The Housing Bubble

The North County Times reports from California. “There is no way to put a good spin on foreclosures, said Temecula City Councilwoman Maryann Edwards on Monday, but at least the city can keep track of abandoned homes. The Temecula City Council last week adopted an ordinance that aims to diminish the negative effects neighborhoods experience because of foreclosed properties.”

“‘I think no community is immune from economic distress, though some cities are overwhelmed by foreclosures,’ Edwards said. ‘It’s a fine line the city walks to protect safety and respect property rights —- even when we don’t know who the property owner is. Making the properties less attractive for squatters and vandals is something we can do.’”

The LA Times. “State law enforcement officials are investigating whether 70 retirees and other investors in Northern California were bilked when they put up $6.4 million for construction loans on Malibu land that may be undevelopable.”

“The investors have foreclosed on the land, which is worth just a fraction of its appraised value as prime home building property. But they’re still trying to figure out where their money went.”

“‘Nobody knows what happened to it,” according to Fred I. Mann, who said he invested more than $500,000 in the transaction and is facing a total loss.”

“‘We’re getting a zillion of these types of cases with investors who have bought fractional notes,’ said Kathryn Holguin, an investigator for the state attorney general’s office.”

“The Malibu loans were brokered through Charlene Goodrich, a Santa Rosa, Calif., loan broker who has been in business since 1981. Disclosure statements Goodrich filed with the Corporations Department show that her portfolio began to deteriorate rapidly in 2007. During that year, she initiated or completed foreclosures on 28 loans owing more than $14 million.”

“Another $5.8 million in loans was delinquent as of March 30 this year. That meant that 48% of her outstanding portfolio was delinquent, facing foreclosure or already foreclosed, according to the disclosure statement.”

“Tyna Degenhardt (appraised) a 3.86-acre tract on Decker Canyon Road — for $470,000 on Nov. 3, 2004, and for $775,000, or nearly 65% more, six months later, according to documents Goodrich provided to investors.”

“‘Properties were appreciating at a pretty high rate at the time,’ Degenhardt said in an interview.”

“Goodrich denies any wrongdoing in the Malibu case. She said in an interview that the problems in her portfolio stemmed mostly from the real estate slowdown. ‘I’ve taken a real beating the last couple of years,’ she said, ‘but I didn’t commit fraud.’”

The Bakersfield Californian. “A Bakersfield appraiser was disciplined by state regulators in March for prior work on a transaction involving the former Crisp & Cole Real Estate company, state documents and county property records show.”

“In a separate incident the appraiser’s father, who is also an appraiser, was included in an FBI and IRS raid of 13 sites around Bakersfield related to Crisp & Cole operations.”

“Christopher S. Newton’s appraisal report on 1914 Three Bridges Way contained ‘misleading statements’ and serious errors that led to an inflated valuation, the citation indicates.”

“The 1914 Three Bridges house was purchased by former Crisp & Cole staffer Zane Richards for $785,000 in March 2006, property records show, with 100 percent financing. The house was repossessed in October.”

“The bank sold it to new owners for $410,000 in March, or $375,000 less than Richards borrowed against it.”

“Newton on Monday said, ‘I wish you guys would get a new perspective.’”

The Fresno Bee. “State officials accuse the developers of the failed Running Horse project in southwest Fresno of defrauding investors of millions of dollars in an effort to raise money.”

“Tom O’Meara and Scott Webb allegedly sold the same lots to multiple buyers, told investors they were buying parcels inside the development when they actually were outside, and misled people into thinking their investments were secured by property in the ambitious project, officials with the state Department of Real Estate allege in their accusation.”

“‘Fifty-eight investors all believed in Fresno,’ said Joyce Scampa, a real estate broker in Monterey who said family and friends invested $7 million in the project.”

“Scampa thinks her money and those of her deceased mother’s trust were used to help O’Meara buy a $4.1 million house in Pebble Beach. The house was lost to foreclosure in June 2007.”

“Creditors filed lawsuits and mechanics liens, which were partially consolidated into one case, said Michael Wilhelm, a Fresno attorney representing creditors. The land, which represented the hopes and dreams of an ignored section of town, sits idle.”

“Fresno architect Gary Vigen hasn’t stopped trying to salvage a project. Wilhelm is skeptical, especially considering the current real estate and lending environment. ‘If it happens it will be one of the greatest miracles in the history of mankind.’”

The Modesto Bee. “Consider it a consolation prize: Plummeting home values have cost Northern San Joaquin Valley homeowners billions in home equity, but at least their property taxes are going down.”

“About 43,000 homeowners in Stanislaus County, 58,000 in San Joaquin County and 21,000 in Merced County will have their property assessments — thus, their taxes — lowered this year.”

“‘The average assessment value decrease was $122,000, which was a shock to us,’ Stanislaus County Assessor Doug Harms said.”

“The widespread decline in property assessments is unprecedented, causing total assessment rolls in the three counties to decline for the first time — or at least as far back as records go.”

“In Stanislaus, Harms said the county’s total assessment has fallen to $40 billion, which is $2.9 billion less than last year. That’s a 6.9 percent decrease.”

“The assessment decline is more dramatic in some cities than others. Assessments plunged 22.5 percent in Patterson and 19.8 percent in Newman but declined only 5.5 percent in Turlock and 6.7 percent in Oakdale. Modesto’s drop was 8.1 percent.”

“Harms said the West Side cities lost the most because a higher percentage of homes there were built during the region’s housing boom, which peaked in late 2005. Home sales prices have been falling since then.”

“The result will be lower property taxes, which will be due Dec. 10 and April 10. ‘I think they’d rather have their houses still be worth something than to have lower taxes,’ said Kent Christensen, Merced County’s assessor.”

The Recordnet. “Mortgage interest rates are on the rise…but that doesn’t appear to be suppressing buyer demand for homes in San Joaquin County as sliding prices on foreclosure homes give first-time buyers opportunities that had disappeared in the housing boom of the first half of this decade.”

“Cynthia Ruiz and her partner, Jesse Alonzo, have a purchase deal in escrow on a three-bedroom, two-bath Stockton home that they were able to buy for $220,000 - and the seller will cover all closing costs and the 3 percent down payment.”

“‘It feels like we just barely missed (the lower interest rate),’ she said. ‘But we bought the house we really loved, and it still feels like a really good price.’”

“Their broker, Lela Nelson , said that historically, mortgage interest rates are still great and that the housing market ‘is finally in that range again where it’s affordable.’ Some good foreclosure houses are on the market these days at less than $100,000, she said.”

“Greg Paquin, president of a real-estate information and consulting service in Folsom, said the rising interest rates aren’t having a big impact on the new-home market, because the market is so slow.”

“‘There just aren’t enough buyers in the market right now,’ he said.”

“Prices have come down enough during the slowdown that new homes have become affordable to a wider group of people, he said, so to builders, ‘it’s not a good feeling’ to see interest rates rise and bump out some potential buyers.”

The Manteca Bulletin. “The first official signal that housing market fortunes are shifting in Manteca and the rest of the Northern San Joaquin Valley came last week when appraisers dropped the ‘declining market’ stigma.”

“It essentially means the extra 5 percent down that has been added across the board to loan products could now disappear. However, there are a number of caveats that still make that less than likely to happen for now in a lot of cases.”

“‘You have to have good credit plus mortgage insurance companies still aren’t looking too favorably on California,’ said Deborah Romero of Ability Mortgage.”

“No one believes all prices have hit rock bottom, but a growing presence of serious buyers have created a bidding frenzy of sorts for homes that are being deliberately under priced by the banks that have foreclosed on them.”

“Connie Chicoine of Century 21 M&M Associates Real Estate noted the market has gotten into a position where it is almost the same to buy, as it is to rent. Among her clients that she has helped put into houses since the start of the year in Manteca are two single moms.”

“‘I’m working with two clients now who are each single guys trying to find them a home,’ she said.”

“Marge Imfeld of Ability Mortgage noted the housing ownership affordability index for wage earners in San Joaquin has dropped to a point where 40 percent of all households have an income strong enough to qualify to buy the median priced home in San Joaquin County. That is up significantly from two years ago when it had dropped to 15 percent.”

“During the height of the liar loan mess, more than 85 percent of all buyers were from west of the Altamont Pass. Six months ago, it was almost exclusively a market where Manteca and Northern San Joaquin Valley residents were buying homes and no one else.”

“But real estate agents are starting to see Bay Area buyers starting to return. One of Romero’s clients, for example, currently resides in Danville.”

“Chicone noted it is a rare opportunity for those who work and reside in Manteca now currently renting to buy. ‘I’m seeing a large number of young people in their 20s buying, she said. ‘You never saw that before in Manteca.’”

“Romero noted that the market is still extremely uneven with motivated banks - basically larger financial institutions with a lot of foreclosures on their hands - being extremely aggressive in pricing while those with a significantly smaller cut of the foreclosed housing stockpile aren’t overtly aggressive in pricing.”

The Santa Cruz Sentinel. “Citing the industry downturn, Stewart Title plans to consolidate offices in Monterey and San Benito counties in its Watsonville location by July 31. Offices in Carmel, Monterey, Salinas and Hollister will close.”

“Both Monterey and San Benito counties have been especially hard hit by the subprime mortgage crisis and credit crunch. Home sales are down 17 percent in Monterey and 19 percent in San Benito as of mid-June.”

“This year, the number of Monterey County homes sold in foreclosure — 1,454 — exceeds the number of other home sales, 1,286, according to the Santa Cruz Record. San Benito County has had 202 home sales and 291 homes sold in foreclosure.”

“Kirk Hamrick, Stewart Title Monterey division president, noted ‘industry professionals have predicted a longer real estate recovery than initially reported.’”

Some housing bubble news from Wall Street and Washington. Bloomberg, “Bank of America Corp. will buy Countrywide Financial Corp., the home lender battered by the collapse of the subprime mortgage market, for about $2.5 billion, 37 percent less than originally planned. Bank of America is discarding the Countrywide name, which has become an icon of the mortgage industry’s boom and bust, and Countrywide’s penchant for loans more prone to default, such as subprime mortgages.”

“Countrywide’s biggest challenge is its $27 billion pool of option adjustable rate mortgages, which let borrowers skip part of their payment and add the balance to their principal, said Stuart Plesser, an analyst at Standard & Poor’s. Delinquencies on Countrywide’s option ARMs totaled 9.4 percent at the end of the first quarter.”

“As shareholders were preparing to approve the deal on June 25, California and Illinois sued the lender for allegedly luring borrowers into risky loans they couldn’t afford.”

“Washington Governor Christine Gregoire announced plans to fine Countrywide for alleged discrimination against minority borrowers and asked that the company’s license to lend in the state be revoked.”

“Countrywide Financial Corp. was accused in a complaint by Florida of fraudulently making loans to homeowners who couldn’t afford to repay them. Attorney General Bill McCollum said in a complaint filed yesterday that the company and its founder, Angelo Mozilo, had violated the state’s deceptive trade-practices law.”

“‘Subprime loans were approved for borrowers who were not qualified and could not afford such loans,’ McCollum said in the complaint, which seeks unspecified damages for consumers hurt by the company plus $10,000 fines for each violation of the state’s laws.”

The LA Times. “Angelo R. Mozilo struggled last week to bid farewell to No. 1 home lender Countrywide Financial Corp., the company he led for 39 years only to see it toppled by misadventures in high-risk mortgages.”

“The usually silk-smooth Mozilo garbled words and at one point knocked over his microphone at a special shareholder meeting. Looking grim and sounding resigned, he said the era of independent home lenders like Calabasas-based Countrywide was at an end.”

“‘He was an admired and feared competitor,’ said Paul Muolo, an editor at National Mortgage News. ‘But now his reputation is trashed.’”

“Mozilo’s downfall was his lust to have Countrywide become the biggest provider of every kind of mortgage, Muolo said. The end of the Countrywide story was ‘a total disaster,’ Muolo said. ‘His ego sank him. . . . He had to be first in everything.’”

“Mozilo also faces investigations by the SEC and federal prosecutors into his exercises of stock options. And his reputation for regarding Countrywide as a personal fiefdom has been reinforced by recent accounts of how he intervened on behalf of politicians, athletes and other ‘friends of Angelo’ to give them mortgages on highly favorable terms.”

The Hartford Courant. “Sen. Christopher J. Dodd brought his message of urgency for passing federal mortgage relief back to his home state Monday - on the front lawn of a Spring Street homeowner whose mortgage is in foreclosure.”

“‘We’re running out of time here,’ Dodd said. ‘You’re going to have the August break [for Congress] and, of course, the elections. If this thing goes much longer, the value of it is going to be a lot less.’”

“The longer passage of the bill is held up, the more people will slip into foreclosure, Dodd said.”

The Christian Science Monitor. “In Mesa, Ariz., officials are trying to decide what to do about boarded-up McMansions that become party pads, trashed in raucous ‘raves’ where invitations come by text message.”

“In Atlanta, thieving from abandoned properties is so bad that police caught one man building a new house entirely of pilfered materials from empty homes.”

“Flint, Mich., has had to add firefighters and ladder trucks recently even though its population has declined. Up to 90 percent of fires start in homes where no one lives.”

“(On) Drummond Street, in the shadow of Clark Atlanta University… once a lively street, half the bungalows and shotgun-style houses are boarded up, with trash strewn about. Here, as elsewhere, the falling market has pierced holes in inflated appraisals used to write mortgage notes.”

“Bobby Todd, who has lived here 35 years, now sweeps sidewalks and trims hedges around the empty homes next to his. The mostly young, college-educated speculators bought new pickup trucks with money that he says should have gone into fixing up the houses - and then left when the market tanked.”

“‘They thought they could come make a profit, but they didn’t and they just left it,’ he says. ‘I’m an old man, and now I’m working for free.’”

The Star Bulletin. “Bankruptcies are on the rise in Hawaii, due mostly to a higher percentage of filings related to real estate problems.”

“‘A higher percentage of people filing bankruptcy have real-estate-related problems, much more than two to three years ago,’ said Honolulu bankruptcy attorney Stuart Ing. ‘The vast majority are not out of work, but the pay is roughly the same, and we have people who just have too much in credit card debt and loans.’”

“Many Hawaii residents also have investment properties on the mainland, which are facing foreclosure and debt, he said. Some Hawaii residents invested in mainland real estate but had to surrender because they could not generate enough rental income to cover the mortgage or could not sell the properties.”

“Eli Broad, the philanthropist and founder of KB Home, said the growing number of vacant U.S. homes, mortgage-related losses at banks and declining consumer confidence have convinced him investors are ‘better off in cash’ right now.”

“Broad called for Congress to pass a housing stimulus bill that would provide a tax incentive for first-time home buyers and guarantee up to $300 billion in refinanced mortgages. ‘It’s sad that we haven’t passed a housing bill,’ Broad said. ‘Hopefully that will happen after the Fourth of July.’”

“KB Home reported its fifth straight quarterly loss June 27. The company, the fifth-biggest U.S. homebuilder by revenue, has lost two- thirds of its value since the beginning of 2007.”

“A record 18.6 million U.S. homes stood empty in the first quarter, 5.7 percent more than a year ago, according to the Census Bureau, as a growing number of mortgage borrowers lost their property to foreclosure.”

The Detroit Free Press. “The volatile story of home sales and prices in America is told starkly in the financial reports of Pulte Homes Inc., during the five years that Richard Dugas Jr. has been CEO of the Bloomfield Hills-based company.”

“Good times became great times and then fabulous times, but quickly crumpled into today’s deeply disturbing times.”

“‘The U.S. economy is at risk. This is not just a housing crisis,’ Dugas said Monday, on the eve of his fifth anniversary today as Pulte’s CEO.”

“Dugas and the CEOs of other large U.S. home builders are pushing for a big tax credit on home purchases as part of a broader package to deal with the subprime lending crisis and related epidemic of home foreclosures.”

“Helping people to avoid foreclosure and stay in their homes is a worthy goal, Dugas said, but that alone will not stimulate home purchases. And without home buyers, housing prices keep sinking, leaving more and more Americans wondering how low they can go.”

“When Dugas took the reins at Pulte in mid-2003, the firm was solidly profitable, and the stock price was about $15 a share, adjusted for subsequent splits and dividends.”

“Then the market went crazy. Housing prices nationwide zoomed 12% to 13% a year in 2004 and 2005, much faster than the historic average of 5% annually. Pulte sales soared from $8.8 billion in 2003 to $14.7 billion two years later. Profits leapt 140%, to $1.5 billion in the same period. Pulte’s stock price tripled to $46 a share.”

“But that was then. The U.S. housing market stalled early in 2006 and has weakened since.”

“In 2007, Pulte posted a $2.3-billion loss. Its stock price has skidded below $10, closing Monday at $9.63 a share, down 44 cents on the day.”

“Pulte, one of the nation’s largest home builders, has written off $3.7-billion worth of value in land that it owned or had optioned before housing crash. In late 2005, Pulte owned or controlled more than 360,000 lots around the country. Now it has fewer than 150,000, after selling some and letting options expire on many others.”

“‘It’s a little scary overall,’ Dugas said, noting that Pulte and other new-home builders have cut prices 10% to 20%, but can’t afford to cut further because of the rising cost of materials.”

“Right now, a tax credit of $8,000 for first-time home buyers has a chance of approval by both the U.S. House and Senate. And although Dugas would prefer to make all home buyers eligible to produce a big-bang impact on sales, ‘anything is better than nothing,’ he said.”

The Kansas City Star. “Single-family housing construction continued to drop in metropolitan Kansas City in May, with the number of single-family permits off substantially from a year ago.”

“There were 218 single-family permits issued in May, down 62.2 percent from the 577 issued the same month a year ago, according to the Home Builders Association of Greater Kansas City. Just two years ago, when the local housing market was still booming, there were 929 permits issued.”

“Tim Underwood, CEO of the Home Builders Association, said said a temporary home buyer tax credit included in the American Housing Rescue and Foreclosure Prevention Act of 2008 should provide a significant boost to the housing market.”

“‘The home buyer credit would address many issues of the current housing downturn,’ Underwood said. ‘The tax credit would boost sales, lower new-home inventories and stabilize both home prices and the mortgage markets.’”

The Ballard News Tribune. “Although prices of single-family homes have dropped about 8 percent in a year in Ballard, experts feel the local market is still strong. Despite the constant drumbeat of housing doom and gloom reported nationally, Ballard’s single-family home market is still rosy but has a few faded blooms.”

“Inventory of single-family homes and townhouses for May and June is 222, nearly double that of last year’s listings, and average time on the market is now two months, twice last year’s. Still, area realtors and lenders say the market is relatively strong.”

“‘The best stuff, like a sweetheart of a house on a pretty street in a nice neighborhood is getting full price, sometimes higher,’ said Michael Busacca, a realtor with Skyline Properties’ Northgate office.”

“Busacca lives in Green Lake and has a listing in Sunset Hill for $622,000.”

“‘Lower-end housing sold quickly between 2002 and 2007,’ he recalled of the bygone boom. ‘Now people are more particular if a house has an Achilles’ heal, like small bedrooms, cat or smoke odor, or if it’s on a real busy street. Prices on those are dropping, but it’s pretty tame compared to the rest of the country.’”

“‘Once, lenders gave anyone with a pulse a loan. Now, there are plenty of legitimate first-time buyers but programs have dried up,’ Busacca said.”

“‘The media beats us up,’ complained realtor Kevin Isaminger in Bellevue, who has listings in Ballard, and West Seattle where he lives. He said potential buyers lack confidence in the local market due to pessimistic news reports of troubled markets in other regions.”

“‘It used to be a breeze to sell. Now a buyer takes all the time he wants. With so much inventory comes randomness where a nice house is sometimes overlooked,’ he said.”

“Isaminger said that most of his clients are good friends, like Jason and Adrienne Rice. They live in desirable Sunset Hill, but on busy 32nd Avenue Northwest, and feel their charming three-bedroom craftsman house Isaminger listed nine months ago has sat due to traffic, and the economy.”

“‘We keep getting told by buyers, ‘Your home was our second or third choice,’ said a frustrated Adrienne.”

“Isaminger lowered their house to $499,950.”

“Suzanne Lambalot has lived in Sunset Hill for 31 years (and) is a veteran Ballard area realtor. While she agreed that the busy street might play a role in the Rice’s listing woes, she said business has been percolating in Sunset Hill recently.”

“She agreed with Isaminger’s view that the press is partly to blame for the slower market. ‘We (realtors) say don’t pay attention to the national media. Pay attention to the local market,’ she said. ‘Seattle is insulated.’”

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