The Housing Bubble

The Used House Salespeople report from California. “Home sales decreased 29.8 percent in January in California compared with the same period a year ago, while the median price of an existing home fell 21.9 percent, C.A.R. reported today. ‘The slight increase in sales predates the president’s signing of an economic stimulus package including a temporary increase in the conforming loan limit, but that much needed reform could give the market some momentum,’ said C.A.R. Chief Economist Leslie Appleton-Young. ‘Let’s hope congress and the president see fit to make the higher loan limit permanent.’”

“C.A.R.’s Unsold Inventory Index for existing, single-family detached homes in January 2008 was 16.8 months, compared with 7.6 months for the same period a year ago.”

“In a separate report covering more localized statistics generated by C.A.R. and DataQuick, 6.3 percent, or 16 out of 253 cities and communities, showed an increase in their respective median home prices from a year ago.”

The Tribune. “In another sign of how the mortgage lender crisis has hit San Luis Obispo County, Estate Financial Inc. is having money problems, leaving developers unable to finish projects and investors wondering when they’ll get their money back.”

“Karen Guth, president of the real estate lending company in Paso Robles, said Estate Financial’s troubles are due to ‘the lack of liquidity’ caused by the significant drop in qualified buyers for the company’s real estate investments.”

“‘We’re trying to finish our projects, but there are not a lot of people buying houses these days, and so our loans are not selling off,’ Guth said. ‘Our problem is not unique. It’s a cycle in the real estate market and it’s a cycle in a credit market, a perfect storm of bad news.’”

“When the real estate market was booming, Estate Financial typically sold its real estate investments within one to two years, with a 12 percent return to investors, Guth said. By 2007, Estate Financial had an estimated 1,000 investors funding more than $340 million in real estate loans, according to reports filed with California’s Department of Corporations.”

“But with foreclosures in the state mounting, potential home buyers as well as new investors started to evaporate, and developments funded by Estate Financial began to stall.”

“‘Apparently sitting on the sidelines is a multitude of potential new investors, which EFI needs to fund its current loan commitments, as well as create an opportunity for Fund investors to liquidate some of their shares,’ Guth and Joshua Yaguda, her son and VP of the company wrote.”

“As a result, October was the first month in the company’s 20-year history that many of its borrowers failed to make their payments on time or at all, the letter said.”

“In another letter to investors, dated Oct. 23, Guth and Yaguda said that if investors had not yet received their interest payments that month, ‘with very few exceptions … it is not forthcoming. You should assume for now that future payments will remain unpredictable.’”

The Pasadena Star News. “With a crucial part of the Ambassador West development in receivership after its owners defaulted on a $44 million loan, completion of one of the city’s largest, most prestigious housing projects has been thrown into doubt.”

“The property owners, AACP Properties and Ambassador Acquisition Coalition Partners II, have been unable to find a builder to replace Pacific Standard Homes, which in November abruptly pulled out of a deal to build 70 luxury condominiums on four parcels on the Ambassador West site.”

“The lender, Drawbridge Special Opportunities Fund Ltd., promptly filed suit and the 19.72-acre property went into receivership Dec. 27.”

“Dorn Platz President Greg Galletly, whose company helped steer the entire project through City Hall, predicted it will be hard to find a buyer for the condo parcels.”

“‘Home builders just do not have the capital to step up and buy something like this today,’ said Galletly, whose company has a 2 percent stake in Ambassador West. ‘This site is still one of the best in Southern California, but in today’s world home builders are all in serious trouble.’”

“Fred Zepeda, president of the West Pasadena Residents Association…said the neighborhood had been stunned by Ambassador West’s recent problems. ‘We’re anxious to find out what’s going on,’ Zepeda said. ‘I don’t think anyone knows what’s going to happen - everyone’s still staring at each other.’”

The Press Telegram. “‘There Will Be Blood’ couldn’t have come out at a better time - at least for the purpose of making an explanation of U.S. economic expectations more colorful. Economists sometimes like to draw a comparison between the title of popular running feature films and their outlook for the U.S. economy.”

“‘My movie theme is ‘There Will Be Blood,’ said Jack Kyser, chief economist of the Los Angeles County Economic Development Corp.”

“Local economist Joe Magaddino, who chairs the Economics Department at Cal State Long Beach and authors an annual report released in May that illustrates the economic outlook using that year’s feature film releases, agreed with Kyser’s assessment.”

“‘We didn’t really anticipate it to be slowing this much,’ Magaddino said. ‘Each week, it looks worse and worse, with the chance of a recession occurring on the rise.’”

“Magaddino didn’t want to ruin the annual suspense that builds up over which feature film he’ll chose for the coming year. However, Robert Swayze, Long Beach’s economic development director, didn’t hesitate to belt out what he thinks will be Magaddino’s likely choice for best picture to describe the economy.”

“‘There Will Be Blood,’ Swayze quick reply when asked. ‘All signs point to a slowdown.’”

“As the nation goes, so will the state, the region and Long Beach, Magaddino said. ‘The Southern California region isn’t so big and isn’t so diverse that it can insulate itself from the U.S. economy,’ Magaddino said. ‘We anticipate this year it’s going to be a much slower year for the region and we also anticipate it’s going to be a much slower year for the city of Long Beach.’”

“And in Orange County, the drop in employment numbers already gives the area the appearances of a recession. ‘Orange County looks to us to already be in a recession in terms of negative employment growth,’ Magaddino said.”

“One area of Long Beach that may be particularly hurt by the housing slowdown and the sluggish economy is downtown. ‘So much of downtown revitalization is tied to condo sales,’ Swayze said.

“Several massive high-rise condo projects planned for the area have been either halted or delayed. Add to that halting expectations for weakening retail sales. Downtown has struggled to find retailers along its Pine Avenue artery and at downtown developments like the Pike at Rainbow Harbor and CityPlace.”

“‘We’re rather pessimistic on retail,’ Kyser said. ‘And that spells tough times for downtown Long Beach. To survive you need retail.’”

“Retail encourages development of residential properties, and without plenty of residents around, retailers typically shun an area, Kyser said. Kyser expressed similar concerns about downtowns in Los Angeles and San Diego.”

“‘There will be blood downtown,’ Kyser quipped.”

The LA Times. “The downtown Los Angeles skyline is still dotted with construction cranes, but not as many as developers once promised.”

“More than a third of the approximately 110 residential projects proposed for downtown have been delayed or put on hold amid the rocky real estate market.”

“Yet downtown boosters and urban planners are focusing most of their angst on two mega-projects: the Frank Gehry-designed Grand Avenue complex on Bunker Hill and Park Fifth, which would be the tallest residential complex west of Chicago.”

“Both projects have pushed back their start dates in recent months as developers sought capital and construction loans in an increasingly difficult market and negotiated the various government approvals needed to begin construction.”

“Grand Avenue officials announced Friday that one of the project’s original investors — the California Public Employees’ Retirement System — was pulling out and that Istithmar, a fund controlled by the royal family of Dubai, was investing about $75 million in the $3-billion development on Bunker Hill.”

“The fate of both projects is increasingly being seen as a tipping point for the future of downtown.”

“Even the most ardent of downtown supporters agree that the area has not yet reached a critical mass. New downtown dwellers still complain about a lack of shopping and that for every newly vibrant street, there are others that still seem dead.”

“‘The bottom line is, the real estate world is frozen right now,’ said Homer Williams, a Portland developer who is involved in a number of projects in downtown L.A.’s South Park district. ‘Unless you have to move, either you’ve been transferred, get married, divorced, something that compels you to do something, you aren’t going to do anything.’”

The San Diego Business Journal. “Notices of Default and Notices of Trustee’s Sale skyrocketed in San Diego County last month, according to several foreclosure reports released this month.”

“According to Default Research Inc., San Diego had 6,003 Notices of Default and Notices of Trustee’s Sale in January compared to just 2,997 a month earlier and only 1,723 in January 2007.”

“With a minimum of four months between the recording of a Notice of Default and the property being sold at auction, the recent increases in defaults clearly indicate that auction sales are likely to also increase further in the upcoming months, according to ForeclosureRadar.”

“ForeclosureRadar said that by comparing January foreclosure sales to defaults four months ago, it appears that as many as 80 percent of defaulting homeowners may now lose their homes at auction.”

“‘While certainly more homeowners are getting into trouble, the far larger issue is that fewer homeowners are able to get out of foreclosure than ever before,’ aid founder Sean O’Toole, in the report.”

“Foreclosures are up in nearly every county and O’Toole said homeowners are not the only ones feeling pressure. He said that in January, 98 percent of auction sales went back to the lender after receiving no bids.”

“Of the 19,821 foreclosure properties sold at auction in the state, 13,950 were discounted with an average opening bid at 16 percent lower than the remaining mortgage amount, and of those, 4,624 were discounted 30 percent or more.”

The Mercury News. “Bay Area residents accustomed to treating their homes like piggy banks could be in for unpleasant surprises as home prices decline in many areas. Not only are banks less willing to issue popular home-equity lines of credit, but some of the nation’s biggest lenders are freezing existing loans.”

“Morgan Hill homeowner Kelly Urbina received a letter from Countrywide two weeks ago telling her she can no longer access the credit line that she says the lender encouraged her to get when she bought her three-bedroom home in 2006.”

“‘I still have a substantial amount of equity in my property, so I was surprised to get a letter that just said, ‘We’re going to suspend your line,’ said Urbina, who works as an underwriter for a mortgage banking and wealth management firm in Palo Alto. She knows the value of her property has dropped somewhat, but not ’significantly,’ as Countrywide claimed in the letter.”

“Urbina and her husband used some of the equity line to remodel their kitchen two years ago, but otherwise they have reserved it for emergency use.”

“Urbina said she was surprised the lender didn’t simply lower the amount of her line of credit rather than suspend it. ‘I would have felt that was a very fair thing to do,’ she said.”

“‘Everybody’s going to have to do it,’ said Guy Cecala, publisher of Inside Mortgage Finance. ‘We’re just at the beginning of this trend of lenders freezing home-equity lines of credit.’”

“‘It very much could hit people up here, whether it be Countrywide or another lender, where values have come down,’ said John Conover, president of Borel Private Bank in San Mateo. ‘This is a significant issue for people who expect to be able to borrow on their loans.’”

“Nationwide, homeowners borrowed $355 billion worth of home equity loans and lines of credit in 2007, down from $430 billion in 2006, according to Inside Mortgage Finance. California borrowers make up 20 percent to 25 percent of the market.”

“Susan McHan, homeowner Kelly Urbina’s employer, said her company has at least two clients in the East Bay who have received the letters from Countrywide. In both cases, she said, the homeowners dispute that their home values have fallen sharply, and they are working with Countrywide to try to reopen their credit lines.”

“‘They had plans that they were going to be using the loans for,’ McHan said.”

“As for Urbina, she was not counting on using her equity line soon, but she likes having one. ‘What if I did have an emergency and I needed the line?’ she said.”

Some housing bubble news from Wall Street and Washington. CNN Money, “The new year picked up where 2007 left off, as sales of existing homes fell in January to the lowest level in nearly a decade, according to the National Association of Realtors. The reading was the lowest since the group began reporting annual sales pace in 1999, down 23.4% from a year earlier. The median price of a home sold during the month fell 4.6% to $201,100 from $210,900 a year earlier. Before the start of the current housing slump, it had been 11 years since prices fell compared to a year earlier.”

“The median price of a single-family home dropped to the lowest point since February 2005, falling 5.1% to $198,700.”

The Wall Street Journal. “Inventories of homes increased 5.5% at the end of January to 4.19 million available for sale, which represented a 10.3-month supply at the current sales pace. There was a 9.7-month supply at the end of December, revised from a previously estimated 9.6 months.”

“‘Inventories are high, so it’s not surprising prices are declining,” NAR economist Lawrence Yun said.”

From MarketWatch. “UBS may be facing legal action from a German firm that bought into a $500 million portfolio of collateralized debt obligations that the Swiss investment-banking giant structured and sold. HSH Nordbank said in a statement on Sunday that it ‘has decided to start legal proceedings against UBS.’”

“The claim would aim to recover “significant losses” on the CDOs, which were linked to the U.S. mortgage market, the company said.”

“The legal action would aim to show that the ‘manner in which the investments were sold to HSH Nordbank and UBS’s subsequent management of the assets were clearly contrary to our interests,’ the firm said.”

From Reuters. “HSH Nordbank’s decision to sue Swiss bank UBS this week may be the vanguard of many investor lawsuits against banks over investments in collateralised debt obligations (CDOs) that have gone sour.”

“The German state-controlled bank said on Sunday it would start legal proceedings against UBS to recover losses on a $500 million investment in a CDO made in 2002.”

“‘The question focusses on how the CDO was managed? Did UBS put assets it didn’t want into this structure?’ said Tom Jenkins, an analyst at Royal Bank of Scotland. This case ‘could pave the way for many more suits against it (UBS) and others,’ he wrote in a note to investors.”

The Boston Business Journal. “A $517 million debt vehicle backed by risky subprime mortgages and issued this past summer by Fidelity Investments has run into trouble after credit ratings on some of the securities have been cut to junk status. The mutual fund giant has more than $1 billion in exposure to collateralized debt obligations.”

“The Boston company created that little-known affiliate, Ballyrock Investment Advisors LLC, to issue and oversee collateralized debt obligations. The timing of Ballyrock’s subprime-related CDO issue could not have been worse. Since then, Wall Street firms have reduced the value of their CDOs by as much as 80 percent in some cases.”

“Ballyrock manages five CDOs, but only one has been subject to negative ratings actions and is linked to subprime mortgages, said Fidelity spokeswoman Anne Crowley.”

“One glimpse of the strain from Fidelity’s CDO issue comes from asset manager AllianceBernstein, which cut by 30 percent the value of $1.23 million in securities purchased for its Balanced Shares Fund from the Ballyrock CDO, U.S. regulatory filings show.”

“The papers that U.S. borrowers sign when buying a house are piled so high that few people read them all, and even fewer absorb the information.”

“Critics of the current documents say it is time to require home mortgage lenders to prepare a short, plain-English summary of each loan so consumers actually know what they are signing. Many in the housing industry agree.”

“Richard Syron, CEO of Freddie Mac, the second-largest U.S. home funding company, told Reuters last week he also worries that consumers do not always understand pitfalls hidden in their mortgage details.”

“‘I’ve refinanced a few times, and I can’t say I read a fifth of the 75 pages before signing them all,’ said Syron. ‘We’ve just got to do a much, much better job of being sure that the consumer knows what they’re getting.’”

“Lawmakers are among those who have failed to read their mortgage details and are interested in making them easier to absorb. Sen. Charles Schumer told Reuters he trusted his bankers when he signed for the loan on his house. ‘Like most people, I didn’t read my loan document in the one mortgage my wife and I signed 25 years ago.’”

“Sen. Charles Grassley, of Iowa, also said he did not read his mortgage documents but thinks simpler disclosure could be achieved without legislation. ‘The consumer ought to know as much as the bank knows,’ he said. ‘I bet you don’t need to change the law to do it this way.’”

“Rick Farr, partial owner of United Capital Mortgage Assistance, firmly believes that inadequate information hurt many of the people who call his company for help in preventing foreclosure.”

“In many cases, when lawyers, real estate agents, buyers and sellers gather to close on a sale, the terms of the loan were such that ‘the only people at that table who didn’t think there would be a problem with the loan was the (new) homeowners,’ he said.”

The Des Moines Register. “About 10 percent of 1,530 lending-related complaints to the Iowa Division of Banking over the last 10 years have been against mortgage brokers. Six of those were against Iowa Mortgage & Consulting, where Joseph P. Kedley, worked.”

“Carol Vaughn, who is wheelchair-bound and suffers from a variety of health problems, said Kedley promised to save her money with a fixed-rate loan. That’s what she thought she was getting when she signed the papers.”

“Instead, she received a $72,000 loan at 11 percent interest that is scheduled to adjust next year, and a second mortgage for about $17,000 with a 13 percent fixed rate.”

“‘He told me that I was going to save so much money that he was going to get an award from the governor for saving me so much on interest,’ she said.”

“She did get $5,000 in cash to help pay off her credit card bills, but her monthly payments went from about $500 to $800. Her loan is based on an appraised value of $94,000 - a figure from an appraisal she never saw. The house was valued at $40,000 when she recently paid to have her home reappraised.”

“‘I thought he was being straight with me. I didn’t think someone would try to cheat me,’ Vaughn said.”

The Chicago Tribune. “The new buyers of a rundown graystone on the South Side showed up Jan. 9 to look at the house they won at a foreclosure auction. They took the plywood off the front door and went inside to make sure the utilities had been shut off. Then they called the police.”

“Sitting upright in the corner of a bedroom off the kitchen was a human skeleton in a red tracksuit. Neighbors told police the corpse was almost certainly Randy Johnson, a middle-age man who lived alone in the North Kenwood house.”

“The cause of Johnson’s death has not yet been determined, but it is just one of the mysteries about 4578 S. Oakenwald Ave. Somehow, Johnson’s house was transferred three times to new owners without anyone noticing he was inside.”

“Left holding the bag is Countrywide Home Loans, the nation’s largest mortgage lender. Now it is likely to lose it all because it financed the sale of a home whose rightful owner was in no condition to sell.”

“The intrigue surrounding the Oakenwald house offers a glimpse into the strange and murky world of mortgage fraud. Lenders duped into making loans have every incentive to unload the properties, and almost none to blow the whistle on wrongdoers.”

“‘They foreclose. They don’t care. They just foreclose,’ said Daniel Lindsey, a supervisory attorney with the Legal Assistance Foundation of Metropolitan Chicago.”

“Last week, Countrywide vacated the recent sale of 4578 S. Oakenwald and returned the buyer’s money. That happened only after Cook County officials announced they would fight to put the house back in the Johnson family’s name.”

“Countrywide Financial Corp., reacting to negative publicity, canceled plans to host a posh ski trip for about 30 mortgage bankers at the Ritz-Carlton Bachelor Gulch ski resort in Avon, Colo., a spokesman said.”

“The three-night event – for smaller mortgage banks known as ‘correspondents’ that sell home loans to Countrywide – was to include two four-hour business meetings along with skiing and dinner at upscale restaurants, including the Spago restaurant, whose menu includes Kobe steak with wasabi potato puree for $105.”

“Rising defaults and falling home prices led to losses of about $1.6 billion at Countrywide in the second half, and the company has reduced its work force by 11,400, or 19%, since July. Countrywide’s servicing arm, which collects payments and handles other administrative tasks, has about 90,000 loans in foreclosure, or 1% of the total.”

“Sen. Charles Schumer…denounced the planned ski outing last week. ‘Let me get this straight: Countrywide is too cash-strapped to prevent layoffs, refinance borrowers or ward off bankruptcy without help from Bank of America, but it can afford a posh junket for its co-conspirators in the subprime mess?’ Sen. Schumer said in a written statement. ‘This brings new meaning to ’snow job.’”

“Andrew Gissinger III, Countrywide’s executive managing director, residential lending, was to have been among the hosts of the ski trip. In a memo to staff last fall, Mr. Gissinger urged employees to hang in there despite the current slump: ‘I’ve made a lot of people rich or richer who have joined me on my past crusades.’”

“The correspondent lenders account for a big portion of Countrywide’s business. In last year’s first nine months, Countrywide bought about $151 billion of home loans originated by hundreds of correspondents across the country. In the same period, Countrywide originated $173 billion of loans through brokers and its own employees.”

“With the industry in turmoil and many small lenders going bust, Countrywide may feel the need to cheer up the correspondents. Some such lenders say it has become very difficult to sell their loans to Countrywide because the company has grown much pickier and is rejecting as overly optimistic more of the appraisals that back those loans.”

“An agenda for the canceled meeting noted that falling house prices and ’skyrocketing delinquencies’ have created a ‘new world’ in which ‘loans are being examined with the utmost scrutiny.’”

“The agenda said participants were to discuss quality control, among other topics.”

From CBS News. “Countrywide CEO Angelo Mozilo has come under fire for scheduling (the) lavish retreat. ‘Of all the acts of corporate stupidity, this takes the cake,’ Sen. Charles Schumer told CBS News. ‘They only nixed it after they were caught with their hand in the cookie jar.’”

“On Thursday, the House Committee on Oversight and Government Reform will scrutinize the compensation and retirement packages of one chief executive and two recently deposed CEOs of companies ensnared in the mortgage crisis.”

“The witness list includes: Angelo Mozilo of Countrywide Financial Corp., the nation’s largest mortgage lender; Stanley O’Neal, formerly of Merrill Lynch & Co.; and Charles Prince, formerly of Citigroup Inc.”

The Chronicle Telegram reports from Ohio. “The idea seemed simple enough. Buy a foreclosed home through a sheriff’s sale at a below-market price; fix it up and then resell it making a small profit. It’s called flipping. Gary Cahill of Elyria knew the plan wouldn’t net him millions, but he and his wife, Janice, were eager to start a new hobby. But that was before a record number of foreclosures hit the county, leaving no neighborhood unscathed and ‘For Sale’ signs as far as the eye can see.”

“‘It’s not as easy as those television shows would make it seem,’ said Cahill, standing in the updated kitchen of a home he owns on Xavier Street. ‘I can’t even get one bad offer to turn down, let alone a good one. Now, I’m not even thinking about making some money off this house. I just want to break even.’”

“When banks start lowering their prices, people like Cahill realize they are stuck in a Catch-22 situation. If he lowers the price too much, he won’t make any money on the sale. But if he doesn’t lower the price, the house will stay on the market as buyers pass it up for cheaper bank-owned properties.”

“‘This is not Bank of Cahill. I can’t afford to just give this house away,’ he said. ‘I’ve put too much work into it.’”

“Cahill has come down on the price. He started out by listing the house for $159,000. Six months later, he lowered the price to $132,500. Now, he’s willing to let it got for $129,000. He is even prepared to pay up to $3,000 in closing costs.”

“‘It’s not like this is my only house. I have four mortgage payments to pay plus my business to run,’ he said. ‘I don’t know how long I can keep this up. I guess I’m going to have to get creative with selling this house.’”

“73-year-old Phyllis Stydnicki has a Jackson Avenue home she can’t sell. Six months ago, she stuck a ‘For Sale’ sign in the front yard, but only one person has even stopped to look at it.”

“‘It wasn’t that long ago that — if I was willing to sell — I could have gotten a good amount of money for it,’ she said. ‘I’m not defaulting on any of my home payments. But I’m still a victim of this foreclosure crisis. I put a ‘For Sale’ sign in my front yard in August, and it’s going to stay there until I sell or die.’”

The Middletown Journal from Ohio. “It wasn’t just a home loan, Steve Nusky said, it was the first step toward realizing a dream. It took only a matter of months for Nusky and his wife to qualify for a loan to open their own bar. The Hamilton resident said he was surprised they were approved, since they already had a loan for $61,000 on their home.”

“‘I couldn’t believe we were financed $100,000, but it’s what we needed,’ he said.”

“In June 2005, the bar closed. At the same point, Nusky’s marriage dissolved. In May 2006, he received his first letter threatening foreclosure on his home, which had been in his family for three generations. ‘It’s been a nightmare. It’s like I never know what they are sending me when I get home at night and check the mailbox,’ Nusky said.”

“Meanwhile, in Trenton, Tracey Tindall said her family of five was excited about building their $220,000 dream home. By the time the home was ready to occupy in 2005, Tindall said she was a bit worried because they were told their monthly loan payments would increase from $1,200 to $1,400.”

“‘But we had keys to a brand new home,’ Tindall said.”

“Within a few months, Tindall’s husband lost his job. They tried to work with the bank, she said, but soon received their first set of foreclosure papers. ‘I know it’s just business, but I don’t know how these (mortgage lenders) can go home at night and sleep knowing someone might not have a home tomorrow because of them,’ Tindall said.”

The Courier Journal from Kentucky. “The number of homes sold by members of the Greater Louisville Association of Realtors fell sharply last month. ‘We’re operating in a very soft market. January numbers are not what anyone had wanted them to be,’ said the Realtors’ local president, Nelson Collins.”

“The Southern Indiana Realtors Association reported 147 home sales in January, down nearly 20 percent from a year ago. The median price in Southern Indiana dropped 6.5 percent last month to $107,500.”

“Lynn Thomas, a licensed real estate agent for about a decade, said mortgage foreclosures and steep discounts on new construction are keeping home prices down. She’s advising some sellers to sit tight unless they absolutely have to move.”

“Buyers are hesitant, Collins said, and some people who were approved for loans early last year are having a more difficult time obtaining similar financing now. ‘This is just a cycle in the way that things happen in the economy,’ he said. ‘We all just need to keep our heads out of the sand on this issue, and understand that this too shall pass.’”

The Des Moines Register from Iowa. “The number of lawsuits that seek to foreclose on homeowners has doubled in Polk County over the past five years and climbed 75 percent statewide, records show.”

“It’s common, said Jane Hong, a Cedar Rapids bankruptcy attorney, to see families who have pulled equity from their homes through home-equity loans or lines of credit, which ‘can be used like a credit card.’”

“‘It’s a great way to lose your house,’ said Hong.”

“She said many borrowers took second loans thinking their home value would continue to appreciate so they could sell or refinance. Instead, they found they owed more than the house was worth. ‘They can’t really afford to keep their home anymore because their debt has far outstripped the house’s value,’ Hong said.”

“Rural Iowa is poised to be hit much harder by the nation’s foreclosure crisis, as a greater portion of borrowers in small communities struggle to make ends meet, according to a Des Moines Register analysis of lending data.”

“And even a few foreclosures can have a huge impact on a small town, said John Baker, an attorney with Iowa Concern, a hot line for financial and legal assistance for Iowans. ‘The value of every property in the town drops dramatically,’ he said. Vacant houses deteriorate, ‘and it has a cascading effect.’”

“Mike Ross and his wife bring home about $2,300 a month after taxes. Their current house payment, car payment, utilities, groceries, cell phone and prescriptions total about $2,000 a month. They’re paying about $50 a month on one credit card with a $700 limit.”

“Good-paying jobs, especially those with benefits, are scarce in their town, they said. There was no room to pay a couple hundred dollars more on their house payment. ‘And good luck trying to sell it,’ Mike Ross said.”

“Baker, the attorney with the Iowa Concern hot line, foresees rural and small-town families facing similar problems today as they did during Iowa’s farm crisis. But today’s homeowners have even less of a safety net in some ways than rural Iowans two decades ago, he said.”

“‘The big difference between this and the ’80s was when an acre of farmland dropped in value you could still produce income off it,’ he said. ‘Houses don’t produce income.’”

“Iowans refinance for a multitude of reasons: to pay off debt, acquire lower lending rates or make home improvements. ‘The loans with the highest rates tend to be refinancing or home improvement loans,’ said Guy Cecala, president of Inside Mortgage Finance. ‘That is the bread and butter of the subprime market.’”

“Higher-interest loans yielded higher profits, said Joel Rogers, president of the Iowa Association of Mortgage Brokers. ‘Some people refinanced two or three times. Everybody was competing to do these loans,’ he said. ‘Investors on Wall Street had a hunger for this investment.’”

“Lenders loosened their requirements and standards for loans, and ‘borrowers were able to qualify for loans that, in hindsight, probably shouldn’t have been made,’ Rogers said.”

“Certain lenders or brokers who wanted to refinance a house whose value wasn’t going up would simply find an appraiser to falsify and inflate the actual home value, said Kathleen Keest, a former Iowa assistant attorney general.”

“‘That’s why Ameriquest and others started inflating appraisals. They said, ‘We’ll just make it up.’ … The inflated appraisals were rampant, just totally rampant,’ she said.”

The Kansas City Star from Missouri. “In Kansas City, the housing market for sellers wasn’t all doom and gloom. Average resale prices downtown have jumped by one-third in the last two years. Some other parts of the area have remained hot. During the past four years, The Star found, housing appreciation surged at double or triple the rate of inflation in almost one-fifth of area ZIP codes.”

“Average prices in Brookside’s 64113 have appreciated 24 percent since 2003. On the Kansas side, old Leawood’s 66206 is up 43 percent. ‘People are attracted to those areas because of that kind of consistent, safe track record,’ said Pat Tholen, a Realtor of the Year in Kansas.”

“A seller like Elizabeth Nelson isn’t sure whether or not to be hopeful. Last spring, she and her husband finished fixing up their Prairie Village ranch. They priced it at $617,000 because another home down the street was priced even higher.”

“But they got no offers through real estate agents. Then they tried a for-sale-by-owner service. Still no offers. They reduced the price to $545,000. Still no offers. Now they are re-listing it.”

“‘It’s been frustrating because it’s taken a lot longer than I thought,’ Elizabeth said. ‘You feel like your life is on hold.’”

The Topeka Capital Journal from Kansas. “Residents of this blue-collar military town welcomed the forecast of an economic perfect storm in the Flint Hills.”

“Years of population decline and monetary stagnation in Junction City were about to be reversed. Raw material for newfound prosperity was the announcement that more than 8,000 Army soldiers would be reassigned to Fort Riley. Something akin to a gold rush ensued.”

“The rush to build has left the city deep in debt. The troops came, about 5,500 so far, but many couldn’t afford the new homes and instead are living on base, in rental properties in Junction City or in other communities.”

“Home developer Larry Sinks imagined a feverish construction atmosphere that would feel like the ‘Wild, Wild West.’ Carol Gould, the city’s public relations director, promised expansion ‘beyond your imagination.’”

“‘It makes my head spin,’ city manager Rod Barnes, giddy at the chance to be an architect of renewal, said at the time.”

“New Fort Riley soldiers…complained of single-family home prices beyond their financial reach. ‘We find a lot of houses to buy, but not a lot of units to rent,’ said Alison Kohler, a spokeswoman at Fort Riley.”

“Historically, Junction City has attracted 40 percent of the soldier population living outside of Fort Riley. That means the city could have reasonably expected to fill 3,600 new units. Problem: Junction City already has more than 6,000 units.”

“Black mold had grown inside a duplex that sits empty in a new subdivision on the western side of Junction City. The new duplex is one of hundreds of homes that remain unsold since the bubble burst on a Junction City building boom.”

“Unoccupied and exposed to the elements, the duplex has had much of its Sheetrock and carpet torn out because mold is a health hazard. It is a metaphor for the four-year building boom gone bust. Prices of new homes are falling because of an oversupply, real estate agents say.”

“Four years ago, the town lacked housing, so new homes sold within a few weeks. Today, about 443 homes are for sale in Junction City, but that is expected to climb by another 100 to 200 homes that are in various stages of construction.”

“‘That is quite a bit of inventory,’ said Laurie Crites, president of the Junction City Board of Realtors. ‘I think it is overbuilt now. There was too big of a boom too fast.’”

“Last year, 504 homes sold in Junction City, with an average price $140,809 — which is out of reach for most soldiers. Crites said no one could build a quality home for less than $100,000 unless the land was free.”

“Staff Sgt. Dorian Raines and his wife looked at numerous homes in Junction City and Manhattan before settling on a newly constructed house for $200,000 in Junction City. The Junction City home, bought a year ago, was his first home purchase.”

“After living in the home for six months, Raines received orders to move to Fort Stewart, Georgia. Now, the house is one of nearly 443 homes for sale in Junction City.”

“Raines said when he arrived at Fort Riley, he went to a small party where someone recommended he talk with Scott Johnson, a Realtor in Junction City. ‘We looked at three to five homes — my wife loved this one,’ Raines said.”

“He wants $205,000 for his house, but getting his asking price might not be easy. Many new homes listed on the Junction City Board of Realtors MLS say ‘price reduced.’”

“‘It was a lovely home, perfect for my family,’ Raines said. ‘I’m still making payments. That is the one thing that is difficult.’”

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