The Housing Bubble

The Seattle PI reports from Washington. “Karen Waters thought she got a good deal last March when she paid $425,000 for a new house in the SouthRidge at Silver Creek development near Puyallup. After all, the price was about $100,000 less than buyers had paid builder Centex Homes for similar houses on the block the previous fall. By February, however, neighboring homes were selling for about $350,000.”

“‘I totally wished I would have waited,’ Waters said.”

“The local market has slowed and builders are taking dramatic steps to clear out housing inventory in suburban areas. ‘The reality is, our real estate market is in the tank,’ said Don Dutton, managing broker of Windermere Real Estate’s Puyallup Office.”

“Vincent Healy, owner of Clearpoint Appraisal in Seattle, said he started to notice trouble signs, such as longer market times and some price drops, in summer 2006. ‘That really began on the periphery of the market, the further you get from Seattle and Bellevue,’ he said. ‘By this (past) summer, to a large degree, I think we saw the crest of value.’”

“‘That (easy) financing has gone away concurrently with a lot of supply going on the market,’ Healy said.”

“Elaine Nordgaard bought her SouthRidge house for $350,000 last month, benefiting from a weekend Centex promotion. ‘The one I bought was listed for $510,000 back in September of ‘06,’ she said. ‘They actually sold it twice (before), but the buyers couldn’t complete their financing for some reason.’”

“Now she lives next to Waters and Marschell Lockwood, who paid $464,000 for her house in January 2007. ‘It’s frustrating because when we moved in they had dropped the prices,’ Lockwood said. ‘We thought we got a deal, but now there’s people coming in paying almost $100,000 less.’”

“Not far from SouthRidge, in Bonney Lake, Quadrant is offering $45,000 bonuses in a development whose prices start at $261,000. Deals like these are also in many other Seattle-area communities, including Bothell, Marysville, Lake Stevens and Stanwood.”

“‘It’s astounding the incentives that the builders are offering,’ Dutton said. ‘They have no choice. They’ve got to get these homes sold.’”

“But incentives and steep discounts make it hard for those trying to sell existing homes, Dutton said. Philip Eder of Puyallup said he hasn’t drawn much interest in his house since putting it on the market in September.”

“Eder mortgaged his house to fund construction of the retirement home he’s building. He had planned to pay for the new home with the sale of his current one, but said he instead might be forced to rent the old one out.”

“‘The market’s just saturated with houses,’ he said. ‘I blame these cracker-box housing projects.’”

The News Tribune from Washington. “The ultra-luxe Tacoma condo scene looks like this: multiple master bedrooms, dens, wine rooms, balconies bigger than your first apartment and ceilings that stretch 10 feet tall and beyond. Interested? Today, you have options in Tacoma’s $1 million condo club.”

“A handful of such properties are priced at $999,000 and up in the city’s core, where the condo market continues to find its footing amid now-sluggish prices and sales, a soured stock market and tightened lending standards.”

“But what about ultra-high-end condos in a city not typically associated with such luxury? And where the housing market’s impact has turned some condominium projects to apartments and slowed construction on others?”

“Developer Bruce Steel plans to finish construction in July of Stadium 302, a five-unit building. Four condos remain at $1.15 million to $1.25 million, though Steel says he’ll likely buy one himself. ‘There’s lots of people out there with lots of money. Whether they can be persuaded to buy something in spite of this economy is something we’ll find out,’ he said.”

“Downtown Tacoma projects in the $1 million-plus category compete with nearby locations, such as Gig Harbor and Gravelly Lake, said J.J. McCament, a city consultant who was instrumental in getting condominium developers interested in downtown. ‘I think that that market niche is not very deep, but I think it’s there,’ said McCament.”

“Construction on downtown Tacoma’s first condos started eight years ago. An analysis conducted last year said that since 2004 nearly 400 had sold. Today, more than 350 are for sale downtown, according to condo consultant Raelene Rogers.”

“Tacoma’s core still requires a buyer willing to be an urban pioneer, McCament said.”

“‘The more condos there are downtown and the more that are in that mid- and upper-mid price range, that makes the million-dollar condo not such a far stretch,’ she said.”

“Though downtown Tacoma’s lack of retail and activities, such as a multiplex theater, can make it a tough sell to luxury clients, The Ansonia partner John Gibson. said some buyers will demand penthouse living.”

“The Roberson (is) less than a block from City Hall. Such a condo will go to the smart investor who understands the value of buying in an urban setting that’s being transformed, said developer Blaine Johnson. He was confident enough in the unit’s appeal to raise the price from $899,000 to $999,000.”

“‘We’ve adjusted a number upward to fit what we think is eventually the market value,’ he said, standing in the kitchen of the 2,200-square-foot condo. ‘This will be worth $1.5 million. Will it be three years, four years? I don’t know. It’s inevitable.’”

The Herald from Washington. “Drive through newer residential areas in Marysville and witness what happens when buyers stop buying houses and developers keep developing. Empty lots line roads and the edges of cul-de-sacs. Many have sidewalks, utilities and roads, but no houses.”

“The supply of buildable lots and new homes ready to be sold in Snohomish County has ballooned to nearly a three-year supply, according to New Home Trends, a real estate research and consulting firm.”

“That means headaches for developers who bought land at sky-high prices a few years ago and now can’t sell it. It means builders are applying the brakes on new-home construction and off-loading what they’ve already built.”

“The building pace has slowed down at Alpine Ridge, a development in Marysville with 36 homes planned. During the height of the housing boom, the builder of this subdivision built homes ‘as fast as we could humanly go,’ said Clint Schlotfeldt, a real estate agent specializing in marketing new-construction developments.”

“He remembers a 52-acre subdivision selling out in six weeks. Now, the builder he represents has scaled down production to meet ‘a normal market,’ and about three homes sell here a month.”

“Developers who purchased all the lots they could grab a few years ago are in trouble right now, said Mike Pattison, government affairs manager for the Master Builders Association. Some are weathering it by sitting on the land, and others are having fire sales, he said.”

“The developers in a pickle got caught up in bidding wars that artificially forced the price of buildable land up a few years ago, said John Wahl, who works with builders and developers at Pacific Northwest Title.”

“It takes one to two years to develop a piece of land, so many are now sitting on finished lots, not able to sell to builders. He said the price of lots dropped 25 percent in Everett and southward, and more than 30 percent north of Everett.”

“‘It’s been tough,’ said Scott Morris, president of Legacy Homes Northwest, a builder based in Lake Stevens. ‘We’ve had to lay off quite a few people.’”

“Morris said he believes this is a return to a normal market, not a downturn, and he expects the market to pick up in the next several months. The national media may be playing a doom-and-gloom song, but the local housing market looks good for the foreseeable future, Morris said.”

“In the meantime, his company is cautiously moving forward on several developments. ‘The trend looks like the market is coming back,’ he said. ‘Everyone slowed production to almost nothing. We’re going to create a shortage if we’re not careful.’”

The Register Guard from Oregon. “The foreclosure situation in Lane County, as in many other parts of the country, continues to climb. Lane County had 143 foreclosures in February, up 63 percent from February 2007, according to RealtyTrac. There were 125 foreclosures in Lane County in January.”

“The entire state of Oregon had 1,584 foreclosures in February, up 118 percent from February 2007, Realty­Trac data showed.”

“Tim Duy, an economist and author of the University of Oregon’s Index of Economic Indicators, said he thinks overvaluation in the local housing market has contributed to rising foreclosures.”

“‘This wasn’t the craziest market in terms of exotic mortgage financing, but at the peak of the bubble (12 to 18 months ago) people were paying more for homes than they could afford,’ he said.”

“‘That was partly due to weaker underwriting conditions and partly due to expectations that home prices would keep rising, and that would allow the purchaser to basically borrow against that house in the future to sustain their payments,’ Duy said.”

“Home appreciation is flattening out and lending requirements have tightened up. ‘So I think there are a lot of marginal buyers who are in tight circumstances,’ he said.”

The News Review from Oregon. “According to RealtyTrac, foreclosures increased by 51 percent in Douglas County from 2006 to 2007. Locally, (auction) ‘crier’ Dave Leander figures foreclosure rates have increased four-fold since the beginning of 2008.”

“But realistically, the retired real-estate agent is seeing fewer investors — an ironic twist — playing the foreclosure game. ‘(With) so many of these properties, there’s more owed against them than they’re actually worth,’ Leander said.”

“More often than not, no one shows up for auction.”

“‘I think a lot of it has to do with market values being down, and a lot of these people are sitting on their hands,’ said Leander, who auctions homes for Credit Services of Oregon in Roseburg.”

“With foreclosures piling up, Leander expects to auction more homes listed with opening bids set higher than their actual worth. ‘I don’t think it’s hit real hard yet,’ Leander said. ‘I think it’s just getting to us.’”

The Idaho Statesman. “Commercial construction, the lifeline that has kept Boise-area building activity afloat during an almost two-year slump in housing, is showing signs of slowing.”

“Nowhere is the weakness more evident than in Downtown Boise, which last year was awash with plans for combining affordable and high-end condominiums with office and retail development. Today, Downtown developers are facing an economy apparently in recession.”

“The proposed Boise Place, which was to have replaced the ill-fated Boise Tower, is in Bankruptcy Court. Developer Gary Rogers says he still intends to build a residential, retail and office building there, but it will be much smaller than the 31-story hotel/condo project he announced in 2006.”

“Meanwhile, developer Gary Christensen’s $2.5 million revitalization of the Gem Noble Building is also in bankruptcy court, and construction has stopped. Christensen planned ground-floor shops and second-floor condos.”

“Developer David Southers has yet to turn the first spade of ground for The Metropolitan, a block-long condo and retail project on Downtown’s west edge that Southers announced in 2005. ‘A lot of these projects have stopped in their tracks,’ said Jenifer Gilliland of the Boise Office of Planning and Development Services.”

“Developer Bob Hosac’s upscale Royal Plaza condo project is nearing completion. His brother, Steve Hosac, is completing the Cityside Lofts. Bill Clark has started building The Jefferson condo project.”

“The Hosacs, Kimball and Clark acknowledge, however, that their projects are going up at a time when the slump in residential housing has bled into the Downtown condo market. ‘The market is flat right now,’ said Clark, whose 23 reservations have shrunk to 16.”

“Bob Hosac said that until recently he had not sold a unit at the Royal Plaza since July. Getting the project financed today would be difficult, he adds. ‘I had to have 30 percent of my units presold (to get a loan),’ he said. ‘Now you probably have to have 50 percent or more.’”

“Standing in the shadow of a half-finished building at Tamarack Resort’s Village Plaza, Jean-Pierre Boespflug shows no sign he’s ready to give up on the resort that has consumed a great deal of his fortune.”

“Tamarack is at a crossroads as real as that of the luxury ski and golf resort, where construction has slowed to a crawl.”

“His company, which holds a majority stake in Tamarack, is now in bankruptcy. He is searching for more money to continue construction and pay what he owes on a $250 million loan from Credit Suisse Bank.”

“Just a year ago, there was no stopping Tamarack. For three years, every real estate offering sold out. In 2006, Tamarack landed the $250 million loan from Credit Suisse to start its next big phase of construction on the village - a plaza of shops, restaurants, clubs and upscale condominiums.”

“‘We’re in the midst of arguably the worst credit crunch in a generation,’ said Alan Shealy, a financial manager and Boise City Council member. ‘The markets have essentially shut down.’”

“Shealy, who worked on Wall Street for more than a decade, was an early critic of Tamarack. In a 2001 commentary in the Idaho Statesman, he called the proposal ‘a pig in a poke that has a high probability of spectacular failure.’”

“Seven years later, his rhetoric has softened. But Shealy said he stands by his earlier concerns. He attributes much of Tamarack’s success to timing. ‘They were able to ride the crests of a real estate boom the likes of what we haven’t seen before,’ he said.”

“Shealy is quick to add that he doesn’t want Tamarack to fail. But he dismisses Boespflug’s claims that the bankruptcy will have no impact. ‘If people think bankruptcy is not a big deal, they don’t understand the context of what is going on in the credit markets,’ he said. ‘We’re in a slow-motion train wreck, and there is no way to determine how this will end.’”

The Billings Gazette from Montana. “Construction on the four-story Big Horn Resort Water Park on the West End of Billings is drawing skilled construction workers from other Montana cities and other states as building in those areas slows.”

“Job superintendent Bill Brandon with Brandon-Legg Construction in Butte said construction in Billings is healthier than other parts of Montana, and the laborers tell the tale.”

“‘We’re seeing it in our crews. Part of our concrete crew is from Bozeman. Part of drywall crew is from Oregon. And some carpenters and electricians have called in from Bozeman looking for work,’ Brandon said.”

“When he needed a carpenter subcontractor, Brandon hired John Kemmick of Kemmick Construction in Billings. The two had worked together in Butte two decades ago. Ninety percent of his work has come from building houses, the builder said, but that work all but stopped this year, so he gladly hired on.”

“But there was one problem: Nonunion skilled carpenters were hard to find in the Billings area, he said. So on a lark, he called Larry Cullen, a friend and former business partner in Stillwater, Minn., northeast of the Twin Cities.”

“‘In a minute, no, make that 30 seconds, he said, ‘Yeah. I can come out and help,’ he said. Then Cullen called back and asked if his brother, Ed, and their friend Bob Anderson could hire on, too.”

“Bob Bloom, business agent for the Carpenter’s Local 1172, was begging for workers last fall. But not any more. ‘I’ve got plenty of people. I’ve got so many applications here, I don’t think I can employ them in the next two years,’ said Bloom.”

“The water slide project has attracted 30 subcontractors, including workers from Helena who will start painting the drywall Monday.”

“‘It’s slowed down so much in Helena that one contractor I know is sitting on two four-plexes and two houses with his last buy-sell signed last April,’ Brandon said. ‘So, he’s coming over to paint for me.’”

Some housing bubble news from Wall Street and Washington. Bloomberg, “JPMorgan Chase & Co. agreed to buy Bear Stearns Cos. for $240 million, about 90 percent less than its value last week, after a run on the company ended 85 years of independence for Wall Street’s fifth-largest securities firm. The Federal Reserve is providing financial backing to JPMorgan, the second-biggest U.S. bank, and also cut the rate on direct loans to banks in its first emergency weekend action in almost three decades to stave off a broader market panic.”

“JPMorgan Chief Executive Officer Jamie Dimon bought Bear Stearns, once the biggest underwriter of U.S. mortgage bonds, for less than the value of its real estate after clients, alarmed by speculation about a cash shortage, withdrew $17 billion in two days.”

The New York Times. “Investors remain fearful that a panic in the credit markets, which threw Bear Stearns to the brink of bankruptcy and forced a sale to JPMorgan Chase, could spread to other big brokerage firms with extensive exposure to toxic mortgage-backed securities.”

“‘The problem is bigger than the Fed,’ said Meredith A. Whitney, an Oppenheimer financial services analyst. ‘Trillions of dollars of securities were underwritten on the false assumption house prices could never go down on a national basis. That falsehood has put the entire financial system in a tailspin.’”

“Federal Reserve Chairman Ben S. Bernanke may be facing something worse than a loss of personal credibility on Wall Street and in Washington: waning faith in the ability of the institution he leads to turn around the economy and the financial markets anytime soon.”

“‘The Fed has been playing the equivalent of Whac-A-Mole as financial turmoil keeps cropping up in new and unexpected places,’ says former Fed Vice Chairman Alan Blinder, referring to the arcade game where players try to hammer down plastic critters that randomly pop out of holes. ‘Yet many of the problems facing us are beyond its reach.’”

“Home buyers are unlikely to put down offers on houses that they think will lose value — no matter how much the Fed does to lower mortgage costs. Banks with mounting loan losses will shy away from lending to borrowers they think might go bust — no matter how much money the Fed pumps into the financial system.”

“Falling asset prices erode borrowers’ net worth and make lenders even more reluctant to give them money. Countrywide Financial Corp., the biggest U.S. mortgage lender, made no subprime loans last month, down from $2.6 billion in February 2007.”

“Investors have become gloomier about the outlook for house prices since the start of the year, according to trading in futures based on the 10-city S&P/Case-Shiller price index. Traders see prices tracked by the index falling 13-1/2 percent by November, more than double the drop foreseen in early January.”

“‘It’s not showing any signs of letting up,’ economist Robert Shiller, one of the creators of the index, told Bloomberg Television Feb. 27. ‘If anything, it’s accelerating downwards.’”

From Reuters. “A lot of people lost a lot of money: Entrepreneur Joseph Lewis, a reclusive Englishman who made a fortune trading currencies, bought a stake of about 10 percent in Bear and stands to lose around $1 billion.”

“The jittery mood means even well positioned banks may be reluctant to take advantage of acquisition opportunities, bankers and analysts said.”

“‘I think M&A is too difficult now,’ a London banker said. ‘This is about catching a falling chainsaw. It’s not just about cutting yourself if you get it wrong, it’s about losing a limb.’”

“Lewis, a former currencies trader who was born in an apartment above a pub in London’s East End, declined to comment through a spokesman. The loss is almost half his $2.5 billion fortune, as estimated by Forbes magazine in its 2007 survey.”

“Mutual funds run by investment bank Morgan Stanley were the third-largest Bear Stearns holder with a 5.4 percent stake and may have lost about $546 million since Dec. 31. Bear’s fifth-largest shareholder, Baltimore-based Legg Mason Capital Management, a unit of Legg Mason Inc. run by Bill Miller, may be down $493 million.”

“‘This was done in the market’s best interests,’ said David Hendler, an analyst at a financial-research firm in New York. ‘Unfortunately Bear Stearns shareholders are at the short end of the stick and they only got this token payment.’”

“James Cayne, Bear’s former CEO and fourth-largest holder with a 4.9 percent stake, saw the value of his holding drop by $504 million.”

“Warren Spector, the former bond chief who calculated complex securities trades by hand…shared a passion for bridge with Bear’s CEO, Jimmy Cayne. Both men lost their jobs after bets on subprime mortgage bonds soured. They were at a bridge tournament in Detroit last week, as Alan Schwartz, the CEO for two months, fought a run on Bear’s cash brought on by widening subprime losses.”

“‘The people who did this are Jimmy Cayne and Warren Spector,’ said Richard Bove, an analyst at Punk, Ziegel & Co.”

“Last month, Cayne paid $27.5 million for two adjacent 14th-floor condominiums at New York’s Plaza Hotel overlooking Central Park, according to city property records. The new digs may not insulate him from scrutiny as regulators try to determine who’s at fault for the expanding credit crunch, Bove said.”

“‘It will be interesting to see what kind of iron doors Cayne puts on his new apartment,’ he said.”

The Associated Press. “Bond Insurer FGIC Corp., which is owned by mortgage insurer PMI Group Inc., said Monday it lost nearly $2 billion in the fourth quarter and continues to seek a reorganization of its insurance operations and to raise capital to shore up its financial position.”

“The loss resulted primarily from writing down the value of securities guaranteed by FGIC that are backed by subprime and second-lien mortgages, the company said. The company said it stopped writing new financial guaranty business for now in order to hold onto capital.”

The LA Daily News. “It’s become clear that financial shenanigans are partly to blame for bogging down the mortgage industry. Interthinx, an Agoura Hills-based company that provides risk-mitigation and regulatory-compliance tools for the financial-services industry, says the hole is pretty deep.”

“Company analysts found that in the last half of 2007, about 42,000 mortgage applications for property valued at $11 billion misrepresented the borrowers’ earned income.”

“‘For the first time, the industry is getting a real-time look at the scope of mortgage fraud, and these numbers are staggering,’ said a statement by Kevin Coop, president of Interthinx, which has about 1,400 clients nationwide, including 15 of the top-20 mortgage lenders and three of the five largest financial institutions.”

“Interthinx VP Jeff Moyer said the analysis was generated using an ‘income alert,’ a software program that warns when a borrower submits multiple applications in which his or her reported income jumps by at least 15 percent. Moyer said he was surprised by the number of alerts the program flagged. ‘It should not be that high.’”

“The problem spiked as the market boiled over in the early 2000s and then exploded starting in the latter part of 2005. The company found that 24.4 percent of home loans examined in the third quarter of 2007 were deemed to have a high risk of fraud.”

“‘What you are hearing is that there was a significant amount of (loan application) misrepresentations,’ said Jack Kyser, chief economist at the Los Angeles County Economic Development Corp. ‘The joke was, if you had a pulse you could get a home loan.’”

The LA Times. “Freelance financial watchdogs who examined the paperwork on sub-prime home loans being sold to Wall Street had an inside view of the boom in easy-money lending this decade.”

“The reviewers say they raised plenty of red flags about flaws so serious that mortgages should have been rejected outright…but the problems were glossed over, ignored or stricken from reports.”

“In interviews with The Times, eight experienced loan reviewers said that as marginal lending increased, quantity took precedence over quality. Squads of 10 to 15 veteran loan checkers gave way, they said, to packs of 40 to 50 mostly novice reviewers posted at or near sub-prime factories such as now-defunct Orange County lenders New Century Financial Corp. and Ameriquest Mortgage Co.”

“Loan reviewer Jana Lujan recalled showing a file to a supervisor in 2004, during a check of sub-prime mortgages made by a Brea bank that regulators later cited for unsound lending. A title report showed a tax lien on the property.”

“‘I said we needed evidence it had been paid off and released,’ to ensure against foreclosure, Lujan said. ‘And he said: ‘Just go ahead. Assume it’s being taken care of.’”

“The biggest problems, the reviewers said, were appraisals that looked inflated and ‘liar’s loans.’ ‘You can’t tell me a Kmart or a Wal-Mart or a Target floor worker is making $5,000 a month, or a house cleaner is making $10,000,’ said former loan reviewer Irma Aninger of Palm Desert, a 40-year financial services industry veteran.”

“Aninger, who did work for Clayton and Bohan, said she tried repeatedly to have such loans marked as unacceptable but was overruled by supervisors, who were known as project leads. ‘The lead would say, ‘You can’t do that. You can’t call these people liars,’ Aninger said.”

“One such supervisor was Clayton’s Ed Peek. He denied discouraging the rejection of ’stated income’ loans. ‘Many, many, many stated income loans were rejected,’ he said, but the loan buyers often bought the rejected mortgages anyway.”

“From his perch, Peek said, he could see the deterioration of overall standards. ‘I had been looking at sub-prime mortgages since the beginning,’ he said. ‘When it started, you couldn’t get a sub-prime loan for over 80%’ of a property’s value.”

“‘But the guidelines loosen, and the investors would still buy,’ Peek said. ‘They loosen up some more, and investors still buy,’ until highly risky loans for 100% of a home’s value were pushed through.”

“‘Everyone knew this was a bubble that couldn’t last,’ he said. ‘We all could see this coming.’”

The Financial Times. “‘The current financial crisis in the US is likely to be judged in retrospect as the most wrenching since the end of the Second World War,’ former US Federal Reserve chairman Alan Greenspan said in a Financial Times commentary published on Monday.”

“‘Particularly hard hit will be much of today’s financial risk-valuation system, significant parts of which failed under stress,’ said Greenspan, who some have criticised for contributing at least in part to the current crisis by being too lax on monetary policy whilst head of the Fed. ‘The crisis will leave many casualties.’”

“‘It will end eventually when home prices stabilise and with them the value of equity in homes supporting troubled mortgage securities,’ he said.”

“‘In the current crisis, as in past crises, we can learn much, and policy in the future will be informed by these lessons. But we cannot hope to anticipate the specifics of future crises with any degree of confidence,’ he said.”

“‘Thus it is important, indeed crucial, that any reforms in, and adjustments to, the structure of markets and regulations not inhibit our most reliable and effective safeguards against cumulative economic failure: market flexibility and open competition.’”

The News Journal reports from Delaware. “From the moment in March 2006 when Melissa and Greg Thomas moved into the $445,000 house they built on five acres in Clayton, they knew they could barely afford it. Because of various problems that arose during construction, the Thomases have been unable to make the full monthly mortgage payment of $4,203 ’since Day One,’ Melissa Thomas said. Initially, they figured the rising housing market would solve their problem. The home would increase in value in a year and they would refinance.”

“But the bottom fell out of the market. When the Thomases investigated refinancing, they discovered they have a huge prepayment penalty provision in their mortgage, which would cost them thousands of dollars. If they refinance, the Thomases will owe more than the house is worth, said Melissa Thomas. As it is, they are racking up more debt every month because they make only the minimum payment.”

“‘You feel like you’re in quicksand,’ said Greg Thomas. ‘We’re going under slowly.’”

“In Delaware, among borrowers who went into the foreclosure process in the third quarter, 21 percent did not respond to calls and letters from their lender.”

“‘Something has caused them to suddenly not have the income necessary to pay their mortgage, and they don’t address it. This is where the shuffle begins — they pay the smaller bills,’ said Nina Heck, director of counseling with Consumer Credit Counseling Service of Maryland and Delaware in Baltimore.”

The Washington Post. “The Perrywood subdivision in Upper Marlboro has long been synonymous with the pride and promise of Prince George’s County. Lately, though, this suburban idyll has been afflicted by the same economic forces that have plagued less prosperous communities.”

“Two of eight homeowners on Bar Geese are in foreclosure, according to RealtyTrac. In the past two years, 49 owners in the 1,100-home subdivision have either received notices threatening foreclosure, gone through auction proceedings or had their homes repossessed. Fourteen of those actions occurred in the past four months.”

“When Kimberly Mitchell first saw the townhouse on Whistling Duck Drive, she knew she had found her next home. Mitchell, a single mother, bought the house eight years ago for $200,000 and took out a fixed-rate mortgage with a 7 percent interest rate.”

“Mitchell left her corporate job in 2002 and started a day-care center in her home. The day-care business and finances were fine, she said, until she decided to refinance her home in 2005 and tap its equity to consolidate bills. Her loan officer steered her to an 8 percent adjustable-rate mortgage, assuring her that she could refinance later and return to a fixed-rate interest loan.”

“She quickly fell behind. She later learned that her property taxes of more than $3,000 a year were no longer a part of her mortgage payments. In October, her rate will increase to more than 10 percent.”

“Now she is stuck. ‘When you call a refinance company, they base it on your credit score,’ Mitchell said, adding that her credit is not good. ‘It’s a no-win situation.’”

“Fighting back tears, Mitchell described the stress she has endured. She said she and her son have resorted to eating noodles and peanut butter and jelly sandwiches several times a week to save money.”

“‘I don’t know the last time I got eight hours of straight sleep,’ she said. ‘I just feel robbed.’”

“Del. Aisha N. Braveboy, who represents Perrywood, said she understands how homeowners can get into mortgage trouble. ‘These are people who have great incomes, but their houses are priced at a point where they can’t afford them,’ she said.”

“Mitchell, who owes $260,000 on her mortgage, said she tried to refinance at a lower rate, but lenders said her credit was not good enough. So she put her house on the market. List price: $350,000.”

“As the housing and credit markets continue to spiral downward, business casualties are rising rapidly in bankruptcy courts across the Washington region.”

“The number of corporations that have filed for Chapter 11 protection to reorganize so far this year in Maryland, Eastern Virginia and the District has more than doubled, compared with the same time period last year, court records show.”

“‘I’m talking to people about liquidating like never before,’ said Bethesda lawyer James A. Vidmar Jr., who is representing a second-generation Montgomery County developer who filed for Chapter 11 bankruptcy after his builder bailed out of a 1,000-lot Delaware project.”

“‘Selling real estate is not a good business to be in these days,’ said Stephen Goldberg, a Baltimore area lawyer who is representing Sandy Spring Bank, which called in its $13.5 million loan to the developer.”

“One case involves a D.C. couple that staked their retirement, investment accounts and home equity on their first development project: a townhouse community on the Eastern Shore that ground to a halt halfway to completion when the real estate market began to decline.”

“Though their lender did not foreclose on them, court documents show the couple filed for bankruptcy after the bank moved to garnish their personal accounts, leaving them no way to complete the project or pay their debts.”

“(At) last weekends’s foreclosure auction at the Walter E. Washington Convention Center…auction ‘assistants,’ ostensibly there to help people bid, wore tuxedos, bow ties and black Air Jordans. Arms flailing and voices whooping, they whipped up the crowd much the same as the cowboys cracking whips stirred up excitement in Kansas City. The auctioneer prattled on like Porky Pig calling the Kentucky Derby.”

“Given the bulging inventory of foreclosed properties that banks need to unload, an auction seems like an efficient, fair way to move the goods fast…But what I saw at the foreclosure auction left me skeptical about the availability of auction bargains. Sellers, the banks that own the foreclosures, seem to be unduly optimistic about the prices they can get for foreclosures, which are, after all, damaged goods.”

“The weekend before, I took advantage of an open house to check out one of those homes, an attractive five-bedroom, four-bathroom brick Colonial in Bowie. The brochure said, without elaboration, that it was ‘previously valued’ at $780,000.”

“It was impossible to try out the heat, plumbing or appliances because utilities had been shut off for the winter. There were large holes in one wall of the basement where a home theater had been removed. The house is in a pleasant neighborhood, where an ice-cream truck made its rounds in late afternoon.”

“Maryland tax records show the home’s full assessed value at $531,450, and that the developer had sold it in 2004 for $460,000. At last week’s auction, bidding started at $289,000 and the gavel slammed down at $530,000. Add the 5 percent buyer’s premium owed on all sales that day, and the buyer will owe $556,500.”

“You be the judge of whether that’s a great deal. In the same neighborhood, two other five-bedroom homes, which are not foreclosures, are listed for sale at $645,000 and $650,000.”

“It’s impossible to know how many of the hundreds of homes auctioned last weekend will go to closing. The banks that own the homes set undisclosed reserve prices for each property. Even after the slam of the gavel, no one knew if the reserve had been met. And lenders still had 14 days to reject any of the deals.”

“With so many homes on the market now, buyers want a bargain on all foreclosures, especially those sold at auction. Lenders seem to be in denial, but they are not in a position to hold out for higher prices. They’re reluctant deal-makers, whether it’s on foreclosures or on short sales.”

The Baltimore Sun from Maryland. “The best immunization against foreclosure used to be affluence. No more.”

“The number of homeowners defaulting on their loans in the Baltimore metro area last year rose most quickly among the highest- income counties with the most expensive housing - Howard, Anne Arundel and Carroll. Maryland’s income-rich Washington suburbs are feeling it even more keenly, a Sun analysis has found.”

“A year earlier, foreclosure cases in those counties were well below the number in the Baltimore area.”

“‘The demographics have certainly changed,’ said Anne Balcer Norton, director of foreclosure prevention at a nonprofit in Baltimore that has fielded calls for help from homeowners in toney areas such as Roland Park and Bethesda. ‘Everyone’s affected by this.’”

“In Montgomery, where the typical household income tops $87,000, mortgage foreclosure cases rose nearly 130 percent last year. That was the biggest jump in the state.”

“‘I realize I’m not the only one, but I didn’t realize how many people are being confronted … with this kind of situation,’ said LuJuanda Dixon, who is working with counseling group HomeFree-USA to try to save the house in Bowie that she bought with her husband last year for $650,000. Before Danny Dixon lost his job in November, they were making $100,000 a year.”

“BeBe Stokes, a real estate agent in Prince George’s County, is getting a lot of calls from homeowners begging for help to sell before their lenders step in.”

“She understands where they’re coming from. She fell two months behind on her own mortgage recently, pressed by a steep cut in income because of the housing-market downturn and - when she sold investment properties to stay afloat - an unexpectedly high income tax hit.”

“‘It’s like a snowball,’ said Stokes, who bought her Upper Marlboro house for just over $1 million in 2006. It doesn’t help, she said, that her lender changed her loan terms a week before she settled on her home, increasing her monthly payments by nearly $2,000.”

“The share of buyers opting for ‘piggyback loans,’ to cover the full cost of a home with no down payment, tripled in Montgomery County between 2004 and 2006 to three out of every 10, according to a recent study . In Prince George’s, four out of 10 buyers had piggyback loans in 2006 - nearly double the share in 2004.”

“Emily Wade’s lender foreclosed on her Northwest Baltimore house at the end of 2006. Wade had inherited the house debt-free when her mother died. She also inherited property maintenance troubles, she said, and taking out a small mortgage seemed the best solution.”

“But on a monthly income of $840, the $284-a-month payments proved too much even before the adjustable-rate loan reset. When she applied in 2004, she was happy she qualified. Now, she wishes the lender would have raised red flags rather than pushing the loan through.”

“‘I took a chance on the American dream,’ Wade said, ‘and I lost.’”

“The mortgage mess hanging over the country offers many useful (if painful) lessons. First on the list: Don’t borrow more than you can really afford to pay back. Closely related to that is Lesson #2: Don’t blindly rely on industry professionals to tell you what that amount is. Get down and dirty with the math yourself.”

“Ryan W. James, senior mortgage banker with First Horizon Home Loans, said lenders will in most cases allow a debt-to-income ratio of up to 50 percent. If you make $5,000 a month ($60,000 a year), your monthly debt can’t top $2,500.”

“‘If you had a $400 car payment and a $200 student loan and a $60 minimum payment on your credit cards, we know your maximum mortgage payment is only going to be about $1,840,’ James said.”

“In the go-go housing boom days, it wasn’t too hard to push beyond that 50 percent limit, James said. Good credit? Sure, go ahead. But he says it’s much tougher now.”

“Though credit availability has tightened a lot in the last year, with loan products disappearing everywhere you look and lenders requiring better credit scores, today’s debt-to-income limits are still high by historical standards.”

“The traditional rule of thumb was 36 percent, says Christopher Cruise, a mortgage trainer in Silver Spring and a board member of the National Association of Responsible Loan Officers.”

“James says he does a budget analysis with clients that gets beyond the ratios to the nitty gritty. What’s your take-home pay after taxes, retirement plan contributions and the like? How much are you spending a month in addition to debt payments. How much do you want to be able to save once everything, including your mortgage, is paid up each month?”

“Cruise says that Baltimore-Washington housing prices, even with recent declines, remain high enough that buyers may feel forced to choose between the house they want and the lifestyle they’re used to. His advice: Look in less-expensive neighborhoods you might not have considered, cut back on your non-mortgage spending or keep renting while you whip your finances into shape.”

“‘Have some willpower, for God’s sake,’ Cruise said. ‘Buying a home now and getting foreclosed on in a year or two is not ideal.’”

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