The Housing Bubble

It’s Friday desk clearing time for this blogger. “Many banks are revoking home equity lines of credit because mortgage balances are exceeding the actual value of homes. Brad Dodson of Palm Bay is one. Bank of America sent him a letter and told him he no longer had access to the $60,000 credit line because of declining home values. ‘It was the banks that gave the easy money and they are the ones who should have to pay for the loss, not me,’ Dodson said.”

“Mike Scafiddi made a series of bad decisions that left him strapped for cash - and wondering how much longer he can keep paying the mortgage for the home he and his wife have owned for 22 years. He got $27,000 from the refi, paying off most of the credit card debt. But the monthly mortgage payments rose more than $600.”

“Sitting at the kitchen table where he signed for the loan, he said he doesn’t expect sympathy for his lapse in judgment. ‘People will say, ‘Screw you, you were an idiot,’ and for a minute, I was,’ he said.”

“In order to sell standing inventory and continue growth within the development, RiverWalk Place in Manchester has just unveiled a dramatic price reduction. Ten select units have been reduced by as much as $100,000, with pricing now starting at $249,900.”

“Says Eric Chinburg, developer of RiverWalk Place and owner of Chinburg Builders, ‘We would like to sell these standing townhomes so that we can move on to the next phase of the project.’”

“Once upon a time, the crazy offers came from buyers who bid prices to astronomical heights and waived inspections and contingency clauses in sales contracts. Now, as homeowners compete with record high supply from foreclosed homes and builders’ discounted inventory, the shoe’s on the other foot.”

“Frustrated as her house languished on the market for three straight summers, J.J. Rodgers is trying a new sales tactic: giving the two-story home away in an essay contest. Rodgers last listed the property at $169,000 after cutting the price three times.”

“‘We don’t have anything to lose,’ said Rodgers. ‘If we’re unsuccessful, at least we did something different from what we’ve already tried.’”

“‘People are offering all kinds of goofy things to get their houses sold,’ said real estate agent Allen Butler in Surprise, Ariz. ‘But what gets a house sold really is going to be based on price and price alone.’”

“Pity the Maryland taxpayers. Montgomery County, residents seem certain to face higher property tax bills — just as the economy slows down.”

“Karen Butler of Germantown moved her son to off-campus housing at the University of Maryland at College Park. But after tuition and mortgage payments, Metro fare and groceries, she has little left each month for clothing, which has become a luxury.”

“‘I’m sick of it,’ she said. ‘I just can’t afford to keep up.’ So Butler, a 40-year county resident, is packing up for West Virginia.”

“Data provided by the Warren County permit office shows that permits issued for new home construction outside the City of Vicksburg fell by more than 40 percent from 2006 to 2007. Homebuilder David Brewer said the Vicksburg market is glutted with new homes.”

“Brewer said many laborers and subcontractors are looking for work, he said. ‘I have guys calling me from Jackson, from Madison, guys calling from Oxford,’ he said. ‘Lumber prices are phenomenally low. Sheetrock is low. I went from paying 28 cents a square foot for sheetrock to between 15 and 18 cents. A $15 board is now $9.’”

“Brad Galey, White Construction’s project manager for the Ameristar Casino expansion, said that if work doesn’t pick up for him soon, he may look for a job with one of the gas pipelines being laid through Warren County or move to Utah or Colorado, where he has been told there is more work available.”

“‘The way I see it, the phone hasn’t rung, and I don’t hear many builders saying the phones are ringing off the hook,’ he said.”

“The site for the planned $43 million Renaissance Tower in Fayetteville, now a large hole in the ground in the shadow of a towering construction crane, will languish a while longer, development partner Richard Alexander said.”

“The hotel, retail and condominium project is one of several Northwest Arkansas projects delayed because of a slowing real estate market and tightening loan standards.”

“Developers of the long-delayed Grandview Heights multistory condominium towers may change the project to an upscale hotel instead, Benton County Planning Director Ashley Pope said. The project features 486 units priced between $ 300,000 and $ 1.3 million.”

“‘I don’t think it has tightened up to a point where a bank wouldn’t look at a viable project if it was presented to them,’ said Ross Mallioux, chief lending officer for First Federal Bank of Arkansas. ‘But with so much oversupply out there right now, it comes down to asking what is a viable project.’”

“At some of downtown Houston’s most desired addresses, high-rise condos sit empty. ‘We’ve been on the market with this one for about 137 days, which is not even average yet for time on the market in this area,’ Treadstone Realty Group’s Kirt Primeaux said of a unit at the Kirby Lofts on Main Street.”

“Primeaux said the unit, which once had a selling price of near $500,000, may realistically only fetch half of that from a buyer nowadays. ‘A lot of people are waiting to see what happens, and time is on their side,’ he said.”

“It’s a price fall that’s being felt far beyond downtown. Parts of suburban Houston and other outlying communities have also witnessed rising foreclosure rates and falling home prices.”

“For example, a 24,000-square-foot mansion in The Woodlands appraised at more than $7 million recently sold for roughly a third of that price.”

“In 2005, the housing market in Pinal County boomed. In the last three months of 2005, Pinal County saw 6,055 new and resale homes purchased, according to Arizona State University Polytechnic. In the first three months of 2007, home sales dropped steeply, to 3,320.”

“However, much of the resale market is based on bank foreclosures and short sales of homes by banks that want to get as much as they can out of a house at risk of foreclosure while developers sit on the sidelines, said Bambi Sandquist, a Pinal County real estate agent.”

“The market has brought in investors, but not necessarily a population of families that will continue to live and spend money in the area, she said. ‘This kind of happened overnight,’ Sandquist said. ‘There’s lots of investors. They’ve been coming and buying new homes. Prices are half of what they were in some places.’”

“ST. Joseph, the real estate agent, is going to have a busy spring. Nationally, the housing market is not exactly booming, and St. Joe is known to be a whiz at selling houses. Just plant him in the ground in the front or back and it encourages the sale of your house. Maybe.”

“‘The sale of St. Joseph statues is brisk,’ says Mark Gould, who runs Religious Supply Center in Davenport. ‘When the ground thaws, I expect a bigger rush.’”

“Gould says, ‘I get calls all the time from real estate agents wanting to buy St. Joseph statues for their clients.’ A friend tells of an agent who carries a box of St. Joseph statues in the trunk of the car.”

“Some put St. Joseph in a plastic bag, but the story is told of one seller who wouldn’t do that, ‘because I was afraid he’d smother.’”

“Religious supply stores have St. Joseph statues in all sizes and prices. ‘I have one wooden St. Joseph that is 5feet tall, hand-carved. The price is $6,000,’ says Gould.” “That might be appropriate for some really high-end Quad-City homes that are on the market.”

“Watching the housing/mortgage/financial crisis unfold, I keep thinking about the joke about the difference between neurotics and psychotics. The former builds castles in the sky and the latter moves into them.”

“Until the bubble burst, a lot of folks were living in these castles in the air, made possible by bountiful and creative mortgage financing. Now, we’re being reminded that there is indeed something called reality from which many became detached.”

“Peter Thiel, president of a global hedge fund, writing about market bubbles in the latest Policy Review journal of the Hoover Institution, says, ‘U.S. real estate prices in 2005 were more distorted than in 1929, 1979, or 1989, or at any other time in history.’”

“To go back to the psychotic living in the castle in the sky, the task today must be to restore a sense of reality to the patient rather than moving in with him.”

“Proposals such as allowing bankruptcy judges to rewrite mortgage terms contributes to chaotic fundamentals, massive government intervention, whether it be through moratoriums on foreclosures and interest rate freezes, or government takeovers and refinancing of loans creates new distortions.”

“Our resilient and prosperous free society is built on law and personal responsibility. Pain is a normal part of life. It tells us something is wrong. What is critical is that we get the right message about the nature of the problem.”

The Contra Costa Times reports from California. “For some, foreclosed homes may be the embodiment of broken dreams, but for others they can be a sign of hope. Rande and Tracy Ross, a married couple from Stockton, came on the tour to look at possible investment properties, mainly to rent out. ‘It makes you sad. So many people got into these bad loans because they listened to their agents or mortgage brokers. They thought they were experts,’ Tracy said.”

“The Rosses paid more than $400,000 for their home in 2005, and were going to look at foreclosures in their own neighborhood, priced less than $300,000.”

“‘On one hand, you say, ‘Oh, my God!’ but on the other hand, this could be a good market for buying,’ she said.”

“Greg Paquin, president of the Gregory Group, said that these foreclosure tours are giving ‘exposure’ to homes that may not otherwise make it to the general public. ‘Many of these bank-owned homes can be purchased for less than the replacement costs,’ he said.”

“Foreclosed homes are selling about 30 percent less than original asking price in the Tri-Valley and 35 percent lower in Fremont and Newark.”

“John Case, an associate broker in Brentwood said that the tour covers most of East Contra Costa County’s communities including Antioch, Brentwood, Discovery Bay, Oakley and Pittsburg. ‘The overwhelming interest is in Brentwood, probably because it has taken the biggest hit in price,’ he said.”

“East County has been among the state’s hardest hit areas in the subprime mortgage crisis. Of the 556 homes on the market in Brentwood in February, 181 were bank-owned, according to statistics provided by the city and gathered from the DataQuick.”

“In Antioch the situation is worse, with 503 of the 1,184 homes on the market bank-owned, and 69.26 percent categorized as distressed.”

“With more than half the homes (56.65 percent) on the Brentwood market in February classified as distressed the city is hosting a free workshop on Saturday to educate homeowners on the foreclosure process and to connect them with resources intended to help.”

“‘We have a lot of people that do not seek the outside help because of fear, because of embarrassment, and they could miss a good opportunity to still continue to be a homeowner,’ said Elaine Brooks-Cox of Pittsburg’s Pacific Community Services.”

The Santa Cruz Sentinel. “Fewer people are fleeing the once prohibitively expensive coastal reaches of Northern California, according to U.S. Census Bureau numbers. Santa Cruz County was among a number of greater San Francisco Bay Area counties that saw more U.S. residents staying put last year than any time since 2001.”

“For an explanation, observers say look no further than slumping home sales and slipping economic opportunity. ‘For people to leave the most desirable areas, there has to be motivation to go, like jobs and housing,’ said Jim Chubb, a loan broker at Pacific Inland Finance in Soquel. ‘With the economy shrinking, that hasn’t happened.’”

“‘As the housing market has tanked, people aren’t so sure what they want to do,’ confirmed John Weeks, director of the International Population Center at San Diego State University. ‘They’re not going to make precipitous decisions about new housing.’”

“The draw of cheaper real estate inland is no longer an attractive investment as housing markets have plunged in places like Salinas and the Central Valley.”

“‘People are saying we don’t want to buy there. Others paid four [hundred thousand] and it’s now worth three,’ said Chubb.”

The Fresno Bee. “The Merced-based holding company for County Bank anticipates a big loss for 2007 — caused by falling real estate values in the central San Joaquin Valley.”

“While the bank’s most recently reported problems have arisen mainly in the last quarter of 2007, the August foreclosure on an $11.7 million loan for a failed condominium construction project in the Sacramento suburb of Rocklin was an early sign of problems, Morford said Joe Morford, banking analyst with RBC Capital Markets in San Francisco.”

“‘Through 2007, management indicated that was an isolated issue,’ he said. ‘Now we see there’s much more deterioration across the portfolio.’”

The Tribune. “Paso Robles will hold off on filling city jobs and defer some financial transfers as part of a belt-tightening effort in a challenging economy. Paso Robles’ economic picture is being influenced by fewer homes being built, the national mortgage crunch and rising gas prices, according to city staff.”

“So far this year, the city has had three housing starts compared to 46 last year and 241 in 2006. For 2004, at the peak of the building boom, the city saw 512 housing starts.”

The Desert Sun. “The abandoned, foreclosed home on Caribe Street looked OK from the outside. Inside, it was obvious that squatters - homeless people who stay the night in vacant houses - had invaded. It’s a scene that’s starting to crop up in neighborhoods across the valley - a byproduct of skyrocketing foreclosures.”

“Indio, with nearly 1,500 homes in foreclosure in the city’s limits, is leading valley cities in taking a stand. A new law goes into effect April 4 targeting abandoned homes with overgrown landscaping, stagnant pools and other eyesores that scream ‘empty’ to squatters.”

“In Desert Hot Springs, where abandoned homes also are being used for unsupervised parties by youths, a similar ordinance was approved Tuesday by its City Council. In Palm Springs, the subject of abandoned buildings including homes was discussed at a recent City Council study session.”

“Homeowners are walking away from their homes without notifying their lenders, said Indio police Lt. Forest Meadows said.”

“And banks in some cases won’t take responsibility for properties until more than six months into the foreclosure process, he said.”

“Stephanie Grant, assistant VP of public relations for Wells Fargo, e-mailed the following statement: ‘We suffer significant financial losses whenever foreclosure becomes necessary, and neighborhoods may suffer from vacant homes. Wells Fargo has a strong business interest in selling a real estate owned house as quickly as possible.’”

“Indio Councilman Mike Wilson said he’s relieved to have the new ordinance in place. He had a squatter staying in a foreclosed home across the street and saw what it did to his Sonora Wells neighborhood.”

“‘They were coming late at night and leaving early in the morning,’ Wilson said. ‘If we’re maintaining the front yard and pools and Jacuzzis it takes away the squatter or transient issue.’”

From ABC 12.com. “A family of accused con artists is suspected of leading an operation that processed thousands of home loans in California during the past several years in a widespread refinancing scam.”

“Prosecutors say the operation was led by 25-year-old Eric Pony. ‘When someone like Pony, as alleged, lies to them and steals money from them…he’s gonna go to jail. We’ll do our best to make sure he’ll spend as much time there as possible,’ said Larry Roberts, the deputy district attorney in San Bernardino County.”

“When Traclyn Sharrit looked to refinance her mortgage, she thought she found a solution to save money on her San Bernardino, California home. She soon realized she’d been sold a bill of goods she never bargained for. Her mortgage bill is now beyond her family’s means.”

“‘I was paying 2,000-something dollars a month…People like Eric Pony are not only robbing my American dream, they’re destabilizing the entire housing and financial market,’ accused Sharrit.”

The Associated Press. “The combination of sinking home prices and tighter lending standards has been a major aggravation for Ron Broussard, a 38-year-old sales representative for a home builder.”

“Broussard took advantage of soaring Southern California property prices three years ago to refinance a loan on a house he had owned since the late 1990s. Today he’s still stuck with a $720,000 mortgage and has been renting it out since moving with his family to Texas a year ago.”

“Once appraised for $1.1 million, Broussard’s lender now says it’s worth about $300,000 less. He does not yet owe more than the property is worth, but Broussard worries that is a possibility. ‘The way the market’s going, you know, who knows?’ he said.”

“Broussard has found little sympathy from his lender, Countrywide Financial Corp. While Broussard accepts responsibility for taking out a mortgage whose monthly payments are due to skyrocket once the unpaid principal exceeds the home’s value by 15 percent, he feels betrayed by the lender’s unwillingness to negotiate better terms.”

The Daily Breeze. “Warren Snyder, who co-owns Carriage Realty & American Broker Loans in Torrance, has already seen his business slow because of the weak housing market. It may come closer to a halt with tighter lending standards. And Snyder says he’s OK with that.”

“‘If they’re taking steps to get back to the old rules and regulations, I think it’s going to be very, very good,’ said Snyder, a longtime critic of loosened mortgage requirements that have contributed to the nation’s current credit crunch. ‘These steps that they are taking are not enough, but they’re in the right direction.’”

“Home buyers are adjusting to the new reality, Realtor Adolph James said.”

“‘One of the things I’ve noticed is most of the people interested in purchasing property in the South Bay are bringing more money than they had in the past,’ said James in Manhattan Beach. ‘You’re seeing fewer people coming with only 5 percent or 10 percent (as a down payment). The psyche is you can’t come in with a shoestring because that’s how people got in trouble.’”

The LA Times. “The tumbling housing market has prompted county tax officials around Southern California to begin reducing the assessed value of many houses, resulting in lower tax bills for homeowners.”

“The values of more than 41,000 homes have been reassessed downward so far in Los Angeles County. Other counties have barely begun the reassessment process but promise to get the job done before property tax bills are mailed in October.”

“In Riverside County, the assessor’s office has been fielding at least 100 calls a day from people concerned about property values and wanting to know when and how theirs will be reassessed, said county Assessor Larry Ward.”

“‘It is a huge job,’ said Orange County Assessor Webster J. Guillory. ‘We will do it with existing staff and lots of overtime paid for weekend work and 10-hour days. We don’t have nearly enough staff to do this level of work.’”

“Around the Southland, officials are automatically reevaluating homes purchased in recent years, especially at the height of the housing bubble from 2004 to 2007. Thousands of homeowners have also filed informal requests.”

“Ventura County Supervisor Peter Foy said: ‘We’re not at the bottom yet. We could see another reduction in values. It’s not a good situation. It’d be nice if people felt their investment in their home was still what it used to be.’”

The LA Daily News. “Due to significant drops in Los Angeles County home values, Assessor Rick Auerbach said Thursday that he’s in the process of reassessing the values of 310,000 homes.”

“Auerbach said not all of the revaluations have come at the request of homeowners. Market conditions - and the growing likelihood that some properties are overassessed - have spurred him to review recent sales.”

“‘We are basically looking at all single-family homes and condos that have a purchase date, whether purchased new or resale, between July 1, 2004, and June 30, 2007, because those are the ones we think might deserve a reassessment below their Proposition 13 values,’ Auerbach said.”

“The 41,000 reviews were from that July 1, 2004-June 30, 2007, period, he said. Auerbach estimates the reassessments will reduce the county’s assessment roll by $5.6 billion.”

“The reassessment comes after the median price of a home in the county peaked in February 2007 at $616,230 and has since dropped 23.8percent, to $469,420, said Jack Kyser, chief economist for the Los Angeles County Economic Development Corp.”

“‘We expect prices to continue to slide down, and a lot of that downward pressure will come from foreclosed homes,’ Kyser said. ‘The assessor will continue to have to do this.’”

Some housing bubble news from Washington and the Wall Street Journal. “Cities and counties with some of the worst fallout from the nation’s housing slump also are seeing a sharp upswing in vacant homes, a trend economists say might set up further declines in home prices. The national homeowner vacancy rate, which gauges the number of vacant homes on the market, rose to 2.8% in the fourth quarter, according to Census Bureau data.”

“That was up from 2.7% in the previous quarter and matched the record set in the first quarter of last year.”

From Bloomberg. “Democratic presidential candidate Hillary Clinton said she is proposing a $30 billion, two-year program to help homeowners and communities hit by rising foreclosures.”

“‘We’ve seen unprecedented Fed actions over the last several days to address the crisis on Wall Street, but nothing to address the crisis on Main Street,’ Clinton said in a telephone interview.”

“The Fed helped engineer the sale of Bear Stearns Cos. to JPMorgan Chase & Co. Those steps are ‘not enough,’ Clinton said. ‘It’s obviously part of what we have to be doing, but it’s only dealing with some of the symptoms and not the underlying cause of the crisis.’”

“House Financial Services Committee Chairman Barney Frank has proposed legislation including $10 billion to help states and localities purchase mortgages. Frank and Senate Banking Committee Chairman Christopher Dodd, a Connecticut Democrat, also want to expand federal guarantees for restructured mortgages, legislation Clinton has co-sponsored in the Senate.”

“Clinton wouldn’t say how her new plan would be paid for. ‘You don’t pay for stimulus packages by definition,’ she said.”

The New York Sun. “Capitol Hill is finally taking notice of the Federal Reserve and its unprecedented programs to pour liquidity into the market. As banks borrowed a staggering $19 billion a day from the Fed this week — an increase of more than 1,800% over last week — and adjusted to the fact that the Fed had helped shield Bear Stearns from insolvency, members of Congress are beginning to question the impact of these decisions.”

“Treasury Secretary Henry Paulson and the Bush administration have so far resisted efforts by Rep. Barney Frank and Senator Dodd to stave off foreclosures through broad government support for homeowners who can no longer afford their mortgages.”

“The administration is ‘going to have to live with helping Wall Street and doing nothing for Main Street,’ a spokesman for Mr. Frank, Steven Adamske, said. ‘The only way to fix this is solve housing crisis.’”

From Reuters. “Paul Volcker, a former head of the U.S. Federal Reserve, in an interview with Charlie Rose on PBS television, said the country’s troubles are the inevitable consequence of a bubble in housing that was clearly unsustainable.”

“‘I don’t think this crisis is over,’ he said. ‘It’s quite a serious matter. We’ve seen the Federal Reserve take more extreme measures in some respects than any that have been taken in the past to deal with a financial crisis, which raises some real questions.’”

The LA Times. “The Fed’s job is simple: Don’t let the economy get too excited or too depressed. To do that, it gives the nation a steady supply of economic Zoloft. But Bernanke seems freaked out that his meds aren’t working…For two weeks, he’s been acting like it’s the last scene of ‘It’s A Wonderful Life,’ only instead of giving cash to a kindly if slightly schizophrenic George Bailey, he’s giving it to investment bankers.”

“So really, it’s nothing like ‘It’s a Wonderful Life’ and a lot like ‘Scarface.’”

“All of his extreme action is predicated on the myth that we’re entering the Second Great Depression. We’re not. The run on investment banks Bernanke thought would occur this week didn’t happen.”

“More important, nobody besides the Fed is panicking. People are bummed because their houses are worth less, but people were bummed because their tech stocks were worth less, their alpacas were worth less and their Ugg boots were worth less.”

“”But your average American isn’t freaking out. A CNN poll this week showed that people’s main economic fear is inflation — which is what you get when you print a lot of money, like the Fed is essentially doing by giving so much away.”

“I appreciate the Fed’s frantic gestures, but housing prices really are plummeting, and I’d rather hit that bottom as soon as possible. It’s a hard choice, but I’ll take lower inflation, less national debt and a stable future over job growth right now.”

The Washington Post. “The record of longtime Federal Reserve chairman Alan Greenspan — worshipped by business leaders and dubbed ‘Maestro’ in a 2000 biography by The Post’s Bob Woodward — is getting a critical look as his successor Ben S. Bernanke wrestles with problems that began on the Maestro’s watch.”

“In an interview yesterday, Greenspan said the Fed wasn’t to blame. He said that global forces beyond the control of the Federal Reserve had kept long-term interest rates low, fueling the housing bubble earlier this decade.”

“‘Those who argue that you can incrementally increase interest rates to defuse bubbles ought to try it some time,’ he said. ‘I don’t know of a single example of when interest rate policy has been successful in suppressing gains in asset prices.’”

“Greenspan also argues that the Fed…has less influence over long-term rates, which he asserted were more important to housing prices. Even after the Fed starting raising short-term rates, long-term rates did not rise. He said that at the time ‘it became apparent that we lost control’ of long-term interest rates ‘as did the Bank of England and all the central banks. As a consequence, we had very little ability to put a brake on the rise in home prices.’”

“Kenneth Rogoff, a Harvard economics professor and former chief economist at the International Monetary Fund, says that ‘the important point…is the philosophy of monetary policy that says ‘you don’t pay attention to asset prices when they are rising, only when they are falling.’”

“In reality, Rogoff adds, ‘if you cut interest rates when asset prices are in free fall, then when asset prices are rising while indebtedness is rising all over country, you need to raise rates. He actively chose not to do that.’”

“Alan Blinder, a Princeton University economics professor who was vice chairman of the Fed under Greenspan in the mid-1990s, said that Greenspan ‘brushed off’ warnings — most notably from fellow Fed governor Ned Gramlich — about mortgage abuses and dangers.”

“‘Lending standards were being horribly relaxed, and the Fed should have done something about that, not to mention about deceptive and in some cases fraudulent practices,’ Blinder said. ‘This was a corner of the credit markets that was allowed to go crazy.’”

“Gramlich, who died last fall, proposed that the Fed send examiners into the consumer lending offices of Fed-regulated bank holding companies, which he said originated about 30 percent of subprime loans. In a speech last Aug. 31, Gramlich said ‘this whole subprime experience has demonstrated that taking rates down could have some real costs, in terms of encouraging excessive subprime borrowing.’”

“Moreover, he added, there was ‘a giant hole in the supervisory safety net. It is like a city with a murder law but no cops on the beat.’”

National Public Radio. “The Federal Reserve took historic steps earlier this week to save investment bank Bear Stearns, in an effort to stop panic from infecting Wall Street. But the credit crisis isn’t just a problem for the investment community, says former Treasury Secretary Robert Rubin, it is also ‘a Main Street problem’ that could affect all Americans.”

“As such, Rubin says policymakers must examine the series of events — and the failures in the regulatory process — that led to the current crisis of confidence in financial markets in order to prevent a similar crisis in the future.”

“‘There were a goodly number of observers who felt over the last three, four, five years that excesses may well have been developing in the financial markets … but I don’t know of anybody who foresaw the combination of circumstances that has occurred here,’ says Rubin, who serves on the executive committee of Citigroup.”

“Rubin cites the confluence of events that allowed things to spin out of control — including historically low interest rates and ratings agencies that gave top marks to complex financial instruments with risks that weren’t clearly understood. The market relied on those ratings.”

“‘All evidence suggests that should not have been done,’ he tells Renee Montagne. ‘The question,’ he says, ‘is what can we learn from this and what do we do moving forward?’”

The Times Online. “It may be difficult to believe but speculators are shrugging off the bleak outlook for the housing market by continuing to invest in new-build developments in the hope of turning a quick profit. Many of them are lured by stories of the substantial gains made at the height of the boom.”

“But today, despite falling house prices and warnings about the growing risks of buying off-plan, investors are still buying flats and houses with the aim of ‘flipping’ them on to another investor before the building is complete.”

“Some new developments, particularly those in the London Docklands, are still changing hands faster than they are being built.”

“Amid the slowdown, it is in estate agents’ interests to drive the market in flipping. Jaimie Beers, an agent at the new homes division of Franklyn James in Canary Wharf, which specialises in trading off-plan properties, says: ‘Flipping used to be a very specialist thing; only big players would do it. But I’ve flipped property for all types of people from nurses to people working in Canary Wharf who see the new developments go up every day.’”

“According to Beers, the surge in flipping is being fuelled by a lack of property for sale. ‘There was very little completed stock for sale last year and investors were finding it hard to find finished properties that would give them decent returns, so they went for off-plans instead.’”

“‘Some of the flats at The Icon building have turned hands at least three times. Some even more. The building will not be finished until mid-2009,’ says Beers.”

From CNN Money. “Yolanda Cruz knew soon after she refinanced her home two and a half years ago she had a problem. She thought the $1,478 monthly payment quoted by her mortgage broker included taxes and insurance.”

“In fact, Cruz says she asked the broker repeatedly if those costs were included and was reassured they were. ‘We just took his word for it, and unfortunately that’s not what it was,’ Cruz said.”

“Soon, she began receiving tax bills from her town of East Windsor, Connecticut. She couldn’t afford to pay them. ‘I feel I was taken advantage of,’ Cruz said.”

“Cruz, who sought help from the Connecticut Fair Housing Center, tried for months to resolve the problem. All the while she continued to make the monthly payments at rate that she had agreed to in 2005, $1,478. The problem: That payment didn’t cover her taxes or her insurance.”

“‘The problem is, the servicer doesn’t have the power to renegotiate a loan,’ said Erin Kemple, the Connecticut Fair Housing Center’s Executive Director. ‘Because they don’t actually own the loan [they can't] make changes to the payment plan. All they are doing is managing this loan for a group of investors, so there’s no way that the investors can be asked, ‘Can we rest this loan?’”

“Borrowers like Cruz may be offered a temporary repayment plan, which keeps foreclosure at bay, but tacks the owed money onto to the back of the loan.”

“‘The payments in this kind of workout are unaffordable to the homeowner,’ said Diane Cipollone of the National Fair Housing Alliance. ‘And sometimes homeowners sign it anyway…But soon they default on the repayment plan, and that’s counterproductive.’”

“With an apparent stalemate between lenders and borrowers, will people be forced to go into foreclosure or even to just walk away? ‘Yes,’ said Connecticut Fair Housing’s Erin Kemple. ‘The simple answer is yes.’”

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