The Housing Bubble

The Modesto Bee reports from California. “Despite public pronouncements about working hard to keep borrowers in their homes, mortgage lenders are foreclosing unnecessarily on too many home loans, the California Reinvestment Coalition contends. ‘Lenders and loan servicers are not doing enough to keep homeowners in their homes,’ said Kevin Stein, the coalition’s associate director, who wrote ‘The Growing Chasm Between Words and Deeds.’”

“Avoiding foreclosure is Patricia Estrada’s goal, but the Ceres homeowner said her lender has been giving her the runaround for months.”

“‘We’re trying to make an honest effort to keep our home,’ said Estrada, who spoke at Monday’s news conference. She and her husband purchased a home in 2005 with an adjustable-rate mortgage. Her husband lost his job last year, their mortgage payment jumped $1,700 per month, and they fell behind on the loan.”

“To save their house, Estrada said they negotiated an agreement with their lender, Wells Fargo Bank. That agreement required a lump sum payment of more than $10,000.”

“‘I took out a hardship loan from my 401(k) (retirement account) to get the money,’ Estrada said. She said she sent the payment by the deadline, and she has a delivery receipt to prove it. But the lender mailed back the check, claiming it got there late. Even after she documented that the money had arrived on time, the lender started foreclosure proceedings.”

“‘We are in a desperate situation,’ said Estrada, adding that her good name has been defamed by the foreclosure filing.”

“Counselors from ByDesign Financial Solutions are among those working with Northern San Joaquin Valley home- owners to avoid foreclosure. ByDesign’s president, Martha Lucey, said her staff is overwhelmed.”

“Lucey said many homeowners ‘got caught off guard’ by rising mortgage interest rates.

“‘A lot of them really didn’t understand how risky their loan was,’ Lucey said, noting that many homeowners were overly optimistic about being able to refinance before their interest rates rose. ‘The problem now is they cannot refinance … because their home’s value has gone down and they’re upside-down on their loans.’”

The San Francisco Chronicle. “When Veronica Hodge realized the adjustable-rate mortgage on her Vacaville home was due to reset about $1,000 a month higher starting in January, she called her lender in November to request a loan modification, freezing her interest rate.”

“She submitted paperwork, including proof of income, then called back only to find out that it had been lost. She resubmitted the paperwork and was told to wait six to eight weeks. She was still waiting on Monday afternoon.”

“‘I contact them every week, just to get the same script from whoever answers the phone,” said Hodge. ‘They say they’re still reviewing, just give them a few more weeks.’”

“Countrywide is Veronica Hodge’s lender. After receiving a Chronicle query about her situation, the company called Hodge late Monday to say it would reset her mortgage to its initial rate for five years.”

“‘Oh my goodness,’ Hodge said when she heard that. ‘That is wonderful. I want to keep my house. This gives me time to be proactive on what I need to do for my future.’”

The Sacramento Bee. “State officials said Monday that a plan touted by Gov. Arnold Schwarzenegger to aid troubled homeowners helped more than 17,000 struggling borrowers in December and January.”

“But it’s unclear how significant Schwarzenegger’s plan, announced Nov. 20, has been. Throughout last year, many lenders already were attempting to work out deals with troubled borrowers, and in October and November alone more than 19,000 were helped.”

“Lenders reduced interest rates for 2,958 borrowers, either below the loan’s starter rate or its scheduled reset rate. 473 borrowers got their interest rates frozen for a period of less than five years. 212 borrowers got their rates frozen for five years or more.”

“3,494 borrowers got so-called ‘forbearances,’ in which the lender agrees to suspend payments for a specified time. The data for modifications and forbearances did not distinguish between subprime and prime loans.”

“The state’s findings on loan relief are similar to those released in recent weeks by the Mortgage Bankers Association and Hope Now. All show lenders are denting the foreclosure problem, but haven’t greatly slowed numbers of people losing their homes.”

“Despite the increased help, foreclosures still dominate: The lending companies told the state they took back 10,202 homes in California in January.”

“The Governor’s Office estimates 500,000 subprime borrowers in California will see interest rates reset in the next 18 months.”

“State Department of Corporations Commissioner Preston DuFauchard cited obstacles to better results that include a growing propensity for people to walk away from their homes instead of working with lenders. He also said half of borrowers still don’t contact lenders when they get into mortgage trouble.”

“‘We’re really in a fluid market and the credit crisis hasn’t really eased,’ he said. ‘My sense is these efforts all help. They add value. There is no silver bullet. Nothing is going to knock this out of the park, and if there is, no one has found it yet.’”

The Union Tribune. “Fannie Mae and Freddie Mac agreed yesterday to require greater independence for real estate appraisers, whose practices during the real estate boom have been criticized for leading to bad loans and the current subprime mortgage meltdown and credit crunch.”

“Tony Majewski, acting director of the California Office of Real Estate Appraisers, said a state law effective in October prohibited some of the tactics banned in the Cuomo agreement. The law ‘prohibits anyone with an interest in an appraisal from exerting or attempting to exert influence on an appraisal to affect a value,’ he said.”

“Mortgage bankers and brokers differed on what the agreement will mean to them and their clients. Mike Dillon of TCS Mortgage, a San Diego mortgage banker and brokerage that closed about 25 loans last month, said banks might become overly conservative if they alone select appraisers.”

“‘I don’t think it solves anybody’s problems,’ he said.”

“Steve Hops, a mortgage banker at Guild Mortgage, called the agreement ‘a nonevent’ for bankers, because they will still control who does the appraising, but a ‘headache for brokers,’ who will have no role in the selection process.”

“But Hops added, ‘It’s the integrity of the individual appraiser that’s at stake, whether he works for an in-house company or an independent company.’”

“David Eshelman, who operates an appraisal company in Carlsbad, said lenders are already being more prudent in how they review loan applications and appraisals.”

”The real estate industry goes thorough these cycles of fattening up and skinnying down – it’s bingeing and purging,’ Eshelman said. ‘And right now, we’re in a purge.’”

The Desert Sun. “Betty Perales said she used to feel scared, angry and alone about the rising tide of credit card and mortgage debt on a $235,000 home she bought in 2004 that’s now $486,000 in the red. Not anymore.”

“Perales has met with Palm Springs bankruptcy lawyer Gary Holt to sort out her finances and life. And on Monday, the white-collar worker - who along with her domestic partner shared a combined annual income of $66,000 and a credit score of 700 - decided to walk away from their house and let it slip into foreclosure.”

“‘It’s been hard trying to hold it all together,’ she said.”

“Holt assured Perales she’s not alone. Across the nation, amid a struggling real estate market and rising prices of gas, groceries and other goods, credit counselors have noted this trend.”

“Palm Desert lawyer Donald Gagnon III, who is handling a mounting number of bankruptcy petitions, said rising living costs and plentiful credit have motivated some to draw on those reserves to stay afloat. Others are dipping into their 401(k) as well just to pay off rising credit card debt, he said.”

“Holt has seen people with income of $25,000 to $50,000 carrying debt loads on top of their mortgages that equate to a full year’s worth of pay. People used credit cards for food and medical expenses when mortgage payments were under control, Holt said.”

“‘What’s changed is they’re starting to use convenience checks for $3,000 to $4,000 at a time just to hang onto the house,’ he said.”

“It’s a striking reversal from only a few years ago when equity lines of credit or loans were tapped to pay off credit card debt or buy a second home. ‘Now that they’re in a crunch, they have no cushion,’ Holt said.”

“It’s a trap Perales said she fell into, along with a mortgage handler who had her sign papers she thought would provide a fixed interest rate but instead sent her payments spiraling beyond her ability to pay them. ‘The irony of all this is, I had no debt when I signed my last set of papers,’ she said.”

“Perales said the equity line helped the family install a pool and renovate the property. ‘We had no idea that the $2,855 a month at 7.9 percent we were paying was for interest only. All that money, and not a single cent went toward the home,’ she said.”

“Now that it’s upside down in equity, she’s been advised to walk away, lease a new home for a while and regroup. ‘It’s sad. The house of our dreams is in foreclosure, and I owe $150,000 more on it than it’s worth.’”

Some housing bubble news from Wall Street and Washington. Associated Press, “Fremont General Corp. said Tuesday it received default notices on about $3.15 billion of loans it sold in March 2007. The bank received notices from two investors who purchased the loans, saying it violated sales terms when its tangible net worth fell below $250 million.”

“Fremont was forced by its regulator in early 2007 to stop originating mortgages because it was not operating with proper risk-management oversight. The company proceeded to sell its mortgage assets after the lending operations were closed.”

From Bloomberg. “Bank of Montreal, Canada’s fourth- biggest bank, reported…trading losses and writedowns on debt tied to the U.S. subprime mortgage market. The bank had pretax writedowns and losses of C$548 million as the value of its debt investments declined.”

“ICICI Bank Ltd., India’s second- largest bank, reported $264 million of costs to write down the value of overseas investments, the biggest loss disclosed by an Indian bank since the collapse of the U.S. subprime-loan market.”

“The value of the subprime-related investments in its $2 billion of overseas assets dropped because investors are shunning all except the safest securities, said Chanda Kochhar, ICICI joint managing director.”

“PMI Group Inc., the California-based insurer, said losses from U.S. mortgage insurance totaled about $236 million in the fourth quarter.”

From Reuters. “The Pasadena, California-based parent of IndyMac Bank said the delinquency rate on prime loans rose to 6.85 percent from 3.83 percent in last year’s first quarter. It said subprime mortgage delinquencies rose to 28.18 percent from 18.55 percent a year earlier, and late payments on home equity loans rose to 16.35 percent from 5.78 percent.”

“IndyMac also said the rate of loans in foreclosure was 3.02 percent in January, up from December’s 2.65 percent and 0.88 percent in the year-earlier quarter. Meanwhile, January loan volume totaled $2.9 billion, down 33 percent from December and 66 percent from January 2007.”

“IndyMac long specialized in ‘Alt-A’ home loans, which often go to people who cannot fully document income or assets.”

“Federal Reserve Chairman Ben Bernanke called Tuesday for additional action to prevent more distressed homeowners from falling into foreclosure. One of the suggestions was for mortgage and other financial companies to reduce the amount of the loan to provide relief to a struggling owner.”

“Bernanke acknowledged this idea might be a tough sell to lenders. Lenders, he said, are reluctant to write down principal. ‘They say that if they were to write down the principal and house prices were to fall further, they could feel pressured to write down principal again,’ Bernanke said.”

“To date, permanent home mortgage modifications that have occurred have typically involved a reduction in the interest rate, while reductions of the principal balance of the loan have been quite rare, he said. ‘Measures that lead to a sustainable outcome are to be preferred to temporary palliatives, which may only put off foreclosure and perhaps increase its ultimate costs,’ Bernanke said.”

“Any new rules to improve governance of U.S. banks must not increase the already high regulatory burden on this industry, Federal Reserve Chairman Ben Bernanke said on Tuesday.”

“‘Banking is certainly one of the most regulated industries in the world,’ Bernanke told the national convention of the Independent Community Bankers of America.”

“The Bush administration will release within weeks proposals that address deficiencies in the regulation and functioning of U.S. financial markets, Treasury Secretary Henry Paulson said.”

“‘We’re looking at the mortgage-origination process, we’re looking at the securitization process, we’re looking at rating agencies, we’re looking at disclosure issues, we’re looking at capital issues and regulatory issues,’ he said in an interview today with Bloomberg Television.”

“Paulson said in the interview that ‘almost too much’ has been made out of concerns about homeowners whose house prices have dropped below their mortgages. He said borrowers who can pay their loans should do so regardless of whether the home value is ‘under water,’ he said. Otherwise, ‘you’re a speculator,’ he said.”

The New York Times. “According to the data from Hope Now, lenders completed ‘loan workouts’ for 638,000 troubled subprime borrowers from July through the end of January. But about two-thirds of the people who received any help were put on repayment plans that simply allowed them to catch up on missed payments and back interest.”

“Mr. Paulson acknowledged that mortgage lenders and mortgage-servicing companies were not moving as rapidly on loan modifications as he would have liked.”

“‘Am I satisfied? No,’ he said. ‘Am I surprised? Not really.’”

Dow Jones Newswires. “Fannie Mae and Freddie Mac reached an agreement with New York Attorney General Andrew Cuomo to only purchase loans that meet new standards designed to ensure independent, reliable appraisals.”

“‘With this agreement, Fannie Mae and Freddie Mac have become leaders in transforming the mortgage industry,’ Cuomo said in a statement Monday. ‘Now national banks have a clear choice: Immediately adopt the new code and clean up appraisal fraud in the mortgage industry or stop doing business with Fannie Mae and Freddie Mac - it is that simple.’”

“‘We believe that the appraisals were often fraudulent because there were conflicts of interest and pressures on the appraisers,’ Cuomo said at a press conference, referring to the alleged improper activity his probe uncovered.”

From Newsday. “Under the new code announced Monday, lenders won’t be able to use in-house and affiliated appraisers and mortgage brokers won’t be able to select the appraiser if they want Fannie or Freddie to buy their loans.”

“The two government-sponsored agencies buy about 80 percent of the nation’s home loans and package them for sale to Wall Street, freeing up lenders to make more loans.”

“‘It’s going to make it more difficult for brokers to do what they’re supposed to do, which is help the consumers,’ said Richard Biondi, incoming president for the New York Association of Mortgage Brokers.”

“Brian Clarke, chief financial officer for Bethpage Federal Credit Union, said the clear winners are Fannie and Freddie, who in theory would be buying less risky loans. But the impact of the new standards will depend on the extent of appraisal fraud in the industry, he said.”

“‘This could deflate housing prices a bit, but it depends on how much of this is going on,’ Clarke said. ‘That’s the question and that’s a hard one.’”

The Sun Sentinel. “CEO Ken Lewis of Bank of America, the nation’s largest bank, which will also become the largest U.S. home lender later this year when it completes its $4.1 billion acquisition of troubled Countrywide Financial Corp. Lewis spoke recently with Paul Owers of the South Florida Sun-Sentinel.”

“Q: Will you discuss the effect of subprime lending on the banking and housing industries? A: It’s been devastating to the capital markets even more than the housing market. Subprime loans get packaged with securities, and that’s caused massive losses around the world.”

“Q: Will you allow Countrywide to continue in the subprime business? A: They have stopped all subprime loans and have stopped buying subprime loans from brokers. That would be the model under which we would operate.”

“Q: How will the mortgage industry be different now that the housing boom has ended? A: It’ll be a much simpler world. We’re not going to see as many complex loans because there are no takers.”

The Palm Beach Post. “Karen Weaver, a managing director at Deutsche Bank, painted a bleak picture in her speech to the National Association for Business Economics convention. She predicted recovery would take years, that sharply lower home prices are ‘unavoidable’ and that foreclosures will continue at a ‘pretty heavy level for the next 15 months or so.’”

“Weaver displayed charts showing that after the last housing downturn in the early 1990s, home prices in certain markets did not return to their peaks for six, eight or even 11 years.”

From Business New Haven. “Members of the New Haven Mayor’s task force on subprime lending have said they may recommend that the city sue lenders over surging foreclosures.”

“Three task force members told a group that they are considering filing a class-action against major lenders who made high-interest loans, the New Haven Independent reported. Connecticut homeowners hold 71,000 subprime mortgages worth about $15 billion, with as many as 8 percent of loans seriously delinquent.”

The Boston Channel. “The chief economist for the National Association of Realtors offered a ray of sunshine to his New England members.”

“‘The worst in the sub-prime foreclosures is probably peaking at this point, but most of the mortgages — 90 percent of the homeowners — are not exposed to sub-prime loans. A vast number of neighborhoods are doing fine,’ said Lawrence Yun, of the National Association of Realtors.”

“‘I am very encouraged, as a matter of fact. I think he had a lot of good messages for all of us as Realtors in the region,’ Duxbury Realtor Georgia Taft said.”

“‘We are in the middle of a five-year downturn, so if we are at the bottom, we are going to start coming up. That is great,’ Orleans Realtor Linda Collins said.”

“In fact, Yun predicted that most of New England will see home prices stabilizing and possibly seeing a modest increase. ‘By 2009, I think we will be back to normal. In that case, people can anticipate a 4 percent to 6 percent price appreciation,’ Yun said.”

“Dorchester homeowner Michelle Anthony, however, does not live in one of those neighborhoods, so she is getting help from the Neighborhood Assistance Cooperation.”

“‘First, I got separated from my husband, so I am in the middle of a divorce. Then on top of that, I got laid off in January,’ said Anthony, who is on the verge of losing her home.”

“The worst news was her sub-prime mortgage rate. Within three years, her monthly payment doubled to just less than $3,000 per month. ‘It didn’t look like it was getting any better to me. A lot of people are in the same situation that I am in,’ Anthony said.”

The Courier News reports from New Jersey. “In New Jersey, home sales fell by 30 percent in January over the same month in 2007, according to Otteau. Sales at the Jersey Shore outperformed the state, but still fell by 24 percent in Monmouth County and 26 percent in Ocean County, the firm states. ‘Sales are running at very weak levels,’ said Jeffrey Otteau, the company’s president. ‘Clearly what we have here is that the housing market continues to be in a stall.’”

“Michael Benol and his wife have their Point Pleasant home on the market while they look for a larger house for their family. As a buyer, Benol said he believes many home prices are unrealistically high.”

“‘For some reason, people still think they will get the number that they got a year and a half ago,’ he said. ‘When you put an offer in, they look at you like you are crazy and they don’t act on it.’”

The Herald Mail from Maryland. “If you’ve been trying to sell your house, the economic signs are pretty clear: You’re in a lot of pain. Especially if your home is in the upper end of the market, pricewise.”

“And if you’ve bought a house in Washington County the last few years, you’re probably hurting, too, as more of your income than ever is being used to pay the mortgage.”

“‘Soon as the gas prices went up to $3 a gallon, it’s like a wall went up on South Mountain and people stopped coming over the hill,’ said local Realtor Jeff Matthews, last year’s president of the Pen-Mar Regional Association of Realtors.”

“When that traffic went away, only those of us who live and work here were left in the local housing market. And for the most part, we ‘can’t afford a half-million-dollar house,’ Matthews said. So the median price of what homes sold, fell.”

“When the lemmings from the metro areas were running this way to buy houses, so, too, were big metro builders. Now that that crowd has gone away, what’s left is ‘more new houses than there are workers,’ NAR economist Ken Fears said.”

“NAR looks exclusively at the sales of existing homes. Its data does not look at sales of new houses. If it did, the drop in price here might be more severe. ‘They’re trying to get rid of them,’ Matthews said of the bigger builders’ houses. ‘They’re giving away all these (house feature) options.’”

“‘It’s hard for someone who bought a house, let’s say in a new subdivision, and now they’re being relocated or must sell because of circumstances,’ he said. ‘It’s hard to compete with these new house builders who are giving away things.’”

“Fears said, ‘just looking at the numbers, it looks like kind of an overhang in supply.’ That overhang, coupled with the slowdown in sales, is most noticeable in the backlog of houses waiting to be sold. You can drive on almost any street and count the number of ‘For Sale’ signs.”

“Not only new houses, but also, of course, older ones whose owners have found work elsewhere or who want to buy another, as well as those being auctioned by banks that have foreclosed.”

“In January, the latest month for which figures are available, Realtors had a total of 1,353 houses listed for sale in Washington County, according to MRIS. Of those, just 76 were sold during the month, MRIS said.”

“If sales continued at that rate and even ‘if we didn’t list another house, it would take almost two years to sell it all off,’ said Matthews.”

The Capital from Maryland. “CyBer Realty will conduct its first tour today of foreclosed homes in some of the county’s areas hardest hit by the national credit and housing crisis. ‘We’re trying to put a positive spin on the condition of the market,’ said Donale Bernarding, a broker with CyBer Realty.”

“The tour will show about a dozen homes in Pasadena, Glen Burnie, Millersville and Severn. It will showcase houses ranging from $150,000 to $400,000, said Rebecca Cymek, an associate broker and the company’s manager.”

“Industry experts attribute the rise in foreclosures mainly to homeowners who took on mortgages that they can no longer afford. In some cases, mortgage rates rose. ‘A lot of people who bought a house and had it for a period of time didn’t change their spending habits and used their house as an ATM,’ said Rick Rall, president of a Severna Park loan company. ‘A lot of them ate up their equity.’”

From WTOP Radio in Virginia. “To those who thought the sport of house-hunting went out of fashion with the collapse of the housing market, think again. It’s a buyer’s market, and house hunters are scouring the nation for properties by the busload, literally, even in Prince William County.”

“The tour visited nine foreclosed properties in the Gainesville and Haymarket areas in under three hours. They included townhomes and stand-alone homes, ranging from $200,000 to $600,000. One home was only two years old; another was marked down by $200,000.”

“Eileen Durkan of Long & Foster Realtors says she got the idea after hearing about similar tours in California. ‘I thought that’s just going to be working its way here. Everything that happens in California eventually comes east, and we thought we’d like to be on the cutting edge.’”

The Times Dispatch from Virginia. “The Richmond area has been hit by the housing slump. Housing starts here are down 46 percent from their peak in January 2006. In Northern Virginia, they have slid 62.4 percent from peaking in July 2005, according to Chmura Economics & Analytics in Richmond.”

“Eric Medlin’s business was focused on doing general and termite repair work in houses that had sold. ‘I was booked over a month out. Now I’m lucky to have three days of solid work,’ he said. ‘I used to bid on a project against two or three contractors. Now, there’s five to 10 contractors bidding on the same project and we’re fighting over crumbs.’”

“‘In my almost 19 years in the home inspection business, the fourth quarter was the slowest I have ever experienced. Work went from steady to a significant drop,’ said John Jennings, of Home Pro of Richmond, a house inspection company.”

The Citizen Times from North Carolina. “Three years ago, selling a house in the Asheville area was a relatively painless affair that sometimes involved choosing between two or three offers from buyers. These days the first step to selling a home might be to check the calendar: 2008 is not 2005.”

“‘If they are selling, they are selling in a market that’s had a downward trend,’ said broker Tom Garden. ‘If they will let the Realtor price the house properly and competitively, it will sell. If they’ve got stuck in their head the old prices and won’t make changes … they may as well keep it off the market.’”

“It is no secret that home sales have declined in the Asheville area as part of the bursting of the national real estate bubble, although prices have not been hit as hard as the number of homes sold.”

“Sellers may have to reduce their price once an offer comes in, but if their initial price is outside the range a buyer is looking in, the offer just won’t happen, said Charles Giezentanner, owner of Asheville Realty & Associates.”

“‘Don’t overprice your house. Nobody’s going to look at it,’ he said.”

“Some sellers owe so much on their home that they may feel they can’t afford to make much of a price cut, said Jon Corbin, head of The Buyer’s Agent of Asheville. It’s not unusual to hear stories of sellers who are ‘upside down’ on their home loans — owing more than a home is worth — and actually end up having to bring money to a sale closing to pay off their debts.”

“Local real estate investor Mike Summey doesn’t expect the local market to bottom out until late 2009 or 2010. He says down markets tend to hit Asheville later than the rest of the country, that the local market tends to recover after the nation as a whole and the climb out of a bad market tends to mirror the slide in.”

“‘We’ve just been through the biggest upswing I’ve seen in my life, so we’re in for a long, rocky road out,’ he said.”

The Sun News from South Carolina. “Christopher James Ranone, a real estate broker and investor for 10 years, never thought a credit squeeze would force him out of his three-bedroom Myrtle Beach townhouse.”

“Now, with a handful of properties on the Grand Strand, about $15,000 in monthly debt payments, and an adjustable rate mortgage that will soon reset, something’s got to give.”

“‘What do you do in a credit crunch when you have a house that’s upside down because your neighbor down the street sold their house for 20 grand less?’ he said. ‘I don’t want to stay on a sinking ship. Better live to fight another day.’”

“Banks don’t usually like being weighed down by repossessed houses, said Kim Neisler, VP of the mortgage department for Waccamaw Bank.”

“‘How long are you going to hold it and pay the taxes and insurance, not knowing what you’re going to sell it for?’ Neisler said. ‘I think that’s why short selling has become an option out there.’”

“There were 438 foreclosure filings in South Carolina in January, up 8 percent from January 2007, according to RealtyTrac. North Carolina saw 3,373 filings, up 14 percent from January 2007.”

“No agency tracks the number of short sales, but Bank of America has seen an uptick since the housing downturn, especially in states such as Florida, California, Arizona and Nevada, said bank spokesman Terry Francisco.”

“‘Short sales can help in long-term situations where someone just has no realistic chance to be able to come back to currency on their mortgage,’ he said.”

“‘These kind of housing cycles move relatively slowly,’ Francisco said. ‘It took us awhile to get into this. It’ll take us awhile to get out of it.’”

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