The Housing Bubble

The North County Times reports form California. “Working as a real estate agent, insurance dealer, income tax preparer and credit repair specialist, Miguel Romero has helped Latinos buy 122 homes since 2004, becoming one of his firm’s best salesmen. But his customers have not been so fortunate; at least 75 of the homes Romero sold have fallen into foreclosure. The company caters almost exclusively to Spanish-speaking customers.”

“Romero’s sales practices, and the stories of some clients, provide a window into industry excesses that analysts say contributed to the region’s foreclosure crisis.”

“‘I felt bad; I even felt like throwing myself under a car,’ said Juventino Chavero, one of Romero’s clients.”

“Another client, Hermenegildo Amaya, said he could afford his Oceanside home, which had a fixed-rate mortgage. But after attending one of Romero’s seminars, he said, he saw an opportunity for a better life.”

“Romero promised riches, luxury cars and early retirement, clients said. They said they were referred to Romero by friends, family, neighbors and telemarketing calls. Amaya said he heard the sales pitch and decided to refinance his home to buy a second house.”

“‘They said your house is like a mine, and it has money you’re not using,” Amaya said.”

“After Amaya’s mortgage payments jumped, his second home, which had become his primary residence, went into foreclosure. He was able to short-sell it and will soon be moving back to his first home.”

“Sitting in the home they no longer owned, Amaya and his wife wondered whether they would be able to keep their first home, where payments have also increased under Romero’s plan.”

“Most of Romero’s sales and those of his agents were financed by a lender called FCM Corp., based in Simi Valley. Of Romero’s 122 sales, 75 were no-money-down mortgages with FCM, according to tax documents.”

“Carl Kock, one of FCM’s brokers, said in a recent interview that he worked with Romero on many of those loans. Kock said that he did not believe the clients’ stories that Romero and his employees encouraged them to lie.”

“‘They’re (Helping Build Wealth) a substantial company, and he (Romero) is their number one producer. I don’t think he’d risk his licensing,’ Kock said. ‘I would say that if there’s anybody in trouble down there, they (Romero’s clients) just don’t want to make the payments but they still can.’”

“The clients interviewed for this story said they had trouble keeping up with their mortgage because they were pushed into loans that they could not afford, not because they didn’t want to make them.”

“‘I was so dumb, I believed him and we signed,’ said Rosario, a client who did not want her full name published and who lost two properties through foreclosure because she was unable to make the monthly payments, which she said totaled more than $9,000.”

The LA Times. “Buyers and sellers who choose the short-sale option need to understand the choppy waters they’re entering, lenders and agents say. Buyers complain, justifiably, that the wait for bank approvals of short sales, typically 60 to 90 days, but sometimes considerably longer, seems endless and the transactions often fall apart.”

“Sellers, on the other hand, may face tax and credit problems. Under federal legislation recently passed to help distressed sellers in this type of situation, however, certain owners may not be taxed on that debt relief. This legislation applies only to the debt that the homeowner acquired to buy or improve the property, said Bill Ahern, a tax partner at Allen Matkins in Irvine. It does not shield taxpayers from income derived from cash-out borrowings.”

“Mark Shandrow, a Keller Williams Realty agent in Long Beach, is representing a seller with an outstanding home loan of $600,000. A buyer recently offered $430,000 for the home. The lender has agreed to the short sale, on the condition that the seller take an unsecured loan for $50,000 to offset part of the $170,000 the bank is forgiving.”

“‘I think she’s going to do it,’ Shandrow said. ‘If not, the bank could go after her for the other $170,000. This way, the deal is done. The bank won’t touch her.’”

“‘The waiting is torture,’ said Shandrow. ‘The banks are overwhelmed with short-sale requests, and some make sellers wait five months for an answer.’ That answer, in many cases, he added, is ‘no.’”

“In the Santa Clarita and San Fernando valleys, the number of short sales increased from at least 31 sales from May 2006 to May 2007 to at least 1,956 sales from May 2007 to May of this year, according to the Southland Regional Assn. of Realtors.”

“‘Banks aren’t happy about short sales,’ said Sherri Frost, a senior loan officer with Sherman Oaks-based Metrocities Mortgage, ‘but they have few options.’”

“The sellers also must provide income verification, their most recent bank and income-tax statements, the listing history of the house and other documentation. Then comes the wait. And frequent follow-up calls to the bank to make sure the file isn’t buried.”

“‘Banks won’t grant face-to-face interviews because of the volume of short sales and foreclosures,’ said Mary Ebersole, a Re/Max Realty Specialists agent in Long Beach. Even if the seller gets approval, she added, ‘there’s only room for cautious optimism.’”

“Second and third mortgages and even home equity loans can further complicate matters. Last fall, Pam Kennedy, a Coldwell Banker Ambassador agent in Whittier, was disheartened when her short-sale client’s lender demanded, after a long wait and with a buyer already on board, that the seller sign a promissory note for $15,000, which would be interest-free and amortized over 10 years.”

“The seller had taken out a second mortgage awhile back to buy a recreational vehicle for $25,000 and pay off some debt. The lender wanted to recoup some of the loss it was absorbing.”

“The seller was going through a divorce, starting a new job and was afraid she couldn’t make the payments. Also, despite months of effort, she couldn’t sell the RV — an asset, in the bank’s opinion. The deal fell through and the bank foreclosed on the property. The experience left a bitter taste in Kennedy’s mouth.”

“‘I avoid short sales and advise buyers to avoid them,’ Kennedy said. ‘They are miserable.’”

“Buyers looking for bargains should wait until short-sale and foreclosure prices are down about 35% from the peak market in their search area, said James Joseph, owner of Century 21 Ambassador in Brea and Whittier.”

“‘Short sales and foreclosures are the nails in the floor of the market,’ Joseph said. ‘That’s where the bargains are.’”

The Bakersfield Californian. “Bakersfield’s Parkview Cottages at 21st and R streets were meant to be a model of affordable housing. But the 74-unit infill project was apparently brushed aside when the residential market boomed.”

“Now, the city-subsidized tract across from Central Park - first expected to open more than four years ago - has sold just 28 units. Another 15 or so sit empty and the remaining lots are dirt.”

“Local developer Petrini Brothers Inc. (was) chosen because of their expertise in building custom homes, she said. When the market exploded, they ‘jumped on the bandwagon of ag-land conversion,’ said Donna Kunz, economic development director for the city of Bakersfield.”

“On Tuesday, two default notices were filed against Petrini Construction, a business name for Petrini Brothers Inc., by local lender Batey Development Corp.”

“Kunz is disappointed the project wasn’t finished on time. The deadline has been extended - and missed - several times, most recently until December 2007. ‘The frustrating part,’ she said, ‘is that we kind of missed a window of opportunity.’”

“For a time, the cottages were appraised near $300,00 apiece, she said. The highest price fetched was $279,500 in August 2006, according to information from First American Real Estate Solutions. The most recent sale last month brought in $195,000.”

“Even when differences are broken out by price per square foot, May’s sale shows a sharp drop. The 1,609-square-foot cottage sold for $121.19 a square foot. That’s 22 percent less than the priciest of the five units that size, which in February 2007 fetched $154.75 per square foot.”

“Realtor Louie Gregorio, who handled May’s sale, believes prices will have to go lower still. ‘It’s a great product,’ Gregorio said, but the market downturn has made pricing ‘not as attractive as it was.’”

The Fresno Bee. “(A) survey by the nonprofit group California Reinvestment Coalition, which advocates increased access to credit for California’s low-income communities, shows an across-the-board frustration with lenders.”

“Counselors say lenders are difficult to work with, aren’t doing enough outreach to borrowers in trouble and aren’t being consistent in the way they handle the homeowners they do agree to help.”

“The result, the survey says, is that foreclosure remains by far the most common outcome for homeowners in trouble — and it says the problem has gotten worse between the summer and the winter of 2007, when the survey was conducted.”

“‘This is a game that has no rules so far,’ said Kevin Stein, the survey’s author. ‘We need further regulation of these important, life-altering decisions that are being made every day by these loan servicers.’”

“Martha Lucey, executive VP of By Design Financial Solutions in Fresno, said that many homeowners signed on to loans that they could never afford for the long term with the opportunity to refinance based on rising home prices.”

“But that’s an opportunity that a declining housing market has taken away from them, she said. Homeowners who have built up little or no equity in their homes and who have seen the value of their home fall below the value of their loan ‘are going to have a very difficult time making the modified loan payment,’ she said.”

“‘For 60% to 70% of the homeowners we see, our discussion is more focused on an exit strategy,’ Mendoza said. That includes a short sale of the property or, in the worst case, a foreclosure, she said.”

“That means, Mendoza said, that ‘the borrowers need to take responsibility and come up with a plan that’s workable.’”

“The past five years of lending have been marked by loose standards. People who should never have qualified were issued everything from no-documentation loans to loans that left borrowers owing more every month.”

“As a result, said Jodi Woodsmith, foreclosure counseling manager for Self Help Enterprises in Visalia, some homeowners just aren’t in a position to save their homes. She said homeowners definitely need to have a job or some kind of income.”

“In that sense, lenders are ‘going back to the old-fashioned way they used to do it five years ago,’ she said. ‘If they’d stuck with that, we wouldn’t have these problems we have in the first place.’”

“As an example of a loan that cannot be saved, Woodsmith told the story of a client who picks blueberries seasonally and makes $1,400 a month about three months a year.”

“‘Her mortgage payment was $1,100 a month,’ she said.”

The San Francisco Chronicle. “On a sunny Saturday afternoon, a dozen passengers spilled out of a small white bus bearing the sign Foreclosure Bus Tour and flocked into a Santa Rosa ranch-style house with a for-sale sign outside.”

“Foreclosure tours are the latest wrinkle in house hunting. Enterprising real estate agents load up a busload of bargain seekers and drive them to visit foreclosed homes being sold by banks.”

“Last week in Santa Rosa, agents from Cash Back Home and Loans took a small group of house hunters on a two-hour tour of six foreclosed properties, all three- or four-bedroom homes and town homes, built from 2000 to 2003 in cookie-cutter subdivisions on the city’s southwest side.”

“Ranging from $277,000 to $375,000, all the houses were in relatively good shape, although one had a kicked-in bedroom door. ‘They must’ve been angry when they left,’ one house hunter said.”

“Several had the ‘foreclosure theme song,’ a smoke alarm incessantly chirping because its batteries are low.”

“The tours have proved very profitable, said Cindi Hagley, a broker-associate in San Ramon, bringing in people who use her as their buyer’s agent.”

“‘I was a high-end listing agent until this market turned,’ she said. ‘I had two options: I could either sit and cry about it being an awful market, or I could make hay while the sun shines’ - becoming an expert in short sales and foreclosures.”

“In the Bay Area, the biggest home-repo outing is Foreclosure Finder Tours in eastern Contra Costa County, the area hardest-hit by foreclosures. Nine agents in Brentwood banded together in December to buy a 10-passenger van for $20,000; they run four tours every weekend, visiting about six homes per tour.”

“‘We’re trying to help get rid of some of this inventory, to get us out of this mess,’ said Realtor David Navarrette, who said he’s landed two deals from the tours. ‘We’ve got a ton of (foreclosed) homes on the market and are getting more and more in the hopper.’”

“‘I’m looking for a deal,’ said Wayne Bailey of Santa Rosa, who described himself as a ‘retired peon’ taking the tour to look for investment property. ‘There have been vultures down through the ages. Could I be a vulture? Not at my level.’”

“Bailey said the homes weren’t as bargain-basement as he had hoped. ‘With most of these houses, you’re talking 250 bucks a square foot, which is high for me,’ he said. ‘I want to pay $200 a square foot or less. You can do that in Stockton or Sacramento but I’m probably barking at the moon to find it in Santa Rosa.’”

Readers suggested a topic on goverment housing proposals and self enrichment. “How many Congressfolk would be direct beneficiaries of the Dodd-Frank mortgage rescue?”

Two answers, “‘Only 100%.’ ‘More like 170%. Most would go for second helpings.’”

One looked at the wider trend, “Does anyone see mass debt forgiveness out there on the horizon?”

“I cannot imagine today’s young workers willingly paying for boomer pensions, student loans, credit cards, medical care, taxes for social services, inflated housing, food, energy, AND interest on our unfathomable US national debt forever-there’s just not enough income to sustain it all and still live a semblance of a life.”

“What happens when everyone just says, ‘The hell with it. I quit,’ and walks away from their credit card debt like they now do their upside down mortgages?”

“We’re already seriously considering letting mortgagees off the hook; forgiving student loans is an obvious next step. So after that…? Do we all end up working either for the government or a collection agency? Is The System about to go bye-bye?”

From Portfolio.com. “Two U.S. senators, two former Cabinet members, and a former ambassador to the United Nations received loans from Countrywide Financial through a little-known program that waived points, lender fees, and company borrowing rules for prominent people.”

“Senators Christopher Dodd, chairman of the Banking Committee, and Kent Conrad, chairman of the Budget Committee and a member of the Finance Committee, refinanced properties through Countrywide’s ‘V.I.P.’ program in 2003 and 2004, according to company documents and emails and a former employee familiar with the loans.”

“Other participants in the V.I.P. program included former Secretary of Housing and Urban Development Alphonso Jackson, former Secretary of Health and Human Services Donna Shalala, and former U.N. ambassador and assistant Secretary of State Richard Holbrooke.”

“James Johnson, who had been advising presidential candidate Barack Obama on the selection of a running mate, resigned from the Obama campaign Wednesday after the Wall Street Journal reported that he received Countrywide loans at below-market rates.”

“Most of the officials belonged to a group of V.I.P. loan recipients known in company documents and emails as ‘F.O.A.’s’-Friends of Angelo, a reference to Countrywide chief executive Angelo Mozilo.”

“The V.I.P. loans to public officials in a position to advance Countrywide’s interests raise legal and ethical questions. Countrywide’s ethics code bars directors, officers and employees from ‘improperly influencing the decisions of government employees or contractors by offering or promising to give money, gifts, loans, rewards, favors, or anything else of value.’”

The LA Times. “Conrad got a Countrywide loan on his beach house after talking to Mozilo. Dodd got two loans. California Sen. Barbara Boxer also borrowed from Countrywide on two occasions. All said they believed they received no special treatment.”

“Dodd said there was nothing untoward about his dealings with Countrywide. ‘When my wife and I refinanced our loans in 2003, we did not seek or expect any favorable treatment. Just like millions of other Americans, we shopped around and received competitive rates,’ he said in a statement released Friday.”

“A Countrywide spokeswoman declined to comment about VIP loans. In a statement, the company said it was ‘very concerned about the improper disclosure of confidential customer information. . . . We regret any impact this may have had on our customers.’”

“The son of House Speaker Nancy Pelosi, Paul Pelosi Jr., has worked as a sales manager and loan officer for Countrywide in the San Francisco Bay Area and received about $1 million in loans from Countrywide on a condo. The younger Pelosi obtained a $916,000 mortgage from Countrywide in 2004 and a $114,500 line of credit the same year.”

“He has since paid off the loans, which he said were made at market rates. His mother said through a spokesman that she had no knowledge of her son’s mortgages.”

“Conrad said Jim Johnson, a former CEO of Fannie Mae who also received VIP loans from Countrywide was the friend who put him together with Mozilo.”

“‘My memory is that I called Jim’ to ask for advice on obtaining a mortgage for the summer house property in Bethany Beach, Del. ‘And he said, ‘Here’s a guy that you should talk to right now.’ And he handed the phone over to Angelo Mozilo. That conversation lasted about 30 seconds. I told him what I was looking for and he said, ‘We’d be happy to take a look at it,’ or something like that.’”

The New York Post. “Others who received ‘FOA’ loans include Alphonso Jackson, the secretary of Housing and Urban Development under President Bush who resigned in April, and Donna Shalala, who was secretary of Health and Human Services in the Clinton administration.”

“Jackson took out loans totaling $653,331 in 2003 and 2004 while he was deputy HUD secretary, with the latter loan coming through a week before he was named secretary.”

From The Hill. “Embattled Rep. Laura Richardson remained mum on Friday following more news about her personal housing crisis. Richardson, who has dodged repeated calls for information regarding her multiple defaults on three home mortgages and her financial disclosure reports, failed to report a heavily indebted mortgage on her initial 2007 financial statement.”

“After falling too far behind on mortgage payments on a home she purchased in Sacramento in January 2007, Richardson was forced to watch the home sold at auction last month. In the aftermath, it was revealed that Richardson has defaulted on mortgages for three California homes since 1999.”

“According to records pulled from Los Angeles and Sacramento counties, Richardson has defaulted five separate times on her primary residence in Long Beach, a home she purchased in 1999 and refinanced in the summer of 2006 for a new $446,250 mortgage.”

“The prior summer, Richardson took out a loan from Wells Fargo, in the amount of $359,000, to purchase a second home in San Pedro.”

“After defaulting twice - in September 2007 and again in January - and owing $367,436 on an original loan of $359,000, Richardson received notice from her lender in April that her San Pedro home was going to be sold at auction. According to reports, that auction is scheduled for July 14.”

“A senior House Democrat close to leadership on Thursday afternoon said he had spoken to Richardson about the matter and she had assured him that, with regard to her Sacramento home, the ‘bank screwed up.’”

“On Wednesday the Los Angeles Times reported that James York, the real estate investor who bought Richardson’s Sacramento home at a May 7 auction for $388,000, is now claiming that Richardson’s lender, Washington Mutual, reclaimed the property on behalf of Richardson. York had recorded the deed on May 19 and had begun renovations, the Times reported.”

“‘They took the property back, and they didn’t even send back the money,’ York was quoted in the Times. ‘It’s clear what’s happening is Ms. Richardson is abusing her political power and using it for her own political needs.’”

The Tauton Call. “U.S. Sen. John Kerry said his Mortgage Revenue Bond Program will provide the state with more than $200 million to help struggling homeowners stave off foreclosure, among other things.”

“Kerry, the featured speaker at Pro-Home Inc.’s annual meeting on Friday, May 30, said he has never seen as big a ‘disconnect’ between what is happening in neighborhoods as a result of the mortgage crisis and what is ‘not happening’ in Washington D.C. to address it.”

“Improving the economy means ’stemming the tide of foreclosures’ and helping ordinary people hold onto their homes, Kerry said. ‘It shouldn’t just be when the pain reaches Bear Stearns and Wall Street that we get a response,’ Kerry said.”

“In Massachusetts, there has been a 37 percent increase in foreclosures over last year, he said. Meanwhile, home values have fallen 11 percent, the steepest decline since 1990, and sales are down 32 percent since March of last year in the commonwealth, he said.”

“Homeownership helps build strong communities and families, he said. ‘It’s people sharing in the excitement and personal rewards of drawing those lines on the bathroom wall when kids grow older. It’s a place to have a barbecue and going home and knowing it’s your castle,’ he said.”

“Pro-Home is a non-profit corporation that helps people ‘attain and retain’ affordable housing, Pro-Home President Dave Tipping said.”

“Kerry said affordable housing is one area where the marketplace is not self-regulating. The reason is that developers can make more profit building luxury housing, so government has to step in to create incentives for them to build moderately priced homes.”

“‘We always have to try to attract that investment,’ Kerry said.”

“Economist John W. Bitner, the keynote speaker at the lunch, said he believes the economy is in a mild recession. The term’s technical definition is two quarters of negative growth, and that hasn’t happened.”

“But an alternate definition is a ’significant decrease in economic activity,’ and that is occurring, said Bitner. In some places, home prices have plummeted 25 or 30 percent, Bitner said.”

“Bitner said part of the problem is that banks gave mortgages to some people who can’t afford home ownership. ‘It’s like giving an alcoholic a drink. It might make them happy, but you’re not doing them a favor,’ Bitner said.”

“It’s a vicious cycle, he said. With home prices falling, people aren’t buying because they want to wait until the market bottoms out. ‘No one wants to catch a falling knife,’ Bitner said.”

“Kerry and Bitner both said government intervention is necessary to address the housing crisis. ‘The free market forces will resolve the issue, but they’re vicious and will resolve it in an ugly way,’ Bitner said.”

What do you see in your housing market this weekend? Lower prices? “Most Clark County homeowners will see a decline in their assessed property values when 2007 statements from the Assessor’s office are mailed out next week. It is the first drop in overall assessed values since the early 1980s. ‘I’ve just never seen assessed values go down,’ said Mike Webber, residential appraisal staff manager, adding that some Clark County homeowners might be expecting even larger declines.”

“Housing experts from around the state are taking an up-close look at Montana’s housing economy, and the statewide drop in housing prices. Home prices in Montana have fallen almost 5% during the past year, and new housing starts are down statewide more than 34%.”

“Treasure Valley single-family residential home sales reached their high for the year in May with 717 transactions, or a 59 percent increase since the start of the year. Median home prices, however, are still drifting lower as long-suffering homeowners are finally throwing in the towel and lowering their asking price and lenders are increasingly willing to accept ’short sales,’ experts said.”

“‘People have seen their homes sitting on the market for a year, or year-and-a-half, and have finally taken a bite out of a reality sandwich and dropped their (asking) price,’ said Mike Pennington, a residential specialist in Boise.”

“For sale signs are becoming yard art for many Arkansas homes. They represent many different realtors, advertising reduced prices and specials designed to attract buyers. Heather Waterfield is one of those home owners with her Benton home on market. Waterfield bought the house two years ago and hopes to move to Florida soon to be with her family.”

“‘We’ve had the house on the market since December, and we have not had one person look at,’ she said.”

Or foreclosures? “As a consequence of the mortgage crisis, banks and lenders are forced into making sure foreclosed properties are secure. As a result, several locksmiths in the area have seen an increase in business. ‘Sometimes you have to pick the locks to get into the houses because they usually don’t leave the keys,’ said Ed Mitchell, owner of A1 Locksmith.”

“Lately, Mitchell has been changing locks on two or three foreclosed homes per week, making sure previous homeowners who have been evicted can’t back get in. ‘We don’t want the owners going back in to strip the houses out,’ said Mitchell.”

Business fallout? “Franklin Bank Corp., the Texas bank led by founder Lewis Ranieri, is closing its unit that provides financing to mortgage bankers, according to a person familiar with the situation.”

“The Houston-based company is ’substantially exiting’ the so-called warehouse-lending business, firing most of its 20 employees, said the person, who asked not to be identified because the move hasn’t been announced. Franklin can’t sell the loans to securities firms, the person said.”

“With Franklin’s departure, the number of banks providing funding for mortgage bankers has dwindled to 12 from about 75 two years ago, said David Lykken, head of Austin, Texas-based Mortgage Banking Solutions. Among those, only half are taking applications, he said.”

“‘This is alarming for the mortgage industry,’ said Lykken. ‘It is right now the weakest link.’”

“IndyMac Bancorp Inc.’s troubles have gone from bad to worse. The Pasadena-based bank - already battered by fallout from the subprime meltdown, mounting home foreclosures and tightened credit standards - is now facing a class-action lawsuit.”

“The complaint…filed this week in the United States District Court for the Central District of California on behalf of IndyMac shareholders accuses the bank of issuing misleading information that artificially inflated IndyMac’s stock price.”

“In an interview earlier this year, CEO Michael W. Perry expressed frustration with the industrywide problems IndyMac has had to grapple with - problems than began in earnest last year. ‘It was bad from beginning to end,’ he said, referring to 2007. ‘We started the year missing our forecast for the fourth quarter of 2006. But that was nothing compared to the way the year progressed.’”

“A combination of slow sales and a desire to do something different has led Gary Robinson to close his 33-year-old business, The Yard Lumber & Fence Supply in Modesto. Construction-related businesses, from contractors to furniture stores, have reported slow sales over the last year as part of the meltdown in the valley’s housing market.”

“At The Auction Park in Salida, owner Roger Ernst said he’s had about 20 business liquidations in recent months. Many of them are from construction-related businesses that are closing or consolidating, Ernst said, and have too much equipment relative to their workload.”‘

“If it’s not working, why have it?’ said Ernst. ‘It’s a sign of the times.’”

Rent to own comparisons? “Although the Scottish housing market is performing better than many other parts of the UK, most commentators believe future gains will be subdued.”

“On the open market the property Emma McCaffery currently rents in the Stockbridge area of Edinburgh would cost over £750,000. If she were to put down a 10 per cent deposit and mortgage the remaining £675,000 at 6 per cent, it would cost a fraction under £4,350 a month to service a 25-year mortgage on an interest and repayment basis. As it stands, the monthly rent on the property is £1,050.”

“‘My boyfriend and I are both working and so we can afford to pay the rent, save some money and live in a nice place,’ McCaffery explained. ‘We don’t think it’s worth mortgaging ourselves up to the hilt and taking on board all of the associated maintenance costs that ownership brings, especially since we are unlikely to see a significant return on any property investment in the short to medium term.’”