, and thus had no reason to develop systems to deal with the accounting for such restructurings.”

“‘No one anticipated a day when potentially hundreds of thousands of residential mortgage loans would be modified,’ said Alison Utermohlen, an official of the Mortgage Bankers Association who has led the effort to get the accounting rules relaxed.”

“But the plea that the banks never saw it coming does ring true. In this cycle, those who lent the money thought that they had no reason to concern themselves with whether it would be paid back. Instead, they planned to sell the loans, usually to trusts that would then finance the loans by issuing securities. Such trusts have different accounting rules.”

“In any case, the banks seem to have shared the general belief that house prices would always go up, so anyone unable to meet mortgage payments could sell the house. If losses are never going to appear, why prepare to deal with them?”

“Now home prices are falling in many areas. The risks of owning mortgage securities began to become apparent last spring, and the securitization markets virtually shut down by summer.”

From Business Week. “It’s no coincidence that states with the largest shares of adjustable-rate mortgages—Nevada, California, Arizona, Florida, and Colorado—are also among the states with the highest levels of foreclosures.”

“But just because a state has a low exposure to ARMs doesn’t mean it is immune to high foreclosure rates.”

“Take Texas, for example. Home prices in the Lone Star State are low and, as of November, 2007, only about 12% of mortgages were ARMs. But it ranked 14th in the nation for foreclosures.”

“David Zugheri, co-founder of First Houston Mortgage in Houston, blames aggressive lenders who he said would qualify almost anyone during the building boom. Developers were putting up houses farther and farther away from metropolitan areas, where land was less expensive, and filled the homes with subprime buyers, Zugheri said.”

“‘I blame the builders who needed to unload their product and the nonprofessional loan officers,’ Zugheri said. ‘Everybody was putting loans together just to get them sold. We were treating the housing market like a used-car lot.’”

“The problems are more dire in Florida. Lower- and middle-class families who bought houses with no-money-down, adjustable-rate mortgages are seeing their payments triple, says Jane Bolin, an attorney and managing partner of a South Florida property management company.”

“‘Every community that at this time last year had no homes in foreclosure, now [has] three or four,’ Bolin said.”

“Delinquencies have started to pick up for so-called option ARMs, which allow prime borrowers to decide every month on the amount they’ll pay: a 30- or 15-year fixed rate, an interest-only payment, or a lower minimum payment. About 75% of borrowers are opting for the minimum payment, according to Standard & Poor’s.”

“Subprime borrowers not only started with higher rates than prime buyers, they sometimes were approved for loans they couldn’t afford even at the teaser rate once taxes and insurance costs were factored in, said Keith Gumbinger, VP of (a) mortgage-research firm.”

“‘It is certainly not out of the realm of possibility that even without resets some of the borrowers who took out these loans are ill-prescribed for homeownership,’ said Gumbinger. ‘They may have taken them because they’re stretched.’”

National Public Radio. “Walk around parts of Baltimore’s Reservoir Hill and you can see the mortgage credit crisis up close and personal.”

“A year ago, you had to dodge the construction crews that were bringing the neighborhood back to life. But now it’s like a movie set, says city housing chief Paul Graziano: ‘You know, where you walk through and some horrible event occurred and all of a sudden there’s nothing. There’s no life. There’s just nothingness.’”

“Nothing but empty houses and for-sale signs. The people who bought these houses can’t afford to finish or keep them.”

“The leaders of Baltimore are so mad, they’re going to try to hold one of those subprime lenders responsible for the mess. This isn’t about lenders discriminating by denying credit to borrowers because they are black.”

“Mayor Sheila Dixon believes that Wells Fargo has been doing just the opposite in Baltimore – that lenders have been targeting borrowers for credit on unfair terms because they are black.”

“‘You know, years ago we talked about redlining. …Now we’re talking about reverse redlining,’ Dixon says.”

The Plain Dealer. “Cleveland Mayor Frank Jackson took aim at Wall Street on Thursday with a lawsuit against 21 major investment banks that he said have enabled the subprime lending and foreclosure crisis here.”

“The one-of-a-kind suit, filed in Cuyahoga County Common Pleas Court, accuses venerable institutions such as Deutsche Bank, Goldman Sachs, Merrill Lynch and Wells Fargo of creating a public nuisance.”

“Jackson contends the companies irresponsibly bought and sold high-interest home loans. The result: widespread defaults that depleted the city’s tax base and left entire neighborhoods in ruins.”

“‘To me, this is no different than organized crime or drugs,’ Jackson said in an interview with Plain Dealer reporters and editors. ‘It has the same effect as drug activity in neighborhoods. It’s a form of organized crime that happens to be legal in many respects.’”

“Cleveland’s suit is even more unique because the city has based its complaints on a state law that relates to public nuisances. The suit also is far more wide-reaching than Baltimore’s in that it targets the investment banking side of the industry, which feeds off the mortgage market.”

“Jackson and city Law Director Robert Triozzi said Cleveland should have been excluded from the frenzy. They pointed to housing prices that remained relatively flat as real estate values jumped elsewhere, as well as a manufacturing downturn and widespread poverty.”

“The suit claims that even though these issues were well documented, investment bankers continued to feed loans to hungry investors at the expense of borrowers buried in interest.”

“‘Ultimately, they’re responsible,’ Triozzi said of the investment banks. ‘They knew the economic conditions in which they were operating here. They decided that didn’t matter.’”

“Judge Corrigan will have to decide ‘how far up the food chain’ to go in determining responsibility, said Cleveland State University Law professor Kathleen Engel, an expert on mortgage-backed securities. She believes the city can make a case against the investment bankers.”

“‘These loans were defective products,’ said Engel, co-author of ‘Turning a Blind Eye: Wall Street Finance of Predatory Lending,’ an article that appeared last year in the Fordham Law Review. ‘They were continuing to finance products that they knew were defective and could have devastating consequences for the city of Cleveland.’”

“Ohio Attorney General Marc Dann also is considering a state lawsuit against investment banks. Dann said he is investigating ’some of the very same people’ identified in the city’s suit.”

“‘There’s clearly been a wrong done, and the source is Wall Street,’ Dann said in a phone interview. ‘I’m glad to have some company on my hunt.’”

The Baltimore Sun reports from Maryland. “The local housing market ended its second full year of the downturn in a worsening slump, with year-over-year sales in December falling 30 percent for the fourth month in a row. For local sellers, the problem hasn’t been merely falling demand. Supply rose, too. The average number of unsold homes in any given month last year topped 18,000. That’s by far the largest number on record.”

“Now subprime and other ‘exotic’ loans have all but disappeared because lenders - pummeled by rising foreclosures - pulled back. Just before Melissa Talbot and husband Aaron, put in a bid on a condo in October, their bank canceled the no-money-down program they were planning to use. They ended up borrowing from their retirement funds and going with a lender requiring a 5 percent down payment.”

“Since they moved in, the lender stopped offering that program, too. ‘I’m really glad we were able to buy when we did, because I’m not sure we could afford it now,’ said Melissa Talbot.”

“Realtor Chris Traczyk keeps hearing from his buyers that they want to continue looking and wait for better deals. He’s certainly hoping for an upswing in demand: He’s rehabbing city homes with a partner, and it’s starting to look like a break-even situation at best.”

“A house they renovated south of Baltimore’s Ashburton neighborhood has drawn no offers since it went on the market three months ago. The first asking price was $325,000. That dropped to $286,000. Now Tracyzk is asking for $260,000.”

“‘It’s probably going to be a loss,’ he said.”

Reuters reports on New York. “Eileen Anderson runs two NeighborWorks counseling centers on suburban Long Island, outside New York City. The number of calls to Anderson’s offices rose more than tenfold in 2007 from the year before, and since October more than half of those calls have been referrals from HOPE NOW, she said.”

“While the HOPE NOW alliance puts troubled borrowers in touch with counselors, both counselors and borrowers complain it offers no financial help. ‘There’s no money, nobody has emergency funds. Clients who are calling are desperate,’ Anderson said.”

“Agnes Kallon and Bai Turay, a Staten Island couple…have a combined income of $39,000 and six children to support. In 2005 they took out a mortgage for a $412,000 house with a low introductory rate, based on their mortgage broker’s assurance that they would easily be able to refinance when the rate went up.”

“But when their mortgage payment reset to $3,000 a month, far beyond what they can afford, that assurance didn’t hold up. ‘If we lose the house, what will happen to the kids?’ Turay told Reuters. ‘These brokers are profiting from other people’s misery.’”

Long Island Business News from New York. “The subprime meltdown is leading borrowers to fight back, suing for predatory lending practices and violations of the Truth in Lending Act. ‘I’ve seen an increased number by subprime borrowers who are either in foreclosure or on the brink of foreclosure bringing these actions,’ said David Scheffel, of counsel at Farrell Fritz in Uniondale.”

“Kari and Keith Sessa in 2002 achieved their version of the American dream when they bought the Huntington cape she lived in as child. They’re now among the thousands facing an American nightmare and deciding whether to sue.”

“After seeking a home equity loan, the Sessas walked out with a refinanced mortgage and a second loan through Global Home Loans and Finance in Melville (no longer in business).”

“She said her lawyer said that it doesn’t make sense to sue the mortgage holder, unless they face foreclosure. The fact that the firm that arranged the mortgage is gone makes legal action tougher.”

“While the Sessas’ mortgage holder agreed not to jack up rates for two years, they still haven’t agreed to turn it into a 30-year, fixed-rate mortgage. ‘It’s stalling foreclosure,’ Sessa said. ‘That’s all that’s doing.’”

From Newsday in New York. “More than $14.6 billion worth of homes was sold last year, compared with $16.5 billion in 2006, a drop of almost 12 percent, according to figures released yesterday by the MLS of Long Island.”

“The area’s real estate market didn’t freeze up this past year, like those in other states, but continues to soften, with some sellers dropping prices, others taking their homes off the market and buyers waiting for rock-bottom prices before making their moves, industry veterans said.”

“Agents and brokers say many sellers have realized they can’t demand the boom-time prices anymore; the median price of homes on the market dropped from $500,000 a year ago to $480,000 last month, a 4 percent difference. Homes are piling up on the market, taking longer to sell because buyers think prices will probably go down further this year, as experts have predicted. December had 30,854 homes for sale, up from 27,446 a year ago.”

“Last year’s 3 percent drop in listings could indicate a reluctance by some potential sellers to put properties up for sale when they probably won’t get the profits they want.”

“‘Those who are serious about selling, sell,’ said Mohsen Zandieh, president of the Long Island Board of Realtors. ‘Those who are determined to get a certain amount in their pockets, they wait for the market to change to the number they want to see.’”

The Boston Globe from Massachusetts. “Housing prices in the Boston market peaked in September 2005, according to the S&P/Case-Shiller Home Price Index. As of October 2007, the market was down 7 percent from its peak. But the latest drop has only rewound the markets back to the summer of 2004.”

“There also is a longer view of the future. The Joint Center for Housing Studies at Harvard University noted in its annual survey that a rebound is inevitable, even if the timing is unpredictable.”

“Over the next decade, the report said, the combination of a growing population and rising wealth, ‘will help propel residential spending to new heights.’”

“Eric Rosengren, president of the Federal Reserve Bank of Boston, told a Hartford audience that the current housing slump could be the longest in 50 years, increasing the risk of a broader economic downturn.”

“Rosengren said spending by home buyers has declined in every three-month period since the beginning of 2006, and likely will continue to fall through at least June 2008. That would be the longest downturn since 1958.”

“‘The trend toward securitizing mortgage loans allowed the financing arrangements to be driven by national rather than regional conditions,’ said Rosengren. As a result, regional problems - which once had a regional effect - now reduce the availability of loans nationwide.”

“The best response, Rosengren said, is to calculate and accept losses as quickly as possible. Banks should report and close the books on bad loans, and home sellers should accept the need for price cuts, drawing investors and buyers back to the market with the prospect of new profits.”

“Art Foley, a Quincy real estate broker, said many sellers on the South Shore seemed unwilling to cut prices. As a result, while prices in the Boston area have held relatively steady, the number of sales dropped sharply in recent months, suggesting buyers are waiting for larger price cuts.”

“‘A good real estate broker today will walk away from a lot of listings they could have because the seller is not being reasonable on the price,’ said Foley.”

“He said some agents joke that it is best to be the third agent to work with a seller, because after the seller fires the first two, he might be more willing to listen to the argument that the price needs dropping, and not the agent.”

The Providence Journal from Rhode Island. “Landlord Charles Oertel owned 10 rental properties around East Providence. Oertel said that he and his business partner, William Shawn Prunty, built their real-estate portfolio with risky subprime loans.”

“Then, real-estate values plunged, credit dried up, and demand for rentals softened. By the time 95 Oak Ave. was advertised for auction, they had lost all of their rental properties, except for one other. And that one, too, was headed for foreclosure.”

“Back in September 2004, Oertel and Prunty paid $233,000 to buy 95 Oak Ave., according to real-estate records. At the time they bought the rental house, property values all over Rhode Island were soaring.”

“Oertel and his partner borrowed $186,400, according to city property records. The 30-year mortgage carried an initial interest rate of 6.53 percent, which was scheduled to adjust two years later to a maximum of 9.53 percent. Thereafter, the rate would adjust every six months, to a maximum of 12.53 percent.”

“‘When the boom was going, we thought it was good to make an investment,’ said Oertel. ‘I consider myself a smart person. You listen. You never think it’s going to go down.’”

“Nor did he consider the hassles of rental property management. Some tenants paid their rent late; others did not pay at all. Evicting a tenant for nonpayment took up to six months. That was six months with no rental income to pay the mortgage.”

“‘The first tenants [on Oak Avenue] rented from September through April and left owing two months’ rent,’ Oertel said. ‘Then we got two guys in there, cousins, both working good jobs. They left owing about five months’ rent. Then I had some wonderful tenants — a husband and wife and baby — and they left.’”

“Meanwhile, the mortgage payments on 95 Oak Ave. began to climb. By last year, the payments had increased to about $2,300 a month, $1,000 a month more than the rent. His investment was losing money.”

“‘When you’re a personal investor,’ Oertel said, ‘it’s almost like a pool of investments in your portfolio, and when one place starts to tumble they all start to tumble.’”

“So, Oertel stopped paying the mortgage on 95 Oak Ave. ‘It was a business decision. I couldn’t afford it anymore. I was gonna lose it anyway,’ he said. ‘I think the last payment I made was in February.’”

“In June, Oertel agreed to rent the house to Maria Simmons and her family for $1,300 a month. By then, he was already three months’ behind on the mortgage. But he said nothing to his new tenants.”

“A lawyer who represents a loan servicer for Deutsche Bank wrote a letter to their landlord stating that the property at 95 Oak Ave. was ‘to be sold at a foreclosure sale’ on a date to be determined. The letter stated that the first auction notice would run in The Providence Journal on Aug. 2.”

“Maria Simmons did not see the legal notice on Aug. 2. If she had, she said, she would not have written Oertel a $2,480 check on the same day for August and September’s rent. (He let her deduct $120 for paint and the cost of removing an old refrigerator.)”

“Money was tight. Maria had reasoned that if they paid their rent through September, it would give them a measure of security. ‘I didn’t want to fall behind,’ she said, later.”

“Oertel said he did nothing wrong. Seated in his SUV outside his duplex, cell phone in hand, he described himself as someone who was simply trying to preserve his investments in a market fraught with risk.”

“Real estate, he said, is like the stock market. ‘You buy 10 stocks and you buy 10 buildings,’ he said. ‘Then people have to sell to get out because they need the money.’”

“Oertel blamed his financial losses on mortgage brokers and lenders and unreliable tenants. Not the Simmons family, though. He said they paid their rent. Oertel used the Simmons rent money to try to keep his other properties out of foreclosure. Further, he said, the family paid no rent after September. He also returned their $1,300 security deposit.”

“‘I used the money to try to keep the round-robin going,’ he said. ‘You start robbing Peter to pay Paul.’”

“Oertel said that he is the one who lost money, not Ken and Maria Simmons. ‘Nobody got hurt in this,’ he said, ‘right?’”

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